Smith Barney
INVESTMENT TRUST
388 Greenwich Street
New York, New York 10013
(800) 451-2010
	March 30, 1998 as amended June 17, 1998

This Statement of Additional Information (the SAI) supplements the 
information contained in the current Prospectuses of the Smith Barney 
Intermediate Maturity California Municipals Fund (the California Fund) and 
the Smith Barney Intermediate Maturity New York Municipals Fund (the New York 
Fund) dated March 30, 1998, as amended or supplemented from time to time, and 
should be read in conjunction with the Prospectuses.  The Prospectuses may be 
obtained by contacting a Smith Barney Financial Consultant, or by writing or 
calling Smith Barney Investment Trust (the Trust), of which each of the 
California Fund and the New York Fund (individually referred to as a Fund and 
collectively referred to as the Funds) is a series, at the address or 
telephone number set forth above.  This SAI, although not in itself a 
prospectus, is incorporated by reference into each Prospectus in its 
entirety.

TABLE OF CONTENTS

For ease of reference, the same section headings used in this SAI are 
identical to those used in each Prospectus except as noted in parentheses 
below:

Management of the Trust and the Funds	
1
Investment Objectives and Management Policies the New York & 
California Fund	
6
Purchase of Shares	
24
Redemption of Shares	
25
Distributor	
26
Valuation of Shares	
28
Exchange Privilege	
29
Performance Data (See in the Prospectuses Performance )	
29
Taxes (See in the Prospectuses Dividend, Distribution and Taxes)	
33
Additional Information	
34
Financial Statements	
35
Appendix	
36
MANAGEMENT OF THE TRUST AND THE FUNDS
The executive officers of the Funds 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 or the 
Distributor)	
Mutual Management Corp.
Distributor
(MMC Adviser Administrator)	
Investment Adviser and 
Administrator
PNC Bank, National Association (PNC or the 
Custodian)	
Custodian
First Data Investor Services Group, Inc.,	
(First Data or the Transfer Agent)
Transfer Agent

These organizations and the functions they perform for the Funds are 
discussed in the Prospectuses and in this SAI.
TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST

The names of the Trustees of the Trust and executive officers of the Funds, 
together with information as to their principal business occupations, are set 
forth below.  The executive officers of the Funds are employees of 
organizations that provide services to the Funds.  Each Trustee who is an 
interested person of the Trust, as defined in the Investment Company Act of 
1940, as amended (the 1940 Act), is indicated by an asterisk.
	Herbert Barg (Age 74). Private Investor.  His address is 273 Montgomery 
Avenue, Bala Cynwyd, Pennsylvania 19004.

	*Alfred J. Bianchetti, Trustee (Age 75).  Retired; formerly Senior 
Consultant to Dean Witter Reynolds Inc.  His address is 19 Circle End Drive, 
Ramsey, New Jersey 07466.

	Martin Brody, Trustee (Age 76).  Consultant, HMK Associates; Retired 
Vice Chairman of the Board of Restaurant Associates Corp.  His address is c/o 
HMK Associates, 30 Columbia Turnpike, Florham Park, New Jersey 07932.

	Dwight B. Crane, Trustee (Age 60).  Professor, Harvard Business School.  
His address is c/o Harvard Business School, Soldiers Field Road, Boston, 
Massachusetts 02163.

	Burt N. Dorsett, Trustee (Age 67).  Managing Partner of Dorsett McCabe 
Management. Inc., an investment counseling firm; Trustee of Research 
Corporation Technologies, Inc., a nonprofit patent clearing and licensing 
firm.  His address is 201 East 62nd Street, New York, New York 10021.

	Elliot S. Jaffe, Trustee (Age 71).  Chairman of the Board and President 
of The Dress Barn, Inc.  His address is 30 Dunnigan Drive, Suffern, New York 
10901.

	Stephen E. Kaufman, Trustee (Age 66).  Attorney.  His address is 277 
Park Avenue, New York, New York 10172.

	Joseph J. McCann, Trustee (Age 67).  Financial Consultant; Retired 
Financial Executive, Ryan Homes, Inc.  His address is 200 Oak Park Place, 
Pittsburgh, Pennsylvania 15243.

	*Heath B. McLendon, Chairman of the Board and Investment Officer (Age 
64).  Managing Director of Smith Barney, Chairman of the Board of Smith 
Barney Strategy Advisers Inc. and President of MMC and Travelers Investment 
Adviser, Inc. (TIA); prior to July 1993, Senior Executive Vice President of 
Shearson Lehman Brothers Inc., Vice Chairman of Shearson Asset Management.  
Mr. McLendon is Chairman of the Board of 42 Smith Barney Mutual Funds. His 
address is 388 Greenwich Street, New York, New York 10013.

	Cornelius C. Rose, Jr., Trustee (Age 64).  President, Cornelius C. Rose 
Associates, Inc., financial consultants, and Chairman and Trustee of 
Performance Learning Systems, an educational consultant.  His address is Fair 
Oaks, Enfield, New Hampshire 03748.

	James J. Crisona, Trustee Emeritus.  Attorney; formerly Justice of the 
Supreme Court of the State of New York.  His address is 118 East 60th Street, 
New York, New York 10022

	Lewis E. Daidone, Senior Vice President and Treasurer (Age 40).  
Managing Director of Smith Barney, Chief Financial Officer of the Smith 
Barney Mutual Funds; Director and Senior Vice President of MMC and TIA. Mr. 
Daidone serves as Senior Vice President and Treasurer of 42 Smith Barney 
Mutual Funds.  His address is 388 Greenwich Street, New York, New York 10013.

Joseph P. Deane, Vice President and Investment Officer (Age 49).  
Investment Officer of MMC; Managing Director of Smith Barney; prior to July 
1993, Managing Director of Shearson Lehman Advisors.  Mr. Deane also serves 
as Investment Officer of 5 Smith Barney Mutual Funds.  His address is 388 
Greenwich Street, New York, New York 10013.

Peter Coffey, Vice President and Investment Officer (Age 52).  
Investment Officer of MMC; Managing Director of Smith Barney; Mr. Coffey also 
serves as Investment Officer of 8 Smith Barney Mutual Funds.  His address is 
388 Greenwich Street, New York, New York 10013.

	Christina T. Sydor, Secretary (Age 46), Managing Director of Smith 
Barney. General Counsel and Secretary of MMC and TIA.  Ms. Sydor serves as 
secretary of 42 Smith Barney Mutual Funds.  Her address is 388 Greenwich 
Street, New York, New York 10013.

	No officer, director or employee of Smith Barney or any of its 
affiliates receives any compensation from the Trust for serving as an officer 
of the Funds or Trustee of the Trust.  The Trust pays each Trustee who is not 
an officer, director or employee of Smith Barney or any of its affiliates a 
fee of $8,000 per annum plus $500 per in-person meeting and $100 per 
telephonic meeting.  Each Trustee emeritus who is not an officer, director or 
employee of Smith Barney or its affiliates receives a fee of $4,000 per annum 
plus $250 per in-person meeting and $50 per telephonic meeting.  All Trustees 
are reimbursed for travel and out-of-pocket expenses incurred to attend such 
meetings.

	For the fiscal year ended November 30, 1997, the Trustees of the Fund 
were paid the following compensation:






Name of Person



Aggregate
Compensat
ion
from Fund 
#
Total
Pension or
Retirement
Benefits 
Accured
as part of
Fund Expenses


Compensatio
n
from Fund
and Fund
Complex
Paid to 
Trustees

Number of
Funds for
Which 
Trustees
Serves 
Within
Fund Complex
Herbert Barg
$6,600
$0
$101,600
18
Alfred 
Bianchetti**
  6,600
  0
49,600
13
Martin Brody
  6,000
  0
119,814
21
Dwight B. Crane
  6,600
  0
133,850
24
Burt N. Dorsett
  6,600
  0
49,600
13
Elliot S. Jaffe
  6,600
  0
48,500
13
Stephen E. 
Kaufman
  6,600
  0
91,964
15
Joseph J. 
McCann
  6,600
  0
49,600
13
Heath B. 
McLendon **
-
-
-
42
Cornelius C. 
Rose, Jr.
  6,600
  0
49,600
13
	
**    Designates an interested Trustee.
 #   Upon attainment of age 80, Fund Trustees are required to change to 
emeritus status.  Trustees Emeritus are entitled to serve  in emeritus 
status for a maximum of 10 years, during which time they are paid 50% of 
the annual retainer fee and meeting fees otherwise applicable to Fund 
Trustees, together with reasonable out-of-pocket expenses for each meeting 
attended.  Mr. Crisona is a Trustee Emeritus and as such may attend 
meetings but has no voting rights. During the Funds last fiscal year,  
aggregate compensation paid by the Fund to Trustees achieving emeritus 
status totaled $11,423

Investment Adviser and Administrator - MMC
The Adviser serves as investment adviser to each of the Funds pursuant to an 
investment advisory agreement (the Investment Advisory Agreement) with the 
Trust that was approved by the Board of Trustees, including a majority of 
Trustees who are not interested persons of the Trust or the Adviser.  The 
Adviser is a wholly owned subsidiary of Salomon Smith Barney Holdings Inc. 
(Holdings), which, in turn, is a wholly owned subsidiary of Travelers Group 
Inc. (Travelers).  The services provided by the Adviser under the Investment 
Advisory Agreement are described in the Prospectuses under Management of the 
Trust and the Fund. The Adviser pays the salary of any officer and employee 
who is employed by both it and the Trust.  The Adviser bears all expenses in 
connection with the performance of its services.
As compensation for investment advisory services, each Fund pays the Adviser 
a fee computed daily and paid monthly at the annual rate of 0.30% of the 
Funds average daily net assets.
For the fiscal year ended November 30, 1995, the Funds paid the Adviser 
investment advisory fees, and the investment adviser waived fees and 
reimbursed expenses as follows: 



Fees Waived


and Expenses
Fund 
Fees Paid 
Reimbursed
California Fund 
$22,385
$65,910
New York Fund 
  82,898
115,831

For the fiscal year ended November 30, 1996, the Funds paid the Adviser 
investment advisory fees, and the investment adviser waived fees and 
reimbursed expenses as follows:


Fees Waived


and Expenses
Fund 
Fees Paid 
Reimbursed
California Fund 
$       0
$128,361
New York Fund 
32,306
  122,796

For the fiscal year ended November 30, 1997, the Funds paid the Adviser 
investment advisory fees, and the investment adviser waived fees and 
reimbursed expenses as follows:

Fund 
Fees Paid 
Fees Waived
California Fund 
$20,278
$63,087
New York Fund 
  59,523
  90,299

MMC also serves as administrator to the New York and California Funds 
pursuant to a written agreement (the Administration Agreement), which was 
approved by the Trustees of the Trust, including a majority of Trustees who 
are not interested persons of the Trust or the Administrator.  The services 
provided by the Administrator under the Administration Agreement are 
described in the Prospectuses under Management of the Trust and the Fund. The 
Administrator pays the salary of any officer and employee who is employed by 
both it and the Trust and bears all expenses in connection with the 
performance of its services.
As compensation for administrative services rendered to each Fund, the 
Administrator receives a fee computed daily and paid monthly at the annual 
rate of 0.20% of the Funds average daily net assets.
Prior to June 26, 1995, and July 10, 1995, for New York Fund and California 
Fund, respectively, The Boston Company Advisors, Inc. (Boston Advisors), an 
indirect wholly owned subsidiary of Mellon Bank Corporation, served as the 
Funds sub-administrator.

For the fiscal year ended November 30, 1995 the Funds paid the Administrator 
administration fees and the Administrator waived fees as follows:


Fees Waived


and Expenses
Fund 
Fees Paid 
Reimbursed
California Fund 
$17,121
$37,626
New York Fund 
  47,695
  65,864

For the fiscal year ended November 30, 1996 the Funds paid the Administrator 
administration fees and the Administrator waived fees as follows:


Fees Waived


and Expenses
Fund 
Fees Paid 
Reimbursed
California Fund 
$       0
$85,575
New York Fund 
10,906
  92,495
For the fiscal year ended November 30, 1997 the Funds paid the Administrator 
administration fees and the Administrator waived fees as follows:


Fees Waived


and Expenses
Fund 
Fees Paid 
Reimbursed
California Fund 
$13,518
$42,058
New York Fund 
  33,023
  66,858

The Trust bears expenses incurred in its operation, including: taxes, 
interest, brokerage fees and commissions, if any; fees of Trustees who are 
not officers, directors, shareholders or employees of Smith Barney or MMC, 
Securities and Exchange Commission (SEC) fees and state Blue Sky 
qualification fees; charges of custodians; transfer and dividend disbursing 
agent fees; certain insurance premiums; outside auditing and legal expenses; 
costs of maintaining corporate existence; costs of investor services 
(including allocated telephone and personnel expenses); costs of preparing 
and printing prospectuses for regulatory purposes and for distribution to 
existing shareholders; costs of shareholders reports and shareholder 
meetings; and meetings of the officers or Board of Trustees of the Trust.

Counsel and Auditors

Willkie Farr & Gallagher serves as legal counsel to the Trust.  The Trustees 
who are not interested persons of the Trust have selected Stroock & Stroock & 
Lavan LLP as their counsel.
KPMG Peat Marwick LLP, independent auditors, 345 Park Avenue, New York, New 
York 10154, have been selected to serve as auditors of the Trust and to 
render opinions on the Funds financial statements for the fiscal year ended 
November 30, 1998.

INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES FOR THE NEW YORK AND
 CALIFORNIA FUND

The Prospectuses discuss the investment objective of each Fund and the 
principal policies to be employed to achieve that objective.  Supplemental 
information is set out below concerning the types of securities and other 
instruments in which the Funds may invest, the investment policies and 
strategies that the Funds may utilize and certain risks attendant to those 
investments, policies and strategies.

