As filed with the Securities and Exchange Commission
on November 7, 1997
Registration No.  2-96408 
811-4254

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM N-1A

REGISTRATION STATEMENT UNDER 
THE SECURITIES ACT OF 1933    

[   ] Pre-Effective Amendment No.		[X] Post-Effective 
Amendment No.    46    

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended

Amendment No.     47      [X]     

SMITH BARNEY INCOME FUNDS
(Exact name of Registrant as Specified in Charter)

388 Greenwich Street, New York, New York 10013
(Address of principal executive offices) (Zip Code)

(212) 723-9218
(Registrant's telephone number, including Area Code)

Christina T. Sydor
Secretary

Smith Barney Income Funds
388 Greenwich Street
New York, New York 10013, 22nd Floor
(Name and address of agent for service)

copies to:

Burton M. Leibert, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY  10022

Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment becomes 
effective.

It is proposed that this filing become effective:

[   ]  Immediately upon filing pursuant to 
Rule 485(b) 
[   ]  On _______________ pursuant to Rule 
485(b) 
   
[X]  75 days after filing pursuant to Rule 
485(a) 
    
[   ]  On ______________ pursuant to Rule 
485(a)

The Registrant has previously filed a declaration of indefinite 
registration of its shares pursuant to Rule 24f-2 under the 
Investment Company Act of 1940.  Registrant's Rule 24f-2 Notice 
for the fiscal year ended December 31, 1996 was filed on February 
25, 1997 as Accession Number 0000091155-97-95.




SMITH BARNEY INCOME FUNDS

CONTENTS OF
REGISTRATION STATEMENT

This Registration Statement contains the following pages and 
documents:

Front Cover

Contents Page

Cross-Reference Sheet

Part A - Prospectus

Part B - Statement of Additional Information

Part C - Other Information

Signature Page

Exhibits


	SMITH BARNEY INCOME FUNDS

	FORM  N-1A CROSS REFERENCE SHEET
	Pursuant to Rule 495(a) Under the Securities Act of 1933, as 
amended


Part A 
Item No. and Caption	Prospectus Caption

1.  Cover Page	Cover Page

2.  Synopsis	Prospectus Summary 

3.  Condensed Financial Information	Financial Highlights;

4.  General Description of Registrant	Cover Page; Prospectus 
Summary;
Investment Objective and 
Policies;
Distributor; Additional 
Information

5.  Management of the Fund	Prospectus Summary; Management 
of 
the Trust and the Fund; 
Distributor;
Additional Information

6.  Capital Stock and Other Securities	Investment Objective and 
Policies;
Dividends, Distributions and 
Taxes;
Additional Information

7.  Purchase of Securities Being Offered	Valuation of Shares; 
Purchase of
Shares; Exchange Privilege; 
Redemption
of Shares; Purchase, Exchange 
and 
Redemption of Shares; Minimum
Account Size;  Distributor

8.  Redemption or Repurchase of Shares	Purchase of Shares; 
Redemption of 
Shares; Exchange Privilege;
Purchase, Exchange and
Redemption of Shares

9.  Pending Legal Proceedings	Not Applicable



Part B. 
Item No. and Caption	Statement of Additional 
Information Caption

10.  Cover Page	Cover page

11.  Table of Contents	Contents

12.  General Information and History	Distributor; Additional 
Information

13.  Investment Objectives and Policies	Investment Objectives 
and Management Policies

14.  Management of the Fund	Management of the Trust and 
the Funds; Distributor

15.  Control Persons and Principal	Management of the Trust and 
the Funds Holders of 
Securities

16.  Investment Advisory and Management
of the Trust and the Funds; Other Services	Distributor

17.  Brokerage Allocation	Investment Objectives and 
Management Policies; 
Distributor

18.  Capital Stock and Other Securities	Investment Objectives 
and Management Policies; 
Purchase of Shares; Redemption 
of Shares; Taxes

19.  Purchase, Redemption and Pricing
of Securities Being Offered	Purchase of Shares; Redemption 
of  Shares; Valuation of 
Shares; Distributor; Exchange 
Privilege

20.  Tax Status	Taxes

21.  Underwriters	Distributor

22.  Calculation of Performance Data	Performance Data

23.  Financial Statements	Financial Statements




SMITH BARNEY INCOME FUNDS
PART A
Prospectus	January 21, 1998

Smith Barney
Total Return Bond Fund
388 Greenwich Street New York, New York 10013
(800) 451-2010

Smith Barney Total Return Bond Fund (the "Fund") is a diversified 
bond fund that seeks to maximize total return, consisting of 
capital appreciation and income, by investing in a portfolio of 
fixed income securities of varying maturities.

The Fund is one of a number of funds, each having distinct 
investment objectives and policies, making up the Smith Barney 
Income Funds (the "Trust").  The Trust is an open-end management 
investment company commonly referred to as a mutual fund.

The initial subscription period for shares is scheduled to end on 
March 6, 1998 (the "Subscription Period").  After the expiration 
of the Subscription Period or a limited continuous offering 
period, the Fund will suspend the offering of shares to the 
public.  A continuous offering of shares is expected to commence 
on or about April 6, 1998.  See "Purchase of Shares." 

This Prospectus sets forth concisely certain information about the 
Fund and the Trust, including sales charges, distribution and 
service fees and expenses, that prospective investors will find 
helpful in making an investment decision.  Investors are 
encouraged to read this Prospectus carefully and retain it for 
future reference.  Shares of other investment funds offered by the 
Trust are described in separate prospectuses that may be obtained 
by calling the Trust at the telephone number set forth above or by 
contacting a Smith Barney Financial Consultant.

Additional information about the Fund and the Trust is contained 
in a Statement of Additional Information dated January 21, 1998, 
as amended or supplemented from time to time, that is available 
upon request and without charge by calling or writing the Trust at 
the telephone number or address set forth above or by contacting a 
Smith Barney Financial Consultant.  The Statement of Additional 
Information has been filed with the Securities and Exchange 
Commission (the "SEC") and is incorporated by reference into this 
Prospectus in its entirety.

SMITH BARNEY INC.
Distributor

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE 
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES 
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY 
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY 
OF THIS PROSPECTUS.  ANY REPRESENTATION TO THE CONTRARY IS A 
CRIMINAL OFFENSE.


TABLE OF CONTENTS

PROSPECTUS SUMMARY 	

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 	

VALUATION OF SHARES 	

DIVIDENDS, DISTRIBUTIONS AND TAXES 	

PURCHASE OF SHARES 	

EXCHANGE PRIVILEGE 	

REDEMPTION OF SHARES 	

MINIMUM ACCOUNT SIZE 	

PERFORMANCE 	

MANAGEMENT OF THE TRUST AND THE FUND 	

DISTRIBUTOR 	

ADDITIONAL INFORMATION 	


No person has been authorized to give any information or to make 
any representations in connection with this offering other than 
those contained in this Prospectus and, if given or made, such 
other information or representations must not be relied upon as 
having been authorized by the Fund or the Distributor.  This 
Prospectus does not constitute an offer by the Fund or the 
Distributor to sell or a solicitation of an offer to buy any of 
the securities offered hereby in any jurisdiction to any person to 
whom it is unlawful to make such an offer or solicitation in any 
such jurisdiction.



PROSPECTUS SUMMARY

	The following summary is qualified in its entirety by 
detailed information appearing elsewhere in this Prospectus and in 
the Statement of Additional Information.  Cross references in this 
summary are to headings in the Prospectus.  See "Table of 
Contents."

INVESTMENT OBJECTIVE The Fund is an open-end, diversified, management 
investment company whose investment objective is to maximize total 
return.  The Fund seeks to achieve its objective by investing in a 
professionally managed portfolio consisting of fixed-income 
securities of varying maturities.  The Fund will invest primarily 
in the following types of securities:  U.S. government securities; 
corporate debt securities; mortgage-related securities; and 
taxable municipal securities.  The allocation and reallocation of 
the Fund's assets will be undertaken by Smith Barney Mutual Funds 
Management Inc. ("SBMFM") on the basis of its analysis of economic 
and market conditions and the relative risks and opportunities of 
particular types of fixed-income securities.

ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of 
shares ("Classes") to investors designed to provide them with the 
flexibility of selecting an investment best suited to their needs.  
The general public is offered three Classes of shares: Class A 
shares, Class B shares and Class C shares, which differ 
principally in terms of sales charges and rates of expenses to 
which they are subject.  A fourth Class of shares, Class Y shares, 
is offered only to investors meeting an initial investment minimum 
of $5,000,000.  See "Purchase of Shares" and "Redemption of 
Shares."

	Class A Shares.  Class A shares are sold at net asset value 
plus an initial sales charge of up to 4.50% and are subject to an 
annual service fee of 0.25% of the average daily net assets of the 
Class.  The initial sales charge may be reduced or waived for 
certain purchases.  Purchases of Class A shares of $500,000 or 
more will be made at net asset value with no initial sales charge 
but will be subject to a contingent deferred sales charge ("CDSC") 
of 1.00% on redemptions made within 12 months of purchase.  See 
"Prospectus Summary--Alternative Purchase Arrangements--Reduced or 
No Initial Sales Charge."

	Class B Shares.  Class B shares are offered at net asset 
value subject to a maximum CDSC of 4.50% of redemption proceeds, 
declining by 0.50% the first year after purchase and by 1.00% each 
year thereafter to zero.  This CDSC may be waived for certain 
redemptions.  Class B shares are subject to an annual service fee 
of 0.25% and an annual distribution fee of 0.50% of the average 
daily net assets of the Class.  The Class B shares' distribution 
fee may cause that Class to have higher expenses and pay lower 
dividends than Class A shares.

	Class B Shares Conversion Feature.  Class B shares will 
convert automatically to Class A shares, based on relative net 
asset value, eight years after the date of the original purchase.  
Upon conversion, these shares will no longer be subject to an 
annual distribution fee.  In addition, a certain portion of Class 
B shares that have been acquired through the reinvestment of 
dividends and distributions ("Class B Dividend Shares") will be 
converted at that time.  See "Purchase of Shares--Deferred Sales 
Charge Alternatives."

	Class C Shares.  Class C shares are sold at net asset value 
with no initial sales charge.  They are subject to an annual 
service fee of 0.25% and an annual distribution fee of  0.45% of 
the average daily net assets of the Class, and investors pay a 
CDSC of 1.00% if they redeem Class C shares within 12 months of 
purchase.  The CDSC may be waived for certain redemptions.  The 
Class C shares' distribution fee may cause that Class to have 
higher expenses and pay lower dividends than Class A shares.  
Purchases of Fund shares, which when combined with current 
holdings of Class C shares of the Fund equal or exceed $500,000 in 
the aggregate, should be made in Class A shares at net asset value 
with no sales charge, and will be subject to a CDSC of 1.00% on 
redemptions made within 12 months of purchase.

	Class Y Shares.  Class Y shares are available only to 
investors meeting an initial investment minimum of $5,000,000.  
Class Y shares are sold at net asset value with no initial sales 
charge or CDSC.  They are not subject to any service or 
distribution fees.

	In deciding which Class of Fund shares to purchase, 
investors should consider the following factors, as well as any 
other relevant facts and circumstances:

	Intended Holding Period.  The decision as to which Class of 
shares is more beneficial to an investor depends on the amount and 
intended duration of his or her investment.  Shareholders who are 
planning to establish a program of regular investment may wish to 
consider Class A shares; as the investment accumulates 
shareholders may qualify for reduced sales charges and the shares 
are subject to lower ongoing expenses over the term of the 
investment.  As an alternative, Class B and Class C shares are 
sold without any initial sales charge so the entire purchase price 
is immediately invested in the Fund.  Any investment return on 
these additional invested amounts may partially or wholly offset 
the higher annual expenses of these Classes.  Because the Fund's 
future return cannot be predicted, however, there can be no 
assurance that this would be the case.

	Finally, investors should consider the effect of the CDSC 
period and any conversion rights of the Classes in the context of 
their own investment time frame.  For example, while Class C 
shares have a shorter CDSC period than Class B shares, they do not 
have a conversion feature and therefore are subject to an ongoing 
distribution fee.  Thus, Class B shares may be more attractive 
than Class C shares to investors with longer-term investment 
outlooks.

	Reduced or No Initial Sales Charge.  The initial sales 
charge on Class A shares may be waived for certain eligible 
purchasers and the entire purchase price would be immediately 
invested in the Fund.  In addition, Class A share purchases of 
$500,000 or more will be made at net asset value with no initial 
sales charge but will be subject to a CDSC of 1.00% on redemptions 
made within 12 months of purchase.  The $500,000 investment may be 
met by adding the purchase to the net asset value of all Class A 
shares held in certain funds sponsored by Smith Barney Inc. 
("Smith Barney") listed under "Exchange Privilege." Class A share 
purchases may also be eligible for a reduced initial sales charge.  
See "Purchase of Shares." Because the ongoing expenses of Class A 
shares may be lower than those for Class B and Class C shares, 
purchasers eligible to purchase Class A shares at net asset value 
or at a reduced sales charge should consider doing so.

	Smith Barney Financial Consultants may receive different 
compensation for selling the different Classes of shares.  
Investors should understand that the purpose of the CDSC on the 
Class B and Class C shares is the same as that of the initial 
sales charge on the Class A shares.

	See "Purchase of Shares" and "Management of the Trust and 
the Fund" for a complete description of the sales charges and 
service and distribution fees for each Class of shares and 
"Valuation of Shares," "Dividends, Distributions and Taxes" and 
"Exchange Privilege" for other differences between the Classes of 
shares.

SMITH BARNEY 401(k) AND EXECCHOICE PROGRAMS  Investors may be eligible 
to participate in the Smith Barney 401(k) Program, which is 
generally designed to assist plan sponsors in the creation and 
operation of retirement plans under Section 401(a) of the Internal 
Revenue Code of 1986, as amended (the ''Code''), as well as other 
types of participant-directed, tax-qualified employee benefit 
plans.  Other investors may be eligible to participate in the 
Smith Barney ExecChoice Program.  Class A and Class C shares are 
available as investment alternatives under both of these programs.  
See ''Purchase of Shares--Smith Barney 401(k) and ExecChoice 
Programs.'' 

PURCHASE OF SHARES  Shares may be purchased through the Fund's 
distributor, Smith Barney, a broker that clears securities 
transactions through Smith Barney on a fully disclosed basis (an 
"Introducing Broker") or an investment dealer in the selling group 
during the continuous offering period.
 
The initial subscription period for shares is scheduled to end on 
March 6, 1998 (the "Subscription Period").  After the expiration 
of the Subscription Period or a limited continuous offering 
period, the Fund will suspend the offering of shares to the 
public.  A continuous offering of shares is expected to commence 
on or about April 6, 1998.  See ''Purchase of Shares.''  

INVESTMENT MINIMUMS  Investors in Class A, Class B and Class C shares 
may open an account by making an initial investment of at least 
$1,000 for each account.  Investors in Class Y shares may open an 
account for an initial investment of $5,000,000.  Subsequent 
investments of at least $50 may be made for all Classes.  The 
minimum initial investment requirement for Class A, Class B and 
Class C shares and the subsequent investment requirement for all 
Classes through the Systematic Investment Plan are described 
below.  There is no minimum investment requirement in Class A for 
unitholders who invest distributions from a unit investment trust 
("UIT") sponsored by Smith Barney.  See "Purchase of Shares."

SYSTEMATIC INVESTMENT PLAN  The Fund offers shareholders a Systematic 
Investment Plan under which they may authorize the automatic 
placement of a purchase order each month or quarter for Fund 
shares.  The minimum initial investment requirement for Class A, 
Class B and Class C shares and the subsequent investment 
requirement for all Classes for shareholders purchasing shares 
through the Systematic Investment Plan on a monthly basis is $25 
and on a quarterly basis is $50.  See "Purchase of Shares."

REDEMPTION OF SHARES  Shares may be redeemed on each day the New York 
Stock Exchange, Inc. ("NYSE") is open for business.  See "Purchase 
of Shares" and "Redemption of Shares."

MANAGEMENT OF THE TRUST AND THE FUND  SBMFM serves as the Fund's 
investment manager.  SBMFM is a wholly owned subsidiary of Smith 
Barney Holdings Inc. ("Holdings"), which, in turn, is a wholly 
owned subsidiary of Travelers Group Inc. ("Travelers"), a 
diversified financial services holding company engaged, through 
its subsidiaries, principally in four business segments: 
Investment Services, Consumer Finance Services, Life Insurance 
Services and Property & Casualty Insurance Services.  See 
"Management of the Trust and the Fund."

EXCHANGE PRIVILEGE  Shares of a Class may be exchanged for shares of 
the same class of certain other Smith Barney Mutual Funds at the 
respective net asset values next determined.  See "Exchange 
Privilege."

VALUATION OF SHARES  Net asset value of the Fund for the prior day is 
generally quoted daily in the financial section of most newspapers 
and is also available from Smith Barney Financial Consultants.  
See "Valuation of Shares."

DIVIDENDS AND DISTRIBUTIONS  Dividends from net investment are paid 
monthly and distributions of net realized capital gains, if any, 
are paid annually.  See "Dividends, Distributions and Taxes."

REINVESTMENT OF DIVIDENDS  Dividends and distributions paid on shares 
of any Class will be reinvested automatically, unless otherwise 
specified by an investor, in additional shares of the same Class 
at current net asset value.  Shares acquired by dividend and 
distribution reinvestments will not be subject to any sales charge 
or CDSC.  Class B shares acquired through dividend and 
distribution reinvestments will become eligible for conversion to 
Class A shares on a pro rata basis.  See "Dividends, Distributions 
and Taxes."

RISK FACTORS AND SPECIAL CONSIDERATIONS  There can be no assurance that 
the Fund will achieve its investment objective.  The market value 
of fixed-income securities, which constitute a major part of the 
investments of the Fund, may vary inversely in response to changes 
in prevailing interest rates.  The Fund may employ investment 
techniques which involve certain risks, including entering in 
repurchase agreements and reverse repurchase agreements, entering 
into forward roll transactions, purchasing or selling securities 
on a when-issued or delayed-delivery basis, lending portfolio 
securities and entering into transactions involving options and 
futures contracts.  See "Investment Objective and Management 
Policies--Certain Investment Strategies."

