As filed with the Securities and Exchange Commission on August 13, 1997 
----------------------------------------------------------------------------- 
Registration No. 2-74288 
		811-3275 
 
U. S. SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C.  20549 
 
FORM N-1A 
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933	 
 
[   ]  Pre-Effective Amendment No.			[X]    Post-Effective Amendment  
										No. 45  	
		 
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940, 
 as amended  Amendment No. 47 
 
SMITH BARNEY INVESTMENT FUNDS INC. 
(Exact name of Registrant as Specified in Charter) 
388 Greenwich Street, New York, New York  10013 
(Address of Principal Executive Offices)  (Zip Code) 
Registrant's Telephone Number, including Area Code: 
(800)-451-2010 
 
Christina T. Sydor 
Secretary 
 
SMITH BARNEY INVESTMENT FUNDS INC. 
388 Greenwich Street 
New York, New York  10013 
(Name and Address of Agent for Service) 
 
Approximate Date of Proposed Public Offering: As soon as possible after this
Post-Effective 
Amendment becomes effective. 
 
It is proposed that this filing will become effective: 
      	immediately upon filing pursuant to Rule 485(b) 
	on August 13, 1997 pursuant to Rule 485(b) 
XXX	75 days after filing pursuant to Rule 485(a) 
________on _________ pursuant to Rule 485(a) 
 
The Registrant has previously filed a declaration of indefinite registration of
its shares pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended.  Registrant's Rule 24f-2 Notice for the fiscal year ended December
31, 1996 was filed on February 27, 1997 as accession number
0000091155-97-000104. 
 
 
SMITH BARNEY INVESTMENT FUNDS INC. 
 
CONTENTS OF REGISTRATION STATEMENT 
 
This Registration Statement contains the following pages and documents 
 
Front Cover 
 
Contents Page 
 
Cross-Reference Sheet 
 
Part A - Prospectus 
 
Part B - Statement of Additional Information 
 
Part C - Other Information 
 
Signature Page 
 
Exhibits 
 
SMITH BARNEY INVESTMENT FUNDS INC. 
 
FORM  N-1A CROSS REFERENCE SHEET 
 
PURSUANT TO RULE 485(a) Under the Securities Act of 1933, as amended 
 
Part A 
Item No.					Prospectus Caption 
 
1. Cover Page 					Cover Page 
 
2. Synopsis 					Prospectus Summary  
 
3. Condensed Financial Highlights		Financial Highlights Information 
 
4. General Description of Registrant 		Cover Page;  
						Prospectus Summary 
						Investment Objective and  
						Management Policies; Additional  
						Information 
 
5. Management of the Fund			Management of the Fund and the Company;	
						Distributor; Additional Information; 
						 Annual Report 
 
6. Capital Stock and Other			Investment Objective and  
    Securities					Management Policies; Dividends, 		
						Distributions and Taxes; Additional Information 
 
7. Purchase of Securities Being Offered		Valuation of Shares; Purchase of
 Shares; 	
						Exchange Privilege; Redemption of Shares; 	
						Minimum Account Size; Distributor; Additional 	
						Information 
 
8  Redemption or Purchase of Shares; 		Redemption of Shares; Exchange 		
						Privilege 
 
9. Pending Legal Proceedings			Not Applicable 
 
Part B 
Item No. and Caption				Statement of Additional Information Caption 
 
10 Cover Page					Cover page 
 
11. Table of Contents				Contents 
 
12. General Information and History 		Distributor; Additional Information 
 
13. Investment Objectives and Policies 		Investment Objectives Management and
 Policies 
 
14. Management of the Fund			Management of the Company; Distributor 
 
15. Control Persons and 			Principal Management of the Company  
     Holders of Securities 
 
16. Investment Advisory and Other 		Management of the Company; 
     Services					Distributor 
 
17. Brokerage Allocation and 			Investment Objective and 
     Other Services				Management Policies; Distributor 
 
18. Capital Stock and Other 			Investment Objective and  
Securities 					Management Policies; Purchase of Shares; 	
						Redemption of Shares; Taxes 
 
19. Purchase, Redemption and 			Purchase of Shares; Redemption 
     Pricing of  Securities Being Offered		Purchase of Shares;
      Redemption of Shares; 	
						Valuation of Shares; Distributor; Exchange 	
						Privilege 
 
20. Tax Status					Taxes 
 
21. Underwriters				see Prospectus "Purchase of Shares" 
 
22. Calculations of Performance 		Performance Data 
 
23. Financial Statements				Financial Statements 
SMITH BARNEY INVESTMENT FUNDS
PART A
<PAGE>

P R O S P E C T U S 
 
                                                   Smith Barney Hansberger
                                                            Global Value
                                                               Small
                                                                Cap
                                                                Fund

                                                           [        ], 1997
                                              PROSPECTUS BEGINS ON PAGE ONE
 
 
[LOGO] SMITH BARNEY MUTUAL FUNDS
       Investing for your future.
       Every day.
<PAGE>
 
PROSPECTUS                                                      [        ], 1997
 
 
Smith Barney Hansberger Global Value Small Cap Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
 
 The primary investment objective of the Smith Barney Hansberger 
Global Value Small Cap Fund (the "Fund") is long-term capital growth.
 The Fund seeks to achieve this objective by investing primarily in equity 
securities of U.S. and foreign issuers with relatively small market 
capitalizations.

 The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up the Smith Barney Investment Funds Inc. (the
"Company"). The Fund is an open-end, management investment company commonly
referred to as a mutual fund.
 
 The initial subscription period for shares is scheduled to end on December
12, 1997, (the "Subscription Period"). After the expiration of the Subscrip-
tion Period or a limited continuous offering period, the Fund will suspend the
offering of shares to the public. A continuous offering of shares is expected
to commence on or about February 2, 1998. See "Purchase of Shares."
 
 This Prospectus sets forth concisely certain information about the Company
and the Fund, including sales charges, distribution and service fees and
expenses, that prospective investors will find helpful in making an investment
decision. Investors are encouraged to read this Prospectus carefully and
retain it for future reference.
 
 Additional information about the Fund is contained in a Statement of Addi-
tional Information dated [        ], 1997, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement of Additional Informa-
tion has been filed with the Securities and Exchange Commission (the "SEC")
and is incorporated by reference into this Prospectus in its entirety.
 
SMITH BARNEY INC.
Distributor
 
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
 
HANSBERGER GLOBAL INVESTORS, INC.
Sub-Investment Adviser
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
                                                                              1
<PAGE>
 
TABLE OF CONTENTS
 
 
<TABLE>
<S>                                           <C>
PROSPECTUS SUMMARY                              3
-------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES    9
-------------------------------------------------
RISK FACTORS                                   16
-------------------------------------------------
VALUATION OF SHARES                            18
-------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES             19
-------------------------------------------------
PURCHASE OF SHARES                             20
-------------------------------------------------
EXCHANGE PRIVILEGE                             31
-------------------------------------------------
REDEMPTION OF SHARES                           34
-------------------------------------------------
MINIMUM ACCOUNT SIZE                           36
-------------------------------------------------
PERFORMANCE                                    36
-------------------------------------------------
MANAGEMENT OF THE FUND                         37
-------------------------------------------------
DISTRIBUTOR                                    38
-------------------------------------------------
ADDITIONAL INFORMATION                         39
-------------------------------------------------
</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 Fund
or the distributor. This Prospectus does not constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
 
--------------------------------------------------------------------------------
 
2
<PAGE>
 
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 whose investment objective is long term capital growth. The Fund
seeks to achieve this objective by investing primarily in equity securities of
U.S. and foreign issuers with relatively small market capitalizations. 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
$5,000,000. 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. The CDSC may be waived for certain redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the Class.
The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
 
 Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and
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 0.75% 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 combined
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 ini-
tial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
 
 In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
 
 Intended Holding Period. The decision as to which Class of shares is more ben-
eficial to an investor depends on the amount and intended holding period of his
or her investment. Shareholders who are planning to establish a program of reg-
ular investment may wish to consider Class A shares; as the investment accumu-
lates, shareholders may qualify for reduced sales charges and the shares are
subject to lower ongoing expenses over the term of the investment. As an
investment alternative, Class B shares and Class C shares are sold without any
initial sales charge so the entire purchase price is immediately invested in
the Fund. Any investment return on these additional invested amounts may par-
tially or wholly offset the higher annual expenses of these Classes. Because
the Fund's future return cannot be predicted, however, there can be no assur-
ance that this would be the case.
 
 Finally investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature and, therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
 
 Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fee. The maximum purchase amount for Class A shares is $4,999,999, Class B
shares is $249,999 and Class C shares is $499,999. There is no maximum purchase
amount for Class Y shares.
 
 
4
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 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 may be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase. The $500,000 investment may be met by adding the purchase
to the net asset value of all Class A shares held in funds sponsored by 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 purchase Class A shares at net asset
value or at a reduced sales charge should consider doing so.
 
 Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
 
 See "Purchase of Shares" and "Management of the Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
 
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without sales
charge as investment alternatives under both of these programs. See "Purchase
of Shares--Smith Barney 401(k) Program."
 
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained at Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
institutional investors, may purchase shares directly from the Fund through the
Fund's transfer agent, First Data Investor Services Group, Inc. ("First Data").
See "Purchase of Shares."
 
 The initial subscription period for shares is scheduled to end on December 12,
1997, (the "Subscription Period"). After the expiration of the Subscription
Period or a limited continuous offering period, the Fund will suspend the
offering of shares to the public. A continuous offering of shares is expected
to commence on or about February 2, 1998. See "Purchase of Shares."
 
 
                                                                               5
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an account for an initial
investment pf $5,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes is $25. The minimum initial investment
requirement for the purchase of Fund shares through the Systematic Investment
Plan is described below. See "Purchase of Shares."
 
SYSTEMATIC INVESTMENT PLAN During the continuous Offering Period, 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 investment requirements for Class A, Class B and
Class C shares and the subsequent investment requirement for all classes for
shareholders purchasing shares through the Systematic Investment Plan on a
monthly basis is $25 and on a quarterly basis is $50. See "Purchase of Shares."
 
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and "Re-
demption of Shares."
 
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the Fund's investment manager. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Hold-
ings is a wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a
diversified financial services holding company engaged through its subsidiaries
principally in four business segments: Investment Services, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
 
  Hansberger Global Investors, Inc. ("Hansberger"), serves as the Fund's sub-
investment adviser. See "Management of the Fund."
 
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined. See "Exchange Privilege."
 
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
 
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
 
6
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and dis-
tribution reinvestments will become eligible for conversion to Class A shares
on a pro-rata basis. See "Dividends, Distributions and Taxes."
 
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund invests principally in common
stocks. The prices of common stocks and other securities fluctuate and, there-
fore, the value of an investment in the Fund will vary based upon the Fund's
investment performance. Any income from these investments will be incidental
to the goal of capital appreciation. The Fund may use management techniques
and strategies involving options, futures contracts and options on futures
(which are sometimes referred to as "derivatives"). The utilization of these
techniques may involve greater than ordinary investment risks and the likeli-
hood of more volatile price fluctuation. See "Investment Objective and Manage-
ment Policies."
 
THE FUND'S EXPENSES The following expense table lists the costs and expenses
that 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 estimated oper-
ating expenses:
 
<TABLE>
<CAPTION>
  SMITH BARNEY HANSBERGER GLOBAL VALUE SMALL
  CAP 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 EXPENSES
    (as a percentage of offering price)
    Management Fees                               1.05%   1.05%   1.05%   1.05%
    12b-1 Fees**                                  0.25    1.00    1.00    None
    Other Expenses***                             0.40    0.40    0.40    0.40
--------------------------------------------------------------------------------
  TOTAL FUND OPERATING EXPENSES                   1.70%   2.45%   2.45%   1.45%
--------------------------------------------------------------------------------
</TABLE>
 
   * Purchases of Class A shares of $500,000 or more will be made at net asset
     value with no sales charge, but will be subject to a CDSC of 1.00% on
     redemptions made within 12 months of purchase.
  ** Upon conversion of Class B shares to Class A shares, such shares will no
     longer be subject to a distribution fee. Class C shares do not have a
     conversion feature and, therefore, are subject to an ongoing distribution
     fee. As a result, long-term shareholders of Class C shares may pay more
     than the economic equivalent of the maximum front-end sales charge
     permitted by the National Association of Securities Dealers, Inc.
 *** "Other Expenses" have been estimated based on expenses the Fund expects to
     incur during its fiscal year ending December 31, 1998.
 
                                                                              7
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
 Class A shares of the Fund purchased through the Smith Barney AssetOne Program
will be subject to an annual asset-based fee, payable quarterly, in lieu of the
initial sales charge. The fee will vary to a maximum of 1.50%, depending on the
amount of assets held through the Program. For more information, please call
your Smith Barney Financial Consultant.
 
 The sales charge and CDSC set forth in the above table are the maximum charges
imposed on purchases or redemptions of 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 and certain Class A shares, the length of time the shares are
held and whether the shares are held through the Smith Barney 401(k) and
ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of
average daily net assets of Class A shares. Smith Barney also receives with
respect to Class B shares and Class C shares, an annual 12b-1 fee of 1.00% of
the value of average daily net assets of that Class, consisting of a 0.25%
service fee and a 0.75% distribution 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 HANSBERGER GLOBAL VALUE SMALL CAP FUND             1 YEAR 3 YEARS
---------------------------------------------------------------------------------
  <S>                                                              <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......................................................             .
    Class B......................................................
    Class C......................................................
    Class Y......................................................
  An investor would pay the following expenses on the same
  investment, assuming the same annual return and no redemption:
    Class A......................................................
    Class B......................................................
    Class C......................................................
    Class Y......................................................
---------------------------------------------------------------------------------
</TABLE>
 
 The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the 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 FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN ABOVE.
 
8
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
 
 
 The Fund's investment objective is long-term capital growth. The Fund seeks
to achieve this objective by investing primarily in equity securities of U.S.
and foreign issuers with relatively small market capitalizations (share price
times number of equity securities outstanding) which, in the opinion of SBMFM
and Hansberger, are undervalued. Income will be an incidental consideration.
 
 In making investment decisions for the Fund, Hansberger relies heavily on a
fundamental analysis of securities with a long-term investment perspective.
Hansberger's valuation methods focus on a company's share price in relation to
earnings, dividends, assets, sales and a variety of other criteria. The Fund
seeks to invest in companies whose securities are trading at the greatest dis-
count to future earnings, cash flow and/or net asset value and Hansberger
utilizes proprietary valuation screens, internal and external research sources
and other fundamental analysis to identify those securities that appear to be
undervalued. Once undervalued securities are identified, Hansberger analyzes
each security, concentrating on a variety of fundamental issues, including
sales growth, cash flow, new product development, management structure and
other economic factors. This fundamental analysis results in a list of securi-
ties meeting a strict value discipline, which are reviewed by Hansberger for
inclusion in the Fund's portfolio.
 
 Hansberger seeks to increase the scope and effectiveness of this fundamental
investment approach by extending the search for value into many countries
around the world. This global search provides Hansberger with more diverse
opportunities and flexibility to shift portfolio investments not only from
company to company and industry to industry, but also country to country, in
search of undervalued securities. Under normal market conditions, the Fund
will invest at least 65% of the value of its total assets in companies with
individual market capitalizations of $1.5 billion U.S. dollars or less (at the
time of purchase). Under normal market conditions the Fund will invest its
assets in at least three countries, which may include the United States.
 
 INVESTMENT POLICIES
 
 Although the Fund generally invests in common stocks, the Fund may also
invest in preferred stocks and certain debt securities, rated or unrated, such
as convertible bonds and bonds selling at a discount, when Hansberger believes
the potential for appreciation will equal or exceed that available from
investments in common stock. The Fund may also invest in warrants or rights to
subscribe to or purchase such securities, and sponsored or unsponsored Ameri-
can Depositary Receipts ("ADRs") European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") and other depository receipts (collectively, "De-
positary Receipts"). The Fund may also lend its portfolio securities and bor-
row money for investment purposes (i.e., "leverage" its portfolio). In addi-
tion, the Fund may invest in closed-end invest-
 
                                                                              9
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
ment companies holding foreign securities, and enter into transactions in
options on securities, securities indices and foreign currencies, forward for-
eign currency contracts, and futures contracts and related options. When
deemed appropriate by SBMFM or Hansberger, the Fund may invest cash balances
in repurchase agreements and other money market investments to maintain
liquidity in an amount sufficient to meet expenses or for day-to day operating
purposes. These investment techniques are described below under "Investment
Techniques" and "Risk Factors". Whenever, in the judgment of Hansberger, mar-
ket or economic conditions warrant, the Fund may adopt a temporary defensive
position and may invest without limit in money market securities denominated
in U.S. dollars or in the currency of any foreign country. See " Investment
Techniques--Temporary Investments."
 
 INVESTMENT TECHNIQUES
 
 The Fund may also engage in the investment techniques and make the types of
investments described and discussed below.
 
 Options Transactions. The Fund may seek to hedge all or a portion of its
investments through options on other securities in which it may invest.
Options which the Fund may purchase or sell will be traded on a recognized
securities or futures exchange or over the counter. Options markets in emerg-
ing countries are currently limited and the nature of the strategies adopted
by Hansberger and the extent to which those strategies are used will depend on
the development of such markets.
 
 The Fund may write (i.e., sell) covered call options. A call gives the pur-
chaser the right to buy the security underlying the option from the Fund at
the stated exercise price, on or before a specified date (the "termination
date") that is usually not more than nine months from the date the option is
issued. A call is "covered" if the Fund (i) owns the securities underlying the
option or securities convertible or exchangeable (without the payment of any
consideration) into the securities underlying the option, (ii) maintains in a
segregated account with Chase eligible segregated assets with a value suffi-
cient to meet the Fund's obligations under the call, or (iii) owns an offset-
ting call option.
 
 The Fund may also write (i.e., sell) covered put options. The writer of a put
incurs an obligation to buy the security underlying the option from the put's
purchaser at the exercise price at any time on or before the termination date,
at the purchaser's election (certain options the Fund writes will be exercis-
able by the purchaser only on a specific date ). Generally, a put is "covered"
if the Fund maintains eligible segregated assets equal to the exercise price
of the option or if the Fund holds a put on the same underlying security with
a similar or higher exercise price.
 
10
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
 
 The Fund may also purchase put or call options on individual securities or
baskets of securities. When the Fund purchases a call, it acquires the right to
buy the underlying security at the exercise price on or before the termination
date, and when the Fund purchases a put, it acquires the right to sell the
underlying security at the exercise price on or before the termination date.
 
 The primary risks associated with the use of options on securities are (i)
imperfect correlation between the change in market value of the securities the
Fund holds and the prices of options relating to the securities purchased or
sold by the Fund; and (ii) possible lack of a liquid secondary market for an
option. Options not traded on an exchange (OTC options) are often considered
illiquid and may be difficult to value. Hansberger believes that the Fund will
minimize its risk of being unable to close out an option contract by transact-
ing in options only if there appears to be a liquid secondary market for those
options.
 
 Futures Contracts. The Fund may buy and sell financial futures contracts,
stock and bond index futures contracts, foreign currency futures contracts and
options on any of the foregoing for hedging purposes only. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.
 
 When the Fund enters into a futures contract, it must make an initial deposit,
known as "initial margin," as a partial guarantee of its performance under the
contract. As the value of the security, index or currency fluctuates, either
party to the contract is required to make additional margin payments, known as
"variation margin," to cover any additional obligation it may have under the
contract. In addition, when the Fund enters into a futures contract, it will
segregate assets or "cover" its position in accordance with the Investment Com-
pany Act of 1940, as amended (the "1940 Act"). With respect to positions in
futures and related options that do not constitute "bona fide hedging" posi-
tions as defined in regulations of the Commodity Futures Trading Commission,
the Fund will not enter into a futures contract or related option contract if,
immediately thereafter, the aggregate initial margin deposits relating to such
positions plus premiums paid by it for open futures option positions, less the
amount by which any such options are "in-the-money," would exceed 5% of the
Fund's total assets. The value of the underlying securities on which futures
contracts will be written at any one time will not exceed 25% of the total
assets of the Fund.
 
                                                                              11
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
 
 The primary risks associated with the use of futures and options on futures
are (i) imperfect correlation between the change in market value of the secu-
rities held by the Fund and the prices of related futures and options on
futures purchased or sold by the Fund, and (ii) possible lack of a liquid sec-
ondary market for a futures contract (or related option) and the resulting
inability to close a futures position, which could have an adverse impact on
the Fund's ability to hedge. The risk of loss in trading on futures contracts
and related options in some strategies can be substantial, due both to the low
margin deposits required and the extremely high degree of leverage involved in
futures pricing. Gains and losses on futures and related options depend on
Hansberger's ability to predict correctly the direction of stock prices,
interest rates, and other economic factors. The risk that the Fund will be
unable to close out a futures position or related options contract will be
minimized by only entering into futures contracts or related options transac-
tions for which there appears to be a liquid secondary market.
 
 Borrowing. The Fund may borrow money from U.S.-regulated banks for temporary
or emergency purposes in an amount not to exceed 33 1/3% of the Fund's total
assets (including the amount borrowed) less all liabilities and indebtedness
other than the borrowing.
 
 Depository Receipts. The Fund may purchase sponsored and unsponsored Deposi-
tory Receipts that are or become available, including ADRs, GDRs, EDRs and
other Depository Receipts. Depositary Receipts are typically issued by a
financial institution ("depository") and evidence ownership interests in a
security or a pool of securities ("underlying securities") that have been
deposited with the depository. The depository for ADRs is typically a U.S.
financial institution and the underlying securities are issued by a foreign
issuer. In other Depositary Receipts, the depository may be a foreign or a
U.S. entity, and the underlying securities may have a foreign or a U.S. issu-
er. For purposes of the Fund's investment policies, investments in Depository
Receipts will be deemed to be investments in the underlying securities. Thus,
a Depository Receipt representing ownership of common stock will be treated as
common stock.
 
 Sovereign Debt. The Fund may invest in sovereign debt, which may trade at a
substantial discount from face value. The Fund may hold and trade sovereign
debt of emerging market countries in appropriate circumstances and participate
in debt conversion programs. Emerging country sovereign debt is generally low-
er-quality debt and is considered speculative in nature. The issuer or govern-
mental authorities that control sovereign debt repayment ("sovereign debtors")
may be unable or unwilling to repay principal or interest when due in accor-
dance with the terms of the debt. A sovereign debtor's willingness or ability
to repay principal and interest due in a timely manner may be affected by,
among other factors, its cash flow, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the
 
12
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
date a payment is due, the relative size of the debt service burden to the
economy as a whole, the sovereign debtor's policy towards the International
Monetary Fund and the political constraints to which the sovereign debtor may
be subject.
 
 Brady Bonds. The Fund may invest in Brady Bonds as part of its investment in
sovereign debt of countries that have restructured or are in the process of
restructuring their sovereign debt.
 
 Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal at final maturity: (ii) the col-
lateralized interest payments: (iii) the uncollateralized interest payment:
and (iv) any uncollateralized interest and principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history defaults
with respect to commercial bank loans by public and private entities of coun-
tries issuing Brady Bonds, investments in Brady Bonds can viewed as specula-
tive.
 
 Investment Funds. Some emerging countries have laws and regulations that pre-
clude direct foreign investment in the securities of companies located there.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain
emerging countries through specifically authorized investment funds. The Fund
may invest in these investment funds, as well as other closed-end investment
companies, subject to the provisions of the 1940 Act.
 
 Repurchase Agreements. The Fund may enter into repurchase agreements with
brokers, dealers or banks ("counterparties") that SBMFM and Hansberger have
determined meet the credit guidelines established by the Board of Directors.
Repurchase agreements will be fully collateralized, and may be viewed for pur-
poses of the 1940 Act as a loan of money by the Fund to the counterparty. The
Fund may incur a loss if the counterparty defaults and the collateral value
declines, or if bankruptcy proceedings are commenced regarding the
counterparty and the Fund's realization upon the collateral is delayed or lim-
ited.
 
 Securities Lending. The Fund is authorized to lend up to 33 1/3% of the total
market value of its portfolio securities to brokers, dealers, domestic and
foreign banks or other financial institutions for the purpose of increasing
its net investment income. Any such loan must be fully secured; however, and
there may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrowers of the securities fail finan-
cially.
 
 Temporary Investments. The Fund may make money market investments pending
other investments or settlement for liquidity, or in adverse market condi-
tions. These money market investments include obligations of the U.S. Govern-
ment and
 
                                                                             13
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
its agencies and instrumentalities, obligations or foreign sovereignties, other
debt securities, commercial paper including bank obligations, certificates of
deposit (including Eurodollar certificates of deposit) and repurchase agree-
ments.
 
 For temporary defensive purposes, during periods in which SBMFM or Hansberger
believes changes in economic, financial or political conditions make it advis-
able, the Fund may reduce its holdings in equity and other securities and may
invest up to 100% of its assets in certain short-term (less than twelve months
to maturity) and medium-term (not greater than five years to maturity) debt
securities and in cash (U.S. dollars, foreign currencies, multicurrency units).
These short-term and medium-term debt securities consist of (a) obligations of
governments, agencies or instrumentalities of any member state of the Organiza-
tion for Economic Cooperation and Development ("OECD"), (b) bank deposits and
bank obligations (including certificates of deposit, time deposits and banker's
acceptances) of banks organized under the laws of any member state of the OECD,
denominated in any currency: (c) floating rate securities and other instruments
dominated in any currency issued by international development agencies: (d)
finance company and corporate commercial paper and other short-term corporate
debt obligations of corporations organized under the laws of any member state
of the OECD meeting the Fund's credit quality standards: and (e) repurchase
agreements with banks and broker-dealers covering any of the foregoing securi-
ties. The short-term and medium-term debt securities in which the Fund may
invest for temporary defensive purposes will be those that SBMFM and Hansberger
believe to be of high quality, i.e., subject to relatively low risk of loss of
interest or principal. There is currently no rating system for debt securities
in most emerging countries. If rated, these securities will be rated in one of
the three highest rating categories by rating services such as Moody's Invest-
ors Services, Inc. or Standard & Poor's Ratings Group (i.e., rated at least A).
 
 When-Issued Securities. The Fund may purchase securities on a when-issued or
delayed delivery basis. The price of debt obligations purchased on a when-
issued basis is fixed at the time the Fund commits to purchase, but delivery
and payment for the securities ("settlement") takes place at a later date. The
price of these securities may be expressed in yield terms. The Fund will enter
into these transactions in order to lock in the yield (price) available at the
time of commitment.
 
 Between purchase and settlement, the Fund assumes the ownership risk of the
when-issued securities, including the risk of fluctuations in the securities
market value due to, among other factors, a change in the general level of
interest rates. However, no interest accrues to the Fund during this period.
 
 Forward Foreign Currency Exchange Contracts and Options on Foreign
Currencies. The Fund may enter into forward foreign currency exchange con-
 
14
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
tracts ("forward contracts"), providing for the purchase of or sale of an
amount of a specified currency at a future date. The Fund may use forward con-
tracts to protect against a foreign currency's decline against the U.S. dollar
between the trade date and settlement date for a securities transaction, or to
lock in the U.S. dollar value of dividends declared on securities it holds, or
generally to protect the U.S. dollar value of the securities it holds against
exchange rate fluctuations. The Fund may also use forward contracts to protect
against fluctuating exchange rates and exchange control regulations. Forward
contracts may limit the Fund's losses due to exchange rate fluctuation, but
they will also limit any gains that the Fund might otherwise have realized.
The Fund may also enter into foreign currency futures contracts ("currency
futures").
 
