SMITH BARNEY
                                                                         Premium
                                                                           Total
                                                                          Return
                                                                            Fund
                                                             
                                                             APRIL 29, 1998 
 
                                                   PROSPECTUS BEGINS ON PAGE ONE
 
 
P R O S P E C T U S

LOGO  SMITH BARNEY MUTUAL FUNDS
      INVESTING FOR YOUR FUTURE.
      EVERY DAY.


<PAGE>
 
PROSPECTUS                                                       APRIL 29, 1998
 
Smith Barney
Premium Total Return Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010

  Smith Barney Premium Total Return Fund ("Fund"), a diversified fund, seeks to
provide shareholders with total return, consisting of long-term capital appre-
ciation and income, by investing primarily in a diversified portfolio of divi-
dend-paying common stocks. The Fund also purchases put and call options and
writes covered put and call options on securities it holds and on stock indexes
primarily as a hedge to reduce investment risk. The Fund is one of a number of
funds, each having distinct investment objectives and policies, making up
Smith Barney Income Funds ("Trust"). The Trust is an open-end management
investment company commonly referred to as a mutual fund. 
 
  This Prospectus sets forth concisely certain information about the Fund and
the Trust, including sales charges, distribution and service fees and expenses,
that prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference. Shares of other investment funds offered by the Trust are
described in separate prospectuses that may be obtained by calling the Fund at
the telephone number set forth above, or by contacting a Smith Barney Financial
Consultant.

  Additional information about the Fund and the Trust is contained in a State-
ment of Additional Information ("SAI") dated April 29, 1998, as amended or sup-
plemented from time to time, that is available upon request and without charge
by calling or writing the Trust at the telephone number or address set forth
above or by contacting a Smith Barney Financial Consultant. The Statement of
Additional Information has been filed with the Securities and Exchange Commis-
sion ("SEC") and is incorporated by reference into this Prospectus in its
entirety. 
 
SMITH BARNEY INC.
Distributor
 
SMITH BARNEY STRATEGY ADVISERS INC.
Investment Adviser

MUTUAL MANAGEMENT CORP. 
Administrator
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
                                                                               1
<PAGE>
 
TABLE OF CONTENTS                                    DATE
 
<TABLE>
<S>                                   <C>
PROSPECTUS SUMMARY                      3
-----------------------------------------
FINANCIAL HIGHLIGHTS                    9
-----------------------------------------
INVESTMENT OBJECTIVE AND POLICIES      15
-----------------------------------------
VALUATION OF SHARES                    23
-----------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES     23
-----------------------------------------
PURCHASE OF SHARES                     25
-----------------------------------------
EXCHANGE PRIVILEGE                     35
-----------------------------------------
REDEMPTION OF SHARES                   38
-----------------------------------------
MINIMUM ACCOUNT SIZE                   40
-----------------------------------------
PERFORMANCE                            41
-----------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND   41
-----------------------------------------
DISTRIBUTOR                            43
-----------------------------------------
ADDITIONAL INFORMATION                 44
-----------------------------------------
</TABLE>
 
--------------------------------------------------------------------------------
 
  No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Trust
or the distributor. This Prospectus does not constitute an offer by the Trust
or the distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
 
--------------------------------------------------------------------------------
 
2
<PAGE>
 
PROSPECTUS SUMMARY
 
 
  The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
 
INVESTMENT OBJECTIVE The Fund is an open-end, diversified management invest-
ment company that seeks total return by investing primarily in a diversified
portfolio of dividend-paying common stocks. The Fund may engage in various
portfolio strategies involving options to seek to increase its return and to
hedge its portfolio against movements in the equity markets and interest
rates. See "Investment Objective and Management Policies."
 
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of
expenses to which they are subject. A fourth Class of shares, Class Y shares,
is offered only to investors meeting an initial investment minimum of
$15,000,000. See "Purchase of Shares" and "Redemption of Shares."

  Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% and are subject to an annual service fee of 0.25%
of the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares of
$500,000 or more will be made at net asset value with no initial sales charge,
but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--
Reduced or No Initial Sales Charge." 
 
  Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 5.00% of redemption proceeds, declining by 1.00% each year
after the date of purchase to zero. This CDSC may be waived for certain
redemptions. Class B shares are subject to an annual service fee of 0.25% and
an annual distribution fee of 0.50% of the average daily net assets of the
Class. The Class B shares' distribution fee may cause that Class to have
higher expenses and pay lower dividends than Class A shares.
 
  Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and
distributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
 
                                                                              3
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
  Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.45% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months
of purchase. The CDSC may be waived for certain redemptions. The Class C
shares' distribution fee may cause that Class to have higher expenses and pay
lower dividends than Class A shares. Purchases of Fund shares, which when com-
bined with current holdings of Class C shares of the Fund equal or exceed
$500,000 in the aggregate, should be made in Class A shares at net asset value
with no sales charge, and will be subject to a CDSC of 1.00% on redemptions
made within 12 months of purchase.

  Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $15,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to any
service or distribution fees. 
 
  In deciding which Class of Fund shares to purchase, investors should con-
sider the following factors, as well as any other relevant facts and circum-
stances:

  Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of
regular investment may wish to consider Class A shares; as the investment
accumulates, shareholders may qualify for reduced sales charges and the shares
are subject to lower ongoing expenses over the term of the investment. As an
investment alternative, Class B and Class C shares are sold without any ini-
tial sales charge so the entire purchase price is immediately invested in the
Fund. Any investment return on these additional invested amounts may partially
or wholly offset the higher annual expenses of these Classes. Because the
Fund's future return cannot be predicted, however, there can be no assurance
that this would be the case. 
 
  Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature, and therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.

  Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share
purchases of $500,000 or more will be made at net asset value with no initial
sales charge, but will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase. The $500,000 investment may be met by adding the
purchase to the net asset value 
 
4
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
of all Class A shares offered with a sales charge held in funds sponsored by
Smith Barney Inc. ("Smith Barney") listed under "Exchange Privilege." Class A
share purchases may also be eligible for a reduced initial sales charge. See
"Purchase of Shares." Because the ongoing expenses of Class A shares may be
lower than those for Class B and Class C shares, purchasers eligible to pur-
chase Class A shares at net asset value or at a reduced sales charge should
consider doing so.
 
  Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
 
  See "Purchase of Shares" and "Management of the Trust and the Fund" for a
complete description of the sales charges and service and distribution fees
for each Class of shares and "Valuation of Shares," "Dividends, Distributions
and Taxes" and "Exchange Privilege" for other differences among the Classes
of shares.
 
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Other investors may be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without a
sales charge as investment alternatives under both of these programs. See
"Purchase of Shares--Smith Barney 401(k) and ExecChoice (TM) Programs."
 
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained with Smith Barney, a broker that clears securities transactions through
Smith Barney on a fully disclosed basis (an "Introducing Broker") or an
investment dealer in the selling group. Direct purchases by certain retirement
plans may be made through the Fund's transfer agent, First Data Investor Serv-
ices Group, Inc. ("First Data"). See "Purchase of Shares."

INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-
Employed Retirement Plan. Investors in Class Y shares may open an account for
an initial investment of $15,000,000. Subsequent investments of at least $50
may be made for all Classes. For participants in retirement plans qualified
under Section 403(b)(7) or Section 401(a) of the Code, the minimum initial
investment requirement for Class A, Class B and Class C shares and the subse-
quent investment requirement for all Classes is $25. The minimum investment
requirements for purchases of all Classes through the Systematic Investment
Plan are described below. See "Purchase of Shares." 
 
                                                                              5
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares. The minimum initial and subsequent
investment for shareholders purchasing shares through the Systematic Investment
Plan on a monthly basis is $25 and on a quarterly basis is $50. See "Purchase
of Shares."
 
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and "Re-
demption of Shares."

MANAGEMENT OF THE FUND Smith Barney Strategy Advisers Inc. ("Strategy Advisers"
or the "Investment Adviser") is a wholly owned subsidiary of Mutual Management
Corp. ("MMC"), formerly known as Smith Barney Mutual Funds Management Inc. MMC
provides investment advisory and management services to investment companies
affiliated with Smith Barney. MMC is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of
Travelers Group Inc. ("Travelers"), a diversified financial services holding
company engaged, through its subsidiaries, principally in four business seg-
ments: Investment Services, including Asset Management, Consumer Finance Serv-
ices, Life Insurance Services and Property & Casualty Insurance Services. 

  MMC also serves as the Fund's administrator. Boston Partners Asset
Management, L.P. ("Boston Partners") serves as the Fund's sub-adviser. See
"Management of the Trust and the Fund." 
 
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset value next determined. See "Exchange Privilege."
 
VALUATION OF SHARES The net asset value of the Fund for the prior day generally
is quoted daily in the financial section of most newspapers and is also avail-
able from any Smith Barney Financial Consultant. See "Valuation of Shares."
   
DIVIDENDS AND DISTRIBUTIONS Dividends and/or capital gains, if any, from net 
investment income, if any, of the Fund will be declared and paid quarterly.
See "Dividends, Distributions and Taxes." 
     
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro rata
basis. See "Dividends, Distributions and Taxes."
 
6
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund's investment objective will be achieved. The Fund may employ investment
techniques which involve certain risks, including entering into repurchase
agreements, engaging in when-issued and delayed-delivery transactions, lending
portfolio securities, covered option writing on securities it holds and on
stock indices. See "Investment Objective and Management Policies."
 
THE FUND'S EXPENSES The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and the Fund's operating expenses for its most
recent fiscal year:
 
<TABLE>
<CAPTION>
  SMITH BARNEY
  PREMIUM TOTAL RETURN FUND                      CLASS A CLASS B CLASS C CLASS Y
--------------------------------------------------------------------------------
  <S>                                            <C>     <C>     <C>     <C>
  SHAREHOLDER TRANSACTION EXPENSES
    Maximum sales charge imposed on purchases
      (as a percentage of offering price)         5.00%   None    None    None
    Maximum CDSC (as a percentage of original
      cost or redemption proceeds, whichever is
      lower)                                      None*   5.00%   1.00%   None
--------------------------------------------------------------------------------
  ANNUAL FUND OPERATING EXPENSE
      (AS A PERCENTAGE OF AVERAGE NET ASSETS)
    Management fees                               0.75%   0.75%   0.75%   0.75%
    12b-1 fees**                                  0.25    0.75    0.70    None
    Other expenses                                0.11    0.10    0.11    0.01
--------------------------------------------------------------------------------
  TOTAL FUND OPERATING EXPENSES                   1.11%   1.60%   1.56%   0.76%
--------------------------------------------------------------------------------
</TABLE>

  * Purchase of Class A shares of $500,000 or more will be made at net asset
    value with no sales charge, but will be subject to a CDSC of 1.00% on
    redemptions made within 12 months of purchase. 
 ** Upon conversion of Class B shares to Class A shares, such shares will no
    longer be subject to a distribution fee. Class C shares do not have a
    conversion feature and, therefore, are subject to an ongoing distribution
    fee. As a result, long-term shareholders of Class C shares may pay more
    than the economic equivalent of the maximum front-end sales charge
    permitted by the National Association of Securities Dealers, Inc.

