DISTRIBUTION AGREEMENT

									March 1, 1996
PFS Distributors, Inc.
3100 Breckenridge Blvd., Bldg 200
Duluth, Georgia 30199-0062
(800) 544-5445

Dear Sirs:

	This is to confirm that, in consideration of the agreements hereinafter 
contained, the undersigned, Smith Barney Income Funds on behalf of the Smith 
Barney Exchange Reserve Fund (the "Fund") a business trust organized under the 
laws of the Commonwealth of Massachusetts has agreed that PFS Distributors, 
Inc. ("PFS") shall be, for the period of this Agreement, the distributor of 
shares (the "Shares") of the Fund.

	1.	Services as Distributor

		1.1  PFS will act as agent for the distribution of Shares covered by 
the registration statement, prospectus and statement of additional information 
then in effect under the Securities Act of 1933, as amended (the "1933 Act"), 
and the Investment Company Act of 1940, as amended (the "1940 Act").

		1.2  PFS agrees to use its best efforts to solicit orders for the 
sale of Shares and will undertake such advertising and promotion as it 
believes is reasonable in connection with such solicitation.

		1.3	All activities by PFS as distributor of the Shares shall comply 
with all applicable laws, rules, and regulations, including, without 
limitation, all rules and regulations made or adopted by the Securities and 
Exchange Commission (the "SEC") or by any securities association registered 
under the Securities Exchange Act of 1934.

		1.4  PFS will provide one or more persons during normal business 
hours to respond to telephone questions concerning the Fund.

		1.5  PFS will transmit any orders received by it for purchase or 
redemption of Shares to PFS Shareholder Services (the "Sub-Transfer Agent"), 
the Fund's sub-transfer and dividend agent, or any successor to Sub-Transfer 
Agent of which the Fund has notified PFS in writing.

		1.6  Whenever in their judgment such action is warranted for any 
reason, including, without limitation, market, economic or political 
conditions, the Fund's officers may decline to accept any orders for, or make 
any sales of, the Shares until such time as those officers deem it advisable 
to accept such orders and to make such sales.



		1.7  PFS will act only on its own behalf as principal should it 
choose to enter into selling agreements with selected dealers or others.

		1.8  The Fund will pay to PFS an annual fee in connection with the 
offering and sale of the Shares under this Agreement.  The annual fee paid to 
PFS, will be calculated daily and paid monthly by the Fund at an annual rate 
set forth in the Services and Distribution Plan (the "Plan") based on the 
average daily net assets of the Fund; provided that payment shall be made in 
any month only to the extent that such payment shall not exceed the sales 
charge limitations established by the National Association of Securities 
Dealers, Inc.

	The annual fee paid to PFS under this Section 1.8 may be used by PFS to 
cover any expenses primarily intended to result in the sale of Shares, 
including, but not limited to, the following:

		(a)	cost of payments made to PFS Investments Representatives and 
other employees of PFS or other broker-dealers that engage in the 
distribution of the Fund's Shares;

		(b)	payments made to, and expenses of, persons who provide support 
services in connection with the distribution of the Fund's Shares, 
including, but not limited to, office space and equipment, telephone 
facilities, answering routine inquiries regarding the Fund, processing 
shareholder transactions and providing any other shareholder services;

		(c)	costs relating to the formulation and implementation of 
marketing and promotional activities, including, but not limited to, 
direct mail promotions and television, radio, newspaper, magazine and 
other mass media advertising;

		(d)costs of printing and distributing prospectuses and reports of the 
Fund to prospective shareholders of the Fund;

		(e)	costs involved in preparing, printing and distributing sales 
literature pertaining to the Fund; and

		(f)	costs involved in obtaining whatever information, analyses and 
reports with respect to marketing and promotional activities that the 
Fund may, from time to time, deem advisable;

except that distribution expenses shall not include any expenditures in 
connection with services which PFS, any of its affiliates, or any other person 
have agreed to bear without reimbursement.

	1.9  PFS shall prepare and deliver reports to the Treasurer of the Fund on 
a regular, at least quarterly, basis, showing the distribution expenses 
incurred pursuant to this Agreement and the Plan and the purposes therefor, as 
well as any supplemental reports as the Directors, from time to time, may 
reasonably request.

	2.	Duties of the Fund

		2.1  The Fund agrees at its own expense to execute any and all 
documents, to furnish any and all information and to take any other actions 
that may be reasonably necessary in connection with the qualification of the 
Shares for sale in those states that PFS may designate.

