Smith Barney Income Funds -
SMITH BARNEY PREMIUM TOTAL RETURN FUND

Seven World Trade Center
New York, New York 10048
(800) 451-2010


Statement of Additional Information
	April 30, 2001
	As Amended July 2, 2001

This Statement of Additional Information ("SAI") is meant to be
read in conjunction with the prospectus of the Smith Barney
Premium Total Return Fund (the "fund") dated April 30, 2001, as
amended or supplemented from time to time (the "Prospectus"), and
is incorporated by reference in its entirety into the prospectus.
Additional information about the fund's investments is available
in the fund's annual and semi-annual reports to shareholders which
are incorporated herein by reference.  The prospectus and copies
of the reports may be obtained free of charge by contacting a
Salomon Smith Barney Financial Consultant, a broker/dealer,
financial intermediary or a financial institution (each called a
"Service Agent"), or by writing or calling Salomon Smith Barney
Inc. ("Salomon Smith Barney") at the address or telephone number
above.  The fund is a separate investment series of Smith Barney
Income Funds (the "trust").

This SAI is not a prospectus.  It is intended to provide more
detailed information about the fund as well as matters already
discussed in the Prospectus and therefore should be read in
conjunction with the Prospectus dated April 30, 2001, which may be
obtained from the fund or your Service Agent.


TABLE OF CONTENTS

Trustees and Executive Officers of the Trust		2
Investment Objectives and Management Policies 		7
Purchase, Exchange and Redemption of Shares 		34
Distributor		46
Valuation of Shares		48
Performance Data		48
Taxes		52
Additional Information		57
Financial Statements		58
Other Information		59
Appendix A		A-1


TRUSTEES AND EXECUTIVE OFFICERS OF THE TRUST

The names of the trustees of the trust and executive officers of
the fund, together with information as to their principal business
occupations, are set forth below.  The executive officers of the
fund are employees of organizations that provide services to the
fund.  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. The address of the "non-
interested" trustees and the executive officers of the fund is
Seven World Trade Center, New York, New York 10048 or 125 Broad
Street, New York, New York 10004, unless otherwise noted.

Lee Abraham, Trustee
Retired; Director/Trustee of 11 investment companies associated
with Citigroup Inc. ("Citigroup"). Director of R.G. Barry Corp., a
footwear manufacturer, Signet Group plc, a specialty retailer, and
eNote.com, Inc., a computer hardware company. Formerly Chairman
and Chief Executive Officer of Associated Merchandising
Corporation, a major retail merchandising and sourcing
organization and formerly Director of Galey & Lord and Liz
Claiborne.  His address is 106 Barnes Road, Stamford, Connecticut
06902; Age 73.

Allan J. Bloostein, Trustee
President of Allan J. Bloostein Associates, a consulting firm;
Director/Trustee of 18 investment companies associated with
Citigroup. Director of CVS Corporation, a drugstore chain, and
Taubman Centers Inc., a real estate development company; Retired
Vice Chairman and Director of The May Department Stores Company.
His address is 27 West 67th Street, New York, New York 10023; Age
71.

Jane F. Dasher, Trustee
Investment Officer; Korsant Partners, a family investment company.
Director/Trustee of 11 investment companies associated with
Citigroup. Prior to 1997, Independent Financial Consultant. Her
address is 283 Greenwich Avenue, Greenwich, Connecticut 06830;
Age 51.

Donald R. Foley, Trustee
Retired; Director/Trustee of 11 investment companies associated
with Citigroup. Formerly Vice President of Edwin Bird Wilson,
Incorporated (an advertising agency); His address is 3668
Freshwater Drive, Jupiter, Florida 33477; Age 78.

Richard E. Hanson, Jr., Trustee
Retired; Formerly Head of The New Atlanta Jewish Community High
School, Atlanta Georgia. Director/Trustee of 11 investment
companies associated with Citigroup.  Formerly Headmaster, The
Peck School, Morristown, New Jersey.  His address is 2751 Vermont
Route 140, Poultney Vermont, 05764; Age 59.

Paul Hardin, Trustee
Professor of Law and Chancellor Emeritus at University of North
Carolina at Chapel Hill. Director/Trustee of 13 investment
companies associated with Citigroup. Formerly Director of The
Summit Bancorporation and formerly, Chancellor of the University
of North Carolina at Chapel Hill; His address is 12083 Morehead,
Chapel Hill, North Carolina 27514; Age 69.


*Heath B. McLendon, Chairman Of The Board, President And Chief
Executive Officer
Managing Director of Salomon Smith Barney; Chairman, Co-Chairman,
or President and/or Trustee/Director of the Board of 77 investment
companies associated with Citigroup. Director and President of
Smith Barney Fund Management LLC ("SBFM" or "Investment Adviser"
and "Administrator") (formerly known as SSB Citi Fund Management
LLC.) and Travelers Investment Advisers, Inc. ("TIA"); Age 67.

Roderick C. Rasmussen, Trustee
Investment Counselor; Director/Trustee of 11 investment companies
associated with Citigroup. Formerly Vice President of Dresdner and
Company Inc. (investment counselors); His address is 9 Cadence
Court, Morristown, New Jersey 07960; Age 74.

John P. Toolan, Trustee
Retired; Director/Trustee of 11 investment companies associated
with Citigroup. Trustee of John Hancock Funds; Formerly, Director
and Chairman of Smith Barney Trust Company, Director of Smith
Barney Holdings Inc. and various subsidiaries, formerly Senior
Executive Vice President, Director and Member of the Executive
Committee of Smith Barney; His address is 13 Chadwell Place,
Morristown, New Jersey 07960; Age 70.

Ross Margolies, Investment Officer
Managing Director of Salomon Brothers Asset Management Inc.
("SaBAM" or "Sub-Investment Adviser"); Senior Portfolio Manager
for all SaBAM U.S. equity, convertibles and arbitrage portfolios;
Portfolio Manager of certain other investment companies associated
with Citigroup; Age 42.

Lewis E. Daidone, Senior Vice President and Treasurer
Managing Director of Salomon Smith Barney; Senior Vice President
or Executive Vice President and Treasurer of 83 investment
companies associated with Citigroup; and Director and Senior Vice
President of SBFM and TIA; Age 43.

Anthony Pace, Controller
Director of Salomon Smith Barney; Controller or Assistant
Treasurer of certain other investment companies associated with
Citigroup; Age 35.

Christina T. Sydor, Secretary
Managing Director of Salomon Smith Barney; Secretary of 60
investment companies associated with Citigroup; General Counsel
and Secretary of SBFM and TIA; Age 50.

As of April 12, 2001, the Trustees and officers of the fund, as a
group, owned less than 1% of the outstanding shares of beneficial
interest of the fund.  As of April 12, 2001, to the best knowledge
of the fund and the Board the following shareholders or "groups"
(as that term is used in Section 13 (d) of the Securities Act of
1934, as amended) beneficially owned more than 5% of the
outstanding shares of the following Class:

Class A						Percentage

Fiserv Securities Inc.					8.864
Attn.: Mutual Fund Dept.
One Commerce Square
2005 Market Street
Philadelphia, PA  19103-7042
Class Y						Percentage

Smith Barney Concert Series, Inc.			57.587
Concert Balanced Portfolio
PNC Bank, NA
Attn: Sheila Heacock
880 Tinicum Blvd., 3FL, Suite 200
Philadelphia, PA 19153-3111

Smith Barney Concert Series, Inc.			27.691
Select Balanced Portfolio
PNC Bank, NA
Attn: Sheila Heacock
880 Tinicum Blvd., 3FL, Suite 200
Philadelphia, PA 19153-3111

Smith Barney Concert Series, Inc.			6.963
Conservative Portfolio
PNC Bank, NA
Attn: Sheila Heacock
880 Tinicum Blvd., 3FL, Suite 200
Philadelphia, PA 19153-3111

No officer, Trustee or employee of Salomon Smith Barney or any
Salomon Smith Barney parent or subsidiary receives any
compensation from the trust for serving as an officer or Trustee
of the trust.  Fees for trustees who are not "interested persons"
of the trust and who are trustees of a group of funds sponsored by
Salomon Smith Barney are set at $60,000 per annum and are
allocated based on relative net assets of each fund in the group
plus a per meeting fee of $2,500 with respect to in-person
meetings.  In addition, these directors received $100 per fund for
each telephone meeting plus travel and out-of-pocket expenses
incurred in connection with board meetings.  The board meeting
fees and out-of-pocket expenses are borne proportionately by each
individual fund or portfolio in the group For the fiscal year
ended December 31, 2000, such travel and out-of-pocket expenses
totaled $13,769.

For the fiscal year ended and the calendar year ended December 31,
2000, the Trustees of the trust were paid the following
compensation with respect to the fund:





Trustee


Aggregate
Compensatio
n from the
Fund

Total
Pension or
Retirement
Benefits
Accrued from
the Fund
Aggregate
Compensation
from the
Fund and the
Fund Complex
Total Number
of Funds for
Which
Trustee
Serves
within
Fund Complex
Lee Abraham
$3,533
$0
$72,800
11
Allan J. Bloostein
3,383
0
108,900
19
Jane Dasher
3,695
0
75,000
11
Donald R. Foley *
3,405
0
74,900
11
Richard E. Hanson,
Jr.
3,595
0
74,800
11
Paul Hardin
3,595
0
93,150
13
Heath B. McLendon+

0
0
0
77
Roderick C.
Rasmussen*
3,593
0
74,900
11
John P. Toolan*
3,595
0
74,900
11

+	Designates a trustee who is an "interested person" of the
trust.

*	Pursuant to the trust's deferred compensation plan, the
indicated trustees have elected to defer the following amounts
of their  compensation from the fund: Donald R. Foley: $750,
Roderick C. Rasmussen: $1,300 and John P. Toolan: $3,595, and
the following amounts of their total compensation from the Fund
Complex: Donald R. Foley: $24,000, Roderick C.
Rasmussen:$30,000 and John P. Toolan: $74,900.

Investment Adviser, Sub-Investment Adviser and Administrator

SBFM serves as investment adviser to the fund pursuant to a
written agreement with the fund (an "Advisory Agreement").  SBFM
is a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings").  Holdings is a wholly owned subsidiary of Citigroup,
which is located at 1 Citicorp Center, 153 East 53rd Street, New
York, New York 10028.  SBFM was incorporated on March 12, 1968
under the laws of Delaware and converted to a Delaware limited
liability company in September 1999.  The Advisory Agreement was
most recently approved by the Board of Trustees, including a
majority of the Trustees who are not "interested persons" of the
trust or the Investment Adviser ("Independent Trustees"), on June
21, 2000.  SBFM serves as administrator to the fund pursuant to a
separate written agreement dated August 31, 1995 (the
"Administration Agreement") which was most recently approved by
the Board of Trustees, including a majority of the Independent
Trustees, on June 21, 2000.  SBFM (through its predecessor
entities) has been in the investment counseling business since
1968 and renders investment advice to a wide variety of
individual, institutional and investment company clients that had
aggregate assets under management as of March 31, 2001 in excess
of $133.5 billion.

SaBAM provides discretionary and non-discretionary portfolio
management services to a wide variety of individual and
institutional accounts, including, but not limited to, banks or
thrift institutions, retirement plans, pension and profit-
entities, registered investment companies and unregistered
domestic and offshore funds.  As of March 31, 2001, SaBAM had in
excess of $30 billion in assets under management. SaBAM was
organized as a Delaware corporation in 1987 and its principal
business address is 7 World Trade Center, New York, New York
10048.  SaBAM is an indirect wholly owned subsidiary of Holdings,
which is also located at 7 World Trade Center, New York, New York
10048.

The Investment Adviser, Sub-Investment Adviser and Administrator
pay the salaries of all officers and employees who are employed by
both it and the trust, and maintain office facilities for the
trust.  In addition to those services, the Investment Adviser
furnishes the trust with statistical and research data, clerical
help and accounting, data processing, bookkeeping, internal
auditing and legal services and certain other services required by
the trust, prepares reports to the fund's shareholders and
prepares tax returns, reports to and filings with the Securities
and Exchange Commission (the "SEC") and state Blue Sky
authorities.  The Investment Adviser and Sub-Investment Adviser
bear all expenses in connection with the performance of their
services.

As compensation for investment advisory services, the fund pays
the Investment Adviser a fee computed daily and paid monthly at
the annual rate of 0.55% of the value of the fund's average daily
net assets.  As compensation for sub-advisory services, the
Investment Adviser pays the Sub-Investment Adviser a fee in an
amount agreed to from time to time by the parties but not to
exceed the fee paid to SBFM under its current advisory agreement.
This fee is 0.375% of the value of the fund's average daily net
assets. The Sub-Advisory Agreement dated June 30, 1999 was
approved by the Board of Trustees, including a majority of the
Trustees who are not "interested persons" of the trust or the
Investment Advisor on April 15, 1999.  The Sub-Advisory Agreement
was approved by shareholders of the Fund on June 30, 1999.

For the periods below, the fund paid investment advisory fees to
its Investment Adviser as follows:

Year Ended December 31:
1998
1999
2000
$23,785,49
5
$18,229,857
$11,866,875

For the fiscal years ended December 31, 1998, the fund paid Boston
Partners Asset Management LP ("Boston Partners") sub-investment
advisory fees of $6,485,957.  From January 1, 1999 through June
14, 1999, the fund paid Boston Partners $2,547,293 in sub-
investment advisory fees.  From June 15, 1999 through December 31,
1999, the fund paid SaBAM $5,752,409 in sub-investment advisory
fees. For the fiscal year ended December 31, 2000, the fund paid
SaBAM $8,091,051 in sub-investment advisory fees.

As compensation for administrative services, the fund pays the
Administrator a fee computed daily and paid monthly at the annual
rate of 0.20% of the fund's average daily net assets.  For the
periods shown below, the fund paid administrative fees to SBFM,
the fund's administrator, as follows:

Year Ended December 31:
1998
1999
2000
$8,649,271
$6,629,039
$4,315,227

The trust bears expenses incurred in its operations, including:
taxes, interest, brokerage fees and commissions, if any; fees of
Trustees who are not officers, directors, shareholders or
employees of Salomon Smith Barney or one of its affiliates, 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 of 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.

Code of Ethics

Pursuant to Rule 17j-1 of the 1940 Act, the fund, the investment
adviser and principal underwriter have adopted codes of ethics
that permit personnel to invest in securities for their own
accounts, including securities that may be purchased or held by
the fund.  All personnel must place the interests of clients first
and avoid activities, interests and relationships that might
interfere with the duty to make decisions in the best interests of
the clients.  All personal securities transactions by employees
must adhere to the requirements of the codes and must be conducted
in such a manner as to avoid any actual or potential conflict of
interest, the appearance of such a conflict, or the abuse of an
employee's position of trust and responsibility.

A copy of the fund's code of ethics is on file with the SEC.

Auditors

KPMG LLP, 757 Third Avenue, New York, New York 10017 has been
selected as the fund's independent auditors to examine and report
on the fund's financial statements and financial highlights for
the fiscal year ending December 31, 2001.



INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES

Investment Objectives and Policies

The fund's investment objective is total return.  The fund's
investment objective may be changed only with the approval of a
majority of the fund's outstanding shares.  There can be no
assurance that the fund will achieve its investment objective.
The fund will seek to achieve its objective by investing in equity
and fixed income securities of both U.S. and foreign issuers.  The
fund may engage in various portfolio strategies involving options,
futures, options on futures and swaps to seek to increase its
return, to hedge its portfolio against movements in the equity
markets and interest rates or as a substitute for buying and
selling securities.

Certain Investment Strategies

In attempting to achieve its investment objective, the fund may
employ, among others, one or more of the strategies set forth
below.  See "Additional Risk Factors" for additional information
about the risks of these investment practices.

Equity Securities

Common Stocks. The fund may purchase common stocks. Common stocks
are shares of a corporation or other entity that entitle the
holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of
shareholders, including holders of the entity's preferred stock
and other senior equity. Common stock usually carries with it the
right to vote and frequently an exclusive right to do so.

Convertible Securities. The fund may invest in convertible
securities which are fixed-income securities that may be converted
at either a stated price or stated rate into underlying shares of
common stock. Convertible securities have general characteristics
similar to both fixed-income and equity securities. Although to a
lesser extent than with fixed-income securities, the market value
of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates
decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with
fluctuations in the market value of the underlying common stocks
and, therefore, also will react to variations in the general
market for equity securities.

Like fixed-income securities, convertible securities are
investments which provide for a stable stream of income with
generally higher yields than common stocks. Of course, like all
fixed-income securities, there can be no assurance of current
income because the issuers of the convertible securities may
default on their obligations. Convertible securities, however,
generally offer lower interest or dividend yields than non-
convertible securities of similar quality because of the potential
for capital appreciation. A convertible security, in addition to
providing fixed income, offers the potential for capital
appreciation through the conversion feature, which enables the
holder to benefit from increases in the market price of the
underlying common stock. However, there can be no assurance of
capital appreciation because securities prices fluctuate.

Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although
convertible bonds enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to
common stock of the same issuer. Because of the subordination
feature, however, convertible securities typically have lower
ratings than similar non-convertible securities.

Synthetic Convertible Securities.  The fund may invest in
synthetic convertible securities. Synthetic convertible securities
differ from convertible securities in certain respects, including
that each component of a synthetic convertible security has a
separate market value and responds differently to market
fluctuations. Investing in synthetic convertible securities
involves the risk normally involved in holding the securities
comprising the synthetic convertible security.

Unlike a convertible security, which is a single security, a
synthetic convertible security is comprised of distinct securities
that together resemble convertible securities in certain respects.
Synthetic convertible securities are typically created by
combining non-convertible bonds or preferred stocks with warrants
or stock call options. The options that will form elements of
synthetic convertible securities may be listed on a securities
exchange or on the National Association of Securities Dealers
Automated Quotation System "NASDAQ" or may be privately traded.
The components of a synthetic convertible security generally are
not offered as a unit and may be purchased and sold by the fund at
different times. Synthetic convertible securities differ from
convertible securities in certain respects, including that each
component of a synthetic convertible security has a separate
market value and responds differently to market fluctuations.

Warrants or Rights. Warrants or rights may be acquired by the fund
in connection with other securities or separately and provide the
fund with the right to purchase at a later date other securities
of the issuer. The fund has undertaken that its investment in
warrants or rights, valued at the lower of cost or market, will
not exceed 5% of the value of its net assets. Warrants or rights
acquired by the fund in units or attached to securities will be
deemed to be without value for purposes of this restriction.

Real Estate Investment Trusts ("REITs"). The fund may invest in
shares of REITs. REITs are pooled investment vehicles which invest
primarily in income producing real estate or real estate related
loans or interests. REITs are generally classified as equity
REITs,  mortgage REITs or a combination of equity and mortgage
REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection
or rents. Equity REITs may also include operating or finance
companies. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs are not
taxed on income distributed to shareholders provided they comply
with several requirements of the Internal Revenue Code of 1986, as
amended (the "Code"). A mortgage trust can make construction,
development or long-term mortgage loans, which are sensitive to
the credit quality of the borrower. Mortgage trusts derive their
income from interest payments. Hybrid trusts combine the
characteristics of both equity and mortgage trusts, generally by
holding both ownership interests and mortgage interests in real
estate.

Fixed Income Securities

Corporate Debt Obligations.  The fund may invest in corporate debt
obligations and zero coupon securities issued by financial
institutions and corporations. Corporate debt obligation are
subject to the risk of an issuer's inability to meet principal and
interest payments on the obligations and may also be subject to
price volatility due to such facts as market interest rates,
market perception of the creditworthiness of the issuer and
general market liquidity.  Zero coupon securities are securities
sold at a discount to par value and on which interest payments are
not made during the life of the security.

Zero Coupon, Pay-In-Kind and Delayed Interest Securities.  The
fund may invest in zero coupon, pay-in-kind and delayed interest
securities as well as custodial receipts or certificates
underwritten by securities dealers or banks that evidence
ownership of future interest payments, principal payments or both
on certain U.S. government securities.  Zero coupon securities pay
no cash income to their holders until they mature and are issued
at substantial discounts from their value at maturity. When held
to maturity, their entire return comes from the difference between
their purchase price and their maturity value. Zero-coupon and
delayed interest securities are issued at a significant discount
from their principal amount. While zero-coupon bonds do not
require the periodic payment of interest, deferred interest bonds
provide for a period of delay before the regular payment of
interest begins. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because interest on zero coupon, pay-
in-kind and delayed interest securities is not paid on a current
basis, the values of securities of this type are subject to
greater fluctuations than are the values of securities that
distribute income regularly and may be more speculative than such
securities.

Custodial receipts evidencing specific coupon or principal
payments have the same general attributes as zero coupon U.S.
government securities but are not considered to be U.S. government
securities. Although under the terms of a custodial receipt a fund
is typically authorized to assert its rights directly against the
issuer of the underlying obligation, the fund may be required to
assert through the custodian bank such rights as may exist against
the underlying issuer. Thus, in the event the underlying issuer
fails to pay principal and/or interest when due, the fund may be
subject to delays, expenses and risks that are greater than those
that would have been involved if the fund had purchased a direct
obligation of the issuer. In addition, in the event that the trust
or custodial account in which the underlying security has been
deposited is determined to be an association taxable as a
corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in respect of any taxes paid.

Mortgage-Backed Securities. The fund may invest in mortgage backed
securities, which are securities representing interests in "pools"
of mortgage loans. Monthly payments of interest and principal by
the individual borrowers on mortgages are "passed through" to the
holders of the securities (net of fees paid to the issuer or
guarantor of the securities) as the mortgages in the underlying
mortgage pools are paid off. The average lives of mortgage pass-
throughs are variable when issued because their average lives
depend on prepayment rates. The average life of these securities
is likely to be substantially shorter than their stated final
maturity as a result of unscheduled principal prepayment.
Prepayments on underlying mortgages result in a loss of
anticipated interest, and all or part of a premium if any has been
paid, and the actual yield (or total return) to a fund may be
different than the quoted yield on the securities. Mortgage
prepayments generally increase with falling interest rates and
decrease with rising interest rates. Additional payment may be
made out of unscheduled repayments of principal resulting from the
sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-backed securities may tend to
increase due to refinancing of mortgages as interest rates
decline. Like other fixed income securities, when interest rates
rise the value of a mortgage pass-through security generally will
decline; however, when interest rates are declining, the value of
mortgage pass-through securities with prepayment features may not
increase as much as that of other fixed-income securities.

Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves)
may be guaranteed by the full faith and credit of the U.S.
government (in the case of securities guaranteed by the Government
National Mortgage Association ("GNMA"); or guaranteed by agencies
or instrumentalities of the U.S. government (such as the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation, ("FHLMC") which are supported only by the
discretionary authority of the U.S. government to purchase the
agency's obligations). Mortgage pass-through securities may also
be issued by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers).
Some of these mortgage pass-through securities may be supported by
various forms of insurance or guarantees.

Interests in pools of mortgage-related securities differ from
other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual
borrowers on their mortgage loans, net of any fees paid to the
issuer or guarantor of such securities. Additional payments are
caused by prepayments of principal resulting from the sale,
refinancing or foreclosure of the underlying property, net of fees
or costs which may be incurred. Some mortgage pass-through
securities (such as securities issued by the GNMA) are described
as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgages
in the mortgage pool, net of certain fees, at the scheduled
payment dates regardless of whether the mortgagor actually makes
the payment.

The principal governmental guarantor of mortgage pass-through
securities is the GNMA. GNMA is a wholly owned U.S. government
corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith
and credit of the U.S. government, the timely payment of principal
and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and
mortgage bankers) and backed by pools of FHA-insured or VA-
guaranteed mortgages. These guarantees, however, do not apply to
the market value or yield of mortgage pass-through securities.
GNMA securities are often purchased at a premium over the maturity
value of the underlying mortgages. This premium is not guaranteed
and will be lost if prepayment occurs.

Government-related guarantors (i.e., whose guarantees are not
backed by the full faith and credit of the U.S. government)
include the FNMA and the FHLMC. FNMA is a government-sponsored
corporation owned entirely by private stockholders. It is subject
to general regulation by the Secretary of Housing and Urban
Development. FNMA purchases conventional residential mortgages
(i.e., mortgages not insured or guaranteed by any governmental
agency) from a list of approved seller/servicers which include
state and federally-chartered savings and loan associations,
mutual savings banks, commercial banks, credit unions and mortgage
bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment by FNMA of principal and interest.

FHLMC is also a government-sponsored corporation owned by private
stockholders. FHLMC issues Participation Certificates ("PCs")
which represent interests in conventional mortgages (i.e., not
federally insured or guaranteed) from FHLMC's national portfolio.
FHLMC guarantees timely payment of interest and ultimate
collection of principal regardless of the status of the underlying
mortgage loans. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other
secondary market issuers also create pass-through pools of
mortgage loans. Such issuers may also be the originators and/or
servicers of the underlying mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher
rate of interest than government and government-related pools
because there are no direct or indirect government or agency
guarantees of payments in the former pools. However, timely
payment of interest and principal of mortgage loans in these pools
may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by
governmental entities, private insurers and the mortgage poolers.
There can be no assurance that the private insurers or guarantors
can meet their obligations under the insurance policies or
guarantee arrangements. The fund may also buy mortgage-related
securities without insurance or guarantees.

Collateralized mortgage obligations are a type of bond secured by
an underlying pool of mortgages or mortgage pass-through
certificates that are structured to direct payments on underlying
collateral to different series of classes of the obligations.

Asset-Backed Securities. The fund may invest in asset-backed
securities. These securities, issued by trusts and special purpose
corporations, are backed by a pool of assets, such as credit card
and automobile loan receivables, representing the obligations of a
number of different parties. Asset-backed securities arise through
the grouping by governmental, government-related and private
organizations of loans, receivables and other assets originated by
various lenders. Interests in pools of these assets differ from
other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal paid
at maturity or specified call dates. Instead, asset-backed
securities provide periodic payments which generally consist of
both interest and principal payments.

Corporate asset-backed securities present certain risks. For
instance, in the case of credit card receivables, these securities
may not have the benefit of any security interest in the related
collateral. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors
the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile
receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large
number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in
all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may
not, in some cases, be available to support payments on these
securities.

Corporate asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different
parties. To lessen the effect of failures by obligors to make
payments on underlying assets, the securities may contain elements
of credit support which fall into two categories:  (i) liquidity
protection and (ii) protection against losses resulting from
ultimate default by an obligor on the underlying assets. Liquidity
protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses resulting from ultimate default
ensures payment through insurance policies or letters of credit
obtained by the issuer or sponsor from third parties. The fund
will not pay any additional or separate fees for credit support.
The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit
risk associated with the underlying assets. Delinquency or loss in
excess of that anticipated or failure of the credit support could
adversely affect the return on an instrument in such a security.

Short Sales Against the Box.  The fund may enter into a short sale
of common stock such that, when the short position is open, the
fund involved owns an equal amount of preferred stocks or debt
securities convertible or exchangeable without payment of further
consideration into an equal number of shares of the common stock
sold short.  The fund will enter into this kind of short sale,
described as "against the box," for the purpose of receiving a
portion of the interest earned by the executing broker from the
proceeds of the sale.  The proceeds of the sale will be held by
the broker until the settlement date, when the fund delivers the
convertible securities to close out its short position.  Although
the fund will have to pay an amount equal to any dividends paid on
the common stock sold short prior to delivery, it will receive the
dividends from the preferred stock or interest from the debt
securities convertible into the stock sold short, plus a portion
of the interest earned from the proceeds of the short sale.  The
fund will deposit, in a segregated account with its custodian,
convertible preferred stock or convertible debt securities in
connection with short sales against the box.

Short Sales.  The fund may seek to hedge investments or realize
additional gains through short sales.  Short sales are
transactions in which a fund sells a security it does not own in
anticipation of a decline in the market value of that security.
To complete such a transaction, the fund borrows the security to
make delivery to the buyer.  The fund is obligated to replace the
security borrowed by purchasing it at the market price at or prior
to the time of replacement.  The price at such time may be more or
less than the price at which the security was sold by the fund.
Until the security is replaced, the fund is required to repay the
lender any dividends or interest that accrue during the period of
the loan.  To borrow the security, the fund also may be required
to pay a premium, which would increase the cost of the security
sold.  A portion of the net proceeds of the short sale may be
retained by the broker (or by the fund's custodian in a special
custody account), to the extent necessary to collateralize the
broker and to meet margin requirements, until the short position
is closed out.  The fund will also incur transaction costs in
effecting short sales.

The fund will incur a loss as a result of the short sale if the
price of the security increases between the date of the short sale
and the date on which the fund replaces the borrowed security.
The fund will realize a gain if the security declines in price
between those dates.  The amount of any gain will be decreased,
and the amount of any loss increased, by the amount of the
premiums, dividends, interest or expenses the fund may be required
to pay in connection with a short sale.  An increase in the value
of a security sold short by the fund over the price at which it
was sold short will result in a loss to the fund, and there can be
no assurance that the fund will be able to close out the position
at any particular time or at an acceptable price.  Thus the fund's
losses on short sales are potentially unlimited.

Whenever the fund engages in short sales, it maintains cash or
liquid securities in an amount that, when combined with the amount
of collateral deposited with the broker in connection with the
short sale, equals the current market value of the security sold
short.  The assets so maintained are marked to market daily.

Covered Option Writing.  The fund may write put and call options
on securities.  The fund realizes fees (referred to as "premiums")
for granting the rights evidenced by the options.  A put option
embodies the right of its purchaser to compel the writer of the
option to purchase from the option holder an underlying security
at a specified price at any time during the option period.  In
contrast, a call option embodies the right of its purchaser to
compel the writer of the option to sell to the option holder an
underlying security at a specified price at any time during the
option period.

Upon the exercise of a put option written by the fund, the fund
may suffer a loss equal to the difference between the price at
which the fund is required to purchase the underlying security and
its market value at the time of the option exercise, less the
premium received for writing the option.  Upon the exercise of a
call option written by the fund, the fund may suffer a loss equal
to the excess of the security's market value at the time of the
option exercise over the option exercise price, less the premium
received for writing the option.

The fund will write only covered options.  Accordingly, whenever
the fund writes a call option, it will continue to own or have the
present right to acquire the underlying security for as long as it
remains obligated as the writer of the option.  To support its
obligation to purchase the underlying security if a put option is
exercised, the fund will either (a) deposit with PNC Bank,
National Association ("PNC Bank") in a segregated account cash or
equity and debt securities of any grade provided such securities
have been determined by the Investment Adviser or Sub-Investment
Adviser to be liquid and unencumbered pursuant to guidelines
established by the Trustees, having a value at least equal to the
exercise price of the option or (b) continue to own an equivalent
number of puts on the same underlying security having the same
exercise prices and expiration dates as those written by the fund,
or an equivalent number of puts on the same underlying security
with exercise prices equal to or greater than those that it has
written (or, if the exercise prices of the puts it holds are less
than the exercise prices of those that it has written, it will
deposit the difference with PNC Bank in a segregated account).

Purchasing Put and Call Options on Securities.  The fund may
utilize its assets to purchase put options on portfolio securities
and may do so at or about the same time it purchases the
underlying security or at a later time.  By buying a put, the fund
limits the risk of loss from a decline in market value of the
security until the put expires.  Any appreciation in the value of,
or in the yield otherwise available from the underlying security,
however, will be partially offset by the amount of the premium
paid for the put option and any related transaction costs.  The
fund may utilize its assets to purchase call options on portfolio
securities.  Call options may be purchased by the fund in order to
acquire the underlying securities for the fund at a price that
avoids any additional cost that would result from a substantial
increase in the market value of a security.  The fund also may
purchase call options to increase its return to investors at a
time when the call is expected to increase in value due to
anticipated appreciation of the underlying security.

Prior to their expirations, put and call options may be sold in
closing sale transactions (sales by the fund, prior to the
exercise of options it has purchased, of options of the same
series), and profit or loss from the sale will depend on whether
the amount received is more or less than the premium paid for the
option plus the related transaction costs.

More About Options on Securities.  Although the fund generally
will purchase or write only those options for which its Investment
Adviser or Sub-Investment Adviser believes there is an active
secondary market, there is no assurance that sufficient trading
interest to create a liquid secondary market on a securities
exchange will exist for any particular option or at any particular
time, and for some options no such secondary market may exist.  A
liquid secondary market in an option may cease to exist for a
variety of reasons.  At times in the past, for example, higher
than anticipated trading activity or order flow or other
unforeseen events have rendered inadequate certain of the
facilities of the Options Clearing Corporation (the "Clearing
Corporation") as well U.S. and foreign securities exchanges and
resulted in the institution of special procedures such as trading
rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options.  There can be no
assurance that similar events, or events that may otherwise
interfere with the timely execution of customers' orders, will not
recur.  In such event, it might not be possible to effect closing
transactions in particular options.  If the fund as a covered call
option writer is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying
security upon exercise.

Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class that
may be held, written or exercised within certain time periods by
an investor or group of investors acting in concert (regardless of
whether the options are written on the same or different
securities exchanges or are held, written or exercised in one or
more accounts or through one or more brokers).  It is possible the
fund, other clients of the Investment Adviser and certain of their
affiliates may be considered to be such a group.  A securities
exchange may order the liquidation of positions found to be in
violation of these limits and it may impose certain other
sanctions.

In the case of options that are deemed covered by virtue of the
fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain
physical delivery of the underlying common stocks with respect to
which the fund has written options may exceed the time within
which the fund must make delivery in accordance with an exercise
notice.  In these instances, the fund may purchase or borrow
temporarily the underlying securities for purposes of physical
delivery.  By so doing, the fund will not bear any market risk
because the fund will have the absolute right to receive from the
issuer of the underlying security an equal number of shares to
replace the borrowed stock, but the fund may incur additional
transaction costs or interest expenses in connection with any such
purchase or borrowing.

Additional risks exist with respect to certain U.S. government
securities for which the fund may write covered call options.  If
the fund writes covered call options on mortgage-backed
securities, the securities that it holds as cover may, because of
scheduled amortization or unscheduled prepayments, cease to be
sufficient cover.  The fund will compensate for the decline in the
value of the cover by purchasing an appropriate additional amount
of those securities.

Stock Index Options.  The fund may purchase and write exchange-
listed put and call options on stock indexes primarily to hedge
against the effects of market-wide price movements.  A stock index
measures the movement of a certain group of stocks by assigning
relative values to the common stocks included in the index.
Examples of well-known stock indexes are the Standard & Poor's
Daily Price Index of 500 Common Stocks and the NYSE Composite
Index.  Some stock index options are based on a broad market index
such as the New York Stock Exchange Composite Index or a narrower
market index such as the Standard & Poor's 100.  Indexes also are
based on an industry or market segment such as the AMEX Oil and
Gas Index or the Computer and Business Equipment Index.

Options on stock indexes are similar to options on securities.
However, (a) because options on stock indexes do not involve the
delivery of an underlying security, the option represents the
holder's right to obtain from the writer in cash a fixed multiple
of the amount by which the exercise price exceeds (in the case of
a put) or is less than (in the case of a call) the closing value
of the underlying index on the exercise date, (b) the expiration
cycles of stock index options are monthly, while those of stock
options are currently quarterly and (c) the delivery requirements
are different.  Instead of giving the right to take or make
delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement
amount" equal to (a) the amount, if any, by which the fixed
exercise price of the option exceeds (in the case of a put) or is
less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a
fixed "index multiplier." Receipt of this cash amount will depend
upon the closing level of the stock index upon which the option is
based being greater than (in the case of a call) or less than (in
the case of a put) the exercise price of the option.  The amount
of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option
expressed in dollars times a specified multiple.  The writer of
the option is obligated, in return for the premium received, to
make delivery of this amount.  The writer may offset its position
in stock index options prior to expiration by entering into a
closing transaction on an exchange or it may let the option expire
unexercised.

Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock,
whether the fund will realize gain or loss from the purchase or
writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of
certain indexes, in an industry or market segment, rather than
movements in the price of a particular stock.  Accordingly,
successful use by the fund of options on stock indexes will be
subject to the ability of the Investment Adviser and/or Sub-
Investment Adviser to predict correctly movements in the direction
of the stock market generally or of a particular industry.  This
requires different skills and techniques than predicting changes
in the prices of individual stocks.

The fund will engage in stock index options transactions only when
such a strategy is determined by the Investment Adviser or Sub-
Investment Adviser to be consistent with the fund's efforts to
control risk.  There can be no assurance that such judgment will
be accurate or that the use of these portfolio strategies will be
successful.  When the fund writes an option on a stock index, it
will establish a segregated account in the name of the fund
consisting of cash, equity securities or debt securities of any
grade in an amount equal to or greater than the market value of
the option, provided such securities are liquid and unencumbered
and are marked to market daily pursuant to guidelines established
by the Trustees.

Futures Contracts and Options on Futures Contracts.  To seek to
increase total return or hedge against changes in interest rates
or securities prices, the fund may purchase and sell futures
contracts, and purchase and write call and put options on these
futures contracts.  The fund may also enter into closing purchase
and sale transactions with respect to any of these contracts and
options.  These futures contracts may be based on various
securities (such as U.S. government securities), securities
indices and any other financial instruments and indices.  All
futures contracts entered into by the fund are traded on U.S.
exchanges or boards of trade that are licensed, regulated or
approved by the Commodity Futures Trading Commission ("CFTC").

Futures Contracts.  A futures contract may generally be described
as an agreement between two parties to buy and sell particular
financial instruments for an agreed price during a designated
month (or to deliver the final cash settlement price, in the case
of a contract relating to an index or otherwise not calling for
physical delivery at the end of trading in the contract).

Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting
transactions which may result in a profit or a loss.  While
futures contracts on securities will usually be liquidated in this
manner, the fund may instead make, or take, delivery of the
underlying securities whenever it appears economically
advantageous to do so.  A clearing corporation associated with the
exchange on which futures contracts are traded guarantees that, if
still open, the sale or purchase will be performed on the
settlement date.

Hedging and Other Strategies.  Hedging is an attempt to establish
with more certainty than would otherwise be possible the effective
price or rate of return on portfolio securities or securities that
the fund proposes to acquire.  When interest rates are rising or
securities prices are falling, the fund can seek to offset a
decline in the value of its current portfolio securities through
the sale of futures contracts.  When interest rates are falling or
securities prices are rising, the fund, through the purchase of
futures contracts, can attempt to secure better rates or prices
than might later be available in the market when it effects
anticipated purchases.

The fund may, for example, take a "short" position in the futures
market by selling futures contracts in an attempt to hedge against
an anticipated rise in interest rates or a decline in market
prices that would adversely affect the value of the fund's
portfolio securities.  These futures contracts may include
contracts for the future delivery of securities held by the fund
or securities with characteristics similar to those of the fund's
portfolio securities.

If, in the opinion of the Sub-Investment Adviser, there is a
sufficient degree of correlation between price trends for the
fund's portfolio securities and futures contracts based on other
financial instruments, securities indices or other indices, the
fund may also enter into such futures contracts as part of its
hedging strategy.  Although under some circumstances prices of
securities in the fund's portfolio may be more or less volatile
than prices of these futures contracts, the Sub-Investment Adviser
will attempt to estimate the extent of this volatility difference
based on historical patterns and compensate for any differential
by having the fund enter into a greater or lesser number of
futures contracts or by attempting to achieve only a partial hedge
against price changes affecting the fund's portfolio securities.

When a short hedging position is successful, any depreciation in
the value of portfolio securities will be substantially offset by
appreciation in the value of the futures position.  On the other
hand, any unanticipated appreciation in the value of the fund's
portfolio securities would be substantially offset by a decline in
the value of the futures position.

On other occasions, the fund may take a "long" position by
purchasing futures contracts.  This would be done, for example,
when the fund anticipates the subsequent purchase of particular
securities when it has the necessary cash, but expects the prices
then available in the applicable market to be less favorable than
prices that are currently available.  The fund may also purchase
futures contracts as a substitute for transactions in securities,
to alter the investment characteristics of portfolio securities or
to gain or increase its exposure to a particular securities
market.

Options on Futures Contracts.  The fund may purchase and write
options on futures for the same purposes as its transactions in
futures contracts.  The purchase of put and call options on
futures contracts will give the fund the right (but not the
obligation) for a specified price to sell or to purchase,
respectively, the underlying futures contract at any time during
the option period.  As the purchaser of an option on a futures
contract, the fund obtains the benefit of the futures position if
prices move in a favorable direction but limits its risk of loss
in the event of an unfavorable price movement to the loss of the
premium and transaction costs.

The writing of a call option on a futures contract generates a
premium which may partially offset a decline in the value of the
fund's assets.  By writing a call option, the fund becomes
obligated, in exchange for the premium (upon exercise of the
option) to sell a futures contract if the option is exercised,
which may have a value higher than the exercise price.
Conversely, the writing of a put option on a futures contract
generates a premium which may partially offset an increase in the
price of securities that the fund intends to purchase.  However,
the fund becomes obligated (upon exercise of the option) to
purchase a futures contract if the option is exercised, which may
have a value lower than the exercise price.  The loss incurred by
the fund in writing options on futures is potentially unlimited
and may exceed the amount of the premium received.

The holder or writer of an option on a futures contract may
terminate its position by selling or purchasing an offsetting
option of the same series.  There is no guarantee that such
closing transactions can be effected.  The fund's ability to
establish and close out positions on such options will be subject
to the development and maintenance of a liquid market.

Other Considerations.  The fund may engage in futures and related
options transactions either for bona fide hedging purposes or to
seek to increase total return as permitted by the CFTC.  To the
extent that the fund is using futures and related options for
hedging purposes, futures contracts will be sold to protect
against a decline in the price of securities that the fund owns or
futures contracts will be purchased to protect the fund against an
increase in the price of securities it intends to purchase.  The
Sub-Investment Adviser will determine that the price fluctuations
in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in
securities held by the fund or securities or instruments which it
expects to purchase.  As evidence of its hedging intent, the fund
expects that, on 75% or more of the occasions on which it takes a
long futures or option position (involving the purchase of futures
contracts), the fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities in
the cash market at the time when the futures or option position is
closed out.  However, in particular cases, when it is economically
advantageous for the fund to do so, a long futures position may be
terminated or an option may expire without the corresponding
purchase of securities or other assets.

To the extent that the fund engages in nonhedging transactions in
futures contracts and options on futures, the aggregate initial
margin and premiums required to establish these nonhedging
positions will not exceed 5% of the net asset value of the fund's
portfolio, after taking into account unrealized profits and losses
on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase.

Transactions in futures contracts and options on futures involve
brokerage costs, require margin deposits and, in the case of
contracts and options obligating the fund to purchase securities,
require the fund to establish a segregated account consisting of
cash or liquid securities in an amount equal to the underlying
value of such contracts and options.

While transactions in futures contracts and options on futures may
reduce certain risks, these transactions themselves entail certain
other risks.  For example, unanticipated changes in interest rates
or securities prices may result in a poorer overall performance
for the fund than if it had not entered into any futures contracts
or options transactions.

Perfect correlation between the fund's futures positions and
portfolio positions will be impossible to achieve.  In the event
of an imperfect correlation between a futures position and a
portfolio position which is intended to be protected, the desired
protection may not be obtained and the fund may be exposed to risk
of loss.

Some futures contracts or options on futures may become illiquid
under adverse market conditions.  In addition, during periods of
market volatility, a commodity exchange may suspend or limit
trading in a futures contract or related option, which may make
the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount
that the price of a futures contract or related option can vary
from the previous day's settlement price.  Once the daily limit is
reached, no trades may be made that day at a price beyond the
limit. This may prevent the fund from closing out positions and
limiting its losses.

Among the several risks accompanying the utilization of futures
contracts and options on futures contracts are the following:
First, the successful use of futures and options is dependent upon
the ability of the adviser to predict correctly movements in the
stock market or in the direction of interest rates.  These
predictions involve skills and techniques that may be different
from those involved in the management of investments in
securities.  If the prices of the underlying commodities move in
an unanticipated manner, the fund may lose the expected benefit of
these futures or options transactions and may incur losses.
Second, positions in futures contracts and options on futures
contracts may be closed out only by entering into offsetting
transactions on the exchange where the position was entered into
(or through a linked exchange), and as a result of daily price
fluctuation limits there can be no assurance the offsetting
transaction could be entered into at an advantageous price at a
particular time.  Consequently, the fund may realize a loss on a
futures contract or option that is not offset by an increase in
the value of its portfolio securities being hedged or the fund may
not be able to close a futures or options position without
incurring a loss in the event of adverse price movements.

Swaps, Caps, Floors, Collars and Swaptions.	As one way of
managing its exposure to different types of investments, the fund
may enter into interest rate swaps, currency swaps, and other
types of swap agreements such as caps, collars, floors and
swaptions.  In a typical interest rate swap, one party agrees to
make regular payments equal to a floating interest rate times a
"notional principal amount," in return for payments equal to a
fixed rate times the same notional amount, for a specified period
of time.  If a swap agreement provides for payment in different
currencies, the parties might agree to exchange the notional
principal amount as well.  Swaps may also depend on other prices
or rates, such as the value of an index or mortgage prepayment
rates.

In a typical cap or floor agreement, one party agrees to make
payments only under specified circumstances, usually in return for
payment of a fee by the other party.  For example, the buyer of an
interest rate cap obtains the right to receive payments to the
extent that a specified interest rate exceeds an agreed-upon
level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls
below an agreed-upon level.  An interest rate collar combines
elements of buying a cap and selling a floor.  A swaption is an
option to buy or sell a swap position.

Swap agreements will tend to shift the fund's investment exposure
from one type of investment to another.  For example, if the fund
agreed to exchange payments in dollar for payments in a foreign
currency, the swap agreement would tend to decrease the fund's
exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates.  Caps and floors have an
effect similar to buying or writing options.  Depending on how
they are used, swap agreements may increase or decrease the
overall volatility of the fund's investments and its share price
and yield.

Swap agreements are sophisticated risk management instruments that
typically require a small cash investment relative to the
magnitude of risks assumed.  As a result, swaps can be highly
volatile and may have a considerable impact on the fund's
performance.  Swap agreements are subject to credit risks related
to the counterparty's ability to perform, and may decline in value
if the counterparty's creditworthiness deteriorates.  The fund may
also suffer losses if it is unable to terminate outstanding swap
agreements or reduce its exposure through offsetting transactions.
The fund will maintain in a segregated account cash or liquid
securities equal to the net amount, if any, of the excess of the
fund's obligations over its entitlements with respect to swap,
cap, collar, floor or swaption transactions.

Additional Investments

Securities of Other Investment Companies.  The fund may invest in
securities of other investment companies to the extent permitted
under the Investment Company Act of 1940, as amended (the "1940
Act").  Presently, under the 1940 Act, the fund may hold
securities of another investment company in amounts which (i) do
not exceed 3% of the total outstanding voting stock of such
company, (ii) do not exceed 5% of the value of the fund's total
assets and (iii) when added to all other investment company
securities held by the fund, do not exceed 10% of the value of the
fund's total assets.

To the extent the fund invests in securities of other investment
companies, fund shareholders would indirectly pay a portion of the
operating costs of such companies in addition to the expenses of
its own operation.  These costs include management, brokerage,
shareholder servicing and other operational expenses.  Indirectly,
then, shareholders of the fund that invests in Equity Equivalents
may pay higher operational costs than if they owned the underlying
investment companies directly.  Additionally, the fund's
investments in such investment companies are subject to
limitations under the 1940 Act and market availability.