  The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors
may actually pay lower or no charges, depending on the amount purchased and, in
the case of Class B, Class C shares and certain Class A shares, the length of
time the shares are held and whether the shares are held through the
Smith Barney 401(k) and Exec Choice Programs. See "Purchase of Shares" and "Re-
demption of Shares." Smith Barney receives an annual 12b-1 service fee of 0.25%
of the value of average daily net assets of Class A shares. Smith Barney also
receives, with respect to Class B shares, an annual 12b-1 fee of 0.75% of the
value of average daily net assets of that Class, consisting of a 0.50% distri-
bution fee and a 0.25% service fee. With respect 
 
                                                                               7
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
to Class C shares, Smith Barney receives an annual 12b-1 fee of 0.70% of the
value of the average daily net assets, consisting of a 0.45% distribution fee
and a 0.25% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees.
 
 EXAMPLE
 
  The following example is intended to assist an investor in understanding the
various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."
 
<TABLE>
<CAPTION>
  SMITH BARNEY
  PREMIUM TOTAL RETURN FUND                     1 YEAR 3 YEARS 5 YEARS 10 YEARS*
--------------------------------------------------------------------------------
  <S>                                           <C>    <C>     <C>     <C>
  An investor would pay the following expenses
  on a $1,000 investment, assuming (1) 5.00%
  annual return and (2) redemption at the end
  of each time period:
    Class A...................................   $61     $84    $108     $178
    Class B...................................    66      80      97      177
    Class C...................................    26      49      85      186
    Class Y...................................     8      24      42       94
  An investor would pay the following expenses
  on the same investment, assuming the same
  annual return and no redemption:
    Class A...................................   $61     $84    $108     $178
    Class B...................................    16      50      87      177
    Class C...................................    16      49      85      186
    Class Y...................................     8      24      42       94
--------------------------------------------------------------------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares at the
  end of the eighth year following the date of purchase.
 
  The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
 
8
<PAGE>
 
FINANCIAL HIGHLIGHTS

  The following information for the year ended December 31, 1997, the period
from August 1, 1996 to December 31, 1996 and for each of the years in the two
year period ended July 31, 1996 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon appears in the Fund's Annual Report
dated December 31, 1997. The information for the fiscal years ended December
31, 1988 through December 31, 1994 has been audited by other independent audi-
tors. The information set out below should be read in conjunction with the
financial statements and related notes that also appear in the Fund's Annual
Report, which is incorporated by reference into the Statement of Additional
Information. 

FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH PERIOD:


<TABLE>
<CAPTION>
SMITH BARNEY PREMIUM
TOTAL RETURN FUND         1997(/1/) 1996(/1/)(/2/)  1996    1995    1994   1993(/3/)
-------------------------------------------------------------------------------------
<S>                       <C>       <C>            <C>     <C>     <C>     <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR               $19.14      $17.40      $16.33  $15.69  $15.65   $15.15
-------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
 Net investment income       0.39        0.16        0.37    0.44    0.33     0.19
 Net realized and
 unrealized gain             4.29        2.21        1.98    1.48    0.99     1.33
-------------------------------------------------------------------------------------
Total Income From Opera-
tions                        4.68        2.37        2.35    1.92    1.32     1.52
-------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
 Net investment income      (0.38)      (0.16)      (0.37)  (0.43)  (0.55)   (0.20)
 Net realized gains         (1.25)      (0.47)      (0.91)  (0.14)  (0.52)   (0.49)
 Capital                      --           --         --    (0.71)  (0.21)   (0.33)
-------------------------------------------------------------------------------------
Total Distributions         (1.63)      (0.63)      (1.28)  (1.28)  (1.28)   (1.02)
-------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR                       $22.19      $19.14      $17.40  $16.33  $15.69   $15.65
-------------------------------------------------------------------------------------
TOTAL RETURN                25.19%      13.80%++    14.76%  12.92%   8.65%   10.31%++
-------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(MILLIONS)                 $  834      $  608      $  534  $  472  $   68   $   40
-------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
 Expenses                    1.11%       1.12%+      1.12%   1.16%   1.19%    1.20%+
 Net investment income       1.89        2.05+       2.16    2.81    2.05     1.64+
-------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE        43%          30%        58%     63%     34%      55%
-------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER
   SHARE PAID ON EQUITY
   TRANSACTIONS(/4/)        $0.06       $0.06       $0.06     --      --       --
-------------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts have been calculated using the monthly average shares
    method, rather than the undistributed net investment income method,
    because it more accurately reflects the per share data for the period.
    
(2) For the period from August 1, 1996 to December 31, 1996.

(3) For the period from November 6, 1992 (inception date) to July 31, 1993.
    
(4) As of September 1995, the SEC instituted new guidelines requiring the dis-
    closure of average commissions per share. 

++Total return is not annualized, as it may not be representative of the total
  return for the year. 

+ Annualized. 
 
                                                                              9
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR:


<TABLE>
<CAPTION>
SMITH BARNEY PREMIUM
TOTAL RETURN FUND         1997(1)  1996(1)(2)   1996    1995    1994    1993
------------------------------------------------------------------------------
<S>                       <C>      <C>         <C>     <C>     <C>     <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR              $19.14     $17.40    $16.33  $15.69  $15.65  $15.21
------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
 Net investment income      0.29       0.12      0.28    0.36    0.25    0.23
 Net realized and
 unrealized gain            4.28       2.21      1.99    1.48    1.00    1.47
------------------------------------------------------------------------------
Total Income From Opera-
tions                       4.57       2.33      2.27    1.84    1.25    1.70
------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
 Net investment income     (0.29)     (0.12)    (0.29)  (0.34)  (0.49)  (0.19)
 Net realized gains        (1.25)     (0.47)    (0.91)  (0.14)  (0.52)  (0.63)
 Capital                      --         --        --   (0.72)  (0.20)  (0.44)
------------------------------------------------------------------------------
Total Distributions        (1.54)     (0.59)    (1.20)  (1.20)  (1.21)  (1.26)
------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR                      $22.17     $19.14    $17.40  $16.33  $15.69  $15.65
------------------------------------------------------------------------------
TOTAL RETURN               24.55%     13.57%++  14.21%  12.36%   8.12%  11.68%
------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(MILLIONS)                $3,170     $2,355    $2,021  $1,655  $1,697  $1,231
------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
 Expenses                   1.60%      1.54%+    1.62%   1.66%   1.66%   1.69%
 Net investment income      1.39       1.63+     1.66    2.31    1.58    1.16
------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE       43%        30%       58%     63%     34%     55%
------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER
   SHARE
   PAID ON EQUITY TRANS-
   ACTIONS(3)              $0.06      $0.06     $0.06      --      --      --
------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts have been calculated using the monthly average shares
    method, rather than the undistributed net investment income method,
    because it more accurately reflects the per share data for the period.
    
(2) For the period from August 1, 1996 to December 31, 1996. 

(3) As of September 1995, the SEC instituted new guidelines requiring the dis-
    closure of average commissions per share. 

++ Total return is not annualized, as it may not be representative of the
   total return for the year. 

+  Annualized. 
 
 
10
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR:

<TABLE>
<CAPTION>
SMITH BARNEY
PREMIUM TOTAL RETURN FUND                         1992    1991
----------------------------------------------------------------
<S>                                              <C>     <C>
NET ASSET VALUE, BEGINNING OF YEAR               $14.26  $13.30
----------------------------------------------------------------
INCOME FROM OPERATIONS:
 Net investment income                             0.22    0.24
 Net realized and unrealized gain on investments   1.93    1.92
----------------------------------------------------------------
Total Income From Operations                       2.15    2.16
----------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
 Net investment income                            (0.22)  (0.24)
 Overdistribution of net Investment Income           --      --
 Net realized gains                                  --      --
 Overdistribution of net realized gains              --      --
 Capital                                          (0.98)  (0.96)
----------------------------------------------------------------
Total Distributions                               (1.20)  (1.20)
----------------------------------------------------------------
NET ASSET VALUE, END OF YEAR                     $15.21  $14.26
----------------------------------------------------------------
TOTAL RETURN++                                    15.68%  17.53%
----------------------------------------------------------------
NET ASSETS, END OF YEAR (000S)                   $  585  $  470
----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
 Expenses                                          1.69%   1.75%
 Net investment income                             1.53%   1.84%
----------------------------------------------------------------
PORTFOLIO TURNOVER RATE                              57%     43%
----------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
   PAID ON EQUITY TRANSACTIONS(1)                    --      --
----------------------------------------------------------------
</TABLE>

(1) As of September 1995, the SEC instituted new guidelines requiring the dis-
    closure of average commissions per share. 

++ Total return represents the aggregate total return for the period indicated
   and does not reflect any applicable sales charges. 
 
 
                                                                             11
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR:

<TABLE>
<CAPTION>
SMITH BARNEY
PREMIUM TOTAL RETURN FUND                                1990    1989    1988
-------------------------------------------------------------------------------
<S>                                                     <C>     <C>     <C>
NET ASSET VALUE, BEGINNING OF YEAR                      $13.98  $12.90  $14.47
-------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
 Net investment income                                    0.22    0.56    0.51
 Net realized and unrealized gain/(loss) on investments   0.38    2.00   (0.62)
-------------------------------------------------------------------------------
Total From Investment Operations                          0.60    2.56   (0.11)
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
 Net investment income                                   (0.22)  (0.89)  (0.18)
 Overdistribution of net investment income                  --      --      --
 Net realized capital gains                                 --   (0.26)  (1.28)
 Overdistribution of net realized capital gains             --      --      --
 Capital                                                 (1.06)  (0.33)     --
-------------------------------------------------------------------------------
Total Distributions                                      (1.28)  (1.48)  (1.46)
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR                            $13.30  $13.98  $12.90%
-------------------------------------------------------------------------------
TOTAL RETURN++                                            4.62%  21.49%   0.21%
-------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (MILLIONS)                    $  508  $  600  $  586
-------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
 Expenses                                                 1.78%   1.75%   1.70%
 Net investment income                                    1.66%   4.17%   3.58%
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE                                     47%     41%     56%
-------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
   PAID ON EQUITY TRANSACTIONS(1)                           --      --      --
-------------------------------------------------------------------------------
</TABLE>

(1) As of September 1995, the SEC instituted new guidelines requiring the dis-
    closure of average commissions per share. 

++ Total return represents the aggregate total return for the period indicated
   and does not reflect any applicable sales charge. 
 
