As filed with the Securities and Exchange Commission on February 25,
1999
Registration Nos. 002-25890
811-01464
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 63
To The
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
and
AMENDMENT NO. 43
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,Esq.
Secretary
Smith Barney Funds, Inc.
388 Greenwich Street, New York, New York 10013
(Name and address of agent for service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
[ ] 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)
[X] on April 30, 1999 pursuant to paragraph (a)(i) of Rule 485
[ ] 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.
SMITH BARNEY FUNDS, INC.
LARGE CAP VALUE FUND
U.S. GOVERNMENT SECURITIES FUND
SHORT-TERM HIGH GRADE BOND FUND
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and
Documents:
Front Cover
Contents Page
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
Part A
<PAGE>
---------------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
---------------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
APRIL 30, 1999 LARGE CAP VALUE FUND
CLASS A, B, L AND Y SHARES
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Fund goal and strategies............................. 4
Risks, performance and expenses...................... 5
More on the fund's investments....................... 8
Management........................................... 9
Choosing a class of shares to buy.................... 10
Comparing the fund's classes......................... 11
Sales charges........................................ 12
More about deferred sales charges.................... 15
Buying shares........................................ 16
Exchanging shares.................................... 17
Redeeming shares..................................... 18
Other things to know about
share transactions.................................. 20
Smith Barney 401(k) and ExecChoice
programs............................................ 22
Dividends, distributions and
taxes............................................... 23
Share price.......................................... 24
Financial highlights................................. 24
</TABLE>
YOU SHOULD KNOW:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Large Cap Value Fund -1-
<PAGE>
FUND GOAL AND STRATEGIES
INVESTMENT OBJECTIVE
Current income and long-term growth of income and capital.
KEY INVESTMENTS
The fund invests primarily in common stocks of U.S. companies having market
capitalizations of at least $5 billion at the time of investment.
SELECTION PROCESS
The manager employs a two-step stock selection process in its search for
undervalued stocks of established, well recognized but temporarily out of favor
companies. First, the manager uses proprietary models and fundamental research
to try to identify stocks that are underpriced in the market relative to their
fundamental value. Next, the manager looks for a positive catalyst in the
company's near term outlook which the manager believes will accelerate earnings.
In selecting individual companies for investment, the manager looks for:
. Low market valuations measured by the manager's valuation models
. Above average dividend yields and established dividend records
. Positive changes in earnings prospects because of factors such as:
- New management
- Effective research, product development and marketing
- A business strategy not yet recognized by the marketplace
- Regulatory changes favoring the company
. High return on invested capital and strong cash flow
. Liquidity
- -2-
<PAGE>
RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in large capitalization value securities can bring added benefits, but
it may also involve additional risks. Investors could lose money on their
investment in the fund, or the fund may not perform as well as other
investments, if:
. The U.S. stock market goes down.
. Value stocks or larger capitalization stocks are temporarily out of favor.
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock provides to be incorrect.
. An adverse event, such as negative press reports about a company in the
fund, depresses the value of the company's stock.
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are seeking to participate in the long-term growth potential of the U.S.
stock market
. Are looking for an investment with potentially greater return but higher
risk than fixed income investments
. Are willing to accept the risks of the stock market
Large Cap Value Fund -3-
<PAGE>
TOTAL RETURN
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[BAR CHART APPEARS HERE]
The bar chart shows the performance of the fund's Class A shares for each of the
past 10 years. Class B, L and Y shares would have different performance because
of their different expenses. The performance information in the chart does not
reflect sales charges, which would reduce your return.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the
Russell 1000 Large Cap Value Index, a broad-based unmanaged index of those
companies from among the 1000 largest publicly held companies which exhibit
above average value characteristics (the "Russell Index"), and the Lipper Large
Cap Value Fund Average (the "Lipper Funds Average"), an average composed of the
fund's peer group of mutual funds. This table assumes imposition of the maximum
sales charge applicable to the class, redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS -- CALENDAR YEARS ENDED DECEMBER 31, 1998
Class Inception date 1 year 5 years 10 years Since inception
<S> <C> <C> <C> <C> <C>
A 5/18/67
B 11/7/94 n/a n/a
L 12/2/92 n/a
Y 1/12/93 n/a
Russell Index n/a
Lipper Average n/a
</TABLE>
*Index comparison begins on
- -4-
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering price) 5.00% None 1.00% None
Maximum deferred sales charge on redemptions (as a % of the lower None* 5.00% 1.00% None
of net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES (paid by the fund as a % of net
assets)
Management fee 0.58% 0.58% 0.58% 0.58%
Distribution and service (12b-1) fee 0.25% 1.00% 1.00% None
Other expenses --- --- --- ---
Total annual fund operating expenses === === === ===
</TABLE>
* You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
</TABLE>
Large Cap Value Fund -5-
<PAGE>
MORE ON THE FUND'S INVESTMENTS
OTHER INVESTMENTS. While the fund intends to be substantially fully invested in
equity securities, the fund may maintain a portion of its assets in equity
securities of companies with total market capitalizations below $5 billion and
in money market instruments and/or cash to pay expenses and meet redemption
requests. Generally, the value of these fixed income obligations will go down if
interest rates go up, the issuer of the security has its credit rating
downgraded or the issuer defaults on its obligation to pay principal or
interest. The fund may also invest up to 10% of its net assets in American
Depositary Receipts (ADRs) which are U.S. dollar denominated securities
representing an interest in foreign securities. The fund's investments in ADRs
involve greater risk than investments in securities of U.S. issuers.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -6-
<PAGE>
MANAGEMENT
MANAGER. The fund's investment manager is SSBC Fund Management Inc., an
affiliate of Salomon Smith Barney Inc.The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments and
oversees its operations. The manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial
services -- asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
Ellen Cardozo Sonsino, investment officer of SSBC Fund Management Inc.. and
managing director of Salomon Smith Barney, has been responsible for the day to
day management of the fund since March 1998. Ms. Sonsino has 21 years of
investment management experience.
MANAGEMENT FEES. During the fiscal year ended December 31, 1998, the manager an
advisory fee equal to ____% of the fund's average daily net assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
DISTRIBUTION PLANS. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
Large Cap Value Fund -7-
<PAGE>
CHOOSING A CLASS OF SHARES TO BUY
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase price and, for Class L shares,
more of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
INITIAL ADDITIONAL
------------------------------------------------------------------
CLASSES A, B, L CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $5 million $50
IRAs, Self Employed Retirement Plans, Uniform Gift to $ 250 $5 million $50
Minor Accounts
Qualified Retirement Plans* $ 25 $5 million $25
Simple IRAs $ 1 n/a $ 1
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
- -8-
<PAGE>
COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS L CLASS Y
<S> <C> <C> <C> <C>
KEY FEATURES .Initial sales charge . No initial sales charge . Initial sales charge . No initial or deferred
.You may qualify for . Deferred sales charge is lower than Class A sales charge
reduction or waiver of declines over time . Deferred sales charge . Must invest at least
initial sales charge . Converts to Class A for only 1 year $15million
. Lower annual expenses after 8 years . Does not convert to . Lower annual expenses
than Class B and Class L . Higher annual expenses Class A than the other classes
than Class A . Higher annual
expenses than Class A
INITIAL SALES Up to 5.00%; reduced or None 1.00% None
CHARGE waived for large
purchases and certain
investors. No charge for
purchases of $500,000 or
more
DEFERRED SALES 1% on purchases of Up to 5.00% charged when 1% if you redeem within None
CHARGE $500,000 or more if you you redeem shares. The 1 year of purchase
redeem within 1 year of charge is reduced over
purchase time and there is no
deferred sales charge
after 6 years
ANNUAL 0.25% of average daily 1.00% of average daily 1.00% of average daily None
DISTRIBUTION AND net assets net assets net assets
SERVICE FEES
EXCHANGEABLE Class A shares of most Class B shares of most Class L shares of most Class Y shares of most
INTO* Smith Barney funds Smith Barney funds Smith Barney funds Smith Barney funds
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Large Cap Value -9-
<PAGE>
SALES CHARGE: CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SALES CHARGE AS A % OF
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more -0- -0-
- -------------------------------------------------------------------------------------------------
</TABLE>
Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
- -10-
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney funds over a 13-month period and pay the same sales charge, if any, as if
all shares had been purchased at once. You may include purchases on which you
paid a sales charge within 90 days before you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS. Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. 403(b) or 401(k) retirement plans, if certain conditions are met
. Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the Statement of Additional
Information ("SAI").
Large Cap Value Fund -11-
<PAGE>
SALES CHARGE: CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Deferred sales charge 5.0% 4% 3% 2% 1% 0%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
CLASS B CONVERSION. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SHARES ISSUED: SHARES ISSUED: SHARES ISSUED:
AT INITIAL ON REINVESTMENT OF UPON EXCHANGE FROM
PURCHASE DIVIDENDS AND ANOTHER SMITH BARNEY
DISTRIBUTIONS FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the date of In same proportion as the number of On the date the shares originally
purchase Class B shares converting is to acquired would have converted into
total Class B shares you own Class A shares
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SALES CHARGE: CLASS L SHARES
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
SALES CHARGE: CLASS Y SHARES
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you must
initially invest $5,000,000.
- -12-
<PAGE>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of or
redemption, whichever is less, and therefore you do not pay a sales charge on
amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Large Cap Value Fund -13-
<PAGE>
BUYING SHARES
Through a You should contact your Salomon Smith Barney Financial
Salomon Smith Consultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order
dealer will be rejected
represen-
tative . Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares
transfer agent directly from the fund.
. Write the transfer agent at the following address:
Large Cap Value Fund
Smith Barney Funds, Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial
purchases, complete and send an account application.
. For more information, call the transfer agent at 1-800-451-
2010.
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds
investment automatically from a regular bank account, cash held in a
plan Salomon Smith Barney brokerage account or Smith Barney money
market fund to buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative
or the transfer agent may charge you a fee
. For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
- -14-
<PAGE>
EXCHANGING SHARES
Smith Barney You should contact your Salomon Smith Barney Financial
offers a Consultant or dealer representative to exchange into other
distinctive Smith Barney funds. Be sure to read the prospectus of the
family of Smith Barney fund you are exchanging into. An exchange is a
funds taxable transaction.
tailored to
help meet . You may exchange shares only for shares of the same class of
the varying another Smith Barney fund. Not all Smith Barney funds offer
needs of all classes.
both large
and small . Not all Smith Barney funds may be offered in your state of
investors. residence. Contact your Smith Barney Financial Consultant,
dealer representative or the transfer agent.
. You must meet the minimum investment amount for each fund
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers (documents transferring ownership of certificates)
before the exchange is effective.
. The fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you will
be subject to that charge. If you exchange at any time into a
fund with a lower charge, the sales charge will not be reduced.
By telephone If you do not have a brokerage account, you may be eligible to
exchange shares through the transfer agent. You must complete
an authorization form to authorize telephone transfers. If
eligible, you may make telephone exchanges on any day the New
York Stock Exchange is open. Call the transfer agent at 1-800-
451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
Requests received after the close of regular trading on the
Exchange are priced at the net asset value next determined.
You can make telephone exchanges only between accounts that
have identical registrations.
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
Large Cap Value Fund -15-
<PAGE>
REDEEMING SHARES
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However, if
you recently purchased your shares by check, your redemption
proceeds will not be sent to you until your original check
clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Large Cap Value Fund
Smith Barney Funds, Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is
registered
-16-
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible to
redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by
telephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (Eastern time). Requests received after the close of
regular trading on the Exchange are priced at the net asset
value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You may be charged a fee for wire
transfers. You must submit a new authorization form to change
the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1% per
month of the value of your shares subject to a deferred sales
charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Large Cap Value Fund -17-
<PAGE>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
- -18-
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
SMALL ACCOUNT BALANCES. If your account falls below $500 because of a
redemption of fund shares, the fund may ask you to bring your account up to
$500. If your account is still below $500 after 60 days, the fund may close
your account and send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges
by the shareholder.
SHARE CERTIFICATES. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
Lagre Cap Value Fund -19-
<PAGE>
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
. Class A shares may be purchased by plans investing at least $1 million.
. Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange into Class A shares not later than 8
years after the plan joined the program. They are eligible for exchange sooner
in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1
million is invested in Smith Barney Funds Class L shares (other than
money market funds), all Class L shares are eligible for exchange
after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of $500,000
is invested in Smith Barney Funds Class L shares (other than money
market funds) on December 31 in any year, all Class L and Class O
shares are eligible for exchange on or about March 31 of the following
year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
- -20-
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS. The fund pays dividends quarterly from its net investment income.
The fund generally makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from capital
gains. You do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be
effective until the next distribution or dividend is paid.
TAXES. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
TRANSACTION FEDERAL TAX STATUS
<S> <C>
Redemption or exchange of shares Usually capital gain or loss; long-term only if
shares owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
- --------------------------------------------------------------------------------------------------
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or a
dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
Large Cap Value Fund -21-
<PAGE>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices are not readily available, the fund may
price those securities at fair value. Fair value is determined in accordance
with procedures approved by the fund's board. A fund that uses fair value to
price securities may value those securities higher or lower than another fund
using market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, are
included in the annual report (available upon request).
- -22-
<PAGE>
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
DECEMBER 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 14.79 $ 14.59 $ 12.18 $ 13.31
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.29 0.36 0.39 0.43
Net realized and unrealized gain 3.80 1.99 3.59 (1.00)
(loss)
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 4.09 2.35 3.98 (0.57)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.29) (0.36) (0.39) (0.42)
Net realized gains (2) (1.50) (1.79) (1.18) (0.14)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.79) (2.15) (1.57) (0.56)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 17.09 $ 14.79 $ 14.59 $ 12.18
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (3) 27.86% 16.06% 33.05% (4.31)%
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $758,708 $645,935 $617,431 $544,572
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.92% 0.95% 1.02% 0.96%
Net investment income 1.71 2.28 2.78 3.31
- ---------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40% 49% 51% 27%
- ---------------------------------------------------------------------------------------------------------------------------
</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) Total return does not reflect any applicable sales charges.
Large Cap Value Fund -23-
<PAGE>
FOR A CLASS B SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
DECEMBER 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(1)
- ----------------------------------------------------------------------------------------------------------
<S> <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 gain 3.78 1.98 3.62 (0.19)
(loss)
- ----------------------------------------------------------------------------------------------------------
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 (3) 26.83% 15.22% 32.07% (1.28)%(4)
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $28,525 $14,883 $6,605 $ 354
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.71% 1.71% 1.73% 1.59%(5)(6)
Net investment income 0.92 1.55 1.83 2.11(5)
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40% 49% 51% 27%
- ----------------------------------------------------------------------------------------------------------
</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) Total return does not reflect any applicable sales charge.
(4) Not annualized.
(5) Annualized
(6) Amount has been restated from December 31, 1994 Annual Report.
- -24-
<PAGE>
FOR A CLASS L SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
DECEMBER 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 14.76 $ 14.57 $ 12.18 $ 13.30
- -----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.16 0.24 0.27 0.31
Net realized and unrealized gain 3.79 1.98 3.59 (0.95)
(loss)
- -----------------------------------------------------------------------------------------------------------
Total income (loss) from operations 3.95 2.22 3.86 (0.64)
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.16) (0.24) (0.29) (0.34)
Net realized gains (2) (1.50) (1.79) (1.18) (0.14)
- -----------------------------------------------------------------------------------------------------------
Total distributions (1.66) (2.03) (1.47) (0.48)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 17.05 $ 14.76 $ 14.57 $ 12.18
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN (3) 26.85% 15.15% 32.01% (4.91)%
- -----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $42,115 $33,365 $29,758 $27,507
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.69% 1.73% 1.79% 1.75%
Net investment income 0.93 1.50 2.00 2.49
- -----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40% 49% 51% 27%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) On November 7, 1994, former Class B shares were renamed Class C shares.
(2) Net short-term gains, if any, are included and reported as ordinary
income for income tax purposes.
(3) Total return does not reflect any applicable sales charges.
- -25-
<PAGE>
FOR A CLASS Y SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
DECEMBER 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1998 1997 1996(1)(2)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 14.80 $ 15.06
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.38 0.36
Net realized and unrealized gain 3.76 1.58
Total income (loss) 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%(4)
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000)'S $111,690 $30,169
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.60% 0.66%(5)
Net investment income 2.06 3.02(5)
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 40% 49%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts calculated using the monthly average shares method.
(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.
(4) Not annualized.
(5) Annualized.
Large Cap Value Fund -26-
<PAGE>
SALOMON SMITH BARNEY (SM)
A MEMBER OF CITIGROUP [SYMBOL]
LARGE CAP VALUE FUND
- - an investment portfolio of Smith Barney Funds, Inc.
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained
by calling 1-800-SEC-0330. You can get the same information free from the
Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
<PAGE>
---------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
---------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
April 30, 1999 LARGE CAP VALUE FUND
Class Z Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
The Class Z shares described in this prospectus are offered exclusively for sale
to tax-exempt employee benefit and retirement plans of Salomon Smith Barney Inc.
or any of its affiliates.
<PAGE>
CONTENTS
Fund goal and strategies............................ 4
More on the fund's investments...................... 8
Management.......................................... 9
Buying, selling and redeeming
Class Z shares.................................... 10
Share price......................................... 11
Dividends, distributions and
taxes............................................. 12
Financial highlights................................ 13
YOU SHOULD KNOW:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Large Cap Value Fund -- Class Z Shares -1-
<PAGE>
FUND GOAL AND STRATEGIES
INVESTMENT OBJECTIVE
Current income and long-term growth of income and capital.
KEY INVESTMENTS
The fund invests primarily in common stocks of U.S. companies having market
capitalizations of at least $5 billion at the time of investment.
SELECTION PROCESS
The manager employs a two-step stock selection process in its search for
undervalued stocks of established, well recognized but temporarily out of favor
companies. First, the manager uses proprietary models and fundamental research
to try to identify stocks that are underpriced in the market relative to their
fundamental value. Next, the manager looks for a positive catalyst in the
company's near term outlook which the manager believes will accelerate earnings.
In selecting individual companies for investment, the manager looks for:
. Low market valuations measured by the manager's valuation models
. Above average dividend yields and established dividend records
. Positive changes in earnings prospects because of factors such as:
- New management
- Effective research, product development and marketing
- A business strategy not yet recognized by the marketplace
- Regulatory changes favoring the company
. High return on invested capital and strong cash flow.
. Liquidity
- -2-
<PAGE>
RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in large capitalization value securities can bring added benefits, but
it may also involve additional risks. Investors could lose money on their
investment in the fund, or the fund may not perform as well as other
investments, if:
. The U.S. stock market goes down.
. Value stocks or larger capitalization stocks are temporarily out of favor.
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock provides to be incorrect.
. An adverse event, such as negative press reports about a company in the
fund, depresses the value of the company's stock.
