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Prospectus                                                      January 29, 1999
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High Income Opportunity Fund Inc.

Common Stock
      Listed on the New York Stock Exchange
      Trading symbol -- HIO

High Income Opportunity Fund Inc. is a diversified, closed-end management
investment company. The fund's primary investment objective is to seek high
current income. Capital appreciation is a secondary objective. The fund invests
primarily in high-yielding bonds and other fixed income securities that are
below investment grade. These securities are also called junk bonds.

Shares of closed-end funds frequently have market prices that are less than the
net asset value per share. Investing in lower-rated securities involves a
greater risk that you may lose money than investing in investment grade
securities. For more information about these or other risks of investing in the
fund, see "Risk Factors and Special Considerations" on page 10.

The prospectus contains important information about the fund. For your benefit
and protection, please read it before you invest, and keep it on hand for future
reference.
   
The statement of additional information dated January 29, 1999 (SAI) provides
more detailed information about the fund and is incorporated into this
prospectus by reference. The SAI and shareholder reports can be obtained without
charge from your Salomon Smith Barney Financial Consultant or from the fund by
calling 1-800-331-1710 or writing to the fund at 388 Greenwich Street, New York,
New York 10013. You can review the fund's SAI and shareholder reports at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
The Commission charges a fee for this service. Information about the Public
Reference Room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at www.sec.com
    
The Securities and Exchange Commission has not approved the fund's shares as an
investment or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.

SALOMON SMITH BARNEY INC.


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Table of Contents
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Prospectus Summary                                                            3
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Fund Expenses                                                                 6
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Financial Highlights                                                          7
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The Fund                                                                      8
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The Offering                                                                  8
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Use of Proceeds                                                               8
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Investment Objectives and Policies                                            8
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Risk Factors and Special Considerations                                      10
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Investment Practices                                                         13
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Share Price Data                                                             18
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Taxation                                                                     19
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Management of the Fund                                                       22
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Dividends and Distributions                                                  23
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Dividend Reinvestment Plan                                                   24
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Net Asset Value                                                              25
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Market Discount                                                              26
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Description of Shares                                                        27
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Custodian and Transfer Agent                                                 28
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Other Information                                                            28
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NRSRO Ratings (Appendix A)                                                  A-1
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2
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Prospectus Summary
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The following is a summary of more complete information appearing later in the
prospectus. You should read the entire prospectus because it contains details
that are not in the summary. Cross references in the summary to headings in the
prospectus will help you locate information.

      THE FUND The fund is a diversified, closed-end management investment
company. See "The Fund."

      INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS The fund's primary
investment objective is high current income. Capital appreciation is a secondary
objective. The fund invests primarily, but at least 65% of assets, in
high-yielding corporate debt securities and preferred stocks.

      The fund may invest up to 35% of assets in common stock and equity-related
securities, such as options, warrants and rights. The fund invests primarily in
securities of U.S. and foreign companies and governments that are denominated or
quoted in U.S. dollars. The fund may, however, invest up to 20% of assets in
securities of foreign companies and governments that are denominated or quoted
in foreign currencies.

      Credit quality Primarily below investment grade. This means that the fixed
income securities in which the fund invests are rated in the lower rating
categories by a rating agency or are of comparable quality. These securities are
also called junk bonds or high yield securities. The fund may not purchase
additional fixed income securities rated by more than one rating agency lower
than B if more than 10% of assets are invested in such securities.

      Maturity Under current market conditions, the fund's average
dollar-weighted portfolio maturity is between 5 and 10 years. The fund may,
however, invest in individual fixed income securities of any maturity.

      See "Investment Objectives and Policies."

      THE OFFERING The fund's shares of common stock trade on the New York Stock
Exchange (NYSE). In addition, Salomon Smith Barney intends to buy and sell the
fund's shares and will make a market in the shares. Salomon Smith Barney is not
obligated to conduct market-making activities and may stop doing so at any time
without notice. See "The Offering" and "Use of Proceeds."

      LISTING NYSE.

      SYMBOL HIO.

      INVESTMENT MANAGER Mutual Management Corp. (MMC) (formerly Smith Barney
Mutual Funds Management Inc.). The manager selects and manages the fund's
investments in accordance with the fund's investment objectives and policies.
The fund pays MMC a fee for its services equal on an annual basis to 1.15% of
the fund's average daily net assets.


                                                                               3
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Prospectus Summary (continued)
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      John C. Bianchi, a vice president of the fund, has been primarily
responsible for the day-to-day management of the fund since 1994, when the fund
commenced operations. Mr. Bianchi is a managing director of Salomon Smith
Barney.

      See "Management of the Fund."

      RISK FACTORS AND SPECIAL CONSIDERATIONS The value of the securities in the
fund's portfolio fluctuates and the value of your investment in the fund may go
up and down. This means that you could lose money on your investment in the fund
and the fund could perform less well than other similar investments. In
addition, the price of the shares is determined by market prices on the NYSE and
elsewhere, so you may receive a price that is less than net asset value when you
sell your shares. Specific risks associated with an investment in the fund are
described below.

      Below investment grade securities. The fund invests primarily in
securities rated below investment grade by a rating agency or considered to be
of comparable quality. Investment in below investment grade securities involves
a substantial risk of loss. These securities are speculative with respect to the
issuer's ability to pay interest and principal.
   
      Compared to investment grade securities, lower-rated securities are more
susceptible to default or decline in market value due to adverse economic and
business developments, and their market value tends to be more volatile.
Further, the market for lower-rated securities tends to be less liquid than the
market for investment grade securities.
    
      The fund may invest in securities issued by companies that are in default
on their obligations to pay interest and/or principal. The fund may lose all of
its investment in these securities.

      Fixed income securities. In addition to the special risks associated with
investments in lower-rated securities, the fund's investments in fixed income
securities may be affected by any of the following:

      o     Interest rates rise, causing the value of the fund's investments
            generally to decline.

      o     When interest rates are declining, the issuer of a security
            exercises its right to prepay principal earlier than scheduled,
            forcing the fund to reinvest in lower yielding securities. This is
            known as call or prepayment risk.

      o     The issuer of a security owned by the fund has its credit rating
            downgraded or defaults on its obligation to pay principal and/or
            interest.

      o     The manager's judgment about the attractiveness, value or income
            potential of a particular security proves to be incorrect.

      o     Lower-rated securities fall out of favor with investors, which will
            adversely affect their market value and liquidity.


4
<PAGE>

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Prospectus Summary (continued)
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      Equity securities. Equity securities have historically had higher returns
but have had significantly more volatile returns than fixed income securities.
The equity securities in the fund's portfolio may decline in value if there is a
general decline in the market of equity securities or an adverse event, such as
an unfavorable earnings report, depresses the market price of a portfolio
investment.

      Foreign securities. The market value of foreign securities in the fund's
portfolio may go down because of unfavorable foreign government actions,
political, economic or market instability or the absence of accurate information
about foreign companies. Foreign securities are sometimes less liquid and harder
to value than securities of U.S. issuers. A decline in the value of foreign
currencies relative to the U.S. dollar will reduce the value of securities held
by the fund which are denominated or quoted in those currencies.

      Derivatives. The fund may hold securities or use investment techniques
that provide for payments based on or "derived" from the performance of an
underlying asset, index or other economic benchmark.

      Even a small investment in derivative contracts can have a big impact on
the fund's interest rate or foreign currency exchange rate exposure. Therefore,
using derivatives can disproportionately increase losses and reduce
opportunities for gains when interest rates and currency exchange rates are
changing. The fund may not fully benefit from or may lose money on derivatives
if changes in their value do not correspond accurately to changes in the value
of the fund's holdings. The other parties to certain derivative contracts
present the same types of default risk as issuers of fixed income securities.
Derivatives can also make the fund less liquid and harder to value, especially
in declining markets.

      Closed-end investment company. The fund is a closed-end investment company
and its shares trade on the NYSE at a price that may be less than its net asset
value. 

      Certain provisions in the fund's governing documents may limit the ability
of other entities to acquire control of the fund. This could deprive
shareholders of the opportunity to sell their shares at a premium over
prevailing market prices.

      See "Risk Factors and Special Considerations" and "Description of Shares."

      DIVIDENDS AND DISTRIBUTIONS Any dividends from net investment income
(income other than net realized capital gains) are paid monthly and any
distributions of net realized capital gains are paid annually. Your dividends or
distributions are reinvested in additional fund shares through participation in
the dividend reinvestment plan, unless you elect to receive cash. The number of
shares 


                                                                               5
<PAGE>

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Prospectus Summary (continued)
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issued to you by the plan depends on the price of the shares. The price of the
shares and the number of dividend shares received is determined by the market
price. For example:

      Market Price of Fund Shares     Price of Fund Shares Issued by Plan

      Greater than or equal to        Shares issued at net asset value or 95%
      net asset value                 of market price, whichever is greater

      Less than net asset value       Market price

      See "Dividends and Distributions" and "Dividend Reinvestment Plan."

      CUSTODIAN PNC Bank, National Association (PNC Bank) is the fund's
custodian. See "Custodian and Transfer Agent."

      TRANSFER AGENT, DIVIDEND-PAYING AGENT, REGISTRAR AND PLAN AGENT First Data
Investor Services Group, Inc. (First Data) is the fund's transfer agent,
dividend-paying agent and registrar. See "Custodian and Transfer Agent."

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Fund Expenses
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      The following table shows the costs the fund pays. As a shareholder, you
indirectly bear these expenses:

--------------------------------------------------------------------------------
Annual Expenses
      (as a percentage of net assets)
      Management fees                                                      1.15%
      Other expenses                                                       0.03%
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Total Annual Fund Operating Expenses                                       1.18%
================================================================================

      EXAMPLE The following example is intended to help you in understanding the
costs that you will bear directly or indirectly as a shareholder in the fund.
Your actual costs may be higher or lower.

      The example assumes:

      o     you invest $1,000 in the fund for the time periods indicated;

      o     your investment has a 5% return each year; and

      o     the fund's operating expenses remain the same as shown in the table
            above.

                        Year       One          Three         Five           Ten
--------------------------------------------------------------------------------
Operating Expenses                 $12           $37          $65           $143
--------------------------------------------------------------------------------

      This example should not be considered a representation of past or future
expenses or performance. For a more complete description of these costs and
expenses, see "Management of the Fund."


6
<PAGE>

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Financial Highlights
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      The following information for the four-year period ended September 30,
1998 and for the period from October 22, 1993 (commencement of operations) to
September 30, 1994 has been audited in conjunction with the annual audit of the
financial statements of the fund by KPMG LLP, independent auditors. The 1998
financial statements and the independent auditors' report thereon appear in the
September 30, 1998 Annual Report to Shareholders. The following information
should be read in conjunction with the financial statements and related notes
that also appear in the fund's Annual Report, which is incorporated by reference
in this prospectus.

For a share of capital stock outstanding throughout each year:

<TABLE>
<CAPTION>
                                            1998         1997         1996        1995         1994(1)(2)
---------------------------------------------------------------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>          <C>   
Net Asset Value, Beginning of Year         $12.43       $11.72       $11.48       $11.20       $12.50
---------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income                        1.08         1.15         1.14         1.14         1.01*
Net realized and unrealized gain (loss)     (1.14)        0.68         0.22         0.28        (1.30)
---------------------------------------------------------------------------------------------------------
Total Income (Loss) from Operations         (0.06)        1.83         1.36         1.42        (0.29)
---------------------------------------------------------------------------------------------------------
Less Distributions From:
  Net investment income                     (1.13)       (1.12)       (1.12)       (1.12)       (1.01)
  Capital                                      --           --           --        (0.02)          --
---------------------------------------------------------------------------------------------------------
  Total Distributions                       (1.13)       (1.12)       (1.12)       (1.14)       (1.01)
---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year               $11.24       $12.43       $11.72       $11.48       $11.20
---------------------------------------------------------------------------------------------------------
Total Return Based on Market Value**        (1.65)%      18.18%       21.07%        9.90%       (7.33)%++
---------------------------------------------------------------------------------------------------------
Total Return Based on Net Asset Value**     (0.58)%      16.48%       12.86%       13.99%       (2.31)%++
---------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions)           $810         $883         $819         $802         $783
---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses                                   1.18%        1.21%        1.21%        1.20%        1.15%+*
  Net investment income                      8.81%        9.63%        9.85        10.02         9.09%+
---------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                        98%          87%          73%          59%          69%
---------------------------------------------------------------------------------------------------------
Market Value, End of Year                 $11.125      $12.438      $11.500      $10.500      $10.625
=========================================================================================================
</TABLE>

(1) For the period from October 22, 1993 (commencement of operations) to
    September 30, 1994.
(2) Based on weighted average shares outstanding for period.
*   The manager waived a part of its fee for the period ended September 30,
    1994. If such fees were not waived, the per share decrease in net
    investment income would have been $0.01 and the ratio of expenses to
    average net assets would have been 1.21% (annualized).
**  The total return calculation assumes that dividends are reinvested in
    accordance with the fund's dividend reinvestment plan.
++  Total return is not annualized as it may not be representative of the
    total return for the year.
+   Annualized.


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<PAGE>

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The Fund
--------------------------------------------------------------------------------

      The fund is a diversified, closed-end management investment company. The
fund was incorporated under the laws of the State of Maryland on July 30, 1993
and is registered under the Investment Company Act of 1940, as amended (the 1940
Act). The fund's principal office is located at 388 Greenwich Street, New York,
New York 10013 and its telephone number is (800) 331-1710.

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The Offering
--------------------------------------------------------------------------------

      The fund's common stock, which is the only class of shares that the fund
has issued, is listed for trading on the NYSE. In addition, Salomon Smith Barney
currently intends to make a market in the shares. This prospectus is to be used
by Salomon Smith Barney in connection with offers and sales of the shares in
market-making transactions in the over-the-counter market at negotiated prices
related to prevailing market prices at the time of the sale. Salomon Smith
Barney is not required to make a market in the common stock and may stop doing
so at any time. You should not rely on Salomon Smith Barney's market making
activities to provide an active or liquid trading market for the shares.