12
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A CLASS C SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR:

<TABLE>
<CAPTION>
SMITH BARNEY PREMIUM
TOTAL RETURN FUND         1997(/1/) 1996(/1/)(/2/)  1996    1995   1994(/3/) 1993(/4/)
---------------------------------------------------------------------------------------
<S>                       <C>       <C>            <C>     <C>     <C>       <C>
NET ASSET VALUE, BEGIN-
NING OF YEAR               $19.15       $17.41     $16.33  $15.69   $15.65    $15.45
---------------------------------------------------------------------------------------
INCOME FROM OPERATIONS
FROM:
 Net investment income       0.30         0.12       0.29    0.36     0.23      0.05
 Net realized and
 unrealized gain             4.28         2.21       1.99    1.48     1.02      0.35
---------------------------------------------------------------------------------------
Total Income From Opera-
tions                        4.58         2.33       2.28    1.84     1.25      0.40
---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
 Net investment income      (0.30)       (0.12)     (0.29)  (0.35)   (0.49)    (0.04)
 Net realized gains         (1.25)       (0.47)     (0.91)  (0.14)   (0.52)    (0.09)
 Capital                       --           --         --   (0.71)   (0.20)    (0.07)
---------------------------------------------------------------------------------------
Total Distributions         (1.55)       (0.59)     (1.20)  (1.20)   (1.21)    (0.20)
---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR                       $22.18       $19.15     $17.41  $16.33   $15.69    $15.65
---------------------------------------------------------------------------------------
TOTAL RETURN                24.60%       13.58%++   14.30%  12.36%    8.12%     2.60%++
---------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
(MILLIONS)                 $   94       $   43     $   31  $   13   $    2    $ 0.4
---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS:
 Expenses                    1.56%        1.55%+     1.59%   1.62%    1.60%     1.31%+
 Net investment income       1.41         1.61+      1.68    2.35     1.65      1.54+
---------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE        43%          30%        58%     63%      34%       55%
---------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER
SHARE
  PAID ON EQUITY
TRANSACTIONS(5)            $ 0.06       $ 0.06     $ 0.06      --       --        --
---------------------------------------------------------------------------------------
</TABLE>

(1) Per share amounts have been calculated using the monthly average shares
    method, rather than the undistributed net investment income method,
    because it more accurately reflects the per share data for the period.
    
(2) For the period from August 1, 1996 to December 31, 1996. 

(3) On November 7, 1994 the former Class D shares were renamed Class C shares.
    
(4) For the period from June 1, 1993 (inception date) to July 31, 1993. 

(5) As of September 1995, the SEC instituted new guidelines requiring the dis-
    closure of average commissions per share. 

++Total return is not annualized as it may not be representative of the total
  return for the year. 

+ Annualized. 
 
                                                                             13
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A CLASS Y SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR:

<TABLE>
<CAPTION>
SMITH BARNEY PREMIUM
TOTAL RETURN FUND                   1997(/1/) 1996(/1/)(/2/) 1996(/3/)
-----------------------------------------------------------------------
<S>                                 <C>       <C>            <C>
NET ASSET VALUE, BEGINNING OF YEAR   $19.17       $17.42      $17.57
-----------------------------------------------------------------------
INCOME FROM OPERATIONS:
 Net investment income                 0.47         0.17        0.19
 Net realized and unrealized gain      4.29         2.23        0.33
-----------------------------------------------------------------------
Total Income From Operations           4.76         2.40        0.52
-----------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
 Net investment income                (0.44)       (0.18)      (0.21)
 Net realized gains                   (1.25)       (0.47)      (0.46)
-----------------------------------------------------------------------
Total Distributions                   (1.69)       (0.65)      (0.67)
-----------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR         $22.24       $19.17      $17.42
-----------------------------------------------------------------------
TOTAL RETURN                          25.61%       13.95%++     2.93%++
-----------------------------------------------------------------------
NET ASSETS, END OF YEAR (MILLIONS)      $51          $27         $13
-----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
 Expenses                              0.76%        0.80%+      0.87%+
 Net investment income                 2.22         2.36+       2.24+
-----------------------------------------------------------------------
PORTFOLIO TURNOVER RATE                  43%          30%         58%
-----------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE
 PAID ON EQUITY TRANSACTIONS(/4/)     $0.06        $0.06       $0.06
</TABLE>
-------------------------------------------------------------------------------

(1) Per share amounts have been calculated using the monthly average shares
    method, rather than the undistributed net investment income method,
    because it more accurately reflects the per share date for the period.
    
(2) For the period from August 1, 1996 to December 31, 1996. 

(3) For the period from February 7, 1996 (inception date) to July 31, 1996.
    
(4) As of September 1995, the SEC instituted new guidelines requiring the dis-
    closure of average commissions per share. 
++Total return is not annualized, as it may not be representative of the total
  return for the year.
+ Annualized.
 
14
<PAGE>
 
INVESTMENT OBJECTIVE AND POLICIES

  The Fund's investment objective is total return. The Fund's investment
objective may be changed only with the approval of a majority of the Fund's
outstanding shares. There can be no assurance that the Fund will achieve its
investment objective. The Fund will seek to achieve its objective by investing
primarily in a diversified portfolio of dividend-paying common stocks. The Fund
may engage in various portfolio strategies involving options to seek to
increase its return and to hedge its portfolio against movements in the equity
markets and interest rates. Because the Fund seeks total return by emphasizing
investments in dividend-paying common stocks, it will not have as much
investment flexibility as total return funds which may pursue their objective
by investing in both income and equity stocks without such an emphasis. The
Fund also may invest up to 10% of its assets in: (a) medium- or low-rated
securities or unrated securities of comparable quality. Medium- and low-rated
securities are securities rated less than investment grade by a nationally
recognized statistical rating organization ("NRSRO") such as Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P"). See "Risk
Factors and Special Considerations--Medium-, Low- and Unrated Securities"; (b)
interest-paying debt securities, such as obligations issued or guaranteed as to
principal and interest by the United States government ("U.S. government
securities"); and (c) other securities, including convertible bonds,
convertible preferred stock and warrants. In addition, the Fund will limit its
investments in warrants to 5% of its net assets. The Fund also may lend its
portfolio securities and enter into "short sales against the box." Special
considerations associated with the Fund's investment strategies are described
below. 
 
 CERTAIN INVESTMENT STRATEGIES
  In attempting to achieve its investment objective, the Fund may employ, among
others, one or more of the strategies set forth below. More detailed informa-
tion concerning these strategies and their related risks is contained in the
Statement of Additional Information.

  Short Sales Against the Box. The Fund may make short sales of common stock
if, at all times when a short position is open, the Fund owns the stock or owns
preferred stocks or debt securities convertible or exchangeable, without pay-
ment of further consideration, into the shares of common stock sold short.
Short sales of this kind are referred to as "short sales against the box." The
broker-dealer that executes a short sale generally invests cash proceeds of the
sale until they are paid to the Fund. Arrangements may be made with the broker-
dealer to obtain a portion of the interest earned by the broker on the invest-
ment of short sale proceeds. The Fund will segregate the common stock or con-
vertible or exchangeable preferred stock or debt securities in a special
account with PNC Bank, National Association ("PNC Bank"), the Fund's custodian.
Not more than 10% of the Fund's net assets (taken at current value) may be held
as collateral for such sales at any one time. 

                                                                              15
<PAGE>
 
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
 
 
  Covered Option Writing. The Fund may write put and call options on securi-
ties. The Fund realizes fees (referred to as "premiums") for granting the
rights evidenced by the options. A put option embodies the right of its pur-
chaser to compel the writer of the option to purchase from the option holder an
underlying security at a specified price at any time during the option period.
In contrast, a call option embodies the right of its purchaser to compel the
writer of the option to sell to the option holder an underlying security at a
specified price at any time during the option period. Thus, the purchaser of a
put option written by the Fund has the right to compel the Fund to purchase
from it the underlying security at the agreed-upon price for a specified time
period, while the purchaser of a call option written by the Fund has the right
to purchase from the Fund the underlying security owned by the Fund at the
agreed-upon price for a specified time period.
 
  Upon the exercise of a put option written by the Fund, the Fund may suffer a
loss equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. Upon the exercise
of a call option written by the Fund, the Fund may suffer a loss equal to the
excess of the security's market value at the time of the option exercise over
the Fund's acquisition cost of the security, less the premium received for
writing the option.
 
  The Fund will write only covered options. Accordingly, whenever the Fund
writes a call option, it will continue to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option. To support its obligation to purchase the underlying
security if a put option is exercised, the Fund will either (a) deposit with
PNC Bank in a segregated account cash or equity and debt securities of any
grade provided such securities have been determined by Strategy Advisers on
Boston Partners to be liquid and unencumbered pursuant to guidelines estab-
lished by the Trustees, having a value at least equal to the exercise price of
the underlying securities or (b) continue to own an equivalent number of puts
of the same "series" (that is, puts on the same underlying security having the
same exercise prices and expiration dates as those written by the Fund), or an
equivalent number of puts of the same "class" (that is, puts on the same under-
lying security) with exercise prices greater than those that it has written
(or, if the exercise prices of the puts that it holds are less than the exer-
cise prices of those that it has written, it will deposit the difference with
PNC Bank in a segregated account).
 
  The Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the Fund would purchase,
prior to the holder's
 
16
<PAGE>
 
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
 
exercise of an option the Fund has written, an option of the same series as
that on which the Fund desires to terminate its obligation. The obligation of
the Fund under an option it has written would be terminated by a closing pur-
chase transaction, but the Fund would not be deemed to own an option as the
result of the transaction. There can be no assurance the Fund will be able to
effect closing purchase transactions at a time when it wishes to do so. To
facilitate closing purchase transactions, however, the Fund ordinarily will
write options only if a secondary market for the options exists on a domestic
securities exchange or in the over-the-counter market.
 
  Purchasing Put and Call Options on Securities. The Fund may utilize up to 10%
of its assets to purchase put options on portfolio securities and may do so at
or about the same time that it purchases the underlying security or at a later
time. By buying a put, the Fund limits the risk of loss from a decline in the
market value of the security until the put expires. Any appreciation in the
value of, or in the yield otherwise available from the underlying security,
however, will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. The Fund may utilize up to 10% of its
assets to purchase call options on portfolio securities. Call options may be
purchased by the Fund in order to acquire the underlying securities for the
Fund at a price that avoids any additional cost that would result from a sub-
stantial increase in the market value of a security. The Fund also may purchase
call options to increase its return to investors at a time when the call is
expected to increase in value due to anticipated appreciation of the underlying
security.
 
  Prior to their expirations, put and call options may be sold in closing sale
transactions (sales by the Fund, prior to the exercise of options it has pur-
chased, of options of the same series), and profit or loss from the sale will
depend on whether the amount received is more or less than the premium paid for
the option plus the related transaction costs.
 
  Stock Index Options. The Fund may purchase and write exchange-listed put and
call options on stock indexes primarily to hedge against the effects of market-
wide price movements. A stock index measures the movement of a certain group of
stocks by assigning relative values to the common stocks included in the index.
(Examples of well-known stock indexes are the Standard & Poor's Daily Price
Index of 500 Common Stocks and the NYSE Composite Index.) Options on stock
indexes are similar to options on securities. However, because options on stock
indexes do not involve the delivery of an underlying security, the option rep-
resents the holder's right to obtain from the writer in cash a fixed multiple
of the amount by which the exercise price exceeds (in the case of a put) or is
less than (in the case of a call) the closing value of the underlying index on
the exercise date.
 