Index-Related Securities ("Equity Equivalents"). The fund may
invest in certain types of securities that enable investors to
purchase or sell shares in a portfolio of securities that seeks to
track the performance of an underlying index or a portion of an
Index.  Such Equity Equivalents include among others DIAMONDS
(interests in a portfolio of securities that seeks to track the
performance of the Dow Jones Industrial Average), SPDRs or
Standard & Poor's Depositary Receipts (interests in a portfolio of
securities that seeks to track the performance of the S&P 500
Index), WEBS or World Equity Benchmark Shares (interests in a
portfolio of securities that seeks to track the performance of a
benchmark index of a particular foreign country's stocks), and the
Nasdaq-100 Trust (interests in a portfolio of securities of the
largest and most actively traded non-financial companies listed on
the Nasdaq Stock Market).  Such securities are similar to index
mutual funds, but they are traded on various stock exchanges or
secondary markets.  The value of these securities is dependent
upon the performance of the underlying index on which they are
based.  Thus, these securities are subject to the same risks as
their underlying indexes as well as the securities that make up
those indexes. For example, if the securities comprising an index
that an index-related security seeks to track perform poorly, the
index-related security will lose value.

Equity Equivalents may be used for several purposes, including, to
simulate full investment in the underlying index while retaining a
cash balance for fund management purposes, to facilitate trading,
to reduce transaction costs or to seek higher investment returns
where an Equity Equivalent is priced more attractively than
securities in the underlying index. Because the expense associated
with an investment in Equity Equivalents may be substantially
lower than the expense of small investments directly in the
securities comprising the indices they seek to track, investments
in Equity Equivalents may provide a cost-effective means of
diversifying the fund's assets across a broad range of equity
securities.

The prices of Equity Equivalents are derived and based upon the
securities held by the particular investment company.
Accordingly, the level of risk involved in the purchase or sale of
an Equity Equivalent is similar to the risk involved in the
purchase or sale of traditional common stock, with the exception
that the pricing mechanism for such instruments is based on a
basket of stocks.  The market prices of Equity Equivalents are
expected to fluctuate in accordance with both changes in the net
asset values of their underlying indices and the supply and demand
for the instruments on the exchanges on which they are traded.
Substantial market or other disruptions affecting an Equity
Equivalent could adversely affect the liquidity and value of the
shares of the fund investing in such instruments.

Foreign Securities and American Depositary Receipts .The fund may
invest in foreign securities and American Depository Receipts
("ADR"). ADRs are U.S. dollar-denominated receipts issued
generally by domestic banks and representing the deposit with the
bank of a security of a foreign issuer.  ADRs are publicly traded
on exchanges or over the counter in the United States.

Investing in the securities of foreign companies involves special
risks and considerations not typically associated with investing
in U.S. companies.  These risks include differences in accounting,
auditing and financial reporting standards, generally higher
commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse
changes in investment or exchange control regulations, political
instability which could affect U.S. investments in foreign
countries and potential restrictions on the flow of international
capital.  Additionally, dividends or interest payable on foreign
securities, and in some cases capital gains, may be subject to
foreign withholding or other foreign taxes.   Foreign securities
often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility.
Changes in foreign exchange rates will affect the value of those
securities which are denominated or quoted in currencies other
than U.S. dollars.  Many of the foreign securities held by the
fund will not be registered with, nor will the issuers thereof be
subject to the reporting requirements of, the Securities and
Exchange Commission ("SEC").  Accordingly, there may be less
publicly available information about the securities and the
foreign company or government issuing them than is available about
a domestic company or government entity.  Moreover, individual
foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payment positions.

Money Market Instruments.  When the Investment Adviser or Sub-
Investment Adviser believes that market conditions warrant, the
fund may adopt a temporary defensive posture and invest in short-
term instruments without limitation.  Short-term instruments in
which the fund may invest include U.S. government securities;
certain bank obligations (including certificates of deposit, time
deposits and bankers' acceptances of domestic or foreign banks,
domestic savings and loan associations and similar institutions);
commercial paper rated no lower than A-2 by S&P or Prime-2 by
Moody's or the equivalent from another major rating service or, if
unrated, of an issuer having an outstanding unsecured debt issue
then rated within the three highest rating categories; and
repurchase agreements as described below.

Repurchase Agreements.  The fund may engage in repurchase
agreement transactions with banks which are the issuers of
instruments acceptable for purchase by the fund and with certain
dealers on the Federal Reserve Bank of New York's list of
reporting dealers.  Under the terms of a typical repurchase
agreement, the fund would acquire an underlying debt obligation
for a relatively short period (usually not more than one week),
subject to an obligation of the seller to repurchase, and the fund
to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the fund's holding period.
This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the fund's holding period.
The value of the underlying securities will be at least equal at
all times to the total amount of the repurchase obligation,
including interest.  Repurchase agreements could involve certain
risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon the fund's ability
to dispose of the underlying securities, the risk of a possible
decline in the value of the underlying securities during the
period in which the fund seeks to assert its rights to them, the
risk of incurring expenses associated with asserting those rights
and the risk of losing all or part of the income from the
agreement.  The Investment Adviser or Sub-Investment Adviser,
acting under the supervision of the trust's Board of Trustees,
reviews on an ongoing basis the value of the collateral and the
creditworthiness of those banks and dealers with which the fund
may enter into repurchase agreements to evaluate potential risks.

U.S. Government Securities.  United States government securities
include debt obligations of varying maturities issued or
guaranteed by the United States government or its agencies or
instrumentalities ("U.S. government securities").  U.S. government
securities include not only direct obligations of the United
States Treasury (such as Treasury Bills, Treasury Notes and
Treasury Bonds), but also securities issued or guaranteed by the
Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business
Administration, GNMA, General Services Administration, Central
Bank for Cooperatives, Federal Intermediate Credit Banks, Federal
Land Banks, FNMA, Maritime Administration, Tennessee Valley
Authority, District of Columbia Armory Board, Student Loan
Marketing Association, and Resolution Trust Corporation.  Certain
U.S. government securities, such as those issued or guaranteed by
GNMA, FNMA and FHLMC, are mortgage-related securities.  Because
the United States government is not obligated by law to provide
support to an instrumentality that it sponsors, the fund will
invest in obligations issued by such an instrumentality only if
its Investment Adviser or Sub-Investment Adviser determines that
the credit risk with respect to the instrumentality does not make
its securities unsuitable for investment by the fund.  U.S.
government securities generally do not involve the credit risks
associated with other types of interest-bearing securities,
although, as a result, the yields available from U.S. government
securities are generally lower than the yields available from
interest-bearing corporate securities.

Bank Obligations.  Domestic commercial banks organized under
Federal law are supervised and examined by the Comptroller of the
Currency and are required to be members of the Federal Reserve
System and to be insured by the Federal Deposit Insurance
Corporation (the "FDIC").  Domestic banks organized under state
law are supervised and examined by state banking authorities, but
are members of the Federal Reserve System only if they elect to
join.  Most state banks are insured by the FDIC (although such
insurance may not be of material benefit to the fund, depending
upon the principal amount of certificates of deposit ("CDs") of
each held by the fund) and are subject to Federal examination and
to a substantial body of Federal law and regulation.  As a result
of Federal and state laws and regulations, domestic branches of
domestic banks are, among other things, generally required to
maintain specified levels of reserves, and are subject to other
supervision and regulation designed to promote financial
soundness.

Obligations of foreign branches of U.S. banks, such as CDs and
time deposits ("TDs"), may be general obligations of the parent
bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and governmental regulation.
Obligations of foreign branches of U.S. banks and foreign banks
are subject to different risks than are those of U.S. banks or
U.S. branches of foreign banks.  These risks include foreign
economic and political developments, foreign governmental
restrictions that may adversely affect payment of principal and
interest on the obligations, foreign exchange controls and foreign
withholding and other taxes on interest income.  Foreign branches
of U.S. banks are not necessarily subject to the same or similar
regulatory requirements applicable to U.S. banks, such as
mandatory reserve requirements, loan limitations and accounting,
auditing and financial recordkeeping requirements.  In addition,
less information may be publicly available about a foreign branch
of a U.S. bank than about a U.S. bank.  CDs issued by wholly owned
Canadian subsidiaries of U.S. banks are guaranteed as to repayment
of principal and interest, but not as to sovereign risk, by the
U.S. parent bank.

Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and by
Federal and state regulation as well as governmental action in the
country in which the foreign bank has its head office.  A U.S.
branch of a foreign bank with assets in excess of $1 billion may
or may not be subject to reserve requirements imposed by the
Federal Reserve System or by the state in which the branch is
located if the branch is licensed in that state.  In addition,
branches licensed by the Comptroller of the Currency and branches
licensed by certain states ("State Branches") may or may not be
required to: (a) pledge to the regulator by depositing assets with
a designated bank within the state, an amount of its assets equal
to 5% of its total liabilities; and (b) maintain assets within the
state in an amount equal to a specified percentage of the
aggregate amount of liabilities of the foreign bank payable at or
through all of its agencies or branches within the state.  The
deposits of State Branches may not necessarily be insured by the
FDIC.  In addition, there may be less publicly available
information about a U.S. branch of a foreign bank than about a
U.S. bank.

In view of the foregoing factors associated with the purchase of
CDs and TDs issued by foreign banks and foreign branches of U.S.
banks, the fund's Investment Adviser or Sub-Investment Adviser
will carefully evaluate such investments on a case-by-case basis.

Ratings as Investment Criteria  In general, the ratings of NRSROs
represent the opinions of these agencies as to the quality of
securities they rate.  Such ratings, however, are relative and
subjective, and are not absolute standards of quality and do not
evaluate the market value risk of the securities.  These ratings
will be used by the fund as initial criteria for the selection of
portfolio securities, but the fund also will rely upon the
independent advice of its Investment Adviser and/or Sub-Investment
Adviser to evaluate potential investments.  Among the factors that
will be considered 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 rating
categories of NRSROs and their significance.

Subsequent to its purchase by the fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum
required for purchase by the fund.  In addition, it is possible
that an NRSRO might not change its rating of a particular issue to
reflect subsequent events.  None of these events will require sale
of such securities by the fund, but the fund's Investment Adviser
and/or Sub-Investment Adviser will consider such events in its
determination of whether the fund should continue to hold the
securities.  In addition, to the extent the ratings change as a
result of changes in such organizations or their rating systems,
or because of a corporate reorganization, the fund will attempt to
use comparable ratings as standards for its investments in
accordance with its investment objective and policies.

When-Issued Securities and Delayed-Delivery Transactions.  To
secure an advantageous price or yield, the fund may purchase
certain securities on a when-issued basis or purchase or sell
securities for delayed delivery.  The fund will enter into such
transactions for the purpose of acquiring portfolio securities and
not for the purpose of leverage.  Delivery of the securities in
such cases occurs beyond the normal settlement periods, but no
payment or delivery is made by the fund prior to the reciprocal
delivery or payment by the other party to the transaction.  In
entering into a when-issued or delayed-delivery transaction, the
fund will rely on the other party to consummate the transaction
and may be disadvantaged if the other party fails to do so.

U.S. government securities are normally subject to changes in
value based upon changes, real or anticipated, in the level of
interest rates and, although to a lesser extent in the case of
U.S. government securities, the public's perception of the
creditworthiness of the issuers.  In general, U.S. government
securities tend to appreciate when interest rates decline and
depreciate when interest rates rise.  Purchasing these securities
on a when-issued or delayed-delivery basis, therefore, can involve
the risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the
transaction itself.  Similarly, the sale of U.S. government
securities for delayed delivery can involve the risk that the
prices available in the market when the delivery is made may
actually be higher than those obtained in the transaction itself.

In the case of the purchase of securities on a when-issued or
delayed-delivery basis by the fund, the fund will meet its
obligations on the settlement date from then-available cash flow,
the sale of securities held in the segregated account, the sale of
other securities or, although it would not normally expect to do
so, from the sale of the securities purchased on a when-issued or
delayed-delivery basis (which may have a value greater or less
than the fund's payment obligations).

Lending of Portfolio Securities.  The fund has the ability to lend
portfolio securities to brokers, dealers and other financial
organizations.  Such loans, if and when made, may not exceed 20%
of the fund's total assets taken at value.  The fund will not lend
portfolio securities to Salomon Smith Barney unless it has applied
for and received specific authority to do so from the SEC.  Loans
of portfolio securities will be collateralized by cash, letters of
credit or U.S. government securities which are maintained at all
times in an amount at least equal to the current market value of
the loaned securities.  From time to time, the fund may pay a part
of the interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party which
is unaffiliated with the fund and is acting as a "finder."

By lending its securities, the fund can increase its income by
continuing to receive interest or dividends on the loaned
securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest
paid by the borrower when U.S. government securities are used as
collateral.  The fund will comply with the following conditions
whenever its portfolio securities are loaned: (a) the fund must
receive at least 100% cash collateral or equivalent securities
from the borrower; (b) the borrower must increase such collateral
whenever the market value of the securities loaned rises above the
level of such collateral; (c) the fund must be able to terminate
the loan at any time; (d) the fund must receive reasonable
interest on the loan, as well as any dividends, interest or other
distributions on the loaned securities, and any increase in market
value; (e) the fund may pay only reasonable custodian fees in
connection with the loan; and (f) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a
material event adversely affecting the investment in the loaned
securities occurs, the trust's Board of Trustees must terminate
the loan and regain the right to vote the securities.  The risks
in lending portfolio securities, as with other extensions of
secured credit, consist of a possible delay in receiving
additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail
financially.  Loans will be made to firms deemed by the fund's
Investment Adviser or Sub-Investment Adviser to be of good
standing and will not be made unless, in the judgment of the
Investment Adviser or Sub-Investment Adviser, the consideration to
be earned from such loans would justify the risk.

Medium-, Low- and Unrated Securities.  The fund may invest its
assets in medium- or low- rated securities and unrated securities
of comparable quality. Securities rated below investment grade are
frequently called junk bonds. Generally, these securities offer a
higher current yield than the yield offered by higher-rated
securities, but involve greater volatility of price and risk of
loss of income and principal, including the probability of default
by or bankruptcy of the issuers of such securities.  Medium- and
low-rated and comparable unrated securities: (a) will likely have
some quality and protective characteristics that, in the judgment
of the rating organization, are outweighed by large uncertainties
or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of
the obligation.  Thus, it is possible that these types of factors
could, in certain instances, reduce the value of securities held
by the fund with a commensurate effect on the value of the fund's
shares.  Therefore, an investment in the fund should not be
considered as a complete investment program and may not be
appropriate for all investors.

While the market values of medium- and low-rated and comparable
unrated securities tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities, the market
values of certain of these securities also tend to be more
sensitive to individual corporate developments and changes in
economic conditions than higher-rated securities.  In addition,
medium- and low-rated and comparable unrated securities generally
present a higher degree of credit risk.  Issuers of medium- and
low-rated and comparable unrated securities are often highly
leveraged and may not have more traditional methods of financing
available to them so that their ability to service their debt
obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired.  The risk of
loss due to default by such issuers is significantly greater
because medium- and low-rated and comparable unrated securities
generally are unsecured and frequently are subordinated to the
prior payment of senior indebtedness.  The fund may incur
additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal or interest on its
portfolio holdings.  In addition, the markets in which medium- and
low-rated or comparable unrated securities are traded generally
are more limited than those in which higher- rated securities are
traded.  The existence of limited markets for these securities may
restrict the availability of securities for the fund to purchase
and also may have the effect of limiting the ability of the fund
to: (a) obtain accurate market quotations for purposes of valuing
securities and calculating net asset value and (b) sell securities
at their fair value either to meet redemption requests or to
respond to changes in the economy or the financial markets.  The
market for medium- and low-rated and comparable unrated securities
is relatively new and has not fully weathered a major economic
recession.  Any such recession, however, could likely disrupt
severely the market for such securities and adversely affect the
value of such securities.  Any such economic downturn also could
adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.

Securities which are rated below investment grade such as Ba by
Moody's or BB by S&P have speculative characteristics with respect
to capacity to pay interest and repay principal.  Securities which
are rated B generally lack characteristics of a desirable
investment and assurance of interest and principal payments over
any long period of time may be small.  Securities which are rated
Caa or CCC or below are of poor standing.  Those issues may be in
default or present elements of danger with respect to principal or
interest.  Securities rated C by Moody's and D by S&P are in the
lowest rating class and indicate that payments are in default or
that a bankruptcy petition has been filed with respect to the
issuer or that the issuer is regarded as having extremely poor
prospects.  See the Appendix on bond ratings by Moody's and S&P.

Fixed-income securities, including medium- and low-rated and
comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the
securities from their holders, such as the fund.  If an issuer
exercises these rights during periods of declining interest rates,
the fund may have to replace the security with a lower yielding
security, resulting in a decreased return to the fund.

Securities rated Ba by Moody's or BB by S&P have speculative
characteristics with respect to capacity to pay interest and repay
principal.  Securities rated B generally lack characteristics of a
desirable investment and assurance of interest and principal
payments over any long period of time may be small.  Securities
rated Caa or CCC are of poor standing.  These issues may be in
default or present elements of danger with respect to principal or
interest.

In light of the risks described above, the Investment Adviser or
Sub-Investment Adviser in evaluating the creditworthiness of an
issue, whether rated or unrated, will take various factors into
consideration, which may include, as applicable, the issuer's
financial resources, its sensitivity to economic conditions and
trends, the operating history of and the community support for the
facility financed by the issue, the ability of the issuer's
management and regulatory matters.

Illiquid and Restricted Securities. The fund may purchase
securities that are restricted as to resale ("restricted
securities") under the Securities Act of 1933, as amended (the
"1933 Act"). Some restricted securities can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933
Act. The Board of Trustees may determine, based upon a continuing
review of the trading markets for a specific restricted security,
that such restricted securities are liquid and therefore not
subject to the fund's restriction on illiquid investments. The
Board of Trustees has adopted guidelines and delegated to
management the daily function of determining and monitoring
liquidity of restricted securities available pursuant to Rule
144A. The Board, however, retains sufficient oversight and is
ultimately responsible for the determinations. Since it is not
possible to predict with assurance exactly how the market for Rule
144A restricted securities will develop, the Board will carefully
monitor the fund's investments in these securities, focusing on
such important factors, among others, as valuation, liquidity and
availability of information. Investments in restricted securities
could have the effect of increasing the level of illiquidity in a
fund to the extent that qualified institutional buyers become for
a time uninterested in purchasing these restricted securities.

Securities of Unseasoned Issuers.  Securities in which the fund
may invest may have limited marketability and, therefore, may be
subject to wide fluctuations in market value.  In addition,
certain securities may lack significant operating history and be
dependent on products or services without an established market
share.

Yield Curve Options. The fund may enter into options on the
"spread," or yield differential, between two fixed income
securities, in transactions referred to as "yield curve" options.
In contrast to other types of options, a yield curve option is
based on the difference between the yields of designated
securities, rather than the prices of the individual securities,
and is settled through cash payments. Accordingly, a yield curve
option is profitable to the holder if this differential widens (in
the case of a call) or narrows (in the case of a put), regardless
of whether the yields of the underlying securities increase or
decrease.

Yield curve options may be used for the same purposes as other
options on securities. Specifically, the fund may purchase or
write such options for hedging purposes. For example, the fund may
purchase a call option on the yield spread between two securities,
if it owns one of the securities and anticipates purchasing the
other security and wants to hedge against an adverse change in the
yield spread between the two securities. The fund may also
purchase or write yield curve options for other than hedging
purposes (i.e., in an effort to increase its current income) if,
in the judgment of management, the fund will be able to profit
from movements in the spread between the yields of the underlying
securities. The trading of yield curve options is subject to all
of the risks associated with the trading of other types of
options. In addition, however, such options present risk of loss
even if the yield of one of the underlying securities remains
constant, if the spread moves in a direction or to an extent which
was not anticipated. Yield curve options written by the fund will
be "covered". A call (or put) option is covered if the fund holds
another call (or put) option on the spread between the same two
securities and maintains in a segregated account with its
custodian cash or cash equivalents sufficient to cover the fund's
net liability under the two options. Therefore, the fund's
liability for such a covered option is generally limited to the
difference between the amount of the fund's liability under the
option written by the fund less the value of the option held by
the fund. Yield curve options may also be covered in such other
manner as may be in accordance with the requirements of the
counterparty with which the option is traded and applicable laws
and regulations. Yield curve options are traded over-the-counter
and because they have been only recently introduced, established
trading markets for these securities have not yet developed.

Additional Risk Factors

General. Investors should realize that risk of loss is inherent in
the ownership of any securities and that the fund's net asset
value will fluctuate, reflecting the fluctuations in the market
value of its portfolio positions. The following sections describe
some of the important risk factors involved in connection with the
types of investments or investment practices indicated.  See
"Investment Objectives and Management Policies" for a description
of the permissible investments and investment practices of the
fund.

Fixed Income Securities. Investments in fixed income securities
may subject the fund to risks, including the following.

Interest Rate Risk. When interest rates decline, the market value
of fixed income securities tends to increase.  Conversely, when
interest rates increase, the market value of fixed income
securities tends to decline.  The volatility of a security's
market value will differ depending upon the security's duration,
the issuer and the type of instrument.

Default Risk/Credit Risk.  Investments in fixed income securities
are subject to the risk that the issuer of the security could
default on its obligations, causing a fund to sustain losses on
such investments.  A default could impact both interest and
principal payments.

Call Risk and Extension Risk. Fixed income securities may be
subject to both call risk and extension risk.  Call risk exists
when the issuer may exercise its right to pay principal on an
obligation earlier than scheduled, which would cause cash flows to
be returned earlier than expected.  This typically results when
interest rates have declined and the fund will suffer from having
to reinvest in lower yielding securities.  Extension risk exists
when the issuer may exercise its right to pay principal on an
obligation later than scheduled, which would cause cash flows to
be returned later than expected.  This typically results when
interest rates have increased, and a fund will suffer from the
inability to invest in higher yield securities.

Real Estate Investment Trusts. The values of securities issued by
REITs are affected by tax and regulatory requirements and by
perceptions of management skill. They are also subject to heavy
cash flow dependency, defaults by borrowers or tenants, self-
liquidation, the possibility of failing to qualify for the ability
to avoid tax by satisfying distribution requirements under the
Internal Revenue Code of 1986, as amended, and failing to maintain
exemption from the 1940 Act. Also, the fund will indirectly bear
its proportionate share of expenses incurred by REITs in which the
fund invests.  REITs are also sensitive to factors such as changes
in real estate values and property taxes, interest rates,
overbuilding and creditworthiness of the issuer.

Zero Coupon, Pay-In-Kind and Delayed Interest Securities.  The
values of these securities may be highly volatile as interest
rates rise or fall.  In addition, the fund's investments in zero
coupon, pay-in-kind and delayed interest securities will result in
special tax consequences.  Although zero coupon securities do not
make interest payments, for tax purposes a portion of the
difference between a zero coupon security's maturity value and its
purchase price is taxable income of the fund each year.  The value
of zero-coupon bonds is subject to greater fluctuation in market
value in response to changes in market interest rates than bonds
of comparable maturity which pay interest currently. Both zero-
coupon and payment-in-kind bonds allow an issuer to avoid the need
to generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds that pay
interest currently. Even though such bonds do not pay current
interest in cash, the fund is nonetheless required to accrue
interest income on such investments and to distribute such amounts
at least annually to shareholders. Accordingly, for the fund to
continue to qualify for tax treatment as a regulated investment
company and to avoid income and possibly excise tax, the fund may
be required to distribute as a dividend an amount that is greater
than the total amount of cash it actually receives. These
distributions must be made from the fund's cash assets or, if
necessary, from the proceeds of sales of portfolio securities. The
fund will not be able to purchase additional income-producing
securities with cash used to make such distributions and its
current income ultimately may be reduced as a result.

Derivative Instruments.  In accordance with its investment
policies, the fund may invest in certain derivative instruments,
which are securities or contracts that provide for payments based
on or "derived" from the performance of an underlying asset, index
or other economic benchmark.  Essentially, a derivative instrument
is a financial arrangement or a contract between two parties (and
not a true security like a stock or a bond).  Transactions in
derivative instruments can be, but are not necessarily, riskier
than investments in conventional stocks, bonds and money market
instruments.  A derivative instrument is more accurately viewed as
a way of reallocating risk among different parties or substituting
one type of risk for another.  Every investment by a fund,
including an investment in conventional securities, reflects an
implicit prediction about future changes in the value of that
investment.  Every fund investment also involves a risk that the
portfolio manager's expectations will be wrong.  Transactions in
derivative instruments often enable a fund to take investment
positions that more precisely reflect the portfolio manager's
expectations concerning the future performance of the various
investments available to the fund.  Derivative instruments can be
a legitimate and often cost-effective method of accomplishing the
same investment goals as could be achieved through other
investment in conventional securities.

Derivative contracts include options, futures contracts, forward
contracts, forward commitment and when-issued securities
transactions, forward foreign currency exchange contracts and
interest rate, mortgage and currency swaps.  The following are the
principal risks associated with derivative instruments.

Market risk: The instrument will decline in value or that an
alternative investment would have appreciated more, but this is no
different from the risk of investing in conventional securities.

Leverage and associated price volatility:  Leverage causes
increased volatility in the price and magnifies the impact of
adverse market changes, but this risk may be consistent with the
investment objective of even a conservative fund in order to
achieve an average portfolio volatility that is within the
expected range for that type of fund.

Credit risk:  The issuer of the instrument may default on its
obligation to pay interest and principal.

Liquidity and valuation risk:  Many derivative instruments are
traded in institutional markets rather than on an exchange.
Nevertheless, many derivative instruments are actively traded and
can be priced with as much accuracy as conventional securities.
Derivative instruments that are custom designed to meet the
specialized investment needs of a relatively narrow group of
institutional investors such as the funds are not readily
marketable and are subject to a fund's restrictions on illiquid
investments.

Correlation risk:  There may be imperfect correlation between the
price of the derivative and the underlying asset.  For example,
there may be price disparities between the trading markets for the
derivative contract and the underlying asset.

Each derivative instrument purchased for the fund's portfolio is
reviewed and analyzed by the fund's portfolio manager to assess
the risk and reward of each such instrument in relation the fund's
portfolio investment strategy.  The decision to invest in
derivative instruments or conventional securities is made by
measuring the respective instrument's ability to provide value to
the fund and its shareholders.

Special Investment Considerations and Risks With Respect to
Futures, Options and Currency Transactions and Swaps and Swap-
Related Products. The successful use of the investment practices
described above with respect to futures contracts, options on
futures contracts, forward contracts, options on securities and on
foreign currencies, and swaps and swap-related products draws upon
skills and experience which are different from those needed to
select the other instruments in which the fund invests. Should
interest or exchange rates or the prices of securities or
financial indices move in an unexpected manner, the fund may not
achieve the desired benefits of futures, options, swaps and
forwards or may realize losses and thus be in a worse position
than if such strategies had not been used. Unlike many exchange-
traded futures contracts and options on futures contracts, there
are no daily price fluctuation limits with respect to options on
currencies, forward contracts and other negotiated or over-the-
counter instruments, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In
addition, the correlation between movements in the price of the
securities and currencies hedged or used for cover will not be
perfect and could produce unanticipated losses.

With respect to interest rate swaps, each fund recognizes that
such arrangements are relatively illiquid and will include the
principal amount of the obligations owed to it under a swap as an
illiquid security for purposes of the fund's investment
restrictions except to the extent a third party (such as a large
commercial bank) has guaranteed the fund's ability to offset the
swap at any time.

The fund's ability to dispose of its positions in the foregoing
instruments will depend on the availability of liquid markets in
the instruments. Markets in a number of the instruments are
relatively new and still developing, and it is impossible to
predict the amount of trading interest that may exist in those
instruments in the future. Particular risks exist with respect to
the use of each of the foregoing instruments and could result in
such adverse consequences to the fund as the possible loss of the
entire premium paid for an option bought by the fund, and the
inability of the fund, as the writer of a covered call option, to
benefit from the appreciation of the underlying securities above
the exercise price of the option. As a result, no assurance can be
given that the fund will be able to use those instruments
effectively for the purposes set forth above.

In connection with its transactions in futures, options, swaps and
forwards, the fund may be required to place assets in a segregated
account with the fund's custodian bank to ensure that the fund
will be able to meet its obligations under these instruments.
Assets held in a segregated account generally may not be disposed
of for so long as the fund maintains the positions giving rise to
the segregation requirement. Segregation of a large percentage of
the fund's assets could impede implementation of the fund's
investment policies or the fund's ability to meet redemption
requests or other current obligations.

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

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

Because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a
relatively small price movement in a futures contract may result
in immediate and substantial loss, as well as gain, to the
investor. For example, if at the time of purchase, 10% of the
value of the futures contract is deposited as margin, a subsequent
10% decrease in the value of the futures contract would result in
a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original
margin deposit, if the futures contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. The fund,
however, would presumably have sustained comparable losses if,
instead of the futures contract, it had invested in the underlying
financial instrument and sold it after the decline.

Furthermore, in the case of a futures contract purchase, in order
to be certain that the fund has sufficient assets to satisfy its
obligations under a futures contract, the fund sets aside and
commits to back the futures contract an amount of cash, U.S.
government securities and other liquid, high-grade debt securities
equal in value to the current value of the underlying instrument
less the margin deposit. In the case of a futures contract sale,
the fund will either set aside amounts as in the case of a futures
contract purchase, own the security underlying the contract, or
hold a call option permitting the fund to purchase the same
futures contract at a price no higher than the contract price.
Assets used as cover cannot be sold while the position in the
corresponding futures contract is open, unless they are replaced
with similar assets. As a result, the commitment of a significant
portion of the fund's assets to cover could impede portfolio
management or the fund's ability to meet redemption requests or
other current obligations.

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

Mortgage-Backed Securities. To the extent the fund purchases
mortgage-related securities at a premium, mortgage foreclosures
and prepayments of principal (which may be made at any time
without penalty) may result in some loss of the fund's principal
investment to the extent of the premium paid. The yield generated
by the fund that invests in mortgage-related securities may be
affected by reinvestment of prepayments at higher or lower rates
than the original investment. In addition, like other debt
securities, the values of mortgage-related securities, including
government and government related mortgage pools, generally will
fluctuate in response to market interest rates.

Other Asset-Backed Securities. The estimated life of an asset-
backed security varies with the prepayment experience with respect
to the underlying debt instruments. The rate of such prepayments,
and hence the life of an asset-backed security, will be primarily
a function of current market interest rates, although other
economic and demographic factors may be involved. For example,
falling interest rates generally result in an increase in the rate
of prepayments of mortgage loans while rising interest rates
generally decrease the rate of prepayments. An acceleration in
prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential
appreciation in the security's value relative to a conventional
debt security. Consequently, asset-backed securities are not as
effective in locking in high long-term yields. Conversely, in
periods of sharply rising rates, prepayments generally slow,
increasing the security's average life and its potential for price
depreciation.

Certain Investment Guidelines

The fund may invest up to 10% of its total assets in securities
with contractual or other restrictions on resale and other
instruments not readily marketable, including (a) repurchase
agreements with maturities greater than seven days, (b) time
deposits maturing from two business days through seven calendar
days and (c) to the extent that a liquid secondary market does not
exist for the instruments, futures contracts and options thereon.
In addition, the fund may invest up to 5% of its assets in the
securities of issuers which have been in continuous operation for
less than three years.  The investment guidelines set forth in
this paragraph may be changed at any time without shareholder
consent by vote of the trust's Board of Trustees.

Investment Restrictions

The trust has adopted investment restrictions 1 through 7 below as
fundamental policies with respect to the fund.  Under the terms of
the 1940 Act, these fundamental policies may not be changed with
respect to the fund without the vote of a majority of the
outstanding voting securities of the fund.  A "majority" is
defined in the 1940 Act as the lesser of (a) 67% or more of the
shares present at a shareholder 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 the outstanding
shares.  Set forth below are the investment policies of the trust,
some of which apply to the other series of the trust.

The investment policies adopted by the trust prohibit the fund
from:

	1.	Investing in a manner that would cause it to fail to
be a "diversified company" under the 1940 Act and the
rules, regulations and orders thereunder.

	2.	Investing in "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.

	3.	Investing 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.

	4.	Borrowing 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), is
derived from such transactions.

	5.	Making Loans.  This restriction does not apply to: (a)
the purchase of debt obligations in which the fund may
invest consistent with its investment objective and
policies; (b) repurchase agreements; and (c) loans of
its portfolio securities, to the fullest extent
permitted under the 1940 Act.

	6.	Underwriting securities issued by other persons,
except to the extent that the fund may technically be
deemed an underwriter under the Securities Act of
1933, as amended, in disposing of portfolio
securities.

	7.	Purchasing or selling 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 fund's investment
objective and policies); (d) investing in real estate
investment trust securities.

	8.	Purchasing securities on margin (except for such
short-term credits as are necessary for the clearance
of purchases and sales of portfolio securities). 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.

	9.	Investing in oil, gas or other mineral exploration or
development programs, except that the fund may invest
in the securities of companies that invest in or
sponsor those programs.

	10.	Investing in securities of other investment companies,
except to the extent permitted under the 1940 Act.

11. Writing or selling puts, calls, straddles, spreads or
combinations thereof, except as permitted under the
fund's investment objective and policies.

12. Purchasing restricted securities, illiquid securities
(such as repurchase agreements with maturities in
excess of seven days and time deposits maturing from
two business days through seven calendar days) and
other securities with contractual or other
restrictions on resale and other instruments that are
not readily marketable if more than 10% of the fund's
total assets.

	13.	Purchasing any security if as a result the fund would
then have more than 10% of its total assets invested
in securities of companies (including predecessors)
that have been in continuous operation for fewer than
three years.

	14.	Making investments for the purpose of exercising
control or management.

	15.	Purchasing or retaining securities of any company if,
to the knowledge of the trust, any of the trust's
officers or Trustees or any officer or director of an
Investment Adviser individually owns more than 1/2 of
1% of the outstanding securities of such company and
together they own beneficially more than 5% of the
securities.

	16.	Investing in warrants other than those acquired by the
fund as part of a unit or attached to securities at
the time of purchase (except as permitted under the
fund's investment objective and policies) if, as a
result, the investments (valued at the lower of cost
or market) would exceed 5% of the value of the fund's
net assets.

Portfolio Turnover

The fund does not intend to seek profits through short-term
trading.  Nevertheless, the fund will not consider portfolio
turnover rate a limiting factor in making investment decisions.

Under certain market conditions, the fund because it engages in
transactions in options may experience increased portfolio
turnover as a result of its investment strategies.  For instance,
the exercise of a substantial number of options written by the
fund (due to appreciation of the underlying security in the case
of call options on securities or depreciation of the underlying
security in the case of put options on securities) could result in
a turnover rate in excess of 100%.  A portfolio turnover rate of
100% also would occur if all of the fund's securities that are
included in the computation of turnover were replaced once during
a one-year period.  The fund's turnover rate is calculated by
dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the
portfolio securities.  Securities or options with remaining
maturities of one year or less on the date of acquisition are
excluded from the calculation.

Certain other practices which may be employed by the fund also
could result in high portfolio turnover.  For example, portfolio
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 of comparable quality purchased
at approximately the same time to take advantage of what the
fund's Investment Adviser or Sub-Investment Adviser 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 securities. For
the fiscal years ended December 31, 1998, 1999 and 2000, the
fund's portfolio turnover rate was 43%, 93% and 73%, respectively.

Portfolio Transactions

Most of the purchases and sales of securities by the fund, whether
transacted on a securities exchange or over-the-counter, will be
made in the primary trading market for the securities, except for
Eurobonds which are principally traded over-the-counter.  The
primary trading market for a given security is generally located
in the country in which the issuer has its principal office.
Decisions to buy and sell securities for the fund are made by its
Investment Adviser or Sub-Investment Adviser, who is also
responsible for placing these transactions subject to the overall
review of the Board of Trustees.  Although investment decisions
for the fund are made independently from those of the other
accounts managed by its Investment Adviser and Sub-Investment
Adviser, investments of the type that the fund may make also may
be made by those other accounts.  When the fund and one or more
other accounts managed by its Investment Adviser or Sub-Investment
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 Investment Adviser
or Sub-Investment Adviser to be equitable to each.  In some cases
this procedure may adversely affect the price paid or received by
the fund, or the size of the position obtained or disposed of by
the fund.

Transactions on domestic stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers.  Commissions
generally are fixed on most foreign exchanges.  There is generally
no stated commission in the case of securities traded in U.S. or
foreign over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups.  The cost
of securities purchased from underwriters includes an underwriting
commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or
mark-down.  U.S. government securities generally are purchased
from underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the United
States Treasury or from the issuing agency or instrumentality.
The following table sets forth certain information regarding the
fund's payment of brokerage commissions:

Total Brokerage Commissions Paid


Fiscal Year

1998

$3,815,634
1999

6,040,929
2000
2,504,512

Brokerage Commissions Paid to Salomon Smith Barney


Fiscal Year

1998
$1,102,296
1999
328,197
2000
91,902

% of Total Brokerage Commissions Paid to Salomon Smith Barney


Fiscal Year

1998
28.88%
1999
5.43
2000
3.67

% of Total Transactions Involving Commissions paid to Salomon
Smith Barney


Fiscal Year



1998
22.81%
1999
0.07
2000
0.05

In selecting brokers or dealers to execute securities transactions
on behalf of the fund, the fund's Investment Adviser or Sub-
Investment Adviser seeks the best overall terms available.  In
assessing the best overall terms available for any transaction,
the Investment Adviser or Sub-Investment Adviser will consider the
factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition
and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific
transaction and on a continuing basis.  In addition, the Advisory
Agreement between the trust and the Investment Adviser authorizes
the Investment Adviser, in selecting brokers or dealers to execute
a particular transaction and in evaluating the best overall terms
available, to consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) provided to the trust, the fund
and/or other accounts or funds over which the Investment Adviser
or its affiliates exercise investment discretion.  The fees under
the Advisory Agreement and the Sub-Advisory and/or Administration
Agreement are not reduced by reason of their receiving such
brokerage and research services.  Further, Salomon Smith Barney
will not participate in commissions brokerage given by the fund to
other brokers or dealers and will not receive any reciprocal
brokerage business resulting therefrom.  The trust's Board of
Trustees periodically will review the commissions paid by the fund
to determine if the commissions paid over representative periods
of time were reasonable in relation to the benefits inuring to the
trust. For the fiscal year ended December 31, 2000, the fund
directed brokerage transactions totaling $107,919,967 to brokers
because of research services provided. The amount of brokerage
commissions paid on such transactions totaled $195,924.

To the extent consistent with applicable provisions of the 1940
Act and the rules and exemptions adopted by the SEC thereunder,
the Board of Trustees has determined that transactions for the
fund may be executed through Salomon Smith Barney and other
affiliated broker-dealers if, in the judgment of the fund's
Investment Adviser and/or Sub-Investment Adviser, the use of such
broker-dealer is likely to result in price and execution at least
as favorable as those of other qualified broker-dealers, and if,
in the transaction, such broker-dealer charges the fund a rate
consistent with that charged to comparable unaffiliated customers
in similar transactions.  In addition, under rules adopted by the
SEC, Salomon Smith Barney may directly execute such transactions
for the fund on the floor of any national securities exchange,
provided (a) the trust's Board of Trustees has expressly
authorized Salomon Smith Barney to effect such transactions, and
(b) Salomon Smith Barney annually advises the trust of the
aggregate compensation it earned on such transactions.  Over-the-
counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and
executions may be obtained elsewhere.  The fund will not purchase
any security, including U.S. government securities, during the
existence of any underwriting or selling group relating thereto of
which Salomon Smith Barney is a member, except to the extent
permitted by the SEC.

The fund may use Salomon Smith Barney as a commodities broker in
connection with entering into futures contracts and options on
futures contracts.  Salomon Smith Barney has agreed to charge the
fund commodity commissions at rates comparable to those charged by
Salomon Smith Barney to its most favored clients for comparable
trades in comparable accounts.

PURCHASE, EXCHANGE AND REDEMPTION OF SHARES

Purchase of Shares

General. Investors may purchase shares from a Service Agent.  In
addition, certain investors, including qualified retirement plans
purchasing through certain Service Agents, may purchase shares
directly from the fund.  When purchasing shares of the fund,
investors must specify whether the purchase is for Class A, Class
B, Class L, Class O or Class Y shares. Service Agents may charge
their customers an annual account maintenance fee in connection
with a brokerage account through which an investor purchases or
holds shares.  Accounts held directly at PFPC Global Fund Services
(the "sub-transfer agent") are not subject to a maintenance fee.

The fund offers five Classes of shares. Class A, Class L and Class
O shares are sold to investors with an initial sales charge.
Class B shares are sold without an initial sales charge but are
subject to a deferred sales charge payable upon certain
redemptions.  Class L and Class O shares are also subject to a
deferred sales charge payable upon certain redemptions.  Class Y
shares are sold without an initial sales charge or deferred sales
charge and are available only to investors investing a minimum of
$15,000,000. See the Prospectus for a discussion of factors to
consider in selecting which Class of shares to purchase.  Class O
shares are available for purchase only by former Class C
shareholders of the fund.

Investors in Class A, Class B, Class L and Class O shares may open
an account by making an initial investment of at least $1,000 for
each account, or $250 for an IRA or a Self-Employed Retirement
Plan, in the fund. Investors in Class Y shares may open an account
by making an initial investment of $15,000,000.  Subsequent
investments of at least $50 may be made for all Classes.  For
participants in retirement plans qualified under Section 403(b)(7)
or Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), the minimum initial and subsequent investment
requirement for Class A, Class B, Class L and Class O shares and
the subsequent investment requirement for all Classes in the fund
is $25.  For shareholders purchasing shares of the fund through
the Systematic Investment Plan on a monthly basis, the minimum
initial investment requirement for Class A, Class B, Class L and
Class O shares and the subsequent investment requirement for all
Classes is $25.  For shareholders purchasing shares of the fund
through the Systematic Investment Plan on a quarterly basis, the
minimum initial investment requirement for Class A, Class B, Class
L and Class O shares and the subsequent investment requirement for
all Classes is $50.  There are no minimum investment requirements
in Class A shares for employees of Citigroup and its subsidiaries,
including Salomon Smith Barney, Directors or Trustees of any of
the Smith Barney Mutual Funds, and their spouses and children. The
fund reserves the right to waive or change minimums, to decline
any order to purchase its shares and to suspend the offering of
shares from time to time. Shares purchased will be held in the
shareholder's account by the sub-transfer agent. Share
certificates are issued only upon a shareholder's written request
to the sub-transfer agent.

Purchase orders received by the fund or Salomon Smith Barney prior
to the close of regular trading on the New York Stock Exchange
("NYSE"), on any day the fund calculates its net asset value, are
priced according to the net asset value determined on that day
(the "trade date").  Orders received by dealers or Introducing
Brokers prior to the close of regular trading on the NYSE on any
day the fund calculates its net asset value, are priced according
to the net asset value determined on that day, provided the order
is received by the fund's agent prior to the agent's close of
business. For shares purchased through Salomon Smith Barney or a
Service Agent purchasing through Salomon Smith Barney, payment for
shares of the fund is due on the third business day after the
trade date. In all other cases, payment must be made with the
purchase order.

Systematic Investment Plan.  Shareholders may make additions to
their accounts at any time by purchasing shares through a service
known as the Systematic Investment Plan.  Under the Systematic
Investment Plan, Salomon Smith Barney or the sub-transfer agent is
authorized through preauthorized transfers of at least $25 on a
monthly basis or at least $50 on a quarterly basis to charge the
regular bank account or other financial institution indicated by
the shareholder, to provide systematic additions to the
shareholder's fund account.  A shareholder who has insufficient
funds to complete the transfer will be charged a fee of up to $25
by Salomon Smith Barney or the sub-transfer agent.  The Systematic
Investment Plan also authorizes Salomon Smith Barney to apply cash
held in the shareholder's Salomon Smith Barney brokerage account
or redeem the shareholder's shares of a Salomon Smith Barney money
market fund to make additions to the account. Additional
information is available from the fund or a Service Agent.

Initial Sales Charge Alternative - Class A Shares.  The sales
charges applicable to purchases of Class A shares of the fund are
as follows:

Amount of
Investment
Sales Charge as
% of
Offering Price
Sales Charge
as
% of Amount
Invested
Broker/Dealer
Commission as
a% of offering
Price
Less than $25,000
5.00
5.26
4.50
25,000 but less than
$50,000
4.25
4.44
3.83
$50,000 but less than-
$100,000
3.75
3.90
3.38
$100,000 but less than
$250,000
3.25
3.36
2.93
$250,000 but less than-
$500,000
2.75
2.83
2.48
$500,000 but less than
$1,000,000
2.00
2.04
1.80
$1,000,000 or more
-0-
-0-
Up to 1.00*
* A distributor pays up to 1.00% to a Service Agent.

Purchases of Class A shares of $1,000,000 or more will be made at
net asset value without any initial sales charge, but will be
subject to a deferred sales charge of 1.00% on redemptions made
within 12 months of purchase. The deferred sales charge on Class A
shares is payable to Salomon Smith Barney, which compensates
Salomon Smith Barney Financial Consultants and other dealers whose
clients make purchases of $1,000,000 or more. The deferred sales
charge is waived in the same circumstances in which the deferred
sales charge applicable to Class B, Class L and Class O shares is
waived.  See "Purchase, Exchange and Redemption of Shares" -
"Deferred Sales Charge Alternatives" and "Waivers of Deferred
Sales Charge."

Members of the selling group may receive up to 90% of the sales
charge and may be deemed to be underwriters of the fund as defined
in the 1933 Act.

The reduced sales charges shown above apply to the aggregate of
purchases of Class A shares of the fund made at one time by "any
person."  Any "person" is defined to include the following: (a) an
individual; (b) an individual's spouse and his or her children
purchasing shares for his or her own account; (c) a Trustee or
other fiduciary purchasing shares for a single trust estate or
single fiduciary account; (d) a pension, profit-sharing or other
employee benefit plan qualified under Section 401(a) of the Code
and qualified employee benefit plans of employers who are
"affiliated persons" of each other within the meaning of the 1940
Act; (e) tax-exempt organizations enumerated in Section 501(c)(3)
or (13) of the Code; (f) any other organized group of persons,
provided 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; or (g) a trustee or
other professional fiduciary (including a bank, or an investment
adviser registered with the SEC under the Investment Advisers Act
of 1940) purchasing shares of the fund for one or more trust
estates or fiduciary accounts.  Purchasers who wish to combine
purchase orders to take advantage of volume discounts on Class A
shares should contact a Service Agent.

The reduced sales charge minimums may also be met by aggregating
the purchase with the net asset value of all Class A shares
offered with a sales charge held in funds sponsored by Salomon
Smith Barney listed under "Exchange Privilege."

Initial Sales Charge Alternative - Class L and O Shares.  For
purchases of Class L and O shares, there is a sales charge of 1%
of the offering price (1.01% of the net amount invested).