 Except where segregated accounts are not required by the 1940 Act, when the
Fund enters into a forward contract or currency future, it will place in a
segregated account maintained with The Chase Manhattan Bank ("Chase"), the
Fund's custodian, cash, or equity and debt securities of any grade provided
such securities have been determined by SBMFM and Hansberger to be liquid and
unencumbered pursuant to guidelines established by the Board of Directors
("eligible segregated assets"), in an amount equal to the value of the Fund's
total assets committed to consummation of forward contracts and currency
futures. If the value of these segregated securities declines, additional cash
or securities will be placed in the account on a daily basis so that the
account value is at least equal to the Fund's commitments to such contracts.
 
 The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign currency denominated portfolio securities
and against increases in the U.S. dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the Fund's position, it may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign cur-
rencies to be written or purchased by the Fund are traded on U.S. and foreign
exchanges or over-the-counter.
 
 Non-Publicly Traded Securities. The Fund may invest in securities that are
neither listed on a stock exchange nor traded over the counter, including pri-
vately placed securities. These securities may present a higher degree of
business and financial risk, which can result in substantial losses. In the
absence of a public trading market for these securities, they may be less liq-
uid than publicly traded
 
                                                                             15
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
securities. Although these securities may be resold in privately negotiated
transactions, the prices realized from these sales could be less than those
originally paid by the Fund or less than what the Fund may consider the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to disclosure and other investor protection require-
ments that might apply if their securities were publicly traded. If such secu-
rities are required to be registered under the securities laws of one or more
jurisdictions before being resold, the Fund may be required to bear the costs
of registration. The Fund may not invest more than 15% of its net assets in
illiquid securities, including securities for which there is no readily avail-
able secondary market. The Fund may invest in securities that can be offered
and sold to qualified institutional buyers under Rule 144A under the 1933 Act
("Rule 144A Securities"). The Board of Directors has delegated to SBMFM and
Hansberger, subject to the Board's supervision, the daily function of determin-
ing and monitoring the liquidity of Rule 144A Securities. Rule 144A Securities
held by the Fund which have been determined to be liquid will not be subject to
the 15% limitation described above. However, Rule 144A Securities may become
illiquid if qualified institutional buyers are not interested in acquiring
them.
 
 Short Sales. The Fund may sell securities short "against the box", that is,
sell a security that the Fund owns or has the right to acquire, for delivery at
a specified date in the future.
 
RISK FACTORS
 
 
 FOREIGN INVESTMENT
 
 Investment in securities of foreign issuers and in foreign branches of domes-
tic banks, involves some risks different from, or in addition to, those affect-
ing investments in securities of U.S. issuers. For example, publicly available
information about foreign issuers and economies may be limited; foreign issuers
are not generally subject to uniform accounting, auditing and other reporting
standards; securities of foreign issuers may be less liquid and more volatile
than those of domestic issuers; dividends and interest paid by foreign issuers
may be subject to withholding and other foreign taxes; risks of seizure,
nationalization or expropriation of a foreign issuer exists; and, since securi-
ties of foreign issuers are frequently denominated in foreign currencies,
investments in these securities may involve currency exchange risks.
 
 INVESTING IN SMALLER CAPITALIZATION STOCKS
 
 SBMFM and Hansberger believe that the issuers of smaller capitalization stocks
often have sales and earnings growth rates which exceed those of larger compa-
nies,
 
16
<PAGE>
 
RISK FACTORS (CONTINUED)
 
and that such growth rates may in turn be reflected in more rapid share price
appreciation. However, investing in smaller capitalization stocks can involve
greater risk than is customarily associated with investing in stocks of larger,
more established companies. For example, smaller capitalization companies often
have limited product lines, markets, or financial resources, may be dependent
for management on one or a few key persons, and can be more susceptible to
losses. Also, their securities may be thinly traded (and therefore have to be
sold at a discount from current prices or sold in small lots over an extended
period of time), may be followed by fewer investment research analysts and may
be subject to wider price swings and thus may create a greater chance of loss
than securities of larger capitalization companies. Transaction costs in stocks
of smaller capitalization companies may be higher than those of larger capital-
ization companies.
 
 INVESTING IN LOWER RATED DEBT SECURITIES
 
 The Fund may invest in lower rated or unrated debt securities. Debt considered
below investment grade may be referred to as "junk bonds" or "high risk" secu-
rities. The emerging country debt securities in which the Fund may invest are
subject to significant risk and will not be required to meet any minimum rating
standard or equivalent. Debt securities are subject to the risk of the issuer's
inability to meet principal and interest payments (credit risk) and may also be
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the issuer's creditworthiness and general market liquidity
(market risk). Lower rated or unrated securities are more likely to react to
developments affecting market and credit risk than are more highly rated secu-
rities, which react primarily to movements in general levels of interest rates.
The market values of debt securities tend to vary inversely with interest rate
levels. Yields and market values of lower rated and unrated debt will fluctuate
over time, reflecting not only changing interest rates but also the market's
perception of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, medium to lower rated securities may
decline in value due to heightened concern over credit quality, regardless of
prevailing interest rates. Hansberger will consider credit risk and market risk
in making debt security investment decisions for the Fund. Investors should
carefully consider the relative risks of investing in the Fund because it pur-
chases lower rated and unrated debt securities, and should understand that such
securities are not generally meant for short-term investment.
 
 The U.S. market for lower rated and unrated corporate debt is relatively new
and its recent growth paralleled a long period of economic expansion and an
increase in merger, acquisition and leveraged buyout activity. In addition,
trading markets for debt securities of issuers located in emerging countries
may be limited. Adverse economic developments may disrupt the market for U.S.
corporate lower rated and unrated debt securities and for emerging country debt
securities. Such disruptions
 
                                                                              17
<PAGE>
 
RISK FACTORS (CONTINUED)
 
may severely affect the ability of issuers, especially highly leveraged
issuers, to service their debt obligations or to repay their obligations upon
maturity. In addition, the secondary market for lower rated and unrated debt
securities, which is concentrated in relatively few market makers, may not be
as liquid as the secondary market for more highly rated securities. As a
result, Hansberger could find it more difficult to sell these securities or may
be able to sell the securities only at prices lower than if such securities
were widely traded. Prices realized upon the sale of such lower rated or
unrated securities, under these circumstances, may be less than the prices used
in calculating the Fund's net asset value.
 
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. Secu-
rities listed on an exchange are valued on the basis of the last sale prior to
the time the valuation is made. If there has been no sale since the immediately
previous valuation, then the current bid price is used. Quotations are taken
from the exchange where the security is primarily traded. Portfolio securities
which are primarily traded on foreign exchanges may be valued with the assis-
tance of a pricing service and are generally valued at the preceding closing
values of such securities on their respective exchange, except that when an
occurrence subsequent to the time a foreign security is valued is likely to
have changed such value, then the fair value of those securities will be deter-
mined by consideration of other factors by or under the direction of the Board
of Directors. Over-the-counter securities are valued on the basis of the bid
price at the close of business on each day. Unlisted foreign securities are
valued at the mean between the last available bid and offer price prior to the
time of valuation. Any assets or liabilities initially expressed in terms of
foreign currencies will be converted into U.S. dollar values at the mean
between the bid and offered quotations of such currencies against U.S. dollars
as last quoted by any recognized dealer. Securities for which market quotations
are not readily available are valued at fair value. Notwithstanding the above,
bonds and other fixed-income securities are valued by using market quotations
and may be valued on the basis of prices provided by a pricing service approved
by the Board of Directors.
 
18
<PAGE>
 
DIVIDENDS, DISTRIBUTIONS AND TAXES
 
 
 DIVIDENDS AND DISTRIBUTIONS
 
 The Fund's policy is to distribute substantially all its net investment income
(that is, its income other than its net realized capital gains) and net realized
capital gains, if any, once a year, normally  at the end of the year in which
earned or at the beginning of the next year.

 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.  In order to avoid
the application of a 4.00% nondeductible excise tax on certain undistributed 
amounts of ordinary income and capital gains, the Fund may make additional 
distributions, 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 service fee applicable to Class A shares. Distributions of capital, 
gains, if any, will be in the same amount for Class A, Class B, Class C and
Class Y shares.
 
 TAXES
 
 The Fund intends to qualify each year as a regulated investment company under 
the Code.  Dividends paid from net investment income and distributions of 
net realized short-term capital gains will be taxable to shareholders as
ordinary income, regardless of how long shareholders have held their Fund shares
and whether such dividends and distributions are received in cash or 
reinvested in additional Fund shares. Distributions of net realized long-term
capital gains will be taxable to shareholders as long-term capital gains, 
regardless of how long shareholders have held Fund shares and whether such 
distributions are received in cash or are reinvested in additional Fund 
shares.  Furthermore, as a general rule, a shareholder's gain or loss on a
sale or redemption of Fund shares will be a long-term capital gain or loss if
the shareholder has held the shares for more than one year and will be a 
short-term capital gain or loss if the shareholder has held the shares for 
one year or less.  Some of the Fund's dividends declared from net investment 
income may qualify for the Federal dividends-received deduction for 
corporations.
 
 Statements as to the tax status of each shareholder's dividends and 
distributions will be mailed annually.  Each shareholder also will receive, if 
appropriate, various written notices after the close of the Fund's prior taxable

DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
                                                                            19
<PAGE>
year as to the Federal income tax status of his or her dividends and 
distributions which were received from the Fund during the Fund's prior taxable
year.  Shareholders should consult their own tax advisors about the status of 
the Fund's dividends and distributions for state and local liabilities.

 
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 $5,000,000 (except for pur-
chases of Class Y shares by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount). See "Prospectus Summary--Alterna-
tive Purchase Arrangements" for a discussion of factors to consider in select-
ing which Class of shares to purchase.
 
 INITIAL SUBSCRIPTION PERIOD
 
  Smith Barney, the Fund's distributor, will solicit subscriptions for shares
of the Fund during the Subscription Period. Subscriptions for shares must be
made through a brokerage account maintained with Smith Barney or an Introduc-
ing Broker. Shares of the Fund subscribed for during the Subscription Period
for which Smith Barney accepts purchase orders will be issued and sold by the
Fund on the third business day after the end of the Subscription Period (the
"Purchase Date"). Also on the Purchase Date, shareholders of other funds of
the Smith Barney Mutual Funds will be able to exchange shares of such funds
for shares of the Fund. On the Purchase Date, Smith Barney will notify the
Fund of the aggregate number of shares for which it has received and accepted
subscriptions, and the Fund will issue shares for such subscriptions and com-
mence operations.
 
20
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
 
  The Fund is offering its Class A shares to the public at a maximum purchase
price per share of $     , which equals the Class A share initial net asset
value per share of $      plus the maximum sales charge set forth below under
"Continuous Offerings". The Fund is offering its Class B, Class C and Class Y
shares to the public at each Class' respective initial net asset value per
share of $     .
 
  The Fund and Smith Barney may in their discretion determine to withdraw the
offering without notice for any reason before the end of the Subscription Peri-
od. The Fund also reserves the right to refuse any order in whole or in part.
 
 CONTINUOUS OFFERINGS
 
  Smith Barney will suspend the offering of shares to the public immediately
after the expiration of the Subscription Period or within three weeks thereaf-
ter. During the three-week period, Smith Barney will commence a limited contin-
uous offering of shares to the public. Once Smith Barney suspends the offering
of shares to the public (the "Closing Period"), it is expected to do so for 30
days. This period may be lengthened or shortened in the absolute discretion of
Smith Barney. During the Closing Period, the Fund will invest the proceeds from
its Subscription Period and its continuous offering, if any, and existing
shareholders of the Fund may request redemptions, purchase additional shares
and exchange shares of the Fund for shares of certain other funds of the Smith
Barney Mutual Funds. See "Exchange Privilege." Immediately after the expiration
of the Closing Period, Smith Barney expects to commence a continuous offering
of shares of the Fund.
 
  During the continuous offering, shares may be purchased through a brokerage
account maintained with Smith Barney. Shares may also be purchased through an
Introducing Broker or an investment dealer in the selling group. In addition,
certain investors, including qualified retirement plans and certain other
institutional investors, may purchase shares directly from the Fund through
First Data. When purchasing 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 mainte-
nance fee in connection with a brokerage account through which an investor pur-
chases 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 $5,000,000. Sub-
sequent invest-ments of at least $50 may be made for all Classes. For partici-
pants in retirement plans qualified under Section 403(b)(7) or Section 401(a)
of the Code, the minimum initial investment requirement for Class A, Class B
and Class C shares and
 
                                                                              21
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
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 subsequent investment requirement for all
Classes is $25. For shareholders purchasing shares of the Fund through the Sys-
tematic Investment Plan on a quarterly basis, the minimum initial investment
requirement for Class A, Class B and Class C shares and subsequent investment
requirement for all Classes is $50. There are no minimum investment require-
ments for Class A shares for employees of Travelers and its subsidiaries,
including Smith Barney, Directors or Trustees of any of the Smith Barney Mutual
Funds and their spouses and children. The Fund reserves the right to waive or
change minimums, to decline any order to purchase its shares and to suspend the
offering of shares from time to time. Shares purchased will be held in the
shareholder's account by 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 (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading 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. For shares purchased through Smith Barney or Intro-
ducing 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
 
  During the continuous offering period, shareholders may make additions to
their accounts at any time by purchasing shares through a service known as the
Systematic Investment Plan. Under the Systematic Investment Plan, Smith Barney
or First Data is authorized through preauthorized transfers of at least $25 on
a monthly basis or at least $50 on a quarterly basis, to charge the regular
bank account or other financial institution indicated by the shareholder on a
monthly or quarterly basis to provide systematic additions to the shareholder's
Fund account. A shareholder who has insufficient funds to complete the transfer
will be charged a fee of up to $25 by Smith Barney or First Data. The System-
atic Investment Plan also authorizes Smith Barney to apply cash held in the
shareholder's Smith Barney brokerage account or redeem the shareholder's shares
of a Smith Barney money market fund to make additions to the account. Addi-
tional information is available from the Fund or a Smith Barney Financial Con-
sultant.
 
22
<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.
 
  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 that are offered with a sales charge listed under "Exchange Priv-
ilege."
 
 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 (ii) employees of members of the National Association of Securi-
ties Dealers, Inc., provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment purposes and that the secu-
rities will not be resold except
 
                                                                             23
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
through redemption or repurchase; (b) offers of Class A shares to any other
investment company to effect the combination of such company with the Fund by
merger, acquisition of assets or otherwise; (c) purchases of Class A shares by
any client of a newly employed Smith Barney Financial Consultant (for a period
up to 90 days from the commencement of the Financial Consultant's employment
with Smith Barney), on the condition the purchase of Class A shares is made
with the proceeds of the redemption of shares of a mutual fund which (i) was
sponsored by the Financial Consultant's prior employer, (ii) was sold to the
client by the Financial Consultant and (iii) was subject to a sales charge; (d)
purchases by shareholders who have redeemed Class A shares in the Fund (or
Class A shares of another fund in 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 reinvestment is made within 60 calendar days of the
redemption; (e) purchases by accounts managed by registered investment advisory
subsidiaries of Travelers; (f) direct rollovers by plan participants from a
401(k) plan offered to employees of Travelers or its subsidiaries or a 401(k)
plan enrolled in the Smith Barney 401(k) Program (Note: subsequent investments
will be subject to the applicable sales charge); (g) purchases by separate
accounts used to fund certain unregistered variable annuity contracts; and (h)
purchases by investors participating in a Smith Barney fee-based arrangement.
In order to obtain such discounts, the purchaser must provide sufficient infor-
mation at the time of purchase to permit verification that the purchase would
qualify for the elimination of the sales charge.
 
 RIGHT OF ACCUMULATION
 
  Class A shares of 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
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under
 
24
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
"Initial Sales Charge Alternative--Class A Shares," and will be based upon the
aggregate sales of Class A shares of Smith Barney Mutual Funds offered with a
sales charge to, and share holdings of, all members of the group. To be eligi-
ble for such reduced sales charges or to purchase at net asset value, all pur-
chases must be pursuant to an employer- or partnership-sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Section 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Fund shares at a discount and (c) satisfies uniform crite-
ria 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 discre-
tion of Smith Barney.
 
 LETTER OF INTENT
 
  Class A Shares. A Letter of Intent for amounts of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales charge by aggregating the
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 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
 
                                                                              25
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
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 (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for which there
is no purchase minimum). Such investors must make an initial minimum purchase
of $1,000,000 in Class Y shares of the Fund and agree to purchase a total of
$5,000,000 of Class Y shares of the same Fund within six months from the date
of the Letter. If a total investment of $5,000,000 is not made within the six-
month period, all Class Y shares purchased to date will be transferred to Class
A shares, where they will be subject to all fees (including a service fee of
0.25%) and 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
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 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
Class B shares
 
26
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
held under the Smith Barney 401(k) Program 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 fee. There will also be converted at that time such propor-
tion 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. In addition, a portion of Class B Dividend Shares will be con-
verted at that time. See "Prospectus Summary--Alternative Purchase Arrange-
ments--Class B Shares Conversion Feature."
 
  In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distribu-
tions and finally of other shares held by the shareholder for the longest
period of time. The length of time that CDSC Shares acquired through an
exchange have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and 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 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
 
                                                                              27
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
redemption proceeds ($500 minus $260) would be charged at a rate of 4.00% (the
applicable rate for Class B shares) for a total deferred sales charge of $9.60.
 
 WAIVERS OF CDSC
 
  The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts up to 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 withdrawal in
amounts up to 2.00% per month of the value of the shareholders shares will be
permitted for withdrawal plans that were established prior to November 7,
1994); (c) redemption of shares within 12 months following the death or dis-
ability 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) redemption of shares to effect
with a combination of the Fund with any investment company by merger, acquisi-
tion of assets or otherwise. In addition, a shareholder who has redeemed shares
from other funds of the Smith Barney Mutual Funds may, under certain circum-
stances, reinvest all or part of the redemption proceeds within 60 days and
receive pro rata credit for any CDSC imposed on the prior redemption.
 
  CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by First Data in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
 
 SMITH BARNEY 401(K) PROGRAM AND EXECCHOICE(TM) PROGRAM
 
  During the continuous offering period, investors may be eligible to partici-
pate in the Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Pro-
gram. To the extent applicable, the same terms and conditions, which are out-
lined below, are offered to all plans participating ("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 contingent deferred sales charge ("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.
 
  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.
 
28
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
 
  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. At the end
of the fifth year after the date the Participating Plan enrolled in the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, if its total
Class C holdings in all non-money market Smith Barney Mutual Funds equal at
least $1,000,000, it will be offered the opportunity to exchange all of its
Class C shares for Class A shares of the 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 enroll-
ment 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 its total Class
C holdings in all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the Participating Plan will be offered
the opportunity to exchange all of its Class C shares for Class A shares of the
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 Fund but instead may acquire Class
A shares of the Fund. Any Class C shares not converted will continue to be sub-
ject 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
 
                                                                              29
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
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 many 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
distribu-
tions, plus the current net asset value of Class B shares purchased more than
eight years prior to the redemption, plus increases in the net asset value of
the shareholder's Class B shares above the purchase payments made during the
preceding eight years. Whether or not the CDSC applies to the redemption by a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the applica-
bility of the CDSC to redemptions by other shareholders, which depends on the
number of years since those shareholders made the purchase payment from which
the amount is being redeemed.
 
  The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employment of an employee in the Participating Plan; (c) the death or
disability of an employee in the Participating Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship of an employee in
the Participating Plan to the extent permitted under Section 401(k) of the
Code; or (f) redemptions of shares in connection with a loan made by the Par-
ticipating Plan to an employee.
 
30
<PAGE>
 
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
    Smith Barney Aggressive Growth Fund Inc.
    Smith Barney Appreciation Fund Inc.
    Smith Barney Disciplined Small Cap Fund, Inc.
    Smith Barney Fundamental Value Fund Inc.
    Smith Barney Growth Opportunity Fund
    Smith Barney Large Capitalization Growth Fund
    Smith Barney Natural Resources Fund Inc.
    Smith Barney Special Equities Fund
 
 Growth and Income Funds
    Concert Social Awareness Fund
    Smith Barney Convertible Fund
    Smith Barney Funds, Inc.--Equity Income Portfolio
 
    Smith Barney Growth and Income Fund
    Smith Barney Premium Total Return Fund
    Smith Barney 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 Portfolio
    Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
    Smith Barney Government Securities Fund
    Smith Barney High Income Fund
    Smith Barney Investment Grade Bond Fund
    Smith Barney Managed Governments Fund Inc.
 
 Tax-Exempt Funds
    Smith Barney Arizona Municipals Fund Inc.
    Smith Barney California Municipals Fund Inc.
   *Smith Barney Intermediate Maturity California Municipals Fund
   *Smith Barney Intermediate Maturity New York Municipals Fund
    Smith Barney Managed Municipals Fund Inc.
    Smith Barney Massachusetts Municipals Fund
    Smith Barney Muni Funds--Florida Portfolio
 
                                                                              31
<PAGE>
 
EXCHANGE PRIVILEGE (CONTINUED)
 
    Smith Barney Muni Funds--Georgia Portfolio
   *Smith Barney Muni Funds--Limited Term Portfolio
    Smith Barney Muni Funds--National Portfolio
    Smith Barney Muni Funds--New York Portfolio
    Smith Barney Muni Funds--Pennsylvania Portfolio
    Smith Barney New Jersey Municipals Fund Inc.
    Smith Barney Oregon Municipals Fund
    Smith Barney Tax-Exempt Income Fund
 
 International Funds
    Smith Barney Hansberger Global Value Fund
    Smith Barney World Funds, Inc.--Emerging Markets Portfolio
    Smith Barney World Funds, Inc.--European Portfolio
    Smith Barney World Funds, Inc.--Global Government Bond Portfolio
    Smith Barney World Funds, Inc.--International Balanced Portfolio
    Smith Barney World Funds, Inc.--International Equity Portfolio
    Smith Barney World Funds, Inc.--Pacific Portfolio
 
 Smith Barney Concert Allocation Series Inc.
    Smith Barney Allocation Concert Series Inc.--Balanced Portfolio
    Smith Barney Allocation Concert Series Inc.--Conservative Portfolio
    Smith Barney Allocation Concert Series Inc.--Growth Portfolio
    Smith Barney Allocation Concert Series Inc.--High Growth Portfolio
    Smith Barney Allocation Concert Series Inc.--Income Portfolio
 
 Money Market Funds
   +Smith Barney Exchange Reserve Fund
  ++Smith Barney Money Funds, Inc.--Cash Portfolio
  ++Smith Barney Money Funds, Inc.--Government Portfolio
 ***Smith Barney Money Funds, Inc.--Retirement Portfolio
 +++Smith Barney Municipal Money Market Fund, Inc.
 +++Smith Barney Muni Funds--California Money Market Portfolio
 +++Smith Barney Muni Funds--New York Money Market Portfolio.
-------------------------------------------------------------------------------
  * Available for exchange with Class A, Class C and Class Y shares of the
    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 Fund shares for Class C shares of this
    Fund.
 +++Available for exchange with Class A and Class Y shares of the Fund.
 
32
<PAGE>
 
EXCHANGE PRIVILEGE (CONTINUED)
 
 
  Class B Exchanges. In the event a Class B shareholder wishes to exchange all
or a portion of his or her shares into 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 respec-
tive class in any of the funds identified above may do so without imposition of
any charge.
 
  Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. SBMFM may deter-
mine that a pattern of frequent exchanges is excessive and contrary to the best
interests of the Fund's other shareholders. In this event, SBMFM will notify
Smith Barney and Smith Barney may, at its discretion, decide to limit addi-
tional purchases and/or exchanges by the shareholder. Upon such a determina-
tion, Smith Barney will provide notice in writing or by telephone to the share-
holder 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 listed above, which position the
shareholder would be expected to maintain for a significant period of time. All
relevant factors will be considered in determining what constitutes an abusive
pattern of exchanges.
 
  Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program". Exchanges will
be processed at the net asset value next determined. 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.
 
                                                                              33
<PAGE>
 
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 business day following receipt of proper ten-
der, except on days on which the NYSE is closed or as permitted under the 1940
Act, in extraordinary circumstances. Generally, if the redemption proceeds are
remitted to a Smith Barney brokerage account, these funds will not be invested
for the shareholder's benefit without specific instruction and Smith Barney
will benefit from the use of temporarily uninvested funds. Redemption proceeds
for shares purchased by check, other than a certified or official bank check,
will be remitted upon clearance of the check, which may take up to ten days or
more.
 
  Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
 
  Smith Barney Hansberger Global Value Small Cap FundClass A, B, C or Y
  (please specify)
  c/o First Data Investor Services Group, Inc.
  P.O. Box 5128
  Westborough, Massachusetts 01581-5128
 
  A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are 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 $2,000 must be guaranteed by an eligible guar-
antor institution such as a domestic bank, savings and loan institution, domes-
tic credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $2,000 or less do
not require a signature guarantee unless
 
34
<PAGE>
 
REDEMPTION OF SHARES (CONTINUED)
 
more than one such redemption request is made in any 10-day period. Redemption
proceeds will be mailed to an investor's address of record. First Data may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A redemption request will not
be deemed properly received until First Data receives all required documents in
proper form.
 
 AUTOMATIC CASH WITHDRAWAL PLAN
 
  The 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 periodic cash payments of at least $50 monthly or quarterly. Retirement
plan accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the 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 shareholder
is entitled to participate in this program, he or she should contact First Data
at 1-800-451-2010. Once eligibility is confirmed, the shareholder must complete
and return a Telephone/Wire Authorization Form, along with a signature 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
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
 
                                                                              35
<PAGE>
 
REDEMPTION OF SHARES (CONTINUED)
 
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 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 account must satisfy the minimum account size). The Fund, how-
ever, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
 
PERFORMANCE
 
 
  From time to time the 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 histori-
cal earnings and are not intended to indicate future performance. Total return
is computed for a speci-
 
36
<PAGE>
 
PERFORMANCE (CONTINUED)
 
fied period of time assuming deduction of the maximum sales charge, if any,
from the initial amount invested and reinvestment of all income dividends and
capital gain distributions on the reinvestment dates at prices calculated as
stated in this Prospectus, then dividing the value of the investment at the end
of the period so calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as prescribed by the SEC, is
derived from this total return, which provides the ending redeemable value.
Such standard total return information may also be accompanied with nonstandard
total return information for differing periods computed in the same manner but
without annualizing the total return or taking sales charges into account. The
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 com-
position of its investment portfolio and operating expenses. These factors and
possible differences in the methods used in calculating current dividend return
should be considered when comparing a Class' current return to yields published
for other investment companies and other investment vehicles. 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 FUND
 
 
 BOARD OF DIRECTORS
 
  Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agreements
between the Company and the companies that furnish services to the Fund and the
Company, including agreements with its distributor, investment adviser, custo-
dian and transfer agent. The day-to-day operations of the Fund are delegated to
the Fund's investment manager. The Statement of Additional Information contains
background information regarding each Director of the Fund and executive offi-
cer of the Company.
 
 INVESTMENT MANAGER--SBMFM
 
  SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment manager pursuant to an investment management agreement
entered into by the Company, on behalf of the Fund. SBMFM renders investment
advice to investment companies which had aggregate assets under management as
of      , 1997, in excess of $  billion. For investment management services
rendered, the Fund pays SBMFM a monthly fee at the annual rate of
 
                                                                              37
<PAGE>
 
MANAGEMENT OF THE FUND (CONTINUED)
 
1.05% of the value of its average daily net assets. From its fee, SBMFM pays
Hansberger a fee of 0.60% of the value of the Fund's average net assets, for
its services as sub-investment adviser.
 