 
                                                                              17
<PAGE>
 
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
 
  The advisability of using stock index options to hedge against the effects
of market-wide movements will depend on the extent of diversification of the
Fund's stock investments and the sensitivity of its stock investments to fac-
tors influencing the underlying index. The effectiveness of purchasing or
writing stock index options as a hedging technique will depend upon the extent
to which price movements in the portion of the Fund being hedged correlate
with price movements in the stock index selected.

  When the Fund writes an option on a stock index, it will deposit cash or
equity and debt securities of any grade or a combination of both in an amount
equal to the market value of the option in a segregated account with PNC Bank,
and will maintain the account while the option is open. 
 
 ADDITIONAL INVESTMENTS
  Money Market Instruments. When Strategy Advisers and Boston Partners believe
that market conditions warrant, the Fund may adopt a temporary defensive pos-
ture and invest in short-term instruments without limitation. Short-term
instruments in which the Fund may invest include U.S. government securities;
certain bank obligations (including certificates of deposit, time deposits and
bankers' acceptances of domestic or foreign banks, domestic savings and loan
associations and similar institutions); commercial paper rated no lower than
A-2 by S&P or Prime-2 by Moody's or the equivalent from another major rating
service or, if unrated, of an issuer having an outstanding, unsecured debt
issue then rated within the three highest rating categories; and repurchase
agreements as described below.
 
  United States Government Securities. U.S. government securities are obliga-
tions of, or guaranteed by, the United States government, its agencies or
instrumentalities. The U.S. government securities in which the Fund may invest
include: direct obligations of the United States Treasury (such as Treasury
Bills, Treasury Notes and Treasury Bonds) and obligations issued by U.S. gov-
ernment agencies and instrumentalities, including securities that are sup-
ported by the full faith and credit of the United States (such as Government
National Mortgage Association ("GNMA") certificates); securities that are sup-
ported by the right of the issuer to borrow from the United States Treasury
(such as securities of Federal Home Loan Banks); and securities that are sup-
ported by the credit of the instrumentality (such as Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC")
bonds). Treasury Bills have maturities of less than 1 year, Treasury Notes
have maturities of 1 to 10 years and Treasury Bonds generally have maturities
of greater than 10 years at the date of issuance. Certain U.S. government
securities, such as those issued or guaranteed by GNMA, FNMA and FHLMC, are
mortgage-related securities. U.S. government securities generally do not
involve the credit risks associated with other types of interest-bearing secu-
rities, although, as a
 
18
<PAGE>
 
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
 
result, the yields available from U.S. government securities are generally
lower than the yields available from interest-bearing corporate securities.

  Repurchase Agreements. The Fund may engage in repurchase agreement transac-
tions with banks which are the issuers of instruments acceptable for purchase
by the Fund and with certain dealers on the Federal Reserve Bank of New York's
list of reporting dealers. Under the terms of a typical repurchase agreement,
the Fund would acquire an underlying debt obligation for a relatively short
period (usually not more than one week), subject to an obligation of the
seller to repurchase, and the Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during the Fund's holding peri-
od. This arrangement results in a fixed rate of return that is not subject to
market fluctuations during the Fund's holding period. The value of the under-
lying securities will be at least equal at all times to the total amount of
the repurchase obligation, including interest. Repurchase agreements could
involve certain risks in the event of default or insolvency of the other par-
ty, including possible delays or restrictions upon the Fund's ability to dis-
pose of the underlying securities, the risk of a possible decline in the value
of the underlying securities during the period in which the Fund seeks to
assert its rights to them, the risk of incurring expenses associated with
asserting those rights and the risk of losing all or part of the income from
the agreement. Strategy Advisers, MMC or Boston Partners, acting under the
supervision of the Trust's Board of Trustees, reviews on an ongoing basis the
value of the collateral and the creditworthiness of those banks and dealers
with which the Fund may enter into repurchase agreements to evaluate potential
risks. 
 
  When-Issued Securities and Delayed-Delivery Transactions. In order to secure
yields or prices deemed advantageous at the time, the Fund may purchase or
sell any portfolio securities on a when-issued or delayed-delivery basis. The
Fund will enter into a when-issued transaction for the purpose of acquiring
portfolio securities and not for the purpose of leverage. In such transac-
tions, delivery of the securities occurs beyond the normal settlement periods,
but no payment or delivery is made by the Fund prior to the actual delivery or
payment by the other party to the transaction. Due to fluctuations in the
value of securities purchased or sold on a when-issued or delayed-delivery
basis, the yields obtained on such securities may be higher or lower than the
yields available in the market on the dates when the investments are actually
delivered to the buyers. The Fund will establish a segregated account in an
amount equal to the amount of its when-issued and delayed-delivery commit-
ments. Placing securities rather than cash in the segregated account may have
a leveraging effect on the Fund's net assets. The Fund will not accrue income
with respect to a when-issued security prior to its stated delivery date.
 
  Lending of Portfolio Securities. The Fund has the ability to lend portfolio
securities to brokers, dealers and other financial organizations. These loans,
if and when
 
                                                                             19
<PAGE>
 
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)

made, may not exceed 20% of the Fund's assets taken at value. Loans of portfo-
lio securities will be collateralized by cash, letters of credit or U.S. gov-
ernment securities that are maintained at all times in an amount at least
equal to the current market value of the loaned securities. 
 
 CERTAIN INVESTMENT GUIDELINES

  The Fund may invest up to 10% of its total assets in securities with con-
tractual or other restrictions on resale and other instruments that are not
readily marketable, including (a) repurchase agreements with maturities
greater than seven days, (b) time deposits maturing from two business days
through seven calendar days and (c) to the extent that a liquid secondary mar-
ket does not exist for the instruments, futures contracts and options thereon.
In addition, the Fund may invest up to 5% of its assets in the securities of
issuers which have been in continuous operation for less than three years. The
investment guidelines set forth in this paragraph may be changed at any time
without shareholder consent by vote of the Trust's Board of Trustees. A com-
plete list of investment restrictions that identifies additional restrictions
that cannot be changed without the approval of a majority of the Fund's out-
standing shares is contained in the Statement of Additional Information. 
 
 RISK FACTORS AND SPECIAL CONSIDERATIONS
  Options. The Fund may enter into options transactions primarily as hedges to
reduce investment risk, generally by making an investment expected to move in
the opposite direction of a portfolio position. A hedge is designed to offset
a loss on a portfolio position with a gain on the hedge position; at the same
time, however, a properly correlated hedge will result in a gain on the port-
folio position being offset by a loss on the hedge position. The Fund bears
the risk that the prices of the securities being hedged will not move in the
same amount as the hedge. The Fund will engage in hedging transactions only
when deemed advisable by Strategy Advisers and Boston Partners. Successful use
by the Fund of options will depend on Strategy Advisers' and Boston Partners'
ability to correctly predict movements in the direction of the stock or index
underlying the option used as a hedge. Losses incurred in hedging transactions
and the costs of these transactions will affect the Fund's performance.
 
  The ability of the Fund to engage in closing transactions with respect to
options depends on the existence of a liquid secondary market. While the Fund
generally will purchase or write stock options and options on stock index
options only if there appears to be a liquid secondary market for the options
purchased or sold, for some options no such secondary market may exist or the
market may cease to exist.
 
  Medium-, Low- and Unrated Securities. The Fund may invest up to 10% of its
assets in medium- or low-rated securities and unrated securities of comparable
qual-
 
20
<PAGE>
 
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
 
ity. Generally, these securities offer a higher return potential than higher-
rated securities but involve greater volatility of price and risk of loss of
income and principal. The issuers of such securities may be in default or
bankruptcy at the time of purchase or may have a high probability of future
default or bankruptcy. Medium- and low-rated and comparable unrated securities
will likely have large uncertainties or major risk exposures to adverse condi-
tions and are predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms of the obli-
gation. Accordingly, it is possible that these types of factors could, in cer-
tain instances, reduce the value of securities held by the Fund, with a com-
mensurate effect on the value of the Fund's shares.
 
  The markets in which medium- and low-rated or comparable unrated securities
are traded generally are more limited than those in which higher-rated securi-
ties are traded. The existence of limited markets for these securities may
restrict the availability of securities for the Fund to purchase and also may
have the effect of limiting the ability of the Fund to (a) obtain accurate
market quotations for purposes of valuing securities and calculating net asset
value and (b) sell securities at their fair value either to meet redemption
requests or to respond to changes in the economy or the financial markets. The
market for certain medium- and low-rated and comparable unrated securities has
not fully weathered a major economic recession. Any such economic downturn
could adversely affect the value of such securities and the ability of the
issuers of these securities to repay principal and pay interest thereon.
 
  While the market values of medium- and low-rated and comparable unrated
securities tend to react less to fluctuations in interest rate levels than do
those of higher-rated securities, the market values of certain of these secu-
rities also tend to be more sensitive to individual corporate developments and
changes in economic conditions than higher-rated securities. In addition,
medium- and low-rated and comparable unrated securities generally present a
higher degree of credit risk. Issuers of medium- and low-rated and comparable
unrated securities are often highly leveraged and may not have more tradi-
tional 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 medium- and low-rated and compa-
rable unrated securities generally are unsecured and frequently are subordi-
nated to the prior payment of senior indebtedness. The Fund may incur addi-
tional 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 medium- and low-rated and comparable
unrated securities, frequently have call or buy-back features that permit
their issuers to call or repurchase the securities from their holders, such as
the Fund. If an issuer
 
                                                                             21
<PAGE>
 
INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
 
exercises these rights during periods of declining interest rates, the Fund
may have to replace the security with a lower yielding security, resulting in
a decreased return to the Fund.

  Securities which are rated below investment grade such as Ba by Moody's or
BB by S&P have speculative characteristics with respect to capacity to pay
interest and repay principal. Securities which are rated B generally lack
characteristics of a desirable investment and assurance of interest and prin-
cipal payments over any long period of time may be small. Securities which are
rated Caa or CCC or below are of poor standing. Those issues may be in default
or present elements of danger with respect to principal or interest. Securi-
ties rated C by Moody's and D by S&P are in the lowest rating class and indi-
cate that payments are in default or that a bankruptcy petition has been filed
with respect to the issuer or that the issuer is regarded as having extremely
poor prospects. See the Appendix in the Fund's Statement of Additional Infor-
mation on bond ratings by Moody's and S&P. 
 
  In light of these risks, Strategy Advisers and Boston Partners, in evaluat-
ing the creditworthiness of an issue, whether rated or unrated, will take var-
ious factors into consideration, which may include, as applicable, 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 of Unseasoned Issuers. Securities in which the Fund may invest
may have limited marketability and, therefore, may be subject to wide fluctua-
tions in market value. In addition, certain securities may lack a significant
operating history and be dependent on products or services without an estab-
lished market share.