THE FUND'S EXPENSES  The following expense table lists the costs and 
expenses an investor will incur either directly or indirectly as a 
shareholder of the Fund, based upon the maximum sales charge or 
maximum CDSC that may be incurred at the time of purchase or 
redemption and, unless otherwise noted, the Fund's operating 
expenses for its most recent fiscal year:

Smith Barney
Total Return Bond Fund 

Class 
A

Class B

Class 
C

Class 
Y

Shareholder Transaction Expenses





Maximum sales charge imposed on 
purchases
 (as a percentage of offering 
price)	

4.50%

None

None

None

Maximum CDSC (as a percentage of 
original cost or redemption 
proceeds, whichever is lower)	


None*


4.50%


1.00%


None







Annual Fund Operating Expenses
 (as a percentage of average net 
assets)





Management fees	
0.65%
0.65%
0.65%
0.65%

12b-1 fees**	
0.25
0.75
0.70
None

Other expenses***	
0.14
0.12
0.12
0.10

Total Operating Expenses	
1.04%
1.52%
1.47%
0.75%


*	Purchases of Class A shares of $500,000 or more will be made at 
net asset value with no sales charge, but will be subject to a 
CDSC of 1.00% on redemptions made within 12 months of purchase.
**	Upon conversion of Class B shares to Class A shares, such 
shares will no longer be subject to a distribution fee. Class C 
shares do not have a conversion feature and, therefore, are 
subject to an ongoing distribution fee.  As a result, long-term 
shareholders of Class C shares may pay more than the economic 
equivalent of the maximum front-end sales charge permitted by 
the National Association of Securities Dealers, Inc.
***	For Class A, B, C and Y shares, "Other Expenses" have been 
estimated because no Class A, B, C or Y shares were outstanding 
during the fiscal year ended July 31, 1997.

Class A shares of the Fund purchased through the Smith Barney 
AssetOne Program will be subject to an annual asset-based fee, 
payable quarterly, in lieu of the initial sales charge.  The fee 
will vary to a maximum of 1.50%, depending on the amount of assets 
held through the Program.  For more information, please call your 
Smith Barney Financial Consultant.

The sales charge and CDSC set forth in the above table are the 
maximum charges imposed on purchases or redemptions of Fund shares 
and investors may actually pay lower or no charges depending on 
the amount purchased and, in the case of Class B, Class C and 
certain Class A shares, the length of time the shares are held.  
See "Purchase of Shares" and "Redemption of Shares." Smith Barney 
receives an annual 12b-1 service fee of 0.25% of the value of 
average daily net assets of Class A shares.  Smith Barney also 
receives, with respect to Class B shares, an annual 12b-1 fee of 
0.75% of the value of average daily net assets of that Class, 
consisting of a 0.50% distribution fee and a 0.25% service fee.  
With respect to Class C shares, Smith Barney receives an annual 
12b-1 fee of 0.70% of the value of average daily net assets of the 
Class, consisting of a 0.45% distribution fee and a 0.25% service 
fee.  "Other expenses" in the above table include fees for 
shareholder services, custodial fees, legal and accounting fees, 
printing costs and registration fees.

EXAMPLE  The following example is intended to assist an investor in 
understanding the various costs that an investor in the Fund will 
bear directly or indirectly.  The example assumes payment by the 
Fund of operating expenses at the levels set forth in the table 
above.  See "Purchase of Shares," "Redemption of Shares" and 
"Management of the Trust and the Fund."

Smith Barney
Total Return Bond Fund

1 Year

3 Years



An investor would pay the 
following expenses on a $1,000 
investment, assuming (1) 5.00% 
annual return and (2) 
redemption at the end of each 
time period





Class A
 $55
 $77



Class B
60
78



Class C
25
46



Class Y
8
24









An investor would pay the 
following expenses on the same 
investment, assuming the same 
annual return and no 
redemption:





Class A
 $55 
 $77



Class B
15
48



Class C
15
46



Class Y
8
24




The example also provides a means for the investor to compare 
expense levels of funds with different fee structures over varying 
investment periods.  To facilitate such comparison, all funds are 
required to utilize a 5.00% annual return assumption.  However, 
the Fund's actual return will vary and may be greater or less than 
5.00%.  This example should not be considered a representation of 
past or future expenses and actual expenses may be greater or less 
than those shown.


INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES

The Fund seeks to maximize total return, consisting of capital 
appreciation and income, by investing in fixed-income securities.  
In attempting to achieve its objective, the Fund allocates and 
reallocates its assets primarily among various types of fixed-
income securities selected by SBMFM.  The types of fixed-income 
securities among which the Fund's assets will be primarily 
allocated are:  obligations issued or guaranteed as to principal 
and interest by the United States government ("U.S. government 
securities"); mortgage-related securities issued by various 
governmental and non-governmental entities; domestic investment-
grade corporate debt securities and taxable municipal securities.

The allocation and reallocation of the Fund's assets will be 
undertaken by SBMFM on the basis of its analysis of economic and 
market conditions and the relative risks and opportunities of 
particular types of fixed-income securities.  The average 
portfolio duration will vary based on SBMFM's forecast for 
interest rates.  At any given time, the Fund may be entirely or 
partially invested in a particular type of fixed income security.  
Under normal conditions, at least 65% of the Fund's assets will be 
invested in fixed-income securities.  

The "total return" sought by the Fund will consist of interest and 
dividends from underlying securities, capital appreciation 
reflected in unrealized increases in value of fund securities 
(realized by the shareholder only upon selling shares), or 
realized from the purchase and sale of securities and the use of 
futures and options.  The change in market value of fixed income 
securities (and therefore their capital appreciation) is largely a 
function of changes in the current level of interest rates.

CHARACTERISTICS AND RISKS OF SECURITIES AND INVESTMENT TECHNIQUES

The Fund will invest principally in the following securities:

U.S. Government Securities

The U.S. government securities in which the Fund may invest 
include direct obligations of the United States Treasury (such as 
Treasury Bills, Treasury Notes and Treasury Bonds) and obligations 
issued by U.S. government agencies and instrumentalities, 
including:  securities supported by the full faith and credit of 
the United States (such as Government National Mortgage 
Association ("GNMA") certificates); securities  supported by the 
right of the issuer to borrow from the United States Treasury 
(such as securities of Federal Home Loan Banks); and securities  
supported by the credit of the instrumentality (such as Federal 
National Mortgage Association ("FNMA") and Federal Home Loan 
Mortgage Corporation ("FHLMC") bonds).  Treasury Bills have 
maturities of less than one year, Treasury Notes have maturities 
of one to 10 years and Treasury Bonds generally have maturities of 
greater than 10 years at the date of issuance.  Certain U.S. 
government securities, such as those issued or guaranteed by GNMA, 
FNMA and FHLMC, are mortgage-related securities.  U.S. government 
securities generally do not involve the credit risks associated 
with other types of interest bearing securities, although, as a 
result, the yields available from U.S. government securities are 
generally lower than the yields available from interest-bearing 
corporate securities.

Corporate Debt Securities

Corporate debt securities include corporate bonds, debentures, 
notes and other similar corporate debt securities.  The Fund will 
purchase a corporate debt security if SBMFM believes that the 
yield and, to a lesser extent, the potential for capital 
appreciation of the security are sufficiently attractive in light 
of the risks of ownership of the security.  In determining whether 
the Fund should invest in a particular debt security, SBMFM will 
consider factors such as the price, coupon and yield to maturity 
of the security; the credit quality of the issuer; the issuer's 
available cash flow and the related coverage ratios; the property, 
if any, securing the obligation; and the terms of the debt 
security, including the subordination, default, sinking fund and 
early redemption provisions.  SBMFM also will review the ratings, 
if any, assigned to the security by Moody's Investors Service, 
Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P") or other 
nationally recognized statistical rating organizations ("NRSROs").  
SBMFM's judgments as to credit quality of a debt security may 
differ, however, from that suggested by the ratings published by a 
NRSRO. 

Mortgage-Related Securities

Mortgage-related securities in which the Fund may invest include 
mortgage obligations collateralized by mortgage loans or mortgage 
pass-through certificates.  Under current market conditions, the 
Fund's holdings of mortgage-related securities may be expected to 
consist primarily of securities issued or guaranteed by GNMA, FNMA 
and FHLMC.  The composition of the Fund's investments in mortgage-
related securities, however, will vary from time to time based 
upon a determination of SBMFM on how best to achieve the Fund's 
investment objective, taking into account factors such as the 
liquidity and yield of various mortgage-related securities.  
Mortgage-related securities held by the Fund generally will be 
rated no lower than Aa by Moody's or AA by S&P or, if not rated, 
will be of equivalent investment quality as determined by SBMFM.  
SBMFM may also consider the ratings, if any, assigned to mortgage-
related securities by NRSROs other than Moody's and S&P.

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

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

Taxable Municipal Securities

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

Further information about the Fund's investment policies, 
including a list of those restrictions on the Fund's investment 
activities that cannot be changed without shareholder approval, 
appears in the Statement of Additional Information.


ADDITIONAL INVESTMENTS

Zero Coupon Securities.  The Fund may also invest in zero coupon 
bonds.  A zero coupon bond pays no interest in cash to its holder 
during its life, although interest is accrued during that period.  
Its value to an investor consists of the difference between its 
face value at the time of maturity and the price for which it was 
acquired, which is generally an amount significantly less than its 
face value (sometimes referred to as a "deep discount" price).  
Because such securities usually trade at a deep discount, they 
will be subject to greater fluctuations of market value in 
response to changing interest rates than debt obligation of 
comparable maturities which make periodic distribution of 
interest.  On the other hand, because there are not periodic 
interest payments to be reinvested prior to maturity, zero coupon 
securities eliminate reinvestment risk and lock in a rate of 
return to maturity.

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

Medium-, Low- and Unrated Securities.  The Fund may invest up to 
10% of its assets in medium- or low- rated securities and unrated 
securities of comparable quality. Generally, these securities 
offer a higher current yield than the yield offered by higher-
rated securities but involve greater volatility of price and risk 
of loss of income and principal, including the probability of 
default by or bankruptcy of the issuers of such securities. 
Medium- and low-rated and comparable unrated securities (a) will 
likely have some quality and protective characteristics that, in 
the judgment of the rating organization, are outweighed by large 
uncertainties or major risk exposures to adverse conditions and 
(b) are predominantly speculative with respect to the issuer's 
capacity to pay interest and repay principal in accordance with 
the terms of the obligation. Thus, it is possible that these types 
of factors could, in certain instances, reduce the value of 
securities held by the Fund with a commensurate effect on the 
value of the Fund's shares. Therefore, an investment in the Fund 
should not be considered as a complete investment program and may 
not be appropriate for all investors.  A more detailed discussion 
of the risks associated with medium, low- and unrated securities 
appears in the Statement of Additional Information.


CERTAIN INVESTMENT STRATEGIES

In attempting to achieve its investment objective, the Fund may 
employ, among others, the following portfolio strategies:

When-Issued Securities and Delayed-Delivery Transactions.  In 
order to secure yields or prices deemed advantageous at the time, 
the Fund may purchase or sell securities  offered on a when-issued 
or delayed-delivery basis.  The Fund will enter into a when-issued 
transaction for the purpose of acquiring securities and not for 
the purpose of leverage.  In such transactions, delivery of the 
securities occurs beyond the normal settlement period but no 
payment or delivery is made by the Fund prior to the actual 
delivery or payment by the other party to the transaction.  Due to 
fluctuations in the value of securities purchased or sold on a 
when-issued or delayed-delivery basis, the yields obtained on such 
securities may be higher or lower than the yields available in the 
market on the dates when the investments are actually delivered to 
the buyers.  The Fund will establish a segregated account with the 
Fund's custodian consisting of cash, debt securities of any grade 
or equity securities having a value equal to or greater than the 
Fund's purchase commitments, provided such securities have been 
determined by SBMFM to be liquid and unencumbered and are marked 
to market daily pursuant to guidelines established by the 
Trustees.  Placing securities rather than cash in the segregated 
account may have a leveraging effect on the Fund's net assets.

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

Money Market Instruments.  Under normal market conditions, the 
Fund may hold up to 20% of its total assets in cash or money 
market instruments, including taxable money market instruments.  
In addition, when SBMFM believes that market conditions warrant, 
the Fund may take a temporary defensive posture and invest without 
limitation in short-term instruments.  Securities eligible for 
short-term investment by the Fund include:  U.S. government 
securities; certain bank obligations (including certificates of 
deposit, time deposits and bankers' acceptances of domestic banks, 
domestic savings and loan associations and similar institutions); 
commercial paper rated no lower than A-2 by S&P or Prime-2 by 
Moody's or the equivalent from another NRSRO or, if unrated, of an 
issuer having an outstanding unsecured debt issue then rated 
within the three highest rating categories; and repurchase 
agreements as described below.

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

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

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

In entering into a financial futures contract, the Fund will be 
required to deposit with the broker through which it undertakes 
the transaction an amount of cash or cash equivalents equal to 
approximately 5% of the contract amount.  This amount, which is 
known as "initial margin," is subject to change by the exchange or 
board of trade on which the contract is traded, and members of the 
exchange or board of trade may charge a higher amount.  Initial 
margin is in the nature of a performance bond or good faith 
deposit on the contract that is returned to the Fund upon 
termination of the futures contract, assuming all contractual 
obligations have been satisfied.  In accordance with a process 
known as "marking-to-market," subsequent payments called 
"variation margin," will be made daily to and by the broker as the 
price of the securities underlying the futures contract 
fluctuates, making the long and short positions in the futures 
contract more or less valuable.  At any time prior to the 
expiration of a futures contract, the Fund may elect to close the 
position by taking an opposite position, which will terminate the 
Fund's existing position in the contract.

A financial futures contract provides for the future sale by one 
party and the purchase by the other party of a certain amount of 
specified property at a specified price, date, time and place.  
Unlike a direct investment in a futures contract, an option on a 
financial futures contract gives the purchaser the right, in 
return for the premium paid, to assume a position in the financial 
futures contract at a specified exercise price at any time prior 
to 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 accompanied by delivery of the 
accumulated balance in the writer's futures margin account, which 
represents the amount by which the market price of the futures 
contract exceeds (in the case of a call) or is less than (in the 
case of a put) the exercise price of the option on the futures 
contract.  The potential loss related to the purchase of an option 
on financial futures contracts is limited to the premium paid for 
the option, plus transaction costs.  The value of the option may 
change daily and that change would be reflected in the net asset 
value of the Fund.

Regulations of the Commodity Futures Trading Commission applicable 
to the Fund require that its transactions in financial futures 
contracts and options on financial futures contracts be engaged in 
for bona fide hedging purposes, or if the Fund enters into futures 
contracts for speculative purposes, that the aggregate initial 
margin deposits and premiums paid by the Fund will not exceed 5% 
of the market value of its assets.  In addition, the Fund will, 
with respect to its purchases of financial futures contracts, 
establish a segregated account consisting of cash or cash 
equivalents in an amount equal to the total market value of the 
futures contracts, less the amount of initial margin on deposit 
for the contracts.

Although the Fund intends to enter into financial futures 
contracts and options on financial futures contracts  traded on a 
domestic exchange or board of trade only if an active market 
exists for those instruments, no assurance can be given that an 
active market will exist for them at any particular time.  If 
closing a futures position in anticipation of adverse price 
movements is not possible, the Fund would be required to make 
daily cash payments of variation margin.  In those circumstances, 
an increase in the value of the portion of the Fund's investments 
being hedged, if any, may partially or completely offset losses on 
the futures contract.  No assurance can be given, however, that 
the price of the securities being hedged will correlate with the 
price movements in a futures contract, and thus provide an offset 
to losses on the futures contract or option on the futures 
contract.  In addition, due to the risk of an imperfect 
correlation between securities held by the Fund that are the 
subject of a hedging transaction and the futures or options used 
as a hedging device, the hedge may not be fully effective because, 
for example, losses on the securities held by the Fund may be in 
excess of gains on the futures contract or losses on the futures 
contract may be in excess of gains on the securities held by the 
Fund that were the subject of the hedge.  In an effort to 
compensate for the imperfect correlation of movements in the price 
of the securities being hedged and movements in the price of 
futures contracts, the Fund may enter into financial futures 
contracts or options on financial futures contracts in a greater 
or lesser dollar amount than the dollar amount of the securities 
being hedged if the historical volatility of the futures contract 
has been less or greater than that of the securities.  This "over 
hedging" or "under hedging" may adversely affect the Fund's net 
investment results if market movements are not as anticipated when 
the hedge is established.

If the Fund has hedged against the possibility of an increase in 
interest rates adversely affecting the value of securities it 
holds and rates decrease instead, the Fund will lose part or all 
of the benefit of the increased value of securities that it has 
hedged because it will have offsetting losses in its futures or 
options positions.  In addition, in those situations, if the Fund 
has insufficient cash, it may have to sell securities to meet 
daily variation margin requirements on the futures contracts at a 
time when it may be disadvantageous to do so.  These sales of 
securities may, but will not necessarily, be at increased prices 
that reflect the decline in interest rates.

Lending of Portfolio Securities.  The Fund has the ability to lend 
portfolio securities to brokers, dealers and other financial 
organizations.  These loans, if and when made, may not exceed 20% 
of the Fund's assets taken at value.  Loans of portfolio 
securities will be collateralized by cash, letters of credit or 
U.S. government securities  maintained at all times in an amount 
at least equal to the current market value of the loaned 
securities.  Any gain or loss in the market price of the 
securities loaned that might occur during the term of the loan 
would be for the account of the Fund.  The Fund will segregate the 
common stock or convertible or exchangeable preferred stock or 
debt securities in a special account with its custodian.

CERTAIN ADDITIONAL INVESTMENT GUIDELINES

Up to 15% of the assets of the Fund may be invested in securities 
with contractual or other restrictions on resale and other 
instruments  not readily marketable, including (a) repurchase 
agreements with maturities greater than seven days and (b) time 
deposits maturing from two business days through seven calendar 
days.  Not withstanding the foregoing, the Fund shall not invest 
more that 10% of its net assets in securities that are restricted, 
excluding those subject to Rule 144A under the Securities Act of 
1933, as amended (the "1933 Act").  In addition, the Fund may 
invest up to 5% of its assets in the securities of issuers which 
have been in continuous operation for less than three years.  The 
Fund may also borrow from banks for temporary or emergency 
purposes, but not for investment purposes, in an amount up to 10% 
of its total assets, and may pledge its assets to the same extent 
in connection with such borrowings.  Whenever these borrowings 
exceed 5% of the value of the Fund's total assets, the Fund will 
not make any additional investments.  Except for the limitation on 
borrowing, the investment guidelines set forth in this paragraph 
may be changed at any time without shareholder consent by vote of 
the Trust's Board of Trustees.  A complete list of investment 
restrictions that identifies additional restrictions that cannot 
be changed without the approval of the majority of the Fund's 
outstanding shares is contained in the Statement of Additional 
Information.


VALUATION OF SHARES

The Fund's net asset value per share is determined as of the close 
of regular trading on the NYSE, on each day that the NYSE is open, 
by dividing the value of the Fund's net assets attributable to 
each Class by the total number of shares of that Class 
outstanding.