 SUB-INVESTMENT ADVISER--HANSBERGER
 
  Hansberger, located at 515 Las Olas Blvd., Suite 1300, Fort Lauderdale, Flor-
ida 33301, serves as the Fund's sub-investment adviser. Hansberger provides
investment advisory services to investment companies that had aggregate total
assets under management as of       of $    . Subject to the supervision and
direction of the Company's Board of Directors, Hansberger manages the Fund's
portfolio in accordance with the Fund's stated investment objective and poli-
cies, makes investment decisions for the Fund, places orders to purchase and
sell securities and employs professional portfolio managers and securities ana-
lysts who provide research services to the Fund.
 
 PORTFOLIO MANAGEMENT
 
  Lauretta (Retz) Reeves, Vladimir Tyurenkov, Robert Mazuelos and Victoria
Gretzky manage the day-to-day investment operations of the Fund, including the
oversight of investment decisions. Ms. Reeves has been a portfolio manager and
Managing Director of Hansberger since 1996. Prior to that time, she was Senior
Vice President of Templeton Worldwide Inc. ("Templeton"). Mr. Tyurenkov has
been a Managing Director of Eastern Europe and Russia for Hansberger since
1995. Prior to that time he worked for the Russian Government.
 
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 0.75% of the average daily net assets attributable
to those Classes. Class B shares that automatically convert to Class A shares
eight years after the date of original purchase will no longer be subject to
distribution fees. The fees are used by Smith Barney to pay its Financial Con-
sultants for servicing shareholder accounts and, in the case of Class B and
Class C shares, to cover expenses primarily intended to result in the sale of
those shares. These expenses include: advertising expenses; the cost of print-
 
38
<PAGE>
 
DISTRIBUTOR (CONTINUED)
 
ing and mailing prospectuses to potential investors; payments to and expenses
of Smith Barney Financial Consultants and other persons who provide support
services in connection with the distribution of shares; interest and/or carry-
ing charges; and indirect and overhead costs of Smith Barney associated with
the sale of 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 of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
 
  Payments under the Plan 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 Company's Board of
Directors will evaluate the appropriateness of the Plan and its payment terms
on a continuing basis and in so doing will consider all relevant factors,
including expenses borne by Smith Barney, amounts received under the Plan and
proceeds of the CDSC.
 
ADDITIONAL INFORMATION
 
 
  The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The Fund
offers shares of common stock currently classified into four Classes, A, B, C
and Y, with a par value of $.001 per share. Each Class represents an identical
interest 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 for each
Class; (c) the distribution and/or service fees 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 privi-
lege of each Class; and (g) the conversion feature of the Class B shares. The
Board of Directors does not anticipate that there will be any conflicts among
the interests of the holders of the different Classes. The Directors, on an
ongoing basis, will consider whether any such conflicts exists and, if so, take
appropriate action.
 
  Chase, located at Chase Metrotech Center, Brooklyn, New York 11245, serves as
custodian of the Fund's investments.
 
  First Data, located at Exchange Place, Boston, Massachusetts 02109, serves as
the Company's transfer agent.
 
  The Company does not hold annual shareholder meetings. There normally will be
no meeting of shareholders for the purpose of electing Directors unless and
until
 
                                                                              39
<PAGE>
 
ADDITIONAL INFORMATION (CONTINUED)
 
such time as less than a majority of the Directors holding office have been
elected by shareholders. The Directors will call a meeting for any purpose upon
written request of shareholders holding at least 10% of the Company's outstand-
ing shares and the Company will assist shareholders in calling such a meeting
as required by the 1940 Act. When matters are submitted for shareholder vote,
shareholders of each Class will have one vote for each full share owned and a
proportionate, fractional vote for any fractional share held of that Class.
Generally, shares of the Company will be voted on a Company-wide basis on all
matters except matters affecting only the interests of one Fund or one Class of
shares.
 
  The Fund sends its shareholders a semi-annual report and an audited annual
report, which include a list of the investment securities held by the Fund at
the end of the reporting period. In an effort to reduce the Fund's printing and
mailing costs, the Company plans to consolidate the mailing of its semi-annual
and annual reports by household. This consolidation means that a household hav-
ing multiple accounts with the identical address of record will receive a sin-
gle copy of each report. Shareholders who do not want this consolidation to
apply to their accounts should contact their Smith Barney Financial Consultant
or First Data.
 
40
<PAGE>
 
                                                                    SMITH BARNEY
                                                --------------------------------
                                                A Member of TravelersGroup[LOGO]
 
 
 
 
 
                                                                   SMITH BARNEY
                                                                    HANSBERGER
                                                              GLOBAL VALUE SMALL
                                                                       CAP FUND
 
                                                            388 Greenwich Street
                                                        New York, New York 10013
 
                                                               FD 0899 [ ]/97
<PAGE>
P R O S P E C T U S 
 
                                                         SMITH BARNEY HANSBERGER
                                                                          GLOBAL
                                                                           VALUE
                                                                            FUND
                                                             [        ], 1997
 
                                                   PROSPECTUS BEGINS ON PAGE ONE
 
 
[LOGO] SMITH BARNEY MUTUAL FUNDS
       Investing for your future.
       Every day.

<PAGE>
 
PROSPECTUS                                                      [        ], 1997
 
 
Smith Barney Hansberger Global Value Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
 
 The investment objective of Smith Barney Hansberger Global Value Fund
(the "Fund") is
long-term capital growth. The Fund seeks to achieve this objective by investing
primarily in equity securities of U.S. and foreign issuers.
 
 The Fund is one of a number of funds, each having distinct investment objec-
tives and policies, making up the Smith Barney Investment Funds Inc. (the "Com-
pany"). The Fund is an open-end, management investment company commonly
referred to as a mutual fund.
 
 The initial subscription period for shares is scheduled to end on December 12,
1997, (the "Subscription Period"). After the expiration of the Subscription
Period or a limited continuous offering period, the Fund will suspend the
offering of shares to the public. A continuous offering of shares is expected
to commence on or about February 2, 1998. See "Purchase of Shares."
 
 This Prospectus sets forth concisely certain information about the Company and
the Fund, including sales charges, distribution and service fees and expenses,
that prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
 
 Additional information about the Fund is contained in a Statement of Addi-
tional Information dated [        ], 1997, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing a Smith Barney Financial Consultant. The Statement of Additional Informa-
tion has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated by reference into this Prospectus in its entirety.
 
SMITH BARNEY INC.
Distributor
 
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
 
HANSBERGER GLOBAL INVESTORS, INC.
Sub-Investment Adviser
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
 
                                                                               1
<PAGE>
 
TABLE OF CONTENTS
 
 
<TABLE>
<S>                                           <C>
PROSPECTUS SUMMARY                              3
-------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES    9
-------------------------------------------------
RISK FACTORS                                   16
-------------------------------------------------
VALUATION OF SHARES                            17
-------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES             18
-------------------------------------------------
PURCHASE OF SHARES                             19
-------------------------------------------------
EXCHANGE PRIVILEGE                             30
-------------------------------------------------
REDEMPTION OF SHARES                           33
-------------------------------------------------
MINIMUM ACCOUNT SIZE                           36
-------------------------------------------------
PERFORMANCE                                    36
-------------------------------------------------
MANAGEMENT OF THE FUND                         37
-------------------------------------------------
DISTRIBUTOR                                    37
-------------------------------------------------
ADDITIONAL INFORMATION                         37
-------------------------------------------------
</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 Fund
or the distributor. This Prospectus does not constitute an offer by the Fund or
the distributor to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
 
--------------------------------------------------------------------------------
 
2
<PAGE>
 
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 whose investment objective is to seek long term capital growth.
The Fund seeks to achieve this objective by investing primarily in equity
securities of U.S. and foreign issuers. See "Investment Objective and Manage-
ment 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
$5,000,000. 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. The CDSC may be waived for certain redemp-
tions. Class B shares are subject to an annual service fee of 0.25% and an
annual distribution fee of 0.75% of the average daily net assets of the Class.
The Class B shares' distribution fee may cause that Class to have higher
expenses and pay lower dividends than Class A shares.
 
 Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and
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 0.75% 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 combined
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 ini-
tial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
 
 In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
 
 Intended Holding Period. The decision as to which Class of shares is more ben-
eficial to an investor depends on the amount and intended holding period of his
or her investment. Shareholders who are planning to establish a program of reg-
ular investment may wish to consider Class A shares; as the investment accumu-
lates, shareholders may qualify for reduced sales charges and the shares are
subject to lower ongoing expenses over the term of the investment. As an
investment alternative, Class B shares and Class C shares are sold without any
initial sales charge so the entire purchase price is immediately invested in
the Fund. Any investment return on these additional invested amounts may par-
tially or wholly offset the higher annual expenses of these Classes. Because
the Fund's future return cannot be predicted, however, there can be no assur-
ance that this would be the case.
 
 Finally investors should consider the effect of the CDSC period and any con-
version rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class
B shares, they do not have a conversion feature and, therefore, are subject to
an ongoing distribution fee. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks.
 
 Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or distribu-
tion fee. The maximum purchase amount for Class A shares is $4,999,999, Class B
shares is $249,999 and Class C shares is $499,999. There is no maximum purchase
amount for Class Y shares.
 
 
4
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 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 may be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase. The $500,000 investment may be met by adding the purchase
to the net asset value of all Class A shares held in funds sponsored by 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 purchase Class A shares at net asset
value or at a reduced sales charge should consider doing so.
 
 Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the pur-
pose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
 
 See "Purchase of Shares" and "Management of the Fund" for a complete descrip-
tion of the sales charges and service and distribution fees for each Class of
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and "Ex-
change Privilege" for other differences between the Classes of shares.
 
SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible to
participate in the Smith Barney 401(k) Program, which is generally designed to
assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
as well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without sales
charge as investment alternatives under both of these programs. See "Purchase
of Shares--Smith Barney 401(k) Program."
 
PURCHASE OF SHARES Shares may be purchased through a brokerage account main-
tained at Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
institutional investors, may purchase shares directly from the Fund through the
Fund's transfer agent, First Data Investor Services Group, Inc. ("First Data").
See "Purchase of Shares."
 
 The initial subscription period for shares is scheduled to end on December 12,
1997, (the "Subscription Period"). After the expiration of the Subscription
Period or a limited continuous offering period, the Fund will suspend the
offering of shares to the public. A continuous offering of shares is expected
to commence on or about February 2, 1998. See "Purchase of Shares."
 
                                                                               5
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account,
or $250 for an individual retirement account ("IRA") or a Self-Employed Retire-
ment Plan. Investors in Class Y shares may open an account for an initial
investment of $5,000,000. Subsequent investments of at least $50 may be made
for all Classes. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent invest-
ment requirement for all Classes is $25. The minimum initial investment
requirement for the purchase of Fund shares through the Systematic Investment
Plan is described below. See "Purchase of Shares."
 
SYSTEMATIC INVESTMENT PLAN During the continuous offering period, 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 investment requirements for Class A, Class B and
Class C shares and the subsequent investment requirement for all classes for
shareholders purchasing shares through the Systematic Investment Plan on a
monthly basis is $25 and on a quarterly basis is $50. See "Purchase of Shares."
 
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and "Re-
demption of Shares."
 
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the Fund's investment manager. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"). Hold-
ings is a wholly owned subsidiary of Travelers Group Inc. ("Travelers"), a
diversified financial services holding company engaged, through its subsidiar-
ies principally in four business segments: Investment Services, Consumer
Finance Services, Life Insurance Services and Property & Casualty Insurance
Services.
 
Hansberger Global Investors, Inc. ("Hansberger") serves as the Fund's sub-
adviser. See "Management of the Fund."
 
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined. See "Exchange Privilege."
 
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
 
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and distribu-
tions of net realized capital gains, if any, are declared and paid annually.
See "Dividends, Distributions and Taxes."
 
6
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution rein-
vestments will become eligible for conversion to Class A shares on a pro-rata
basis. See "Dividends, Distributions and Taxes."
 
RISK FACTORS AND SPECIAL CONSIDERATIONS The Fund may purchase securities in any
foreign country, developed or developing, which involve substantial risks which
are in addition to the usual risks inherent in domestic investments. See "In-
vestment Objective and Management Policies."
 
THE FUND'S EXPENSES The following expense table lists the costs and expenses
that 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 estimated operat-
ing expenses:
 
<TABLE>
<CAPTION>
  SMITH BARNEY HANSBERGER GLOBAL VALUE FUND                CLASS A CLASS B CLASS C CLASS Y
--------------------------------------------------------------------------------
  <S>                                            <C>     <C>     <C>     <C>
  SHAREHOLDER TRANSACTION EXPENSES
    Maximum sales charge imposed on purchases
      (as a percentage of offering price)         5.00%   None    None    None
    Maximum CDSC (as a percentage of original
      cost or redemption proceeds, whichever is
      lower)                                      None*   5.00%   1.00%   None
--------------------------------------------------------------------------------
  ANNUAL FUND OPERATING EXPENSES
    (as a percentage of offering price)
    Management Fees                               0.95%   0.95%   0.95%   0.95%
    12b-1 Fees**                                  0.25    1.00    1.00    None
    Other Expenses***                             0.40    0.40    0.40    0.40
--------------------------------------------------------------------------------
  TOTAL FUND OPERATING EXPENSES                   1.60%   2.35%   2.35%   1.35%
--------------------------------------------------------------------------------
</TABLE>
 
   * Purchases of Class A shares of $500,000 or more will be made at net asset
     value with no sales charge, but will be subject to a CDSC of 1.00% on
     redemptions made within 12 months of purchase.
  ** Upon conversion of Class B shares to Class A shares, such shares will no
     longer be subject to a distribution fee. Class C shares do not have a
     conversion feature and, therefore, are subject to an ongoing distribution
     fee. As a result, long-term shareholders of Class C shares may pay more
     than the economic equivalent of the maximum front-end sales charge
     permitted by the National Association of Securities Dealers, Inc.
 *** "Other Expenses" have been estimated based on expenses the Fund expects to
     incur during its fiscal year ending December 31, 1998.
 
 Class A shares of the Fund purchased through the Smith Barney AssetOne Program
will be subject to an annual asset-based fee, payable quarterly, in lieu of the
initial sales charge. The fee will vary to a maximum of 1.50%, depending on the
amount of assets held through the Program. For more information, please call
your Smith Barney Financial Consultant.
 
                                                                               7
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
 
 The sales charge and CDSC set forth in the above table are the maximum charges
imposed on purchases or redemptions of 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 and certain Class A shares, the length of time the shares are
held and whether the shares are held through the Smith Barney 401(k) and
ExecChoice(TM) Programs. See "Purchase of Shares" and "Redemption of Shares."
Smith Barney receives an annual 12b-1 service fee of 0.25% of the value of
average daily net assets of Class A shares. Smith Barney also receives with
respect to Class B shares and Class C shares, an annual 12b-1 fee of 1.00% of
the value of average daily net assets of that Class, consisting of a 0.25%
service fee and a 0.75% distribution 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 HANSBERGER GLOBAL VALUE FUND                                  1 YEAR 3 YEARS
---------------------------------------------------------------------------------
  <S>                                                              <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......................................................
    Class B......................................................
    Class C......................................................
    Class Y......................................................
  An investor would pay the following expenses on the same
  investment, assuming the same annual return and no redemption:
    Class A......................................................
    Class B......................................................
    Class C......................................................
    Class Y......................................................
---------------------------------------------------------------------------------
</TABLE>
 
 The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the 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 FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN ABOVE.
 
8
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
 
 
  The Fund's investment objective is to provide long-term capital growth. The
Fund seeks to achieve its objective by investing primarily in equity securi-
ties of U.S. and foreign issuers, which, in the opinion of SBMFM and
Hansberger, are undervalued. Income will be an incidental consideration.
 
  In making investment decisions for the Fund, Hansberger relies heavily on a
fundamental analysis of securities with a long-term investment perspective.
Hansberger's valuation methods focus on a company's share price in relation to
earnings, dividends, assets, sales and a variety of other criteria. The Fund
seeks to invest in companies whose securities are trading at the greatest dis-
count to future earnings, cash flow and/or net asset value and Hansberger
utilizes proprietary valuation screens, internal and external research sources
and other fundamental analysis to identify those securities that appear to be
undervalued. Once undervalued securities are identified, Hansberger analyzes
each security, concentrating on a variety of fundamental issues, including
sales growth, cash flow, new product development, management structure and
other economic factors. This fundamental analysis results in a list of securi-
ties meeting a strict value discipline, which are reviewed by Hansberger for
inclusion in the Fund's portfolio.
 
  Hansberger seeks to increase the scope and effectiveness of this fundamental
investment approach by extending the search for value into many countries
around the world. This global search provides Hansberger with more diverse
opportunities and flexibility to shift portfolio investments not only from
company to company and industry to industry, but also country to country, in
search of undervalued securities. Under normal market conditions the Fund will
invest its assets in at least three countries, which may include the United
States.
 
 INVESTMENT POLICIES
 
  Although the Fund generally invests in common stocks, the Fund may also
invest in preferred stocks and certain debt securities, rated or unrated, such
as convertible bonds and bonds selling at a discount, when Hansberger believes
the potential for appreciation will equal or exceed that available from
investments in common stock. The Fund may also invest in warrants or rights to
subscribe to or purchase such securities, and sponsored or unsponsored Ameri-
can Depositary Receipts ("ADRs") European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") and other depository receipts (collectively, "De-
positary Receipts"). The Fund may also lend its portfolio securities and bor-
row money for investment purposes (i.e., "leverage" its portfolio). In addi-
tion, the Fund may invest in closed-end investment companies holding foreign
securities, and enter into transactions in options on securities, securities
indices and foreign currencies, forward foreign currency contracts, and
futures contracts and related options. When deemed appropriate by SBMFM or
Hansberger, the Fund may invest cash balances
 
                                                                              9
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
in repurchase agreements and other money market investments to maintain
liquidity in an amount sufficient to meet expenses or for day-to day operating
purposes. These investment techniques are described below under "Investment
Techniques" and "Risk Factors". Whenever, in the judgment of Hansberger, mar-
ket or economic conditions warrant, the Fund may adopt a temporary defensive
position and may invest without limit in money market securities denominated
in U.S. dollars or in the currency of any foreign country. See " Investment
Techniques--Temporary Investments."
 
 INVESTMENT STRATEGIES AND TECHNIQUES
 
  The Fund may also engage in the investment techniques and make the types of
investments described and discussed below.
 
  Options Transactions. The Fund may seek to hedge all or a portion of its
investments through options on other securities in which it may invest.
Options which the Fund may purchase or sell will be traded on a recognized
securities or futures exchange or over the counter. Options markets in emerg-
ing countries are currently limited and the nature of the strategies adopted
by Hansberger and the extent to which those strategies are used will depend on
the development of such markets.
 
  The Fund may write (i.e., sell) covered call options. A call gives the pur-
chaser the right to buy the security underlying the option from the Fund at
the stated exercise price, on or before a specified date (the "termination
date") that is usually not more than nine months from the date the option is
issued. A call is "covered" if the Fund (i) owns the securities underlying the
option or securities convertible or exchangeable (without the payment of any
consideration) into the securities underlying the option, (ii) maintains in a
segregated account with Chase eligible segregated assets with a value suffi-
cient to meet the Fund's obligations under the call, or (iii) owns an offset-
ting call option.
 
  The Fund may also write (i.e., sell) covered put options. The writer of a
put incurs an obligation to buy the security underlying the option from the
put's purchaser at the exercise price at any time on or before the termination
date, at the purchaser's election (certain options the Fund writes will be
exercisable by the purchaser only on a specific date ). Generally, a put is
"covered" if the Fund maintains eligible segregated assets in an amount equal
to the exercise price of the option or if the Fund holds a put on the same
underlying security with a similar or higher exercise price.
 
  The Fund may also purchase put or call options on individual securities or
baskets of securities. When the Fund purchases a call, it acquires the right
to buy the underlying security at the exercise price on or before the termina-
tion date, and
 
10
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
when the Fund purchases a put, it acquires the right to sell the underlying
security at the exercise price on or before the termination date.
 
  The primary risks associated with the use of options on securities are (i)
imperfect correlation between the change in market value of the securities the
Fund holds and the prices of options relating to the securities purchased or
sold by the Fund; and (ii) possible lack of a liquid secondary market for an
option. Options not traded on an exchange (OTC options) are often considered
illiquid and may be difficult to value. Hansberger believes that the Fund will
minimize its risk of being unable to close out an option contract by transact-
ing in options only if there appears to be a liquid secondary market for those
options.
 
  Futures Contracts. The Fund may buy and sell financial futures contracts,
stock and bond index futures contracts, foreign currency futures contracts and
options on any of the foregoing for hedging purposes only. A financial futures
contract is an agreement between two parties to buy or sell a specified debt
security at a set price on a future date. An index futures contract is an
agreement to take or make delivery of an amount of cash based on the difference
between the value of the index at the beginning and at the end of the contract
period. A futures contract on a foreign currency is an agreement to buy or sell
a specified amount of a currency for a set price on a future date.
 
  When the Fund enters into a futures contract, it must make an initial depos-
it, known as "initial margin," as a partial guarantee of its performance under
the contract. As the value of the security, index or currency fluctuates,
either party to the contract is required to make additional margin payments,
known as "variation margin," to cover any additional obligation it may have
under the contract. In addition, when the Fund enters into a futures contract,
it will segregate assets or "cover" its position in accordance with the Invest-
ment Company Act of 1940, as amended (the "1940 Act"). With respect to posi-
tions in futures and related options that do not constitute "bona fide hedging"
positions as defined in regulations of the Commodity Futures Trading Commis-
sion, the Fund will not enter into a futures contract or related option con-
tract if, immediately thereafter, the aggregate initial margin deposits relat-
ing to such positions plus premiums paid by it for open futures option posi-
tions, less the amount by which any such options are "in-the-money," would
exceed 5% of the Fund's total assets. The value of the underlying securities on
which futures contracts will be written at any one time will not exceed 25% of
the total assets of the Fund.
 
  The primary risks associated with the use of futures and options on futures
are (i) imperfect correlation between the change in market value of the securi-
ties held by the Fund and the prices of related futures and options on futures
purchased or sold by the Fund, and (ii) possible lack of a liquid secondary
market for a futures
 
                                                                              11
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
contract (or related option) and the resulting inability to close a futures
position, which could have an adverse impact on the Fund's ability to hedge.
The risk of loss in trading on futures contracts and related options in some
strategies can be substantial, due both to the low margin deposits required
and the extremely high degree of leverage involved in futures pricing. Gains
and losses on futures and related options depend on Hansberger's ability to
predict correctly the direction of stock prices, interest rates, and other
economic factors. The risk that the Fund will be unable to close out a futures
position or related options contract will be minimized by only entering into
futures contracts or related options transactions for which there appears to
be a liquid secondary market.
 
  Borrowing. The Fund may borrow money from U.S.-regulated banks for temporary
or emergency purposes in an amount not to exceed 33 1/3% of the Fund's total
assets (including the amount borrowed) less all liabilities and indebtedness
other than the borrowing.
 
  Depository Receipts. The Fund may purchase sponsored and unsponsored Deposi-
tory Receipts that are or become available, including ADRs, GDRs, EDRs and
other Depository Receipts. Depositary Receipts are typically issued by a
financial institution ("depository") and evidence ownership interests in a
security or a pool of securities ("underlying securities") that have been
deposited with the depository. The depository for ADRs is typically a U.S.
financial institution and the underlying securities are issued by a foreign
issuer. In other Depositary Receipts, the depository may be a foreign or a
U.S. entity, and the underlying securities may have a foreign or a U.S. issu-
er. For purposes of the Fund's investment policies, investments in Depository
Receipts will be deemed to be investments in the underlying securities. Thus,
a Depository Receipt representing ownership of common stock will be treated as
common stock.
 
  Sovereign Debt. The Fund may invest in sovereign debt, which may trade at a
substantial discount from face value. The Fund may hold and trade sovereign
debt of emerging market countries in appropriate circumstances and to partici-
pate in debt conversion programs. Emerging country sovereign debt is generally
lower-quality debt and is considered speculative in nature. The issuer or gov-
ernmental authorities that control sovereign debt repayment ("sovereign debt-
ors") may be unable or unwilling to repay principal or interest when due in
accordance with the terms of the debt. A sovereign debtor's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow, the extent of its foreign reserves,
the availability of sufficient foreign exchange on the date a payment is due,
the relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy towards the International Monetary Fund and the
political constraints to which the sovereign debtor may be subject.
 
12
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
 
  Brady Bonds. The Fund may invest in Brady Bonds as part of its investment in
sovereign debt of countries that have restructured or are in the process of
restructuring their sovereign debt.
 
  Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal at final maturity: (ii) the col-
lateralized interest payments: (iii) the uncollateralized interest payment:
and (iv) any uncollateralized interest and principal at maturity (these
uncollateralized amounts constitute the " residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history defaults
with respect to commercial bank loans by public and private entities of coun-
tries issuing Brady Bonds, investments in Brady Bonds can viewed as specula-
tive.
 
  Investment Funds. Some emerging countries have laws and regulations that
preclude direct foreign investment in the securities of companies located
there. However, indirect foreign investment in the securities of companies
listed and traded on the stock exchanges in these countries is permitted by
certain emerging countries through specifically authorized investment funds.
The Fund may invest in these investment funds, as well as other closed-end
investment companies, subject to the provisions of the 1940 Act.
 
  Repurchase Agreements. The Fund may enter into repurchase agreements with
brokers, dealers or banks ("counterparties") that SBMFM and Hansberger have
determined meet the credit guidelines established by the Board of Directors.
Repurchase agreements will be fully collateralized, and may be viewed for pur-
poses of the 1940 Act as a loan of money by the Fund to the counterparty. The
Fund may incur a loss if the counterparty defaults and the collateral value
declines, or if bankruptcy proceedings are commenced regarding the
counterparty and the Fund's realization upon the collateral is delayed or lim-
ited.
 
  Securities Lending. The Fund is authorized to lend up to 33 1/3% of the
total market value of its portfolio securities to brokers, dealers, domestic
and foreign banks or other financial institutions for the purpose of increas-
ing its net investment income. Any such loan must be fully secured; however,
and there may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrowers of the securities fail finan-
cially.
 
  Temporary Investments. The Fund may make money market investments pending
other investments or settlement for liquidity, or in adverse market condi-
tions. These money market investments include obligations of the U.S. Govern-
ment and its agencies and instrumentalities, obligations or foreign sovereign-
ties, other debt securities, commercial paper including bank obligations, cer-
tificates of deposit (including Eurodollar certificates of deposit) and repur-
chase agreements.
 
