SMITH BARNEY
 
ADJUSTABLE RATE                              HIGH GROWTH
 GOVERNMENT INCOME                            PORTFOLIO
 FUND (CLASS A ONLY)                         HIGH INCOME FUND
AGGRESSIVE GROWTH FUND                       INCOME PORTFOLIO
 INC.                                        INTERNATIONAL 
APPRECIATION FUND INC.                        BALANCED PORTFOLIO
BALANCED PORTFOLIO                           INTERNATIONAL 
CASH PORTFOLIO (CLASS A                       EQUITY PORTFOLIO
 ONLY)                                       INVESTMENT GRADE 
CONVERTIBLE FUND                              BOND FUND
CONSERVATIVE PORTFOLIO                       MANAGED 
DIVERSIFIED STRATEGIC                         GOVERNMENTS FUND 
 INCOME FUND                                  INC.
EMERGING MARKETS                             MANAGED GROWTH 
 PORTFOLIO                                    FUND
EUROPEAN PORTFOLIO                           NATURAL RESOURCES 
EQUITY INCOME PORTFOLIO                       FUND INC.
EXCHANGE RESERVE FUND                        PACIFIC PORTFOLIO
FUNDAMENTAL VALUE FUND                       PREMIUM TOTAL 
 INC.                                         RETURN FUND
GLOBAL GOVERNMENT                            SHORT-TERM U.S. 
 BOND PORTFOLIO                               TREASURY SECURITIES
GOVERNMENT PORTFOLIO                          PORTFOLIO
 (CLASS A ONLY)                              SPECIAL EQUITIES FUND
GOVERNMENT SECURITIES                        STRATEGIC INVESTORS 
 FUND                                         FUND
GROWTH AND INCOME FUND                       U.S. GOVERNMENT
GROWTH OPPORTUNITY                            SECURITIES
 FUND                                         PORTFOLIO
GROWTH PORTFOLIO                             UTILITIES FUND
 
                SUPPLEMENT DATED JUNE 21, 1996 TO PROSPECTUSES*

 
  The following information replaces in its entirety the disclosure in the
Prospectus of each of the funds listed above (each a "Fund") under "Purchase of
Shares--Smith Barney 401(k) Program:"
 
SMITH BARNEY 401(K) PROGRAM
 
  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 Code. To the extent
applicable, the same terms and conditions are offered to all Participating
Plans in the Smith Barney 401(k) Program.
 
  Each Fund offers to Participating Plans Class A and Class C shares as
investment alternatives under the Smith Barney 401(k) Program. Class A and
Class C shares acquired through the Smith Barney 401(k) Program are subject to
the same service and/or distribution fees as the Class A and Class C shares
acquired by other investors; however, they are not subject to any initial sales
charge or contingent deferred sales charge ("CDSC"). Once a Participating Plan
has made an initial investment in a 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 a 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 a 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.
 
  Plans Opened On or After June 21, 1996. At the end of the fifth year after
the date the Participating Plan enrolled in the Smith Barney 401(k) Program, if
its total Class C holdings in all non-money market Smith Barney Mutual Funds
equal at least $1,000,000, it will be offered the opportunity to exchange all
of its Class C shares for Class A shares of a 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 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 Plan's holdings will be performed each quarter
until either the Plan qualifies or the end of the eighth year.

 
  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 a 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 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 a Fund, regardless of asset size, at the end of
the eighth year after the date the Participating Plan enrolled in the Smith
Barney 401(k) Program. Such Plans will be notified of the pending exchange in
writing approximately 60 days before the eighth anniversary of the enrollment
date and, unless the exchange has been rejected in writing, the exchange will
occur on or about the eighth anniversary date. Once an exchange has occurred, a
Participating Plan will not be eligible to acquire additional Class 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 a Fund through the Smith
Barney 401(k) Program must purchase such shares directly from the Transfer
Agent. For further information regarding the Smith Barney 401(k) Program,
investors should contact a Smith Barney Financial Consultant.
 
  Class B Shares. Class B shares of the Smith Barney Mutual Funds are not
available for purchase by Participating Plans opened on or after June 21, 1996,
but may continue to be purchased by any Plan 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, it will be offered the opportunity to
exchange all of its Class B shares for Class A shares of a Fund. 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 the exchange has occurred, a Participating Plan will not
be eligible to acquire additional Class B shares of a 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" in each
Fund's prospectus.
 
  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 shareholders made the purchase
payment from which the amount is being redeemed.
 
  The CDSC will be waived on redemptions of Class B shares in connection with
lump-sum or other distributions made by a Participating Plan as a result of:
(a) the retirement of an employee in the Participating Plan; (b) the
termination of employment of an employee in the Participating Plan; (c) the
death or disability of an employee in the Participating Plan; (d) the
attainment of age 59 1/2 by an employee in the Participating Plan; (e) hardship
of an employee in the Participating Plan to the extent permitted under Section
401(k) of the Code; or (f) redemptions of shares in connection with a loan made
by the Participating Plan to an employee.
- -----------
* Prospectuses dated:
 
                                     
Adjustable Rate Government Income Fund  October 1, 1995
Aggressive Growth Fund Inc.             December 29, 1995
Appreciation Fund Inc.                  March 1, 1996
Balanced Portfolio                      February 5, 1996
Cash Portfolio                          February 16, 1996
Convertible Fund                        November 28, 1995
Conservative Portfolio                  February 5, 1996
Diversified Strategic Income Fund       November 28, 1995
Emerging Markets Portfolio              February 28, 1996
European Portfolio                      February 28, 1996
Equity Income Portfolio                 April 1, 1996



 
                                            
Exchange Reserve Fund                          November 28, 1995
Fundamental Value Fund Inc.                    February 1, 1996
Global Government Bond Portfolio               February 28, 1996
Government Portfolio                           February 16, 1996
Government Securities Fund                     April 29, 1996
Growth and Income Fund                         April 22, 1996
Growth Opportunity Fund                        April 29, 1996
Growth Portfolio                               February 5, 1996
High Growth Portfolio                          February 5, 1996
High Income Fund                               November 28, 1995
Income Portfolio                               February 5, 1996
International Balanced Portfolio               February 28, 1996
International Equity Portfolio                 February 28, 1996
Investment Grade Bond Fund                     April 29, 1996
Managed Governments Fund Inc.                  November 29, 1995
Managed Growth Fund                            April 29, 1996
Natural Resources Fund Inc.                    January 5, 1996
Pacific Portfolio                              February 28, 1996
Premium Total Return Fund                      November 28, 1996
Short-Term U.S. Treasury Securities Portfolio  April 1, 1996
Special Equities Fund                          April 29, 1996
Strategic Investors Fund                       April 22, 1996
U.S. Government Securities Portfolio           April 1, 1996
Utilities Fund                                 November 28, 1995


 
FD0 1145 6/96