United States Government Securities

Securities issued or guaranteed by the United States government or one of its 
agencies, authorities or instrumentalities (U.S. government securities) in 
which each of the California Fund and the New York Fund may invest include 
debt obligations of varying maturities issued by the United States Treasury 
or issued or guaranteed by an agency or instrumentality of the United States 
government, including the Federal Housing Administration, Export-Import Bank 
of the United States, Small Business Administration, Government National 
Mortgage Association, General Services Administration, Federal Home Loan 
Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit 
Banks, Federal National Mortgage Association, Maritime Administration, 
Tennessee Valley Authority, District of Columbia Armory Board, Student Loan 
Marketing Association, Resolution Trust Corporation and various institutions 
that previously were or currently are part of the Farm Credit System (which 
has been undergoing a reorganization since 1987).  Direct obligations of the 
United States Treasury include a variety of securities that differ in their 
interest rates, maturities and dates of issuance.  Because the United States 
government is not obligated by law to provide support to an instrumentality 
that it sponsors, neither of the Funds will invest in obligations issued by 
an instrumentality of the United States government unless the Adviser 
determines that the instrumentalitys credit risk does not make its securities 
unsuitable for investment by the Fund.

Municipal Obligations

Each of the Funds invests principally in debt obligations issued by, or on 
behalf of, states, territories and possessions of the United States and the 
District of Columbia and their political subdivisions, agencies and 
instrumentalities or multistate agencies or authorities, the interest from 
which debt obligations is, in the opinion of bond counsel to the issuer, 
excluded from gross income for Federal income tax purposes (Municipal 
Obligations).  Municipal Obligations generally are understood to include debt 
obligations issued to obtain funds for various public purposes, including the 
construction of a wide range of public facilities, refunding of outstanding 
obligations, payment of general operating expenses and extensions of loans to 
public institutions and facilities.  Private activity bonds that are issued 
by or on behalf of public authorities to finance privately operated 
facilities are considered to be Municipal Obligations if the interest paid on 
them qualifies as excluded from gross income (but not necessarily from 
alternative minimum taxable income) for Federal income tax purposes in the 
opinion of bond counsel to the issuer.  Municipal Obligations may be issued 
to finance life care facilities, which are an alternative form of long-term 
housing for the elderly that offer residents the independence of a 
condominium life-style and, if needed, the comprehensive care of nursing home 
services.  Bonds to finance these facilities have been issued by various 
state industrial development authorities.  Because the bonds are secured only 
by the revenues of each facility and not by state or local government tax 
payments, they are subject to a wide variety of risks, including a drop in 
occupancy levels, the difficulty of maintaining adequate financial reserves 
to secure estimated actuarial liabilities, the possibility of regulatory cost 
restrictions applied to health care delivery and competition from alternative 
health care or conventional housing facilities.

Municipal Leases

Municipal leases are Municipal Obligations that may take the form of a lease 
or an installment purchase issued by state and local government authorities 
to obtain funds to acquire a wide variety of equipment and facilities such as 
fire and sanitation vehicles, computer equipment and other capital assets.  
These obligations have evolved to make it possible for state and local 
government authorities to acquire property and equipment without meeting 
constitutional and statutory requirements for the issuance of debt.  Thus, 
municipal leases have special risks not normally associated with Municipal 
Obligations.  These obligations frequently contain non-appropriation clauses 
that provide that the governmental issuer of the municipal lease has no 
obligation to make future payments under the lease or contract unless money 
is appropriated for such purposes by the legislative body on a yearly or 
other periodic basis.  In addition to the non-appropriation risk, municipal 
leases represent a type of financing that has not yet developed the depth of 
marketability associated with Municipal Obligations; moreover, although the 
obligations will be secured by the leased equipment, the disposition of the 
equipment in the event of foreclosure might prove difficult.  In order to 
limit the risks, the Fund will purchase either (a) municipal leases that are 
rated in the four highest categories by Moodys Investor Services, Inc. 
(Moodys) or Standard & Poors Corporation (S&P) or (b) unrated municipal 
leases that are purchased principally from domestic banks or other 
responsible third parties that have entered into an agreement with the Fund 
providing the seller will either remarket or repurchase the municipal leases 
within a short period after demand by the Fund.

From time to time, proposals to restrict or eliminate the Federal income tax 
exemption for interest on Municipal Obligations have been introduced before 
Congress.  Similar proposals may be introduced in the future.  In addition, 
the Internal Revenue Code of 1986, as amended, (the Code) currently provides 
that small issue private activity bonds will not be tax-exempt if the bonds 
were issued after December 31, 1986, and the proceeds were used to finance 
projects other than manufacturing facilities.

Special Considerations Relating To California Exempt Obligations

As indicated in its Prospectus, the California Fund seeks its objective by 
investing principally in a portfolio of Municipal Obligations, the interest 
from which is exempt from California State personal income taxes (California 
Exempt Obligations). 

Some of the significant financial considerations relating to the California 
Funds investments in California Exempt Obligations are summarized below.  
This summary information is derived principally from official statements and 
prospectuses relating to securities offerings of the State of California and 
various local agencies in California, available as of the date of this SAI 
and does not purport to be a complete description of any of the 
considerations mentioned herein.  It is also based on the disclosure 
statement filed in the County of Orange bankruptcy case.  The accuracy and 
completeness of the information contained in such official statements and 
disclosure statement has not been independently verified.

Risk Factors
Beginning in the 1990-91 fiscal year, California faced the worst economic, 
fiscal and budget conditions since the 1930s.  Construction, manufacturing 
(especially aerospace), exports and financial services, among others, were 
severely affected.  Job losses were the worst of any post-war recession and 
have been estimated to exceed 800,000.
The recession seriously affected State tax revenues.  It also caused 
increased expenditures for health and welfare programs.  The State has also 
faced a structural imbalance in its budget with the largest programs 
supported by the General Fund?K-12 schools and community colleges, health, 
welfare and corrections?growing at rates higher than the growth rates for the 
principal revenue sources of the General Fund.  (The General Fund, the States 
main operating fund, consists of revenues which are not required to be 
credited to any other fund.)  The State experienced recurring budget 
deficits.  The State Controller reported that expenditures exceeded revenues 
for the four of the six fiscal years ending with 1992-93, and were 
essentially equal in 1993-94.  According to the Department of Finance, the 
State suffered a continuing budget deficit of approximately $2.8 billion in 
the Special Fund for Economic Uncertainties.  (Special Funds account for 
revenues obtained from specific revenue sources, and which are legally 
restricted to expenditures for specified purposes.)  The 1993-94 Budget Act 
incorporated a Deficit Reduction Plan to repay this deficit over two years.  
The original budget for 1993-94 reflected revenues which exceeded 
expenditures by approximately $2.8 billion.  As a result of continuing 
recession, the excess of revenues over expenditures for the 1993-94 fiscal 
year was less than $300 million.  The accumulated budget deficit at June 30, 
1994 was not able to be retired by June 30, 1995 as planned.  When the 
economy failed to recover sufficiently in 1993-94, a second two-year plan was 
implemented in 1994-95.  The accumulated budget deficits over the past 
several years, together with expenditures for school funding which have not 
been reflected in the budget, and the reduction of available internal 
borrowable funds, have combined to significantly deplete the States cash 
resources to pay its ongoing expenses.  In order to meet its cash needs, the 
State has had to rely for several years on a series of external borrowings, 
including borrowings past the end of a fiscal year.  At the end of its 1995-
96 fiscal year, however, the State did not borrow moneys into 1995-96 Budget 
the subsequent fiscal year.
Since the severe recession, Californias economy has been recovering.  
Employment has grown by over 500,000 in 1994 and 1995, and the precession 
level of total employment is expected to be matched by early 1996.  The 
strongest growth has been in export-related industries, business services, 
electronics, entertainment and tourism, all of which have offset the 
recession-related losses which were heaviest in aerospace and defense-related 
industries (accounting for approximately two-thirds of the job losses), 
finance and insurance.  Residential housing construction, with new permits 
for under 100,000 annual new units issued in 1994 and 1995, is weaker than in 
previous recoveries, but has been growing slowly since 1993.
Sectors which are now contributing to Californias recovery include 
construction and related manufacturing, wholesale and retail trade, 
transportation and several service industries such as amusements and 
recreation, business services, and management consulting.  Electronics is 
showing modest growth and the rate of decline in aerospace manufacturing is 
slowly diminishing.  As a result of these factors, average 1994 non-farm 
employment exceeded expectations and grew beyond 1993 levels.
Many California counties continue to be under severe fiscal stress.  Such 
stress has impacted smaller, rural counties and larger urban counties such as 
Los Angeles, and Orange County which declared bankruptcy in 1994.  Orange 
County has implemented significant reductions in services and personnel, and 
continues to face fiscal constraints in the aftermath of its bankruptcy.  
However, California has experienced recent economic expansion, with growth in 
employment and in early 1998 the state recorded its lowest unemployment rate 
since 1990.  There can be no assurance this growth trend will continue.
1995-96 Budget
The state began the 1995-96 Fiscal Year with strengthening revenues based on 
an improving economy and the smallest nominal budget gap to be closed in many 
years.
The 1995-96 Budget Act, signed by the Governor on August 3, 1995, projects 
General Fund revenues and transfers of $44.1 billion, about $2.2 billion 
higher than projected revenues in 1994-95.  The Budget Act projects Special 
Fund revenues of $12.7 billion, an increase from $12.1 billion projected in 
1994-95.
The Department of Finance released updated projections for the 1995-96 fiscal 
year in May, 1996, estimating that revenues and transfers to be $46.1 
billion, approximately $2 billion over the original fiscal year estimate.  
Expenditures also increased, to an estimated $45.4 billion, as a result of 
the requirement to expend revenues for schools under Proposition 98, and, 
among other things, failure of the federal government to budget new aid for 
illegal immigrant costs which had been counted on to allow reductions in 
costs.
The principal features of the Budget Act were the following:
1. Proposition 98 funding for schools and community colleges will increase 
by about $1 billion (General Fund) and $1.2 billion total above revised 
1994-95 levels.  Because of higher than projected revenues in 1994-95, an 
additional $543 million in appropriated to the 1994-95 Proposition 98 
entitlement.  A significant component of this amount is block grant of 
about $54 per pupil for any one-time purpose.  Per-pupil expenditures are 
projected to increase by another $126 in 1995-96 to $4,435.  A full 2.7% 
cost of living allowance is funded for the first time in several years.  
The budget comprise anticipated a settlement of the CTA v. Gould 
litigation.
2. Cuts in health and welfare costs totaling about $900 million, some of 
which would require federal legislative approval.
3. A 3.5% increase in funding for the University of California ($90 
million General Fund) and the California State University system ($24 
million General Fund), with no increase in student fees.
4. The updated Budget assumes receipt of $494 million in new federal aid 
for costs of illegal immigrants, in excess of federal government 
commitments.
5. General Fund support for the Department of Corrections is increased by 
about 8 percent over 1994-95, reflecting estimates of increased prison 
population.  This amount is less than was proposed in the 1995 Governors 
Budget.
1996-97 Budget