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are seeking to participate in the long-term growth potential of the U.S.
stock market
. Are looking for an investment with potentially greater return but higher
risk than fixed income investments
. Are willing to accept the risks of the stock market
Large Cap Value Fund -- Class Z Shares -3-
<PAGE>
TOTAL RETURN
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[BAR CHART APPEARS HERE]
The bar chart shows the performance of the fund's Class Z shares for each of the
past 4 full calendar years.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Russell
1000 Large Cap Value Index, a broad-based unmanaged index of those companies
from among the 1000 largest publicly held companies which exhibit above average
value characteristics (the "Russell Index"), and the Lipper Large Cap Value Fund
Average (the "Lipper Funds Average"), an average composed of the fund's peer
group of mutual funds. This table assumes imposition of the maximum sales
charge applicable to the class, redemption of shares at the end of the period,
and reinvestment of distributions and dividends.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS --------- Calendar Years Ended December 31, 1998
Class Inception 1 year 5 years 10 years Since inception
date
<S> <C> <C> <C> <C> <C> <C>
Z 11/07/94 n/a
Russell Index n/a
Lipper Average n/a
</TABLE>
*Index comparison begins on
- -4-
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (paid by the
fund as a % of fund net assets)
Management fee 0.58%
Other expenses -----
Total annual fund operating expenses
=====
</TABLE>
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class Z $ $ $ $
</TABLE>
Large Cap Value Fund -- Class Z Shares -5-
<PAGE>
MORE ON THE FUND'S INVESTMENTS
OTHER INVESTMENTS. While the fund intends to be substantially fully invested in
equity securities, the fund may maintain a portion of its assets in equity
securities of companies with total market capitalizations below $5 billion and
in money market instruments and/or cash to pay expenses and meet redemption
requests. Generally, the value of these fixed income obligations will go down if
interest rates go up, the issuer of the security has its credit rating
downgraded or the issuer defaults on its obligation to pay principal or
interest. The fund may also invest up to 10% of its net assets in American
Depositary Receipts (ADRs) which are U.S. dollar denominated securities
representing an interest in foreign securities. The fund's investments in ADRs
involve greater risk than investments in securities of U.S. issuers.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -6-
<PAGE>
MANAGEMENT
MANAGER. The fund's investment manager is SSBC Fund Management Inc., an
affiliate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments and
oversees its operations. The manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial
services -- asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
Ellen Cardozo Sonsino, investment officer of SSBC Fund Management Inc. and
managing director of Salomon Smith Barney, has been responsible for the day to
day management of the fund since March 1998. Ms. Sonsino has 21 years of
investment management experience.
MANAGEMENT FEES. During the fiscal year ended December 31, 1998, the manager
received an advisory fee fee equal to ___% of the fund's average daily net
assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful
Large Cap Value Fund -- Class Z Shares -7-
<PAGE>
BUYING, SELLING AND EXCHANGING CLASS Z SHARES
Through a You may buy, sell or exchange Class Z shares only through a
qualified plan "qualified plan." A qualified plan is a tax-exempt employee
benefit or retirement plan of Salomon Smith Barney, Inc. or
one of its affiliates.
There are no minimum investment requirements for Class Z
shares. However, the fund reserves the right to change this
policy at any time.
Buying Orders to buy Class Z shares must be made in accordance with
the terms of a qualified plan. If you are a participant in a
qualified plan, you may place an order with your plan to buy
Class Z shares at net asset value, without any sales charge.
Payment is due to Salomon Smith Barney on settlement date,
which is the third business day after your order is accepted.
If you make payment prior to this date, you may designate a
temporary investment (such as a money market fund of the Smith
Barney Mutual Funds) for payment until settlement date. The
fund reserves the right to reject any order to buy shares and
to suspend the offering of shares for a period of time.
Selling Qualified plans may redeem their shares on any day on which
the fund calculates its net asset value. You should consult
the terms of your qualified plan for special redemption
provisions.
Exchanging You should should consult your qualified plan for information
about available exchange options.
- -8-
<PAGE>
SHARE PRICE
Qualified plans may buy, exchange or redeem Class Z shares of the fund at the
net asset value next determined after receipt of your request in good order. The
fund's net asset value is the value of its assets minus its liabilities. Net
asset value is calculated separately for each class of shares. The fund
calculates its net asset value every day the New York Stock Exchange is open.
This calculation is done when regular trading closes on the Exchange (normally
4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. The fund's currency conversions are done when the London stock
exchange closes, which is 12 noon Eastern time. When reliable market prices are
not readily available, or when the value of a security has been materially
affected by events occurring after a foreign exchange closes, the fund may price
those securities at fair value. Fair value is determined in accordance with
procedures approved by the fund's board. A fund that uses fair value to price
securities may value those securities higher or lower than another fund that
uses market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your qualified plan before the New York Stock Exchange closes.
If the New York Stock Exchange closes early, you must place your order with your
qualified plan prior to the actual closing time. Otherwise, you will receive the
next business day's price.
Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.
Large Cap Value Fund -- Class Z Shares -9-
<PAGE>
DISTRIBUTIONS, DIVIDENDS AND TAXES
An investment in the fund will have the following consequences for a qualified
plan as the owner of shares in the fund. Qualified plan participants should
consult their plan document or tax advisors about the tax consequences of
participating in a qualified plan.
Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the
fund to avoid a federal tax. Capital gain distributions and dividends are
reinvested in addition Class Z shares. The fund expects distributions to
be primarily from capital gains. No sales charge is imposed on reinvested
distributions or dividends. Alternatively, a qualified plan can in
tion or dividend, except that any change given to the transfer agent less
than five days before the payment date will not be effective until the next
distribution or dividend is paid.
Taxes. Provided that a qualified plan has not borrowed to finance its
investment in the fund, it will not be taxable on the receipt of dividends
and distributions from the fund.
Because each shareholder's circumstances are different and special tax rules
may
apply, you should consult with your tax adviser about your investment in the
fund.
- -10-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of Class Z shares for the past 5 years. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG Peat Marwick LLP, independent accountants, whose report, along
with the fund's financial statements, are included in the annual report
(available upon request).
<TABLE>
<CAPTION>
FOR A CLASS Z SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED
DECEMBER 31:
- ----------------------------------------------------------------------------
- -----------------------------------------------
1998 1997
1996 1995 1994/(1)/
- ----------------------------------------------------------------------------
- -----------------------------------------------
<S> <C> <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(loss) 0.35
0.42 0.43 0.07
- ----------------------------------------------------------------------------
- -----------------------------------------------
Net realized and unrealized
gain (loss)/(2)/ 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 (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%)/(3)/
- ----------------------------------------------------------------------------
- -----------------------------------------------
NET ASSETS, END OF YEAR (000)'S $144,008
$113,160 $98,661 $80,010
- ----------------------------------------------------------------------------
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ----------------------------------------------------------------------------
- -----------------------------------------------
Expenses 0.60%
0.62% 0.69% 0.42%/(4)/
- ----------------------------------------------------------------------------
- -----------------------------------------------
Net investment income (loss) 2.03
2.62 3.11 3.88/(4)/
- ----------------------------------------------------------------------------
- -----------------------------------------------
PORTFOLIO TURNOVER RATE 40%
49% 51% 27%
- ----------------------------------------------------------------------------
- -----------------------------------------------
</TABLE>
(1) For the period from November 7, 1994 (inception date) to December 31,
1994.
(2) Net short term gains, if any, one included and reported in ordinary income
for tax purposes.
(3) Not annualized.
(4) Annualized.
Large Cap Value fund -- Class Z Shares -11-
<PAGE>
SALOMON SMITH BARNEY(SM)
A MEMBER OF CITIGROUP [SYMBOL]
LARGE CAP VALUE FUND
- - an investment portfolio of Smith Barney Funds, Inc.
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your qualified plan or the transfer agent if you do not
want this policy to apply to you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your
qualified plan, by calling the fund at 1-800-451-2010, or by writing to the fund
at Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York
10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the
Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
<PAGE>
-----------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
-----------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- ------------------------------------------------------------------
April 30, 1999 Short-Term High Grade Bond Fund
Class A and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
CONTENTS
Fund goal and strategies........................... 4
Risks, performance and expenses.................... 5
More on the fund's investments..................... 8
Management......................................... 9
Choosing a class of shares to buy.................. 10
Buying shares...................................... 11
Exchanging shares.................................. 12
Redeeming shares................................... 13
Other things to know about
share transactions............................... 15
Smith Barney 401(k) and
ExecChoice(TM) programs.......................... 17
Dividends, distributions and
taxes............................................ 18
Share price........................................ 19
Financial highlights............................... 20
YOU SHOULD KNOW:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Short-Term High Grade Bond Fund -1-
<PAGE>
FUND GOAL AND STRATEGIES
INVESTMENT OBJECTIVE
The fund seeks current income, preservation of capital and liquidity.
KEY INVESTMENTS
The fund invests primarily in "high grade" fixed income securities. These are
securities rated by a national ratings organization at the time of purchase
within one of the top three categories, or, if unrated, judged by the manager to
be of comparable credit quality. Securities in which the fund invests include
corporate debt securities, bank obligations and securities issued by the U.S.
government and its agencies and instrumentalities. The fund may also invest in
U.S. dollar denominated fixed income securities of foreign issuers. The fund
maintains an average dollar-weighted portfolio maturity of between one and four
years; the average duration of the fund's portfolio will normally be no greater
than 3.5 years.
SELECTION PROCESS
The manager focuses on minimizing fluctuations in the fund's net asset value by
identifying short-term fixed income securities which the manager believes are
undervalued and which offer better protection of capital given current interest
rate and market conditions. In selecting individual securities for investment,
the manager:
. Monitors the spreads between U.S. Treasury and government agency
or instrumentality issuers and purchases agency and instrumentality
issues that it believes will provide a yield advantage
. Determines sector and maturity weightings based on assessments of
the economic environment and relative value factors based on interest
rate outlook
. Measures the potential impact of supply/demand imbalances, yield curve
shifts and changing prepayment patterns to identify individual
securities that balance potential return and risk
. Uses research to uncover inefficient sectors of the government and
mortgage markets and adjusts portfolio positions to take advantage of
new information
- -2-
<PAGE>
RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Interest rates increase, causing the prices of fixed income securities
to decline which would reduce the value of the fund's portfolio. The
fund has less sensitivity to changes in interest rates than a fund
investing in securities with intermediate or long-term maturities
. Prepayment or call risk: As interest rates decline, the issuers of
mortgage-related or callable securities held by the fund may pay
principal earlier than scheduled or exercise a right to call the
securities, forcing the fund to reinvest in lower yielding securities
. Extension risk: As interest rates increase, slower than expected
principal payments may extend the average life of fixed income
securities, locking in below-market interest rates and reducing the
value of these securities
. The manager's judgment about interest rates or the attractiveness,
value or income potential of a particular security proves incorrect
WHO MAY WANT TO INVEST
The fund may be an appropriate investment if you:
. Are seeking current income while minimizing fluctuations in the value of
your investment
. Currently have exposure to stock markets and wish to diversify your investment
portfolio by adding an investment in investment grade fixed income securities
. Are seeking a higher level of current income than typically offered by
money market funds
Short-Term High Grade Bond Fund -3-
<PAGE>
TOTAL RETURN
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[BAR CHART APPEARS HERE]
The bar chart shows the performance of the fund's Class A shares for each of the
past 7 full calendar years. Class B, L and Y shares would have different
performance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return.
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
COMPARATIVE PERFORMANCE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers 3-year Treasury Index (the "Lehman Index"), a broad-based unmanaged
index of short-term U.S. Treasury securities and the Lipper [Short-Term
Investment Grade Bond Fund] Average (the "Lipper Average"), an average composed
of the fund's peer group of mutual funds. This table assumes imposition of the
maximum sales charge applicable to the class, redemption of shares at the end of
the period, and reinvestment of distributions and dividends.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS -- CALENDAR YEARS ENDED DECEMBER 31, 1998
Class Inception date 1 year 5 years 10 years Since inception
<S> <C> <C> <C> <C> <C>
A 11/11/91 n/a
Y 2/7/96 n/a n/a
Lehman Index n/a *
Lipper n/a
Average
</TABLE>
*Index comparison begins on ____________.
- -4-
<PAGE>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS Y
<S> <C> <C>
Maximum sales charge on purchases None None
Maximum deferred sales charge on redemptions None* None
ANNUAL FUND OPERATING EXPENSES (paid by the
fund as a % of fund net assets)
Management fees .45% .45%
Distribution and service (12b-1) fee .35% None
Other expenses
------ ------
Total annual fund operating expenses
====== ======
</TABLE>
* Class A Shares acquired through an exchange for shares of another Smith Barney
Mutual Fund which were originally acquired at net asset value subject to a
contingent deferred sales charge ("CDSC") remain subject to the original fund's
CDSC.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $ $ $ $
Class Y $ $ $ $
</TABLE>
Short-Term High Grade Bond Fund -5-
<PAGE>
MORE ON THE FUND'S INVESTMENTS
OTHER INVESTMENTS. Although the fund invests primarily in "high grade"
securities, it may also invest in other fixed income securities provided that
they are at least "investment grade" at the time of purchase. This means that
they are rated within the top four categories, or if unrated, are considered by
the manager to be of comparable quality.
DERIVATIVE CONTRACTS. The fund may, but need not, use derivative contracts, such
as futures and options on interest rates, and options on interest rate futures,
for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value of
portfolio securities due to changes in interest rates
. As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
YANKEE OBLIGATIONS. The fund may invest in Yankee obligations, including Yankee
obligations of foreign banks. Yankee obligations are U.S. dollar denominated
securities issued in the U.S. capital markets by foreign issuers. Yankee
obligations are subject to certain sovereign risks including the possibility
that a foreign government might prevent the U.S. dollars invested in the
security from flowing back across its borders. The price of Yankee obligations
may also go down because of political instability or the more limited
availability of accurate information about foreign companies.
RISK OF HIGH PORTFOLIO TURNOVER. The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from the fund's performance.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -6-
<PAGE>
MANAGEMENT
MANAGER. The fund's investment manager is SSBC Fund Management Inc., an
affiliate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments and
oversees its operations. The manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial
services -- asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world. Among these businesses are Citibank, Commercial Credit, Primerica
Financial Services, Salomon Smith Barney, SSBC Asset Management, Travelers Life
& Annuity, and Travelers Property Casualty.
James E. Conroy, investment officer of Mutual Management Corp. and
managing director of Salomon Smith Barney, has been responsible for the day
to day management of the fund since January 1996. Mr. Conroy has [ ] years
of investment management experience.
MANAGEMENT FEES. During the fiscal year ended December 31, 1998, the manager
received an advisory fee equal to ____% of the fund's average daily net assets.
DISTRIBUTOR. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker-dealers sells fund shares to the public.
DISTRIBUTION PLAN. The fund has adopted a Rule 12b-1 distribution plan for its
Class A shares. Under the plan, Class A shares pay distribution and service
fees. The fees in Class A shares are an ongoing expense and, over time, it
increases the cost of your investment and may cost you more than other types of
sales charges.
YEAR 2000 ISSUE. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
Short-Term High Grade Bond Fund -7-
<PAGE>
CHOOSING A CLASS OF SHARES TO BUY
You may purchase Class A shares which are sold at net asset value with no
initial or deferred sales charge. Class A shares are subject to an ongoing
distribution and service fees.
You may purchase Class Y shares only if you are making an initial investment of
at least $15,000,000. Class Y shares are sold at net asset value
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
INITIAL ADDITIONAL
---------------------------------------------
CLASS A CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans, Uniform $250 $15 million $50
Gift to Minor Accounts
Qualified Retirement Plans* $25 $15 million $25
Simple IRAs $1 n/a $1
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
- ----------------------------------------------------------------------------------------------
</TABLE>
*Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
- -8-
<PAGE>
BUYING SHARES
Through a You should contact your Salomon Smith Barney Financial
Salomon Smith Consultant or dealer representative to open a brokerage
Barney account and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your
dealer represen- order will be rejected
tative
. Class of shares being bought
. Dollar amount or number of shares being
bought
You should pay for your shares through your brokerage
account no later than the third business day after you
place your order. Salomon Smith Barney or your dealer
representative may charge an annual account maintenance
fee.
Through the Qualified retirement plans and certain other investors
fund's who are clients of the selling group are eligible to
transfer buy shares directly from the fund.
agent
. Write the transfer agent at the following address:
Smith Barney Funds, Inc.
Short-Term High Grade Bond Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial
purchases, complete and send an account application.
. For more information, call the transfer agent at
1-800-451-2010.
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds
investment automatically from a regular bank account, cash held in
plan a Salomon Smith Barney brokerage account or Smith
Barney money market fund to buy shares on a regular
basis.
. Amounts transferred should be at least: $25 monthly
or $50 quarterly
. If you do not have sufficient funds in your account
on a transfer date, Salomon Smith Barney, your dealer
representative or the transfer agent may charge you a
fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the
transfer agent or consult the SAI.
Short-Term High Grade Bond Fund -9-
<PAGE>
EXCHANGING SHARES
Class A shares of the fund may be subject to a sales charge differential upon
the exchange of such shares for Class A shares of another Smith Barney Mutual
Fund sold with a sales charge. The sales charge differential is the sales charge
rate applicable to purchases of shares of the mutual fund being acquired in the
exchange. To the extent the fund shares relinquished in the exchange are
attributable to predecessor shares for which a sales charge was paid, the sales
charge differential does not apply. 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) and ExecChoiceTM 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 differential upon
exchange
- -10-
<PAGE>
REDEEMING SHARES
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However, if
you recently purchased your shares by check, your redemption
proceeds will not be sent to you until your original check
clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney Funds, Inc.
Short-Term High Grade Bond Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is registered
-11-
<PAGE>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares (except those held in retirement plans)in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by
telephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (Eastern time). Requests received after the close of
regular trading on the Exchange are priced at the net asset
value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You may be charged a fee for wire
transfers. You must submit a new authorization form to change
the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1% per
month of the value of your shares subject to a deferred sales
charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
- -12-
<PAGE>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed.
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed o Dollar amount
or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming (together with other requests submitted in the previous
10 days) over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
-13-
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay
transaction costs to dispose of the securities.
SMALL ACCOUNT BALANCES. If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
SHARE CERTIFICATES. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
- -14-
<PAGE>
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A shares to
participating plans as an investment alternative under the programs, provided
the participating plan makes an initial investment of at least $1 million. You
can meet minimum investment and exchange amounts by combining the plan's
investments in any of the Smith Barney mutual funds. There are no sales charges
when you buy or sell shares.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
-15-
<PAGE>
DISTRIBUTIONS, DIVIDENDS AND TAXES
DIVIDENDS. The fund pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
TAXES. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
TRANSACTION FEDERAL TAX STATUS
Redemption or exchange of shares Usually capital gain or loss; long-term
only if shares owned more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or a
dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
- -16-
<PAGE>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices are not readily available, the fund may
price those securities at fair value. Fair value is determined in accordance
with procedures approved by the fund's board. A fund that uses fair value to
price securities may value those securities higher or lower than another fund
using market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, are
included in the annual report (available upon request).
Short-Term High Grade Bond Fund -17-
<PAGE>
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED DECEMBER 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $4.05 $4.19 $3.91 $4.16
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Net investment income 0.22 0.23 0.22 0.18
Net realized and unrealized gain (loss) 0.04 (0.14) 0.28 (0.25)
- ----------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.26 0.09 0.50 (0.07)
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.22) (0.23) (0.22) (0.18)
Net realized gains -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Total distributions (0.22) (0.23) (0.22) (0.18)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $4.09 $4.05 $4.19 $3.91
- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN 6.73% 2.17% 13.16% (2.15)%
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $71,361 $83,324 $107,099 $88,707
- ----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.95% 0.98% 0.98% 0.91%
Net investment income 5.53 5.62 5.29 4.54
- ----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 145% 130% 29% 25%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- -18-
<PAGE>
FOR A CLASS Y SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED DECEMBER 31:
<TABLE>
<CAPTION>
1998 1997 1996(1)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $4.05 $4.19
- -----------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Net investment income 0.24 0.22
Net realized and unrealized gain (loss) 0.04 (0.14)
- -----------------------------------------------------------------------------------
Total income (loss) 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%(2)
- -----------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $29,786 $32,114
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.50% 0.58%(3)
Net investment income 6.00 5.99(3)
- -----------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 145% 130%
- -----------------------------------------------------------------------------------
</TABLE>
(1) For the period from February 6, 1996 (inception date) to December 31,
1996.
