SMITH BARNEY/TRAVELERS SERIES FUND INC.
                             388 Greenwich Street
                           New York, New York 10013
                                1-800-842-8573
 
     Smith Barney/Travelers Series Fund Inc. (the "Fund"), the investment
underlying certain variable annuity and variable life insurance contracts, is
an investment company which offers shares of beneficial interest of twelve
different Portfolios, four of which are offered herein:
 
                   Smith Barney Income and Growth Portfolio
                 Smith Barney International Equity Portfolio
                      Smith Barney High Income Portfolio
                     Smith Barney Money Market Portfolio
 
     Shares of the Fund are offered only to insurance company separate
accounts (the "Separate Accounts"), which fund certain variable annuity and
variable life insurance contracts (the "Contracts"). The Separate Accounts
invest in shares of one or more of the Portfolios in accordance with
allocation instructions received from Contract owners. Such allocation rights
are further described in the accompanying Contract prospectus.
 
     Shares of each Portfolio are offered to Separate Accounts at their net
asset value, without a sales charge, next determined after receipt of an order
by an insurance company. The offering of shares of a Portfolio may be
suspended from time to time and the Fund reserves the right to reject any
specific purchase order.
 
     Shares of the Smith Barney Money Market Portfolio are not insured or
guaranteed by the U.S. Government. There is no assurance that the Portfolio
will be able to maintain a stable net asset value of $1.00 per share.
 
     THIS PROSPECTUS, WHICH SETS FORTH CONCISE INFORMATION ABOUT THE FUND THAT
PROSPECTIVE INVESTORS SHOULD KNOW BEFORE INVESTING, SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION, ALSO
REFERRED TO AS "PART B", DATED FEBRUARY 28, 1996 IS HEREBY INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS AND IS AVAILABLE FROM THE FUND, WITHOUT CHARGE,
BY WRITING TO THE FUND AT THE ABOVE ADDRESS OR CALLING THE TELEPHONE NUMBER
LISTED ABOVE.
 
     This Prospectus should be read in conjunction with the prospectus for the
Contracts.
 
     THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
 
              THE DATE OF THIS PROSPECTUS IS FEBRUARY 28, 1996.
 

 
                              TABLE OF CONTENTS
 
                                                Page
                                                ----
FINANCIAL HIGHLIGHTS................................    1
THE FUND'S INVESTMENT PROGRAM..........    5
  Smith Barney Income and Growth Portfolio.......    5
  Smith Barney International Equity Portfolio.......    5
  Smith Barney High Income Portfolio..................    7
  Smith Barney Money Market Portfolio................    8
SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS..10
DIVIDENDS, DISTRIBUTIONS AND TAXES...   18
REDEMPTION OF SHARES................................  19
PERFORMANCE..................................................  19
MANAGEMENT................................................... 20
SHARES OF THE FUND....................................... 22
DETERMINATION OF NET ASSET VALUE....... 23
APPENDIX A........................................................A-1
 
                                       i
 

 
                             FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------
------------------------------------------------------------------------------
 
     The following information for the year ended October 31, 1995 and the
period ended October 31, 1994 of the portfolios within the Smith
Barney/Travelers Series Fund Inc. has been audited in conjunction with the
annual audits of the financial statements of the Fund by KPMG Peat Marwick
LLP, independent auditors. The 1995 financial statements and the independent
auditors' report thereon appear in the October 31, 1995 Annual Report to
Shareholders.
 
For a share of each capital stock outstanding throughout the period:
<TABLE> 
<CAPTION>                                                                          Smith Barney
                                                                                              Income & Growth
                                                                                       -----------------------------
                                                                                        1995              1994(1)
<S>							<C>	<C>
------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period                              $ 10.14             $10.00
------------------------------------------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)                                           0.28               0.11
    Net realized and unrealized gain                                 1.76               0.03
------------------------------------------------------------------------------------------------------------------
        Total Income from Operations                                  2.04               0.14
------------------------------------------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                                                  (0.06)                --
    Net realized gains                                                               --                 --
------------------------------------------------------------------------------------------------------------------
        Total Distributions                                                       (0.06)                --
------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period                                           $ 12.12             $10.14
------------------------------------------------------------------------------------------------------------------
Total Return                                                                        20.21%              1.40%++
------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's)                                         $39,364             $6,377
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses(2)                                                                     0.73%              0.73%+
    Net investment income                                                      2.70               2.82+
------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                                                      38.39%              2.17%
------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions(3)                            $  0.07                 --
------------------------------------------------------------------------------------------------------------------
 </TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
   31, 1994.
(2) Smith Barney Mutual Funds Management Inc. (the "Manager") has waived all
   or part of its fees for the year ended October 31, 1995 and the period
   ended October 31, 1994. In addition, the Manager has reimbursed the Smith
   Barney Income and Growth Portfolio for $13,120 in expenses for the period
   ended October 31, 1994. If such fees were not waived and expenses not
   reimbursed, the per share decreases in net investment income and the ratios
   of expenses to average net assets for the Smith Barney Income and Growth
   Portfolio would have been as follows:
<TABLE> 
 <CAPTION>                                                                           Expense Ratios
                                               Per Share Decreases        Without Fee Waivers
                                             in Net Investment Income      and Reimbursement
<S>				<C>			<C>
                                             ------------------------     -------------------
                            1995                      $ 0.02                      0.94%
                            1994                        0.05                      2.08+
 </TABLE>
(3) Due to new SEC disclosure guidelines, average commissions per share are
   calculated for the current year and not for the prior period.
(+) Annualized.
(++) Total return is not annualized, as it may not be representative of the
   total return for the year.
 
------------------------------------------------------------------------------
 
                                       1
 

 
For a share of each capital stock outstanding throughout the period:
 
<TABLE>
<CAPTION>                                                                            Smith Barney
                                                                                           International Equity
                                                                                       -----------------------------
<S>							<C>	<C>
                                                                                        1995              1994(1)
 
------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period                                                    $10.55              $10.00
------------------------------------------------------------------------------------------------------------------
Income From Operations:
    Net investment income (loss)(2)                                                       0.03               (0.03  )
    Net realized and unrealized gain                                                     (0.10)               0.58
------------------------------------------------------------------------------------------------------------------
        Total Income from Operations                                                     (0.07)               0.55
------------------------------------------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                                                                   --                  --
    Net realized gains                                                                      --                  --
------------------------------------------------------------------------------------------------------------------
        Total Distributions                                                                 --                  --
------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period                                                          $10.48              $10.55
------------------------------------------------------------------------------------------------------------------
Total Return                                                                             (0.66)%              5.50  %++
------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's)                                                      $53,538          $   13,811
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses(2)                                                                           1.44%               1.20  %+
    Net investment income                                                                 0.25               (0.73  )+
------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                                                                  28.72%                 --
------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions(3)                              $0.01                  --
------------------------------------------------------------------------------------------------------------------
 </TABLE>
(1) For the period from June 16, 1994 (commencement of operations) to October
   31, 1994.
(2) The Manager has waived a portion of its fees for the period ended October
   31, 1994 for the Smith Barney International Equity Portfolio. If such fees
   were not waived the effect of the per share decrease in net investment
   income for the Smith Barney International Equity Portfolio would have been
   $0.03 and the ratio of expenses to average net assets would have been
   2.00%+.
   In addition, during the year ended October 31, 1995, the Smith Barney
   International Equity Portfolio has earned credits from the custodian which
   reduces service fees incurred. When the credits are taken into
   consideration the ratio of expenses to average net assets is 1.21%; prior
   year numbers have not been restated to reflect these adjustments.
(3) Due to new SEC disclosure guidelines, average commissions per share are
   calculated for the current year and not for the prior period.
(+) Annualized.
(++) Total return is not annualized, as it may not be representative of the
   total return for the year.
 
------------------------------------------------------------------------------
 
                                       2
 

 
For a share of each capital stock outstanding throughout the period:
<TABLE> 
 <CAPTION>                                                                    Smith Barney High Income
                                                                                       -----------------------------
<S>							<C>	<C>
                                                                                        1995              1994(1)
 ------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period                                                   $ 10.07             $10.00
------------------------------------------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)                                                              0.93               0.29
    Net realized and unrealized gain (loss)                                               0.48              (0.22)
------------------------------------------------------------------------------------------------------------------
        Total Income from Operations                                                      1.41               0.07
------------------------------------------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                                                                (0.22)                --
------------------------------------------------------------------------------------------------------------------
        Total Distributions                                                              (0.22)                --
------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period                                                         $ 11.26             $10.07
------------------------------------------------------------------------------------------------------------------
Total Return                                                                             14.30%              0.70%++
------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's)                                                      $20,450             $3,395
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses(2)                                                                           0.70%              0.69%+
    Net investment income                                                                 9.54               7.55+
------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                                                                  56.94%             14.74%
------------------------------------------------------------------------------------------------------------------
</TABLE> 
(1) For the period from June 16, 1994 (commencement of operations) to October
   31, 1994.
(2) The Manager has waived all or part of its fees for the year ended October
   31, 1995 and the period ended October 31, 1994. In addition, the Manager
   has reimbursed the Smith Barney High Income Portfolio for $17,664 in
   expenses for the period ended October 31, 1994. If such fees were not
   waived and expenses not reimbursed, the per share decreases in net
   investment income and the ratios of expenses to average net assets of the
   Smith Barney High Income Portfolio would have been as follows:
 <TABLE>
  <CAPTION>                                                                        Expense Ratios
                                             Per Share Decreases        Without Fee Waivers
                                           in Net Investment Income      and Reimbursement
<S>				<C>			<C>
                                           ------------------------     -------------------
                            1995                    $ 0.04                      1.07%
                            1994                      0.07                      2.60+
</TABLE> 
(+) Annualized.
(++) Total return is not annualized, as it may not be representative of the
   total return for the year.
 