The 1996-97 Budget Act was signed by the Governor on July 15, 1996, and 
projected General Fund revenues and transfers of approximately $47.64 billion 
and General Fund expenditures of approximately $47.25 billion.  The Governor 
vetoed abut $82 million of appropriations (both General Fund and Special 
Fund) and the State has implemented its regular cash flow borrowing program 
with the issuance of $3.0 billion of Revenue Anticipation Notes to mature on 
or before June 30, 1997.  The 1996-97 Budget Act appropriated a budget 
reserve in the Special Fund for Economic Uncertainties of $305 million, as of 
June 30, 1997.
The Budget Act contained General Fund appropriations totaling $47.251 
billion, a 4.0 percent increase over the final estimated 1995-96 
expenditures.  Special Fund expenditures are budgeted at $12.6 billion.
The following were the principal features of the 1996-97 Budget Act:
1. Proposition 98 funding for schools and community colleges will 
increase by about $1.6 billion (General Fund) and $1.65 billion total 
above revised 1995-96 level periods.  Almost half of this money was 
budgeted to fund class-size reduction in kindergarten and grades 1-3.
2. Proposed cuts in health and welfare totaling $660 million.  All of 
these cuts require federal law changes (including welfare reform), 
federal waivers, or federal budget appropriations in order to be 
achieved.  The 1996-97 Budget Act assumes approval/action by October, 
1996, with the savings to be achieved beginning in November, 1996.  
The 1996-97 Budget Act was based on continuation of previously 
approved assistance levels for Aid to Families with Dependent Children 
and other health and welfare programs, which had been reduced in prior 
years, including suspension of State authorized cost of living 
increases.
3. A 4.9 percent increase in funding for the University of California 
($130 million General Fund) and the California State University system 
($101 million General Fund), with no increases in student fees, 
maintaining the second year of the Governors four-year Compact with 
the States higher education units.
4. General Fund support for the Department of Corrections was increased 
by about 7 percent over the prior year, reflecting estimates of 
increased prison population.
5. With respect to aid to local governments, the principal new programs 
included in the 1996-97 Budget Act are $100 million in grants to 
cities and counties for law enforcement purposes, and budgeted $50 
million for competitive grants to local governments for programs to 
combat juvenile crime.
The 1996-97 Budget Act did not contain any tax increases.  As noted, there 
was a reduction in corporate taxes.  In addition, the Legislature approved 
another one-year suspension of the Renters Tax Credit, saving $520 million in 
expenditures.
1997-98 Budget
On January 9, 1997, the Governor announced his proposed 1997-98 State budget 
detailing plans to cut welfare, increase education spending and provide 
certain tax cuts to businesses and banks.  The total spending plan in the 
amount of approximately $66.6 billion represents an increase of approximately 
4% from the 1996-97 State Budget, with an increase in the States General Fund 
to approximately $50.3 billion.  The Governor announced a proposal to 
restructure the States welfare system, placing strict time limits on the 
provisions of assistance and introducing penalties, and included a plan to 
increase spending for elementary and secondary schools.
On August 11, 1997, the State Legislature approved a 1997-98 State Budget of 
approximately $68 billion which included approximately $32 billion for public 
schools, an increase of approximately $4 billion over the prior year.  The 
Budget also included approximately $100 million for local law enforcement and 
approximately $75 million in spending to subsidize hospitals that care for 
large numbers of uninsured patients, as well as approximately $40 million for 
legal immigrants and an increase of approximately $223 million in welfare 
spending, including job training. The education portion of the State Budget 
approved by the Legislature for 1997-98 included approximately $850 million 
to expand the class-size reduction program and full statutory funding of the 
Revenue Limit COLA comprising a 2.65% COLA, consistent with the May Revision, 
Revenue Limit Equalization is as funded in the amount of approximately $261 
million for the school district revenue limit equalization for 1996-97.
The final State Budget was signed by the Governor on August 18, 1997 after 
using his line-item veto authority to veto, with reservation until an 
acceptable school testing bill is passed, a significant amount of education 
funding from the State Budget approved by the Legislature.  Vetoes which 
would be restored if a testing bill acceptable to the Governor is passed 
include approximately $955,000 in Department of Education spending, and 
approximately $900 million in local assistance.  Vetoes not relating to the 
testing issue, but which need legislation in order to restore the vetoed 
funds, included more than $20 million in Department of Education spending.  
The final State Budget also provided approximately $377 million for child 
care programs administered by the Department of Education and the Department 
of social Services, approximately $160 million for welfare-to-work programs, 
approximately $25 million in adult education funding and approximately $50 
million in California community colleges, approximately $100 million to 
cities and counties to enhance local law enforcement, approximately $55 
million in federal funds to local government for the construction of 
detention facilities and approximately $1.2 billion in deferred general fund 
contributions to the Public Employees Retirement System.  The final State 
Budget did not include the Governors proposed 10% tax cut for bank and 
corporations.
Proposed 1998-99 Budget
In 1997, California experienced employment growth exceeding 3 percent - 
approximately 400,000 new jobs - and income rose by more than 7 percent.  The 
States unemployment rate fell during 1997 to a low of 5.8% in November.  In 
fiscal year 1996-97, the State General Fund collections grew by over 6 
percent to reach $49.2 billion, and revenue for the 1997-98 and 1998-99 
fiscal years is expected to reach $52.9 billion and $55.4 billion 
respectively.  This represents an annual growth of $3.7 billion (7.5 percent) 
for 1997-98 and $2.5 billion (4.7 percent) for 1998-99.
The 1998-99 Governors Budget provides $50 million in General Fund and $200 
million in a proposed bond issue to capitalize the Infrastructure and 
Development Bank, which will provide capital to local governments to help 
businesses locate and expand in California, and $3 million for the small 
business loan guarantee program.  The Budget also includes an Early Childhood 
Development Initiative, which is designed to improve the health and 
development of children from birth to age three and provides additional funds 
for anti-gang programs and for the apprehension of sexual predators.  The 
Budget proposes an approximately $7 billion investment plan to maintain and 
build the States system of schools, water supply, prisons, natural resources, 
and other Infrastructure.
In addition, the Budget includes approximately $40 billion to be devoted to 
Californias 999 school districts and 58 county offices of education, 
resulting on estimated total per-pupil expenditures from all sources of 
$6,620 in fiscal year 1997-98 and $6,749 in 1998-99.  Projected state 
revenues will contribute to a 7 percent increase in Proposition 98 General 
Fund support for K-12 education in 1998-99.  This level of resources result 
in K-12 Proposition 98 per-pupil expenditures of $5,636 in 1998-99, up from 
$5,114 in 1996-97 and $5,414 in 1997-98.  In addition, approximately $350 
million has been allocated to lengthen the school year to 180 days while 
maintaining sufficient funds for staff development days.  The State Budget 
included a 2.22% COLA for revenue limit, special education, and child 
development in an amount of $657.4 million which includes school district and 
county office of education apportionments ($470.6 million), summer school 
($4.0 million), special education ($57.8 million), child development ($14.6 
million), class size reduction ($33.6 million), and categorical program COLA 
and growth ($73.7 million); enrollment growth funding of $564.4 million; 
class size reduction funding in the amount of $547 billion for all pupils in 
grades K-3 at $818 per pupil; and approximately $2 billion in state bonds for 
the 1998 election and $2.0 billion for each two years thereafter in 2000, 
2002 and 2004 and an additional $135 million for deferred maintenance to be 
matched locally.
It cannot be predicted what actions will be taken in the future by the State 
Legislature and the Governor to deal with changing State revenues and 
expenditures.  The State budget will be affected by national and state 
economic conditions and other factors.
THE FOREGOING DISCUSSION IS BASED ON OFFICIAL STATEMENTS AND OTHER 
INFORMATION PROVIDED BY THE STATE OF CALIFORNIA.  THE STATE HAS INDICATED 
THAT ITS DISCUSSION OF BUDGETARY INFORMATION IS BASED ON ESTIMATES AND 
PROJECTIONS OF REVENUES AND EXPENDITURES FOR THE CURRENT FISCAL YEAR AND MUST 
NOT BE CONSTRUED AS STATEMENTS OF FACT; THE ESTIMATES AND PROJECTIONS ARE 
BASED UPON VARIOUS ASSUMPTIONS WHICH MAY BE AFFECTED BY NUMEROUS FACTORS, 
INCLUDING FUTURE ECONOMIC CONDITIONS IN THE STATE AND THE NATION, AND THERE 
CAN BE NO ASSURANCE THAT THE ESTIMATES WILL BE ACHIEVED.
Recent Voter Initiative
Proposition 218 or the Right to vote on Taxes Act (the Proposition) was 
approved by the California electorate at the November, 1996 general election.  
Officially titled Voter Approval For Local Government Taxes, Limitation on 
Fees, Assessments and Charges Initiative Constitutional Amendment, the Act 
was approved by a majority of the voters voting at the election and adds 
Articles XIIIC and XIIID to the California Constitution.
The Proposition, among other things, requires local government to follow 
certain procedures in imposing or increasing any fee or charge as defined.  
Fee or charge is defined to mean any levy other than an ad valorem tax, a 
special tax or an assessment imposed by an agency upon a parcel or upon a 
person as an incident of property ownership, including user fees or charges 
for a property related service.
The procedure required by the Proposition to impose or increase any fee or 
charge include a public hearing upon the proposed fee or charge and the 
opportunity to present written protests by the owners of the parcels subject 
to the proposed fee or charge.  If written protests against the proposed fee 
or charge are presented by a majority of owners of the identified parcels, 
the local government shall not impose the fee or charge.
The Proposition further provides as follows:
Except for fees or charges for sewer, water, and refuse collection 
services, no property related fee or charge shall be imposed or increased 
unless and until such fee or charge is submitted and approved by a 
majority vote of the property owners of the property subject to the fee or 
charge or, at the option of the agency, by a two thirds vote of the 
electorate residing in the affected area.
Additionally, the Proposition provides, with respect to standby charges, as 
follows:
No fee or charge may be imposed for a service unless that service is 
actually used by, or immediately available to, the owner of the property 
in question.  Fees or charges based on potential or future use of a 
service are not permitted.  Standby charges, whether characterized as 
charges or assessments, shall be classified as assessments and shall not 
be imposed without compliance with Section 4 of this Article.
The Proposition provides that beginning July 1, 1997, all fees and charges 
shall comply with the Propositions requirements.
The Proposition is silent with respect to future increases of pre-existing 
fees or charges which are pledged to payment of indebtedness or obligations 
previously incurred by the local government.  Presumably, the Proposition 
cannot preempt outstanding contractual obligations protected by the contract 
impairment clause of the federal constitution.  However, with respect to any 
given situation or case, litigation may be the method which will settle any 
question concerning the authority of a local government to increase fees or 
charges outside of the strictures of the Proposition in order to meet 
contractual obligations.
Proposition 218 also contains a new provision subjecting matters of reducing 
or repealing any local tax, assessments and charges to the initiative power.  
This means that no city or local agency revenue source is safe from reduction 
or repeal pursuant to the initiative process.
Litigation concerning various elements of the Proposition may ultimately 
ensue and clarifying legislation may be enacted.
State Appropriations Limit
The State is subject to an annual appropriations limit imposed by Article 
XIIIB of the State Constitution (the Appropriations Limit), and is prohibited 
from spending appropriations subject to limitation in excess of the 
Appropriations Limit.  Article XIIIB originally adopted in 1979, was modified 
substantially by Propositions 98 and 111 in 1988 and 1990, respectively.  
Appropriations subject to limitation are authorizations to spend proceeds of 
taxes, which consist of tax revenues and certain other funds, including 
proceeds from regulatory licenses, user charges or other fees to the extent 
that such proceeds exceed the reasonable cost of providing the regulation, 
product or service.  The Appropriations Limit is based on the limit for the 
prior year, adjusted annually for certain changes, and is tested over 
consecutive two-year periods.  Any excess of the aggregate proceeds of taxes 
received over such two-year period above the combined Appropriation Limits 
for those two years is divided equally between transfers to K-14 districts 
and refunds to taxpayers.
Exempted from the Appropriation Limit are debt service costs of certain 
bonds, court or federally mandated costs, and, pursuant to Proposition 111, 
qualified capital outlay projects and appropriations or revenues derived from 
any increase in gasoline taxes and motor vehicle weight fees above January 1, 
1990 levels.  Some recent initiatives were structured to create new tax 
revenues dedicated to specific uses and expressly exempted from the Article 
XIIIB limits.  The Appropriations Limit may also be exceeded in cases of 
emergency arising from civil disturbance or natural disaster declared by the 
Governor and approved by two-thirds of the Legislature.  If not so declared 
and approved, the Appropriations Limit for the next three years must be 
reduced by the amount of the excess.
Article XIIIB, as amended by Proposition 98 on November 8, 1988, also 
establishes a minimum level of state funding for school and community college 
districts and requires that excess revenues up to a certain limit be 
transferred to schools and community college districts instead of returned to 
the taxpayers.  Determination of the minimum level of funding is based on 
several tests set forth in proposition 98.  During fiscal year 1991-1992 
revenues were smaller than expected, thus reducing the payment owed to 
schools in 1991-92 under alternate test provisions.  In response to the 
changing revenue situation, and to fully fund the Proposition 98 guarantee in 
the 1991-1992 and 1992-1993 fiscal years without exceeding it, the 
Legislature enacted legislation to reduce 1991-92 appropriations.  The amount 
budgeted to schools but which exceeded the reduced appropriations treated as 
a non-Proposition 98 short-term loan in 1991-92.  As part of the 1992-93 
Budget, $1.083 billion of the amount budgeted to K-14 schools was designated 
to repay the prior year loan, thereby reducing cash outlays in 1992-93 by 
that amount.  To maintain per-average daily attendance (ADA) funding, the 
1992-93 Budget included loans of $732 million to K-12 schools and $241 
million to community colleges, to be repaid from future Proposition 98 
entitlements.  The 1993-94 Budget also provided new loans to $609 million to 
K-12 schools and $178 million to community colleges to maintain ADA funding.  
These loans have been combined with the 1992-93 fiscal year loans into one 
loan of $1.760 billion, to be repaid from future years Proposition 98 
entitlements, and conditioned upon maintaining current funding levels per 
pupil at K-12 schools.
A Sacramento County Superior Court in California Teachers Association, et al. 
v Gould, et al., ruled that the 1992-93 loans to K-12 schools and community 
colleges violate Proposition 98.  As part of the negotiations leading to the 
1995-96 Budget Act, an oral agreement was reached to settle this case.  The 
parties reached a conditional final settlement of the case in April, 1996.  
The settlement required adoption of legislation satisfactory to the parties 
to implement its terms, which has occurred, and final approval by the court, 
which was pending in early July, 1996.
The settlement provides, among other things, that both the State and K-14 
schools share in the repayment of prior years emergency loans to schools.  Of 
the total $1.76 billion in loans, the State will repay $935 million by 
forgiveness of the amount owed, while schools will repay $825 million.  The 
State share of the repayment will be reflected as expenditures above the 
current Proposition 98 base circulation.  The schools share of the repayment 
will count as appropriations that count toward satisfying the Proposition 98 
guarantee, or from below the current base.  Repayments are to be spread over 
the eight-year period beginning 1994-95 through 2002-03.  Once the Director 
of Finance certifies that a settlement has occurred, approximately $377 
million in appropriations from the 1995-96 fiscal year to schools will be 
disbursed.
Because of the complexities of Article XIIIB, the ambiguities and possible 
inconsistencies in its terms, the applicability of its exceptions and 
exemptions and the impossibility of predicting future appropriations, the 
Trust cannot predict the impact of this or related legislation on the bonds 
in the Trust Portfolio.  Other Constitutional amendments affecting state and 
local taxes and appropriations have been proposed from time to time.  If any 
such initiatives are adopted, the state could be pressured to provide 
addition financial assistance to local governments or appropriate revenues as 
mandated by such initiatives.  Propositions such a Proposition 98 and others 
that may be adopted in the future, may place increasing pressure on the 
States budget over future years, potentially reducing resources available for 
other State programs, especially to the extent that the Article XIIIB 
spending limit would restrain the States ability to fund such other programs 
by raising taxes.
State Indebtedness
As of September 1, 1997, the State had over $17.6 billion aggregate amount of 
its general obligation bonds outstanding.  General obligation bond 
authorizations in an aggregate amount of approximately $8.26 billion remained 
unissued as of September 1, 1997.  As of September 1, 1997 the State Finance 
Committee had authorized the issuance of approximately $3.6 billion of 
general obligation commercial paper notes, but as of that date only $1.2 
billion aggregate principal amount of which was issued and outstanding.  The 
State also builds and acquires capital facilities through the use of lease 
purchase borrowing.  As of September 1, 1997, the State had approximately 
$6.1 billion of outstanding General Fund-supported Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and authorities 
had approximately $20.86 billion aggregate principal amount of revenue bonds 
and notes outstanding as of September 1, 1997.  Revenue bonds represent both 
obligations payable from State revenue-producing enterprises and projects, 
which are not payable from the General Fund, and conduit obligations payable 
only from various revenues paid by private users of facilities financed by 
such revenue bonds.  Such enterprises and projects include transportation 
projects, various public works and exposition projects, educational 
facilities (including the California State University and University of 
Californias systems), housing, health facilities and pollution control 
facilities.
Litigation
The State is a party to numerous legal proceedings.  In addition, the State 
is involved in certain other legal proceedings that, if decided against the 
State, might require the State to make significant future expenditures or 
impair future revenue sources.  Examples of such cases include challenges to 
certain vehicle license fees and challenges to the States use of Public 
Employee Retirement System funds to offset future State and local pension 
contributions.  Other cases which could significantly impact revenue or 
expenditures involve challenges of payments of wages under the Fair Labor 
Standards Act, the method of determining gross insurance premiums involving 
health insurance, property tax challenges, challenges of transfer of moneys 
from State Treasury special fund accounts to the States General Fund pursuant 
to its Budget Acts for certain fiscal years.  Because of the prospective 
nature of these proceedings, it is not presently possible to predict the 
outcome of such litigation or estimate the potential impact on the ability of 
the State to pay debt service on its obligation.

