Securities Act File No.  
	Investment Company Act File No.811-5928

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/

 (Check appropriate box or boxes)



SMITH BARNEY DISCIPLINED SMALL CAP FUND, 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: (212) 816-6474

Christina T.  Sydor
Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
22nd Floor
New York, New York 10013


(Name and Address of Agent for Service)

Rule 24f-2(a)(1) Declaration: 

Registrant is registering an indefinite number of shares of capital stock by 
this Registration Statement pursuant to Rule 24f-2 under the Investment 
Company Act of 1940, as amended.

Approximate Date of Proposed Public Offering: As soon as practicable after the 
effective date of the Registration Statement. 

Registrant amends this Registration Statement on such date or dates as may be 
necessary to delay its effective date until Registrant files a further 
amendment that specifically states that this Registration Statement will 
thereafter become effective in accordance with Section 8(a) of the Securities 
Act of 1933, as 
amended, or until this Registration Statement becomes effective on such date 
as the Commission, acting pursuant to Section 8(a) of the Securities Act of 
1933, as amended, may determine.







Part A
Item No.


Prospectus Heading	

1. Cover Page	

Cover Page

2. Synopsis	

Fee Table

3. Condensed Financial 
Information	


Not Applicable

4. General Description 
of Registrant	


Cover Page; Investment Objectives 
and Policies; Yield Information; 
Additional Information

5. Management of the 
Fund	

Fee Table; Management of the Fund; 
Distributor

6. Capital Stock and 
Other Securities	


Dividends, Automatic Reinvestment 
and Taxes; Additional Information

7. Purchase of 
Securities Being 
Offered	


Purchase of Shares; Valuation of 
Shares

8. Redemption or 
Repurchase	


Redemption of Shares

9. Pending Legal 
Proceedings	


Not Applicable




Part B
Item No.


Additional Information	

10. Cover Page	

Cover Page

11. Table of Contents	

Table of Contents

12. General Information 
and History	

Management Agreement, Plan of 
Distribution and Other Services; 
See Prospectus  Cover Page, and 
Additional Information

13. Investment Objectives 
and Policies	

Investment Objectives

14. Management of the 
Fund	

Management Agreement, Plan of 
Distribution and Other Services; 
See Prospectus Management of the 
Fund

15. Control Persons and 
Principal Holders of 
Securities	


Management Agreement, Plan of 
Distribution and Other Services; 
See Prospectus Management of the 
Fund

16. Investment Advisory 
and Other Services	


Management Agreement Plan of 
Distribution and Other Services; 
Custodian, Transfer Agent and 
Dividend Disbursing Agent; See 
Prospectus Management of the 
Fund and Distributor; 
Additional Information"

17. Brokerage Allocation 
and Other Practices	


Investment Objectives; Management 
Agreement, Plan Of Distribution 
and Other Services.


18. Capital Stock and 
Other Securities	

See Prospectus Purchase of 
Shares, Redemption of Shares, 
Dividends, Automatic Reinvestment 
and Taxes

19. Purchase, Redemption 
and Pricing of 
Securities Being 
Offered	



Determination of Net Asset Value.  
See Prospectus  Purchase of 
Shares, Redemption of Shares, 
Valuation of Shares

20. Tax Status	

See Prospectus Dividends, 
Automatic Reinvestment and Taxes"

21. Underwriters	

See Prospectus  Purchase of 
Shares

22. Calculation of 
Performance Data	


Yield Information; See Prospectus 
 Yield Information

23. Financial Statements	

Not Applicable




PART A 
PROSPECTUS

                                   PROSPECTUS
                                                                    SMITH BARNEY

                                                                     Disciplined
                                                                       Small Cap
                                                                      Fund, Inc.

                                                                   JUNE 00, 1997

                                                   Prospectus begins on page one

{LOGO] Smith Barney Mutual Funds
       Investing for your future.
       Every day.
<PAGE>

--------------------------------------------------------------------------------
Prospectus                                                        June [ ], 1997
--------------------------------------------------------------------------------

   Smith Barney Disciplined
   Small Cap Fund, Inc.
   388 Greenwich Street
   New York, New York 10013
   1-800-451-2010

     Smith Barney Disciplined Small Cap Fund, Inc. (formerly The Inefficient-
Market Fund, Inc.) (the "Fund") is an open-end diversified management investment
company that seeks long term capital appreciation by investing primarily in the
common stocks of companies with relatively small market capitalizations. The
Fund will provide diversified exposure to the universe of stocks that comprise
the bottom one-third of the investable U.S. stock market in terms of total
market value. The adviser to the Fund will select stocks based on a disciplined
quantitative screening process that seeks a combination of attractive relative
value and earnings growth. In order to provide consistent relative performance,
the Fund will hold a portfolio that is comparable to a broad based index of the
small cap segment of the U.S. stock market in terms of economic sector
weightings, market capitalization and liquidity.

     This Prospectus sets forth concisely certain information about 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
Additional Information dated June [ ], 1997, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information ("SAI") 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

TRAVELERS INVESTMENT MANAGEMENT COMPANY
Investment Adviser

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Administrator

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.


                                                                               1
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Table of Contents
--------------------------------------------------------------------------------
Prospectus Summary                                                             3
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Financial Highlights                                                           9
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Investment Objective and Management Policies                                  10
--------------------------------------------------------------------------------
Valuation of Shares                                                           13
--------------------------------------------------------------------------------
Dividends, Distributions and Taxes                                            13
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Purchase of Shares                                                            15
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Exchange Privilege                                                            24
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Redemption of Shares                                                          27
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Minimum Account Size                                                          30
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Performance                                                                   30
--------------------------------------------------------------------------------
Management of the Fund                                                        31
--------------------------------------------------------------------------------
Distributor                                                                   32
--------------------------------------------------------------------------------
Additional Information                                                        33
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--------------------------------------------------------------------------------
     No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund or
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 Prospectus.
See "Table of Contents."

     INVESTMENT OBJECTIVE The Fund is an open-end, management investment company
that seeks long term capital appreciation by investing primarily in the common
stocks of companies with relatively small market capitalizations. The Fund will
provide diversified exposure to the universe of stocks that comprise the bottom
one-third of the investable U. S. stock market in terms of total market value.
The adviser to the Fund will select stocks based on a disciplined quantitative
screening process that seeks a combination of attractive relative value and
earnings growth. In order to provide consistent relative performance, the Fund
will hold a portfolio that is comparable to a broad based index of the small cap
segment of the U. S. stock market in terms of economic sector weightings, market
capitalization and liquidity. 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. This CDSC may be waived for certain redemptions.
Class B shares are subject to an annual service fee of 0.25% and an annual
distribu tion 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


                                                                               3
<PAGE>

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------
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 Change Alternatives."

     Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.25% and an annual
distribution fee of 0.75% of the average daily net assets of the Class C shares,
and investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months
of purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of 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
initial 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 con-
sider the following factors, as well as any other relevant facts and
circumstances:

     Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an alternative, Class
B and Class C shares are sold without any initial sales charge so the entire
purchase price is immediately invested in the Fund. Any investment return on
these additional invested amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.

     Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.

     Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire purchase
price will be immediately invested in the Fund. In addition, Class A share
purchases of $500,000


4
<PAGE>

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------
or more, will be made at net asset value with no initial sales charge, but will
be subject to a CDSC of 1.00% on redemptions made within 12 months of purchase.
The $500,000 investment may be met by adding the purchase to the net asset value
of all Class A shares offered with a sales charge held in funds sponsored by
Smith Barney listed under "Exchange Privilege." Class A share purchases also may
be eligible for a reduced initial sales charge. See "Purchase of Shares."
Because the ongoing expenses of Class A shares may be lower than those for Class
B and Class C shares, purchasers eligible to purchase Class A shares at net
asset value or at a reduced sales charge should consider doing so.

     Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.

     See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.

     SMITH BARNEY 401(k) AND EXECCHOICE(TM) PROGRAMS Investors may be eligible
to participate in the Smith Barney 401(k) Program, which is generally designed
to assist plan sponsors in the creation and operation of retirement plans under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as other types of participant directed, tax-qualified employee benefit
plans. Investors may also be eligible to participate in the Smith Barney
ExecChoice(TM) Program. Class A and Class C shares are available without sales
charge as investment alternatives under both of these programs. See "Purchase of
Shares -- Smith Barney 401(k) and ExecChoice(TM) Programs."

     PURCHASE OF SHARES Shares may be purchased through a brokerage account
maintained by Smith Barney. Shares may also be purchased through a broker that
clears securities transactions through Smith Barney on a fully disclosed basis
(an "Introducing Broker") or an investment dealer in the selling group. In
addition, certain investors, including qualified retirement plans and certain
other institutional investors, may purchase shares directly from the Fund
through the Fund's transfer agent, First Data Investor Services Group, Inc.
("First Data"). See "Purchase of Shares."

     INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may
open an account by making an initial investment of at least $1,000 for each
account, or $250 for an individual retirement account ("IRA") or a Self-Employed
Retirement Plan. Investors in Class Y shares may open an account for an initial
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, 


                                                                               5
<PAGE>

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------
Class B and Class C shares and the subsequent investment requirement for all
Classes of shares is $25. The minimum investment requirements for purchases of
Fund shares through the Systematic Investment Plan are described below. See
"Purchase of Shares."

     SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares. The minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes for shareholders purchasing
shares through the Systematic Investment Plan on a monthly basis is $25 and on a
quarterly basis is $50. See "Purchase of Shares."

     REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."

     MANAGEMENT OF THE FUND The Travelers Investment Management Company (the
"Manager") serves as the Fund's investment adviser. The Manager provides
advisory and management services to certain investment companies affiliated with
Smith Barney. The Manager is a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial services holding company engaged, through
its subsidiaries, principally in four business segments: Investment Services,
Consumer Finance Services, Life Insurance Services and Property & Casualty
Insurance Services. See "Management of the Fund."

     Smith Barney Mutual Funds Management Inc. ("SBMFM") serves as the Fund's
administrator. SBMFM is a wholly owned subsidiary of Holdings which is a wholly
owned subsidiary of Travelers. SBMFM provides investment advisory and
administration services to investment companies affiliated with Smith Barney.
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 a Smith Barney Financial Consultant. See "Valuation of Shares."

     DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income and
distributions of net realized capital gains, if any, are declared and paid
annually. See "Dividends, Distributions and Taxes."

     REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an


6
<PAGE>

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A
shares on a pro rata basis. See "Dividends, Distributions and Taxes."

     RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund's investment objective will be achieved. The value of the Fund's
investments, and thus the net asset value of the Fund's shares, will fluctuate
in response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Fund invests. See
"Investment Objective and Management Policies."

     THE FUND'S EXPENSES The following expense table lists the costs and
expenses an investor will incur either directly or indirectly as a shareholder
of the Fund, based on the maximum sales charge or maximum CDSC that may be
incurred at the time of purchase or redemption and the Fund's operating expenses
for its most recent fiscal year:

<TABLE>
<CAPTION>
 Smith Barney Disciplined Small Cap Fund, Inc.                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 Portfolio Operating Expenses
(as a percentage of average net assets)
    Management fees .......................................     0.75%       0.75%       0.75%           0.75%
    12b-1 fees** ..........................................     0.25        1.00        1.00              -
    Other expenses*** .....................................     0.26        0.26        0.26            0.26
Total Portfolio Operating Expenses ........................     1.26%       2.01%       2.01%           1.01%
---------------------------------------------------------------------------------------------------------------
</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.

     ***Estimated for the fiscal year ending December 31, 1997.

     + Shareholders at the time of conversion to open-end status will
receive Class A shares and will be required to pay a 2% redemption
fee on those Class A shares from the
date the Securities and Exchange Commission declares 
the Fund's conversion to be
effective through the end of 1997.

     Class A shares of the Fund purchased through the Smith Barney AssetOneSM
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


                                                                               7
<PAGE>

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------
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) or ExecChoicee
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 and
Class C shares an annual 12b-1 fee of 1.00% of the value of average daily net
assets of the respective Classes, consisting of a 0.75% distribution fee and a
0.25% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees.