  Year 2000. The investment management services provided to the Fund by the
Investment Adviser and the services provided to shareholders by Smith Barney,
the Fund's Distributor, depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
Fund's operations, including the handling of securities trades, pricing and
account services. The Investment Adviser and Smith Barney have advised the
Fund that they have been reviewing all of their computer systems and actively
working on necessary changes to their systems to prepare for the year 2000 and
expect that their systems will be compliant before that date. In addition, the
Investment Adviser has been advised by the Fund's custodian, transfer agent
and accounting service agent that they are also in the process of modifying
their systems with the same goal. There can, however, 
 
22
<PAGE>
 

INVESTMENT OBJECTIVE AND POLICIES (CONTINUED) 

be no assurance that the Investment Adviser, Smith Barney or any other service
provider will be successful, or that interaction with other non-complying com-
puter systems will not impair Fund services at that time. 
 
 PORTFOLIO TRANSACTIONS
  All orders for transactions in securities and options on behalf of the Fund
are placed by Strategy Advisers and Boston Partners with broker-dealers that
Strategy Advisers and Boston Partners select, including Smith Barney and other
affiliated brokers. The Fund may utilize Smith Barney or a Smith Barney-
affiliated broker in connection with a purchase or sale of securities when
Strategy Advisers and Boston Partners believe that the broker's charge for the
transactions does not exceed usual and customary levels. The same standard
applies to the use of Smith Barney as a commodities broker in connection with
entering into options and futures contracts.
 
VALUATION OF SHARES
 
 
  The Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.
 
  Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Trust's Board of Trustees. Short-
term investments that mature in 60 days or less are valued at amortized cost
whenever the Trustees determine that amortized cost reflects fair value of
those instruments. Further information regarding the Fund's valuation policies
is contained in the Statement of Additional Information.
 
DIVIDENDS, DISTRIBUTIONS AND TAXES
 
 
 DIVIDENDS AND DISTRIBUTIONS

  If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. Dividends and/or
capital gains, if any, from net investment income, if any, of the Fund will be
declared quarterly and paid quarterly. The Fund's final distribution for each
calendar year will include any remaining net investment income and net realized
long- and short-term capital gains realized during the year and deemed undis-
tributed during the year for Federal income tax purposes. In order to avoid the
application of a 4% nondeductible excise tax on certain undistributed amounts
of ordinary income and capital gains, 
 
                                                                              23
<PAGE>
 

DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED) 
 
the Fund may make an additional distribution shortly before December 31 in each
year of any undistributed ordinary income or capital gains and expects to pay
any other dividends and distributions necessary to avoid the application of
this tax.
 
  The per share dividends on Class B and Class C shares of the Fund may be
lower than the per share dividends on Class A and Class Y shares principally as
a result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the serv-
ice fee applicable to Class A shares. Distributions of capital gains, if any,
will be in the same amount for Class A, Class B, Class C and Class Y shares.
 
 TAXES

  The following is a summary of the material federal tax considerations affect-
ing the Fund and Fund shareholders, please refer to the SAI for further discus-
sion. In addition to the considerations described below and in the SAI, there
may be other federal, state, local, and/or foreign tax applications to consid-
er. Because taxes are a complex matter, prospective shareholders are urged to
consult their tax advisors for more detailed information with respect to the
tax consequences of any investment. 

  The Fund intends to qualify, as it has in prior years, under Subchapter M of
the Code for tax treatment as a regulated investment company. In each taxable
year that the Fund qualifies, the Fund will pay no federal income tax on its
net investment company taxable income and long-term capital gain that is dis-
tributed to shareholders. 

  Dividends paid from net investment income and net realized short-term securi-
ties gains, are subject to federal income tax as ordinary income. 

  Distributions, if any, from net realized long-term securities gains, derived
from the sale of securities held by the Fund for more than one year, are tax-
able as long-term capital gains, regardless of the length of time a shareholder
has owned Fund shares. The Code provides that the net capital gain, for indi-
viduals, generally will not be subject to federal income taxes at a rate in
excess of 28% (20% with respect to net capital gains attributable to securities
held by the Fund for more than 18 months). 

  Shareholders are required to pay tax on all taxable distributions even if
those distributions are automatically reinvested in additional Fund shares. A
portion of the dividends paid by the Fund may qualify for the corporate divi-
dends received deduction. The Fund will inform shareholders of the source and
tax status of all distributions promptly after the close of each calendar year.

24
<PAGE>
 

DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED) 
   
  A shareholders' gain or loss on the sale or redemption of Fund shares will
be considered as either a long-term or short-term capital gain (loss) depend-
ing upon the length of time the shares had been owned at disposition. 
Losses realized by a shareholder on the disposition of shares owned for
Six months or less will be treated as a long-term capital loss to the 
extent a long-term capital gain has been distributed on such shares.
    
  The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for share-
holders who do not provide the Fund with a correct taxpayer identification
number (social security or employer identification number). Withholding from
taxable dividends and capital gain distributions also is required for share-
holders who otherwise are subject to backup withholding. Any tax withheld as a
result of backup withholding does not constitute an additional tax, and may be
claimed as a credit on the shareholders' federal income tax return. 
 
PURCHASE OF SHARES
 
 
 GENERAL

  The Fund offers four Classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without
an initial sales charge but are subject to a CDSC payable upon certain redemp-
tions. Class Y shares are sold without an initial sales charge or CDSC, and
are available only to investors investing a minimum of $15,000,000 (except for
purchases of Class Y shares by the Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount). See "Prospectus Summa-
ry-- Alternative Purchase Arrangements" for a discussion of factors to con-
sider in selecting which Class of shares to purchase. 

  Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the sell-
ing group, except for investors purchasing shares of the Fund through a quali-
fied retirement plan who may do so directly through First Data. When purchas-
ing shares of the Fund, investors must specify whether the purchase is for
Class A, Class B, Class C or Class Y shares. Smith Barney and other broker-
dealers may charge their customers an annual account maintenance fee in con-
nection with a brokerage account through which an investor purchases or holds
shares. Accounts held directly at First Data are not subject to a maintenance
fee. 

  Investors in Class A, Class B and Class C shares may open an account by mak-
ing an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan, in the Fund. Investors in Class Y
shares may open an account by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for all Classes. For par-
ticipants in retirement 
 
                                                                             25
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
plans qualified under Section 403(b)(7) or Section 401(a) of the Code, the min-
imum initial investment requirement for Class A, Class B and Class C shares and
the subsequent investment requirement for all Classes in the Fund is $25. For
shareholders purchasing shares of the Fund through the Systematic Investment
Plan on a monthly basis, the minimum initial investment requirement for Class
A, Class B and Class C shares and the minimum subsequent investment requirement
for all Classes is $25. For shareholders purchasing shares of the Fund through
the Systematic Investment Plan on a quarterly basis, the minimum initial
investment requirement for Class A, Class B and Class C shares and the subse-
quent investment requirement for all Classes is $50. There are no minimum
investment requirements for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Trustees of the Trust and their spouses
and children. The Fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the shareholder's account
by the Fund's transfer agent, First Data. Share certificates are issued only
upon a shareholder's written request to First Data.

  Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset val-
ue, are priced according to the net asset value determined on that day. Orders
received by dealers or Introducing Brokers prior to the close of regular trad-
ing on the NYSE on any day the Fund calculates its net asset value are priced
according to the net asset value determined on that day, provided the order is
received by the Fund or Smith Barney prior to Smith Barney's close of business
(the "trade date"). For shares purchased through Smith Barney or Introducing
Brokers purchasing through Smith Barney, payment for Fund shares is due on the
third business day after the trade date. In all other cases, payment must be
made with the purchase order. 
 
 SYSTEMATIC INVESTMENT PLAN

  Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or First Data is authorized through
preauthorized transfers of at least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the regular bank account or other financial institu-
tion indicated by the shareholder, to provide systematic additions to the
shareholder's Fund account. A shareholder who has insufficient funds to com-
plete the transfer will be charged a fee of up to $25 by Smith Barney or First
Data. The Systematic Investment Plan also authorizes Smith Barney to apply cash
held in the shareholder's Smith Barney brokerage account or redeem the share-
holder's shares of a Smith Barney money market fund to make additions to the
account. Additional information is available from the Fund or a Smith Barney
Financial Consultant. 
 
26
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
 
 INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
  The sales charges applicable to purchases of Class A shares of the Fund are
as follows:
 
<TABLE>
<CAPTION>
                                  SALES CHARGE
                         ------------------------------
                                                             DEALERS'
                              % OF           % OF       REALLOWANCE AS % OF
  AMOUNT OF INVESTMENT   OFFERING PRICE AMOUNT INVESTED   OFFERING PRICE
---------------------------------------------------------------------------
  <S>                    <C>            <C>             <C>
  Less than  $ 25,000         5.00%          5.26%             4.50%
  $ 25,000 - $ 49,999         4.00           4.17              3.60
  $ 50,000 - $ 99,999         3.50           3.63              3.15
  $100,000 - $249,999         3.00           3.09              2.70
  $250,000 - $499,999         2.00           2.04              1.80
  $500,000 and over            *               *                 *
---------------------------------------------------------------------------
</TABLE>

* Purchases of Class A shares of $500,000 or more will be made at net asset
  value without any initial sales charge, but will be subject to a CDSC of
  1.00% on redemptions made within 12 months of purchase. The CDSC on Class A
  shares is payable to Smith Barney, which compensates Smith Barney Financial
  Consultants and other dealers whose clients make purchases of $500,000 or
  more. The CDSC is waived in the same circumstances in which the CDSC
  applicable to Class B and Class C shares is waived. See "Deferred Sales
  Charge Alternatives" and "Waivers of CDSC." 
 
  Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act
of 1933, as amended.

  The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Fund made at one time by "any person," which includes an
individual and his or her immediate family, or a trustee or other fiduciary of
a single trust estate or single fiduciary account. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value
of all Class A shares offered with a sales charge held in funds sponsored by
Smith Barney listed under "Exchange Privilege." 
 
 INITIAL SALES CHARGE WAIVERS

  Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board members and
employees of Travelers and its subsidiaries and any of the Smith Barney Mutual
Funds (including retired Board members and employees), the immediate families
of such persons (including the surviving spouse of a deceased Board member or
employee); and to a pension, profit-sharing or other benefit plan for such
persons and Board members of any funds sponsored by Travelers and its affili-
ates and (ii) employees of members of the National Association of Securities
Dealers, Inc., provided such sales are made upon the assurance of the pur-
chaser that the purchase is made for investment purposes and that the securi-
ties will not be resold except through redemption or repurchase; (b) offers of
Class A shares to any other investment company in 
 
                                                                             27
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)

connection with the combination of such company with the Fund by merger, acqui-
sition of assets or otherwise; (c) purchases of Class A shares by any client of
a newly employed Smith Barney Financial Consultant (for a period up to 90 days
from the commencement of the Financial Consultant's employment with Smith Bar-
ney), on the condition the purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to the client by the
Financial Consultant and (iii) was subject to a sales charge; (d) shareholders
who have redeemed Class A shares in the Fund (or Class A shares of another of
the Smith Barney Mutual Funds that are offered with a sales charge) and who
wish to reinvest their redemption proceeds in the Fund, provided the reinvest-
ment is made within 60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory subsidiaries of Travelers;
and; (f) purchase by Section 403(b) or Section 401(a) or (k) accounts associ-
ated with Copeland Retirement Programs. In order to obtain such discounts, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase would qualify for the elimination of the sales
charge. 
 