(2) Total return is not annualized, as it may not be representative of the
total return for the
year.
(3) Annualized.
Short-Term High Grade Bond Fund -19-
<PAGE>
SALOMON SMITH BARNEY(SM)
A MEMBER OF CITIGROUP [SYMBOL]
SHORT-TERM HIGH GRADE BOND FUND
- -- an investment portfolio of Smith Barney Funds,Inc.
SHAREHOLDER REPORTS. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the
Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
- -----------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
- ----------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
April 30, 1999 U.S. Government Securities Fund
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and strategies...........................................4
Risks, performance and expenses....................................5
More on the fund's investments.....................................8
Management.........................................................9
Choosing a class of shares to buy.................................10
Comparing the fund's classes......................................11
Sales charges.....................................................12
More about deferred sales charges.................................15
Buying shares.....................................................16
Exchanging shares.................................................17
Redeeming shares..................................................18
Other things to know about
share transactions..............................................20
Smith Barney 401(k) and ExecChoice
programs........................................................22
Dividends, distributions and
taxes...........................................................23
Share price.......................................................24
Financial highlights..............................................24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
U.S. Government Securities Fund -3-
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and strategies
- --------------------------------------------------------------------------------
Investment objective
The fund seeks high current income, liquidity and security of principal.
Key investments
The fund invests primarily in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and in related repurchase and
reverse repurchase agreements. These U.S. government securities in which the
fund invests consist primarily of mortgage-related securities and U.S. Treasury
securities. Mortgage-related securities issued by federal agencies or
instrumentalities may be backed by the full faith and credit of the U.S.
Treasury, by the right of the issuer to borrow from the U.S. government or only
by the credit of the issuer itself.
Selection process
The manager selects individual securities that it believes are undervalued or
will offer better protection of capital during periods of changing market
conditions. The manager spreads the fund's investments among various sectors,
focusing more heavily on sectors it believes will experience less price
volatility given prevailing interest rates and expected interest rate movements.
In selecting individual securities, the manager:
o Determines sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and relative value
factors based on interest rate outlook
o Measures the potential impact of supply/demand imbalances, yield curve
shifts and changing prepayment patterns to identify individual securities
that balance potential return and risk
o Monitors the spreads between U.S. Treasury and government agency or
instrumentality issues and purchases agency and instrumentality issues
that it believes will provide a yield advantage
o Uses research to uncover inefficient sectors of the government securities
and
mortgage markets and adjusts portfolio positions to take advantage of new
information
- -4-
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
o Interest rates increase, causing the prices of fixed income securities to
decline which would reduce the value of the fund's portfolio
o Prepayment or call risk: As interest rates decline, the issuers of
mortgage-related or callable securities held by the fund may pay principal
earlier than scheduled or exercise a right to call the securities, forcing
the fund to reinvest in lower yielding securities
o Extension risk: As interest rates increase, slower than expected principal
payments may extend the average life of fixed income securities, locking
in below-market interest rates and reducing the value of these securities
o The manager's judgment about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect
Payments of principal and interest on mortgage-backed securities issued by
instrumentalities
of the U.S. government guaranteed solely by the issuer not guaranteed by the
U.S. government. Although
payment of principal and interest on mortgage-backed securities issued by U.S.
agencies are guaranteed by the full faith and credit of the U.S. government,
this guarantee does not apply to losses resulting
from declines in the market value of these securities.
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking income consistent with preservation of capital
o Are willing to accept the interest rate risks and market risks of
investing in government bonds and mortgage-related securities
o Prefer to invest in U.S. government securities rather than higher yielding
corporate or foreign securities
U.S. Government Securities Fund -5-
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
<TABLE>
<CAPTION>
Total Return for Class A Shares
Calendar years ended December 31,
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5 5 5 5 8.9 6.40 -1.48 16.52 3.97 9.67
</TABLE>
The bar chart shows the performance of the fund's Class A shares for each of the
past 10 calendar years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Mortgage-Backed Securities Index (the "Lehman Index"), a broad-based
unmanaged index of mortgage-backed securities and the Lipper [U.S. Government
Securities Fund] Average (the "Lipper Average"), an average composed of the
fund's peer group of mutual funds. This table assumes imposition of the maximum
sales charge applicable to the class, redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Class Inception date 1 year 5 years 10 years Since inception
- --------------------------------------------------------------------------------
A [xx/xx/xx]
- --------------------------------------------------------------------------------
B 11/7/94 n/a n/a
- --------------------------------------------------------------------------------
L 12/2/92 n/a
- --------------------------------------------------------------------------------
Y 1/12/93 n/a
- --------------------------------------------------------------------------------
Lehman Index n/a
- --------------------------------------------------------------------------------
Lipper
Average n/a
- --------------------------------------------------------------------------------
*Index comparison begins on
- -6-
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Shareholder fees
(paid directly from your investment) Class A Class B Class L Class Y
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on purchases (as a % of offering 4.50*% None 1.00% None
price)
Maximum deferred sales charge on redemptions (as a % None* 4.50% 1.00% None
of the lower of net asset value at purchase or
redemption)
Annual fund operating expenses (paid by
the fund as a % of net assets)
Management fee 0.45% 0.45% 0.45% 0.45%
Distribution and service (12b-1) fee 0.25% 0.75% 0.70% None
Other expenses
----- ----- ----- ----
Total annual fund operating expenses
===== ===== ===== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends without a sales charge
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
U.S. Government Securities Fund -7-
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Derivative contracts. The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:
o To hedge against the economic impact of adverse changes in the market
value of portfolio securities due to changes in interest rates
o As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
Risk of high portfolio turnover. The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from the fund's performance.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -8-
<PAGE>
- -------------------------------------------------------------------------------
Management
- -------------------------------------------------------------------------------
Manager. The fund's investment manager is SSBC Fund Management Inc., an
affiliate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments and
oversees its operations. The manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial
services -- asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
James E. Conroy, investment officer of Mutual Management Corp. and managing
director of Salomon Smith Barney, has been responsible for the day to day
management of the fund since January 1996. Mr. Conroy has over [ ] years of
investment management experience.
Management fees. During the fiscal year ended December 31, 1998, the manager
received an advisory fee equal to 0.45% of the fund's average daily net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
U.S. Government Securities Fund -9-
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
o If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
o For Class B shares, all of your purchase price and, for Class L shares,
more of your purchase amount (compared to Class A shares) will be
immediately invested. This may help offset the higher expenses of Class B
and Class L shares, but only if the fund performs well.
o Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
o A Salomon Smith Barney Financial Consultant
o An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
o The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Initial Additional
---------------------------------- -----------
- -----------------------------------------------------------------------------------------------
Classes A, B, L Class Y All Classes
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General $1,000 $5 million $50
- -----------------------------------------------------------------------------------------------
IRAs, Self Employed Retirement Plans, Uniform $250 $5 million $50
- -----------------------------------------------------------------------------------------------
Gift to Minor Accounts
Qualified Retirement Plans* $25 $5 million $25
- -----------------------------------------------------------------------------------------------
Simple IRAs $1 n/a $1
- -----------------------------------------------------------------------------------------------
Monthly Systematic Investment Plans $25 n/a $25
- -----------------------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $50 n/a $50
- -----------------------------------------------------------------------------------------------
</TABLE>
Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k) plans
- -10-
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key o Initial sales charge o No initial sales o Initial sales o No initial or
features o You may qualify charge charge is lower deferred sales charge
for reduction or o Deferred sales than Class A o Must invest at least
waiver of initial charge declines o Deferred sales $15 million
sales charge over time charge for only 1 o Lower annual
o Lower annual o Converts to year expenses than the
expenses than Class Class A after 8 o Does not other classes
B and Class L years convert to
o Higher annual Class A
expenses than o Higher annual
Class A expenses than
Class A
- --------------------------------------------------------------------------------------------------------------------
Initial sales Up to 4.50*%; None 1.00% None
charge reduced or waived
for large purchases
and certain
investors. No
charge for
purchases of
$500,000 or more
- --------------------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 4.50% 1% if you redeem None
sales charge $500,000 or more if charged when you within 1 year of
you redeem within redeem shares. purchase
1 year of purchase The charge is
reduced over time
and there is no
deferred sales
charge after 6 years
- --------------------------------------------------------------------------------------------------------------------
Annual 0.25% of average 0.75% of average 0.70% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
- --------------------------------------------------------------------------------------------------------------------
Exchange- Class A shares of Class B shares of Class L shares of Class Y shares of
able into* most Smith Barney most Smith Barney most Smith most Smith Barney
funds funds Barney funds funds
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
U.S. Government Securities Fund -11-
<PAGE>
- --------------------------------------------------------------------------------
Sales charge: Class A shares
- --------------------------------------------------------------------------------
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
- --------------------------------------------------------------------------------
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
- --------------------------------------------------------------------------------
Less than $25,000 4.50 4.71
- --------------------------------------------------------------------------------
$25,000 but less than $50,000 4.00 4.17
- --------------------------------------------------------------------------------
$50,000 but less than $100,000 3.50 3.63
- --------------------------------------------------------------------------------
$100,000 but less than $250,000 2.50 2.56
- --------------------------------------------------------------------------------
$250,000 but less than $500,000 1.50 1.52
- --------------------------------------------------------------------------------
$500,000 or more -0- -0-
- --------------------------------------------------------------------------------
Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge. There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
Accumulation privilege - lets you combine the current value of Class A shares
owned
o by you, or
o by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
- -12-
<PAGE>
Letter of intent - lets you purchase Class A shares of the fund and other Smith
Barney funds over a 13-month period and pay the same sales charge, if any, as if
all shares had been purchased at once. You may include purchases on which you
paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors. Class A initial sales charges are waived
for certain types of investors, including:
o Employees of members of the NASD
o 403(b) or 401(k) retirement plans, if certain conditions are met
o Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
o Investors who redeemed Class A shares of a Smith Barney fund in the past
60 days, if the investor's Salomon Smith Barney Financial Consultant or
dealer representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the Statement of Additional
Information ("SAI").
U.S. Government Securities Fund -13-
<PAGE>
Sales charge: Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- --------------------------------------------------------------------------------
6th and
Year after purchase 1st 2nd 3rd 4th 5th over
- --------------------------------------------------------------------------------
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------------------------
Class B conversion. After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- --------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
- --------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Sales charge: Class L shares
- --------------------------------------------------------------------------------
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
- --------------------------------------------------------------------------------
Sales charge: Class Y shares
- --------------------------------------------------------------------------------
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you must
initially invest $5,000,000.
- -14-
<PAGE>
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
o Shares exchanged for shares of another Smith Barney fund
o Shares representing reinvested distributions and dividends
o Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
o On payments made through certain systematic withdrawal plans
o On certain distributions from a retirement plan
o For involuntary redemptions of small account balances
o For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
U.S. Government Securities Fund -15-
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Through a Salomon Smith Barney Financial Consultant or dealer representative
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to open a brokerage account and make arrangements to buy shares.
If you do not provide the following information, your order will be rejected
o Class of shares being bought
o Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no later than the
third business day after you place your order. Salomon Smith Barney or your
dealer representative may charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the fund's transfer agent
Qualified retirement plans and certain other investors who are clients of the
selling group are eligible to buy shares directly from the fund.
o Write the transfer agent at the following address:
Smith Barney Funds, Inc.
U.S. Government Securities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
o Enclose a check to pay for the shares. For initial purchases, complete and
send an account application.
o For more information, call the transfer agent at 1-800-451-2010.
- --------------------------------------------------------------------------------
Through a systematic investment plan
You may authorize Salomon Smith Barney, your dealer representative or the
transfer agent to transfer funds automatically from a regular bank account, cash
held in a Salomon Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.
o Amounts transferred should be at least: $25 monthly or $50 quarterly
o If you do not have sufficient funds in your account on a transfer date,
Salomon Smith Barney, your dealer representative or the transfer agent may
charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult the SAI.
- -16-
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith Barney offers a distinctive family of funds tailored to help meet the
varying needs of both large and small investors.
You should contact your Salomon Smith Barney Financial Consultant or dealer
representative to exchange into other Smith Barney funds. Be sure to read the
prospectus of the Smith Barney fund you are exchanging into. An exchange is a
taxable transaction.
o You may exchange shares only for shares of the same class of another Smith
Barney fund. Not all Smith Barney funds offer all classes.
o Not all Smith Barney funds may be offered in your state of residence.
Contact your Smith Barney Financial Consultant, dealer representative or
the transfer agent.
o You must meet the minimum investment amount for each fund
o If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers (documents
transferring ownership of certificates) before the exchange is effective.
o The fund may suspend or terminate your exchange privilege if you engage in
an excessive pattern of exchanges
- --------------------------------------------------------------------------------
Waiver of additional sales charges
Your shares will not be subject to an initial sales charge at the time of the
exchange.
Your deferred sales charge (if any) will continue to be measured from the date
of your original purchase. If the fund you exchange into has a higher deferred
sales charge, you will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By telephone
If you do not have a brokerage account, you may be eligible to exchange shares
through the transfer agent. You must complete an authorization form to authorize
telephone transfers. If eligible, you may make telephone exchanges on any day
the New York Stock Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset value next
determined.
You can make telephone exchanges only between accounts that have identical
registrations.
- --------------------------------------------------------------------------------
By mail
If you do not have a Salomon Smith Barney brokerage account, contact your dealer
representative or write to the transfer agent at the address on the opposite
page.
U.S. Government Securities Fund -17-
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally
Contact your Salomon Smith Barney Financial Consultant or dealer representative
to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive the certificates
endorsed for transfer or with signed stock powers before the redemption is
effective.
If the shares are held by a fiduciary or corporation, other documents may be
required.
Your redemption proceeds will be sent within three business days after your
request is received in good order. However, if you recently purchased your
shares by check, your redemption proceeds will not be sent to you until your
original check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your redemption proceeds
will be placed in your account and not reinvested without your specific
instruction. In other cases, unless you direct otherwise, your redemption
proceeds will be paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail
For accounts held directly at the fund, send written requests to the transfer
agent at the following address:
Smith Barney Funds, Inc.
U.S. Government Securities Fund
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
o Your account number
o The class of shares and the dollar amount or number of shares to be
redeemed
o Signatures of each owner exactly as the account is registered
- -18-
<PAGE>
By telephone
If you do not have a brokerage account, you may be eligible to redeem shares
(except those held in retirement plans) in amounts up to $10,000 per day through
the transfer agent. You must complete an authorization form to authorize
telephone redemptions. If eligible, you may request redemptions by telephone on
any day the New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests received
after the close of regular trading on the Exchange are priced at the net asset
value next determined.
Your redemption proceeds can be sent by check to your address of record or by
wire transfer to a bank account designated on your authorization form. You may
be charged a fee for wire transfers. You must submit a new authorization form to
change the bank account designated to receive wire transfers and you may be
asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic cash withdrawal plans
You can arrange for the automatic redemption of a portion of your shares on a
monthly or quarterly basis. To qualify you must own shares of the fund with a
value of at least $10,000 and each automatic redemption must be at least $50. If
your shares are subject to a deferred sales charge, the sales charge will be
waived if your automatic payments do not exceed 1% per month of the value of
your shares subject to a deferred sales charge.
The following conditions apply:
o Your shares must not be represented by certificates
o All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial Consultant or
dealer representative or consult the SAI.
U.S. Government Securities Fund -19-
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed.
o Name of the fund
o Account number
o Class of shares being bought, exchanged or redeemed
o Dollar amount or number of shares being bought, exchanged or
redeemed
o Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:
o Are redeeming (together with other requests submitted in the previous 10
days) over $10,000 of shares
o Are sending signed share certificates or stock powers to the transfer
agent
o Instruct the transfer agent to mail the check to an address different from
the one on your account
o Changed your account registration
o Want the check paid to someone other than the account owner(s)
o Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
- -20-
<PAGE>
The fund has the right to:
o Suspend the offering of shares
o Waive or change minimum and additional investment amounts
o Reject any purchase or exchange order
o Change, revoke or suspend the exchange privilege
o Suspend telephone transactions
o Suspend or postpone redemptions of shares on any day when trading on the
New York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
o Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances. If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates. The fund does not issue share certificates unless a written
request is made to the transfer agent. If you hold share certificates it will
take longer to exchange or redeem shares.
U.S. Government Securities Fund -21-
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney 401(k) and ExecChoice(TM) programs
- --------------------------------------------------------------------------------
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. The fund offers Class A and Class L shares
to participating plans as investment alternatives under the programs. You can
meet minimum investment and exchange amounts by combining the plan's investments
in any of the Smith Barney mutual funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
o Class A shares may be purchased by plans investing at least $1 million.
o Class L shares may be purchased by plans investing less than $1 million.
Class L shares are eligible for exchange into Class A shares not later
than 8 years after the plan joined the program. They are eligible for
exchange sooner in the following circumstances:
If the account was opened on or after June 21, 1996 and a total of
$1 million is invested in Smith Barney Funds Class L shares (other
than money market funds), all Class L shares are eligible for
exchange after the plan is in the program 5 years.
If the account was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares (other
than money market funds) on December 31 in any year, all Class L and
Class O shares are eligible for exchange on or about March 31 of the
following year.
For more information, call your Salomon Smith Barney Financial Consultant or the
transfer agent, or consult the SAI.
- -22-
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends. The fund pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
Taxes. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss; long-term
only if shares owned more than one year
- --------------------------------------------------------------------------------
Long-term capital gain distributions Long-term capital gain
- --------------------------------------------------------------------------------
Short-term capital gain distributions Ordinary income
- --------------------------------------------------------------------------------
Dividends Ordinary income
- --------------------------------------------------------------------------------
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a capital gain distribution or a
dividend, because it will be taxable to you even though it may actually be a
return of a portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
U.S. Government Securities Fund -23-
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices are not readily available, the fund may
price those securities at fair value. Fair value is determined in accordance
with procedures approved by the fund's board. A fund that uses fair value to
price securities may value those securities higher or lower than another fund
using market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, are
included in the annual report (available upon request).
- -24-
<PAGE>
For a Class A share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996(1) 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 13.24 $ 13.59 $ 12.50 $ 13.66
- ------------------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment
income (loss) 0.85 0.84 0.92 0.91
Net realized and
unrealized gain (loss) 0.38 (0.33) 1.09 (1.11)
- ------------------------------------------------------------------------------------------------------
Total income (loss) from
operations 1.23 0.51 2.01 (0.20)
- ------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income (0.86) (0.86) (0.92) (0.91)
Net realized gains (0.00)(1) -- -- (0.05)(2)
- ------------------------------------------------------------------------------------------------------
Total distributions (0.86) (0.86) (0.92) (0.96)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 13.61 $ 13.24 $ 13.59 $ 12.50
- ------------------------------------------------------------------------------------------------------
Total return 9.67% 3.97% 16.52% (1.48)%
- ------------------------------------------------------------------------------------------------------
Net assets, end of
year (000)'s $ 271,767 $ 311,875 $ 384,534 $ 358,045
- ------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses 0.80% 0.79%(3) 0.79% 0.76%(4)
Net investment
income (loss) 6.37 6.34 6.82 6.83
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 130% 265% 57% 40%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amount represents less than $0.01.
(2) Represents distributions from paydown gains which are reported as ordinary
income for tax purposes.
(3) Amount has been restated from the December 31, 1996 Annual Report.
(4) Amount has been restated from the December 31, 1994 Annual Report.