The Fund's net asset value per share is determined as of the close 
of regular trading on the NYSE on each day that the NYSE is open, 
by dividing the value of the Fund's net assets attributable to 
each Class by the total number of shares of the Class outstanding.

Generally, the Fund's investments are valued at market value or, 
in the absence of a market value with respect to any securities, 
at fair value as determined by or under the direction of the 
Trust's Board of Trustees. A portfolio securities that is traded 
primarily on a domestic stock 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-thecounter market. Short-term 
investments that mature in 60 days or less are valued at amortized 
cost whenever the Trustees determine that amortized cost reflects 
fair value of those investments. An option generally is valued at 
the last sale price or, in the absence of the last sale price, the 
last offer price. The value of a futures contract equals the 
unrealized gain or loss on the contract, which is determined by 
marking the contract to the current settlement price for a like 
contract acquired on the day on which the futures contract is 
being valued. A settlement price may not be used if the market 
makes a limit move with respect to a particular commodity or if 
the underlying securities market experiences significant price 
fluctuations after the determination of the settlement price. In 
such event, the futures contract will be valued at a fair market 
price to be determined by or under the direction of the Board of 
Trustees. Further information regarding the Trust's valuation 
policies with respect to the Fund is contained in the Statement of 
Additional Information.


DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

The Fund will be treated separately from the Trust's other funds 
in determining the amounts of dividends from investment income and 
distributions of capital gains payable to shareholders.

If a shareholder does not otherwise instruct, dividends and 
capital gains distributions will be reinvested automatically in 
additional shares of the same Class at net asset value, subject to 
no sales charge or CDSC.  In addition, in order to avoid the 
application of a 4.00% nondeductible excise tax on certain 
undistributed amounts of ordinary income and capital gains, the 
Fund may make an additional distribution shortly before December 
31 of each year of any undistributed ordinary income or capital 
gains, and expects to make any other distributions as are 
necessary to avoid the application of this tax.

If, for any full fiscal year, the Fund's total distributions 
exceed net investment income and net realized capital gains, the 
excess distributions may be treated as a taxable dividend or as a 
tax-free return of capital (up to the amount of the shareholder's 
tax basis in his or her shares).  The amount treated as a tax-free 
return of capital will reduce a shareholder's adjusted basis in 
his or her shares.  Pursuant to the requirements of the Investment 
Company Act of 1940, as amended (the "1940 Act"), and other 
applicable laws, a notice will accompany any distribution paid 
from sources other than net investment income.  In the event the 
Fund distributes amounts in excess of its net investment income 
and net realized capital gains, such distributions may have the 
effect of decreasing the Fund's total assets, which may increase 
the Fund's expense ratio.

The per share dividends on Class B shares and Class C shares may 
be lower than the per share dividends on Class A and Class Y 
shares, principally as a result of the distribution fee applicable 
with respect to Class B and Class C shares.  The per share 
dividends on Class A shares of the Fund may be lower than the per 
share dividends on Class Y shares, principally as a result of the 
service fee applicable to Class A shares.  Distributions of 
capital gains, if any, will be in the same amount for Class A, 
Class B, Class C and Class Y shares.


TAXES

The Fund will be treated as a separate taxpayer with the result 
that, for Federal income tax purposes, the amount of investment 
income and capital gains earned by the Fund will be determined 
without regard to the earnings of the other funds of the Trust. 
The Fund intends to qualify each year as a "regulated investment 
company" under the Code. If the Fund qualifies as a regulated 
investment company and meets certain distribution requirements, 
the Fund will not be subject to Federal income tax on its net 
investment income and net capital gains that it distributes to its 
shareholders.

Dividends paid by the Fund from investment income and 
distributions of short-term capital gain will be taxable to 
shareholders as ordinary income for Federal income tax purposes, 
whether received in cash or reinvested in additional shares.

Furthermore, as a general rule, distributions of long-term capital 
gain will be taxable to shareholders as long-term capital gain, 
whether paid in cash or reinvested in additional shares, and 
regardless of the length of time that the investor has held his or 
her shares of the Fund.

The Fund anticipates that most of its dividends will not qualify 
for the Corporate Deduction. Each shareholder will receive a 
statement annually from the Trust, which will set forth separately 
the aggregate dollar amount of dividends and capital gains, 
including the portion of capital gains eligible for a reduced 
maximum 20% tax rate, distributed to the shareholder by the Fund 
with respect to the prior calendar year.

Shareholders are urged to consult their tax advisers regarding the 
application of Federal, state and local tax laws to their specific 
situation before investing in the Fund.

PURCHASE OF SHARES

GENERAL

The Fund currently offers four Classes of shares.  Class A shares 
are sold to investors with an initial sales charge and Class B and 
Class C shares are sold without an initial sales charge but are 
subject to a CDSC payable upon certain redemptions.  Class Y 
shares are sold without an initial sales charge or a CDSC and are 
available only to investors investing a minimum of $5,000,000 
(except for purchases of Class Y shares by Smith Barney Concert 
Allocation Series Inc., for which there is no minimum purchase 
amount).  See "Prospectus Summary--Alternative Purchase 
Arrangements" for a discussion of factors to consider in selecting 
which Class of shares to purchase.

INITIAL SUBSCRIPTION PERIOD 

Smith Barney, the Fund's distributor, will solicit subscriptions 
for shares of the Fund during the Subscription Period.  
Subscriptions for shares must be made through a brokerage account 
maintained with Smith Barney or an Introducing Broker.  Shares of 
the Fund subscribed for during the Subscription Period for which 
Smith Barney accepts purchase orders will be issued and sold by 
the Fund on the third business day after the end of the 
Subscription Period (the "Purchase Date").  Also on the Purchase 
Date, shareholders of other funds of the Smith Barney Mutual Funds 
will be able to exchange shares of such funds for shares of the 
Fund.  On the Purchase Date, Smith Barney will notify the Fund of 
the aggregate number of shares for which it has received and 
accepted subscriptions, and the Fund will issue shares for such 
subscriptions and commence operations.

The Fund is offering its Class A shares to the public at a maximum 
purchase price per share of $12.00, which equals the Class A share 
initial net asset value per share of $11.46 plus the maximum sales 
charge set forth below under "Continuous Offerings".  The Fund is 
offering its Class B, Class C and Class Y shares to the public at 
each Class' respective initial net asset value per share of 
$11.46.

The Fund and Smith Barney may in their discretion determine to 
withdraw the offering without notice for any reason before the end 
of the Subscription Period.  The Fund also reserves the right to 
refuse any order in whole or in part. 

CONTINUOUS OFFERINGS

Smith Barney will suspend the offering of shares to the public 
immediately after the expiration of the Subscription Period or 
within three weeks thereafter.  During the three-week period, 
Smith Barney will commence a limited continuous offering of shares 
to the public.  Once Smith Barney suspends the offering of shares 
to the public (the "Closing Period"), it is expected to do so for 
30 days.  This period may be lengthened or shortened in the 
absolute discretion of Smith Barney.  During the Closing Period, 
the Fund will invest the proceeds from its Subscription Period and 
its continuous offering, if any, and existing shareholders may 
request redemptions, purchase additional shares and exchange 
shares of the Fund for shares of certain other funds of the Smith 
Barney Mutual Funds.  See "Exchange Privilege."  Immediately after 
the expiration of the Closing Period, Smith Barney expects to 
commence a continuous offering of shares of the Fund. 

During the continuous offering, shares may be purchased through a 
brokerage account maintained with Smith Barney.  Shares may also 
be purchased through an Introducing Broker or an investment dealer 
in the selling group.  In addition, certain investors, including 
qualified retirement plans and certain other institutional 
investors, may purchase shares directly from the Fund through the 
Fund's transfer agent, First Data Investor Services Group, Inc. 
("First Data").  When purchasing shares of the Fund, investors 
must specify whether the purchase is for Class A, Class B, Class C 
or Class Y shares.  Smith Barney and other broker-dealers may 
charge their customers an annual account maintenance fee in 
connection with a brokerage account through which an investor 
purchases or holds shares.  Accounts held directly at First Data 
are not subject to a maintenance fee. 

Investors in Class A, Class B and Class C shares may open an 
account in the Fund by making an initial investment of at least 
$1,000.  Investors in Class Y shares may open an account by making 
an initial investment of $5,000,000.  Subsequent investments of at 
least $50 may be made for all Classes.  For shareholders 
purchasing shares of the Fund through the Systematic Investment 
Plan on a monthly basis, the minimum initial investment 
requirement for Class A, Class B and Class C shares and the 
minimum subsequent investment requirement for all Classes is $25.  
For shareholders purchasing shares of the Fund through the 
Systematic Investment Plan on a quarterly basis, the minimum 
initial investment requirement for Class A, Class B and Class C 
shares and the subsequent investment requirement for all Classes 
is $50.  There are no minimum investment requirements for Class A 
shares for employees of Travelers and its subsidiaries, including 
Smith Barney, unitholders who invest distributions from a UIT 
sponsored by Smith Barney and Directors or Trustees of any of the 
Smith Barney Mutual Funds and their spouses and children.  The 
Fund reserves the right to waive or change minimums, to decline 
any order to purchase its shares and to suspend the offering of 
shares from time to time.  Shares purchased will be held in the 
shareholder's account by First Data.  Share certificates are 
issued only upon a shareholder's written request to the First 
Data.

The minimum initial investment requirement in the Fund for an 
account established under the Uniform Gift to Minors Act is $250 
and the minimum subsequent investment requirement is $50.

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

SYSTEMATIC INVESTMENT PLAN

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

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES

The sales charges applicable to purchases of Class A shares of the 
Fund are as follows:



Amount of 
Investment

Sales Charge 
as % of 
Offering Price

Sales Charge as 
% of Amount 
Invested
Dealers 
Reallowance as % 
of 
Offering Price

Less than $25,000
4.50%
4.71%
4.05%

$25,000--$49,999
4.00
4.17
3.60

$50,000--$99,999
3.50
3.63
3.15

$100,000--$249,999
2.50
2.56
2.25

$250,000--$499,999
1.50
1.52
1.35

$500,000 and over
*
*
*


*	Purchases of Class A shares of $500,000 or more will be made at 
net asset value without any initial sales charge, but will be 
subject to a CDSC of 1.00% on redemptions made within 12 months 
of purchase.  The CDSC on Class A shares is payable to Smith 
Barney, which compensates Smith Barney Financial Consultants 
and other dealers whose clients make purchases of $500,000 or 
more.  The CDSC is waived in the same circumstances in which 
the CDSC applicable to Class B and Class C shares is waived.  
See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."

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

The reduced sales charges shown above apply to the aggregate of 
purchases of Class A shares of the Fund made at one time by "any 
person," which includes an individual and his or her immediate 
family or a trustee or other fiduciary of a single trust estate or 
single fiduciary account.

INITIAL SALES CHARGE WAIVERS

Purchases of Class A shares may be made at net asset value without 
a sales charge in the following circumstances: (a) sales to (i) 
Trustees or Directors of any Smith Barney Mutual Funds and 
employees of Travelers and its subsidiaries and to the immediate 
families of such persons and pension, profit-sharing or other 
benefit plans for such persons and (ii) employees of members of 
the National Association of Securities Dealers, Inc., provided 
such sales are made upon the assurance of the purchaser that the 
purchase is made for investment purposes and that the securities 
will not be resold except through redemption or repurchase; (b) 
offers of Class A shares to any other investment company to effect 
the combination of such company with the Fund by merger, 
acquisition of assets or otherwise; (c) purchases of Class A 
shares by any client of a newly employed Smith Barney Financial 
Consultant (for a period up to 90 days from the commencement of 
the Financial Consultant's employment with Smith Barney), on the 
condition the purchase of Class A shares is made with the proceeds 
of the redemption of shares of a mutual fund which (i) was 
sponsored by the Financial Consultant's prior employer, (ii) was 
sold to the client by the Financial Consultant and (iii) was 
subject to a sales charge; (d) purchases by shareholders who have 
redeemed Class A shares in the Fund (or Class A shares of another 
Smith Barney Mutual Fund  offered with a sales charge) and who 
wish to reinvest their redemption proceeds in the Fund, provided 
the reinvestment is made within 60 calendar days of the 
redemption; (e) purchases by accounts managed by registered 
investment advisory subsidiaries of Travelers; (f) investments of 
distributions from a UIT sponsored by Smith Barney; (g) purchases 
by investors participating in a Smith Barney fee-based 
arrangement; and (h) purchases by Travelers Insurance Company 
agents, principals and licensed producers.  In order to obtain 
such discounts, the purchaser must provide sufficient information 
at the time of purchase to permit verification that the purchase 
would qualify for the elimination of the sales charge.

RIGHT OF ACCUMULATION

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

GROUP PURCHASES

Upon completion of certain automated systems, a reduced sales 
charge or purchase at net asset value will also be available to 
employees (and partners) of the same employer purchasing as a 
group, provided each participant makes the minimum initial 
investment required.  The sales charge applicable to purchases by 
each member of such a group will be determined by the table set 
forth above under "Initial Sales Charge Alternative--Class A 
Shares," and will be based upon the aggregate sales of Class A 
shares of Smith Barney Mutual Funds offered with a sales charge 
to, and share holdings of, all members of the group.  To be 
eligible for such reduced sales charges or to purchase at net 
asset value, all purchases must be pursuant to an employer or 
partnership-sanctioned plan meeting certain requirements.  One 
such requirement is that the plan must be open to specified 
partners or employees of the employer and its subsidiaries, if 
any.  Such plan may, but is not required to, provide for payroll 
deductions.  Smith Barney may also offer a reduced sales charge or 
net asset value purchase for aggregating related fiduciary 
accounts under such conditions that Smith Barney will realize 
economies of sales efforts and sales-related expenses.  An 
individual who is a member of a qualified group may also purchase 
Class A shares at the reduced sales charge applicable to the group 
as a whole.  The sales charge is based upon the aggregate dollar 
value of Class A shares offered with a sales charge that have been 
previously purchased and are still owned by the group, plus the 
amount of the current purchase.  A "qualified group" is one which 
(a) has been in existence for more than six months, (b) has a 
purpose other than acquiring Fund shares at a discount and (c) 
satisfies uniform criteria which enable Smith Barney to realize 
economies of scale in its costs of distributing shares.  A 
qualified group must have more than 10 members, must be available 
to arrange for group meetings between representatives of the Fund 
and the members, and must agree to include sales and other 
materials related to the Fund in its publications and mailings to 
members at no cost to Smith Barney.  In order to obtain such 
reduced sales charge or to purchase at net asset value, the 
purchaser must provide sufficient information at the time of 
purchase to permit verification that the purchase qualifies for 
the reduced sales charge.  Approval of group purchase reduced 
sales charge plans is subject to the discretion of Smith Barney.

LETTER OF INTENT

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

Class Y Shares.  A Letter of Intent may also be used as a way for 
investors to meet the minimum investment requirement for Class Y 
shares.  Such investors must make an initial minimum purchase of 
$1,000,000 in Class Y shares of the Fund and agree to purchase a 
total of $5,000,000 of Class Y shares of the Fund within six 
months from the date of the Letter.  If a total investment of 
$5,000,000 is not made within the six-month period, all Class Y 
shares purchased to date will be transferred to Class A shares, 
where they will be subject to all fees (including a service fee of  
0.25%) and expenses applicable to the Fund's Class A shares, which 
may include a CDSC of 1.00%.  Please contact a Smith Barney 
Financial Consultant or First Data for further information.

DEFERRED SALES CHARGE ALTERNATIVES

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

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

Class C and Class A shares that are CDSC Shares are subject to a 
1.00% CDSC if redeemed within 12 months of purchase.  In 
circumstances in which the CDSC is imposed on Class B shares, the 
amount of the charge will depend on the number of years since the 
shareholder made the purchase payment from which the amount is 
being redeemed.  Solely for purposes of determining the number of 
years since a purchase payment, all purchase payments made during 
a month will be aggregated and deemed to have been made on the 
last day of the preceding Smith Barney statement month.  The 
following table sets forth the rates of the charge for redemptions 
of Class B shares by shareholders.

Year Since Purchase
Payment Was Made

CDSC

First
4.50%

Second
4.00

Third
3.00

Fourth
2.00

Fifth
1.00

Sixth and thereafter
0.00


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

The length of time that CDSC Shares acquired through an exchange 
have been held will be calculated from the date that the shares 
exchanged were initially acquired in one of the other Smith Barney 
Mutual Funds, and Fund shares being redeemed will be considered to 
represent, as applicable, capital appreciation or dividend and 
capital gain distribution reinvestments in such other funds.  For 
Federal income tax purposes, the amount of the CDSC will reduce 
the gain or increase the loss, as the case may be, on the amount 
realized on redemption.  The amount of any CDSC will be paid to 
Smith Barney.

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

WAIVERS OF CDSC

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

CDSC waivers will be granted subject to confirmation (by Smith 
Barney in the case of shareholders who are also Smith Barney 
clients or by First Data in the case of all other shareholders) of 
the shareholder's status or holdings, as the case may be.

SMITH BARNEY 401(k) PROGRAM AND EXECCHOICE PROGRAMS

During the continuous offering period investors may be eligible to 
participate in the Smith Barney 401(k) Program or the Smith Barney 
ExecChoice Program.  To the extent applicable, the same terms and 
conditions, which are outlined below, are offered to all plans 
participating ("Participating Plans") in these programs.

Each Fund offers to Participating Plans Class A and Class C shares 
as investment alternatives under the Smith Barney 401(k) and 
ExecChoice Programs.  Class A and Class C shares acquired through 
the Participating Plans are subject to the same service and/or 
distribution fees as the Class A and Class C shares acquired by 
other investors; however, they are not subject to any initial 
sales charge or CDSC.  Once a Participating Plan has made an 
initial investment in a Fund, all of its subsequent investments in 
the Fund must be in the same Class of shares, except as otherwise 
described below.

Class A Shares.  Class A shares of a Fund are offered without any 
sales charge or CDSC to any Participating Plan that purchases 
$1,000,000 or more of Class A shares of one or more funds of the 
Smith Barney Mutual Funds.

Class C Shares.  Class C shares of a Fund are offered without any 
sales charge or CDSC to any Participating Plan that purchases less 
than $1,000,000 of Class C shares of one or more funds of the 
Smith Barney Mutual Funds.

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

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

Any Participating Plan in the Smith Barney 401(k) or ExecChoice 
Programs that has not previously qualified for an exchange into 
Class A shares will be offered the opportunity to exchange all of 
its Class C shares for Class A shares of a Fund, regardless of 
asset size, at the end of the eighth year after the date the 
Participating Plan enrolled in the Smith Barney 401(k) or 
ExecChoice  Programs.  Such Plans will be notified of the pending 
exchange in writing approximately 60 days before the eighth 
anniversary of the enrollment date and, unless the exchange has 
been rejected in writing, the exchange will occur on or about the 
eighth anniversary date.  Once an exchange has occurred, a 
Participating Plan will not be eligible to acquire additional 
Class C shares of the Fund but instead may acquire Class A shares 
of the Fund.  Any Class C shares not converted will continue to be 
subject to the distribution fee.