------------------------------------------------------------------------------
 
                                       3
 

 
For a share of each capital stock outstanding throughout the period:
<TABLE> 
 <CAPTION>                                                                                        Smith Barney Money Market
                                                                                       -----------------------------
                                                                                        1995              1994(1)
<S>							<C>	<C>
 ------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period                                                   $  1.00             $ 1.00
------------------------------------------------------------------------------------------------------------------
Income From Operations:
    Net investment income(2)                                                             0.052              0.014
    Net realized and unrealized (loss)                                                      --                 --
------------------------------------------------------------------------------------------------------------------
        Total Income from Operations                                                     0.052              0.014
------------------------------------------------------------------------------------------------------------------
Less Distributions From:
    Net investment income                                                               (0.052)            (0.014)
------------------------------------------------------------------------------------------------------------------
        Total Distributions                                                             (0.052)            (0.014)
------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period                                                         $  1.00             $ 1.00
------------------------------------------------------------------------------------------------------------------
Total Return                                                                              5.35%              1.46%++
------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000's)                                                      $37,487          $   5,278
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
    Expenses(2)                                                                           0.65%              0.66   %+
    Net investment income                                                                 5.26               3.83   +
------------------------------------------------------------------------------------------------------------------
</TABLE> 
(1) For the period from June 16, 1994 (commencement of operations) to October
   31, 1994.
(2) The Manager has waived all or part of its fees for the year ended October
   31, 1995 and the period ended October 31, 1994. In addition, the Manager
   has reimbursed the Smith Barney Money Market Portfolio for $15,423 in
   expenses for the period ended October 31, 1994. If such fees were not
   waived and expenses not reimbursed, the per share decreases in net
   investment income and the ratios of expenses to average net assets of the
   Smith Barney Money Market Portfolio would have been as follows:
<TABLE> 
 <CAPTION>                                                                         Expense Ratios
                                             Per Share Decreases        Without Fee Waivers
                                           in Net Investment Income      and Reimbursement
                                           ------------------------     -------------------
<S>				<C>			<C> 
                           1995                    $0.003                      0.94%
                            1994                     0.005                      2.11+
</TABLE> 
(+) Annualized.
(++) Total return is not annualized, as it may not be representative of the
   total return for the year.
 
------------------------------------------------------------------------------
 
                                       4
 

 
                        THE FUND'S INVESTMENT PROGRAM
 
     The Fund consists of twelve investment portfolios, four of which are
offered herein. Each Portfolio has its own investment objective and policies
as described in more detail below. Of course, no assurance can be given that a
Portfolio's objective will be achieved. Investors should realize that risk of
loss is inherent in the ownership of any securities and that shares of each
Portfolio will fluctuate with the market value of its securities. Additional
information about each Portfolio's investment policies and investment risks
can be found herein under "Special Investment Techniques and Risk
Considerations" and in the Statement of Additional Information.
 
     The investment objectives and certain investment restrictions designated
as such in the Statement of Additional Information are fundamental and may not
be changed by the Directors without shareholder approval. Each Portfolio's
investment policies, however, are not fundamental and may be changed by the
Directors without shareholder approval.
 
                   Smith Barney Income and Growth Portfolio
 
Investment Objectives
 
     The investment objectives of the Smith Barney Income and Growth Portfolio
are current income and long-term growth of income and capital. The Portfolio
attempts to achieve its objectives by investing primarily, but not
exclusively, in common stocks. The Portfolio is managed by Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the "Manager") (See "Management -- Smith
Barney Mutual Funds Management Inc.").
 
Investment Policies
 
     The Smith Barney Income and Growth Portfolio invests primarily in common
stocks offering a current return from dividends and in interest-paying debt
obligations (such as U.S. Government securities, 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). The Portfolio may also
purchase preferred stocks and convertible securities. In the selection of
common stock investments, emphasis is generally placed on issues with
established dividend records as well as potential for price appreciation. From
time to time, however, a portion of the assets may be invested in non-dividend
paying stocks. Under unusual economic or market conditions as determined by
the Manager, for defensive purposes the Portfolio may temporarily invest all
or a major portion of its assets in short-term U.S. Government securities. A
higher percentage of debt securities may also be held when deemed advisable by
the Manager. To the extent the Portfolio's assets are invested for temporary
defensive purposes, such assets will not be invested in a manner designed to
achieve the Portfolio's investment objectives.
 
     The Portfolio may make investments in foreign securities, though
management currently intends to limit such investments to 5% of the
Portfolio's assets, and an additional 10% of its assets may be invested in
sponsored American Depositary Receipts, which are certificates issued by U.S.
banks representing the right to receive securities of a foreign issuer
deposited with that bank or a correspondent bank. The Portfolio will
ordinarily purchase foreign securities that are traded in the U.S. It may,
however, also purchase the securities of foreign issuers directly in foreign
markets. The Portfolio may also lend up to 20% of the value of its total
assets and may purchase or sell securities on a when-issued or delayed
delivery basis.
 
                 Smith Barney International Equity Portfolio
 
Investment Objective
 
     The investment objective of the Smith Barney International Equity
Portfolio is total return on its assets from growth of capital and income. The
Portfolio seeks to achieve its objective by investing at least 65% of its
 
                                       5
 

 
assets in a diversified portfolio of equity securities of established non-U.S.
issuers. The Portfolio is managed by SBMFM.
 
Investment Policies
 
     Under normal market conditions, the Smith Barney International Equity
Portfolio will invest at least 65% of its assets in a diversified portfolio of
equity securities consisting of dividend and non-dividend paying common stock,
preferred stock, convertible debt and rights and warrants to such securities
and up to 35% of its assets in bonds, notes and debt securities (consisting of
securities issued in Eurocurrency markets or obligations of the United States
or foreign governments and their political subdivisions) of established non-
U.S. issuers. Investments may be made for capital appreciation or for income
or any combination of both for the purpose of achieving a higher overall
return than might otherwise be obtained solely from investing for growth of
capital or for income. There is no limitation on the percent or amount of the
Portfolio's assets which may be invested for growth or income and, therefore,
from time to time the investment emphasis may be placed solely or primarily on
growth of capital or solely or primarily on income.
 
     In seeking to achieve its objective, the Portfolio presently expects to
invest its assets primarily in common stocks of established non-U.S. companies
that, in the opinion of the Manager, have potential for growth of capital.
However, there is no requirement that the Portfolio invests exclusively in
common stocks or other equity securities, and, when the Manager believes that
the return on debt securities will equal or exceed the return on common
stocks, the Portfolio may, in seeking its objective of total return,
substantially increase its holdings (up to a maximum of 35% of its assets) in
debt securities. In determining whether the Portfolio will be invested for
capital appreciation or for income or any combination of both, the Manager
regularly analyzes a broad range of international equity and fixed income
markets in order to assess the degree of risk and level of return that can be
expected from each market.
 
     The Portfolio will generally invest its assets broadly among countries
and will normally have represented in the portfolio business activities in not
less than three different countries. Except as stated below, the Portfolio
will invest at least 65% of its assets in companies organized or governments
located in any area of the world other than the U.S., such as the Far East
(e.g., Japan, Hong Kong, Singapore, Malaysia), Western Europe (e.g., United
Kingdom, Germany, the Netherlands, France, Italy, Switzerland), Eastern Europe
(e.g. Hungary, Poland, The Czech Republic and the countries of the former
Soviet Union), Central and South America (e.g., Mexico, Chile and Venezuela),
Australia, Canada and such other areas and countries as the Manager may
determine from time to time. However, under unusual economic or market
conditions as determined by the Manager, for defensive purposes the Portfolio
may temporarily invest all or a major portion of its assets in U.S. Government
securities or in debt or equity securities of companies incorporated in and
having their principal business activities in the United States. To the extent
the Portfolio's assets are invested for temporary defensive purposes, such
assets will not be invested in a manner designed to achieve the Portfolio's
investment objective.
 
     In determining the appropriate distribution of investments among various
countries and geographic regions, the Manager ordinarily considers the
following factors: prospects for relative economic growth between countries;
expected levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors. In
the future, if any other relevant factors arise they will also be considered.
In analyzing companies for investment, the Manager ordinarily looks for one or
more of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound financial
and accounting policies and overall financial strength; strong competitive
advantages; effective research and product development and marketing;
efficient service; pricing flexibility; strength of management; and general
operating characteristics which will enable the company to compete
successfully in its market place. Ordinarily, the Manager will not view a
company as being sufficiently well established to be considered for inclusion
in the Portfolio unless the company, together with any predecessors, has been
operating for at least three fiscal years.
 
                                       6
 

 
     It is expected that portfolio securities will ordinarily be traded on a
stock exchange or other market in the country in which the issuer is
principally based, but may also be traded on markets in other countries
including, in many cases, the United States securities exchanges and
over-the-counter markets.
 
     In order to protect the dollar equivalent value of its portfolio
securities against declines resulting from currency value fluctuations and
changes in interest rate or other market changes, the Portfolio may enter into
the following hedging transactions: forward foreign currency contracts,
interest rate and currency swaps and financial instrument and market index
futures contracts and related options contracts. In addition, the Portfolio
may engage in leveraging, enter into repurchase agreements and lend portfolio
securities.
 
     To the extent that the Portfolio's assets are not otherwise invested as
described above, the assets may be held in cash, in any currency, or invested
in U.S. as well as foreign high quality money market instruments and
equivalents.
 
                      Smith Barney High Income Portfolio
 
Investment Objectives
 
     The primary investment objective of the Smith Barney High Income
Portfolio is to seek high current income. Capital appreciation is a secondary
objective. The Portfolio is managed by SBMFM.
 