U.S. Government Securities Fund -25-
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 13.26 $ 13.61 $ 12.51 $ 12.47
- ----------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.79 0.77 0.80 0.08
Net realized and unrealized
gain (loss) 0.38 (0.33) 1.16 0.17
- ----------------------------------------------------------------------------------------------------------
Total income (loss) 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)(2) __ __ __
- ----------------------------------------------------------------------------------------------------------
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%(3)
- ----------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 12,238 $ 11,212 $ 11,116 $ 1,529
Ratios to average
net assets:
Expenses 1.31% 1.28%(4) 1.28% 1.21%(5)(4)
Net investment income (loss) 5.8 5.8 6.1 6.9
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 130% 265% 57% 40%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from November 7, 1994 (inception date) to December 31,
1994.
(2) Amount represents less than $0.01.
(3) Not annualized.
(4) Amount has been restated from the December 31, 1996 Annual Report.
(5) Annualized.
(6) Amount has been restated from the December 31, 1994 Annual Report.
- -26-
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 13.23 $ 13.58 $ 12.50 $ 13.66
- ----------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.77 0.78 0.86 0.82
Net realized and unrealized
gain (loss) 0.40 (0.33) 1.09 (1.11)
- ----------------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.17 0.45 1.95 (0.29)
- ----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income(6) (0.80) (0.80) (0.87) (0.83)
Net realized gains (0.00)(2) __ __ (0.04)(5)
- ----------------------------------------------------------------------------------------------------------
Total distributions (0.80) (0.80) (0.87) (0.87)
- ----------------------------------------------------------------------------------------------------------
Net assets value, end of year $ 13.60 $ 13.23 $ 13.58 $ 12.50
- ----------------------------------------------------------------------------------------------------------
Total return 9.18% 3.49% 15.93% (2.11)%
- ----------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 14,464 $ 17,249 $ 21,559 $ 21,253
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.27% 1.26%(4) 1.25% 1.21%
Net investment income
(loss) 5.91 5.87 6.36 6.27
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 130% 265% 57% 40%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) On November 7, 1994, the former Class B shares were renamed Class C
shares.
(2) Amount represents less than $0.01.
(3) Represents distributions from paydown gains which are reported as ordinary
income for tax purposes.
(4) Amount has been restated from the December 31, 1996 Annual Report.
U.S. Government Securities Fund -27-
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 13.27 $ 13.61 $ 12.51 $ 13.67
- ----------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.88 0.88 1.00 0.89
Net realized and unrealized
gain (loss) 0.39 (0.33) 1.06 (1.10)
- ----------------------------------------------------------------------------------------------------------
Total income (loss) from
operations 1.27 0.55 2.06 (0.21)
- ----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.90) (0.89) (0.96) (0.91)
Net realized gains (0.00)(2) ___ ___ (0.04)(3)
- ----------------------------------------------------------------------------------------------------------
Total distributions (0.90) (0.89) (0.96) (0.95)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 13.64 $ 13.27 $ 13.61 $ 12.51
- ----------------------------------------------------------------------------------------------------------
Total return 10.00% 4.30% 16.88% (1.53)%
- ----------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 5,182 $ 5,589 $ 6,992 $ 13,903
- ----------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 0.51% 0.50%(4) 0.49% 0.61
Net investment income (loss) 6.65 6.64 7.22 6.82
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 130% 265% 57% 40%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) On November 7, 1994, the former Class C shares were renamed Class Y
shares.
(2) Amount represents less than $0.01.
(3) Represents distributions from paydown gains which are reported as ordinary
income for tax purposes.
(4) Amount has been restated from the December 31, 1996 Annual Report.
- -28-
<PAGE>
SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]
U.S. Government Securities
- -- an investment portfolio of Smith Barney Funds, Inc.
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the
Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-01464)
[FD00000 4/99]
Draft 2/22/99
- -------------------------
[LOGO]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
- -------------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
April 30, 1999 U.S. Government Securities Fund
Class Z Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
The Class Z shares described in this prospectus are offered exclusively
for sale to tax-exempt employee benefit and retirement plans of
Salomon Smith Barney Inc. or any of its affiliates.
- -2-
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Fund goal and strategies...........................................4
More on the fund's investments.....................................8
Management.........................................................9
Buying, selling and redeeming
Class Z shares..................................................10
Dividends, distributions and
taxes...........................................................11
Share price.......................................................12
Financial highlights..............................................13
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
U.S. Government Securities Fund - Class Z Shares
<PAGE>
- --------------------------------------------------------------------------------
Fund goal and strategies
- --------------------------------------------------------------------------------
Investment objective
The fund seeks high current income, liquidity and security of principal.
Key investments
The fund invests primarily in debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and in related repurchase and
reverse repurchase agreements. These U.S. government securities in which the
fund invests consist primarily of mortgage-related securities and U.S. Treasury
securities. Mortgage-related securities issued by federal agencies or
instrumentalities may be backed by the full faith and credit of the U.S.
Treasury, by the right of the issuer to borrow from the U.S. government or only
by the credit of the issuer itself.
Selection process
The manager selects individual securities that it believes are undervalued or
will offer better protection of capital during periods of changing market
conditions. The manager spreads the fund's investments among various sectors,
focusing more heavily on sectors it believes will experience less price
volatility given prevailing interest rates and expected interest rate movements.
In selecting individual securities, the manager:
o Determines sector and maturity weightings based on intermediate and
long-term assessments of the economic environment and relative value
factors based on interest rate outlook
o Measures the potential impact of supply/demand imbalances, yield curve
shifts and changing prepayment patterns to identify individual securities
that balance potential return and risk
o Monitors the spreads between U.S. Treasury and government agency or
instrumentality issues and purchases agency and instrumentality issues
that it believes will provide a yield advantage
o Uses research to uncover inefficient sectors of the government securities
and
mortgage markets and adjusts portfolio positions to take advantage of new
information
- -4-
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
o Interest rates increase, causing the prices of fixed income securities to
decline which would reduce the value of the fund's portfolio
o Prepayment or call risk: As interest rates decline, the issuers of
mortgage-related or callable securities held by the fund may pay principal
earlier than scheduled or exercise a right to call the securities, forcing
the fund to reinvest in lower yielding securities
o Extension risk: As interest rates increase, slower than expected principal
payments may extend the average life of fixed income securities, locking
in below-market interest rates and reducing the value of these securities
o The manager's judgment about interest rates or the attractiveness, value
or income potential of a particular security proves incorrect
Payments of principal and interest on mortgage-backed securities issued by
instrumentalities
of the U.S. government are guaranteed by the issuer and not guaranteed by the
U.S. government. Although payment of principal and interest on mortgage-backed
securities issued by U.S. agencies are guaranteed by the full faith and credit
of the U.S. government, this guarantee does not apply to losses resulting
from declines in the market value of these securities.
Who may want to invest
The fund may be an appropriate investment if you:
o Are seeking income consistent with preservation of capital
o Are willing to accept the interest rate risks and market risks of
investing in government bonds and mortgage-related securities
o Prefer to invest in U.S. government securities rather than higher yielding
corporate or foreign securities
U.S. Government Securities Fund - Class Z Shares
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
% Total Return: Class Z Shares
Calendar years ended December 31,
-------------------------------------------
1995 1996 1997 1998
---- ---- ---- ----
16.89 4.31 9.98
The bar chart shows the performance of the fund's Class Z shares for each of the
past 4 full calendar years.
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Mortgage-Backed Securities Index (the "Lehman Index"), a broad-based
unmanaged index of mortgage-backed securities and the Lipper [U.S. Government
Securities Fund] Average (the "Lipper Average"), an average composed of the
fund's peer group of mutual funds. This table assumes imposition of the maximum
sales charge applicable to the class, redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Class Inception date 1 year 5 years 10 years Since inception
- --------------------------------------------------------------------------------
Z 11/7/94
- --------------------------------------------------------------------------------
Lehman Index n/A
- --------------------------------------------------------------------------------
Lipper n/a
- --------------------------------------------------------------------------------
*Index comparison begins on
- -6-
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Annual fund operating expenses
(paid by the fund as a % of fund net
assets)
- --------------------------------------------------------------------------------
Management fee 0.45%
- --------------------------------------------------------------------------------
Other expenses
----
- --------------------------------------------------------------------------------
Total annual fund operating expenses
====
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
o You invest $10,000 in the fund for the period shown
o Your investment has a 5% return each year
o You reinvest all distributions and dividends
o The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Class Z $ $ $ $
U.S. Government Securities Fund - Class Z Shares
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Derivative contracts. The fund may, but need not, use derivative contracts, such
as interest rate futures and options on interest rate futures, for any of the
following purposes:
o To hedge against the economic impact of adverse changes in the market
value of portfolio securities due to changes in interest rates
o As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in derivative contracts can have a big impact on a
fund's interest rate exposure. Therefore, using derivatives can
disproportionately increase losses and reduce opportunities for gains when
interest rates are changing. The fund may not fully benefit from or may lose
money on derivatives if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. The other parties to certain
derivative contracts present the same types of default risk as issuers of fixed
income securities. Derivatives can also make a fund less liquid and harder to
value, especially in declining markets.
Risk of high portfolio turnover. The fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from the fund's performance.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
- -8-
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager. The fund's investment manager is SSBC Fund Management Inc., an
affiliate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments and
oversees its operations. The manager and Salomon Smith Barney are subsidiaries
of Citigroup Inc. Citigroup businesses produce a broad range of financial
services -- asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
James E. Conroy, investment officer of Mutual Management Corp. and managing
director of Salomon Smith Barney, has been responsible for the day to day
management of the fund since January 1996. Mr. Conroy has over [ ] years of
investment management experience.
Management fees. During the fiscal year ended December 31, 1998, the manager
received an advisory fee equal to ___% of the fund's average daily net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
U.S. Government Securities Fund - Class Z Shares
<PAGE>
- --------------------------------------------------------------------------------
Buying, selling and exchanging Class Z shares
- --------------------------------------------------------------------------------
Through a You may buy, sell or exchange Class Z shares only through a
qualified "qualified plan." A qualified plan is a tax-exempt employee
plan benefit or retirement plan of Salomon Smith Barney, Inc. or
one of its affiliates.
There are no minimum investment requirements for Class Z
shares. However, the fund reserves the right to change this
policy at any time.
Buying Orders to buy Class Z shares must be made in accordance with
the terms of a qualified plan. If you are a participant in a
qualified plan, you may place an order with your plan to buy
Class Z shares at net asset value, without any sales charge.
Payment is due to Salomon Smith Barney on settlement date,
which is the third business day after your order is accepted.
If you make payment prior to this date, you may designate a
temporary investment (such as a money market fund of the Smith
Barney Mutual Funds) for payment until settlement date. The
fund reserves the right to reject any order to buy shares and
to suspend the offering of shares for a period of time.
Selling Qualified plans may redeem their shares on any day on which
the fund calculates its net asset value. You should consult
the terms of your qualified plan for special redemption
provisions.
Exchanging You should consult your qualified plan for information about
available exchange options.
- -10-
<PAGE>
- --------------------------------------------------------------------------------
Distributions, dividends and taxes
- --------------------------------------------------------------------------------
An investment in the fund will have the following consequences for a qualified
plan as the owner of shares in the fund. Qualified plan participants should
consult their plan document or tax advisors about the tax consequences of
participating in a qualified plan.
Dividends. The fund generally makes capital gain distributions and pays
dividends, if any, once a year, typically in December. The fund may pay
additional distributions and dividends at other times if necessary for the
fund to avoid a federal tax. Capital gain distributions and dividends are
reinvested in addition Class Z shares. The fund expects distributions to be
primarily from capital gains. No sales charge is imposed on reinvested
distributions or dividends. Alternatively, a qualified plan can in
ative or the transfer agent to have distributions and/or dividends paid in
cash. It can change that choice at any time to be effective as of the next
distribution or dividend, except that any change given to the transfer agent
less than five days before the payment date will not be effective until the
next distribution or dividend is paid.
Taxes. Provided that a qualified plan has not borrowed to finance its
investment in the fund, it will not be taxable on the receipt of dividends and
distributions from the fund.
Because each shareholder's circumstances are different and special tax rules may
apply, you should consult with your tax adviser about your investment in the
fund.
U.S. Government Securities Fund - Class Z Shares
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
Qualified plans may buy, exchange or redeem Class Z shares of the fund at the
net asset value next determined after receipt of your request in good order. The
fund's net asset value is the value of its assets minus its liabilities. Net
asset value is calculated separately for each class of shares. The fund
calculates its net asset value every day the New York Stock Exchange is open.
This calculation is done when regular trading closes on the Exchange (normally
4:00 p.m., Eastern time).
The fund generally values its fund securities based on market prices or
quotations. When reliable market prices are not readily available, the fund may
price those securities at fair value. Fair value is determined in accordance
with procedures approved by the fund's board. A fund that uses fair value to
price securities may value those securities higher or lower than another fund
using market quotations to price the same securities.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Your qualified plan must transmit all orders to buy, exchange or redeem shares
to the fund's agent before the agent's close of business.
- -12-
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of Class Z shares since inception. Certain information reflects
financial results for a single share. Total return represents the rate that a
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was
audited by KPMG Peat Marwick LLP, independent accountants, whose report, along
with the fund's financial statements, are included in the annual report
(available upon request).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1998 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 (loss) 0.89 0.88 0.94 0.14
Net realized and
unrealized gain (loss) 0.38 (0.33) 1.11 0.13
- --------------------------------------------------------------------------------------------------------
Total income (loss) 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)(2) -- -- --
- --------------------------------------------------------------------------------------------------------
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)(3)
- --------------------------------------------------------------------------------------------------------
Net assets, end of
year (000)'s $22,815 $19,511 $20,923 $18,580
- --------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses 0.51% 0.49% 0.50% 0.34%(4)
Net investment
income (loss) 6.64 6.64 7.12 7.55(4)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 130% 265% 57% 40%
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from November 7, 1994 (inception date) to December 31,
1994.
(2) Amount represents less than $0.01.
(3) Total return is not annualized.
(4) Annualized
U.S. Government Securities Fund - Class Z Shares
<PAGE>
SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]
U.S. Government Securities Fund
- -- an investment portfolio of Smith Barney Funds, Inc.
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your qualified plan or the transfer agent if you do not
want this policy to apply to you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally a part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your
qualified plan, by calling the fund at 1-800-451-2010, or by writing to the fund
at Smith Barney Mutual Funds, 388 Greenwich Street, MF2, New York, New York
10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review the fund's shareholder reports, prospectus and statement of
additional information at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You can get copies of these materials for a
fee by writing to the Public Reference Section of the Commission, Washington,
D.C. 20549-6009. Information about the public reference room may be obtained by
calling 1-800-SEC-0330. You can get the same information free from the
Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-01464)
[FD00000 4/99]
Part B
Part B
April 30, 1999
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 High Grade Bond Fund (collectively referred to
as the "Portfolios" and 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." The Short-Term High Grade Bond Fund had
been named Short-Term U.S. Treasury Securities Fund prior to July 2,
1998.
This Statement of Additional Information ("SAI") 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 associated
prospectuses, each dated April 30, 1999 as amended and/or supplemented
from time to time. Additional information about each Portfolio's
investments is available in the Portfolios' annual and semi-annual
reports to shareholders. Each Portfolio's prospectus and report may be
obtained from the Fund at the address listed above or by calling (800)
421-2010, or from a Salomon Smith Barney Financial Consultant.
TABLE OF CONTENTS PAGE
Investment Policies 2
Investment Restrictions 7
Directors and Officers 10
Additional Information Concerning Taxes 12
IRA and Other Prototype Retirement Plans 15
Performance Information 16
Valuation of Shares 18
Purchase and Redemption of Shares 18
Investment Management Agreement
and Other Services 27
Custodian 31
Independent Auditors 31
Additional Information about the Fund 31
Voting 31
Financial Statements 35
Appendix - Ratings of Debt Obligations 36
INVESTMENT POLICIES
The prospectus describes the investment objectives and policies of
each Portfolio. The following discussion supplements the description of
the Portfolio's investment policies in the prospectus. The investment
objectives and policies of each Portfolio are non-fundamental and thus
may be modified by the Directors of the Fund provided that any
modification is not prohibited by the Portfolios' investment
restrictions or applicable laws. Each Portfolio's investment adviser is
SSBC Fund Management Inc. ("SSBC" or the "manager").
Large Cap Value Fund. The Portfolio invests primarily in common
stocks offering a current return from dividends and will also normally
include some interest-paying debt obligations (such as U.S. government
obligations, investment grade bonds and debentures) and high quality
short-term debt obligations (such as commercial paper and repurchase
agreements collateralized by U.S. government securities with
broker/dealers or other financial institutions, including the Fund's
custodian). Under normal market conditions, at least 65% of the
Portfolio's assets will be invested in common stocks of companies that
have a market capitalization of at least $5 billion at the time of
investment. The Portfolio may also purchase preferred stocks and
convertible securities. From time to time, a portion of the assets may
be invested in non-dividend paying stocks. The Portfolio may make
investments in foreign securities, although the manager currently
intends to limit such investments to 5% of the Portfolio's assets
(including European, Continental and Global Depositary Receipts). An
additional 10% of its assets may be invested in sponsored American
Depositary Receipts representing shares in foreign securities that are
traded in U.S. securities markets.
The Portfolio may also invest in options (including swaps, caps,
collars and floors), unseasoned issuers, REITS and other investment
companies and may borrow money as a temporary measure for extraordinary
or emergency purposes.
U.S. Government Securities Fund. 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 instrumentalities.
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. 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.
Short-Term High Grade Bond Fund. The Portfolio will seek to
achieve its objective by investing its assets primarily in high-grade
bonds, including U.S. Government securities and corporate obligations.
The Portfolio's investments will be limited to debt securities that, at
the time of investment, are considered to be of "investment grade"
quality, i.e., securities rated by a nationally recognized statistical
rating organization ("NRSRO") within one of the four highest ratings
categories for debt securities, or securities deemed comparable thereto
by the manager. In addition, the Portfolio will invest primarily in the
following securities: corporate bonds rated in one of the three highest
categories for debt securities by an NRSRO (such as A or better by
Moody's Investor Service, Inc. ("Moodys") or Standard & Poor's Rating
Group ("S&P")); U.S. government securities; and negotiable bank
certificates of deposit and bankers' acceptances issued by domestic
banks (but not their foreign branches) having total assets in excess of
$1 billion.
In an effort to minimize fluctuations in market value, the
dollar-weighted average maturity of the Portfolio's securities shall
normally not be less than one nor more than four years, and the average
duration of the Portfolio will typically be no greater than 3.5 years.
The maximum remaining maturity of the securities in which the Portfolio
shall normally invest will be no greater than ten years. In calculating
the maturity of a mortgage-backed security (such as a GNMA Certificate,
described below), the Portfolio will use the average life of the
underlying mortgages in the pool backing the security, which takes into
account the expected rate of prepayments.
The Portfolio may maintain a portion of its assets, which will
usually not exceed 10%, in money market obligations and in cash to
provide for payment of the Portfolio's expenses and to meet redemption
requests. It is the policy of the Portfolio to be as fully invested in
debt securities as practicable at all times. The Portfolio reserves the
right, as a defensive measure, to hold money market securities,
including repurchase agreements or cash, in such proportions as, in the
opinion of management, prevailing market or economic conditions warrant.
Credit Quality. Each Portfolio may invest in investment grade
bonds, i.e. U.S. government securities or bonds rated, at the time of
purchase, in the four highest ratings categories by an NRSRO, such as
those rated Aaa, Aa, A and Baa by Moody's or AAA, AA, A and BBB by S&P.