--------------------------------------------------------------------------------
Use of Proceeds
--------------------------------------------------------------------------------

      The fund will not receive any proceeds from the sale of any common stock
offered pursuant to this prospectus. Proceeds received by Salomon Smith Barney
as a result of its market-making will be used by Salomon Smith Barney in
connection with its secondary market operations and for general corporate
purposes.

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Investment Objectives and Policies
--------------------------------------------------------------------------------

      Set out below is a general description of the investment objectives and
principal investment policies of the fund. The fund may not be able to achieve
its investment objectives. See "Investment Objectives and Policies" and
"Investment Restrictions" in the SAI.

      GENERAL

      The fund's primary investment objective is high current income, with
capital appreciation as a secondary objective. The fund seeks to achieve its
investment objectives by investing, under normal circumstances, at least 65% of
assets in high-yielding corporate debt obligations and preferred stock. Under
current market conditions, the fund's average dollar weighted portfolio maturity
is between 5 and 


8
<PAGE>

--------------------------------------------------------------------------------
Investment Objectives and Policies (continued)
--------------------------------------------------------------------------------

10 years. The fund may, however, invest in individual fixed income securities of
any maturity. The manager may adjust the fund's average maturity when, based on
interest rate trends and other market conditions, it deems it appropriate to do
so. The fund may invest up to 35% of assets in common stocks and common stock
equivalents, including options, warrants and rights. Equity investments may be
made in securities of companies of any size depending on the relative
attractiveness of the company and the economic sector in which it operates.

      The fixed income securities purchased by the fund are generally below
investment grade. This means they are rated lower than in the four highest
rating categories (BB or below) by a nationally recognized statistical ratings
organization (NRSRO), or are of comparable quality in the manager's opinion. The
fund's securities may be rated as low as C by Moody's Investors Service, Inc.
(Moody's) or D by Standard & Poor's Ratings Group (S&P). The fund may not
purchase additional fixed income securities rated lower than B by more than one
NRSRO if more than 10% of assets are invested in such securities. Please see
Appendix A for further information about NRSRO ratings.

      Notwithstanding the foregoing, the fund may invest any amount of assets in
investment grade securities when the difference in yields between those
securities and lower-rated securities is relatively narrow. In addition, the
fund may invest in investment grade securities for temporary defensive purposes.
Investments in investment grade securities may serve to lessen a decline in net
asset value but may also affect the amount of current income produced by the
fund, since the yields from such securities are usually lower than those from
lower-rated securities. The fund may also invest without limitation in money
market instruments, including commercial paper of domestic and foreign
corporations, certificates of deposit, bankers' acceptances and other
obligations of banks, repurchase agreements and short-term obligations issued or
guaranteed by the United States government or its agencies. The yield on these
securities will generally be lower than the yield on other securities purchased
by the fund.

      The fund invests primarily in securities of U.S. and foreign companies and
governments that are denominated in U.S. dollars. The fund may, however, invest
up to 20% of assets in the securities of foreign companies and governments that
are denominated in foreign currencies. In order to mitigate the effects of
uncertainty in currency exchange rates affecting the fund's non-U.S. dollar
investments, the fund may engage in various currency-related hedging
transactions, such as currency exchange transactions and currency futures
contracts and related options and purchase options on foreign currencies.

      The fund may lend its portfolio securities and purchase or sell securities
on a when-issued or delayed-delivery basis. The fund does not intend to leverage
its investments although it reserves the right to do so. The fund may hedge
against 


                                                                               9
<PAGE>

--------------------------------------------------------------------------------
Investment Objectives and Policies (continued)
--------------------------------------------------------------------------------

possible declines in the value of its investments by entering into interest rate
futures contracts and related options, swaps and other financial instruments.

      A more detailed description of the fund's investment practices is set
forth below under "Investment Practices," and more detail about the fund's
investment policies, restrictions and techniques is included in the SAI.
   
      Year 2000. The investment management and administrative services provided
to the fund by MMC depend on the smooth functioning of its computer systems.
Many computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the fund's
operations, including the handling of securities trades, pricing and account
services. MMC has advised the fund that it has been reviewing all of its
computer systems and actively working on necessary changes to its systems to
prepare for the year 2000 and that it expects that its systems will be compliant
before that date. In addition, MMC has been advised by the fund's custodian,
transfer agent, and accounting service agent that they are also in the process
of modifying their systems with the same goal. There can, however, be no
assurance that MMC or any other service provider will be successful, or that
interaction with other non-complying computer systems will not impair fund
services at that time.
    
      In addition, the ability of issuers to make timely payments of interest
and principal or to continue their operations or services may be impaired by the
inadequate preparation of their computer systems for the year 2000. This may
adversely affect the market values of securities of specific issuers or of
securities generally if the inadequacy of preparation is perceived as widespread
or as affecting trading markets.

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Risk Factors and Special Considerations
--------------------------------------------------------------------------------

      There are various risks associated with an investment in the fund. You
should consider whether the fund is an appropriate investment for you. The fund
invests primarily in lower-rated securities. An investment in these securities
has speculative characteristics and involves a substantial risk of loss.
Circumstances or events that affect the value of fixed income securities in
general and lower-rated securities in particular will affect the fund's net
asset value. While certain risks are discussed elsewhere in this prospectus, the
following is intended to provide a summary of the principal risks involved in an
investment in the fund:


10
<PAGE>

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Risk Factors and Special Considerations (continued)
--------------------------------------------------------------------------------

The issuer of a lower-rated security may default on its obligation to pay

      o At the time of the fund's investment, the issuer of a lower-rated
security may be in default on its obligations to pay interest and principal or
it may subsequently default on its payment obligations. If an issuer does not
make timely payments, the fund would not receive the anticipated income from the
investment and the fund's investment would decline in value. This would decrease
the fund's net asset value.

      o The risk of default is greater for lower-rated securities than for
investment grade securities. Issuers of lower-rated securities are often highly
leveraged and may not have more traditional methods of financing available.
These issuers may be unable to make principal and interest payment obligations
during an economic downturn or during sustained periods of rising interest
rates. The issuer's payment obligations on these lower-rated securities may also
rank lower than its payment obligations on other debt obligations.

      o Even if the issuer does not actually default, adverse changes in the
issuer's financial condition may negatively affect its credit rating or presumed
creditworthiness. The market value of lower-rated securities is more sensitive
to changes in the issuer's financial condition and changes in economic
conditions than is the market value of investment grade securities.

      o The fund may invest up to 10% of assets in securities rated lower than B
by more than one NRSRO. These securities generally lack characteristics of
desirable investments, they may already be in default, and the chance that the
fund would collect principal and interest payments on these securities is
speculative. See Appendix A for a description of certain NRSRO ratings.

The issuer of a lower-rated security declares bankruptcy

      o The issuer of a lower-rated security might declare or be in bankruptcy
and the fund could experience loss or delays collecting interest and principal.
To enforce its rights to collect principal and interest payments, the fund might
be required to incur additional expenses which would reduce its net asset value.
The fund may lose some or all of its investment in lower-rated securities upon
default or bankruptcy because these securities are generally not secured by
collateral.

Less liquid markets for lower-rated securities

      o The market for lower-rated securities may be less liquid than for
investment grade securities. There may be no established trading markets for
certain lower-rated securities. If markets are less liquid, the fund may have
difficulty buying and selling these securities when the manager desires to do so
or to sell securities at a fair price. Further, the ability of the manager to
value lower-rated securities may be more difficult and the manager's judgment
may play a greater role in their valuation.


                                                                              11
<PAGE>

--------------------------------------------------------------------------------
Risk Factors and Special Considerations (continued)
--------------------------------------------------------------------------------

      o Less liquid markets tend to be more volatile and react more negatively
to adverse publicity and investor perception than more liquid markets.

Interest rate sensitivity

      o Fixed-income securities, including lower-rated securities, are sensitive
to changes in interest rates. Generally, when interest rates are rising, the
value of the fund's fixed-income securities can be expected to decrease. When
interest rates are declining, the value of the fund's fixed-income securities
can be expected to increase.

Call or prepayment risk

      o Fixed-income securities, including lower-rated securities, frequently
permit their issuers to prepay, call or repurchase the securities from their
holders, such as the fund. As a result of declining interest rates, the issuer
of a fixed income security may exercise its prepayment, call or repurchase right
on the security, forcing the fund to replace the security with a lower yielding
security. This would decrease the return to the fund.

      o If the fund purchased a fixed-income security at a premium, it would
experience a loss of that premium in the event that the issuer of that security
exercises its prepayment, call or repurchase right.

Foreign securities

      o There are additional risks associated with investing in securities of
foreign companies and governments compared to investing in U.S. issuers. These
risks include:

            o     Less information may be available about foreign companies and
                  markets due to relaxed disclosure or accounting standards or
                  regulatory practices.

            o     Many foreign markets are smaller, less liquid and more
                  volatile than U.S. markets. As a result, the manager may not
                  be able to sell the fund's securities in amounts and at prices
                  it considers reasonable.

            o     The U.S. dollar appreciates against foreign currencies causing
                  the value of the fund's foreign securities to be worth less.

            o     Economic, political or social instability in foreign countries
                  disrupts the markets where the fund's foreign securities are
                  traded.
   
            o     Potential expropriations, confiscatory taxation or currency
                  control measures.

            o     Potential reduction in value of foreign currencies relative to
                  the U.S. dollar.
    
      o These risks are greater to the extent that the fund invests in
securities of issuers located in emerging market countries.


12
<PAGE>

--------------------------------------------------------------------------------
Risk Factors and Special Considerations (continued)
--------------------------------------------------------------------------------

Equity securities

      o The equity securities in the fund's portfolio may decline in value if:

            o     The stock market goes down.

            o     Companies in which the fund invests suffer unexpected losses
                  or lower than expected earnings.

            o     The manager's judgments about the attractiveness, value or
                  potential appreciation of a particular company's stock
                  selected for the fund's portfolio prove to be wrong.

Financial Futures and Options

      The fund may use financial futures contracts and options on these
contracts to protect the fund from a decline in the price of securities it owns
or an increase in the price of a security it plans to buy. There are risks
associated with futures and options transactions.

      o Because there is imperfect correlation between the fund's securities
that are hedged and the futures or options contract, the hedge may not be fully
effective. Losses on the fund's security may be greater than gains on the
futures or options contract, or losses on the futures or options contract may be
greater than gains on the securities subject to the hedge.

      o To compensate for imperfect correlation, the fund may over-hedge or
under-hedge by entering into a futures contract or an option on a futures
contract in dollar amounts greater or lesser than the dollar amounts of the
securities being hedged. If market movements are not as anticipated, the fund
could lose money from these positions.

      o If the fund hedges against an increase in interest rates, and rates
decline instead, the fund will lose all or part of the benefit of the increase
in value of the securities it hedged because it will have offsetting losses in
its futures or options positions. Also, in order to meet margin requirements,
the fund may have to sell securities at a time it would not normally choose.

--------------------------------------------------------------------------------
Investment Practices
--------------------------------------------------------------------------------

      In connection with the investment objectives and policies described above,
the fund may, but is not required to, utilize various investment techniques in
an attempt to earn income, facilitate portfolio management and mitigate risk.
These investment techniques include convertible securities, interest rate and
currency futures contracts, put and call options on such futures contracts,
currency exchange transactions, illiquid securities, securities of unseasoned
issuers and securities of foreign governments and corporations including those
of developing countries. 


                                                                              13
<PAGE>

--------------------------------------------------------------------------------
Investment Practices (continued)
--------------------------------------------------------------------------------

Such techniques are generally accepted by modern portfolio managers and are
regularly utilized by many investment companies and other institutional
investors. These investment practices entail risks. Although the manager
believes that these investment techniques may assist the fund in achieving its
investment objectives, in any instance it is possible that the fund would
perform better if the technique were not used. Any or all of the investment
techniques available to the manager described below may be used at any time and
there is no particular strategy that dictates the use of one technique rather
than another, since the use of any investment technique is a function of
numerous variables including market conditions. See the fund's SAI for more
information regarding the fund's investment practices.

      Convertible Securities and Synthetic 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 shares of common stock,
and "synthetic" convertible securities which are comprised of separate
components which together are designed to have similar attributes. Convertible
securities have 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 is sensitive to interest rates as
described above under "Risk Factors and Special Considerations." 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.

      Futures Contracts and Options on Futures Contracts. The fund may enter
into interest rate and currency futures contracts and may purchase and sell put
and call options on such futures contracts. The fund will enter into such
transactions for hedging purposes or for other appropriate risk-management
purposes permitted under the rules and regulations of the Commodity Futures
Trading Commission and the SEC.

      While the fund may enter into futures contracts and options on futures
contracts for bona fide hedging and other appropriate risk management purposes,
the use of futures contracts and options on futures contracts might result in a
poorer overall performance for the fund than if it had not engaged in these
particular types of transactions. If, for example, the fund had insufficient
cash, it may have to sell a portion of its underlying portfolio of securities in
order to meet daily variation margin requirements on its futures contracts or
options on futures contracts at a time when it may be disadvantageous to do so.
There may be an imperfect correlation between the fund's portfolio holdings and
futures contracts or options on futures contracts entered into by the fund,
which may prevent the fund from achieving the intended hedge or expose the fund
to risk of loss. Further, the fund's use of futures contracts and options on
futures contracts to reduce risk involves cost 


14
<PAGE>

--------------------------------------------------------------------------------
Investment Practices (continued)
--------------------------------------------------------------------------------

and will be subject to the manager's ability to predict correctly changes in
interest rate relationships, currency exchange rates or other factors. No
assurance can be given that the manager's judgment in this respect will be
correct.