Investment Policies
 
     The Smith Barney High Income Portfolio will seek to achieve its
investment objectives by investing, under normal circumstances, at least 65%
of its assets in high-yielding corporate debt obligations and preferred stock.
Although the Portfolio may invest in securities of any maturity, under current
market conditions the Portfolio intends that its portfolio will have an
average remaining maturity of between five and ten years. The Manager may
adjust the Portfolio's average maturity when, based on interest rate trends
and other market conditions, it deems it appropriate to do so. Up to 35% of
the Portfolio's assets may be invested in common stock or common stock
equivalents, including convertible securities, options, warrants and rights.
Equity investments may be made in securities of companies of any size
depending on the relative attractiveness of the company and the economic
sector in which it operates. Fixed income securities purchased by the
Portfolio will generally be rated in the lower rating categories of nationally
recognized securities rating organizations, as low as C by Moody's or D by
S&P, or in non-rated income securities that the Manager determines to be of
comparable quality. The Portfolio will not purchase securities rated lower
than B by both Moody's and S&P, if, immediately after such purchase, more than
10% of the Portfolio's total assets are invested in such securities.
 
     The Portfolio invests significantly in lower rated and unrated corporate
debt securities, commonly known as "junk bonds". Investments of this type are
subject to a greater risk of loss of principal and interest. Purchasers should
carefully assess the risks associated with an investment in this Portfolio.
See "Lower-Quality and Non-Rated Securities".
 
     The Portfolio may invest in securities rated higher than Ba by Moody's
and BB by S&P without limitation when the difference in yields between quality
classifications is relatively narrow.
 
     For temporary defensive purposes when the Manager anticipates adverse
market conditions, the Portfolio may invest all or a major portion of its
assets in securities rated higher than Ba by Moody's and BB by S&P.
Investments in higher rated issues may serve to lessen a decline in net asset
value but may also affect the amount of current income produced by the
Portfolio, since the yields from such issues are usually lower than those from
lower rated issues. A general description of Moody's and S&P's ratings of
corporate bonds is set forth in Appendix A. The Portfolio may also invest
without limitation in money market instruments, including commercial paper of
domestic and foreign corporations, certificates of deposit, bankers'
acceptances and other obligations of banks, repurchase agreements and
short-term obligations issued or guaranteed by the United States government or
its agencies. The yield on these securities will tend to be lower than the
yield on other securities to be purchased by the Portfolio. To the extent the
Portfolio's assets are invested for temporary
 
                                       7
 

 
defensive purposes, they will not be invested in a manner designed to achieve
the Portfolio's investment objective.
 
     The Portfolio may lend portfolio securities equal in value to not more
than 20% of its total assets and purchase or sell securities on a when-issued
or delayed-delivery basis. The Portfolio does not intend to leverage its
investments although it reserves the right to do so. The Portfolio may hedge
against possible declines in the value of its investments by entering into
interest rate futures contracts and related options, swaps and other financial
instruments.
 
     The Portfolio may invest up to 20% of its assets in the securities of
foreign issuers that are denominated in currencies other than the U.S. dollar
and may invest without limitation in securities of foreign issuers that are
denominated in U.S. dollars.
 
     In connection with the investment objectives and policies described
above, the Portfolio may, but is not required to, utilize various investment
techniques to earn income, facilitate portfolio management and mitigate risk.
These investment techniques utilize interest rate and currency futures
contracts, put and call options on such futures contracts, currency exchange
transactions, illiquid securities, securities of unseasoned issuers and
securities of foreign governments and corporations including those of
developing countries. Any or all of such investment techniques available to
the Manager may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, since the use of any
investment technique is a function of numerous variables including market
conditions.
 
                     Smith Barney Money Market Portfolio
 
Investment Objectives
 
     The investment objectives of the Smith Barney Money Market Portfolio are
maximum current income and preservation of capital. The Portfolio is managed
by SBMFM.
 
Investment Policies
 
     The Smith Barney Money Market Portfolio seeks to achieve its objectives
by investing in bank obligations and high quality commercial paper, corporate
obligations and municipal obligations, in addition to U.S. Government
securities and related repurchase agreements. Shares of the Portfolio are not
insured or guaranteed by the U.S. Government. The Portfolio has adopted
certain investment policies to assure that, to the extent reasonably possible,
the Portfolio's price per share will not change from $1.00, although no
assurance can be given that this goal will be achieved on a continuous basis.
In order to minimize fluctuations in market price the Portfolio will not
purchase a security with a remaining maturity of greater than 13 months (or
that is deemed to have a remaining maturity of greater than 13 months) or
maintain a dollar-weighted average portfolio maturity in excess of 90 days
(securities used as collateral for repurchase agreements are not subject to
these restrictions). The Portfolio's investments will be limited to U.S.
dollar-denominated instruments that its Board of Directors determines present
minimal credit risks and which are "Eligible Securities" at the time of
acquisition by the Portfolio. The term Eligible Securities includes securities
rated by the "Requisite NRSROs" in one of the two highest short-term rating
categories, securities of issuers that have received such ratings with respect
to other short-term debt securities and comparable unrated securities.
"Requisite NRSROs" means (a) any two nationally recognized statistical rating
organizations ("NRSROs") that have issued a rating with respect to a security
or class of debt obligations of an issuer, or (b) one NRSRO, if only one NRSRO
has issued such a rating at the time that the Portfolio acquires the security.
The NRSROs currently designated as such by the Securities and Exchange
Commission (the "SEC") are S&P, Moody's, Fitch Investors Services, Inc., Duff
and Phelps Inc., IBCA Limited and its affiliate, IBCA, Inc. and Thomson
BankWatch. See Appendix A for a discussion of the ratings categories of the
NRSROs.
 
     The Portfolio may enter into repurchase agreements collateralized by U.S.
Government securities with any broker/dealer or other financial institution
that is deemed creditworthy by the Manager, under guidelines approved by the
Fund's Board of Directors. The Portfolio will not enter into a repurchase
agreement on behalf
 
                                       8
 

 
of the Portfolio if, as a result thereof, more than 10% of the Portfolio's net
assets (taken at current value) at that time would be subject to repurchase
agreements maturing in more than seven days.
 
     The following are also permitted investments for the Portfolio:
 
     High Quality Commercial Paper.  The Portfolio's purchase of commercial
paper is restricted to direct obligations of issuers that at the time of
purchase are Eligible Securities that are rated by at least one NRSRO in the
highest category for short-term debt securities or comparable unrated
securities. The Portfolio may invest without limit in the commercial paper of
foreign issuers.
 
     High Quality Corporate Obligations.  Obligations of corporations that
are: (1) rated AA or better by S&P or Aa or better by Moody's or (2) issued by
an issuer that has a class of short-term debt obligations that are comparable
in priority and security with the obligation and that have been rated in one
of the two highest rating categories for short-term debt obligations. The
Portfolio will only invest in corporate obligations with remaining maturities
of 13 months or less.
 
     Bank Obligations.  Obligations (including certificates of deposit,
bankers' acceptances and fixed time deposits) and securities backed by letters
of credit of U.S. banks or other U.S. financial institutions that are members
of the Federal Reserve System or the Federal Deposit Insurance Corporation
("FDIC") (including obligations of foreign branches of such members) if
either: (a) the principal amount of the obligation is insured in full by the
FDIC, or (b) the issuer of such obligation has capital, surplus and undivided
profits in excess of $100 million or total assets of $1 billion (as reported
in its most recently published financial statements prior to the date of
investment). Under current FDIC regulations, the maximum insurance payable as
to any one certificate of deposit is $100,000; therefore, certificates of
deposit in denominations greater than $100,000 that are purchased by the Smith
Barney Money Market Portfolio will not be fully insured. The Portfolio
currently intends to limit its investment in fixed time deposits with a
maturity of from two business to seven calendar days to up to 5% of its net
assets and will invest in such time deposits only if, when combined with other
illiquid assets of the Portfolio, not more than 10% of its assets would be
invested in all such instruments. The Portfolio may also invest in securities
of foreign branches of U.S. banks. Such investments involve considerations
that are not ordinarily associated with investing in domestic certificates of
deposit. (See "Foreign Securities.") The Portfolio may invest in instruments
issued by domestic banks, including those issued by their branches outside the
United States and subsidiaries located in Canada, and instruments issued by
foreign banks through their branches located in the United States and the
United Kingdom. In addition, the Portfolio may invest in fixed time deposits
of foreign banks issued through their branches located in Grand Cayman Island,
Nassau, Tokyo and Toronto.
 
     The purchase of obligations of foreign banks will involve similar
investment and risk considerations that are applicable to investing in
obligations of foreign branches of U.S. banks. (See "Foreign Securities.")
These factors will be carefully considered by the Manager in selecting
investments for the Portfolio.
 
     High Quality Municipal Obligations.  Debt obligations of states, cities,
counties, municipalities, municipal agencies and regional districts rated
SP-1+ or A-1 or AA or better by S&P or MIG 2, VMIG 2, or Prime-1 or Aa or
better by Moody's or, if not rated, are determined by the Sub-Adviser to be of
comparable quality. At certain times, supply/demand imbalances in the
tax-exempt market cause municipal obligations to yield more than taxable
obligations of equivalent credit quality and maturity length. The purchase of
these securities could enhance the Portfolio's yield. The Portfolio will not
invest more than 10% of its total assets in municipal obligations.
 
     The Portfolio may, to a limited degree, engage in short-term trading to
attempt to take advantage of short-term market variations, or may dispose of
the portfolio security prior to its maturity if it believes such disposition
advisable or it needs to generate cash to satisfy redemptions. In such cases,
the Portfolio may realize a gain or loss.
 
     As a matter of fundamental policy, the Portfolio may borrow money from
banks for temporary purposes but only in an amount up to 10% of the value of
its total assets and may pledge its assets in an amount up to 10% of the value
of its total assets only to secure such borrowings. The Portfolio will borrow
money only to accommodate requests for the redemption of shares while
effecting an orderly liquidation of portfolio
 
                                       9
 

 
securities or to clear securities transactions and not for leveraging
purposes. The Portfolio may also lend its portfolio securities to brokers,
dealers and other financial organizations. Such loans, if and when made, may
not exceed 20% of the Portfolio's total assets, taken at value.
 