Obligations rated in the lowest of the top four rating categories (such
as Baa by Moody's or BBB by S&P) may have speculative characteristics
and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest
payments, including a greater possibility of default or bankruptcy of
the issuer, than is the case with higher grade bonds. Subsequent to its
purchase by a Portfolio, an issue of securities may cease to be rated or
its rating may be reduced below the minimum required for purchase by the
Portfolio. In addition, it is possible that Moody's, S&P and other
NRSROs might not timely change their ratings of a particular issue to
reflect subsequent events. None of these events will require the sale
of the securities by a Portfolio, although the manager will consider
these events in determining whether the Portfolio should continue to
hold the securities.
U.S. Government Securities. U.S. government securities are
obligations of, or are guaranteed by, the United States government, its
agencies or instrumentalities. These include bills, certificates of
indebtedness, and notes and bonds issued by the U.S. treasury or by
agencies or instrumentalities of the U.S. government. Some U.S.
government securities, such as U.S. treasury bills and bonds, are
supported by the full faith and credit of the U.S. treasury; others are
supported by the right of the issuer to borrow from the United States
treasury; others, such as those of FNMA, are supported by the
discretionary authority of the U.S. government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association and the FHLMC are supported only by the credit of the
instrumentality. GNMA is a government-chartered corporation owned
entirely by private stockholders, which is subject to general regulation
by the Secretary of Housing and Urban Development. FHLMC is a U.S.
government-created entity controlled by the Federal Home Loan Banks.
GNMA 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. 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 and either increasing or decreasing
the yield realized by the Portfolio, depending on the cost of the
underlying Certificate and its market value at the time of prepayment.
The income portions of monthly payments received by these Portfolios
will be included in their net investment income. 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.
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 a Portfolio buys GNMA
Certificates at a premium, mortgage foreclosures or prepayments may
result in a loss to the Portfolio of up to the amount of the premium
paid since only timely payment of principal and interest is guaranteed.
Zero Coupon Bonds. The U.S. Government Securities Fund and Short-
Term High Grade Bond Fund may each invest in zero-coupon debt
securities, which may be subject to greater volatility than other types
of debt securities. Because zero-coupon securities do not make 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.
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 a Portfolio's
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
account 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 securities 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.
Short-term Trading. U.S. Government Securities Fund and Short-
Term High Grade Bond Fund may, to a limited degree, each 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 advisable or it needs to generate cash
to satisfy redemptions. As the portfolio turnover rate increases, so
will a 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.
When-Issued, Delayed Delivery and Forward Commitment Investments.
Each 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. 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 that have a value equal to or greater than the
Portfolio's purchase commitments; the custodian will likewise segregate
securities sold on a delayed basis.
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 or other foreign 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.
The Short-Term High Grade Bond Fund may invest in Yankee
obligations, including Yankee obligations of foreign banks. Yankee
obligations are dollar denominated obligations issued in the U.S.
capital markets by foreign issuers. Yankee obligations are subject to
certain sovereign risks. One such risk is the possibility that a foreign
government might prevent dollar denominated funds from flowing across
its borders. Other risks include: adverse political and economic
developments in a foreign country; the extent and quality of government
regulation of financial markets and institutions; the imposition of
foreign withholding taxes; and expropriation or nationalization of
foreign issuers.
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.
Futures Contracts and Related Options. 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. Futures contracts and options thereon may
be undertaken for hedging and other risk management purposes in an
effort to reduce the impact of several kinds of anticipated price
fluctuation risks on the securities held by a Portfolio. For example,
put options on interest rate futures might be purchased to protect
against declines in the market values of debt securities occasioned by
higher interest rates. If these transactions are successful, the futures
or options positions taken by a Portfolio will rise in value by an
amount which approximately offsets the decline in value of the portion
of the securities held by a Portfolio that is being hedged. On other
occasions, a Portfolio may enter into contracts to purchase the
underlying instrument. For example, futures contracts for the purchase
of debt securities might be entered into to protect against an
anticipated increase in the price of debt securities to be purchased in
the future resulting from decreased interest rates.
The U.S. Government Securities Fund and Short-Term High Grade Bond
Fund may purchase and sell interest rate futures contracts ("futures
contracts") and options thereon as a hedge against changes in interest
rates. Currently, there are interest rate 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. If interest rates
increased and the value of a 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 interest rates to decline, a Portfolio might enter into
futures contracts for the purchase of securities, so that it could gain
rapid market exposure that may offset anticipated increases in the cost
of securities it intends to purchase.
The U.S. Government Securities Fund also may purchase and sell
listed put and call options on futures contracts. An option on a
futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the option
period. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference
between the current market price of the futures contract and the
exercise price of the option. The U.S. Government Securities Fund 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.
A Portfolio will incur brokerage costs whether or not its hedging
is successful and will be required to post and maintain "margin" as a
good-faith deposit against performance of its obligations under futures
contracts and under options written by the Portfolio. Futures and
options positions are marked to the market daily and the Portfolio may
be required to make subsequent "variation" margin payments depending
upon whether its positions increase or decrease in value. In this
context margin payments involve no borrowing on the part of the
Portfolio.
The Short-Term High Grade Bond Fund and U.S. Government Securities
Fund may not purchase futures contracts or options thereon if,
immediately thereafter, more than 10% and 30%, respectively, of their
total assets would be so invested. In purchasing and selling futures
contracts, each 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 for bona fide hedging purposes without
limitations on the amount of assets committed to margin.
Neither the U.S. Government Securities Fund nor Short-Term High
Grade Bond Fund will engage in transactions involving futures contracts
or options thereon 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 reduce the Portfolios' risks. Each Portfolio's futures, and options
on futures, transactions will be entered into for traditional hedging
purposes - that is, futures contracts will be sold to protect against a
decline in the price of securities that the Portfolio 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 a Portfolio will be able to close out
it 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 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 securities, but the market declines and a Portfolio does
not invest in 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 securities but the
market advances, the Portfolio would lose part or all of the benefit of
the advance due to offsetting losses in its futures positions.
Portfolio Turnover. 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, distributions of which are taxable
to shareholders. See "Financial Highlights" in the prospectus and
"Investment Management Agreement and Other Services - Brokerage" in this
Statement of Additional Information.
INVESTMENT RESTRICTIONS
Each of the Portfolios is subject to certain restrictions and
policies that are "fundamental," which means that they 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.
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 High Grade Bond 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.
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); 77.
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; 67.
*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 and President of the
manager; Chairman of the Board of Smith Barney Strategy Advisors Inc.
and President of Travelers Investment Adviser, Inc. ("TIA"); prior to
July 1993, Senior Executive Vice President of Shearson Lehman Brothers
and Vice Chairman of the Board of Asset Management; 65.
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); 72.
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; 68.
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 of the manager and TIA; 41.
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; 47.
PAUL BROOK, Controller and Assistant Secretary
Director of Salomon Smith Barney and Controller or Assistant Controller
of certain other investment companies associated with Salomon Smith
Barney since 1998; Managing Director of AMT Capital Services Inc. from
1997-1998; Partner with Ernst & Young LLP prior to 1997; 45.
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 and TIA; 48.
_________________________
* 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 and of each officer listed above, is 388
Greenwich Street, New York, New York 10013.
On February 5, 1999, directors and officers owned in the aggregate
less than 1% of the outstanding shares of each Portfolio.
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 Salomon
Smith Barney.
COMPENSATION TABLE
Name of Person
Aggregate
Compensati
on from
Fund
Pension or
Retirement
Benefits
Accrued as
part of Fund
Expenses
Total
Compensat
ion from
Fund
Complex
Number of
Funds for
Which
Person
Serves
Within
Fund
Complex
Joseph H. Fleiss+@
0
10
Donald R. Foley+
0
10
Paul Hardin
0
12
Francis P. Martin+
0
10
Heath B. McLendon*
0
0
0
42
Roderick C. Rasmussen
0
10
Bruce D. Sargent*
0
0
3
John P. Toolan+
0
10
________________________
* Designates a Director who is an "interested person".
+ Pursuant to a deferred compensation plan, the indicated Directors have
elected to defer payment of the following amounts of their compensation
from the Fund: Joseph H. Fleiss - $631, Donald R. Foley - $631, Francis
P. Martin- $3,162 and John P. Toolan - $3,462, 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 paid to emeritus directors by the Fund was $________.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is a summary of the material United States federal
income tax considerations regarding the purchase, ownership and
disposition of shares of a Portfolio of the Fund. Each prospective
shareholder is urged to consult his own tax adviser with respect to the
specific federal, state, local and foreign tax consequences of investing
in a Portfolio. The summary is based on the laws in effect on the date
of this Statement of Additional Information, which are subject to
change.
The Portfolios and Their Investments
Each Portfolio intends to qualify to be treated as a regulated
investment company each taxable year under the Internal Revenue Code of
1986, as amended (the "Code"). To so qualify, a Portfolio must, among
other things: (a) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to
securities, loans and gains from the sale or other disposition of stock
or securities or foreign currencies, or other income (including, but not
limited to, gains from options, futures or forward contracts) derived
with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each
quarter of a Portfolio's taxable year, (i) at least 50% of the market
value of a Portfolio's assets is represented by cash, securities of
other regulated investment companies, United States government
securities and other securities, with such other securities limited, in
respect of any one issuer, to an amount not greater than 5% of a
Portfolio's assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its
assets is invested in the securities (other than United States
government securities or securities of other regulated investment
companies) of any one issuer or any two or more issuers that a Portfolio
controls and are determined to be engaged in the same or similar trades
or businesses or related trades or businesses.
As a regulated investment company, each Portfolio will not be
subject to United States federal income tax on its net investment income
(i.e., income other than its net realized long- and short-term capital
gains) and its net realized long- and short-term capital gains, if any,
that it distributes to its shareholders, provided that an amount equal
to at least 90% of the sum of its investment company taxable income
(i.e., 90% of its taxable income minus the excess, if any, of its net
realized long-term capital gains over its net realized short-term
capital losses (including any capital loss carryovers), plus or minus
certain other adjustments as specified in the Code) and its net tax-
exempt income for the taxable year is distributed, but will be subject
to tax at regular corporate rates on any taxable income or gains that it
does not distribute. Furthermore, each Portfolio will be subject to a
United States corporate income tax with respect to such distributed
amounts in any year that it fails to qualify as a regulated investment
company or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on each Portfolio
to the extent a Portfolio does not distribute by the end of any calendar
year at least 98% of its net investment income for that year and 98% of
the net amount of its capital gains (both long-and short-term) for the
one-year period ending, as a general rule, on October 31 of that year.
For this purpose, however, any income or gain retained by a Portfolio
that is subject to corporate income tax will be considered to have been
distributed by year-end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will be increased or
decreased to reflect any underdistribution or overdistribution, as the
case may be, from the previous year. Each Portfolio anticipates that it
will pay such dividends and will make such distributions as are
necessary in order to avoid the application of this tax.
If, in any taxable year, a Portfolio fails to qualify as a
regulated investment company under the Code or fails to meet the
distribution requirement, it would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by a Portfolio in computing its taxable income. In addition,
in the event of a failure to qualify, a Portfolio's distributions, to
the extent derived from a Portfolio's current or accumulated earnings
and profits would constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at
least in part) have been treated in the shareholders' hands as long-term
capital gains. If a Portfolio fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a regulated
investment company. In addition, if a Portfolio failed to qualify as a
regulated investment company for a period greater than one taxable year,
a Portfolio may be required to recognize any net built-in gains (the
excess of the aggregate gains, including items of income, over aggregate
losses that would have been realized if it had been liquidated) in order
to qualify as a regulated investment company in a subsequent year.
At December 31, 1998 the unused capital loss carryovers of the
Portfolios were approximately as follows: Short-Term High Grade Bond
Fund: $[ ]. 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 High Grade Bond Fund
- ---
4,805
1,124
$971
The U.S. Government Securities Fund and the Short-Term High Grade
Bond Fund may invest in zero coupons securities having an original issue
discount (that is, the discount represented by the excess of the stated
redemption price at maturity over the issue price). Each year, each
Portfolio will be required to accrue as income a portion of this
original issue discount even though the Portfolio will receive no cash
payment of interest with respect to these securities. In addition, if
the Portfolio acquires a security after its initial issuance at a
discount that resulted from fluctuations in prevailing interest rates
("market discount"), the Portfolio may elect to include in income each
year a portion of this market discount.
Each Portfolio will be required to distribute substantially all of
its income (including accrued original issue and recognized market
discount) in order to qualify for "pass-through" federal income tax
treatment and also in order to avoid the imposition of 4% excise tax
referred to above. Therefore, a Portfolio may be required in some years
to distribute an amount greater than the total cash income the Portfolio
actually receives. In order to make the required distribution in such a
year, a Portfolio may be required to borrow or to liquidate securities.
The amount of cash that a Portfolio would have to distribute, and thus
the degree to which securities would need to be liquidated or borrowing
made would depend upon the number of shareholders who chose not to have
their dividends reinvested.
A Portfolio's transactions in options and futures, will be subject
to special provisions of the Code (including provisions relating to
"hedging transactions" and "straddles") that, among other things, may
affect the character of gains and losses realized by a Portfolio (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to a Portfolio and defer Portfolio losses. These
rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also (a) will require a
Portfolio to mark-to-market certain types of the positions in its
portfolio (i.e., treat them as if they were closed out) and (b) may
cause a Portfolio to recognize income without receiving cash with which
to pay dividends or make distributions in amounts necessary to satisfy
the distribution requirements for avoiding income and excise taxes.
Each Portfolio will monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and
records when it acquires any option, futures contract or hedged
investment in order to mitigate the effect of these rules and prevent
disqualification of a Portfolio as a regulated investment company.
A Portfolio's investment in Section 1256 contracts, such as
regulated futures contracts and options on most stock indices, are
subject to special tax rules. All section 1256 contracts held by a
Portfolio at the end of its taxable year are required to be marked to
their market value, and any unrealized gain or loss on those positions
will be included in the Portfolio's income as if each position had been
sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized
by the Portfolio from positions in section 1256 contracts closed during
the taxable year. Provided such positions were held as capital assets
and were not part of a "hedging transaction" nor part of a "straddle,"
60% of the resulting net gain or loss will be treated as long-term
capital gain or loss, and 40% of such net gain or loss will be treated
as short-term capital gain or loss, regardless of the period of time the
positions were actually held by the Portfolio.
Foreign Investments. Dividends or other income (including, in
some cases, capital gains) received by the Large Cap Value Fund from
investments in foreign securities may be subject to withholding and
other taxes imposed by foreign countries. Tax conventions between
certain countries and the United States may reduce or eliminate such
taxes in some cases. The Large Cap Value Fund will not be eligible to
elect to treat any foreign taxes it pays as paid by its shareholders,
who therefore will not be entitled to credits for such taxes on their
own tax returns. Foreign taxes paid by the Large Cap Value Fund will
reduce the return from its investments.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by a Portfolio
in October, November or December of any calendar year and payable to
shareholders of record on a specified date in such a month shall be
deemed to have been received by each shareholder on December 31 of such
calendar year and to have been paid by a Portfolio not later than such
December 31, provided that such dividend is actually paid by a Portfolio
during January of the following calendar year. Each Portfolio intends
to distribute annually to its shareholders substantially all of its
investment company taxable income, and any net realized long-term
capital gains in excess of net realized short-term capital losses
(including any capital loss carryovers). Each Portfolio currently
expects to distribute any excess annually to its shareholders. However,
if a Portfolio retains for investment an amount equal to all or a
portion of its net long-term capital gains in excess of its net short-
term capital losses and capital loss carryovers, it will be subject to a
corporate tax (currently at a rate of 35%) on the amount retained. In
that event, a Portfolio will designate such retained amounts as
undistributed capital gains in a notice to its shareholders who (a) will
be required to include in income for United Stares federal income tax
purposes, as long-term capital gains, their proportionate shares of the
undistributed amount, (b) will be entitled to credit their proportionate
shares of the 35% tax paid by the Portfolio on the undistributed amount
against their United States federal income tax liabilities, if any, and
to claim refunds to the extent their credits exceed their liabilities,
if any, and (c) will be entitled to increase their tax basis, for United
States federal income tax purposes, in their shares by an amount equal
to 65% of the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject to federal
income tax on such capital gains will be entitled to a refund of their
pro rata share of such taxes paid by a Portfolio upon filing appropriate
returns or claims for refund with the Internal Revenue Service (the
"IRS").
Dividends of net investment income and distributions of net
realized short-term capital gains are taxable to a United States
shareholder as ordinary income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if any, that a Portfolio
designates as capital gains dividends are taxable as long-term capital
gains, whether paid in cash or in shares and regardless of how long a
shareholder has held shares of a Portfolio. Dividends and distributions
paid by a Portfolio (except for the portion thereof, if any,
attributable to dividends on stock of U.S. corporations received by a
Portfolio) will not qualify for the deduction for dividends received by
corporations. Distributions in excess of a Portfolio's current and
accumulated earnings and profits will, as to each shareholder, be
treated as a tax-free return of capital, to the extent of a
shareholder's basis in his shares of a Portfolio, and as a capital gain
thereafter (if the shareholder holds his shares of a Portfolio as
capital assets).
Investors considering buying shares just prior to a dividend or
capital gain distribution should be aware that, although the price of
shares just purchased at that time may reflect the amount of the
forthcoming distribution, such dividend or distribution may nevertheless
be taxable to them.
If a Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such
dividends are included in a Portfolio's gross income not as of the date
received but as of the later of (a) the date such stock became ex-
dividend with respect to such dividends (i.e., the date on which a buyer
of the stock would not be entitled to receive the declared, but unpaid,
dividends) or (b) the date a Portfolio acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, a
Portfolio may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than
would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss equal to the difference
between the amount realized and his basis in his shares. Such gain or
loss will be treated as capital gain or loss, if the shares are capital
assets in the shareholder's hands, and will be long-term capital gain or
loss if the shares are held for more than one year and short-term
capital gain or loss if the shares are held for one year or less. Any
loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced, including replacement through the
reinvesting of dividends and capital gains distributions in a Portfolio,
within a 61-day period beginning 30 days before and ending 30 days after
the disposition of the shares. In such a case, the basis of the shares
acquired will be increased to reflect the disallowed loss. Any loss
realized by a shareholder on the sale of a Portfolio share held by the
shareholder for six months or less will be treated for United States
federal income tax purposes as a long-term capital loss to the extent of
any distributions or deemed distributions of long-term capital gains
received by the shareholder with respect to such share.
Backup Withholding. Each Portfolio may be required to withhold,
for United States federal income tax purposes, 31% of the dividends and
distributions payable to shareholders who fail to provide a Portfolio
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are
subject to backup withholding. Certain shareholders are exempt from
backup withholding. Backup withholding is not an additional tax and any
amount withheld may be credited against a shareholder's United States
federal income tax liabilities.
Notices. Shareholders will be notified annually by a Portfolio as
to the United States federal income tax status of the dividends,
distributions and deemed distributions attributable to undistributed
capital gains (discussed above in "Dividends and Distributions") made by
a Portfolio to its shareholders. Furthermore, shareholders will also
receive, if appropriate, various written notices after the close of a
Portfolio's taxable year regarding the United States federal income tax
status of certain dividends, distributions and deemed distributions that
were paid (or that are treated as having been paid) by a Portfolio to
its shareholders during the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation.
The foregoing is only a summary of certain material tax consequences
affecting the Portfolios and their shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular
tax consequences to them of an investment in the Portfolios.
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 Salomon 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 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 for 1998, 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 will be
allowed when AGI is above $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.
The rules applicable to so-called "Roth IRAs" differ from those
described above.
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.