  Purchases of Class A shares also may be made at net asset value without a
sales charge in the following circumstances: (1) direct rollovers by plan par-
ticipants of distributions from a 401(k) plan enrolled in the Smith Barney
401(k) Program (Note: Subsequent investments will be subject to the applicable
sales charge); (2) purchases by separate accounts used to fund certain unregis-
tered variable annuity contracts; and (3) purchases by investors participating
in a Smith Barney fee based arrangement.
 
 RIGHT OF ACCUMULATION
  Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregat-
ing the dollar amount of the new purchase and the total net asset value of all
Class A shares of the Fund and of funds sponsored by Smith Barney which are
offered with a sales charge listed under "Exchange Privilege" then held by such
person and applying the sales charge applicable to such aggregate. In order to
obtain such discount, the purchaser must provide sufficient information at the
time of purchase to permit verification that the purchase qualifies for the
reduced sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
 
 GROUP PURCHASES
  Upon completion of certain automated systems, a reduced sales charge or pur-
chase at net asset value will also be available to employees (and partners) of
the same employer purchasing as a group, provided each participant makes the
mini-
 
28
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
mum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based
upon the aggregate sales of Class A shares of certain Smith Barney Mutual
Funds offered with a sales charge to, and share holdings of, all members of
the group. To be eligible for such reduced sales charges or to purchase at net
asset value, all purchases must be pursuant to an employer- or partnership-
sanctioned plan meeting certain requirements. One such requirement is that the
plan must be open to specified partners or employees of the employer and its
subsidiaries, if any. Such plan may, but is not required to, provide for pay-
roll deductions, IRAs or investments pursuant to retirement plans under Sec-
tions 401 or 408 of the Code. Smith Barney may also offer a reduced sales
charge or net asset value purchase for aggregating related fiduciary accounts
under such conditions that Smith Barney will realize economies of sales
efforts and sales related expenses. An individual who is a member of a quali-
fied group may also purchase Class A shares at the reduced sales charge appli-
cable to the group as a whole. The sales charge is based upon the aggregate
dollar value of Class A shares offered with a sales charge that have been pre-
viously purchased and are still owned by the group, plus the amount of the
current purchase. A "qualified group" is one which (a) has been in existence
for more than six months, (b) has a purpose other than acquiring Fund shares
at a discount and (c) satisfies uniform criteria which enable Smith Barney to
realize economies of scale in its costs of distributing shares. A qualified
group must have more than 10 members, must be available to arrange for group
meetings between representatives of the Fund and the members, and must agree
to include sales and other materials related to the Fund in its publications
and mailings to members at no cost to Smith Barney. In order to obtain such
reduced sales charge or to purchase at net asset value, the purchaser must
provide sufficient information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge. Approval of group
purchase reduced sales charge plans is subject to the discretion of Smith Bar-
ney.
 
 LETTER OF INTENT
  Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes pur-
chases of all Class A shares of the Fund and other funds of the Smith Barney
Mutual Funds offered with a sales charge over the 13 month period based on the
total amount of intended purchases plus the value of all Class A shares previ-
ously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the
 
                                                                             29
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
period receives the reduced sales charge applicable to the total amount of the
investment goal. If the goal is not achieved within the period, the investor
must pay the difference between the sales charges applicable to the purchases
made and the charges previously paid, or an appropriate number of escrowed
shares will be redeemed. Please contact a Smith Barney Financial Consultant or
First Data to obtain a Letter of Intent application.

  Class Y Shares. A Letter of Intent may also be used as a way for investors
to meet the minimum investment requirement for Class Y shares. Such investors
must make an initial minimum purchase of $5,000,000 in Class Y shares of the
Fund and agree to purchase a total of $15,000,000 of Class Y shares of the
same Fund within 13 months from the date of the Letter. If a total investment
of $15,000,000 is not made within the 13 month period, all Class Y shares pur-
chased to date will be transferred to Class A shares, where they will be sub-
ject to all fees (including a service fee of 0.25%) and expenses applicable to
the Fund's Class A shares, which may include a CDSC of 1.00%. Please contact a
Smith Barney Financial Consultant or First Data for further information. 
 
 DEFERRED SALES CHARGE ALTERNATIVES

  "CDSC Shares" are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b) Class
C shares; and (c) Class A shares that were purchased without an initial sales
charge but subject to a CDSC. 
 
  Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a
CDSC to the extent that the value of such shares represents: (a) capital
appreciation of Fund assets; (b) reinvestment of dividends or capital gain
distributions; (c) with respect to Class B shares, shares redeemed more than
five years after their purchase; or (d) with respect to Class C shares and
Class A shares that are CDSC Shares, shares redeemed more than 12 months after
their purchase.
 
  Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith
 
30
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
Barney statement month. The following table sets forth the rates of the charge
for redemptions of Class B shares by shareholders, except in the case of pur-
chases by Participating Plans, as described below. See "Purchase of Shares--
Smith Barney 401(k) and ExecChoice(TM) Programs."
 
<TABLE>
<CAPTION>
      YEAR SINCE PURCHASE
      PAYMENT WAS MADE      CDSC
---------------------------------
      <S>                   <C>
      First                 5.00%
      Second                4.00
      Third                 3.00
      Fourth                2.00
      Fifth                 1.00
      Sixth and thereafter  0.00
---------------------------------
</TABLE>

  Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There also will be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number
of outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. See "Prospectus Summary--Alternative Purchase Arrangements Class B
Shares Conversion Feature." 
 
  In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gains distribu-
tions and finally, of other shares held by the shareholder for the longest
period of time. The length of time that CDSC Shares acquired through an
exchange have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and Fund shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain distribution
reinvestments in such other funds. For Federal income tax purposes, the amount
of the CDSC will reduce the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any CDSC will be paid to Smith
Barney.
 
  To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the
 
                                                                              31
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
value of the investor's shares would be $1,260 (105 shares at $12 per share).
The CDSC would not be applied to the amount which represents appreciation
($200) and the value of the reinvested dividend shares ($60). Therefore, $240
of the $500 redemption proceeds ($500 minus $260) would be charged at a rate of
4.00% (the applicable rate for Class B shares) for a total deferred sales
charge of $9.60.
 
 WAIVERS OF CDSC
  The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b) au-
tomatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of
the shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares in connection with a combination of the Fund with any
investment company by merger, acquisition of assets or otherwise. In addition,
a shareholder who has redeemed shares from other funds of the Smith Barney
Mutual Funds may, under certain circumstances, reinvest all or part of the
redemption proceeds within 60 days and receive pro rata credit for any CDSC
imposed on the prior redemption.
 
  CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
 
 SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS
  Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable, the same
terms and conditions, which are outlined below, are offered to all plans par-
ticipating ("Participating Plans") in these programs.
 
  The Fund offers to Participating Plans Class A and Class C shares as invest-
ment alternatives under the Smith Barney 401(k) and ExecChoice(TM) Programs.
Class A and Class C shares acquired through the Participating Plans are subject
to the same service and/or distribution fees as the Class A and Class C shares
acquired by other investors; however, they are not subject to any initial sales
charge or CDSC. Once a Participating Plan has made an initial investment in the
Fund, all of its subsequent investments in the Fund must be in the same Class
of shares, except as otherwise described below.
 
32
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
 
  Class A Shares. Class A shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases $1,000,000 or more of
Class A shares of one or more funds of the Smith Barney Mutual Funds.
 
  Class C Shares. Class C shares of the Fund are offered without any sales
charge or CDSC to any Participating Plan that purchases less than $1,000,000 of
Class C shares of one or more funds of the Smith Barney Mutual Funds.
 
  401(k) and ExecChoice(TM) Plans Opened On or After June 21, 1996. If at the
end of the fifth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, a Par-
ticipating Plan's total Class C holdings in all non-money market Smith Barney
Mutual Funds equal at least $1,000,000, the Participating Plan will be offered
the opportunity to exchange all of its Class C shares for Class A shares of the
Fund. (For Participating Plans that were originally established through a Smith
Barney retail brokerage account, the five year period will be calculated from
the date the retail brokerage account was opened.) Such Participating Plans
will be notified of the pending exchange in writing within 30 days after the
fifth anniversary of the enrollment date and, unless the exchange offer has
been rejected in writing, the exchange will occur on or about the 90th day
after the fifth anniversary date. If the Participating Plan does not qualify
for the five year exchange to Class A shares, a review of the Participating
Plan's holdings will be performed each quarter until either the Participating
Plan qualifies or the end of the eighth year.
 
  401(k) Plans Opened Prior to June 21, 1996. In any year after the date a Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program, if a Participating
Plan's total Class C holdings in all non-money market Smith Barney Mutual Funds
equal at least $500,000 as of the calendar year-end, the Participating Plan
will be offered the opportunity to exchange all of its Class C shares for Class
A shares of the Fund. Such Plans will be notified in writing within 30 days
after the last business day of the calendar year and, unless the exchange offer
has been rejected in writing, the exchange will occur on or about the last
business day of the following March.
 
  Any Participating Plan in the Smith Barney 401(k) Program that has not previ-
ously qualified for an exchange into Class A shares will be offered the oppor-
tunity to exchange all of its Class C shares for Class A shares of the Fund,
regardless of asset size, at the end of the eighth year after the date the Par-
ticipating Plan enrolled in the Smith Barney 401(k) Program. Such Plans will be
notified of the pending exchange in writing approximately 60 days before the
eighth anniversary of the enrollment date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the eighth anniversary
date. Once an exchange has occurred, a Participating Plan will not be eligible
to acquire additional Class C shares of the
 
                                                                              33
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
Fund but instead may acquire Class A shares of the Fund. Any Class C shares not
converted will continue to be subject to the distribution fee.
 
  Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from First Data. For further information regarding these
Programs, investors should contact a Smith Barney Financial Consultant.
 
  Existing 401(k) Plans Investing in Class B Shares. Class B shares of the
Smith Barney Mutual Funds are not available for purchase by Participating Plans
opened on or after June 21, 1996, but may continue to be purchased by any Par-
ticipating Plan in the Smith Barney 401(k) Program opened prior to such date
and originally investing in such Class. Class B shares acquired are subject to
a CDSC of 3.00% of redemption proceeds, if the Participating Plan terminates
within eight years of the date the Participating Plan first enrolled in the
Smith Barney 401(k) Program.
 