Participating Plans wishing to acquire shares of a Fund through 
the Smith Barney 401(k) Program or the Smith Barney ExecChoice 
Program must purchase such shares directly from First Data.  For 
further information regarding these Programs, investors should 
contact a Smith Barney Financial Consultant.

Existing 401(k) Plans Investing in Class B Shares.  Class B shares 
of the Smith Barney Mutual Funds are not available for purchase by 
Participating Plans opened on or after June 21, 1996, but may 
continue to be purchased by any Participating Plan in the Smith 
Barney 401(k) Program opened prior to such date and originally 
investing in such Class.  Class B shares acquired are subject to a 
CDSC of 3.00% of redemption proceeds, if the Participating Plan 
terminates within eight years of the date the Participating Plan 
first enrolled in the Smith Barney 401(k) Program.

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

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

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


EXCHANGE PRIVILEGE

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

FUND NAME
Growth Funds
	Smith Barney Aggressive Growth Fund Inc.
	Smith Barney Appreciation Fund Inc.
	Smith Barney Disciplined Small Cap Fund, Inc.
	Smith Barney Fundamental Value Fund Inc.
	Smith Barney Large Capitalization Growth Fund
	Smith Barney Growth Opportunity Fund Inc.
	Smith Barney Managed Growth Fund
	Smith Barney Natural Resources Fund Inc.
	Smith Barney Special Equities Fund

Growth and Income Funds
	Concert Social Awareness Fund
	Smith Barney Convertible Fund
	Smith Barney Funds, Inc.--Equity Income Portfolio
	Smith Barney Growth and Income Fund
	Smith Barney Premium Total Return Fund
	Smith Barney Utilities Fund

Taxable Fixed-Income Funds
**	Smith Barney Adjustable Rate Government Income Fund
	Smith Barney Diversified Strategic Income Fund
++	Smith Barney Funds, Inc.--Short-Term U.S. Treasury 
Securities Portfolio
	Smith Barney Funds, Inc.--U.S. Government Securities 
Portfolio
	Smith Barney Government Securities Fund
	Smith Barney High Income Fund
	Smith Barney Investment Grade Bond Fund
	Smith Barney Managed Governments Fund Inc.

Tax-Exempt Funds
	Smith Barney Arizona Municipals Fund Inc.
	Smith Barney California Municipals Fund Inc.
*	Smith Barney Intermediate Maturity California Municipals 
Fund
*	Smith Barney Intermediate Maturity New York Municipals Fund
	Smith Barney Managed Municipals Fund Inc.
	Smith Barney Massachusetts Municipals Fund
	Smith Barney Muni Funds--Florida Portfolio
	Smith Barney Muni Funds--Georgia Portfolio
*	Smith Barney Muni Funds--Limited Term Portfolio
	Smith Barney Muni Funds--National Portfolio
	Smith Barney Muni Funds--New York Portfolio
	Smith Barney Muni Funds--Pennsylvania Portfolio
	Smith Barney New Jersey Municipals Fund Inc.
	Smith Barney Oregon Municipals Fund
	Smith Barney Tax-Exempt Income Fund

International Funds
	Smith Barney World Funds, Inc.--Emerging Markets Portfolio
	Smith Barney World Funds, Inc.--European Portfolio
	Smith Barney World Funds, Inc.--Global Government Bond 
Portfolio
	Smith Barney World Funds, Inc.--International Balanced 
Portfolio
	Smith Barney World Funds, Inc.--International Equity 
Portfolio
	Smith Barney World Funds, Inc.--Pacific Portfolio

Smith Barney Concert Allocation Series Inc.
	Smith Barney Concert Allocation Series Inc.--Balanced 
Portfolio
	Smith Barney Concert Allocation Series Inc.--Conservative 
Portfolio
	Smith Barney Concert Allocation Series Inc.--Growth 
Portfolio
	Smith Barney Concert Allocation Series Inc.--High Growth 
Portfolio
	Smith Barney Concert Allocation Series Inc.--Income 
Portfolio

Money Market Funds
	Smith Barney Exchange Reserve Fund
++	Smith Barney Money Funds, Inc.--Cash Portfolio
++	Smith Barney Money Funds, Inc.--Government Portfolio
***Smith Barney Money Funds, Inc.--Retirement Portfolio
++	Smith Barney Municipal Money Market Fund, Inc.
++	Smith Barney Muni Funds--California Money Market Portfolio
++	Smith Barney Muni Funds--New York Money Market Portfolio

*	Available for exchange with Class A, Class C and Class Y shares 
of the Fund.
**	Available for exchange with Class A and Class B shares of the 
Fund.
***	Available for exchange with Class A shares of the Fund.
+	Available for exchange with Class B and Class C shares of the 
Fund.
++	Available for exchange with Class A and Class Y shares of the 
Fund.  In addition, shareholders who own Class C shares of the 
Fund through the Smith Barney 401(k) or ExecChoice Programs may 
exchange those shares for Class C shares of this Fund.

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

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

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

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

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


REDEMPTION OF SHARES

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

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

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

Smith Barney Total Return Bond Fund
Class A, B, C or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128

A written redemption request must (a) state the Class and number 
or dollar amount of shares to be redeemed, (b) identify the 
shareholder's account number and (c) be signed by each registered 
owner exactly as the shares are registered.  If the shares to be 
redeemed were issued in certificate form, the certificates must be 
endorsed for transfer (or be accompanied by an endorsed stock 
power) and must be submitted to First Data together with the 
redemption request.  Any signature required in connection with a 
written redemption request in excess of $2,000, share certificate 
or stock power must be guaranteed by an eligible guarantor 
institution such as a domestic bank, savings and loan institution, 
domestic credit union, member bank of the Federal Reserve System 
or member firm of a national securities exchange.  Written 
redemption requests of $2,000 or less do not require a signature 
guarantee unless more than one such redemption request is made in 
any 10-day period.  Redemption proceeds will be mailed to an 
investor's address of record.  First Data may require additional 
supporting documents for redemptions made by corporations, 
executors, administrators, trustees or guardians.  A redemption 
request will not be deemed properly received until First Data 
receives all required documents in proper form.



TELEPHONE REDEMPTION AND EXCHANGE PROGRAM

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

Redemptions. Redemption requests of up to $10,000 of any class or 
classes of the Fund's shares may be made by eligible shareholders 
by calling First Data at (800) 451-2010.  Such requests may be 
made between 9:00 a.m. and 5:00 p.m. (New York City time) on any 
day the NYSE is open.  Redemptions of shares (i) by retirement 
plans or (ii) for which certificates have been issued are not 
permitted under this program.

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

Exchanges.  Eligible shareholders may make exchanges by telephone 
if the account registration of the fund being acquired is 
identical to the registration of the shares of the fund exchanged.  
Such exchange requests may be made by calling First Data at (800) 
451-2010 between 9:00 a.m. and 5:00 p.m. (New York City time) on 
any day on which the NYSE is open.

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

AUTOMATIC CASH WITHDRAWAL PLAN

The Fund offers shareholders an automatic cash withdrawal plan, 
under which shareholders who own shares with a value of at least 
$10,000 may elect to receive cash payments of at least $50 monthly 
or quarterly.  The withdrawal plan will be carried over on 
exchanges between funds or Classes of the Fund.  Any applicable 
CDSC will not be waived on amounts withdrawn by a shareholder that 
exceed 1.00% per month of the value of the shareholder's shares 
subject to the CDSC at the time the withdrawal plan commences.  
With respect to withdrawal plans in effect prior to November 7, 
1994, any applicable CDSC will be waived on amounts withdrawn that 
do not exceed 2.00% per month of the shareholder's shares subject 
to the CDSC.  For further information regarding the automatic cash 
withdrawal plan, shareholders should contact a Smith Barney 
Financial Consultant.


MINIMUM ACCOUNT SIZE

The Fund reserves the right to involuntarily liquidate any 
shareholder's account in the Fund if the aggregate net asset value 
of the shares held in the Fund account is less than $500.  If a 
shareholder has more than one account in this Fund, each account 
must satisfy the minimum account size.  The Fund, however, will 
not redeem shares based solely on market reductions in net asset 
value.  Before the Fund exercises such right, shareholders will 
receive written notice and will be permitted 60 days to bring 
accounts up to the minimum to avoid involuntary liquidation.


PERFORMANCE

YIELD

From time to time, the Fund may advertise the 30-day "yield" and 
"equivalent taxable yield" of each Class of shares.  The yield 
refers to the income generated by an investment in those shares 
over the 30-day period identified in the advertisement and is 
computed by dividing the net investment income per share earned by 
the Class during the period by the maximum public offering price 
per share on the last day of the period.  This income is 
"annualized" by assuming the amount of income is generated each 
month over a one-year period and is compounded semi-annually.  The 
annualized income is then shown as a percentage of the net asset 
value.

The equivalent taxable yield demonstrates the yield on a taxable 
investment necessary to produce an after-tax yield equal to the 
Fund's tax-exempt yield for each Class.  It is calculated by 
increasing the yield shown for the Class to the extent necessary 
to reflect the payment of taxes at specified tax rates.  Thus, the 
equivalent taxable yield always will exceed the Fund's yield.  For 
more information on equivalent taxable yields, refer to the table 
under "Dividends, Distributions and Taxes."

TOTAL RETURN

From time to time the Fund may include its total return, average 
annual total return and current dividend return in advertisements 
and/or other types of sales literature.  These figures are 
computed separately for Class A, Class B, Class C and Class Y 
shares of the Fund.  These figures are based on historical 
earnings and are not intended to indicate future performance.  
Total return is computed for a specified period of time assuming 
deduction of the maximum sales charge, if any, from the initial 
amount invested and reinvestment of all income dividends and 
capital gain distributions on the reinvestment dates at prices 
calculated as stated in this Prospectus, then dividing the value 
of the investment at the end of the period so calculated by the 
initial amount invested and subtracting 100%.  The standard 
average annual total return, as prescribed by the SEC, is derived 
from this total return, which provides the ending redeemable 
value.  Such standard total return information may also be 
accompanied with nonstandard total return information for 
differing periods computed in the same manner but without 
annualizing the total return or taking sales charges into account.  
The Fund calculates current dividend return for each Class by 
annualizing the most recent monthly distribution and dividing by 
the net asset value or the maximum public offering price 
(including sales charge) on the last day of the period for which 
current dividend return is presented.  The current dividend return 
for each Class may vary from time to time depending on market 
conditions, the composition of its investment portfolio and 
operating expenses.  These factors and possible differences in the 
methods used in calculating current dividend return should be 
considered when comparing a Class' current return to yields 
published for other investment companies and other investment 
vehicles.  The Fund may also include comparative performance 
information in advertising or marketing its shares.  Such 
performance information may include data from Lipper Analytical 
Services, Inc. or similar independent services that monitor the 
performance of mutual funds, or other financial publications.


MANAGEMENT OF THE TRUST AND THE FUND

BOARD OF TRUSTEES

Overall responsibility for management and supervision of the Fund 
rests with the Trust's Board of Trustees.  The Trustees approve 
all significant agreements between the Trust and the companies 
that furnish services to the Trust and the Fund, including 
agreements with the Fund's distributor, investment manager and 
administrator, custodian and transfer agent.  The day-to-day 
operations of the Fund are delegated to the Fund's investment 
manager and administrator.  The Statement of Additional 
Information contains background information regarding each Trustee 
and executive officer of the Trust.

INVESTMENT MANAGER

SBMFM, located at 388 Greenwich Street, New York, New York 10013, 
serves as the Fund's investment manager.  SBMFM is a wholly owned 
subsidiary of Holdings.  SBMFM (through its predecessor entities) 
has been in the investment counseling business since 1934 and is a 
registered investment adviser.  SBMFM renders investment advice to 
investment companies that had aggregate assets under management as 
of September 30, 1997 in excess of $81 billion.

Subject to the supervision and direction of the Trust's Board of 
Trustees, SBMFM manages the Fund's portfolio in accordance with 
the Fund's investment objective and policies, makes investment 
decisions for the Fund, places orders to purchase and sell 
securities and employs professional portfolio managers and 
securities analysts who provide research services to the Fund.  
For investment management services, the Fund pays SBMFM a monthly 
fee at the annual rate of 0.65% of the value of the Fund's average 
daily net assets.

PORTFOLIO MANAGEMENT

Joseph P. Deane, an Investment Officer of SBMFM and a Vice 
President and Investment Officer of the Fund, is responsible for 
managing the day-to-day operations of the Fund, including making 
investment decisions.



DISTRIBUTOR

Smith Barney is located at 388 Greenwich Street, New York, New 
York 10013.  Smith Barney distributes shares of the Fund as 
principal underwriter and as such conducts a continuous offering 
pursuant to a "best efforts" arrangement requiring Smith Barney to 
take and pay for only such securities as may be sold to the 
public.  Pursuant to a plan of distribution adopted by the Fund 
under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is 
paid a service fee with respect to Class A, Class B and Class C 
shares of the Fund at the annual rate of 0.25% of the average 
daily net assets of the respective Class.  Smith Barney is also 
paid a distribution fee with respect to Class B and Class C shares 
at the annual rate of 0.50% and 0.45%, respectively, of the 
average daily net assets attributable to those Classes.  Class B 
shares which automatically convert to Class A shares eight years 
after the date of original purchase will no longer be subject to a 
distribution fee.  The fees are used by Smith Barney to pay its 
Financial Consultants for servicing shareholder accounts and, in 
the case of Class B and Class C shares, to cover expenses 
primarily intended to result in the sale of those shares.  These 
expenses include: advertising expenses; the cost of printing and 
mailing prospectuses to potential investors; payments to and 
expenses of Smith Barney Financial Consultants and other persons 
who provide support services in connection with the distribution 
of shares; interest and/or carrying charges; and indirect and 
overhead costs of Smith Barney associated with the sale of Fund 
shares, including lease, utility, communications and sales 
promotion expenses.

The payments to Smith Barney Financial Consultants for selling 
shares of a Class include a commission or fee paid by the investor 
or Smith Barney at the time of sale and, with respect to Class A, 
Class B and Class C shares, a continuing fee for servicing 
shareholder accounts for as long as a shareholder remains a holder 
of that Class.  Smith Barney Financial Consultants may receive 
different levels of compensation for selling different Classes of 
shares.

Payments under the Plan are not tied exclusively to the 
distribution and shareholder service expenses actually incurred by 
Smith Barney and the payments may exceed distribution expenses 
actually incurred.  The Fund's Board of Trustees will evaluate the 
appropriateness of the Plan and its payment terms on a continuing 
basis and in so doing will consider all relevant factors, 
including expenses borne by Smith Barney, amounts received under 
the Plan and proceeds of the CDSC.


ADDITIONAL INFORMATION

The Trust was organized on March 12, 1985, under the laws of the 
Commonwealth of Massachusetts and is an entity commonly known as a 
"Massachusetts business trust." The Trust offers shares of 
beneficial interest of separate series having a $0.001 per share 
par value.  When matters are submitted for shareholder vote, 
shareholders of each Class will have one vote for each full share 
owned and a proportionate, fractional vote for any fractional 
share held of that Class.  Shares of the Trust will be voted 
generally on a Trust-wide basis on all matters, except matters 
affecting the interests of one Fund or one Class of shares.

Each Class of Fund shares represents identical interests in the 
Fund's investment portfolio.  As such, they have the same rights, 
privileges and preferences, except with respect to: (a) the 
designation of each Class; (b) the effect of the respective sales 
charges for each Class; (c) the distribution and/or service fees, 
if any, borne by each Class; (d) the expenses allocable 
exclusively to each Class; (e) voting rights on matters 
exclusively affecting a single Class; (f) the exchange privilege 
of each Class; and (g) the conversion feature of the Class B 
shares.  The Trust's Board of Trustees does not anticipate that 
there will be any conflicts among the interests of the holders of 
the different Classes.  The Trustees, on an ongoing basis, will 
consider whether any such conflict exists and, if so, take 
appropriate action.

The Trust does not hold annual shareholder meetings.  There 
normally will be no meetings of shareholders for the purpose of 
electing Trustees unless and until such time as less than a 
majority of the Trustees holding office have been elected by 
shareholders.  The Trustees will call a meeting for any purpose 
upon written request of shareholders holding at least 10% of the 
Trust's outstanding shares and the Trust will assist shareholders 
in calling such a meeting as required by the 1940 Act.

PNC Bank, National Association, located at 17th and Chestnut 
Streets, Philadelphia, PA 19103, serves as custodian of the 
Trust's investments.

First Data, located at Exchange Place, Boston, Massachusetts 
02109, serves as the Trust's transfer agent.

The Fund sends its shareholders a semi-annual report and an 
audited annual report, each of which includes a list of the 
investment securities held by the Fund at the end of the reporting 
period.  In an effort to reduce the Fund's printing and mailing 
costs, the Trust plans to consolidate the mailing of the Fund's 
semi-annual and annual reports by household.  This consolidation 
means that a Household having multiple accounts with the identical 
address of record will receive a single copy of each report.  
Shareholders who do not want this consolidation to apply to their 
accounts should contact their Smith Barney Financial Consultants 
or the Transfer Agent. 


SMITH BARNEY
A Member of Travelers Group

SMITH BARNEY TOTAL RETURN BOND FUND
388 Greenwich Street
New York, New York 10013

FD ____ [1/98]



34
u:\legal\users\jeh\trbfpro.doc



SMITH BARNEY INCOME FUNDS
PART B

Smith Barney
INCOME FUNDS

388 Greenwich Street
New York, New York 10013
   (800) 451-2010    


Statement of Additional Information	November 28, 1996
	amended April 30, 1997

   
	This Statement of Additional Information expands upon and 
supplements the information contained in the current Prospectuses 
of Smith Barney Income Funds (the "Trust"), relating to eight 
nvestment funds offered by the Trust: Smith Barney Convertible 
Fund (the "Convertible Fund"), Smith Barney Diversified Strategic 
Income Fund (the "Diversified Strategic Income Fund"), Smith 
Barney Exchange Reserve Fund (the "Exchange Reserve Fund"), Smith 
Barney High Income Fund (the "High Income Fund"), Smith Barney 
Premium Total Return Fund (the "Premium Total Return Fund"), Smith 
Barney Tax-Exempt Income Fund (the "Tax-Exempt Income Fund"), 
Smith Barney Total Return Bond Fund (the "Total Return Bond Fund") 
and Smith Barney Utilities Fund (the "Utilities Fund") (each a 
"Fund" and together the "Funds"), each dated November 28, 1996, as 
amended or supplemented from time to time (the "Prospectuses"), 
and should be read in conjunction with the Prospectuses. The 
Prospectuses may be obtained from any Smith Barney Financial 
Consultant or by writing or calling the Trust at the address or 
telephone number set forth above. This Statement of Additional 
Information, although not in itself a prospectus, is incorporated 
by reference into the Prospectuses in its entirety.
    