     Notwithstanding any of the foregoing investment restrictions, the Smith
Barney Money Market Portfolio may invest up to 100% of its assets in U.S.
Government securities.
 
            SPECIAL INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS
 
     Foreign Securities.  Each of the Portfolios may purchase securities
issued by foreign governments, corporations or banks. The Smith Barney Money
Market Portfolio may also purchase securities of foreign branches of U.S.
banks and of domestic and foreign branches of foreign banks. Investments in
foreign securities involve risks that are different in some respects from
investments in securities of U.S. issuers, such as the risk of fluctuations in
the value of the currencies in which they are denominated, the risk of adverse
political, social, economic and diplomatic developments, the possible
imposition of exchange controls or other foreign governmental laws or
restrictions and, with respect to certain countries, the possibility of
expropriation of assets, nationalization or confiscatory taxation or
limitations on the removal of funds or other assets of the Portfolios.
Securities of some foreign companies and banks are less liquid and more
volatile than securities of comparable domestic companies and banks. Non-U.S.
securities markets, while growing in volume have, for the most part,
substantially less volume than U.S. markets, and there is generally less
government supervision and regulation of exchanges, brokers and issuers than
there is in the U.S. Dividend and interest income from non-U.S. securities
will generally be subject to withholding taxes by the country in which the
issuer is located and may not be recoverable by the Portfolio or the
investors. There also may be less publicly available information about foreign
issuers than domestic issuers, and foreign issuers generally are not subject
to the uniform accounting, auditing and financial reporting standards,
practices and requirements applicable to domestic issuers. Delays may be
encountered in settling securities transactions in certain foreign markets,
and the Portfolios will incur costs in converting foreign currencies into U.S.
dollars. Custody and trans action charges are generally higher for foreign
securities. There is also a risk of the adoption of government regulations
that might adversely affect the payment of principal and interest on
securities held by a Portfolio. In addition, a Portfolio may encounter greater
difficulties in invoking legal processes abroad than would be the case in the
U.S. Finally, changes in foreign currency exchange rates will, to the extent a
Portfolio does not adequately hedge against such fluctuations, affect the
value of securities in its portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned.
 
     Securities of Emerging Markets.  Because of the special risks associated
with investing in emerging markets, an investment in the Smith Barney High
Income Portfolio should be considered speculative. Investors are strongly
advised to consider carefully the special risks involved in emerging markets,
which are in addition to the usual risks of investing in developed foreign
markets around the world.
 
     Emerging market countries include any country determined by the adviser
to have an emerging market economy, taking into account a number of factors,
including the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets.
The adviser determines an issuer's principal trading market for its securities
and the source of its revenues and assets. The issuer's principal activities
generally are deemed to be located in a particular country if: (a) the
security is issued or guaranteed by the government of that country or any of
its agencies, authorities or instrumentalities; (b) the issuer is organized
under the laws of, and maintains a principle office in, that country; (c) the
issuer has its principal securities trading market in that country; or (d) the
issuer has 50% or more of its assets in that country.
 
     Investing in emerging markets involves risks relating to potential
political and economic instability within such markets and the risks of
expropriation, nationalization, confiscation of assets and property, the
imposition of restrictions on foreign investments and the repatriation of
capital invested. In Eastern Europe, for example, upon the accession to power
of Communist regimes in the past, the governments of a number of Eastern
European countries expropriated a large amount of property. The claims of many
property owners against those governments were never finally settled. There
can be no assurance that any investments that the
 
                                      10
 

 
Portfolio might make in an emerging market would not be expropriated,
nationalized or otherwise confiscated at some time in the future. In the event
of such expropriation, nationalization or other confiscation in any emerging
market, the Portfolio could lose its entire investment in that market. Many
emerging market countries have also experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economics and securities of certain emerging market countries.
 
     Economies in emerging markets generally are dependent heavily upon
international trade and, accordingly, have been and may continue to be
affected adversely by trade barriers, exchange controls, managed adjustments
in relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade. These economies also have
been and may continue to be affected adversely by economic conditions in the
countries in which they trade.
 
     The securities markets of emerging countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of
the United States and other more developed countries. Disclosure and
regulatory standards in many respects are less stringent than in the United
States and other major markets. There also may be a lower level of monitoring
and regulation of emerging securities markets and the activities of investors
in such markets, and enforcement of existing regulations has been extremely
limited.
 
     In addition, brokerage commissions, custodial services and other costs
relating to investment in foreign markets generally are more expensive than in
the United States, particularly with respect to emerging markets. Such markets
have different settlement and clearance procedures. In certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of the Portfolio to make intended securities purchases due to
settlement problems could cause it to miss attractive investment
opportunities. Inability to dispose of a portfolio security caused by
settlement problems could result either in losses to the Portfolio due to
subsequent declines in value of the portfolio security or, if the Portfolio
has entered into a contract to sell the security, could result in possible
liability to the purchaser.
 
     The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may
be substantially curtailed and prices for the portfolio securities in such
markets may not be readily available. Section 22(e) of the Investment Company
Act of 1940, as amended (the "1940 Act") permits a registered investment
company to suspend redemption of its shares for any period during which an
emergency exists, as determined by the SEC. Accordingly, if the Portfolio
believes that appropriate circumstances warrant, it will promptly apply to the
SEC for a determination that an emergency exists within the meaning of Section
22(a) of the 1940 Act. During the period commencing from the Portfolio's
identification of such conditions until the date of SEC action, the portfolio
securities in the affected markets will be valued at fair value as determined
in good faith by or under the direction of the Board of Directors.
 
     Lower-Quality and Non-Rated Securities.  The Smith Barney High Income
Portfolio may invest in lower-quality securities. Investments in lower-rated
securities are subject to special risks, including a greater risk of loss of
principal and non-payment of interest. An investor should carefully consider
the following factors before investing in the Smith Barney High Income
Portfolio.
 
     Generally, lower-quality securities offer a higher return potential than
higher-rated securities but involve greater volatility of price and greater
risk of loss of income and principal, including the possibility of default or
bankruptcy of the issuers of such securities. Lower-quality securities and
comparable non-rated securities will likely have large uncertainties or major
risk exposure to adverse conditions and are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. The occurrence of adverse
conditions and uncertainties would likely reduce the value of securities held
by the Portfolio, with a commensurate effect on the value of the Portfolio's
shares.
 
     The markets in which lower-quality securities or comparable non-rated
securities are traded generally are more limited than those in which
higher-quality securities are traded. The existence of limited markets for
these securities may restrict the availability of securities for the Portfolio
to purchase and also may restrict the
 
                                      11
 

 
ability of the Portfolio to obtain accurate market quotations for purposes of
valuing securities and calculating net asset value or to sell securities at
their fair value. The public market for lower-quality securities and
comparable non-rated securities is relatively new and has not fully weathered
a major economic recession. Any such economic downturn could adversely affect
the ability of issuers lower-quality securities to repay principal and pay
interest thereon.
 
     While the market values of lower-quality securities and comparable
nonrated securities tend to react less to fluctuations in interest rate levels
than do those of higher-quality securities, the market values of certain of
these securities also tend to be more sensitive to individual corporate
developments and changes in economic conditions than higher-quality
securities. In addition, lower-quality securities and comparable non-rated
securities generally present a higher degree of credit risk. Issuers of lower
quality securities and comparable non-rated securities are often highly
leveraged and may not have more traditional methods of financing available to
them so that their ability to service their debt obligations during an
economic downturn or during sustained periods of rising interest rates may be
impaired. The risk of loss due to default by such issuers is significantly
greater because lower-quality securities and comparable non-rated securities
generally are unsecured and frequently are subordinated to the prior payment
of senior indebtedness. The Portfolio may incur additional expenses to the
extent that it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings.
 
     Fixed-income securities, including lower-quality securities and
comparable non-rated securities, frequently have call and buy-back features
that permit their issuers to call or repurchase the securities from their
holders, such as the Portfolio. If an issuer exercises these rights during
periods of declining interest rates, the Portfolio may have to replace the
security with a lower yielding security, resulting in a decreased return to
the Portfolio.
 
     In general, the ratings of nationally recognized statistical rating
organizations represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and subjective,
and are not absolute standards of quality and do not evaluate the market value
risk of the securities. It is possible that an agency might not change its
rating of a particular issue to reflect subsequent events. These ratings will
be used by the Portfolio as initial criteria for the selection of portfolio
securities, but the Portfolio also will rely upon the independent advice of
the Manager to evaluate potential investments.
 
     In light of these risks, management will take various factors into
consideration in evaluating the creditworthiness of an issue, whether rated or
non-rated. These factors may include, among others, the issuer's financial
resources, its sensitivity to economic conditions and trends, the operating
history of and the community support for the facility financed by the issue,
the ability of the issuer's management and regulatory matters.
 
     Securities Lending.  Each Portfolio may seek to increase its net
investment income by lending portfolio securities to unaffiliated brokers,
dealers and other financial institutions, provided such loans are callable at
any time and are continuously secured by cash or U.S. Government securities or
other high grade liquid debt securities equal to no less than the market
value, determined daily, of the securities loaned. The risks in lending
portfolio securities consist of possible delay in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially.
 
     Repurchase Agreements.  Each Portfolio may on occasion enter into
repurchase agreements, wherein the seller agrees to repurchase a security from
the Portfolio at an agreed-upon future date, normally the next business day.
The resale price is greater than the purchase price, which reflects the
agreed-upon rate of return for the period the Portfolio holds the security and
which is not related to the coupon rate on the purchased security. Each
Portfolio 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.
Repurchase agreements are considered loans by the Portfolios. The Portfolios
will only enter into repurchase agreements with
 
                                      12
 

 
broker/dealers or other financial institutions that are deemed creditworthy by
management, under guidelines approved by the Board of Directors.
 