Ratings
During 1996, the ratings of Californias general obligation bonds was upgraded 
by the following rating agencies.  Recently Standard & Poors Ratings Group 
upgraded its rating of such debt to A+; the same rating has been assigned to 
such debt by Fitch Investors Service.  Moodys Investors Service has assigned 
such debt an A1 rating.  Any explanation of the significance of such ratings 
may be obtained only from the rating agency furnishing such ratings.  There 
is no assurance that such ratings will continue for any given period of time 
or that they will not be revised downward or withdrawn entirely if, in the 
judgment of the particular rating agency, circumstances so warrant.
The Trust believes the information summarized above describes some of the 
more significant aspects relating to the California Trust.  The sources of 
such information are Preliminary Official Statements and Official Statements 
relating to the States general obligation bonds and the States revenue 
anticipation notes, or obligations of other issuers located in the State of 
California, or other publicly available documents.  Although the Trust has 
not independently verified this information, it has no reason to believe that 
such information is not correct in all material respects.
California Taxes -
In the opinion of LeBoeuf, Lamb, Greene & MacRae L.L.P., Los Angeles, 
California, special counsel on California tax matters, under existing law:
The California Trust is not taxable as corporation for California tax 
purposes.  Interest on the underlying Securities owned by the California 
Trust that is exempt from personal income taxes imposed by the State of 
California will retain its status as interest exempt from personal income tax 
imposed by the State of California.
Each Unit Holder of the California Trust will recognize gain or loss on the 
sale, redemption or other disposition of Securities within the California 
Trust, or on the sale or other disposition of Unit Holders interest in the 
California Trust. As a result, a Unit Holder may incur California tax 
liability upon the sale, redemption or other disposition of Securities within 
the California Trust or upon the sale or other disposition of his or her 
Units.
Special Consideration Relating to New York Exempt Obligations

Risk Factors.  The information set forth below is derived from the official 
statements and/or preliminary drafts of official statements prepared in 
connection with the issuance of New York State and New York City municipal 
bonds.  The Trust has not independently verified this information.
Economic Trends.  Over the long term, the State of New York (the State) and 
the City of New York (the City) face serious economic problems.  The City 
accounts for approximately 41% of the States population and personal income, 
and the Citys financial health affects the State in numerous ways.  The State 
historically has been one of the wealthiest states in the nation.  For 
decades, however, the State has grown more slowly than the nation as a whole, 
gradually eroding its relative economic affluence.  Statewide, urban centers 
have experienced significant changes involving migration of the more affluent 
to the suburbs and an influx of generally less affluent residents.  
Regionally, the older Northeast cities have suffered because of the relative 
success that the South and the West have had in attracting people and 
business.  The City has also had to face greater competition as other major 
cities have developed financial and business capabilities which make them 
less dependent on the specialized services traditionally available almost 
exclusively in the City.
The State has for many years had a very high State and local tax burden 
relative to other states.  The State and its localities have used these taxes 
to develop and maintain their transportation networks, public schools and 
colleges, public health systems, other social services and recreational 
facilities.  Despite these benefits, the burden of State and local taxation, 
in combination with the many other causes of regional economic dislocation, 
has contributed to the decisions of some businesses and individuals to 
relocate outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and its localities 
may take to encourage economic growth and achieve balanced budgets, 
reductions in Federal spending could materially and adversely affect the 
financial condition and budget projections of the State and its localities.
New York City.  The City, with a population of approximately 7.3 million, is 
an international center of business and culture.  Its non-manufacturing 
economy is broadly based, with the banking and securities, life insurance, 
communications, publishing, fashion design, retailing and construction 
industries accounting for a significant portion of the Citys total employment 
earnings.  Additionally, the City is the nations leading tourist destination.  
The Citys manufacturing activity is conducted primarily in apparel and 
printing.
The national economic downturn which began in July 1990 adversely affected 
the local economy, which had been declining since late 1989.  As a result, 
the City experienced job losses in 1990 and 1991 and real Gross City Product 
(GCP) fell in those two years.  Beginning in calendar year 1992, the 
improvement in the national economy helped stabilize conditions in the City.  
Employment losses moderated toward year-end and real GCP increased, boosted 
by strong wage gains.  After noticeable improvements in the Citys economy 
during calendar year 1994, economic growth slowed in calendar year 1995, and 
thereafter improved during calendar year 1996, reflecting improved securities 
industry earnings and employment in other sectors.  The Citys current four-
year financial plan assumes that moderate economic growth will continue 
through calendar year 2001, with moderating job growth and wage increases.
For each of the 1981 through 1996 fiscal years, the City achieved balanced 
operating results as reported in accordance with generally accepted 
accounting principles (GAAP).  The City has been required to close 
substantial budget gaps between forecast revenues and forecast expenditures 
in order to maintain balanced operating results.  There can be no assurance 
that the City will continue to maintain a balanced budget as required by 
State law without additional tax or other revenue increases or additional 
reductions in City services or entitlement programs, which could adversely 
affect the Citys economic base.
Pursuant to the New York State Financial emergency Act for the City of New 
York (the Financial Emergency Act or the Act), the City prepares an annual 
four-year financial plan, which is reviewed and revised on quarterly basis 
and which includes the Citys capital, revenue and expense projections and 
outlines proposed gap-closing programs for years with projected budget gaps.  
The Citys current four-year financial plan projects a surplus in the 1998 
fiscal year (before discretionary transfers) and substantial budget gaps for 
each of the 1999, 2000 and 2001 fiscal years.  This pattern of current year 
surplus and projected subsequent year budget gaps has been consistent through 
virtually the entire period since 1982, during which the City has achieved 
balanced operating results for each fiscal year.  The City is required to 
submit its financial plans to review bodies, including the New York State 
Financial Control Board (Control Board).
The City depends on State aid both to enable the City to balance its budget 
and to meet its cash requirements.  The States 1995-96 Financial Plan 
projects a balanced General Fund.  There can be no assurance that there will 
not be reductions in State aid to the City from amounts currently projected 
or that State budgets in future fiscal years will be adopted by the April 1 
statutory deadline and that such reductions or delays will not have adverse 
effects on the Citys cash flow or expenditures.  In addition, the Federal 
Budget negotiation process could result in a reduction in or a delay in the 
receipt of Federal grants which could have additional adverse effects on the 
Citys cash flow or revenues.
The Mayor is responsible for preparing the Citys four-year financial plan, 
including the Citys current financial plan for the 1998 through 2001 fiscal 
years (the 1998-2001 Financial Plan or Financial Plan).  The Citys 
projections set forth in the Financial Plan are based on various assumptions 
and contingencies which are uncertain and which may not materialize.  Changes 
in major assumptions could significantly affect the Citys ability to balance 
its budget as required by State law and to meet its annual cash flow and 
financing requirements.  Such assumptions and contingencies include the 
condition of the regional and local economies, the impact on real estate tax 
revenues of the real estate market, wage increases for City employees 
consistent with those assumed in the Financial Plan, employment growth, the 
ability to implement proposed reductions in City personnel and other cost 
reduction initiatives, the ability of the New York City Health and Hospitals 
Corporation (HHC) and the Board of Education (BOE) to take actions to offset 
potential budget shortfalls, the ability to complete revenue generating 
transactions, provision of State and Federal aid and mandate relief and the 
impact on City revenues and expenditures of Federal and State welfare reform 
and any future legislation affecting Medicare or other entitlements.  Despite 
these and similar risks and uncertainties, the city has achieved balanced 
operation results in each of its sixteen years.
Implementation of the Financial Plan is also dependent upon the Citys ability 
to market its securities successfully.  The Citys financing program for 
fiscal years 1998 through 2001 contemplates the issuance of $4.9 billion of 
general obligation bonds and $7.1 billion of bonds to be issued by the 
proposed New York City Infrastructure Finance Authority (Finance Authority) 
to finance City capital projects.  The Finance Authority was created as part 
of the Citys effort to assist in keeping the Citys indebtedness within the 
forecast level of the constitutional restrictions on the amount of debt the 
City is authorized to incur.  In addition, the City issues revenue and tax 
anticipation notes to finance its seasonal working capital requirements.  The 
success of projected public sales of City bonds and notes, New York Municipal 
Water Finance Authority (Water Authority) bonds and Finance Authority bonds 
will be subject to prevailing market conditions.  The Citys planned capital 
and operation expenditures are dependent upon the sale of its general 
obligation bonds and notes, and the Water Authority and Finance Authority 
bonds.  Future developments concerning the City and public discussion of such 
developments, as well as prevailing market conditions, may affect the market 
for outstanding City general obligation bonds and notes.
The Citys operation results for the 1996 fiscal year were balanced in 
accordance with GAAP, after taking into account a discretionary transfer of 
$224 million, the sixteen the consecutive year of GAAP balanced results.
The most recent quarterly modification to the Citys financial plan for the 
1997 fiscal year, which was submitted to the Control Board on June 10, 1997 
(the 1997 Modification), projects a balanced budget in accordance with GAAP 
for the 1997 fiscal year, after taxing into account an increase in projected 
tax revenues of $1.2 billion during the 1997 fiscal year and a discretionary 
prepayment in the 1997 fiscal of $1.3 billion of debt service due in the 1998 
and 1999 fiscal years.
On June 10, 1997, the City submitted to the Control Board the financial Plan 
for the 1998 through 2001 fiscal years, which relates to the City, BOE and 
the City University to New York (CUNY) and reflects the Citys expense and 
capital budgets for the 1998 fiscal year, which were adopted on June 6, 1997.  
The Financial Plan projects revenues and expenditures for the 1998 fiscal 
year balanced in accordance with GAAP.  The Financial Plan includes increased 
tax revenue projections; reduced debt service costs; the assumed restoration 
of Federal funding for programs, assisting certain legal aliens; additional 
expenditures for textbooks, computers, improved education programs and 
welfare reform, law enforcement, immigrant naturalization, initiative 
proposed by the City Council and other initiatives; and a proposed 
discretionary transfer to the 1998 fiscal year of $300 million of debt 
service due in the 1999 fiscal year for budget stabilization purposes.  In 
addition, the Financial Plan reflects the discretionary transfer to the 1997 
fiscal year of $1.3 billion of debt service due in the 1998 and 199 fiscal 
years, and includes actions to eliminate a previously projected budget gap 
for the 1998 fiscal year.  These gap closing actions include (I) additional 
agency actions totaling $621 million; (ii) the proposed sale of various 
assets; (iii) additional State aid of $294 million, including a proposal that 
the State accelerate a $142 million revenue sharing payment  to the City from 
March 1999; and (iv) entitlement savings of $128 million which would result 
from certain of the reductions in Medicaid spending proposed in the Governors 
1997-1998 Executive Budget and the State making available to the City $77 
million of additional Federal block grant aid, as proposed in the Governors 
1997-1998 Executive Budget.  The Financial Plan also sets forth projections 
for the 1999 through 2001 fiscal years and projects gaps of $1.8 billion, 
$2.8 billion for the 1999 through 2001 fiscal years, respectively.
The Financial Plan assumes approval by the State Legislature and the Governor 
of (i) a tax reduction program proposed by the City totaling $272 million, 
$435 million, $465 million and $481 million in the 1998 through 2001 fiscal 
years, respectively, which includes a proposed elimination of the 4% City 
sales tax on clothing items under $500 as of December 1, 1997, and (ii) a 
proposed State tax relief program, which would reduce the City property tax 
and personal income tax, and which the Financial Plan assumes will be offset 
by proposed increased State aid totaling $47 million, $254 million, $472 
million and $722 million in the 1998 through 2001 fiscal years, respectively.
The Financial Plan also assumes (i) approval by the Governor and the State 
Legislature of the extension of the 14% personal income tax surcharge, which 
is scheduled to expire on December 31, 1999 and the extension of which is 
projected to provide revenue of $166 million and $494 million in the  2000 
and 2001 fiscal years, respectively, and of the extension of the 12.5% 
personal income tax surcharge, which is scheduled to expire on December 31, 
1998 and the extension of which is projected to provide revenue of $188 
million, $527 million and $554 million in the 1999 through 2001 fiscal years, 
respectively; (ii) collection of the projected rent payments for the Citys 
airports, totaling $385 million, $175 million, and $170 million in the 1999, 
2000, and 2001 fiscal years, respectively, which may depend on the successful 
completion of negotiation with the Port Authority or the enforcement of the 
Citys rights under the existing leases through pending legal actions; and 
(iii) State approval of the cost containment initiatives and State aid 
proposed by the City for the 1998 fiscal year, and $115 million in State aid 
which is assumed in the Financial Plan but was not provided for in the 
Governors 1997-1998 Executive Budget.  The Financial Plan reflects the 
increased costs which the City is prepared to incur as a result of welfare 
legislation recently enacted by Congress.  The Financial Plan provides no 
additional wage increases for City employees after their contracts expire in 
fiscal years 2000 and 2001.  In addition, the economic and financial 
condition of the City may be affected by various financial, social, economic 
and political factors which could have material effect on the City.
The City annually prepares a modification to its financial plan in October or 
November which amends the financial plan to accommodate any revisions to 
forecast revenues and expenditures and to specify any additional gap-closing 
initiatives to the extent required to offset decreases in projected revenues 
or increases in projected revenues or increases in projected expenditures.  
The Mayor is expected to publish the first quarter modification (the 
Modification) for the 1998 fiscal year in November.  Since the preparation of 
the Financial Plan, the State has adopted its budget for the 1997-1998 fiscal 
year.  The State budget enacted a smaller sales tax reduction than the tax 
reduction program assumed by the City in the Financial Plan, which will 
increase projected City sales tax revenues; provided for State aid to the 
City which was less than assumed in the Financial Plan; and enacted a State 
funded tax relief program which begins a year later than reflected I the 
Financial Plan.  In addition, the net effect of tax law changes made in the 
Federal Balanced Budget Act of 1997 are expected to increase tax revenues in 
the 1998 fiscal year.  These changes will be reflected in the Modification.
The projections for the 1998 through 2001 fiscal years reflect the costs of 
the settlements with the United Federation of Teachers (UFT) and a coalition 
of unions headed by District Council 37 of the American Federation of State, 
County and Municipal Employees (District Council 37), which together 
represent approximately two-thirds of the Citys workforce, and assume that 
the City will reach agreement with its remaining municipal unions under terms 
which are generally consistent with such settlements.  The settlement 
provides for a wage freeze in the first two years, followed by a cumulative 
effective wage increase of 11% by the end of the five year period covered by 
the proposed agreements, ending in fiscal years 2000 and 2001.  Additional 
benefit increases would raise the total cumulative effective increase to 13% 
above present costs.  Costs associated with similar settlements for all City-
funded employees would total $49 million, $459 million and $1.2 billion in 
the 1997, 1998 and 1999 fiscal years, respectively, and exceed $2 billion in 
each fiscal year after the 1999 fiscal year.  Subsequently, the City reached 
settlements, through agreements to statutory impasse procedures, with 
bargaining units which, together with the UFT and District Council 37, 
represent approximately 86% of the Citys workforce.
In 1975, Standard & Poors suspended its A rating of City bonds.  This 
suspension remained in effect until March 1981, at which time the City 
received an investment grade rating of BBB from Standard & Poors.  On July 2, 
1985, Standard & Poors revised its rating of City bonds upward to BBB+ and on 
November 19, 1987, to A-.  On July 10, 1995, Standard & Poors revised its 
rating of City bonds downward to BBB+.
Moodys rating of City bonds were revised in November 1981 from B (in effect 
since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May 
1988 to A and again in February 1991 to Baa1.  On July 17, 1997, Moodys 
changed its outlook on City bonds to positive from stable.  Since July 15, 
1993, Fitch has rated City bonds A-.  since July 8, 1997, IBCA Limited has 
rated City bonds A.
New York State and its Authorities.  The States budget for the States 1997-
1998 fiscal year, commencing on April 1, 1997, was adopted by the Legislature 
on August 4, 1997.  Prior to adoption of the budget, the Legislature enacted 
appropriations for disbursements for its 1997-1998 fiscal year considered to 
be necessary for State operations and other purposes.  The State Financial 
Plan for the 1997-1998 fiscal year was formulated on August 11, 1997 and is 
based on the States budget as enacted by the Legislature, as well as actual 
results for the first quarter of the current fiscal year.  The 1997-1998 
State Financial Plan is expected to be updated in October and January.  The 
1997-1998 State Financial Plan is projected to be balanced on a cash basis.  
Total General Fund receipts and transfers from other funds are projected to 
be $35.09 billion, while total General Fund disbursements and transfers to 
other funds are projected to be $34.60 billion.  The adopted 1997-1998 budget 
projects a year-over-year increase in General Fund disbursements of 5.2 
percent.  As compared to the Governors proposed budget amended in February 
1997, the States adopted budget for 1997-1998 increases General fund spending 
by $1.7 billion, primarily due to increase for local assistance ($1.3 
billion).  Resources used to fund these additional expenditures include 
increased revenues projected for the 1997-1998 fiscal year, increases 
resources produced in the 1996-1997 fiscal year that will be utilized in 
1997-1998, reestimates of social service, fringe benefit and other spending, 
and certain non-recurring resources.
the 1997-1998 adopted budget includes multi-year tax reductions, including a 
State funded property and local income tax reduction program, estate tax 
relief, utility gross receipts tax reductions, permanent reduction in the 
State sales tax on clothing, and elimination of assessments on medical 
providers.  The various elements of the State and local tax and assessment 
reductions have little or no impact on the 1997-1998 Financial Plan, and do 
not begin to materially affect the out-year projections until the States 
1999-2000 fiscal year.
The economic and financial condition of the State may be affected by various 
financial, social, economic and political factors.  Those factors can be very 
complex, may vary from fiscal year to fiscal year, and are frequently the 
result of actions taken not only by the State and its agencies and 
instrumentalities, but also by entities, such as the Federal government, that 
are not under the control of the State.  In addition, the State Financial 
Plan is based upon forecasts of national and State economic activity.  
Economic forecasts have frequently failed to predict accurately the timing 
and magnitude of changes in the national and the State economics.  Actual 
results could differ materially and adversely from projections and those 
projections may be changed materially and adversely from time to time.
The State closed projected budget gaps of $5.0 billion, $3.9 billion and $2.3 
billion for its 1995-1996, 1996-1997 and 1997-1998 fiscal years, 
respectively.  The 1998-1999 budget gap was projected at $1.68 billion 
(before the application of any assumed efficiencies) in the out-year 
projections submitted to the Legislature in February 1997.  As a result of 
changes made in the adopted budget, the 1998-1999 gap is now expected by the 
State to be about the same or smaller than the amount previously projected, 
after application of the $530 million reserve for future needs.  The Governor 
has indicated that he will propose to close any potential imbalance primarily 
through General Fund expenditure reductions and without increases in taxes or 
deferrals of scheduled tax reductions.  The revised expectations for the 
1998-199 fiscal year reflect the loss of $1.4  billion in surplus resources 
from 1996-1997 operations that are being utilized to finance current year 
spending, an incremental effect of approximately $300 million in legislated 
State and local tax reductions in the out-year and other factors.
In recent years, State actions affecting the level of receipts and 
disbursements, the relative strength of the State and regional economy, 
actions of the Federal government and other factors have created structural 
budget gaps for the State.  These gaps resulted from a significant disparity 
between recurrent revenues and the costs of maintaining or increasing the 
level of support for State programs. To address a potential imbalance in any 
given fiscal year, the State would be required to take actions to increase 
receipts and/or reduce disbursements as it enacts the budget for that year, 
and under the State Constitution, the Governor is required to propose a 
balanced budget each year.  There can be no assurance, however, that the 
Legislature will enact the Governors proposals or that the States actions 
will be sufficient to preserve budgetary balance in a given fiscal year or to 
align recurring receipts and disbursements in future fiscal years.
Other actions taken in the 1997-1998 adopted budget add further pressure to 
future State budget balance.  For example, the fiscal effects of tax 
reductions adopted in the 1997-1998 budget are projected to grow more 
substantially beyond the 1998-1999 fiscal year.  The full annual cost of the 
enacted tax reduction package is estimated by the State at approximately $4.8 
billion when fully effective in State fiscal year 2001-2002.  In addition, 
the 1997-1998 budget included multi-year commitments for school aid pre-
kindergarten early learning programs which could add as much as $1.4 billion 
in costs when fully annualized in fiscal year 2001-2002.  These spending 
commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a report which 
noted that the ability to deal with future budget gaps could become a 
significant issue in the States 2000-2001 fiscal year, when the cost of tax 
cuts increases by $1.9 billion.  The report contained projections that, based 
on current economic conditions and current law for taxes and spending, showed 
a gap in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion 
in the 2001-2001 State fiscal year.  The report noted that these gaps would 
be smaller if recurring spending reductions produce savings in earlier years.  
The State Comptroller has also state that if Wall Street earnings moderate 
and the State experiences a moderate recession, the gap for the 2001-2002 
State fiscal year could grow to nearly $12 billion.
In recent years, the State has failed to adopt a budget prior to the 
beginning of its fiscal year.  A prolonged delay in the adoption of the 
States budget beyond the statutory April 1 deadline without interim 
appropriations could delay the projected receipt by the City of State aid, 
and there can be no assurance that State budgets in future fiscal years will 
be adopted by the April 1 statutory deadline.
On August 28, 1997, Standard & Poors revised its ratings on the States 
general obligation bonds from A- to A and, in addition, revised its ratings 
on the States moral obligation, lease purchase, guaranteed and contractual 
obligation debt.  On January 6, 1992, Moodys reduced its ratings on 
outstanding limited-liability State lease purchase and contractual 
obligations from A to Baa1.  On February 10, 1997, Moodys confirmed its A2 
rating on the States general obligation long-term indebtedness.
Litigation.  A number of court actions have been brought involving State 
finances.  The court actions in which the State is a defendant generally 
involve State programs and miscellaneous tort, real property, and contract 
claims.  While the ultimate outcome and fiscal impact, if any, on the State 
of those proceedings and claims are not currently predictable, adverse 
determinations in certain of them might have a material adverse effect upon 
the States ability to maintain a balanced 1997-98 State Financial Plan.
The claims involving the City other than routine litigation incidental to the 
performance of their governmental and other functions and certain other 
litigation arise out of alleged constitutional violations, torts, breaches of 
contract and other violations of law and condemnation proceedings.  While the 
ultimate outcome and fiscal impact, if any, on the City of those proceedings 
and claims are not currently predictable, adverse determinations in certain 
of them might have a material adverse effect upon the Citys ability to carry 
out the 1998-2001 Financial Plan.  The City has estimated that its potential 
future liability on account of outstanding claims against it as of June 30, 
1996 amounted to approximately $2.8 billion.
New York Taxes -
Under the income tax laws of the State and City of New York, the Trust is not 
an association taxable as a corporation and income received by the Trust will 
be treated as the income of the Holders in the same manner as for Federal 
income tax purposes.  Accordingly, each Holder will be considered to have 
received the interest on his pro rata portion of each Bond when interest will 
be exempt from New York State and City personal income taxes except where 
such interest is subject to Federal income taxes (see Taxes).  A noncorporate 
Holder who is not a New York State resident will not be subject to New York 
State or City personal income taxes on any such gain unless such Units are 
attributable to a business, trade, profession or occupation carried on in New 
York.  A New York State (and City) resident should determine his tax 
purposes.  Interest income on, as well as any gain recognized on the 
disposition of, a Holders pro rata portion of the Bonds is generally not 
excludable from income in computing New York State and City corporate 
franchise taxes.
Ratings as Investment Criteria
In general, the ratings of Moodys, S&P and Fitch IBCA, Inc. (Fitch) represent 
the opinions of those agencies as to the quality of debt obligations that 
they rate.  These ratings, however, are relative and subjective, are not 
absolute standards of quality and do not evaluate the market risk of 
securities.  Ratings will be used with respect to the Funds as initial 
criteria for the selection of portfolio securities; the Funds will also rely 
upon the independent advice of the Adviser to evaluate potential investments.  
Among the factors that will be considered by the Adviser are the long-term 
ability of the issuer to pay principal and interest and general economic 
trends.  The Appendix to this SAI contains further information concerning the 
ratings of Moodys, S&P and Fitch, together with a brief discussion of the 
significance of those ratings.