      Currency Exchange Transactions. The fund may engage in currency exchange
transactions and purchase exchange-traded put and call options on foreign
currencies. A forward currency contract involves an obligation to purchase or
sell a specific currency for an agreed-upon price at an agreed-upon date, which
may be any fixed number of days from the date of the contract agreed upon by the
parties. Although these contracts are intended to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they tend to
limit any potential gain that might result should the value of the currency
increase.

      At or before the maturity of a forward contract, the fund may sell a
portfolio security and make delivery of the currency. Alternatively, the fund
may retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which the fund will obtain,
on the same maturity date, the same amount of the currency which it is obligated
to deliver. If the 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 that movement has occurred
in forward contract prices. Should forward prices decline during the period
between the 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 that it has agreed to sell exceeds the price of the currency that it
has agreed to purchase. Should forward prices increase, the fund will suffer a
loss to the extent that the price of the currency that it has agreed to purchase
exceeds the price of the currency that it has agreed to sell.

      The cost to the Fund of engaging in currency transactions varies with the
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing.

      Options on Foreign Currencies. The fund may purchase options on a foreign
currency in which securities held by the fund are denominated to protect against
a decline in the value of the currency in relation to the currency in which the
exercise price is denominated. The benefit to the fund derived from purchasing
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 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. Options on foreign currencies purchased by
the fund may be traded on domestic and foreign exchanges or traded
over-the-counter.


                                                                              15
<PAGE>

--------------------------------------------------------------------------------
Investment Practices (continued)
--------------------------------------------------------------------------------

      When-Issued and Delayed-Delivery Securities. The fund may purchase
securities on a when-issued basis, or may purchase or sell securities for
delayed delivery. In when-issued or delayed-delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but no payment or
delivery will be made by the fund prior to the actual delivery or payment by the
other party to the transaction. The value of securities purchased on a
when-issued or delayed-delivery basis may decrease prior to their delivery to
the fund. Purchasing securities on a when-issued or delayed-delivery basis can
involve the additional risk that the yield available in the market when the
delivery takes place may be higher than that obtained in the transaction itself.

      Lending Securities. The fund is authorized to lend securities it holds to
brokers, dealers and other financial organizations, but it will not lend
securities to any affiliate of the manager, including Salomon Smith Barney,
unless the fund applies for and receives specific authority to do so from the
SEC.

      Short Sales Against the Box. The fund may make short sales of securities
in order to reduce market exposure and/or to increase its income. At all times
when a short position is open, the fund will own an equal or greater amount of
such securities or own preferred stock, debt or warrants convertible or
exchangeable into an equal or greater number of the shares of the securities
sold short. Short sales of this kind are referred to as short sales "against the
box."

      Non-Publicly Traded and Illiquid Securities. The fund may purchase
illiquid and restricted securities, but the fund will not invest more than 15%
of the Fund's net assets in illiquid securities. A sale of such securities by
the fund may force the fund to receive less than the amount at which the fund
has valued them, or the fund may not be able to liquidate them at the time the
manager believes it desirable to do so. Certain securities that are restricted
as to resale but which may otherwise be determined to be liquid (such as those
that are eligible for sale only to qualified institutional buyers) are not
covered by the 15% limitation. Determinations of which securities are illiquid
are made by, or under the oversight of, the fund's Board of Directors (Board).

      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, the issuers of certain securities may
lack a significant operating history and be dependent on products or services
without an established market share.

      Securities of Developing Countries. A developing country is generally
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 


16
<PAGE>

--------------------------------------------------------------------------------
Investment Practices (continued)
--------------------------------------------------------------------------------

have been more volatile and have provided higher returns than the markets of the
more mature economies of developed countries.
   
      Corporate Loans, Loan Participations and Assignments. The fund may invest
up to 15% of assets in corporate loans, loan participations (Participations) and
assignments. Corporate loans are negotiated and underwritten by a bank or
syndicate of banks and other institutional investors. These loans may be
collateralized or uncollateralized. The loans tend to have a senior position in
the borrower's capital structure, and tend to have variable or adjustable
interest rates.
    
      By purchasing a Participation, the fund acquires some or all of the
interest of a bank or other institution in a loan. The Participations typically
will result in the fund having a contractual relationship only with the lender,
and not the borrower. The fund will have the right to receive payments of
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 payments from
the borrower. In connection with purchasing Participations, the fund generally
will have no right to enforce compliance by the borrower with the terms of the
loan agreement, nor any rights of set-off against the borrower, and the fund may
not directly benefit from any collateral supporting the loan in which it has
purchased the Participation. As a result, the fund will assume the credit risk
of both the borrower and the lender that is selling the Participation. In the
event of the insolvency of the lender selling a Participation, the fund may be
treated as a general creditor of the lender and may not benefit from any set-off
between the lender and the borrower. The fund will acquire Participations only
if the lender inter-positioned between the fund and the borrower is determined
by management to be creditworthy.
   
      The fund may also invest in assignments of portions of loans from third
parties. When it purchases Assignments from lenders, the fund 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 fund as the purchaser of an
Assignment may differ from, and be more limited than, those held by the assigned
lender.
    
      The fund may have difficulty disposing of Assignments and Participations.
The liquidity of such securities is limited and the fund anticipates that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on the fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Portfolio's liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the borrower. The fund's policy limiting its illiquid
investments will be applicable to corporate loans, Participations and
Assignments that are illiquid.


                                                                              17
<PAGE>

--------------------------------------------------------------------------------
Investment Practices (continued)
--------------------------------------------------------------------------------
   
      Mortgage-Backed Securities. The fund may invest in mortgage-backed
securities. These are securities that represent interests in pools of mortgage
loans assembled for sale to investors by various governmental agencies and
government-related organizations, as well as by private issuers such as
commercial banks, savings and loan institutions, mortgage bankers and private
mortgage insurance companies. Generally, mortgage-backed 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. Mortgage-backed securities vary from
traditional fixed-income securities because of the potential for prepayment on
the underlying mortgages, which results in a return of principal to the fund at
a time when interest rates are declining. The fund may invest in collateralized
mortgage obligations, which 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. To the extent that the fund purchases mortgage-related securities
at a premium, mortgage foreclosures and prepayments of principal may result in
some loss of the fund's principal investment to the extent of the premium paid.
    
      Other Asset-Backed Securities. The fund may invest in asset-backed
securities arising 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. As is the case with mortgage-backed
securities, falling interest rates generally result in an increase in the rate
of prepayments on the underlying instruments.

--------------------------------------------------------------------------------
Share Price Data
--------------------------------------------------------------------------------

      The fund's common stock is listed on the NYSE under the symbol "HIO." In
addition, Salomon Smith Barney intends to buy and sell the fund's shares in
order to make a market in the shares.

      The following table sets forth for the fund's common stock information for
each quarterly period during the last two fiscal years: high and low sales
prices and net asset values; sales price and net asset value at quarter-end; and
the premium (discount) of the sales price to net asset value at quarter-end.


18
<PAGE>

--------------------------------------------------------------------------------
Share Price Data (continued)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                   NYSE
                      NYSE          NAV        Price at      NAV at
                      Price         Price       Quarter-    Quarter-   Premium
Three Months Ended    Range         Range        End         End     (Discount)
==============================================================================================
<S>                  <C>            <C>             <C>         <C>          <C>    
   
12/31/98         $11.25-10.00     $11.38-10.72    $10.44       $11.26       (7.30)%
 9/30/98          12.00-10.13      12.28-11.13     11.13       11.24        (.98)
 6/30/98          12.31-11.50      12.39-12.16     11.94       12.18       (1.97)
 3/31/98          12.75-11.75      12.41-12.24     11.88       12.32       (3.57)
----------------------------------------------------------------------------------------------
12/31/97          12.63-11.44      12.57-12.24     12.50       12.24        2.12
 9/30/97          12.50-12.06      12.43-12.01     12.44       12.43        (.08)
 6/30/97          12.25-11.50      12.20-11.61     12.06       12.10        (.33)
 3/31/97          12.00-11.38      12.12-11.74     11.75       11.74         .09
12/31/96          11.63-11.13      11.92-11.49     11.50       11.92       (3.52)
==============================================================================================

</TABLE>

      As of January 15, 1999, the price per share of common stock as quoted on
the NYSE was $10.38, representing a 8.02% premium from the common stock's net
asset value calculated on that day.
    
--------------------------------------------------------------------------------
Taxation
--------------------------------------------------------------------------------

      The following is a summary of the material federal tax considerations
affecting the fund and its shareholders; see the SAI for a further discussion.
In addition to the considerations described below and in the SAI, which are
applicable to any investment in the fund, there may be other federal, state,
local or foreign tax considerations applicable to particular investors. You are
therefore urged to consult your tax adviser about your particular circumstances
and the tax consequences to them of an investment in the Fund.

TAXATION OF THE FUND

      The fund intends to qualify and be treated each year as a regulated
investment company for federal income tax purposes. In order to so qualify, the
fund must satisfy certain tests regarding the nature and distribution of its
income and the diversification of assets. If the fund qualifies as a related
investment company and distributes to its shareholders at least 90% of the sum
of its net investment income and any excess of its net short-term capital gain
over its net long-term capital loss, then the fund will not be subject to
federal income tax on the income and gain so distributed. However, the fund
would be subject to corporate income tax on any undistributed income and net
short-term and long-term capital gains. In addition, the fund will be subject to
a nondeductible 4% federal excise tax on the amount by which the net income and
capital gains it distributes in any calendar year is less than a required
amount.

      The fund may acquire securities which do not pay interest currently, such
as zero coupon, pay-in-kind, or delayed interest securities. As the holder of
such a 


                                                                              19
<PAGE>

--------------------------------------------------------------------------------
Taxation (continued)
--------------------------------------------------------------------------------

security, the fund is required to include in taxable income an amount of deemed
interest known as original issue discount that accrues on the security for the
taxable year under federal tax law, even if the fund receives no payment on the
security during the year. Because the fund must distribute annually
substantially all of its investment company taxable income, including any
original issue discount, in order to qualify as a regulated investment company
and to avoid imposition of income tax and the 4% excise tax, the fund may be
required in a particular year to distribute dividends in an amount that is
greater than the total amount the fund actually receives in interest or other
distributions on the securities it owns. Those distributions will be made from
the fund's cash assets or from the proceeds of sales of portfolio securities, if
necessary. The fund may realize capital gains or losses from those sales, which
would increase or decrease the fund's investment company taxable income or net
capital gain.

      The fund may also acquire securities at a market discount. Market discount
is generally equal to (other than in the case of an obligation issued with
original issue discount) the excess of the stated redemption price of the
obligation over the purchase price at which it is acquired. Market discount is
treated as ordinary income, rather than as capital gain, when ultimately
recognized by the purchaser. The market discount rules may cause the fund to
recognize more ordinary income, and less capital gain, than would be the case if
the fund had acquired securities at a price equal to that at which the
securities had originally been issued.

      Foreign Taxes. Dividends and interest and, in some cases, capital gains on
foreign securities held by the fund may be subject to income, withholding or
other taxes imposed by foreign countries and U.S. possessions that would reduce
the yield on the fund's securities. Tax conventions between certain countries
and the United States may reduce or eliminate these taxes in some cases. The
fund does not expect to be eligible to pass through any such taxes to the fund's
shareholders. As a result, any such taxes imposed on the fund would not be
deductible or creditable by the fund's shareholders.

TAXATION OF SHAREHOLDERS

      Distributions. In general, all distributions to shareholders attributable
to the fund's net investment income and any excess of net short-term capital
gain over net short-term capital loss will be taxable as ordinary income whether
paid in cash or reinvested in additional shares of common stock pursuant to the
fund's dividend reinvestment plan.

      Although the fund does not expect to realize significant net capital gain
(the excess of net long-term capital gain over net short-term capital loss), to
the extent the fund does realize net capital gain, it intends to distribute such
gain at least annually and designate such a distribution as a capital gain
dividend. Capital gain dividends are taxable to the shareholder as long-term
capital gains, whether paid in 


20
<PAGE>

--------------------------------------------------------------------------------
Taxation (continued)
--------------------------------------------------------------------------------
   
cash or reinvested in additional shares of common stock, regardless of how long
the shareholder's shares have been held. The fund may elect to retain its net
capital gain and pay corporate income tax thereon. In such event, the fund would
most likely make an election which would require each shareholder of record on
the last day of the fund's taxable year to include in income for tax purposes as
long-term capital gains his proportionate share of the fund's undistributed net
capital gain. If such an election is made, each shareholder would be entitled to
credit his proportionate share of the tax paid by the fund against his federal
income tax liabilities and to claim refunds to the extent that the credit
exceeds such liabilities. In addition, the shareholder would be entitled to
increase the basis of his shares for federal income tax purposes by an amount
equal to the excess of his proportionate share of the undistributed net capital
gain over his proportionate share of the tax paid by the fund.
    
      Shareholders receiving distributions in the form of additional shares
purchased by First Data as purchasing agent pursuant to the fund's dividend
reinvestment plan will be treated for federal income tax purposes as receiving
the amount of cash received by First Data on their behalf. In general, the basis
of such shares will equal the price paid by First Data for such shares,
including brokerage commissions. With respect to distributions issued in shares
of the fund, the amount of the distribution for tax purposes is the fair market
value of the issued shares on the payment date, and the difference between such
fair market value and the amount of cash the shareholder would otherwise have
received may be treated as a return of capital. In the case of shares issued by
the fund, the shareholder's tax basis in each share received is its fair market
value on the payment date, adjusted by any amount treated as a return of capital
to the shareholder.

      Sales of Shares. In general, if a share of common stock is sold, the
seller will recognize gain or loss equal to the difference between the amount
realized on the sale and the seller's adjusted basis in the share. However, any
loss recognized by a shareholder on the sale of shares not held for more than
six months will be treated as long-term capital loss to the extent of any
capital gain dividends received by the shareholder and the shareholder's share
of undistributed net capital gain, in each case with respect to the shares sold.
In addition, any loss realized on a sale of shares of common stock generally
will be disallowed to the extent the shares disposed of are replaced with other
shares of the fund within a 61-day period beginning 30 days before and ending 30
days after the disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any gain or
loss realized upon a sale of shares (other than to the fund in connection with a
tender offer or otherwise) by a shareholder who is not a dealer in securities
will be treated as capital gain or loss.