CONTENTS

	For ease of reference, the same section headings are used in 
both the Prospectuses and this Statement of Additional 
Information, except where shown below:



Management of the Trust and the Funds		 
2
Investment Objectives and Management Policies.	 	 
8
Purchase of Shares	
	26
Redemption of Shares	
	27
Distributor..	
	28
Valuation of Shares	
	30
Exchange Privilege	
	31
Performance Data (See in the Prospectuses "Performance" or "Yield 
Information")	
	31
Taxes (See in the Prospectuses "Dividends, Distributions and 
Taxes")	
	36
Additional Information	
	40
Financial Statements	
	40
Appendix	
	A-1


MANAGEMENT OF THE TRUST AND THE FUNDS

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

Name 
Service 
 
    
Smith Barney Inc. ("Smith Barney") 
Distributor 
 
 
PFS Distributors ("PFS") 
Distributor to Exchange Reserve Fund 
 
 
Smith Barney Mutual Funds Management Inc. ("SBMFM") 
Investment adviser to the Convertible  
Fund, High Income Fund, Diversified Fund 
Strategic Income Fund, Tax-Exempt 
Income Fund, Utilities Fund, Total Return Bond Fund and  
Exchange Reserve Fund 
 
 
Smith Barney Strategy Advisers Inc. ("Strategy Advisers") 
Investment adviser to PremiumTotal Return Fund  
 
 
Smith Barney Global Capital Management  
Inc. ("Global Capital Management") 
Sub-investment adviser to Diversified Strategic Income Fund 
 
 
Boston Partners Asset Management, L.P. ("Boston Partners") 
Sub-investment adviser to Premium Total Return Fund 
 
 
SBMFM 
Administrator 
 
 
PNC Bank, National Association ("PNC Bank") 
Custodian to Convertible Fund, High Income Fund, 
Premium Total Return Fund,Tax-Exempt Income Fund, 
Utilities Fund, Total Return Bond Fund and  
Exchange Reserve Fund 
 
 
Chase Manhattan Bank of New York* ("Chase") 
Custodian to Diversified Strategic Income Fund 
 
 
First Data Investors Services Group,  
Inc. ("First Data"), a subsidiary of First Data Corporation 
Transfer Agent 
    

	These organizations and the functions they perform for the 
Trust are discussed in the Prospectuses and in this Statement of 
Additional Information. 


Trustees and Executive Officers of the Trust

The Trustees and executive officers of the Trust, together with 
information as to their principal business occupations during the 
past five years, are shown below. The executive officers of the 
Trust are employees of organizations that provide services to the 
Funds. Each Trustee who is an "interested person" of the Trust, as 
defined in the Investment Company Act of 1940, as amended (the 
"1940 Act"), is indicated by an asterisk. 

Lee Abraham, Trustee (Age 69). Retired; formerly Chairman and 
Chief Executive Officer of Associated Merchandising Corporation, a 
major retail merchandising and sourcing organization. His address 
is 35 Old Forge Road, Wilton, Connecticut 06897.

   
    

Allan J. Bloostein, Trustee (Age 66). Consultant; formerly Vice 
Chairman of the Board of and Consultant to The May Department 
Stores Company; Director of Crystal Brands, Inc., Melville Corp. 
and R.G. Barry Corp. His address is 27 West 67th Street, New York, 
New York 10023.

Richard E. Hanson, Jr., Trustee (Age 55). Head of School, The New 
Atlanta Jewish Community High School, Atlanta Georgia; prior to 
July 1, 1994, Headmaster, Lawrence Country Day School-Woodmere 
Academy, Woodmere, New York; prior to July 1, 1990, Headmaster of 
Woodmere Academy. His address is 2865 Lenox Road, N.E., Apt. 507, 
Atlanta, GA  30324-2855.

*Heath B. McLendon, Chairman of the Board and Investment Officer 
(Age 63). Managing Director of Smith Barney, Chairman of the Board 
of Strategy Advisers and President of SBMFM; prior to July 1993, 
Senior Executive Vice President of Shearson Lehman Brothers Inc. 
("Shearson Lehman Brothers"), Vice Chairman of Asset Management. 
His address is 388 Greenwich Street, New York, New York 10013.

   
    

John C. Bianchi, Vice President and Investment Officer (Age 41). 
Managing Director of Smith Barney; prior to July 1993, Managing 
Director of Shearson Lehman Advisors. His address is 388 Greenwich 
Street, New York, New York 10013.

James E. Conroy, Vice President and Investment Officer (Age 45). 
Managing Director of Smith Barney; prior to July 1993, Managing 
Director of Shearson Lehman Advisors. His address is 388 Greenwich 
Street, New York, New York 10013.

Simon Hildreth, Investment Officer (Age 44). Managing Director of 
Smith Barney and a member of the Investment Policy Committee of 
Global Capital Management; prior to 1994, Director of Mercury 
Asset Management, a fund manager located in the United Kingdom.

Jack S. Levande, Vice President and Investment Officer (Age 50). 
Managing Director of Smith Barney; prior to July 1993, Managing 
Director of Shearson Lehman Advisors. His address is 388 Greenwich 
Street, New York, New York 10013.

Lawrence T. McDermott, Vice President and Investment Officer (Age 
48). Managing Director of Smith Barney; prior to July 1993, 
Managing Director of Shearson Lehman Advisors. His address is 388 
Greenwich Street, New York, New York 10013.

George E. Mueller, Jr., Investment Officer (Age 56). Managing 
Director of Smith Barney; prior to July 1993, Managing Director of 
Shearson Lehman Advisors. His address is 388 Greenwich Street, New 
York, New York 10013.

Harry Rosenbluth, Investment Officer (Age 40). Principal of Boston 
Partners; prior to 1995, Vice President of The Boston Company 
Advisors; Senior Vice President of The Boston Company 
Institutional Investors, Inc. His address is 300 Drake's Landing 
Road, Greenbrae, California 94904.

Robert E. Swab, Investment Officer (Age 40). Vice President of 
Smith Barney; prior to 1995, Co-Portfolio Manager of Convertible 
Fund. His address is 388 Greenwich Street, New York, New York 
10013.

   
Joseph P. Deane, Vice President and Investment Officer (Age 50).  
Managing Director of Smith Barney; prior to July 1993, Managing 
Director of Shearson Lehman Advisors.  Investment Officer of six 
other Smith Barney Mutual Funds.  His address is 388 Greenwich 
Street, New York, New York 10013.
    

Phyllis M. Zahorodny, Vice President and Investment Officer (Age 
38). Managing Director of Smith Barney; prior to July 1993, 
Managing Director of Shearson Lehman Advisors. Her address is 388 
Greenwich Street, New York, New York 10013.

Lewis E. Daidone, Senior Vice President and Treasurer (Age 39). 
Managing Director and Chief Financial Officer of Smith Barney 
Mutual Funds; Director and Senior Vice President of SBMFM. Mr. 
Daidone serves as Senior Vice President and Treasurer of 42 Smith 
Barney Mutual Funds. His address is 388 Greenwich Street, New 
York, New York 10013.

Christina T. Sydor, Secretary (Age 45). Managing Director of Smith 
Barney; General Counsel and Secretary of SBMFM. Ms. Sydor serves 
as Secretary of 42 Smith Barney Mutual Funds. Her address is 388 
Greenwich Street, New York, New York 10013.

	Each Trustee also serves as a director, trustee and/or 
general partner of certain other mutual funds for which Smith 
Barney serves as distributor. Global Capital Management, SBMFM and 
Strategy Advisers (the "Advisers") are "affiliated persons" of the 
Trust as defined in the 1940 Act by virtue of their positions as 
investment advisers to the Funds. As of October 31, 1996, the 
Trustees and officers of the Funds, as a group, owned less than 1% 
of the outstanding shares of beneficial interest of each Fund.

	No officer, director or employee of Smith Barney or any 
Smith Barney parent or subsidiary receives any compensation from 
the Trust for serving as an officer or Trustee of the Trust. The 
Trust pays each Trustee who is not an officer, director or 
employee of Smith Barney or any of their affiliates a fee of 
$17,000 per annum plus $3,250 per meeting attended and reimburses 
them for travel and out-of-pocket expenses. For the fiscal year 
ended July 31, 1996, such travel and out-of-pocket expenses 
totalled $1,616.47.


 
<TABLE> 
<CAPTION> 
 
							Aggregate 
					Total		Compensation 
			Aggregate	Pension or	from the Funds 
			Compensation	Retirement	and the Fund 
			from the Funds	Benefits		Complex for 
			for the Fiscal	Accrued		the Year ended 
			Year ended	from the		December 
Trustee(*)		July 31, 1996	the Funds	31, 1996 	
	 
<S>			<C>		<C>		<C> 
Lee Abraham (9)		$44,500		0		$44,550 
 
Antoinette C. Bentley (9)	  44,500		0		  44,350 
 
Allen J. Bloostein (15)	  44,500		0		  83,150 
 
Richard E. Hanson, Jr. (9)   44,500		0		  44,550 
 
Heath B. McLendon (42)	   0		0		  0 
 
Madelon DeVoe Talley (10)+  33,250	0		  45,342.90 
 
---------------------------------------------------------------------- 
*	Number of directorships/trusteeships held with other Smith Barney 
Mutual Funds. 
+	Pursuant to the Trust's deferred compensation plan Ms.Talley elected 
to defer  
payment of $15,000 of her compensation in the fiscal year ended July 31, 1996. 
</TABLE> 
 

   
Investment Advisers, Sub-Investment Adviser and Administrator
Each adviser serves as investment adviser to one or more Funds 
pursuant to a separate written agreement with the relevant Fund 
(an "Advisory Agreement"). SBMFM serves as investment adviser to 
its relevant Funds pursuant to a transfer of the investment 
advisory agreement, effective November 7, 1994, from its 
affiliate, Mutual Management Corp. (Mutual Management Corp. and 
SBMFM are both wholly owned subsidiaries of Smith Barney Holdings 
Inc. ("Holdings"). Strategy Advisers is a wholly owned subsidiary 
of SBMFM and Global Capital Management is an indirect wholly owned 
subsidiary of Holdings. Holdings is a wholly owned subsidiary of 
Travelers Group Inc. The Advisory Agreements were most recently 
approved by the Board of Trustees, including a majority of the 
Trustees who are not "interested persons" of the Trust or the 
Advisers ("Independent Trustees"), on August 7, 1996.  SBMFM 
serves as an investment manager to the Total Return Bond Fund 
pursuant to a written agreement approved on November 5, 1997.  
SBMFM also serves as administrator to each Fund pursuant to a 
separate written agreement dated May 4, 1994 (the "Administration 
Agreement") which was most recently approved by the Board of 
Trustees, including a majority of the Independent Trustees, on 
August 7, 1996. Boston Partners serves as sub-investment adviser 
to Premium Total Return Fund, pursuant to a written agreement 
dated August 15, 1995, which was most recently approved by the 
Fund's Board of Trustees, including a majority of the Independent 
Trustees, on August 7, 1996. Global Capital Management also serves 
as sub-investment adviser to Diversified Strategic Income Fund, 
pursuant to a written agreement dated March 21, 1994 which was 
most recently approved by the Fund's Board of Trustees, including 
a majority of the Independent Trustees, on August 7, 1996. Prior 
to March 21, 1994, Lehman Brothers Global Asset Management Limited 
("LBGAM") acted in the capacity as the Fund's sub-investment 
adviser. 
    
	Certain of the services provided to the Trust by the 
Advisers and Boston Partners are described in the Prospectuses 
under "Management of the Trust and the Fund." Each Adviser, SBMFM, 
as administrator, and Boston Partners, as sub-adviser, pay the 
salaries of all officers and employees who are employed by both it 
and the Trust, and maintain office facilities for the Trust. In 
addition to those services, SBMFM furnishes the Trust with 
statistical and research data, clerical help and accounting, data 
processing, bookkeeping, internal auditing and legal services and 
certain other services required by the Trust, prepares reports to 
the Funds' shareholders and prepares tax returns, reports to and 
filings with the Securities and Exchange Commission (the "SEC") 
and state Blue Sky authorities. The Advisers and Boston Partners 
bear all expenses in connection with the performance of their 
services.

	As compensation for investment advisory services, each Fund 
pays its investment adviser a fee computed daily and paid monthly 
at the following annual rates:




Fund
Investment Advisory 
Fee As a Percentage of 
Average Net Assets


Convertible Fund	
0.50%

Diversified Strategic Income Fund	
0.45

Exchange Reserve Fund	
0.30

High Income Fund	
0.50

Premium Total Return Fund
0.55

Tax-Exempt Income Fund	
0.40

Utilities Fund	
0.45


   
Fund
Investment Management 
Fee As a Percentage of 
Average Net Assets


Total Return Bond Fund
0.65%
    


	For the periods below, the Funds paid investment advisory 
fees to their respective Advisers as follows:

 
<TABLE> 
<CAPTION>
								Period 
								From
								August
		For the						1, 1996
		Fiscal						through
		Year ended					Dec-
		July 31:						cember 
		1994		1995		1996		31, 1996 
<S>		<C>		<C>		<C>		<C> 
Convertible 
Fund		$425,505	$415,666	$417,942	 
 
Diversified Strategic 
Income Fund	8,761,857	11,112,553	11,818,108 
 
 
Exchange Reserve 
Fund		622,203		547,990		448,925 
 
High Income  
Fund		3,771,643	3,706,659	4,506,352 
 
Premium Total 
Return Fund	8,506,930	10,627,086	13,381,076        6,454,801 
 
Tax-Exempt 
Income Fund	4,561,779	4,033,479	3,771,279 
 
Utilities Fund	10,896,883	7,885,332	8,094,511 
</TABLE> 

 


	As compensation for administrative services, each Fund pays 
SBMFM a fee computed daily and paid monthly at the annual rate of 
0.20% of the Fund's average daily net assets.  For the periods 
shown below, the Funds paid administrative fees to The Boston 
Company Advisors, Inc. or SBMFM:


 
<TABLE> 
<CAPTION> 
 
 
 
		The 
		Boston 
		Company 
		Advi-	 
		sors	SBMFMSBMFMSBMFMSBMFM		 
					For the	For the 
		For the	For the	Fiscal	Fiscal	For the 
		Period	Period	Year	Year	Period 
		from	from	from	from	from 
		8/1/93	5/4/94	8/1/94	8/1/95	8/1/96 
		through	through	through	through	through 
Fund		5/3/94	7/31/94	7/31/95	7/31/96	12/31/96 
<S>		<C>	<C>	 <C>	<C>	<C> 
 
Convertible 
Fund	      	$145,717  $24,485  $166,266  $167,177	 
 
Diversified  Strategic 
Income Fund	4,289,630  717,145  4,938,912  5,252,493	 
 
Exchange Reserve 
Fund		341,472  73,330  365,327  299,283	 
 
High Income 
Fund      	1,297,678  210,979  1,482,663  1,802,541	 
 
Premium Total Return 
Fund		2,639,140  454,284  3,930,566  2,299,990  2,347,201 
 
Tax-Exempt Income 
Fund		1,971,064  309,826  2,016,740  1,885,640	 
 
Utilities Fund	4,256,098  586,961  3,542,538  3,597,560	 
</TABLE> 

	For the period ended March 20, 1994, Diversified Strategic 
Income Fund paid LBGAM $1,562,892, in sub-investment advisory 
fees. For the period from March 21, 1994 through July 31, 1994 and 
the fiscal years ended July 31, 1995 and 1996, Diversified 
Strategic Income Fund paid Global Capital Management $940,496, 
$1,234,728 and $2,626,246, respectively, in sub-investment 
advisory fees.

	Each Adviser and SBMFM, as administrator, have agreed that 
if in any fiscal year the aggregate expenses of the Fund that it 
serves (including fees payable pursuant to its Advisory Agreement 
and Administration Agreement, but excluding interest, taxes, 
brokerage, distribution and service fees and, if permitted by the 
relevant state securities commission, extraordinary expenses) 
exceed the expense limitation of any state having jurisdiction 
over the Fund, the Adviser and SBMFM will, to the extent required 
by state law, reduce their fees by the amount of such excess 
expenses, such amount to be allocated between them in the 
proportion that their respective fees bear to the aggregate of the 
fees paid by the Fund. Such fee reduction, if any, will be 
estimated and reconciled on a monthly basis. The most restrictive 
state expense limitation applicable to any Fund is 2.5% of the 
first $30 million of the Fund's average daily net assets, 2% of 
the next $70 million of the average daily net assets and 1.5% of 
the remaining average daily net assets of the Fund. No such fee 
reduction was required for the fiscal years ended July 31, 1994, 
1995 and 1996.

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

Counsel and Auditors

	Willkie Farr & Gallagher serves as legal counsel to the 
Trust. The Trustees who are not "interested persons" of the Fund 
have selected Stroock & Stroock & Lavan LLP as their legal 
counsel. 

	KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 
10154 has been selected as the Trust's independent auditor to 
examine and report on the Trust's financial statements and 
highlights for the fiscal year ending July 31, 1997. Prior to 
October 20, 1994, Coopers & Lybrand L.L.P., independent 
accountants, served as auditors of the Trust.

	In the interest of economy and convenience, certificates 
representing shares in the Trust are not physically issued except 
upon specific request made by a shareholder to First Data. First 
Data maintains a record of each shareholder's ownership of Trust 
shares. Shares do not have cumulative voting rights, which means 
that holders of more than 50% of the shares voting for the 
election of Trustees can elect all of the Trustees. Shares are 
transferable but have no preemptive or subscription rights. 
Shareholders generally vote by Fund, except with respect to the 
election of Trustees and the selection of independent public 
accountants.

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


INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES

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

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

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

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

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

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

	Exchange Reserve Fund may purchase a CD issued by a bank, 
savings and loan association or other banking institution with 
less than $1 billion in assets (a "Small Issuer CD") so long as 
the issuer is a member of the FDIC or Office of Thrift Supervision 
and is insured by the Savings Association Insurance Fund ("SAIF") 
and so long as the principal amount of the Small Issuer CD is 
fully insured and is no more than $100,000. Exchange Reserve Fund 
will at any one time hold only one Small Issuer CD from any one 
issuer. Savings and loan associations whose CDs may be purchased 
by the Funds are members of the Federal Home Loan Bank and are 
insured by the SAIF. As a result, such savings and loan 
associations are subject to regulation and examination.
   