                                                                             13
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
 
  For temporary defensive purposes, during periods in which SBMFM or Hansberger
believes changes in economic, financial or political conditions make it advis-
able, the Fund may reduce its holdings in equity and other securities and may
invest up to 100% of its assets in certain short-term (less than twelve months
to maturity) and medium-term (not greater than five years to maturity) debt
securities and in cash (U.S. dollars, foreign currencies, multicurrency units).
These short-term and medium-term debt securities consist of (a) obligations of
governments, agencies or instrumentalities of any member state of the Organiza-
tion for Economic Cooperation and Development ("OECD"), (b) bank deposits and
bank obligations (including certificates of deposit, time deposits and banker's
acceptances) of banks organized under the laws of any member state of the OECD,
denominated in any currency: (c) floating rate securities and other instruments
dominated in any currency issued by international development agencies: (d)
finance company and corporate commercial paper and other short-term corporate
debt obligations of corporations organized under the laws of any member state
of the OECD meeting the Fund's credit quality standards: and (e) repurchase
agreements with banks and broker-dealers covering any of the foregoing securi-
ties. The short-term and medium-term debt securities in which the Fund may
invest for temporary defensive purposes will be those that SBMFM and Hansberger
believe to be of high quality, i.e., subject to relatively low risk of loss of
interest or principal. There is currently no rating system for debt securities
in most emerging countries. If rated, these securities will be rated in one of
the three highest rating categories by rating services such as Moody's Invest-
ors Services, Inc. or Standard & Poor's Ratings Group (i.e., rated at least A).
 
  When-Issued Securities. The Fund may purchase securities on a when-issued or
delayed delivery basis. The price of debt obligations purchased on a when-
issued basis is fixed at the time the Fund commits to purchase, but delivery
and payment for the securities ("settlement") takes place at a later date. The
price of these securities may be expressed in yield terms. The Fund will enter
into these transactions in order to lock in the yield (price) available at the
time of commitment.
 
  Between purchase and settlement, the Fund assumes the ownership risk of the
when-issued securities, including the risk of fluctuations in the securities
market value due to, among other factors, a change in the general level of
interest rates. However, no interest accrues to the Fund during this period.
 
  Forward Foreign Currency Exchange Contracts and Options on Foreign
Currencies. The Fund may enter into forward foreign currency exchange contracts
("forward contracts"), providing for the purchase of or sale of an amount of a
specified currency at a future date. The Fund may use forward contracts to pro-
tect against a foreign currency's decline against the U.S. dollar between the
trade date and settlement date for a securities transaction, or to lock in the
U.S. dollar value of
 
14
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
dividends declared on securities it holds, or generally to protect the U.S.
dollar value of the securities it holds against exchange rate fluctuations.
The Fund may also use forward contracts to protect against fluctuating
exchange rates and exchange control regulations. Forward contracts may limit
the Fund's losses due to exchange rate fluctuation, but they will also limit
any gains that the Fund might otherwise have realized. The Fund may also enter
into foreign currency futures contracts ("currency futures").
 
  Except where segregated accounts are not required by the 1940 Act, when the
Fund enters into a forward contract or currency future, it will place in a
segregated account maintained with The Chase Manhattan Bank ("Chase"), the
Fund's custodian, cash, or equity and debt securities of any grade provided
such securities have been determined by SBMFM and Hansberger to be liquid and
unencumbered pursuant to guidelines established by the Board of Directors
("eligible segregated assets"), in an amount equal to the value of the Fund's
total assets committed to consummation of forward contracts and currency
futures. If the value of these segregated securities declines, additional cash
or securities will be placed in the account on a daily basis so that the
account value is at least equal to the Fund's commitments to such contracts.
 
  The Fund may purchase put and call options and write covered put and call
options on foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign currency denominated portfolio securities
and against increases in the U.S. dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the Fund's position, it may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign cur-
rencies to be written or purchased by the Fund are traded on U.S. and foreign
exchanges or over-the-counter.
 
  Non-Publicly Traded Securities. The Fund may invest in securities that are
neither listed on a stock exchange nor traded over the counter, including pri-
vately placed securities. These securities may present a higher degree of
business and financial risk, which can result in substantial losses. In the
absence of a public trading market for these securities, they may be less liq-
uid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales
could be less than those originally paid by the Fund or less than what the
Fund may consider the fair value of such securities. Further, companies whose
securities are not publicly traded may not be subject
 
                                                                             15
<PAGE>
 
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
 
to disclosure and other investor protection requirements that might apply if
their securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
resold, the Fund may be required to bear the costs of registration. The Fund
may not invest more than 15% of its net assets in illiquid securities, includ-
ing securities for which there is no readily available secondary market. The
Fund may invest in securities that can be offered and sold to qualified insti-
tutional buyers under Rule 144A under the 1933 Act ("Rule 144A Securities").
The Board of Directors has delegated to SBMFM and Hansberger, subject to the
Board's supervision, the daily function of determining and monitoring the
liquidity of Rule 144A Securities. Rule 144A Securities held by the Fund which
have been determined to be liquid will not be subject to the 15% limitation
described above. However, Rule 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring them.
 
  Short Sales. The Fund may sell securities short "against the box", that is,
sell a security that the Fund owns or has the right to acquire, for delivery at
a specified date in the future.
 
RISK FACTORS
 
 
 FOREIGN INVESTMENT
 
  Investment in securities of foreign issuers and in foreign branches of domes-
tic banks, involves some risks different from, or in addition to, those affect-
ing investments in securities of U.S. issuers. For example, publicly available
information about foreign issuers and economies may be limited; foreign issuers
are not generally subject to uniform accounting, auditing and other reporting
standards; securities of foreign issuers may be less liquid and more volatile
than those of domestic issuers; dividends and interest paid by foreign issuers
may be subject to withholding and other foreign taxes; risks of seizure,
nationalization or expropriation of a foreign issuer exists; and, since securi-
ties of foreign issuers are frequently denominated in foreign currencies,
investments in these securities may involve currency exchange risks.
 
 INVESTING IN LOWER RATED DEBT SECURITIES
 
  The Fund may invest in lower rated or unrated debt securities. Debt consid-
ered below investment grade may be referred to as "junk bonds" or "high risk"
securities. The emerging country debt securities in which the Fund may invest
are subject to significant risk and will not be required to meet any minimum
rating standard or equivalent. Debt securities are subject to the risk of the
issuer's inability to meet principal and interest payments (credit risk) and
may also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the issuer's
 
16
<PAGE>
 
RISK FACTORS (CONTINUED)
 
creditworthiness and general market liquidity (market risk). Lower rated or
unrated securities are more likely to react to developments affecting market
and credit risk than are more highly rated securities, which react primarily
to movements in general levels of interest rates. The market values of debt
securities tend to vary inversely with interest rate levels. Yields and market
values of lower rated and unrated debt will fluctuate over time, reflecting
not only changing interest rates but also the market's perception of credit
quality and the outlook for economic growth. When economic conditions appear
to be deteriorating, medium to lower rated securities may decline in value due
to heightened concern over credit quality, regardless of prevailing interest
rates. Hansberger will consider credit risk and market risk in making debt
security investment decisions for the Fund. Investors should carefully con-
sider the relative risks of investing in the Fund because it purchases lower
rated and unrated debt securities, and should understand that such securities
are not generally meant for short-term investment.
 
  The U.S. market for lower rated and unrated corporate debt is relatively new
and its recent growth paralleled a long period of economic expansion and an
increase in merger, acquisition and leveraged buyout activity. In addition,
trading markets for debt securities of issuers located in emerging countries
may be limited. Adverse economic developments may disrupt the market for U.S.
corporate lower rated and unrated debt securities and for emerging country
debt securities. Such disruptions may severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity. In addition, the secondary market for
lower rated and unrated debt securities, which is concentrated in relatively
few market makers, may not be as liquid as the secondary market for more
highly rated securities. As a result, Hansberger could find it more difficult
to sell these securities or may be able to sell the securities only at prices
lower than if such securities were widely traded. Prices realized upon the
sale of such lower rated or unrated securities, under these circumstances, may
be less than the prices used in calculating the Fund's net asset value.
 
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. Secu-
rities listed on an exchange are valued on the basis of the last sale prior to
the time the valuation is made. If there has been no sale since the immedi-
ately previous valuation, then the
 
                                                                             17
<PAGE>
 
VALUATION OF SHARES (CONTINUED)
 
current bid price is used. Quotations are taken from the exchange where the
security is primarily traded. Portfolio securities which are primarily traded
on foreign exchanges may be valued with the assistance of a pricing service and
are generally valued at the preceding closing values of such securities on
their respective exchange, except that when an occurrence subsequent to the
time a foreign security is valued is likely to have changed such value, then
the fair value of those securities will be determined by consideration of other
factors by or under the direction of the Board of Directors. Over-the-counter
securities are valued on the basis of the bid price at the close of business on
each day. Unlisted foreign securities are valued at the mean between the last
available bid and offer price prior to the time of valuation. Any assets or
liabilities initially expressed in terms of foreign currencies will be con-
verted into U.S. dollar values at the mean between the bid and offered quota-
tions of such currencies against U.S. dollars as last quoted by any recognized
dealer. Securities for which market quotations are not readily available are
valued at fair value. Notwithstanding the above, bonds and other fixed-income
securities are valued by using market quotations and may be valued on the basis
of prices provided by a pricing service approved by the Board of Directors.
 
DIVIDENDS, DISTRIBUTIONS AND TAXES
 
 
 DIVIDENDS AND DISTRIBUTIONS
 
 The Fund's policy is to distribute substantially all its investment income
 (that is, its income other than its net realized capital gains) and net 
realized capital gains, if any, once a year, normally at the end of the year 
in which earned or at the beginning of the next year.
 
 If a shareholder does not otherwise instruct, dividends and capital gain dis-
tributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In order to avoid
the application of a 4.00% non-deductible excise tax on certain undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 in each year of any undistributed ordi-
nary income or capital gains and expects to pay any other dividends and distri-
butions 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.
 
18
<PAGE>
 
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
 
 
 TAXES
 
 The Fund intends to qualify each year as a regulated investment company under
the Code.  Dividends paid from net investment income and distributions of net 
realized short-term capital gains will be taxable to shareholders as ordinary 
income, regardless of how long shareholders have held their Fund shares and 
whether such dividends and distributions are received in cash or reinvested in 
additional Fund shares. Distributions of net realized long-term capital gains
will be taxable to shareholders as long-term capital gains, regardless of how
long shareholders have Fund shares and whether such distributions are reinvested
in additional Fund shares.  Furthermore, as a general rule, a shareholder's 
gain or loss on a sale or redemption of Fund shares will be a long-term capital
gain or loss if the shareholder has held the shares for more than one year and 
will be a short-term capital gain or loss if the shareholder has held the shares
for one year or less.  Some of the Fund's dividends declared from net investment
income may qualify for the Federal dividends-received deduction for 
corporations.

Statements as to the tax status of each shareholder's dividends and 
distributions will be mailed annually.  Each shareholder also will receive, 
if appropriate, various written notices after the close of the Fund's prior 
taxable year as to the Federal income tax status of his or her dividends and 
distributions which were received from the Fund during the Fund's prior taxable
year.  Shareholders should consult their own tax advisors about the status of 
the Fund's dividends and distributions for state and local liabilities.
 
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
 
                                                                             19
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
shares are sold without an initial sales charge or CDSC and are available only
to investors investing a minimum of $5,000,000 (except for purchases of Class
Y shares by Smith Barney Concert Allocation Series Inc., for which there is no
minimum purchase amount). See "Prospectus Summary--Alternative Purchase
Arrangements" for a discussion of factors to consider in selecting which Class
of shares to purchase.
 
 INITIAL SUBSCRIPTION PERIOD
 
  Smith Barney, the Fund's distributor, will solicit subscriptions for shares
of the Fund during the Subscription Period. Subscriptions for shares must be
made through a brokerage account maintained with Smith Barney or an Introduc-
ing Broker. Shares of the Fund subscribed for during the Subscription Period
for which Smith Barney accepts purchase orders will be issued and sold by the
Fund on the third business day after the end of the Subscription Period (the
"Purchase Date"). Also on the Purchase Date, shareholders of other funds of
the Smith Barney Mutual Funds will be able to exchange shares of such funds
for shares of the Fund. On the Purchase Date, Smith Barney will notify the
Fund of the aggregate number of shares for which it has received and accepted
subscriptions, and the Fund will issue shares for such subscriptions and com-
mence operations.
 
  The Fund is offering its Class A shares to the public at a maximum purchase
price per share of $     , which equals the Class A share initial net asset
value per share of $      plus the maximum sales charge set forth below under
"Continuous Offerings". The Fund is offering its Class B, Class C and Class Y
shares to the public at each Class' respective initial net asset value per
share of $     .
 
  The Fund and Smith Barney may in their discretion determine to withdraw the
offering without notice for any reason before the end of the Subscription
Period. The Fund also reserves the right to refuse any order in whole or in
part.
 
 CONTINUOUS OFFERINGS
 
  Smith Barney will suspend the offering of shares to the public immediately
after the expiration of the Subscription Period or within three weeks thereaf-
ter. During the three-week period, Smith Barney will commence a limited con-
tinuous offering of shares to the public. Once Smith Barney suspends the
offering of shares to the public (the "Closing Period"), it is expected to do
so for 30 days. This period may be lengthened or shortened in the absolute
discretion of Smith Barney. During the Closing Period, the Fund will invest
the proceeds from its Subscription Period and its continuous offering, if any,
and existing shareholders of the Fund may request redemptions, purchase addi-
tional shares and exchange shares of the Fund for shares of certain other
funds of the Smith Barney Mutual Funds. See "Exchange Privilege." Immediately
after the expiration of the Closing Period, Smith Barney expects to commence a
continuous offering of shares of the Fund.
 
 
20
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
  During the continuous offering, shares may be purchased through a brokerage
account maintained with Smith Barney. Shares may also be purchased through an
Introducing Broker or an investment dealer in the selling group. In addition,
certain investors, including qualified retirement plans and certain other
institutional investors, may purchase shares directly from the Fund through
First Data. When purchasing 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 mainte-
nance fee in connection with a brokerage account through which an investor pur-
chases 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 $5,000,000. Sub-
sequent investments of at least $50 may be made for all Classes. For partici-
pants in retirement plans qualified under Section 403(b)(7) or Section 401(a)
of the Code, the minimum initial investment requirement for Class A, Class B
and Class C shares and the subsequent investment requirement for all Classes in
the 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 subsequent invest-
ment requirement for all Classes is $25. For shareholders purchasing shares of
the Fund through the Systematic Investment Plan on a quarterly basis, the mini-
mum initial investment requirement for Class A, Class B and Class C shares and
subsequent 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, Directors or Trustees of any of the Smith
Barney Mutual Funds and their spouses and children. The Fund reserves the right
to waive or change minimums, to decline any order to purchase its shares and to
suspend the offering of shares from time to time. Shares purchased will be held
in the shareholder's account by 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 (the
"trade date"). Orders received by dealers or Introducing Brokers prior to the
close of regular trading 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. For shares purchased through Smith Barney or Intro-
ducing Brokers purchasing through Smith Barney, payment for Fund shares is due
on the third business day
 
                                                                              21
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
after the trade date. In all other cases, payment must be made with the pur-
chase order.
 
 SYSTEMATIC INVESTMENT PLAN
 
  During the continuous offering period, shareholders may make additions to
their accounts at any time by purchasing shares through a service known as the
Systematic Investment Plan. Under the Systematic Investment Plan, Smith Barney
or First Data is authorized through preauthorized transfers of at least $25 on
a monthly basis or at least $50 on a quarterly basis, to charge the regular
bank account or other financial institution indicated by the shareholder on a
monthly or quarterly basis to provide systematic additions to the sharehold-
er's Fund account. A shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Smith Barney or First Data. The
Systematic Investment Plan also authorizes Smith Barney to apply cash held in
the shareholder's Smith Barney brokerage account or redeem the shareholder's
shares of a Smith Barney money market fund to make additions to the account.
Additional information is available from the Fund or a Smith Barney Financial
Consultant.
 
 INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
 
  The sales charges applicable to purchases of Class A shares of the 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.
 
  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
 
22
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
single trust estate or single fiduciary account. The reduced sales charge mini-
mums 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 that are offered with a sales charge 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 per-
sons and (ii) employees of members of the National Association of Securities
Dealers, Inc., provided such sales are made upon the assurance of the purchaser
that the purchase is made for investment purposes and that the securities will
not be resold except through redemption or repurchase; (b) offers of Class A
shares to any other investment company to effect the combination of such com-
pany with the Fund by merger, acquisition of assets or otherwise; (c) purchases
of Class A shares by any client of a newly employed Smith Barney Financial Con-
sultant (for a period up to 90 days from the commencement of the Financial Con-
sultant's employment with Smith Barney), on the condition the purchase of Class
A shares is made with the proceeds of the redemption of shares of a mutual fund
which (i) was sponsored by the Financial Consultant's prior employer, (ii) was
sold to the client by the Financial Consultant and (iii) was subject to a sales
charge; (d) purchases by shareholders who have redeemed Class A shares in the
Fund (or Class A shares of another fund in the Smith Barney Mutual Funds that
are offered with a sales charge) and who wish to reinvest their redemption pro-
ceeds in the Fund, provided the reinvestment is made within 60 calendar days of
the redemption; (e) purchases by accounts managed by registered investment
advisory subsidiaries of Travelers; (f) direct rollovers by plan participants
from a 401(k) plan offered to employees of Travelers or its subsidiaries or a
401(k) plan enrolled in the Smith Barney 401(k) Program (Note: subsequent
investments will be subject to the applicable sales charge); (g) purchases by
separate accounts used to fund certain unregistered variable annuity contracts;
and (h) purchases by investors participating in a Smith Barney fee-based
arrangement. In order to obtain such discounts, the purchaser must provide suf-
ficient information at the time of purchase to permit verification that the
purchase would qualify for the elimination of the sales charge.
 
 RIGHT OF ACCUMULATION
 
  Class A shares of 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
 
                                                                              23
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
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 discon-
tinuance 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
minimum initial investment required. The sales charge applicable to purchases
by each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative--Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan meet-
ing certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Section 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A
shares at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Fund shares at a discount and (c) satisfies uniform crite-
ria 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 discre-
tion of Smith Barney.
 
 
24
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
 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 the
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 period receives the reduced sales
charge applicable to the total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay the difference between
the sales charges applicable to the purchases made and the charges previously
paid, or an appropriate number of escrowed shares will be redeemed. Please con-
tact a Smith Barney Financial Consultant or First Data to obtain a Letter of
Intent application.
 
  Class Y Shares. A Letter of Intent may also be used as a way for investors to
meet the minimum investment requirement for Class Y shares (except purchases of
Class Y shares by Smith Barney Concert Allocation Series Inc., for which there
is no minimum purchase amount). Such investors must make an initial minimum
purchase of $1,000,000 in Class Y shares of the Fund and agree to purchase a
total of $5,000,000 of Class Y shares of the same Fund within six months from
the date of the Letter. If a total investment of $5,000,000 is not made within
the six-month period, all Class Y shares purchased to date will be transferred
to Class A shares, where they will be subject to all fees (including a service
fee of 0.25%) and 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
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)
 
                                                                              25
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
reinvestment of dividends or capital gain distributions; (c) with respect to
Class B shares, shares redeemed more than five years after their purchase; or
(d) with respect to Class C shares and Class A shares that are CDSC Shares,
shares redeemed more than 12 months after their purchase.
 
  Class C shares and Class A shares that are CDSC Shares are subject to a 1.00%
CDSC if redeemed within 12 months of purchase. In circumstances in which the
CDSC is imposed on Class B shares, the amount of the charge will depend on the
number of years since the shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Smith Barney statement month. The following table sets forth the rates of the
charge for redemptions of Class B shares by shareholders, except in the case of
Class B shares held under Smith Barney 401(k) Program 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 fee. There will also be converted at that time such propor-
tion 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. In addition, a portion of Class B Dividend Shares will be con-
verted at that time. See "Prospectus Summary--Alternative Purchase Arrange-
ments--Class B Shares Conversion Feature."
 
  In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distribu-
tions and finally of other shares held by the shareholder for the longest
period of time. The length of time that CDSC Shares acquired through an
exchange have been held will be calculated from the date that the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and Fund shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain
 
26
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
distribution reinvestments in such other funds. For Federal income tax purpos-
es, the amount of the CDSC will reduce the gain or increase the loss, as the
case may be, on the amount realized on redemption. The amount of any CDSC will
be paid to Smith Barney.
 
  To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
 
 WAIVERS OF CDSC
 
  The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts up to 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 withdrawal in
amounts up to 2.00% per month of the value of the shareholders shares will be
permitted for withdrawal plans that were established prior to November 7,
1994); (c) redemption of shares within 12 months following the death or dis-
ability 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) redemption of shares to effect
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) PROGRAM AND EXECCHOICE(TM) PROGRAMS
 
  During the continuous offering period, investors may be eligible to partici-
pate in the Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Pro-
gram. To the extent applicable, the same terms and conditions, which are out-
lined below, are offered to all plans participating ("Participating Plans") in
these programs.
 
 
                                                                              27
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
  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 contingent deferred sales charge ("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.
 
  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. At the end
of the fifth year after the date the Participating Plan enrolled in the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, if its total
Class C holdings in all non-money market Smith Barney Mutual Funds equal at
least $1,000,000, it will be offered the opportunity to exchange all of its
Class C shares for Class A shares of the 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 enroll-
ment 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 its total Class
C holdings in all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the Participating Plan will be offered
the opportunity to exchange all of its Class C shares for Class A shares of the
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.
 
 
28
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
  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 Fund but instead may acquire Class
A shares of the Fund. Any Class C shares not converted will continue to be sub-
ject 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 about 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
 
                                                                              29
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
years. Whether or not the CDSC applies to the redemption by a Participating
Plan depends on the number of years since the Participating Plan first became
enrolled in the Smith Barney 401(k) Program, unlike the applicability of the
CDSC to redemptions by other shareholders, which depends on the number of years
since those shareholders made the purchase payment from which the amount is
being redeemed.
 
  The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the termina-
tion of employment of an employee in the Participating Plan; (c) the death or
disability of an employee in the Participating Plan; (d) the attainment of age
59 1/2 by an employee in the Participating Plan; (e) hardship of an employee in
the Participating Plan to the extent permitted under Section 401(k) of the
Code; or (f) redemptions of shares in connection with a loan made by the Par-
ticipating Plan to an employee.
 
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
    Smith Barney Aggressive Growth Fund Inc.
    Smith Barney Appreciation Fund Inc.
    Smith Barney Disciplined Small Cap Fund, Inc.
    Smith Barney Fundamental Value Fund Inc.
    Smith Barney Growth Opportunity Fund
    Smith Barney Large Capitalization Growth Fund
    Smith Barney Natural Resources Fund Inc.
    Smith Barney Special Equities Fund
 
 Growth and Income Funds
    Concert Social Awareness Fund
    Smith Barney Convertible Fund
    Smith Barney Funds, Inc.--Equity Income Portfolio
    Smith Barney Growth and Income Fund
    Smith Barney Premium Total Return Fund
    Smith Barney Utilities Fund
 
 
30
<PAGE>
 
EXCHANGE PRIVILEGE (CONTINUED)
 
 Taxable Fixed-Income Funds
  **Smith Barney Adjustable Rate Government Income Fund
    Smith Barney Diversified Strategic Income Fund
 +++Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities Portfolio
    Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
    Smith Barney Government Securities Fund
    Smith Barney High Income Fund
    Smith Barney Investment Grade Bond Fund
    Smith Barney Managed Governments Fund Inc.
 
 Tax-Exempt Funds
    Smith Barney Arizona Municipals Fund Inc.
    Smith Barney California Municipals Fund Inc.
   *Smith Barney Intermediate Maturity California Municipals Fund
   *Smith Barney Intermediate Maturity New York Municipals Fund
    Smith Barney Managed Municipals Fund Inc.
    Smith Barney Massachusetts Municipals Fund
    Smith Barney Muni Funds--Florida Portfolio
    Smith Barney Muni Funds--Georgia Portfolio
   *Smith Barney Muni Funds--Limited Term Portfolio
    Smith Barney Muni Funds--National Portfolio
    Smith Barney Muni Funds--New York Portfolio
    Smith Barney Muni Funds--Pennsylvania Portfolio
    Smith Barney New Jersey Municipals Fund Inc.
    Smith Barney Oregon Municipals Fund
    Smith Barney Tax-Exempt Income Fund
 
 International Funds
    Smith Barney Hansberger Global Value Small Cap Fund
    Smith Barney World Funds, Inc.--Emerging Markets Portfolio
    Smith Barney World Funds, Inc.--European Portfolio
    Smith Barney World Funds, Inc.--Global Government Bond Portfolio
    Smith Barney World Funds, Inc.--International Balanced Portfolio
    Smith Barney World Funds, Inc.--International Equity Portfolio
    Smith Barney World Funds, Inc.--Pacific Portfolio
 
 Smith Barney Concert Allocation Series Inc.
    Smith Barney Allocation Concert Series Inc.--Balanced Portfolio
    Smith Barney Allocation Concert Series Inc.--Conservative Portfolio
    Smith Barney Allocation Concert Series Inc.--Growth Portfolio
    Smith Barney Allocation Concert Series Inc.--High Growth Portfolio
    Smith Barney Allocation Concert Series Inc.--Income Portfolio
 
                                                                              31
<PAGE>
 
EXCHANGE PRIVILEGE (CONTINUED)
 
 
 Money Market Funds
    +Smith Barney Exchange Reserve Fund
   ++Smith Barney Money Funds, Inc.--Cash Portfolio
   ++Smith Barney Money Funds, Inc.--Government Portfolio
  ***Smith Barney Money Funds, Inc.--Retirement Portfolio
  +++Smith Barney Municipal Money Market Fund, Inc.
  +++Smith Barney Muni Funds--California Money Market Portfolio
  +++Smith Barney Muni Funds--New York Money Market Portfolio.
-------------------------------------------------------------------------------
  * Available for exchange with Class A, Class C and Class Y shares of the
    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 Fund 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 wishes to exchange all
or a portion of his or her shares into 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. SBMFM 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, SBMFM will
notify Smith Barney and Smith Barney may, at its discretion, decide to limit
additional purchases and/or exchanges by the shareholder. Upon such a determi-
nation, Smith Barney 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
 
32
<PAGE>
 
EXCHANGE PRIVILEGE (CONTINUED)
 
Mutual Funds listed above, which position the shareholder would be expected to
maintain for a significant period of time. All relevant factors will be consid-
ered in determining what constitutes an abusive pattern of exchanges.
 
  Certain shareholders may be able to exchange shares by telephone. See "Re-
demption of Shares--Telephone Redemption and Exchange Program". Exchanges will
be processed at the net asset value next determined. 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 business day following receipt of proper ten-
der, except on days on which the NYSE is closed or as permitted under the 1940
Act, in extraordinary circumstances. Generally, if the redemption proceeds are
remitted to a Smith Barney brokerage account, these funds will not be invested
for the shareholder's benefit without specific instruction and Smith Barney
will benefit from the use of temporarily uninvested funds. Redemption proceeds
for shares purchased by check, other than a certified or official bank check,
will be remitted upon clearance of the check, which may take up to ten days or
more.
 
  Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's Finan-
 
                                                                              33
<PAGE>
 
REDEMPTION OF SHARES (CONTINUED)
 
cial Consultant, Introducing Broker or dealer in the selling group or by sub-
mitting a written request for redemption to:
 
  Smith Barney Hansberger Global Value Fund
Class A, B, C or Y (please specify)
  c/o First Data Investor Services Group, Inc.
  P.O. Box 5128
  Westborough, Massachusetts 01581-5128
 
  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 $2,000 must be guaranteed by an eligible guar-
antor institution such as a domestic bank, savings and loan institution, domes-
tic credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $2,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period. Redemption proceeds will be mailed to an invest-
or's address of record. First Data may require additional supporting documents
for redemptions made by corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly received until
First Data receives all required documents in proper form.
 