      Backup Withholding. The fund may be required to withhold federal income
tax at the rate of 31% of any payments made to a stockholder if the stockholder


                                                                              21
<PAGE>

--------------------------------------------------------------------------------
Taxation (continued)
--------------------------------------------------------------------------------

has not provided a correct taxpayer identification number and certain required
certifications to the fund, or if the Secretary of the U.S. Treasury or a broker
notifies the fund that the number provided by a stockholder is not correct or
that the stockholder has not reported all interest and dividend income required
to be shown on the stockholder's federal income tax return or if a stockholder
is otherwise subject to backup withholding.

--------------------------------------------------------------------------------
Management of the Fund
--------------------------------------------------------------------------------

      BOARD OF DIRECTORS

      The business and affairs of the fund, including the general supervision of
the duties performed by the manager under the investment management agreement,
are the responsibility of the Board.

      INVESTMENT MANAGER
   
      MMC, located at 388 Greenwich Street, New York, New York 10013, serves as
the fund's investment manager. MMC was incorporated in 1968 and manages
investment companies with total assets in excess of $109 billion as of
December 31, 1998. MMC is a subsidiary of Citigroup Inc. Citigroup businesses
produce a broad range of financial services--asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading--and use diverse channels to make them available to consumer
and corporate customers around the world. Among these businesses are Citibank,
Commercial Credit, Primerica Financial Services, Salomon Smith Barney, SSBC
Asset Management, Travelers Life & Annuity, and Travelers Property Casualty.
    
      Subject to the supervision and direction of the Board, MMC manages the
securities held by the fund in accordance with the fund's stated investment
objectives and policies, makes investment decisions for the fund, places orders
to purchase and sell securities on behalf of the fund and employs managers and
securities analysts who provide research services to the fund. MMC also serves
as the fund's administrator and as such manages all aspects of the
administration and operations of the fund. The fund pays the manager a fee for
the services provided to the fund that is computed daily and paid monthly at the
annual rate of 1.15% of the value of the fund's average daily net assets.

      Mr. John C. Bianchi, a managing director of Salomon Smith Barney, has been
responsible for the day-to-day management of the fund's portfolio within the
investment framework described above since the fund's inception and has more
than 15 years of investment advisory experience. He joined MMC in 1985.

      Transactions in fixed income securities on behalf of the fund are
allocated to various dealers by the manager in its best judgment. The primary
consideration is 


22
<PAGE>

--------------------------------------------------------------------------------
Management of the Fund (continued)
--------------------------------------------------------------------------------
   
prompt and effective execution of orders at the most favorable price. Subject to
that primary consideration, dealers may be selected for their research,
statistical or other services to enable the manager to supplement its own
research and analysis with the views and information of other securities firms.
The fund may use Salomon Smith Barney in connection with the purchase or sale of
securities when the manager believes that the broker's charge for the
transaction does not exceed usual and customary levels. The same standard
applies to the use of Salomon Smith Barney as a broker in connection with
entering into options and futures contracts. In its last fiscal year, the fund
made no investments in equity securities apart from its investments in fixed
income securities having equity characteristics and therefore paid no brokerage
commissions in the last fiscal year.
    
      Citigroup is a bank holding company subject to regulation under the Bank
Holding Company Act of 1956 (the "BHCA"), the requirements of the Glass-Steagall
Act and certain other laws and regulations.

      Salomon Smith Barney and the manager believe that the manager's investment
management and administration services and the market-making activities
performed by Salomon Smith Barney are not underwriting and are consistent with
the BHCA, the Glass-Steagall Act and other federal and state laws applicable to
Citigroup. However, there is a little controlling precedent regarding the
performance of the combination of investment advisory and administrative
activities by subsidiaries of bank holding companies. If Salomon Smith Barney
and MMC, or their affiliates, were to be prevented from acting as the manager or
administrator, the fund would seek alternative means for obtaining these
services. The fund does not expect that shareholders would suffer any adverse
financial consequences as a result of any such occurrence.

--------------------------------------------------------------------------------
Dividends and Distributions
--------------------------------------------------------------------------------

      The fund expects to pay monthly dividends of net investment income (income
other than net realized gains) to the holders of the common stock. Under the
fund's current policy, which may be changed at any time by the Board, the fund's
monthly dividends will be paid at a level that reflects the past and projected
performance of the fund, which policy over time will result in the distribution
of all net investment income of the fund. Net income of the fund consists of all
interest income accrued on the fund's assets less all expenses of the fund.
Expenses of the fund are accrued each day. Net realized capital gains, if any,
will be distributed to the stockholders at least once per year.


                                                                              23
<PAGE>

--------------------------------------------------------------------------------
Dividend Reinvestment Plan
--------------------------------------------------------------------------------

      All dividends or distributions with respect to shares of common stock are
reinvested automatically in additional shares through participation in the
fund's Dividend Reinvestment Plan (plan), unless a shareholder elects to receive
cash.

      Under the plan, a shareholder whose shares of common stock are registered
in his own name will have all distributions from the fund reinvested
automatically by First Data as purchasing agent under the plan, unless the
shareholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker-dealer or other nominee (that is, in street
name) will be reinvested by the broker or nominee in additional shares under the
plan, unless the service is not provided by the broker or nominee or the
shareholder elects to receive distributions in cash. Investors who own common
stock registered in street name should consult their broker-dealers for details
regarding reinvestment. All distributions to fund shareholders who do not
participate in the plan will be paid by check mailed directly to the record
holder by or under the direction of First Data as dividend paying agent.

      The number of shares of common stock distributed to participants in the
plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price of the common stock is equal to or exceeds the net asset value
per share on the determination date (generally, the record date for the
distribution), plan participants will be issued shares of common stock by the
fund at a price equal to the greater of net asset value determined as described
below under "Net Asset Value" or 95% of the market price of the common stock.

      If the market price of the common stock is less than the net asset value
of the common stock at the time of valuation (which is the close of business on
the determination date), or if the fund declares a dividend or capital gains
distribution payable only in cash, First Data will buy common stock in the open
market, on the NYSE or elsewhere, for the participants' accounts. If, following
the commencement of the purchases and before First Data has completed its
purchases, the market price exceeds the net asset value of the common stock as
of the valuation time, First Data will attempt to terminate purchases in the
open market and cause the fund to issue the remaining portion of the dividend or
distribution by issuing shares at a price equal to the greater of (a) net asset
value as of the valuation time or (b) 95% of the then current market price. In
this case, the number of shares received by a plan participant will be based on
the weighted average of prices paid for shares purchased in the open market and
the price at which the fund issues the remaining shares. To the extent First
Data is unable to stop open market purchases and cause the fund to issue the
remaining shares, the average per share purchase price paid by First Data may
exceed the net asset value of the common stock as of the valuation time,
resulting in the acquisition of fewer shares than if the dividend or capital
gains distribution had been paid in common stock issued by the fund at such net
asset value. First Data will begin to purchase common stock on the open market
as soon as practicable 


24
<PAGE>

--------------------------------------------------------------------------------
Dividend Reinvestment Plan (continued)
--------------------------------------------------------------------------------

after the determination date for the dividend or capital gains distribution, but
in no event shall such purchases continue later than 30 days after the payment
date for such dividend or distribution, or the record date for a succeeding
dividend or distribution, except when necessary to comply with applicable
provisions of the federal securities laws.

      First Data maintains all shareholder accounts in the plan and furnishes
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common stock in the account of each plan participant will be held
by First Data in uncertificated form in the name of each plan participant.

      Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the plan. First Data's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
fund. No brokerage charges apply with respect to shares of common stock issued
directly by the fund under the plan. Each plan participant will, however, bear a
proportionate share of any brokerage commissions actually incurred with respect
to any open market purchases made under the plan.

      Experience under the plan may indicate that changes to it are desirable.
The fund reserves the right to amend or terminate the plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The plan also may be amended or
terminated by First Data, with the fund's prior written consent, on at least 30
days' written notice to plan participants. All correspondence concerning the
plan should be directed by mail to First Data Investor Services Group, P.O. Box
8030, Boston, Massachusetts 02266-8030 or by telephone at 1-800-331-1710.

--------------------------------------------------------------------------------
Net Asset Value
--------------------------------------------------------------------------------

      The net asset value of shares of the fund is calculated as of the close of
regular trading on the NYSE, currently 4:00 p.m., Eastern time, on the last day
of each week and month on which the NYSE is open for trading. The fund reserves
the right to cause its net asset value to be calculated on a less frequent basis
as determined by the fund's Board. For purposes of determining net asset value,
futures contracts and options on futures contracts will be valued 15 minutes
after the close of regular trading on the NYSE.
   
      Net asset value per share is calculated by dividing the value of the
fund's total assets less liabilities by the number of shares outstanding. In
general, the fund's 
    

                                                                              25
<PAGE>

--------------------------------------------------------------------------------
Net Asset Value (continued)
--------------------------------------------------------------------------------

investments will be valued at market value, or in the absence of market value,
at fair value as determined by or under the direction of the Board. Securities
traded primarily on foreign exchanges are generally valued at the preceding
closing values on the exchanges, except that when an occurence subsequent to the
time a value was so established is likely to have changed such value, then the
fair market value of those securities will be determined by consideration of
other factors by or under the direction of the Board. A security that is traded
primarily on an exchange is valued at the last sale price on that exchange or,
if there were no sales during the day, at the current quoted bid price.
Over-the-counter securities are valued on the basis of the bid price at the
close of business on each day. Investments in U.S. government securities (other
than short-term securities) are valued at the average of the quoted bid and
asked prices in the over-the-counter market. Short-term investments that mature
in 60 days or less are valued on the basis of amortized cost (which involves
valuing an investment at its cost and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the investment) when the Board
has determined that amortized cost is fair value.
   
      The valuation of the fund's assets is made by MMC after consultation with
an independent pricing service approved by the Board. See the SAI for further
details.
    
--------------------------------------------------------------------------------
Market Discount
--------------------------------------------------------------------------------
   
      Shares of closed-end investment companies frequently trade at a discount
from net asset value, or in some cases trade at a premium. Shares of closed-end
investment companies investing primarily in fixed-income securities tend to
trade on the basis of income yield on the market price of the shares and the
market price may also be affected by trading volume, general market conditions
and economic conditions and other factors beyond the control of the fund. As a
result, the market price of the fund's shares may be greater or less than the
net asset value. Since the commencement of the fund's operations, the fund's
shares have traded in the market at prices that were at times equal to, but
generally were below, net asset value.
    
      Some closed-end investment companies have taken certain actions, including
the repurchase of common stock in the market at market prices and the making of
one or more tender offers for common stock at net asset value, in an effort to
reduce or mitigate the discount, and others have converted to an open-end
investment company, the shares of which are redeemable at net asset value.

      The fund's Board has seen no reason to adopt any of the steps specified
above, which some other closed-end funds have used to address the discount. The
experience of many closed-end funds suggests that the effect of many of these
steps 


26
<PAGE>

--------------------------------------------------------------------------------
Market Discount (continued)
--------------------------------------------------------------------------------

(other than open-ending) on the discount may be temporary or insignificant.
Accordingly, there can be no assurance that any of these actions will be taken
or, if undertaken, will cause the fund's shares to trade at a price equal to
their net asset value. The manager may voluntarily waive its fees from time to
time in order to increase the fund's dividend yield in an effort to reduce the
discount. Any such waiver may be terminated at any time, and there can be no
assurance that such actions would be successful at reducing the discount.

--------------------------------------------------------------------------------
Description of Shares
--------------------------------------------------------------------------------

      The fund was incorporated under the laws of the State of Maryland on July
30, 1993 by the Articles of Incorporation (Articles of Incorporation). The
Articles of Incorporation authorize issuance of the fund's shares of common
stock.

COMMON STOCK
   
                                                                   Amount
                                                                 Outstanding
                                                             Exclusive of Shares
                                                            Held by Fund for Its
                                         Amount Held          Own Account as of
                     Amount            by Fund for Its           January 6,
Title of Class     Authorized            Own Account                1999
================================================================================
    Common         500,000,000
     Stock           Shares                   0                72,230,344.009
================================================================================
    
      No shares, other than those currently outstanding, are offered for sale
pursuant to this Prospectus. All shares of common stock have equal
non-cumulative voting rights and equal rights with respect to dividends, assets
and liquidation. Shares of common stock will be fully paid and non-assessable
when issued and have no preemptive, conversion or exchange rights.

ANTI-TAKEOVER PROVISIONS IN THE ARTICLES OF INCORPORATION

      The Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board, and could have the effect
of depriving shareholders of an opportunity to sell their shares of common stock
at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the fund. The Board is divided into three classes.
At the annual meeting of shareholders in each year, the term of one class
expires and each director elected to the class holds office for a term of three
years. The classification of the Board in this manner could delay for an
additional year the replacement of a majority of the directors. A director may
be removed from office only by vote of the holders of at least 75% of the shares
of common stock entitled to be voted on the matter. In addition, the Articles of
Incorporation require the affirmative vote of at least 75% 


                                                                              27
<PAGE>

--------------------------------------------------------------------------------
Description of Shares (continued)
--------------------------------------------------------------------------------
   
of the Board and shareholders to authorize certain fund transactions not in the
ordinary course of business (including a merger) unless certain conditions are
met which would have the result of reducing the number of directors and
shareholders necessary to approve such a transaction. See "Repurchase of Shares,
Conversion to Open-End Fund and Anti-Takeover Provisions" in the SAI.
    