Initial Sales Charge Waivers for Class A Shares.  Purchases of
Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board
Members and employees of Citigroup and its subsidiaries and any of
the Smith Barney Mutual Funds (including retired Board Members and
employees); the immediate families of such persons (including the
surviving spouse of a deceased Board Member or employee); and to a
pension, profit-sharing or other benefit plan for such persons and
Board members of any funds sponsored by Citigroup and its
affiliates and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such sales are
made upon the assurance of the purchaser that the purchase is made
for investment purposes and that the securities will not be resold
except through redemption or repurchase; (b) offers of Class A
shares to any other investment company to effect the combination
of such company with the fund by merger, acquisition of assets or
otherwise; (c) purchases of Class A shares by any client of a
newly employed Salomon Smith Barney Financial Consultant (for a
period up to 90 days from the commencement of the Financial
Consultant's employment with Salomon Smith Barney), on the
condition the purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i) was
sponsored by the Financial Consultant's prior employer, (ii) was
sold to the client by the Financial Consultant and (iii) was
subject to a sales charge; (d) purchases by shareholders who have
redeemed Class A shares in the fund (or Class A shares of another
fund of the Smith Barney Mutual Funds that are offered with a
sales charge) and who wish to reinvest their redemption proceeds
in the same fund, provided the reinvestment is made within 60
calendar days of the redemption; (e) purchases by accounts managed
by registered investment advisory subsidiaries of Citigroup; (f)
purchase by Section 403(b) or Section 401(a) or (k) accounts
associated with Copeland Retirement Programs; (g) direct rollovers
by plan participants of distributions from a 401(k) plan offered
to employees of Citigroup or its subsidiaries or a 401(k) plan
enrolled in the Salomon Smith Barney 401(k) Program (Note:
subsequent investments will be subject to the applicable sales
charge); (h) purchases by separate accounts used to fund certain
unregistered variable annuity contracts; (i) purchases by
investors participating in a Salomon Smith Barney fee-based
arrangement; and (j) investments of distributions from or proceeds
from a sale of a UIT sponsored by Salomon Smith Barney. In order
to obtain such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification the
purchase would qualify for the elimination of the sales charge.

Right of Accumulation.  Class A shares of the fund may be
purchased by "any person"' (as defined above) at a reduced sales
charge or at net asset value determined by aggregating the dollar
amount of the new purchase and the total net asset value of all
Class A shares of the fund and of funds sponsored by Salomon Smith
Barney, which are offered with a sales charge, listed under
"Exchange Privilege" then held by such person and applying the
sales charge applicable to such aggregate.  In order to obtain
such discount, the purchaser must provide sufficient information
at the time of purchase to permit verification that the purchase
qualifies for the reduced sales charge.  The right of accumulation
is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.

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

Letter of Intent-Class Y Shares.  A Letter of Intent may also be
used as a way for investors to meet the minimum investment
requirement for Class Y shares.  The investor must make an initial
minimum purchase of $5,000,000 in Class Y shares of the fund and
agree to purchase a total of $15,000,000 of Class Y shares of the
same fund within 13 months from the date of the Letter.  If a
total investment of $15,000,000 is not made within the 13-month
period, all Class Y shares purchased to date will be transferred
to Class A shares, where they will be subject to all fees
(including a service fee of 0.25%) and expenses applicable to the
fund's Class A shares, which may include a deferred sales charge
of 1.00%. Please contact a Service Agent or the transfer agent for
further information.

Deferred Sales Charge Alternatives.  Deferred Sales Charge Shares
are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the fund. A deferred sales
charge, however, may be imposed on certain redemptions of these
shares. "Deferred Sales Charge Shares" are: (a) Class B shares;
(b) Class L shares; (c) Class O shares; and (d) Class A shares
that were purchased without an initial sales charge but subject to
a deferred sales charge.

Any applicable deferred sales charges will be assessed on an
amount equal to the lesser of the original cost of the shares
being redeemed or their net asset value at the time of redemption.
Deferred Sales Charge Shares that are redeemed will not be subject
to a deferred sales charge to the extent the value of such shares
represents: (a) capital appreciation of fund assets; (b)
reinvestment of dividends or capital gain distributions; (c) with
respect to Class B shares, shares redeemed more than five years
after their purchase; or (d) with respect to Class L shares, Class
O shares and Class A shares that are Deferred Sales Charge Shares,
shares redeemed more than 12 months after their purchase.

Class L shares, Class O shares and Class A shares that are
Deferred Sales Charge Shares are subject to a 1.00% deferred sales
charge if redeemed within 12 months of purchase. In circumstances
in which the deferred sales charge is imposed on Class B shares,
the amount of the charge will depend on the number of years since
the shareholder made the purchase payment from which the amount is
being redeemed.  Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during
a month will be aggregated and deemed to have been made on the
last day of the preceding Salomon Smith Barney statement month.
The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders, except in the case
of Class B shares held under the Salomon Smith Barney 401(k)
Program, as described below. See "Purchase of Shares-Salomon Smith
Barney Retirement Programs."

	Year Since Purchase
	Payment Was Made
Deferred Sales
Charge

	First
5.00%
	Second
4.00
	Third
3.00
	Fourth
2.00
	Fifth
1.00
	Sixth and thereafter
0.00

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

In determining the applicability of any deferred sales charge, it
will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing the
reinvestment of dividends and capital gain distributions and
finally of other shares held by the shareholder for the longest
period of time. The length of time that Deferred Sales Charge
Shares acquired through an exchange have been held will be
calculated from the date the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and fund
shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal income
tax purposes, the amount of the deferred sales charge will reduce
the gain or increase the loss, as the case may be, on the
redemption. The amount of any deferred sales charge will be paid
to Salomon Smith Barney.

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

Waivers of Deferred Sales Charge.  The deferred sales charge will
be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00%
per month of the value of the shareholder's shares at the time the
withdrawal plan commences (see "Automatic Cash Withdrawal Plan")
(automatic cash withdrawals in amounts equal to or less than 2.00%
per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to
November 7, 1994); (c) redemptions of shares within twelve months
following the death or disability of the shareholder; (d)
redemptions of shares made in connection with qualified
distributions from retirement plans or IRAs upon the attainment of
age 591/2; (e) involuntary  redemptions; and (f) redemptions of
shares to effect the combination of the fund with any other
investment company by merger, acquisition of assets or otherwise.
In addition, a shareholder who has redeemed shares from other
funds of the Smith Barney Mutual Funds may, under certain
circumstances, reinvest all or part of the redemption proceeds
within 60 days and receive pro rata credit for any deferred sales
charge imposed on the prior redemption.

Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of shareholders
who are also Salomon Smith Barney clients or by the transfer agent
in the case of all other shareholders) of the shareholder's status
or holdings, as the case may be.

Salomon Smith Barney Retirement Programs. You may be eligible to
participate in a retirement program sponsored by Salomon Smith
Barney or one of its affiliates. The fund offers Class A, Class L
and in limited circumstances Class O shares, at net asset value to
participating plans under the programs. You can meet minimum
investment and exchange amounts, if any, by combining the plan's
investments in any of the Smith Barney mutual funds.

There are no sales charges when you buy or sell shares and the
class of shares you may purchase depends on the amount of your
initial investment and/or the date your account is opened. Once a
class of shares is chosen, all additional purchases must be of the
same class.

For plans opened on or after March 1, 2000 that are not plans for
which Paychex Inc. or an affiliate provides administrative
services (a "Paychex plan"), Class A shares may be purchased
regardless of the amount invested.

For plans opened prior to March 1, 2000 and for Paychex plans, the
class of shares you may purchase depends on the amount of your
initial investment:

Class A Shares. Class A shares may be purchased by plans investing
at least $1 million.

Class L Shares.  Class L shares may be purchased by plans
investing less than $1 million.  Class L shares are eligible to
exchange into Class A shares not later than 8 years after the plan
joined the program. They are eligible for exchange in the
following circumstances:

If the plan was opened on or after June 21, 1996 and a total of $1
million is invested in Smith Barney Funds Class L shares (other
than money market funds), all Class L shares are eligible for
exchange after the plan is in the program 5 years.

If the plan was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares (other
than money market funds) on December 31 in any year, all Class L
shares are eligible for exchange on or about March 31 of the
following year.

For more information, call your Service Agent or the transfer
agent.

Class O Shares.  Class O shares of the fund are offered without
any sales charge or deferred sales charge to any participating
plan that purchases less than $1,000,000 of Class L and/or Class O
shares of one or more funds of the Smith Barney Mutual Funds.
Class O shares may only be purchased by plans if the plan opened
its account on or before June 12, 1998.

Retirement Programs Opened On or After June 21, 1996.   If, at the
end of the fifth year after the date the participating plan
enrolled in Salomon Smith Barney Retirement Programs, a
participating plan's total Class L and/or Class O holdings in all
non-money market Smith Barney Mutual Funds equal at least
$1,000,000, the participating plan will be offered the opportunity
to exchange all of its Class L and/or Class O shares for Class A
shares of the fund. (For participating plans that were originally
established through a Salomon Smith Barney retail brokerage
account, the five-year period will be calculated from the date the
retail brokerage account was opened.) Such participating plans
will be notified of the pending exchange in writing within 30 days
after the fifth anniversary of the enrollment date and, unless the
exchange offer has been rejected in writing, the exchange will
occur on or about the 90th day after the fifth anniversary date.
If the participating plan does not qualify for the five-year
exchange to Class A shares, a review of the participating plan's
holdings will be performed each quarter until either the
participating plan qualifies or the end of the eighth year.

Retirement Programs Opened Prior to June 21, 1996.   In any year
after the date a participating plan enrolled in the Smith Barney
401(k) Program, if its total Class L and/or Class O holdings in
all non-money market Smith Barney Mutual Funds equal at least
$500,000 as of the calendar year-end, the participating plan will
be offered the opportunity to exchange all of its Class L and/or
Class O shares for Class A shares of the same fund. Such Plans
will be notified in writing within 30 days after the last business
day of the calendar year and, unless the exchange offer has been
rejected in writing, the exchange will occur on or about the last
business day of the following March.

Any participating plan in the Salomon Smith Barney Retirement
Programs, whether opened before or after June 21, 1996, that has
not previously qualified for an exchange into Class A shares will
be offered the opportunity to exchange all of its Class L and/or
Class O shares for Class A shares of the same fund regardless of
asset size, at the end of the eighth year after the date the
participating plan enrolled in the Salomon Smith Barney Retirement
Programs. Such plans will be notified of the pending exchange in
writing approximately 60 days before the eighth anniversary of the
enrollment date and, unless the exchange has been rejected in
writing, the exchange will occur on or about the eighth
anniversary date. Once an exchange has occurred, a participating
plan will not be eligible to acquire additional Class L shares,
but instead may acquire Class A shares of the same fund. Any Class
L and/ or Class O shares not converted will continue to be subject
to the distribution fee.

Participating plans wishing to acquire shares of the fund through
the Salomon Smith Barney Retirement Programs must purchase such
shares directly from the transfer agent. For further information
regarding these Programs, investors should contact a Service
Agent.

Retirement Programs Investing in Class B Shares:  Class B shares
of a fund are not available for purchase by participating plans
opened on or after June 21, 1996, but may continue to be purchased
by any participating plan in the Smith Barney 401(k) Program
opened prior to such date and originally investing in such Class.
Class B shares acquired are subject to a deferred sales charge of
3.00% of redemption proceeds if the participating plan terminates
within eight years of the date the participating plan first
enrolled in the Smith Barney 401(k) Program.

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

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

The deferred sales charge will be waived on redemptions of Class B
shares in connection with lump-sum or other distributions made by
a participating plan as a result of: (a) the retirement of an
employee in the participating plan; (b) the termination of
employment of an employee in the participating plan; (c) the death
or disability of an employee in the participating plan; (d) the
attainment of age 591/2 by an employee in the participating plan;
(e) hardship of an employee in the participating plan to the
extent permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made by the
participating plan to an employee.

Determination of Public Offering Prices

The trust offers shares of the fund to the public on a continuous
basis.  The public offering price for Class A and Class Y shares
of the fund is equal to the net asset value per share at the time
of purchase, plus for Class A, Class L and Class O shares an
initial sales charge based on the aggregate amount of the
investment.  The public offering price for a Class B 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 deferred sales charge,
however, is imposed on certain redemptions of Class B, Class L and
Class O shares and of Class A shares when purchased in amounts
exceeding $500,000.  The method of computation of the public
offering price is shown in the fund's financial statements
incorporated by reference in their entirety into this SAI.

Exchange Privilege

As your needs change, you may wish to reposition your investments.
With Smith Barney Mutual Funds, you have the ability to exchange
shares of most Smith Barney mutual funds for those of others
within the family.

Except as otherwise noted below, shares of each Class of the fund
may be exchanged for shares of the same Class of certain Smith
Barney Mutual Funds, to the extent shares are offered for sale in
the shareholder's state of residence.  Exchanges of Class A, Class
B, Class L and Class O shares are subject to minimum investment
requirements and all shares are subject to the other requirements
of the fund into which exchanges are made.

Class B Exchanges.  In the event a Class B shareholder wishes to
exchange all or a portion of his or her shares in any fund
imposing a higher deferred sales charge than that imposed by the
fund, the exchanged Class B shares will be subject to the higher
applicable deferred sales charge. Upon an exchange, the new Class
B shares will be deemed to have been purchased on the same date as
the Class B shares of the fund that have been exchanged.

Class L Exchanges.  Upon an exchange, the new Class L shares will
be deemed to have been purchased on the same date as the Class L
shares of the fund that have been exchanged.

Class O Exchanges.  Class O shares may only be exchanged for Class
L shares of another fund.  Upon an exchange, the new Class L
shares will be deemed to have been purchased on the same date as
the Class O shares of the fund that have been exchanged.

Class A and Class Y Exchanges.  Class A and Class Y shareholders
of the fund who wish to exchange all or a portion of their shares
for shares of the respective Class in any of the funds identified
above may do so without imposition of any charge.

The exchange privilege enables shareholders to acquire shares of
the same Class in the 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 Service Agent.

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 deferred
sales charge, the proceeds are immediately invested, at a price as
described above, in shares of the fund being acquired.  Salomon
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.


Additional Information Regarding the Exchange Privilege. The fund
is not designed to provide investors with a means of speculation
on short-term market movements.  A pattern of frequent exchanges
by investors can be disruptive to efficient portfolio management
and, consequently, can be detrimental to the fund and its
shareholders.  Accordingly, if the fund's management in its sole
discretion determines that an investor is engaged in excessive
trading, the fund, with or without prior notice, may temporarily
or permanently terminate the availability to that investor of fund
exchanges, or reject in whole or part any purchase or exchange
request with respect to such investor's account.  Such investors
also may be barred from purchases and exchanges involving other
funds in the Smith Barney Mutual Fund family.   Accounts under
common ownership or control will be considered as one account for
purposes of determining a pattern of excessive trading. The fund
may notify an investor of rejection of a purchase or exchange
order after the day the order is placed.  If an exchange request
is rejected, the fund will take no other action with respect to
the shares until it receives further instructions from the
investor.  The fund's policy on excessive trading applies to
investors who invest in the fund directly or through Service
Agents, but does not apply to any systematic investment  plans
described in the prospectus.

During times of drastic economic or market conditions, the fund
may suspend the Exchange Privilege temporarily without notice and
treat exchange requests based on their separate components -
redemption orders with a simultaneous request to purchase the
other fund's shares.  In such a case, the redemption request would
be processed at the fund's next determined net asset value but the
purchase order would be effective only at the net asset value next
determined after the fund being purchased formally accepts the
order, which may result in the purchase being delayed.


Redemption of Shares

The fund is required to redeem the shares of the fund tendered to
it, as described below, at a redemption price equal to their net
asset value per share next determined after receipt of a written
request in proper form at no charge other than any applicable
deferred sales charge. Redemption requests received after the
close of regular trading on the NYSE are priced at the net asset
value next determined.  The right of redemption of shares of the
fund may be suspended or the date of payment postponed (a) for any
periods during which 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 fund's investments
or determination of its net asset value is not reasonably
practicable or (c) for such other periods as the SEC by order may
permit for the protection of the fund's shareholders.

If a shareholder holds shares in more than one Class, any request
for redemption must specify the Class being redeemed.  In the
event of a failure to specify which Class, or if the investor owns
fewer shares of the Class than specified, the redemption request
will be delayed until the transfer agent receives further
instructions from Salomon Smith Barney, or if the shareholder's
account is not with Salomon Smith Barney, from the shareholder
directly.  The redemption proceeds will be remitted on or before
the third business day following receipt of proper tender, except
on any days on which the NYSE is closed or as permitted under the
1940 Act in extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Salomon Smith Barney
brokerage account, these funds will not be invested for the
shareholder's benefit without specific instruction and Salomon
Smith Barney will benefit from the use of temporarily uninvested
funds. Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted upon
clearance of the check, which may take up to fifteen days.

Shares held by Salomon Smith Barney as custodian must be redeemed
by submitting a written request to a Service Agent. Shares other
than those held by Salomon Smith Barney as custodian may be
redeemed through an investor's Service Agent or by submitting a
written request for redemption to:


Smith Barney Income Funds
Smith Barney Premium Total Return Fund
Class A, B, L, O or Y (please specify)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699

A written redemption request must (a) state the Class and number
or dollar amount of shares to be redeemed, (b) identify the
shareholder's account number and (c) be signed by each registered
owner exactly as the shares are registered. If the shares to be
redeemed were issued in certificate form, the certificates must be
endorsed for transfer (or be accompanied by an endorsed stock
power) and must be submitted to the sub-transfer agent together
with the redemption request.  Any signature appearing on a share
certificate, stock power or written redemption request in excess
of $50,000 must be guaranteed by an eligible guarantor
institution, such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the Federal
Reserve System or member firm of a national securities exchange.
Written redemption requests of $50,000 or less do not require a
signature guarantee unless more than one such redemption request
is made in any 10-day period.  Redemption proceeds will be mailed
to an investor's address of record.  The transfer agent may
require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A
redemption request will not be deemed properly received until the
transfer agent receives all required documents in proper form.

Automatic Cash Withdrawal Plan.  The fund offers shareholders an
automatic cash withdrawal plan, under which shareholders who own
shares with a value of at least $10,000 ($5,000 for retirement
plan accounts) may elect to receive cash payments of at least $50
monthly or quarterly.  Retirement plan accounts are eligible for
automatic cash withdrawal plans only where the shareholder is
eligible to receive qualified distributions and has an account
value of at least $5,000.  The withdrawal plan will be carried
over on exchanges between funds or Classes of the fund.  Any
applicable deferred sales charge will not be waived on amounts
withdrawn by a shareholder exceeding 1.00% per month of the value
of the shareholder's shares subject to the deferred sales charge
at the time the withdrawal plan commences.  (With respect to
withdrawal plans in effect prior to November 7, 1994, any
applicable deferred sales charge will be waived on amounts
withdrawn that do not exceed 2.00% per month of the value of the
shareholder's shares subject to the deferred sales charge.)  To
the extent withdrawals exceed dividends, distributions and
appreciation of a shareholder's investment in the fund, there will
be a reduction in the value of the shareholder's investment and
continued withdrawal payments may reduce the shareholder's
investment and ultimately exhaust it.  Withdrawal payments should
not be considered as income from investment in the fund.
Withdrawals involve share redemptions that may have tax
consequences for shareholders.  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 with respect to that fund,
purchases by such shareholders of additional shares in the fund in
amounts less than $5,000 will not ordinarily be permitted.

Shareholders who wish to participate in the Withdrawal Plan and
who hold their shares in certificate form must deposit their share
certificates of the fund from which withdrawals will be made with
the sub-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. A shareholder who purchases shares directly through
the sub-transfer agent may continue to do so and all applications
for participation in the Withdrawal Plan must be received by the
sub-transfer agent as Plan Agent no later than the eighth day of
each month to be eligible for participation beginning with that
month's withdrawal.  For additional information regarding the
Withdrawal Plan, contact your Service Agent.

Telephone Redemption and Exchange Program.  Shareholders who do
not have a brokerage account may be eligible to redeem and
exchange shares by telephone. To determine if a shareholder is
entitled to participate in this program, he or she should contact
the transfer agent at 1-800-451-2010.  Once eligibility is
confirmed, the shareholder must complete and return a
Telephone/Wire Authorization Form, along with a signature
guarantee, that will be provided by the transfer agent upon
request.  (Alternatively, an investor may authorize telephone
redemptions on the new account application with the applicant's
signature guarantee when making his/her initial investment in the
fund.)

Redemptions.  Redemption requests of up to $50,000 of any class or
classes of shares of the fund may be made by eligible shareholders
by calling the transfer agent at 1-800-451-2010. Such requests may
be made between 9:00 a.m. and 4:00 p.m. (New York City time) on
any day the NYSE is open.  Redemptions of shares (i) by retirement
plans or (ii) for which certificates have been issued are not
permitted under this program.

A shareholder will have the option of having the redemption
proceeds mailed to his/her address of record or wired to a bank
account predesignated by the shareholder.  Generally, redemption
proceeds will be mailed or wired, as the case may be, on the next
business day following the redemption request.  In order to use
the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent
relationship with a member bank.  The fund reserves the right to
charge shareholders a nominal fee for each wire redemption.  Such
charges, if any, will be assessed against the shareholder's
account from which shares were redeemed.  In order to change the
bank account designated to receive redemption proceeds, a
shareholder must complete a new Telephone/Wire Authorization Form
and, for the protection of the shareholder's assets, will be
required to provide a signature guarantee and certain other
documentation.

Exchanges.  Eligible shareholders may make exchanges by telephone
if the account registration of the shares of the fund being
acquired is identical to the registration of the shares of the
fund exchanged.  Such exchange requests may be made by calling the
transfer agent at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(New York City time) on any day on which the NYSE is open.

Additional Information Regarding Telephone Redemption and Exchange
Program.   Neither the fund nor any of its agents will be liable
for following instructions communicated by telephone that are
reasonably believed to be genuine.  The fund and its agents will
employ procedures designed to verify the identity of the caller
and legitimacy of instructions (for example, a shareholder's name
and account number will be required and phone calls may be
recorded).  The fund reserves the right to suspend, modify or
discontinue the telephone redemption and exchange program or to
impose a charge for this service at any time following at least
seven (7) days' prior notice to shareholders.

Redemptions in Kind.  In conformity with applicable rules of the
SEC, redemptions may be paid in portfolio securities, in cash or
any combination of both, as the Board of Trustees may deem
advisable; however, payments shall be made wholly in cash unless
the Board of Trustees believes that economic conditions exist that
would make such a practice detrimental to the best interests of
the fund and its remaining shareholders.  If the Board of Trustees
of the trust determines that it would be detrimental to the best
interests of the remaining shareholders of the fund to make a
redemption payment wholly in cash, the trust may pay, in
accordance with SEC rules, any portion of a redemption in excess
of the lesser of $250,000 or 1% of the fund's net assets by
distribution in kind of portfolio securities in lieu of cash.
Shareholders may incur brokerage commissions when they
subsequently sell those securities.  If a redemption is paid in
portfolio securities, such securities will be valued in accordance
with the procedures described under "Share Price" in the
Prospectus and a shareholder would incur brokerage expenses if
these securities were then converted to cash.

DISTRIBUTOR

Effective June 5, 2000, Salomon Smith Barney, located at 388
Greenwich Street, New York, New York 10013 serves as the fund's
distributor pursuant to a written agreement dated June 5, 2000
(the "Distribution Agreement") which was approved by the Trust's
board of trustees, including a majority of the independent
trustees, on March 15, 2000.   Prior to and up to June 5, 2000,
CFBDS, Inc. served as the fund's distributor.

For the period January 1, 1998 through October 7, 1998 the
aggregate dollar amount of sales charges on Class A shares was
$1,531,000 all of which was paid to Salomon Smith Barney.  For the
period October 8, 1998 through December 31, 1998, the aggregate
dollar amount of sales charges on Class A shares was $157,000, of
which $141,000 was paid to Salomon Smith Barney.  For the fiscal
year ended December 31, 1999, the aggregate dollar amount of sales
charges on Class A shares was $272,000, of which $244,800 was paid
to Salomon Smith Barney.  For the fiscal year ended December 31,
2000, the aggregate dollar amount of sales charges on Class A
shares was $415,000, a portion of which was paid to Salomon Smith
Barney and CFBDS, Inc.

For the period June 12, 1998 through October 7, 1998, the
aggregate dollar amount of sales charges on Class L shares was
$184,000, all of which was paid to Salomon Smith Barney.  For the
period October 8, 1998 through December 31, 1998 the aggregate
dollar amount of sales charges on Class L shares was $50,000, of
which $45,000 was paid to Salomon Smith Barney.  For the fiscal
year ended December 31, 1999, the aggregate dollar amount of sales
charges on Class L shares was $88,000, of which $79,200 was paid
to Salomon Smith Barney. For the fiscal year ended December 31,
2000, the aggregate dollar amount of sales charges on Class L
shares was $150,000, a portion of which was paid to Salomon Smith
Barney.

For the fiscal years ended December 31, 1998, 1999 and 2000,
Salomon Smith Barney received from shareholders $2,000, $2,000 and
$1000, respectively, in deferred sales charges on the redemption
of Class A shares.

For the fiscal years ended December 31, 1998, 1999 and 2000,
Salomon Smith Barney received from shareholders $3,233,000,
$5,736,000 and $2,015,000, respectively, in deferred sales charges
on the redemption of Class B shares.

For the fiscal years ended December 31, 1998, 1999 and 2000,
Salomon Smith Barney received from shareholders $19,000, $23,000
and $6,000 in deferred sales charges on the redemption of Class L
shares.

For the fiscal years ended December 31, 1998, 1999 and 2000,
Salomon Smith Barney received from shareholders $24,000, $10,000
and $0, respectively, in deferred sales charges on the redemption
of Class O shares.  For the fiscal years ended December 31, 1998,
1999 and 2000 there were no initial sales charges for Class O.

When payment is made by the investor before the settlement date,
unless otherwise directed by the investor, the funds will be held
as a free credit balance in the investor's brokerage account, and
the distributor 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 the Exchange Reserve Fund) of the Smith Barney Mutual
Funds.  If the investor instructs the distributor 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 Smith Barney money market fund,
and affiliates of Salomon Smith Barney that serve the funds in an
investment advisory or administrative capacity will benefit from
the fact they are receiving fees from both such investment
companies for managing these assets computed on the basis of their
average daily net assets.  The trust's Board of Trustees has been
advised of the benefits to SBFM resulting from these settlement
procedures and will take such benefits into consideration when
reviewing the Advisory, and Administration Agreements for
continuance.

Distribution Arrangements

To compensate Salomon Smith Barney for the service it provides and
for the expense it bears under the Distribution Agreement, the
fund has adopted a services and distribution plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act.  Under the Plan, the
fund pays Salomon Smith Barney a service fee, accrued daily and
paid monthly, calculated at the annual rate of 0.25% of the value
of the fund's average daily net assets attributable to the Class
A, Class B, Class L and Class O shares.  In addition, the fund
pays Salomon Smith Barney a distribution fee with respect to Class
B, Class L and Class O shares primarily intended to compensate
Salomon Smith Barney for its initial expense of paying Financial
Consultants a commission upon sales of those shares.  The Class B,
Class L and Class O shares distribution fee is calculated at the
annual rate of 0.50% for Class B shares, 0.75% for Class L shares
and 0.45% for Class O shares of the value of the fund's average
net assets attributable to the shares of the respective Class.

	The following service and distribution fees were incurred
during the periods indicated:


Fiscal Year
12/31/00
Fiscal Year
12/31/99
Fiscal Year
12/31/98
Class A
$1,663,003
$1,915,701
$2,248,211
Class B
10,039,682
17,658,168
24,304,146
Class L*
231,303
260,908
90,652
Class O**
330,372
573,980
791,809

*  The fund commenced selling Class L shares on June 15, 1998.
**Class O shares were called Class C shares until June 12, 1998.

For the fiscal year ended December 31, 2000, Salomon Smith Barney
incurred distribution expenses totaling $10,195,851 consisting of
$318,507 for advertising, $94,029 for printing and mailing
prospectuses, $7,562,173 for support services and overhead
expenses, $2,310,417 to Salomon Smith Barney Consultants and
$(89,275) for accruals for interest on the excess of Salomon Smith
Barney expenses incurred in the distribution of the fund's shares
over the sum of the distribution fees and deferred sales charges
received by Salomon Smith Barney.

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 Independent Trustees who
have no direct or indirect financial interest in the operation of
the Plan.  The Plan may not be amended to increase the amount to
be spent for the services provided by the Distributor without
shareholder approval, and all amendments of the Plan must be
approved by the 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 the fund, by vote of a majority of the outstanding
voting securities of the Class (as defined in the 1940 Act).
Pursuant to the Plan, the Distributor 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

Each Class' net asset value per share is calculated on each day,
Monday through Friday, except days on which the NYSE is closed.
The NYSE currently is scheduled to be closed on New Year's Day,
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 procedures used by the fund in
valuing its assets.

Because of the need to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of the net
asset value of the fund when investing in foreign securities may
not take place contemporaneously with the determination of the
prices of many of its other respective portfolio securities used
in such calculation.  A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security.  All assets
and liabilities initially expressed in foreign currency values
will be converted into U.S. dollar values at the mean between the
bid and offered quotations of such currencies against U.S. dollars
as last quoted by any recognized dealer.  If such quotations are
not available, the rate of exchange will be determined in good
faith by the trust's Board of Trustees.  In carrying out the
Board's valuation policies, SBFM, as administrator, may consult
with an independent pricing service (the "Pricing Service")
retained by the trust.

Debt securities of United States issuers (other than U.S.
government securities and short-term investments), are valued by
SBFM, as administrator, after consultation with the Pricing
Service approved by the trust's Board of Trustees.  When, in the
judgment of the Pricing Service, quoted bid prices for investments
are readily available and are representative of the bid side of
the market, these investments are valued at the mean between the
quoted bid prices and asked prices.  Investments for which, in the
judgment of the Pricing Service, there are no readily obtainable
market quotations 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.

PERFORMANCE DATA

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


Yield

The 30-day yield figure is calculated according to a formula
prescribed by the SEC.  The formula can be expressed as follows:
YIELD =2[(a-bcd+1)6-1]
Where:
	a = dividends and interest earned during the period.
	b = expenses accrued for the period (net of waiver and
reimbursement).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
	d = the maximum offering price per share on the last day of
the period.
For the purpose of determining the interest earned (variable "a"
in the formula) on debt obligations purchased by the fund at a
discount or premium, the formula generally calls for amortization
of the discount or premium; the amortization schedule will be
adjusted monthly to reflect changes in the market values of the
debt obligations.
Investors should recognize that, in periods of declining interest
rates, the fund's yield will tend to be somewhat higher than
prevailing market rates, and in periods of rising interest rates
the fund's yield will tend to be somewhat lower.  In addition,
when interest rates are falling, the inflow of net new money to
the fund from the continuous sale of its shares will likely be
invested in portfolio instruments producing lower yields than the
balance of such fund's investments, thereby reducing the current
yield of the fund.  In periods of rising interest rates, the
opposite can be expected to occur.
Average Annual Total Return
The "average annual total return" for the fund 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 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 average annual total returns with sales charges of the fund's
Class A shares were as follows for the periods indicated:

One-Year
Period

Five-Year
Period
Commencement of
Operations*
1.16%
11.33%
11.91%

* Fund commenced selling Class A shares on November 6, 1992.

The average annual total returns without sales charges of the
fund's Class A shares were as follows for the period indicated:


One-Year
Period

Five-Year
Period
Commencement of
Operations*
6.48%
12.47%
12.62%

* Fund commenced selling Class A shares on November 6, 1992.

The average annual total returns (with fees waived and without
deferred sales charge) of the fund's Class B shares were as
follows for the periods indicated:

One-Year
Period
Five-Year
Period
Ten-Year
Period
Commencement
of Operations*
1.40%
11.77%
13.50%
12.48%

	* Fund commenced operations on September 16, 1985.

Had the maximum applicable deferred sales charge not been deducted
at the time of redemption, Class B's average annual total return
would have been 5.87%, 11.89%, 13.50% and 12.49% for the same
periods.

The average annual total returns (with fees waived) of the fund's
Class L shares were as follows for the period indicated:
One-Year
Period
Commencement
of
Operations*
3.65%
3.71%
*The fund commenced selling Class L shares on June 15, 1998.
The average annual total returns without sales charges of the
fund's Class L shares were as follows for the period indicated:
One-Year
Period
Commencemen
t of
Operations*
5.58%
4.12%

*The fund commenced selling Class L shares on June 15, 1998.
The average annual total returns (with fees waived) of the fund's
Class O shares were as follows for the periods indicated:

One-Year
Period

Five-Year
Period
Commencement
of Operations*
5.07%
11.94%
12.03%

* The Fund commenced selling Class O shares on June 1, 1993.



The average annual total returns without sales charges of the
fund's Class O shares were as follows for the periods indicated:


One-Year
Period

Five-Year
Period
Commencement
of Operations*
5.97%
11.94%
12.03%

* The Fund commenced selling Class O shares on June 1, 1993.

The average annual total returns (with fees waived) of the fund's
Class Y shares were as follows for the periods indicated:


One-Year
Period
Commencement
of Operations*
6.81%
12.39%

*The Fund commenced selling Class Y shares on February 7, 1996.
There are no sales charges on Class Y shares.

Aggregate Total Return

The aggregate total return for the fund represents the cumulative
change in the value of an investment in the Class 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 aggregate total returns (with fees waived) of the Class A,
Class B, Class O, Class L and Class Y shares of the fund were as
follows for the periods indicated:

No Load*

Class
One-Year
Period
Five-
Year
Period
Ten-Year
Period
Commencement
of Operations





Class A (1)
6.48%
80.00%
N/A
163.62%
Class B (2)
5.87%
75.41%
254.87%
504.92%
Class O (3)
5.97%
75.41%
N/A
136.74%
Class L (4)
5.58%
N/A
N/A
10.83%
Class Y (5)
6.81%
N/A
N/A
77.28%



Load**

Class
One-Year
Period
Five-
Year
Period
Ten-Year
Period
Commencement
of Operations





Class A (1)
1.16%
71.01%
N/A
150.40%
Class B (2)
1.40%
74.47%
254.87%
504.92%
Class O (3)
5.07%
75.74%
N/A
136.74%
Class L (4)
3.65%
N/A
N/A
   9.73%
Class Y (5)
6.81%
N/A
N/A
  77.28%

*	Figures do not include the effect of the maximum sales
charge or maximum applicable deferred sales charge.
**	Figures include the effect of the maximum sales charge or
maximum applicable deferred sales charge, except for Class
Y shares.
(1)	The Fund commenced selling Class A shares on November 6,
1992.
(2)	The Fund commenced selling Class B shares on September 16,
1985.
(3)	The Fund commenced selling Class O shares (previously
designated as Class C shares) on June 1, 1993.
(4) The Fund commenced selling Class L shares on June 15, 1998.
(5) The Fund commenced selling Class Y shares on February 7,
1996.

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

The performance of a Class of shares will vary from time to time
depending upon market conditions, the composition of the fund's
portfolio and operating expenses and the expenses exclusively
attributable to that 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 company's portfolio securities.

TAXES

The following is a summary of certain federal income tax
considerations that may affect the fund and its shareholders.  In
addition to the considerations described below, there may be other
federal, state, local or foreign tax applications to consider.
This summary does not address all of the potential federal income
tax consequences that may be applicable to the fund or to all
categories of investors, some of which may be subject to special
tax rules.  The summary is not intended as a substitute for
individual tax advice and investors are urged to consult their own
tax advisors as to the tax consequences of an investment in the
fund.

Tax Status of the Fund

The fund is treated as a separate taxable entity for federal
income tax purposes.

The fund has qualified and the trust intends that the fund
continue to qualify separately each year as a "regulated
investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), by complying with certain requirements
regarding the sources and distribution of its income and the
diversification of its assets.  If it so qualifies, the fund will
not be liable for federal income taxes to the extent its taxable
net investment income and net realized capital gains are
distributed to its shareholders in accordance with the Code's
timing and other requirements.  One of the several requirements
for qualification is that the fund receive at least 90% of its
gross income for each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale
or other disposition of equity or debt securities or foreign
currencies, or other income (including but not limited to gains
from options, futures, or forward contracts) derived with respect
to the fund's investment in such stock, securities, or currencies.
The trust does not expect the fund to have difficulty meeting this
test.

Taxation of Investments by the Fund

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

Dividends or other income (including, in some cases, capital
gains) received by the fund from investments in foreign securities
may be subject to withholding and other taxes imposed by foreign
countries.  Tax conventions between certain countries and the
United States may reduce or eliminate such taxes in some cases.
The fund will not be eligible to elect to treat any foreign taxes
paid by it as paid by its shareholders, who therefore will not be
entitled to deductions or credits for such taxes on their own tax
returns.

If the fund acquires an equity interest (including a depositary
receipt for shares of stock) in certain foreign investment
entities, referred to as "passive foreign investment companies,"
the fund itself may be subject to U.S. federal income tax and an
additional charge in the nature of interest on a portion of any
"excess distribution" from such company or gain from the
disposition of its equity interest, even if the distribution or
gain is distributed by the fund to its shareholders in a manner
that satisfies the requirements referred to above.  If the fund
were able and elected to treat a passive foreign investment
company as a "qualified electing fund," in lieu of the treatment
described above, the fund would be required each year to include
in income, and distribute to shareholders in accordance with the
distribution requirements referred to above, the fund's pro rata
share of the ordinary earnings and net capital gains of the
company, whether or not actually received by the fund.  The fund
generally should be able to make an alternative election to mark
these investments to market annually, resulting in the recognition
of ordinary income (rather than capital gain) or ordinary loss,
subject to certain limitations on the ability to use any such
loss.

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

In order to avoid the application of a 4% nondeductible excise tax
on certain undistributed amounts of ordinary income and capital
gains, the fund may make an additional distribution shortly before
or shortly after December 31 in each year of any undistributed
ordinary income or capital gains and expects to pay any additional
dividends and distributions necessary to avoid the application of
this tax.

Options Transactions.  The tax consequences of options
transactions entered into by the fund will vary depending on the
nature of the underlying security, whether the option is written
or purchased, and whether the "straddle" rules, discussed
separately below, apply to the transaction.  When the fund writes
a call or put option on an equity security (including a narrow-
based stock index) or convertible debt security or an over-the-
counter option on a debt security, it will receive a premium that
will be treated as follows for tax purposes.  If the option
expires unexercised, or if the fund enters into a closing purchase
transaction, the fund will realize a gain (or loss if the cost of
the closing purchase transaction exceeds the amount of the
premium) without regard to any unrealized gain or loss on the
underlying security.  Any such gain or loss will be a short-term
capital gain or loss, except that in some cases a loss on a
"qualified" covered call stock option that is not treated as a
part of a straddle may be treated as long-term capital loss.  If a
call option written by the fund is exercised, the fund will
recognize a capital gain or loss from the sale of the underlying
security, and will treat the premium as additional sales proceeds.
Whether the gain or loss will be long-term or short-term will
depend on the holding period of the underlying security.  If a put
option written by the fund is exercised, the amount of the premium
will reduce the tax basis of the security the fund then purchases.

If a put or call option the fund has purchased on an equity
security (including a narrow-based stock index) or convertible
debt security or an over-the-counter option on a debt security
expires unexercised, the fund will realize capital loss equal to
the cost of the option.  If the fund enters into a closing sale
transaction with respect to the option, it will realize a capital
gain or loss (depending on whether the proceeds from the closing
transaction are greater or less than the cost of the option).  The
gain or loss will be short-term or long-term, depending on the
fund's holding period for the option.  If the fund exercises such
a put option, it will realize a short-term or long-term capital
gain or loss (depending upon its tax holding period for the
underlying security) from the sale of the underlying security
measured by the sales proceeds, decreased by the premium paid, and
the fund's tax basis for the underlying security.  If the fund
exercises such a call option, the premium paid for the option will
be added to the tax basis of the security purchased.

In lieu of the foregoing treatment, the Code imposes a special
"mark-to-market" system for taxing "section 1256 contracts"
including certain listed options on nonconvertible debt securities
(including U.S. government securities) or other listed nonequity
options and options on certain stock indexes.  In general, gain or
loss on section 1256 contracts will be taken into account for tax
purposes when actually realized (by a closing transaction, by
exercise, by taking or making delivery or by other termination).
In addition, any section 1256 contracts held at the end of a
taxable year will be treated as sold at their year-end fair market
value (that is, marked to the market), and the resulting gain or
loss will be recognized for tax purposes.  Provided section 1256
contracts are held as capital assets and are not part of a
straddle, both the realized and mark-to-market year-end gain or
loss from these investment positions (including premiums received
on listed, nonequity options that expire unexercised) will be
treated as 60% long-term and 40% short-term capital gain or loss,
regardless of the period of time particular positions are actually
held by the fund.  Constructive sale rules may also require the
recognition of gains (but not losses) if the fund engages in short
sales or certain other transactions.

Straddles.  While the mark-to-market system is limited to section
1256 contracts, the Code contains other rules applicable to
transactions which create positions which offset positions in
section 1256 or other investment contracts or securities
("straddles").  Straddles are defined to include "offsetting
positions" in actively traded personal property.  In general,
investment positions may be "offsetting" if there is a substantial
diminution in the risk of loss from holding one position by reason
of holding one or more other positions.  Under current law, it is
not clear under certain circumstances whether one investment made
by the fund, such as an option contract, would be treated as
offsetting another investment also held by the fund, and,
therefore, whether the fund would be treated as having entered
into a straddle.

If two (or more) positions constitute a straddle, a realized loss
from one position (including a mark-to-market loss) must be
deferred to the extent of unrecognized gain in an offsetting
position.  Also, the holding period rules described above may be
modified to recharacterize long-term gain as short-term gain, or
to recharacterize short-term loss as long-term loss, in connection
with certain straddle transactions.  Furthermore, interest and
other carrying charges allocable to personal property that is part
of a straddle must be capitalized.  In addition, "wash sale" rules
apply to straddle transactions to prevent the recognition of loss
from the sale of a position at a loss where a new offsetting
position is or has been acquired within a prescribed period.  To
the extent the straddle rules apply to positions established by
the fund, losses realized by the fund may be either deferred or
recharacterized as long-term losses, and long-term gains realized
by the fund may be converted into short-term gains.

If the fund chooses to identify particular offsetting positions as
being components of a straddle, a realized loss will be
recognized, but only upon the liquidation of all components of the
identified straddle.  Special rules apply to the treatment of
"mixed" straddles (that is, straddles consisting of a section 1256
contract and an offsetting position that is not a section 1256
contract).  If the fund makes certain elections, the section 1256
contract components of such straddles will not be subject to the
"60/40%" and/or mark-to-market rules.  If any such election is
made, the amount, nature (as long-term or short-term) and the
timing of the recognition of the fund's gains or losses from the
affected straddle positions will be determined under rules that
will vary according to the type of election made.  The effect of
the straddles rules and the other rules described above may be to
change the amount, timing and character of the fund's income,
gains and losses and, therefore, its distributions.

Taxation of the Fund's Shareholders

Dividends paid by the fund from investment income and
distributions from any excess of its net short-term capital gain
over its net long-term capital loss are taxable to shareholders as
ordinary income for federal income tax purposes, whether received
in cash or reinvested in additional shares.  Distributions from
any excess of the fund's net long-term capital gain over its net
short-term capital loss are taxable to shareholders as long-term
capital gain, whether paid in cash or reinvested in additional
shares, and regardless of the length of time the shareholder has
held his or her shares of the fund.  For federal income tax
purposes, dividends declared by the fund in October, November or
December as of a record date in such a month and which are
actually paid in January of the following year will be treated as
if they were paid on December 31.  These dividends will be taxable
to shareholders as if received on December 31 rather than in the
year in which shareholders actually receive the dividends.

Statements as to the tax status of each shareholder's dividends
and distributions are mailed annually.  Each shareholder will also
receive, if appropriate, various written notices after the close
of the fund's taxable year as to the federal income tax status of
his or her dividends and distributions which were received from
the fund during the fund's taxable year.  Shareholders should
consult their tax advisors regarding specific questions as to the
federal, state and local tax consequences of investing in the
fund.

Dividends of investment income (but not capital gains) from the
fund generally will qualify for the federal dividends-received
deduction for domestic corporate shareholders to the extent such
dividends do not exceed the aggregate amount of qualified
dividends received by the fund from domestic corporations.  If
securities held by the fund are considered to be "debt-financed"
(generally, acquired with borrowed funds), are held by the fund
for less than 46 days (91 days in the case of certain preferred
stock) during a prescribed period, or are subject to certain forms
of hedges or short sales, the portion of the dividends paid by the
fund which corresponds to the dividends paid with respect to such
securities will not be eligible for the corporate dividends-
received deduction.  Receipt of dividends that qualify for the
dividends received deduction may increase a corporate
shareholder's liability, if any, for the alternative minimum tax.
Such a shareholder should also consult its tax advisor regarding
the possibility that its federal tax basis in its fund shares may
be reduced by the receipt of "extraordinary dividends" from the
fund and, to the extent such basis would be reduced below zero,
current recognition of income would be required.  The dividends-
received deduction will be allowed only with respect to properly-
designated dividends on fund shares for which a corporate
shareholder satisfies the same holding period rules, and subject
to the same limitations on debt financing, applicable to the fund.

If a shareholder (a) incurs a sales charge in acquiring fund
shares and (b) disposes of those shares within 90 days after the
original acquisition, and (c) acquires shares in a mutual fund for
which the otherwise applicable sales charge is reduced by reason
of a reinvestment right (e.g., an exchange privilege), the
original sales charge increases the shareholder's tax basis in the
original shares only to the extent the otherwise applicable sales
charge for the second acquisition is not reduced.  The portion of
the original sales charge that does not increase the shareholder's
tax basis in the original shares would be treated as incurred with
respect to the second acquisition and, as a general rule, would
increase the shareholder's tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of the
newly acquired shares 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.  Additionally, any loss realized on a disposition of
fund shares generally will be disallowed to the extent the shares
disposed of are replaced with other shares of the fund within a
period of 61 days, beginning 30 days before and ending 30 days
after such disposition, such as pursuant to reinvestment of
dividends in fund shares.

Investors considering buying shares of the fund on or just prior
to a record date for a taxable dividend or capital gain
distribution should be aware that even if the net asset value of
the fund's shares is reduced below the investor's cost as a result
of such a distribution, any such payment will be a taxable
dividend or distribution payment even though it may represent a
return of invested capital.

Share Redemptions.  As a general rule, a shareholder who is not a
dealer in securities and who redeems or exchanges his or her
shares will recognize long-term capital gain or loss if the shares
have been held for more than one year, and will recognize short-
term capital gain or loss if the shares have been held for one
year or less, provided in each case the transaction is properly
treated as a sale rather than a dividend for tax purposes.
However, if a shareholder receives a distribution taxable as long-
term capital gain with respect to shares of the fund and redeems
or exchanges the shares before he or she has held them for more
than six months, any loss on such redemption or exchange will be
treated as a long-term capital loss to the extent of the
distribution.

Backup Withholding.  If a shareholder fails to furnish a correct
taxpayer identification number, fails to fully report 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 such withholding, then the shareholder may be subject
to a 31% "backup withholding tax" with respect to (a) any
dividends and distributions and (b) any proceeds of any redemption
of fund shares.  An individual's taxpayer identification number is
his or her social security number.  The backup withholding tax is
not an additional tax and may be credited against a shareholder's
federal income tax liability.  Certain distributions to
nonresident aliens and foreign entities may also be subject to
other withholding taxes.