	When-Issued Securities and Delayed-Delivery Transactions 
(High Income, Premium Total Return, Diversified Strategic Income, 
Tax-Exempt Income and Total Return Bond Funds). To secure an 
advantageous price or yield, these Funds may purchase certain 
securities on a when-issued basis or purchase or sell securities 
for delayed delivery. A Fund will enter into such transactions for 
the purpose of acquiring portfolio securities and not for the 
purpose of leverage. Delivery of the securities in such cases 
occurs beyond the normal settlement periods, but no payment or 
delivery is made by a Fund prior to the reciprocal delivery or 
payment by the other party to the transaction. In entering into a 
when-issued or delayed-delivery transaction, a Fund will rely on 
the other party to consummate the transaction and may be 
disadvantaged if the other party fails to do so.
    
	U.S. government securities and Municipal Securities (as 
defined below) normally are subject to changes in value based upon 
changes, real or anticipated, in the level of interest rates and, 
although to a lesser extent in the case of U.S. government 
securities, the public's perception of the creditworthiness of the 
issuers. In general, U.S. government securities and Municipal 
Securities tend to appreciate when interest rates decline and 
depreciate when interest rates rise. Purchasing these securities 
on a when-issued or delayed-delivery basis, therefore, can involve 
the risk that the yields available in the market when the delivery 
takes place may actually be higher than those obtained in the 
transaction itself. Similarly, the sale of U.S. government 
securities for delayed delivery can involve the risk that the 
prices available in the market when the delivery is made may 
actually be higher than those obtained in the transaction itself.

	In the case of the purchase by a Fund of securities on a 
when-issued or delayed-delivery basis, a segregated account in the 
name of the Fund consisting of cash or equity and debt securities 
of any grade, provided such securities have been determined by the 
adviser to be liquid and unencumbered pursuant to guidelines 
established by the Trustees, equal to the amount of the 
when-issued or delayed-delivery commitments will be established at 
PNC Bank, or Chase in the case of Diversified Strategic Income 
Fund.  For the purpose of determining the adequacy of the 
securities in the accounts, the deposited securities will be 
valued at market or fair value. If the market or fair value of the 
securities declines, additional cash or securities will be placed 
in the account daily so that the value of the account will equal 
the amount of such commitments by the Fund involved. On the 
settlement date, a Fund will meet its obligations from 
then-available cash flow, the sale of securities held in the 
segregated account, the sale of other securities or, although it 
would not normally expect to do so, from the sale of the 
securities purchased on a when-issued or delayed-delivery basis 
(which may have a value greater or less than the Fund's payment 
obligations).
   
	Lending of Portfolio Securities (Total Return Bond, Premium 
Total Return, Utilities, Convertible, High Income and Diversified 
Strategic Income Funds). These Funds have the ability to lend 
portfolio securities to brokers, dealers and other financial 
organizations. Such loans, if and when made, may not exceed 20% of 
a Fund's total assets taken at value. A Fund will not lend 
portfolio securities to Smith Barney unless it has applied for and 
received specific authority to do so from the SEC. Loans of 
portfolio securities will be collateralized by cash, letters of 
credit or U.S. government securities which are maintained at all 
times in an amount at least equal to the current market value of 
the loaned securities. From time to time, a Fund may pay a part of 
the interest earned from the investment of collateral received for 
securities loaned to the borrower and/or a third party which is 
unaffiliated with the Fund and is acting as a "finder".
    
	By lending its securities, a Fund can increase its income by 
continuing to receive interest on the loaned securities as well as 
by either investing the cash collateral in short-term instruments 
or obtaining yield in the form of interest paid by the borrower 
when U.S. government securities are used as collateral. A Fund 
will comply with the following conditions whenever its portfolio 
securities are loaned: (a) the Fund must receive at least 100% 
cash collateral or equivalent securities from the borrower; (b) 
the borrower must increase such collateral whenever the market 
value of the securities loaned rises above the level of such 
collateral; (c) the Fund must be able to terminate the loan at any 
time; (d) the Fund must receive reasonable interest on the loan, 
as well as any dividends, interest or other distributions on the 
loaned securities, and any increase in market value; (e) the Fund 
may pay only reasonable custodian fees in connection with the 
loan; and (f) voting rights on the loaned securities may pass to 
the borrower; provided, however, that if a material event 
adversely affecting the investment in the loaned securities 
occurs, the Trust's Board of Trustees must terminate the loan and 
regain the right to vote the securities. The risks in lending 
portfolio securities, as with other extensions of secured credit, 
consist of a possible delay in receiving additional collateral or 
in the recovery of the securities or possible loss of rights in 
the collateral should the borrower fail financially. Loans will be 
made to firms deemed by each Fund's Adviser to be of good standing 
and will not be made unless, in the judgment of the Adviser, the 
consideration to be earned from such loans would justify the risk.

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

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

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

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

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


	Options on Securities (Premium Total Return, Convertible, 
Utilities, Diversified Strategic Income and High Income Funds). 
These Funds may engage in transactions in options on securities, 
which, depending on the Fund, may include the writing of covered 
put options and covered call options, the purchase of put and call 
options and the entry into closing transactions. 

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

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

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

	The Diversified Strategic Income Fund may purchase and sell 
put, call and other types of option securities that are traded on 
domestic or foreign exchanges or the over-the-counter market 
including, but not limited to, "spread" options, "knock-out" 
options, "knock-in" options and "average rate" or "look-back" 
options.

	"Spread" options are dependent upon the difference between 
the price of two securities or futures contracts, "Knock-out" 
options are canceled if the price of the underlying asset reaches 
a trigger level prior to expiration, "Knock-in" options only have 
value if the price of the underlying asset reaches a trigger level 
and, "average rate" or "look-back" options are options where at 
expiration, the option's strike price is set based on either the 
average, maximum or minimum price of the asset over the period of 
the option.

	The Diversified Strategic Income Fund may utilize up to 15% 
of its assets to purchase options and may do so at or about the 
same time that it purchases the underlying security or at a later 
time. In purchasing options on securities, the Fund will trade 
only with counterparties of high status in terms of credit quality 
and commitment to the market. 

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

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

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

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

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

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

	Stock Index Options (Premium Total Return and Utilities 
Funds). The Premium Total Return and Utilities Funds may purchase 
and write put and call options on U.S. stock indexes listed on 
U.S. exchanges for the purpose of hedging its portfolio. A stock 
index fluctuates with changes in the market values of the stocks 
included in the index. Some stock index options are based on a 
broad market index such as the New York Stock Exchange Composite 
Index or a narrower market index such as the Standard & Poor's 
100. Indexes also are based on an industry or market segment such 
as the AMEX Oil and Gas Index or the Computer and Business 
Equipment Index.

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

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

	The Premium Total Return and Utilities Funds will engage in 
stock index options transactions only when determined by their 
respective Advisers to be consistent with the Funds' efforts to 
control risk. There can be no assurance that such judgment will be 
accurate or that the use of these portfolio strategies will be 
successful. When a Fund writes an option on a stock index, the 
Fund will establish a segregated account with PNC Bank in an 
amount equal to the market value of the option and will maintain 
the account while the option is open.

   
	Mortgage-Related Securities (Total Return Bond, Diversified 
Strategic Income and Exchange Reserve Funds). The average maturity 
of pass-through pools of mortgage-related securities varies with 
the maturities of the underlying mortgage instruments. In 
addition, a pool's stated maturity may be shortened by unscheduled 
payments on the underlying mortgages. Factors affecting mortgage 
prepayments include the level of interest rates, general economic 
and social conditions, the location of the mortgaged property and 
age of the mortgage. Because prepayment rates of individual pools 
vary widely, it is not possible to accurately predict the average 
life of a particular pool. Common practice is to assume that 
prepayments will result in an average life ranging from 2 to 10 
years for pools of fixed-rate 30-year mortgages. Pools of 
mortgages with other maturities or different characteristics will 
have varying average life assumptions.
    
	Mortgage-related securities may be classified as private, 
governmental or government-related, depending on the issuer or 
guarantor. Private mortgage-related securities represent 
pass-through pools consisting principally of conventional 
residential mortgage loans created by non-governmental issuers, 
such as commercial banks, savings and loan associations and 
private mortgage insurance companies. Governmental 
mortgage-related securities are backed by the full faith and 
credit of the United States. GNMA, the principal guarantor of such 
securities, is a wholly owned United States government corporation 
within the Department of Housing and Urban Development. 
Government-related mortgage-related securities are not backed by 
the full faith and credit of the United States government. Issuers 
of such securities include FNMA and FHLMC. FNMA is a 
government-sponsored corporation owned entirely by private 
stockholders, which is subject to general regulation by the 
Secretary of Housing and Urban Development. Pass-through 
securities issued by FNMA are guaranteed as to timely payment of 
principal and interest by FNMA. FHLMC is a corporate 
instrumentality of the United States, the stock of which is owned 
by the Federal Home Loan Banks. Participation certificates 
representing interests in mortgages from FHLMC's national 
portfolio are guaranteed as to the timely payment of interest and 
ultimate collection of principal by FHLMC.

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

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

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

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

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

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

	The Fund may use foreign currency options under the same 
circumstances that it could use forward currency exchange 
transactions. A decline in the dollar value of a foreign currency 
in which a Fund's securities are denominated, for example, will 
reduce the dollar value of the securities, even if their value in 
the foreign currency remains constant. In order to protect against 
such diminutions in the value of securities that it holds, the 
Fund may purchase put options on the foreign currency. If the 
value of the currency 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 
purchases of foreign currency options, like the benefit derived 
from other types of options, will be reduced by the amount of the 
premium and related transaction costs. In addition, if currency 
exchange rates do not move in the direction or to the extent 
anticipated, the Fund could sustain losses on transactions in 
foreign currency options that would require it to forego a portion 
or all of the benefits of advantageous changes in the rates.

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

	Municipal Securities (Tax-Exempt Income Fund). Municipal 
securities generally are understood to include debt obligations 
issued to obtain funds for various public purposes, including the 
construction of a wide range of public facilities, refunding of 
outstanding obligations, payment of general operating expenses and 
extensions of loans to public institutions and facilities 
("Municipal Securities"). Private activity bonds that are issued 
by or on behalf of public authorities to finance privately 
operated facilities are considered to be Municipal Securities if 
the interest paid thereon qualifies as excluded from gross income 
(but not necessarily from alternative minimum taxable income) for 
Federal income tax purposes in the opinion of bond counsel to the 
issuer.

	Municipal bonds may be issued to finance life care 
facilities. Life care facilities are an alternative form of 
long-term housing for the elderly which offer residents the 
independence of condominium life style and, if needed, the 
comprehensive care of nursing home services. Bonds to finance 
these facilities have been issued by various state industrial 
development authorities. Because the bonds are secured only by the 
revenues of each facility and not by state or local government tax 
payments, they are subject to a wide variety of risks, including a 
drop in occupancy levels, the difficulty of maintaining adequate 
financial reserves to secure estimated actuarial liabilities, the 
possibility of regulatory cost restrictions applied to health care 
delivery and competition from alternative health care or 
conventional housing facilities.

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

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

	Investing in Utilities (Utilities Fund). Each of the risks 
referred to in Utilities Fund's Prospectus could adversely affect 
the ability and inclination of public utilities to declare or pay 
dividends and the ability of holders of common stock to realize 
any value from the assets of the issuer upon liquidation or 
bankruptcy. Moreover, price disparities within selected utility 
groups and discrepancies in relation to averages and indices have 
occurred frequently for reasons not directly related to the 
general movements or price trends of utility common stocks. Causes 
of these discrepancies include changes in the overall demand for 
and supply of various securities (including the potentially 
depressing effect of new stock offerings), and changes in 
investment objectives, market expectations or cash requirements of 
other purchasers and sellers of securities.

	Ratings as Investment Criteria (All Funds). In general, the 
ratings of nationally recognized statistical rating organizations 
("NRSROs") represent the opinions of these agencies as to the 
quality of securities that they rate. Such ratings, however, are 
relative and subjective, and are not absolute standards of quality 
and do not evaluate the market value risk of the securities. These 
ratings will be used by the Funds as initial criteria for the 
selection of portfolio securities, but the Funds also will rely 
upon the independent advice of their respective Advisers to 
evaluate potential investments. Among the factors that will be 
considered are the long-term ability of the issuer to pay 
principal and interest and general economic trends. The Appendix 
to this Statement of Additional Information contains further 
information concerning the rating categories of NRSROs and their 
significance.

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

   
	Futures Activities (Total Return Bond, Diversified Strategic 
Income, High Income, Utilities and Tax-Exempt Income Funds). These 
Funds may enter into futures contracts and/or options on futures 
contracts that are traded on a United States exchange or board of 
trade. These investments may be made by a Fund solely for the 
purpose of hedging against the effects of changes in the value of 
its portfolio securities due to anticipated changes in interest 
rates, currency values and/or market conditions, and not for 
purposes of speculation. In the case of Tax-Exempt Income Fund, 
investments in futures contracts will be made only in unusual 
circumstances, such as when the Fund's Adviser anticipates an 
extreme change in interest rates or market conditions. See "Taxes" 
below.
    
	Futures Contracts. The purpose of the acquisition or sale of 
a futures contract by a Fund is to mitigate the effects of 
fluctuations in interest rates or currency or market values, 
depending on the type of contract, on securities or their values 
without actually buying or selling the securities. For example, if 
Tax-Exempt Income Fund owns long-term bonds and tax-exempt rates 
are expected to increase, the Fund might enter into a short 
position in municipal bond index futures contracts. Such a sale 
would have much the same effect as the Fund's selling some of the 
long-term bonds in its portfolio. If tax-exempt rates increase as 
anticipated, the value of certain long-term Municipal Securities 
in the Fund would decline, but the value of the Fund's futures 
contracts would increase at approximately the same rate, thereby 
keeping the net asset value of the Fund from declining as much as 
it otherwise would have. Of course, because the value of portfolio 
securities will far exceed the value of the futures contracts sold 
by a Fund, an increase in the value of the futures contracts could 
only mitigate -- but not totally offset -- the decline in the 
value of the Fund.

	The Diversified Strategic Income Fund may enter into futures 
contracts or related options on futures contracts that are traded 
on a domestic or foreign exchange or in the over-the-counter 
market. These investments may be made solely for the purpose of 
hedging against changes in the value of its portfolio securities 
due to anticipated changes in interest rates, currency values 
and/or market conditions when the transactions are economically 
appropriate to the reduction of risks inherent in the management 
of the Fund and not for purposes of speculation. The ability of 
the Fund to trade in futures contracts may be limited by the 
requirements of the Internal Revenue Code of 1986 as amended (the 
"Code"), applicable to a regulated investment company. 

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

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

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

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

	Options on Futures Contracts. An option on an interest rate 
futures contract, as contrasted with the direct investment in such 
a contract, gives the purchaser the right, in return for the 
premium paid, to assume a position in the underlying interest rate 
futures contract at a specified exercise price at any time prior 
to the expiration date of the option. An option on a foreign 
currency futures contract, as contrasted with the direct 
investment in such a contract, gives the purchaser the right, but 
not the obligation, to assume a long or short position in the 
relevant underlying future currency at a predetermined exercise 
price at a time in the future. Upon exercise of an option, the 
delivery of the futures position by the writer of the option to 
the holder of the option will be accompanied by delivery of the 
accumulated balance in the writer's futures margin account, which 
represents the amount by which the market price of the futures 
contract exceeds, in the case of a call, or is less than, in the 
case of a put, the exercise price of the option on the futures 
contract. The potential for loss related to the purchase of an 
option on futures contracts is limited to the premium paid for the 
option (plus transaction costs). Because the value of the option 
is fixed at the point of sale, there are no daily cash payments to 
reflect changes in the value of the underlying contract; however, 
the value of the option does change daily and that change would be 
reflected in the net asset value of a Fund investing in the 
option.

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

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

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

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

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

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

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

	Short Sales (Utilities Fund). Utilities Fund may from time 
to time sell securities short, but the value of securities sold 
short will not exceed 5% of the value of the Fund's assets. In 
addition, the Fund may not (a) sell short the securities of a 
single issuer to the extent of more than 2% of the value of the 
Fund's net assets and (b) sell short the securities of any class 
of an issuer to the extent of more than 2% of the outstanding 
securities of the class at the time of the transaction. A short 
sale is a transaction in which the Fund sells securities that it 
does not own (but has borrowed) in anticipation of a decline in 
the market price of the securities.

	When the Fund makes a short sale, the proceeds it receives 
from the sale are retained by a broker until the Fund replaces the 
borrowed securities. To deliver the securities to the buyer, the 
Fund must arrange through a broker to borrow the securities and, 
in so doing, the Fund becomes obligated to replace the securities 
borrowed at their market price at the time of replacement, 
whatever that price may be. The Fund may have to pay a premium to 
borrow the securities and must pay any dividends or interest 
payable on the securities until they are replaced.

	The Fund's obligation to replace the securities borrowed in 
connection with a short sale will be secured by collateral 
deposited with the broker that consists of cash or U.S. government 
securities. In addition, the Fund will place in a segregated 
account with its custodian an amount of cash or U.S. government 
securities equal to the difference, if any, between (a) the market 
value of the securities sold at the time they were sold short and 
(b) any cash or U.S. government securities deposited as collateral 
with the broker in connection with the short sale (not including 
the proceeds of the short sale). Until it replaces the borrowed 
securities, the Fund will maintain the segregated account daily at 
a level so that the amount deposited in the account plus the 
amount deposited with the broker (not including the proceeds from 
the short sale) (a) will equal the current market value of the 
securities sold short and (b) will not be less than the market 
value of the securities at the time they were sold short. 

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

Investment Restrictions

The investment restrictions numbered 1 through 14 below (other 
than restriction number 10 as applied to Utilities Fund) have been 
adopted by the Trust with respect to the Funds as fundamental 
policies. Under the 1940 Act, a fundamental policy may not be 
changed without the vote of a majority of the outstanding voting 
securities of a Fund, as defined in the 1940 Act. Majority is 
defined in the 1940 Act as the lesser of (a) 67% or more of the 
shares present at a shareholder meeting, if the holders of more 
than 50% of the outstanding shares of the Trust are present or 
represented by proxy, or (b) more than 50% of the outstanding 
shares. Investment restrictions 15 through 20, and number 10 as 
applied to Utilities Fund, may be changed by vote of a majority of 
the Board of Trustees at any time.

	The investment policies adopted by the Trust prohibit a Fund 
from:

	1.  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 (a) more than 10% of the voting 
securities of any one issuer, (b) more than 10% of the 
securities of any class of any one issuer or (c) more 
than 10% of the outstanding debt securities of any one 
issuer, except that limitation (c) does not apply to 
the Exchange Reserve and Diversified Strategic Income 
Funds and limitations (b) and (c) do not apply to the 
Utilities Fund; provided that this limitation shall 
not apply to investment in U.S. government securities.