A Portfolio's "average annual total return," is computed according
to a formula prescribed by the SEC. The formula can be expressed as
follows:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of
$1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical
$1,000 investment made at the beginning of
a 1-, 5- or 10- year period at the end of
a 1-, 5- or 10-year period (or fractional
portion thereof), assuming reinvestment of
all dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment
at the end of the measuring period. A Portfolio's net investment income
changes in response to fluctuations in interest rates and the expenses
of the Portfolio.
Each Portfolio's average annual total return with respect to its
Class A Shares for the one-year period, five-year period, ten-year
period (if applicable), and for the life of the Portfolio ended December
31, 1998 is as follows:
One Year
Five Years
Ten Years
Life
Inception
Date
Large Cap Value
%
%
%
5/18/67
U.S. Government
*
10/9/84
Short-Term High
Grade
11/11/91
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, 1998 is as follows:
Portfolio One Year Life Inception Date
Large Cap Value % % 11/7/94
U.S. Government 11/7/94
Each Portfolio's average annual total return with respect to its
Class L Shares for the one-year period, five-year period and for the
life of such Portfolio's Class L shares through December 31, 1998 is as
follows:
Portfolio One Year Five Years Life
Inception Date
Large Cap Value % % %
12/2/92
U.S. Government
12/2/92
Each Portfolio's average annual total return with respect to its
Class Y Shares for the one-year period and for the life of such
Portfolio's Class Y shares through December 31, 1998 is as follows:
Portfolio One Year Life Inception Date
Large Cap Value % % 2/07/96
U.S. Government 1/12/93
Short-Term High Grade 2/07/96
Each Portfolio's average annual total return with respect to its
Class Z Shares (where applicable) for the one-year period and for the
life of such Portfolio's Class Z shares through December 31, 1998 is as
follows:
Portfolio One Year Life Inception Date
Large Cap Value % % 11/07/94
U.S. Government 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, effective November 7, 1994 then existing
Class B shares of each Portfolio were designated as Class C shares. Each
Portfolio (except the Short-Term High Grade Bond Fund) began to offer
new Class B shares on November 7, 1994. Each Portfolio's Class C shares
were reclassified as Class L shares on June 12, 1998.
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 Short-Term High Grade Bond 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.
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.
Because of the differences in distribution fees and class-specific
expenses, the per share net asset value of each class of a Portfolio may
differ.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
Detailed information about the purchase, redemption and exchange
of fund shares appears in the prospectus.
Volume Discounts
The schedules of sales charges described in the prospectus apply
to purchases of shares of the U.S. Government Securities Fund or Large
Cap Value Fund made by any "purchaser," which term is defined to include
the following: (a) an individual; (b) an individual's spouse and his or
her children purchasing shares for his or her own account; (c) a trustee
or other fiduciary purchasing shares for a single trust estate or single
fiduciary account; (d) a pension, profit-sharing or other employee
benefit plan qualified under Section 401(a) of the Internal Revenue Code
(the "Code") and qualified employee benefit plans of employers who are
"affiliated persons" of each other within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act"); (e) tax-exempt
organizations enumerated in Section 501(c)(3) or (13) of the Code; or
(f) any other organized group of persons, provided that the organization
has been in existence for at least six months and was organized for a
purpose other than the purchase of investment company securities at a
discount. Purchasers who wish to combine purchase orders to take
advantage of volume discounts should contact a Salomon Smith Barney
Financial Consultant.
Right of Accumulation
Class A shares of the U.S. Government Securities Fund and Large
Cap Value Fund may be purchased 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, 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 the Portfolio and of Portfolios sponsored by Salomon
Smith Barney which are offered with a sales charge listed under
"Exchange Privilege" below 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 in accordance with the schedule in the prospectus and
will be based upon the aggregate sales of Class A shares of the Smith
Barney 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. Salomon Smith Barney may also offer a reduced sales charge or
net asset value purchase for aggregating related fiduciary accounts
under such conditions that Salomon 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 fund shares at a
discount and (c) satisfies uniform criteria which enable Salomon 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 fund in its publications and mailing to members
at no cost to Salomon 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 Salomon 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 sales
charge table in the prospectus includes purchases of all Class A shares
of a Portfolio and other Smith Barney funds offered with a sales charge
over the 13 month period based on the total amount of intended purchases
plus the value of all Class A shares previously purchased and still
owned. An alternative is to compute the 13 month period starting up to
90 days before the date of execution of a Letter of Intent. Each
investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay the difference
between the sales charge applicable to the purchases made and the
charges previously paid, or an appropriate number of escrowed shares
will be redeemed. Please contact a Salomon Smith Barney Financial
Consultant or First Data Investors Services Group, Inc. ("First Data" or
the "transfer agent") 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 Portfolio within thirteen (13)
months from the date of the Letter. If a total investment of
$15,000,000 is not made within the thirteen-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 fund's Class A shares, which may include a
CDSC of 1.00%. Each Portfolio expects that such transfer will not be
subject to Federal income taxes. Please contact a Salomon Smith Barney
Financial Consultant for First Data for further information.
Smith Barney 401(k) Program and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith Barney
401(k) Program or the Smith Barney ExecChoiceTM 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.
Each Portfolio offers to Participating Plans Class A shares, and
the Large Cap Value Fund and U.S. Government Securities Fund also offers
Class L shares, as investment alternatives under the Smith Barney 401(k)
and ExecChoiceTM Programs. Class A and Class L shares acquired through
the Participating Plans are subject to the same service and/or
distribution fees as the Class A and Class L 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 a
Portfolio, all of its subsequent investments in the Portfolio must be in
the same Class of shares, except as otherwise described below.
Class A Shares. Class A shares of a 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 funds.
Class L Shares. Class L shares of a Portfolio are offered without
any sales charge or CDSC to any Participating Plan that purchases less
than $1,000,000 of Class L shares of one or more funds of the Smith
Barney funds.
401(k) and ExecChoiceTM Plans Opened On or After June 21, 1996.
At the end of the fifth year after the date of the Participating Plan
enrolled in the Smith Barney 401(k) Program or the Smith Barney
ExecChoiceTM Program, if its total Class L holdings in all non-money
market Smith Barney funds equal at least $1,000,000, it will be offered
the opportunity to exchange all of its Class L shares for Class A shares
of a Portfolio. (For Participating Plans that were originally
established through a Salomon Smith Barney retail brokerage account, the
five year period will be calculated from the date of 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 L holdings in all non-money market Smith Barney 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 L
shares for Class A shares of a Portfolio. Such Plans will be notified
in writing within 30 days after the last business day of the calendar
year and, unless the exchange offer has been rejected in writing, the
exchange will occur on or about the last business day of the following
March.
Any Participating Plan in the Smith Barney 401(k) Program that has
previously qualified for an exchange into Class A shares will be offered
the opportunity to exchange all of its Class L shares for Class A shares
of a 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) Program. 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 L shares of the Portfolio but instead may
acquire Class A shares of the Portfolio. Any Class L shares not
converted will continue to be subject to the distribution fee.
Participating Plans wishing to acquire shares of the Portfolio
through the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program must purchase such shares directly from the Transfer Agent. For
further information regarding these Programs, investors should contact a
Salomon Smith Barney Financial Consultant.
Existing 401(k) Plans Investing in Class B Shares. Class B shares
of the Smith Barney funds are not available for purchase by
Participating Plans opened on or after June 21, 1996, but may continue
to be purchased by Participating Plans 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, the Participating Plan
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 the Portfolio 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.
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 any increase 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 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.
The per share dividends on Class B and Class L 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 L shares. The per share dividends on Class
A shares of the fund may be lower than the per share dividends on Class
Y shares principally as a result of the 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 L and Class Y shares.
Determination of Public Offering Price
Each Portfolio offers its shares to the public on a continuous
basis. The public offering price for a Class A and Class Y share of
each Portfolio is equal to the net asset value per share at the time of
purchase, plus for Class A shares of Large Cap Value Fund and U.S.
Government Securities Fund an initial sales charge based on the
aggregate amount of the investment. The public offering price for a
Class L share (and Class A share purchases, including applicable rights
of accumulation, equaling or exceeding $500,000) is equal to the net
asset value per share at the time of purchase and no sales charge is
imposed at the time of purchase. A contingent deferred sales charge
("CDSC"), however, is imposed on certain redemptions of Class L shares,
and Class A shares of Large Cap Value Fund and U.S. Government
Securities Fund when purchased in amounts exceeding $500,000. The
method of computation of the public offering price is shown in each
fund's financial statements, incorporated by reference in their entirety
into this SAI.
REDEMPTION OF SHARES
The right of redemption of shares of a Portfolio may be suspended
or the date of payment postponed (a) for any periods during which the
New York Stock Exchange, Inc. (the "NYSE") is closed (other than for
customary weekend and holiday closings), (b) when trading in the markets
the Portfolio normally utilizes is restricted, or an emergency exists,
as determined by the SEC, so that disposal of the Portfolio's
investments or determination of its net asset value is not reasonably
practicable or (c) for any other periods as the SEC by order may permit
for the protection of the Portfolio's shareholders.
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 share certificate,
stock power or written redemption request in excess of $10,000 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 or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise directed,
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.
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 Transfer Agent receives further instructions from Salomon Smith
Barney, or if the shareholder's account is not with Salomon 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 Salomon Smith Barney brokerage
account, these funds will not be invested for the shareholder's benefit
without specific instruction and Salomon 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.
Distribution in Kind
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.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders of a Portfolio who own shares of the Portfolio
with a value of at least $10,000 and who wish to receive specific
amounts of cash monthly or quarterly. Withdrawals of at least $50 may
be made under the Withdrawal Plan by redeeming as many shares of the
fund as may be necessary to cover the stipulated withdrawal payment.
Any applicable CDSC will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value of a shareholder's
shares at the time the Withdrawal Plan commences. (With respect to
Withdrawal Plans in effect prior to November 7, 1994, any applicable
CDSC will be waived on amounts withdrawn that do not exceed 2.00% per
month of the value of a shareholder's shares at the time the Withdrawal
Plan commences). To the extent that withdrawals exceed dividends,
distributions and appreciation of a shareholder's investment in a
Portfolio, continued withdrawal payments will reduce the shareholder's
investment, and may ultimately exhaust it. Withdrawal payments should
not be considered as income from investment in a Portfolio.
Furthermore, as it generally would not be advantageous to a shareholder
to make additional investments in the Portfolio at the same time he or
she is participating in the Withdrawal Plan, purchases by such
shareholders in amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders of a Portfolio who wish to participate in the
Withdrawal Plan and who hold their shares of the Portfolio in
certificate form must deposit their share certificates with the transfer
agent as agent for Withdrawal Plan members. All dividends and
distributions on shares in the Withdrawal Plan are reinvested
automatically at net asset value in additional shares of the fund
involved. A shareholder who purchases shares directly through the
transfer agent may continue to do so and applications for participation
in the Withdrawal Plan must be received by the transfer agent no later
than the eighth day of the month to be eligible for participation
beginning with that month's withdrawal. For additional information,
shareholders should contact a Salomon Smith Barney Financial Consultant.
WAIVERS OF CDSC
The CDSC for Large Cap Value Fund and U.S. Government Securities
Fund will be waived on: (a) exchanges (see "Exchange Privilege" in the
respective prospectus); (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 in the respective prospectus") (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 12 months following the death or disability
of the shareholder; (d) redemptions of shares made in connection with
qualified distributions from retirement plans or IRAs upon the
attainment of age 591/2; (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 otherwise. In addition, a
shareholder who has redeemed shares from other Smith Barney 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 Salomon Smith Barney in the case of shareholders who
are also Salomon Smith Barney clients or by the transfer agent in the
case of all other shareholders) of the shareholder's status or holdings,
as the case may be.
ADDITIONAL INFORMATION REGARDING TELEPHONE REDEMPTION AND EXCHANGE
PROGRAM.
None of the Portfolios nor their agents will be liable for
following instructions communicated by telephone that are reasonably
believed to be genuine. Each Portfolio 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). Each Portfolio
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.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any of the Smith Barney
funds may exchange all or part of their shares for shares of the same
Class of other Smith Barney funds, on the basis of relative net asset
value per share at the time of exchange as follows:
1 Class A and Class Y shares of a Portfolio may be exchanged
without a sales charge for the respective shares of any of the Smith
Barney funds.
2 Class B shares of a Portfolio may be exchanged without a
sales charge. Class B shares of the Portfolio exchanged for Class B
shares of another Smith Barney Mutual fund will be subject to the higher
applicable CDSC of the two funds and, for purposes of calculating CDSC
rates and conversion periods, will be deemed to have been held since the
date the shares being exchanged were deemed to be purchased.
3 Class L shares of any Portfolio may be exchanged without a
sales charge. For purposes of CDSC applicability, Class L shares of the
Portfolio exchanged for Class C shares of another Smith Barney Mutual
fund will be deemed to have been owned since the date the shares being
exchanged were deemed to be purchased.
Dealers other than Salomon Smith Barney must notify the transfer
agent of the investor's prior ownership of Class A shares of Smith
Barney High Income Fund and the account number in order to accomplish an
exchange of shares of Smith Barney High Income Fund under paragraph 1
above.
The exchange privilege enables shareholders in any Smith Barney
Mutual fund to acquire shares of the same Class in a Portfolio with
different investment objectives when they believe a shift between
Portfolios is an appropriate investment decision. This privilege is
available to shareholders residing in any state in which the Portfolio
shares being acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current prospectus of
each fund into which an exchange is being considered. Prospectuses may
be obtained from a Salomon Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-
current net asset value and, subject to any applicable CDSC, the
proceeds are immediately invested, at a price as described above, in
shares of the fund being acquired. Salomon Smith Barney reserves the
right to reject any exchange request. The exchange privilege may be
modified or terminated at any time after written notice to shareholders.
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 Growth Opportunity 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 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
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 Municipals Fund Inc.
Smith Barney Municipal High Income Fund
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt 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.-Growth
Portfolio
Smith Barney Concert Allocation Series Inc.-Global
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 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 for exchange with Class A, Class L and Class Y shares
of the fund.
** Available for exchange with Class A and Class B shares of the
fund. In addition, Participating Plans opened prior to June 21,
1996 and investing in Class L shares of the fund may exchange
fund shares for Class L shares of this fund.
*** Available for exchange with Class A shares of the fund.
+ Available for exchange with Class B and Class L shares of the
fund.
++ Available for exchange with Class A and Class Y shares of the
fund. In addition, shareholders who own Class L shares of the
fund through the Smith Barney 401(k) and ExecChoice(tm) Programs
may exchange those shares for Class L shares of this fund.
+++ Available for exchange with Class A and Class Y shares of the
fund.
INVESTMENT MANAGEMENT AGREEMENT AND OTHER SERVICES
Manager
For the fiscal years ended December 31, 1996, 1997 and 1998, the
investment management fees paid by each Portfolio were as follows:
Portfolio 1996 1997 1998
U.S. Government $1,770,235 $ 1,571,535
Large Cap Value 4,622,817 5,536,984
Short-Term High Grade 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 High Grade Bond 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 Portfolios further
provides that all other expenses not specifically assumed by the manager
under the Management Agreement on behalf of a Portfolio are borne by the
Portfolio or the Fund. Expenses payable by a Portfolio or 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 among the various
Portfolios on the basis of relative net assets.
DISTRIBUTOR
CFBDS, 20 Milk Street, Boston, MA 02109-5408, distributes
shares of the Fund as principal underwriter and as such conducts a
continuous offering pursuant to a ''best efforts'' arrangement requiring
CFBDS to take and pay for only such securities as may be sold to the
public. Pursuant to a plan of distribution adopted by the fund under
Rule 12b-1 under the 1940 Act (a ''Plan''), CFBDS is paid a service fee
with respect to Class A, Class B and Class L shares of the Fund at the
annual rate of 0.25% of the average daily net assets attributable to
these Classes. CFBDS is also paid a distribution fee with respect to
Class B and Class L 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 CFBDS to pay its Financial Consultants for servicing
shareholder accounts and, in the case of Class B and Class L 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
Salomon 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 CFBDS
associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
The payments to Salomon Smith Barney Financial Consultants
for selling shares of a Class include a commission or fee paid by the
investor or CFBDS at the time of sale and, with respect to Class A,
Class B and Class L shares, a continuing fee for servicing shareholder
accounts for as long as a shareholder remains a holder of that Class.
Salomon Smith Barney Financial Consultants may receive different levels
of compensation for selling different Classes of shares.
Payments under each Plan with respect to Class B and Class L
shares are not tied exclusively to the distribution and shareholder
services expenses actually incurred by Salomon Smith Barney and the
payments may exceed distribution expenses actually incurred. The fund's
Board of Directors will evaluate the appropriateness of each Plan and
its payment terms on a continuing basis and in so doing will consider
all relevant factors, including expenses borne by CFBDS, amounts
received under the Plan and proceeds of the CDSC.
When payment is made by the investor before the settlement
date, unless otherwise requested in writing by the investor, the funds
will be held as a free credit balance in the investor's brokerage
account and Salomon Smith Barney may benefit from the temporary use of
the funds. The investor may designate another use for the funds prior
to settlement date, such as an investment in a money market fund (other
than Salomon Smith Barney Exchange Reserve fund) of the Smith Barney
funds. If the investor instructs Salomon Smith Barney to invest the
funds in a Salomon Smith Barney money market fund, the amount of the
investment will be included as part of the average daily net assets of
both the fund and the money market fund, and affiliates of Salomon Smith
Barney that serve the funds in an investment advisory or administrative
capacity will benefit from the fact that they are receiving fees from
both such investment companies for managing these assets, computed on
the basis of their average daily net assets. The Fund's Board of
Directors has been advised of the benefits to Salomon Smith Barney
resulting from these settlement procedures and will take such benefits
into consideration when reviewing the Investment Management and
Distribution Agreements for continuance.
Under its terms, the Plan continues from year to year, provided
such continuance is approved annually by vote of the board of trustees,
including a majority of the Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in the Distribution Agreement (the "independent
trustees"). The Plan may not be amended to increase the amount of the
service and distribution fees without shareholder approval, and all
amendments of the Plan also must be approved by the trustees including
all of the independent trustees in the manner described above. The Plan
may be terminated with respect to a Class at any time, without penalty,
by vote of a majority of the independent Directors or, with respect to
any Portfolio, by vote of a majority of the outstanding voting
securities of a Portfolio (as defined in the 1940 Act). Pursuant to the
Plan, the Board of Directors will be provided with periodic reports of
amounts expended under the Plan and the purpose for which such
expenditures were made.
Prior to October 8, 1998 Salomon Smith Barney served as principal
underwriter of the Fund's shares under the fund's prior 12b-1
distribution plans (the "Prior Plans"). The prior plans were
substantially similar to the Plans. For the year ended December 31,
1998, the fees which have been accrued and/or paid to Salomon Smith
Barney under the Prior Plans or CFBDS under the Plans pursuant to Rule
12b-1 for the fund are set out in the table below:
Portfolio Class A Class B Class C
Class Y Total
Large Cap Value N/A
U.S. Government N/A
Short-Term High Grade N/A N/A N/A
The distribution expenses for 1998 included compensation of
financial consultants and printing costs of prospectuses and marketing
materials. Pursuant to the Plans, CFBDS incurs the expenses of
distributing the Company's Class A, Class B and Class L shares.