ADDITIONAL INFORMATION

The trust was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to a Master
Trust Agreement dated March 12, 1985, as amended from time to
time, and on November 5, 1992 the trust filed an Amended and
Restated Master Trust Agreement (the "Trust Agreement").  The
trust commenced business as an investment company on September 16,
1985, under the name Shearson Lehman Special Portfolios.  On
February 21, 1986, December 6, 1988, August 27, 1990, November 5,
1992, July 30, 1993 and October 14, 1994, the trust changed its
name to Shearson Lehman Special Income Portfolios, SLH Income
Portfolios, Shearson Lehman Brothers Income Portfolios, Shearson
Lehman Brothers Income Funds, Smith Barney Shearson Income Funds
and Smith Barney Income Funds, respectively.

Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the fund.  The Master Trust Agreement disclaims shareholder
liability for acts or obligations of the fund, however, and
requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by
the fund or a Trustee.  The Master Trust Agreement provides for
indemnification from fund property for all losses and expenses of
any shareholder held personally liable for the obligations of the
fund.  Thus, the risk of a shareholder's incurring financial loss
on account of shareholder liability is limited to circumstances in
which the fund itself would be unable to meet its obligations, a
possibility which management of the fund believes is remote.  Upon
payment of any liability incurred by the fund, a shareholder
paying such liability will be entitled to reimbursement from the
general assets of the fund.  The Trustees intend to conduct the
operation of the fund in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities
of the fund.

PFPC Trust Company (successor by assignment from PNC Bank,
National Association), located at 8800 Tinicum Boulevard,
Philadelphia, Pennsylvania 19153 and serves as the custodian for
the fund.  Under the custodian agreement with the fund, the
custodian is authorized to establish separate accounts for foreign
securities owned by the fund to be held with foreign branches of
other U.S. banks as well as with certain foreign banks and
securities depositories.  For its custody services to the fund,
the custodian receives monthly fees based upon the month-end
aggregate net asset value of the fund, plus certain charges for
securities transactions including out-of-pocket expenses, and
costs of any foreign and domestic sub-custodians.  The assets of
the fund are held under bank custodianship in compliance with the
1940 Act.

Citi Fiduciary Trust Company, located at 125 Broad Street, New
York, New York 10004, serves as the transfer agent and shareholder
services agent of the fund.

PFPC Global Fund Services, located at P.O. Box 9699, Providence,
Rhode Island 02940-9699, serves as the fund's sub-transfer agent
to render certain shareholder record-keeping and accounting
services functions.

Description of Shares

The Master Trust Agreement of the fund permits the Trustees of the
fund to issue an unlimited number of full and fractional shares of
a single class and to divide or combine the shares into a greater
or lesser number of shares without thereby changing the
proportionate beneficial interests in the fund.  Each share in the
fund represents an equal proportional interest in the fund with
each other share.  Shareholders of the fund are entitled upon its
liquidation to share pro rata in its net assets available for
distribution.  No shareholder of the fund has any preemptive or
conversion rights.  Shares of the fund are fully paid and non-
assessable.

Pursuant to the Master Trust Agreement, the fund's Trustees may
authorize the creation of additional series of shares (the
proceeds of which would be invested in separate, independently
managed portfolios) and additional classes of shares within any
series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by
future regulations or other unforeseen circumstances).

FINANCIAL STATEMENTS

The fund's annual report for the fiscal year ended December 31,
2000 was filed on March 9, 2001 and is incorporated in its
entirety by reference, Accession No. 0000050130-01-220.


OTHER INFORMATION

Styles of Fund Management: In an industry where the average
portfolio manager has seven years of experience (source: ICI,
1998), the portfolio managers of Smith Barney mutual funds average
21 years in the industry and 15 years with the firm.

Smith Barney mutual funds offer more than 60 mutual funds.  We
understand that many investors prefer an active role in allocating
the mix of funds in their portfolio, while others want the asset
allocation decisions to be made by experienced managers.

That's why we offer five "styles" of fund management that can be
tailored to suit each investor's unique financial goals.

	Classic Series  - our portfolio manager driven funds
Our Classic Series lets investors participate in mutual
funds whose investment decisions are determined by
experienced portfolio managers, based on each fund's
investment objectives and guidelines.  Classic Series funds
invest across asset classes and sectors, utilizing a range
of strategies in order to achieve their objectives.

	Index Series - funds that track the market
Our Index funds are designed to provide investment results
that track, as closely as possible, the performance of a
stock or bond market index.  This strategy distinguishes an
index fund from an "actively managed" mutual fund.  Instead
of trying to outperform a market or segment, a portfolio
manager looks to an index to determine which securities the
fund should own.

	Premier Selections Series - our best ideas, concentrated
funds
We offer a series of Premier Selections funds managed by
several of our most experienced and proven managers.  This
series of funds is built on a unique strategy of combining
complementary investment management styles to create
broader, multiclass and multicap products that are
distinguished by a highly concentrated focus.

Research Series - driven by exhaustive fundamental
securities analysis
Built on a foundation of substantial buy-side research under
the direction of our Citibank Global Asset Management (CGAM)
colleagues, our Research funds focus on well-defined
industries, sectors and trends.

Style Pure Series - our solution to funds that stray
Our Style Pure Series funds are the building blocks of asset
allocation.  The funds stay fully invested within their
asset class and investment style, enabling you to make asset
allocation decisions in conjunction with your financial
professional.





APPENDIX A


Description of Ratings

Description of S&P Corporate Bond Ratings

	AAA

	Bonds rated AAA have the highest rating assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is
extremely strong.

	AA

	Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues only
in small degree.

	A

	Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.

	BBB

	Bonds rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally exhibit
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 bonds in this
category than for bonds in higher rated categories.

	BB, B and CCC

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

Description of Moody's Corporate Bond Ratings

	Aaa

	Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt-edge." Interest payments are
protected by a large or 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 which 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 which
make the long-term risks appear somewhat larger than in Aaa
securities.

	A

	Bonds which are rated A possess 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 which suggest a
susceptibility to impairment sometime in the future.

	Baa

	Bonds which 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
desirable investments. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.

	Caa

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

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






Description of S&P Municipal Bond Ratings

AAA

	Prime -- These are obligations of the highest quality. They
have the strongest capacity for timely payment of debt service.

	General Obligation Bonds -- In a period of economic stress,
the issuers will suffer the smallest declines in income and will
be least susceptible to autonomous decline. Debt burden is
moderate. A strong revenue structure appears more than adequate to
meet future expenditure requirements. Quality of management
appears superior.

	Revenue Bonds -- Debt service coverage has been, and is
expected to remain, substantial. Stability of the pledged revenues
is also exceptionally strong due to the competitive position of
the municipal enterprise or to the nature of the revenues. Basic
security provisions (including rate covenant, earnings test for
issuance of additional bonds, debt service reserve requirements)
are rigorous. There is evidence of superior management.

	AA

	High Grade -- The investment characteristics of bonds in
this group are only slightly less marked than those of the prime
quality issues. Bonds rated AA have the second strongest capacity
for payment of debt service.

	A

	Good Grade -- Principal and interest payments on bonds in
this category are regarded as safe although the bonds are somewhat
more susceptible to the adverse affects of changes in
circumstances and economic conditions than bonds in higher rated
categories. This rating describes the third strongest capacity for
payment of debt service. Regarding municipal bonds, the ratings
differ from the two higher ratings because:

	General Obligation Bonds -- There is some weakness, either
in the local economic base, in debt burden, in the balance between
revenues and expenditures, or in quality of management. Under
certain adverse circumstances, any one such weakness might impair
the ability of the issuer to meet debt obligations at some future
date.

	Revenue Bonds -- Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show some
variations because of increased competition or economic influences
on revenues. Basic security provisions, while satisfactory, are
less stringent. Management performance appears adequate.

	BBB

	Medium Grade -- Of the investment grade ratings, this is the
lowest. Bonds in this group are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit 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 bonds in
this category than for bonds in higher rated categories.

	General Obligation Bonds -- Under certain adverse
conditions, several of the above factors could contribute to a
lesser capacity for payment of debt service. The difference
between A and BBB ratings is that the latter shows more than one
fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the
factors considered.

	Revenue Bonds -- Debt coverage is only fair. Stability of
the pledged revenues could show substantial variations, with the
revenue flow possibly being subject to erosion over time. Basic
security provisions are no more than adequate. Management
performance could be stronger.

	BB, B, CCC and CC

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

C

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

	D

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

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

Description of S&P Municipal Note Ratings

	Municipal notes with maturities of three years or less are
usually given note ratings (designated SP-1, -2 or -3) to
distinguish more clearly the credit quality of notes as compared
to bonds. Notes rated SP-1 have a very strong or strong capacity
to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given the designation of
SP-1+. Notes rated SP-2 have satisfactory capacity to pay
principal and interest.

Description of Moody's Municipal Bond Ratings

	Aaa

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

	Aa

	Bonds which 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 which
make the long-term risks appear somewhat larger than in Aaa
securities.

	A

	Bonds which 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 which suggest a
susceptibility to impairment sometime in the future.

	Baa

	Bonds which 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 characterize 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 rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

	Moody's applies the numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B. The modifier 1
indicates that the security ranks in the higher end of its generic
ratings 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 ratings category.

Description of Moody's Municipal Note Ratings

	Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade (MIG) and
for variable rate demand obligations are designated Variable
Moody's Investment Grade (VMIG). This distinction recognizes the
differences between short- and long-term credit risk. Loans
bearing the designation MIG 1/VMIG 1 are the best quality,
enjoying strong protection from established cash flows of funds
for their servicing or from established and broad-based access to
the market for refinancing, or both. Loans bearing the designation
MIG 2/VMIG 2 are of high quality, with margins of protection
ample, although not as large as the preceding group. Loans bearing
the designation MIG 3/VMIG 3 are of favorable quality, with all
security elements accounted for but lacking the undeniable
strength of the preceding grades. Market access for refinancing,
in particular, is likely to be less well established. Loans
bearing the designation MIG 4/VMIG 4 are of adequate quality.
Protection commonly regarded as required of an investment security
is present and although not distinctly or predominantly
speculative, there is specific risk.

Description of Commercial Paper Ratings

	The rating A-1+ is the highest, and A-1 the second highest,
commercial paper rating assigned by S&P. Paper rated A-1+ must
have either the direct credit support of an issuer or guarantor
that possesses excellent long-term operating and financial
strength combined with strong liquidity characteristics
(typically, such issuers or guarantors would display credit
quality characteristics which would warrant a senior bond rating
of A- or higher) or the direct credit support of an issuer or
guarantor that possesses above average long-term fundamental
operating and financing capabilities combined with ongoing
excellent liquidity characteristics. Paper rated A-1 must have the
following characteristics: liquidity ratios are adequate to meet
cash requirements; long-term senior debt is rated A or better; the
issuer has access to at least two additional channels of
borrowing; basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances; typically, the issuer's
industry is well established and the issuer has a strong position
within the industry; and the reliability and quality of management
are unquestioned.

	The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (a) evaluation of the
management of the issuer; (b) economic evaluation of the issuer's
industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; (c) evaluation of the
issuer's products in relation to competition and customer
acceptance; (d) liquidity; (e) amount and quality of long-term
debt; (f) trend of earnings over a period of ten years; (g)
financial strength of parent company and the relationships which
exist with the issuer; and (h) recognition by the management of
obligations which may be present or may arise as a result of
public interest questions and preparations to meet such
obligations.

	Thomson BankWatch employs the rating "TBW-1" as its highest
category, which indicates that the degree of safety regarding
timely repayment of principal and interest is very strong. "TBW-2"
is its second highest rating category. 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."

	Fitch Inc. employs the rating F-1+ to indicate issues
regarded as having the strongest degree of assurance of timely
payment. The rating F-1 reflects an assurance of timely payment
only slightly less in degree than issues rated F-1+, while the
rating F-2 indicates a satisfactory degree of assurance of timely
payment although the margin of safety is not as great as indicated
by the F-1+ and F-1 categories.

	Duff & Phelps Inc. employs the designation of Duff 1 with
respect to top grade commercial paper and bank money instruments.
Duff 1+ indicates the highest certainty of timely payment: short-
term liquidity is clearly outstanding and safety is just below
risk-free U.S. Treasury short-term obligations. Duff 1- indicates
high certainty of timely payment. Duff 2 indicates good certainty
of timely payment: liquidity factors and company fundamentals are
sound.

	Various NRSROs utilize rankings within ratings categories
indicated by a + or -. The Fund, in accordance with industry
practice, recognizes such ratings within categories as gradations,
viewing for example S&P's rating of A-1+ and A-1 as being in S&P's
highest rating category.



g:\legal\funds\slip\2001\secdocs\PremTotal SAI 2001 amend	9
g:\legal\funds\slip\2001\secdocs\PremTotal SAI 2001 amend	A-7


Smith Barney
INCOME FUNDS

7 World Trade Center
New York, New York 10048
(800) 451-2010


Statement of Additional Information       	November 28, 2000
	As Amended July 2, 2001

This statement of additional information expands upon and
supplements the information contained in the current prospectuses
of Smith Barney Income Funds (the "trust"), relating to seven
investment funds offered by the trust: Smith Barney Balanced Fund
(the "Balanced Fund") (formerly Smith Barney Utilities Fund), Smith
Barney Convertible Fund (the "Convertible Fund"), Smith Barney
Diversified Strategic Income Fund (the "Diversified Strategic
Income Fund"), Smith Barney Exchange Reserve Fund (the "Exchange
Reserve Fund"), Smith Barney High Income Fund (the "High Income
Fund"), Smith Barney Municipal High Income Fund (the "Municipal
High Income Fund") and Smith Barney Total Return Bond Fund ("Total
Return Bond Fund") (each, a "fund" individually), each is dated
November 28, 2000, as amended or supplemented from time to time,
and should be read in conjunction with this Statement of Additional
Information. The funds' prospectuses may be obtained from any
Salomon Smith Barney Financial Consultant or by writing or calling
the trust at the address or telephone number set forth above. This
statement of additional information, although not in itself a
prospectus, is incorporated by reference into the funds'
prospectuses in their entirety.


CONTENTS

For ease of reference, the same section headings are used in both
the funds' prospectuses and this statement of additional
information, except where shown below:

Management of the trust and the funds	2
Investment Objectives and Policies	8
Risk Factors	37
Purchase of Shares	48
Redemption of Shares	57
Exchange Privilege	60
Distributor..	61
Valuation of Shares	66
Performance Data (See in the prospectuses "Performance" or "Yield
Information")	67
Taxes (See in the prospectuses "Dividends, Distributions and
Taxes")	73
Additional Information	77
Voting Rights	78
Financial Statements	85
Other Information	85
Appendix	A-1


 MANAGEMENT OF THE TRUST AND THE FUNDS

The executive officers of the trust are employees of certain of the
organizations that provide services to the trust. These
organizations are the following:

Name
Service
Salomon Smith Barney Inc. ("Salomon
Smith Barney")
Distributor
PFS Distributors, Inc. ("PFSDI")
Distributor
SSB Citi Fund Management LLC ("SSB
Citi" or the "manager")
Investment adviser and administrator
to the funds
Smith Barney Global Capital
Management Inc. ("Global Capital
Management")
Sub-investment adviser to Diversified
Strategic Income Fund
Salomon Brothers Asset Management
("SaBAM")
Sub-investment adviser to Convertible
Fund
PFPC Trust Company (successor by
assignment from PNC Bank, National
Association ("PFPC")
Custodian to Convertible Fund,
Exchange Reserve Fund, High Income
Fund, Municipal High Income Fund,
Total Return Bond Fund and Balanced
Fund
Chase Manhattan Bank ("Chase")
Custodian to Diversified Strategic
Income Fund
Citi Fiduciary Trust Company
("transfer agent")
Transfer Agent
PFPC Global Fund Services ("PFPC
Global")
PFS Shareholder Services ("PFS")
Sub-Transfer Agent
Sub-Transfer Agent

These organizations and the functions they perform for the trust
are discussed in the funds' prospectuses and in this statement of
additional information.

Trustees and Executive Officers of the Trust

The trustees and executive officers of the trust, together with
information as to their principal business occupations during the
past five years, are shown below. The executive officers of the
trust 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.

Lee Abraham, Trustee (Age 73). Retired; Director or trustee of 12
investment companies associated with Citigroup; formerly Chairman
and Chief Executive Officer of Associated Merchandising
Corporation, a major retail merchandising and sourcing
organization. His address is 106 Barnes Road, Stamford, Connecticut
06902.

Allan J. Bloostein, Trustee (Age 70). Consultant; Director or
trustee of 19 investment companies associated with Citigroup;
formerly Vice Chairman of the Board of and Consultant to The May
Department Stores Company; Director of Crystal Brands, Inc.,
Melville Corp. and R.G. Barry Corp. His address is 27 West 67th
Street, New York, New York 10023.

Richard E. Hanson, Jr., Trustee (Age 59). Head of School, The New
Atlanta Jewish Community High School, Atlanta Georgia; Director or
trustee of 12 investment companies associated with Citigroup;
prior to July 1, 1994, Headmaster, Lawrence Country Day School-
Woodmere Academy, Woodmere, New York; prior to July 1, 1990,
Headmaster of Woodmere Academy. His address is 58 Ivy Chase,
Atlanta, GA  30342.

Jane Dasher, Trustee (Age 51). Investment Officer of Korsant
Partners, a family investment company; Director or trustee of 12
investment companies associated with Citigroup. Prior to 1997, an
Independent Financial Consultant; From 1975 to 1987 held various
positions with Philip Morris Companies, Inc. including Director of
Financial Services, Treasurers Department; Her address is 283
Greenwich Avenue, Greenwich Connecticut 06830.

Donald R. Foley, Trustee (Age 78). Retired; Director or trustee
of 12 investment companies associated with Citigroup. Formerly
Vice President of Edwin Bird Wilson, Incorporated (an advertising
agency). His address is 3668 Freshwater Drive, Jupiter, Florida
33477.

Paul Hardin, Trustee (Age 69). Professor of Law at University of
North Carolina at Chapel Hill; Director of The Summit
Bancorporation; Director or trustee of 14 investment companies
associated with Citigroup. Formerly, Chancellor of the University
of North Carolina at Chapel Hill. His address is 12083 Morehead,
Chapel Hill, North Carolina 27514.

Roderick C. Rasmussen, Trustee (Age 74). Investment Counselor;
Director or trustee of 12 investment companies associated with
Citigroup. Formerly Vice President of Dresdner and Company Inc.
(investment counselors). ; His address is 9 Cadence Court,
Morristown, New Jersey 07960;

John P. Toolan, Trustee (Age 70). Retired; Director or trustee of
12 investment companies associated with Citigroup. Trustee of
John Hancock Funds; Formerly, Director and Chairman of Salomon
Smith Barney Trust Company, Director of Smith Barney Holdings
Inc. and various subsidiaries, Senior Executive Vice President,
Director and Member of the Executive Committee of Smith Barney.
His address is 13 Chadwell Place, Morristown, New Jersey 07960.

*Heath B. McLendon, Chairman of the Board and Investment Officer
(Age 67). Managing Director of Salomon Smith Barney and Chairman
of the Board of Smith Barney Strategy Advisers Inc.; and President
of SSB Citi and Travelers Investment Adviser, Inc. ("TIA").  Mr.
McLendon is Chairman or Co-Chairman of the Board and Director of 78
investment companies associated with Citigroup Inc. ("Citigroup")
His address is 7 World Trade Center, New York, New York 10048.

John C. Bianchi, Vice President and Investment Officer (Age 45).
Managing Director of Salomon Smith Barney; Investment Officer of
six Smith Barney Mutual Funds. His address is 7 World Trade Center,
New York, New York 10048.

James E. Conroy, Vice President and Investment Officer (Age 49).
Managing Director of Salomon Smith Barney. Investment Officer of
four Smith Barney Mutual Funds. His address is 7 World Trade
Center, New York, New York 10048.

Joseph P. Deane, Vice President and Investment Officer (Age 52).
Managing Director of Salomon Smith Barney; Investment Officer of
nine Smith Barney Mutual Funds.  His address is 7 World Trade
Center, New York, New York 10048.

Simon R. Hildreth, Vice President and Investment Officer (Age
47). Managing Director of Salomon Smith Barney, member of the
Investment Policy of Smith Barney Global Capital Management Inc.;
Mr. Hildreth is Vice President and Investment Officer of three
Smith Barney Mutual Funds. His address is 10 Piccadilly, London,
WIV 9LA, UK.

Charles P. Graves, III, Vice President and Investment Officer (Age
38). Managing Director of Salomon Smith Barney. His address is 7
World Trade Center, New York, New York 10048.

Ross S. Margolies, Vice President and Investment Officer (Age
40)  A Managing Director of SaBAM; Senior Portfolio Manager for
all SaBAM U.S. equity, convertibles and arbitrage portfolios;
Portfolio Manager of 25 other investment companies associated
with Citigroup. His address is 7 World Trade Center, New York,
New York 10048.

Kevin Kennedy, Vice President and Investment Officer (Age 47).
Managing Director of Salomon Smith Barney, Vice President and/or
Investment Officer of certain other investment companies associated
with Citigroup and Head of the Liquidity Management Group. His
address is 7 World Trade Center, New York, New York 10048.

Lewis E. Daidone, Senior Vice President and Treasurer (Age 43).
Managing Director of Salomon Smith Barney; Director and Senior
Vice President of SSB Citi  and TIA.  Mr. Daidone serves as
Senior Vice President and Treasurer or Executive Vice President
and Treasurer of 61 investment companies associated with
Citigroup.  His address is 125 Broad Street, New York, New York
10004.

Paul Brook, Controller (Age 46).  Director of Salomon Smith
Barney; Mr. Brook serves as Controller or Assistant Secretary of
43 investment companies associated with Citigroup. from 1997-1998
Managing Director of AMT Capital Services Inc.; prior to 1997
Partner with Ernst & Young LLP. His address is 125 Broad Street,
New York, New York 10004.

Christina T. Sydor, Secretary (Age 49). Managing Director of
Salomon Smith Barney; General Counsel and Secretary of SSB Citi and
TIA. Ms. Sydor serves as Secretary or Executive Vice President and
General Counsel of 61 investment companies associated with
Citigroup. Her address is 7 World Trade Center, New York, New York
10048.

Each trustee also serves as a director, trustee and/or general
partner of certain other Smith Barney Mutual Funds. Global Capital
Management and SSB Citi are "affiliated persons" of the trust as
defined in the 1940 Act by virtue of their positions as investment
advisers to the funds. As of November 17, 2000, the trustees and
officers of the funds, as a group, owned less than 1% of the
outstanding shares of beneficial interest of each fund.

No officer, director or employee of Salomon Smith Barney or any
Salomon Smith Barney parent or subsidiary receives any compensation
from the trust for serving as an officer or trustee of the trust.
Officers and interested trustees of the trust are compensated by
Salomon Smith Barney.  The trust pays each trustee who is not an
officer, director or employee of Salomon Smith Barney or any of its
affiliates a fee of $60,000 per annum and are allocated based on
relative net assets of each fund in the group of funds sponsored
by Salomon Smith Barney plus a per meeting fee of $2,500 with
respect to in-person meetings. In addition, these directors
received $100 per fund for each telephone meeting plus travel and
out-of-pocket expenses incurred in connection with board meetings.
The board meeting fees and out-of-pocket expenses are borne
proportionately by each individual fund or portfolio in the group.
For the calendar year ended December 31, 1999, such travel and out-
of-pocket expenses for the group totaled $13,469.

For the fiscal year ended July 31, 2000 and the calendar year ended
December 31, 1999, the trustees of the trust were paid the
following compensation:






Trustee
Aggregate
Compensation
from the
Funds for the
Fiscal Year
ended
July 31, 2000
Total
Pension or
Retirement
Benefits
Accrued
from the
Funds
Aggregate
Compensation
from the Funds
and the Fund
Complex for the
Year Ended
December 31,
1999
Number of
Funds for
Which
Person
Served
Within Fund
Complex





Lee Abraham
$23,000
$0
$71,133
12
Allan J. Bloostein
23,100
0
112,483
19
Jane Dasher
23,300
0
65,733
12
Donald R. Foley*
16,580
0
71,300
12
Richard E. Hanson,
Jr.
23,200
0
68,233
12
Paul Hardin
23,200
0
90,450
14
Heath B. McLendon+
0
0
0
78
Roderick C.
Rasmussen*
16,900
0
71,200
12
John P. Toolan*
23,200
0
69,100
12

+	Designates a director who is an "interested person" of the
fund.

*	Pursuant to the fund's deferred compensation plan, the indicated
directors have elected to defer the following amounts of their
compensation from the fund: Donald R Foley: $10,080, John P.
Toolan: $23,200, and Roderick C. Rasmussen: $6,300, and the
following amounts of their total compensation from the Fund
Complex: Donald R. Foley: $21,600 and John P. Toolan: $69,100.

Note:	Upon attainment of age 72 the fund's current trustees may
elect to change to emeritus status.  Any directors elected or
appointed to the Board of Trustees in the future will be
required to change to emeritus status upon attainment of age
80.  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 the fund's trustees, together with
reasonable out-of-pocket expenses for each meeting attended.
During the fund's last fiscal year, no aggregate compensation
was paid from a fund to Emeritus Trustees.

Investment Adviser, Sub-Investment Advisers and Administrator

SSB Citi serves as investment adviser to one or more funds pursuant
to a separate written agreement with the relevant fund (an
"advisory agreement").  SSB Citi is a wholly owned subsidiary of
Salomon Salomon Smith Barney Holdings Inc. ("Holdings"). Holdings
is a wholly owned subsidiary of Citigroup. The advisory agreements
were most recently approved by the board of trustees, including a
majority of the trustees who are not "interested persons" of the
trust or the Advisers ("Independent Trustees"), on June 21, 2000.
SSB Citi also serves as administrator (the "Administrator") to each
fund pursuant to a separate written agreement dated May 4, 1994
(the "administration agreement") which was most recently approved
by the board on June 21, 2000. Global Capital Management serves as
a sub-investment adviser to Diversified Strategic Income Fund,
pursuant to a written agreement dated March 21, 1994, respectively.
SaBAM serves as sub-investment adviser to Convertible Fund pursuant
to a written agreement dated November 22, 1999.  The agreements
between each, Global Capital Management and SaBAM, and SSB Citi
were most recently approved by the fund's board of trustees,
including a majority of the Independent Trustees, on June 21, 2000.

Certain of the services provided to the trust by SSB Citi and the
sub-investment advisers are described in the prospectuses under
"Management of the Trust and the Fund."  SSB Citi, each sub-
investment adviser, and the Administrator pays the salaries of all
officers and employees who are employed by both it and the trust,
and maintains office facilities for the trust. In addition to those
services, SSB Citi furnishes the trust with statistical and
research data, clerical help and accounting, data processing,
bookkeeping, internal auditing and legal services and certain other
services required by the trust, prepares reports to the funds'
shareholders and prepares tax returns, reports to and filings with
the Securities and Exchange Commission (the "SEC") and state Blue
Sky authorities. SSB Citi and the sub-investment advisers bear all
expenses in connection with the performance of their services.  SSB
Citi renders investment advice to investment companies that had
aggregate assets under management as of October 31, 2000 in excess
of $140 billion.

As compensation for investment advisory services, each fund pays
SSB Citi a fee computed daily and paid monthly at the following
annual rates:



Fund
Investment Advisory
Fee As a Percentage
of Average Net
Assets
Convertible Fund
0.50%*
Diversified Strategic Income Fund
0.45%**
Exchange Reserve Fund
0.30%
High Income Fund
0.50%
Municipal High Income Fund
0.40%
Total Return Bond Fund
0.65%
Balanced Fund
0.45%
    * As compensation for sub-advisory services, the SSB
Citi pays to SaBAM a fee of 0.40% from SSB Citi's fee.

	     ** From SSB Citi's fee, Global Capital Management
receives 0.10%.

For the periods below, the funds paid investment advisory fees to
SSB Citi as follows:



For the Fiscal Year Ended July 31:
Fund
1998
1999
2000
Convertible Fund
$
665,663
$
727,464
$
685,152
Diversified Strategic
Income Fund

13,233,25
8

13,056,066
  10,518,800
Exchange Reserve Fund

326,309

423,119

464,866
High Income Fund

7,363,535

8,208,808

7,716,387
Municipal High Income
Fund

3,103,442

2,832,068

2,232,146
Total Return Bond Fund
(1)

378
,79
2

1,169,060

807,065
Balanced Fund

5,097,517

4,222,260

3,836,390
___________________________
(1)	Total Return Bond Fund waived $155,458 and $124,974 in
investment advisory fees for the fiscal year ended July 31,
1999 and the fiscal period ended July 31, 1998, respectively.
The administrative fees have been included in the total for
management fees.


As compensation for administrative services, each fund pays the
Administrator a fee computed daily and paid monthly at the annual
rate of 0.20% of the fund's average daily net assets.  For the
periods shown below, the funds paid administrative fees to SSB
Citi:




For the Fiscal Year Ended July 31:
Fund
1998
1999
2000
Convertible Fund
$
266,265
$
290,986
$    274,061
Diversified Strategic
Income Fund

5,881,448

5,802,695
   4,675,022
Exchange Reserve Fund

217,539

282,079

309,911
High Income Fund

2,945,414

3,283,523
   3,086,555
Municipal High Income
Fund

1,551,721

1,416,034
   1,116,073
Total Return Bond Fund*

N/A
       N/A
   N/A
Balanced Fund

2,265,563

1,876,560
   1,705,062

___________________________
*The administrative fees have been included in the total for
management fees.

For the fiscal years ended July 31, 1998, 1999 and 2000,
Diversified Strategic Income Fund paid Global Capital Management
sub-investment advisory fees of $2,940,724, $2,908,014 and
$2,337,511, respectively. For the fiscal period ended July 31,
2000, Convertible Fund paid SaBAM sub-investment advisory fees of
$415,500.   Prior to November 22, 1999, Convertible Fund did not
utilize a sub-investment adviser.

The trust bears expenses incurred in its operations, including:
taxes, interest, brokerage fees and commissions, if any; fees of
trustees who are not officers, directors, shareholders or employees
of Salomon Smith Barney or SSB Citi; 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 of 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.

Auditors

KPMG LLP, 757 Third Avenue, New York, New York 10017 has been
selected as the trust's independent auditor to examine and report
on the trust's financial statements and highlights for the fiscal
year ending July 31, 2001.

Code of Ethics

Pursuant to Rule 17j-1 of the 1940 Act, the fund, its investment
adviser and principal underwriter has adopted a code of ethics
that permits personnel to invest in securities for their own
accounts, including securities that may be purchased or held by
the fund.  All personnel must place the interests of clients
first and avoid activities, interests and relationships that
might interfere with the duty to make decisions in the best
interests of the clients.  All personal securities transactions
by employees must adhere to the requirements of the code and must
be conducted in such a manner as to avoid any actual or potential
conflict of interest, the appearance of such a conflict, or the
abuse of an employee's position of trust and responsibility.

A copy of the fund's code of ethics is on file with the
Securities and Exchange Commission.

INVESTMENT OBJECTIVES AND POLICIES

The prospectuses discuss the investment objectives of the funds and
the policies to be employed to achieve those objectives. This
section contains supplemental information concerning the types of
securities and other instruments in which the funds may invest, the
investment policies and portfolio strategies that the funds may
utilize and certain risks attendant to such investments, policies
and strategies.

Balanced Fund

The fund is managed as a balanced fund and invests in equity and
debt securities.  The fund will generally maintain a target asset
allocation of approximately 60% of its total assets in equity
securities and approximately 40% of its total assets in fixed-
income securities.  The fund has the additional flexibility to
invest a minimum of 50% and a maximum of 70% of its total assets
in equity securities and a minimum of 30% and a maximum of 50% of
its total assets in fixed-income securities.  The fund may also
invest up to 25% of its total assets in fixed-income securities
rated less than investment grade by a nationally recognized
statistical rating organization ("NRSRO") such as Moody's
Investors Services, Inc. ("Moody's") or Standard & Poor's Ratings
Group ("S&P").  Such securities are commonly referred to as "junk
bonds."  There are no maturity restrictions on the fixed-income
securities in which the fund invests.  Under normal market
conditions the weighted average portfolio maturity for the fixed-
income portfolio will be in the 5 to 15 year range.

The fund may also hold, from time to time, securities rated Caa
by Moody's or CCC by S&P or, if unrated or rated by other NRSROs,
securities of comparable quality as determined by SSB Citi.
While this portion of the securities held by the fund are
expected to provide greater income and possibly, opportunity for
greater gain than investments in more highly rated securities,
they may be subject to greater risk of loss of income and
principal and are more speculative in nature.

Convertible Fund

The fund invests primarily in convertible securities. These are
securities that may be converted to common stock or other equity
interests in the issuer at a predetermined price or rate. The
fund also may invest up to 35% of its total assets in "synthetic
convertible securities," equity securities and debt securities
that are not convertible. Synthetic convertible securities are
created by combining non-convertible preferred stocks or debt
securities with warrants or call options. These synthetic
instruments are designed to perform like convertible securities
of a particular company.

The fund may invest up to 25% of its total assets in foreign
securities. The fund may invest in securities rated below
investment grade and unrated securities of comparable quality.
These securities are commonly known as "junk bonds" because they
are rated in the lower rating categories of nationally and
internationally recognized rating agencies or if unrated, of
similar credit quality.

For temporary defensive purposes when deemed appropriate by the
fund's investment adviser in light of current market conditions,
may invest in these securities without limitation.  In seeking to
achieve its investment objective, the fund may write covered call
options, lend portfolio securities and enter into short sales
"against the box."  The fund may utilize up to 10% of its total
assets to purchase put options on securities for hedging
purposes. The fund may utilize up to 50% of its total assets as
collateral for short sales against the box.

Diversified Strategic Income Fund

At any given time, the fund may be entirely or only partially
invested in a particular type of fixed-income security.  Under
normal conditions, at least 65% of the fund's total assets will
be invested in fixed-income securities, which for this purpose
will include non-convertible preferred stocks.  Up to 20% of the
fund's total assets may be invested in common stock or other
equity-related securities, including convertible securities,
preferred stock, warrants and rights.

The fund may invest up to 35% of its total assets in corporate
fixed income securities of domestic issuers and foreign issuers
of developed countries rated Ba or lower by Moody's or BB or
lower by S&P or an equivalent rating by any other NRSRO or in
nonrated securities deemed by SSB Citi or Global Capital
Management to be of comparable quality.  The fund may invest in
fixed income securities rated as low as Caa by Moody's or CCC by
S&P or an equivalent rating by any other NRSRO.

Corporate fixed-income securities of foreign issuers in which the
fund may invest will include securities of companies, wherever
organized, that have their principal business activities and
interests outside the United States.  Foreign government
securities in which the fund may invest consist of fixed-income
securities issued by foreign governments.  In general, the fund
may invest in debt securities issued by foreign governments or
any of their political subdivisions that are considered stable by
Global Capital Management.  Up to 5% of the fund's total assets,
however, may be invested in foreign securities issued by
countries with emerging markets.

The fund may invest in fixed-income securities issued by
supranational organizations, which are entities designated or
supported by a government or governmental entity to promote
economic development, and include, among others, the Asian
Development Bank, the European Coal and Steel Community, the
European Economic Community and the World Bank.  These
organizations have no taxing authority and are dependent upon
their members for payments of interest and principal.  Moreover,
the lending activities of supranational entities are limited to a
percentage of their total capital (including "callable capital"
contributed by members at an entity's call), reserves and net
income.

Up to 20% of the fund's total assets may be invested in cash and
money market instruments at any time.  The Fund may invest in
obligations of a foreign bank or foreign branch of a domestic
bank only if the manager determines that the obligations present
minimal credit risks.  These obligations may be traded in the
United States or outside the United States, but will be
denominated in U.S. dollars.

Exchange Reserve Fund

U.S. Government Securities in which the fund may invest include:
direct obligations of the United States Treasury such as Treasury
Bills, Treasury Notes and Treasury Bonds; obligations which are
supported by the full faith and credit of the United States such
as Government National Mortgage Association pass-through
certificates; obligations which are supported by the right of the
issuer to borrow from the United States Treasury, such as
securities of Federal Home Loan Banks; and obligations which are
supported by the credit of the instrumentality, such as Federal
National Mortgage Association and Federal Home Loan Mortgage
Association bonds.  Because the U. S. government is not obligated
by law to provide support for an instrumentality that it
sponsors, the fund will invest in obligations issued by such an
instrumentality only when the fund's investment adviser
determines that the credit risk with respect to the
instrumentality does not make its securities unsuitable for
investment by the fund.

Certificates of Deposit, Time Deposits and Bankers' Acceptances
in which the fund may invest generally are limited to those
instruments issued by domestic and foreign banks, including
branches of such banks, savings and loan associations and other
banking institutions having total assets in excess of $1 billion.
Certificates of deposit ("CDs") are short-term negotiable
obligations of commercial banks; time deposits ("TDs") are non-
negotiable deposits maintained in banking institutions for
specified periods of time at stated interest rates; and bankers'
acceptances are time drafts drawn on commercial banks by
borrowers usually in connection with international transactions.
The fund may invest in U.S. dollar-denominated bank obligations,
such as CDs, bankers' acceptances and TDs, including instruments
issued or supported by the credit of domestic or foreign banks or
savings institutions having total assets at the time of purchase
in excess of $1 billion.  The fund generally will invest at least
25% of its total assets in these securities.  The fund will
invest in an obligation of a foreign bank or foreign branch of a
domestic bank only if the fund's investment adviser deems the
obligation to present minimal credit risks.  Nevertheless, this
kind of obligation entails risks that are different from those of
investments in domestic obligations of domestic banks due to
differences in political, regulatory and economic systems and
conditions.  The fund will not purchase TDs maturing in more than
six months and will limit to no more than 10% of its total assets
its investment in TDs maturing from two business days through six
months.

Commercial Paper in which the fund may invest is limited to debt
obligations of domestic and foreign issuers that at the time of
purchase are Eligible Securities (as defined below under "Fund
Quality and Diversification") that are (a) rated by at least one
NRSRO in the highest rating category for short-term debt
securities or (b) comparable unrated securities.  The fund also
may invest in variable rate master demand notes, which are
unsecured demand notes typically purchased directly from large
corporate issuers providing for variable amounts of principal
indebtedness and periodic adjustments in the interest rate
according to the terms of the instrument.  Demand notes normally
are not traded in a secondary market.  However, the fund may
demand payment of principal and accrued interest in full at any
time without penalty.  In addition, while demand notes generally
are not rated, their issuers must satisfy the same criteria as
those set forth above for issuers of commercial paper.  SSB Citi
will consider the earning power, cash flow and other liquidity
ratios of issuers of demand notes and continually will monitor
their financial ability to meet payment on demand.

The fund invests only in securities which are purchased with and
payable in U.S. dollars and which have (or, pursuant to
regulations adopted by the SEC, will be deemed to have) remaining
maturities of thirteen months or less at the date of purchase by
the fund.  For this purpose, variable rate master demand notes
(as described above under "Commercial Paper"), which are payable
on demand or, under certain conditions, at specified periodic
intervals not exceeding thirteen months, in either case on not
more than 30 days' notice, will be deemed to have remaining
maturities of thirteen months or less.  The fund maintains a
dollar-weighted average portfolio maturity of 90 days or less.
The fund follows these policies to maintain a constant net asset
value of $1.00 per share, although there is no assurance that it
can do so on a continuing basis. In addition, securities in which
the fund will invest may not yield as high level of current
income as might be achieved by investing in securities with less
liquidity and safety and longer maturities.

The fund will limit its investments to securities that the board
of trustees determines present minimal credit risks and which are
"Eligible Securities" at the time of acquisition by the fund.
The term Eligible Securities includes securities rated by the
"Requisite NRSROs" in one of the two highest short-term rating
categories, securities of issuers that have received such ratings
with respect to other short-term debt securities and comparable
unrated securities.  "Requisite NRSROs" means (a) any two NRSROs
that have issued a rating with respect to a security or class of
debt obligations of an issuer, or (b) one NRSRO, if only one
NRSRO has issued such a rating at the time that the fund acquires
the security.  If the fund acquires securities that are unrated
or that have been rated by a single NRSRO, the acquisition must
be approved or ratified by the board of trustees.  The NRSROs
currently designated as such by the SEC are S&P, Moody's, Thomson
BankWatch, Fitch IBCA, Inc. and Duff & Phelps Credit Rating Co.
A discussion of the ratings categories of the NRSROs is contained
in the Appendix to this Statement of Additional Information.

The fund generally may not invest more than 5% of its total
assets in the securities of any one issuer, except for U.S.
government securities.  In addition, the fund may not invest more
than 5% of its total assets in Eligible Securities that have not
received the highest rating from the Requisite NRSROs and
comparable unrated securities ("Second Tier Securities") and may
not invest more than 1% of its total assets in the Second Tier
Securities of any one issuer.  The fund may invest more than 5%
(but no more than 25%) of the then-current value of the fund's
total assets in the securities of a single issuer for a period of
up to three business days, provided that (a) the securities are
rated by the Requisite NRSROs in the highest short-term rating
category, are securities of issuers that have received such
rating with respect to other short-term debt securities or are
comparable unrated securities, and (b) the fund does not make
more than one such investment at any one time.

The fund will concentrate its investments in the banking industry
except during temporary defensive periods.  Up to 25% of the
total assets of the fund may be invested at any time in the
obligations of issuers conducting their principal business
activities in any industry other than banking.  The fund may not
acquire more than 10% of the voting or any other class of
securities of any one issuer, except that U.S. government
securities may be purchased without regard to these limits.

High Income Fund

The fund will seek high current income by investing, under normal
circumstances, at least 65% of its total assets in high-yielding
corporate bonds, debentures and notes denominated in U.S. dollars
or foreign currencies.  Up to 40% of the fund's total assets may
be invested in fixed-income obligations of foreign issuers, and
up to 20% of its total assets may be invested in common stock or
other equity or equity-related securities, including convertible
securities, preferred stock, warrants and rights.  Securities
purchased by the fund generally will be rated in the lower rating
categories, as low as Caa by Moody's or D by S&P or an equivalent
rating by any NRSRO, or in unrated securities that SSB Citi deems
of comparable quality.  However, the fund will not purchase
securities rated lower than B by both Moody's and S&P unless,
immediately after such purchase, no more than 10% of its total
assets are invested in such securities.  The fund may hold
securities with higher ratings when the yield differential
between low-rated and higher-rated securities narrows and the
risk of loss may be reduced substantially with only a relatively
small reduction in yield.

The fund may also invest in zero coupon bonds and payment-in-kind
bonds.  The fund also may invest in higher-rated securities when
SSB Citi believes that a more defensive investment strategy is
appropriate in light of market or economic conditions.  The fund
also may lend its portfolio securities, purchase or sell
securities on a when-issued or delayed-delivery basis and write
covered call options on securities.  In order to mitigate the
effects of uncertainty in future exchange rates, the fund may
engage in currency exchange transactions and purchase options on
foreign currencies.  The fund also may hedge against the effects
of changes in the value of its investments by purchasing put and
call options on interest rate futures contracts.

Corporate securities in which the fund may invest include
corporate fixed-income securities of both domestic and foreign
issuers, such as bonds, debentures, notes, equipment lease
certificates, equipment trust certificates, and preferred stock.
The fund's investments in each of equipment leases or equipment
trust certificates will not exceed 5% of its total assets.

Certain of the corporate fixed-income securities in which the
fund may invest may involve equity characteristics.  The fund
may, for example, invest in warrants for the acquisition of stock
of the same or of a different issuer or in corporate fixed income
securities that have conversion or exchange rights permitting the
holder to convert or exchange the securities at a stated price
within a specified period of time into a specified number of
shares of common stock.  In addition, the fund may invest in
participations that are based on revenues, sales or profits of an
issuer or in common stock offered as a unit with corporate fixed-
income securities.

Municipal High Income Fund

Under normal market conditions, the fund will invest at least 80%
of its total assets in (a) "Municipal Bonds," which generally are
intermediate- and long-term 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 and (b) municipal leases.  Under normal
market conditions, the fund's total assets will be invested
primarily in Municipal Bonds and municipal leases (collectively,
"Municipal Securities") rated A, Baa or Ba by Moody's, or A, BBB
or BB by S&P, or have an equivalent rating by any nationally
recognized statistical rating organization, or obligations
determined by SSB Citi to be equivalent, or in unrated Municipal
Securities that are deemed to be of comparable quality by SSB
Citi.  Up to 50% of the fund's total assets may be invested in
Municipal Securities rated Ba or below by Moody's or BB or below
by S&P or, if unrated, judged by SSB Citi, to be of comparable
quality. In addition, the fund may invest in obligations rated as
low as Caa by Moody's or CCC by S&P or having an equivalent
rating by any NRSRO. Securities that are rated Caa or CCC are of
poor standing. These issues may be in default or present elements
of danger that may exist with respect to principal or interest.

The fund may invest without limit in municipal leases, which
generally are participations in intermediate- and short-term debt
obligations issued by municipalities consisting of leases or
installment purchase contracts for property or equipment.
Municipal leases may take the form of a lease or an installment
purchase contract 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.  Although lease
obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is
pledged, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation.  However, certain lease
obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis.  In addition to
the "non-appropriation" risk, these securities represent a
relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds.
Although "non-appropriation" lease obligations are often secured
by the underlying property, disposition of the property in the
event of foreclosure might prove difficult.  There is no
limitation on the percentage of the fund's total assets that may
be invested in municipal lease obligations.  In evaluating
municipal lease obligations, SSB Citi will consider such factors
as it deems appropriate, which may include: (a) whether the lease
can be canceled; (b) the ability of the lease obligee to direct
the sale of the underlying assets; (c) the general
creditworthiness of the lease obligor, (d) the likelihood that
the municipality will discontinue appropriating funding for the
leased property in the event such property is no longer
considered essential by the municipality; (e) the legal recourse
of the lease obligee in the event of such a failure-to
appropriate funding; (f) whether the security is backed by a
credit enhancement such as insurance; and (g) any limitations
which are imposed on the lease obligor's ability to utilize
substitute property or services rather than those covered by the
lease obligation.

Under normal circumstances, the fund may invest in "private
activity bonds." Interest income on certain types of private
activity bonds issued after August 7, 1986 to finance
nongovernmental activities is a specific tax preference item for
purposes of Federal individual and corporate alternative minimum
taxes.  Individual and corporate shareholders may be subject to a
Federal alternative minimum tax to the extent that the fund's
dividends are derived from interest on these bonds.  These
private activity bonds are included in the term "Municipal
Securities" for purposes of determining compliance with the 80%
test described above.  Dividends derived from interest income on
all Municipal Securities are a component of the "adjusted current
earnings" item for purposes of the Federal corporate alternative
minimum tax.

The fund may invest in short-term obligations ("Temporary
Investments"), some of which may not be tax-exempt.  Included
among the Temporary Investments are tax-exempt notes rated within
the four highest grades by a NRSRO, including Moody's or S&P;
tax-exempt commercial paper rated no lower than A-2 by S&P or
Prime-2 by Moody's; and taxable money market instruments.  At no
time will more than 20% of the fund's total assets be invested in
Temporary Investments unless SSB Citi temporarily has adopted a
defensive investment posture.  In addition, the fund may enter
into municipal bond index futures contracts and options on
interest rate futures contracts for hedging purposes.  The fund
also may acquire variable rate demand notes, purchase securities
on a when-issued basis and enter into stand-by commitments with
respect to portfolio securities.