Example

     The following example is intended to assist an investor in understanding
the various costs that an investor in the 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 Disciplined Small Cap Fund, Inc.                     1 Year     3 Years     5 Years    10 Years*
---------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>         <C>        <C>         <C> 
An investor would pay the following expenses on a $1,000
  investment, assuming (1) 5.00% annual return and 
  (2) redemption at the end of each time period:
        Class A.................................................    $62         $88        $116        $195
        Class B.................................................     70          93         118         215
        Class C.................................................     30          63         108         234
        Class Y.................................................     10          32          56         124

An investor would pay the following expenses on
  the same investment, assuming the same
  annual return and no redemption:

        Class A.................................................    $62         $88        $116        $195
        Class B.................................................     20          63         108         215
        Class C.................................................     20          63         108         234
        Class Y.................................................     10          32          56         124
---------------------------------------------------------------------------------------------------------------
</TABLE>

*  Ten-year figures assume conversion of Class B shares to Class A shares at
   the end of the eighth year following the date of purchase.

     The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be greater or
less than those shown.


8
<PAGE>

--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
     The following information for the five year period ended December 31, 1996
has been audited by KPMG Peat Marwick LLP, independent auditors, whose report
thereon appears in the Fund's annual report dated December 31, 1996. The
information set out below should be read in conjunction with the financial
statements and related notes that also appear in the Fund's Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information.

For a share of capital stock outstanding throughout each year:

<TABLE>
<CAPTION>
Smith Barney Disciplined
Small Cap Fund, Inc.                                          1996            1995            1994            1993            1992
==================================================================================================================================
<S>                                                         <C>             <C>             <C>             <C>             <C>   
Net Asset Value, Beginning of Year                          $12.15          $11.78          $12.50          $11.49          $10.34
----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
  Net investment income                                       0.05            0.11            0.05            0.01            0.05
  Net realized and unrealized gain (loss)                     2.14            2.31           (0.63)           1.01            1.15
----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations                           2.19            2.42           (0.58)           1.02            1.20
----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
  Net investment income                                      (0.04)          (0.11)          (0.05)          (0.01)          (0.05)
  Net realized gains(1)                                      (2.00)          (1.94)          (0.09)             --              --
----------------------------------------------------------------------------------------------------------------------------------
Total Distributions                                          (2.04)          (2.05)          (0.14)          (0.01)          (0.05)
----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year                                $12.30          $12.15          $11.78          $12.50          $11.49
----------------------------------------------------------------------------------------------------------------------------------
Total Return,
  Based on Market Value                                      39.57%          24.18%          (8.46)%          6.44%          11.86%
----------------------------------------------------------------------------------------------------------------------------------
Total Return,
  Based on Net Asset Value                                   20.56%          18.90%          (4.36)%          8.90%          11.71%
----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (in millions)                          $53             $53             $52             $55             $50
----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses                                                    1.21%           1.22%           1.22%           1.24%           1.36%
  Net investment income                                       0.43            0.84            0.43            0.08            0.45
----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                                        151%            177%             45%             87%             46%
----------------------------------------------------------------------------------------------------------------------------------
Market Price, End of Year                                  $11.500          $9.813          $9.500         $10.500          $9.875
----------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
  paid on equity transactions(2)                             $0.05           $0.05              --              --              --
==================================================================================================================================
</TABLE>
(1)  Includes short-term realized gains distributions which are considered
     ordinary income for Federal income tax purposes.
(2)  As of September 1995, the SEC instituted new guidelines requiring the
     disclosure of average commissions per share.


                                                                               9
<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Management Policies
--------------------------------------------------------------------------------
     Smith Barney Disciplined Small Cap Fund, Inc. (the "Fund") is an open-end
diversified management investment company that seeks long term capital
appreciation by investing primarily (at least 65% of its assets)
in the common stocks of companies with
relatively small market capitalizations at the time of investment.
The Fund is designed to provide
diversified exposure to the universe of stocks that comprise the bottom
one-third of the investable U.S. stock market in terms of total market value.
The adviser to the Fund will select stocks based on a disciplined quantitative
screening process that seeks a combination of attractive relative value and
earnings growth.

     In order to provide relative performance, the Fund will hold a portfolio
that is comparable to the Russell 2500 in terms of economic sector weightings,
market capitalization and liquidity. The Russell 2500 is a broad based index of
the small cap segment of the U.S. stock market. However, the Fund is not an
index fund and is not limited to investing in the stocks that comprise the
Russell 2500 Index. Over time, the Fund is expected to exhibit performance
volatility that is similar to that of the Russell 2500 index. Of course, there
can be no assurance that the Fund's total return, before or after expenses, will
match or exceed that of the Russell 2500 Index.

     The Fund will employ an active investment strategy that focuses primarily
on individual stock selection. In selecting individual holdings for the Fund's
portfolio, the investment adviser will apply a number of computerized investment
models to identify stocks that have a high probability of outperforming their
respective industry/sector peer groups within the Russell 2500. These investment
models incorporate a diverse set of valuation, earnings and relative price
variables to produce a comprehensive appraisal profile on every stock in a
selection universe of roughly 3,000 securities. Stocks that are determined to be
attractive based on a combination of quantitative and fundamental criteria will
be overweighted relative to the benchmark index. In general, the discipline will
favor stocks that demonstrate an improving trend of earnings and also appear
attractive based on measures of fundamental value. While these securities have
the potential to outperform the securities represented in the Russell 2500, they
may in fact be more volatile or have a lower return than the Index. Although
equity securities have historically demonstrated long-term growth in value,
their prices fluctuate based on changes in a company's financial condition and
general economic conditions. This is especially true in the case of smaller
companies.

   Under normal circumstances the Fund will seek to remain fully invested
in common stocks. However, the
Fund may invest in certain short-term money market instruments for cash
management purposes or in adverse market conditions
and may establish a position in exchange-traded stock index
futures contracts for the purpose of gaining short-term equity exposure.

     Further information about the Fund's investment policies, including a list
of those restrictions on its investment activities that cannot be changed
without shareholder approval, appears in the SAI.


10
<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------
   INVESTMENT POLICIES AND STRATEGIES

     Short-Term Investments.  The short-term money market instruments,
in which the Fund may invest include such as U.S. government securities,
certificates of deposit, time deposits, and bankers' acceptances issued by
domestic banks (including their branches located outside the United States and
subsidiaries located in Canada), domestic branches of foreign banks, savings and
loan associations and similar institutions, high-grade commercial paper, and
repurchase agreements with respect to such instruments.

     Repurchase Agreements. The Fund may enter into repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by the Fund
and with certain dealers on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, the Fund
would acquire an underlying obligation for a relatively short period (usually
not more than one week) subject to an obligation of the seller to repurchase,
and the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period.

     Stock Index Futures Contracts. The Fund will use exchange-related stock
index futures contracts as a hedge to protect against changes in stock prices. A
stock index futures contract is a contractual obligation to buy or sell a
specified index of stocks at a future date for a fixed price. Stock index
futures may also be used to hedge cash inflows to gain market exposure until the
cash is invested in specific common stocks. The Fund will not purchase or sell
futures contracts for which the aggregate initial margin exceeds five percent
(5%) of the fair market value of assets, after taking into account unrealized
profits and losses an any such contracts which it is entered into. When a
futures contract is purchased, the Fund will set aside, in an identifiable
manner, an amount of cash and cash equivalents equal to the total market value
of the futures contract, less the amount of the initial margin.

     All stock index futures will be traded on exchanges that are licenced and
regulated by the Commodity Futures Trading Commission ("CFTC"). To ensure that
its futures transactions meet CFTC standards, the Fund will enter into futures
contracts for hedging purposes only. The Fund expects that risk management
transactions involving futures contracts will not impact more than twenty
percent (20%) of its assets at any one time.

     Real Estate Investment Trust Securities. From time to time, the Fund may
invest in Real Estate Investment Trusts ("REITs"). REITs are pooled investment
vehicles that invest primarily in either real estate or real esate related
loans. The value of a REIT is affected by changes in the value of the properties
owned by the REIT or securing mortgage loans held by the REIT. REITs are
dependent upon cash flow from its investments to repay financing costs and the
ability of the REIT's manager. REITs are also subject to risks generally
associated with investments in real estate.


                                                                              11
<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------
     Lending of Portfolio Securities. From time to time, the Fund may lend its
portfolio securities to brokers, dealers and other financial organizations.
These loans may not exceed 331 1/43% of the Fund's total assets taken at value.
Loans of portfolio securities by the Fund will be collateralized by cash,
letters of credit or obligations of the United States government or its agencies
and instrumentalities ("U.S. government securities") which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. By lending its portfolio securities, the Fund will seek to
generate income by continuing to receive interest on loaned securities, by
investing the cash collateral in short-term instruments or by obtaining yield in
the form of interest paid by the borrower when U.S. government securities are
used as collateral. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delays in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially.

     Leveraging. The Fund may from time to time leverage its investments by
purchasing securities with borrowed money. The Fund may borrow money only from
banks and in an amount not to exceed 331 1/43% of the total value of its assets
less its liabilities. Borrowed money creates an opportunity for greater capital
gain but at the same time increases exposure to capital risk, as any gain in the
value of securities purchased with borrowed money that exceeds the interest paid
on the amount borrowed would cause the Fund's net asset value to increase more
rapidly than otherwise, while any decline in the value of securities purchased
would cause the Fund's net asset value to decrease more rapidly than otherwise.

     Restricted Securities. Restricted securities are those that may not be sold
publicly without first being registered under the Securities Act of 1933, as
amended. For that reason, the Fund may not be able to dispose of restricted
securities at a time when, or at a price at which, it desires to do so and may
have to bear expenses associated with registering the securities. At any one
time, the Fund's aggregate holdings of restricted securities, repurchase
agreements having a duration of more than five business days, and securities
lacking readily available market quotations will not exceed 15% of the Fund's
total assets.

     Certain Risk Considerations. There can be no assurance that the Fund's
investment objective will be achieved. The Fund is expected to remain fully
invested in common stocks to the extent practicable, and is therefore 
subject to the general risk of the stock market. The Fund will invest
in stocks of smaller companies
that may individually exhibit more price volatility than the broad market
averages. Moreover, the Fund will invest in stocks of growth-oriented companies
that tend to reinvest earnings rather than pay dividends. As a result, dividend
income is not expected to be a significant component of the Fund's total return.
The Fund is suitable for investors who have a long term investment horizon and
wish to broaden their common stock investments through an actively managed fund
that specializes in stocks with smaller market capitalizations. The Fund may not
be appropriate for all investors.


12
<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------
     Portfolio Transactions. Portfolio securities transactions on behalf of the
Fund are placed by the Manager with a number of brokers and dealers, including
Smith Barney. Smith Barney has advised the Fund that in transactions with the
Fund, Smith Barney charges a commission rate at least as favorable as the rate
Smith Barney charges its comparable unaffiliated customers in similar
transactions.

     The Fund intends generally to purchase securities for long-term capital
appreciation. The Fund's annual portfolio turnover rate is not expected to
exceed 150%. The Fund's portfolio turnover rate will vary from year to year.
High turnover rates increase tranaction costs and may increase taxable capital
gains. The Manager considers these effects when evaluating the anticipated
benefits of short-term investing.

--------------------------------------------------------------------------------
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 market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Directors.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Directors determine that amortized cost reflects fair value of
those investments.

--------------------------------------------------------------------------------
Dividends, Distributions and Taxes
--------------------------------------------------------------------------------

     DIVIDENDS AND DISTRIBUTIONS

     The Fund declares and pays income dividends at least annually on shares of
the Fund and makes annual distributions of capital gains, if any, on such
shares.

     If a shareholder does not otherwise instruct, dividends and capital gain
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC.

     Income dividends and capital gain distributions that are invested are
credited to shareholders' accounts in additional shares at the net asset value
as of the close of business on the payment date. A shareholder may change the
option at any time by notifying his or her Smith Barney Financial Consultant.
Accounts held directly by First Data should notify First Data in writing at
least five business days prior to the payment date to permit the change to be
entered in the shareholder's account.