 AUTOMATIC CASH WITHDRAWAL PLAN
 
  The 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 periodic cash payments of at least $50 monthly or quarterly. Retirement
plan accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified distributions and has an account
value of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of the 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 shareholder
is entitled to participate in this program, he or she should contact First Data
 
34
<PAGE>
 
REDEMPTION OF SHARES (CONTINUED)
 
at 1-800-451-2010. Once eligibility is confirmed, the shareholder must com-
plete and return a Telephone/Wire Authorization Form, along with a signature
guarantee that will be provided by First Data upon request. (Alternatively, an
investor may authorize telephone redemptions on the new account application
with the applicant's signature guarantee when making his/her initial invest-
ment 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 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 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.
 
                                                                             35
<PAGE>
 
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 account must satisfy the minimum account size). The Fund, howev-
er, will not redeem shares based solely on market reductions in net asset val-
ue. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.
 
PERFORMANCE
 
 
  From time to time the 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.
 
36
<PAGE>
 
MANAGEMENT OF THE FUND
 
 
 BOARD OF DIRECTORS
 
  Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant agree-
ments between the Company and the companies that furnish services to the Fund
and the Company, including agreements with its distributor, investment advis-
er, custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's investment manager. The Statement of Additional Infor-
mation contains background information regarding each Director of the Fund and
executive officer of the Company.
 
 INVESTMENT MANAGER--SBMFM
 
  SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment manager and manages the day-to-day operations of the
Fund pursuant to an investment management agreement entered into by the Compa-
ny, on behalf of the Fund. SBMFM renders investment advice to investment com-
panies which had aggregate assets under management as of      , 1997, in
excess of $  billion. For investment management services rendered, the Fund
pays SBMFM a monthly fee at the annual rate of 0.95% of the value of its aver-
age daily net assets. From its fee, SBMFM pays Hansberger a fee of 0.50% of
the value of the Fund's average net assets, for its services as sub-investment
adviser.
 
 SUB-INVESTMENT ADVISER--HANSBERGER
 
  Hansberger, located at 515 East Las Olas Blvd., Suite 1300, Fort Lauderdale,
Florida 33301, serves as the Fund's sub-investment adviser. Hansberger pro-
vides investment advisory services to investment companies that had aggregate
total assets under management as of          of $        . Subject to the
supervision and direction of the Company's Board of Directors, Hansberger man-
ages the Fund's portfolio in accordance with the Fund's stated investment
objective and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities and employs professional portfolio managers
and securities analysts who provide research services to the Fund.
 
 PORTFOLIO MANAGEMENT
 
  Thomas L. Hansberger, James Chaney, Francisco Alyuru and John Hock, manage
the day-to-day investment operations of the Fund, including the oversight of
investment decisions. Mr. Hansberger is Chairman and Chief Executive Officer
of Hansberger. Prior to forming Hansberger, he had served as Chairman, Presi-
dent and Chief Executive Officer of Templeton Worldwide, Inc. ("Templeton").
Mr. Chaney has been Chief Investment Officer of Hansberger since 1996. Prior
to that time, Mr. Chaney was Executive Vice President of Templeton. Mr. Alyuru
has been a portfolio manager and research analyst for Hansberger since 1994.
Prior to that time, he was a Latin American analyst at Vestcorp Partners.
 
                                                                             37
<PAGE>
 
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 0.75% of the average daily net assets attributable
to those Classes. Class B shares that automatically convert to Class A shares
eight years after the date of original purchase will no longer be subject to
distribution fees. The fees are used by Smith Barney to pay its Financial Con-
sultants for servicing shareholder accounts and, in the case of Class B and
Class C shares, to cover expenses primarily intended to result in the sale of
those shares. These expenses include: advertising expenses; the cost of print-
ing and mailing prospectuses to potential investors; payments to and expenses
of Smith Barney Financial Consultants and other persons who provide support
services in connection with the distribution of shares; interest and/or carry-
ing charges; and indirect and overhead costs of Smith Barney associated with
the sale of 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 of sale and, with respect to Class A, Class B and Class C shares, a con-
tinuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
 
  Payments under the Plan 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 Company's Board of
Directors will evaluate the appropriateness of the Plan and its payment terms
on a continuing basis and in so doing will consider all relevant factors,
including expenses borne by Smith Barney, amounts received under the Plan and
proceeds of the CDSC.
 
ADDITIONAL INFORMATION
 
 
  The Company was organized as a Maryland corporation pursuant to Articles of
Incorporation dated September 29, 1981, as amended from time to time. The Fund
offers shares of common stock currently classified into four Classes, A, B, C
and Y, with a par value of $.001 per share. Each Class represents an identical
interest 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
 
38
<PAGE>
 
ADDITIONAL INFORMATION (CONTINUED)
 
each Class; (b) the effect of the respective sales charges for each Class; (c)
the distribution and/or service fees 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 Board of
Directors does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Directors, on an ongo-
ing basis, will consider whether any such conflicts exists and, if so, take
appropriate action.
 
  Chase, located at Chase Metrotech Center, Brooklyn, NY 11245, serves as cus-
todian of the Fund's investments.
 
  First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Company's transfer agent.
 
  The Company does not hold annual shareholder meetings. There normally will
be no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any pur-
pose upon written request of shareholders holding at least 10% of the
Company's outstanding shares and the Company will assist shareholders in call-
ing such a meeting as required by the 1940 Act. When matters are submitted for
shareholder vote, shareholders of each Class will have one vote for each full
share owned and a proportionate, fractional vote for any fractional share held
of that Class. Generally, shares of the Company will be voted on a Company-
wide basis on all matters except matters affecting only the interests of one
Fund or one Class of shares.
 
  The Fund sends its shareholders a semi-annual report and an audited annual
report, which include a list of the investment securities held by the Fund at
the end of the reporting period. In an effort to reduce the Fund's printing
and mailing costs, the Company plans to consolidate the mailing of its semi-
annual and annual reports by household. This consolidation means that a house-
hold having multiple accounts with the identical address of record will
receive a single copy of each report. Shareholders who do not want this con-
solidation to apply to their accounts should contact their Smith Barney Finan-
cial Consultant or First Data.
 
                                                                             39
<PAGE>
 
 
 
 
                     (This page intentionally left blank.)
 
<PAGE>
 
 
                                               SMITH BARNEY
                                               ---------------------------------
                                               A Member of TravelersGroup [LOGO]
 
 
 
 
 
                                                        SMITH BARNEY HANSBERGER
                                                                      GLOBAL
                                                                       VALUE
                                                                        FUND
 
                                                            388 Greenwich Street
                                                        New York, New York 10013
 
                                                                FD 0899 [ ]/97

SMITH BARNEY INVESTMENT FUNDS  
PART B 
Smith Barney
Investment Funds Inc.
388 Greenwich Street
New York, New York  10013
800-451-2010

Statement of Additional Information
[        ], 1997


This Statement of Additional Information expands upon and 
supplements the information contained in the current Prospectuses 
dated [                            ], as amended or supplemented 
from time to time, of Smith Barney Hansberger Global Value Fund 
("Global Value Fund") and Smith Barney Hansberger Global Value 
Small Cap Fund ("Global Value Small Cap Fund")(each a "Fund" and 
collectively the "Funds"), each a separate series of Smith Barney 
Investment Funds Inc. (the "Company"), and should be read in 
conjunction with the Funds' Prospectuses.  Each Fund Prospectus 
may be obtained from a Smith Barney Financial Consultant, or by 
writing or calling the Company at the address or telephone number 
listed above.  This Statement of Additional Information, although 
not in itself a prospectus, is incorporated by reference into the 
Prospectuses in its entirety.

CONTENTS
For ease of reference, the same section headings are used in the 
Prospectuses and this Statement of Additional Information, except 
where shown below:

	Management of the Company (see in the Prospectuses 
"Management of the Company and the
	  Fund")		1
	Investment Objectives and Management 
Policies..........................................................
 ...........		4
	Purchase of Shares		16
	Redemption of Shares		17
	Distributor		17	Valuation of Shares		18
	Exchange Privilege		19
	Performance Data (See in the Prospectus "Performance")		19
	Taxes (See in the Prospectus "Dividends, Distributions and 
Taxes")		21
	Additional Information		23
	Appendix		A-1

MANAGEMENT OF THE COMPANY
The executive officers of the Company are employees of certain of 
the organizations that provide services to the Company.  These 
organizations are the following:

Name
Service

Smith Barney Inc. ("Smith 
Barney")...........................
Distributor

Smith Barney Mutual Funds Management 
Inc. 
("SBMFM").............................
 .............. .................

Investment Manager

Hansberger Global Investors, Inc.
("Hansberger")..........................
 ..................................

Sub-Investment Adviser

The Chase Manhattan Bank ("Chase")     
 ..................
Custodian

First Data Investor Services Group, Inc. 
("First 
Data")................................
 .............................

Transfer Agent


These organizations and the functions they perform for the Company 
are discussed in the Prospectuses and in this Statement of 
Additional Information.

Directors and Executive Officers of the Company

The names of the Directors and executive officers of the Company, 
together with information as to their principal business 
occupations during the past five years, are shown below.  Each 
Director who is an "interested person" of the Company, as defined 
in the Investment Company Act of 1940, as amended (the "1940 
Act"), is indicated by an asterisk.

	Paul R. Ades, Director (Age 56). Partner in the law firm of 
Murov & Ades.  His address is 272 South Wellwood Avenue, P.O. Box 
504, Lindenhurst, New York 11757.
	Francisco Alyuru, Portfolio Manager (Age[  ]).  Portfolio 
Manager and Research Analyst of Hansberger, prior to 1994, Latin 
American Analyst of Vestcorp Partners.  His address is 515 Las 
Olas Boulevard, Suite 1300, Fort Lauderdale, Florida 33301.
	Herbert Barg, Director (Age 73). Private investor. His address 
is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.

	Dwight B. Crane, Director (Age 59). Professor, Graduate School 
of Business Administration, Harvard University. His address is 
Graduate School of Business Administration, Harvard University, 
Boston, Massachusetts 02163.

	Thomas L. Hansgerger, Portfolio Manager (Age [  ]). Chairman 
and Chief Executive Officer of Hansberger, prior to [    ], 
Chairman, President and Chief Executive Officer of Tempelton. His 
address is 515 Las Olas Boulevard, Suite 1300, Fort Lauderdale, 
Florida 33301.

	Frank G. Hubbard, Director (Age 61).  Vice President, S&S 
Industries; Former Corporate Vice President, Materials Management 
and Marketing Services of Huls America, Inc.  His address is 80 
Centennial Avenue P.O. Box 456, Piscataway, New Jersey 08855-0456.

	*Heath B. McLendon, Chairman of the Board (Age 64). Managing 
Director of Smith Barney and Chairman of the Board of Smith Barney 
Strategy Advisers Inc.; prior to July 1993, Senior Executive Vice 
President of Shearson Lehman Brothers Inc. ("Shearson Lehman 
Brothers"); Vice Chairman of Shearson Asset Management; a Director 
of PanAgora Asset Management, Inc. and PanAgora Asset Management 
Limited.  Mr. McLendon is a director of 41 investment companies 
associated with Smith Barney.  His address is 388 Greenwich 
Street, New York, New York 10013.

	Ken Miller, Director (Age 55). President of Young Stuff Apparel 
Group, Inc.  His address is 1411 Broadway, New York, New York 
10018.

	Lauretta (Retz) Reeves, Portfolio Manager (Age [  ]). Portfolio 
Manager and Managing Director of Hansberger; prior [  ]1996, 
Senior Vice President of Tempelton. Her address is 515 Las Olas 
Boulevard, Suite 1300, Fort Lauderdale, Florida 33301.

	Valdimir Tyurenkov, Portfolio Manager (Age [  ]). Managing 
Director for Eastern Europe and Russia of Hansberger; prior to 
1995, worked for the Russian government. His address is 515 Las 
Olas Boulevard, Suite 1300, Fort Lauderdale, Florida 33301.

	John F. White, Director (Age 79). President Emeritus of The 
Cooper Union for the Advancement of Science and Art; Special 
Assistant to the President of the Aspen Institute.  His address is 
97 Sunset Drive, Apt. A402, Sarasota, Florida 34236 

Lewis E. Daidone, Senior Vice President and Treasurer (Age 40). 
Director and Senior Vice President of SBMFM.  Mr. Daidone serves 
as Senior Vice President and Treasurer of 41 investment companies 
associated with Smith Barney.  His address is 388 Greenwich 
Street, New York, New York 10013. 

Christina T. Sydor, Secretary (Age 46).  Managing Director of 
Smith Barney and Secretary of SBMFM; General Counsel and  
Secretary of SBMFM.  Ms. Sydor serves as Secretary of 41 
investment companies associated with Smith Barney.  Her address is 
388 Greenwich Street, New York, New York 10013. 

Each Director also serves as a director, trustee and/or general 
partner of certain other mutual funds for which Smith Barney 
serves as distributor.  As of January 31, 1997, the Directors and 
officers of the Company, as a group, owned less than 1.00% of the 
outstanding common stock of the Company.

No officer, director or employee of Smith Barney or any parent or 
subsidiary receives any compensation from the Company for serving 
as an officer or Director of the Company.  The Company pays each 
Director who is not an officer, director or employee of Smith 
Barney or any of its affiliates a fee of $16,000 per annum plus 
$2,500 per meeting attended and reimburses travel and out-of-
pocket expenses.  For the fiscal year ended December 31, 1996, the 
Directors of the Company were paid the following compensation:



Director(+)

Aggregate 
Compensation
from the Company
Aggregate 
Compensation
from the Smith Barney
Mutual Funds

Paul R. Ades (5)	
	$28,600.00
	$52,475.00

Herbert Barg (20)	
	28,600.00
	105,175.00

Alger B. Chapman (9)++
	26,000.00
	76,775.00

Dwight B. Crane (26)	
	26,100.00
	140,375.00

Frank G. Hubbard (5)	
	28,600.00
	52,475.00

Heath McLendon (41)	
	N/A
	N/A

Ken Miller (5)	
	               
26,100.00**  
	49,475.00

John F. White (5)	
	               
28,500.00**
	52,375.00

Allan G. Johnson 
(5)(*)	
	18,035.51
	33,125.00

+Number of funds for which director serves within fund 
complex
++Mr. Chapman resigned effective  [May   , 1997]
* 	Director Emeritus
**	Mr. Miller and Mr. White have deferred $6,500 and $26,000, 
respectively, of compensation from the Company in 1996.

	Upon attainment of age 80 Directors are required to change 
to emeritus status.  Directors Emeritus are entitled to serve in 
emeritus status for a maximum of 10 years during which time they 
are paid 50% of the retainer fee and meeting fees otherwise 
applicable to the Company Directors together with reasonable out-
of-pocket expenses for each meeting attended.  During the Fund's 
last fiscal year aggregate compensation paid by the Company to 
Directors achieving emeritus status totaled $18,035.51.

Investment Manager and Sub-Adviser

SBMFM serves as investment adviser to the Funds pursuant to 
separate investment management agreements (the "Management 
Agreements").  SBMFM is a wholly owned subsidiary of Smith Barney 
Holdings Inc. ("Holdings").  Holdings is a wholly owned subsidiary 
of Travelers Group Inc. ("Travelers").  The Management Agreements 
were approved by the Board of Directors, including a majority of 
the Directors who are not "interested persons" of the Company or 
the investment advisers (the "Independent Directors"), on [Sept --
, 1997], and by shareholders of the respective Funds on [Sept --, 
1997]. Hansberger serves as sub-adviser to the Funds pursuant to 
separate sub-advisory agreements (the "Sub-Advisory Agreements).  
The Sub-Advisory Agreements were approved Board of Directors, 
including a majority of the Independent Directors, on [Sept --, 
1997], and by shareholders of the respective Funds on [Sept --, 
1997].  The services provided by SBMFM and Hansberger under the 
Management Agreements and Sub-Advisory Agreements are described in 
the Prospectuses under "Management of the Company and the Fund."  
SBMFM provides investment advisory and management services to 
investment companies affiliated with Smith Barney.

As compensation for investment management services rendered to 
Global Value Fund and Global value small cap fund, each Fund pays 
SBMFM a fee computed daily and paid monthly at the annual rates of 
0.95% and 1.05%, respectively, of the value of their average daily 
net assets. As compensation for sub-advisory services rendered to 
Global Value Fund and Global value small cap fund, SBMFM pays 
Hansberger a fee, computed daily and paid monthly, at the annual 
rates of 0.50% and 0.60%, respectively, of the value of the 
respective Fund's average daily net assets. SBMFM and Hansberger 
bear all expenses in connection with the performance of their 
services.  

Counsel and Auditors

Willkie Farr & Gallagher serves as counsel to the Company.  The 
Directors who are not "interested persons" of the Company have 
selected Stroock & Stroock & Lavan LLP as their legal counsel.

KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, 
has been selected as each Fund's independent auditor to examine 
and report on the Fund's financial statements and highlights for 
the fiscal year ending December 31, 1997.


INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES

	Except as described under "INVESTMENT RESTRICTIONS," the 
investment policies described in the Prospectuses and in this 
Statement of Additional Information are not fundamental and the 
Board of Directors may change such policies without shareholder 
approval. 

	Each of the following investment policies is subject to the 
limitations set forth under "Investment Restrictions." 

Repurchase Agreements.  As described in the applicable Prospectus, 
each Fund may enter into repurchase agreements.  A repurchase 
agreement is a contract under which a Fund acquires a security for 
a relatively short period (usually not more than one week) subject 
to the obligation of the seller to repurchase and the Fund to 
resell such security at a fixed time and price (representing the 
Fund's cost plus interest).  It is each Fund's present intention 
to enter into repurchase agreements only upon receipt of fully 
adequate collateral and only with commercial banks (whether U.S. 
or foreign) and registered broker-dealers.  Repurchase agreements 
may also be viewed as loans made by a Fund which are 
collateralized primarily by the securities subject to repurchase.  
A Fund bears a risk of loss in the event that the other party to a 
repurchase agreement defaults on its obligations and the Fund is 
delayed or prevented from exercising its rights to dispose of the 
collateral securities.  Pursuant to policies established by the 
Board of Directors, SBMFM monitors the creditworthiness of all 
issuers with which each Fund enters into repurchase agreements. 

Reverse Repurchase Agreements.  The Fund does not currently intend 
to commit more than 5% of its Fund's net assets to reverse 
repurchase agreements.  The Fund may enter into reverse repurchase 
agreements with broker/dealers and other financial institutions.  
Such agreements involve the sale of Fund securities with an 
agreement to repurchase the securities at an agreed-upon price, 
date and interest payment and are considered to be borrowings by a 
Fund and are subject to the borrowing limitations set forth under 
"Investment Restrictions."  Since the proceeds of reverse 
repurchase agreements are invested, this would introduce the 
speculative factor known as "leverage."  The securities purchased 
with the funds obtained from the agreement and securities 
collateralizing the agreement will have maturity dates no later 
than the repayment date.  Generally the effect of such a 
transaction is that the Fund can recover all or most of the cash 
invested in the Fund and securities involved during the term of 
the reverse repurchase agreement, while in many cases it will be 
able to keep some of the interest income associated with those 
securities.  Such transactions are only advantageous if the Fund 
has an opportunity to earn a greater rate of interest on the cash 
derived from the transaction than the interest cost of obtaining 
that cash.  Opportunities to realize earnings from the use of the 
proceeds equal to or greater than the interest required to be paid 
may not always be available, and the Fund intends to use the 
reverse repurchase technique only when the Manager believes it 
will be advantageous to the Fund.  The use of reverse repurchase 
agreements may exaggerate any interim increase or decrease in the 
value of the participating Fund's assets.  The Fund's custodian 
bank will maintain a separate account for the Fund with securities 
having a value equal to or greater than such commitments. 

Securities Lending.  Each Fund may seek to increase its net 
investment income by lending its securities provided such loans 
are callable at any time and are continuously secured by cash or 
U.S. Government Obligations equal to no less than the market 
value, determined daily, of the securities loaned.  Each Fund will 
receive amounts equal to dividends or interest on the securities 
loaned.  It will also earn income for having made the loan because 
cash collateral pursuant to these loans will be invested in short-
term money market instruments.  In connection with lending of 
securities the Fund may pay reasonable finders, administrative and 
custodial fees.  Management will limit such lending to not more 
than one-third of the value of the total assets of each Fund.  
Where voting or consent rights with respect to loaned securities 
pass to the borrower, management will follow the policy of calling 
the loan, in whole or in part as may be appropriate, to permit the 
exercise of such voting or consent rights if the issues involved 
have a material effect on the Fund's investment in the securities 
loaned.  Apart from lending its securities and acquiring debt 
securities of a type customarily purchased by financial 
institutions, no Fund will make loans to other persons. 

Commercial Bank Obligations.  For the purposes of each Fund's 
investment policies with respect to bank obligations, obligations 
of foreign branches of U.S. banks and of foreign banks may be 
general obligations of the parent bank in addition to the issuing 
bank, or may be limited by the terms of a specific obligation and 
by government regulation.  As with investment in non-U.S. 
securities in general, investments in the obligations of foreign 
branches of U.S. banks and of foreign banks may subject the Fund 
to investment risks that are different in some respects from those 
of investments in obligations of domestic issuers.  Although a 
Fund will typically acquire obligations issued and supported by 
the credit of U.S. or foreign banks having total assets at the 
time of purchase in excess of U.S. $1 billion (or the equivalent 
thereof), this is not a fundamental investment policy or 
restriction of the Fund.  For calculation purposes with respect to 
the U.S. $1 billion figure, the assets of a bank will be deemed to 
include the assets of its U.S. and non-U.S. branches. 

Commercial Paper.  Commercial paper consists of short-term 
(usually from 1 to 270 days) unsecured promissory notes issued by 
corporations in order to finance their current operations.  A 
variable amount master demand note (which is a type of commercial 
paper) represents a direct borrowing arrangement involving 
periodically fluctuating rates of interest under a letter 
agreement between a commercial paper issuer and an institutional 
lender, such as one of the Funds, pursuant to which the lender may 
determine to invest varying amounts.  Transfer of such notes is 
usually restricted by the issuer, and there is no secondary 
trading market for such notes.  Each Fund, therefore, may not 
invest in a master demand note, if as a result more than 15% of 
the value of the Fund's total assets would be invested in such 
notes and other illiquid securities. 

ADRs, EDRs and GDRs.  Each Fund may also purchase American 
Depository Receipts ("ADRs"), European Depository Receipts 
("EDRs") and Global Depository Receipts ("GDRs") or other 
securities representing underlying shares of foreign companies.  
ADRs are publicly traded on exchanges or over-the-counter in the 
United States and are issued through "sponsored" or "unsponsored" 
arrangements.  In a sponsored ADR arrangement, the foreign issuer 
assumes the obligation to pay some or all of the depository's 
transaction fees, whereas under an unsponsored arrangement, the 
foreign issuer assumes no obligation and the depository's 
transaction fees are paid by the ADR holders.  In addition, less 
information is available in the United States about an unsponsored 
ADR than about a sponsored ADR, and the financial information 
about a company may not be as reliable for an unsponsored ADR as 
it is for a sponsored ADR.  The Funds may invest in ADRs through 
both sponsored and unsponsored arrangements.

Writing Covered Call Options.  Each Fund may write (sell) covered 
call options for hedging purposes.  Covered call options will 
generally be written on securities and currencies which, in the 
opinion of the sub-investment adviser, are not expected to make 
any major price moves in the near future but which, over the long 
term, are deemed to be attractive investments for the Fund. 

	A call option gives the holder (buyer) the right to purchase 
a security or currency at a specified price (the exercise price) 
at any time until a certain date (the expiration date).  So long 
as the obligation of the writer of a call option continues, he may 
be assigned an exercise notice by the broker-dealer through whom 
such option was sold, requiring him to deliver the underlying 
security or currency against payment of the exercise price.  This 
obligation terminates upon the expiration of the call option, or 
such earlier time at which the writer effects a closing purchase 
transaction by purchasing an option identical to that previously 
sold.

	Fund securities or currencies on which call options may be 
written will be purchased solely on the basis of investment 
considerations consistent with each Fund's investment objective.  
When writing a covered call option, the Fund, in return for the 
premium, gives up the opportunity for profit from a price increase 
in the underlying security or currency above the exercise price 
and retains the risk of loss should the price of the security or 
currency decline.  Unlike one who owns securities or currencies 
not subject to an option, the Fund has no control over when it may 
be required to sell the underlying securities or currencies, since 
the option may be exercised at any time prior to the option's 
expiration.  If a call option which the Fund has written expires, 
the Fund will realize a gain in the amount of the premium; 
however, such gain may be offset by a decline in the market value 
of the underlying security or currency during the option period.  
If the call option is exercised, the Fund will realize a gain or 
loss from the sale of the underlying security or currency.  The 
security or currency covering the call option will be maintained 
in a segregated account of the Fund's custodian.  The Fund does 
not consider a security or currency covered by a call option to be 
"pledged" as that term is used in the Fund's policy which limits 
the pledging or mortgaging of its assets. 

	The premium the Fund receives for writing a call option is 
deemed to constitute the market value of an option.  The premium 
the Fund will receive from writing a call option will reflect, 
among other things, the current market price of the underlying 
security or currency, the relationship of the exercise price to 
such market price, the implied price volatility of the underlying 
security or currency, and the length of the option period.  In 
determining whether a particular call option should be written on 
a particular security or currency, Hansberger will consider the 
reasonableness of the anticipated premium and the likelihood that 
a liquid secondary market will exist for those options.  The 
premium received by the Fund for writing covered call options will 
be recorded as a liability in the Fund's statement of assets and 
liabilities.  This liability will be adjusted daily to the 
option's current market value, which will be calculated as 
described in "Determination of Net Asset Value" in the Prospectus.  
The liability will be extinguished upon expiration of the option 
or delivery of the underlying security or currency upon the 
exercise of the option.  The liability with respect to a listed 
option will also be extinguished upon the purchase of an identical 
option in a closing transaction. 

	Closing transactions will be effected in order to realize a 
profit or to limit losses on an outstanding call option, to 
prevent an underlying security or currency from being called, or 
to permit the sale of the underlying security or currency.  
Furthermore, effecting a closing transaction will permit the Fund 
to write another call option on the underlying security or 
currency with either a different exercise price, expiration date 
or both.  If the Fund desires to sell a particular security or 
currency from its Fund on which it has written a call option or 
purchases a put option, it will seek to effect a closing 
transaction prior to, or concurrently with, the sale of the 
security or currency.  There is no assurance that the Fund will be 
able to effect such closing transactions at a favorable price.  If 
the Fund cannot enter into such a transaction, it may be required 
to hold a security or currency that it might otherwise have sold, 
in which case it would continue to be a market risk with respect 
to the security or currency. 

	Each Fund will pay transaction costs in connection with the 
writing of options and in entering into closing purchase 
contracts.  Transaction costs relating to options activity are 
normally higher than those applicable to purchases and sales of 
Fund securities. 

	Call options written by each Fund will normally have 
expiration dates of less than nine months from the date written.  
The exercise price of the options may be below, equal to or above 
the current market values of the underlying securities or 
currencies at the time the options are written.  From time to 
time, the Fund may purchase an underlying security or currency for 
delivery in accordance with the exercise of an option, rather than 
delivering such security or currency from its Fund.  In such 
cases, additional costs will be incurred. 