		2.2  The Fund shall furnish from time to time for use in connection 
with the sale of the Shares, such information reports with respect to the Fund 
and its Shares as PFS may reasonably request, all of which shall be signed by 
one or more of the Fund's duly authorized officers; and the Fund warrants that 
the statements contained in any such reports, when so signed by the Fund's 
officers, shall be true and correct.  The Fund shall also furnish PFS upon 
request with (a) annual audits of the Fund's books and accounts made by 
independent certified public accountants regularly retained by the Fund; (b) 
semi-annual unaudited financial statements pertaining to the Fund; (c) 
quarterly earnings statements prepared by the Fund; (d) a monthly itemized 
list of the securities in the Fund's portfolio; (e) monthly balance sheets as 
soon as practicable after the end of each month; and (f) from time to time 
such additional information regarding the Fund's financial condition as PFS 
may reasonably request.

	3.	Representations and Warranties

	The Fund represents to PFS that all registration statements, prospectuses 
and statements of additional information filed by the Fund with the SEC under 
the 1933 Act and the 1940 Act with respect to the Shares have been carefully 
prepared in conformity with the requirements of the 1933 Act, the 1940 Act and 
the rules and regulations of the SEC thereunder.  As used in this Agreement, 
the  terms "registration statement", "prospectus" and "statement of additional 
information" shall mean any registration statement, prospectus and statement 
of additional information filed by the Fund with the SEC and any amendments 
and supplements thereto which at any time shall have been filed with the SEC.  
The Fund represents and warrants to PFS that any registration statement, 
prospectus and statement of additional information, when such registration 
statement becomes effective, will include all statements required to be 
contained therein in conformance with the 1933 Act, the 1940 Act and the rules 
and regulations of the SEC; that all statements of fact contained in any 
registration statement, prospectus or statement of additional information will 
be true and correct when such registration statement becomes effective; and 
that neither any registration statement nor any prospectus or statement of 
additional information when such registration statement becomes effective will 
include an untrue statement of a material fact or omit to state a material 
fact required to be stated therein or necessary to make the statements therein 
not misleading to a purchaser of the Fund's Shares.  The Fund may, but shall 
not be obligated to, propose from time to time such amendment or amendments to 
any registration statement and such supplement or supplements to any 
prospectus or statement of additional information as, in the light of future 
developments, may, in the opinion of the Fund's counsel, be necessary or 
advisable.  If the Fund shall not propose such amendment or amendments and/or 
supplement or supplements within fifteen days after receipt by the Fund of a 
written request from PFS to do so, PFS may, at its option, terminate this 
Agreement.  The Fund shall not file any amendment to any registration 
statement or supplement to any prospectus or statement of additional 
information without giving PFS reasonable notice thereof in advance; provided, 
however, that nothing contained in this Agreement shall in any way limit the 
Fund's right to file at any time such amendments to any registration statement 
and/or supplements to any prospectus or statement of additional information, 
of whatever character, as the Fund may deem advisable, such right being in all 
respects absolute and unconditional.