An issue of debt obligations may, subsequent to its purchase by a Fund, cease 
to be rated or its ratings may be reduced below the minimum required for 
purchase by the Fund.  Neither event will require the sale of the debt 
obligation by a Fund, but the Adviser will consider the event in its 
determination of whether the Fund should continue to hold the obligation.  In 
addition, to the extent that ratings change as a result of changes in rating 
organizations or their rating systems or as a result of a corporate 
restructuring of Moodys, S&P or Fitch, the Adviser will attempt to use 
comparable ratings as standards for each Funds investments.
Miscellaneous Investment Policies
Each Fund may invest up to an aggregate amount equal to 10% of its net assets 
of illiquid securities, which term includes securities subject to contractual 
or other restrictions on resale and other instruments that lack readily 
available markets.

Repurchase Agreements
Both the Funds may engage in repurchase agreement transactions with banks 
which are the issuers of instruments acceptable for purchase by the Fund and 
certain dealers on the Federal Reserve Bank of New Yorks list of reporting 
dealers.  A repurchase agreement is a contract under which the buyer of a 
security simultaneously commits to resell the security to the seller at an 
agreed-upon price on an agreed-upon date.
Under the terms of a typical repurchase agreement, a Fund would acquire an 
underlying debt obligation for a relatively short period 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 Funds holding period.  This arrangement results in a fixed rate of 
return that is not subject to market fluctuations during the Funds holding 
period.  Under each repurchase agreement, the selling institution will be 
required to maintain the value of the securities subject to the repurchase 
agreement at not less than their repurchase price.  Although the amount of a 
Funds assets that may be invested in purchase agreements terminable in less 
than seven days is not limited, repurchase agreements maturing in more than 
seven days, together with other securities lacking readily available markets 
held by the Fund, will not exceed 10% of the Funds net assets.
The value of the securities underlying a repurchase agreement of a Fund will 
be monitored on an ongoing basis by the Adviser to ensure that the value is 
at least equal at all times to the total amount of the repurchase obligation, 
including interest.  The Adviser will also monitor, on an ongoing basis to 
evaluate potential risks, the creditworthiness of the banks and dealers with 
which a Fund enters into repurchase agreements.

When-Issued and Delayed-Delivery Transactions - Both Funds
When a Fund engages in when-issued or delayed-delivery securities 
transactions, it will rely on the other party to consummate the trade.  
Failure of the seller to do so may result in a Funds incurring a loss or 
missing an opportunity to obtain a price considered to be advantageous.
Investment Restrictions
The investment restrictions numbered 1 through 6 below have been adopted by 
the Trust as fundamental policies of the Funds.  Under the 1940 Act, a 
fundamental policy may not be changed with respect to a Fund without the vote 
of a majority of the outstanding voting securities of the Fund.  Majority is 
defined in the 1940 Act as the lesser of (a) 67% or more of the shares 
present at a Fund meeting, if the holders of more than 50% of the outstanding 
shares of the Fund are present or represented by proxy, or (b) more than 50% 
of outstanding shares.  The remaining restrictions may be changed by a vote 
of a majority of the Trusts Board of Trustees at any time.