	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 by any 
Fund permitted to engage in transactions in futures 
contracts or related options.

	4.  Making short sales of securities or maintaining a 
short position except that (a) the Premium Total 
Return, Utilities and Convertible Funds may engage in 
such activities if, at all times when a short position 
is open, the relevant Fund owns an equal amount of the 
securities convertible into or exchangeable, without 
payment of any further consideration, for securities 
of the same issuer as, and at least equal in amount 
to, the securities sold short, and if, with respect to 
the Premium Total Return and Convertible Funds, not 
more than 10% of the relevant Fund's net assets (taken 
at current value) is held as collateral for such sales 
at any one time and (b) Utilities Fund may make short 
sales or maintain a short position to the extent of 5% 
of its net assets.

	5.  Borrowing money, except that (a) the Fund may 
borrow from banks for temporary or emergency (not 
leveraging) purposes, including the meeting of 
redemption requests that might otherwise require the 
untimely disposition of securities, in an amount not 
exceeding 10% (20% for Utilities Fund) 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, (b) Diversified Strategic Income 
Fund may enter into reverse repurchase agreements and 
forward roll transactions and (c) one or more Funds 
may enter into futures contracts. Except for 
Diversified Strategic Income Fund, whenever borrowings 
described in (a) exceed 5% of the value of a Fund's 
total assets, the Fund will not make any additional 
investments. Immediately after any borrowing 
(including reverse repurchase agreements and forward 
roll transactions), Diversified Strategic Income Fund 
will maintain an asset coverage of at least 300% with 
respect to all its borrowings.

	6.  Pledging, hypothecating, mortgaging or otherwise 
encumbering more than 10% of the value of the Fund's 
total assets. For purposes of this restriction, (a) 
the deposit of assets in escrow in connection with the 
writing of covered put or call options and the 
purchase of securities on a when-issued or 
delayed-delivery basis and (b) collateral arrangements 
with respect to (i) the purchase and sale of stock 
options, options on foreign currencies and options on 
stock indexes and (ii) initial or variation margin for 
futures contracts, will not be deemed to be pledges of 
a Fund's assets.

	7.  Underwriting the securities of other issuers, 
except insofar as the Fund may be deemed an 
underwriter under the Securities Act of 1933, as 
amended, by virtue 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 and 
may purchase securities issued by companies that 
invest or deal in real estate.

	9.  Investing in commodities, except that (a) the High 
Income, Diversified Strategic Income, Utilities and 
Tax-Exempt Income Funds may invest in futures 
contracts and options on futures contracts as 
described in their Prospectuses and (b) upon 60 days' 
notice given to its shareholders, the Premium Total 
Return and Convertible Funds may engage in hedging 
transactions involving futures contracts and related 
options, including stock index futures contracts and 
financial futures contracts.

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

	11.  Making loans to others, except through the 
purchase of qualified debt obligations, the entry into 
repurchase agreements and, with respect to Funds other 
than the Exchange Reserve Fund, loans of portfolio 
securities consistent with the Fund's investment 
objective. 

	12.  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.

	13.  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, except that Exchange 
Reserve Fund and Utilities Fund will invest in excess 
of 25% of their respective assets in the securities of 
companies within the banking industry and utility 
industry, respectively; provided that there shall be 
no limit on the purchase of (a) U.S. government 
securities or (b) for Funds other than the Exchange 
Reserve and Utilities Funds, Municipal Securities 
issued by governments or political subdivisions of 
governments.

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

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

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

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

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

	19.  Investing in warrants (except as permitted under 
a Fund's investment objective and policies or other 
than warrants acquired by the Fund as part of a unit 
or attached to securities at the time of purchase) if, 
as a result, the investments (valued at the lower of 
cost or market) would exceed 5% of the value of the 
Fund's net assets of which not more than 2% of the 
Fund's net assets may be invested in warrants not 
listed on a recognized United States or foreign stock 
exchange to the extent permitted by applicable state 
securities laws.

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

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

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

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

	For purposes of the investment restrictions described above, 
the issuer of a Municipal Security is deemed to be the entity 
(public or private) ultimately responsible for the payment of the 
principal of and interest on the security. For purposes of 
investment restriction number 13, private activity bonds (other 
than those issued for charitable, educational and certain other 
purposes), the payment of principal and interest on which is the 
ultimate responsibility of companies within the same industry, are 
grouped together as an industry. The Trust may make commitments 
more restrictive than the restrictions listed above with respect 
to a Fund so as to permit the sale of shares of the Fund in 
certain states. Should the Trust determine that any such 
commitment is no longer in the best interests of the Fund and its 
shareholders, the Trust will revoke the commitment by terminating 
the sale of shares of the Fund in the state involved. The 
percentage limitations contained in the restrictions listed above 
apply at the time of purchases of securities.

Portfolio Turnover

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

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

	Certain other practices which may be employed by a Fund also 
could result in high portfolio turnover. For example, portfolio 
securities may be sold in anticipation of a rise in interest rates 
(market decline) or purchased in anticipation of a decline in 
interest rates (market rise) and later sold. In addition, a 
security may be sold and another of comparable quality purchased 
at approximately the same time to take advantage of what a Fund's 
Adviser believes to be a temporary disparity in the normal yield 
relationship between the two securities. These yield disparities 
may occur for reasons not directly related to the investment 
quality of particular issues or the general movement of interest 
rates, such as changes in the overall demand for, or supply of, 
various types of securities. 

	For the fiscal years ended July 31, 1995 and 1996, the 
portfolio turnover rates were as follows:

 
<TABLE> 
<CAPTION> 
							For the Period 
				For the Fiscal		from August 1, 
				Year Ended		1996 through 
				July 31			December 31 
				1995	1996		1996 
<S>				<C>	<C>		<C> 
 
Convertible Fund			48%	59% 
 
Diversified Strategic Income  
Fund				83%	90% 
 
 
High Income Fund		60%	72% 
 
Premium Total Return Fund	63%	58%		30% 
 
Tax-Exempt Income Fund		38%	44% 
 
Utilities Fund			36%	58%		 
</TABLE> 

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

Portfolio Transactions

Most of the purchases and sales of securities for a Fund, whether 
transacted on a securities exchange or over-the-counter, will be 
effected in the primary trading market for the securities, except 
for Eurobonds which are principally traded over-the-counter. The 
primary trading market for a given security is generally located 
in the country in which the issuer has its principal office. 
Decisions to buy and sell securities for a Fund are made by its 
Adviser, which also is responsible for placing these transactions, 
subject to the overall review of the Board of Trustees. With 
respect to Diversified Strategic Income Fund, decisions to buy and 
sell domestic securities for the Fund are made by SBMFM, which is 
also responsible for placing these transactions; the 
responsibility to make investment decisions with respect to 
foreign securities and to place these transactions rests with 
Global Capital Management. Although investment decisions for each 
Fund are made independently from those of the other accounts 
managed by its Adviser, investments of the type that the Fund may 
make also may be made by those other accounts. When a Fund and one 
or more other accounts managed by its Adviser are prepared to 
invest in, or desire to dispose of, the same security, available 
investments or opportunities for sales will be allocated in a 
manner believed by the Adviser to be equitable to each. In some 
cases, this procedure may adversely affect the price paid or 
received by a Fund or the size of the position obtained or 
disposed of by the Fund.

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

 
<TABLE> 
<CAPTION> 
						 
 
 
			Premium			          Diversified 
			Total			High		Strategic 
		Fiscal	Return	Convertible	Income	Utilities	Income 
		Year	Fund	Fund		Fund	Fund	Fund 
<S>		<C>	<C>	<C>		<C>	<C>	<C> 
Total Brokerage 
Commissions	1994	$1,767,577  $60,818  $96,670  $2,006,028  $106,421 
		1995	3,517,469  39,798  97,439  2,134,306  	0 
		1996	3,935,585  16,920  32,621  2,446,072  	50,196 
		1996*	1,179,425 
 
Commissions paid 
to Shearson	1994	280,686	0  	174,858	0 
Lehman or	1995	694,467	600  	0  	162,924  	0 
or Smith Barney	1996	628,778  0  	0 	 91,818		0 
		1996*	209,905 
 
% of Total Brokerage 
Commissions 	1995	19.75%	1.51%	0%	7.63%		0% 
Paid to Smith	1996	15.98	0	0	3.75		0 
Barney		1996*	17.80 
 
% of Total 	1995	20.02%	1.69%	0%	8.21%		0% 
Transactions	1996	16.26	0	0	2.72		0 
involving	1996*	13.62 
Commissions 
paid to Smith 
 Barney 
</TABLE> 
 
 
*  For the period from August 1, 1996 through December 31, 1996. 


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

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

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


PURCHASE OF SHARES

Volume Discounts

The schedule of sales charges on Class A shares described in the 
Prospectuses applies to purchases made by any "purchaser", which 
is defined to include the following: (a) an individual; (b) an 
individual's spouse and his or her children purchasing shares for 
his or her own account; (c) a trustee or other fiduciary 
purchasing shares for a single trust estate or single fiduciary 
account; (d) a pension, profit-sharing or other employee benefit 
plan qualified under Section 401(a) of the Code and qualified 
employee benefit plans of employers who are "affiliated persons" 
of each other within the meaning of the 1940 Act; (e) tax-exempt 
organizations enumerated in Section 501(c)(3) or (13) of the Code; 
(f) any other organized group of persons, provided that the 
organization has been in existence for at least six months and was 
organized for a purpose other than the purchase of investment 
company securities at a discount; or (g) a trustee or other 
professional fiduciary (including a bank, or an investment adviser 
registered with the SEC under the Investment Advisers Act of 1940) 
purchasing shares of the Fund for one or more trust estates or 
fiduciary accounts. Purchasers who wish to combine purchase orders 
to take advantage of volume discounts on Class A shares should 
contact a Smith Barney Financial Consultant. 

Combined Right of Accumulation

Reduced sales charges, in accordance with the schedules in the 
Prospectuses, apply to any purchase of Class A shares if the 
aggregate investment in Class A shares of the relevant Fund and in 
Class A shares of other funds of the Smith Barney Mutual Funds 
that are offered with a sales charge, including the purchase being 
made, of any "purchaser" (as defined above) is $25,000 or more. 
The reduced sales charge is subject to confirmation of the 
shareholder's holdings through a check of appropriate records. The 
Trust reserves the right to terminate or amend the combined right 
of accumulation at any time after written notice to shareholders. 
For further information regarding the rights of accumulation, 
shareholders should contact a Smith Barney Financial Consultant.

Determination of Public Offering Prices

The Trust offers shares of the Funds to the public on a continuous 
basis. The public offering price for a Class A, Class Y and Class 
Z share of a Fund is equal to the net asset value per share at the 
time of purchase, plus for Class A shares an initial sales charge 
based on the aggregate amount of the investment. The public 
offering price for a Class B and Class C share (and Class A share 
purchases, including applicable rights of accumulation, equaling 
or exceeding $500,000), is equal to the net asset value per share 
at the time of purchase and no sales charge is imposed at the time 
of purchase. A contingent deferred sales charge ("CDSC"), however, 
is imposed on certain redemptions of Class B and Class C shares 
and of Class A shares when purchased in amounts exceeding 
$500,000. The method of computation of the public offering price 
is shown in the Funds' financial statements incorporated by 
reference in their entirety into this Statement of Additional 
Information.


REDEMPTION OF SHARES

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

	Distributions in Kind. If the Board of Trustees of the Trust 
determines that it would be detrimental to the best interests of 
the remaining shareholders of a Fund to make a redemption payment 
wholly in cash, the Trust may pay, in accordance with SEC rules, 
any portion of a redemption in excess of the lesser of $250,000 or 
1% of the Fund's net assets by distribution in kind of portfolio 
securities in lieu of cash. Securities issued as a distribution in 
kind may incur brokerage commissions when shareholders 
subsequently sell those securities.

	Automatic Cash Withdrawal Plan. An automatic cash withdrawal 
plan (the "Withdrawal Plan") is available to shareholders who own 
shares of a Fund with a value of at least $10,000 ($5,000 for 
retirement plan accounts) and who wish to receive specific amounts 
of cash monthly or quarterly. Withdrawals of at least $50 may be 
made under the Withdrawal Plan by redeeming as many shares of the 
Fund as may be necessary to cover the stipulated withdrawal 
payment. Any applicable CDSC will not be waived on amounts 
withdrawn by shareholders that exceed 1.00% per month of the value 
of a shareholder's shares at the time the Withdrawal Plan 
commences. (With respect to Withdrawal Plans in effect prior to 
November 7, 1994, any applicable CDSC will be waived on amounts 
withdrawn that do not exceed 2.00% per month of the value of a 
shareholder's shares at the time the Withdrawal Plan commences). 
To the extent that withdrawals exceed dividends, distributions and 
appreciation of a shareholder's investment in the Fund, there will 
be a reduction in the value of the shareholder's investment and 
continued withdrawal payments may reduce the shareholder's 
investment and ultimately exhaust it. Withdrawal payments should 
not be considered as income from investment in a Fund. 
Furthermore, as it generally would not be advantageous to a 
shareholder to make additional investments in a Fund at the same 
time he or she is participating in the Withdrawal Plan with 
respect to that Fund, purchases by such shareholders of additional 
shares in the Fund in amounts less than $5,000 will not ordinarily 
be permitted.

	Shareholders who wish to participate in the Withdrawal Plan 
and who hold their shares in certificate form must deposit their 
share certificates of the Fund from which withdrawals will be made 
with First Data, as agent for Withdrawal Plan members. All 
dividends and distributions on shares in the Withdrawal Plan are 
reinvested automatically at net asset value in additional shares 
of the Fund involved. All applications for participation in the 
Withdrawal Plan must be received by First Data as Plan Agent no 
later than the eighth day of each month to be eligible for 
participation beginning with that month's withdrawal. For 
additional information regarding the Withdrawal Plan, contact your 
Smith Barney Financial Consultant.


DISTRIBUTOR

Smith Barney serves as the Trust's distributor on a best efforts 
basis pursuant to a distribution agreement (the "Distribution 
Agreement").

	PFS serves as one of the Trust's distributors with respect 
to the Exchange Reserve Fund pursuant to a Distribution Agreement 
dated November 20, 1995.

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

	For the fiscal year ended July 31, 1996, Smith Barney and/or 
PFS incurred distribution expenses totaling approximately 
$62,460,648, consisting of approximately $3,277,497 for 
advertising $897,058 for printing and mailing prospectuses, 
$30,622,377 for support services and overhead expenses, 
$27,032,487 to Smith Barney or PFS Financial Consultants and 
$631,227 for accruals for interest on the excess of Smith Barney 
and/or PFS expenses incurred in the distribution of the Fund's 
shares over the sum of the distribution fees and CDSC received by 
Smith Barney and/or PFS.

Distribution Arrangements

	Shares of the Trust are distributed on a best efforts basis 
by Smith Barney as sales agent of the Trust pursuant to the 
Distribution Agreement. To compensate Smith Barney for the 
services it provides and for the expense it bears under the 
Distribution Agreement, the Trust has adopted a services and 
distribution plan (the "Plan") pursuant to Rule 12b-1 under the 
1940 Act. Under the Plan, each Fund, except Exchange Reserve Fund, 
pays Smith Barney a service fee, accrued daily and paid monthly, 
calculated at the annual rate of .25% (.15% in the case of 
Tax-Exempt Income Fund) of the value of the Fund's average daily 
net assets attributable to its Class A, Class B and Class C 
shares. In addition, each Fund except the Exchange Reserve Fund, 
pays Smith Barney, with respect to the its Class B and Class C 
shares, a distribution fee.  The Exchange Reserve Fund pays PFS, 
with respect to its Class B shares, a distribution fee.  The 
distribution fee is primarily intended to compensate Smith Barney 
and/or PFS for its initial expense of paying Financial Consultants 
a commission upon sales of those shares. The Class B and Class C 
shares' distribution fees, accrued daily and paid monthly, are 
calculated at the annual rate of .50% for Class B shares and 0.45% 
for Class C shares (0.50% for Class C shares in the case of 
Exchange Reserve Fund and 0.55% for Class C shares in the case of 
Tax-Exempt Fund) of the value of a Fund's average daily net assets 
attributable to the shares of the respective Class. 

	For the fiscal years ended July 31, 1994, 1995 and 1996, 
Smith Barney received $61,281,027, $52,644,615 and $57,460,253, 
respectively, in the aggregate from the Trust under the Plan.

	The following expenses were incurred during the periods 
indicated:


<TABLE> 
<CAPTION> 
								Period 
		Fiscal		Fiscal		Fiscal		from 
		Year		Year		Year		8/1/96 
		Ended		Ended		Ended		through 
		7/31/94		7/31/95		7/31/96		12/31/96 
<S>		<C>		<C>		<C>		<C> 
Convertible Fund	$14,561	 	$ 8,900		$49,000 
 
Diversified Strategic 
Income Fund	818,088	 	471,500		792,000 
 
High Income 
Fund		507,890	 	457,100		593,000 
 
Premium Total 
Return Fund	546,635		 594,400		968,000		435,000 
 
Tax-Exempt Income 
Fund		176,786		 68,794	 	47,000 
 
Utilities Fund	364,556 		150,600		228,000 
</TABLE> 
 
CDSC (paid to Smith Barney). 
Class B 
 
<TABLE> 
<CAPTION> 
								Period 
		Fiscal		Fiscal		Fiscal		from 
		Year		Year		Year		8/1/96 
		Ended		Ended		Ended		through 
		7/31/94		7/31/95		7/31/96		12/31/96 
<S>		<C>		<C>		<C>		<C> 
Convertible Fund	$ 87,160		$ 126,500	$ 95,000	 
 
Diversified Strategic 
Income Fund	5,301,256	6,000,000	4,015,000 
 
Exchange Reserve 
Fund		1,188,817	1,429,000	765,000 
 
High Income 
Fund		743,718		1,000,000	915,000 
 
Premium Total 
Return Fund	2,133,023	1,765,800	2,905,000      1,009,000	 
 
Tax-Exempt 
Income Fund	1,570,424	1,649,382	 929,000 
 
Utilities Fund	8,429,876 	4,738,800	3,393,000 
</TABLE> 
 
Service Fees and Distribution Fees 
Fund Level 
<TABLE> 
<CAPTION> 
								Period 
		Fiscal		Fiscal		Fiscal		from 
		Year		Year		Year		8/1/96 
		Ended		Ended		Ended		through 
		7/31/94		7/31/95		7/31/96		12/31/96 
<S>		<C>		<C>		<C>		<C> 
Convertible Fund	$ 627,147	$468,685	$433,951 
 
Diversified Strategic 
Income Fund	18,336,425	17,817,988	18,641,336 
 
Exchange Reserve 
Fund		1,036,758	 913,444	 	748,208 
 
High Income 
Fund		4,307,795	4,029,911	 4,893,170 
 
Premium Total 
Return Fund	11,322,934 	12,565,954	 5,646,147      7,545,851 
 
Tax-Exempt 
Income Fund	7,323,768	5,456,482	4,945,112 
 
Utilities Fund	17,767,182	12,305,595	12,152,329 
</TABLE> 
 


	Under its terms, the Plan continues from year to year, 
provided such continuance is approved annually by vote of the 
Board of Trustees, including a majority of the Independent 
Trustees who have no direct or indirect financial interest in the 
operation of the Plan. The Plan may not be amended to increase the 
amount to be spent for the services provided by Smith Barney or 
PFS without shareholder approval, and all amendments of the Plan 
must be approved by the Trustees in the manner described above. 
The Plan may be terminated with respect to a Class at any time, 
without penalty, by vote of a majority of the Independent Trustees 
or, with respect to any Fund, by vote of a majority of the 
outstanding voting securities of the Class (as defined in the 1940 
Act). Pursuant to the Plan, Smith Barney and PFS will provide the 
Board of Trustees with periodic reports of amounts expended under 
the Plan and the purpose for which such expenditures were made.