     When-Issued, Delayed Delivery and Forward Commitment Securities.  The
Smith Barney Income and Growth and the Smith Barney High Income Portfolios may
each purchase or sell securities on a when-issued, delayed delivery or forward
commitment basis. Such transactions arise when securities are purchased or
sold by a Portfolio with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to
the Portfolio at the time of entering into the transaction. 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. Each Portfolio's
custodian will maintain, in a segregated account on behalf of the Portfolio,
cash, U.S. Government securities or other liquid high-grade debt obligations
having a value equal to or greater than the Portfolio's purchase commitments;
the custodian will likewise segregate securities sold on a delayed basis.
 
     Convertible Securities.  Each Portfolio except the Smith Barney Money
Market Portfolio can invest in convertible securities. Convertible securities
are fixed-income securities that may be converted at either a stated price or
stated rate into underlying shares of common stock. Convertible securities
have general characteristics similar to both fixed-income and equity
securities. Although to a lesser extent than with fixed-income securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the
underlying common stocks and, therefore, also will react to variations in the
general market for equity securities.
 
     Convertible securities are investments which provide for a stable stream
of income with generally higher yields than common stocks. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. Synthetic convertible securities differ from
convertible securities in certain respects, including that each component of a
synthetic convertible security has a separate market value and responds
differently to market fluctuations. Investing in synthetic convertible
securities involves the risk normally involved in holding the securities
comprising the synthetic convertible security.
 
     Short Sales Against the Box.  The Smith Barney High Income Portfolio may
make short sales of securities in order to reduce market exposure and/or to
increase its income if, at all times when a short position is open, the
Portfolio owns an equal or greater amount of such securities or owns preferred
stock, debt or warrants convertible or exchangeable into an equal or greater
number of the shares of the securities sold short. Short sales of this kind
are referred to as short sales "against the box".
 
     Securities of Unseasoned Issuers.  Securities in which the Smith Barney
High Income Portfolio may invest may lack a significant operating history and
be dependent on products or services without an established market share.
 
     Borrowing and Leverage.  Each Portfolio may borrow from banks, on a
secured or unsecured basis. If the Portfolio borrows and uses the proceeds to
make additional investments, income and appreciation from such investments
will improve its performance if they exceed the associated borrowing costs but
impair its performance if they are less than such borrowing costs. This
speculative factor is known as "leverage". Only the Smith Barney International
Equity Portfolio will utilize leverage.
 
     Leverage creates an opportunity for increased returns to shareholders of
the Portfolio but, at the same time, creates special risk considerations. For
example, leverage may exaggerate changes in the net asset value of the
Portfolio's shares and in the Portfolio's yield. Although the principal or
stated value of such borrowings will be fixed, the portfolio assets may change
in value during the time the borrowing is outstanding. Leverage will create
interest or dividend expenses for the Portfolio which can exceed the income
from the assets retained. To the extent the income or other gain derived from
securities purchased with borrowed funds exceeds the interest and other
charges the Portfolio will have to pay in respect thereof, the Portfolio's net
income or other gain will be greater than if leverage had not been used.
Conversely, if the income or other gain from the incremental assets is not
sufficient to cover the cost of leverage, the net income or other gain of the
 
                                      13
 

 
Portfolio will be less than if leverage had not been used. If the amount of
income from the incremental securities is insufficient to cover the cost of
borrowing, securities might have to be liquidated to obtain required funds.
Depending on market or other conditions, such liquidations could be
disadvantageous to the Portfolio.
 
     Illiquid and Restricted Securities.  Each Portfolio may purchase
securities that are not registered ("restricted securities") under the
Securities Act of 1933, as amended (the "1933 Act"), but can be offered and
sold to "qualified institutional buyers" under Rule 144A under the 1933 Act
("Rule 144A"). Each Portfolio may also invest a portion of its assets in
illiquid investments, which include repurchase agreements maturing in more
than seven days and restricted securities. The Board of Directors may
determine, based upon a continuing review of the trading markets for the
specific restricted security, that such restricted securities are liquid. The
Board of Directors has adopted guidelines and delegated to management the
daily function of determining and monitoring liquidity of restricted
securities available pursuant to Rule 144A. The Board, however, retains
sufficient oversight and is ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market for
Rule 144A restricted securities will develop, the Board will carefully monitor
each Portfolio's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of
information. Investments in restricted securities could have the effect of
increasing the level of illiquidity in a Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The Portfolios may also purchase restricted
securities that are not registered under Rule 144A.
 
     Futures, Options and Currency Transactions.  Consistent with its
investment objective and policies, the Smith Barney International Equity and
the Smith Barney High Income Portfolios may each enter into contracts for the
purchase or sale for future delivery of fixed-income securities, foreign
currencies or contracts based on financial indices including interest rates or
an index of U.S. Government or foreign government securities or equity or
fixed-income securities ("futures contracts"), and may buy and write put and
call options to buy or sell futures contracts ("options on futures
contracts"). When a Portfolio buys or sells a futures contract it incurs a
contractual obligation to receive or deliver the underlying instrument (or a
cash payment based on the difference between the underlying instrument's
closing price and the price at which the contract was entered into) at a
specified price on a specified date. An option on a futures contract gives a
Portfolio the right (but not the obligation) to buy or sell a futures contract
at a specified price on or before a specified date.
 
     The Portfolios will not enter into transactions in futures contracts and
options on futures contracts for speculation and will not enter into such
transactions other than to hedge against potential changes in interest or
currency exchange rates or the price of a security or a securities index which
might correlate with or otherwise adversely affect either the value of the
Portfolio's securities or the prices of securities which the Portfolio is
considering buying at a later date. The Smith Barney International Equity and
Smith Barney High Income Portfolios, however, may enter into futures contracts
and options on futures contracts for non-hedging purposes, provided that the
aggregate initial margin and premiums on such non-hedging positions does not
exceed 5% of the liquidation value of a Portfolio's assets.
 
     Although futures contracts by their terms call for the delivery or
acquisition of the underlying commodities or a cash payment based on the value
of the underlying commodities, in most cases the contractual obligation is
offset before the delivery date of the contract by buying, in the case of a
contractual obligation to sell, or selling, in the case of a contractual
obligation to buy, an identical futures contract on a commodities exchange.
Such a transaction cancels the obligation to make or take delivery of the
commodities. Since all transactions in the futures market are made through a
member of, and are offset or fulfilled through a clearinghouse associated
with, the exchange on which the contracts are traded, a Portfolio will incur
brokerage fees when it buys or sells futures contracts.
 
     A Portfolio will not (1) enter into any futures contracts or options on
futures contracts if immediately thereafter the aggregate margin deposits on
all outstanding futures contracts positions held by the Portfolio and premiums
paid on outstanding options on futures contracts, after taking into account
unrealized profits and losses, would exceed 5% of the market value of the
total assets of the Portfolio or (2) enter into any futures contracts or
options on futures contracts if the aggregate amount of the Portfolio's
commitments under
 
                                      14
 

 
outstanding futures contracts positions and options on futures contracts
written by the Portfolio would exceed the market value of the total assets of
the Portfolio. See the Statement of Additional Information for further
discussion of the use, risks and costs associated with futures contracts and
options on futures contracts.
 
     Forward Currency Transactions.  The Smith Barney International Equity and
the Smith Barney High Income Portfolios may each enter into forward foreign
currency exchange contracts ("forward currency contracts") to attempt to
minimize the risk to the Portfolio from adverse changes in the relationship
between the U.S. dollar and other currencies. A forward currency contract is
an obligation to buy or sell an amount of a specified currency for an agreed
price (which may be in U.S. dollars or a foreign currency) at a future date
which is individually negotiated between currency traders and their customers.
A Portfolio may enter into a forward currency contract, for example, when it
enters into a contract to buy or sell a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, when a Portfolio believes that a foreign
currency in which the portfolio securities are denominated may suffer a
substantial decline against the U.S. dollar, the Portfolio may enter into a
forward currency contract to sell an amount of that foreign currency
approximating the value of some or all of the portfolio securities denominated
in that currency, or, when the Portfolio believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, the Portfolio may
enter into a forward currency contract to buy that foreign currency for a
fixed U.S. dollar amount ("position hedge"). A Portfolio also may enter into a
forward currency contract with respect to a currency where the Portfolio is
considering the purchase of investments denominated in that currency but has
not yet done so ("anticipatory hedge"). In any of these circumstances the
Portfolio may, alternatively, enter into a forward currency contract with
respect to a different foreign currency when the Portfolio believes that the
U.S. dollar value of that currency will correlate with the U.S. dollar value
of the currency in which portfolio securities of, or being considered for
purchase by, the Portfolio are denominated ("cross hedge"). A Portfolio may
invest in forward currency contracts with stated contract values of up to the
value of the Portfolio's assets.
 
     A Portfolio also may enter into forward contracts to buy or sell at a
later date instruments in which the Portfolio may invest directly or on
financial indices based on those instruments. The market for those types of
forward contracts is developing and it is not currently possible to identify
instruments on which forward contracts might be created in the future. See the
Statement of Additional Information for further discussion of the use, risks
and costs of forward contracts.
 
     A Portfolio may also enter into currency swaps where each party exchanges
one currency for another on a particular date and agrees to reverse the
exchange on a later date at a specific exchange rate.
 
     Currency Risks.  The Portfolios that invest substantially in securities
denominated in currencies other than the U.S. dollar, or that hold foreign
currencies, will be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rates between such currencies and the
U.S. dollar. Changes in currency exchange rates will influence the value of
each Portfolio's shares and also may affect the value of dividends and
interest earned by the Portfolios and gains and losses realized by the
Portfolios. Currencies generally are evaluated on the basis of fundamental
economic criteria (e.g., relative inflation and interest rate levels and
trends, growth rate forecasts, balance of payments status and economic
policies) as well as technical and political data. The exchange rates between
the U.S. dollar and other currencies are determined by supply and demand in
the currency exchange markets, the international balance of payments,
governmental intervention, speculation and other economic and political
conditions. If the currency in which a security is denominated appreciates
against the U.S. dollar, the dollar value of the security will increase.
Conversely, a decline in the exchange rate of the currency would adversely
affect the value of the security expressed in U.S. dollars.
 