	Each Fund will realize a profit or loss from a closing 
purchase transaction if the cost of the transaction is less or 
more, respectively, than the premium received from the writing of 
the option.  Because increases in the market price of a call 
option will generally reflect increases in the market price of the 
underlying security or currency, any loss resulting from the 
repurchase of a call option is likely to be offset in whole or in 
part by appreciation of the underlying security or currency owned 
by the Fund. 

Purchasing Put Options.  Each Fund may purchase put options.  As 
the holder of a put option, the Fund has the right to sell the 
underlying security or currency at the exercise price at any time 
during the option period.  The Fund may enter into closing sale 
transactions with respect to such options, exercise them or permit 
them to expire. 

	Each Fund may purchase a put option on an underlying 
security or currency (a "protective put") owned by the Fund as a 
hedging technique in order to protect against an anticipated 
decline in the value of the security or currency.  Such hedge 
protection is provided only during the life of the put option when 
the Fund, as the holder of the put option, is able to sell the 
underlying security or currency at the put exercise price 
regardless of any decline in the underlying security's market 
price or currency's exchange value.  The premium paid for the put 
option and any transaction costs would reduce any capital gain 
otherwise available for distribution when the security or currency 
is eventually sold. 

	Each Fund may also purchase put options at a time when the 
Fund does not own the underlying security or currency.  By 
purchasing put options on a security or currency it does not own, 
the Fund seeks to benefit from a decline in the market price of 
the underlying security or currency.  If the put option is not 
sold when it has remaining value, and if the market price of the 
underlying security or currency remains equal to or greater than 
the exercise price during the life of the put option, the Fund 
will lose its entire investment in the put option.  In order for 
the purchase of a put option to be profitable, the market price of 
the underlying security or currency must decline sufficiently 
below the exercise price to cover the premium and transaction 
costs, unless the put option is sold in a closing sale 
transaction. 

	The premium paid by a Fund when purchasing a put option will 
be recorded as an asset in the Fund's statement of assets and 
liabilities.  This asset will be adjusted daily to the option's 
current market value, which will be calculated as described in 
"Determination of Net Asset Value" in the Prospectus.  The asset 
will be extinguished upon expiration of the option or the delivery 
of the underlying security or currency upon the exercise of the 
option.  The asset with respect to a listed option will also be 
extinguished upon the writing of an identical option in a closing 
transaction. 

Purchasing Call Options.  Each Fund may purchase call options.  As 
the holder of a call option, a Fund has the right to purchase the 
underlying security or currency at the exercise price at any time 
during the option period.  The Fund may enter into closing sale 
transactions with respect to such options, exercise them or permit 
them to expire.  Call options may be purchased by the Fund for the 
purpose of acquiring the underlying security or currency for its 
Fund.  Utilized in this fashion, the purchase of call options 
enables the Fund to acquire the security or currency at the 
exercise price of the call option plus the premium paid.  At times 
the net cost of acquiring the security or currency in this manner 
may be less than the cost of acquiring the security or currency 
directly.  This technique may also be useful to the Fund in 
purchasing a large block of securities that would be more 
difficult to acquire by direct market purchases.  So long as it 
holds such a call option rather than the underlying security or 
currency itself, the Fund is partially protected from any 
unexpected decline in the market price of the underlying security 
or currency and in such event could allow the call option to 
expire, incurring a loss only to the extent of the premium paid 
for the option. 

	Each Fund may also purchase call options on underlying 
securities or currencies it owns in order to protect unrealized 
gains on call options previously written by it.  A call option 
would be purchased for this purpose where tax considerations make 
it inadvisable to realize such gains through a closing purchase 
transaction.  Call options may also be purchased at times to avoid 
realizing losses that would result in a reduction of the Fund's 
current return. 

Interest Rate and Currency Futures Contracts.  Each Fund may enter 
into interest rate or currency futures contracts ("Futures" or 
"Futures Contracts") as a hedge against changes in prevailing 
levels of interest rates or currency exchange rates in order to 
establish more definitely the effective return on securities or 
currencies held or committed to be acquired by the Fund.  A Fund's 
hedging may include holding Futures as an offset against 
anticipated changes in interest or currency exchange rates.  A 
Fund may also enter into Futures Contracts based on financial 
indices including any index of U.S. Government securities, foreign 
government securities or corporate debt securities.

	A Futures Contract provides for the future sale by one party 
and purchase by another party of a specified amount of a specific 
financial instrument or currency for a specified price at a 
designated date, time and place.  The purchaser of a Futures 
Contract on an index agrees to take or make delivery of an amount 
of cash equal to the difference between a specified dollar 
multiple of the value of the index on the expiration date of the 
contract ("current contract value") and the price at which the 
contract was originally struck.  No physical delivery of the debt 
securities underlying the index is made.  Brokerage fees are 
incurred when a Futures Contract is bought or sold, and margin 
deposits must be maintained at all times that the Futures Contract 
is outstanding. 

	Although techniques other than sales and purchases of 
Futures Contracts could be used to reduce the Fund's exposure to 
interest rate and currency exchange rate fluctuations, the Fund 
may be able to hedge its exposure more effectively and at a lower 
cost through using Futures Contracts. 

	Although Futures Contracts typically require future delivery 
of and payment for financial instruments or currencies, Futures 
Contracts are usually closed out before the delivery date.  
Closing out an open Futures Contract sale or purchase is effected 
by entering into an offsetting Futures Contract purchase or sale, 
respectively, for the same aggregate amount of the identical 
financial instrument or currency and the same delivery date.  If 
the offsetting purchase price is less than the original sale 
price, the Fund realizes a gain; if it is more, the Fund realizes 
a loss.  Conversely, if the offsetting sale price is more than the 
original purchase price, the Fund realizes a gain; if it is less, 
the Fund realizes a loss.  The transaction costs must also be 
included in these calculations.  There can be no assurance, 
however, that the Fund will be able to enter into an offsetting 
transaction with respect to a particular Futures Contract at a 
particular time.  If the Fund is not able to enter into an 
offsetting transaction, the Fund will continue to be required to 
maintain the margin deposits of the underlying financial 
instrument or currency on the relevant delivery date.  The Fund 
intends to enter into Futures transactions only on exchanges or 
boards of trade where there appears to be a liquid secondary 
market.  However, there can be no assurance that such a market 
will exist for a particular contract at a particular time. 

	As an example of an offsetting transaction, the contractual 
obligations arising from the sale of one Futures Contract of 
September Treasury Bills on an exchange may be fulfilled at any 
time before delivery under the Futures Contract is required (i.e., 
on a specific date in September, the "delivery month") by the 
purchase of another Futures Contract of September Treasury Bills 
on the same exchange.  In such instance the difference between the 
price at which the Futures Contract was sold and the price paid 
for the offsetting purchase, after allowance for transaction 
costs, represents the profit or loss to the Fund. 

	Persons who trade in Futures Contracts may be broadly 
classified as "hedgers" and "speculators."  Hedgers, whose 
business activity involves investment or other commitment in 
securities or other obligations, use the Futures markets to offset 
unfavorable changes in value that may occur because of 
fluctuations in the value of the securities and obligations held 
or committed to be acquired by them or fluctuations in the value 
of the currency in which the securities or obligations are 
denominated.  Debtors and other obligers may also hedge the 
interest cost of their obligations.  The speculator, like the 
hedger, generally expects neither to deliver nor to receive the 
financial instrument underlying the Futures Contract, but, unlike 
the hedger, hopes to profit from fluctuations in prevailing 
interest rates or currency exchange rates. 

	Each Fund's Futures transactions will be entered into for 
traditional hedging purposes; that is, Futures Contracts will be 
sold to protect against a decline in the price of securities or 
currencies that the Fund owns, or Futures Contracts will be 
purchased to protect a Fund against an increase in the price of 
securities or currencies it has committed to purchase or expects 
to purchase.

	"Margin" with respect to Futures Contracts is the amount of 
funds that must be deposited by the Fund with a broker in order to 
initiate Futures trading and to maintain the Fund's open positions 
in Futures Contracts.  A margin deposit made when the Futures 
Contract is entered into ("initial margin") is intended to assure 
the Fund's performance of the Futures Contract.  The margin 
required for a particular Futures Contract is set by the exchange 
on which the Futures Contract is traded, and may be significantly 
modified from time to time by the exchange during the term of the 
Futures Contract.  Futures Contracts are customarily purchased and 
sold on margin, which may be 5% or less of the value of the 
Futures Contract being traded. 

	If the price of an open Futures Contract changes (by 
increase in the case of a sale or by decrease in the case of a 
purchase) so that the loss on the Futures Contract reaches a point 
at which the margin on deposit does not satisfy margin 
requirements, the broker will require an increase in the margin 
deposit ("variation margin").  If, however, the value of a 
position increases because of favorable price changes in the 
Futures Contract so that the margin deposit exceeds the required 
margin, it is anticipated that the broker will pay the excess to 
the Fund.  In computing daily net asset values, the Fund will mark 
to market the current value of its open Futures Contracts.  Each 
Fund expects to earn interest income on its margin deposits. 

Risks of Using Futures Contracts.  The prices of Futures Contracts 
are volatile and are influenced, among other things, by actual and 
anticipated changes in interest rates, which in turn are affected 
by fiscal and monetary policies and national and international 
political and economic events. 

	At best, the correlation between changes in prices of 
Futures Contracts and of the securities or currencies being hedged 
can be only approximate.  The degree of imperfection of 
correlation depends upon circumstances such as: variations in 
speculative market demand for Futures and for debt securities or 
currencies, including technical influences on Futures trading; and 
differences between the financial instruments being hedged and the 
instruments underlying the standard Futures Contracts available 
for trading, with respect to interest rate levels, maturities, and 
creditworthiness of issuers.  A decision of whether, when, and how 
to hedge involves skill and judgment, and even a well-conceived 
hedge may be unsuccessful to some degree because of unexpected 
market behavior or interest rate trends. 

	Because of the low margin deposits required, Futures trading 
involves an extremely high degree of leverage.  As a result, a 
relatively small price movement in a Futures Contract may result 
in immediate and substantial loss, as well as gain, to the 
investor.  For example, if at the time of purchase, 10% of the 
value of the Futures Contract is deposited as margin, a subsequent 
10% decrease in the value of the Futures Contract would result in 
a total loss of the margin deposit, before any deduction for the 
transaction costs, if the account were then closed out.  A 15% 
decrease would result in a loss equal to 150% of the original 
margin deposit, if the Futures Contract were closed out.  Thus, a 
purchase or sale of a Futures Contract may result in losses in 
excess of the amount invested in the Futures Contract.  A Fund, 
however, would presumably have sustained comparable losses if, 
instead of the Futures Contract, it had invested in the underlying 
financial instrument and sold it after the decline.  Where a Fund 
enters into Futures transactions for non-hedging purposes, it will 
be subject to greater risks and could sustain losses which are not 
offset by gains on other Fund assets. 

	Furthermore, in the case of a Futures Contract purchase, in 
order to be certain that each Fund has sufficient assets to 
satisfy its obligations under a Futures Contract, the Fund 
segregates and commits to back the Futures Contract an amount of 
cash, U.S. Government securities and other liquid, high-grade debt 
securities equal in value to the current value of the underlying 
instrument less the margin deposit. 

	Most U.S. Futures exchanges limit the amount of fluctuation 
permitted in Futures Contract prices during a single trading day.  
The daily limit establishes the maximum amount that the price of a 
Futures Contract may vary either up or down from the previous 
day's settlement price at the end of a trading session.  Once the 
daily limit has been reached in a particular type of Futures 
Contract, no trades may be made on that day at a price beyond that 
limit.  The daily limit governs only price movement during a 
particular trading day and therefore does not limit potential 
losses, because the limit may prevent the liquidation of 
unfavorable positions.  Futures Contract prices have occasionally 
moved to the daily limit for several consecutive trading days with 
little or no trading, thereby preventing prompt liquidation of 
Futures positions and subjecting some Futures traders to 
substantial losses. 

Options on Futures Contracts.  Options on Futures Contracts are 
similar to options on securities or currencies except that options 
on Futures Contracts give the purchaser the right, in return for 
the premium paid, to assume a position in a Futures Contract (a 
long position if the option is a call and a short position if the 
option is a put), rather than to purchase or sell the Futures 
Contract, at a specified exercise price at any time during the 
period of the option.  Upon exercise of the option, the delivery 
of the Futures position by the writer of the option to the holder 
of the option will be accompanied by delivery of the accumulated 
balance in the writer's Futures margin account which represents 
the amount by which the market price of the Futures Contract, at 
exercise, exceeds (in the case of a call) or is less than (in the 
case of a put) the exercise price of the option on the Futures 
Contract.  If an option is exercised on the last trading day prior 
to the expiration date of the option, the settlement will be made 
entirely in cash equal to the difference between the exercise 
price of the option and the closing level of the securities or 
currencies upon which the Futures Contracts are based on the 
expiration date.  Purchasers of options who fail to exercise their 
options prior to the exercise date suffer a loss of the premium 
paid. 

	As an alternative to purchasing call and put options on 
Futures, each Fund may purchase call and put options on the 
underlying securities or currencies themselves (see "Purchasing 
Put Options" and "Purchasing Call Options" above).  Such options 
would be used in a manner identical to the use of options on 
Futures Contracts. 

	To reduce or eliminate the leverage then employed by the 
Fund or to reduce or eliminate the hedge position then currently 
held by the Fund, the Fund may seek to close out an option 
position by selling an option covering the same securities or 
currency and having the same exercise price and expiration date.  
The ability to establish and close out positions on options on 
Futures Contracts is subject to the existence of a liquid market.  
It is not certain that this market will exist at any specific 
time. 

	In order to assure that the Funds will not be deemed to be 
"commodity pools" for purposes of the Commodity Exchange Act, 
regulations of the Commodity Futures Trading Commission ("CFTC") 
require that each Fund enter into transactions in Futures 
Contracts and options on Futures Contracts only (i) for bona fide 
hedging purposes (as defined in CFTC regulations), or (ii) for 
non-hedging purposes, provided that the aggregate initial margin 
and premiums on such non-hedging positions does not exceed 5% of 
the liquidation value of the Fund's assets.  The Funds will enter 
into transactions in Futures Contracts and options on Futures 
Contracts only for hedging purposes. 

Forward Currency Contracts and Options on Currency.  A forward 
currency contract is an obligation to purchase or sell a currency 
against another currency at a future date and price as agreed upon 
by the parties.  A Fund may either accept or make delivery of the 
currency at the maturity of the forward contract or, prior to 
maturity, enter into a closing transaction involving the purchase 
or sale of an offsetting contract.  Each Fund engages in forward 
currency transactions in anticipation of, or to protect itself 
against, fluctuations in exchange rates.  A Fund might sell a 
particular foreign currency forward, for example, when it holds 
bonds denominated in that currency but anticipates, and seeks to 
be protected against, decline in the currency against the U.S. 
dollar.  Similarly, a Fund might sell the U.S. dollar forward when 
it holds bonds denominated in U.S. dollars but anticipates, and 
seeks to be protected against, a decline in the U.S. dollar 
relative to other currencies.  Further, a Fund might purchase a 
currency forward to "lock in" the price of securities denominated 
in that currency which it anticipates purchasing. 

	The matching of the increase in value of a forward contract 
and the decline in the U.S. dollar equivalent value of the foreign 
currency denominated asset that is the subject of the hedge 
generally will not be precise.  In addition, a Fund may not always 
be able to enter into foreign currency forward contracts at 
attractive prices and this will limit the Fund's ability to use 
such contracts to hedge or cross-hedge its assets.  Also, with 
regard to a Fund's use of cross-hedges, there can be no assurance 
that historical correlations between the movement of certain 
foreign currencies relative to the U.S. dollar will continue.  
Thus, at any time poor correlation may exist between movements in 
the exchange rates of the foreign currencies underlying the Fund's 
cross-hedges and the movements in the exchange rates of the 
foreign currencies in which the Fund's assets that are the subject 
of such cross-hedges are denominated. 

	Forward contracts are traded in an interbank market 
conducted directly between currency traders (usually large 
commercial banks) and their customers.  A forward contract 
generally has no deposit requirement and is consummated without 
payment of any commission.  Each Fund, however, may enter into 
forward contracts with deposit requirements or commissions. 

	A put option gives a Fund, as purchaser, the right (but not 
the obligation) to sell a specified amount of currency at the 
exercise price until the expiration of the option.  A call option 
gives a Fund, as purchaser, the right (but not the obligation) to 
purchase a specified amount of currency at the exercise price 
until its expiration.  A Fund might purchase a currency put 
option, for example, to protect itself during the contract period 
against a decline in the value of a currency in which it holds or 
anticipates holding securities.  If the currency's value should 
decline, the loss in currency value should be offset, in whole or 
in part, by an increase in the value of the put.  If the value of 
the currency instead should rise, any gain to the Fund would be 
reduced by the premium it had paid for the put option.  A currency 
call option might be purchased, for example, in anticipation of, 
or to protect against, a rise in the value of a currency in which 
the Fund anticipates purchasing securities. 

	Each Fund's ability to establish and close out positions in 
foreign currency options is subject to the existence of a liquid 
market.  There can be no assurance that a liquid market will exist 
for a particular option at any specific time.  In addition, 
options on foreign currencies are affected by all of those factors 
that influence foreign exchange rates and investments generally. 

	A position in an exchange-listed option may be closed out 
only on an exchange that provides a secondary market for identical 
options.  Exchange markets for options on foreign currencies exist 
but are relatively new, and the ability to establish and close out 
positions on the exchanges is subject to maintenance of a liquid 
secondary market.  Closing transactions may be effected with 
respect to options traded in the over-the-counter ("OTC") markets 
(currently the primary markets for options on foreign currencies) 
only by negotiating directly with the other party to the option 
contract or in a secondary market for the option if such market 
exists.  Although each Fund intends to purchase only those options 
for which there appears to be an active secondary market, there is 
no assurance that a liquid secondary market will exist for any 
particular option at any specific time.  In such event, it may not 
be possible to effect closing transactions with respect to certain 
options, with the result that the Fund would have to exercise 
those options which it has purchased in order to realize any 
profit.  The staff of the Securities and Exchange Commission 
("SEC") has taken the position that, in general, purchased OTC 
options and the underlying securities used to cover written OTC 
options are illiquid securities.  However, a Fund may treat as 
liquid the underlying securities used to cover written OTC 
options, provided it has arrangements with certain qualified 
dealers who agree that the Fund may repurchase any option it 
writes for a maximum price to be calculated by a predetermined 
formula.  In these cases, the OTC option itself would only be 
considered illiquid to the extent that the maximum repurchase 
price under the formula exceeds the intrinsic value of the option. 

Swap Agreements. Among the hedging transactions into which the 
Funds may enter are interest rate swaps and the purchase or sale 
of interest rate caps and floors.  Each Fund expects to enter into 
these transactions primarily to preserve a return or spread on a 
particular investment or portion of its Fund or to protect against 
any increase in the price of securities the Fund anticipates 
purchasing at a later date.  Each Fund intends to use these 
transactions as a hedge and not as a speculative investment.  Each 
Fund will not sell interest rate caps or floors that it does not 
own.  Interest rate swaps involve the exchange by a Fund with 
another party of their respective commitments to pay or receive 
interest, e.g., an exchange of floating rate payments for fixed 
rate payments.  The purchase of an interest rate cap entitles the 
purchaser, to the extent that a specified index exceeds a 
predetermined interest rate, to receive payments of interest on a 
notional principal amount from the party selling such interest 
rate cap.  The purchase of an interest rate floor entitles the 
purchaser, to the extent that a specified index falls below a 
predetermined interest rate, to receive payments of interest on a 
notional principal amount from the party selling such interest 
rate floor. 

	A Fund may enter into interest rate swaps, caps and floors 
on either an asset-based or liability-based basis, depending on 
whether it is hedging its assets or its liabilities, and will 
usually enter into interest rate swaps on a net basis, i.e., the 
two payment streams are netted but, with the Fund receiving or 
paying, as the case may be, only the net amount of the two 
payments.  Inasmuch as these hedging transactions are entered into 
for good faith hedging purposes, the investment adviser and the 
Funds believe such obligations do not constitute senior securities 
and, accordingly will not treat them as being subject to its 
borrowing restrictions.  The net amount of the excess, if any, of 
a Fund's obligations over its entitlement with respect to each 
interest rate swap will be accrued on a daily basis and an amount 
of cash or liquid securities having an aggregate net asset value 
at least equal to the accrued excess will be maintained in a 
segregated account by a custodian that satisfies the requirements 
of the Investment Company Act of 1940 (the "1940 Act").  The Funds 
will not enter into any interest rate swap, cap or floor 
transaction unless the unsecured senior debt or the claims-paying 
ability of the other party thereto is rated in the highest rating 
category of at least one nationally recognized rating organization 
at the time of entering into such transaction.  If there is a 
default by the other party to such a transaction, a Fund will have 
contractual remedies pursuant to the agreements related to the 
transaction.  The swap market has grown substantially in recent 
years with a large number of banks and investment banking firms 
acting both as principals and as agents utilizing swap 
documentation.  As a result, the swap market has become relatively 
liquid.  Caps and floors are more recent innovations for which 
standardized documentation has not yet been developed and, 
accordingly, they are less liquid than swaps. 

	New options and Futures Contracts and various combinations 
thereof continue to be developed and the Funds may invest in any 
such options and contracts as may be developed to the extent 
consistent with its investment objective and regulatory 
requirements applicable to investment companies. 

Sovereign Debt.    Each Fund may invest in sovereign debt, which 
may trade at a substantial discount from face value.  Each Fund 
may hold and trade sovereign debt of emerging market countries in 
appropriate circumstances and to participate in debt conversion 
programs.  Emerging country Sovereign Debt involves a high degree 
of risk, is generally lower-quality debt, and is considered 
speculative in nature.  The issuer or governmental authorities 
that control sovereign debt repayment ("sovereign debtors") may be 
unable or unwilling to repay principal or interest when due in 
accordance with the terms of the debt.  A sovereign debtor's 
willingness or ability to repay principal and interest due in a 
timely manner may be effected by, among other factors, its cash 
flow situation, the extent of its foreign reserves, the 
availability of sufficient foreign exchange on the date a payment 
is due, the relative size of the debt service burden to the 
economy as a whole, the sovereign debtor's policy towards the 
International Monetary Fund (the "IMF") and the political 
constraints to which the sovereign debtor may be subject.  
Sovereign debtors may also be dependent on expected disbursements 
from foreign governments, multilateral agencies and others abroad 
to reduce principal and interest arrearage on their debt.  The 
commitment of these third parties to make such disbursements may 
be conditioned on the sovereign debtor's implementation of 
economic reforms or economic performance and the timely service of 
the debtor's obligations.  The sovereign debtor's failure to meet 
these conditions may cause these third parties to cancel their 
commitments to provide funds to the sovereign debtor, which may 
further impair the debtor's ability or willingness to timely 
service its debts.

Brady Bonds.    Each Fund may invest in Brady Bonds as part of its 
investment in Sovereign Debt of countries that have restructured 
or are in the process of restructuring their Sovereign Debt 
pursuant to the Brady Plan (discussed below).

	Brady Bonds are issued under the framework of the Brady 
Plan, an initiative announced by former U.S. Treasury Secretary 
Nicholas F. Brady in 1989 as a mechanism for debtor nations to 
restructure their outstanding external indebtedness.  The Brady 
Plan contemplates, among other things, the debtor nation's 
adoption of certain economic reforms and the exchange of 
commercial bank debt for newly issued bonds.  In restructuring its 
external debt under the Brady Plan framework, a debtor nation 
negotiates with its existing bank lenders as well as the World 
Bank or IMF.  The World Bank or IMF supports the restructuring by 
providing funds pursuant to loan agreements or other arrangements 
that enable the debtor nation to collateralize the new Brady Bonds 
or to replenish reserves used to reduce outstanding bank debt.  
Under these loan agreements or other arrangements with the World 
Bank or IMF, debtor nations have been required to agree to 
implement certain domestic monetary and fiscal reforms.  The Brady 
Plan sets forth only general guiding principles for economic 
reform and debt reduction, emphasizing that solutions must be 
negotiated on a case-by-case basis between debtor nations and 
their creditors.

	Agreements implemented under the Brady Plan are designed to 
achieve debt and debt-service reduction through specific options 
negotiated by a debtor nation with its creditors.  As a result, 
each country offers different financial packages.  Options have 
included the exchange of outstanding commercial bank debt for 
bonds issued at 100% of face value of such debt, bonds issued at a 
discount of face value of such debt, and bonds bearing an interest 
rate that increases over time and the advancement of the new money 
for bonds.  The principal of certain Brady Bonds has been 
collateralized by U.S. Treasury zero coupon bonds with a maturity 
equal to the final maturity of the Brady Bonds.  Collateral 
purchase are financed by the IMF, World Bank and the debtor 
nation's reserves.  Interest payments may also be collateralized 
in part in various ways.

	Brady Bonds are often viewed as having three or four 
valuation components: (i) the collateralized repayment of 
principal at final maturity: (ii) the collateralized interest 
payments: (iii) the uncollateralized interest payment: and (iv) 
any uncollateralized interest and principal at maturity (these 
uncollateralized amounts constitute the " residual risk").  In 
light of the residual risk of Brady Bonds and, among other 
factors, the history of defaults with respect to commercial bank 
loans by public and private entities of countries issuing Brady 
Bonds, investments in Brady Bonds can viewed as speculative.

Investment Restrictions

	The Company has adopted the following investment 
restrictions with respect to each Fund.  Restrictions 1 through 8 
cannot be changed for a Fund without approval by the holders of a 
majority of the outstanding shares of the respective Fund, defined 
as the lesser of (a) 67% or more of the Fund's shares present at a 
meeting, if the holders of more than 50% of the outstanding shares 
are present in person or by proxy or (b) more than 50% of the 
Fund's outstanding shares.  The remaining restrictions may be 
changed by the Board of Directors at any time.  Each Fund may not:

	1.	With respect to 75% of the value of its total assets, 
(i) invest more than 5% of its total assets in securities 
of any one issuer, except securities issued or guaranteed 
by the U.S. government, and (ii) purchase more than 10% of 
the outstanding voting securities of anyone issuer.

	2	Issue senior securities as defined in the Investment 
Company Act of 1940, as amended (the "1940 Act") and any 
rules and orders thereunder, except as permitted under the 
1940 Act.

	3	Invest more than 25% of its total assets in 
securities, the issuers of which conduct their principal 
business activities in the same industry.  For purposes of 
this limitation, U.S. government securities and securities 
of state or municipal governments and their political 
subdivisions are not considered to be issued by members of 
any industry.

	4	The Fund will not make loans.  This restriction does 
not apply to:  (a) the purchase of debt obligations in which 
the Fund may invest consistent with its investment 
objectives and policies; (b) repurchase agreements; and (c) 
loans of its portfolio securities.

	5	The Fund will not engage in the business of 
underwriting securities issued by other persons, except to 
the extent that the Fund may technically be deemed to be an 
underwriter under the Securities Act of 1933, as amended 
(the "1933 Act"), in disposing of portfolio securities.

	6.	The Fund will not purchase or sell real estate, real 
estate mortgages, commodities or commodity contracts, but 
this shall not prevent the Fund from (a) investing in and 
selling securities of issuers engaged in the real estate 
business and securities which are secured by real estate or 
interests therein; (b) holding or selling real estate 
received in connection with securities it holds; (c) trading 
in futures contracts and option on futures contracts or (d) 
real estate investment trust securities.