For the fiscal years 1996 and 1997 aggregate sales commissions of
approximately $689,000 and $608,000, respectively, were paid to Salomon
Smith Barney by the purchasers of Fund shares. During the fiscal year
1998 aggregate sales commissions of $___________________ were paid by
the purchasers of shares ($______________ to Salomon Smith Barney and
$_____________ to CFBDS). As set forth in the prospectus, a contingent
deferred sales charge ("CDSC") may be imposed on certain redemptions of
Class A, Class B 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 of 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 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 shares which when combined with Class
A shares offered with a sales charge currently held by an investor equal
or exceed $500,000 in the aggregate 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.
Portfolio Transactions
Large Cap Value Fund - Brokerage
The manager is responsible for allocating the Large Cap Value
Fund's brokerage transactions in equity securities. Orders may be
directed to any broker including, to the extent and in the manner
permitted by applicable law, Salomon Smith Barney. Salomon 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 Salomon 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
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 1996, 1997 and 1998. Also shown is the portion paid to
Salomon 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 1998, the total amount of commissionable transactions
was $_________; $__________ (____%) of which was directed to Salomon
Smith Barney and executed by unaffiliated brokers and $__________
(____%) of which was directed to other brokers.
Total
For Execution
Only
To Smith
Barney
To
Others
To Others For
Execution,
Research
and Statistical
Services
199
6
$956,7
42
$441,702*
46.2%
$493,44
5
51.6
%
$21,595
2.2%
199
7
892,14
0
279,132*
31.3
572,298
64.1
40,710
4.6
199
8
_________________
*Directed to Salomon 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 Salomon 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. (Newly issued U.S. Treasury securities would be purchased
through the auction process.) 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 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 manager to supplement its own research and analysis with the views
and information of other securities firms. The Fund may utilize Salomon
Smith Barney Inc. ("Salomon 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 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 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.
ADDITIONAL INFORMATION ABOUT THE FUND
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 the Board of Directors
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 Rule 12b-1 distribution plan which pertain to a
particular Class. 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.
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.
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 of 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 February 5, 1999, 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
U.S. Government Securities Fund
Class Y
Short-Term High Grade Bond Fund
Class Y
FINANCIAL STATEMENTS
The Fund's financial information will be incorporated by reference
to the Fund's Annual Reports to Shareholders for the fiscal year ended
December 31, 1998 which will be subsequently filed in a post-effective
amendment to this registration.
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.
49
PART C OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles Supplementary dated November 16, 1992 are
incorporated by reference to Exhibit 1(a) to Post-
Effective Amendment No. 49.
(2) Articles Supplementary dated October 29, 1992 are
incorporated by reference to Exhibit 1(b) to Post-
Effective Amendment No. 49.
(3) Articles of Amendment dated October 29, 1992 are
incorporated by reference to Exhibit 1(c) to Post-
Effective Amendment No. 49.
(4) Articles Supplementary dated September 6, 1991 are
incorporated by reference to Exhibit 1(a) to Post-
Effective Amendment No. 46.
(5) Articles Supplementary dated October 31, 1990 are
incorporated by reference to Exhibit 1(a) to Post-
Effective Amendment No. 43.
(6) 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.
(7) Articles of Incorporation dated December 1, 1966 are
incorporated by reference to Exhibit 1(h) to Post-
Effective Amendment No. 39.
(8) Articles Supplementary dated December 14, 1993 are
incorporated by reference to Exhibit 1(h) to Post-
Effective Amendment No. 54.
(9) Articles of Amendment, dated June 12, 1998, filed
herewith.
(10) Articles of Amendment, dated July 2, 1998, filed
herewith.
(b) Bylaws of the Fund are incorporated by reference to Exhibit
2 to Post-Effective Amendment No. 39.
(c) (1) 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.
(2) Specimen Stock Certificate for the Short-Term U.S.
Treasury Securities Portfolio is incorporated by
reference to Exhibit 4(c) to Post-Effective Amendment
No.53.
(d) (1) Management Agreement between Short-Term U.S. Treasury
Securities Portfolio and Smith, Barney Advisers, Inc.
is incorporated by reference to Post-Effective
Amendment No. 46.
(2) Management Agreement between the Income and Growth
Portfolio and Smith, Barney Advisers, Inc. is
incorporated by reference to Post-Effective Amendment
No. 43.
(3) Management Agreement between U.S. Government
Securities Portfolio and Smith, Barney Advisers, Inc.
is incorporated by reference to Post-Effective
Amendment No. 43.
(e) (1) 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.
(2) Distribution Agreement between Smith Barney Funds,
Inc. and Smith Barney Shearson Inc.
(3) Distribution Agreement with CFBDS, Inc. filed
herewith.
(f) Not applicable.
(g) Custodian Agreement between Registrant and Provident
National Bank is incorporated by reference to Exhibit
8 to Post-Effective Amendment No. 39.
(h) Transfer Agency Agreement between Registrant and
Provident Financial Processing Corp. is incorporated
herein by reference to Exhibit 9 to Post-Effective
Amendment No. 39.
(i) Not applicable.
(j) Auditors' Consent to be filed by further amendment.
(k) Not applicable.
(l) Not applicable
(m) (1) 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.
(2) 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.
(3) 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.
(4) Form of Amended and Restated Shareholder Services and
Distribution Plan is filed herewith.
(n) Financial Data Schedules is to be filed by further
amendment.
(o) Rule 18f-3 Plan is filed herewith.
Item 24. Persons Controlled by or under Common Control with
Registrant
(None)
Item 25. 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 26. 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 SSBC Fund Management
Inc., formerly Mutual Management Corp. and 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 27. Principal Underwriters
CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is also the
distributor for the following Smith Barney funds: Concert Investment
Series, Consulting Group Capital Markets Funds, Greenwich Street
Series 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 Equity Funds, Smith Barney Fundamental
Value Fund Inc., Smith Barney Funds, Inc., Smith Barney Income Funds,
Smith Barney Institutional Cash Management 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 Money
Market Fund, Inc., Smith Barney New Jersey Municipals Fund Inc.,
Smith Barney Oregon Municipals Fund Inc., Smith Barney Principal
Return Fund, Smith Barney Small Cap Blend Fund, Inc., Smith Barney
Telecommunications Trust, Smith Barney Variable Account Funds, Smith
Barney World Funds, Inc., Travelers Series Fund Inc., and various
series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA for
Variable Annuities, The Travelers Fund BD for Variable Annuities, The
Travelers Fund BD II for Variable Annuities, The Travelers Fund BD III
for Variable Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable Annuities, The Travelers
Fund ABD II for Variable Annuities, The Travelers Separate Account PF
for Variable Annuities, The Travelers Separate Account PF II for
Variable Annuities, The Travelers Separate Account QP for Variable
Annuities, The Travelers Separate Account TM for Variable Annuities,
The Travelers Separate Account TM II for Variable Annuities, The
Travelers Separate Account Five for Variable Annuities, The Travelers
Separate Account Six for Variable Annuities, The Travelers Separate
Account Seven for Variable Annuities, The Travelers Separate Account
Eight for Variable Annuities, The Travelers Fund UL for Variable
Annuities, The Travelers Fund UL II for Variable Annuities, The
Travelers Variable Life Insurance Separate Account One, The Travelers
Variable Life Insurance Separate Account Two, The Travelers Variable
Life Insurance Separate Account Three, The Travelers Variable Life
Insurance Separate Account Four, The Travelers Separate Account MGA,
The Travelers Separate Account MGA II, The Travelers Growth and Income
Stock Account for Variable Annuities, The Travelers Quality Bond
Account for Variable Annuities, The Travelers Money Market Account for
Variable Annuities, The Travelers Timed Growth and Income Stock Account
for Variable Annuities, The Travelers Timed Short-Term Bond Account for
Variable Annuities, The Travelers Timed Aggressive Stock Account for
Variable Annuities, The Travelers Timed Bond Account for Variable
Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust, CitiFunds Premium
Trust, CitiFunds Institutional Trust, CitiFunds Tax Free Reserves,
CitiFunds Trust I, CitiFunds Trust II, CitiFunds Trust III, CitiFunds
International Trust, CitiFunds Fixed Income Trust, CitiSelect VIP Folio
200, CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect VIP
Folio 500, CitiFunds Small Cap Growth VIP Portfolio. CFBDS is also the
placement agent for Large Cap Value Portfolio, Small Cap Value
Portfolio, International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio, Growth & Income
Portfolio, U.S. Fixed Income Portfolio, Large Cap Growth Portfolio,
Small Cap Growth Portfolio, International Equity Portfolio, Balanced
Portfolio, Government Income Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following Salomon
Brothers funds: Salomon Brothers Opportunity Fund Inc., Salomon
Brothers Investors Fund Inc., Salomon Brothers Capital Fund Inc.,
Salomon Brothers Series Funds Inc., Salomon Brothers Institutional
Series Funds Inc., Salomon Brothers Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds,
Inc.
(b) The information required by this Item 27 with respect to each
director and officer of CFBDS is incorporated by reference to Schedule
A of Form BD filed by CFBDS pursuant to the Securities and Exchange Act
of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. 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 29. Management Services
Not applicable
Item 30. 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 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 __th day of February,
1999.
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, February 25, 1999
(Heath B. McLendon) President and Chief
Executive Officer
/s/ Donald R. Foley* Director February 25, 1999
(Donald R. Foley)
/s/ Paul Hardin* Director February 25, 1999
(Paul Hardin III)
/s/ Roderick C. Rasmussen * Director February 25, 1999
(Roderick C. Rasmussen)
/s/ John P. Toolan* Director February 25, 1999
(John P. Toolan)
/s/ Lewis E. Daidone Treasurer February 25, 1999
(Lewis E. Daidone) and Principal
Financial Officer
*By: /s/ Christina T. Sydor February 25, 1999
Christina T. Sydor
Pursuant to Power of Attorney
Previously filed
EXHIBITS
(a)(9) Articles of Amendment dated June 12, 1998
(a)(10) Articles of Amendment dated July 2, 1998
(e)(3) Distribution Agreement with CFBDS, Inc.
(m)(4) Form of Amended and Restated Shareholder Services and
Distribution Plan
(o) Form of Amended and Restated Rule 18f-3 Multiple Class Plan
SMITH BARNEY FUNDS, INC.
ARTICLES OF AMENDMENT
Smith Barney Funds, Inc., a Maryland corporation, having its
principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments
and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended to
provide as follows:
The name and designation of the Class C shares of the Large Cap
Value Fund and U.S. Government Securities Fund series of capital stock
of the Corporation is hereby changed to the Class L shares of each such
series.
SECOND: The amendment does not change the outstanding capital
stock of the Corporation or the aggregate par value thereof.
THIRD: The foregoing amendment to the Charter of the Corporation
has been approved by the Board of Directors and is limited to a change
expressly permitted by Section 2-605 of the Maryland General
Corporation Law.
FOURTH: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940.
FIFTH: The amendment to the Charter of the Corporation effected
hereby shall become effective at 9:00 a.m. on June 12, 1998.
IN WITNESS WHEREOF, the Corporation has caused these presents to
be signed in its name and on its behalf by its President and witnessed
by its Secretary on this ___ day of June, 1998.
SMITH BARNEY FUNDS, INC.
By:________________________
Name: Heath B. McLendon
Title: President
ATTEST:
_________________________
Name: Christina T. Sydor
Title: Secretary
THE UNDERSIGNED, the President of Smith Barney Funds, Inc.,
who executed on behalf of the Corporation the foregoing Articles of
Amendment of which this certificate is made a part, hereby acknowledges
in the name and on behalf of the Corporation the foregoing Articles of
Amendment to be the corporate act of the Corporation and hereby
certifies to the best of his knowledge, information and belief the
matters and facts set forth herein with respect to the authorization
and approval thereof are true in all material respects under the
penalties of perjury.
__________________________
Name: Heath B. McLendon
Title: President
(Footnote continued from previous page)
(Footnote continued to next page)
- - 2 -
u:/legal/funds/sbfi/orgdocs/cham61298.doc
SMITH BARNEY FUNDS, INC.
ARTICLES OF AMENDMENT
CHANGING NAMES OF SERIES
PURSUANT TO MGCL SECTION 2-605(B)
Smith Barney Funds, Inc., a Maryland corporation, having its
principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments
and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended to
provide as follows:
The name and designation of the "Short-Term U.S. Treasury
Securities Fund" series of capital stock of the Corporation is hereby
changed to the "Short-Term High Grade Bond Fund" series of capital stock
of the Corporation.
SECOND: The amendment does not change the outstanding capital
stock of the Corporation or the aggregate par value thereof.
THIRD: The foregoing amendment to the Charter of the Corporation
has been approved by the Board of Directors and is limited to a change
expressly permitted by Section 2-605 of the Maryland General
Corporation Law.
FOURTH: The Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940.
FIFTH: The amendment to the Charter of the Corporation effected
hereby shall become effective at 4:00 p.m. on July 2, 1998.
IN WITNESS WHEREOF, the Corporation has caused these presents to
be signed in its name and on its behalf by its President and witnessed
by its Secretary on this ___ day of June, 1998.
SMITH BARNEY FUNDS, INC.
By:________________________
Name: Heath B. McLendon
Title: President
ATTEST:
_________________________
Name: Christina T. Sydor
Title: Secretary
THE UNDERSIGNED, the President of Smith Barney Funds, Inc.,
who executed on behalf of the Corporation the foregoing Articles of
Amendment of which this certificate is made a part, hereby acknowledges
in the name and on behalf of the Corporation the foregoing Articles of
Amendment to be the corporate act of the Corporation and hereby
certifies to the best of his knowledge, information and belief the
matters and facts set forth herein with respect to the authorization
and approval thereof are true in all material respects under the
penalties of perjury.
__________________________
Name: Heath B. McLendon
Title: President
(Footnote continued from previous page)
(Footnote continued to next page)
- - 3 -
u:/legal/funds/sbfi/orgdocs/cham98.doc
SMITH BARNEY FUNDS, INC.
FORM OF
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the "Fund")
has agreed that you shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of shares of the Fund
and each Series of the Fund set forth on Exhibit A hereto, as such
Exhibit may be revised from time to time (each, including any shares of
the Fund not designated by series, a "Series"). For purposes of this
Agreement, the term "Shares" shall mean shares of the each Series, or
one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement,
prospectus and statement of additional information then in effect under
the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"), and will
transmit or cause to be transmitted promptly any orders received by you
or those with whom you have sales or servicing agreements for purchase
or redemption of Shares to the Transfer and Dividend Disbursing Agent
for the Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders
for the sale of Shares. It is contemplated that you will enter into
sales or servicing agreements with registered securities brokers and
banks and into servicing agreements with financial institutions and
other industry professionals, such as investment advisers, accountants
and estate planning firms. In entering into such agreements, you will
act only on your own behalf as principal underwriter and distributor.
You will not be responsible for making any distribution plan or service
fee payments pursuant to any plans the Fund may adopt or agreements it
may enter into.
1.3 You shall act as the non-exclusive principal
underwriter and distributor of Shares in compliance with all applicable
laws, rules, and regulations, including, without limitation, all rules
and regulations made or adopted from time to time by the Securities and
Exchange Commission (the "SEC") pursuant to the 1933 Act or the 1940 Act
or by any securities association registered under the Securities
Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted for
any reason, including, without limitation, market, economic or political
conditions, the Fund's officers may decline to accept any orders for, or
make any sales of, any Shares until such time as those officers deem it
advisable to accept such orders and to make such sales and the Fund
shall advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data
to be furnished by the Fund hereunder, and all expenses in connection
with the preparation and printing of the Fund's prospectuses and
statements of additional information for regulatory purposes and for
distribution to shareholders; provided however, that nothing contained
herein shall be deemed to require the Fund to pay any costs of
advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take any other actions
that may be reasonably necessary in the discretion of the Fund's
officers in connection with the qualification of Shares for sale in such
states and other U.S. jurisdictions as the Fund may approve and
designate to you from time to time, and the Fund agrees to pay all
expenses that may be incurred in connection with such qualification.
You shall pay all expenses connected with your own qualification as a
securities broker or dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses
incurred by you in connection with the sale of Shares as contemplated in
this Agreement.
2.3 The Fund shall furnish you from time to time, for use
in connection with the sale of Shares, such information reports with
respect to the Fund or any relevant Series and the Shares as you may
reasonably request, all of which shall be signed by one or more of the
Fund's duly authorized officers; and the Fund warrants that the
statements contained in any such reports, when so signed by the Fund's
officers, shall be true and correct. The Fund also shall furnish you
upon request with (a) the reports of the annual audits of the financial
statements of the Fund for each Series made by independent certified
public accountants retained by the Fund for such purpose; (b) semi-
annual unaudited financial statements pertaining to each Series; (c)
quarterly earnings statements prepared by the Fund for any Series; (d) a
monthly itemized list of the securities in each Series' portfolio; (e)
monthly balance sheets as soon as practicable after the end of each
month; (f) the current net asset value and offering price per share
for each Series on each day such net asset value is computed and (g)
from time to time such additional information regarding the financial
condition of each Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund
with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares have been prepared in conformity with the requirements of said
Acts and the rules and regulations of the SEC thereunder. As used in
this Agreement, the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration
statement, prospectus and statement of additional information filed by
the Fund with the SEC and any amendments and supplements thereto filed
by the Fund with the SEC. The Fund represents and warrants to you that
any such registration statement, prospectus and statement of additional
information, when such registration statement becomes effective and as
such prospectus and statement of additional information are amended and
supplemented, includes at the time of such effectiveness, amendment or
supplement all statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of material fact contained
in any registration statement, prospectus or statement of additional
information will be true and correct when such registration statement
becomes effective; and that neither any registration statement nor any
prospectus or statement of additional information when such registration
statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Fund's Shares. The Fund may, but shall not be
obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any
prospectus or statement of additional information as, in the light of
future developments, may, in the opinion of the Fund, be necessary or
advisable. If the Fund shall not propose such amendment or amendments
and/or supplement or supplements within fifteen days after receipt by
the Fund of a written request from you to do so, you may, at your
option, terminate this Agreement or decline to make offers of the Fund's
Shares until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus
or statement of additional information without giving you reasonable
notice thereof in advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Fund's right to file at any
time such amendments to any registration statement and/or supplements to
any prospectus or statement of additional information, of whatever
character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or
statement of additional information furnished by the Fund from time to
time, in connection with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers and directors, and
any person who controls you within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any such counsel fees
incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act
or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact
contained in any registration statement, any prospectus or any statement
of additional information or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in
any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any of
them not misleading; provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or
expenses arising out of any statements or representations made by you or
your representatives or agents other than such statements and
representations as are contained in any prospectus or statement of
additional information and in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this Agreement; and
further provided that the Fund's agreement to indemnify you and the
Fund's representations and warranties herein before set forth in
paragraph 3 of this Agreement shall not be deemed to cover any liability
to the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of
your obligations and duties under this Agreement. The Fund's agreement
to indemnify you, your officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors,
or any such controlling person, such notification to be given by letter
or by telegram addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any liability that
the Fund may have to the person against whom such action is brought by
reason of any such untrue, or alleged untrue, statement or omission, or
alleged omission, otherwise than on account of the Fund's indemnity
agreement contained in this paragraph 4.1. The Fund will be entitled to
assume the defense of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Fund. In the event the Fund
elects to assume the defense of any such suit and retains counsel of
good standing, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
if the Fund does not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors, or the controlling
person or persons named as defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by you or them.