      The Board has determined that the 75% voting requirements described above,
which are greater than the minimum requirements under Maryland law or the 1940
Act, are in the best interests of shareholders generally. Reference should be
made to the Articles of Incorporation, which are on file with the SEC, for the
full text of these provisions.

CONVERSION TO OPEN-END FUND

      The Articles of Incorporation require the favorable vote of the holders of
at least two-thirds of the shares of common stock then entitled to be voted on
the matter to authorize the conversion of the fund from a closed-end to an
open-end investment management company as defined in the 1940 Act, unless
two-thirds of certain members of the Board approve such a conversion. In the
latter case, the affirmative vote of a majority of the shares outstanding and
entitled to vote on the matter will be required to approve an amendment to the
Articles of Incorporation providing for the conversion of the fund to an
open-end investment company. Further detail about the fund's ability to convert
to open-end status is contained in the SAI.

--------------------------------------------------------------------------------
Custodian and Transfer Agent
--------------------------------------------------------------------------------

      PNC Bank, 17th and Chestnut Streets, Philadelphia, Pennsylvania 19103,
acts as custodian of the Fund's investments. First Data, located at Exchange
Place, Boston, Massachusetts 02109, serves as agent in connection with the Plan
and serves as the fund's transfer agent, dividend-paying agent and registrar.

--------------------------------------------------------------------------------
Other Information
--------------------------------------------------------------------------------

      The audited financial statements have been incorporated by reference in
the SAI in reliance upon the report of KPMG LLP (KPMG), independent auditors.
KPMG has been selected as the fund's independent auditors to examine and report
on the fund's financial statements and highlights for the fiscal year ending
September 30, 1999.

      The prospectus and the SAI do not contain all of the information set forth
in the registration statement that the fund has filed with the SEC. The complete


28
<PAGE>

--------------------------------------------------------------------------------
Other Information (continued)
--------------------------------------------------------------------------------

registration statement may be obtained from the SEC upon payment of the fee
prescribed by its rules and regulations.

      The table of contents of the SAI is as follows:
   
                                                                          Page
                                                                         -------
      Investment Objectives and Policies ..............................     2
      Investment Restrictions .........................................    10
      Net Asset Value .................................................    11
      Taxation ........................................................    12
      Officers and Directors ..........................................    15
      Portfolio Transactions ..........................................    18
      Management of the Fund ..........................................    19
      Repurchase of Shares, Conversion to Open-End Fund
        and Anti-Takeover Provisions ..................................    20
      Financial Statements ............................................    21
    

                                                                              29
<PAGE>

--------------------------------------------------------------------------------
Appendix A
--------------------------------------------------------------------------------

                                  NRSRO RATINGS

      The ratings of securities by NRSROs (such as Moody's and S&P) represent
the opinions of these organizations as to the quality of the securities. An
NRSRO rating is assigned at a given point in time, and it is possible that the
rating will not be changed in a timely manner to reflect changes affecting the
security. Ratings are relative and subjective, and are not absolute standards of
quality. Ratings evaluate only the default risk of a security and not the market
value risk of the security.

      The following description of Moody's and S&P ratings is provided as an
example of ratings categories for those NRSROs, for informational purposes only.

      DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

            Aaa -- Bonds that are rated Aaa are judged to be of the best
quality, carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments with respect to these bonds are protected
by a large or by an exceptionally stable margin, and principal is secure.
Although the various protective elements applicable to these bonds are likely to
change, those changes are most unlikely to impair the fundamentally strong
position of these bonds.

            Aa -- Bonds that are rated Aa are judged to be of high quality by
all standards and together with the Aaa group 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 other elements may be
present that make the long-term risks appear somewhat larger than in Aaa
securities.

            A -- Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest with respect to these bonds are
considered adequate, but elements may be present that suggest a susceptibility
to impairment sometime in the future.

            Baa -- Bonds rated Baa are considered to be medium grade
obligations; that is, they are neither highly protected nor poorly secured.
Interest payment 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. These bonds lack outstanding
investment characteristics and may have speculative characteristics as well.

            Ba -- Bonds that 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 safe-guarded 


                                                                             A-1
<PAGE>

--------------------------------------------------------------------------------
Appendix A (continued)
--------------------------------------------------------------------------------

during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

            B -- Bonds that 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.

            Ca -- Bonds that 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 that 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 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 ranking category.

      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.


A-2
<PAGE>

--------------------------------------------------------------------------------
Appendix A (continued)
--------------------------------------------------------------------------------

            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 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.


                                                                             A-3
<PAGE>

                                                            SALOMON SMITH BARNEY
                                                     ---------------------------
                                                     A member of citigroup[LOGO]

                                                     High       
                                                     Income
                                                     Opportunity
                                                     Fund Inc.
                                                     
                                                     388 Greenwich Street
                                                     New York, New York 10013

                                                     Common Stock

All dealers effecting transactions in the fund's securities, whether or not
participating in this distribution, may be required to give investors a
prospectus.

If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. This prospectus does not offer any
security other than the fund's shares of common stock. Neither the fund nor
Salomon Smith Barney is offering to sell shares of the fund to any person to
whom the fund may not lawfully sell its shares.

There may be changes in the fund's affairs that occur after the date of the
prospectus. The fund will publish a supplement to the prospectus if there are
any material changes in its business.




HIGH INCOME OPPORTUNITY FUND INC.
388 Greenwich Street
New York, New York 10013

STATEMENT OF ADDITIONAL INFORMATION

   
	High Income Opportunity Fund Inc. (fund) is a diversified, 
closed-end management investment company whose investment 
objective is to provide shareholders with high current income with 
capital appreciation.  This Statement of Additional Information 
(SAI) is not a prospectus, but should be read in conjunction with 
the Prospectus for the fund dated January 29, 1999 (Prospectus).  
This SAI does not include all information that a prospective 
investor should consider before purchasing the fund's shares of 
common stock (common stock), and investors should obtain and read 
the Prospectus prior to purchasing shares.  A copy of the 
Prospectus may be obtained without charge by calling (800) 331-
1710.  
    

TABLE OF CONTENTS

   
Page
Investment Objectives and Policies 	
 2
Investment Restrictions 	
10
Net Asset Value 	
11
Taxation 	
12
Officers and Directors 	
15
Portfolio Transactions 	
18
Management of the Fund 	
19
Repurchase of Shares, Conversion to Open-End Fund and Anti-Takeover 
Provisions	
20
Financial Statements	
21
    
	The Prospectus and this SAI omit certain of the information 
contained in the registration statement filed with the Securities 
and Exchange Commission, Washington, D.C. (SEC).  These items may 
be obtained from the SEC upon payment of the fee prescribed, or 
inspected at the SEC's office at no charge.



This Statement of Additional Information is dated January 29, 1999


INVESTMENT OBJECTIVES AND POLICIES

	Corporate Securities.  The fund may invest in corporate 
fixed-income securities of both domestic and foreign issuers, such 
as bonds, debentures, notes, equipment lease certificates, 
equipment trust certificates and preferred stock.  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.

	Money Market Instruments.  When Mutual Management Corp., 
formerly known as Smith Barney Mutual Funds Management Inc. (MMC 
or the Investment Manager) believes that economic circumstances 
warrant a temporary defensive posture, the fund may invest without 
limitation in short-term money market instruments.  The fund may 
also invest in money market instruments to help defray operating 
expenses, to serve as collateral in connection with certain 
investment techniques (see "Investment Practices" below) and to 
hold as a reserve pending the payment of dividends to investors.  
To the extent that the fund invests in short-term money market 
instruments it may not be pursuing its investment objectives.

	Money market instruments that the fund may acquire will be 
securities rated in the two highest short-term rating categories 
by Moody's Investors Service or Standard & Poor's Ratings Group or 
the equivalent from another major rating service or comparable 
unrated securities.  Money market instruments in which the fund 
typically expects to invest include:  U.S. government securities, 
bank obligations (including certificates of deposit, time deposits 
and bankers' acceptances of U.S. or foreign banks), commercial 
paper and repurchase agreements.

	The fund may enter into repurchase agreement transactions 
with certain member banks of the Federal Reserve System or with 
certain dealers listed on the Federal Reserve Bank of New York's 
list of reporting dealers.  A repurchase agreement is a contract 
under which the buyer of a security simultaneously commits to 
resell the security to the seller at an agreed-upon price on an 
agreed-upon date.  Under the terms of a typical repurchase 
agreement, the fund would acquire an underlying obligation for a 
relatively short period (usually not more than seven days) 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.  Under 
each repurchase agreement, the selling institution will be 
required to maintain the value of the securities subject to the 
repurchase agreement at not less than their repurchase price.  
Repurchase agreements could involve certain risks in the event of 
default or insolvency of the seller, including possible delays or 
restrictions on the fund's ability to dispose of the underlying 
securities.  In evaluating these potential risks, the Investment 
Manager, acting under the supervision of the fund's Board of 
Directors and on an ongoing basis, monitors (1) the value of the 
collateral underlying each repurchase agreement of the fund to 
ensure that the value is at least equal to the total amount of the 
repurchase obligation, including interest, and (2) the 
creditworthiness of the banks and dealers with which the fund 
enters into repurchase agreements.

	U.S. Government Securities.  The fund may invest in direct 
obligations of the United States and obligations issued by U.S. 
government agencies and instrumentalities (U.S. government 
securities).  Included among direct obligations of the United 
States are Treasury bills, Treasury notes and Treasury bonds, 
which differ principally in terms of their maturities.  Included 
among the securities issued by U.S. government agencies and 
instrumentalities are:  securities that are supported by the full 
faith and credit of the United States (such as Government National 
Mortgage Association certificates); securities that are supported 
by the right of the issuer to borrow from the U.S. Treasury (such 
as securities of Federal Home Loan Banks); and securities that are 
supported by the credit of the instrumentality (such as Federal 
National Mortgage Association and Federal Home Loan Mortgage 
Corporation bonds).  See "Mortgage-Baked Securities" under 
"Investment Practices," below.
   
	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.  Pay-in-kind 
securities pay interest through the issuance to the holders of 
additional securities, and delayed interest securities are 
securities which do not pay interest for a specified period.  
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.  Accordingly, 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 these securities do not make 
cash payments of interest on a current basis for all or some 
portion of their term, for tax purposes a portion of the 
difference between their maturity value (including deferred 
interest) and their purchase price (or in some cases other amounts 
treated as "original issue discount") is taxable income of the 
fund each year, subject to tax distribution requirements. 

	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 for some purposes.  Although under the terms of a 
custodial receipt the 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.
    
Investment Practices

	The fund may employ, among others, the investment techniques 
described below:

	Convertible Securities and Synthetic Convertible Securities. 
Convertible securities 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.

	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 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.  Investing in 
synthetic convertible securities involves the risk normally 
involved in holding the securities comprising the synthetic 
convertible security.

	Futures Contracts and Options on Futures Contracts.  An 
interest rate futures contract is a standardized contract for the 
future delivery of a specified security (such as a Treasury bond 
or Treasury note) or its equivalent at a future date at a price 
set at the time of the contract.  A currency futures contract is a 
standardized contract for the future delivery of a specified 
amount of currency at a future date at a price set at the time of 
the contract.  The fund may only enter into futures contracts 
traded on regulated commodity exchanges.

	The fund may either accept or make delivery of cash or the 
underlying instrument specified at the expiration of a futures 
contract or, prior to expiration, enter into a closing transaction 
involving the purchase or sale of an offsetting contract.  Closing 
transactions with respect to futures contracts are effected on the 
exchange on which the contract was entered into or on a linked 
exchange.

	The fund may purchase and write put and call options on 
futures contracts in order to hedge all or a portion of its 
investments and may enter into closing purchase transactions with 
respect to options written by the fund in order to terminate 
existing positions.  There is no guarantee that such closing 
transactions can be effected at any particular time or at all.  In 
addition, daily limits on price fluctuations on exchanges on which 
the fund conducts its futures and options transactions may prevent 
the prompt liquidation of positions at the optimal time, thus 
subjecting the fund to the potential of greater losses.

	An option on a futures contract, as contrasted with the 
direct investment in such a contract, gives the purchaser of the 
option the right, in return for the premium paid, to assume a 
position in a futures contract at a specified exercise price at 
any time on or before the expiration date of the option.  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 
accomplished 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 loss related to the purchase of an option on a futures 
contract is limited to the premium paid for the option, plus 
transaction costs.  With respect to options purchased by the fund, 
there are no daily cash payments made by the fund 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 the fund.

	While the fund may enter into futures contracts and options 
on futures contracts for bona fide hedging and other appropriate 
risk management purposes, the use of futures contracts and options 
on futures contracts might result in a poorer overall performance 
for the fund than if it had not engaged in any such transactions.  
If, for example, the fund had insufficient cash, it may have to 
sell a portion of its underlying portfolio of securities in order 
to meet daily variation margin requirements on its futures 
contracts or options on futures contracts at a time when it may be 
disadvantageous to do so.  There may be an imperfect correlation 
between the fund's portfolio holdings and futures contracts or 
options on futures contracts entered into by the fund, which may 
prevent the fund from achieving the intended hedge or expose the 
fund to risk of loss.  Further, the fund's use of futures 
contracts and options on futures contracts to reduce risk involves 
cost and will be subject to the Investment Manager's ability to 
predict correctly changes in interest rate relationships or other 
factors.  No assurance can be given that the Investment Manager's 
judgment in this respect will be correct.

	Foreign Securities. There are certain risks involved in 
investing in securities of companies and governments of foreign 
nations which are in addition to the usual risk inherent in 
domestic investments. Securities of many foreign issuers and their 
markets may be less liquid, and their prices more volatile, than 
those of securities of comparable domestic issuers.  In addition, 
with respect to certain foreign countries, there is the 
possibility of expropriation, nationalization, confiscatory 
taxation and limitations on the use or removal of funds or other 
assets of the fund, including the withholding of dividends.  
Foreign securities may be subject to foreign government taxes that 
could reduce the yield on such securities.  Because the fund will 
invest in securities denominated or quoted in currencies other 
than the U.S. dollar, changes in foreign currency exchange rates 
may adversely affect the value of portfolio securities and the 
appreciation or depreciation of investments.  Investments in 
foreign securities also may result in higher expenses due to the 
cost of converting foreign currency to U.S. dollars, the payment 
of fixed brokerage commissions on foreign exchanges, the expense 
of maintaining securities with foreign custodians and the 
imposition of transfer taxes or transaction charges associated 
with foreign exchanges.