Total Return Bond Fund

At any given time, the fund may be entirely or partially invested
in a particular type of fixed-income security.  Under normal
conditions, at least 65% of the fund's total assets will be
invested in fixed-income securities.  The "total return" sought
by the fund will consist of interest and dividends from
underlying securities, capital appreciation reflected in
unrealized increases in value of fund securities (realized by the
shareholder only upon selling shares), or realized from the
purchase and sale of securities and the use of futures and
options.  The change in market value of fixed-income securities
(and therefore their capital appreciation) is largely a function
of changes in the current level of interest rates.

The fund may invest up to 10% of its total assets in securities
rated below investment grade and unrated securities of comparable
quality. These securities are commonly known as "junk bonds"
because they are rated in the lower rating categories of
nationally and internationally recognized rating agencies or if
unrated, of similar credit quality. These securities are
considered speculative in that their issues may have diminished
capacity to pay principal and interest.  These securities have a
higher risk of default, tend to be less liquid, and may be more
difficult to value.

Under normal market conditions, the fund may hold up to 20% of
its total assets in cash or money market instruments, including
taxable money market instruments.

Other Investment Policies

U.S. Government Securities (All funds). United States government
securities include debt obligations of varying maturities issued or
guaranteed by the United States government or its agencies or
instrumentalities ("U.S. government securities"). U.S. government
securities include not only direct obligations of the United States
Treasury, but also securities issued or guaranteed by the Federal
Housing Administration, Farmers Home Administration, Export-Import
Bank of the United States, Small Business Administration,
Government National Mortgage Association ("GNMA"), General Services
Administration, Central Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Land Banks, Federal National Mortgage
Association ("FNMA"), Maritime Administration, Tennessee Valley
Authority, District of Columbia Armory Board, Student Loan
Marketing Association, International Bank for Reconstruction and
Development, and Resolution Trust Corporation. Certain U.S.
government securities, such as those issued or guaranteed by GNMA,
FNMA and Federal Home Loan Mortgage Corporation ("FHLMC"), are
mortgage-related securities. Because the United States government
is not obligated by law to provide support to an instrumentality
that it sponsors, a fund will invest in obligations issued by such
an instrumentality only if SSB Citi determines that the credit risk
with respect to the instrumentality does not make its securities
unsuitable for investment by the fund.

Bank Obligations (All funds). Domestic commercial banks organized
under Federal law are supervised and examined by the Comptroller of
the Currency and are required to be members of the Federal Reserve
System and to be insured by the Federal Deposit Insurance
Corporation (the "FDIC"). Domestic banks organized under state law
are supervised and examined by state banking authorities, but are
members of the Federal Reserve System only if they elect to join.
Most state banks are insured by the FDIC (although such insurance
may not be of material benefit to a fund, depending upon the
principal amount of CDs of each held by the fund) and are subject
to Federal examination and to a substantial body of Federal law and
regulation. As a result of Federal and state laws and regulations,
domestic branches of domestic banks are, among other things,
generally required to maintain specified levels of reserves, and
are subject to other supervision and regulation designed to promote
financial soundness.

Obligations of foreign branches of U.S. banks, such as CDs and TDs,
may be general obligations of the parent bank in addition to the
issuing branch, or may be limited by the terms of a specific
obligation and governmental regulation. Obligations of foreign
branches of U.S. banks and foreign banks are subject to different
risks than are those of U.S. banks or U.S. branches of foreign
banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding and other taxes
on interest income. Foreign branches of U.S. banks are not
necessarily subject to the same or similar regulatory requirements
that apply to U.S. banks, such as mandatory reserve requirements,
loan limitations and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be
publicly available about a foreign branch of a U.S. bank than about
a U.S. bank. CDs issued by wholly owned Canadian subsidiaries of
U.S. banks are guaranteed as to repayment of principal and
interest, but not as to sovereign risk, by the U.S. parent bank.

Obligations of U.S. branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and by
Federal and state regulation as well as governmental action in the
country in which the foreign bank has its head office. A U.S.
branch of a foreign bank with assets in excess of $1 billion may or
may not be subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is located if
the branch is licensed in that state. In addition, branches
licensed by the Comptroller of the Currency and branches licensed
by certain states ("State Branches") may or may not be required to:
(a) pledge to the regulator by depositing assets with a designated
bank within the state, an amount of its assets equal to 5% of its
total liabilities; and (b) maintain assets within the state in an
amount equal to a specified percentage of the aggregate amount of
liabilities of the foreign bank payable at or through all of its
agencies or branches within the state. The deposits of State
Branches may not necessarily be insured by the FDIC. In addition,
there may be less publicly available information about a U.S.
branch of a foreign bank than about a U.S. bank.

In view of the foregoing factors associated with the purchase of
CDs and TDs issued by foreign banks and foreign branches of U.S.
banks, SSB Citi will carefully evaluate such investments on a case-
by-case basis.

The Exchange Reserve Fund may purchase a CD issued by a bank,
savings and loan association or other banking institution with less
than $1 billion in assets (a "Small Issuer CD") so long as the
issuer is a member of the FDIC or Office of Thrift Supervision and
is insured by the Savings Association Insurance Fund ("SAIF"), and
so long as the principal amount of the Small Issuer CD is fully
insured and is no more than $100,000. The Exchange Reserve Fund
will at any one time hold only one Small Issuer CD from any one
issuer. Savings and loan associations whose CDs may be purchased by
the funds are members of the Federal Home Loan Bank and are insured
by the SAIF. As a result, such savings and loan associations are
subject to regulation and examination.

Corporate Debt Securities (Balanced, Convertible, Diversified
Strategic Income, High Income and Total Return Bond Funds).
Corporate debt securities include corporate bonds, debentures,
notes and other similar debt securities issued by companies.

Ratings as Investment Criteria (All funds). In general, the ratings
of NRSROs represent the opinions of these agencies as to the
quality of securities that they rate. Such ratings, however, are
relative and subjective, and are not absolute standards of quality
and do not evaluate the market value risk of the securities. These
ratings will be used by the funds as initial criteria for the
selection of portfolio securities, but the funds also will rely
upon the independent advice of SSB Citi and/or sub-investment
advisers to evaluate potential investments. Among the factors that
will be considered are the long-term ability of the issuer to pay
principal and interest, and general economic trends. The Appendix
to this statement of additional information contains further
information concerning the rating categories of NRSROs and their
significance.

Subsequent to its purchase by a fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum
required for purchase by the fund. In addition, it is possible that
an NRSRO might not change its rating of a particular issue to
reflect subsequent events. None of these events will require sale
of such securities by a fund, but SSB Citi and/or a fund's sub-
investment adviser will consider such events in its determination
of whether the fund should continue to hold the securities. In
addition, to the extent that the ratings change as a result of
changes in such organizations or their rating systems, or due to a
corporate reorganization, a fund will attempt to use comparable
ratings as standards for its investments in accordance with its
investment objective and policies.

When-Issued Securities and Delayed-Delivery Transactions
(Balanced, Diversified Strategic Income, High Income, Total
Return Bond and Municipal High Income).  In order to secure
yields or prices deemed advantageous at the time, the funds may
purchase or sell securities on a when-issued or delayed-delivery
basis.  A fund will enter into a when-issued transaction for the
purpose of acquiring portfolio securities and not for the purpose
of leverage. In such transactions delivery of the securities
occurs beyond the normal settlement periods, but no payment or
delivery is made by the fund prior to the actual delivery or
payment by the other party to the transaction.  Due to
fluctuations in the value of securities purchased or sold on a
when-issued or delayed-delivery basis, the yields obtained on
those securities may be higher or lower than the yields available
in the market on the dates when the investments are actually
delivered to the buyers.  Each fund will establish a segregated
account consisting of cash and liquid securities having a value
equal to or greater than the fund's purchase commitments,
provided such securities have been determined by SSB Citi to be
liquid and unencumbered and are marked to market daily pursuant
to guidelines established by the trustees.  Placing securities
rather than cash in the segregated account may have a leveraging
effect on the fund's total assets.

U.S. government securities and Municipal Securities (as defined
below) are normally subject to changes in value based upon changes,
real or anticipated, in the level of interest rates and, although
to a lesser extent in the case of U.S. government securities, the
public's perception of the creditworthiness of the issuers. In
general, U.S. government securities and Municipal Securities tend
to appreciate when interest rates decline and depreciate when
interest rates rise. Purchasing these securities on a when-issued
or delayed-delivery basis, therefore, can involve the risk that the
yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself.
Similarly, the sale of U.S. government securities for delayed
delivery can involve the risk that the prices available in the
market when the delivery is made may actually be higher than those
obtained in the transaction itself.

In the case of the purchase of securities on a when-issued or
delayed-delivery basis by a fund, the fund will meet its
obligations on the settlement date from then-available cash flow,
the sale of securities held in the segregated account, the sale of
other securities or, although it would not normally expect to do
so, from the sale of the securities purchased on a when-issued or
delayed-delivery basis (which may have a value greater or less than
the fund's payment obligations).

Zero Coupon Bonds (Balanced, Diversified Strategic Income, High
Income, Municipal High Income and Total Return Bond Funds).  A
zero coupon bond pays no interest in cash to its holder during
its life, although interest is accrued during that period.  Its
value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was
acquired, which is generally an amount significantly less than
its face value (sometimes referred to as a "deep discount"
price).  Because such securities usually trade at a deep
discount, they will be subject to greater fluctuations of market
value in response to changing interest rates than debt
obligations of comparable maturities which make periodic
distributions of interest.  On the other hand, because there are
no periodic interest payments to be reinvested prior to maturity,
zero coupon securities eliminate reinvestment risk and lock in a
rate of return to maturity.  Diversified Strategic and High
Income Funds also may invest in payment-in-kind bonds, which,
like zero coupon bonds, make no cash payment until maturity.  The
funds may also invest in hybrid zero coupon securities which
possess qualities of both, zero coupon and coupon bonds.

Mortgage-Related Securities (Balanced, Diversified Strategic
Income, Exchange Reserve and Total Return Bond Funds).  Mortgage-
related securities provide a monthly payment consisting of
interest and principal payments.  Additional payments may be made
out of unscheduled repayments of principal resulting from the
sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs that may be incurred.
Prepayments of principal on mortgage-related securities may tend
to increase due to refinancing of mortgages as interest rates
decline.  Mortgage pools created by private organizations
generally offer a higher rate of interest than government and
government-related pools because no direct or indirect guarantees
of payments are applicable with respect to the former pools.
Timely payment of interest and principal in these pools, however,
may be supported by various forms of private insurance or
guarantees, including individual loan, title, pool and hazard
insurance.  There can be no assurance that the private insurers
can meet their obligations under the policies.  Prompt payment of
principal and interest on GNMA mortgage pass-through certificates
is backed by the full faith and credit of the United States.
FNMA guaranteed mortgage pass-through certificates and FHLMC
participation certificates are solely the obligations of those
entities but are supported by the discretionary authority of the
United States government to purchase the agencies' obligations.
Collateralized mortgage obligations are a type of bond secured by
an underlying pool of mortgages or mortgage pass-through
certificates that are structured to direct payments on underlying
collateral to different series or classes of the obligations.

To the extent that a fund purchases mortgage-related securities
at a premium, mortgage foreclosures and prepayments of principal
by mortgagors (which may be made at any time without penalty) may
result in some loss of the fund's principal investment to the
extent of the premium paid.   A fund's yield may be affected by
reinvestment of prepayments at higher or lower rates than the
original investment.  In addition, like other debt securities,
the values of mortgage-related securities, including government
and government-related mortgage pools, generally will fluctuate
in response to market interest rates.

The average maturity of pass-through pools of mortgage-related
securities varies with the maturities of the underlying mortgage
instruments. In addition, a pool's stated maturity may be shortened
by unscheduled payments on the underlying mortgages. Factors
affecting mortgage prepayments include the level of interest rates,
general economic and social conditions, the location of the
mortgaged property and age of the mortgage. Because prepayment
rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. Common
practice is to assume that prepayments will result in an average
life ranging from 2 to 10 years for pools of fixed-rate 30-year
mortgages. Pools of mortgages with other maturities or different
characteristics will have varying average life assumptions.

Mortgage-related securities may be classified as private,
governmental or government-related, depending on the issuer or
guarantor. Private mortgage-related securities represent pass-
through pools consisting principally of conventional residential
mortgage loans created by non-governmental issuers, such as
commercial banks, savings and loan associations and private
mortgage insurance companies. Governmental mortgage-related
securities are backed by the full faith and credit of the United
States. GNMA, the principal guarantor of such securities, is a
wholly owned United States government corporation within the
Department of Housing and Urban Development. Government-related
mortgage-related securities are not backed by the full faith and
credit of the United States government. Issuers of such securities
include FNMA and FHLMC. FNMA is a government-sponsored corporation
owned entirely by private stockholders, which is subject to general
regulation by the Secretary of Housing and Urban Development. Pass-
through securities issued by FNMA are guaranteed as to timely
payment of principal and interest by FNMA. FHLMC is a corporate
instrumentality of the United States, the stock of which is owned
by the Federal Home Loan Banks. Participation certificates
representing interests in mortgages from FHLMC's national portfolio
are guaranteed as to the timely payment of interest and ultimate
collection of principal by FHLMC.

Private, U.S. governmental or government-related entities create
mortgage loan pools offering pass-through investments in addition
to those described above. The mortgages underlying these securities
may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose
terms to maturity may be shorter than previously customary. As new
types of mortgage-related securities are developed and offered to
investors, Diversified Strategic Income Fund, consistent with its
investment objective and policies, will consider making investments
in such new types of securities.

Forward Roll Transactions (Balanced, Diversified Strategic Income
Fund and Total Return Bond Funds).  In order to enhance current
income, these funds may enter into forward roll transactions with
respect to mortgage-related securities issued by GNMA, FNMA and
FHLMC.  In a forward roll transaction, a fund sells a mortgage
security to a financial institution, such as a bank or broker-
dealer and simultaneously agrees to repurchase a similar security
from the institution at a later date at an agreed-upon price.
The mortgage securities that are repurchased will bear the same
interest rate as those sold, but generally will be collateralized
by different pools of mortgages with different prepayment
histories than those sold.  During the period between the sale
and repurchase, the fund will not be entitled to receive interest
and principal payments on the securities sold.  Proceeds of the
sale will be invested in short-term instruments, particularly
repurchase agreements, and the income from these investments,
together with any additional fee income received on the sale will
generate income for the fund exceeding the yield on the
securities sold.  Forward roll transactions involve the risk that
the market value of the securities sold by the fund may decline
below the repurchase price of those securities.  At the time a
fund enters into forward roll transactions, it will place in a
segregated account with the fund's custodian cash, U.S.
government securities, equity securities or debt securities of
any grade having a value equal to or greater than the fund's
purchase commitments, provided such securities have been
determined by SSB Citi to be liquid and unencumbered and are
marked to market daily pursuant to guidelines established by the
trustees.  The fund will subsequently monitor the account to
insure that such equivalent value is maintained.

Asset-Backed Securities (Balanced, Exchange Reserve, Diversified
Strategic Income Fund and Total Return Bond Funds).  An asset-
backed security represents an interest in a pool of assets such
as receivables from credit card loans, automobile loans and other
trade receivables.  Changes in the market's perception of the
asset backing the security, the creditworthiness of the servicing
agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement will all
affect the value of an asset-backed security, as will the
exhaustion of any credit enhancement.   The risks of investing in
asset-backed securities ultimately depend upon the payment of the
consumer loans by the individual borrowers.  In its capacity as
purchaser of an asset-backed security, a fund would generally
have no recourse to the entity that originated the loans in the
event of default by the borrower.  Additionally, in the same
manner as described above under "Mortgage-Related Securities"
with respect to prepayment of a pool of mortgage loans underlying
mortgage-related securities, the loans underlying asset-backed
securities are subject to prepayments, which may shorten the
weighted average life of such securities and may lower their
return.

Non-Taxable Municipal Securities (Municipal High Income Fund). Non-
taxable Municipal Securities include debt obligations issued to
fund various public purposes, such as constructing public
facilities, refunding outstanding obligations, paying general
operating expenses and extending 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 Securities if the interest paid thereon
may be 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 bonds may be issued to finance life care facilities. Life
care facilities are an alternative form of long-term housing for
the elderly which offer residents the independence of 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 are Municipal Securities that may take the form of
a lease or an installment purchase contract issued by state and
local governmental 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 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 bonds. These obligations frequently contain "non-
appropriation" clauses providing that the governmental issuer of
the obligation 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 bonds; moreover,
although the obligations will be secured by the leased equipment,
the disposition of the equipment in the event of foreclosure might
prove to be difficult. In order to limit such risks, Municipal High
Income Fund proposes to purchase either (a) municipal leases rated
in the four highest categories by Moody's or S&P or (b) unrated
municipal leases purchased principally from domestic banks or other
responsible third parties which enter into an agreement with the
fund, which provides that the seller will either remarket or
repurchase the municipal lease within a short period after demand
by the fund.

Taxable Municipal Securities (Total Return Bond Fund). The Total
Return Bond Fund will invest in a diversified portfolio of
taxable long-term investment-grade securities issued by or on
behalf of states and municipal governments, U.S. territories and
possessions of the United States and their authorities, agencies,
instrumentalities and political subdivisions ("Taxable Municipal
Obligations").  The Taxable Municipal Obligations in which the
fund may invest are within the four highest ratings of Moody's
(Aaa, Aa, A, Baa) or S&P (AAA, AA, A, BBB).  Although securities
rated in these categories are commonly referred to as investment
grade, they may have speculative characteristics.  In addition,
changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and
interest payments than is the case with higher-grade securities.
Furthermore, the market for Taxable Municipal Obligations is
relatively small, which may result in a lack of liquidity and in
price volatility of those securities.  Interest on Taxable
Municipal Obligations is includable in gross income for Federal
income tax purposes and may be subject to personal income taxes
imposed by any state of the United States or any political
subdivision thereof, or by the District of Columbia.

Variable-Rate Demand Notes (Municipal High Income Fund).
Municipal Securities purchased by Municipal High Income Fund may
include variable-rate demand notes issued by industrial
development authorities and other governmental entities.
Although variable-rate demand notes are frequently not rated by
credit rating agencies, unrated notes purchased by the fund will
be determined by SSB Citi to be of comparable quality at the time
of purchase to instruments rated "'high quality" (that is, within
the two highest ratings) by any NRSRO.  In addition, while no
active secondary market may exist with respect to a particular
variable-rate demand note purchased by the fund, the fund may,
upon the notice specified in the note, demand payment of the
principal of and accrued interest on the note at any time and may
resell the note at any time to a third party.  The absence of
such an active secondary market, however, could make it difficult
for the fund to dispose of the variable-rate demand note involved
in the event that the issuer of the note defaulted on its payment
obligations, and the fund could, for this or other reasons,
suffer a loss to the extent of the default.

Stand-by Commitments (Municipal High Income Fund). Municipal High
Income Fund may acquire "stand-by commitments" with respect to
Municipal Securities held in its portfolio.  Under a stand-by
commitment, a dealer agrees to purchase, at the fund's option,
specified Municipal Securities at a specified price.  The fund
may pay for stand-by commitments either separately in cash or by
paying a higher price for the securities acquired with the
commitment, thus increasing the cost of the securities and
reducing the yield otherwise available for them.  The fund
intends to enter into stand-by commitments only with brokers,
dealers and banks that, in the view of SSB Citi, present minimal
credit risks.  In evaluating the creditworthiness of the issuer
of a stand-by commitment, SSB Citi will periodically review
relevant financial information concerning the issuer's assets,
liabilities and contingent claims.  The fund will acquire stand-
by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading
purposes.

Repurchase Agreements (All funds).  The funds may engage in
repurchase agreements with certain member banks of the Federal
Reserve System and with certain dealers on the Federal Reserve
Bank of New York's list of reporting dealers.  Under the terms of
a typical repurchase agreement, the fund would acquire an
underlying debt obligation for a relatively short period (usually
not more than one week) subject to an obligation of the seller to
repurchase, and the fund to resell, the obligation at an agreed-
upon price and time, thereby determining the yield during the
fund's holding period.  This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the
fund's holding period.  The value of the underlying securities
will be at least equal at all times to the total amount of the
repurchase obligation, including interest.  Repurchase agreements
could involve certain risks in the event of default or insolvency
of the other party, including possible delays or restrictions
upon the fund's ability to dispose of the underlying securities,
the risk of a possible decline in the value of the underlying
securities during the period in which the fund seeks to assert
its right to them, the risk of incurring expenses associated with
asserting those rights and the risk of losing all or part of the
income from the agreement.  SSB Citi, acting under the
supervision of the trust's board of trustees, reviews on an
ongoing basis the value of the collateral and creditworthiness of
those banks and dealers with which the fund enters into
repurchase agreements to evaluate potential risks.

Reverse Repurchase Agreements (Balanced, Diversified Strategic
Income Fund and Total Return Bond Funds).  These funds may enter
into reverse repurchase agreement transactions with member banks
of the Federal Reserve Bank of New York's list of reporting
dealers.  A reverse repurchase agreement, which is considered a
borrowing by the fund, involves a sale by the fund of securities
that it holds concurrently with an agreement by the fund to
repurchase the same securities at an agreed-upon price and date.
The fund typically will invest the proceeds of a reverse
repurchase agreement in money market instruments or repurchase
agreements maturing not later than the expiration of the reverse
repurchase agreement.  This use of the proceeds is known as
leverage.  The fund will enter into a reverse repurchase
agreement for leverage purposes only when the interest income to
be earned from the investment of the proceeds is greater than the
interest expense of the transaction.  The fund also may use the
proceeds of reverse repurchase agreements to provide liquidity to
meet redemption requests when the sale of the fund's securities
is considered to be disadvantageous.

Lending of Portfolio Securities (Convertible, Diversified Strategic
Income, High Income, Total Return Bond and Balanced Funds).
Consistent with applicable regulatory requirements, each fund may
lend portfolio securities to brokers, dealers and other financial
organizations meeting capital and other credit requirements or
other criteria established by the board. A fund will not lend
portfolio securities to Salomon Smith Barney unless it has applied
for and received specific authority to do so from the SEC. Loans of
portfolio securities will be collateralized by cash, letters of
credit or U.S. government securities which are maintained at all
times in an amount at least equal to the current market value of
the loaned securities. From time to time, a fund may pay a part of
the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party which is
unaffiliated with the fund and is acting as a "finder."

By lending its securities, a fund can increase its income by
continuing to receive interest on the loaned securities as well as
by either investing the cash collateral in short-term instruments
or obtaining yield in the form of interest paid by the borrower
when U.S. government securities are used as collateral. A fund will
comply with the following conditions whenever its portfolio
securities are loaned: (a) the fund must receive at least 100% cash
collateral or equivalent securities from the borrower; (b) the
borrower must increase such collateral whenever the market value of
the securities loaned rises above the level of such collateral; (c)
the fund must be able to terminate the loan at any time; (d) the
fund must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned
securities, and any increase in market value; (e) the fund may pay
only reasonable custodian fees in connection with the loan; and (f)
voting rights on the loaned securities may pass to the borrower;
provided, however, that if a material event adversely affecting the
investment in the loaned securities occurs, the trust's board of
trustees must terminate the loan and regain the right to vote the
securities. The risks in lending portfolio securities, as with
other extensions of secured credit, consist of a possible delay in
receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to firms deemed by
SSB Citi to be of good standing and will not be made unless, in the
judgment SSB Citi, the consideration to be earned from such loans
would justify the risk.

Medium-, Low- and Unrated Securities (Balanced, Convertible,
Diversified Strategic Income, High Income, Total Return Bond and
Municipal High Income Funds).  These funds may invest in medium-
or low- rated securities and unrated securities of comparable
quality. Generally, these securities offer a higher current yield
than the yield offered by higher-rated securities, but involve
greater volatility of price and risk of loss of income and
principal, including the probability of default by or bankruptcy
of the issuers of such securities. Medium- and low-rated and
comparable unrated securities: (a) will likely have some quality
and protective characteristics that, in the judgment of the
rating organization, are outweighed by large uncertainties or
major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms
of the obligation. Thus, it is possible that these types of
factors could, in certain instances, reduce the value of
securities held by a fund with a commensurate effect on the value
of the fund's shares.

While the market values of medium- and low-rated and comparable
unrated securities tend to react less to fluctuations in interest
rate levels than do those of higher-rated securities, the market
values of certain of these securities also tend to be more
sensitive to individual corporate developments and changes in
economic conditions than higher-rated securities. In addition,
medium- and low-rated and comparable unrated securities generally
present a higher degree of credit risk. Issuers of medium- and
low-rated and comparable unrated securities are often highly
leveraged and may not have more traditional methods of financing
available to them so that their ability to service their debt
obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater
because medium- and low-rated and comparable unrated securities
generally are unsecured and frequently are subordinated to the
prior payment of senior indebtedness. The fund may incur
additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal or interest
on its portfolio holdings. In addition, the markets in which
medium- and low-rated or comparable unrated securities are traded
generally are more limited than those in which higher- rated
securities are traded. The existence of limited markets for these
securities may restrict the availability of securities for the
fund to purchase and also may have the effect of limiting the
ability of the fund to: (a) obtain accurate market quotations for
purposes of valuing securities and calculating net asset value
and (b) sell securities at their fair value either to meet
redemption requests or to respond to changes in the economy or
the financial markets. The market for medium- and low-rated and
comparable unrated securities is relatively new and has not fully
weathered a major economic recession. Any such recession,
however, could likely disrupt severely the market for such
securities and adversely affect the value of such securities. Any
such economic downturn also could adversely affect the ability of
the issuers of such securities to repay principal and pay
interest thereon.

Fixed-income securities, including medium- and low-rated and
comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the
securities from their holders, such as the applicable fund. If an
issuer exercises these rights during periods of declining
interest rates, the fund may have to replace the security with a
lower yielding security, resulting in a decreased return to the
fund.

Securities that are rated Ba by Moody's or BB by S&P have
speculative characteristics with respect to capacity to pay
interest and repay principal. Securities that are rated B
generally lack characteristics of a desirable investment and
assurance of interest and principal payments over any long period
of time may be small. Securities that are rated Caa or CCC are of
poor standing. These issues may be in default or present elements
of danger may exist with respect to principal or interest.

In light of the risks described above, SSB Citi, in evaluating
the creditworthiness of an issue, whether rated or unrated, will
take various factors into consideration, which may include, as
applicable, the issuer's financial resources, its sensitivity to
economic conditions and trends, the operating history of and the
community support for the facility financed by the issue, the
ability of the issuer's management and regulatory matters.

Options on Securities (Convertible, Diversified Strategic Income,
High Income, and Balanced Funds). High Income Fund may write
(sell) covered call options.  Balanced Fund may write covered
call options and may purchase and write secured put options.
Convertible Fund and Diversified Strategic Income Fund may
purchase and write covered call and secured put options.  Each of
these funds may enter into closing transactions with respect to
the options transactions in which it may engage.  Balanced Fund
also may write "straddles," which are combinations of secured
puts and covered calls on the same underlying security.

The aggregate value of the obligations underlying calls on
securities which are written by Balanced Fund and covered with
cash or other eligible segregated assets, together with the
aggregate value of the obligations underlying put options written
by the fund, will not exceed 50% of the fund's total assets.
Balanced Fund will not purchase puts or calls on securities if
more than 5% of its total assets would be invested in premiums on
puts and calls, not including that portion of the premium which
reflects the value of the securities owned by the fund and
underlying a put at the time of purchase.  Convertible Fund may
utilize up to 10% of its total assets to purchase put options on
portfolio securities and may do so at or about the same time that
it purchases the underlying security or at a later time.
Diversified Strategic Income Fund may utilize up to 15% of its
total assets to purchase options and may do so at or about the
same time that it purchases the underlying security or at a later
time.

The Diversified Strategic Income Fund may purchase and sell put,
call and other types of option securities that are traded on
domestic or foreign exchanges or the over-the-counter market
including, but not limited to, "spread" options, "knock-out"
options, "knock-in" options and "average rate" or "look-back"
options.  "Spread" options are dependent upon the difference
between the price of two securities or futures contracts. "Knock-
out" options are canceled if the price of the underlying asset
reaches a trigger level prior to expiration. "Knock-in" options
only have value if the price of the underlying asset reaches a
trigger level. "Average rate" or "Look-back" options are options
where the option's strike price at expiration is set based on
either the average, maximum or minimum price of the asset over the
period of the option.

A call is covered if the fund (a) owns the optioned securities,
(b) maintains in a segregated account cash or liquid securities
having a value equal to or greater than the fund's obligations
under the call, provided such securities have been determined by
SSB Citi to be liquid and unencumbered pursuant to guidelines
established by the trustees ("eligible segregated assets") or (c)
owns an offsetting call option.

Writing call and put options.  When a fund writes a call, it
receives a premium and gives the purchaser the right to buy the
underlying security at any time during the call period at a fixed
exercise price regardless of market price changes during the call
period.  If the call is exercised, the fund forgoes any gain from
an increase in the market price of the underlying security over
the exercise price.  When a fund writes a put, it receives a
premium and gives the purchaser of the put the right to sell the
underlying security to the fund at the exercise price at any time
during the option period.  When a fund purchases a put, it pays a
premium in return for the right to sell the underlying security
at the exercise price at any time during the option period.  For
the purchase of a put to be profitable, the market price of the
underlying security must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put
is sold in a closing sale transaction; otherwise, the purchase of
the put effectively increases the cost of the security and thus
reduces its yield.

A fund may write puts on securities only if they are "secured."
A put is "secured" if the fund maintains cash or other eligible
segregated assets with a value equal to the exercise price in a
segregated account or holds a put on the same underlying security
at an equal or greater exercise price.

The principal reason for writing covered call options on securities
is to attempt to realize, through the receipt of premiums, a
greater return than would be realized on the securities alone.
Diversified Strategic Income Fund, however, may engage in option
transactions only to hedge against adverse price movements in the
securities that it holds or may wish to purchase and the currencies
in which certain portfolio securities may be denominated. In return
for a premium, the writer of a covered call option forfeits the
right to any appreciation in the value of the underlying security
above the strike price for the life of the option (or until a
closing purchase transaction can be effected). Nevertheless, the
call writer retains the risk of a decline in the price of the
underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums.
The writer of a covered put option accepts the risk of a decline in
the price of the underlying security. The size of the premiums that
a fund may receive may be adversely affected as new or existing
institutions, including other investment companies, engage in or
increase their option-writing activities.

Options written by a fund normally will have expiration dates
between one and nine months from the date written. The exercise
price of the options may be below, equal to or above the market
values of the underlying securities at the times the options are
written. In the case of call options, these exercise prices are
referred to as "in-the-money," "at-the-money" and "out-of-the-
money," respectively. A fund with option-writing authority may
write (a) in-the-money call options when SSB Citi or its sub-
investment adviser expects that the price of the underlying
security will remain flat or decline moderately during the option
period, (b) at-the-money call options when SSB Citi expects that
the price of the underlying security will remain flat or advance
moderately during the option period and (c) out-of-the-money call
options when SSB Citi expects that the price of the underlying
security may increase but not above a price equal to the sum of the
exercise price plus the premiums received from writing the call
option. In any of the preceding situations, if the market price of
the underlying security declines and the security is sold at this
lower price, the amount of any realized loss will be offset wholly
or in part by the premium received. Out-of-the-money, at-the-money
and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be utilized in the
same market environments that such call options are used in
equivalent transactions.

So long as the obligation of a fund as the writer of an option
continues, the fund may be assigned an exercise notice by the
broker-dealer through which the option was sold, requiring the fund
to deliver (in the case of a call) or take delivery of (in the case
of a put) the underlying security against payment of the exercise
price. This obligation terminates when the option expires or the
fund effects a closing purchase transaction. A fund can no longer
effect a closing purchase transaction with respect to an option
once it has been assigned an exercise notice. To secure its
obligation to deliver the underlying security when it writes a call
option, or to pay for the underlying security when it writes a put
option, a fund will be required to deposit in escrow the underlying
security or other assets in accordance with the rules of the
Options Clearing Corporation (the "Clearing Corporation") or
similar foreign clearing corporation and of the securities exchange
on which the option is written.

Purchasing call and put options.  A fund may purchase put and
call options that are traded on a domestic securities exchange.
By buying a put, the fund limits the risk of loss from a decline
in the market value of the security until the put expires.  Any
appreciation in the value of the yield otherwise available from
the underlying security, however, will be partially offset by the
amount of the premium paid for the put option and any related
transaction costs.  call option may be purchased by the fund in
order to acquire the underlying securities for the fund at a
price that avoids any additional cost that would result from a
substantial increase in the market value of a security.  The fund
also may purchase call options to increase its return to
investors at a time when the call is expected to increase in
value due to anticipated appreciation of the underlying security.

Closing transactions.  A fund may engage in a closing purchase
transaction to realize a profit, to prevent an underlying
security from being called or put or to unfreeze an underlying
security (thereby permitting its sale or the writing of a new
option on the security prior to the outstanding option's
expiration).  To effect a closing purchase transaction, the fund
would purchase, prior to the holder's exercise of an option that
the fund has written, an option of the same series as that on
which the fund desires to terminate its obligation.  The
obligation of the fund under an option that it has written would
be terminated by a closing purchase transaction, but the fund
would not be deemed to own an option as the result of the
transaction.  There can be no assurance that the fund will be
able to effect closing purchase transactions at a time when it
wishes to do so.  To facilitate closing purchase transactions,
however, a fund will write options only if a secondary market for
the options exists on a domestic securities exchange or in the
over-the-counter market.  Balanced Fund will purchase and sell
only options which are listed on a national securities exchange
and will write options only through a national options clearing
organization.

There can be no assurance that a liquid secondary market will
exist at a given time for any particular option.  In this regard,
trading in options on U.S. government securities is relatively
new, so that it is impossible to predict to what extent liquid
markets will develop or continue.

An option position may be closed out only where there exists a
secondary market for an option of the same series on a recognized
securities exchange or in the over-the-counter market. In light of
this fact and current trading conditions, the fund expects to
purchase only call or put options issued by the Clearing
Corporation. The funds with option-writing authority expect to
write options only on U.S. securities exchanges, except that the
Diversified Strategic Income Fund also may write options on foreign
exchanges and in the over-the-counter market.

A fund may realize a profit or loss upon entering into a closing
transaction. In cases in which a fund has written an option, it
will realize a profit if the cost of the closing purchase
transaction is less than the premium received upon writing the
original option and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon writing the
original option. Similarly, when a fund has purchased an option and
engages in a closing sale transaction, whether the fund realizes a
profit or loss will depend upon whether the amount received in the
closing sale transaction is more or less than the premium that the
fund initially paid for the original option plus the related
transaction costs.

Although a fund generally will purchase or write only those options
for which SSB Citi or its sub-investment adviser believes there is
an active secondary market, there is no assurance that sufficient
trading interest to create a liquid secondary market on a
securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist
for a variety of reasons. At times in the past, for example, higher
than anticipated trading activity or order flow or other unforeseen
events have rendered inadequate certain of the facilities of the
Clearing Corporation as well U.S. and foreign securities exchanges
and resulted in the institution of special procedures such as
trading rotations, restrictions on certain types of orders or
trading halts or suspensions in one or more options. There can be
no assurance that similar events, or events that may otherwise
interfere with the timely execution of customers' orders, will not
recur. In such event, it might not be possible to effect closing
transactions in particular options. If a fund as a covered call
option writer is unable to effect a closing purchase transaction in
a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying
security upon exercise.

Securities exchanges generally have established limitations
governing the maximum number of calls and puts of each class that
may be held, written or exercised within certain time periods by an
investor or group of investors acting in concert (regardless of
whether the options are written on the same or different securities
exchanges or are held, written or exercised in one or more accounts
or through one or more brokers). It is possible that the funds with
authority to engage in options transactions, and other clients of
SSB Citi and certain of its affiliates, may be considered to be
such a group. A securities exchange may order the liquidation of
positions found to be in violation of these limits and it may
impose certain other sanctions.

In the case of options that are deemed covered by virtue of the
fund's holding convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange and obtain
physical delivery of the underlying common stocks with respect to
which the fund has written options may exceed the time within which
the fund must make delivery in accordance with an exercise notice.
In these instances, a fund may purchase or borrow temporarily the
underlying securities for purposes of physical delivery. By so
doing, the fund will not bear any market risk because the fund will
have the absolute right to receive from the issuer of the
underlying security an equal number of shares to replace the
borrowed stock, but the fund may incur additional transaction costs
or interest expenses in connection with any such purchase or
borrowing.

Additional risks exist with respect to certain of U.S. government
securities for which a fund may write covered call options. If a
fund writes covered call options on mortgage-backed securities, the
securities that it holds as cover may, because of scheduled
amortization or unscheduled prepayments, cease to be sufficient
cover. The fund will compensate for the decline in the value of the
cover by purchasing an appropriate additional amount of those
securities.

Stock Index Options (Balanced Fund). Balanced Fund may purchase and
write put and call options on U.S. stock indexes listed on U.S.
exchanges for the purpose of hedging its portfolio. A stock index
fluctuates with changes in the market values of the stocks included
in the index. Some stock index options are based on a broad market
index such as the New York Stock Exchange Composite Index or a
narrower market index such as the Standard & Poor's 100. Indexes
also are based on an industry or market segment such as the AMEX
Oil and Gas Index or the Computer and Business Equipment Index.  In
writing a call on a stock index, the fund receives a premium and
agrees that during the call period purchasers of a call, upon
exercise of the call, will receive an amount of cash if the
closing level of the stock index upon which the call is based is
greater than the exercise price of the call.  When the fund buys
a call on a stock index, it pays a premium and during the call
period the fund, upon exercise of the call, receives an amount of
cash if the closing level of the stock index upon which the call
is based is greater than the exercise price of the call.  The
fund also may purchase and sell stock index puts, which differ
from puts on individual securities in that they are settled in
cash based on the values of the securities in the underlying
index, rather than by delivery of the underlying securities.
Purchase of a stock index put is designed to protect against a
decline in the value of the fund's portfolio generally, rather
than an individual security in the portfolio.  Stock index puts
are sold primarily to realize income from the premiums received
on the sale of such options.  If any put is not exercised or
sold, it will become worthless on its expiration date.

Options on stock indexes are similar to options on stock except
that (a) the expiration cycles of stock index options are monthly,
while those of stock options are currently quarterly and (b) the
delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the
fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (b) a fixed
"index multiplier." Receipt of this cash amount will depend upon
the closing level of the stock index upon which the option is based
being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash
received will be equal to such difference between the closing price
of the index and the exercise price of the option expressed in
dollars times a specified multiple. The writer of the option is
obligated, in return for the premium received, to make delivery of
this amount. The writer may offset its position in stock index
options prior to expiration by entering into a closing transaction
on an exchange or it may let the option expire unexercised.

The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price
movements in the portion of a securities portfolio being hedged
correlate with price movements of the stock index selected. Because
the value of an index option depends upon movements in the level of
the index rather than the price of a particular stock, whether
Balanced Fund will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of
certain indexes, in an industry or market segment, rather than
movements in the price of a particular stock. Accordingly,
successful use by a fund of options on stock indexes will be
subject to SSB Citi's ability to predict correctly movements in the
direction of the stock market generally or of a particular
industry. This requires different skills and techniques than
predicting changes in the prices of individual stocks.

The Balanced Fund will engage in stock index options transactions
only when determined by SSB Citi to be consistent with the funds'
efforts to control risk. There can be no assurance that such
judgment will be accurate or that the use of these portfolio
strategies will be successful. When the fund writes an option on a
stock index, it will establish a segregated account in the name of
the fund consisting of cash, equity securities or debt securities
of any grade in an amount equal to or greater than the market value
of the option, provided such securities are liquid and unencumbered
and are marked to market daily pursuant to guidelines established
by the trustees.

Currency Transactions (Convertible, Diversified Strategic Income,
Balanced and High Income Funds). The funds' dealings in forward
currency exchange transactions will be limited to hedging involving
either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward currency contracts with
respect to specific receivables or payables of the fund generally
arising in connection with the purchase or sale of its securities.
Position hedging, generally, is the sale of forward currency
contracts with respect to portfolio security positions denominated
or quoted in the currency. A fund may not position hedge with
respect to a particular currency to an extent greater than the
aggregate market value of the security at any time, or securities
held in its portfolio denominated or quoted in, or currently
convertible into (such as through exercise of an option or
consummation of a forward currency contract) that particular
currency. If a fund enters into a transaction hedging or position
hedging transaction, it will cover the transaction through one or
more of the following methods: (a) ownership of the underlying
currency or an option to purchase such currency; (b) ownership of
an option to enter into an offsetting forward currency contract;
(c) entering into a forward contract to purchase currency being
sold, or to sell currency being purchased, provided that such
covering contract is itself covered by any one of these methods
unless the covering contract closes out the first contract; or (d)
depositing into a segregated account with the custodian or a sub-
custodian of the fund cash or readily marketable securities in an
amount equal to the value of the fund's total assets committed to
the consummation of the forward currency contract and not otherwise
covered. In the case of transaction hedging, any securities placed
in the account must be liquid debt securities. In any case, if the
value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that
the value of the account will equal the above amount. Hedging
transactions may be made from any foreign currency into dollars or
into other appropriate currencies.

At or before the maturity of a forward contract, a fund may either
sell a portfolio security and make delivery of the currency or
retain the security and offset its contractual obligation to
deliver the currency by purchasing a second contract pursuant to
which the relevant fund will obtain, on the same maturity date, the
same amount of the currency which it is obligated to deliver. If a
fund retains the portfolio security and engages in an offsetting
transaction, the fund, at the time of execution of the offsetting
transaction, will incur a gain or loss to the extent movement has
occurred in forward contract prices. Should forward prices decline
during the period between a fund's entering into a forward contract
for the sale of a currency and the date that it enters into an
offsetting contract for the purchase of the currency, the fund will
realize a gain to the extent that the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the fund will suffer a
loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.

The cost to a fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because
transactions in currency exchange are usually conducted on a
principal basis, no fees or commissions are involved. The use of
forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate
of exchange that can be achieved in the future. In addition,
although forward currency contracts limit the risk of loss due to a
decline in the value of the hedged currency, at the same time they
limit any potential gain that might result should the value of the
currency increase.

If a devaluation is generally anticipated, the Diversified
Strategic Income and High Income Funds may not be able to contract
to sell the currency at a price above the devaluation level they
anticipate.

Foreign Currency Options (Diversified Strategic Income and High
Income Funds). The High Income Fund may only purchase put and call
options on foreign currencies, whereas the Diversified Strategic
Income Fund may purchase or write put and call options on foreign
currencies for the purpose of hedging against changes in future
currency exchange rates. Foreign currency options generally have
three, six and nine month expiration cycles. Put options convey the
right to sell the underlying currency at a price which is
anticipated to be higher than the spot price of the currency at the
time the option expires. Call options convey the right to buy the
underlying currency at a price which is expected to be lower than
the spot price of the currency at the time that the option expires.

The fund may use foreign currency options under the same
circumstances that it could use forward currency exchange
transactions. A decline in the dollar value of a foreign currency
in which a fund's securities are denominated, for example, will
reduce the dollar value of the securities even if their value in
the foreign currency remains constant. In order to protect against
such diminutions in the value of securities that it holds, the fund
may purchase put options on the foreign currency. If the value of
the currency declines, the fund will have the right to sell the
currency for a fixed amount in dollars and will thereby offset, in
whole or in part, the adverse effect on its securities that
otherwise would have resulted. Conversely, if a rise in the dollar
value of a currency in which securities to be acquired are
denominated is projected, thereby potentially increasing the cost
of the securities, the fund may purchase call options on the
particular currency. The purchase of these options could offset, at
least partially, the effects of the adverse movements in exchange
rates. The benefit to the fund derived from purchases of foreign
currency options, like the benefit derived from other types of
options, will be reduced by the amount of the premium and related
transaction costs. In addition, if currency exchange rates do not
move in the direction or to the extent anticipated, the fund could
sustain losses on transactions in foreign currency options that
would require it to forego a portion or all of the benefits of
advantageous changes in the rates.

Futures Activities (Convertible, Diversified Strategic Income, High
Income, Municipal High Income, Total Return Bond and Balanced
Funds). These funds may enter into futures contracts and/or options
on futures contracts that are traded on a U.S. exchange or board of
trade. These investments may be made by a fund for the purpose of
hedging against the effects of changes in the value of its
portfolio securities due to anticipated changes in interest rates,
currency values and/or market conditions but not for purposes of
speculation. In the case of Municipal High Income Fund, investments
in futures contracts will be made only in unusual circumstances,
such as when SSB Citi anticipates an extreme change in interest
rates or market conditions. See "Taxes" below.

Futures Contracts (Convertible, Diversified Strategic Income,
Municipal High Income, Total Return Bond  and Balanced Funds). The
funds may acquire or sell a futures contract to mitigate the effect
of fluctuations in interest rates, currency values or market
conditions (depending on the type of contract) on portfolio
securities without actually buying or selling the securities. For
example, if Municipal High Income Fund owns long-term bonds and
tax-exempt rates are expected to increase, the fund might enter
into a short position in municipal bond index futures contracts.
Such a sale would have much the same effect as the fund's selling
some of the long-term bonds in its portfolio. If tax-exempt rates
increase as anticipated, the value of certain long-term Municipal
Securities in the fund would decline, but the value of the fund's
futures contracts would increase at approximately the same rate,
thereby keeping the net asset value of the fund from declining as
much as it otherwise would have. Of course, because the value of
portfolio securities will far exceed the value of the futures
contracts sold by a fund, an increase in the value of the futures
contracts could only mitigate, not totally offset, the decline in
the value of the fund.

In purchasing and selling futures contracts and related options,
a fund will comply with rules and interpretations of the
Commodity Futures Trading Commission ("CFTC"), under which the
fund is excluded from regulation as a "commodity pool."  CFTC
regulations require, among other things, that (a) futures and
related options be used solely for bona fide hedging purposes (or
that the underlying commodity value of a fund's long positions
not exceed the sum of certain identified liquid investments) and
(b) a fund not enter into futures and related options for which
the aggregate initial margin and premiums exceed 5% of the fair
market value of the fund's total assets.  In order to prevent
leverage in connection with the purchase of futures contracts by
a fund, an amount of cash or other eligible segregated assets
equal to the market value of futures contracts purchased will be
maintained in a segregated account on the books of the fund or
with PNC Bank.  A fund will engage only in futures contracts and
related options which are listed on a national commodities
exchange.

Interest Rate Futures Contracts.  A fund may purchase and sell
interest rate futures contracts as a hedge against changes in
interest rates.  An interest rate futures contract is an
agreement between two parties to buy and sell a security for a
set price on a future date.  Interest rate futures contracts are
traded on designated "contracts markets" which, through their
clearing corporations, guarantee performance of the contracts.
Currently, there are interest rate futures contracts based on
securities such as long-term Treasury bonds, Treasury notes, GNMA
certificates and three-month Treasury bills.