                                                                              13
<PAGE>

--------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
--------------------------------------------------------------------------------
     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 has qualified and intends to qualify each yearas a regulated
investment company under
Subchapter M of the Internal Revenue Code of 1986 as amended,
to be relieved of Federal income tax on that part of
its net investment income and realized capital gains which it pays out to its
shareholders. To continue to qualify, the Fund must meet certain tests, 
including distributing at least 90% of its investment company taxable income, 
and deriving
less than 30% of its gross income from the sale or other disposition of certain
investments held for less than three months.

     Dividends from net investment income and distributions of realized
short-term capital gains on the sale of securities, whether paid in cash or
automatically invested in additional shares of the Fund, are taxable to
shareholders as ordinary income.  A portion of the Fund's dividends 
from investment income may qualify for the
dividends received deduction for corporations. Dividends and distributions
declared by the Fund may also be subject to state and local taxes. Distributions
out of net long-term capital gains (i.e., net long-term capital gains in excess
of net short-term capital losses) are taxable to shareholders as long-term
capital gains. Information as to the tax status of dividends paid or deemed paid
in each calendar year will be mailed to shareholders as early in the succeeding
year as practical but not later than January 31.

     In determining gain or loss, a shareholder who redeems or exchanges shares
in the Fund within 90 days of the acquisition of such shares will not be
entitled to include in tax basis the sales charges incurred in acquiring such
shares to the extent of any subsequent reduction in sales charges for investing
in the Fund, such as pursuant to the rights discussed in "Exchange Privilege."

     The Fund is required to withhold and remit to the U.S. Treasury 31% of
dividends, distributions and redemption proceeds to shareholders who fail to
provide a correct taxpayer identification number (the Social Security number in
the case of an individual) or to make the required certifications, or who have
been notified by the Internal Revenue Service that they are subject to backup
withholding and who are not otherwise exempt. The 31% withholding tax is not an
additional tax, but is creditable against a shareholder's federal income tax
liability.

     Prior to investing in shares of the Fund, investors should consult with
their tax advisors concerning the federal, state and local tax consequences of
such an investment.


14
<PAGE>

--------------------------------------------------------------------------------
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
redemptions. Fund shareholders at the time of conversion to open-end
status receive Class A shares without the imposition of an initial sales
charge.  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
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.

     Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. In addition, certain investors, including qualified
retirement plans and certain other institutional investors, may purchase shares
directly from the Fund through First Data. When purchasing shares of the Fund,
investors must specify whether the purchase is for Class A, Class B, Class C or
Class Y shares. Smith Barney and other broker/dealers may charge their customers
an annual account maintenance fee in connection with a brokerage account through
which an investor purchases or holds shares. Accounts held directly at First
Data are not subject to a maintenance fee.

     Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account, or $250 for an
IRA or a Self-Employed Retirement Plan, in the Fund. Investors in Class Y shares
may open an account by making 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 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 Systematic Investment Plan on a quarterly basis, the minimum
initial investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirement for all Classes is $50. There are no minimum
investment requirements in Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Directors or Trustees, of any of the Smith
Barney Mutual Funds, and their spouses and children. The Fund reserves the right
to waive or change minimums, to decline any order to purchase its shares and to
suspend the offering of shares from time to time. Shares purchased will be held
in the shareholder's account by the Fund's transfer agent, First Data. Share
certificates are issued only upon a shareholder's written request to First Data.


                                                                              15
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

     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 value,
are priced according to the net asset value determined on that day (the "trade
date"). Orders received by dealers or introducing brokers prior to the close of
regular trading on the NYSE on any day 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 Introducing Brokers
purchasing through Smith Barney, payment for Fund shares is due on the third
business day (the "settlement date") after the trade date. In all other cases,
payment must be made with the purchase order.

     SYSTEMATIC INVESTMENT PLAN

     Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or First Data is authorized through
pre-authorized transfers of at least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the regular bank account or other financial
institution indicated by the shareholder to provide systematic additions to the
shareholder's 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>
                                                                                               Dealers'
                                           Sales Charge               Sales Charge            Reallowance
                                               % of                      as % of                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."


16
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------
     Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.

     The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of 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.

     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 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 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 of the Smith Barney Mutual Funds
that are sold with a maximum 5.00% 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) purchases of Class A shares
by Section 403(b) or Section 401(a) or (k) accounts associated with Copeland
Retirement Programs; (g) direct rollovers by plan participants of distributions
from a 401(k) plan offered to employees of Travelers or its subsidiaries or a
401(k) plan enrolled in the Smith Barney 401(k) Program (Note: subsequent
investments will be subject to the applicable sales charge); (h) purchases by
separate accounts used to fund certain unregistered variable annuity contracts;
and (i) purchases by investors participating in a Smith Barney fee-based
arrangement. In order to obtain such discounts, the purchaser must provide
sufficient information at the time of purchase to permit verification that the
purchase would qualify for the elimination of the sales charge.


                                                                              17
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------
     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 aggregating
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
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer- or partnership-sanctioned plan
meeting certain requirements. One such requirement is that the plan must be open
to specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions, IRAs or
investments pursuant to retirement plans under Sections 401 or 408 of the Code.
Smith Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available to
arrange for group meetings between representatives of the Fund and the members,
and must agree to include sales and other materials related to the Fund in its
publications and mailings to members at no cost to Smith Barney. In order to
obtain such reduced sales charge or to purchase at net asset


18
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------
value, the purchaser must provide sufficient information at the time of purchase
to permit verification that the purchase qualifies for the reduced sales charge.
Approval of group purchase reduced sales charge plans is subject to the
discretion of Smith Barney.

     LETTER OF INTENT

     Class A Shares. A Letter of Intent for amounts of $50,000 or more provides
an opportunity for an investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the "Amount of
Investment" as referred to in the preceding sales charge table includes
purchases of all Class A shares of the 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
previously purchased and still owned. An alternative is to compute the 13 month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be redeemed. Please contact a
Smith Barney Financial Consultant or First Data to obtain a Letter of Intent
application.

     Class Y Shares. A Letter of Intent may also be used as a way for investors
to meet the minimum investment requirement for Class Y shares. Such investors
must make an initial minimum purchase of $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 original cost of the shares being redeemed or their net asset value at the
time of


                                                                              19
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------
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 held under the Smith Barney 401(k) Program, as described below.
See "Purchase of Shares --Smith Barney 401(k) and ExecChoiceTM Programs."

        Year Since Purchase
         Payment Was Made             CDSC
--------------------------------------------------------------------------------
            First                     5.00%
            Second                    4.00
            Third                     3.00
            Fourth                    2.00
            Fifth                     1.00
            Sixth and thereafter      0.00
--------------------------------------------------------------------------------

     Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. See "Prospectus Summary --Alternative Purchase Arrangements
-- Class B Shares Conversion Feature."

     In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally of other shares held by the shareholder for the longest period of
time. The length of time that CDSC Shares acquired through an exchange have been
held will be 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


20
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------
gain distribution reinvestments in such other funds. For Federal income tax
purposes, the amount of the CDSC will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption. The amount of any CDSC
will be paid to Smith Barney.

     To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.

     WAIVERS OF CDSC

     The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within twelve
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares to effect a combination of the Fund with any investment
company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other funds of the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit for any CDSC imposed on the
prior redemption.

     CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by First Data in
the case of all other shareholders) of the shareholder's status or holdings, as
the case may be.

     SMITH BARNEY 401(K) AND EXECCHOICE(TM) PROGRAMS

     Investors may be eligible to participate in the Smith Barney 401(k) Program
or the Smith Barney ExecChoice(TM) Program. To the extent applicable, the same
terms and conditions, which are outlined below, are offered to all plans
participating ("Participating Plans") in these programs.

     The Fund offers to Participating Plans Class A and Class C shares as


                                                                              21
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

investment alternatives under the Smith Barney 401(k) and ExecChoice(TM)
Programs. Class A and Class C shares acquired through the Participating Plans
are subject to the same service and/or distribution fees as the Class A and
Class C shares acquired by other investors; however, they are not subject to any
initial sales charge or CDSC. Once a Participating Plan has made an initial
investment in the 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. If, at
the end of the fifth year after the date the Participating Plan enrolled in the
Smith Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program, a
Participating Plan's total Class C holdings in all non-money market Smith Barney
Mutual Funds equal at least $1,000,000, the Participating Plan will be offered
the opportunity to exchange all of its Class C shares for Class A shares of the
Fund. (For Participating Plans that were originally established through a Smith
Barney retail brokerage account, the five-year period will be calculated from
the date the retail brokerage account was opened.) Such Participating Plans will
be notified of the pending exchange in writing within 30 days after the fifth
anniversary of the enrollment date and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the 90th day after the
fifth anniversary date. If the Participating Plan does not qualify for the
five-year exchange to Class A shares, a review of the Participating Plan's
holdings will be performed each quarter until either the Participating Plan
qualifies or the end of the eighth year.

     401(k) Plans Opened Prior to June 21, 1996. In any year after the date a
Participating Plan enrolled in the Smith Barney 401(k) Program, if its total
Class C holdings in all non-money market Smith Barney Mutual Funds equal at
least $500,000 as of the calendar year-end, the Participating Plan will be
offered the opportunity to exchange all of its Class C shares for Class A shares
of the 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) or ExecChoice(TM)
Program, whether opened before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be offered the opportunity to
exchange all of its Class C shares for Class A shares of the Fund regardless of
asset size, at the end


22
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------
of the eighth year after the date the Participating Plan enrolled in the Smith
Barney 401(k) or ExecChoice(TM) 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 subject to the
distribution fee.

     Participating Plans wishing to acquire shares of the Fund through the Smith
Barney 401(k) Program or the Smith Barney ExecChoice(TM) Program must purchase
such shares directly from the Transfer Agent. 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
Fund are not available for purchase by Participating Plans opened on or after
June 21, 1996, but may continue to be purchased by any Participating Plan in the
Smith Barney 401(k) Program opened prior to such date and originally investing
in such Class. Class B shares acquired are subject to a CDSC of 3.00% of
redemption proceeds if the Participating Plan terminates within eight years of
the date the Participating Plan first enrolled in the Smith Barney 401(k)
Program.

     At the end of the eighth year after the date the Participating Plan
enrolled in the Smith Barney 401(k) Program, 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
writing approximately 60 days before the eighth anniversary of the enrollment
date and, unless the exchange has been rejected in writing, the exchange will
occur on or about the eighth anniversary date. Once the exchange has occurred, a
Participating Plan will not be eligible to acquire additional Class B shares of
the Fund but instead may acquire Class A shares of the Fund. If the
Participating Plan elects not to exchange all of its Class B shares at that
time, each Class B share held by the Participating Plan will have the same
conversion feature as Class B shares held by other investors. See "Purchase of
Shares -- Deferred Sales Charge Alternatives."

     No CDSC is imposed on redemptions of Class B shares to the extent that the
net asset value of the shares redeemed does not exceed the current net asset
value of the shares purchased through reinvestment of dividends or capital gain
distributions, plus the current net asset value of Class B shares purchased more
than eight years prior to the redemption, plus increases in the net asset value
of the shareholder's Class B shares above the purchase payments made during the
preceding eight years. Whether or not the CDSC applies to the redemption by a
Participating Plan depends on the number of years since the Participating Plan
first became enrolled in the Smith Barney 401(k) Program, unlike the
applicability of the CDSC to redemptions by other shareholders, which depends on
the number of years since those


                                                                              23
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------
shareholders made the purchase payment from which the amount is being redeemed.

     The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of: (a)
the retirement of an employee in the Participating Plan; (b) the termination of
employment of an employee in the Participating Plan; (c) the death or disability
of an employee in the Participating Plan; (d) the attainment of age 591 1/42 by
an employee in the Participating Plan; (e) hardship of an employee in the
Participating Plan to the extent permitted under Section 401(k) of the Code; or
(f) redemptions of shares in connection with a loan made by the Participating
Plan to an employee.