	4.	Indemnification

		4.1  The Fund authorizes PFS and dealers to use any prospectus or 
statement of additional information furnished by the Fund from time to time, 
in connection with the sale of the Shares.  The Fund agrees to indemnify, 
defend and hold PFS, its several officers and directors, and any person who 
controls PFS within the meaning of Section 15 of the 1933 Act, free and 
harmless from and against any and all claims, demands, liabilities and 
expenses (including the cost of investigating or defending such claims, 
demands or liabilities and any such counsel fees incurred in connection 
therewith) which PFS, its officers and directors, or any such controlling 
person, may incur under the 1933 Act or under common law or otherwise, arising 
out of or based upon any untrue statement, or alleged untrue statement, of a 
material fact contained in any registration statement, any prospectus or any 
statement of additional information or arising out of or based upon any 
omission, or alleged omission, to state a material fact required to be stated 
in any registration statement, any prospectus or any statement of additional 
information or necessary to make the statements in any thereof not misleading; 
provided, however, that the Fund's agreement to indemnify PFS, its officers or 
directors, and any such controlling person shall not be deemed to cover any 
claims, demands, liabilities or expenses arising out of any statements or 
representations made by PFS or its representatives or agents other than such 
statements and representations as are contained in any prospectus or statement 
of additional information and in such financial and other statements as are 
furnished to PFS pursuant to paragraph 2.2 of this Agreement; and further 
provided that the Fund's agreement to indemnify PFS and the Fund's 
representations and warranties herein before set forth in paragraph 3 of this 
Agreement shall not be deemed to cover any liability to the Fund or its 
shareholders to which PFS would otherwise be subject by reason of willful 
misfeasance, bad faith or gross negligence in the performance of its duties, 
or by reason of PFS's reckless disregard of its obligations and duties under 
this Agreement.  The Fund's agreement to indemnify PFS, its officers and 
directors, and any such controlling person, as aforesaid, is expressly 
conditioned upon the Fund's being notified of any action brought against PFS, 
its officers or directors, or any such controlling person, such notification 
to be given by letter or by telegram addressed to the Fund at its principal 
office in New York, New York and sent to the Fund by the person against whom 
such action is brought, within ten days after the summons or other first legal 
process shall have been served.  The failure so to notify the Fund of any such 
action shall not relieve the Fund from any liability that the Fund may have to 
the person against whom such action is brought by reason of any such untrue, 
or alleged untrue, statement or omission, or alleged omission, otherwise than 
on account of the Fund's indemnity agreement contained in this paragraph 4.1.  
The Fund will be entitled to assume the defense of any suit brought to enforce 
any such claim, demand or liability, but, in such case, such defense shall be 
conducted by counsel of good standing chosen by the Fund and approved by PFS.  
In the event the Fund elects to assume the defense of any such suit and 
retains counsel of good standing approved by PFS, the defendant or defendants 
in such suit shall bear the fees and expenses of any additional counsel 
retained by any of them; but if the Fund does not elect to assume the defense 
of any such suit, or if PFS does not approve of counsel chosen by the Fund, 
the Fund will reimburse PFS, its officers and directors, or the controlling 
person or persons named as defendant or defendants in such suit, for the fees 
and expenses of any counsel retained by PFS or them.  The Fund's 
indemnification agreement contained in this paragraph 4.1 and the Fund's 
representations and warranties in this Agreement shall remain operative and in 
full force and effect regardless of any investigation made by or on behalf of 
PFS, its officers and directors, or any controlling person, and shall survive 
the delivery of any of the Fund's Shares.  This agreement of indemnity will 
inure exclusively to PFS's benefit, to the benefit of its several officers and 
directors, and their respective estates, and to the benefit of the controlling 
persons and their successors.  The Fund agrees to notify PFS promptly of the 
commencement of any litigation or proceedings against the Fund or any of its 
officers or trustees in connection with the issuance and sale of any of the 
Fund's Shares.

		4.2  PFS agrees to indemnify, defend and hold the Fund, its several 
officers and Trustees, and any person who controls the Fund within the meaning 
of Section 15 of the 1933 Act, free and harmless from and against any and all 
claims, demands, liabilities and expenses (including the costs of 
investigating or defending such claims, demands or liabilities and any counsel 
fees incurred in connection therewith) that the Fund, its officers or Trustees 
or any such controlling person may incur under the 1933 Act, or under common 
law or otherwise, but only to the extent that such liability or expense 
incurred by the Fund, its officers or Trustees, or such controlling person 
resulting from such claims or demands shall arise out of or be based upon any 
untrue, or alleged untrue, statement of a material fact contained in 
information furnished in writing by PFS to the Fund and used in the answers to 
any of the items of the registration statement or in the corresponding 
statements made in the prospectus or statement of additional information, or 
shall arise out of or be based upon any omission, or alleged omission, to 
state a material fact in connection with such information furnished in writing 
by PFS to the Fund and required to be stated in such answers or necessary to 
make such information not misleading.  PFS's agreement to indemnify the Fund, 
its officers or Trustees, and any such controlling person, as aforesaid, is 
expressly conditioned upon PFS being notified of any action brought against 
the Fund, its officers or Trustees, or any such controlling person, such 
notification to be given by letter or telegram addressed to PFS at its 
principal office in New York, New York and sent to PFS by the person against 
whom such action is brought, within ten days after the summons or other first 
legal process shall have been served.  PFS shall have the right to control the 
defense of such action, with counsel of its own choosing, satisfactory to the 
Fund, if such action is based solely upon such alleged misstatement or 
omission on PFS's part, and in any other event the Fund, its officers or 
Trustees or such controlling person shall each have the right to participate 
in the defense or preparation of the defense of any such action.  The failure 
to so notify PFS of any such action shall not relieve PFS from any liability 
that PFS may have to the Fund, its officers or Trustees, or to such 
controlling person by reason of any such untrue, or alleged untrue, statement 
or omission, or alleged omission, otherwise than on account of PFS's indemnity 
agreement contained in this paragraph 4.2.  PFS agrees to notify the Fund 
promptly of the commencement of any litigation or proceedings against PFS or 
any of its officers or directors in connection with the issuance and sale of 
any of the Fund's Shares.