     Options on Securities and on Foreign Currencies.  In an effort to reduce
fluctuations in net asset value or to increase its portfolio return, the
Portfolios may write covered put and call options and may buy put and call
options and warrants on securities traded on U.S. and foreign securities
exchanges. The purpose of such transactions is to hedge against changes in the
market value of portfolio securities caused by fluctuating interest rates,
fluctuating currency exchange rates and changing market conditions, and to
close out or offset existing positions in such options or futures contracts as
described below. A Portfolio may write and buy
 
                                      15
 

 
options on the same types of securities that the Portfolio could buy directly
and may buy options on financial indices as described above with respect to
futures contracts. There are no specific limitations on the writing and buying
of options on securities.
 
     A put option gives the holder the right, upon payment of a premium, to
deliver a specified amount of a security to the writer of the option on or
before a fixed date at a predetermined price. A call option gives the holder
the right, upon payment of a premium, to call upon the writer to deliver a
specified amount of a security on or before a fixed date at a predetermined
price.
 
     A call option is "covered" if a Portfolio owns the underlying security
covered by the call. If a "covered" call option expires unexercised, the
writer realizes a gain in the amount of the premium received. If the covered
call option is exercised, the writer realizes either a gain or loss from the
sale or purchase of the underlying security with the proceeds to the writer
being increased by the amount of the premium. Prior to its expiration, a call
option may be closed out by means of a purchase of an identical option. Any
gain or loss from such transaction will depend on whether the amount paid is
more or less than the premium received for the option plus related transaction
costs. A Portfolio also may write a covered call option to cross-hedge if the
Portfolio does not own the underlying security. The option is designed to
provide a hedge against a decline in value in another security which the
Portfolio owns or has the right to acquire.
 
     In purchasing an option, the Portfolio would be in a position to realize
a gain if, during the option period, the price of the underlying security
increased (in the case of a call) or decreased (in the case of a put) by an
amount in excess of the premium paid and would realize a loss if the price of
the underlying security did not increase (in the case of a call) or decrease
(in the case of a put) during the period by more than the amount of the
premium. If a put or call option bought by the Portfolio were permitted to
expire without being sold or exercised, the Portfolio would lose the amount of
the premium.
 
     Although they entitle the holder to buy equity securities, warrants on
and options to purchase equity securities do not entitle the holder to
dividends or voting rights with respect to the underlying securities, nor do
they represent any rights in the assets of the issuer of those securities.
 
     If a put or call option written by a Portfolio were exercised, the
Portfolio would be obligated to buy or sell the underlying security at the
exercise price. Writing a put option involves the risk of a decrease in the
market value of the underlying security, in which case the option could be
exercised and the underlying security would then be sold by the option holder
to the Portfolio at a higher price than its current market value. Writing a
call option involves the risk of an increase in the market value of the
underlying security, in which case the option could be exercised and the
underlying security would then be sold by the Portfolio to the option holder
at a lower price than its current market value. Those risks could be reduced
by entering into an offsetting transaction. The Portfolio retains the premium
received from writing a put or call option whether or not the option is
exercised.
 
     A Portfolio may buy put and call options and may write covered put and
call options on foreign currencies to hedge against declines in the U.S.
dollar value of foreign currency-denominated securities held by the Portfolio
and against increases in the U.S. dollar cost of foreign currency-denominated
securities being considered for purchase by the Portfolio. As in the case of
other options, however, the writing of an option on a foreign currency will
constitute only a partial hedge, up to the amount of the premium received, and
the Portfolio could be required to buy or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although, in the event of rate movements
adverse to the Portfolio's options position, the option may expire worthless
and the Portfolio will lose the amount of the premium. There is no specific
percentage limitation on the Portfolio's investments in options on foreign
currencies.
 
     A Portfolio may buy or write options in privately negotiated transactions
on the types of securities and indices based on the types of securities in
which the Portfolio is permitted to invest directly. The Portfolio will effect
such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions)
deemed creditworthy, and only pursuant to procedures adopted by management for
monitoring the creditworthiness of those entities. To the extent that an
option bought or
 
                                      16
 

 
written by the Portfolio in a negotiated transaction is illiquid, the value of
an option bought or the amount of the Portfolio's obligations under an option
written by the Portfolio, as the case may be, will be subject to the
Portfolio's limitation on illiquid investments. In the case of illiquid
options, it may not be possible for the Portfolio to effect an offsetting
transaction at a time when management believes it would be advantageous for
the Portfolio to do so. See the Statement of Additional Information for a
further discussion of the use, risks and costs of option trading.
 
     Swaps and Swap-Related Products.  As one way of managing its exposure to
different types of investments, each of the Smith Barney International Equity
and the Smith Barney High Income Portfolios may enter into interest rate
swaps, currency swaps and other types of available swap agreements, such as
caps, collars and floors. Swaps involve the exchange by a Portfolio with
another party of cash payments based upon different interest rate indexes,
currencies, and other prices or rates, such as the value of mortgage
prepayment rates. For example, in the typical interest rate swap, a Portfolio
might exchange a sequence of cash payments based on a floating rate index for
cash payments based on a fixed rate. Payments made by both parties to a swap
transaction are based on a principal amount determined by the parties.
 
     A Portfolio may also purchase and sell caps, floors and collars. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the
counterparty. For example, the purchase of an interest rate cap entitles the
buyer, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal
amount from the counterparty selling such interest rate cap. The sale of an
interest rate floor obligates the seller to make payments to the extent that a
specified interest rate falls below an agreed-upon level. A collar arrangement
combines elements of buying a cap and selling a floor.
 
     Swap agreements will tend to shift a Portfolio's investment exposure from
one type of investment to another. For example, if a Portfolio agreed to
exchange payments in dollars for payments in foreign currency, in each case
based on a fixed rate, the swap agreement would tend to decrease the
Portfolio's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Portfolio's investments and
its share price and yield.
 
     Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact
on a Portfolio's performance. Swap agreements are subject to risks related to
the counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Portfolio may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.
 
     Swaps, caps, floors and collars are highly specialized activities which
involve certain risks. See the Statement of Additional Information for a
further discussion on the risks involved in these activities.
 
     Special Investment Considerations and Risks With Respect to Futures,
Options and Currency Transactions and Swaps and Swap-Related Products.  The
successful use of the investment practices described above with respect to
futures contracts, options on futures contracts, forward contracts, options on
securities and on foreign currencies, and swaps and swap-related products
draws upon skills and experience which are different from those needed to
select the other instruments in which the Portfolio invests. Should interest
or exchange rates or the prices of securities or financial indices move in an
unexpected manner, a Portfolio may not achieve the desired benefits of
futures, options, swaps and forwards or may realize losses and thus be in a
worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts, there are
no daily price fluctuation limits with respect to options on currencies,
forward contracts and other negotiated or over-the-counter instruments, and
adverse market movements could therefore continue to an unlimited extent over
a period of time. In addition, the correlation between movements in the price
of the securities and currencies hedged or used for cover will not be perfect
and could produce unanticipated losses.
 
                                      17
 

 
     With respect to interest rate swaps, each Portfolio recognizes that such
arrangements are relatively illiquid and will include the principal amount of
the obligations owed to it under a swap as an illiquid security for purposes
of the Portfolio's investment restrictions except to the extent a third party
(such as a large commercial bank) has guaranteed the Portfolio's ability to
offset the swap at any time.
 
     A Portfolio's ability to dispose of its positions in the foregoing
instruments will depend on the availability of liquid markets in the
instruments. Markets in a number of the instruments are relatively new and
still developing, and it is impossible to predict the amount of trading
interest that may exist in those instruments in the future. Particular risks
exist with respect to the use of each of the foregoing instruments and could
result in such adverse consequences to the Portfolio as the possible loss of
the entire premium paid for an option bought by the Portfolio, the inability
of the Portfolio, as the writer of a covered call option, to benefit from the
appreciation of the underlying securities above the exercise price of the
option and the possible need to defer closing out positions in certain
instruments to avoid adverse tax consequences. As a result, no assurance can
be given that the Portfolio will be able to use those instruments effectively
for the purposes set forth above. See the Statement of Additional Information
for a further discussion of the use, risks and costs of these instruments.
 
     In connection with its transactions in futures, options, swaps and
forwards, each Portfolio may be required to place assets in a segregated
account with the Portfolio's custodian bank to ensure that the Portfolio will
be able to meet its obligations under these instruments. Assets held in a
segregated account generally may not be disposed of for so long as the
Portfolio maintains the positions giving rise to the segregation requirement.
Segregation of a large percentage of the Portfolio's assets could impede
implementation of the Portfolio's investment policies or the Portfolio's
ability to meet redemption requests or other current obligations.
 
     U.S. Government Securities.  Each Portfolio may invest in U.S. Government
securities, which are debt obligations issued or guaranteed as to payment of
principal and interest by the U.S. Government (including Treasury bills, notes
and bonds, certain mortgage participation certificates and collateralized
mortgage obligations) or by its agencies and instrumentalities (such as GNMA,
the Student Loan Marketing Association, the Tennessee Valley Authority, the
Bank for Cooperatives, the Farmers Home Administration, Federal Farm Credit
Banks, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal
Land Banks, the Export-Import Bank of the U.S., the Federal Housing
Administration, FHLMC, the U.S. Postal Service, the Federal Financing Bank and
FNMA). Some of these securities (such as Treasury bills) are supported by the
full faith and credit of the U.S. Treasury; others (such as obligations of the
Federal Home Loan Bank) are supported by the right of the issuer to borrow
from the Treasury; while still others (such as obligations of FNMA and the
Student Loan Marketing Association) are supported only by the credit of the
instrumentality.
 