--------------------------------------------------------------------------------
Exchange Privilege
--------------------------------------------------------------------------------

     Except for Fund shareholders at the time of the coversion of the Fund
to open-end status who will not be able to exchange their Class A 
shares for Class A shares of any other fund in the Smith Barney
family of mutual funds until January 1, 1998
and as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the Smith Barney Mutual
Funds, to the extent shares are offered for sale in the shareholder's state of
residence. Exchanges of Class A, Class B and Class C shares are subject to
minimum investment requirements and all shares are subject to the other
requirements of the fund into which exchanges are made.

FUND NAME
--------------------------------------------------------------------------------
Growth Funds

    Smith Barney Aggressive Growth Fund Inc.
    Smith Barney Appreciation Fund Inc.
    Smith Barney Fundamental Value Fund Inc.
    Smith Barney Growth Opportunity Fund
    Smith Barney Managed Growth Fund
    Smith Barney Natural Resources Fund Inc.
    Smith Barney 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


24
<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 World Funds, Inc. -- Emerging Markets Portfolio
    Smith Barney World Funds, Inc. -- European Portfolio
    Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
    Smith Barney World Funds, Inc. -- International Balanced Portfolio
    Smith Barney World Funds, Inc. -- International Equity Portfolio
    Smith Barney World Funds, Inc. -- Pacific Portfolio

Smith Barney Concert Allocation Series Inc.

    Smith Barney Concert Allocation Series Inc. -- Balanced Portfolio
    Smith Barney Concert Allocation Series Inc. -- Conservative Portfolio
    Smith Barney Concert Allocation Series Inc. -- Growth Portfolio
    Smith Barney Concert Allocation Series Inc. -- High Growth Portfolio
    Smith Barney Concert Allocation Series Inc. -- Income Portfolio


                                                                              25
<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 in any of the funds imposing a CDSC higher
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
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. The Manager may
determine that a pattern of frequent exchanges is excessive and contrary to the
best interests of the Fund's other shareholders. In this event, the Fund may, at
its discretion, decide to limit additional purchases and/or exchanges by the
shareholder. Upon such a deter mination, the Fund will provide notice in writing
or by telephone to the shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the shareholder will be required
to (a) redeem his or her shares in the Fund or (b) remain invested in the Fund
or exchange into any of the funds of the


26
<PAGE>

--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------
Smith Barney Mutual Funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of time. All relevant
factors will be considered in determining what constitutes an abusive pattern of
exchanges.

     Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares -- Telephone Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined. Redemption procedures
discussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The 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 redemption
must specify the Class being redeemed. In the event of a failure to specify
which Class, or if the investor owns fewer shares of the Class than specified,
the redemption request will be delayed until the Fund's transfer agent receives
further instructions from Smith Barney, or if the shareholder's account is not
with Smith Barney, from the shareholder directly. The redemption proceeds will
be remitted on or before the third business day following receipt of proper
tender, except on any days on which the NYSE is closed or as permitted under the
1940 Act in extraordinary circumstances. Generally, if the redemption proceeds
are remitted to a Smith Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.

     Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's


                                                                              27
<PAGE>

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------

Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:

     Smith Barney Disciplined Small Cap Fund, Inc.
     Class A, B, C or Y (please specify)
     c/o First Data Investor Services Group, Inc.
     P.O. Box 9134
     Boston, Massachusetts  02205-9134 

     A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power) and
must be submitted to First Data together with the redemption request. Any
signature appearing on a share certificate,stock power or written redemption
request in excess of $2,000 must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $2,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period or the redemption proceeds are to be sent to an
address other than the address of record. Unless otherwise directed, redemption
proceeds will be mailed to an investor's address of record. First Data may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A redemption request will not
be deemed properly received until First Data receives all required documents in
proper form.

     AUTOMATIC CASH WITHDRAWAL PLAN

     The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
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 share holder's shares subject to the CDSC at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not exceed
2.00% per month of the value of the shareholder's shares subject to the CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.


28
<PAGE>

--------------------------------------------------------------------------------
Redemption of Shares  (continued)
--------------------------------------------------------------------------------
     TELEPHONE REDEMPTION AND EXCHANGE PROGRAM

     Shareholders who do not have a Smith Barney brokerage account may be
eligible to redeem and exchange 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 guarantee, that will be provided by First Data upon request.
(Alternatively, an investor may authorize telephone redemptions on the new
account application with the applicant's signature guarantee when making his/her
initial investment in the 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 the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests may
be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day on which the NYSE is open.

     Additional Information regarding Telephone Redemption and Exchange Program.
Neither the Fund nor its agents will be liable for following instructions
communicated by telephone that are reasonably believed to be genuine. The Fund
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


                                                                              29
<PAGE>

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------
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
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.

--------------------------------------------------------------------------------
Performance
--------------------------------------------------------------------------------

     From time to time the Fund may advertise the Portfolio's total return and
average annual total return in advertisements. In addition, in other types of
sales literature the Fund may include the Portfolio's current dividend return.
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 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 dividing the current
dividend by the net asset value or the maximum public offering price (including
sales charge) on the last day of the period for which current dividend return is
presented. The current dividend return for each Class may vary from time to time
depending on market conditions, the composition of the investment portfolio and
operating expenses. These factors and possible differences in the methods used
in 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.


30
<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
agreements between the Fund and the companies that furnish services to the Fund
and the Fund, including agreements with the Fund's distributor, investment
manager, custodian and transfer agent. The day-to-day operations of the Fund are
delegated to the Fund's investment adviser and administator. The Statement of
Additional Information contains background information regarding each Director
and executive officer of the Fund.

     MANAGER

     The Manager, located at One Tower Square, Hartford, CT 06183-2030 serves as
the Fund's investment adviser and manages the day-to-day operations of the Fund
pursuant to a management agreement entered into by the Manager and the Fund. The
Manager, a registered investment adviser since 1971, has been in the investment
counseling business since 1967 and renders investment advice to a number of
institutional accounts as well as various registered investment companies and
insurance company separate accounts that had total assets under management as of
December 31, 1996 in excess of $1.3 billion. Subject to the supervision and
direction of the Fund's Board of Directors, the Manager manages the Fund 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.

     Investment advisory fees are computed daily and paid monthly at the annual
rate of 0.65% of the Fund's average daily net assets.

     PORTFOLIO MANAGEMENT

     The investment management team of the Fund's Manager is headed by Sandip
Bhagat and Kent Kelley, president and chief executive officer, respectively, of
the Manager, Messrs. Bhagat and Kelley are primarily responsible for the
day-to-day operations of the Fund, including making all investment decisions.

     Management's discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended December 31. 1996
were included in the Annual Report dated December 31, 1996. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.


                                                                              31
<PAGE>

--------------------------------------------------------------------------------
Management of the Fund (continued)
--------------------------------------------------------------------------------
     ADMINISTRATOR

     SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's administrator and oversees all aspects of the Fund's administration
and operation. Administration fees are computed daily and paid monthly at the
annual rate of 0.10% of the Fund's average daily net assets.

--------------------------------------------------------------------------------
Distributor
--------------------------------------------------------------------------------

     Smith Barney Inc. ("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
attributable to these Classes. Smith Barney is also paid a distribution fee with
respect to Class B and Class C shares at the annual rate of 0.75% of the average
daily net assets attributable to these Classes. Class B shares that
automatically convert to Class A shares eight years after the date of original
purchase will no longer be subject to a distribution fee. The fees are used by
Smith Barney to pay its Financial Consultants for servicing shareholder accounts
and, in the case of Class B and Class C shares, to cover expenses primarily
intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to potential
investors; payments to and expenses of Smith Barney Financial Consultants and
other persons who provide support services in connection with the distribution
of shares; interest and/or carrying charges; and indirect and overhead costs of
Smith Barney associated with the sale of 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
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.

     Payments under the Plan are not tied exclusively to the distribution and
shareholder services expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Fund's Board of
Directors will evaluate the 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.


32
<PAGE>

--------------------------------------------------------------------------------
Additional Information
--------------------------------------------------------------------------------
     The Fund, an open-end management investment company, was incorporated in
Maryland on October 4, 1989 as a non-diversified, closed-end company and
converted to open-end diversified status on June 20, 1997 pursuant to
shareholder approval on April 18, 1997 and Securities and Exchange Commission
Declaration of Effectiveness on June 20, 1997. The Fund has an authorized
capital stock of 100,000,000 shares per class with a par value of $.001 per
share. The Board of Directors has authorized the issuance of four classes of
shares, and may authorize the issuance of additional classes of shares in the
future. Class A, Class B, Class C and Class Y shares of the Fund represent
interests in the assets of the Fund and have identical voting, dividend,
liquidation and other rights on the same terms and conditions except that
expenses related to the distribution of each Class of shares are borne solely by
each class and each Class of shares has exclusive voting rights with respect to
provisions of the Fund's Rule 12b-1 distribution plan which pertains to a
particular Class. As described under "Voting" in the Statement of Additional
Information, the Fund ordinarily will not hold meetings of shareholders
annually; however, shareholders have the right to call a meeting upon a vote of
10% of the Fund's outstanding shares for the purpose of voting to remove
directors, and the Fund will assist shareholders in calling such a meeting as
required by the 1940 Act. Shares do not have cumulative voting rights or
preemptive rights and are fully paid, transferable and nonassessable when issued
for payment as described in this Prospectus.

     The PNC Bank, N.A. located at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103, serves as custodian of the Fund's investments.

     First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Fund's transfer agent.

     The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the period covered. In an effort to reduce the Fund's printing and
mailing costs, the Fund plans to consolidate the mailing of its semi-annual and
annual reports by household. This consolidation means that a household having
multiple accounts with the identical address of record will receive a single
copy of each report. Shareholders who do not want this consolidation to apply to
their account should contact their Smith Barney Financial Consultant or the
Fund's transfer agent.


                                                                              33
<PAGE>

                                               SMITH BARNEY

                                               A Member of TravelersGroup [LOGO]

                                                                    Smith Barney
                                                                     Disciplined
                                                                       Small Cap
                                                                      Fund, Inc.

                                                            388 Greenwich Street
                                                        New York, New York 10013

                                                                    FD 0000 4/97





PART B
STATEMENT OF ADDDITIONAL INFORMATION

Smith Barney
DISCIPLINED SMALL CAP GROWTH FUND, INC.

388 Greenwich Street
New York, New York 10013
(800)-451-2010

Statement of Additional 
Information

June [    ], 
1997


	This Statement of Additional Information expands upon and supplements 
the information contained in the current Prospectus of Smith Barney 
Disciplined Small Cap Growth Fund, Inc. (formerly The Inefficient-Market Fund, 
Inc. (the "Fund"), dated June [    ], 1997, as amended or supplemented from 
time to time, and should be read in conjunction with the Fund's Prospectus. 
The Fund's Prospectus may be obtained from any Smith Barney Financial 
Consultant, or by writing or calling the Fund at the address or telephone 
number set forth above. This Statement of Additional Information, although not 
in itself a prospectus, is incorporated by reference into the Prospectus in 
its entirety.

TABLE OF CONTENTS
For ease of reference, the same section headings are used in both the 
Prospectus and this Statement of Additional Information, except where shown 
below:
Management of the 
Fund.......................................................................
 .........		 
Administration of the 
Fund.......................................................................
 ...		 
Investment Objective and Management 
Policies..............................................		 
Purchase of 
Shares........................................................................
 .................		 
Redemption of 
Shares........................................................................
 .............		 
Distributor................................................................
 ......................................	 
Valuation of 
Shares........................................................................
 ................		 
Exchange 
Privilege.....................................................................
 ....................		 
Performance Data (See in the Prospectus 
"Performance'')................................		 
Taxes (See in the Prospectus "Dividends, Distributions and 
Taxes'')................		 
Additional 
Information................................................................
 ....................	 
Financial 
Statements.................................................................
 ......................		 

MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the 
organizations that provide services to the Fund.  These organizations are as 
follows:
Name		Service
Smith Barney Inc.
  ("Smith 
Barney'')..................
 ...........................
 ...............	Distributor
Travelers Investment Management Company
  
("TIMCO')..................
 ...........................
 .......................
	Investment Adviser
Smith Barney Funds Management Inc.
  
("TIMCO'').................
 ...........................
 ......................
	Administrator
PNC Bank, National Association ("PNC").......................	
	Custodian
First Data Investor Services Group, Inc. ("First Data").....	
	Transfer Agent

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



Directors and Executive Officers of the Fund
	The Directors and executive officers of the Fund, 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 Fund, as 
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), is 
indicated by an asterisk.
Jessica 
Bibliowicz*

Executive Vice President of Smith Barney Inc., Chairman 
of the Board of Smith Barney Mutual Funds Management 
(SBMFM"); President of forty two investment companies 
and Director of twelve investment companies associated 
with Smith Barney.  Prior to January 1994, Director of 
Sales and Marketing for Prudential Mutual Funds; 37.


Joseph H. Fleiss

Retired; Director of ten investment companies 
associated with Smith Barney.  Formerly Senior Vice 
President of Citibank, Manager of Citibank's Bond 
Investment Portfolio and Money Desk, and a Director of 
Citicorp Securities Co., Inc.; 79. 


Donald R. Foley

Retired; Director of ten investment companies 
associated with Smith Barney.  Formerly Vice President 
of Edwin Bird Wilson, Incorporated(advertising);74


Paul Hardin

Interim President of University of Alabama at 
Birmingham; Professor of Law at the University of North 
Carolina at Chapel Hill; Director of twelve investment 
companies associated with Smith Barney and a Director 
of The Summit Bancorporation.  Formerly, Chancellor of 
the University of North Carolina at Chapel Hill; 65.


Francis P. 
Martin

Practicing physician; Director of ten investment 
companies associated with Smith Barney; formerly 
President of the Nassau Physicians' Fund, Inc.; 72


Heath B. 
McLendon*


Managing Director of Smith Barney; Director of forty 
two investment companies associated with Smith Barney; 
Chairman of the Board of Smith Barney Strategy Advisers 
Inc.: and President of SBMFM and Director of TIMCO.  
Prior to July 1993, Senior Executive Vice President of 
Shearson Lehman Brothers Inc.; Vice Chairman of 
Shearson Asset Management; 63


John P. Toolan

Retired; Director of ten investment companies 
associated with Smith Barney.  Director of John Hancock 
Funds.  Formerly Director and Chairman of the Smith 
Barney Trust Company, Director of Smith Barney Inc. and 
the Manager.  Prior to 1992, Senior Executive Vice 
President, Director and Member of the Executive 
Committee of Smith Barney; 66


Roderick C. 
Rasmussen

Investment Counselor; Director of ten investment 
companies associated with Smith Barney. Formerly Vice 
President of Dresdner and Company Inc. (investment 
counselors); 70


Bruce D. 
Sargent*


Managing Director of Smith Barney, and Vice President 
and Director of SBMFM, Smith Barney Funds, Inc., and 
Smith Barney World Funds, Inc.; 53


Christina T. 
Sydor

Secretary.  Managing Director of Smith Barney; General 
Counsel and Secretary of SBMFM and Secretary of the 
other investment companies associated with Smith 
Barney; 46.
 .

Lewis Daidone

Senior Vice President and Treasurer.  Managing Director 
of Smith Barney; Director and Senior Vice President of 
SBMFM; Senior Vice President and Treasurer of the other 
investment companies associated with Smith Barney; 38


Thomas M. 
Reynolds
Controller and Assistant Secretary.  Director of Smith 
Barney in the Asset Management  Division and Controller 
of and Assistant Controller of certain other investment 
companies associated with Smith Barney.


	As of February 10, 1997, the Directors and Officers of the Fund owned in 
the aggregate less than 1% of the outstanding shares of the Fund.  No officer, 
director or employee of Smith Barney or any parent or subsidiary receives any 
compensation from the Fund for serving as an officer or Director of the Fund. 
The Fund pays each Director who is not an officer, director or employee of 
Smith Barney or any of its affiliates a fee of $42,000 per annum plus $100 per 
meeting attended and reimburses them for travel and out-of-pocket expenses. 
For the Fund's fiscal year ended December 31, 1996, such fees and expenses 
totaled $5,000.



For the fiscal year ended December 31, 1996, the Directors of the Fund were 
paid the following compensation: 

Compensation Table




Name of Person

Aggregate
Compensat
ion
from Fund

Pension or 
Retirement 
Benefits Accrued 
as part
of Fund Expenses
Total 
Compensation
from Fund and
Fund Complex
Paid to 
Directors
Number of
Funds for Which 
Director Serves
Within Fund 
Complex

Jessica 
Bibliowicz*
$     0
$ 0
$         0
12

Joseph H. 
Fleiss+
	828
0
58,500
10

Donald R. 
Foley+
	828
0
58,300
10

Paul Hardin+
	956
0
76,850
12

Heath B. 
McLendon*
	   0
0
        0
42

Francis P. 
Martin
	856
0
58,300
10

Roderick C. 
Rasmussen
	856
0
58,500
10

Bruce D. 
Sargent*
	    0
0
         0
  3

John P. 
Toolan+
	856
0
58,500
10

C. Richard 
Youngdahl
	856
0
58,500
10

* Designates an interested director".
+ Pursuant to the Fund's deferred compensation plan, the indicated Directors 
have elected to defer the following payment of some or all of their 
compensation:  Joseph H. Fleiss:  $828,  Donald P. Foley : $828, Paul Hardin:  
$956 and  John P. Toolan:  $856.


Investment Adviser -TIMCO
	Travelers Investment Management Company (TIMCO") serves as investment 
adviser to the Fund pursuant to a written agreement (the "Advisory 
Agreement").  The services provided by TIMCO under the Advisory Agreement are 
described in the Prospectus under "Management of the Fund."  TIMCO bears all 
of its expenses of its employees and overhead in connection with its duties 
under the Advisory Agreement.  TIMCO is a wholly owned subsidiary of Smith 
Barney Holdings Inc. ("Holdings"), which is in turn a wholly owned subsidiary 
of Travelers Group Inc. ("Travelers").
	As compensation for investment advisory services, the Fund pays TIMCO a fee 
computed daily and paid monthly at the annual rate of 0.65% of the value of 
the Fund's average daily net assets. For the 1996, 1995 and 1994 fiscal years, 
the Fund paid $416,000, $418,000 and $402,000, respectively, in investment 
advisory fees.
	Administrator - SBMFM serves as administrator to the Fund pursuant to a 
written agreement (the "Administration Agreement").  The services provided by 
SBMFM under the Administration Agreement are described in the Prospectus under 
"Management of the Fund." SBMFM pays the salary of any officer and employee 
who is employed by both it and the Fund and bears all expenses in connection 
with the performance of its services.
	As compensation for administration services rendered to the Fund, SBMFM 
receives a fee at the annual rate of 0.10% of the value of the Fund's average 
daily net assets. For the 1996, 1995 and 1994 fiscal period, the Fund paid 
SBMFM $138,000 , $139,000 and $134,000 in administration fees.
	The Investment Advisory Agreement provides that except for the expenses 
specifically assumed by TIMCO, the Fund bears expenses incurred in its 
operation, including: fees of the directors not affiliated with the Adviser or 
its affiliates and board meeting expenses; fees of the Adviser and of Smith 
Barney Mutual Funds Management Inc. (or any successor) as the Administrator; 
interest charges; taxes; charges and expenses of the Funds legal counsel and 
independent accountants, and of the transfer agent, registrar and dividend 
disbursing agent of the Fund; expenses of issue, repurchase or redemption of 
Shares; expenses of printing and mailing stockholder reports, notices, proxy 
statements and reports to governmental offices; brokerage and other expenses 
connected with the execution, recording and settlement of portfolio security 
transactions; expenses connected with negotiating, effecting purchases or 
sales or registering privately issued portfolio securities; fees and expenses 
of the Funds custodians for all services to the Fund, including safekeeping of 
funds and securities and maintaining required books and accounts; expenses of 
fidelity bonding and other insurance premiums; expenses of stockholders 
meetings; filing fees and expenses related to the registration and 
qualification of the Funds shares and the Fund under Federal of State 
Securities laws and maintaining such registrations and qualifications 
(including the printing of the Funds registration statements and 
prospectuses); fees payable to the National Association of Securities Dealers, 
Inc. in connection with this offering; and its other business and operating 
expenses.
	TIMCO has agreed that if in any fiscal year the aggregate expenses of the 
Fund (including fees paid pursuant to the Advisory and Agreements, but 
excluding interest, taxes, brokerage, fees paid pursuant to the Fund's 
services and distribution plan, and, with the prior written consent of the 
necessary state securities commissions, extraordinary expenses) exceed the 
expense limitation of any state having jurisdiction over the Fund, TIMCO will, 
to the extent required by state law, reduce its management fee by such excess 
expense. Such a fee reduction, if any, will be reconciled on a monthly basis. 
The most restrictive state limitation applicable to the Fund would require 
TIMCO to reduce its fees in any year that such excess expenses exceed 2.5% of 
the first $30 million of average net assets, 2% of the next $70 million of 
average net assets and 1.5% of the remaining average net assets.
Counsel and Auditors
	Sullivan & Cromwell serves as counsel to the Fund. The Directors who are 
not "interested persons" of the Fund have selected  Sullivan & Cromwell as 
their legal counsel.
	KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been 
selected as the Funds independent auditor to examine and report on the Funds 
financial statements and highlights for the fiscal year ending December 31, 
1997. 
Investment Objective and Management Policies

	The Prospectus discusses the Fund's investment objective and the policies 
it employs to achieve its objective. The following discussion supplements the 
description of the Fund's investment objective and management policies in the 
Prospectus.

Leveraging
	The Fund may from time to time leverage its investments by purchasing 
securities with borrowed money. The Fund may borrow money only from banks and 
in an amount not to exceed 33 1/3% of the total value of its assets less its 
liabilities. The amount of the Fund's borrowings also may be limited by the 
availability and cost of credit and by restrictions imposed by the Federal 
Reserve Board.
	The Fund is required under the 1940 Act to maintain at all times an asset 
coverage of 300% of the amount of its borrowings. If, as a result of market 
fluctuations or for any other reason, the Fund's asset coverage drops below 
300%, the Fund must reduce its outstanding bank debt within three business 
days so as to restore its asset coverage to the 300% level.

	Any gain in the value of securities purchased with borrowed money that 
exceeds the interest paid on the amount borrowed would cause the net asset 
value of the Fund's shares to increase more rapidly than otherwise would be 
the case. Conversely, any decline in the value of securities purchased would 
cause the net asset value of the Fund's shares to decrease more rapidly than 
otherwise would be the case. Borrowed money thus creates an opportunity for 
greater capital gain but at the same time increases exposure to capital risk. 
The net cost of any borrowed money would be an expense that otherwise would 
not be incurred, and this expense could restrict or eliminate the Fund's net 
investment income in any given period.