Under the investment restrictions adopted by the Trust with respect to the 
Funds: No Fund will
1. Invest more than 25% of its total assets in securities, the issuers of 
which conduct their principal business activities in the same industry. 
For purposes of this limitation, securities of the U.S. government 
(including its agencies and instrumentalities) and securities of state or 
municipal governments and their political subdivisions are not considered 
to be issued by members of any industry.
 
2. Borrow money, except that (a) the Fund may borrow from banks for temporary 
or emergency (not leveraging) purposes, including the meeting of redemption 
requests which might otherwise require the untimely disposition of 
securities, and (b) the Fund may, to the extent consistent with its 
investment policies, enter into reverse repurchase agreements, forward roll 
transactions and similar investment strategies and techniques.  To the 
extent that it engages in transactions described in (a) and (b), the Fund 
will be limited so that no more than 33 1/3% of the value of its total 
assets (including the amount borrowed), valued at the lesser of cost or 
market, less liabilities (not including the amount borrowed) valued at the 
time the borrowing is made, is derived from such transactions.
 
3. Issue senior securities as defined in the 1940 Act and the rules, 
regulations and orders thereunder, except as permitted under the 1940 Act 
and the rules, regulations and orders thereunder
 
4. Make loans.  This restriction does not apply to: (a) the purchase of debt 
obligations in which the Fund may invest consistent with its investment 
objectives and policies; (b) repurchase agreements; and (c) loans of its 
portfolio securities, to the fullest extent permitted under the 1940 Act.
 
5. Purchase or sell real estate, real estate mortgages, commodities or 
commodity contracts, but this restriction shall not prevent the Fund from 
(a) investing in securities of issuers engaged in the real estate business 
or the business of investing in real estate (including interests in limited 
partnerships owning or otherwise engaging in the real estate business or 
the business of investing in real estate) and securities which are secured 
by real estate or interests therein; (b) holding or selling real estate 
received in connection with securities it holds or held; (c) trading in 
futures contracts and options on futures contracts (including options on 
currencies to the extent consistent with the Funds investment objective and 
policies); or (d) investing in real estate investment trust securities.
 
6. Engage in the business of underwriting securities issued by other persons, 
except to the extent that the  Fund may technically be deemed to be an 
underwriter under the Securities Act of 1933, as amended, in disposing of 
portfolio securities.
 
7. Purchase any securities on margin (except for such short-term credits as 
are necessary for the clearance of purchases and sales of portfolio 
securities) or sell any securities short (except against the box).  For 
purposes of this restriction, the deposit or payment by the Fund of 
underlying securities and other assets in escrow and collateral agreements 
with respect to initial or maintenance margin in connection with futures 
contracts and related options and options on securities, indexes or similar 
items is not considered to be the purchase of a security on margin. 
 
8. No Fund will invest in oil, gas or other mineral leases or exploration or 
development programs.
 
9. No Fund may write or sell puts, calls, straddles, spreads or combinations 
of those transactions, except         as permitted under the Funds 
investment objective and policies.
 
10. No Fund will purchase a security if, as a result, the Fund would then have 
more than 5% of its total assets invested in securities of issuers 
(including predecessors) that have been in continuous operation for fewer 
than three years, except that this limitation will be deemed to apply to 
the entity supplying the revenues from which the issue is to be paid, in 
the case of private activity bonds purchased.
 
11. No Fund may make investments for the purpose of exercising control of 
management.
Portfolio Transactions 
Decisions to buy and sell securities for each Fund are made by the Adviser, 
subject to the overall review of the Trusts Board of Trustees.  Although 
investment decisions for each Fund are made independently from those of the 
other accounts managed by the Adviser, investments of the type that a Fund 
may make also may be made by those other accounts.  When a Fund and one or 
more other accounts managed by the Adviser 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 the Adviser 
to be equitable to each.  In some cases, this procedure may adversely affect 
the price paid or received by a Fund or the size of the position obtained or 
disposed of by a Fund.  The Trust has paid no brokerage commissions since its 
commencement of operations.
Allocation of transactions on behalf of the Funds, including their frequency, 
to various dealers is determined by the Adviser in its best judgment and in a 
manner deemed fair and reasonable to the Funds shareholders.  The primary 
considerations of the Adviser in allocating transactions are availability of 
the desired security and the prompt execution of orders in an effective 
manner at the most favorable prices.  Subject to these considerations, 
dealers that provide supplemental investment research and statistical or 
other services to the Adviser may receive orders for portfolio transactions 
by a Fund.  Information so received is in addition to, and not in lieu of, 
services required to be performed by the Adviser, and the fees of the Adviser 
are not reduced as a consequence of their receipt of the supplemental 
information.  The information may be useful to the Adviser in serving both a 
Fund and other clients, and conversely, supplemental information obtained by 
the placement of business of other clients may be useful to the Adviser in 
carrying out its obligations to a Fund.
No Fund will purchase U.S. government securities or Municipal Obligations 
during the existence of any underwriting or selling group relating to the 
securities, of which the Adviser is a member, except to the extent permitted 
by the SEC.  Under certain circumstances, a Fund may be at a disadvantage 
because of this limitation in comparison with other funds that have similar 
investment objectives but that are not subject to a similar limitation.
Portfolio Turnover
While a Funds portfolio turnover rate (the lesser of purchases or sales of 
portfolio securities during the year, excluding purchases or sales of short-
term securities, divided by the monthly average value of portfolio 
securities) is generally not expected to exceed 100%, it has in the past 
exceeded 100% with respect to these funds.  The rate of turnover will not be 
a limiting factor, however, when a Fund deems it desirable to sell or 
purchase securities.  This policy should not result in higher brokerage 
commissions to a Fund, as purchases and sales of portfolio securities are 
usually effected as principal transactions.  Securities may be sold in 
anticipation of a rise in interest rates (market decline) or purchased in 
anticipation of a decline in interest rates (market rise) and later sold.  In 
addition, a security may be sold and another security of comparable quality 
purchased at approximately the same time to take advantage of what the Fund 
believes to be a temporary disparity in the normal yield relationship between 
the two securities.  These yield disparities may occur for reasons not 
directly related to the investment quality of particular issues or the 
general movement of interest rates, such as changes in the overall demand 
for, or supply of, various types of tax-exempt securities.


The portfolio turnover rates are as follows: 

Year 
Year

Ended 
Ended
Fund 
11/30/97 
11/30/96
California Fund 
9%
15%
New York Fund 
52%
67%

PURCHASE OF SHARES
Volume Discounts
The schedules of sales charges described in the Prospectuses apply to 
purchases of shares of each Fund made by any purchaser, which term is defined 
to include the following: (a) an individual; (b) an individuals 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) any other organized group of persons, provided 
that the organization has been in existence for at least six months and was 
organized for a purpose other than the purchase of investment company 
securities at a discount.  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 schedules in the Prospectuses, 
apply to any purchase of shares of a Fund by any purchaser (as defined 
above).  The reduced sales charge is subject to confirmation of the 
shareholders holdings through a check of appropriate records.  The Trust 
reserves the right to terminate or amend the combined right of accumulation 
at any time after written notice to shareholders.  For further information 
regarding the right of accumulation, shareholders should contact a Smith 
Barney Financial Consultant.
Determination of Public Offering Price
The Funds offer their shares to the public on a continuous basis.  The public 
offering price for a Class A and Class Y share of a 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 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 C shares, 
and Class A shares when purchased in amounts exceeding $500,000.  The method 
of computation of the public offering price is shown in each Funds financial 
statements, incorporated by reference in their entirety into this SAI. 

REDEMPTION OF SHARES
Detailed information on how to redeem shares of the Funds is included in the 
Prospectuses.  The right of redemption of shares of each Fund may be 
suspended or the date of payment postponed (a) for any periods during which 
the New York Stock Exchange, Inc. (the NYSE) is closed (other than for 
customary weekend and holiday closings), (b) when trading in the markets the 
Fund normally utilizes is restricted, or an emergency exists, as determined 
by the SEC, so that disposal of the Funds investments or determination of its 
net asset value is not reasonably practicable or (c) for any other periods as 
the SEC by order may permit for the protection of the Funds shareholders.

Distribution in Kind
If the Board of Trustees of the Trust determines that it would be detrimental 
to the best interests of the remaining shareholders to make a redemption 
payment wholly in cash, a Fund may pay, in accordance with SEC rules, any 
portion of a redemption in excess of the lesser of $250,000 or 1.00% of the 
Funds net assets by a distribution in kind of portfolio securities in lieu of 
cash.  Securities issued as a distribution in kind may incur brokerage 
commissions when shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the Withdrawal Plan) is available to 
shareholders of any Fund who own shares of the Fund with a value of at least 
$10,000 and who wish to receive specific amounts of cash monthly or 
quarterly.  Withdrawals of at least $50 may be made under the Withdrawal Plan 
by redeeming as many shares of 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 shareholders 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 shareholders shares at the time the Withdrawal 
Plan commences).  To the extent that withdrawals exceed dividends, 
distributions and appreciation of a shareholders investment in a Fund, 
continued withdrawal payments will reduce the shareholders investment, and 
may ultimately exhaust it.  Withdrawal payments should not be considered as 
income from investment in a Fund.  Furthermore, as it generally would not be 
advantageous to a shareholder to make additional investments in the Fund at 
the same time 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 of a Fund who wish to participate in the Withdrawal Plan and who 
hold their shares of the Fund in certificate form must deposit their share 
certificates with the Transfer Agent 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 
involved.  A shareholder who purchases shares directly through the Transfer 
Agent may continue to do so and applications for participation in the 
Withdrawal Plan must be received by the Transfer Agent no later than the 
eighth day of the month to be eligible for participation beginning with that 
months withdrawal.  For additional information, shareholders should contact a 
Smith Barney Financial Consultant.

DISTRIBUTOR

Smith Barney serves as the Trusts distributor on a best efforts basis 
pursuant to a written agreement (the Distribution Agreement), which was 
approved by the Trusts Board of Trustees.  
For the fiscal years ended November 30, 1995, 1996, and 1997, the Distributor 
or its predecessor Shearson Lehman Brothers received approximately the 
following in sales charges for the sale of each Funds Class A shares, and did 
not reallow any portion thereof to dealers: 

Year 
Year 
Year

Ended 
Ended 
Ended
Fund 
11/30/97
11/30/96 
11/30/95
California Fund 
$37,000
$39,000
$22,000
New York Fund 
$46,000
48,000
32,000

For the fiscal years ended November 30, 1995, 1996, and 1997, the Distributor 
or Shearson Lehman Brothers received approximately the following representing 
CDSC on redemption of each Funds Class A shares: 

Year 
Year 
Year

Ended 
Ended 
Ended
Fund 
11/30/97 
11/30/96 
11/30/95
California Fund 
$--
--
$3,800
New York Fund 
$1,000
  2,000
  8,000

For the fiscal years ended November 30, 1995, 1996, and 1997, the Distributor 
or Shearson Lehman Brothers received approximately the following representing 
CDSC on redemption of each Funds Class C shares: 

Year 
Year 
Year

Ended 
Ended 
Ended
Fund 
11/30/97 
11/30/96 
11/30/95
California Fund 
$1,000
--
$200
New York Fund 

$1,000


* The inception dates for Class C shares of California Fund and New York Fund 
are November 8, 1994 and December 5, 1994, respectively 
When payment is made by the investor before the settlement date, unless 
otherwise requested in writing by the investor, the funds will be held as a 
free credit balance in the investors brokerage account and Smith Barney may 
benefit from the temporary use of the funds.  The investor may designate 
another use for the funds prior to settlement date, such as an investment in 
a money market fund (other than Smith Barney Exchange Reserve Fund) of the 
Smith Barney Mutual Funds.  If the investor instructs Smith Barney to invest 
the funds in a Smith Barney money market fund, the amount of the investment 
will be included as part of the average daily net assets of both the Fund and 
the money market fund, and affiliates of Smith Barney that serve the funds in 
an investment advisory or administrative capacity will benefit from the fact 
that they are receiving fees from both such investment companies for managing 
these assets, computed on the basis of their average daily net assets.  The 
Trusts Board of Trustees has been advised of the benefits to Smith Barney 
resulting from these settlement procedures and will take such benefits into 
consideration when reviewing the Advisory, Administration and Distribution 
Agreements for continuance.

For the fiscal year ended November 30, 1997, Smith Barney incurred 
distribution expenses totaling approximately $184,083 consisting of 
approximately $16,558 for advertising, $26,243 for printing and mailing of 
prospectuses, $56,767 for support services, $83,151 to Smith Barney Financial 
Consultants, and $1,334 in accruals for interest on the excess of Smith 
Barney expenses incurred in distribution of the Funds shares over the sum of 
the distribution fees and CDSC received by Smith Barney from the Fund.
Distribution Arrangements for the New York and California Fund
To compensate Smith Barney for the services it provides and for the expense 
it bears under the Distribution Agreement, the Trust has adopted a services 
and distribution plan (the Plan) pursuant to Rule 12b-1 under the 1940 Act.  
Under the Plan, both the New York and California Fund pays Smith Barney a 
service fee, accrued daily and paid monthly, calculated at the annual rate of 
0.15% of the value of the Funds average daily net assets attributable to the 
Funds Class A and Class C shares.  In addition, each Fund pays Smith Barney a 
distribution fee with respect to the Class C shares primarily intended to 
compensate Smith Barney for its initial expense of paying its Financial 
Consultants a commission upon sales of those shares.  The Class C 
distribution fee is calculated at the annual rate of 0.20% of the value of 
each Funds average net assets attributable to the shares of the Class.