     Portfolio Turnover.  Although it is anticipated that most investments of
each Portfolio will be long-term in nature, the rate of portfolio turnover
will depend upon market and other conditions, and it will not be a limiting
factor when management believes that portfolio changes are appropriate. Each
Portfolio's historical portfolio turnover rates are included in the Financial
Highlights tables above. A higher rate of portfolio turnover may result in
higher transaction costs, including brokerage commissions.
 
                      DIVIDENDS, DISTRIBUTIONS AND TAXES
 
     Each Portfolio of the Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Code. To qualify, each Portfolio must meet
certain tests, including distributing at least 90% of its investment company
taxable income, and deriving less than 30% of its gross income from the sale
or other disposition of certain investments held for less than three months.
Each Portfolio except the Smith Barney Money Market Portfolio intends at least
annually to declare and make distributions of substantially all of its taxable
income and net taxable capital gains to its shareowners (i.e. the Separate
Accounts). The Smith Barney Money Market Portfolio intends to declare daily
and pay monthly substantially all of its taxable income and to make
distributions of net realized capital gains, if any, at least annually. Such
distributions are automatically reinvested in additional shares of the
Portfolio at net asset value and are includable in gross income of the
Separate Accounts holding such shares. See the accompanying Contract
prospectus for
 
                                      18
 

 
information regarding the federal income tax treatment of distributions to the
Separate Accounts and to holders of the Contracts.
 
     Each Portfolio of the Fund is also subject to asset diversification
regulations promulgated by the U.S. Treasury Department under the Code. The
regulations generally provide that, as of the end of each calendar quarter or
within 30 days thereafter, no more than 55% of the total assets of each
Portfolio may be represented by any one investment, no more than 70% by any
two investments, no more than 80% by any three investments, and no more than
90% by any four investments. For this purpose all securities of the same
issuer are considered a single investment. If a Portfolio should fail to
comply with these regulations, Contracts invested in that Portfolio would not
be treated as annuity, endowment or life insurance contracts under the Code.
 
                             REDEMPTION OF SHARES
 
     The redemption price of the shares of each Portfolio will be the net
asset value next determined after receipt by the Fund of a redemption order
from a Separate Account, which may be more or less than the price paid for the
shares. The Fund will ordinarily make payment within one business day, though
redemption proceeds must be remitted to a Separate Account on or before the
third day following receipt of proper tender, except on a day on which the New
York Stock Exchange is closed or as permitted by the SEC in extraordinary
circumstances.
 
                                 PERFORMANCE
 
     From time to time the Fund may include a Portfolio's total return,
average annual total return, yield and current distribution return in
advertisements and/or other types of sales literature. These figures are based
on historical earnings and are not intended to indicate future performance. In
addition, these figures will not reflect the deduction of the charges that are
imposed on the Contracts by the Separate Account (see Contract prospectus)
which, if reflected, would reduce the performance quoted. Total return is
computed for a specified period of time assuming reinvestment of all income
dividends and capital gains distributions at net asset value on the exdividend
dates at prices calculated as stated in this Prospectus, then dividing the
value of the investment at the end of the period so calculated by the initial
amount invested and subtracting 100%. The standard average annual total
return, as prescribed by the SEC, is derived from this total return, which
provides the ending redeemable value. Such standard total return information
may also be accompanied with nonstandard total return information over
different periods of time by means of aggregate, average, year-by-year, or
other types of total return figures. The yield of a Portfolio refers to the
net investment income earned by investments in the Portfolio over a thirty-day
period. This net investment income is then annualized, i.e., the amount of
income earned by the investments during that thirty-day period is assumed to
be earned each 30-day period for twelve periods and is expressed as a
percentage of the investments. The yield quotation is calculated according to
a formula prescribed by the SEC to facilitate comparison with yields quoted by
other investment companies. The Fund calculates current distribution return
for each Portfolio by dividing the distributions from investment income
declared during the most recent period by the net asset value on the last day
of the period for which current distribution return is presented. A
Portfolio's current distribution 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 distribution return, and the charges that are imposed
on the Contracts by the Separate Account, should be considered when comparing
the Portfolio's current distribution return to yields published for other
investment companies and other investment vehicles.
 
                                      19
 

 
                                  MANAGEMENT
 
Smith Barney Mutual Funds Management Inc.
 
     Smith Barney Mutual Funds Management Inc. ("SBMFM") manages the
investment operations of each Portfolio pursuant to management agreements
entered into by the Fund on behalf of each Portfolio. Under each management
agreement SBMFM is responsible for furnishing or causing to be furnished to
each Portfolio advice and assistance with respect to the acquisition, holding
or disposal of investments and recommendations with respect to other aspects
and affairs of each Portfolio, bookkeeping, accounting and administrative
services, office space and equipment, and the services of the officers and
employees of the Fund.
 
     By written agreement the research and other departments and staff of
Smith Barney Inc. ("Smith Barney") furnish SBMFM with information, advice and
assistance and are available for consultation on the Fund's Portfolios, thus
Smith Barney may also be considered an investment adviser to the Fund. Smith
Barney's services are paid for by SBMFM on the basis of direct and indirect
costs to Smith Barney of performing such services; there is no charge to the
Fund for such services.
 
     For the services provided by SBMFM, each Portfolio pays SBMFM an annual
management fee calculated at a rate equal to the following percentage of its
average daily net assets, paid monthly.
 
    Smith Barney Income and Growth Portfolio................  0.65%
    Smith Barney International Equity Portfolio.............  0.90%
    Smith Barney High Income Portfolio......................  0.60%
    Smith Barney Money Market Portfolio.....................  0.60%
 
     Although the management fee paid by the Smith Barney International Equity
Portfolio is greater than that paid by most mutual funds, management has
determined that the fee is comparable to the fee charged by other investment
advisers of mutual funds that have similar investment objectives and policies.
 
     Each management agreement further provides that all other expenses not
specifically assumed by SBMFM under the management agreement on behalf of a
Portfolio are borne by the Fund. Expenses payable by the Fund include, but are
not limited to, all charges of custodians 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 and 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 1940 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 of the Fund's Portfolios; general corporate expenses are
allocated on the basis of relative net assets.
 
     SBMFM, which until recently operated under the name, Smith, Barney
Advisers, Inc., was incorporated in 1968 under the laws of Delaware. It is a
wholly-owned subsidiary of Smith Barney Holdings Inc., the parent company of
Smith Barney. Smith Barney Holdings Inc. is a wholly-owned subsidiary of
Travelers Group Inc. ("Travelers"), which is a financial services holding
company engaged, through its subsidiaries, principally in four business
segments: investment services, consumer finance services, life insurance
services and property & casualty insurance services. SBMFM, Smith Barney and
Smith Barney Holdings Inc. are each located at 388 Greenwich Street, New York,
New York 10013. SBMFM also acts as investment manager to numerous other
investment companies having aggregate assets as of the date of this Prospectus
in excess of $60 billion. Smith Barney also advises profit-sharing and pension
accounts. Smith Barney and its affiliates may in the future act as investment
advisers for other accounts.
 
     Portfolio Management by SBMFM.  Smith Barney serves as the investment
adviser to each of the Portfolios. SBMFM will manage the day to day operations
of each Portfolio pursuant to a management agreement entered into by the Fund
on behalf of each Portfolio. Under each management agreement,
 
                                      20
 

 
SBMFM will (a) manage the Portfolio's assets in accordance with the
Portfolio's investment objective(s) and policies as stated in the Prospectus
and the Statement of Additional Information; (b) make investment decisions for
the Portfolio; (c) place purchase and sale orders for portfolio transactions
on behalf of the Portfolio; (d) employ professional portfolio managers and
securities analysts who provide research services to the Portfolio; and (e)
administer the Portfolio's corporate affairs and, in connection therewith,
furnish the Portfolio with office facilities and with clerical, bookkeeping
and recordkeeping services at such office facilities. In providing those
services, SBMFM will conduct a continual program of investment, evaluation
and, if appropriate, sale and reinvestment of each Portfolio's assets.
 
     Bruce D. Sargent, a Vice President of the Fund, is the portfolio manager
of the Smith Barney Income and Growth Portfolio. Mr. Sargent co-manages the
day to day operations of the Smith Barney Income and Growth Portfolio and has
been involved in equity investing for over 25 years. He currently manages over
$1 billion of assets.
 
     Ayako Weissman, Managing Director of Smith Barney, serves as co-manager
of the Smith Barney Income and Growth Portfolio. Ms. Weissman has been
involved in equity investing for Smith Barney for over 8 years and currently
manages over $250 million of assets.
 
     The Smith Barney International Equity Portfolio is managed by Maurits E.
Edersheim and a team of seasoned international equity portfolio managers, who
collectively have over 125 years of experience and who are responsible for the
day to day operations of the Portfolio, including making all investment
decisions. Mr. Edersheim is Chairman and Advisory Director of Smith Barney
World Funds, Inc. and is Deputy Chairman of Smith Barney International
Incorporated. Prior to joining Smith Barney in 1990, Mr. Edersheim was Deputy
Chairman and Director of Drexel Burnham Lambert Incorporated ("Drexel
Burnham"). Mr. James Conheady and Mr. Jeffrey Russell, both Vice Presidents of
the Fund and Managing Directors of Smith Barney are members of the
international equity team. Together, Mr. Conheady and Mr. Russell currently
manage in excess of $2.8 billion in global equity assets for other investment
companies and managed accounts. Prior to joining Smith Barney in February
1990, Mr. Conheady was a First Vice President and Mr. Russell was a Vice
President of Drexel Burnham.
 