  At the end of the eighth year after the date the Participating Plan enrolled
in the Smith Barney 401(k) Program, the Participating Plan will be offered the
opportunity to exchange all of its Class B shares for Class A shares of the
Fund. Such Participating Plan will be notified of the pending exchange in writ-
ing approximately 60 days before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing, the exchange will occur
on or about the eighth anniversary date. Once the exchange has occurred, a Par-
ticipating Plan will not be eligible to acquire additional Class B shares of
the Fund but instead may acquire Class A shares of the Fund. If the Participat-
ing Plan elects not to exchange all of its Class B shares at that time, each
Class B share held by the Participating Plan will have the same conversion fea-
ture as Class B shares held by other investors. See "Purchase of Shares--
Deferred Sales Charge Alternatives."
 
  No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased
more than eight years prior to the redemption, plus increases in the net asset
value of the shareholder's Class B shares above the purchase payments made dur-
ing the preceding eight years. Whether or not the CDSC applies to the redemp-
tion by a Participating Plan depends on the number of years since the Partici-
pating Plan first became enrolled in the Smith Barney 401(k) Program, unlike
the applicability of the CDSC to redemptions by other shareholders, which
depends on the number of years since those shareholders made the purchase pay-
ment from which the amount is being redeemed.
 
  The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the
 
34
<PAGE>
 

PURCHASE OF SHARES (CONTINUED) 
 
retirement of an employee in the Participating Plan; (b) the termination of
employment of an employee in the Participating Plan; (c) the death or disabil-
ity of an employee in the Participating Plan; (d) the attainment of age 59 1/2
by an employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan made by the Participating
Plan to an employee.
 
EXCHANGE PRIVILEGE
 
 
  Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the Smith Barney Mutual Funds, to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of Class A, Class B and
Class C shares are subject to minimum investment requirements and all shares
are subject to the other requirements of the fund into which exchanges are
made.
 
 FUND NAME
  Growth Funds
   
   Concert Peachtree Growth Fund 
   Smith Barney Aggressive Growth Fund Inc.
   Smith Barney Appreciation Fund Inc.
   Smith Barney Fundamental Value Fund Inc.
   
   Smith Barney Large Capitalization Growth Fund 
   
   Smith Barney Managed Growth Fund
   Smith Barney Natural Resources Fund Inc.
   
   Smith Barney Small Cap Blend Fund, Inc. 
   Smith Barney Special Equities Fund
   
   Smith Barney Large Cap Blend Fund 
 
  Growth and Income Funds
   Smith Barney Convertible Fund
   
   Smith Barney Funds, Inc.--Large Cap Value Fund 
   
   Concert Social Awareness Fund 
   
   
   Smith Barney Utilities Fund
    
  Taxable Fixed-Income Funds
   
   **Smith Barney Adjustable Rate Government Income Fund 
   Smith Barney Diversified Strategic Income Fund
   
  +++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Fund 
   Smith Barney Funds, Inc.--U.S. Government Securities Fund
   Smith Barney Government Securities Fund
   Smith Barney High Income Fund
     
                                                                              35
<PAGE>
 
EXCHANGE PRIVILEGE (CONTINUED)
 
   Smith Barney Investment Grade Bond Fund
   Smith Barney Managed Governments Fund Inc.
   
   Smith Barney Total Return Bond Fund 
    
  Tax-Exempt Funds
   Smith Barney Arizona Municipals Fund Inc.
   Smith Barney California Municipals Fund Inc.
  
   *Smith Barney Intermediate Maturity California Municipals Fund 
  
   * *Smith Barney Intermediate Maturity New York Municipals Fund 
   Smith Barney Managed Municipals Fund Inc.
   Smith Barney Massachusetts Municipals Fund
   Smith Barney Muni Funds--Florida Portfolio
   Smith Barney Muni Funds--Georgia Portfolio
  
   *Smith Barney Muni Funds--Limited Term Portfolio 
   
   Smith Barney Muni Funds--National Portfolio 
   Smith Barney Muni Funds--New York Portfolio
   Smith Barney Oregon Municipals Fund
   Smith Barney Muni Funds--Pennsylvania Portfolio
   Smith Barney New Jersey Municipals Fund Inc.
   
   Smith Barney Municipal High Income Fund 
      
  Global International Funds 
   
   Smith Barney Hansberger Global Small Cap Value Fund 
   
   Smith Barney Hansberger Global Value Fund 
   Smith Barney World Funds, Inc.--Emerging Markets Portfolio
   
   Smith Barney World Funds, Inc.--Global Government Bond Portfolio
   Smith Barney World Funds, Inc.--International Balanced Portfolio
   Smith Barney World Funds, Inc.--International Equity Portfolio
   Smith Barney World Funds, Inc.--Pacific Portfolio
  
  Smith Barney Concert Allocation Series Inc. 
   
   Smith Barney Concert Allocation Series Inc.--Balanced Portfolio 
   
   Smith Barney Concert Allocation Series Inc.--Conservative Portfolio
   
   Smith Barney Concert Allocation Series Inc.--Growth Portfolio 
   
   Smith Barney Concert Allocation Series Inc.--High Growth Portfolio 
   
   Smith Barney Concert Allocation Series Inc.--Income Portfolio 
   
   Smith Barney Concert Allocation Series Inc.--Global Portfolio 
 
  Money Market Funds
   
   +Smith Barney Exchange Reserve Fund 
   
   ++Smith Barney Money Funds, Inc.--Cash Portfolio 
   
   ++Smith Barney Money Funds, Inc.--Government Portfolio 
   ***Smith Barney Money Funds, Inc.--Retirement Portfolio
  
  +++Smith Barney Municipal Money Market Fund, Inc. 
 
36
<PAGE>
 
EXCHANGE PRIVILEGE (CONTINUED)
  
  +++Smith Barney Muni Funds--California Money Market Portfolio 
  
  +++Smith Barney Muni Funds--New York Money Market Portfolio 
-------------------------------------------------------------------------------

  * Available for exchange with Class A, Class C and Class Y shares of the
    Fund. 

 ** Available for exchange with Class A and Class B shares of the Fund. In
    addition, shareholders who own Class C shares of the Fund through the
    Smith Barney 401(k) Program may exchange those shares for Class C shares
    of this fund. 

*** Available for exchange with Class A shares of the Fund.

  + Available for exchange with Class B and Class C shares of the Fund. 

 ++ Available for exchange with Class A and Class Y shares of the Fund. In
    addition, participating plans opened prior to June 21, 1996 and investing
    in Class C shares may exchange these shares for Class C shares of this
    Fund. 

+++ Available for exchange with Class A and Class Y shares of the Fund. 
 
  Class B Exchanges. In the event a Class B shareholder (unless such share-
holder was a Class B shareholder of the Short-Term World Income Fund on July
15, 1994) wishes to exchange all or a portion of his or her shares in any of
the funds imposing a higher CDSC than that imposed by the Fund, the exchanged
Class B shares will be subject to the higher applicable CDSC. Upon an
exchange, the new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Fund that have been exchanged.
 
  Class C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
 
  Class A and Class Y Exchanges. Class A and Class Y shareholders of the Fund
who wish to exchange all or a portion of their shares for shares of the
respective Class in any of the funds identified above may do so without impo-
sition of any charge.
 
  Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions
can be detrimental to the Fund's performance and its shareholders. Strategy
Advisers may determine that a pattern of frequent exchanges is excessive and
contrary to the best interests of the Fund's other shareholders. In this
event, the Fund may, at its discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a determination, the Fund will
provide notice in writing or by telephone to the shareholder at least 15 days
prior to suspending the exchange privilege and during the 15-day period the
shareholder will be required to (a) redeem his or her shares in the Fund or
(b) remain invested in the Fund or exchange into any of the funds of the Smith
Barney Mutual Funds ordinarily available, which position the shareholder would
be expected to maintain for a significant period of time. All relevant factors
will be considered in determining what constitutes an abusive pattern of
exchanges.
 
  Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program." Exchanges will
be
 
                                                                             37
<PAGE>
 

EXCHANGE PRIVILEGE (CONTINUED) 
 
processed at the net asset value next determined. Redemption procedures dis-
cussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the reg-
istration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.
 
REDEMPTION OF SHARES
 
 
  The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
 
  If a shareholder holds shares in more than one Class, any request for redemp-
tion must specify the Class being redeemed. In the event of a failure to spec-
ify which Class, or if the investor owns fewer shares of the Class than speci-
fied, the redemption request will be delayed until First Data receives further
instructions from Smith Barney, or if the shareholder's account is not with
Smith Barney, from the shareholder directly. The redemption proceeds will be
remitted on or before the third day following receipt of proper tender, except
on any days on which the NYSE is closed or as permitted under the Investment
Company Act of 1940, as amended (the "1940 Act") in extraordinary circumstanc-
es. Generally, if the redemption proceeds are remitted to a Smith Barney bro-
kerage account, these funds will not be invested for the shareholder's benefit
without specific instruction and Smith Barney will benefit from the use of tem-
porarily uninvested funds. Redemption proceeds for shares purchased by check,
other than a certified or official bank check, will be remitted upon clearance
of the check, which may take up to ten days or more.
 
  Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
 
  Smith Barney Premium Total Return Fund
  Class A, B, C or Y (please specify)
  c/o First Data Investor Services Group, Inc.
  
  P.O. Box 5128 
  
  Westborough, Massachusetts 01581-5128 
 
38
<PAGE>
 
REDEMPTION OF SHARES (CONTINUED)

  A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are regis-
tered. If the shares to be redeemed were issued in certificate form, the cer-
tificates must be endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together with the redemption
request. Any signature appearing on a share certificate, stock power or written
redemption request in excess of $10,000, must be guaranteed by an eligible
guarantor institution such as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal Reserve System or member firm
of a national securities exchange. Written redemption requests of $10,000 or
less do not require a signature guarantee unless more than one such redemption
request is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data may require additional supporting doc-
uments for redemptions made by corporations, executors, administrators, trust-
ees or guardians. A redemption request will not be deemed properly received
until First Data receives all required documents in proper form. 
 
 AUTOMATIC CASH WITHDRAWAL PLAN
  The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the share-
holder is eligible to receive qualified distributions and has an account value
of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. For further information regarding the automatic cash withdrawal
plan, shareholders should contact a Smith Barney Financial Consultant.
 
 TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
  Shareholders who do not have a Smith Barney brokerage account may be eligible
to redeem and exchange Fund shares by telephone. To determine if a share holder
is entitled to participate in this program, he or she should contact First Data
at 1-800-451-2010. Once eligibility is confirmed, the shareholder must complete
and return a Telephone/Wire Authorization Form, along with a signature guaran-
tee that will be provided by First Data upon request. (Alternatively, an
investor may authorize telephone redemptions on the new account application
with the applicant's signature guarantee when making his/her initial investment
in the Fund.)
 