Generally, if market interest rates increase, the value of
outstanding debt securities declines (and vice versa).  Entering
into an interest rate futures contract for the sale of securities
has an effect similar to the actual sale of securities, although
sale of the interest rate futures contract might be accomplished
more easily and quickly.  For example, if a fund holds long-term
U.S. government securities and SSB Citi anticipates a rise in
long-term interest rates, the fund could, in lieu of disposing of
its portfolio securities, enter into interest rate futures
contracts for the sale of similar long-term securities.  If
interest rates increased and the value of the fund's securities
declined, the value of the fund's interest rate futures contracts
would increase, thereby protecting the fund by preventing the net
asset value from declining as much as it otherwise would have
declined.  Similarly, entering into interest rate futures
contracts for the purchase of securities has an effect similar to
the actual purchase of the underlying securities, but permits the
continued holding of securities other than the underlying
securities.  For example, if SSB Citi expects long-term interest
rates to decline, the fund might enter into interest rate futures
contracts for the purchase of long-term securities, so that it
could gain rapid market exposure that may offset anticipated
increases in the cost of securities that it intends to purchase,
while continuing to hold higher-yielding short-term securities or
waiting for the long-term market to stabilize.

Stock Index Futures Contracts.  A fund may purchase and sell
stock index futures contracts.  These transactions, if any, by
the fund will be made solely for the purpose of hedging against
the effects of changes in the value of its portfolio securities
due to anticipated changes in market conditions and will be made
when the transactions are economically appropriate to the
reduction of risks inherent in the management of the fund.  A
stock index futures contract is an agreement under which two
parties agree to take or make delivery of the amount of cash
based on the difference between the value of a stock index at the
beginning and at the end of the contract period.  When the fund
enters into a stock index futures contract, it must make an
initial deposit, known as "initial margin," as a partial
guarantee of its performance under the contract.  As the value of
the stock index fluctuates, either party to the contract is
required to make additional margin deposits, known as "variation
margin," to cover any additional obligation that it may have
under the contract.

Successful use of stock index futures contracts by a fund is
subject to certain special risk considerations.  A liquid stock
index futures market may not be available when the fund seeks to
offset adverse market movements.  In addition, there may be an
imperfect correlation between movements in the securities
included in the index and movements in the securities in the
fund.  Successful use of stock index futures contracts is further
dependent on SSB Citi's ability to predict correctly movements in
the direction of the stock markets and no assurance can be given
that its judgment in this respect will be correct.

The Diversified Strategic Income Fund may enter into futures
contracts or related options on futures contracts that are traded
on a domestic or foreign exchange or in the over-the-counter
market. These investments may be made for the purpose of hedging
against changes in the value of its portfolio securities but not
for purposes of speculation. The ability of the fund to trade in
futures contracts may be limited by the requirements of the
Internal Revenue Code of 1986 as amended (the "Code"), applicable
to a regulated investment company.

When deemed advisable by SSB Citi, Total Return Bond Fund may
enter into futures contracts or related options traded on a
domestic exchange or board of trade.  Such investments, if any,
by the fund will be made solely for the purpose of hedging
against the effects of changes in the value of the fund's
securities due to anticipated changes in interest rates and
market conditions, and when the transactions are economically
appropriate for the reduction of risks inherent in the management
of the fund. Total Return Bond Fund may hedge up to 50% of its
total assets using futures contracts or related options
transactions.

Balanced Fund may not purchase futures contracts or related
options if, immediately thereafter, more than 30% of the fund's
total assets would be so invested.  In addition, Balanced Fund
may not at any time commit more than 5% of its total assets to
initial margin deposits on futures contracts.

No consideration is paid or received by a fund upon entering into a
futures contract. Initially, a fund will be required to deposit
with its custodian an amount of cash or cash equivalents equal to
approximately 1% to 10% of the contract amount (this amount is
subject to change by the board of trade on which the contract is
traded and members of such board of trade may charge a higher
amount). This amount, known as initial margin, is in the nature of
a performance bond or good faith deposit on the contract and is
returned to a fund upon termination of the futures contract,
assuming that all contractual obligations have been satisfied.
Subsequent payments to and from the broker, known as variation
margin, will be made daily as the price of the securities, currency
or index underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less
valuable, a process known as "marking-to-market." At any time prior
to expiration of a futures contract, a fund may elect to close the
position by taking an opposite position, which will terminate the
fund's existing position in the contract.

Several risks are associated with the use of futures contracts as a
hedging device. Successful use of futures contracts by a fund is
subject to the ability of SSB Citi to predict correctly movements
in interest rates, stock or bond indices or foreign currency
values. These predictions involve skills and techniques that may be
different from those involved in the management of the portfolio
being hedged. In addition, there can be no assurance that there
will be a correlation between movements in the price of the
underlying securities, currency or index and movements in the price
of the securities which are the subject of the hedge. A decision of
whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to
some degree because of market behavior or unexpected trends in
interest rates or currency values.

Although the funds with authority to engage in futures activity
intend to enter into futures contracts only if there is an active
market for such contracts, there is no assurance that an active
market will exist for the contracts at any particular time. Most
futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single
trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that
limit. It is possible that futures contract prices could move to
the daily limit for several consecutive trading days with little or
no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial
losses. In such event, and in the event of adverse price movements,
a fund would be required to make daily cash payments of variation
margin and an increase in the value of the portion of the portfolio
being hedged, if any, may partially or completely offset losses on
the futures contract. As described above, however, there is no
guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and
thus provide an offset to losses on the futures contract.

If a fund has hedged against the possibility of a change in
interest rates or currency or market values adversely affecting the
value of securities held in its portfolio and rates or currency or
market values move in a direction opposite to that which the fund
has anticipated, the fund will lose part or all of the benefit of
the increased value of securities which it has hedged because it
will have offsetting losses in its futures positions. In addition,
in such situations, if the fund had insufficient cash, it may have
to sell securities to meet daily variation margin requirements at a
time when it may be disadvantageous to do so. These sales of
securities may, but will not necessarily, be at increased prices
which reflect the change in interest rates or currency values, as
the case may be.

Options on Futures Contracts. An option on an interest rate futures
contract, as contrasted with the direct investment in such a
contract, gives the purchaser the right, in return for the premium
paid, to assume a position in the underlying interest rate futures
contract at a specified exercise price at any time prior to the
expiration date of the option. A fund may purchase put options on
interest rate futures contracts in lieu of, and for the same
purpose as, sale of a futures contract.  It also may purchase
such put options in order to hedge a long position in the
underlying interest rate futures contract in the same manner as
it may purchase puts on securities provided they are similarly
"secured."   An option on a foreign currency futures contract, as
contrasted with the direct investment in such a contract, gives the
purchaser the right, but not the obligation, to assume a long or
short position in the relevant underlying future currency at a
predetermined exercise price at a time in the future. Upon exercise
of an option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price of
the futures contract exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the
futures contract. The potential for loss related to the purchase of
an option on futures contracts is limited to the premium paid for
the option (plus transaction costs). Because the value of the
option is fixed at the point of sale, there are no daily cash
payments to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and
that change would be reflected in the net asset value of a fund
investing in the option. The purchase of call options on futures
contracts is intended to serve the same purpose as the actual
purchase of the futures contract, and the fund will set aside
cash and liquid securities sufficient to purchase the amount of
portfolio securities represented by the underlying futures
contracts.

Several risks are associated with options on futures contracts. The
ability to establish and close out positions on such options will
be subject to the existence of a liquid market. In addition, the
purchase of put or call options on interest rate and foreign
currency futures will be based upon predictions by SSB Citi or a
fund's sub-investment adviser as to anticipated trends in interest
rates and currency values, as the case may be, which could prove to
be incorrect. Even if the expectations of SSB Citi or a fund's sub-
investment adviser are correct, there may be an imperfect
correlation between the change in the value of the options and of
the portfolio securities or the currencies being hedged.

Securities of Other Investment Companies (Balanced and
Convertible Funds).  The funds may invest in securities of other
investment companies to the extent permitted under the Investment
Company Act of 1940, as amended (the "1940 Act").  Presently,
under the 1940 Act, the funds may hold securities of another
investment company in amounts which (i) do not exceed 3% of the
total outstanding voting stock of such company, (ii) do not
exceed 5% of the value of the fund's total assets and (iii) when
added to all other investment company securities held by the
funds, do not exceed 10% of the value of the fund's total assets.

To the extent the funds invest in securities of other investment
companies, the fund's shareholders would indirectly pay a portion
of the operating costs of such companies in addition to the
expenses of its own operation.  These costs include management,
brokerage, shareholder servicing and other operational expenses.
Indirectly, then, shareholders of the funds that invest in Equity
Equivalents may pay higher operational costs than if they owned the
underlying investment companies directly.  Additionally, the fund's
investments in such investment companies are subject to limitations
under the 1940 Act and market availability.

Index-Related Securities ("Equity Equivalents"). (Balanced and
Convertible Funds). The funds may invest in certain types of
securities that enable investors to purchase or sell shares in a
portfolio of securities that seeks to track the performance of an
underlying index or a portion of an Index.  Such Equity
Equivalents include among others DIAMONDS (interests in a
portfolio of securities that seeks to track the performance of
the Dow Jones Industrial Average), SPDRs or Standard & Poor's
Depositary Receipts (interests in a portfolio of securities that
seeks to track the performance of the S&P 500 Index), WEBS or
World Equity Benchmark Shares (interests in a portfolio of
securities that seeks to track the performance of a benchmark
index of a particular foreign country's stocks), and the Nasdaq-
100 Trust (interests in a portfolio of securities of the largest
and most actively traded non-financial companies listed on the
Nasdaq Stock Market).  Such securities are similar to index
mutual funds, but they are traded on various stock exchanges or
secondary markets.  The value of these securities is dependent
upon the performance of the underlying index on which they are
based.  Thus, these securities are subject to the same risks as
their underlying indexes as well as the securities that make up
those indexes. For example, if the securities comprising an index
that an index-related security seeks to track perform poorly, the
index-related security will lose value.

Equity Equivalents may be used for several purposes, including, to
simulate full investment in the underlying index while retaining a
cash balance for fund management purposes, to facilitate trading,
to reduce transaction costs or to seek higher investment returns
where an Equity Equivalent is priced more attractively than
securities in the underlying index. Because the expense associated
with an investment in Equity Equivalents may be substantially lower
than the expense of small investments directly in the securities
comprising the indices they seek to track, investments in Equity
Equivalents may provide a cost-effective means of diversifying the
fund's assets across a broad range of equity securities.

The prices of Equity Equivalents are derived and based upon the
securities held by the particular investment company.  Accordingly,
the level of risk involved in the purchase or sale of an Equity
Equivalent is similar to the risk involved in the purchase or sale
of traditional common stock, with the exception that the pricing
mechanism for such instruments is based on a basket of stocks.  The
market prices of Equity Equivalents are expected to fluctuate in
accordance with both changes in the net asset values of their
underlying indices and the supply and demand for the instruments on
the exchanges on which they are traded.  Substantial market or
other disruptions affecting an Equity Equivalent could adversely
affect the liquidity and value of the shares of the funds investing
in such instruments.

Foreign Investments (Convertible, Diversified Strategic Income,
High Income and Balanced Funds). Investors should recognize that
investing in foreign companies involves certain considerations
which are not typically associated with investing in U.S. issuers.
Since these funds may be investing in securities denominated in
currencies other than the U.S. dollar, and since these funds may
temporarily hold funds in bank deposits or other money-market
investments denominated in foreign currencies, the funds may be
affected favorably or unfavorably by exchange control regulations
or changes in the exchange rate between such currencies and the
dollar. A change in the value of a foreign currency relative to the
U.S. dollar will result in a corresponding change in the dollar
value of the fund's total assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also
affect the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and
gain, if any, to be distributed to shareholders by the fund.

The rate of exchange between the U.S. dollar and other currencies
is determined by the forces of supply and demand in the foreign
exchange markets. Changes in the exchange rate may result over time
from the interaction of many factors directly or indirectly
affecting economic conditions and political developments in other
countries. Of particular importance are rates of inflation,
interest rate levels, the balance of payments and the extent of
government surpluses or deficits in the Unites States and the
particular foreign country.  All these factors are in turn
sensitive to the monetary, fiscal and trade policies pursued by the
governments of the United States and other foreign countries
important to international trade and finance. Government
intervention may also play a significant role. National governments
rarely voluntarily allow their currencies to float freely in
response to economic forces. Sovereign governments use a variety of
techniques, such as intervention by a country's central bank or
imposition of regulatory controls or taxes, to affect the exchange
rates of their currencies.

Many of the securities held by the funds will not be registered
with, nor the issuers thereof be subject to reporting requirements
of, the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company or
government issuing them than is available about a domestic company
or government entity. Foreign issuers are generally not subject to
uniform financial reporting standards, practices and requirements
comparable to those applicable to U.S. issuers. In addition, with
respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal
of funds or other assets of the fund, political or social
instability, or domestic developments which could affect U.S.
investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy
in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and
balance of payment positions. The funds may invest in securities of
foreign governments (or agencies or instrumentalities thereof), and
many, if not all, of the foregoing considerations apply to such
investments as well.

Securities of some foreign companies are less liquid, and their
prices are more volatile, than securities of comparable domestic
companies. Certain foreign countries are known to experience long
delays between the trade and settlement dates of securities
purchased or sold. Due to the increased exposure of a fund to
market and foreign exchange fluctuations brought about by such
delays, and to the corresponding negative impact on fund liquidity,
the fund will avoid investing in countries which are known to
experience settlement delays which may expose the fund to
unreasonable risk of loss.

The interest payable on a fund's foreign securities may be subject
to foreign withholding taxes, and while investors may be able to
claim some credit or deductions for such taxes with respect to
their allocated shares of such foreign tax payments, the general
effect of these taxes will be to reduce the fund's income.
Additionally, the operating expenses of the funds can be expected
to be higher than those of an investment company investing
exclusively in U.S. securities, since the expenses of the fund,
such as custodial costs, valuation costs and communication costs,
as well as the rate of the investment advisory fees, though similar
to such expenses of some other international funds, are higher than
those costs incurred by other investment companies.

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

Eurodollar or Yankee Obligations (Balanced, Total Return Bond
Funds).  These funds may invest in Eurodollar and Yankee
obligations.  Eurodollar bank obligations are dollar denominated
debt obligations issued outside the U.S. capital markets by
foreign branches of U.S. banks and by foreign banks.  Yankee
obligations are dollar denominated obligations issued in the U.S.
capital markets by foreign issuers.  Eurodollar (and to a limited
extent, Yankee) obligations are subject to certain sovereign
risks.  One such risk is the possibility that a foreign
government might prevent dollar denominated funds from flowing
across its borders.  Other risks include: adverse political and
economic developments in a foreign country; the extent and
quality of government regulation of financial markets and
institutions; the imposition of foreign withholding taxes; and
expropriation or nationalization of foreign issuers.

Securities of Developing Countries (Diversified Strategic Income
and High Income Funds).  These funds may invest in securities of
developing (or "emerging market") countries.  A developing
country generally is considered to be a country that is in the
initial stages of its industrialization cycle.  Investing in the
equity and fixed-income markets of developing countries involves
exposure to economic structures that are generally less diverse
and mature, and to political systems that can be expected to have
less stability, than those of developed countries.  Historical
experience indicates that the markets of developing countries
have been more volatile than the markets of the more mature
economies of developed countries.

Foreign Government Securities of Emerging Markets (Diversified
Strategic Income fund and High Income Fund). Among the foreign
government securities in which the fund may invest are those issued
by countries with developing economies, i.e., countries in the
initial stages of their industrialization cycles. Investing in
securities of countries with developing economies involves exposure
to economic structures that are generally less diverse and less
mature, and to political systems that can be expected to have less
stability, than those of developed countries. The markets of
countries with developing economies historically have been more
volatile than markets of the more mature economies of developed
countries, but often have provided higher rates of return to
investors.

Convertible Securities and Synthetic Convertible Securities
(Balanced, Convertible Fund, Diversified Strategic Income Fund
and High Income Fund).  Convertible securities are fixed-income
securities that may be converted at either a stated price or
stated rate into underlying shares of common stock.  Convertible
securities have general characteristics similar to both fixed-
income and equity securities.  Although to a lesser extent than
with fixed-income securities generally, the market value of
convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates
decline.  In addition, because of the conversion feature, the
market value of convertible securities tends to vary with
fluctuations in the market value of the underlying common stocks
and, therefore, also will react to variations in the general
market for equity securities.  A unique feature of convertible
securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly
on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock.  When the
market price of the underlying common stock increases, the prices
of the convertible securities tend to rise as a reflection of the
value of the underlying common stock.  While no securities
investments are without risk, investments in convertible
securities generally entail less risk than investments in common
stock of the same issuer.

As fixed-income securities, convertible securities are
investments which provide for a stable stream of income with
generally higher yields than common stocks.  Of course, like all
fixed-income securities, there can be no assurance of current
income because the issuers of the convertible securities may
default on their obligations.  Convertible securities, however,
generally offer lower interest or dividend yields than non-
convertible securities of similar quality because of the
potential for capital appreciation.  A convertible security, in
addition to providing fixed income, offers the potential for
capital appreciation through the conversion feature, which
enables the holder to benefit from increases in the market price
of the underlying common stock.  However, there can be no
assurance of capital appreciation because securities prices
fluctuate.

Convertible securities generally are subordinated to other
similar but nonconvertible securities of the same issuer,
although convertible bonds, as corporate debt obligations, enjoy
seniority in right of payment to all equity securities, and
convertible preferred stock is senior to common stock of the same
issuer.  Because of the subordination feature, however,
convertible securities typically have lower ratings than similar
non-convertible securities.

Unlike a convertible security which is a single security, a
synthetic convertible security is comprised of two distinct
securities that together resemble convertible securities in
certain respects.  Synthetic convertible securities are created
by combining non-convertible bonds or preferred stocks with
warrants or stock call options.  The options that will form
elements of synthetic convertible securities will be listed on a
securities exchange or on the National Association of Securities
Dealers Automated Quotation System.  The two components of a
synthetic convertible security, which will be issued with respect
to the same entity, generally are not offered as a unit, and may
be purchased and sold by the Fund at different times.  Synthetic
convertible securities differ from convertible securities in
certain respects, including that each component of a synthetic
convertible security has a separate market value and responds
differently to market fluctuations.  Investing in synthetic
convertible securities involves the risk normally involved in
holding the securities comprising the synthetic convertible
security.

Temporary Investments (Balanced, Convertible,  Diversified
Strategic Income, High Income, Municipal High Income and Total
Return Bond Funds).  When SSB Citi believes that market
conditions warrant, these funds may adopt a temporary defensive
posture and may invest in short-term instruments without
limitation.  Short-term instruments in which the funds may invest
(except for Municipal High Income, as described below) include:
U.S. government securities; certain bank obligations (including
certificates of deposit, time deposits and bankers' acceptances
of domestic or foreign banks, domestic savings and loan
associations and similar institutions); commercial paper rated no
lower than A-2 by S&P or Prime-2 by Moody's or an equivalent
rating by any other NRSRO or, if unrated, of an issuer having an
outstanding, unsecured debt issue then rated within the three
highest rating categories; and repurchase agreements with respect
to securities in which a fund may invest.

When Municipal High Income Fund is maintaining a defensive position
it may invest in Temporary Investments consisting of: (a) the
following tax-exempt securities: (i) tax-exempt notes of municipal
issuers having, at the time of purchase, a rating of MIG 1 through
MIG 4 by Moody's or rated SP-1 or SP-2 by S&P or, if not rated, of
issuers having an issue of outstanding Municipal Securities rated
within the four highest grades by Moody's or S&P; (ii) tax-exempt
commercial paper having a rating not lower than A-2 by S&P or
Prime-2 by Moody's at the time of purchase; and (iii) variable-rate
demand notes rated within the two highest ratings by any major
rating service, or determined to be of comparable quality to
instruments with such rating, at the time of purchase; and (b) the
following taxable securities: (i) U.S. government securities,
including repurchase agreements with respect to such securities;
(ii) other debt securities rated within the four highest grades by
Moody's or S&P; (iii) commercial paper rated in the highest grade
by either of these rating services; and (iv) CDs of domestic banks
with assets of $1 billion or more. Among the tax-exempt notes in
which the fund may invest are Tax Anticipation Notes, Bond
Anticipation Notes and Revenue Anticipation Notes, which are issued
in anticipation of receipt of tax funds, proceeds of bond
placements or other revenues, respectively. At no time will more
than 20% of the fund's total assets be invested in Temporary
Investments unless the fund has adopted a defensive investment
policy in anticipation of a market decline. The fund, however,
intends to purchase tax-exempt Temporary Investments pending the
investment of the proceeds of the sale of shares of the fund and of
its portfolio securities, or in order to have highly liquid
securities available to meet anticipated redemptions.

Short Sales Against the Box (Convertible and Balanced Funds). These
funds may enter into a short sale of common stock such that, when
the short position is open, the fund involved owns an equal amount
of preferred stocks or debt securities convertible or exchangeable
without payment of further consideration into an equal number of
shares of the common stock sold short. A fund will enter into this
kind of short sale,, described as "against the box," for the
purpose of receiving a portion of the interest earned by the
executing broker from the proceeds of the sale. The proceeds of the
sale will be held by the broker until the settlement date, when the
fund delivers the convertible securities to close out its short
position. Although a fund will have to pay an amount equal to any
dividends paid on the common stock sold short prior to delivery, it
will receive the dividends from the preferred stock or interest
from the debt securities convertible into the stock sold short,
plus a portion of the interest earned from the proceeds of the
short sale. The funds will deposit, in a segregated account with
their custodian, convertible preferred stock or convertible debt
securities in connection with short sales against the box

Short Sales (Balanced and Convertible Funds).  The funds may seek
to hedge investments or realize additional gains through short
sales.  Short sales are transactions in which a fund sells a
security it does not own in anticipation of a decline in the
market value of that security.  To complete such a transaction,
the funds borrow the security to make delivery to the buyer.  The
funds are obligated to replace the security borrowed by
purchasing it at the market price at or prior to the time of
replacement.  The price at such time may be more or less than the
price at which the security was sold by the funds.  Until the
security is replaced, the funds are required to repay the lender
any dividends or interest that accrue during the period of the
loan.  To borrow the security, the funds also may be required to
pay a premium, which would increase the cost of the security
sold.  A portion of the net proceeds of the short sale may be
retained by the broker (or by the fund's custodian in a special
custody account), to the extent necessary to collateralize the
broker and to meet margin requirements, until the short position
is closed out.  The funds will also incur transaction costs in
effecting short sales.

The funds will incur a loss as a result of the short sale if the
price of the security increases between the date of the short
sale and the date on which the funds replaces the borrowed
security.  The funds will realize a gain if the security declines
in price between those dates.  The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of
the premiums, dividends, interest or expenses the funds may be
required to pay in connection with a short sale.  An increase in
the value of a security sold short by the funds over the price at
which it was sold short will result in a loss to the funds, and
there can be no assurance that the funds will be able to close
out the position at any particular time or at an acceptable
price.  Thus the funds' losses on short sales are potentially
unlimited.

Whenever the funds engage in short sales, it maintains cash or
liquid securities in an amount that, when combined with the amount
of collateral deposited with the broker in connection with the
short sale, equals the current market value of the security sold
short.  The assets so maintained are marked to market daily.

Rule 144A Securities (Balanced, High Income Fund, Diversified
Strategic Income Fund, Exchange Reserve and Convertible Funds).
These funds may purchase Rule 144A Securities, which are
unregistered securities restricted to purchase by "qualified
institutional buyers" pursuant to Rule 144A under the 1933 Act.
Because Rule 144A Securities are freely transferable among
qualified institutional buyers, a liquid market may exist among
such buyers.  The board of trustees has adopted guidelines and
delegated to SSB Citi the daily function of determining and
monitoring liquidity of Rule 144A Securities.  However, the board
of trustees maintains sufficient oversight and is ultimately
responsible for the liquidity determinations.  Investments in
restricted securities such as Rule 144A Securities could have the
effect of increasing the level of illiquidity in the fund to the
extent that there is temporarily no market for these securities
among qualified institutional buyers.

Real Estate Investment Trusts (Balanced, Convertible and
Diversified Strategic Income Funds).  These funds may invest in
real estate investment trusts ("REITs").  REITs are pooled
investment vehicles that invest primarily in either real estate
or real estate related loans.  The value of the REIT is affected
by changes in the value of the properties owned by the REIT or
security mortgage loans held by the REIT.  REITS are dependent
upon cash flow from its investments to repay financing costs and
the management skill of the REIT's manager.  REITS are also
subject to risks generally associated with investments in real
estate.

Restricted and Illiquid Securities (All funds).  Each fund may
invest up to 15% (except for Exchange Reserve Fund and Municipal
High Income Fund, each of which may invest up to 10%) of its
total assets in securities with contractual or other restrictions
on resale and other instruments that are not readily marketable,
including (a) repurchase agreements with maturities greater than
seven days, (b) futures contracts and related options (and with
respect to Municipal High Income Fund, certain variable rate
demand notes) for which a liquid secondary market does not exist
and (c) time deposits maturing in more than seven calendar days
(except for Exchange Reserve Fund, time deposits maturing in two
business days to six months, and for Municipal High Income Fund,
time deposits maturing in two business days to seven calendar
days).  The above restriction does not apply to Rule 144A
Securities.  In addition, each fund, except Convertible Fund,
which is not restricted, may invest up to 5% of its total assets
in the securities of issuers which have been in continuous
operation for less than three years. Not withstanding the
foregoing, Total Return Bond Fund shall not invest more that 10%
of its total assets in securities that are restricted, excluding
Rule 144A Securities.

The sale of securities that are not publicly traded is typically
restricted under the federal securities laws.  As a result, a
fund may be forced to sell these securities at less than fair
market value or may not be able to sell them when SSB Citi
believes it desirable to do so.  The funds' investments in
illiquid securities are subject to the risk that should the fund
desire to sell any of these securities when a ready buyer is not
available at a price that the fund deems representative of their
value, the value of the fund's total assets could be adversely
affected.

Corporation Loans (Balanced Fund, High Income Fund and
Diversified Strategic Income Fund). These funds may invest up to
15% of its total assets in corporate loans.  Corporate loans are
negotiated and underwritten by a bank or syndicate of banks and
other institutional investors.  The funds may acquire an interest
in corporate loans through the primary market by acting as one of
a group of lenders of a corporate loan.  The primary risk in an
investment in corporate loans is that the borrower may be unable
to meet their interest and/or principal payment obligations.  The
occurrence of such default with regard to a corporate loan in
which the funds had invested would have an adverse affect on each
fund's net asset value.  Corporate loans in that the funds may
invest may be collateralized or uncollateralized and senior or
subordinate.  Investments in uncollateralized and/or subordinate
loans entail a greater risk of nonpayment than do investments in
corporate loans which hold a more senior position in the
borrower's capital structure or that are secured with collateral.

The funds may also acquire an interest in corporate loans by
purchasing both participations ("Participations") in and
assignments ("Assignments") of portions of corporate loans from
third parties.  By purchasing a Participation, the funds acquire
some or all of the interest of a bank or other leading
institution in a loan to a corporate borrower.  The
Participations typically will result in the funds having a
contractual relationship only with the lender and not the
borrower.  The funds will have the right to receive payments or
principal, interest and any fees to which it is entitled only
from the lender selling the Participation and only upon receipt
by the lender of the payments from the borrower.  In connection
with purchasing Participations, the funds generally will have no
right to enforce compliance by the borrower with the terms of the
loan agreement relating to the loan, nor any rights of set-off
against the borrower, and the funds may not directly benefit from
any collateral supporting the loan in which it has purchased the
Participation.  As a result, the funds will assume the credit
risk of both the borrower and the lender that is selling the
Participation.  The funds will acquire Participations only if the
lender interpositioned between the funds and the borrower is
determined by management to be creditworthy.  When the funds
purchases Assignments from lenders, the funds will acquire direct
rights against the borrower on the loan.  However, since
Assignments are arranged through private negotiations between
potential assignees and assignors, the rights and obligations
acquired by the funds as the purchaser of an Assignment may
differ from, and be more limited than, those held by the assigned
lender.

In addition, the funds may have difficulty disposing of its
investments in corporate loans.  The liquidity of such securities
is limited and the funds anticipate that such securities could be
sold only to a limited number of institutional investors.  The
lack of liquid secondary market could have an adverse impact on
the value of such securities and on each fund's ability to
dispose of particular Assignments or Participations when
necessary to meet each fund's liquidity needs or in response to a
specific economic event, such as a deterioration in the
creditworthiness of the borrower.  The lack of liquid secondary
market for corporate loans also may make it more difficult for
the funds to assign a value to those securities for purposes of
valuing each fund's investments and calculating its net asset
value.  Each fund's policy limiting its illiquid securities will
be applicable to investments in corporate loans.


RISK FACTORS

The following risk factors are intended to supplement the risks
described above and those in the funds' prospectuses.

General.  Investors should realize that risk of loss is inherent
in the ownership of any securities and that each fund's net asset
value will fluctuate, reflecting fluctuations in the market value
of its portfolio positions.

Warrants.  Because a warrant does not carry with it the right to
dividends or voting rights with respect to the securities that
the warrant holder is entitled to purchase, and because a warrant
does not represent any rights to the assets of the issuer, a
warrant may be considered more speculative than certain other
types of investments.  In addition, the value of a warrant does
not necessarily change with the value of the underlying security
and a warrant ceases to have value if it is not exercised prior
to its expiration date.  The investment in warrants, valued at
the lower of cost or market, may not exceed 10% of the value of
the fund's total assets. Included within that amount, but not to
exceed 5% of the value of the fund's total assets, may be
warrants that are not listed on the NYSE or the American Stock
Exchange.  Warrants acquired by the fund in units or attached to
securities may be deemed to be without value.

Securities of Unseasoned Issuers.  Securities in which the funds
may invest may have limited marketability and, therefore, may be
subject to wide fluctuations in market value.  In addition,
certain securities may be issued by companies that lack a
significant operating history and are dependent on products or
services without an established market share.

Fixed Income Securities.  Investments in fixed income securities
may subject the funds to risks, including the following.

Interest Rate Risk.  When interest rates decline, the market
value of fixed income securities tends to increase.  Conversely,
when interest rates increase, the market value of fixed income
securities tends to decline.  The volatility of a security's
market value will differ depending upon the security's duration,
the issuer and the type of instrument.

Default Risk/Credit Risk.  Investments in fixed income securities
are subject to the risk that the issuer of the security could
default on its obligations, causing a fund to sustain losses on
such investments.  A default could impact both interest and
principal payments.

Call Risk and Extension Risk.  Fixed income securities may be
subject to both call risk and extension risk.  Call risk exists
when the issuer may exercise its right to pay principal on an
obligation earlier than scheduled, which would cause cash flows
to be returned earlier than expected.  This typically results
when interest rates have declined and a fund will suffer from
having to reinvest in lower yielding securities.  Extension risk
exists when the issuer may exercise its right to pay principal on
an obligation later than scheduled, which would cause cash flows
to be returned later than expected.  This typically results when
interest rates have increased, and a fund will suffer from the
inability to invest in higher yield securities.

Lower Rated Fixed Income Securities.  Securities which are rated
BBB by S&P or Baa by Moody's are generally regarded as having
adequate capacity to pay interest and repay principal, but may
have some speculative characteristics.  Securities rated below
Baa by Moody's or BBB by S&P may have speculative
characteristics, including the possibility of default or
bankruptcy of the issuers of such securities, market price
volatility based upon interest rate sensitivity, questionable
creditworthiness and relative liquidity of the secondary trading
market.  Because high yield bonds ("junk bonds") have been found
to be more sensitive to adverse economic changes or individual
corporate developments and less sensitive to interest rate
changes than higher-rated investments, an economic downturn could
disrupt the market for high yield bonds and adversely affect the
value of outstanding bonds and the ability of issuers to repay
principal and interest.  In addition, in a declining interest
rate market, issuers of high yield bonds may exercise redemption
or call provisions, which may force a fund, to the extent it owns
such securities, to replace those securities with lower yielding
securities.  This could result in a decreased return.

Repurchase Agreements.  The fund bears a risk of loss in the
event that the other party to a repurchase agreement defaults on
its obligations and the fund is delayed or prevented from
exercising its rights to dispose of the underlying securities,
including the risk of a possible decline in the value of the
underlying securities during the period in which the fund seeks
to assert its rights to them, the risk of incurring expenses
associated with asserting those rights and the risk of losing all
or a part of the income from the agreement.

Foreign Securities.   Investments in securities of foreign
issuers involve certain risks not ordinarily associated with
investments in securities of domestic issuers.  Such risks
include fluctuations in foreign exchange rates, future political
and economic developments, and the possible imposition of
exchange controls or other foreign governmental laws or
restrictions.  Since each fund will invest heavily in securities
denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will, to the extent
the fund does not adequately hedge against such fluctuations,
affect the value of securities in its portfolio and the
unrealized appreciation or depreciation of investments so far as
U.S. investors are concerned.  In addition, with respect to
certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or
diplomatic developments which could adversely affect investments
in those countries.

There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing, and financial reporting
standards and requirements comparable to or as uniform as those
of U.S. companies.  Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than
U.S. markets, and securities of many foreign companies are less
liquid and their price more volatile than securities of
comparable U.S. companies.  Transaction costs on foreign
securities markets are generally higher than in the U.S.  There
is generally less government supervision and regulation of
exchanges, brokers and issuers than there is in the U.S. A fund
might have greater difficulty taking appropriate legal action in
foreign courts. Dividend and interest income from foreign
securities will generally be subject to withholding taxes by the
country in which the issuer is located and may not be recoverable
by the fund or the investors.  Capital gains are also subject to
taxation in some foreign countries.

Currency Risks.  The U.S. dollar value of securities denominated
in a foreign currency will vary with changes in currency exchange
rates, which can be volatile.  Accordingly, changes in the value
of the currency in which a fund's investments are denominated
relative to the U.S. dollar will affect the fund's net asset
value.  Exchange rates are generally affected by the forces of
supply and demand in the international currency markets, the
relative merits of investing in different countries and the
intervention or failure to intervene of U.S. or foreign
governments and central banks.  However, currency exchange rates
may fluctuate based on factors intrinsic to a country's economy.
Some emerging market countries also may have managed currencies,
which are not free floating against the U.S. dollar.  In
addition, emerging markets are subject to the risk of
restrictions upon the free conversion of their currencies into
other currencies.  Any devaluations relative to the U.S. dollar
in the currencies in which a fund's securities are quoted would
reduce the fund's net asset value per share.

Special Risks of Countries in the Asia Pacific Region.   Certain
of the risks associated with international investments are
heightened for investments in these countries. For example, some
of the currencies of these countries have experienced
devaluations relative to the U.S. dollar, and adjustments have
been made periodically in certain of such currencies.  Certain
countries, such as Indonesia, face serious exchange constraints.
Jurisdictional disputes also exist, for example, between South
Korea and North Korea.  In addition, Hong Kong reverted to
Chinese administration on July 1, 1997.  The long-term effects of
this reversion are not known at this time.

Securities of Developing/Emerging Markets Countries.   A
developing or emerging markets country generally is considered to
be a country that is in the initial stages of its
industrialization cycle. Investing in the equity markets of
developing countries involves exposure to economic structures
that are generally less diverse and mature, and to political
systems that can be expected to have less stability, than those
of developed countries. Historical experience indicates that the
markets of developing countries have been more volatile than the
markets of the more mature economies of developed countries;
however, such markets often have provided higher rates of return
to investors.

One or more of the risks discussed above could affect adversely
the economy of a developing market or a fund's investments in
such a market.  In Eastern Europe, for example, upon the
accession to power of Communist regimes in the past, the
governments of a number of Eastern European countries
expropriated a large amount of property.  The claims of many
property owners against those of governments may remain
unsettled.  There can be no assurance that any investments that a
fund might make in such emerging markets would not be
expropriated, nationalized or otherwise confiscated at some time
in the future.  In such an event, the fund could lose its entire
investment in the market involved.  Moreover, changes in the
leadership or policies of such markets could halt the expansion
or reverse the liberalization of foreign investment policies now
occurring in certain of these markets and adversely affect
existing investment opportunities.

Many of a fund's investments in the securities of emerging
markets may be unrated or rated below investment grade.
Securities rated below investment grade (and comparable unrated
securities) are the equivalent of high yield, high risk bonds,
commonly known as "junk bonds." Such securities are regarded as
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal in accordance with the terms
of the obligations and involve major risk exposure to adverse
business, financial, economic, or political conditions.

Derivative Instruments.  In accordance with its investment
policies, each fund may invest in certain derivative instruments
which are securities or contracts that provide for payments based
on or "derived" from the performance of an underlying asset,
index or other economic benchmark.  Essentially, a derivative
instrument is a financial arrangement or a contract between two
parties (and not a true security like a stock or a bond).
Transactions in derivative instruments can be, but are not
necessarily, riskier than investments in conventional stocks,
bonds and money market instruments.  A derivative instrument is
more accurately viewed as a way of reallocating risk among
different parties or substituting one type of risk for another.
Every investment by a fund, including an investment in
conventional securities, reflects an implicit prediction about
future changes in the value of that investment.  Every fund
investment also involves a risk that the portfolio manager's
expectations will be wrong.  Transactions in derivative
instruments often enable a fund to take investment positions that
more precisely reflect the portfolio manager's expectations
concerning the future performance of the various investments
available to the fund.  Derivative instruments can be a
legitimate and often cost-effective method of accomplishing the
same investment goals as could be achieved through other
investment in conventional securities.

Derivative contracts include options, futures contracts, forward
contracts, forward commitment and when-issued securities
transactions, forward foreign currency exchange contracts and
interest rate, mortgage and currency transactions.  The following
are the principal risks associated with derivative instruments.

	Market risk:  The instrument will decline in value or that
an alternative investment would have appreciated more, but this
is no different from the risk of investing in conventional
securities.

	Leverage and associated price volatility:  Leverage causes
increased volatility in the price and magnifies the impact of
adverse market changes, but this risk may be consistent with the
investment objective of even a conservative fund in order to
achieve an average portfolio volatility that is within the
expected range for that type of fund.

	Credit risk:  The issuer of the instrument may default on
its obligation to pay interest and principal.

	Liquidity and valuation risk:  Many derivative instruments
are traded in institutional markets rather than on an exchange.
Nevertheless, many derivative instruments are actively traded and
can be priced with as much accuracy as conventional securities.
Derivative instruments that are custom designed to meet the
specialized investment needs of a relatively narrow group of
institutional investors such as the funds are not readily
marketable and are subject to a fund's restrictions on illiquid
investments.

	Correlation risk:  There may be imperfect correlation
between the price of the derivative and the underlying asset.
For example, there may be price disparities between the trading
markets for the derivative contract and the underlying asset.

Each derivative instrument purchased for a fund's portfolio is
reviewed and analyzed by the fund's portfolio manager to assess
the risk and reward of each such instrument in relation the
fund's portfolio investment strategy.  The decision to invest in
derivative instruments or conventional securities is made by
measuring the respective instrument's ability to provide value to
the fund and its shareholders.

Special Risks of Writing Options.  Option writing for the fund
may be limited by position and exercise limits established by
national securities exchanges and by requirements of the Code for
qualification as a regulated investment company.  In addition to
writing covered call options to generate current income, the fund
may enter into options transactions as hedges to reduce
investment risk, generally by making an investment expected to
move in the opposite direction of a portfolio position.  A hedge
is designed to offset a loss on a portfolio position with a gain
on the hedge position; at the same time, however, a properly
correlated hedge will result in a gain on the portfolio position
being offset by a loss on the hedge position.  The fund bears the
risk that the prices of the securities being hedged will not move
in the same amount as the hedge.  The fund will engage in hedging
transactions only when deemed advisable by SSB Citi.  Successful
use by the fund of options will be subject to SSB Citi' ability
to predict correct movements in the direction of the stock or
index underlying the option used as a hedge.  Losses incurred in
hedging transactions and the costs of these transactions will
affect the fund's performance.

The ability of the fund to engage in closing transactions with
respect to options depends on the existence of a liquid secondary
market. While the fund generally will write options only if a
liquid secondary market appears to exist for the options
purchased or sold, for some options no such secondary market may
exist or the market may cease to exist. If the fund cannot enter
into a closing purchase transaction with respect to a call option
it has written, the fund will continue to be subject to the risk
that its potential loss upon exercise of the option will increase
as a result of any increase in the value of the underlying
security.  The fund could also face higher transaction costs,
including brokerage commissions, as a result of its options
transactions.

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

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

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

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

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

Portfolio Turnover.   Each fund may purchase or sell securities
without regard to the length of time the security has been held
and thus may experience a high rate of portfolio turnover. A 100%
turnover rate would occur, for example, if all the securities in
a portfolio were replaced in a period of one year. A fund may
experience a high rate of portfolio turnover if, for example, it
writes a substantial number of covered call options and the
market prices of the underlying securities appreciate. The rate
of portfolio turnover is not a limiting factor when the SSB Citi
deems it desirable to purchase or sell securities or to engage in
options transactions. High portfolio turnover involves
correspondingly greater transaction costs, including any
brokerage commissions, which are borne directly by the respective
fund and may increase the recognition of short-term, rather than
long-term, capital gains if securities are held for one year or
less and may be subject to applicable income taxes.

Investment Restrictions

The trust has adopted investment restrictions 1 through 8 below as
fundamental policies with respect to the funds, which, under the
terms of the 1940 Act, may not be changed without the vote of a
majority of the outstanding voting securities of a fund. A
"majority" is defined in the 1940 Act as the lesser of (a) 67% or
more of the shares present at a shareholder meeting, if the holders
of more than 50% of the outstanding shares of the trust are present
or represented by proxy, or (b) more than 50% of the outstanding
shares. Investment restrictions 9 through 17 may be changed by vote
of a majority of the board of trustees at any time.

The investment policies adopted by the trust prohibit a fund from:

1.	Investing in a manner that would cause it to fail to be a
"diversified company" under the 1940 Act and the rules,
regulations and orders thereunder.

2. Investing in "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.

3. Investing 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.

4. Borrowing 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 transaction.

5. Purchasing 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" and for the
Balanced Fund and Convertible Fund which may make short
sales or maintain a short position).   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.

6. Making Loans.  This restriction does not apply to: (a)
the purchase of debt obligations in which the fund may
invest consistent with its investment objective and
policies; (b) repurchase agreements; and (c) loans of its
portfolio securities, to the fullest extent permitted
under the 1940 Act.

7.	Underwriting securities issued by other persons, except
to the extent that the fund may technically be deemed an
underwriter under the Securities Act of 1933, as amended,
in disposing of portfolio securities.

8.	Purchasing or selling 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
fund's investment objective and policies); (d) investing
in real estate investment trust securities; or (e)
investing in gold bullion and coins or receipts for gold.

9.	Investing in oil, gas or other mineral exploration or
development programs, except that the  Convertible,
Diversified Strategic Income, Balanced and High Income
Funds may invest in the securities of companies that
invest in or sponsor those programs.

10.	Writing or selling puts, calls, straddles, spreads or
combinations thereof, except, with respect to funds other
than Exchange Reserve Fund, as permitted under the fund's
investment objective and policies.

11.	With respect to all funds except the Exchange Reserve
Fund and Municipal High Income Fund, purchasing
restricted securities, illiquid securities (such as
repurchase agreements with maturities in excess of seven
days and, in the case of Exchange Reserve Fund, TDs
maturing from two business days through six months) or
other securities that are not readily marketable if more
than 15% or, in the case of the Municipal High Income and
Exchange Reserve Funds, 10% of the total assets of the
fund would be invested in such securities.  With respect
to the Exchange Reserve Fund, securities subject to Rule
144A of the 1933 Act (provided at least two dealers make
a market in such securities) and certain privately issued
commercial paper eligible for resale without registration
pursuant to Section 4(2) of the 1933 Act will not be
subject to this restriction

12.	Purchasing any security if as a result the fund, (for
Convertible Fund would then have more than 10% of its
total assets), would then have more than 5% of its total
assets invested in securities of companies (including
predecessors) that have been in continuous operation for
fewer than three years; provided that, in the case of
private activity bonds purchased for Municipal High
Income Fund, this restriction shall apply to the entity
supplying the revenues from which the issue is to be
paid.

13.	Making investments for the purpose of exercising control
or management.

14.	Purchasing or retaining securities of any company if, to
the knowledge of the trust, any of the trust's officers
or trustees or any officer or director of SSB Citi
individually owns more than 1/2 of 1% of the outstanding
securities of such company and together they own
beneficially more than 5% of the securities.

15. Investing in warrants other than those acquired by the
fund, except Convertible Fund, as part of a unit or
attached to securities at the time of purchase (except as
permitted under a fund's investment objective and
policies) if, as a result, the investments (valued at the
lower of cost or market) would exceed 5% of the value of
the fund's total assets (for Convertible Fund, would
exceed 10% of the value of the fund's total assets).  At
no time may more than 2% of the fund's total assets (for
Convertible Fund, at no time may more than 5% of the
fund's total assets) be invested in warrants not listed
on a recognized U.S. or foreign stock exchange, to the
extent permitted by applicable state securities laws.

16. Invest in securities of other investment companies,
except to the extent permitted under the 1940 Act.

17.	With respect to Balanced Fund, purchasing in excess of 5%
of the voting securities of a public utility or public
utility holding company, so as to become a public utility
holding company as defined in the Public Utility Holding
Company Act of 1935, as amended.

The trust has adopted two additional investment restrictions
applicable to Exchange Reserve Fund, the first of which is a
fundamental policy, which prohibit the fund from:

1.	Investing in common stocks, preferred stocks, warrants,
other equity securities, corporate bonds or debentures,
state bonds, municipal bonds or industrial revenue bonds.

2.	Investing more than 10% of its total assets in variable
rate master demand notes providing for settlement upon
more than seven days' notice by the fund.

Portfolio Turnover

The funds do not intend to seek profits through short-term trading.
Nevertheless, the funds will not consider portfolio turnover rate a
limiting factor in making investment decisions.

Under certain market conditions, a fund authorized to engage in
transactions in options may experience increased portfolio turnover
as a result of its investment strategies. For instance, the
exercise of a substantial number of options written by a fund (due
to appreciation of the underlying security in the case of call
options on securities or depreciation of the underlying security in
the case of put options on securities) could result in a turnover
rate in excess of 100%. A portfolio turnover rate of 100% also
would occur if all of a fund's securities that are included in the
computation of turnover were replaced once during a one-year
period. A fund's turnover rate is calculated by dividing the lesser
of purchases or sales of its portfolio securities for the year by
the monthly average value of the portfolio securities. Securities
or options with remaining maturities of one year or less on the
date of acquisition are excluded from the calculation.

Certain other practices which may be employed by a fund also could
result in high portfolio turnover. For example, portfolio
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 of comparable quality purchased at
approximately the same time to take advantage of what SSB Citi or a
fund's sub-investment adviser 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 securities.

For the fiscal years ended July 31, 1999 and 2000, the portfolio
turnover rates were as follows:



For the Fiscal Year Ended
July 31:

Fund
1999
2000





Convertible Fund

27 %
167%*

Diversified Strategic
Income Fund

150
110

High Income Fund

96
  65

Municipal High Income
Fund

50
  29

Total Return Bond Fund

32
    8

Balanced Fund

60
  43


* The Convertible Fund during the fiscal year ended July 31, 2000
experienced a larger portfolio turnover compared to fiscal year
ended July 31, 1999 because of the following reasons: (a) the
previous portfolio manager was replaced by SaBAM which restructured
the portfolio and (b) SaBAM's investment philosophy entails greater
turnover of portfolio securities on account of convertible bonds
possessing lower call protection than other types of fixed income
securities.