Lending of Portfolio Securities

	As stated in the Prospectus, the Fund has the ability to lend securities 
from its portfolio to brokers, dealers and other financial organizations.  The 
Fund may not lend its portfolio securities to Smith Barney or its affiliates 
unless it has applied for and received specific authority from the SEC. Loans 
of portfolio securities by the Fund will be collateralized by cash, letters of 
credit or securities issued or guaranteed by the United States government, its 
agencies or instrumentalitys ("U.S. government securities") which will be 
maintained at all times in an amount equal to at least 100% of the current 
market value of the loaned securities. From time to time, the Fund may return 
a part of the interest earned from the investment of collateral received for 
securities loaned to the borrower and/or a third party, which is unaffiliated 
with the Fund or with Smith Barney, and which is acting as a "finder."
	In lending its portfolio securities, the Fund can increase its income by 
continuing to receive interest on the loaned securities as well as by either 
investing the cash collateral in short-term instruments or obtaining yield in 
the form of interest paid by the borrower when government securities are used 
as collateral. Requirements of the SEC, which may be subject to future 
modifications, currently provide that the following conditions must be met 
whenever portfolio securities are loaned: (a) the Fund must receive at least 
100% cash collateral or equivalent securities from the borrower; (b) the 
borrower must increase such collateral whenever the market value of the 
securities rises above the level of such collateral; (c) the Fund must be able 
to terminate the loan at any time; (d) the Fund must receive reasonable 
interest on the loan, as well as an amount equal to any dividends, interest or 
other distributions on the loaned securities, and any increase in market 
value; (e) the Fund may pay only reasonable custodian fees in connection with 
the loan; and (f) voting rights on the loaned securities may pass to the 
borrower; however, if a material event adversely affecting the investment 
occurs, the Fund's Board of Directors must terminate the loan and regain the 
right to vote the securities. The risks in lending portfolio securities, as 
with other extensions of secured credit, consist of possible delay in 
receiving additional collateral or in the recovery of the securities or 
possible loss of rights in the collateral should the borrower fail 
financially.
Short Term Instruments
	As stated in the Prospectus, the Fund may invest in short term and money 
market instruments.  Money market instruments in which the Fund may invest 
include: U.S. government securities; certificates of deposit, time deposits 
and bankers' acceptances issued by domestic banks (including their branches 
located outside the United States and subsidiaries located in Canada), 
domestic branches of foreign banks, savings and loan associations and similar 
institutions; high grade commercial paper; and repurchase agreements with 
respect to the foregoing types of instruments. The following is a more 
detailed description of such money market instruments.
	Bank Obligations. Certificates of deposits ("CDs") are short-term, 
negotiable obligations of commercial banks. Time deposits ("TDs") are non-
negotiable deposits maintained in banking institutions for specified periods 
of time at stated interest rates. Bankers' acceptances are time drafts drawn 
on commercial banks by borrowers, usually in connection with international 
transactions.
	Domestic commercial banks organized under Federal law are supervised and 
examined by the Comptroller of the Currency and are required to be members of 
the Federal Reserve System and to be insured by the Federal Deposit Insurance 
Corporation (the "FDIC"). Domestic banks organized under state law are 
supervised and examined by state banking authorities but are members of the 
Federal Reserve System only if they elect to join. Most state banks are 
insured by the FDIC (although such insurance may not be of material benefit to 
the Fund, depending upon the principal amount of CDs of each bank held by the 
Fund) and are subject to Federal examination and to a substantial body of 
Federal law and regulation. As a result of governmental regulations, domestic 
branches of domestic banks are, among other things, generally required to 
maintain specified levels of reserves, and are subject to other supervision 
and regulation designed to promote financial soundness.
	Obligations of foreign branches of domestic banks, such as CDs and TDs, may 
be general obligations of the parent bank in addition to the issuing branch, 
or may be limited by the terms of a specific obligation and governmental 
regulation. Such obligations are subject to different risks than are those of 
domestic banks or domestic branches of foreign banks. These risks include 
foreign economic and political developments, foreign governmental restrictions 
that may adversely affect payment of principal and interest on the 
obligations, foreign exchange controls and foreign withholding and other taxes 
on interest income. Foreign branches of domestic banks are not necessarily 
subject to the same or similar regulatory requirements that apply to domestic 
banks, such as mandatory reserve requirements, loan limitations, and 
accounting, auditing and financial recordkeeping requirements. In addition, 
less information may be publicly available about a foreign branch of a 
domestic bank than about a domestic bank. CDs issued by wholly owned Canadian 
subsidiaries of domestic banks are guaranteed as to repayment of principal and 
interest (but not as to sovereign risk) by the domestic parent bank.
	Obligations of domestic branches of foreign banks may be general 
obligations of the parent bank in addition to the issuing branch, or may be 
limited by the terms of a specific obligation and by governmental regulation 
as well as governmental action in the country in which the foreign bank has 
its head office. A domestic branch of a foreign bank with assets in excess of 
$1 billion may or may not be subject to reserve requirements imposed by the 
Federal Reserve System or by the state in which the branch is located if the 
branch is licensed in that state. In addition, branches licensed by the 
Comptroller of the Currency and branches licensed by certain states ("State 
Branches") may or may not be required to: (a) pledge to the regulator by 
depositing assets with a designated bank within the state, an amount of its 
assets equal to 5% of its total liabilities; and (b) maintain assets within 
the state in an amount equal to a specified percentage of the aggregate amount 
of liabilities of the foreign bank payable at or through all of its agencies 
or branches within the state. The deposits of State Branches may not 
necessarily be insured by the FDIC. In addition, there may be less publicly 
available information about a domestic branch of a foreign bank than about a 
domestic bank.
	In view of the foregoing factors associated with the purchase of CDs and 
TDs issued by foreign branches of domestic banks or by domestic branches of 
foreign banks, TIMCO will carefully evaluate such investments on a case-by-
case basis.

	Savings and loans associations whose CDs may be purchased by the Fund are 
supervised by the Office of Thrift Supervision and are insured by the Savings 
Association Insurance Fund which is administered by the FDIC and is backed by 
the full faith and credit of the United States government. As a result, such 
savings and loan associations are subject to regulation and examination.

Investment Restrictions

	1.	Invest 25% or more of the value of its total assets in any one industry; 

	2.	Borrow money (including borrowing through entering into reverse 
repurchase agreements) in excess of 31/3% of its total assets (including 
the amount of borrowed but excluding any liabilities and indebtedness 
constituting senior securities) except that the Fund may borrow up to an 
additional 5% of its total assets for temporary purposes; or pledge its 
assets other than to secure such borrowings or in connection with 
Hedging Transactions, short sales, when-issued and forward commitment 
transaction and similar investment strategies. 

	3.	Issue any senior security if such issuance is specifically prohibited by 
the 1940 Act or the rules and regulations thereunder (for the purpose of 
this restriction, collateral arrangements with respect to options, 
futures contracts and options on futures contracts and collateral 
arrangements with respect to initial and variation margin are not deemed 
to be the issuance of a senior security); 

	4.	Make loans, except the Fund may purchase debt obligations, may enter 
into repurchase agreements and may lend its securities; 

	5.	Underwrite the securities of other issuers, except to the extent that in 
connection with the he disposition of portfolio securities the Fund may 
be deemed to be an underwriter; 

	6.	Invest for the purpose of exercising control over management of any 
company; 

	7.	Purchase real estate or interests therein other than securities secured 
by real estate, participation therein or real estate investment trusts 
and similar instruments; 

	8.	Purchase or sell commodities or commodities contracts except for hedging 
purposes; or 

	9.	Make any short sale of securities except in conformity with applicable 
laws, rules and regulations and unless, giving effect to such sale, the 
market value of all securities sold short does not exceed 25% of the 
value of the Fund's total assets and the Fund's aggregate short sales of 
a particular class of an issuer's securities do not exceed 25%  of the 
then outstanding securities of that class of the issuer's securities. 

	10.	Purchase any security (other than U.S. obligations) such that (a) more 
than 25% of the Fund's total assets would be invested in securities of a 
single issuer or (b) as to 75% of the Fund's total assets (I) more than 
5% of the Fund's total assets would then be invested in securities of a 
single issuer or (ii) the Fund would own more than 10% of the voting 
securities of a single issuer.

	Certain restrictions listed above permit the Fund without shareholder 
approval to engage in investment practices that the Fund does not currently 
pursue. The Fund has no present intention of altering its current investment 
practices as otherwise described in the Prospectus and this Statement of 
Additional Information and any future change in these practices would require 
Board approval. If any percentage restriction described above is complied with 
at the time of an investment, a later increase or decrease in percentage 
resulting from a change in values or assets will not constitute a violation of 
such restriction. The Fund may make commitments more restrictive than the 
restrictions listed above so as to permit the sale of Fund shares in certain 
states. Should the Fund determine that any such commitment is no longer in the 
best interests of the Fund and its shareholders, it will revoke the commitment 
by terminating sales of its shares in the state involved.

Portfolio Turnover

	The Fund's investment policies may result in its experiencing a greater 
portfolio turnover rate than those of investment companies that seek to 
produce income or to maintain a balanced investment position. Although the 
Fund's portfolio turnover rate cannot be predicted and will vary from year to 
year, TIMCO expects that the Fund's annual portfolio turnover rate may exceed 
100%, but will not exceed [150]%. A 100% portfolio turnover rate would occur, 
for instance, if all securities in the Fund's portfolio were replaced once 
during a period of one year. A high rate of portfolio turnover in any year 
will increase brokerage commissions paid and could result in high amounts of 
realized investment gain subject to the payment of taxes by shareholders. Any 
realized short-term investment gain will be taxed to shareholders as ordinary 
income. For the 1996, 1995 and 1994 fiscal years, the Fund's portfolio 
turnover rates were 151%, 177% and 45% respectively.



Portfolio Transactions and Brokerage

	Decisions to buy and sell securities for the Fund are made by TIMCO, 
subject to the overall supervision and review of the Fund's Board of 
Directors. Portfolio securities transactions for the Fund are effected by or 
under the supervision of TIMCO.

	Transactions on stock exchanges involve the payment of negotiated brokerage 
commissions. There is generally no stated commission in the case of securities 
traded in the over-the-counter markets, but the price of those securities 
includes an undisclosed commission or mark-up. The cost of securities 
purchased from underwriters includes an underwriting commission or concession, 
and the prices at which securities are purchased from and sold to dealers 
include a dealer's mark-up or mark-down. For the 1996, 1995 and 1994 fiscal 
years, the Fund paid $176,000, $155,000 and $190,000 respectively, in 
brokerage commissions.