	Additional risks include those resulting from devaluation of 
currencies, future adverse political and economic developments and 
the relative lack of public information concerning issuers and the 
lack of uniform accounting, auditing and financial reporting 
standards or other regulatory practices and requirements 
comparable to those applicable to domestic companies. 

	Currency Exchange Transactions.  In order to protect against 
uncertainty in the level of future exchange rates, the fund may 
engage in currency exchange transactions and purchase exchange-
traded put and call options on foreign currencies.  The fund will 
conduct its currency exchange transactions either on a spot (i.e., 
cash) basis at the rate prevailing in the currency exchange market 
or through entering into forward contracts to purchase or sell 
currencies.

	A forward currency contract involves an obligation to 
purchase or sell a specific currency for an agreed-upon price at 
an agreed-upon date, which may be any fixed number of days from 
the date of the contract agreed upon by the parties.  These 
contracts are entered into in the interbank market conducted 
directly between currency traders (usually large commercial banks) 
and their customers.  Although these contracts are intended to 
minimize the risk of loss due to a decline in the value of the 
hedged currency, at the same time they tend to limit any potential 
gain that might result should the value of the currency increase.

	The fund's 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 payable to 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.  The fund will not position hedge with respect to a 
particular currency to an extent greater than the aggregate market 
value at any time of the security or securities held in its 
portfolio denominated or quoted in or currently convertible (such 
as through exercise of an option or consummation of a forward 
currency contract) in that particular currency.  If the 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.

	Although the foreign currency market may not necessarily be 
more volatile than the market in other commodities, the foreign 
currency market offers less protection against defaults in the 
forward trading of currencies than is available when trading in 
currencies occurs on an exchange.  Because a forward currency 
contract is not guaranteed by an exchange or clearing-house, 
default on the contract would deprive the fund of unrealized 
profits or force the fund to cover its commitments for the 
purchase or resale, if any, at the current market price.  In 
addition, if a devaluation is generally anticipated, the fund may 
not be able to contract to sell the currency at a price above the 
anticipated devaluation level.

	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.

	Options on Foreign Currencies.  The fund may purchase put 
options on a foreign currency in which securities held by the fund 
are denominated to protect against a decline in the value of the 
currency in relation to the currency in which the exercise price 
is denominated.  The fund may purchase a call option on a foreign 
currency to hedge against an adverse exchange rate of the currency 
in which a security that it anticipates purchasing is denominated 
in relation to the currency in which the exercise price is 
denominated.  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 the 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 diminution in the value of securities that it holds, 
the fund may purchase put options on the foreign currency.  If the 
value of the currency does decline, 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 
purchase 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 
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.  Options on foreign 
currencies purchased by the fund may be traded on domestic and 
foreign exchanges or traded over-the-counter.

	When-Issued and Delayed-delivery Securities.  The fund will 
not accrue income with respect to a when-issued or delayed-
delivery security prior to its stated delivery date.  The fund 
will establish with the PNC Bank, N.A. (PNC Bank), the fund's 
Custodian, a segregated account consisting of cash, U.S. 
government securities, equity securities or debt securities of any 
grade, in an amount equal to the amount of the fund's when-issued 
and delayed-delivery purchase commitments, provided such 
securities are liquid and unencumbered and are marked to market 
daily pursuant to guidelines established by the Board of 
Directors.  Placing securities rather than cash in the segregated 
account may have a leveraging effect on the fund's net asset value 
per share; that is, to the extent that the fund remains 
substantially fully invested in securities at the same time that 
it has committed to purchase securities on a when-issued or 
delayed-delivery basis, greater fluctuations in its net asset 
value per share may occur than if it had set aside cash to satisfy 
its purchase commitments.  Securities purchased on a when-issued 
or delayed-delivery basis may expose the fund to risk because the 
securities may experience fluctuations in value prior to their 
delivery.

	Lending Securities.  Loans of the fund's securities, if and 
when made, may not exceed 20% of the fund's assets taken at value.  
The fund's loans of securities will be collateralized by cash, 
letters of credit or U.S. government securities that will be 
maintained at all times in a segregated account with PNC Bank in 
an amount 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 that is 
unaffiliated with the fund and that is acting as a "finder."

	By lending its securities, the fund can increase its income 
by continuing to receive interest on the loaned securities, by 
investing the cash collateral in short-term instruments or by 
obtaining yield in the form of interest paid by the borrower when 
U.S. government securities are used as collateral.  The portfolio 
will adhere to the following conditions whenever it lends its 
securities:  (1) the fund must receive at least 100% cash 
collateral or equivalent securities from the borrower, which 
amount of collateral will be maintained by daily marking to 
market; (2) the borrower must increase the collateral whenever the 
market value of the securities loaned rises above the level of the 
collateral; (3) the fund must be able to terminate the loan at any 
time; (4) 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; (5) the fund 
may pay only reasonable custodian fees in connection with the 
loan; and (6) voting rights on the loaned securities may pass to 
the borrower, except that, if a material event adversely affecting 
the investment in the loaned securities occurs, the fund's Board 
of Directors must terminate the loan and regain the fund's right 
to vote the securities.

	Short Sales Against the Box.  The broker-dealer that 
executes a short sale generally invests the cash proceeds of the 
sale until they are paid to the fund.  Arrangements may be made 
with the broker-dealer to obtain a portion of the interest earned 
by the broker on the investment of short sale proceeds.  The fund 
will segregate the securities against which short sales against 
the box have been made in a special account with PNC Bank.  Not 
more than 10% of the fund's net assets (taken at current value) 
may be held as collateral for such sales at any one time.

	Mortgage-Backed Securities. The fund may invest in mortgage-
backed securities, which are securities representing interests in 
"pools" of mortgage loans assembled for sale to investors by 
various governmental agencies and government-related organizations, 
such as Government National Mortgage Association (GNMA), Federal 
National Mortgage Association (FNMA) and Federal Home Loan Mortgage 
Corporation (FHLMC). 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 the 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. Like other fixed-income securities, when interest rates rise 
the value of mortgage pass-through securities 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.
   
	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 Government National Mortgage Association (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 Federal National Mortgage Association (FNMA) and the Federal 
Home Loan Mortgage Corporation (FHLMC). FNMA is a government-
sponsored corporation owned entirely by private shareholders. 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 of principal and interest by FNMA.

	FHLMC is also a government-sponsored corporation owned by 
private shareholders. 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.

	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 are solely the obligations of those entities but are 
supported by the discretionary authority of the U.S. government to 
purchase the agencies' obligations.  Mortgage pools created by 
private organizations generally offer a higher rate of interest 
than governmental and government-related pools because there are no 
direct or indirect guarantees of payments in 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 
will meet their obligations.
   
	Mortgage-backed securities vary from traditional fixed-income 
securities because of the potential for prepayment.  These 
instruments are backed by a real estate mortgage, and the mortgage 
loan may be repaid at any time without penalty.  While mortgage-
backed securities tend to rise in value when interest rates fall, 
faster than expected prepayments of the mortgage loans will reduce 
both the market value and yield to maturity of the mortgage-backed 
securities.  Thus, changes in interest rates may have a greater 
effect on mortgage-backed securities than on traditional fixed 
income securities.  In a period of declining interest rates, 
prepayments rise because mortgage holders are in a disadvantageous 
economic position.  Therefore, the amounts available for 
reinvestment in new mortgages increase, but are likely to be 
reinvested at lower interest rates.  As a result, mortgage-backed 
securities may benefit less from declining interest rates than 
other fixed-income securities because of the risk of increased 
prepayment.
    
	Other Asset-Backed Securities.  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 pools 
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 investment in such a security.

	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 primarily be a function of current 
market interest rates, although other economic and demographic 
factors may be involved.  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.
    

INVESTMENT RESTRICTIONS

	The investment restrictions numbered 1 through 12 below have 
been adopted by the fund as fundamental policies.  Under the 
Investment Company Act of 1940, as amended (1940 Act), a 
fundamental policy may not be changed without the vote of a 
majority of the outstanding voting securities of the fund, as 
defined in the 1940 Act.  This is defined in the 1940 Act as the 
lesser of (a) 67% or more of the shares present at a 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.

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

1.	Purchasing the securities of any issuer (other than 
U.S. government securities) if, as a result, more than 
5% of the value of the fund's total assets would be 
invested in the securities of the issuer, except that 
up to 25% of the value of the fund's total assets may 
be invested without regard to this 5% limitation.

2.	Purchasing more than 10% of the voting securities of 
any one issuer (other than U.S. government 
securities), except that up to 25% of the value of the 
fund's total assets may be invested without regard to 
this 10% limitation.

3.	Purchasing securities on margin, except that the fund 
may obtain any short-term credits necessary for the 
clearance of purchases and sales of securities.  For 
purposes of this restriction, the deposit or payment 
of initial or variation margin in connection with 
futures contracts or related options will not be 
deemed to be a purchase of securities on margin.

4.	Making short sales of securities, except that the fund 
may engage in short sales "against the box."

5.	Borrowing money, except that (a) the fund may borrow 
from banks for temporary or emergency (not leveraging) 
purposes in an amount not exceeding 10% of the value 
of the fund's total assets (including the amount 
borrowed) valued at market less liabilities (not 
including the amount borrowed) at the time the 
borrowing is made and (b) the fund may enter into 
futures contracts.  Whenever borrowings described in 
(a) exceed 5% of the value of the fund's total assets, 
the fund will not make any additional investments.

6.	Pledging, hypothecating, mortgaging or otherwise 
encumbering the fund's assets except to secure 
borrowings and as margin for commodities transactions.

7.	Underwriting the securities of other issuers, except 
insofar as the fund may be deemed an underwriter in 
the course of disposing of portfolio securities.

8.	Purchasing or selling real estate or interests in real 
estate, except that the fund may purchase and sell 
securities that are secured by real estate or 
interests in real estate and may purchase securities 
issued by companies that invest in or deal in real 
estate.

9.	Investing in commodities, except that the fund may 
invest in futures contracts, options on futures 
contracts and options on currencies.

10.	Making loans to others, except through the purchase of 
qualified debt obligations, the entry into repurchase 
agreements and loans of portfolio securities 
consistent with the fund's investment objectives and 
policies.

11.	Investing in securities of other investment companies 
registered or required to be registered under the 1940 
Act, except as they may be acquired as part of a 
merger, consolidation, reorganization, acquisition of 
assets or an offer of exchange, or to the extent 
permitted by the 1940 Act.

12.	Purchasing any securities which would cause more than 
25% of the value of the fund's total assets at the 
time of purchase to be invested in the securities of 
issuers conducting their principal business activities 
in the same industry; provided that there shall be no 
limit on the purchase of U.S. government securities.


NET ASSET VALUE

	The valuation of the fund's assets is made by the Investment 
Manager after consultation with an independent pricing service 
(Service) approved by the fund's Board of Directors.  When, in the 
judgment of the Service, quoted bid prices for investments are 
readily available and are representative of the bid side of the 
market, these investments are priced by the Service at the mean 
between the quoted bid prices and asked prices.  Investments for 
which, in the judgment of the Service, no readily obtainable 
market quotation is available are priced by the Service at its 
determination at fair value, based on methods that include 
consideration of: yields or prices of securities of comparable 
quality, coupon, maturity and type; indication as to values from 
dealers; and general market conditions.  The Service may use 
electronic data processing techniques and/or matrix system to 
determine valuations.  The Investment Manager reviews the 
Service's price information and, unless the Investment Manager has 
information which leads it to use a different valuation, it will 
generally use the Service's prices in establishing net asset 
value.  The procedures of the Service are reviewed periodically by 
the officers of the fund under the general supervision and 
responsibility of the Board of Directors, which may replace the 
Service at any time if it determines it to be in the best 
interests of the fund to do so.


TAXATION

Taxation of the Fund
   
	The fund intends to qualify each year and be treated as a 
regulated investment company for federal income tax purposes.  In 
order to so qualify, the fund must, among other things:  (a) 
derive at least 90% of its gross income from dividends, interest, 
payments with respect to loans of securities and gains from the 
sale or other disposition of securities or certain other related 
income; and (b) diversify its holdings so that at the end of each 
fiscal quarter (i) at least 50% of the value of the fund's assets 
is represented by cash or cash items, U.S. government securities, 
securities of other regulated investment companies, and other 
securities which, with respect to any one issuer, do not represent 
more than 5% of the value of the fund's assets nor more than 10% 
of the voting securities of such issuer, and (ii) not more than 
25% of the value of the fund's assets is invested in the 
securities of any one issuer (other than U.S. government 
securities or the securities of other regulated investment 
companies), or two or more issuers which the fund controls and 
which are determined to be engaged in the same or similar trades 
or businesses or related trades or businesses.

	If the fund qualifies as a regulated investment company and 
distributes to its shareholders at least 90% of the sum of its net 
investment income and any excess of its net short-term capital 
gain over its net long-term capital loss, then the fund will not 
be subject to federal income tax on the income and gain so 
distributed.  However, the fund would be subject to corporate 
income tax on any undistributed income and net long-term and 
short-term capital gains.  In addition, the fund will be subject 
to a nondeductible 4% federal excise tax on the amount by which 
the income and gain it distributes in any calendar year is less 
than a required amount.  For purposes of the excise tax, the 
required distribution for any calendar year equals the sum of: (a) 
98% of the fund's ordinary income for such calendar year; (b) 98% 
of the excess of capital gains over capital losses for the one-
year period ending on October 31 of that year; and (c) 100% of the 
undistributed ordinary income and capital gains from prior years.  
For purposes of the excise tax, any ordinary income or capital 
gains retained by the fund on which it paid federal income tax 
will be treated as having been distributed.