     Mr. John C. Bianchi, a Managing Director of the Greenwich Street Advisors
division of SBMFM, is responsible for the management of the Smith Barney High
Income Portfolio. Mr. Bianchi has more than fourteen years of investment
advisory experience. He joined Greenwich Street Advisors in 1985. Prior
thereto, Mr. Bianchi was employed as a Senior Investment Analyst at
Metropolitan Life Insurance Company, where he worked in all sectors of the
bond market, specializing in high grade and high yield corporate bonds and
notes.
 
Portfolio Transactions and Distribution
 
     SBMFM is subject to the supervision and direction of the Fund's Board of
Directors and manages each Portfolio in accordance with its investment
objective and policies, makes investment decisions for the Portfolios, places
orders to purchase and sell securities and employs professionals who provide
research services. All orders for transactions in securities on behalf of a
Portfolio are made by management, with broker-dealers selected by management,
including affiliated brokers. In placing orders management will seek to obtain
the most favorable price and execution available. In selecting broker-dealers,
management may consider research and brokerage services furnished to it and
its affiliates.
 
     Smith Barney distributes shares of the Fund as principal underwriter. In
addition, the Fund's Board of Directors has determined that transactions for
the Fund may be executed through Smith Barney or any broker-dealer affiliate
of Smith Barney (each, an "Affiliated Broker") if, in the judgement of
management, the use of an Affiliated Broker is likely to result in price and
execution at least as favorable to the Fund as those obtainable through other
qualified broker-dealers, and if, in the transaction, the Affiliated Broker
charges the Fund a fair and reasonable rate consistent with that charged to
comparable unaffiliated customers in similar transactions. The Fund will not
deal with Smith Barney in any transaction in which Smith Barney acts as
principal.
 
                                      21
 

 
                              SHARES OF THE FUND
 
General
 
     The Fund, an open-end managed investment company, was incorporated in
Maryland on February 22, 1994. The Fund has an authorized capital of
6,000,000,000 shares with a par value of $.00001 per share. The Board of
Directors has authorized the issuance of twelve series of shares, each
representing shares in one of twelve separate Portfolios, four of which are
offered herein -- the Smith Barney Income and Growth Portfolio, the Smith
Barney International Equity Portfolio, the Smith Barney High Income Portfolio
and the Smith Barney Money Market Portfolio. The Directors also have the power
to create additional series of shares. The assets of each Portfolio will be
segregated and separately managed and a shareowner's interest is in the assets
of the Portfolio in which he or she holds shares.
 
Voting Rights
 
     The Fund offers its shares only for purchase by insurance company
separate accounts. Thus, the insurance company is technically the shareholder
of the Fund and, under the 1940 Act, is deemed to be in control of the Fund.
Nevertheless, with respect to any Fund shareholder meeting, an insurance
company will solicit and accept timely voting instructions from its
contractowners who own units in a separate account investment division which
corresponds to shares in the Fund in accordance with the procedures set forth
in the accompanying prospectus for the applicable contract issued by the
insurance company and to the extent required by law. Shares of the Fund
attributable to contractowner interests for which no voting instructions are
received will be voted by an insurance company in proportion to the shares for
which voting instructions are received.
 
     Each share of a Portfolio represents an equal proportionate interest in
that Portfolio with each other share of the same Portfolio and is entitled to
such dividends and distributions out of the net income of that Portfolio as
are declared in the discretion of the Directors. Shareowners are entitled to
one vote for each share held and will vote by individual Portfolio except to
the extent required by the 1940 Act. The Fund is not required to hold annual
shareowner meetings, although special meetings may be called for the Fund as a
whole, or a specific Portfolio, for purposes such as electing or removing
Directors, changing fundamental policies or approving a management contract.
Shareowners may cause a meeting of shareowners to be held upon a vote of 10%
of the Fund's outstanding shares for the purpose of voting on the removal of
Directors.
 
Availability of the Fund
 
     Investment in the Fund is only available to owners of either variable
annuity or variable life insurance contracts issued by insurance companies
through their separate accounts. It is possible that in the future it may
become disadvantageous for both variable annuity and variable life insurance
separate accounts to be invested simultaneously in the Fund. However, the Fund
does not currently foresee any disadvantages to the contractowners of the
different contracts which are funded by such separate accounts. The Board
monitors events for the existence of any material irreconcilable conflict
between or among such owners, and each insurance company will take whatever
remedial action may be necessary to resolve any such conflict. Such action
could include the sale of Fund shares by one or more of the insurance company
separate accounts which fund these contracts, which could have adverse
consequences to the Fund. Material irreconcilable conflicts could result from,
for example: (a) changes in state insurance laws; (b) changes in U.S. federal
income tax laws; or (c) differences in voting instructions between those given
by variable annuity contractowners and those given by variable life insurance
contractowners. If the Board were to conclude that separate series of the Fund
should be established for variable annuity and variable life separate
accounts, each insurance company would bear the attendant expenses. Should
this become necessary, contractowners would presumably no longer have the
economies of scale resulting from a larger combined mutual fund.
 
                                      22
 

 
                       DETERMINATION OF NET ASSET VALUE
 
     The net asset value of each Portfolio's shares is determined as of the
close of regular trading on the New York Stock Exchange ("NYSE"), which is
currently 4:00 P.M. New York City time on each day that the NYSE is open, by
dividing the Portfolio's net assets by the number of its shares outstanding.
Securities owned by a Portfolio for which market quotations are readily
available are valued at current market value or, in their absence, at fair
value. Securities traded on an exchange are valued at last sales price on the
principal exchange on which each such security is traded, or if there were no
sales on that exchange on the valuation date, the last quoted sale, up to the
time of valuation, on the other exchanges. If instead there were no sales on
the valuation date with respect to these securities, such securities are
valued at the mean of the latest published closing bid and asked prices.
Over-the-counter securities are valued at last sales price or, if there were
no sales that day, at the mean between the bid and asked prices. Options,
futures contracts and options thereon that are traded on exchanges are also
valued at last sales prices as of the close of the principal exchange on which
each is listed or if there were no such sales on the valuation date, the last
quoted sale, up to the time of valuation, on other exchanges. In the absence
of any sales on the valuation date, valuation shall be the mean of the latest
closing bid and asked prices. Fixed income obligations are valued at the mean
of bid and asked prices based on market quotations for those securities or if
no quotations are available, then for securities of similar type, yield and
maturity. Securities with a remaining maturity of 60 days or less are valued
at amortized cost where the Board of Directors has determined that amortized
cost is fair value. Premiums received on the sale of call options will be
included in the Portfolio's net assets, and current market value of such
options sold by a Portfolio will be subtracted from that Portfolio's net
assets. Any other investments of a Portfolio, including restricted securities
and listed securities for which there is a thin market or that trade
infrequently (i.e., securities for which prices are not readily available),
are valued at a fair value determined by the Board of Directors in good faith.
This value generally is determined as the amount that a Portfolio could
reasonably expect to receive from an orderly disposition of these assets over
a reasonable period of time but in no event more than seven days. The value of
any security or commodity denominated in a currency other than U.S. dollars
will be converted into U.S. dollars at the prevailing market rate as
determined by management.
 
     Foreign securities trading may not take place on all days on which the
NYSE is open. Further, trading takes place in various foreign markets on days
on which the NYSE is not open. Accordingly, the determination of the net asset
value of a Portfolio may not take place contemporaneously with the
determination of the prices of investments held by such Portfolio. Events
affecting the values of investments that occur between the time their prices
are determined and 4:00 P.M. on each day that the NYSE is open will not be
reflected in a Portfolio's net asset value unless management under the
supervision of the Fund's Board of Directors, determines that the particular
event would materially affect the net asset value. As a result, a Portfolio's
net asset value may be significantly affected by such trading on days when a
shareholder has no access to such Portfolio.
 
                                      23
 

 
                                  APPENDIX A
 
                         RATINGS ON 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 but 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.
 
     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
 
     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-1
 

 
     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" or "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.
 
Fitch Investors Service, Inc.
 
     AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal which is unlikely to be affected by reasonably foreseeable
events.
 
     AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+".
 
     A -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
 
     BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
 
                                      A-2
 

 
     BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
 
     B -- Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
safety and the need for reasonable business and economic activity throughout
the life of the issue.
 
     CCC -- Bonds have certain identifiable characteristics which if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
 
     CC -- Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
 
     C -- Bonds are in imminent default in payment of interest or principal.
 
     Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
 
     NR -- Indicates that Fitch does not rate the specific issue.
 
     Conditional -- A conditional rating is premised on the successful
completion of a project or the occurrence of a specific event.
 
     Suspended -- A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for rating purposes.
 
     Withdrawn -- A rating will be withdrawn when an issue matures or is
called or refinanced and at Fitch's discretion when an issuer fails to furnish
proper and timely information.
 
     FitchAlert -- Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for potential downgrade, or "Evolving", where
ratings may be lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
 
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
 
     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.
 
                                      A-3
 

 
IBCA Limited or its affiliate, IBCA Inc.
 
     A-1+ -- This designation indicates the highest capacity for timely
repayment.
 
     A-1 -- Capacity for timely repayment on issues with this designation is
very strong.
 
     A-2 -- This designation indicates a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
 
Fitch Investors Service, Inc.
 
     F-1+ -- Indicates the strongest degree of assurance for timely payment.
 
     F-1 -- This designation reflects an assurance of timely payment only
slightly less in degree than issues rated F-1+.
 
     F-2 -- This indicates a satisfactory degree of assurance for timely
payment, although the margin of safety is not as great as indicated by the
F-1+ and F-1 categories.
 
Duff & Phelps Inc.
 
     Duff 1+ -- Indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding, and safety is just below risk-free United
States Treasury short-term obligations.
 
     Duff 1 -- Indicates a high certainty of timely payment.
 
     Duff 2 -- Indicates a good certainty of timely payment: liquidity factors
and company fundamentals are sound.
 
The Thomson BankWatch ("TBW")
 
     TBW-1 -- Indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
 
     TBW-2 -- While the degree of safety regarding timely repayment of
principal and interest is strong, the relative degree of safety is not as high
as for issues rated TBW-1.
 
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