	In executing portfolio transactions and selecting brokers or dealers, it is 
the Fund's policy to seek the best overall terms available. The Advisory 
Agreement between the Fund and TIMCO provides that, in assessing the best 
overall terms available for any transaction, TIMCO shall consider the factors 
it deems relevant, including the breadth of the market in the security, the 
price of the security, the financial condition and execution capability of the 
broker or dealer, and the reasonableness of the commission, if any, for the 
specific transaction and on a continuing basis. In addition, the Advisory 
Agreement authorizes TIMCO, in selecting brokers or dealers to execute a 
particular transaction and in evaluating the best overall terms available, to 
consider the brokerage and research services (as those terms are defined in 
Section 28(e) of the Securities Exchange Act of 1934) provided to the Fund 
and/or other accounts over which TIMCO or an affiliate exercises investment 
discretion.
	The Fund's Board of Directors will periodically review the commissions paid 
by the Fund to determine if the commissions paid over representative periods 
of time were reasonable in relation to the benefits inuring to the Fund. It is 
possible that certain of the services received will primarily benefit one or 
more other accounts for which investment discretion is exercised. Conversely, 
the Fund may be the primary beneficiary of services received as a result of 
portfolio transactions effected for other accounts. TIMCO's fee under the 
Advisory Agreement is not reduced by reason of TIMCO's receiving such 
brokerage and research services.
	The Fund's Board of Directors has determined that any portfolio transaction 
for the Fund may be executed through Smith Barney if, in TIMCO's judgment, the 
use of Smith Barney is likely to result in price and execution at least as 
favorable as those of other qualified brokers, and if, in the transaction, 
Smith Barney charges the Fund a commission rate consistent with that charged 
by Smith Barney to comparable unaffiliated customers in similar transactions. 
In addition, under SEC rules, Smith Barney may directly execute such 
transactions for the Fund on the floor of any national securities exchange, 
provided (a) the Board of Directors has expressly authorized Smith Barney to 
effect such transactions and (b) Smith Barney annually advises the Fund of the 
aggregate compensation it earned on such transactions. Smith Barney will not 
participate in commissions from brokerage given by the Fund to other brokers 
or dealers and will not receive any reciprocal brokerage business resulting 
therefrom. Over-the-counter purchases and sales are transacted directly with 
principal market makers except in those cases in which better prices and 
executions may be obtained elsewhere. For the 1996, 1995 and 1994 fiscal 
years, the Fund paid $7,375, $32,635 and $5,400, respectively, in brokerage 
commissions to Smith Barney.  For the 1996 fiscal year, Smith Barney received 
4.2% of the brokerage commissions paid by the Fund and effected 29% of the 
total dollar amount of transactions for the Fund involving the payment of 
brokerage commissions.
	Even though investment decisions for the Fund are made independently from 
those of the other accounts managed by TIMCO, investments of the kind made by 
the Fund also may be made by those other accounts. When the Fund and one or 
more accounts managed by TIMCO are prepared to invest in, or desire to dispose 
of, the same security, available investments or opportunities for sales will 
be allocated in a manner believed by TIMCO to be equitable. In some cases, 
this procedure may adversely affect the price paid or received by the Fund or 
the size of the position obtained for or disposed of by the Fund.
Purchase of Shares
Volume Discounts
	The schedule of sales charges on Class A shares described in the Prospectus 
applies to purchases made by any "purchaser," which is defined to include the 
following: (a) an individual; (b) an individual's spouse and his or her 
children purchasing shares for his or her own account; (c) a trustee or other 
fiduciary purchasing shares for a single trust estate or single fiduciary 
account; (d) a pension, profit-sharing or other employee benefit plan 
qualified under Section 401(a) of the Internal Revenue Code 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 the Fund for one or more trust 
estates or fiduciary accounts. Purchasers who wish to combine purchase orders 
to take advantage of volume discounts should contact a Smith Barney Financial 
Consultant.
Combined Right of Accumulation
Reduced sales charges, in accordance with the schedule in the Prospectus, 
apply to any purchase of Class A shares if the aggregate investment in Class A 
shares of the Fund and in Class A shares of other funds of the Smith Barney 
Mutual Funds that are offered with a sales charge, including the purchase 
being made, of any purchaser is $25,000 or more. The reduced sales charge is 
subject to confirmation of the shareholder's holdings through a check of 
appropriate records. The Fund reserves the right to terminate or amend the 
combined rights 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
	The Fund offers its shares to the public on a continuous basis. The public 
offering price for a Class A and Class Y share of the 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 and Class C share (and Class A share 
purchases, including applicable rights of accumulation, equaling or exceeding 
$500,000), is equal to the net asset value per share at the time of purchase 
and no sales charge is imposed at the time of purchase. A contingent deferred 
sales charge ("CDSC"), however, is imposed on certain redemptions of Class B 
and Class C shares, and of Class A shares when purchased in amounts equaling 
or exceeding $500,000. The method of computation of the public offering price 
is shown in the 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 or holiday closings), (b) when trading in markets the Fund normally 
utilizes is restricted, or an emergency exists, as determined by the SEC, 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 Fund determines that it would be detrimental 
to the best interests of the remaining shareholders of the Fund to make a 
redemption payment wholly in cash, the Fund may pay, in accordance with SEC 
rules, any portion of a redemption in excess of the lesser of $250,000 or 1% 
of the Fund's net assets by 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 $100 may be made under the 
Withdrawal Plan by redeeming as many shares of the Fund as may be necessary to 
cover the stipulated withdrawal payment. Any applicable CDSC will not be 
waived on amounts withdrawn by shareholders that exceed 1.00% per month of the 
value of a shareholder's shares at the time the Withdrawal Plan commences. 
(With respect to Withdrawal Plans in effect prior to November 7, 1994 any 
applicable CDSC will be waived on amounts withdrawn that do not exceed 2.00% 
per month of the value of a shareholder's shares at the time the Withdrawal 
Plan commences.) To the extent withdrawals exceed dividends, distributions and 
appreciation of a shareholder's investment in the Fund, there will be a 
reduction in the value of the shareholder's investment and continued 
withdrawal payments will reduce the shareholder's investment and ultimately 
may 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 ordinarily will not 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 reinvested automatically at 
net asset value in additional shares of the Fund.  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 
contact a Smith Barney Financial Consultant.

Distribution
	To compensate Smith Barney for the services it provides and for the expense 
it bears under the Distribution Agreement, the Fund has adopted a services and 
distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.  See 
Distribution" in the Prospectus.  Under the Plan, the Fund pays Smith Barney a 
service fee, accrued daily and paid monthly, calculated at the annual rate of 
0.25% of the value of the 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 Class B and Class C shares primarily intended 
to compensate Smith Barney for its initial expense of paying Financial 
Consultants a commission upon sales of those shares. The Class B and Class C 
distribution fee is calculated at the annual rate of 0.75% of the value of the 
Fund's average net assets attributable to the shares of the respective Class.
	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 Directors who are not interested persons of the Fund and who 
have no direct or indirect financial interest in the operation of the Plan or 
in the Distribution Agreement (the "Independent Directors"). The Plan may not 
be amended to increase the amount of the service and distribution fees without 
shareholder approval, and all material amendments of the Plan also must be 
approved by the Directors and Independent Directors in the manner described 
above. The Plan may be terminated with respect to a Class of the Fund 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 Class (as 
defined in the 1940 Act). Pursuant to the Plan, Smith Barney will provide the 
Fund's Board of Directors with 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, Presidents' 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 Fund 
in valuing its assets.
	Securities listed on a national securities exchange will be valued on the 
basis of the last sale on the date on which the valuation is made or, in the 
absence of sales, at the mean between the closing bid and asked prices. Over-
the-counter securities will be valued on the basis of the bid price at the 
close of business on each day, or, if market quotations for those securities 
are not readily available, at fair value, as determined in good faith by the 
Fund's Board of Directors. Short-term obligations with maturities of 60 days 
or less are valued at amortized cost, which constitutes fair value as 
determined by the Fund's Board of Directors. Amortized cost involves valuing 
an instrument at its original cost to the Fund and thereafter assuming a 
constant amortization to maturity of any discount or premium, regardless of 
the effect of fluctuating interest rates on the market value of the 
instrument. All other securities and other assets of the Fund will be valued 
at fair value as determined in good faith by the Fund's Board of Directors.

Exchange Privilege

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, on the basis of relative net asset value 
per share at the time of exchange, except that 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 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. 

	Dealers other than Smith Barney must notify First Data of the investor's 
prior ownership of Class A shares of Smith Barney High Income Fund and the 
account number in order to accomplish an exchange of shares of Smith Barney 
High Income Fund under paragraph B above.

	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. 

IRA AND OTHER PROTOTYPE RETIREMENT PLANS

	Copies of the following plans with custody or trust agreements have been 
approved by the Internal Revenue Service and are available from the Fund or 
Smith Barney; investors should consult with their own tax or retirement 
planning advisors prior to the establishment of a plan. 

IRA, Rollover IRA and Simplified Employee Pension - IRA

	The Small Business Job Protection Act of 1996 changed the eligibility 
requirements for participants in Individual Retirement Accounts ("IRAs").  
Under these new provisions, if you or your spouse have earned income, each of 
you may establish an IRA and make maximum annual contributions equal to the 
lesser of earned income or $2,000.  As a result of this legislation, married 
couples where one spouse is non-working may now contribute a total of $4,000 
annually to their IRAs.

	If you or your spouse is an active participant in an employer-sponsored 
retirement plan, a deduction for contributions to an IRA might still be 
allowed in full or in part, depending on your combined adjusted gross income.  
For married couples filing jointly, a full deduction for contributions to an 
IRA will be allowed where the couples' adjusted gross income is below $40,001 
($25,001 for an unmarried individual); a partial deduction will be allowed 
when adjusted gross income is between $40,001 - $50,000 ($25,001-$35,000 for 
an unmarried individual);  and no deduction when adjusted gross income is 
$50,000 ($35,000 for an unmarried individual).

	A Rollover IRA is available to defer taxes on lump sum payments and 
other qualifying rollover amounts (no maximum) received from another 
retirement plan. 

	An employer who has established a Simplified Employee Pension - IRA ("SEP-
IRA") on behalf of eligible employees may make a maximum annual contribution 
to each participant's account of 15% (up to $24,000) of each participant's 
compensation.  Compensation is capped at $160,000 for 1997.

Performance Data

	From time to time, the Fund may quote total return of the Classes 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 may include data 
from 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 the Fund describes the 
expenses or performance of Class A, Class B, Class C or Class Y, it will also 
disclose such information for the other Classes.

Average Annual Total Return

	"Average annual total return" figures 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. 
	Average annual total return was as follows for the periods indicated:
20.56%	for the one-year period beginning on January 1, 1996 through December 
31, 1996;

11.64%	per annum during the five-year period beginning on January 1, 1992 
through December 31, 1996; and 
	since August 1, 1995 when TIMCO became investment adviser to the Fund 
through December 31, 1996 the Funds Aggregate Annual Total Return was 22.74%.
Aggregate Total Return

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

				ERV-P
AGGREGATE TOTAL RETURN =    P

	Where: 	P	= 	a hypothetical initial payment of $10,000. 
ERV	=	Ending Redeemable Value of a hypothetical $10,000 investment 
made at the beginning of the 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.
	Aggregate total return was as follows for the periods indicated:
20.56%	for the one-year period from January 1, 1996 through December 31, 
1996.

73.42%	for the five-year period from January 1, 1992 through December 
31,1996; and 
	since August 1, 1995 when TIMCO became the Fund's investment adviser 
through December 31, 1996 the Fund's Aggregate Annual Total Return was 33.83%.
	Performance will vary from time to time depending upon market conditions, 
the composition of the Fund's portfolio, 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.

	It is important to note that the total return figures set forth above are 
based on historical earnings and are not intended to indicate future 
performance.

Taxes

	The following is a summary of certain Federal income tax considerations 
that may affect the Fund and its shareholders. The summary is not intended as 
a substitute for individual tax advice and investors are urged to consult 
their own tax advisors as to the tax consequences of an investment in the 
Fund.
	The Fund has qualified and intends to continue to qualify each year as a 
regulated investment company under the Code. Provided that the Fund (a) is a 
regulated investment company and (b) distributes at least 90% of its net 
investment income (including, for this purpose, net realized short-term 
capital gains), the Fund will not be liable for Federal income taxes to the 
extent its net investment income and its net realized long- and short-term 
capital gains, if any, are distributed to its shareholders. Although the Fund 
expects to be relieved of all or substantially all Federal, state, and local 
income or franchise taxes, depending upon the extent of its activities in 
states and localities in which its offices are maintained, in which its agents 
or independent contractors are located, or in which it is otherwise deemed to 
be conducting business, that portion of the Fund's income which is treated as 
earned in any such state or locality could be subject to state and local 
taxes. Any such taxes paid by the Fund would reduce the amount of income and 
gains available for distribution to shareholders. All net investment income 
and net capital gains earned by the Fund will be reinvested automatically in 
additional shares of the same Class of the Fund at net asset value, unless the 
shareholder elects to receive dividends and distributions in cash.

	Gains or losses on the sales of securities by the Fund generally will be 
long-term capital gains or losses if the Fund has held the securities for more 
than one year. Gains or losses on the sales of securities held for not more 
than one year generally will be short-term capital gains or losses. If the 
Fund acquires a debt security at a substantial discount, a portion of any gain 
upon the sale or redemption will be taxed as ordinary income, rather than 
capital gain to the extent it reflects accrued market discount.

	Dividends of net investment income and distributions of net realized short-
term capital gains will be taxable to shareholders as ordinary income for 
Federal income tax purposes, whether received in cash or reinvested in 
additional shares. Dividends received by corporate shareholders will qualify 
for the dividends-received deduction only to the extent that the Fund 
designates the amount distributed as a dividend and the amount so designated 
does not exceed the aggregate amount of dividends received by the Fund from 
domestic corporations for the taxable year. The Federal dividends-received 
deduction for corporate shareholders may be further reduced or disallowed if 
the shares with respect to which dividends are received are treated as debt 
financed or are deemed to have been held for less than 46 days.