The Fund's indemnification agreement contained in this paragraph 4.1 and
the Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of you, your officers and directors, or any
controlling person, and shall survive the delivery of any of the Fund's
Shares. This agreement of indemnity will inure exclusively to your
benefit, to the benefit of your several officers and directors, and
their respective estates, and to the benefit of the controlling persons
and their successors. The Fund agrees to notify you promptly of the
commencement of any litigation or proceedings against the Fund or any of
its officers or Board members in connection with the issuance and sale
of any of the Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
that the Fund, its officers or Board members or any such controlling
person may incur under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the
Fund, its officers or Board members, or such controlling person
resulting from such claims or demands shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact
contained in information furnished in writing by you to the Fund and
used in the answers to any of the items of the registration statement or
in the corresponding statements made in the prospectus or statement of
additional information, or shall arise out of or be based upon any
omission, or alleged omission, to state a material fact in connection
with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such
information not misleading. Your agreement to indemnify the Fund, its
officers or Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being notified of any
action brought against the Fund, its officers or Board members, or any
such controlling person, such notification to be given by letter or
telegram addressed to you at your principal office in Boston,
Massachusetts and sent to you by the person against whom such action is
brought, within ten days after the summons or other first legal process
shall have been served. You shall have the right to control the defense
of such action, with counsel of your own choosing, satisfactory to the
Fund, if such action is based solely upon such alleged misstatement or
omission on your part or with the Fund's consent, and in any event the
Fund, its officers or Board members or such controlling person shall
each have the right to participate in the defense or preparation of the
defense of any such action with counsel of its own choosing reasonably
acceptable to you but shall not have the right to settle any such action
without your consent, which will not be unreasonably withheld. The
failure to so notify you of any such action shall not relieve you from
any liability that you may have to the Fund, its officers or Board
members, or to such controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise
than on account of your indemnity agreement contained in this paragraph
4.2. You agree to notify the Fund promptly of the commencement of any
litigation or proceedings against you or any of your officers or
directors in connection with the issuance and sale of any of the Fund's
Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of
the provisions of this Agreement and no orders for the purchase or sale
of such Shares under this Agreement shall be accepted by the Fund if and
so long as the effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b) (2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
paragraph 5 shall in any way restrict or have any application to or
bearing upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information or charter documents, as amended
from time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by
you shall be offered for sale at a price per share (the "offering
price") equal to (a) their net asset value (determined in the manner set
forth in the Fund's charter documents and the then-current prospectus
and statement of additional information) plus (b) a sales charge, if
applicable, which shall be the percentage of the offering price of such
Shares as set forth in the Fund's then-current prospectus relating to
such Series. In addition to or in lieu of any sales charge applicable
at the time of sale, Shares of any class of any Series of the Fund
offered for sale by you may be subject to a contingent deferred sales
charge as set forth in the Fund's then-current prospectus and statement
of additional information. You shall be entitled to receive any sales
charge levied at the time of sale in respect of the Shares without
remitting any portion to the Fund. Any payments to a broker or dealer
through whom you sell Shares shall be governed by a separate agreement
between you and such broker or dealer and the Fund's then-current
prospectus and statement of additional information. Any payments to any
provider of services to you shall be governed by a separate agreement
between you and such service provider.
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for
amendments to the registration statement,
prospectus or statement of additional
information then in effect or for additional
information;
(b) in the event of the issuance by
the SEC of any stop order suspending the
effectiveness of the registration statement,
prospectus or statement of additional
information then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that
makes untrue any statement of a material fact
made in the registration statement,
prospectus or statement of additional
information then in effect or that requires
the making of a change in such registration
statement, prospectus or statement of
additional information in order to make the
statements therein not misleading; and
(d) of all actions of the SEC with
respect to any amendment to the registration
statement, or any supplement to the
prospectus or statement of additional
information which may from time to time be
filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall
have an initial term of one year from the date hereof, and shall
continue for successive annual periods thereafter so long as such
continuance is specifically approved at least annually by (a) the Fund's
Board or (b) by a vote of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board members of the
Fund who are not interested persons (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable
with or without cause, without penalty, on 60 days' notice by the Fund's
Board or by vote of holders of a majority of the relevant Series
outstanding voting securities, or on 90 days' notice by you. This
Agreement will also terminate automatically, as to the relevant Series,
in the event of its assignment (as defined in the 1940 Act and the rules
and regulations thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under
this Agreement (collectively, a "Dispute") shall be settled by
arbitration administered under the rules of the American Arbitration
Association ("AAA") in New York, New York. Any arbitration and award of
the arbitrators, or a majority of them, shall be final and the judgment
upon the award rendered may be entered in any state or federal court
having jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of
Shares, you shall not perform any services for any entity other than
investment companies advised or administered by Citigroup Inc. or its
subsidiaries. The Fund recognizes that the persons employed by you to
assist in the performance of your duties under this Agreement may not
devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the persons employed by
you or any of your affiliates right to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature, provided, however, that in conducting such business or rendering
such services your employees and affiliates would take reasonable steps
to assure that the other parties involved are put on notice as to the
legal entity with which they are dealing. This Agreement and the terms
and conditions set forth herein shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect
to its conflict of interest principles.
11. Limitation of Liability (Massachusetts business trusts
only)
The Fund and you agree that the obligations of the Fund under this
Agreement shall not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or
future, of the Fund, individually, but are binding only upon the assets
and property of the Fund, as provided in the Master Trust Agreement.
The execution and delivery of this Agreement have been authorized by the
Trustees and signed by an authorized officer of the Fund, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
but shall bind only the trust property of the Fund as provided in its
Master Trust Agreement.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning to
us the enclosed copy, whereupon this Agreement will become binding on
you.
Very truly yours,
SMITH BARNEY FUNDS, INC.
By: _____________________
Authorized Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
EXHIBIT A
Large Cap Value Fund
U.S. Government Securities Fund
Short-Term High Grade Bond Fund
Legal/funds/scbf/misc/distrib
Page: 3
U:\LEGAL\FUNDS\SBFI\AGREEMTS\DISTRIBe.doc
FORM OF
AMENDED AND RESTATED
SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
This Amended and Restated Shareholder Services and Distribution
Plan (the "Plan") is adopted in accordance with Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the
"1940 Act"), by [Name of Fund], a [business trust organized under the
laws of the Commonwealth of Massachusetts (the "Trust") on behalf of
its sub-trust] / [a corporation organized under the laws of the State
of Maryland (the "Fund")], subject to the following terms and
conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The [Trust/Fund] will pay to
Smith Barney Inc., a corporation organized under the laws of
the State of Delaware ("Smith Barney"), a service fee under
the Plan at an annual rate of [ %] of the average daily
net assets of the Fund attributable to the Class A shares
sold and not redeemed (the "Class A Service Fee").
(b) Service Fee for Class B shares. The [Trust/Fund] will pay to
Smith Barney a service fee under the Plan at the annual rate
of [ %] of the average daily net assets of the Fund
attributable to the Class B shares sold and not redeemed
(the "Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the
Class B Service Fee, the [Trust/Fund] will pay Smith Barney
a distribution fee under the Plan at the annual rate of [
%] of the average daily net assets of the Fund attributable
to the Class B shares sold and not redeemed (the "Class B
Distribution Fee").
(d) Service Fee for Class L shares. The [Trust/Fund] will pay
to Smith Barney a service fee under the plan at the annual
rate of [ %] of the average daily net assets of the Fund
attributable to the Class L shares sold and not redeemed
(the "Class L Service Fee").
(e) Distribution Fee for Class L shares. In addition to the
Class L Service Fee, the [Trust/Fund] will pay Smith Barney
a distribution fee under the Plan at the annual rate of [
%] of the average daily net assets of the Fund attributable
to the Class L shares sold and not redeemed (the "Class L
Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees will
be calculated daily and paid monthly by the [Trust/Fund]
with respect to the foregoing classes of the Fund's shares
(each a "Class" and together, the "Classes") at the annual
rates indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its respective
Service Fee and/or Distribution Fee may be used by Smith Barney for:
(a) costs of printing and distributing the [Trust's/Fund's]
prospectuses, statements of additional information and reports to
prospective investors in the [Trust/Fund]; (b) costs involved in
preparing, printing and distributing sales literature pertaining to
the [Trust/Fund]; (c) an allocation of overhead and other branch
office distribution-related expenses of Smith Barney; (d) payments
made to, and expenses of, Smith Barney's financial consultants and
other persons who provide support services to [Trust/Fund]
shareholders in connection with the distribution of the
[Trust's/Fund's] shares, including but not limited to, office space
and equipment, telephone facilities, answering routine inquires
regarding the [Trust/Fund] and its operation, processing shareholder
transactions, forwarding and collecting proxy material, changing
dividend payment elections and providing any other shareholder
services not otherwise provided by the [Trust's/Fund's] transfer
agent; and (e) accruals for interest on the amount of the foregoing
expenses that exceed the Distribution Fee for that Class and, in the
case of Class B and Class L shares, any contingent deferred sales
charges received by Smith Barney; provided, however, that (i) the
Distribution Fee for a particular Class may be used by Smith Barney
only to cover expenses primarily intended to result in the sale of
shares of that Class, including, without limitation, payments to the
financial consultants of Smith Barney and other persons as
compensation for the sale of the shares, and (ii) the Service Fees
are intended to be used by Smith Barney primarily to pay its
financial consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall
begin to accrue immediately after the sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of
the Plan, with respect to a Class until the Plan has been approved by
a vote of at least a majority
of the outstanding voting securities of the Class. The Plan will be
deemed to have been approved
with respect to a Class so long as a majority of the outstanding
voting securities of the Class votes
for the approval of the Plan, notwithstanding that: (a) the Plan has
not been approved by a majority of the outstanding voting securities
of any other Class, or (b) the Plan has not been
approved by a majority of the outstanding voting securities of the
[Trust/Fund].
Section 4. Approval by [Trustees/Directors.]
Neither the Plan nor any related agreements will take effect until
approved by a majority vote of both (a) the Board of
[Trustees/Directors] and (b) those [Trustees/Directors] who are not
interested persons of the [Trust/Fund] and who have no direct or
indirect financial interest in the operation of the Plan or in any
agreements related to it (the "Qualified [Trustees/Directors]"), cast
in person at a meeting called for the purpose of voting on the Plan
and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class until
[ , 1999] and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the [Trustees/Directors]
of the [Trust/Fund] and by a majority of the Qualified
[Trustees/Directors].
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class (i)
by the [Trust/Fund] without the payment of any penalty, by the vote
of a majority of the outstanding voting securities of such Class or
(ii) by a majority vote of the Qualified [Trustees/Directors]. The
Plan may remain in effect with respect to a particular Class even if
the Plan has been terminated in accordance with this Section 6 with
respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to
increase materially the amounts of the fees described in Section 1
above, unless the amendment is approved by a vote of holders of at
least a majority of the outstanding voting securities of that Class.
No material amendment to the Plan may be made unless approved by the
[Trust's/Fund's] Board of [Trustees/Directors] in the manner
described in Section 4 above.
Section 8. Selection of Certain [Trustees/Directors].
While the Plan is in effect, the selection and nomination of the
[Trust's/Fund's] [Trustees/Directors] who are not interested persons
of the [Trust/Fund] will be committed to the discretion of the
[Trustees/Directors] then in office who are not interested persons of
the [Trust/Fund].
Section 9. Written Reports
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by the
Fund pursuant to the Plan or any related agreement will prepare and
furnish to the [Trust's/Fund's] Board of [Trustees/Directors] and the
Board will review, at least quarterly, written reports complying with
the requirements of the Rule, which set out the amounts expended
under the Plan and the purposes for which those expenditures were
made.
Section 10. Preservation of Materials.
The [Trust/Fund] will preserve copies of the Plan, any agreement
relating to the Plan and any report made pursuant to Section 9 above,
for a period of not less than six years (the first two years in an
easily accessible place) from the date of the Plan, agreement or
report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority
of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the rules and regulations under
the 1940 Act, subject to any exemption that may be granted to the
[Trust/Fund] under the 1940 Act, by the Securities and Exchange
Commission.
Section 12. Limitation of Liability. (Massachusetts business
trusts only)
The obligations of the Trust under this Agreement shall not be
binding upon any of the Trustees, shareholders, nominees, officers,
employees or agents, whether past, present or future, of the Trust,
individually, but are binding only upon the assets and property of
the Trust, as provided in the Master Trust Agreement. The execution
of this Plan has been authorized by the Trustees and signed by an
authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution by such officer
shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only
the trust property of the Trust as provided in its Master Trust
Agreement.
IN WITNESS WHEREOF, the Fund has executed the Plan as of July
_____, 1998.
[NAME OF TRUST/FUND] On behalf of
By:
____________________________________
Heath B. McLendon
Chairman of the Board
g:\legal\general\forms\agreemts\dist12b1\12b1Plan
Rule 18f-3 (d) Multiple Class Plan for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d) of
the Investment Company Act of 1940, as amended (the "1940 Act").
The purpose of the Plan is to restate the existing arrangements
previously approved by the Boards of Directors and Trustees of
certain of the open-end investment companies set forth on Schedule
A (the "Funds" and each a "Fund") under the Funds' existing order of
exemption (Investment Company Act Release Nos. 20042 (January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of the
Funds are distributed pursuant to a system (the "Multiple Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load structure. In
addition, pursuant to Rule 12b-1 under the 1940 Act (the "Rule"),
the Funds have each adopted a plan (the "Services and Distribution
Plan") under which shares of the Classes are subject to the
services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and under
the Services and Distribution Plan are subject to a service fee of
up to 0.25% of average daily net assets. In addition, the Funds
are permitted to assess a contingent deferred sales charge
("CDSC") on certain redemptions of Class A shares sold pursuant to
a complete waiver of front-end sales loads applicable to large
purchases, if the shares are redeemed within one year of the date
of purchase. This waiver applies to sales of Class A shares where
the amount of purchase is equal to or exceeds $500,000 although
this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load, but are
subject to a five-year declining CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual rate
of up to 0.25% of average daily net assets and a distribution fee
at an annual rate of up to 0.75% of average daily net assets.
3. Class D Shares
Class D shares are offered without a front-end sales load, CDSC,
service fee or distribution fee.
4. Class L Shares
Class L shares are offered with a front-end load, are subject to a
one-year CDSC and under the Services and Distribution Plan are
subject to a service fee at an annual rate of up to 0.25% of
average daily net assets and a distribution fee at an annual rate
of up to 0.75% of average daily net assets. Unlike Class B
shares, Class L shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
5. Class I Shares
Class I shares are offered without a front-end sales load, but are
subject under the Services and Distribution Plan to a service fee
at an annual rate of up to 0.25% of average daily net assets.
6. Class O Shares
Class O shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and Distribution
Plan are subject to a service fee at an annual rate of up to 0.25%
of average daily net assets and a distribution fee at an annual
rate of up to 0.50% of average daily net assets. Unlike Class B
shares, Class O shares do not have the conversion feature as
discussed below and accordingly, these shares are subject to a
distribution fee for an indefinite period of time. The Funds
reserve the right to impose these fees at such higher rates as may
be determined.
Effective June 28, 1999, Class O shares will be offered with a
front-end load and will continue to be subject to a one year CDSC,
a service fee at an annual rate of up to 0.25% of average daily
net assets and a distribution fee at an annual rate of up to 0.50%
of average daily net assets.
7. Class Y Shares
Class Y shares are offered without imposition of either a sales
charge or a service or distribution fee for investments where the
amount of purchase is equal to or exceeds a specific amount as
specified in each Fund's prospectus.
8. Class Z Shares
Class Z shares are offered without imposition of either a sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Salomon Smith Barney Inc.
("Salomon Smith Barney") and its affiliates, (ii) by certain unit
investment trusts sponsored by Salomon Smith Barney and its affiliates,
and (iii) although not currently authorized by the governing boards of the
Funds, when and if authorized, (x) by employees of Salomon Smith Barney and
its affiliates and (y) by directors, general partners or trustees of any
investment company listed on Schedule A and, for each of (x) and (y), their
spouses and minor children.
9. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a Fund
are allocated among the various Classes of shares based on the net
assets of the Fund attributable to each Class, except that each
Class's net asset value and expenses reflect the expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with obtaining
shareholder approval of the Services and Distribution Plan (or an
amendment thereto) and any expenses specific to that Class. Such
expenses are limited to the following:
(i) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class of
shares;
(iv) Securities and Exchange Commission registration fees
incurred by a Class of shares;
(v) the expense of administrative personnel and services
as required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating solely to
one Class of shares; and
(vii) fees of members of the governing boards of the funds
incurred as a result of issues relating to one Class of shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert to
Class A shares after a certain holding period, expected to be, in
most cases, approximately eight years but may be shorter. Upon
the expiration of the holding period, Class B shares (except those
purchases through the reinvestment of dividends and other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will, as a
result, thereafter be subject to the lower fee under the Services
and Distribution Plan. For purposes of calculating the holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple Class
System are deemed to have been issued on (i) the date on which the
issuance of the Class B shares occurred or (ii) for Class B shares
obtained through an exchange, or a series of exchanges, the date
on which the issuance of the original Class B shares occurred.
Shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares are also Class B
shares. However, for purposes of conversion to Class A, all Class
B shares in a shareholder's Fund account that were purchased
through the reinvestment of dividends and other distributions paid
in respect of Class B shares (and that have not converted to Class
A shares as provided in the following sentence) are considered to
be held in a separate sub-account. Each time any Class B shares
in the shareholder's Fund account (other than those in the sub-
account referred to in the preceding
sentence) convert to Class A, a pro rata portion of the Class B
shares then in the sub-account also converts to Class A. The
portion is determined by the ratio that the shareholder's Class B
shares converting to Class A bears to the shareholder's total
Class B shares not acquired through dividends and distributions.
The conversion of Class B shares to Class A shares is subject to
the continuing availability of a ruling of the Internal Revenue
Service that payment of different dividends on Class A and Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event under the
Code. The conversion of Class B shares to Class A shares may be
suspended if this opinion is no longer available, In the event
that conversion of Class B shares does not occur, Class B shares
would continue to be subject to the distribution fee and any
incrementally higher transfer agency costs attending the Class B
shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net asset
value for shares of the same Class in certain other of the Smith
Barney Mutual Funds as set forth in the prospectus for such Fund.
Funds only permit exchanges into shares of money market funds
having a plan under the Rule if, as permitted by paragraph (b) (5)
of Rule 11a-3 under the 1940 Act, either (i) the time period
during which the shares of the money market funds are held is
included in the calculations of the CDSC or (ii) the time period
is not included but the amount of the CDSC is reduced by the
amount of any payments made under a plan adopted pursuant to the
Rule by the money market funds with respects to those shares.
Currently, the Funds include the time period during which shares
of the money market fund are held in the CDSC period. The
exchange privileges applicable to all Classes of shares must
comply with Rule 11a-3 under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of October 31, 1998)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Concert Allocation Series Inc.
Conservative Portfolio
Balanced Portfolio
Global Portfolio
Growth Portfolio
Income Portfolio
High Growth Portfolio
Smith Barney Equity Funds -
Concert Social Awareness Fund
Smith Barney Large Cap Blend Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Large Cap Value Fund
Short-Term High Grade Bond Fund
U.S. Government Securities Fund
Smith Barney Income Funds -
Smith Barney Balanced Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney High Income Fund
Smith Barney Municipal High Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Total Return Bond Fund
Smith Barney Investment Trust -
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney S&P 500 Index Fund
Smith Barney Mid Cap Blend Fund
Smith Barney Investment Funds Inc. -
Concert Peachtree Growth Fund
Smith Barney Contrarian Fund
Smith Barney Government Securities Fund
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Special Equities Fund
Smith Barney Institutional Cash Management Fund, Inc.
Cash Portfolio
Government Portfolio
Municipal Portfolio
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Money Market Portfolio
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Portfolio
New York Money Market
Pennsylvania Portfolio
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
Emerging Markets Portfolio
U:\legal\funds\slip\1998\secdocs\pea5218f