The following service and distribution fees were incurred during the periods 
indicated: 
SERVICE FEES
California Fund:




Year
Year 
Year 

Ended
Ended 
Ended 

11/30/97
11/30/96 
11/30/95
Class A
37,151
$37,644 
$36,511 
Class C
4,112
   3,583 
    1,017
New York Fund:




Year
Year 
Year 

Ended
Ended 
Ended 

11/30/97
11/30/96 
11/30/95
Class A 
72,443
$76,380 
$84,263 
Class C*
2,468
     1,171
      203
*The inception dates for Class C of California Fund and New York Fund are 
November 8, 1994 and December 5, 1994, respectively.
DISTRIBUTION FEES
California Fund:




Year 
Year 
Year 

Ended 
Ended 
Ended 

11/30/97
11/30/96
11/30/95
Class C 
5,484
$4,778
$1,356

New York Fund: 




Year 
Year 


Ended 
Ended 


11/30/97
11/30/96
11/30/95*
Class C
$3,290
$1,562
      
$271
* The inception dates for Class C shares of California Fund and New York Fund 
are November 8, 1994 and December 5, 1994, respectively.
For the fiscal years ended November 30, 1995, 1996 and 1997 Smith Barney, 
received $123,621, $125,117, and $124,948 respectively, in the aggregate from 
the Plan.
Under its terms, the Plan continues from year to year, provided such 
continuance is approved annually by vote of the Board of Trustees, including 
a majority of the Trustees who are not interested persons of the Trust and 
who have no direct or indirect financial interest in the operation of the 
Plan or in the Distribution Agreement (the Independent Trustees).  The Plan 
may not be amended to increase the amount of the service and distribution 
fees without shareholder approval, and all amendments of the Plan also must 
be approved by the Trustees including all of the Independent Trustees in the 
manner described above.  The Plan may be terminated with respect to a Class 
at any time, without penalty, by vote of a majority of the Independent 
Trustees or, with respect to any Fund, by vote of a majority of the 
outstanding voting securities of a Fund (as defined in the 1940 Act).  
Pursuant to the Plan, Smith Barney will provide the Board of Trustees with 
periodic reports of amounts expended under the Plan and the purpose for which 
such expenditures were made.


VALUATION OF SHARES

The net asset value per share of each Funds Classes 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 Years Day, Martin Luther 
King, Jr. 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 Trust in valuing 
its assets.

In carrying out valuation policies adopted by the Trusts Board of Trustees 
for the New York and California Fund the Administrator, may consult with an 
independent pricing service (the Pricing Service) retained by the Trust.  
Debt securities of domestic issuers (other than U.S. government securities 
and short-term investments), including Municipal Obligations, are valued by 
the Adviser after consultation with the Pricing Service.  U.S. government 
securities will be valued at the mean between the closing bid and asked 
prices on each day, or, if market quotations for those securities are not 
readily available, at fair value, as determined in good faith by the Trusts 
Board of Trustees.  With respect to other securities held by the Fund, when, 
in the judgment of the Pricing Service, quoted bid prices for investments are 
readily available and are representative of the bid side of the market, these 
investments are valued at the mean between the quoted bid prices and asked 
prices.  Investments for which no readily obtainable market quotations are 
available, in the judgment of the Pricing Service, are carried at fair value 
as determined by the Pricing Service.  The procedures of the Pricing Service 
are reviewed periodically by the officers of the Trust under the general 
supervision and responsibility of the Board of Trustees.

EXCHANGE PRIVILEGE

Except as noted below, shareholders of any of the Smith Barney Mutual Funds 
may exchange all or part of their shares for shares of the same Class of 
other Smith Barney Mutual Funds, on the basis of relative net asset value per 
share at the time of exchange as follows: 

A. Class A shares of the Fund may be exchanged without a sales charge 
for Class A shares of any of the Smith Barney Mutual Funds.
B. Class C shares of any fund may be exchanged without a sales charge.  
For purposes of CDSC applicability, Class C shares of the Fund 
exchanged for Class C shares of another Smith Barney Mutual Fund will 
be deemed to have been owned since the date the shares being exchanged 
were deemed to be purchased.
Dealers other than Smith Barney must notify the Transfer Agent of the 
investors 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 in any Smith Barney Mutual Fund 
to acquire shares of the same Class in a fund with different investment 
objectives when they believe a shift between funds is an appropriate 
investment decision.  This privilege is available to shareholders residing in 
any state in which the fund shares being acquired may legally be sold.  Prior 
to any exchange, the shareholder should obtain and review a copy of the 
current prospectus of each fund into which an exchange is being considered.  
Prospectuses may be obtained from a Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting documents, 
shares submitted for exchange are redeemed at the then-current net asset 
value and, subject to any applicable CDSC, the proceeds are immediately 
invested, at a price as described above, in shares of the fund being 
acquired.  Smith Barney reserves the right to reject any exchange request.  
The exchange privilege may be modified or terminated at any time after 
written notice to shareholders.

PERFORMANCE DATA

From time to time, the Trust may quote a Funds yield or total return in 
advertisements or in reports and other communications to shareholders.  The 
Trust may include comparative performance information in advertising or 
marketing each Funds shares.  Such performance information may include the 
following industry and financial publications- Barrons, Business Week, CDA 
Investment Technologies, Inc., Changing Times, Forbes, Fortune, Institutional 
Investor, Investors Daily, Money, Morningstar Mutual Fund Values, The New 
York Times, USA Today and The Wall Street Journal.  To the extent any 
advertisement or sales literature of a Fund describes the expenses or 
performance of any Class it will also disclose such information for the other 
Classes.
Yield and Equivalent Taxable Yield
A Funds 30-day yield described in the Prospectuses is calculated according to 
a formula prescribed by the SEC, expressed as follows: 


Where:	a  =  Dividends and interest earned during the 
period
b  =  Expenses accrued for the period (net of 
reimbursements)
c  =  The average daily number of shares outstanding during 
the period
        that were entitled to receive dividends
d  =  The maximum offering price per share on the last day 
of the period
For the purpose of determining the interest earned (variable a in the 
formula) on debt obligations that were purchased by a Fund at a discount or 
premium, the formula generally calls for amortization of the discount or 
premium; the amortization schedule will be adjusted monthly to reflect 
changes in the market values of the debt obligations.
A Funds equivalent taxable 30-day yield for a Class is computed by dividing 
that portion of the Class 30-day yield which is tax-exempt by one minus a 
stated income tax rate and adding the product to that portion, if any, of the 
Class yield that is not tax-exempt.
The yield on municipal securities is dependent upon a variety of factors, 
including general economic and monetary conditions, conditions of the 
municipal securities market, size of a particular offering, maturity of the 
obligation offered and rating of the issue.  Investors should recognize that, 
in periods of declining interest rates, a Funds yield for each Class of 
shares will tend to be somewhat higher than prevailing market rates, and in 
periods of rising interest rates a Funds yield for each Class of shares will 
tend to be somewhat lower.  In addition, when interest rates are falling, the 
inflow of net new money to a Fund from the continuous sale of its shares will 
likely be invested in portfolio instruments producing lower yields than the 
balance of the Funds portfolio, thereby reducing the current yield of the 
Fund.  In periods of rising interest rates, the opposite can be expected to 
occur.
The yields for the 30-day period ended November 30, 1997 for California Funds 
Class A, Class C and Class Y shares were 6.13 %, 5.92% and 6.52%, 
respectively.  The yields for the 30-day period ended November 30, 1997 for 
New York Funds Class A and Class C shares were 6.46% and 6.27%, respectively.
The equivalent taxable yields for the 30-day period ended November 30, 1997 
assuming payment of Federal income taxes at the rate of 31.0%; California 
income taxes at the rate of 9.3% for the California Fund shareholders; and 
New York State and City income taxes at a rate of 10.5% for the New York Fund 
shareholders would have been as follows: California Funds Class A, Class C 
and Class Y shares: 4.65%, 4.54% and 4.62%, respectively, and New York Funds 
Class A and Class C shares: 4.61% and 4.5%, respectively.

Average Annual Total Return 

A Funds average annual total return, as described below, is 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 a 1-, 5- or 10-year 
period (or fractional portion thereof), assuming 
reinvestment of all dividends and distributions.
The ERV assumes complete redemption of the hypothetical investment at the end 
of the measuring period.  A Funds net investment income changes in response 
to fluctuations in interest rates and the expenses of the Fund.
The following total returns assume that the maximum Class A 2.00% sales 
charge has been deducted from the investment at the time of purchase and have 
been restated to show the change in the maximum sales charge.  The Funds 
average annual total return for Class A shares were as follows: 
ONE YEAR PERIOD
ENDED NOVEMBER 30, 1997

Total Return
Fund 
(Without Sales 
Charge)
California Fund 
6.13%
New York Fund 
6.23%

The Funds average annual total return for Class C shares were as follows: 
ONE YEAR PERIOD
ENDED NOVEMBER 30, 1997

Total Return
Fund 
(Without Sales 
Charge)
California Fund 
5.92%
New York Fund*
6.00%
* For the period from December 5, 1994 (inception date) to November 30, 1995 

PER ANNUM FOR THE PERIOD FROM
COMMENCEMENT OF OPERATIONS
(NOVEMBER 8, 1994) THROUGH NOVEMBER 30, 1997

Total Return
Fund 
(Without Sales Charge)
California Fund
8.36%
New York Fund
7.83%


The Funds average annual total return for Class Y shares were as follows:

ONE YEAR PERIOD
ENDED NOVEMBER 30, 1997

Total Return
Fund 
(Without Sales Charge)
California Fund* 
6.20%

* 	For the period from September 8, 1995 (inception date) to November 30, 
1997. 
**	As of November 30, 1997, no Class Y shares of New York Fund had been sold.

Aggregate Total Return

A Funds aggregate total return, as described below, represents the cumulative 
change in the value of an investment in the Fund for the specified period and 
is computed by the following formula: 
ERV - P
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.

The ERV assumes complete redemption of the hypothetical investment at the end 
of the measuring period.
The Funds aggregate total return for Class A shares were as follows: 
ONE YEAR PERIOD
ENDED NOVEMBER 30, 1997

Total Return
Fund 
(Without Sales 
Charge)
California Fund 
6.13%
New York Fund
6.23%

PER ANNUM FOR THE PERIOD FROM
COMMENCEMENT OF OPERATIONS
(DECEMBER 31, l991)THROUGH NOVEMBER 30, 1997

Total Return
Fund 
(Without Sales 
Charge)
California Fund 
45.21%
New York Fund 
45.73%


The Funds aggregate total return for Class C shares were as follows: 

ONE YEAR PERIOD
ENDED NOVEMBER 30, 1997

Total Return
Fund 
(Without Sales 
Charge)
California Fund 
5.92%
New York Fund*
6.00%

* For the period from December 5, 1994 (inception date) to November 30, l997 

PER ANNUM FOR THE PERIOD FROM
COMMENCEMENT OF OPERATIONS
(NOVEMBER 8, 1994) THROUGH NOVEMBER 30, 1997

Total Return
Fund 
(Without Sales 
Charge)
California Fund 
27.90%
New York Fund
25.36%

The Funds aggregate total return for Class Y shares were as follows: 

ONE YEAR PERIOD
ENDED NOVEMBER 30, 1997

Total Return
Fund 
(Without Sales Charge)
California Fund 
15.01%

*	For the period from September 8, 1995 (inception date) to November 30, 
l997. 
**	As of November 30, 1997, no Class Y shares of New York Fund had been sold.
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.  Each Class net investment income changes in response to 
fluctuations in interest rates and the expenses of the Fund.  Performance 
will vary from time to time depends upon market conditions, the composition 
of the Funds portfolio and operating expenses and the expenses exclusively 
attributable to the Class.  Consequently, any given performance quotation 
should not be considered representative of the Class performance for any 
specified period in the future.  Because performance will vary, it may not 
provide a basis for comparing an investment in the Class with certain bank 
deposits or other investments that pay a fixed yield for a stated period of 
time.  Investors comparing a Class performance with that of other mutual 
funds should give consideration to the quality and maturity of the respective 
investment companies portfolio securities.