		4.3  In case any action shall be brought against any indemnified 
party under paragraph 4.1 or 4.2, and it shall notify the indemnifying party 
of the commencement thereof, the indemnifying party shall be entitled to 
participate in, and, to the extent that it shall wish to do so, to assume the 
defense thereof with counsel satisfactory to such indemnified party.  If the 
indemnifying party opts to assume the defense of such action, the indemnifying 
party will not be liable to the indemnified party for any legal or other 
expenses subsequently incurred by the indemnified party in connection with the 
defense thereof other than (a) reasonable costs of investigation or the 
furnishing of documents or witnesses and (b) all reasonable fees and expenses 
of separate counsel to such indemnified party if (i) the indemnifying party 
and the indemnified party shall have agreed to the retention of such counsel 
or (ii) the indemnified party shall have concluded reasonably that 
representation of the indemnifying party and the indemnified party by the same 
counsel would be inappropriate due to actual or potential differing interests 
between them in the conduct of the defense of such action.

	5.	Effectiveness of Registration

	None of the Fund's Shares shall be offered by either PFS or the Fund under 
any of the provisions of this Agreement and no orders for the purchase or sale 
of the Shares under this Agreement shall be accepted by the Fund if and so 
long as the effectiveness of the registration statement then in effect or any 
necessary amendments thereto shall be suspended under any of the provision of 
the 1933 Act or if and so long as a current prospectus as required by Section 
5(b) (2) of the 1933 Act is not on file with the SEC; provided, that nothing 
contained in this paragraph 5 shall in any way restrict or have an application 
to or bearing upon the Fund's obligation to repurchase its Shares from any 
shareholder in accordance with the provisions of the Fund's prospectus, 
statement of additional information or Articles of Incorporation dated 
September 2, 1969, as amended from time to time.

	6.	Notice to PFS

	The Fund agrees to advise PFS immediately in writing:

		(a)  of any request by the SEC for amendments to the registration 
statement, prospectus or statement of additional information then in effect or 
for additional information;

		(b)  In the event of the issuance by the SEC of any stop order 
suspending the effectiveness of the registration statement, prospectus or 
statement of additional information then in effect or the initiation of any 
proceeding for that purpose;

		(c)  of the happening of any event that makes untrue any statement or 
a material fact made in the registration statement, prospectus or statement of 
additional information then in effect or that requires the making of a change 
in such registration statement, prospectus or statement of additional 
information in order to make the statements therein not misleading; and
		
		(d)  of all actions of the SEC with respect to any amendment to any 
registration statement, prospectus or statement of additional information 
which may from time to time be filed with the SEC.

	7.	Term of the Agreement

	This Agreement shall become effective on the date first written above and 
shall continue in effect for successive annual periods thereafter so long as 
such continuance is specifically approved at least annually by (a) the Fund's 
Trustees or (b) by a vote of a majority (as defined in the 1940 Act) of the 
Fund's outstanding voting securities, provided that in either event the 
continuance is also approved by a majority of the Trustees of the Fund who are 
not interested persons (as defined in the 1940 Act) of any party to this 
Agreement, by vote cast in person at a meeting called for the purpose of 
voting on such approval.  This Agreement is terminable, without penalty, on 60 
days' notice by the Fund's Trustees, by vote of the holders of a majority of 
the Fund's Shares, or on 90 days' notice by PFS.  This Agreement will also 
terminate automatically in the event of its assignment (as defined in the 1940 
Act).

	8.	Limitation of Liability

	The Fund and PFS agree that the obligations of the Fund under this 
Agreement shall not be binding upon any of the Trustees, shareholders, 
nominees, officers, employees or agents, whether past, present or future, of 
the Fund, individually, but are binding only upon the assets and property of 
the Fund, as provided in the Master Trust Agreement.  The execution and 
delivery of this Agreement have been authorized by the Trustees and signed by 
an authorized officer of the Fund, acting as such, and neither such 
authorization by such Trustees nor such execution and delivery by such officer 
shall be deemed to have been make by any of them individually or to impose any 
liability on any of them personnaly, but shall bind only the trust property of 
the Fund as provided in its Master Trust Agreement.

	If the foregoing is in accordance with your understanding, kindly indicate 
your acceptance of this Agreement by signing and returning to us the enclosed 
copy of this Agreement.


						
						Smith Barney Income Funds
						  on behalf of the Smith Barney
						   Exchange Reserve Fund 

						By:  _____________________
						



Accepted:

PFS DISTRIBUTORS, INC.


By:  __________________________
       Authorized Officer




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