  Redemptions. Redemption requests of up to $10,000 of any class or classes of
the Fund's shares may be made by eligible shareholders by calling First Data at
 
                                                                              39
<PAGE>
 
REDEMPTION OF SHARES (CONTINUED)
 
1-800-451-2010. Such requests may be made between 9:00 a.m. and 5:00 p.m. (New
York City time) on any day the NYSE is open. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value next determined. Redemptions of shares (i) by retirement plans or (ii)
for which certificates have been issued are not permitted under this program.
 
  A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In
order to use the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent relationship with
a member bank. The Fund reserves the right to charge shareholders a nominal
fee for each wire redemption. Such charges, if any, will be assessed against
the shareholder's account from which shares were redeemed. In order to change
the bank account designated to receive redemption proceeds, a shareholder must
complete a new Telephone/Wire Authorization Form and, for the protection of
the shareholder's assets, will be required to provide a signature guarantee
and certain other documentation.
 
  Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests
may be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (New York City time) on any day on which the NYSE is open. Exchange
requests received after the close of regular trading on the NYSE are processed
at the net asset value next determined.
 
  Additional Information regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following instruc-
tions communicated by telephone that are reasonably believed to be genuine.
The Fund and its agents will employ procedures designed to verify the identity
of the caller and legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls may be recorded). The
Fund reserves the right to suspend, modify or discontinue the telephone
redemption and exchange program or to impose a charge for this service at any
time following at least seven (7) days prior notice to shareholders.
 
MINIMUM ACCOUNT SIZE

  The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each 
 
40
<PAGE>
 
MINIMUM ACCOUNT SIZE (CONTINUED)
 
account must satisfy the minimum account size.) The Fund, however, will not
redeem shares based solely on market reductions in net asset value. Before the
Fund exercises such right, shareholders will receive written notice and will be
permitted 60 days to bring accounts up to the minimum to avoid involuntary liq-
uidation.
 
PERFORMANCE
 
 
 TOTAL RETURN
  From time to time the Fund may include its total return, average annual total
return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the invest-
ment 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 redeem-
able value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the last
day of the period for which current dividend return is presented. The current
dividend return for each Class may vary from time to time depending on market
conditions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating cur-
rent dividend return should be considered when comparing a Class' current
return to yields published for other investment companies and other investment
vehicles. The Fund may also include comparative performance information in
advertising or marketing its shares. Such performance information may include
data from Lipper Analytical Services, Inc. and other financial publications.
 
MANAGEMENT OF THE TRUST AND THE FUND
 
 
 BOARD OF TRUSTEES
  Overall responsibility for management and supervision of the Fund rests with
the Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and the companies that furnish services to the Trust and the
Fund, includ-
 
                                                                              41
<PAGE>
 
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
 
ing agreements with the Fund's distributor, investment adviser, sub-investment
adviser, administrator, custodian and transfer agent. The day-to-day operations
of the Fund are delegated to the Fund's investment adviser, sub-investment
adviser and administrator. The Statement of Additional Information contains
background information regarding each Trustee and executive officer of the
Trust.
 
 INVESTMENT ADVISER--STRATEGY ADVISERS

  Strategy Advisers, located at 388 Greenwich Street, New York, New York 10013,
serves as the Fund's investment adviser. Strategy Advisers has been in the
investment counseling business since 1968 and is a wholly owned subsidiary of
MMC. MMC is a registered investment adviser whose principal executive offices
are located at 388 Greenwich Street, New York, New York 10013. Strategy Advis-
ers renders investment advice to investment companies that had aggregate assets
under management as of March 31, 1998 in excess of $4.7 billion. For advisory
services rendered to the Fund, under an Advisory Agreement dated August 31,
1996, the Fund pays Strategy Advisers a fee at the annual rate of 0.55% of the
value of the Fund's average daily net assets. From its fee, Strategy Advisers
pays Boston Partners a fee of 0.15% of the value of the Fund's average daily
net assets, for its services as sub-investment adviser. 
 
 ADMINISTRATOR--MMC 

  MMC serves as the Fund's administrator and generally assists in all aspects
of the Fund's administration and operation. MMC provides investment management
and administration services to investment companies that had aggregate assets
under management as of March 31, 1998 in excess of $100.5 billion. 

  As the Fund's administrator, MMC oversees all aspects of the Fund's adminis-
tration and operations. Pursuant to an administration agreement with the Fund,
MMC is paid a fee at the annual rate of 0.20% of the Fund's average daily net
assets. 
 
 SUB-INVESTMENT ADVISER--BOSTON PARTNERS

  Boston Partners, located at One Financial Center, Boston, Massachusetts
02111, serves as the Fund's sub-investment adviser. Boston Partners provides
investment management and investment advisory services to investment companies
that had aggregate total assets under management as of March 31, 1998, in
excess of $15 billion. 
 
  Subject to the supervision and direction of the Trust's Board of Trustees,
Strategy Advisers and Boston Partners manage the Fund's portfolio in accordance
with the Fund's investment objective and policies, make investment decisions
for the Fund, place orders to purchase and sell securities and employ profes-
sional portfolio managers and securities analysts who provide research services
to the Fund.
 
42
<PAGE>
 

MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED) 
 
 
 PORTFOLIO MANAGEMENT
  Harry Rosenbluth, Equity Portfolio Manager of Boston Partners, has served as
Portfolio Manager of the Fund since August 16, 1995 and manages the day-to-day
operations of the Fund, including the oversight of all investment decisions.
Mr. Rosenbluth previously served as Investment Administrator of the Fund from
1992 until April, 1995, while he was a Senior Vice President of The Boston Com-
pany Asset Management, Inc. Mr. Rosenbluth has managed investment portfolios
since 1986.

  Management's discussion and analysis and additional performance information
regarding the Fund during the fiscal year ended December 31, 1997 is included
in the Annual Report dated December 31, 1997. A copy of the Annual Report may
be obtained upon request without charge from a Smith Barney Financial Consul-
tant or by writing or calling the Fund at the address or phone number listed on
page one of this Prospectus. 

   
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction is also sub-
ject to approval by the stockholders of each of Travelers and Citicorp. Upon
consummation of the merger, the surviving corporation would be a bank holding
company subject to regulation under the Bank Holding Company Act of 1956 (the
"BHCA"), the requirements of the Glass-Steagall Act and certain other laws and
regulations. Although the effects of the merger of Travelers and Citicorp and
compliance with the requirements of the BHCA and the Glass-Steagall Act are
still under review, Strategy Advisers does not believe that its compliance with
applicable law following the merger of Travelers and Citicorp will have a mate-
rial adverse effect on its ability to continue to provide the Fund with the
same level of investment advisory services that it currently receives. 

     
DISTRIBUTOR
 
 
  Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as
such conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under
Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee
with respect to Class A, Class B and Class C shares of the Fund at the annual
rate of 0.25% of the average daily net assets of the respective Class. Smith
Barney is also paid a distribution fee with respect to Class B and Class C
shares at the annual rate of 0.50% and 0.45% of the average daily net assets
attributable to each of those Classes, respectively. Class B shares that auto-
matically convert to Class A shares eight years after the date of original pur-
chase will no longer be subject to a distribution fee. The fees are used by
Smith Barney to pay its Financial Consultants for servicing shareholder
accounts and, in the case of Class B and Class C shares, to cover expenses pri-
marily intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to poten-
tial investors; payments to and expenses of Smith Barney Financial Consultants
and other persons who provide support services in connection with the distribu-
tion of shares; interest and/or carrying charges; and indirect and overhead
costs of Smith Barney associated with the sale of Fund shares, including lease,
utility, communications and sales promotion expenses.
 
  The payments to Smith Barney Financial Consultants for selling shares of a
Class include, a commission or fee paid by the investor or Smith Barney at the
time
 
                                                                              43
<PAGE>
 
DISTRIBUTOR (CONTINUED)
 
of sale and, with respect to Class A, Class B and Class C shares, a continuing
fee for servicing shareholder accounts for as long as a shareholder remains a
holder of that Class. Smith Barney Financial Consultants may receive different
levels of compensation for selling different Classes of shares.

  Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Trust's Board of Trust-
ees will evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC. 
 
ADDITIONAL INFORMATION
 
 
  The Trust was organized on March 12, 1985, under the laws of the Commonwealth
of Massachusetts and is an entity commonly known as a "Massachusetts business
trust." The Trust offers shares of beneficial interest currently classified
into four Classes--A, B, C and Y. Each Class of shares represents identical
interests in the Fund's investment portfolio. As a result, the Classes have the
same rights, privileges and preferences, except with respect to: (a) the desig-
nation of each Class; (b) the effect of the respective sales charges, if any,
for each Class; (c) the distribution and/or service fees, if any, borne by each
Class pursuant to the plan; (d) the expenses allocable exclusively to each
Class; (e) voting rights on matters exclusively affecting a single Class; (f)
the exchange privilege of each Class; and (g) the conversion feature of the
Class B shares. The Trust's Board of Trustees does not anticipate that there
will be any conflicts among the interests of the holders of the different Clas-
ses of shares of the Fund. The Trustees, on an ongoing basis, will consider
whether any such conflict exists and, if so, take appropriate action.
 
  When matters are submitted for shareholder vote, shareholders of each Class
of each fund will have one vote for each full share owned and a proportionate,
fractional vote for any fractional share held of that Class. Shares of the
Trust will be voted generally on a Trust-wide basis on all matters, except mat-
ters affecting the interests of one Fund or one Class of shares.
 
  Normally, there will be no meetings of shareholders for the purpose of elect-
ing Trustees unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders. Shareholders of record of no
less than two-thirds of the outstanding shares of the Trust may remove a
Trustee through a declaration in writing or by vote cast in person or by proxy
at a meeting called for that purpose. The Trustees will call a meeting for any
purpose upon written request
 
44
<PAGE>
 

ADDITIONAL INFORMATION (CONTINUED) 
 
of shareholders holding at least 10% of the Fund's outstanding shares and the
Trust will assist shareholders in calling such a meeting as required by the
1940 Act.
 
  PNC Bank, located at 17th and Chestnut Streets, Philadelphia, PA 19103,
serves as custodian of the Trust's investments.
 
  First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Fund's transfer agent.
 
  The Fund sends its shareholders a semi-annual report and an audited annual
report, each of which includes a listing of the investment securities held by
the Fund at the end of the reporting period. In an effort to reduce the print-
ing and mailing costs, the Trust plans to consolidate the mailing of the Fund's
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. In addition, the Trust also plans to con-
solidate the mailing of the Fund's Prospectus so that a shareholder having mul-
tiple accounts (that is, individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a single Prospectus annually. Shareholders who do not
want this consolidation to apply to their accounts should contact their Smith
Barney Financial Consultants or First Data.
 
                                                                              45
<PAGE>
 
                                                                   SMITH BARNEY
                                                                   ------------
                                                                               

                                                A Member of TravelersGroup LOGO
 
 
 
 
 
 
                                                                   SMITH BARNEY
                                                                  PREMIUM TOTAL
                                                                    RETURN FUND

                                                           388 Greenwich Street
                                                       New York, New York 10013

                                                               
                                                               FD 0213 4/98