	7.	The Fund will not purchase any securities on margin 
(except for such short-term credits as are necessary for the 
clearance of purchases and sales of portfolio securities) or 
sell any securities short (except against the box).  For 
purposes of this restriction, the deposit or payment by the 
Fund of initial or maintenance margin in connection with 
futures contracts and related options and options on 
securities, indexes or similar items is not considered to be 
the purchase of a security on margin.

	8	The Fund will not borrow money, except that (a) the 
Fund may borrow from banks in an amount not exceeding 33 
1/3% of the value of the Fund's total assets (including the 
amount borrowed) valued at market less liabilities (not 
including the amount borrowed) at the time the borrowing is 
made and (b) the Fund may, to the extent consistent with its 
investment policies, enter into reverse repurchase 
agreements, forward roll transactions and similar investment 
strategies and techniques.

	9	The Fund will not purchase or otherwise acquire any 
security if, as a result, more than 15% of its net assets 
would be invested in securities that are illiquid.

	10	Invest in companies for the purpose of exercising 
management or control.

	11	Invest in securities of other investment companies, 
except as part of a merger, consolidation, or acquisition of 
assets or as permitted by the 1940 Act.

Brokerage and Portfolio Transactions

	Hansberger is responsible for allocating the Fund's 
brokerage.  Orders may be directed to any broker including, to the 
extent and in the manner permitted by applicable law, Smith Barney 
 .  No Fund will deal with Smith Barney in any transaction in which 
Smith Barney acts as principal. 

	The Fund attempts to obtain the most favorable execution of 
each Fund's transaction, that is, the best combination  of net 
price and prompt reliable execution.  In the opinion of 
Hansberger, however, it is not possible to determine in advance 
that any particular broker will actually be able to effect the 
most favorable execution because, in the context of a constantly 
changing market, order execution involves judgments as to price, 
commission rates, volume, the direction of the market and the 
likelihood of future change.  In making its decision as to which 
broker or brokers are most likely to provide the most favorable 
execution, Hansberger takes into account the relevant 
circumstances.  These include, in varying degrees, the size of the 
order, the importance of prompt execution, the breadth and trends 
of the market in the particular security, anticipated commission 
rates, the broker's familiarity with such security including its 
contacts with possible buyers and sellers and its level of 
activity in the security, the possibility of a block transaction 
and the general record of the broker for prompt, competent and 
reliable service in all aspects of order processing, execution and 
settlement. 

	Commissions are negotiated and take into account the 
difficulty involved in execution of a transaction, the time it 
took to conclude, the extent of the broker's commitment of its own 
capital, if any, and the price received.  Anticipated commission 
rates are an important consideration in all trades and are weighed 
along with the other relevant factors affecting order execution 
set forth above.  In allocating brokerage among those brokers who 
are believed to be capable of providing equally favorable 
execution, the Fund takes into consideration the fact that a 
particular broker may, in addition to execution capability, 
provide other services to the Fund such as research and 
statistical information.  It is not possible to place a dollar 
value on such services nor does their availability reduce 
Hansberger's expenses in a determinable amount.  These various 
services may, however, be useful to Hansberger in connection with 
its services rendered to other advisory clients and not all such 
services may be used in connection with the Fund. 

	The Board of Directors of the Fund has adopted certain 
policies and procedures incorporating the standard of Rule 17e-1 
issued by the SEC under the 1940 Act which requires that the 
commissions paid to Smith Barney  must be "reasonable and fair 
compared to the commission fee or other remuneration received or 
to be received by other brokers in connection with comparable 
transactions involving similar securities during a comparable 
period of time." The Rule and the policy and procedures also 
contain review requirements and require SBMFM and Hansberger to 
furnish reports to the Board of Directors and to maintain records 
in connection with such reviews. 


PURCHASE OF SHARES

Volume Discounts

The schedules of sales charges on Class A shares described in the 
Prospectuses apply to purchases made by any "purchaser," which 
defined to include the following: (a) an individual; (b) an 
individual's spouse and his or her children purchasing shares for 
his or her own account; (c) a trustee or other fiduciary 
purchasing shares for a single trust estate or single fiduciary 
account; (d) a pension, profit-sharing or other employee benefit 
plan qualified under Section 401(a) of the Internal Revenue Code 
of 1986, as amended (the "Code"), and qualified employee benefit 
plans of employers who are "affiliated persons" of each other 
within the meaning of the 1940 Act; (e) tax-exempt organizations 
enumerated in Section 501(c)(3) or (13) of the Code; and (f) a 
trustee or other professional fiduciary (including a bank, or an 
investment adviser registered with the SEC under the Investment 
Advisers Act of 1940, as amended) purchasing shares of a Fund for 
one or more trust estates of fiduciary accounts.  Purchasers who 
wish to combine purchase orders to take advantage of volume 
discounts on Class A shares should contact a Smith Barney 
Financial Consultant.

Combined Right of Accumulation

Reduced sales charges, in accordance with the schedule in the 
Prospectuses, apply to any purchase of Class A shares if the 
aggregate investment of any purchaser in Class A shares of a Fund 
and in Class A shares of the other Funds in the Company and of 
other funds of the Smith Barney Mutual Funds that are offered with 
a sales charge, including the purchase being made is $25,000 or 
more.  The reduced sales charge is subject to confirmation of the 
shareholder's holdings through a check of appropriate records.  
Each Fund reserves the right to terminate or amend the combined 
right of accumulation at any time after written notice to 
shareholders.  For further information regarding the right of 
accumulation, shareholders should contact a Smith Barney Financial 
Consultant.

Determination of Public Offering Price

Each Fund offers its shares to the public on a continuous basis.  
The public offering price for a Class A and Class Y share of each 
Fund is equal to the net asset value per share at the time of 
purchase plus, for Class A shares, an initial sales charge based 
on the aggregate amount of the investment.  The public offering 
price for a Class B share and Class C share, and Class A share 
purchases, including applicable right of accumulation, equaling or 
exceeding $500,000, is equal to the net asset value per share at 
the time of purchase and no sales charge is imposed at the time of 
purchase.  A contingent deferred sales charge ("CDSC"), however, 
is imposed on certain redemptions of Class B shares, Class C 
shares, and Class A shares when purchased in amounts equaling or 
exceeding $500,000.  The method of computation of the public 
offering price is shown in each Fund's financial statements, 
incorporated by reference in their entirety into this Statement of 
Additional Information.





REDEMPTION OF SHARES

The right of redemption may be suspended or the date of payment 
postponed (a) for any period during which the NYSE is closed 
(other than for customary weekend and holiday closings), (b) when 
trading in markets a Fund normally utilizes is restricted, or an 
emergency as determined by the SEC exists, so that disposal of the 
Fund's investments or determination of net asset value is not 
reasonably practicable or (c) for such other periods as the SEC by 
order may permit for the protection of the Fund's shareholders.

Distributions in Kind

If the Board of Directors of the Company determines that it would 
be detrimental to the best interests of the remaining shareholders 
of a Fund to make a redemption payment wholly in cash, the Fund 
may pay, in accordance with the SEC rules, any portion of a 
redemption in excess of the lesser of $250,000 or 1% of the Fund's 
net assets by a distribution in kind of portfolio securities in 
lieu of cash.  Securities issued as a distribution in kind may 
incur brokerage commissions when shareholders subsequently sell 
those securities.

Automatic Cash Withdrawal Plan

An automatic cash withdrawal plan (the "Withdrawal Plan") is 
available to shareholders who own shares with a value of at least 
$10,000 ($5,000 for retirement plan accounts) and who wish to 
receive specific amounts of cash monthly or quarterly.  
Withdrawals of at least $50 may be made under the Withdrawal Plan 
by redeeming as many shares of a Fund as may be necessary to cover 
the stipulated withdrawal payment.  Any applicable CDSC will not 
be waived on amounts withdrawn by shareholders that exceed 1.00% 
per month of the value of a shareholder's shares at the time the 
Withdrawal Plan commences.  To the extent withdrawals exceed 
dividends, distributions and appreciation of a shareholder's 
investment in a Fund, there will be a reduction in the value of 
the shareholder's investment and continued withdrawal payments may 
reduce the shareholder's investment and ultimately exhaust it.  
Withdrawal payments should not be considered as income from 
investment in the Fund.  Furthermore, as it generally would not be 
advantageous to a shareholder to make additional investments in 
the Fund at the same time that he or she is participating in the 
Withdrawal Plan, purchases by such shareholders in amounts of less 
than $5,000 will not ordinarily be permitted.

Shareholders who wish to participate in the Withdrawal Plan and 
who hold their shares in certificate form must deposit their share 
certificates with First Data as agent for Withdrawal Plan members.  
All dividends and distributions on shares in the Withdrawal Plan 
are automatically reinvested at net asset value in additional 
shares of the Company.  Withdrawal Plans should be set up with a 
Smith Barney Financial Consultant.  A shareholder who purchases 
shares directly through First Data may continue to do so and 
applications for participation in the Withdrawal Plan must be 
received by First Data no later than the eighth day of the month 
to be eligible for participation beginning with that month's 
withdrawal.  For additional information, shareholders should 
contract a Smith Barney Financial Consultant.

DISTRIBUTOR

Smith Barney serves as the Company's distributor on a best efforts 
basis pursuant to a distribution agreement (the "Distribution 
Agreement") which was most recently approved by the Company's 
Board of Directors on July 24, 1997.

When payment is made by the investor before the settlement date, 
unless otherwise directed by the investor, the funds will be held 
as a free credit balance in the investor's brokerage account, and 
Smith Barney may benefit from the temporary use of the funds.  The 
investor may designate another use for the funds prior to 
settlement date, such as investment in a money market fund (other 
than Smith Barney Exchange Reserve Fund) of the Smith Barney 
Mutual Funds.  If the investor instructs Smith Barney to invest 
the funds in a Smith Barney money market fund, the amount of the 
investment will be included as part of the average daily net 
assets of both the Company and the money market fund, and 
affiliates of Smith Barney that serve the funds in an investment 
advisory capacity will benefit from the fact that they are 
receiving fees from both such investment companies for managing 
these assets computed on the basis of their average daily net 
assets.  The Company's Board of Directors has been advised of the 
benefits to Smith Barney resulting from these settlement 
procedures and will take such benefits into consideration when 
reviewing the Management and Distribution Agreements for 
continuance.

Distribution Arrangements

To compensate Smith Barney for the services it provides and for 
the expense it bears under the Distribution Agreement, the Company 
has adopted a services and distribution plan (the "Plan") pursuant 
to Rule 12b-1 under the 1940 Act.  Under the Plan, each Fund pays 
Smith Barney a service fee, accrued daily and paid monthly, 
calculated at the annual rate of 0.25% of the value of each Fund's 
average daily net assets attributable to the Class A, Class B and 
Class C shares.  In addition, the Fund pays Smith Barney a 
distribution fee, with respect to the Class B and Class C shares 
primarily intended to compensate Smith Barney for its initial 
expense of paying its Financial Consultants a commission upon 
sales of those shares.  Such shares' distribution fees, which are 
accrued daily and paid monthly, are calculated at the annual rate 
of 0.75% of the value of average daily net assets attributable to 
the Class B and Class C shares.

Under its terms, the Plan continues from year to year, provided 
such continuance is approved annually by vote of the Board of 
Directors, including a majority of the Independent Directors. The 
Plan may not be amended to increase the amount to be spent for the 
services provided by Smith Barney without shareholder approval, 
and all amendments of the Plan also must be approved by the 
Directors in the manner described above. The Plan may be 
terminated at any time, without penalty, by vote of a majority of 
the Independent Directors or by vote of a majority of the 
outstanding voting securities of the Company (as defined in the 
1940 Act). Pursuant to the Plan, Smith Barney will provide the 
Board of Directors periodic reports of amounts expended under the 
Plan and the purpose for which such expenditures were made.

VALUATION OF SHARES

Each Class' net asset value per share is calculated on each day, 
Monday through Friday, except days on which the NYSE is closed.  
The NYSE currently is scheduled to be closed on New Year's Day, 
President's Day, Good Friday, Memorial Day, Independence Day, 
Labor Day, Thanksgiving and Christmas, and on the preceding Friday 
or subsequent Monday when one of these holidays falls on a 
Saturday or Sunday, respectively.  Because of the differences in 
distribution fees and Class-specific expenses, the per share net 
asset value of each Class may differ.  The following is a 
description of the procedures used by the Funds in valuing its 
assets.

A security which is listed or traded on more than one exchange is 
valued at the quotation on the exchange determined to be the 
primary market for such security.  All assets and liabilities 
initially expressed in foreign currency values will be converted 
into U.S. dollar values at the mean between the bid and offered 
quotations of such currencies against U.S. dollars as last quoted 
by any recognized dealer. If such quotations are not available, 
the rate of exchange will be determined in good faith by the Board 
of Directors.  In carrying out the Board of Directors' valuation 
policies, SBMFM, as administrator, may consult with an independent 
pricing service (the "Pricing Service") retained by the Company.

Debt securities of United States issuers (other than U.S. 
government securities and short-term investments) are valued by 
SBMFM, as administrator, after consultation with the Pricing 
Service approved by the Board of Directors.  When, in the judgment 
of the Pricing Service, quoted bid prices for investments are 
readily available and are representative of the bid side of the 
market, these investments are valued at the mean between the 
quoted bid prices and asked prices.  Investments for which, in the 
judgment of the Pricing Service, there are not readily obtainable 
market quotations are carried at fair value as determine by the 
Pricing Service.  The procedures of the Pricing Service are 
reviewed periodically by the officers of the Company under the 
general supervision and responsibility of the Board of Directors.

EXCHANGE PRIVILEGE

Except as noted below, shareholders of any fund of the Smith 
Barney Mutual Funds may exchange all or part of their shares for 
shares of the same class of other funds of the Smith Barney Mutual 
Funds, to the extent such shares are offered for sale in the 
shareholder's state of residence and provided your Registered 
Representative or your investment dealer is authorized to 
distribute shares of the fund, on the basis of relative net asset 
value per share at the time of exchange.  Class B shares of any 
fund may be exchanged without a CDSC.  Class B shares of the Fund 
exchanged for Class B shares of another fund will be subject to 
the higher applicable CDSC of the two funds and, for the purposes 
of calculating CDSC rates and conversion periods, will be deemed 
to have been held since the date the shares being exchanged were 
deemed to be purchased.

The exchange privilege enables shareholders to acquire shares of 
the same Class in a fund with different investment objectives when 
they believe that a shift between funds is an appropriate 
investment decision.  This privilege is available to shareholders 
residing in any state in which the fund shares being acquired may 
legally be sold.  Prior to any exchange, the shareholder should 
obtain and review a copy of the current prospectus of each fund 
into which an exchange is being considered.  Prospectuses may be 
obtained from a Smith Barney Financial Consultant.

Upon receipt of proper instructions and all necessary supporting 
documents, shares submitted for exchange are redeemed at the then-
current net asset value and, subject to any applicable CDSC, the 
proceeds are immediately invested at a price as described above, 
in shares of the fund being acquired.  Smith Barney reserves the 
right to reject any exchange request.  The exchange privilege may 
be modified or terminated at any time after written notice to 
shareholders.

PERFORMANCE DATA

From time to time, a Fund may quote its yield, average annual 
total return or total return in advertisements or in reports and 
other communications to shareholders.  The Fund may include 
comparative performance information in advertising or marketing 
the Fund's shares.  Such performance information maybe included in 
the following industry and financial publications:  Barron's, 
Business Week, CDA Investment Technologies, Inc., Changing Times, 
Forbes, Fortune, Institutional Investor, Investors Daily, Money, 
Morningstar Mutual Fund Values, The New York Times, USA Today and 
The Wall Street Journal.  To the extent any advertisement or sales 
literature of a Fund describes the expenses or performance of a 
Class, it will also disclose such information for the other 
Classes.

Yield

A Fund's 30-day yield figure described below is calculated 
according to a formula prescribed by the SEC.  The formula can be 
expressed as follows:

YIELD = 2[(a-bcd + 1)6 - 1]


Where:
a = 
dividends and interest earned during the period.


b = 
expenses accrued for the period (net of 
reimbursement).


c =
the average daily number of shares outstanding 
during the period that were entitled to receive 
dividends.


d =
the maximum offering price per share on the last day 
of the period.


For the purpose of determining the interest earned (variable "a" 
in the formula) on debt obligations purchased by the Fund at a 
discount or premium, the formula generally calls for amortization 
of the discount or premium; the amortization schedule will be 
adjusted monthly to reflect changes in the market values of the 
debt obligations.

Investors should recognize that in periods of declining interest 
rates a Fund's yield will tend to be somewhat higher than 
prevailing market rates, and in periods of rising interest rates, 
the Fund's yield will tend to be somewhat lower.  In addition, 
when interest rates are falling, the inflow of net new money to 
the Fund from the continuous sales of its shares will likely be 
invested in portfolio instruments producing lower yields than the 
balance of the Fund's investments, thereby reducing the current 
yield of the Fund.  In periods of rising interest rates, the 
opposite can be expected to occur.

Average Annual Total Return

"Average annual total return" figures, as described below, are 
computed according to a formula prescribed by the SEC.  The 
formula can be expressed as follows:

P(1+T)n = ERV

Where:
P 	=
a hypothetical initial payment of $1,000.


T	=
average annual total return.


n 	=
number of years.


ERV	=
Ending Redeemable Value of a hypothetical 
$1,000 investment made at the beginning of a 1-
, 5- or 10-year period at the end of the 1-, 5- 
or 10- year period (or fractional portion 
thereof), assuming reinvestment of all 
dividends and distributions.  A Class' total 
return figures calculated in accordance with 
the above formula assume that the maximum 
applicable sales charge or maximum applicable 
CDSC, as the case may be, has been deducted 
from the hypothetical $1,000 initial investment 
at the time of purchase or redemption, as 
applicable.


Aggregate Total Return

Aggregate total return figures, as described below, represent the 
cumulative change in the value of an investment in the Class for 
the specified period and are computed by the following formula:


	AGGREGATE TOTAL RETURN = 			ERV-P
				P

Where:
P 	=
a hypothetical initial payment of $1,000.


ERV	=
Ending Redeemable Value of a hypothetical 
$10,000 investment made at the beginning of a 
1-, 5- or 10-year period (a fractional portion 
thereof) at the end of the 1-, 5- or 10- year 
period (or fractional portion thereof), 
assuming reinvestment of all dividends and 
distributions.


It is important to note that the yield and total return figures 
set forth above are based on historical earnings and are not 
intended to indicate future performance.  A Class' performance 
will vary from time to time depending upon market conditions, the 
composition of the Fund's investment portfolio and operating 
expenses and the expenses exclusively attributable to the Class.  
Consequently, any given performance quotation should not be 
considered representative of the Class' performance for any 
specified period in the future.  Because performance will vary, it 
may not provide a basis for comparing an investment in the Class 
with certain bank deposits or other investments that pay a fixed 
yield for a stated period of time.  Investors comparing the Class' 
performance with that of other mutual funds should give 
consideration to the quality and maturity of the respective 
investment companies' portfolio securities.

Performance information may be useful in evaluating a Fund and for 
providing a basis for comparison with other financial 
alternatives.  Since the performance of the Fund changes in 
response to fluctuations in market conditions, interest rates and 
Fund expenses, no performance quotation should be considered a 
representation as to the Fund's performance for any future period. 

	A Fund may from time to time compare its investment results 
with the following: 

	(1) The Consumer Price Index, which is a measure of 
the average change in prices over time in a fixed 
market basket of goods and services (e.g., food, 
clothing, shelter, fuels, transportation fares, 
charges for doctors' and dentists' services, 
prescription  medicines, and other goods and services 
that people buy for day-to-day living). 

	(2) Data and mutual fund rankings published or 
prepared by Lipper Analytical Services, Inc., which 
ranks mutual funds by overall performance, investment 
objectives and assets. 

	(3) Dow Jones Industrial Average which is a price-
weighted average of 30 actively traded stocks of 
highly reputable companies prepared by Dow Jones & Co.

	(4) Financial News Composite Index. 

	(5) Morgan Stanley Capital International World 
Indices, including, among others, the Morgan Stanley 
Capital International Europe, Australia, Far East 
Index ("EAFE Index").  The EAFE Index is an unmanaged 
index of more than 800 companies of Europe, Australia 
and the Far East. 

	(6) Data and comparative performance rankings 
published or prepared by CDA Investment Technologies, 
Inc. 

	(7) Data and comparative performance rankings 
published or prepared by Wiesenberger Investment 
Company Service. 

	Indices prepared by the research departments of such 
financial organizations as Salomon Brothers, Inc., Merrill Lynch, 
Bear Stearns & Co., Inc., Morgan Stanley, and Ibbottson Associates 
may be used, as well as information provided by the Federal 
Reserve Board.  In addition, performance rankings and ratings 
reported periodically in national financial publications, 
including but not limited to Money Magazine, Forbes, Business 
Week, The Wall Street Journal and Barron's may also be used. 

TAXES

	The following summary addresses the principal United States 
income tax considerations regarding the purchase, ownership and 
disposition of shares in a Fund. 

General

	Each Fund intends to qualify and elect to be treated for 
each taxable year as a "regulated investment company" under 
Sections 851-855 of the Internal Revenue Service Code of 1986, as 
amended ("the Code").  To so qualify, a Fund must, among other 
things, (i) derive at least 90% of its gross income in each 
taxable year from dividends, interest, proceeds from loans of 
stock and securities, gains from the sale or other disposition of 
stock, securities or foreign currency, or certain other income 
(including but not limited to gains from options, Futures and 
forward contracts) derived from its business of investing in 
stock, securities or currency; (ii) derive less than 30% of its 
gross income in each taxable year from the sale or other 
disposition of any of the following which was held for less than 
three months: (a) stocks or securities, (b) options, Futures or 
forward contracts (other than options, Futures or forward 
contracts on foreign currency), or (c) foreign currency (or 
options, Futures or forward contracts on foreign currency), but 
only if such currency (or options, Futures or forward contracts) 
is not directly related to the Fund's principal business of 
investing in stock or securities (or options or Futures with 
respect to stock or securities); and (iii) diversify its holdings 
so that, at the end of each quarter of its taxable year, the 
following two conditions are met: (a) at least 50% of the market 
value of the Fund's total assets is represented by cash, U.S. 
Government securities, securities of other regulated investment 
companies and other securities,  with such other securities 
limited, in respect of any one issuer, to an amount not greater 
than 5% of the Fund's assets and not more than 10% of the 
outstanding voting securities of such issuer; and (b) not more 
than 25% of the value of the Fund's assets is invested in 
securities of any one issuer (other than U.S. Government 
securities or securities of other regulated investment companies).  
The diversification requirements described above may limit the 
Fund's ability to engage in hedging transactions by writing or 
buying options or by entering into Futures or forward contracts. 

	Foreign currency gains that are not directly related to a 
Fund's principal business of investing in stock or securities, or 
options or forward contracts thereon, might be excluded by 
regulations from income that counts toward the 90% gross income 
requirement described above. 

	As a regulated investment company, each Fund will not be 
subject to U.S. federal income tax on net investment income and 
net long-term capital gains distributed to shareholders if, as is 
intended, the Fund distributes at least 90% of its ordinary income 
and net short-term capital gains to the Fund's shareholders each 
year. 

	Each Fund, however, will generally be subject to a 
nondeductible excise tax of 4% to the extent that it does not meet 
certain minimum distribution requirements as of the end of each 
calendar year.  Each Fund intends to make timely distributions of 
its income (including any net capital gains) in compliance with 
these requirements.  As a result, it is anticipated that each Fund 
will not be subject to the excise tax. 

	For federal income tax purposes, dividends declared by each 
Fund in October, November or December as of a record date in such 
month and which are actually paid in January of the following year 
will be treated as if they were paid on December 31.  These 
dividends will be taxable to shareholders in the year declared, 
and not in the year in which shareholders actually receive the 
dividend. 

	Gains or losses that a Fund recognizes upon the sale or 
other disposition of stock or securities will be treated as long-
term capital gains or losses if the securities have been held by 
it for more than one year, except in certain cases where the Fund 
sells the stock or security short or acquires a put or writes a 
call thereon.  Other gains or losses on the sale of stock or 
securities will be short-term capital gains or losses.  Gains and 
losses on the sale, lapse or other termination of options on stock 
or securities will generally be treated as gains and losses from 
the sale of stock or securities.  If an option written for a Fund 
lapses or is terminated through a closing transaction the Fund may 
realize a short-term capital gain or loss, depending on whether 
the premium income is greater or less than the amount paid in the 
closing transaction.  If a Fund sells stock or securities pursuant 
to the exercise of a call option written by it, the Fund will add 
the premium received to the sale price of the stock or securities 
delivered in determining the amount of gain or loss on the sale.  
The requirement that a Fund derive less than 30% of its gross 
income from gains from the sale of stock or securities held for 
less than three months may limit the Fund's ability to acquire put 
options or make short sales. 

	Under the Code, gains or losses attributable to foreign 
currency contracts, or to fluctuations in exchange rates between 
the time a Fund accrues income or receivables or expenses or other 
liabilities denominated in a foreign currency and the time the 
Fund actually collects such income or pays such liabilities, are 
treated as ordinary income or ordinary loss.  Similarly, gains or 
losses on the disposition of debt securities held by the Fund 
denominated in foreign currency, to the extent attributable to 
fluctuations in exchange rates between the acquisition and 
disposition dates, are also treated as ordinary income or loss. 

	Forward currency contracts, options and Futures contracts 
entered into by a Fund may create "straddles" for federal income 
tax purposes and this may affect the character and timing of gains 
or losses realized by the Fund on such contracts or options or on 
the underlying securities.  Under regulations yet to be issued, 
straddles may also result in the loss of the holding period of 
underlying property, and therefore, the Fund's ability to enter 
into forward currency contracts, options and Futures contracts may 
be limited by the 30% of gross income test described above. 

	Certain options, Futures and foreign currency contracts held 
by a Fund at the end of each fiscal year will be required to be 
"marked to market" for federal income tax purposes; that is, 
treated as having been sold at market value.  Sixty percent of any 
capital gain or loss recognized on these deemed sales and on 
actual dispositions will be treated as long-term capital gain or 
loss, and the remainder will be treated as short-term capital gain 
or loss regardless of how long the Fund has held such options or 
contracts. 

	If a Fund purchases shares in certain foreign investment 
entities, referred to as "passive foreign investment companies," 
the Fund itself may be subject to U.S. federal income tax and an 
additional charge in the nature of interest on a portion of any 
"excess distribution" from such company or gain from the 
disposition of such shares, even if the distribution or gain is 
distributed by the Fund to its shareholders in a manner that 
satisfies the requirements described above.  If the Fund were able 
and elected to treat a passive foreign investment company as a 
"qualified electing fund," in lieu of the treatment described 
above, the Fund would be required each year to include in income, 
and distribute to shareholders in accordance with the distribution 
requirements described above, the Fund's pro rata share of the 
ordinary earnings and net capital gains of the company, whether or 
not actually received by the Fund. 

Distributions 

	If the net asset value of shares of a Fund is reduced below 
a shareholder's cost as a result of distribution by the Fund, such 
distribution will be taxable even though it represents a return of 
invested capital. 

Redemption of Shares 

	Any gain or loss realized on the redemption or exchange of 
Fund shares by a shareholder who is not a dealer in securities 
will be treated as long-term capital gain or loss if the shares 
have been held for more than one year, and otherwise as short-term 
capital gain or loss. 