	Distributions of long-term capital gains will be taxable to shareholders as 
such, whether paid in cash or reinvested in additional shares and regardless 
of the length of time that the shareholder has held his or her interest in the 
Fund. If a shareholder receives a distribution taxable as long-term capital 
gain with respect to his or her investment in the Fund and redeems or 
exchanges the shares before he or she has held them for more than six months, 
any loss on the redemption or exchange that is less than or equal to the 
amount of the distribution will be treated as a long-term capital loss.
	If a shareholder (a) incurs a sales charge in acquiring or redeeming shares 
of the Fund, (b) disposes of those shares within 90 days and (c) acquires 
shares in a mutual fund for which the otherwise applicable sales charge is 
reduced by reason of a reinvestment right (i.e., exchange privilege), the 
original sales charge increases the shareholder's tax basis in the original 
shares only to the extent the otherwise applicable sales charge for the second 
acquisition is not reduced. The portion of the original sales charge that does 
not increase the shareholder's tax basis in the original shares would be 
treated as incurred with respect to the second acquisition and, as a general 
rule, would increase the shareholder's tax basis in the newly acquired shares. 
Furthermore, the same rule also applies to a disposition of the newly acquired 
or redeemed shares made within 90 days of the second acquisition. This 
provision prevents a shareholder from immediately deducting the sales charge 
by shifting his or her investment in a family of mutual funds.
	Investors considering buying shares of the Fund on or just prior to a 
record date for a taxable dividend or capital gain distribution should be 
aware that, regardless of whether the price of the Fund shares to be purchased 
reflects the amount of the forthcoming dividend or distribution payment, any 
such payment will be a taxable dividend or distribution payment.
	If a shareholder fails to furnish a correct taxpayer identification number, 
fails to report dividend and interest income in full, or fails to certify that 
he or she has provided a correct taxpayer identification number and that he or 
she is not subject to such withholding, the shareholder may be subject to a 
31% "backup withholding" tax with respect to (a) any taxable dividends and 
distributions and (b) any proceeds of any redemption of Fund shares. An 
individual's taxpayer identification number is his or her social security 
number. The backup withholding tax is not an additional tax and may be 
credited against a shareholder's regular Federal income tax liability.
	The foregoing is only a summary of certain tax considerations generally 
affecting the Fund and its shareholders and is not intended as a substitute 
for careful tax planning. Shareholders are urged to consult their tax advisors 
with specific reference to their own tax situations, including their state and 
local tax liabilities.

Additional Information

	The Fund, an open end management investment company, was incorporated on 
October 4 1989 in Maryland under the name The Inefficient-Market Fund Inc. 
(the "Fund") as a non-diversified closed end company and converted to open-end 
diversified status on June 20, 1997 pursuant to shareholder approval on April 
18, 1997 and Securities and Exchange Declaration of Effectiveness on June 20, 
1997.
	PNC Bank is located at 17th Chestnut Street, Philadelphia, PA  19103, and 
serves as the custodian of the Fund. Under its agreement with the Fund, PNC 
Bank holds the Fund's portfolio securities and keeps all necessary accounts 
and records. For its services, PNC Bank receives a monthly fee based upon the 
month-end market value of securities held in custody and also receives 
securities transaction charges. PNC Bank is authorized to establish separate 
accounts for foreign securities owned by the Fund to be held with foreign 
branches of other domestic banks as well as with certain foreign banks and 
securities depositories. The assets of the Fund are held under bank 
custodianship in compliance with the 1940 Act.
	First Data is located at Exchange Place, Boston, Massachusetts 02109, and 
serves as the Fund's transfer agent. Under the transfer agency agreement, 
First Data maintains the shareholder account records for the Fund, handles 
certain communications between shareholders and the Fund and distributes 
dividends and distributions payable by the Fund. For these services, First 
Data receives a monthly fee computed on the basis of the number of shareholder 
accounts it maintains for the Fund during the month and is reimbursed for out-
of-pocket expenses.

Financial Statements

	The Fund's Annual Report for the fiscal year ended December 31, 1996, 
accompanies this Statement of Additional Information and is incorporated 
herein by reference in its entirety.




						Smith Barney
						Disciplined Small
						Cap Fund, Inc.



Statement of


Additional 
Information























June ( ), 1997 

















Smith Barney
Disciplined Small Cap Fund, Inc.
388 Greenwich Street
New York, NY  10013
 ...................................Fund ........................			
		SMITH BARNEY
								A Member of Travelers Group 




PART C
OTHER INFORMATION
Item 24.
Financial Statements and Exhibits
(a) Financial Statements:
(b)  Exhibits: 
Exhibit No.

Description of Exhibits


1
Registrant's 
Articles Of 
Incorporation

To be
filed by Amendment

2
Registrant's 
By-Laws

To be filed by Amendment

3
Not applicable

Not applicable

4
Registrant's 
form of Stock 
Certificate

To be filed by Amendment

5
Form of 
Investment 
Advisory 
Agreement
To be filed by Amendment


6
Form of 
Distribution 
Agreement

To be filed by Amendment

7.
 Not applicable
Not applicable


8.
Custodian 
Agreement
To be filed by Amendment


9(a)
Transfer Agency
Agreement

To be filed by Amendment





(b)
Administration 
Agreement

To be filed by Amendment

10
Opinion of 
Counsel
To be filed by Amendment


11
Consent of
Independent 
Accountants

To be filed by Amendment

12
Inapplicable
Inapplicable


13
Not applicable
Not applicable


14
Not applicable
Not applicable


15
Services and 
Distribution 
plan pursuant 
to Rule 12b-1
To be filed by Amendment

16
Performance 
Data
Filed herewith


17
Financial Data
Schedule

Filed herewith

18
Form of Rule 
18f-3
To be filed by Amendment


Item 25.  	Persons Controlled by or Under Common Control with Registrant

The Registrant is not controlled directly or indirectly by any person.  
Information regarding the Registrant's institutional manager is set forth 
under the caption Management of the Fund" in the prospectus included in Part A 
of this Registration Statement on Form N-1A.  
Item 26.  	Number of Holders of Securities
	 Not Applicable
Item 27. 	Indemnification

Reference is made to Article IX of Registrant's Articles of 
Incorporation for a complete statement of its terms. 

Item 28.  	Business and other Connections of the Investment Advisers

Travelers Investment Management Company. (TIMCO") serves as the 
investment adviser for the Fund pursuant to a written agreement (the"Advisory 
Agreement").  TIMCO was incorporated on August 31, 1967 under the laws of the 
State of Connecticut.  TIMCO is a wholly owned subsidiary of Smith Barney 
Holdings Inc., which in turn is a wholly owned subsidiary of Travelers Group 
Inc.  TIMCO is registered as an investment adviser under the Investment 
Advisers Act of 1940 (the "Advisers Act") since 1971 and has, through its 
predecessors, been in the investment counseling business since 1967.  The list 
required by this Item 28 of officers and directors of TIMCO 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 fiscal years, is incorporated by reference to Schedules A and D of FORM 
ADV filed by SBA pursuant to the Advisers Act (SEC File No.801-07212).


Item 29.  	Principal Underwriter

(a) Smith Barney Inc., ("Smith Barney") currently acts as distributor 
for Smith Barney Money Funds, Inc.; Smith Barney Municipal Money Market Fund, 
Inc.; Smith Barney Muni Funds; Smith Barney Funds, Inc.; Smith Barney Variable 
Account Funds; Smith Barney Oregon Municipals Fund, Smith Barney Global 
Opportunities Fund, Smith Barney Adjustable Rate Government Income Fund; Smith 
Barney Equity Funds; Smith Barney Income Funds; Smith Barney Massachusetts 
Municipals Fund; Smith Barney Arizona Municipals Fund Inc.; Smith Barney 
Investment Trust; Smith Barney Aggressive Growth Fund Inc.; Smith Barney 
Appreciation Fund Inc.; Smith Barney California Municipals Fund Inc.; Smith 
Barney Fundamental Value Fund Inc.; Smith Barney Managed Governments Fund 
Inc.; Smith Barney Tax Free Money Fund, Inc.Smith Barney Managed Municipals 
Fund Inc.; Smith Barney New Jersey Municipals Fund Inc.; Smith Barney World 
Funds Inc.; Smith Barney Natural Resources Fund Inc.; Smith Barney Investment 
Funds Inc.; Smith Barney Telecommunications Trust; Smith Barney Principal 
Return Fund Smith Barney Series Fund Consulting Group Capital Markets Funds, 
Smith Barney U.S. Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., 
Worldwide Securities Limited, (Bermuda), Smith Barney International Fund 
(Luxembourg ), Smith Barney Institutional Cash Management Fund, Inc., Smith 
Barney Concert Allocation Series Inc. and various series of unit investment 
trusts.
Smith Barney, is a wholly owned subsidiary of Smith Barney Holdings Inc. 
(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").  On June 1, 1994, Smith Barney changed its name 
from Smith Barney Shearson Inc. to its current name.
 (b) The information required by this Item 29 with respect to each 
director and officer 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.  8-8177) 
(c) Not applicable.  
Item 30.  	Location of Accounts and Records

All accounts, books and other documents of Registrant are maintained at 
the offices of:
(1)	TIMCO
	One Tower Square
	Hartford, Connecticut  06183
	(Records relating to its function as Registrant's investment 
adviser)
(2)	PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(Records relating to its function as Registrant's custodian)
(3)	First Data Investor Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
(Records relating to its function as Registrant's transfer agent)

Item 31.  	Management Services

	Not applicable.  
Item 32. 	Undertakings
(a) 	Registrant undertakes to call a meeting of its shareholders for 
the purpose of voting upon the question of removal of a director or directors 
of Registrant when requested in writing to do so by the holders of at least 
10% of Registrant's outstanding shares and, in connection with the meeting, to 
comply with the provisions of Section 16(c) of the 1940 Act relating to 
communications with the shareholders of certain.
(b) 	Registrant undertakes to file a post-effective amendment, with 
respect to the Funds, containing reasonably current financial statements that 
need not be certified, within four to six months from the effective date of 
this Registration Statement. 



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 Disciplined Small Cap Fund, Inc., has duly caused this Registration 
Statement to be signed on its behalf by the undersigned, thereunto duly 
authorized, in the City of New York, the State of New York on the 18th day of 
April, 1997.


				SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.

				By:___________________________________			
				                 /s/  Heath B. McLendon
				      Chief Executive Officer

	KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears 
below constitutes and appoints Heath B. McLendon, Christina T. Sydor and 
Robert M. Nelson, and each and any one of them, his true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution, for 
him and in his name, place and stead, in any and all capacities, to sign any 
or all amendments (including post-effective amendments) to this Registration 
Statement, and to file the same, with all exhibits thereto, and other 
documents in connection therewith, with the Securities and Exchange 
Commission, granting unto said attorneys-in-fact and agents, and each of them, 
full power and authority to do and perform each and every act and thing 
requisite and necessary to be done about the premises, as fully to all intents 
and purposes as he might or could do in person, hereby ratifying and 
confirming all that said attorneys-in-fact and agents, or any of them, or 
their substitute or substitutes, may lawfully do or cause to be done by virtue 
hereof.

	As required by the Securities Act of 1933, as amended, this Registration 
Statement has been signed by the following persons in  the capacities and on 
the dates indicated.


Signature
Title 
Date






__________________________
/s/ Heath B.  McLendon

Chairman of the Board
(Chief Executive Officer)
4/18/97


________________________
/s/ Jessica Bibliowicz


President and Director

4/18/97


________________________
/s/ Bruce D. Sargent


Director

4/18/97


________________________
/s/ Joseph H. Fleiss


Director

4/18/97


________________________
/s/ Donald R. Foley


Director

4/18/97


________________________
/s/ Dr. Paul Hardin


Director

4/18/97


________________________
/s/ Francis P. Martin, M.D.


Director

4/18/97


________________________
/s/ Roderick C. Rasmussen


Director

4/18/97


________________________
/s/ John P. Toolan


Director

4/18/97




SMALLCAP.DOC.12		4/18/97  3:56 PM

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SMITH BARNEY DISCIPLINED SMALL CAP FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)