	The fund may elect to retain all or a portion of its net 
capital gain, as described under "Taxation of Shareholders--
Distributions" in the prospectus.  

	Any capital losses resulting from the disposition of 
securities can only be used to offset capital gains and cannot be 
used to reduce the fund's ordinary income.  Such capital losses 
may be carried forward by the fund for eight years.

	As of September 30, 1998, the fund had, for federal tax 
purposes, approximately $54,135,000 of capital loss carryforwards 
available to offset future realized capital gains.  To the extent 
that these capital loss carryforwards can be used to offset net 
realized capital gains, such gains, if any, will not be 
distributed.  Expiration occurs on September 30 in the year 
indicated.  Carryforward amounts are $16,017,000 and $38,118,000 
and expire in the year 2003 and 2004, respectively.

	If the fund owns shares in a foreign corporation that 
constitutes a "passive foreign investment company" for federal 
income tax purposes, and the fund does not elect to treat the 
foreign corporation as a "qualified electing fund" within the 
meaning of the Internal Revenue Code of 1986 (Code), the fund may 
be subject to United States federal income taxation on a portion 
of any "excess distribution" it receives from the foreign 
corporation or any gain it derives from the disposition of such 
shares, even if such income is distributed as a taxable dividend 
by the fund to its shareholders.  The fund may also be subject to 
additional tax in the nature of an interest charge with respect to 
deferred taxes arising from such distributions or gains.  Any tax 
paid by the fund as a result of its ownership of shares in a 
"passive foreign investment company" will not give rise to any 
deduction or credit to the fund or any shareholders.  A "passive 
foreign investment company" means any foreign corporation if, for 
any taxable year during which its stock was held by the fund or a 
prior taxable year, either (i) it derives at least 75% of its 
gross income from "passive income" (including, but not limited to, 
interest, dividends, certain royalties and rents, capital gains, 
and annuities), or (ii) at least 50% of the value (or adjusted tax 
basis, if elected) of its assets produce "passive income" or are 
held for the production of "passive income."  If the fund owns 
shares in a "passive foreign investment company" and the fund does 
elect to treat the foreign corporation as a "qualified electing 
fund" under the Code, the fund may be required to include in its 
income each year a portion of the ordinary income and net capital 
gain of the foreign corporation, even if this income is not 
distributed to the fund.  Any such income would be subject to the 
income and excise tax distribution requirements described above.

	The fund should generally be able to avoid the adverse tax 
consequences described in the previous paragraph by electing to 
mark to market its stock in passive foreign investment companies 
at the end of its taxable year.  This election may result in the 
recognition of gains, which will be treated as ordinary income 
subject to the tax distribution requirements described above, or 
losses, the deductibility of which will be subject to limitations 
under the Code. 

	Hedging and Option Income Strategies and Foreign Currencies.  
The use of hedging and option income strategies, such as writing 
(selling) and purchasing options and futures contracts and 
entering into forward contracts, involves complex rules that will 
determine for income tax purposes the character and timing of 
recognition of the income received in connection therewith by the 
fund and therefore of its distributions.

	Gains or losses attributable to fluctuations in exchange 
rates that occur between the time the fund accrues receivables or 
liabilities denominated in a foreign currency and the time the 
fund actually collects such receivables or pays such liabilities 
generally are treated as ordinary income or ordinary loss.  
Similarly, on disposition of foreign currency or debt securities 
denominated in foreign currency and on disposition of certain 
futures, forward contracts and options, gains or losses 
attributable to fluctuations in the value of  foreign currency 
between the date of acquisition of the currency, security, or 
contract and the date of disposition also are treated as ordinary 
income or loss.  Such income or losses may increase or decrease 
the amount of the fund's investment company taxable income to be 
distributed to its shareholders as ordinary income, rather than 
the amount distributed as capital gain.

	The hedging transactions undertaken by the fund may result 
in "straddles" for U.S. federal income tax purposes.  The straddle 
rules may affect the character of gains (or losses) realized by 
the fund.  In addition, losses or deductions realized by the fund 
on positions that are part of a straddle may be deferred under the 
straddle rules, rather than being taken into account in 
calculating the taxable income for the taxable year in which such 
losses are realized.  The tax consequences of hedging transactions 
to the fund are not entirely clear.  The fund may make one or more 
of the elections available under the Code which are applicable to 
straddles.  If the fund makes any of the elections, the amount, 
character and timing of the recognition of gains, losses or 
deductions from the affected straddle positions will be determined 
under rules that vary according to the election(s) made.  The 
rules applicable under certain elections operate to accelerate the 
recognition of gains, losses or deductions from the affected 
straddle positions.  Certain transactions may also be treated as 
"constructive sales," resulting in the recognition of gain without 
any corresponding receipt of cash.  Because application of the 
mark to market rules, constructive sales rules, or straddle rules 
may affect the character and timing of gains, losses or deductions 
from the affected straddle positions, the amount which must be 
distributed to shareholders, and taxed to shareholders as ordinary 
income or long-term capital gain, may be increased or decreased 
substantially as compared to a fund that did not engage in such 
hedging transactions.
    
	The fund's taxable income will in most cases be determined 
on the basis of reports made to the fund by the issuers of the 
securities in which the fund invests.  The tax treatment of 
certain securities in which the fund may invest is not free from 
doubt and it is possible that an Internal Revenue Service 
examination of the issuers of such securities or of the fund could 
result in adjustments to the income of the fund.

Taxation of Shareholders
   
	Distributions.  In general, all distributions to 
shareholders attributable to the fund's net investment income and 
any excess of its net short-term capital gain over its net long-
term capital loss will be taxable as ordinary income whether paid 
in cash or reinvested in additional shares of common stock 
pursuant to the fund's dividend reinvestment plan.

	Dividends distributed by the fund will not generally be 
eligible for the dividends received deduction in the hands of 
corporate shareholders, except to the extent that the fund's 
taxable income consists of dividends received from domestic 
corporations and certain holding period, designation and other 
requirements are satisfied.

	Dividends and other distributions by the fund are generally 
taxable to the shareholders at the time the dividend or 
distribution is made.  However, any dividends declared by the fund 
in October, November or December and made payable to shareholders 
of record in such a month would be taxable to shareholders as if 
received on December 31 if the dividend is paid in the following 
January.
    
	If a shareholder purchases shares of common stock at a cost 
that reflects an anticipated dividend, such dividend will be 
taxable even though it represents economically in whole or in part 
a return of the purchase price.  Investors should consider the tax 
implications of buying shares shortly prior to a dividend 
distribution.

	The fund will, within 60 days after the close of its taxable 
year, send written notices to shareholders regarding the tax 
status of all distributions made during the year.
   
	Sales of Shares.  In general, if a share of common stock is 
sold, the seller will recognize gain or loss equal to the 
difference between the amount realized on the sale and the 
seller's adjusted basis in the share.  However, any loss 
recognized by a shareholder on the sale of shares held six months 
or less will be treated as a long-term capital loss to the extent 
of any capital gain dividends received by the shareholder and the 
shareholder's share of undistributed net capital gain, in each 
case with respect to the shares that are sold.  In addition, any 
loss realized on a sale of shares of common stock will be 
disallowed to the extent the shares disposed of are replaced with 
shares of the fund within a 61-day period beginning 30 days before 
and ending 30 days after the disposition of the shares.  In such a 
case, the basis of the shares acquired will be adjusted to reflect 
the disallowed loss.  Any gain or loss realized upon a sale of 
shares (other than to the fund, which sales are discussed below) 
by a shareholder who is not a dealer in securities will be treated 
as capital gain or loss.  An amount received by a shareholder from 
the fund in exchange for shares of the fund (pursuant to a 
repurchase of shares or a tender offer or otherwise) may be 
treated as a payment in exchange for the shares tendered, which 
would result in taxable gain or loss as described above.  However, 
if the amount received by a shareholder from the fund exceeds the 
fair market value of the shares tendered, or if a shareholder does 
not sell to the fund all of the shares of the fund owned or deemed 
to be owned by the shareholder, all or a portion of the amount 
received may be treated as a dividend taxable as ordinary income 
or as a return of capital.  In addition, if a tender offer is 
made, any shareholders who do not tender their shares could be 
deemed, under certain circumstances, to have received a taxable 
distribution of shares of the fund as a result of their increased 
proportionate interest in the fund.

	Backup Withholding.  The fund may be required to withhold 
federal income tax at the rate of 31% of any payments made to a 
shareholder if the shareholder has not provided a correct taxpayer 
identification number and certain required certifications to the 
fund, or if the Secretary of the Treasury notifies the fund that 
the number provided by a shareholder is not correct or that the 
shareholder has not reported all interest and dividend income 
required to be shown on the shareholder's federal income tax 
return.  Dividends to shareholders who are nonresident aliens or 
foreign entities may be subject to a separate withholding of 
federal income tax at a maximum rate of 30%, subject to possible 
reduction under an applicable income tax treaty (if any).  Other 
distributions to these shareholders may be subject to backup 
withholding unless their foreign status is properly certified in 
the manner required under the Code.  Nonresident aliens and 
foreign entities should consult their own tax advisers regarding 
these and other possible tax consequences of investing in the 
fund.
    
	The foregoing discussion is a summary of certain of the 
current federal income tax laws regarding the fund and investors 
in the shares of common stock, and does not deal with all of the 
federal income tax consequences applicable to the fund, or to all 
categories of investors, some of which may be subject to special 
rules.  Prospective investors should consult their own tax 
advisers regarding the federal, state, local, foreign and other 
tax consequences to them of investments in the fund. 


OFFICERS AND DIRECTORS

	The Officers and Directors of the fund and their principal 
occupations for at least the last five years are set forth below.  
Those Directors who are "interested persons" of the fund, as 
defined in the 1940 Act, are indicated by asterisk.  Each person 
indicated below as a Director of the fund is also a director, 
trustee and/or general partner of other investment companies 
registered under the 1940 Act with which Salomon Smith Barney Inc. 
(Salomon Smith Barney) or one or more of its affiliates is an 
affiliated person.


Name, Address and Age
Positions Held with 
the Fund
Principal Occupations During 
Past Five Years

*	Heath B. McLendon
388 Greenwich Street
New York, NY  10013
Age 65

Chairman of the 
Board, President 
and Chief Executive 
Officer

Managing Director Salomon Smith 
Barney; Director of 59 
investment companies associated 
with Salomon Smith Barney; 
Chairman of the Board of Smith 
Barney Strategy Advisers Inc and 
Director and President of MMC 
and Travelers Investment 
Adviser, Inc. (TIA)

Donald R. Foley
3668 Freshwater Drive
Jupiter, FL  33477
Age 76
Director
Retired; Director of 10 
investment companies associated 
with Salomon Smith Barney. 
Formerly, Vice President of 
Edwin Bird Wilson, Incorporated 
(advertising).

Paul Hardin
60134 Davie Street
Chapel Hill, NC  27599
Age 67
Director
Professor of Law at the 
University of North Carolina at 
Chapel Hill, Director of 12 
investment companies associated 
with Salomon Smith Barney. 
Formerly, Chancellor of the 
University of North Carolina at 
Chapel Hill.

Roderick C. Rasmussen
9 Cadence Court
Morristown, NJ  07960
Age 72
Director
Investment Counselor; Director 
of 10 investment companies 
associated with Salomon Smith 
Barney. Formerly, Vice President 
of Dresdner and Company Inc. 
(investment counselors).

John P. Toolan
13 Chadwell Place
Morristown, NJ  07960
Age 68
Director
Retired; Director of 10 
investment companies associated 
with Salomon Smith Barney; 
Director of John Hancock Funds. 
Formerly, Director and Chairman 
of Salomon Smith Barney Trust 
Company, Director of Smith 
Barney and MMC.

   Lewis E. Daidone     
388 Greenwich Street 
New York, NY  10013
Age 41
Senior Vice 
President and 
Treasurer
Managing Director of Salomon 
Smith Barney; Senior Vice 
President and Treasurer of other 
investment companies associated 
with Salomon Smith Barney; 
Director and Senior Vice 
President of MMC and TIA, and 
Senior Vice President of Smith 
Barney Strategy Advisers, Inc.




Name, Address and Age
Positions Held with 
the Fund
Principal Occupations During 
Past Five Years
   Christina T. Sydor 
     
388 Greenwich Street 
New York, NY  10013
Age 47
Secretary
Managing Director of Salomon 
Smith Barney and Secretary of 
other investment companies 
associated with Salomon Smith 
Barney;  Secretary and General 
Counsel of MMC and TIA.

   John C. Bianchi
388 Greenwich Street
New York, NY  10013
Age 43     

Vice President and 
Investment Officer
Managing Director of Salomon 
Smith Barney and investment 
officer of certain other 
investment companies associated 
with Salomon Smith Barney.

   Paul Brook
388 Greenwich Street
New York, NY  10013
Age 45      
Controller 
Director of Salomon Smith Barney 
and Controller and Assistant 
Secretary of certain other 
investment companies associated 
with Salomon Smith Barney.


	Fees for directors who are not "interested persons" of the 
fund, all of whom are board members of a group of funds sponsored 
by Salomon Smith Barney, are set at $42,000 per annum and are 
allocated based on relative net assets of each fund in the group.  
In addition, these directors receive $100 per fund for each board 
meeting attended ($100 per underlying portfolio of each 
registrant, in the case of in-person meetings), plus reimbursement 
for travel and out-of-pocket expenses incurred in connection with 
board meetings.  For the fiscal year ended September 30, 1998, 
such expenses totaled $14,080.60.

	The following table shows the compensation paid by the fund 
to each person who was a director during the fund's fiscal year 
ended September 30, 1998.