For regulatory purposes, the turnover rate of Exchange Reserve Fund
is zero.

Portfolio Transactions

Most of the purchases and sales of securities by a fund, whether
transacted on a securities exchange or over the counter, will be
made in the primary trading market for the securities, except for
Eurobonds which are principally traded over the counter. The
primary trading market for a given security is generally located in
the country in which the issuer has its principal office. Decisions
to buy and sell securities for a fund are made by SSB Citi, who is
also responsible for placing these transactions subject to the
overall review of the board of trustees. With respect to
Diversified Strategic Income Fund, decisions to buy and sell
domestic securities for the fund are made by SSB Citi, which is
also responsible for placing these transactions; the responsibility
to make investment decisions with respect to foreign securities and
to place these transactions rests with Global Capital Management.
With respect to Convertible Fund, day-to-day investment decisions
are made by SaBAM, subject to the supervision of SSB Citi.
Although investment decisions for each fund are made independently
from those of the other accounts managed by SSB Citi, investments
of the type that the fund may make also may be made by those other
accounts. When a fund and one or more other accounts managed by SSB
Citi 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 SSB Citi or a fund's sub-
investment 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 the
fund.

Transactions on domestic stock exchanges and some foreign stock
exchanges involve the payment of negotiated brokerage commissions.
On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Commissions
generally are fixed on most foreign exchanges. There is generally
no stated commission in the case of securities traded in U.S. or
foreign over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups. The cost of
securities purchased from underwriters includes an underwriting
commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or
mark-down. U.S. government securities generally are purchased from
underwriters or dealers, although certain newly issued U.S.
government securities may be purchased directly from the United
States Treasury or from the issuing agency or instrumentality. The
following table sets forth certain information regarding each
fund's payment of brokerage commissions:

Total Brokerage Commissions Paid



Fiscal
Year

Convertib
le Fund
High
Income
Fund

Balanced
Fund
Diversified
Strategic
Income Fund
Total
Return
Bond
Fund
1998

23,753
$34,725
$2,187,8
05
$20,200
--
1999

13,850

3,634

592,637
$20,619
--
2000

150,697

786

472,222
    --
--

Brokerage Commissions Paid to Salomon Smith Barney



Fiscal
Year

Convertib
le Fund
High
Income
Fund

Balanced
Fund
Diversified
Strategic
Income Fund
Total
Return
Bond
Fund
1998
--
--
$139,236
--
--
1999
--
--

13,080*
--
--
2000
--
--

16,889**
--
--
*  Includes $2,520 for execution, research and statistical
services.
**Includes $15,125 for execution, research and statistical
services.


% of Total Brokerage Commissions Paid to Salomon Smith Barney



Fiscal
Year

Convertib
le Fund
High
Income
Fund

Balanced
Fund
Diversified
Strategic
Income Fund
Total
Return
Bond
Fund
1998
--
--

6.36%
--
--
1999
--
--

2.21%
--
--
2000
--
--

3.58%
--
--


% of Total Dollar Amount of Transactions Involving Commissions
Paid to Salomon Smith Barney



Fiscal
Year

Convertib
le Fund
High
Income
Fund

Balanced
Fund
Diversified
Strategic
Income Fund
Total
Return
Bond
Fund
1998
--
--
6.54%
--
--
1999
--
--
1.95%
--
--
2000
--
--
2.27%
--
--

In selecting brokers or dealers to execute securities transactions
on behalf of a fund, SSB Citi seeks the best overall terms
available. In assessing the best overall terms available for any
transaction, SSB Citi will consider the factors that it deems
relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a
continuing basis. In addition, each advisory agreement between the
trust and SSB Citi authorizes SSB Citi, in selecting brokers or
dealers to execute a particular transaction and in evaluating the
best overall terms available, to consider the brokerage and
research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934, as amended) provided to the
trust, the other funds and/or other accounts over which SSB Citi or
its affiliates exercise investment discretion. The fees under the
advisory agreements and the Sub-Advisory and/or administration
agreements are not reduced by reason of their receiving such
brokerage and research services. Further, Salomon Smith Barney will
not participate in commissions brokerage given by the fund to other
brokers or dealers and will not receive any reciprocal brokerage
business resulting therefrom. The trust's board of trustees
periodically will review the commissions paid by the funds to
determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits inuring to the
trust.

To the extent consistent with applicable provisions of the 1940 Act
and the rules and exemptions adopted by the SEC thereunder, the
board of trustees has determined that transactions for a fund may
be executed through Salomon Smith Barney and other affiliated
broker-dealers if, in the judgment of SSB Citi, the use of such
broker-dealer is likely to result in price and execution at least
as favorable as those of other qualified broker-dealers, and if, in
the transaction, such broker-dealer charges the fund a rate
consistent with that charged to comparable unaffiliated customers
in similar transactions. In addition, under rules recently adopted
by the SEC, Salomon Smith Barney may directly execute such
transactions for the funds on the floor of any national securities
exchange, provided (a) the trust's board of trustees has expressly
authorized Salomon Smith Barney to effect such transactions, and
(b) Salomon Smith Barney annually advises the trust of the
aggregate compensation it earned on such transactions. Over-the-
counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and
executions may be obtained elsewhere. The funds will not purchase
any security, including U.S. government securities or Municipal
Securities, during the existence of any underwriting or selling
group relating thereto of which Salomon Smith Barney is a member,
except to the extent permitted by the SEC.

The funds may use Salomon Smith Barney as a commodities broker in
connection with entering into futures contracts and options on
futures contracts. Salomon Smith Barney has agreed to charge the
funds commodity commissions at rates comparable to those charged by
Salomon Smith Barney to its most favored clients for comparable
trades in comparable accounts.


PURCHASE OF SHARES
Sales Charge Alternatives

The following classes of shares are available for purchase.  See
the prospectus for a discussion of factors to consider in
selecting which Class of shares to purchase.

Class A Shares.  Class A shares are sold to investors at the
public offering price, which is the net asset value plus an
initial sales charge as follows:

Sales Charge
(Diversified Strategic Income, High Income, Municipal High Income and Total
Return Bond Funds)




Amount of
Investment

% of Offering
Price

% of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
4.50%
4.71%
4.05%
$25,000 - 49,999
4.00
4.17
3.60
50,000 - 99,999
3.50
3.63
3.15
100,000-249,999
2.50
2.56
2.25
250,000-499,999
1.50
1.52
1.35
500,000 - and
over
*
*
*

Sales Charge
(Balanced and Convertible Funds)




Amount of
Investment

% of Offering
Price

% of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
5.00%
5.26%
4.50%
$  25,000 -
49,999
4.25
4.44
3.83
    50,000 -
99,999
3.75
3.63
3.38
    100,000 -
249,999
3.25
3.09
2.48
    250,000 -
499,999
2.75
2.04
1.80
    500,000 -
999,000

 1,000,000 or
more
2.00

0
2.04

0
1.80

up to 1.00*
*	A distributor pays up to 1.00% to a Service Agent.


Purchases of Class A shares of $500,000 or more of the Diversified
Strategic Income, High Income, Municipal High Income and Total
Return Bond Funds will be made at net asset value without any
initial sales charge, but will be subject to a Deferred Sales
Charge of 1.00% on redemptions made within 12 months of purchase.
The Deferred Sales Charge on Class A shares is payable to Salomon
Smith Barney, which compensates Salomon Smith Barney Financial
Consultants, PFS and other dealers whose clients make purchases
of $500,000 or more.

Purchases of Class A shares of $1,000,000 or more of the
Convertible and Balanced Funds will be made at net asset value
without any initial sales charge, but will be subject to a
Deferred Sales Charge of 1.00% on redemptions made within 12
months of purchase.  The Deferred Sales Charge on Class A shares
is payable to Salomon Smith Barney, which compensates Salomon
Smith Barney Financial Consultants, PFS and other dealers whose
clients make purchases of $1,000,000 or more.

The Deferred Sales Charge is waived in the same circumstances in
which the Deferred Sales Charge applicable to Class B and Class L
shares is waived.  See "Deferred Sales Charge Alternatives" and
"Waivers of Deferred Sales Charge."

Members of the selling group may receive up to 90% of the sales
charge and may be deemed to be underwriters of the fund as
defined in the 1933 Act.  The reduced sales charges shown above
apply to the aggregate of purchases of Class A shares of the fund
made at one time by "any person," which includes an individual
and his or her immediate family, or a trustee or other fiduciary
of a single trust estate or single fiduciary account.

Class B Shares.  Class B shares are sold without an initial sales
charge but are subject to a deferred sales charge payable upon
certain redemptions.  See "Deferred Sales Charge Provisions"
below.

Class L Shares.  (except Exchange Reserve Fund) Class L shares
are sold with an initial sales charge of 1.00% (which is equal to
1.01% of the amount invested) and are subject to a deferred sales
charge payable upon certain redemptions.  See "Deferred Sales
Charge Provisions" below.  Until June 22, 2001 purchases of Class
L shares by investors who were holders of Class C shares of the
fund on June 12, 1998 will not be subject to the 1% initial sales
charge.

Class O Shares.  Class O shares are sold without an initial sales
charge or deferred sales charge and are available only to
existing Class O shareholders.

Class Y Shares.  Class Y shares are sold without an initial sales
charge or deferred sales charge and are available only to
investors investing a minimum of $15,000,000 (except for
purchases of Class Y shares (i) of the International Equity
Portfolio, for which the minimum initial investment is $5,000,000
and (ii) by Smith Barney Concert Allocation Series Inc., for
which there is no minimum purchase amount).

General

Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a broker that clears through Salomon
Smith Barney ("Dealer Representative").  In addition, certain
investors, including qualified retirement plans purchasing
through certain Dealer Representatives, may purchase shares
directly from the fund.  When purchasing shares of the fund,
investors must specify whether the purchase is for Class A, Class
B, Class L or Class Y shares.  Salomon Smith Barney, PFSDI and
Dealer Representatives may charge their customers an annual
account maintenance fee in connection with a brokerage account
through which an investor purchases or holds shares.  Accounts
held directly at PFPC Global are not subject to a maintenance
fee.

Investors in Class A, Class B and Class L shares may open an
account in the fund by making an initial investment of at least
$1,000 for each account, or $250 for an IRA or a Self-Employed
Retirement Plan, in the fund. Investors in Class Y shares may
open an account by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for all
Classes. For participants in retirement plans qualified under
Section 403(b)(7) or Section 401(c) of the Code, the minimum
initial investment required for Class A, Class B and Class L
shares and the subsequent investment requirement for all Classes
in the fund is $25.  For shareholders purchasing shares of the
fund through the Systematic Investment Plan on a monthly basis,
the minimum initial investment requirement for Class A, Class B
and Class L shares and subsequent investment requirement for all
Classes is $25.  For shareholders purchasing shares of the fund
through the Systematic Investment Plan on a quarterly basis, the
minimum initial investment required for Class A, Class B and
Class L shares and the subsequent investment requirement for all
Classes is $50.  There are no minimum investment requirements for
Class A shares for employees of Citigroup Inc. ("Citigroup") and
its subsidiaries, including Salomon Smith Barney, unitholders who
invest distributions from a Unit Investment Trust ("UIT")
sponsored by Salomon Smith Barney, and Directors/Trustees of any
of the Smith Barney Mutual Funds, and their spouses and children.
The fund reserves the right to waive or change minimums, to
decline any order to purchase its shares and to suspend the
offering of shares from time to time. Shares purchased will be
held in the shareholder's account by transfer agent. Share
certificates are issued only upon a shareholder's written request
to PFPC Global.

Purchase orders received by the fund or a Salomon Smith Barney
Financial Consultant prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), on any day the fund calculates
its net asset value, are priced according to the net asset value
determined on that day (the ''trade date'').  Orders received by
a Dealer Representative prior to the close of regular trading on
the NYSE on any day the fund calculates its net asset value, are
priced according to the net asset value determined on that day,
provided the order is received by the fund or the fund's agent
prior to its close of business. For shares purchased through
Salomon Smith Barney or a Dealer Representative purchasing
through Salomon Smith Barney, payment for shares of the fund is
due on the third business day after the trade date. In all other
cases, payment must be made with the purchase order.

Systematic Investment Plan.  Shareholders may make additions to
their accounts at any time by purchasing shares through a service
known as the Systematic Investment Plan.  Under the Systematic
Investment Plan, Salomon Smith Barney or PFPC Global or PFS is
authorized through preauthorized transfers of at least $25 on a
monthly basis or at least $50 on a quarterly basis to charge the
shareholder's account held with a bank or other financial
institution on a monthly or quarterly basis as indicated by the
shareholder, to provide for systematic additions to the
shareholder's fund account.  A shareholder who has insufficient
funds to complete the transfer will be charged a fee of up to $25
by Salomon Smith Barney or PFPC Global or PFS.  The Systematic
Investment Plan also authorizes Salomon Smith Barney to apply
cash held in the shareholder's Salomon Smith Barney brokerage
account or redeem the shareholder's shares of a Smith Barney
money market fund to make additions to the account. Additional
information is available from the fund or a Salomon Smith Barney
Financial Consultant or a Dealer Representative.

Sales Charge Waivers and Reductions

Initial Sales Charge Waivers.  Purchases of Class A shares may be
made at net asset value without a sales charge in the following
circumstances: (a) sales to (i) Board Members and employees of
Citigroup and its subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including retired Board
Members and employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan
for such persons and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such sales are
made upon the assurance of the purchaser that the purchase is
made for investment purposes and that the securities will not be
resold except through redemption or repurchase; (b) offers of
Class A shares to any other investment company to effect the
combination of such company with the fund by merger, acquisition
of assets or otherwise; (c) purchases of Class A shares by any
client of a newly employed Salomon Smith Barney Financial
Consultant (for a period up to 90 days from the commencement of
the Financial Consultant's employment with Salomon Smith Barney),
on the condition the purchase of Class A shares is made with the
proceeds of the redemption of shares of a mutual fund which (i)
was sponsored by the Financial Consultant's prior employer, (ii)
was sold to the client by the Financial Consultant and (iii) was
subject to a sales charge; (d) purchases by shareholders who have
redeemed Class A shares in the fund (or Class A shares of another
Smith Barney Mutual Fund that is offered with a sales charge) and
who wish to reinvest their redemption proceeds in the fund,
provided the reinvestment is made within 60 calendar days of the
redemption; (e) purchases by accounts managed by registered
investment advisory subsidiaries of Citigroup; (f) direct
rollovers by plan participants of distributions from a 401(k)
plan offered to employees of Citigroup or its subsidiaries or a
401(k) plan enrolled in the Smith Barney 401(k) Program (Note:
subsequent investments will be subject to the applicable sales
charge); (g) purchases by a separate account used to fund certain
unregistered variable annuity contracts; (h) investments of
distributions from a UIT sponsored by Salomon Smith Barney; (i)
purchases by investors participating in a Salomon Smith Barney
fee-based arrangement; (j) purchases by Section 403(b) or Section
401(a) or (k) accounts associated with Copeland Retirement
Programs; and (k) accounts associated with "k" Choice and
Collective Choice. In order to obtain such discounts, the
purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase would qualify
for the elimination of the sales charge.

Right of Accumulation.  Class A shares of the fund may be
purchased by ''any person'' (as defined above) at a reduced sales
charge or at net asset value determined by aggregating the dollar
amount of the new purchase and the total net asset value of all
Class A shares of the fund and of most other Smith Barney Mutual
Funds that are offered with a sales charge then held by such
person and applying the sales charge applicable to such
aggregate.  In order to obtain such discount, the purchaser must
provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales
charge.  The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased
thereafter.

Letter of Intent - Class A Shares.  A Letter of Intent for an
amount of $50,000 or more provides an opportunity for an investor
to obtain a reduced sales charge by aggregating investments over
a 13 month period, provided that the investor refers to such
Letter when placing orders.  For purposes of a Letter of Intent,
the ''Amount of Investment'' as referred to in the preceding
sales charge table includes (i) all Class A shares of the fund
and other Smith Barney Mutual Funds offered with a sales charge
acquired during the term of the letter plus (ii) the value of all
Class A shares previously purchased and still owned.  Each
investment made during the period receives the reduced sales
charge applicable to the total amount of the investment goal.  If
the goal is not achieved within the period, the investor must pay
the difference between the sales charges applicable to the
purchases made and the charges previously paid, or an appropriate
number of escrowed shares will be redeemed.  The term of the
Letter will commence upon the date the Letter is signed, or at
the options of the investor, up to 90 days before such date.
Please contact a Salomon Smith Barney Financial Consultant or
transfer agent to obtain a Letter of Intent application.

Letter of Intent - Class Y Shares.  A Letter of Intent may also
be used as a way for investors to meet the minimum investment
requirement for Class Y shares (except purchases of Class Y
shares by Smith Barney Concert Allocation Series Inc., for which
there is no minimum purchase amount).
For each fund, investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the fund and agree to purchase a
total of $15,000,000 of Class Y shares of the fund within 13
months from the date of the Letter. If a total investment of
$15,000,000 is not made within the 13-month period, all Class Y
shares purchased to date will be transferred to Class A shares,
where they will be subject to all fees (including a service fee
of 0.25%) and expenses applicable to the fund's Class A shares,
which may include a deferred sales charge of 1.00%. Please
contact a Salomon Smith Barney Financial Consultant or transfer
agent for further information.


Deferred Sales Charge Provisions

''Deferred Sales Charge Shares'' are: (a) Class B shares; (b)
Class L shares; and (c) Class A shares that were purchased
without an initial sales charge but are subject to a deferred
sales charge.  A deferred sales charge may be imposed on certain
redemptions of these shares.

Any applicable deferred sales charge will be assessed on an
amount equal to the lesser of the original cost of the shares
being redeemed or their net asset value at the time of
redemption. Deferred Sales Charge Shares that are redeemed will
not be subject to a deferred sales charge to the extent that the
value of such shares represents: (a) capital appreciation of fund
total assets; (b) reinvestment of dividends or capital gain
distributions; (c) with respect to Class B shares, shares
redeemed more than five years after their purchase; or (d) with
respect to Class L shares and Class A shares that are Deferred
Sales Charge Shares, shares redeemed more than 12 months after
their purchase.

Class L shares and Class A shares that are Deferred Sales Charge
Shares are subject to a 1.00% deferred sales charge if redeemed
within 12 months of purchase. In circumstances in which the
deferred sales charge is imposed on Class B shares, the amount of
the charge will depend on the number of years since the
shareholder made the purchase payment from which the amount is
being redeemed.  Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during
a month will be aggregated and deemed to have been made on the
last day of the preceding Salomon Smith Barney statement month.
The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders, except in the case
of Class B shares held under the Smith Barney 401(k) Program, as
described below. See ''Purchase of Shares-Smith Barney Retirement
Programs.''



Year Since
Purchase Payment
Was Made
Deferred Sales Charge


(Diversified Strategic Income,
High Income, Municipal High Income
and Total Return Bond Funds)

(Balanced and
Convertible Funds)
First
4.50%
5.00%
Second
4.00
4.00
Third
3.00
3.00
Fourth
2.00
2.00
Fifth
1.00
1.00
Sixth and
thereafter
0.00
0.00

Class B shares will convert automatically to Class A shares eight
years after the date on which they were purchased and thereafter
will no longer be subject to any distribution fees. There will
also be converted at that time such proportion of Class B
Dividend Shares (Class B shares that were acquired through the
reinvestment of dividends and distributions) owned by the
shareholder as the total number of his or her Class B shares
converting at the time bears to the total number of outstanding
Class B shares (other than Class B Dividend Shares) owned by the
shareholder.

In determining the applicability of any Deferred Sales Charge, it
will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing
the reinvestment of dividends and capital gain distributions and
finally of other shares held by the shareholder for the longest
period of time.  The length of time that Deferred Sales Charge
Shares acquired through an exchange have been held will be
calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and fund
shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal
income tax purposes, the amount of the deferred sales charge will
reduce the gain or increase the loss, as the case may be, on the
amount realized on redemption. The amount of any deferred sales
charge will be paid to Salomon Smith Barney.

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

Waivers of Deferred Sales Charge

The deferred sales charge will be waived on: (a) exchanges (see
''Exchange Privilege''); (b) automatic cash withdrawals in
amounts equal to or less than 1.00% per month of the value of the
shareholder's shares at the time the withdrawal plan commences
(see ''Automatic Cash Withdrawal Plan'') (provided, however, that
automatic cash withdrawals in amounts equal to or less than 2.00%
per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to
November 7, 1994); (c) redemptions of shares within 12 months
following the death or disability of the shareholder; (d)
redemptions of shares made in connection with qualified
distributions from retirement plans or IRAs upon the attainment
of age 591/2; (e) involuntary redemptions; and (f) redemptions of
shares to effect a combination of the fund with any investment
company by merger, acquisition of assets or otherwise. In
addition, a shareholder who has redeemed shares from other Smith
Barney Mutual Funds may, under certain circumstances, reinvest
all or part of the redemption proceeds within 60 days and receive
pro rata credit for any deferred sales charge imposed on the
prior redemption.

Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of shareholders
who are also Salomon Smith Barney clients or by transfer agent in
the case of all other shareholders) of the shareholder's status
or holdings, as the case may be.

PFS Accounts

Initial purchase of shares of the Exchange Reserve Fund and the
Diversified Strategic Income Fund must be made through a PFS
Investments Registered Representative by completing the
appropriate application found in this prospectus. The completed
application should be forwarded to PFS, 3100 Breckinridge Blvd.,
Bldg. 200, Duluth, Georgia 30099-0062. Checks drawn on foreign
banks must be payable in U.S. dollars and have the routing number
of the U.S. bank encoded on the check. Subsequent investments may
be sent directly to PFS.  In processing applications and
investments, the transfer agent acts as agent for the investor
and for PFS and also as agent for the distributor, in accordance
with the terms of the prospectus.  If the transfer agent ceases
to act as such, a successor company named by the fund will act in
the same capacity so long as the account remains open.

Shares purchased will be held in the shareholder's account by
PFS. Share certificates are issued only upon a shareholder's
written request to PFS. A shareholder that has insufficient funds
to complete any purchase will be charged a fee of $27.50 per
returned purchase by PFS.

Investors in Class B shares may open an account by making an
initial investment of at least $1,000 for each account in Class B
(except for Systematic Investment Plan accounts), or $250 for an
IRA or a Self-Employed Retirement Plan in a Fund. Subsequent
investments of at least $50 may be made for each Class. For
participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial
investment requirement for Class B shares and the subsequent
investment requirement for each Class in the Fund is $25. For the
fund's Systematic Investment Plan, the minimum initial investment
requirement for Class B shares and the subsequent investment
requirement for each Class is $25. The fund reserves the right to
waive or change minimums, to decline any order to purchase its
shares and to suspend the offering of shares from time to time.
Purchase orders received by the Citi Fidusciary or PFS prior to
the close of regular trading on the NYSE, on any day the fund
calculates its net asset value, are priced according to the net
asset value determined on that day.

Upon completion of certain automated systems, initial purchases
of fund shares may be made by wire.  The minimum investment that
can be made by wire is $50,000. Before sending the wire, the PFS
Investments Registered Representative must contact PFS at (800)
665-8677 to obtain proper wire instructions.  Once an account is
open, a shareholder may make additional investments by wire.  The
shareholder should contact PFS at (800) 544-5445 to obtain proper
wire instructions.

Upon completion of certain automated systems, shareholders who
establish telephone transaction authority on their account and
supply bank account information may make additions to their
accounts at any time.  Shareholders should contact PFS at (800)
544-5445 between 8:00 a.m. and 8:00 p.m. eastern time any day
that the NYSE is open.  If a shareholder does not wish to allow
telephone subsequent investments by any person in his account, he
should decline the telephone transaction option on the account
application.  The minimum telephone subsequent investment is $250
and can be up to a maximum of $50,000.  By requesting a
subsequent purchase by telephone, you authorize PFS to transfer
funds from the bank account provided for the amount of the
purchase.  A shareholder that has insufficient funds to complete
the transfer will be charged a fee of up to $27.50 by PFS.  A
shareholder who places a stop payment on a transfer or the
transfer is returned because the account has been closed, will
also be charged a fee of up to $27.50 by PFS.  Subsequent
investments by telephone may not be available if the shareholder
cannot reach PFS whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to
use the fund's regular subsequent investment procedure described
above.

A written redemption request must (a) state the name of the fund
for which you are redeeming shares, (b) state the Class and
number or dollar amount of shares to be redeemed, (c) identify
the shareholder' s account number and (d) be signed by each
registered owner exactly as the shares are registered. Any
signature written redemption request in excess of $50,000 must be
guaranteed by an eligible guarantor institution such as a
domestic bank, savings and loan institution, domestic credit
union, member bank of the Federal Reserve System or member firm
of a national securities exchange.  Written redemption requests
of $50,000 or less do not require a signature guarantee unless
the shareholder has changed his/her address within 45 days or
less of the shareholder's redemption request.  Redemption
proceeds will be mailed to an investor's address of record.  PFS
may require additional supporting documents for redemptions made
by corporations, executors, administrators, trustees or
guardians.  A redemption request will not be deemed properly
received until PFS receives all required documents in proper
form.

Redemption proceeds can be sent by check to the address of record
or by wire transfer to a bank account designated on the
application.  A shareholder will be charged a $25 service fee for
wire transfers and a nominal service fee for transfers made
directly to the shareholder's bank by the Automated Clearing
House.

An Account Transcript is available at a shareholder's request,
which identifies every financial transaction in an account since
it has opened.  To defray administrative expenses involved with
providing multiple years worth of information, there is a $15
charge for each Account Transcript requested.  Additional copies
of tax forms are available at the shareholder's request.  A $10
fee for each tax form will be assessed.

PFS will process and mail a shareholder's redemption check
usually within two to three business days after receiving the
redemption request in good order.  The shareholder may request
the proceeds to be mailed by two-day air express for an $8 fee
that will be deducted from the shareholder's account or by one-
day air express for a $15 fee that will be deducted from the
shareholder's account.

Additional information regarding the PFS's services may be
obtained by contacting the Client Services Department at (800)
544-5445.

Smith Barney Retirement Programs

You may be eligible to participate in a retirement program
sponsored by Salomon Smith Barney or one of its affiliates.  The
fund offers Class A and Class L shares at net asset value to
participating plans under the programs. You can meet minimum
investment and exchange amounts, if any by combining the plan's
investments in any of the Smith Barney mutual funds.

There are no sales charges when you buy or sell shares and the
class of shares you may purchase depends on the amount of your
initial investment and/or the date your account is opened.  Once
a class of shares is chosen, all additional purchases must by of
the same class.

For plans opened on or after March 1, 2000 that are not plans for
which Paychex Inc. or an affiliate provides administrative
services (a "Paychex Plan") offering, Class A shares may be
purchased regardless of the amount invested.

For plans opened prior to March 1, 2000 and for Paychex plans,
the class of shares you may purchase depends on the amount of
your initial investment:

Class A Shares.  Class A shares may be purchased by plans
investing at least $1million.

Class L Shares.  Class L shares may be purchased by plans
investing less than $1 million.  Class L shares are eligible to
exchange into Class A shares not later than 8 years after the
plan joined the program.  They are eligible for exchange in the
following circumstances:

If the plan was opened on or after June 21, 1996 and a total of
$1 million is invested in Smith Barney Funds Class L shares
(other than money market funds), all Class L shares are eligible
for exchange after the plan is in the program for 5 years.

If the plan was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares (other
than money market funds) on December 31 in any year, all Class L
shares are eligible for exchange on or about March 31 of the
following year.

For more information, call your Salomon Smith Barney Financial
Consultant or the transfer agent.

Retirement Programs Opened On or After June 21, 1996.  If, at the
end of the fifth year after the date the participating plan
enrolled in the Smith Barney 401(k) Program or the ExecChoiceTM
Program, a participating plan's total Class L holdings in all
non-money market Smith Barney mutual funds equal at least
$1,000,000, the participating plan will be offered the
opportunity to exchange all of its Class L shares for Class A
shares of the fund. (For participating plans that were originally
established through a Salomon Smith Barney retail brokerage
account, the five-year period will be calculated from the date
the retail brokerage account was opened.) Such participating
plans will be notified of the pending exchange in writing within
30 days after the fifth anniversary of the enrollment date and,
unless the exchange offer has been rejected in writing, the
exchange will occur on or about the 90th day after the fifth
anniversary date. If the participating plan does not qualify for
the five-year exchange to Class A shares, a review of the
participating plan's holdings will be performed each quarter
until either the participating plan qualifies or the end of the
eighth year.

Retirement Programs Opened Prior to June 21, 1996.  In any year
after the date a participating plan enrolled in the Smith Barney
401(k) Program, if a participating plan's total Class L holdings
in all non-money market Smith Barney mutual funds equal at least
$500,000 as of the calendar year-end, the participating plan will
be offered the opportunity to exchange all of its Class L shares
for Class A shares of the fund. Such Plans will be notified in
writing within 30 days after the last business day of the
calendar year and, unless the exchange offer has been rejected in
writing, the exchange will occur on or about the last business
day of the following March.

Any participating plan in the Smith Barney 401(k) or the
ExecChoiceTM Program, whether opened before or after June 21,
1996, that has not previously qualified for an exchange into
Class A shares will be offered the opportunity to exchange all of
its Class L shares for Class A shares of the fund, regardless of
asset size, at the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401(k) Program or
ExecChoiceTM Program.  Such plans will be notified of the pending
exchange in writing approximately 60 days before the eighth
anniversary of the enrollment date and, unless the exchange has
been rejected in writing, the exchange will occur on or about the
eighth anniversary date. Once an exchange has occurred, a
participating plan will not be eligible to acquire additional
Class L shares, but instead may acquire Class A shares of the
same fund. Any Class L shares not converted will continue to be
subject to the distribution fee.

Participating plans wishing to acquire shares of the fund through
the Smith Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program must purchase such shares directly from the transfer
agent. For further information regarding these Programs,
investors should contact a Salomon Smith Barney Financial
Consultant.

Retirement Programs Investing in Class B Shares:  Class B shares
of a fund are not available for purchase by participating plans
opened on or after June 21, 1996, but may continue to be
purchased by any participating plan in the Smith Barney 401 (k)
Program opened prior to such date and originally investing in
such Class.  Class B shares acquired are subject to a deferred
sales charge of 3.00% of redemption proceeds if the participating
plan terminates within eight years of the date the participating
plan first enrolled in the Smith Barney 401 (k) Program.

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

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

The deferred sales charge will be waived on redemptions of Class
B shares in connection with lump-sum or other distributions made
by a participating plan; as a result of (a) the retirement of an
employee in the participating plan; (b) the termination of
employment of an employee in the participating plan; (c) the
death or disability or an employee in the participating plan; (d)
the attainment of age 59 1/2 by an employee in the participating
plan; (e) hardship of an employee in the participating plan to
the extent permitted under Section 401(k) o the Code; or (f)
redemptions of shares in connection with a loan made by the
participating plan to an employee.

REDEMPTION OF SHARES

General.

Each fund is required to redeem the shares tendered to it, as
described below, at a redemption price equal to their net asset
value per share next determined after receipt of a written
request in proper form at no charge other than any applicable
Deferred Sales Charge.  Redemption requests received after the
close of regular trading on the NYSE are priced at the net asset
value next determined.

If a shareholder holds shares in more than one Class, any request
for redemption must specify the Class being redeemed.  In the
event of a failure to specify which Class, or if the investor
owns fewer shares of the Class than specified, the redemption
request will be delayed until the transfer agent receives further
instructions from Salomon Smith Barney, or if the shareholder's
account is not with Salomon Smith Barney, from the shareholder
directly.  The redemption proceeds will be remitted on or before
the third business day following receipt of proper tender, except
on days on which the NYSE is closed or as permitted under the
1940 Act, in extraordinary circumstances.  Generally, if the
redemption proceeds are remitted to a Salomon Smith Barney
brokerage account, these funds will not be invested for the
shareholder' s benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds.
Redemption proceeds for shares purchased by check, other than a
certified or official bank check, will be remitted upon clearance
of the check, which may take up to fifteen days or more.

Shares held by Salomon Smith Barney as custodian must be redeemed
by submitting a written request to a Salomon Smith Barney
Financial Consultant.  Shares other than those held by Salomon
Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling
group or by submitting a written request for redemption to:

	Smith Barney Income Funds
	Name of Fund (please specify)
	Class A, B, L, O or Y (please specify)
	c/o PFPC Global Fund Services
	P.O. Box 9699
	Providence, RI 02940-9699

A written redemption request must (a) state the name of the Fund
for which you are redeeming shares, (b) state the Class and
number or dollar amount of shares to be redeemed, (c) identify
the shareholder' s account number and (d) be signed by each
registered owner exactly as the shares are registered.  If the
shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied by
an endorsed stock power) and must be submitted to PFPC Global
together with the redemption request.  Any signature appearing on
a share certificate, stock power or written redemption request in
excess of $50,000 must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the Federal
Reserve System or member firm of a national securities exchange.
Written redemption requests of $50,000 or less do not require a
signature guarantee unless more than one such redemption request
is made in any 10-day period.  Redemption proceeds will be mailed
to an investor's address of record.  The transfer agent may
require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians.
A redemption request will not be deemed properly received until
the transfer agent receives all required documents in proper
form.

Automatic Cash Withdrawal Plan.

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

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

Telephone Redemption and Exchange Program.

Shareholders who do not have a Salomon Smith Barney brokerage
account may be eligible to redeem and exchange Fund shares by
telephone.  To determine if a shareholder is entitled to
participate in this program, he or she should contact the
transfer agent at 1-800-451-2010.  Once eligibility is confirmed,
the shareholder must complete and return a Telephone/Wire
Authorization Form, along with a signature guarantee that will be
provided by the transfer agent upon request.  (Alternatively, an
investor may authorize telephone redemptions on the new account
application with the applicant's signature guarantee when making
his/her initial investment in a Fund.)

Redemptions.  Redemption requests of up to $50,000 of any class
or classes of a Fund's shares may be made by eligible
shareholders by calling transfer agent at 1-800-451-2010.  Such
requests may be made between 9:00 a.m. and 5:00 p.m. (New York
City time) on any day the NYSE is open.  Redemption requests
received after the close of regular trading on the NYSE are
priced at the net asset value next determined.  Redemptions of
shares (i) by retirement plans or (ii) for which certificates
have been issued are not permitted under this program.

A shareholder will have the option of having the redemption
proceeds mailed to his/her address of record or wired to a bank
account predesignated by the shareholder.  Generally, redemption
proceeds will be mailed or wired, as the case may be, on the next
business day following the redemption request.  In order to use
the wire procedures, the bank receiving the proceeds must be a
member of the Federal Reserve System or have a correspondent
relationship with a member bank.  Each fund reserves the right to
charge shareholders a nominal fee for each wire redemption.  Such
charges, if any, will be assessed against the shareholder's
account from which shares were redeemed.  In order to change the
bank account designated to receive redemption proceeds, a
shareholder must complete a new Telephone/Wire Authorization Form
and, for the protection of the shareholder's assets, will be
required to provide a signature guarantee and certain other
documentation.

Exchanges.  Eligible shareholders may make exchanges by telephone
if the account registration of shares of the fund being acquired
is identical to the registration of the shares of the fund
exchanged.  Such exchange requests may be made by calling
transfer agent at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
(New York City time) on any day on which the NYSE is open.
Exchange requests received after the close of regular trading on
the NYSE are processed at the net asset value next determined.

Additional Information regarding Telephone Redemption and
Exchange Program.  Neither a Fund nor its agents will be liable
for following instructions communicated by telephone that are
reasonably believed to be genuine.  Each fund and its agents will
employ procedures designed to verify the identity of the caller
and legitimacy of instructions (for example, a shareholder's name
and account number will be required and phone calls may be
recorded).  Each fund reserves the right to suspend, modify or
discontinue the telephone redemption and exchange program or to
impose a charge for this service at any time following at least
seven (7) days' prior notice to shareholders.

Suspension or Postponement

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

Distributions in Kind

If the board of directors of the Company determines that it would
be detrimental to the best interests of the remaining
shareholders of a Fund to make a redemption payment wholly in
cash, the Fund may pay, in accordance with the SEC rules, any
portion of a redemption in excess of the lesser of $250,000 or 1%
of the Fund's total assets by a distribution in kind of portfolio
securities in lieu of cash.  Shareholders should expect to incur
brokerage costs when subsequently selling shares redeemed in
kind.

EXCHANGE PRIVILEGE

General

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

The exchange privilege enables shareholders to acquire shares of
the same class in a fund with different investment objectives
when they believe that a shift between funds is an appropriate
investment decision.  This privilege is available to shareholders
residing in any state in which the fund shares being acquired may
legally be sold.  Prior to any exchange, the shareholder should
obtain and review a copy of the current prospectus of each fund
into which an exchange is being considered.  Prospectuses may be
obtained from a Salomon 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
Deferred Sales Charge, the proceeds are immediately invested at a
price as described above, in shares of the fund being acquired.
Salomon 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.

Class B Exchanges.  In the event a Class B shareholder wishes to
exchange all or a portion of his or her shares into any of the
funds imposing a higher Deferred Sales Charge than that imposed
by the Funds, the exchanged Class B shares will be subject to the
higher applicable Deferred Sales Charge.  Upon an exchange, the
new Class B shares will be deemed to have been purchased on the
same date as the Class B shares of the Fund that have been
exchanged.

Class L Exchanges.  Upon an exchange, the new Class L shares will
be deemed to have been purchased on the same date as the Class L
shares of the Fund that have been exchanged.

Class A, Class Y and Class O Exchanges.  Class A, Class Y and
Class O shareholders of a Fund who wish to exchange all or a
portion of their shares for shares of the respective class in any
of the funds identified above may do so without imposition of any
charge.  Class O shares are offered only in select funds.

Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to a Fund' s
performance and its shareholders.  SSB Citi may determine that a
pattern of frequent exchanges is excessive and contrary to the
best interests of the Fund's other shareholders.  In this event,
SSB Citi will notify Smith Barney and Smith Barney may, at its
discretion, decide to limit additional purchases and/or exchanges
by the shareholder.  Upon such a determination, Smith Barney will
provide notice in writing or by telephone to the shareholder at
least 15 days prior to suspending the exchange privilege and
during the 15-day period the shareholder will be required to (a)
redeem his or her shares in the Fund or (b) remain invested in
the Fund or exchange into any of the funds of the Smith Barney
Mutual Funds listed above, which position the shareholder would
be expected to maintain for a significant period of time.  All
relevant factors will be considered in determining what
constitutes an abusive pattern of exchanges.

Certain shareholders may be able to exchange shares by telephone.
See "Redemption of Shares-Telephone Redemption and Exchange
Program" .  Exchanges will be processed at the net asset value
next determined.  Redemption procedures discussed below are also
applicable for exchanging shares, and exchanges will be made upon
receipt of all supporting documents in proper form.  If the
account registration of the shares of the fund being acquired is
identical to the registration of the shares of the fund
exchanged, no signature guarantee is required.  A capital gain or
loss for tax purposes will be realized upon the exchange,
depending upon the cost or other basis of shares redeemed.
Before exchanging shares, investors should read the current
prospectus describing the shares to be acquired.  The Company
reserves the right to modify or discontinue exchange privileges
upon 60 days' prior notice to shareholders.


DISTRIBUTOR

Effective June 5, 2000, the trust has entered into an agreement
with Salomon Smith Barney located at 388 Greenwich Street, New
York, New York 10013 and PFSDI, located at 3100 Breckinridge Blvd.,
Duluth, Georgia 30099 to distribute the trust's shares on a best
efforts basis pursuant to distribution agreements. Prior to June 5,
2000, CFBDS, Inc. served as the trust's distributor.

When payment is made by the investor before the settlement date,
unless otherwise directed by the investor, the funds will be held
as a free credit balance in the investor's brokerage account, and
Salomon 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 the Exchange Reserve Fund) of the Smith Barney Mutual
Funds. If the investor instructs Salomon Smith Barney to invest the
funds in a Salomon Smith Barney money market fund, the amount of
the investment will be included as part of the average daily net
assets of both the relevant fund and the Salomon Smith Barney money
market fund, and affiliates of Salomon Smith Barney that serve the
funds in an investment advisory or administrative capacity will
benefit from the fact they are receiving fees from both such
investment companies for managing these assets computed on the
basis of their average daily net assets. The trust's board of
trustees has been advised of the benefits to Salomon 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 July 31, 2000, Salomon Smith Barney
and/or PFSDI incurred distribution expenses for advertising,
printing and mailing prospectuses, support services and overhead
expenses, to Salomon Smith Barney Financial Consultants or PFS
Investments Registered Representatives and for accruals for
interest on the excess of Salomon Smith Barney and/or PFS expenses
incurred in the distribution of the fund's shares over the sum of
the distribution fees and Deferred Sales Charge received by Salomon
Smith Barney and/or PFSDI are expressed in the following table:





Fund Name

Financial
Consultant
Compensatio
n


Branch
Expenses


Advertisin
g
Expenses


Printin
g
Expense
s


Interes
t
Expense
s


Other
Expenses
Div.
Strat.
$5,348,090
$7,191,2
54
$  630,860
$139,00
6
$137,14
4
N/A
Balanced
  1,722,433

1,922,54
3

165,726

39,700

41,897
N/A
High
Income
  4,832,202

4,120,09
0

415,262

50,645

167,730
N/A
Muni High

835,509
1,113,46
9

115,230

24,413

8,300
N/A
Convertibl
e

41,897

168,500

7,922

1,591

(665)
N/A
Ex.
Reserve

(469,551)

139,233

24,566

8,929

(27,757
)
N/A
Total
Return

201,380

460,966

43,305

7,659

(1,614)
N/A

Distribution Arrangements


Shares of the trust are sold on a best efforts basis by Salomon
Smith Barney and PFSDI as sales agent of the trust pursuant to
the Distribution Agreement. To compensate Salomon 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, each fund, except Exchange Reserve
Fund, pays Salomon Smith Barney a service fee, accrued daily and
paid monthly, calculated at the annual rate of 0.25% (0.15% in
the case of Municipal High Income Fund) of the value of the
fund's average daily net assets attributable to its Class A,
Class B, Class L and Class O shares. In addition, each fund
except the Exchange Reserve Fund, pays Salomon Smith Barney, with
respect to its Class B, Class L and Class O shares, a
distribution fee.  The Exchange Reserve Fund and Diversified
Strategic Income Fund pay PFSDI a distribution fee with respect
to its Class B shares.  The distribution fee is primarily
intended to compensate Salomon Smith Barney and/or PFSDI for its
initial expense of paying Financial Consultants a commission upon
sales of those shares. The Class B and Class L shares'
distribution fees, accrued daily and paid monthly, are calculated
at the annual rate of 0.50% for Class B shares of each fund and
0.45% for Class L shares, except the Smith Barney Balanced Fund
and the Smith Barney Convertible Fund (0.50% for Class L shares
in the case of Exchange Reserve Fund and 0.55% for Class L shares
in the case of Municipal High Fund) of the value of a fund's
average daily net assets attributable to the shares of the
respective Class.  For the Smith Barney Convertible Fund and the
Smith Barney Balanced Fund, Class L and Class O shares'
distribution fees, accrued daily and paid monthly, are calculated
at the annual rate of 0.75% for Class L shares and 0.45% for
Class O shares.

For the fiscal year ended July 31, 2000, Salomon Smith Barney
received $$29,447,079, in the aggregate from the trust under the
Plan.


The following expenses were incurred during the periods indicated:

Initial Sales Charges


Class A


For the Fiscal Year Ended July 31:

Fund
1998*
1999**
2000**
Convertible Fund
$
19,000
$
16,000
$    19,000
Diversified Strategic
Income Fund

1,344,00
0

1,022,000
    422,000
High Income Fund

1,571,00
0

1,302,000
    583,000
Municipal High Income
Fund

70,000

101,000
      68,000
Total Return Bond Fund

1,146,00
0

215,000
      17,000
Balanced Fund

68,000

140,000
    101,000

* 	Salomon Smith Barney received the total amount.
**	Salomon Smith Barney and CFBDS, each, received the
following amounts:

Salomon Smith Barney


Fund
1999
2000
Convertible Fund
$14,400
$17,100
Diversified Strategic
Income Fund
919,800
$379,800
High Income Fund
1,171,800
$524,700
Municipal High Income
Fund
90,900
$61,200
Total Return Bond Fund
193,500
$15,300
Balanced Fund
126,000
$90,900

CFBDS


Fund
1999
2000
Convertible Fund
$1,600
$1,900
Diversified Strategic
Income Fund
102,200
42,200
High Income Fund
130,200
58,300
Municipal High Income
Fund
10,100
6,800
Total Return Bond Fund
21,500
1,700
Balanced Fund
14,000
10,100






Class L


For the Fiscal Year Ended July 31:

Fund
1998*
1999**
2000**
Convertible Fund
$2,000

$2,000
$
1,000
Diversified Strategic
Income Fund
78,000

977,000

376,000
High Income Fund
112,000

739,000

238,000
Municipal High Income
Fund
3,000

19,000

14,000
Total Return Bond Fund
21,000

110,000

20,000
Balanced Fund
4,000

59,000

75,000

* 	Salomon Smith Barney received the total amount.
**	Salomon Smith Barney and CFBDS, each, received the
following amounts:


Salomon Smith Barney


Fund
1999
2000
Convertible Fund
$1,800
$900
Diversified Strategic
Income Fund
879,300
338,400
High Income Fund
665,100
214,200
Municipal High Income
Fund
17,100
12,600
Total Return Bond Fund
99,000
18,000
Balanced Fund
53,100
67,500

CFBDS


Fund
1999
2000
Convertible Fund
$200
$100
Diversified Strategic
Income Fund
97,700
37,600
High Income Fund
73,900
23,800
Municipal High Income
Fund
1,900
1,400
Total Return Bond Fund
11,000
2,000
Balanced Fund
5,900
7,500



Deferred Sales Charge (paid to Salomon Smith Barney)


Class A


For the Fiscal Year Ended
July 31:

Fund
1998
1999
2000
Convertible Fund
N/A
  N/A
$         0
Diversified Strategic Income Fund
$23,000
$12,000
  16,000
Exchange Reserve Fund
N/A
N/A
   N/A
High Income Fund
12,000
32,000
  21,000
Municipal High Income Fund
N/A
3,000
    2,000
Total Return Bond Fund
1,000
19,000
    1,000
Balanced Fund
N/A
1,000
    3,000



Class B


For the Fiscal Year Ended July 31:

Fund
1998
1999
2000
Convertible Fund
$
50,000
$35,000
$
23,000
Diversified Strategic
Income Fund
2,494,00
0
2,298,00
0

2,672,00
0
Exchange Reserve Fund
349,000
491,000

751,000
High Income Fund
936,000
1,545,00
0

1,728,00
0
Municipal High Income Fund
231,000
127,000

158,000
Total Return Bond Fund
34,000
348,000

271,000
Balanced Fund

829,000
255,000

162,000




Class L

For the Fiscal Year Ended
July 31:
Fund
1998
1999
2000
Convertible Fund
$0
$1,000
$
0
Diversified Strategic Income Fund
35,000
58,000
     48,000
Exchange Reserve Fund
N/A
14,000
     98,000
High Income Fund
20,000
60,000
     49,000
Municipal High Income Fund
0
3,000

1,000
Total Return Bond Fund
20,000
17,000

5,000
Balanced Fund
0
0

2,000



Class O



For the Fiscal Year Ended
July 31:

Fund
1998
1999
2000
Balanced Fund
$1,000

$0
$0
Convertible Fund
0

0
  0




Service Fees and Distribution Fees



For the Fiscal Year Ended July 31:

Fund
1998
1999
2000
Convertible Fund
$
400,232
$
295,113
$
187,786
Diversified Strategic
Income Fund
 19,373,203
18,209,04
4
13,487,1
90
Exchange Reserve Fund

543,651

705,198

774,777
High Income Fund

7,255,916

8,242,837

7,427,96
4
Municipal High Income Fund

3,724,428

3,182,231

2,186,95
1
Total Return Bond Fund

329,050

1,034,865

807,065
Balanced Fund

7,016,893

5,578,812

4,575,34
6

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 Independent Trustees who have
no direct or indirect financial interest in the operation of the
Plan. The Plan may not be amended to increase the amount to be
spent for the services provided by Salomon Smith Barney or PFSDI
without shareholder approval, and all amendments of the Plan must
be approved by the 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 the Class (as defined in the 1940 Act).
Pursuant to the Plan, Salomon Smith Barney and PFSDI 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

Each Class' net asset value per share is calculated on each day,
Monday through Friday, except days on which the NYSE is closed. The
NYSE currently is scheduled to be closed on New Year's Day, 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 procedures used by a fund in valuing its
assets.