	However, any loss realized by a shareholder upon the 
redemption or exchange of Fund shares held six months or less will 
be treated as long-term capital loss to the extent of any long-
term capital gain distributions received by the shareholder with 
respect to such shares.  Additionally, any loss realized on a 
redemption or exchange of Fund shares will be disallowed to the 
extent the shares disposed of are replaced within a period of 61 
days beginning 30 days before and ending 30 days after such 
disposition, such as pursuant to reinvestment of dividends in Fund 
shares. 

ADDITIONAL INFORMATION

The Company was incorporated on September 29, 1981 under the name 
Hutton Investment Series Inc.  The Company's corporate name was 
changed on December 29, 1988, July 30, 1993 and October 28, 1994, 
to SLH Investment Portfolios Inc., Smith Barney Shearson 
Investment Funds Inc., and Smith Barney Investment Funds, Inc., 
respectively.

Chase , located at Chase Metrotech Center, Brooklyn NY 11245, 
serves as the custodian of the Company.  Under its custody 
agreement with the Company, Chase holds the Company's fund 
securities and keeps all necessary accounts and records.  For its 
services, Chase receives a monthly fee based upon the month-end 
market value of securities held in custody and also receives 
transaction charges.  Chase bank is authorized to establish 
separate accounts for foreign securities owned by the Company to 
be held with foreign branches of other domestic banks as well as 
with certain foreign banks and securities depositories.  The 
assets of the Company are held under bank custodianship in 
compliance with the 1940 Act.

First Data, located at Exchange Place, Boston, Massachusetts 
02109, serves as the Company's transfer agent.  For these 
services, First Data receives a monthly fee computed on the basis 
of the number of shareholder accounts it maintains with the 
Company during the month and is reimbursed for out-of-pocket 
expenses.





APPENDIX

BOND (AND NOTE) RATINGS

Moody's Investors Service, Inc. ("Moody's")

	Aaa - Bonds that are rated "Aaa" are judged to be of the best quality.  
They carry the smallest degree of investment risk and are generally referred 
to as "gilt edge."  Interest payments are protected by a large or by an 
exceptionally stable margin and principal is secure.  While the various 
protective elements are likely to change, such changes as can be visualized 
are most unlikely to impair the fundamentally strong position of such issues. 

	Aa - Bonds that are rated "Aa" are judged to be of high quality by all 
standards.  Together with the "Aaa" group they comprise what are generally 
known as high grade bonds.  They are rated lower than the best bonds because 
margins of protection may not be as large as in "Aaa" securities or 
fluctuation of protective elements may be of greater amplitude or there may be 
other elements present that make the long term risks appear somewhat larger 
than in "Aaa" securities. 

	A - Bonds that are rated "A" possess many favorable investment 
attributes and are to be considered as upper medium grade obligations.  
Factors giving security to principal and interest are considered adequate but 
elements may be present that suggest a susceptibility to impairment sometime 
in the future. 

	Baa - Bonds that are rated "Baa" are considered as medium grade 
obligations, i.e., they are neither highly protected nor poorly secured.  
Interest payments and principal security appear adequate for the present but 
certain protective elements may be lacking or may be characteristically 
unreliable over any great length of time.  Such bonds lack outstanding 
investment characteristics and in fact have speculative characteristics as 
well. 

	Ba - Bonds that are rated Ba are judged to have speculative elements; 
their future cannot be considered as well assured.  Often the protection of 
interest and principal payments may be very moderate and therefor not well 
safeguarded during both good and bad times over the future.  Uncertainty of 
position characterizes bonds in this class. 

	B - Bonds that are rated B generally lack characteristics of desirable 
investments.  Assurance of interest and principal payments or of maintenance 
of other terms of the contract over any long period of time may be small. 

	Caa - Bonds that are rated Caa are of poor standing.  These issues may 
be in default or present elements of danger may exist with respect to 
principal or interest. 

	Ca - Bonds that are rated Ca represent obligations which are speculative 
in a high degree.  Such issues are often in default or have other marked 
short-comings. 

	C - Bonds that are rated C are the lowest rated class of bonds, and 
issues so rated can be regarded as having extremely poor prospects of ever 
attaining any real investment standing. 

	Moody's applies the numerical modifiers 1, 2 and 3 in each generic 
rating classification from Aa through B.  The modifier 1 indicates that the 
security ranks in the higher end of its generic rating category; the modifier 
2 indicates a mid-range ranking; and the modifier 3 indicates that the issue 
ranks in the lower end of its generic rating category. 



Standard & Poor's Ratings Group ("S&P") 

	AAA - Debt rated "AAA" has the highest rating assigned by S&P.  Capacity 
to pay interest and repay principal is extremely strong. 

	AA - Debt rated "AA" has a very strong capacity to pay interest and 
repay principal and differs from the highest rated issues only in small 
degree. 

	A - Debt rated "A" has a strong capacity to pay interest and repay 
principal although it is somewhat more susceptible to the adverse effects of 
changes in circumstances and economic conditions than debt in higher rated 
categories. 

	BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay 
interest and repay principal.  Whereas it normally exhibits adequate 
protection parameters, adverse economic conditions or changing circumstances 
are more likely to lead to a weakened capacity to pay interest and repay 
principal for debt in this category than in higher rated categories. 

	BB, B and CCC - Bonds rated BB and B are regarded, on balance, as 
predominantly speculative with respect to capacity to pay interest and repay 
principal in accordance with the terms of the obligation.  BB represents a 
lower degree if speculation than B and CCC the highest degree of speculation.  
While such bonds will likely have some quality and protective characteristics, 
these are outweighed by large uncertainties or major risk exposures to adverse 
conditions. 

	C - The rating C is reserved for income bonds on which no interest is 
being paid. 

	D - Bonds rated D are in default, and payment of interest and/or 
repayment of principal is in arrears. 

	S&P's letter ratings may be modified by the addition of a plus or a 
minus sign, which is used to show relative standing within the major rating 
categories, except in the AAA category. 

COMMERCIAL PAPER RATINGS

Moody's Investors Service, Inc. 

Issuers rated "Prime-1" (or related supporting institutions) have a superior 
capacity for repayment of short-term promissory obligations.  Prime-1 
repayment capacity will normally be evidenced by the following 
characteristics: leading market positions in well-established industries; high 
rates of return on funds employed; conservative capitalization structures with 
moderate reliance on debt and ample asset protection; broad margins in 
earnings coverage of fixed financial charges and high internal cash 
generation; well-established access to a range of financial markets and 
assured sources of alternate liquidity. 

Issuers rated "Prime-2" (or related supporting institutions) have a strong 
capacity for repayment of short-term promissory obligations.  This will 
normally be evidenced by many of the characteristics cited above but to a 
lesser degree.  Earnings trends and coverage ratios, while sound, will be more 
subject to variation.  Capitalization characteristics, while still 
appropriate, may be more affected by external conditions.  Ample alternate 
liquidity is maintained. 



Standard & Poor's Ratings Group

     A-1 - This designation indicates that the degree of safety regarding 
timely payment is either overwhelming or very strong.  Those issues determined 
to possess overwhelming safety characteristics will be denoted with a plus (+) 
sign designation.

     A-2 - Capacity for timely payment on issues with this designation is 
strong.  However, the relative degree of safety is not as high as for issues 
designated A-1.

Supplementary Description of Interest Rate Futures Contracts and Related 
Options

Characteristics of Futures Contracts.  Currently, futures contracts can be 
purchased and sold on such securities as U.S. Treasury bonds, U.S. Treasury 
notes, GNMAs and U.S. Treasury bills.  Unlike when the Fund purchases or sells 
a security, no price is paid or received by the Fund upon the purchase or 
sales of a futures contract.  The Fund will initially be required to deposit 
with the custodian or the broker an amount of "initial margin" of cash or U.S. 
Treasury bills.  The nature of initial margin in futures transactions is 
different from that of margin in security transactions in that futures 
contract initial margin does not involve the borrowing of funds by the 
customer to finance the transaction.  Rather, the initial margin is in the 
nature of a performance bond or good faith deposit on the contract which is 
returned to the Fund upon termination of the futures contract, assuming all 
contractual obligations have been satisfied.  Subsequent payments, called 
maintenance margin, to and from the broker, will be made on a daily basis as 
the price of the underlying debt security fluctuates, making the long and 
short positions in the futures contract more or less valuable, a process known 
as "marking-to-market."  For example, when the Fund has purchased a futures 
contract and the price of the underlying debt security has risen, that 
position will have increased in value and the Fund will receive from the 
broker a maintenance margin payment equal to that increase in value.  
Conversely, when the Fund has purchased a futures contract and the price of 
the underlying debt security has declined, the position would be less valuable 
and the Fund would be required to make a maintenance margin payment to the 
broker.  At any time prior to expiration of the futures contract, the Fund may 
elect to close the position by taking an opposite position which will operate 
to terminate the Fund's position in the futures contract.  A final 
determination of maintenance margin is then made, additional cash is required 
to be paid by or released to the Fund, and the Fund realizes a loss or a gain.

While futures contracts based on debt securities do provide for the delivery 
and acceptance of securities, such deliveries and acceptances are very seldom 
made.  Generally, the futures contract is terminated by entering into an 
offsetting transaction.  An offsetting transaction for a futures contract sale 
is effected by the Fund entering into a futures contract purchase for the same 
aggregate amount of the specific type of financial instrument and same 
delivery date.  If the price in the sale exceeds the price in the offsetting 
purchase, the Fund pays the difference and realizes the loss.  Similarly, the 
closing out of a futures contract purchase is effected by the Fund entering 
into a futures contract sale.  If the offsetting sale price exceeds the 
purchase price, the Fund realizes a gain, and if the purchase price exceeds 
the offsetting price, the Fund realizes a loss.

Risks of Transactions in Futures Contracts.  There are several risks in 
connection with the use of futures contracts by the Fund as a hedging device.  
One risk arises because of the imperfect correlation between movements in the 
price of the futures contracts and movements in the price of the debt 
securities which are the subject of the hedge.  The price of the futures 
contract may move more than or less than the price of the debt securities 
being hedged.  If the price of the futures contract moves less than the price 
of the securities which are the subject of the hedge, the hedge will not be 
fully effective, but, if the price of the securities being hedged has moved in 
an unfavorable direction, the Fund would be in a better position than if it 
has not hedged at all.  If the price of the securities being hedged has moved 
in a favorable direction, this advantage will be partially offset by the 
movement in the price of the futures contract.  If the price of the futures 
contracts moves more than the price of the security, the Fund will experience 
either a loss or a gain on the future which will not be completely offset by 
movements in the prices of the debt securities which are the subject of the 
hedge.  To compensate for the imperfect correlation of movements in the price 
of debt securities being hedged and movements in the prices of the futures 
contracts, the Fund may buy or sell futures contracts in a greater dollar 
amount of the securities being hedged if the historical volatility of the 
prices of such securities has been greater than the historical volatility of 
the futures contracts.  Conversely, the Fund may buy or sell fewer futures 
contracts if the historical volatility of the price of the securities being 
hedged is less than the historical volatility of the futures contracts.  It is 
also possible that, where the Fund has sold futures to hedge its portfolio 
against a decline in the market, the market may advance and the value of 
securities held in the Fund's portfolio may decline.  If this occurred, the 
Fund would lose money on the futures contracts and also experience a decline 
in value in its portfolio securities.  However, while this could occur for a 
very brief period or to a very small degree, over time the value of a 
diversified portfolio will tend to move in the same direction as the futures 
contracts.  Where futures are purchased to hedge against a possible increase 
in prices of securities before the Fund is able to invest its cash (or cash 
equivalents) in U.S. government securities (or options) in an orderly fashion, 
it is possible that the market may decline instead; if the Fund then concludes 
not to invest in U.S. government securities or options at that time because of 
concern as to possible further market decline or for other reasons, the Fund 
will realize a loss on the futures contract that is not offset by a reduction 
in the price of securities purchased.

In addition to the possibility that there may be an imperfect correlation, or 
no correlation at all, between movements in the futures contracts and the 
portion of the portfolio being hedged, the market prices of futures contracts 
may be affected by certain factors.  First, all participants in the futures 
market are subject to margin deposit and maintenance requirements.  Rather 
than meeting additional margin deposit requirements, investors may close 
futures contracts though offsetting transactions which could distort the 
normal relationship between the debt securities and futures markets; second, 
from the point of view of speculators, the deposit requirements in the futures 
market are less onerous than margin requirements in the securities market.  
Therefore, increased participation by speculators in the futures market may 
also cause temporary price distortions.  Due to the possibility of price 
distortion in the futures market and because of the imperfect correlation 
between movements in the debt securities and movements in the prices of 
futures contracts, a correct forecast of interest rate trends by the 
investment advisor may still not result in a successful hedging transaction 
over a very short time frame.

Positions in futures contracts may be closed out only on an exchange or board 
of trade which provides a secondary market for such futures.  Although the 
Fund intends to purchase or sell futures only on exchanges or boards of trade 
where there appears to be an active secondary market, there is no assurance 
that a liquid secondary market on an exchange or board of trade will exist for 
any particular contract or at any particular time.  In such event, it may not 
be possible to close a futures position, and in the event of adverse price 
movements, the Fund would continue to be required to make daily cash payments 
of variation margin.  However, in the event that the futures contracts have 
been used to hedge portfolio securities, such securities will not be sold 
until the futures contracts can be terminated.  In such circumstances, an 
increase in the price of the securities, if any, may partially or completely 
offset losses on the futures contracts.  However, as described above, there is 
no guarantee that the price of the securities will, in fact, correlate with 
the price movements of the futures contracts and thus provide an offset to 
losses on futures contracts.  Successful use of futures contracts by the Fund 
is also subject to the investment adviser's ability to predict correctly 
movements in the direction of interest rates and other factors affecting 
markets of debt securities.  For example, if the Fund has hedged against the 
possibility of an increase in interest rates which would adversely affect debt 
securities held in its portfolio and prices of such securities increase 
instead, the Fund will lose part or all of the benefit of the increased value 
of its securities which it has hedged because it will have offsetting losses 
in its futures positions.  In addition, in such situations, if the Fund has 
insufficient cash, it may have to sell securities to meet daily variation 
margin requirements.  Such sale of securities may be, but will not necessarily 
be, at increased prices which reflect the rising market.  The Fund may have to 
sell securities at a time when it may be disadvantageous to do so.

Characteristics of Options on Futures Contracts.  As with options on debt 
securities, the holder of an option may terminate his position by selling an 
option of the same series.  There is no guarantee that such closing 
transactions can be effected.  The Fund will be required to deposit initial 
margin and maintenance margin with respect to put and call options on futures 
contracts described above, and, in addition, net option premiums received will 
be included as initial margin deposits.

In addition to the risks which apply to all options transaction, there are 
several special risks relating to options on futures contracts.  The ability 
to establish and close out positions on such options will be subject to the 
development and maintenance of a liquid secondary market.  It is not certain 
that this market will develop.  The Fund will not purchase options on futures 
contracts on any exchange unless and until, in the investment advisor's 
opinion, the market for such options had developed sufficiently that the risks 
in connection with options on futures contracts are not greater than the risks 
in connection with futures contracts.  Compared to the use of futures 
contracts, the purchase of options on futures contracts involves less 
potential risk to the Fund because the maximum amount of risk is the premium 
paid for the options (plus transaction costs).  However, there may be 
circumstances when the use of an option on a futures contract would result in 
a loss to the Fund when the use of a futures contract would not, such as when 
there is no movement in the prices of debt securities.  Writing an option on a 
futures contract involves risks similar to those arising in the sale of 
futures contracts, as described above.




28
u:\legal\funds\sliv\1997\secdocs\hanssai		8/11/97  8:38 AM

HANSSAI.DOC.5	A-5	8/11/97  8:38 AM



SMITH BARNEY INVESTMENT FUNDS  
PART C 
 
Item 24. Financial Statements and Exhibits 
 
(a) Not Applicable 
 
Included in Part B: 
 
(b) Exhibits 
 
All references are to the Registrant's registration statement on Form N-1A
(the "Registration Statement") as filed with the SEC on October 2, 1981
(File Nos. 2-74288 and 811-3275). 
 
(1)  Articles of Restatement dated September 17, 1993 to Registrant's  Articles
of  Incorporation dated September 28, 1981, Articles of Amendment dated
October 14, 1994, Articles Supplementary, Articles  of Amendment dated
October 14, 1994, Articles Supplementary, Articles of Amendments and 
Certificates of Correction dated November 7, 1994, are incorporated by 
reference to Post-Effective Amendment No. 37 to the Registration Statement 
filed on  November 7, 1994 ("Post Effective Amendment No. 37"). 
 
(2) Registrant's By-Laws, as amended on September 30, 1992 are incorporated by 
reference to Post-Effective Amendment No. 30 to the Registration Statement 
filed on April 30, 1993. 
 
(3) Not Applicable. 
 
(4) Registrant's form of stock certificate for Smith Barney Hansberger Global 
Value Fund ("Global Value Fund") and Smith Barney Hansberger Global Value 
Small Cap Fund ("Small Cap Fund") 
will be filed by amendment. 
 
(5) (a) Investment Advisory Agreement dated July 30, 1993, between the 
Registrant on behalf of Smith Barney Investment Grade Bond Fund, 
Smith Barney Government Securities Fund and Smith Barney Special Equities 
Fund and Greenwich Street Advisors is incorporated by reference to the 
Registration Statement filed on Form N-14 on September 2, 1993, File 
No. 33-50153. 
 
    (b) Investment Advisory Agreements on behalf of Smith Barney Growth
Opportunity Fund and Smith Barney Managed Growth Fund is incorporated by 
reference to Post-Effective Amendment No. 40 filed on June 27, 1995. 
 
    (c) Investment Management Agreements on behalf of Global Value Fund and 
Global Small Cap Fund between Registrant and Smith Barney Mutual Funds 
Management Inc. will be filed by amendment. 
 
    (d) Sub-Advisory Agreement on behalf of Global Value Fund and Global Small 
Cap Fund between SBMFM and Hansberger Global Investors Inc. will be filed by 
amendment. 
 
(6) (a) Distribution Agreement dated July 30, 1993, between the Registrant and
Smith Barney Shearson Inc. is incorporated by reference to the registration
statement filed on Form N-14 on September 2, 1993.  File 33-50153. 
 
     (b) Form of Distribution Agreement between the Registrant and PFS 
Distributors on behalf of Smith Barney Investment Funds Inc. is incorporated 
by reference to Post-Effective Amendment No. 40 filed on June 27, 1995. 
 
(7) Not Applicable. 
 
8 (a) Custodian Agreement with PNC Bank, National Association is incorporated by
reference to Post -Effective Amendment  No. 44 filed on April 29, 1997. 
 
   (b) Custodian Agreement with Chase Manhattan Bank will be filed by 
amendment. 
 
9 (a)  Transfer Agency and Registrar Agreement dated August 5, 1993 with First 
Data Investor Services Group, Inc. (formerly The Shareholder Services Group, 
Inc.) is incorporated by reference to Post-Effective Amendment No. 31 as 
filed on December 22, 1993 (Post-Effective Amendment No. 31"). 
 
   (b)	Sub-Transfer Agency Agreement between the Registrant and PFS Shareholders
Services on behalf of  Smith Barney Investment Funds Inc. is incorporated by 
reference to Post-Effective Amendment No. 40 filed on June 27, 1995. 
 
(10)  Opinion of Robert A. Vegliante, Deputy General Counsel of Smith Barney
Mutual Funds Management Inc. filed with the Registrant's rule 24-f2 Notice
(Accession No. 000091155-97-000104) is incorporated by reference. 
 
(11)  Not Applicable 
  
(12) Not Applicable 
 
(13)  Not Applicable 
 
(14)  Not Applicable 
 
(15) (a) Amended Services and Distribution Plans pursuant to Rule 12b-1 between
the Registrant on behalf of Smith Barney Invest Grade Bond Fund, Smith Barney
Government Securities Fund,Smith Barney Special Equities Fund and Smith Barney 
European Fund and Smith Barney, Inc. ("Smith Barney") are incorporated by 
reference to Post-Effective Amendment No. 37' 
 
    (b) Form of Services and Distribution Plans pursuant to Rule 12b-1 between 
the Registrant on behalf  of Smith Barney Growth Opportunity Fund and Smith 
Barney Managed Growth Fund is incorporated by reference to Post-Effective
Amendment No. 40 filed on June 27, 1995. 
 
    (c) Form of Services and Distribution Plans pursuant to Rule 12b-1 between 
the Registrant on behalf of  the Global Value Fund and Small Cap Fund will 
be filed by amendment. 
 
(16) Performance Date is incorporated by reference to Post-Effective Amendment
No. 22 as filed on May 1, 1989. 
 
(17) Not Applicable 
 
(18)  Plan pursuant to Rule 18f-3 is incorporated by reference to Post-Effective
Amendment No.42 to Registration Statement dated January 10, 1996. 
 
Item 25  Persons Controlled by or Under Common Control with Registrant 
 
None. 
 
Item 26.  Not Applicable 
 
Item  27.  Indemnification 
 
	The response to this item is incorporated by reference to Pre-Effective 
Amendment No. 1 to the registration statement filed on Form N-14 on 
October 8, 1993 (File No. 33-50153). 
 
Item 28(a).  Business and Other Connections of Investment Adviser 
 
Investment Adviser - - Smith Barney Mutual Funds Management Inc., formerly known
as Smith Barney Advisers, Inc. ("SBMFM") 
 
SBMFM was incorporated in December 1968 under the laws of the State of Delaware.
SBMFM is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings")
(formerly known as Smith Barney Shearson Holdings Inc.), which in turn is a 
wholly owned subsidiary of  Travelers Group Inc. (formerly known as 
Primerica Corporation) ("Travelers").  SBMFM is registered as an 
investment adviser under the Investment Advisers Act of 1940 (the
 "Advisers Act").The list required by this Item 28 of officers and 
directors of SBMFM together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such 
officers and directors during the past two years, is incorporated by 
reference to Schedules A and D of FORM ADV filed by SBMFM pursuant to the 
Advisers Act (SEC File No. 801-8314). 
 
Item 29.	Principal Underwriters 
 
Smith Barney Inc. ("Smith Barney") currently acts as distributor for Consulting
Group Capital Markets Funds; Global Horizons Investment Series (Cayman 
Islands); Greenwich Street California Municipal Fund Inc.; Greenwich Street 
Municipal Fund Inc.; High Income Opportunity Fund Inc.; The Italy Fund Inc.;
Managed High Income Portfolio Inc.; Managed Municipals Portfolio II Inc.; 
Managed Municipals Portfolio Inc.; Municipal High Income Fund Inc.; Puerto
Rico Daily Liquidity Fund Inc.; Smith Barney Adjustable Rate Government Income
Fund; Smith Barney Aggressive Growth Fund Inc.; Smith Barney Appreciation
Fund Inc.; Smith Barney Arizona Municipals Fund Inc.; Smith Barney California
Municipals Fund Inc.; Smith Barney Concert Series Inc.; Smith Barney 
Disciplined Small Cap Fund, Inc.; Smith Barney Equity Funds; Smith 
Barney Fundamental Value Fund Inc.; Smith Barney Funds, Inc.; Smith Barney 
Income Funds; Smith Barney Income Trust; Smith Barney Institutional Cash 
Management Fund, Inc.; Smith Barney Intermediate Municipal Fund, Inc.; Smith 
Barney Investment Funds Inc.; Smith Barney Investment Trust; Smith Barney 
Managed Governments Fund Inc.; Smith Barney Managed Municipals Fund Inc.; 
Smith Barney Massachusetts Municipals Fund; Smith Barney Money 
Funds, Inc.; Smith Barney Muni Funds; Smith Barney Municipal Fund, Inc.; 
Smith Barney Municipal Money Market Fund, Inc.; Smith Barney Natural 
Resources Fund Inc.; Smith Barney New Jersey Municipals Fund Inc.; 
Smith Barney Oregon Municipals Fund Inc.; Smith Barney Principal Return 
Fund; Smith Barney Series Fund; Smith Barney Telecommunications Trust; 
Smith Barney Variable Account Funds; Smith Barney World Funds, Inc.; 
Smith Barney Worldwide Special Fund N.V. (Netherlands Antilles); Travelers 
Series Fund Inc.; The USA High Yield Fund N.V.; Worldwide Securities Limited
(Bermuda); Zenix Income Fund Inc. and various series of unit investment 
trusts.  
 
    Smith Barney is a wholly owned subsidiary of Holdings.  The information 
required by this Item 29 with respect to each director, officer and partner of 
Smith Barney is incorporated by reference to Schedule A of Form BD filed by 
Smith Barney pursuant to the Securities Exchange Act of 1934 (SEC File No.
812-8510). 
 
Item 30.  Location of Accounts and Records 
 
(1) 	Smith Barney Investment Funds Inc. 
	388 Greenwich Street 
	New York, New York  10013 
 
(2)	Smith Barney Mutual Funds Management Inc. 
	388 Greenwich Street 
	New York, New York  10013 
 
(3)	PNC Bank, National Association 
	17th and Chestnut Streets 
	Philadelphia, PA 
 
(4)	The Chase Manhattan Bank 
	Chase Metrotech Center 
	Brooklyn, New York 11245 
 
(5)	First Data Investor  Services Group, Inc. 
	One Exchange Place 
	Boston, Massachusetts  02109 
 
Item 31. Management Services 
 
	Not Applicable. 
 
Item 32. Undertakings 
 
    (b) The Registrant hereby undertakes to file a post-effective amendment, 
which includes financial statements, within four to six month from the 
effective date of this Registration Statement. 
 
    (c) The Registrant hereby undertakes to furnish to each person to whom a 
prospectus of any series of the Registrant is delivered a copy of the 
Registrant's latest annual report, upon request and without charge. 
 
SIGNATURES 
 
	Pursuant to the requirements of the Securities Act of 1933, as amended, and 
the Investment Company Act of 1940, as amended, the Registrant, SMITH BARNEY 
INVESTMENT FUNDS INC., has duly caused this Amendment to the Registration 
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, State of New York on the 13th day 
of August, 1997. 
 
SMITH BARNEY INVESTMENT FUNDS INC. 
 
 
By: /s/ Heath B. McLendon* 
      Heath B. McLendon 
      Chief Executive Officer 
 
 
	WITNESS our hands on the date set forth below. 
 
	Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated. 
 
Signature			Title				Date	 
 
/s/ Heath B. McLendon		Chairman of the Board		08/13/97 
Heath B. McLendon		(Chief Executive Officer) 
 
/s/ Lewis E. Daidone		 Senior Vice President 
Lewis E. Daidone		 and Treasurer			08/13/97 
				(Chief Financial  
				and Accounting Officer) 
 
/s/ Paul R. Ades	*		Director			08/13/97 
Paul R. Ades 
 
/s/ Herbert Barg*	 	Director			08/13/97 
Herbert Barg 
 
/s/ Dwight B. Crane*		Director			08/13/97 
Dwight B. Crane 
 
/s/ Frank Hubbard*		Director			08/13/97 
Frank Hubbard 
 
/s/ Ken Miller*			Director			08/13/97 
Ken Miller 
 
/s/ John F. White*		Director			08/13/97 
John F. White 
 
*Signed by Heath B. McLendon, their duly authorized attorney-in-fact, pursuant
to power of attorney dated November 3, 1994. 
 
/s/ Heath B. McLendon 
Heath B. McLendon