Compensation Table
   






Name


Aggregate 
Compensation 
from Fund
For Fiscal 
Year Ended 
9/30/98


Pension or 
Retirement 
Benefits 
Accrued as 
part of Fund 
Expenses


Compensation from Fund 
and Fund Complex for 
the Calendar 
Year Ended 
12/31/97


Total Number 
of Funds for 
Which Director 
Serves Within Fund 
Complex

Joseph H. Fleiss+@
$921
$0
$54,900
10

Donald R. Foley+
1,074
0
55,400
10

Paul Hardin
1,207
0
73,000
12

Heath B. McLendon*
0
0
0
59

Roderick C. Rasmussen
1,407
0
55,400
10

John P. Toolan+
1,306
0
55,400
10

Francis Martin
191
0
53,000
10

*	Designates a director who is an "interested person" of the fund 
as defined under the 1940 Act. 

+	Pursuant to the fund's deferred compensation plan, the 
indicated persons have elected to defer the payment of the 
following amounts of their compensation from the fund: Joseph 
H. Fleiss: $96, Donald R. Foley: $21, John P. Toolan: $1,306 
and Francis Martin: $191, and the following amounts of their 
total compensation from the fund complex: Joseph H. Fleiss: 
$21,000, Donald R. Foley: $21,000, and John P. Toolan: $55,400 
and Francis Martin: $53,000. 

@	Effective January 1, 1998, Mr. Fleiss became a director 
emeritus. Upon attainment of age 72 the fund's current 
directors may elect to change to emeritus status. Any directors 
elected or appointed to the board of directors in the future 
will be required to change to emeritus status upon attainment 
of age 80. Directors 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 directors, together with reasonable 
out-of-pocket expenses for each meeting attended.  During the 
fund's last fiscal year, total compensation paid by the fund to 
directors emeritus (other than Mr. Fleiss, who is covered in 
the table above) totaled $453.

	At the close of business on January 6, 1999, 70,636,324.000 
shares of common stock, equal to 97.79% of the fund's total shares 
outstanding on that date, were held of record but not beneficially 
owned by, CEDE & Co., c/o Depository Trust Company, Box 20, 
Bowling Green Station, NY, NY 10004-9998. As of that date, the 
officers and Directors of the fund beneficially owned less than 1% 
of the outstanding shares of the fund.
    

PORTFOLIO TRANSACTIONS

General

	The fund's securities ordinarily are purchased from and sold 
to parties acting as either principal or agent.  Newly issued 
securities ordinarily are purchased directly from the issuer or 
from an underwriter; other purchases and sales usually are placed 
with those dealers from which the Investment Manager determines 
that the best execution will be obtained.  Usually no brokerage 
commissions, as such, are paid by the fund for purchases and sales 
of fixed-income securities, which are typically undertaken through 
principal transactions, although the price paid usually includes 
compensation to the dealer acting in the form of a spread or mark-
up.  The prices paid to underwriters of newly issued securities 
typically include a concession paid by the issuer to the 
underwriter, and purchasers of after-market fixed-income 
securities from dealers ordinarily are executed at a price between 
the bid and asked price. 

	Transactions on behalf of the fund are allocated to various 
broker-dealers by the Investment Manager in its best judgment.  
The primary consideration is prompt and effective execution of 
orders at the most favorable price.  Subject to that primary 
consideration, broker-dealers may be selected for research, 
statistical or other services to enable the Investment Manager to 
supplement its own research and analysis with the views and 
information of other securities firms.  The fund may utilize 
Salomon Smith Barney or a Salomon Smith Barney-affiliated broker 
in connection with a purchase or sale of securities when the 
Investment Manager believes that the broker's charge for the 
transactions does not exceed usual and customary levels.  The same 
standard applies to the use of Smith Barney as a commodities 
broker in connection with entering into options and futures 
contracts. 

	Research services furnished by broker-dealers through which 
the fund effects securities transactions may be used by the 
Investment Manager in managing other investment funds and, 
conversely, research services furnished to the Investment Manager 
by broker-dealers in connection with other funds the Investment 
Manager advises may be used by the Investment Manager in advising 
the fund.  Although it is not possible to place a dollar value on 
these services, the Investment Manager is of the view that the 
receipt of the services should not reduce the overall costs of its 
research services.

	Investment decisions for the fund are made independently 
from those of other investment companies managed by the Investment 
Manager.  If those investment companies are prepared to invest in, 
or desire to dispose of, investments at the same time as the fund, 
however, available investments or opportunities for sales will be 
allocated equitably to each client of the Investment Manager.  In 
some cases, this procedure may adversely affect the size of the 
position obtained for or disposed of by the fund or the price paid 
or received by the fund.

	The fund's Board of Directors will review periodically the 
commissions paid by the fund to determine if the commissions paid 
over representative periods of time were reasonable in relation to 
the benefits inuring to the fund.

Turnover

	The fund cannot accurately predict its turnover rate, but 
anticipates that its annual turnover rate will not exceed 150%.  
The fund's turnover rate is calculated by dividing the lesser of 
the fund's sales or purchases of securities during a year 
(excluding any security the maturity of which at the time of 
acquisition is one year or less) by the average monthly value of 
the fund's securities for the year.  Higher turnover rates can 
result in transaction costs, and corresponding increases in the 
fund's expense ratio.  The fund will not consider turnover rate a 
limiting factor in making investment decisions consistent with its 
investment objectives and policies.  For the fiscal years ended 
September 30, 1996, 1997 and 1998 the portfolio turnover rate was 
73%, 87% and 98%, respectively.


MANAGEMENT OF THE FUND

Investment Manager

	MMC, 388 Greenwich Street, New York, New York 10013, is 
controlled by Salomon Smith Barney Holdings Inc., the parent 
company of Salomon Smith Barney.  Salomon Smith Barney Holdings 
Inc. is a direct wholly owned subsidiary of Citigroup Inc. 

	Subject to the supervision and direction of the fund's Board 
of Directors, MMC manages the securities held by the fund in 
accordance with the fund's stated investment objectives and 
policies, makes investment decisions for the fund, places orders 
to purchase and sell securities on behalf of the fund and employs 
managers and securities analysts who provide research services to 
the fund.  The fund pays MMC a fee for services provided to the 
fund that is computed daily and paid monthly at the annual rate of 
1.15% of the value of the fund's average daily net assets.  This 
fee is higher than the rates for similar services paid by other 
publicly offered, closed-end management investment companies that 
have investment objectives and policies similar to the fund.  For 
the years ended September 30, 1996, 1997 and 1998, the fund paid 
$9,318,853, $9,638,822 and $10,065,212, respectively, in 
management fees to MMC.



Custodian and Transfer Agent

	PNC Bank, located at 17th and Chestnut Streets, 
Philadelphia, Pennsylvania 19103, acts as custodian of the fund's 
investments.  First Data Investor Services Group, Inc. (First 
Data), 53 State Street, Boston, Massachusetts, 02109, serves as 
the fund's transfer agent, dividend-paying agent and registrar.

Independent Auditors

	KPMG LLP, 345 Park Avenue, New York, New York  10154, has 
been selected as independent auditors for the fund for its fiscal 
year ending September 30, 1999 to examine and report on the 
financial statements of the fund.

   
REPURCHASE OF SHARES, CONVERSION TO OPEN-END FUND AND 
ANTI-TAKEOVER PROVISIONS
    
Repurchase Of Common Shares

	The fund may repurchase shares of its common stock in the 
open market or in privately negotiated transactions when the fund 
can do so at prices below their then-current net asset value per 
share on terms that the Board of Directors believes represent a 
favorable investment opportunity, but has no obligation to do so.

	No assurance can be given that repurchases and/or tenders 
will result in the common stock's trading at a price that is close 
or equal to net asset value.  The market price of the common stock 
will, among other things, be determined by the relative demand 
for, and supply of, the common stock in the market, the fund's 
investment performance, the fund's dividends and investor 
perception of the fund's overall attractiveness as an investment 
as compared with other investment alternatives.  Any such 
acquisition of common stock will decrease the total assets of the 
fund and therefore have the effect of increasing the fund's 
expense ratio.  The fund may borrow money to finance the 
repurchase of shares subject to certain limitations.  See 
"Investment Restrictions."  Any interest on the borrowings will 
reduce the fund's net income.

	If the fund liquidates securities in order to repurchase 
shares of common stock, the fund may realize gains and losses. The 
fund's turnover rate may or may not be affected by the fund's 
repurchases of shares of common stock pursuant to a tender offer.

Conversion To Open-End Fund

	The fund's Articles of Incorporation require the favorable 
vote of the holders of at least two-thirds of the shares of common 
stock then entitled to be voted to authorize the conversion of the 
fund from a closed-end to an open-end investment company as 
defined in the 1940 Act, unless two-thirds of the Continuing 
Directors (as defined below) approve such a conversion.  In the 
latter case, the affirmative vote of a majority of the shares 
outstanding will be required to approve the amendment to the 
fund's Articles of Incorporation providing for the conversion of 
the fund.

Anti-Takeover Provisions
   
	The fund's Articles of Incorporation include provisions that 
could have the effect of limiting the ability of other entities or 
persons to acquire control of the fund or to change the 
composition of its Board of Directors and could have the effect of 
depriving shareholders of an opportunity to sell their shares of 
common stock at a premium over prevailing market prices by 
discouraging a third party from seeking to obtain control of the 
fund.  The Board of Directors is divided into three classes.  At 
the annual meeting of shareholders in each year, the term of one 
class expires and each Director elected to the class holds office 
for a term of three years.  The classification of the Board of 
Directors in this manner could delay for an additional year the 
replacement of a majority of the Board.  The Articles of 
Incorporation provide that the maximum number of Directors that 
may constitute the fund's entire board is 12.  A Director may be 
removed from office, or the maximum number of Directors increased, 
only by vote of the holders of at least 75% of the shares of 
common stock entitled to be voted on the matter.
    
	The affirmative votes of at least 75% of the Directors and 
the holders of at least 75% of the shares of the fund are required 
to authorize any of the following transactions (referred to 
individually as a "Business Combination"):  (1) a merger, 
consolidation or share exchange of the fund with or into any other 
person (referred to individually as a "Reorganization 
Transaction"); (2) the issuance or transfer by the fund (in one or 
a series of transactions in any 12-month period) of any securities 
of the fund to any other person or entity for cash, securities or 
other property (or combination thereof) having an aggregate fair 
market value of $1,000,000 or more, excluding sales of securities 
of the fund in connection with a public offering, issuances of 
securities of the fund pursuant to a dividend reinvestment plan 
adopted by the fund and issuances of securities of the fund upon 
the exercise of any stock subscription rights distributed by the 
fund; (3) a sale, lease, exchange, mortgage, pledge, transfer or 
other disposition by the fund (in one or a series of transactions 
in any 12-month period) to or with any person of any assets of the 
fund having an aggregate fair market value of $1,000,000 or more, 
except for transactions in securities effected by the fund in the 
ordinary course of its business (each such sale, lease, exchange, 
mortgage, pledge, transfer or other disposition being referred to 
individually as a "Transfer Transaction").  The same affirmative 
votes are required with respect to:  any proposal as to the 
voluntary liquidation or dissolution of the fund or any amendment 
to the fund's Articles of Incorporation to terminate its existence 
(referred to individually as a "Termination Transaction"), and any 
shareholder proposal as to specific investment decisions made or 
to be made with respect to the fund's assets.

	A 75% shareholder vote will not be required with respect to 
a Business Combination if the transaction is approved by a vote of 
at least 75% of the Continuing Directors (as defined below) or if 
certain conditions regarding the consideration paid by the person 
entering into, or proposing to enter into, a Business Combination 
with the fund and various other requirements are satisfied.  In 
such case, a majority of the votes entitled to be cast by 
shareholders of the fund will be required to approve the 
transaction if it is a Reorganization Transaction or a Transfer 
Transaction that involves substantially all of the fund's assets 
and no shareholder vote will be required to approve the 
transaction if it is any other Business Combination.  In addition, 
a 75% shareholder vote will not be required with respect to a 
Termination Transaction if it is approved by a vote of at least 
75% of the Continuing Directors, in which case a majority of the 
votes entitled to be cast by shareholders of the fund will be 
required to approve the transaction.

	The voting provisions described above could have the effect 
of depriving shareholders of the fund of an opportunity to sell 
their common stock at a premium over prevailing market prices by 
discouraging a third party from seeking to obtain control of the 
fund in a tender offer or similar transaction.  In the view of the 
fund's Board of Directors, however, these provisions offer several 
possible advantages, including:  (1) requiring persons seeking 
control of the fund to negotiate with its management regarding the 
price to be paid for the amount of common stock required to obtain 
control; (2) promoting continuity and stability; and (3) enhancing 
the fund's ability to pursue long-term strategies that are 
consistent with its investment objective and the management 
policies.  The Board of Directors has determined that the voting 
requirements described above, which are generally greater than the 
minimum requirements under Maryland law and the 1940 Act, are in 
the best interests of shareholders generally.
   
	A "Continuing Director," as used in the discussion above, is 
any member of the fund's Board of Directors (1) who is not a 
person or affiliate of a person who enters or proposes to enter 
into a Business Combination with the fund (such a person or 
affiliate being referred to individually as an "Interested Party") 
and (2) who has been a member of the Board of Directors for a 
period of at least 12 months, or is a successor of a Continuing 
Director who is unaffiliated with an Interested Party and is 
recommended to succeed a Continuing Director by a majority of the 
Continuing Directors then members of the Board of Directors.
    

FINANCIAL STATEMENTS

	The financial information contained under the following 
headings is hereby incorporated by reference from the fund's 
September 30, 1998 Annual Report to Shareholders, copies of which 
are furnished with this SAI: Statement of Assets and Liabilities; 
Statement of Changes in Net Assets; Statement of Operations; Notes 
to Financial Statements; Financial Highlights and Independent 
Auditors' Report.



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