Because of the need to obtain prices as of the close of trading on
various exchanges throughout the world, the calculation of the net
asset value of funds investing in foreign securities may not take
place contemporaneously with the determination of the prices of
many of their respective portfolio securities used in such
calculation. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to
be the primary market for such security. All assets and liabilities
initially expressed in foreign currency values will be converted
into U.S. dollar values at the mean between the bid and offered
quotations of such currencies against U.S. dollars as last quoted
by any recognized dealer. If such quotations are not available, the
rate of exchange will be determined in good faith by the trust's
board of trustees. In carrying out the board's valuation policies,
SSB Citi, as administrator, may consult with an independent pricing
service (the "Pricing Service") retained by the trust.

Debt securities of United States issuers (other than U.S.
government securities and short-term investments), including
Municipal Securities held by Municipal High Income Fund, are valued
by SSB Citi, as administrator, after consultation with the Pricing
Service approved by the trust's board of trustees. When, in the
judgment of the Pricing Service, quoted bid prices for investments
are readily available and are representative of the bid side of the
market, these investments are valued at the mean between the quoted
bid prices and asked prices. Investments for which, in the judgment
of the Pricing Service, there are no readily obtainable market
quotations 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.

PERFORMANCE DATA

From time to time, the trust may quote the 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 fund's shares. Such
performance information may include the following industry and
financial publications: Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. To the
extent any advertisement or sales literature of a fund describes
the expenses or performance of Class A, Class B, Class L, Class O
or Class Y, it will also disclose such information for the other
Classes.

Yield

Exchange Reserve Fund. The current yield for the fund is computed
by (a) determining the net change in the value of a hypothetical
pre-existing account in the fund having a balance of one share at
the beginning of a seven-calendar-day period for which yield is to
be quoted, (b) dividing the net change by the value of the account
at the beginning of the period to obtain the base period return and
(c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account
reflects the value of additional shares purchased with dividends
declared on the original share and any such additional shares, but
does not include realized gains and losses or unrealized
appreciation and depreciation. In addition, the fund may calculate
a compound effective annualized yield by adding 1 to the base
period return (calculated as described above), raising the sum to a
power equal to 365/7 and subtracting 1.

For the seven-day period ended July 31, 2000 the annualized yield
was 5.30% and 5.30% for Class B and Class L shares, respectively.
The compound effective yield was 5.44% and 5.44% for Class B and
Class L shares, respectively. As of July 31, 2000, the fund's
average portfolio maturity was 14 days.

Other Funds. The 30-day yield figure of a fund other than Exchange
Reserve Fund is calculated according to a formula prescribed by the
SEC. The formula can be expressed as follows:


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

cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of waiver and
reimbursement).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last
day of the period.

For the purpose of determining the interest earned (variable "a" in
the formula) on debt obligations 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.


The yields for the thirty-day period ended July 31, 2000 for the
following funds were:

Fund
Class
A
Class
B
Class
L
Class
O
Class
Y
Class Z







Convertible Fund

3.54%

3.18%

3.22%
2.69%

4.24%
N/A
Diversified Strategic
Income Fund
  7.16
  7.02
  6.99
N/A
  7.84
  7.84
High Income Fund
10.75
10.73
 10.66
N/A
11.56
26.78%
Municipal High Income Fund
 6.10
 5.86

5.68
N/A
N/A
N/A
Total Return Bond Fund
 7.16
 6.98

6.96
N/A
N/A
N/A

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

Average Annual Total Return

The "average annual total return" figures for each fund, other than
Exchange Reserve Fund, are computed according to a formula
prescribed by the SEC. The formula can be expressed as follows:

	P(1+T)n = ERV

Where:
P =	a hypothetical initial payment of $1,000.
T = 	average annual total return.
n = 	number of years.
ERV= 	Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of 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 average annual total returns with sales charges of the fund's
Class A shares were as follows for the periods ended July 31, 2000:


Fund*

One-Year
Period

Five-Year
Period
Since Inception
Convertible Fund
  0.84%
6.32%
 7.28%
Diversified Strategic
Income Fund
(1.28)
5.15
 5.99
High Income Fund
(3.65)
5.44
 7.27
Municipal High Income Fund
(4.97)
3.92
 4.81
Total Return Bond Fund
(1.22)
N/A
(0.18)
Balanced Fund
 5.08
11.66
10.01

*Each fund, except Total Return Bond Fund, commenced selling Class
A shares on November 6, 1992.  The Total Return Bond Fund commenced
operations on February 27, 1998.

Each portfolio may, from time to time, advertise its average annual
total return calculated as shown above but without including the
deduction of the maximum applicable initial sales charge or
deferred sales charge.  The average annual total return for each
portfolio's Class A shares for the periods ended July 31, 2000
without including the deduction of the maximum applicable sales
charge is as follows:


Fund*
One-Year
Period
Five-Year
Period
Since Inception
Convertible Fund
6.13%
7.41%
  8.00%
Diversified Strategic
Income Fund
3.35
6.13
  6.63
High Income Fund
0.93
6.41
  7.91
Municipal High Income Fund
(1.00)
4.78
  5.36
Total Return Bond Fund
3.40
N/A
  1.73
Balanced Fund
10.62
12.82
10.75
*Each fund, except Total Return Bond Fund, commenced selling Class
A shares on November 6, 1992.  The Total Return Bond Fund commenced
operations on February 27, 1998.



The average annual total returns with Deferred Sales Charges (with
fees waived) of the fund's Class B shares were as follows for the
periods ended July 31, 2000:


Fund
One-Year
Period
Five-Year
Period
Ten-Year
Period

Since
Inception
Convertible Fund (1)
  0.59%
6.73%
 8.36%
 7.59%
Diversified Strategic Income
Fund (2)(6)
(1.37
)
5.49
 7.29
 7.45
High Income Fund(3)(6)
(3.72
)
5.74
 9.02
 7.63
Municipal High Income
Fund(4)(6)
(5.70
)
4.09
 5.64
 7.03
Total Return Bond Fund(7)
(1.53
)
N/A
N/A
 0.11
Balanced Fund(5)
 5.09
12.18
10.75
10.80

(1) Fund commenced operations on September 9, 1986.
(2) Fund commenced operations on December 28, 1989.
(3) Fund commenced operations on September 2, 1986.
(4) Fund commenced operations on September 16, 1985.
(5) Fund commenced operations on March 28, 1988.
(6) Prior to November 6, 1992, the maximum Deferred Sales Charge
imposed on redemptions was 5.00%.
(7) Fund commenced operations on February 27, 1998.

The average annual total return for each portfolio's Class B shares
for the periods ended July 31, 2000 without including the deduction
of the maximum applicable deferred sales charge is as follows:

Fund
One-Year
Period
Five-Year
Period
Ten-Year
Period

Since
Inception
Convertible Fund (1)
5.59%
 6.88%
  8.36%
  7.59%
Diversified Strategic Income
Fund (2)(6)
 2.98
 5.64
  7.29
  7.45
High Income Fund(3)(6)
 0.40
 5.88
  9.02
  7.63
Municipal High Income
Fund(4)(6)
(1.52
)
 4.24
  5.64
  7.03
Total Return Bond Fund(7)
 2.83
N/A
N/A
  1.21
Balanced Fund(5)
10.09
12.30
10.75
10.80

(1) Fund commenced operations on September 9, 1986.
(2) Fund commenced operations on December 28, 1989.
(3) Fund commenced operations on September 2, 1986.
(4) Fund commenced operations on September 16, 1985.
(5) Fund commenced operations on March 28, 1988.
(6) Prior to November 6, 1992, the maximum Deferred Sales Charge
imposed on redemptions was 5.00%.
(7) Fund commenced operations on February 27, 1998.


The average annual total returns with sales charges (with fees
waived) of the fund's Class L shares were as follows for the
periods ended July 31, 2000:

Fund
One-Year
Period
Five-Year
Period
Since Inception
Convertible Fund(3)
3.04%
N/A
(0.44)%
Diversified Strategic Income
Fund(5)
0.80
5.48%
 5.58
High Income Fund(4)
(1.31)
5.77
 6.77
Municipal High Income
Fund(2)
(3.51)
3.96
 5.77
Total Return Bond Fund(1)
 0.88
N/A
 0.83
Balanced Fund(6)
 7.77
N/A
 8.28

(1)	The fund commenced selling Class L shares (previously designated
as Class C shares) on February 27,1998.
(2)	The fund commenced selling Class L shares (previously designated
as Class C shares) on November 17, 1994.
(3)	The fund commenced selling Class L shares on June 15, 1998.
(4)	The fund commenced selling Class L shares (previously designated
as Class C shares) on August 24, 1994.
(5)	The fund commenced selling Class L shares (previously designated
as Class C shares) on March 19, 1993.
(6) The fund commenced selling Class L shares on June 15, 1998.

The average annual total return for each portfolio's Class L shares
of the periods ended July 31, 2000 without including the deduction
of the maximum applicable initial sales charge or deferred sales
charge is as follows:

Fund
One-Year
Period
Five-Year
Period
Since Inception
Convertible Fund(3)
5.07%
N/A
0.02%
Diversified Strategic Income
Fund(5)
 2.84
5.69%
 5.71
High Income Fund(4)
0.57
5.98
 6.95
Municipal High Income
Fund(2)
 (1.61)
4.16
 5.95
Total Return Bond Fund(1)
 2.89
N/A
 1.26
Balanced Fund(6)
9.87
N/A
 8.79

(1)	The fund commenced selling Class L shares (previously designated
as Class C shares) on February 27, 1998.
(2)	The fund commenced selling Class L shares (previously designated
as Class C shares) on November 17, 1994.
(3)	The fund commenced selling Class L shares on June 15, 1998.
(4)	The fund commenced selling Class L shares (previously designated
as Class C shares) on August 24, 1994.
(5)	The fund commenced selling Class L shares (previously designated
as Class C shares) on March 19, 1993.
(6) The fund commenced selling Class L shares on June 15, 1998.


The average annual total returns with sales charges (with fees
waived) of the fund's Class O shares were as follows for the
periods ended July 31, 2000:

Fund
One-Year
Period
Five-Year
Period
Since Inception
Convertible Fund(1)
  4.57%
  6.87%
8.11%
Balanced Fund(2)
  9.13
12.35
9.48

(1)	The fund commenced selling Class O shares (previously designated
as Class C shares) on November 7, 1994.
(2) The fund commenced selling Class O shares (previously designated
as Class C shares) on February 4, 1993.

The average annual total return for each portfolio's Class O Shares
of the periods ended July 31, 2000 without including the deduction
of the maximum applicable initial sales charge or deferred sales
charge is as follows:
Fund
One-Year
Period
Five-Year
Period
Since Inception
Convertible Fund(1)
  5.57%
  6.87%
8.11%
Balanced Fund(2)
10.13
12.35
9.48
(1) The fund commenced selling Class O shares (previously designated
as Class C shares) on November 7, 1994.
(2) The fund commenced selling Class O shares (previously designated
as Class C shares) on February 4, 1993.
The average annual total returns (with fees waived) of the fund's
Class Y shares were as follows for the periods ended July 31, 2000:

Fund
One-Year
Period
Five-Year
Period
Since Inception
Convertible Fund(1)
6.62%
N/A
6.87%
Diversified Strategic Income
Fund(2)
3.83
N/A
6.34
High Income Fund(3)
1.29
N/A
5.75
Balanced Fund(4)
N/A
N/A
N/A

(1)	The fund commenced selling Class Y shares on February 7, 1996.
(2)	The fund commenced selling Class Y shares on October 10, 1995.
(3)	The fund commenced selling Class Y shares on April 28, 1995.
(4)	The fund commenced selling Class Y shares on October 9, 1995.
There were no Class Y shares outstanding as of July 31, 2000.

The average annual total returns (with fees waived) of the fund's
Class Z shares were as follows for the periods ended July 31, 2000:

Fund
One-Year
Period
Five-Year
Period
Since Inception
Diversified Strategic Income
Fund(1)
 3.83%

6.50%
7.00%
High Income Fund(2)
(3.88)

5.59
7.46

(1)	The fund commenced selling Class Z shares on November 6, 1992.
(2)	The fund commenced selling Class Z shares on November 6, 1992.
Neither Class Y nor Class Z shares impose an initial sales charge or
deferred sales charge.

A Class' total return figures calculated in accordance with the
above formula assume that the maximum sales charge or maximum
applicable Deferred Sales Charge, as the case may be, has been
deducted for the hypothetical $1,000 initial investment at the time
of purchase.

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

A Class' performance will vary from time to time depending upon
market conditions, the composition of the relevant fund's portfolio
and operating expenses and the expenses exclusively attributable to
that 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 company's portfolio securities.

TAXES

The following is a summary of certain Federal income tax
considerations that may affect the trust and its shareholders. This
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 any fund of the trust.



Tax Status of the Funds

Each fund will be treated as a separate taxable entity for federal
income tax purposes.

Each fund has qualified and the trust intends that each fund
continue to qualify separately each year as a "regulated investment
company" under the Code. A qualified fund will not be liable for
federal income taxes to the extent its taxable net investment
income and net realized capital gains are distributed to its
shareholders, provided that such fund distributes at least 90% of
its net investment income. One of the several requirements for
qualification is that a fund receive at least 90% of its gross
income each year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of
equity or debt securities or foreign currencies, or other income
(including but not limited to gains from options, futures, or
forward contracts) derived with respect to the fund's investment in
such stock, securities, or currencies. The trust does not expect
any fund to have difficulty meeting this test.

If for any taxable year a fund does not qualify as regulated
investment company, all of its taxable income will be subject to
federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders).  In such event,
dividend distributions, including amounts derived from long-term
capital gains and to the extent of the fund's current and
accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations in the case of
corporate shareholders.


On July 31, 2000, the unused capital loss carryovers, by fund,
were approximately as follows:  Diversified Strategic Income
Fund, $104,877,000; Total Return Bond Fund, $2,424,000; and High
Income Fund, $159,625,000. For federal income tax purposes, these
amounts are available to be applied against future capital gains
of the fund that has the carryovers, if any, that are realized
prior to the expiration of the applicable carryover.  The
carryovers expire as follows:

FUND
July 31,





(in thousands)
2001
2002
2003
2004
2005
2006
2007
2008
Diversified
Strategic
Income
--
--
--
--
--
--
--
$104,87
7
Total Return
Bond
--
--
--
--
--
--
$
1,372

1,052
High Income
--
--
$13,40
4
$23,36
0
--
--

25,768

97,093

Taxation of Investment by the Funds

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

Options and Futures Transactions. The tax consequences of options
transactions entered into by a fund will vary depending on the
nature of the underlying security, whether the option is written or
purchased, and whether the "straddle" rules, discussed separately
below, apply to the transaction. When a fund writes a call or put
option on an equity or convertible debt security, it will receive a
premium that will, subject to the straddle rules, be treated as
follows for tax purposes. If the option expires unexercised, or if
the fund enters into a closing purchase transaction, the fund will
realize a gain (or loss if the cost of the closing purchase
transaction exceeds the amount of the premium) without regard to
any unrealized gain or loss on the underlying security. Any such
gain or loss will be a short-term capital gain or loss, except that
any loss on a "qualified" covered call stock option that is not
treated as a part of a straddle may be treated as long-term capital
loss. If a call option written by a fund is exercised, the fund
will recognize a capital gain or loss from the sale of the
underlying security, and will treat the premium as additional sales
proceeds. Whether the gain or loss will be long-term or short-term
will depend upon the holding period of the underlying security. If
a put option written by a fund is exercised, the amount of the
premium will reduce the tax basis of the security that the fund
then purchases.

If a put or call option that a fund has purchased on an equity or
convertible debt security expires unexercised, the fund will
realize capital loss equal to the cost of the option. If the fund
enters into a closing sale transaction with respect to the option,
it will realize a capital gain or loss (depending on whether the
proceeds from the closing transaction are greater or less than the
cost of the option). The gain or loss will be short-term or long-
term, depending on the fund's holding period in the option. If the
fund exercises such a put option, it will realize a short-term
capital gain or loss (long-term if the fund holds the underlying
security for more than one year before it purchases the put) from
the sale of the underlying security measured by the sales proceeds
decreased by the premium paid. If the fund exercises such a call
option, the premium paid for the option will be added to the tax
basis of the security purchased.

One or more funds may invest in section 1256 contracts, and the
Code imposes a special "mark-to-market" system for taxing these
contracts. These contracts generally include options on non-
convertible debt securities (including United States government
securities), options on stock indexes, futures contracts, options
on futures contracts and certain foreign currency contracts.
Options on foreign currency, futures contracts on foreign currency
and options on foreign currency futures will qualify as "section
1256" contracts if the options or futures are traded on or subject
to the rules of a qualified board or exchange. Generally, most of
the foreign currency options and foreign currency futures and
related options in which certain funds may invest will qualify as
section 1256 contracts. In general, gain or loss on section 1256
contracts will be taken into account for tax purposes when actually
realized (by a closing transaction, by exercise, by taking delivery
or by other termination). In addition, any section 1256 contracts
held at the end of a taxable year will be treated as sold at their
year-end fair market value (that is, marked to the market), and the
resulting gain or loss will be recognized for tax purposes.
Provided that section 1256 contracts are held as capital assets and
are not part of a straddle, both the realized and the unrealized
year-end gain or loss from these investment positions (including
premiums on options that expire unexercised) will be treated as 60%
long-term and 40% short-term capital gain or loss, regardless of
the period of time particular positions actually are held by a
fund.

Straddles. While the mark-to-market system is limited to section
1256 contracts, the Code contains other rules applicable to
transactions which create positions that offset positions in
section 1256 contracts or other investment contracts. Those rules,
applicable to "straddle" transactions, are intended to eliminate
any special tax advantages for such transactions. "Straddles" are
defined to include "offsetting positions" in actively-traded
personal property. Under current law, it is not clear under what
circumstances one investment made by a fund, such as an option or
futures contract, would be treated as "offsetting" another
investment also held by the fund, such as the underlying security
(or vice versa) and, therefore, whether the fund would be treated
as having entered into a straddle. In general, investment positions
may be "offsetting" if there is a substantial diminution in the
risk of loss from holding one position by reason of holding one or
more other positions (although certain "qualified" covered call
stock options written by a fund may be treated as not creating a
straddle). Also, the forward currency contracts entered into by a
fund may result in the creation of "straddles" for federal income
tax purposes.

If two or more positions constitute a straddle, a realized loss
from one position (including a mark-to-market loss) must be
deferred to the extent of unrecognized gain in an offsetting
position. Also, the holding period rules described above may be
modified to re-characterize long-term gain as short-term gain, or
to re-characterize short-term loss as long-term loss, in connection
with certain straddle transactions. Furthermore, interest and other
carrying charges allocable to personal property that is part of a
straddle must be capitalized. In addition, "wash sale" rules apply
to straddle transactions to prevent the recognition of loss from
the sale of a position at a loss where a new offsetting position is
or has been acquired within a prescribed period. To the extent that
the straddle rules apply to positions established by a fund, losses
realized by the fund may be either deferred or re-characterized as
long-term losses, and long-term gains realized by the fund may be
converted to short-term gains.

If a fund chooses to identify particular offsetting positions as
being components of a straddle, a realized loss will be recognized,
but only upon the liquidation of all of the components of the
identified straddle. Special rules apply to the treatment of
"mixed" straddles (that is, straddles consisting of a section 1256
contract and an offsetting position that is not a section 1256
contract). If a fund makes certain elections, the section 1256
contract components of such straddles will not be subject to the
"60%/40%" mark-to-market rules. If any such election is made, the
amount, the nature (as long-or short-term) and the timing of the
recognition of the fund's gains or losses from the affected
straddle positions will be determined under rules that will vary
according to the type of election made.

Constructive Sales.  If a fund effects a short sale of securities
at a time when it has an unrealized gain on the securities, it may
be required to recognize that gain as if it had actually sold the
securities (as a "constructive sale") at the time it effects the
short sale.  However, such constructive sale treatment may not
apply if the fund closes out the short sale with securities other
than the appreciated securities held at the time of the short sale
and if certain other conditions are satisfied.  Uncertainty
regarding the tax consequences of effecting short sales may limit
the extent to which a fund may effect short sales.

Section 988. Foreign currency gain or loss from transactions in (a)
bank forward contracts not traded in the interbank market and (b)
futures contracts traded on a foreign exchange may be treated as
ordinary income or loss under Section 988 of the Code. A fund may
elect to have section 988 apply to section 1256 contracts. Pursuant
to that election, foreign currency gain or loss from these
transactions would be treated entirely as ordinary income or loss
when realized. A fund will make the election necessary to gain such
treatment if the election is otherwise in the best interests of the
fund.

Taxation of the Trust's Shareholders

Dividends paid by a fund from investment income and distributions
of short-term capital gains will be taxable to shareholders as
ordinary income for federal income tax purposes, whether received
in cash or reinvested in additional shares. Distributions of long-
term capital gains will be taxable to shareholders as long-term
capital gain, whether paid in cash or reinvested in additional
shares, and regardless of the length of time that the shareholder
has held his or her shares of the fund.

Dividends of investment income (but not capital gains) from any
fund generally will qualify for the federal dividends-received
deduction for domestic corporate shareholders to the extent that
such dividends do not exceed the aggregate amount of dividends
received by the fund from domestic corporations. If securities held
by a fund are considered to be "debt-financed" (generally, acquired
with borrowed funds), are held by the fund for less than 46 days
(91 days in the case of certain preferred stock), or are subject to
certain forms of hedges or short sales, the portion of the
dividends paid by the fund which corresponds to the dividends paid
with respect to such securities will not be eligible for the
corporate dividends-received deduction.

If a shareholder (a) incurs a sales charge in acquiring fund shares
and (b) disposes of those shares and acquires within 90 days after
the original acquisition, shares in a mutual fund for which the
otherwise applicable sales charge is reduced by reason of a
reinvestment right (i.e., an exchange privilege), the original
sales charge increases the shareholder's tax basis in the original
shares only to the extent the otherwise applicable sales charge for
the second acquisition is not reduced. The portion of the original
sales charge that does not increase the shareholder's tax basis in
the original shares would be treated as incurred with respect to
the second acquisition and, as a general rule, would increase the
shareholder's tax basis in the newly acquired shares. Furthermore,
the same rule also applies to a disposition of the newly acquired
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.

Capital Gains Distribution. As a general rule, a shareholder who
redeems or exchanges his or her shares will recognize long-term
capital gain or loss if the shares have been held for more than one
year, and will recognize short-term capital gain or loss if the
shares have been held for one year or less. However, if a
shareholder receives a distribution taxable as long-term capital
gain with respect to shares of a fund and redeems or exchanges the
shares before he or she has held them for more than six months, any
loss on such redemption or exchange that is less than or equal to
the amount of the distribution will be treated as a long-term
capital loss.

Backup Withholding. If a shareholder fails to furnish a correct
taxpayer identification number, fails to fully report 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 such withholding, then the shareholder may be subject to
a 31% "backup withholding tax" with respect to (a) any taxable
dividends and distributions and (b) any proceeds of any redemption
of trust shares. An individual's taxpayer identification number is
his or her social security number. The backup withholding tax is
not an additional tax and may be credited against a shareholder's
regular Federal income tax liability.

Municipal High Income Fund. Because the Municipal High Income Fund
will distribute exempt-interest dividends, interest on indebtedness
incurred by shareholders, directly or indirectly, to purchase or
carry shares of the fund will not be deductible for federal income
tax purposes. If a shareholder redeems or exchanges shares of the
fund with respect to which he receives an exempt-interest dividend
before holding the shares for more than six months, no loss will be
allowed on the redemption or exchange to the extent of the dividend
received. Also, that portion of any dividend from the fund which
represents income from private activity bonds (other than those
issued for charitable, educational and certain other purposes) 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
such bonds or a person "related" to such substantial user.
Investors should consult their own tax advisors to see whether they
may be substantial users or related persons with respect to a
facility financed by bonds in which the fund may invest. Moreover,
exempt-interest dividends derived from interest on private activity
bonds of this type will be subject to the federal alternative
minimum tax that is imposed on individuals and corporations.  In
addition, investors receiving social security or certain other
retirement benefits should be aware that exempt-interest dividends
received from the fund may under certain circumstances cause up to
one-half of such retirement benefits to be subject to tax. If the
fund receives taxable investment income, it will designate as
taxable the same percentage of each dividend as the fund's actual
taxable income bears to the total investment income earned during
the period for which the dividend is paid. The percentage of each
dividend designated as taxable, if any, may, therefore, vary.
Dividends derived from interest from Municipal Securities which are
exempt from federal tax also may be exempt from personal income
taxes in the state where the issuer is located, but in most cases
will not be exempt under the tax laws of other states or local
taxing authorities. Annual statements will set forth the amount of
interest from Municipal Securities earned by the fund in each state
or possession in which issuers of portfolio securities are located.


ADDITIONAL INFORMATION

The trust was organized as an unincorporated business trust under
the laws of the Commonwealth of Massachusetts pursuant to a Master
trust agreement dated March 12, 1985, as amended from time to time,
and on November 5, 1992 the trust filed an Amended and Restated
Master Trust Agreement (the "trust agreement"). The trust commenced
business as an investment company on September 16, 1985, under the
name Shearson Lehman Special Portfolios. On February 21, 1986,
December 6, 1988, August 27, 1990, November 5, 1992, July 30, 1993
and October 14, 1994, the trust changed its name to Shearson Lehman
Special Income Portfolios, SLH Income Portfolios, Shearson Lehman
Brothers Income Portfolios, Shearson Lehman Brothers Income Funds,
Smith Barney Shearson Income Funds and Smith Barney Income Funds,
respectively.

PFPC Trust Company is located at 8800 Tinicum Blvd., Philadelphia,
Pennsylvania 19153, and serves as the custodian for each of the
funds, except Diversified Strategic Income Fund. Chase, located at
Chase MetroTech Center, Brooklyn, NY 11245, serves as the custodian
for Diversified Strategic Income Fund. Under their respective
custodian agreements with the respective funds, each custodian is
authorized to establish separate accounts for foreign securities
owned by the appropriate fund to be held with foreign branches of
other U.S. banks as well as with certain foreign banks and
securities depositories. For its custody services to the trust,
each custodian receives monthly fees based upon the month-end
aggregate net asset value of the appropriate fund, plus certain
charges for securities transactions including out-of-pocket
expenses, and costs of any foreign and domestic sub-custodians. The
assets of the trust are held under bank custodianship in compliance
with the 1940 Act.

Citi Fiduciary Trust Company, located at 125 Broad Street, New
York, New York 10004, serves as the trust's transfer agent.  Under
the transfer agency agreement, the transfer agent maintains the
shareholder account records for each fund, handles certain
communications between shareholders and each fund, and distributes
dividends and distributions payable by each fund.  For these
services, the transfer agent receives a monthly fee computed on the
basis of the number of shareholder accounts it maintains for each
fund during the month, and is reimbursed for out-of-pocket
expenses.

PFPC Global Fund Services, located at P.O. Box 9699 Providence,
R.I. 02940-9699 serves as certain fund's sub-transfer agent to
render certain shareholder record keeping and accounting services
functions.  Under the transfer agency agreement, PFPC Global
maintains the shareholder account records for a fund, handles
certain communications between shareholders and a fund, and
distributes dividends and distributions payable by a fund.  For
these services, PFPC Global receives a monthly fee computed on
the basis of the number of shareholder accounts it maintains for
the fund during the month, and is reimbursed for out-of-pocket
expenses.

PFS Shareholder Services, located at 3100 Breckinridge Blvd.,
Bldg. 200, Duluth, Georgia 30099-0062, serves as the sub-transfer
agent for PFS Accounts of Smith Barney Exchange Reserve Fund and
Smith Barney Diversified Strategic Income Fund.



VOTING RIGHTS

In the interest of economy and convenience, certificates
representing shares in the trust are not physically issued except
upon specific request made by a shareholder to transfer agent.
Transfer agent maintains a record of each shareholder's ownership
of trust shares. Shares do not have cumulative voting rights, which
means that holders of more than 50% of the shares voting for the
election of trustees can elect all of the trustees. Shares are
transferable but have no preemptive or subscription rights.
Shareholders generally vote by fund, except with respect to the
election of trustees and the selection of independent public
accountants.

Massachusetts law provides that, under certain circumstances,
shareholders could be held personally liable for the obligations of
the trust. However, the trust agreement disclaims shareholder
liability for acts or obligations of the trust and requires that
notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the trust or a trustee. The
trust agreement provides for indemnification from the trust's
property for all losses and expenses of any shareholder held
personally liable for the obligations of the trust. Thus, the risk
of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which the
trust would be unable to meet its obligations, a possibility that
the trust's management believes is remote. Upon payment of any
liability incurred by the trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets
of the trust. The trustees intend to conduct the operations of the
trust in such a way so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the trust.

The trustees themselves have the power to alter the number and
the terms of office of the trustees, and they may at any time
lengthen their own terms or make their terms of unlimited
duration (subject to certain removal procedures) and appoint
their own successors, provided that in accordance with the 1940
Act at any time at least a majority, but in most instances at
least two-thirds, of the trustees have been elected by the
shareholders of the fund.  Shares do not have cumulative voting
rights and therefore the holders of more than 50% of the
outstanding shares of the fund may elect all of the trustees
irrespective of the votes of other shareholders.  Class A, Class
B, Class O, Class L and Class Y shares of a fund, if any,
represent interests in the assets of that fund and have identical
voting, dividend, liquidation and other rights on the same terms
and conditions, except that each Class of shares has exclusive
voting rights with respect to provisions of the fund's Rule 12b-1
distribution plan which pertain to a particular class.  For
example, a change in investment policy for a fund would be voted
upon only by shareholders of the fund involved.  Additionally,
approval of each fund's Investment advisory agreement is a matter
to be determined separately by that fund.  Approval of a proposal
by the shareholders of one fund is effective as to that fund
whether or not enough votes are received from the shareholders of
the other funds to approve the proposal as to those funds.

As of November 17, 2000, the following shareholders beneficially
owned and as record holder, 5% or more of a class of shares of a
fund:

High Income Fund - Class Y

Smith Barney Concert Series, Inc.
Growth Portfolio
PNC Bank, NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 9,286,858.313 (34.87%) shares*

Smith Barney Concert Series, Inc.
High Growth Portfolio
PNC Bank, NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 8,947,646.432 (33.60%) shares*

Smith Barney Concert Series, Inc.
Select Growth Portfolio
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 2,832,419.389 (10.64%) shares*

Smith Barney Concert Series, Inc.
Select High Growth Portfolio
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 1,955,712.937 (10.64%) shares*


* The Fund believes that these entities are not the
beneficial owners of shares held of record by them



Smith Barney Concert Series, Inc.
Conservative Portfolio
PNC Bank, NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 1,342,203.749 (5.04%) shares*

High Income Fund - Class Y

Ennis D. Robertson
SSB IRA Custodian
Carefree Country Club
9705 Lake Bess Road #253
Winter Haven, FL 33884
Owned 4,920.879 (53.83%) shares

Ennis D. Robertson
Carefree Country Club
9705 Lake Bess Road #253
Winter Haven, FL 33884
Owned 4,219.858 (46.17%) shares

Balanced Fund -  Class A

FISERV Securities Inc.
Attn: Mutual Fund Dept.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
Owned 18,633,044.168 (35.61%) shares

Balanced Fund -  Class O

ABC Appliance Utica Inc.
EMP Profit Sharing Plan
DTD 12/1/75
D.Todd, D. Dion, M. Celusnak, TTEES
48825 Van Dyke
Utica, MI 48317
Owned 20,247.704 (5.27%) shares



* The Fund believes that these entities are not the
beneficial owners of shares held of record by them



Convertible Fund - Class L

Alfred L Curry
SSB IRA Rollover Custodian
6832 Trapper Way
Midland, GA 31820-3813
owned 3,418.088 (14.68%) shares


Raymond Trudeau
Smith Barney Inc. IRA Custodian
99 Plummer Hill Road
Belmont, NH 03220-5811
owned 3,220.438(13.83%) shares

FISERV Securities Inc.
FAO 74061939
Attn: Mutual Fund Dept.
One Commerce Square
2005 Market Street
Philadelphia, PA 19103
Owned 3,168.568 (13.61%) shares

Jay G. Burgess TRS
FBO Jay G Burgess
U/A/D 7/23/85
3061 N. Southern Hills Ave.
Wadsworth, IL 60083-9288
owned 1,275.880 (5.48%) shares

Marjorie C. Gilmore
SSB IRA custodian
725 Renaissance Drive
Apartment 216
Williamsville, NY 14221
owned 1236.491(5.31%) shares

Convertible Fund - Class O

John J. Madden and Deborah A. Madden JTWROS
4107 Golden Grove Road
Greenwood, IN 46143
owned 3,847.155 (19.90%) shares

Joseph H. Siemer
Smith Barney Inc. IRA Custodian
8752 Carousel Park Circle B105
Cincinnati, OH 45251
owned 2,555.610 (13.22%) shares

John R. Payzant &  Carolyn R. Payzant Trustees
FBO John R. Payzant & Carolyn R. Payzant
U/A/D 7/19/88
P.O. Box 277
Hampton, NH 03843
owned 1,919.005 (9.93%) shares

Michigan Floral Assoc.
Attn: Rodney Crittenden
5815 Executive Drive
Suite B  P.O. Box 24065
Lansing, MI 48909
owned 1,888.562 (9.77%) shares

Keith M. Lehrer
SSB IRA Custodian
20801 Nordhoff Street
Chatsworth, CA 91311
owned 1,885.342 (9.75%) shares

Nancy E. Kittle
SSB IRA Custodian
918 Shabona Lane
Wilmette, IL 60091
owned 1,231.527 (6.37%) shares

Joseph O. Bouchard
SSB IRA Rollover Custodian
11 Calle Del Norte
Rancho Santa Margarita, CA 92688
owned 1,082.087 (6.37%) shares

George Pality Jr.
Cynthia D. Pality JTWROS
9207 Landsdowne Drive
Houston, TX 77096
Owned 1,079.354 (5.58%) shares

William S.Silva
SB IRA Rollover Custodian
3656 Newgate Lane
Indianapolis, IN 46235-2380
Owned 1,054.927 (5.46%) shares

Convertible Fund - Class Y

Smith Barney Concert Series, Inc.
Balanced Portfolio
PNC Bank NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 3,042,936.167 (52.60%) shares*

Smith Barney Concert Series, Inc.
Select Balanced Portfolio
PNC Bank NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 1,399,210.874 (24.19%) shares*

Smith Barney Concert Series, Inc.
Conservative Portfolio
PNC Bank NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 769,997.797 (13.31%) shares*

Smith Barney Concert Series, Inc.
Select Conservative Portfolio
PNC Bank NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 335,196.840 (5.79%) shares*
_________________________________________
* The Fund believes that these entities are not the
beneficial owners of shares held of record by them



Diversified Strategic Income Fund Class Y

Smith Barney Concert Series, Inc.
PNC Bank NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
Balanced Portfolio
owned 10,090,720.530(46.30%) shares*

Smith Barney Concert Series, Inc.
Select Balanced Portfolio
PNC Bank NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 4,642,897.898 (21.30%) shares*

Smith Barney Concert Series, Inc.
Conservative Portfolio
PNC Bank NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 3,460,365.131 (15.88%) shares*

Smith Barney Concert Series, Inc.
Income Portfolio
PNC Bank NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 1,507,547.723 (6.92%) shares*

Smith Barney Concert Series, Inc.
Select Conservative Portfolio
PNC Bank NA
Attn: Sheila Heacock
8800 Tinicum Blvd., 3rd Floor, Ste. 200
Philadelphia, PA 19153
owned 1,489,080.140 (6.83%) shares*

_________________________________________
* The Fund believes that these entities are not the
beneficial owners of shares held of record by them


Diversified Strategic Income Fund Class Z

State Street Bank & Trust, Custodian
The Travelers Group 401(k)
Savings Plan
Attn: Rick Vest
225 Franklin Street
Boston, MA 02101
owned 3,463,979.590 (99.55%) shares*

_________________________________________
* The Fund believes that these entities are not the
beneficial owners of shares held of record by them

Total Return Bond Fund - Class A

The Globe Newspaper
Teamsters Local 259
H and W Benefit Fund
Attn: Marilyn Kelly
PO Box 1914
Boston, MA 02205
owned 236,392.681 (7.59%) shares

Municipal High Income Fund - Class L

Ida Belle D Perry
3668 Castlegate Drive NW
Atlanta, GA 30327
owned 27,017.304 (7.59%) shares


FINANCIAL STATEMENTS

The funds' Annual Reports for the fiscal year ended July 31, 2000
are incorporated herein by reference in their entirety.  The
annual reports were filed on October 6, 2000, Accession Number
950130-00-5346.

OTHER  INFORMATION

Styles of Fund Management: In an industry where the average
portfolio manager has seven years of experience (source: ICI,
1998), the portfolio managers of Smith Barney mutual funds average
21 years in the industry and 15 years with the firm.

Smith Barney mutual funds offers more than 60 mutual funds.  We
understand that many investors prefer an active role in
allocating the mix of funds in their portfolio, while others want
the asset allocation decisions to be made by experienced
managers.

That's why we offer four "styles" of fund management that can be
tailored to suit each investor's unique financial goals.

	Classic Series  - our portfolio manager driven funds
Our Classic Series lets investors participate in mutual
funds whose investment decisions are determined by
experienced portfolio managers, based on each fund's
investment objectives and guidelines.  Classic Series funds
invest across asset classes and sectors, utilizing a range
of strategies in order to achieve their objectives.

	Index Series - funds that track the market
Our Index funds are designed to provide investment results
that track, as closely as possible, the performance of a
stock or bond market index.  This strategy distinguishes an
index fund from an "actively managed" mutual fund.  Instead
of trying to outperform a market or segment, a portfolio
manager looks to an index to determine which securities the
fund should own.

	Premier Selections Series - our best ideas, concentrated
funds
We offer a series of Premier Selections funds managed by
several of our most experienced and proven managers.  This
series of funds is built on a unique strategy of combining
complementary investment management styles to create broader,
multiclass and multicap products that are distinguished by a
highly concentrated focus.

Research Series - driven by exhaustive fundamental securities
analysis
Built on a foundation of substantial buy-side research under
the direction of our Citibank Global Asset Management (CGAM)
colleagues, our Research funds focus on well-defined
industries, sectors and trends.
Style Pure Series - our solution to funds that stray
Our Style Pure Series funds are the building blocks of
asset allocation.  The funds stay fully invested within
their asset class and investment style, enabling you to
make asset allocation decisions in conjunction with your
financial professional.


APPENDIX

Description of Ratings

Description of S&P Corporate Bond Ratings

AAA

Bonds rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is
extremely strong.

AA

Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in
small degree.

A

Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than bonds in higher rated categories.

BBB

Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit
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 bonds in this
category than for bonds in higher rated categories.

BB, B and CCC

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

Description of Moody's Corporate Bond Ratings

Aaa

Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a
large or 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 which 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 which make
the long-term risks appear somewhat larger than in Aaa securities.

A

Bonds which are rated A possess 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 which suggest a susceptibility to
impairment sometime in the future.

Baa

Bonds which 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 desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.

Caa

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

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

Description of S&P Municipal Bond Ratings

AAA

Prime -- These are obligations of the highest quality. They have
the strongest capacity for timely payment of debt service.

General Obligation Bonds -- In a period of economic stress, the
issuers will suffer the smallest declines in income and will be
least susceptible to autonomous decline. Debt burden is moderate. A
strong revenue structure appears more than adequate to meet future
expenditure requirements. Quality of management appears superior.

Revenue Bonds -- Debt service coverage has been, and is expected to
remain, substantial. Stability of the pledged revenues is also
exceptionally strong due to the competitive position of the
municipal enterprise or to the nature of the revenues. Basic
security provisions (including rate covenant, earnings test for
issuance of additional bonds, debt service reserve requirements)
are rigorous. There is evidence of superior management.

AA

High Grade -- The investment characteristics of bonds in this group
are only slightly less marked than those of the prime quality
issues. Bonds rated AA have the second strongest capacity for
payment of debt service.

A

Good Grade -- Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more
susceptible to the adverse affects of changes in circumstances and
economic conditions than bonds in higher rated categories. This
rating describes the third strongest capacity for payment of debt
service. Regarding municipal bonds, the ratings differ from the two
higher ratings because:

General Obligation Bonds -- There is some weakness, either in the
local economic base, in debt burden, in the balance between
revenues and expenditures, or in quality of management. Under
certain adverse circumstances, any one such weakness might impair
the ability of the issuer to meet debt obligations at some future
date.

Revenue Bonds -- Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show some
variations because of increased competition or economic influences
on revenues. Basic security provisions, while satisfactory, are
less stringent. Management performance appears adequate.

BBB

Medium Grade -- Of the investment grade ratings, this is the
lowest. Bonds in this group are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally
exhibit 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 bonds in this
category than for bonds in higher rated categories.

General Obligation Bonds -- Under certain adverse conditions,
several of the above factors could contribute to a lesser capacity
for payment of debt service. The difference between A and BBB
ratings is that the latter shows more than one fundamental
weakness, or one very substantial fundamental weakness, whereas the
former shows only one deficiency among the factors considered.

Revenue Bonds -- Debt coverage is only fair. Stability of the
pledged revenues could show substantial variations, with the
revenue flow possibly being subject to erosion over time. Basic
security provisions are no more than adequate. Management
performance could be stronger.


BB, B, CCC and CC

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

C

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

D

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

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

Description of S&P Municipal Note Ratings

Municipal notes with maturities of three years or less are usually
given note ratings (designated SP-1, -2 or -3) to distinguish more
clearly the credit quality of notes as compared to bonds. Notes
rated SP-1 have a very strong or strong capacity to pay principal
and interest. Those issues determined to possess overwhelming
safety characteristics are given the designation of SP-1+. Notes
rated SP-2 have satisfactory capacity to pay principal and
interest.

Description of Moody's Municipal Bond Ratings

Aaa

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

Aa

Bonds which 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 which
make the long-term risks appear somewhat larger than in Aaa
securities.

A

Bonds which 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 which suggest a
susceptibility to impairment sometime in the future.

Baa

Bonds which 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 characterize 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 rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.

Moody's applies the numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B. The modifier 1 indicates
that the security ranks in the higher end of its generic ratings
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 ratings category.

Description of Moody's Municipal Note Ratings

Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG) and for
variable rate demand obligations are designated Variable Moody's
Investment Grade (VMIG). This distinction recognizes the
differences between short- and long-term credit risk. Loans bearing
the designation MIG 1/VMIG 1 are the best quality, enjoying strong
protection from established cash flows of funds for their servicing
or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG 2/VMIG 2
are of high quality, with margins of protection ample, although not
as large as the preceding group. Loans bearing the designation MIG
3/VMIG 3 are of favorable quality, with all security elements
accounted for but lacking the undeniable strength of the preceding
grades. Market access for refinancing, in particular, is likely to
be less well established. Loans bearing the designation MIG 4/VMIG
4 are of adequate quality. Protection commonly regarded as required
of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.

Description of Commercial Paper Ratings

The rating A-1+ is the highest, and A-1 the second highest,
commercial paper rating assigned by S&P. Paper rated A-1+ must have
either the direct credit support of an issuer or guarantor that
possesses excellent long-term operating and financial strength
combined with strong liquidity characteristics (typically, such
issuers or guarantors would display credit quality characteristics
which would warrant a senior bond rating of A- or higher) or the
direct credit support of an issuer or guarantor that possesses
above average long-term fundamental operating and financing
capabilities combined with ongoing excellent liquidity
characteristics. Paper rated A-1 must have the following
characteristics: liquidity ratios are adequate to meet cash
requirements; long-term senior debt is rated A or better; the
issuer has access to at least two additional channels of borrowing;
basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances; typically, the issuer's industry is
well established and the issuer has a strong position within the
industry; and the reliability and quality of management are
unquestioned.

The rating Prime-1 is the highest commercial paper rating assigned
by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (a) evaluation of the management of the
issuer; (b) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be
inherent in certain areas; (c) evaluation of the issuer's products
in relation to competition and customer acceptance; (d) liquidity;
(e) amount and quality of long-term debt; (f) trend of earnings
over a period of ten years; (g) financial strength of parent
company and the relationships which exist with the issuer; and (h)
recognition by the management of obligations which may be present
or may arise as a result of public interest questions and
preparations to meet such obligations.

Short-term obligations, including commercial paper, rated A-1+ by
IBCA Limited or its affiliate IBCA Inc. are obligations supported
by the highest capacity for timely repayment. Obligations rated A-1
have a very strong capacity for timely repayment. Obligations rated
A-2 have a strong capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business,
economic and financial conditions.

Thomson BankWatch employs the rating "TBW-1" as its highest
category, which indicates that the degree of safety regarding
timely repayment of principal and interest is very strong. "TBW-2"
is its second highest rating category. 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."

Fitch IBCA Inc. employs the rating F-1+ to indicate issues regarded
as having the strongest degree of assurance of timely payment. The
rating F-1 reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+, while the rating F-2
indicates a satisfactory degree of assurance of timely payment
although the margin of safety is not as great as indicated by the
F-1+ and F-1 categories.

Duff & Phelps Inc. employs the designation of Duff 1 with respect
to top grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding and safety is just below risk-free
U.S. Treasury short-term obligations. Duff 1- indicates high
certainty of timely payment. Duff 2 indicates good certainty of
timely payment: liquidity factors and company fundamentals are
sound.

Various NRSROs utilize rankings within ratings categories indicated
by a + or -. The funds, in accordance with industry practice,
recognize such ratings within categories as gradations, viewing for
example S&P's rating of A-1+ and A-1 as being in S&P's highest
rating category.




						Smith Barney
						INCOME FUNDS





						Statement of
						Additional Information
November 28, 2000


Convertible Fund

Diversified Strategic Income Fund

Exchange Reserve Fund

High Income Fund

Municipal High Income Fund

Total Return Bond Fund

Balanced Fund




Smith Barney
Income Funds
7 World Trade Center
New York, New York 10048					SALOMON SMITH
BARNEY
								A Member of
CitiGroup


FD 01217     11/00

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