TAXES 

The following is a summary of selected Federal income tax considerations that 
may affect the Trust 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 Trust.
As described above and in the Prospectuses, each Fund is designed to provide 
investors with current income which is excluded from gross income for Federal 
income tax purposes, and the California Fund and the New York Fund are 
designed to provide investors with current income exempt from otherwise 
applicable state and/or local personal income taxes.  The Trust is not 
intended to be a balanced investment program and is not designed for 
investors seeking capital gains or maximum tax-exempt income irrespective of 
fluctuations in principal.  Investment in the Trust would not be suitable for 
tax-exempt institutions, qualified retirement plans, H.R. 10 plans and 
individual retirement accounts because those investors would not gain any 
additional tax benefit from the receipt of tax-exempt income.
Each Fund has qualified and intends tocontinue to qualify each year as a 
regulated investment company under the Code.  Provided that a Fund (a) is a 
regulated investment company and (b) distributes to its shareholders at least 
90% of its taxable net investment income (including, for this purpose, its 
net realized short-term capital gains) and 90% of its tax-exempt interest 
income (reduced by certain expenses), the Fund will not be liable for Federal 
income taxes to the extent its taxable net investment income and its net 
realized long-term and short-term capital gains, if any, are distributed to 
its shareholders.  Any such taxes paid by a Fund would reduce the amount of 
income and gains available for distribution to shareholders.
Because the Fund may distribute exempt-interest dividends, interest on 
indebtedness incurred by a shareholder to purchase or carry shares of a Fund 
is not deductible for Federal income tax purposes.  In addition, the 
indebtedness is not deductible by a shareholder of the California Fund for 
California State personal income tax purposes, nor by a New York Fund 
shareholder for New York State and New York City personal income tax 
purposes.  If a shareholder receives exempt-interest dividends with respect 
to any share of a Fund and if the share is held by the shareholder for six 
months or less, then any loss on the sale or exchange of the share may, to 
the extent of the exempt-interest dividends, be disallowed.  In addition, the 
Code may require a shareholder that receives exempt-interest dividends to 
treat as taxable income a portion of certain otherwise non-taxable social 
security and railroad retirement benefit payments.  Furthermore, the portion 
of any exempt-interest dividend paid by a Fund that represents income derived 
from private activity bonds held by the Fund may not retain its tax-exempt 
status in the hands of a shareholder who is a substantial user of a facility 
financed by the bonds, or a related person of the substantial user.  
Moreover, as noted in the Prospectuses (a) some or all of a Funds exempt-
interest dividends may be a specific preference item, or a component of an 
adjustment item, for purposes of the Federal individual and corporate 
alternative minimum taxes and (b) the receipt of a Funds dividends and 
distributions may affect a corporate shareholders Federal environmental tax 
liability if the environment tax is reinstated as proposed by President 
Clinton.  In addition, the receipt of a Funds dividends and distributions may 
affect a foreign corporate shareholders Federal branch profits tax liability 
and the Federal and California excess net passive income tax liability of a 
Subchapter S corporation.  Shareholders should consult their own tax advisors 
to determine whether they are (a) substantial users with respect to a 
facility or related to those users within the meaning of the Code or (b) 
subject to a Federal alternative minimum tax, the Federal environmental tax, 
the Federal branch profits tax, or the Federal or California excess net 
passive income tax.  As a general rule, a Funds gain or loss on a sale or 
exchange of an investment will be a long-term capital gain or loss if the 
Fund has held the investment for more than one year and will be a short-term 
capital gain or loss if it has held the investment for one year or less.  
Furthermore, as a general rule, a shareholders gain or loss on a sale or 
redemption of shares of a Fund will be a long-term capital gain or loss if 
the shareholder has held his or her Fund shares for more than one year and 
will be a short-term capital gain or loss if he or she has held the Fund 
shares for one year or less.  Shareholders of each Fund will receive, as more 
fully described in the Prospectuses, an annual statement as to the income tax 
status of his or her dividends and distributions for the prior calendar year.  
Each shareholder will also receive, if appropriate, various written notices 
after the close of a Funds prior taxable year as to the Federal income tax 
status of certain dividends or distributions which were received from the 
Fund during the Funds prior taxable year.
The dollar amount of dividends paid by a Fund that is excluded from Federal 
income taxation and the dollar amount of dividends paid by a Fund that is 
subject to federal income taxation, if any, will vary for each shareholder 
depending upon the size and duration of each shareholders investment in a 
Fund.
If a shareholder incurs a sales charge in acquiring shares of the Fund, 
disposes of those shares within 90 days and then acquires shares in mutual 
fund for which the otherwise applicable sales charge is reduced by reason of 
an reinvestment right (that is exchange privilege), the original sales charge 
will not be taken into account in computing gain/loss on the original shares 
to the extent the subsequent sales charge is reduced.  Instead, it will be 
added to the tax basis in the newly acquired shares.  Furthermore, the same 
rule also applies to 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 a Fund on or just prior to the record 
date for a capital gain distribution should be aware that the amount of the 
forthcoming distribution payment will be a taxable distribution payment.  
If a shareholder fails to furnish a correct taxpayer identification number, 
fails to report fully dividend or interest income or fails to certify that he 
or she has provided a correct taxpayer identification number and that he or 
she is not subject to backup withholding, then the shareholder may be subject 
to a 31% backup withholding tax with respect to (a) taxable dividends and 
distributions and (b) the proceeds of any redemptions of shares of a Fund.  
An individuals 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 taxpayers regular Federal income tax liability.
The discussion above is only a summary of certain tax considerations 
generally affecting a 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 Trust was organized as an unincorporated business trust on October 17, 
1991 under the name Shearson Lehman Brothers Intermediate-Term Trust.  On 
November 20, 1991, July 30, 1993, October 14, 1994 and August 16, 1995, the 
Trusts name was changed to Shearson Lehman Brothers Income Trust, Smith 
Barney Shearson Income Trust, Smith Barney Income Trust and Smith Barney 
Investment Trust, respectively.

PNC, located at 17th and Chestnut Streets, Philadelphia, Pennsylvania, 19103, 
serves as the custodian of the Fund.  Under its custody agreement with the 
Fund, PNC holds the Funds securities and keeps all necessary accounts and 
records. For its services, PNC receives a monthly fee based upon the month-
end market value of securities held in custody and also receives securities 
transactions charges.  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 Trusts transfer agent.  Under the transfer agency agreement, 
the Transfer Agent maintains the shareholder account records for the Trust, 
handles certain communications between shareholders and the Trust and 
distributes dividends and distributions payable by the Trust.  For these 
services, the Transfer Agent receives a monthly fee computed on the basis of 
the number of shareholder accounts it maintains for the Trust during the 
month, and is reimbursed for out-of-pocket expenses.



FINANCIAL STATEMENTS

The Funds Annual Report for the fiscal year ended November 30, 1997 is 
incorporated herein by reference in its entirety.


APPENDIX
RATINGS ON DEBT OBLIGATIONS
BOND (AND NOTES) RATINGS
Moodys Investors Service, Inc.
	Aaa - Bonds that are rated Aaa are judged to be of the best quality. 
They carry the smallest degree of investment risk and are generally referred 
to as gilt edged. Interest payments are protected by a large or by an 
exceptionally stable margin and principal is secure. While the various 
protective elements are likely to change, such changes as can be visualized 
are most unlikely to impair the fundamentally strong position of such issues.
	Aa - Bonds that are rated Aa are judged to be of high quality by all 
standards. Together with the Aaa group they comprise what are generally known 
as high grade bonds. They are rated lower than the best bonds because margins 
of protection may not be as large as in Aaa securities or fluctuation of 
protective elements may be of greater amplitude or there may be other 
elements present that make the long term risks appear somewhat larger than in 
Aaa securities.
	A - Bonds that are rated A possess many favorable investment attributes 
and are to be considered as upper medium grade obligations. Factors giving 
security to principal and interest are considered adequate but elements may 
be present that suggest a susceptibility to impairment sometime in the 
future.
	Baa - Bonds that are rated Baa are considered as medium grade 
obligations, i.e., they are neither highly protected nor poorly secured. 
Interest payments and principal security appear adequate for the present but 
certain protective elements may be lacking or may be characteristically 
unreliable over any great length of time. Such bonds lack outstanding 
investment characteristics and in fact have speculative characteristics as 
well.
	Ba - Bonds which are rated Ba are judged to have speculative elements; 
their future cannot be considered as well assured. Often the protection of 
interest and principal payments may be very moderate and thereby not well 
safeguarded during both good and bad times over the future. Uncertainty of 
position characterizes bonds in this class.
	B - Bonds which are rated B generally lack characteristics of the 
desirable investment. Assurance of interest and principal payments or of 
maintenance of other terms of the contract over any long period of time may 
be small.
	Caa - Bonds which are rated Caa are of poor standing. Such issues may 
be in default or there may be present elements of danger with respect to 
principal or interest.
	Ca - Bonds which are rated Ca represent obligations which are 
speculative in a high degree. Such issues are often in default or have other 
marked shortcomings.
	C - Bonds which are rated C are the lowest class of bonds and issues so 
rated can be regarded as having extremely poor prospects of ever attaining 
any real investment standing.
	Note: The modifier 1 indicates that the security ranks in the higher 
end of its generic rating category; the modifier 2 indicates a mid-range 
ranking; and the modifier 3 indicates that the issue ranks in the lower end 
of its generic rating category.

Standard & Poors
	AAA - Debt rated AAA has the highest rating assigned by Standard & 
Poors. Capacity to pay interest and repay principal is extremely strong.
	AA - Debt rated AA has a very strong capacity to pay interest and repay 
principal and differs from the highest rated issues only in small degree.
	A - Debt rated A has a strong capacity to pay interest and repay 
principal although it is somewhat more susceptible to the adverse effects of 
changes in circumstances and economic conditions than debt in higher rated 
categories.
	BBB - Debt rated BBB is regarded as having an adequate capacity to pay 
interest and repay principal. Whereas it normally exhibits adequate 
protection parameters, adverse economic conditions or changing circumstances 
are more likely to lead to a weakened capacity to pay interest and repay 
principal for debt in this category than in higher rated categories.
	BB, B, CCC, CC, C - Debt rated `BB, `B, `CCC, `CC or `C is regarded, on 
balance, as predominantly speculative with respect to capacity to pay 
interest and repay principal in accordance with the terms of the obligation. 
`BB indicates the lowest degree of speculation and `C the highest degree of 
speculation. While such debt will likely have some quality and protective 
characteristics, these are outweighed by large uncertainties or major risk 
exposures to adverse conditions.
	Plus (+) or Minus (-): The ratings from `AA to `B may be modified by 
the addition of a plus or minus sign to show relative standing within the 
major rating categories.
	Provisional Ratings: The letter p indicates that the rating is 
provisional. A provisional rating assumes the successful completion of the 
project being financed by the debt being rated and indicates that payment of 
debt service requirements is largely or entirely dependent upon the 
successful and timely completion of the project. This rating, however, while 
addressing credit quality subsequent to completion of the project, makes no 
comment on the likelihood of, or the risk of default upon failure of, such 
completion. The investor should exercise judgment with respect to such 
likelihood and risk.
	L - The letter L indicates that the rating pertains to the principal 
amount of those bonds where the underlying deposit collateral is fully 
insured by the Federal Savings & Loan Insurance Corp. or the Federal Deposit 
Insurance Corp.
	+ - Continuance of the rating is contingent upon S&Ps receipt of 
closing documentation confirming investments and cash flow.
	* - Continuance of the rating is contingent upon S&Ps receipt of an 
executed copy of the escrow agreement.
	NR - Indicates no rating has been requested, that there is insufficient 
information on which to base a rating, or that S&P does not rate a particular 
type of obligation as a matter of policy.
Fitch IBCA, Inc.
	AAA - Bonds rated AAA by Fitch have the lowest expectation of credit 
risk. The obligor has an exceptionally strong capacity for timely payment of 
financial commitments which is highly unlikely to be adversely affected by 
foreseeable events.
	AA - Bonds rated AA by Fitch have a very low expectation of credit 
risk. They indicate very strong capacity for timely payment of financial 
commitment. This capacity is not significantly vulnerable to foreseeable 
events.

	A - Bonds rated A by Fitch are considered to have a low expectation of 
credit risk. The capacity for timely payment of financial commitments is 
considered to be strong, but may be more vulnerable to changes in economic 
conditions and circumstances than bonds with higher ratings.
	BBB - Bonds rated BBB by Fitch currently have a low expectation of 
credit risk. The capacity for timely payment of financial commitments is 
considered to be adequate. Adverse changes in economic conditions and 
circumstances, however, are more likely to impair this capacity. This is the 
lowest investment grade category assigned by Fitch.
	BB - Bonds rated BB by Fitch carry the possibility of credit risk 
developing, particularly as the result of adverse economic change over time. 
Business or financial alternatives may, however, be available to allow 
financial commitments to be met. Securities rated in this category are not 
considered by Fitch to be investment grade.
	B - Bonds rated B by Fitch carry significant credit risk, however, a 
limited margin of safety remains. Although financial commitments are 
currently being met, capacity for continued payment depends upon a sustained, 
favorable business and economic environment.
	CCC, CC, C - Default on bonds rated CCC,CC, and C by Fitch is a real 
possibility. The capacity to meet financial commitments depends solely on a 
sustained, favorable business and economic environment. Default of some kind 
on bonds rated CC appears probable, a C rating indicates imminent default.
	Plus and minus signs are used by Fitch to indicate the relative 
position of a credit within a rating category. Plus and minus signs however, 
are not used in the AAA category.
COMMERCIAL PAPER RATINGS
Moodys Investors Service, Inc.
	Issuers rated Prime-1 (or related supporting institutions) have a 
superior capacity for repayment of short-term promissory obligations. Prime-1 
repayment will normally be evidenced by the following characteristics: 
leading market positions in well-established industries; high rates of return 
on funds employed; conservative capitalization structures with moderate 
reliance on debt and ample asset protection; broad margins in earnings 
coverage of fixed financial changes and high internal cash generation; well-
established access to a range of financial markets and assured sources of 
alternate liquidity.
	Issuers rated Prime-2 (or related supporting institutions) have strong 
capacity for repayment of short-term promissory obligations. This will 
normally be evidenced by many of the characteristics cited above but to a 
lesser degree. Earnings trends and coverage ratios, while sound, will be more 
subject to variation. Capitalization characteristics, while still 
appropriate, may be more affected by external conditions. Ample alternate 
liquidity is maintained.
Standard & Poors
	A-1 - This designation indicates that the degree of safety regarding 
timely payment is either overwhelming or very strong. Those issuers 
determined to possess overwhelming safety characteristics will be denoted 
with a plus (+) sign designation.
	A-2 - Capacity for timely payment on issues with this designation is 
strong. However, the relative degree of safety is not as high as for issues 
designated A-1.
Fitch IBCA, Inc.
	Fitchs short-term ratings apply to debt obligations that are payable on 
demand or have original maturities of generally up to three years, including 
commercial paper, certificates of deposit, medium-term notes, and municipal 
and investment notes.
	The short-term rating places greater emphasis than a long-term rating 
on the existence of liquidity necessary to meet financial commitment in a 
timely manner.
	Fitchs short-term ratings are as follows:
	F1+ - Issues assigned this rating are regarded as having the strongest 
capacity for timely payments of financial commitments. The + denotes an 
exceptionally strong credit feature.
	F1 - Issues assigned this rating are regarded as having the strongest 
capacity for timely payment of financial commitments.
	F2 - Issues assigned this rating have a satisfactory capacity for 
timely payment of financial commitments, but the margin of safety is not as 
great as in the case of the higher ratings.
	F3 - The capacity for the timely payment of financial commitments is 
adequate; however, near-term adverse changes could result in a reduction to 
non investment grade.
Duff & Phelps Inc.
	Duff 1+ - Indicates the highest certainty of timely payment: short-term 
liquidity is clearly outstanding, and safety is just below risk-free United 
States Treasury short-term obligations.
	Duff 1 - Indicates a high certainty of timely payment.
	Duff 2 - Indicates a good certainty of timely payment: liquidity 
factors and company fundamentals are sound.
The Thomson BankWatch (TBW)
	TBW-1 - Indicates a very high degree of likelihood that principal and 
interest will be paid on a timely basis.
	TBW-2 - While the degree of safety regarding timely repayment of 
principal and interest is strong, the relative degree of safety is not as 
high as for issues rated TBW-1.



	Smith Barney
	Investment 
	Trust 





















SMITH BARNEY
INVESTMENT TRUST
388 Greenwich Street
New York, NY 10013

	SMITH BARNEY
								      A Member of Travelers Group

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