VALUATION OF SHARES

Each Class' net asset value per share is calculated on each day, 
Monday through Friday, except days on which the NYSE is closed. 
The NYSE currently is scheduled to be closed on New Year's Day, 
Presidents' Day, Good Friday, Memorial Day, Independence Day, 
Labor Day, Thanksgiving and Christmas, and on the preceding Friday 
or subsequent Monday when one of these holidays falls on a 
Saturday or Sunday, respectively. Because of the differences in 
distribution fees and Class-specific expenses, the per share net 
asset value of each Class may differ. The following is a 
description of procedures used by a Fund in valuing its assets. 

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

	Debt securities of United States issuers (other than U.S. 
government securities and short-term investments), including 
Municipal Securities held by Tax-Exempt Income Fund, are valued by 
SBMFM, as administrator, after consultation with the Pricing 
Service approved by the Trust's Board of Trustees. When, in the 
judgment of the Pricing Service, quoted bid prices for investments 
are readily available and are representative of the bid side of 
the market, these investments are valued at the mean between the 
quoted bid prices and asked prices. Investments for which, in the 
judgment of the Pricing Service, there are no readily obtainable 
market quotations are carried at fair value as determined by the 
Pricing Service. The procedures of the Pricing Service are 
reviewed periodically by the officers of the Trust under the 
general supervision and responsibility of the Board of Trustees.

EXCHANGE PRIVILEGE

Except as noted below, shareholders of any of the Smith Barney 
Mutual Funds may exchange all or part of their shares for shares 
of the same Class of other Smith Barney Mutual Funds, to the 
extent such shares are offered for sale in the shareholder's state 
of residence, on the basis of relative net asset value per share 
at the time of exchange as follows:

	A.  Class A shares of any fund purchased with a sales 
charge may be exchanged for Class A shares of any of 
the other funds.  Class A shares of any fund may be 
exchanged without a sales charge for shares of the 
funds that are offered without a sales charge. Class A 
shares of any fund purchased without a sales charge 
may be exchanged for shares sold with a sales charge.

	B.  Class A shares of any fund acquired by a previous 
exchange of shares purchased with a sales charge may 
be exchanged for Class A shares of any of the other 
funds.

	C.  Class B shares of any fund may be exchanged 
without a sales charge. Class B shares of a Fund 
exchanged for Class B shares of another fund will be 
subject to the higher applicable CDSC of the two funds 
and, for purposes of calculating CDSC rates and 
conversion periods, will be deemed to have been held 
since the date the shares being exchanged were deemed 
to be purchased.

	Dealers other than Smith Barney must notify First Data of 
the investor's prior ownership of Class A shares of Smith Barney 
High Income Fund and the account number in order to accomplish an 
exchange of shares of Smith Barney High Income Fund under 
paragraph B above.

	The exchange privilege enables shareholders to acquire 
shares of the same Class in a fund with different investment 
objectives when they believe that a shift between funds is an 
appropriate investment decision. This privilege is available to 
shareholders residing in any state in which the fund shares being 
acquired may legally be sold. Prior to any exchange, the 
shareholder should obtain and review a copy of the current 
prospectus of each fund into which an exchange is being 
considered. Prospectuses may be obtained from a Smith Barney 
Financial Consultant.

	Upon receipt of proper instructions and all necessary 
supporting documents, shares submitted for exchange are redeemed 
at the then-current net asset value and, subject to any applicable 
CDSC, the proceeds are immediately invested, at a price as 
described above, in shares of the fund being acquired. Smith 
Barney reserves the right to reject any exchange request. The 
exchange privilege may be modified or terminated at any time after 
written notice to shareholders.


PERFORMANCE DATA

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

Yield

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

	For the seven-day period ended July 31, 1996, the annualized 
yield was 4.44%, and the compound effective yield was 4.53%. As of 
July 31, 1996, the Fund's average portfolio maturity was 37 days. 

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

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

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

	For the purpose of determining the interest earned (variable 
"a" in the formula) on debt obligations that were purchased by a 
Fund at a discount or premium, the formula generally calls for 
amortization of the discount or premium; the amortization schedule 
will be adjusted monthly to reflect changes in the market values 
of the debt obligations.

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

Average Annual Total Return

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

	P (1+T)n = ERV

Where:		P =a hypothetical initial payment of $1,000.
		T = average annual total return.
		n = number of years.
		ERV = Ending Redeemable Value of a hypothetical $1,000 
investment made at the beginning of the 1-, 5- or 
10-year period at the end of the 1-, 5- or 10-year 
period (or fractional portion thereof), assuming 
reinvestment of all dividends and distributions.

	The average annual total returns (with fees waived and 
without sales charge) of the Fund's Class A shares were as follows 
for the periods indicated:
					<TABLE> 
<CAPTION> 
					Per Annum for 
					the Period From 
					Commencement of 
					Operations through		 
			One Year	most recent fiscal 
			Period+		year end+* 
 
<S>			<C>		<C> 
Convertible Fund		7.41%		  8.63% 
 
Diversified Strategic 
Income Fund		8.39%		  7.78% 
 
High Income Fund	8.95%		10.24% 
 
Premium Total Return 
Fund			20.67%		14.69% 
 
Tax-Exempt Income 
Fund			6.29%		  6.40% 
 
Utilities Fund		9.21%		 7.64% 
</TABLE> 
+ 	For the Premium Total Return Fund, figures are for the period ended  
December 31, 1996.  For all other Funds, figures are for the period ended July  
31, 1996. 
* The Fund commenced selling Class A shares on November 6, 1992. 
 
	The average annual total returns (with fees waived and without 
CDSC) of the Fund's Class B shares were as follows for the periods indicated: 
		 
 
<TABLE> 
<CAPTION>					 
 
 
 
 
					Per	Per Annum for 
					Annum	the Period From 
					for the	Commencement of 
					Five	Operations through 
			One Year	Year	most recent fiscal 
			Period+		Period+	year end+* 
 
<S>			<C>		<C>	<C> 
Convertible Fund (1)	6.91%		9.45%	7.88% 
 
Diversified Strategic 
Income Fund (2) (6)	7.80%		 8.44%	8.90% 
 
High Income Fund (3) (6)	8.41%		12.17%	 8.61% 
 
Premium Total 
Return Fund (4)		20.09%		13.52%	13.40% 
 
Tax-Exempt Income 
Fund (4) (6)		  5.74%		6.72%	  8.21% 
 
Utilities Fund (5)		8.78%		8.51%	 9.67% 
</TABLE> 
+	For the Premium Total Return Fund, figures are for the period ended 
December 31, 1996.  For all other Funds, figures are for the period ended July 
31, 1996. 
(1) Fund commenced operations on September 9, 1986. 
(2) Fund commenced operations on December 28, 1989.  
(3) Fund commenced operations on September 2, 1986.  
(4) Fund commenced operations on September 16, 1985.  
(5) Fund commenced operations on March 28, 1988.  
(6) Prior to November 6, 1992 the maximum CDSC imposed on redemptions 
was 5.00%. 

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

<TABLE> 
<CAPTION>		 
					Per Annum for 
					the Period From 
					Commencement of 
					Operations through		 
			One Year	most recent fiscal 
			Period+		year end+ 
 
<S>			<C>		<C> 
 
Convertible Fund***	6.82%		11.01% 
 
Diversified Strategic 
Income Fund*****	7.82%		6.37% 
 
High Income Fund****	8.56%		10.36% 
 
Premium Total Return 
Fund*			20.13%		14.73% 
 
Tax-Exempt Income 
Fund**			5.69%		11.24% 
 
Utilities Fund******	 8.80%		  5.32% 
</TABLE> 
     +	For the Premium Total Return Fund, figures are for the period ended  
December 31, 1996.  For all other Funds, figures are for the period ended  
July 31, 1996. 
     *	The Fund commenced selling Class C shares (previously designated as  
Class D shares) on June 1, 1993. 
    **	The Fund commenced selling Class C shares (previously designated as  
Class D shares) on November 17, 1994  
   ***	The Fund commenced selling Class C shares (previously designated as  
Class D shares) on November 7, 1994 
  ****	The Fund commenced selling Class C shares (previously designated as  
Class D shares) on August 24, 1994. 
 *****	The Fund commenced selling Class C shares (previously designated as  
Class D shares) on March 19, 1993. 
******	The Fund commenced selling Class C shares (previously designated as  
Class D shares) on February 4, 1993. 
	A Class' total return figures calculated in accordance with the above  
formula assume that the maximum sales charge or maximum applicable CDSC, 
as the case may be, has been deducted for the hypothetical $1,000 initial 
investment at the time of purchase. 
 
Aggregate Total Return 
 
The aggregate total return figures for each Fund, other than Exchange Reserve  
Fund, represent the cumulative change in the value of an investment in the 
Class for the specified period and are computed by the following formula: 
	ERV - P 
	P 
 
	Where:	P       = a hypothetical initial payment of $10,000. 
		ERV = Ending Redeemable Value of a hypothetical $10,000 	
		investment made at the beginning of the 1-, 5- or 10-year 	
		period at the end of the 1-, 5- or 10-year period (or fractional 	
		portion thereof), assuming reinvestment of all dividends and 	
		distributions.  
 
	The aggregate total returns (with fees waived) of the Class B shares of 
the Funds indicated were as follows for the periods indicated: 
 
<TABLE> 
<CAPTION> 
 
		No load			Load 
 
				Period			Period 
				From			From 
				Commencement		Commencement 
				Operations		Operations 
				through			through 
				most			most 
				recent			recent 
		One	Five	fiscal	One	Five	fiscal 
		Year	Year	year	Year 	Year	year 
		Period+	Period+	end+	Period+	Period+	end+ 
<S>		<C>	<C>	<C>	<C>	<C>	<C> 
Convertible(1)	  6.91%	%	112.09%1.91%	56.07%	112.09% 
 
Diversified 
Strategic Income 
(2)(6)		  7.80%	57.07%	75.51% 	3.30%	48.96%	  75.51% 
 
High Income 
(3)(6)		  8.41%	49.96%	126.79%3.91%	76.54%	126.79% 
 
Premium Total 
Return(4)	20.09%	88.52%	314.70%15.09%	87.52% 314.16% 
 
Tax-Exempt 
Income(4)(6)  	5.74%	79.25%	103.62%1.26%	37.44%	  35.94% 
 
Utilities(5)	8.78%	38.44%	116.04% 3.78%	49.43%	116.64% 
</TABLE> 
+	For the Premium Total Return Fund, figures are for the period ended 
December 31, 1996.  For all other Funds, figures are for the period ended July 
31, 1996. 
*	Figures do not include the effect of the maximum sales charge or 
maximum applicable CDSC. If they had been included, it would have the effect 
of lowering the returns shown. 
**	Figures include the effect of the maximum sales charge or maximum 
applicable CDSC.  
(1) 	Fund commenced operations on September 9, 1986. 
(2) 	Fund commenced operations on December 28, 1989. 
(3)	Fund commenced operations on September 2, 1986. 
(4)	Fund commenced operations on September 16, 1985. 
(5)	Fund commenced operations on March 28, 1988. 
(6)	Prior to November 6, 1992 the maximum CDSC imposed on 
redemptions was 5%. 
 
 
	The aggregate total returns (with fees waived) of the Class A and 
Class C shares of the Funds indicated were as follows for the periods
indicated: 
 
<TABLE> 
<CAPTION> 
 
		No Load		Load	No Load		Load 
 
					Period from	Period from 
					inception	inception 
					date through	date through 
					most recent	most recent	 
		One year	One year	fiscal		fiscal 
		Period+*	Period+*	end+*		end+* 
 
<S>		<C>		<C>		<C>		<C> 
Convertible 
Class A (1)	7.41%	  	2.06%		36.15%		29.32% 
Class C	(2) 	6.82%		 5.82%		19.83%		19.83% 
 
Diversified Strategic Income 
Class A (1)	  8.39%		 3.51%		32.25%		32.25% 
Class C (3) 	  7.82%		6.82%		23.14%		28.96% 
 
High Income 
Class A	(1)	  8.95%		  4.08%		43.90%		37.42% 
Class C	(4)	  8.56%		  7.56%		21.04%		21.04% 
 
Premium Total Return 
Class A (1)	20.67%		 14.64%		76.73%		67.87% 
Class C	(5) 	20.13%		 19.13%		61.83%		61.83% 
 
Tax-Exempt Income 
Class A	(1)	  6.27%		  2.01%		26.09%		21.02% 
Class C	(6) 	  5.69%		  4.69%		19.90%		19.90% 
 
Utilities 
Class A (1)	9.21%		 %		31.66%		25.05% 
Class C (7) 	8.80%		 %		19.80%		19.80% 
</TABLE> 
+	For the Premium Total Return Fund, figures are for the period ended 
December 31, 1996.  For all other Funds, figures are for the period ended July 
31, 1996.                                                
*	Figures do not include the effect of the maximum sales charge or 
maximum applicable CDSC.  
**	Figures include the effect of the maximum sales charge or maximum 
applicable CDSC. 
(1) November 6, 1992. 
(2)	The Fund commenced selling Class C shares (previously designated as 
Class D shares) on November 7, 1994. 
(3)	The Fund commenced selling Class C shares (previously designated as 
Class D shares) on March 19, 1993. 
(4)	The Fund commenced selling Class C shares (previously designated as 
Class D shares) on August 24, 1994. 
(5)	The Fund commenced selling Class C shares (previously designated as 
Class D shares) on June 1, 1993. 
(6)	The Fund commenced selling Class C shares (previously designated as 
Class D shares) on November 17, 1994. 
(7)	The Fund commenced selling Class C shares (previously designated as 
Class D shares) on February 4, 1993. 

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

	A Class' performance will vary from time to time depending 
upon market conditions, the composition of the relevant Fund's 
portfolio and operating expenses and the expenses exclusively 
attributable to that Class. Consequently, any given performance 
quotation should not be considered representative of the Class' 
performance for any specified period in the future. Because 
performance will vary, it may not provide a basis for comparing an 
investment in the Class with certain bank deposits or other 
investments that pay a fixed yield for a stated period of time. 
Investors comparing a Class' performance with that of other mutual 
funds should give consideration to the quality and maturity of the 
respective investment company's portfolio securities.

TAXES

The following is a summary of certain Federal income tax 
considerations that may affect the Trust and its shareholders. 
This summary is not intended as a substitute for individual tax 
advice and investors are urged to consult their own tax advisors 
as to the tax consequences of an investment in any Fund of the 
Trust.

Tax Status of the Funds

Each Fund will be treated as a separate taxable entity for Federal 
income tax purposes.

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

	To qualify as a regulated investment company, a Fund also 
must earn less than 30% of its gross income from the disposition 
of securities held for less than three months. The 30% test will 
limit the extent to which a Fund may sell securities held for less 
than three months; effect short sales of securities held for less 
than three months; write options which expire in less than three 
months; and effect closing transactions with respect to call or 
put options that have been written or purchased within the 
preceding three months. (If a Fund purchases a put option for the 
purpose of hedging an underlying portfolio security, the 
acquisition of the option is treated as a short sale of the 
underlying security unless the option and the security are 
acquired on the same date.) Finally, as discussed below, this 
requirement also may limit investments by certain Funds in options 
on stock indexes, options on nonconvertible debt securities, 
futures contracts and options on futures contracts, and foreign 
currencies (or options, futures or forward contracts on foreign 
currencies) but only to the extent that such foreign currencies 
are not directly related to the Trust's principal business of 
investing in securities.

Taxation of Investment by the Funds

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

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

	If a put or call option that a Fund has purchased on an 
equity or convertible debt security expires unexercised, the Fund 
will realize capital loss equal to the cost of the option. If the 
Fund enters into a closing sale transaction with respect to the 
option, it will realize a capital gain or loss (depending on 
whether the proceeds from the closing transaction are greater or 
less than the cost of the option). The gain or loss will be 
short-term or long-term, depending on the Fund's holding period in 
the option. If the Fund exercises such a put option, it will 
realize a short-term capital gain or loss (long-term if the Fund 
holds the underlying security for more than one year before it 
purchases the put) from the sale of the underlying security 
measured by the sales proceeds decreased by the premium paid. If 
the Fund exercises such a call option, the premium paid for the 
option will be added to the tax basis of the security purchased.

	One or more Funds may invest in section 1256 contracts, and 
the Code imposes a special "mark-to-market" system for taxing 
these contracts. These contracts generally include options on 
nonconvertible debt securities (including United States government 
securities), options on stock indexes, futures contracts, options 
on futures contracts and certain foreign currency contracts. 
Options on foreign currency, futures contracts on foreign currency 
and options on foreign currency futures will qualify as "section 
1256" contracts if the options or futures are traded on or subject 
to the rules of a qualified board or exchange. Generally, most of 
the foreign currency options and foreign currency futures and 
related options in which certain Funds may invest will qualify as 
section 1256 contracts. In general, gain or loss on section 1256 
contracts will be taken into account for tax purposes when 
actually realized (by a closing transaction, by exercise, by 
taking delivery or by other termination). In addition, any section 
1256 contracts held at the end of a taxable year will be treated 
as sold at their year-end fair market value (that is, marked to 
the market), and the resulting gain or loss will be recognized for 
tax purposes. Provided that section 1256 contracts are held as 
capital assets and are not part of a straddle, both the realized 
and the unrealized year-end gain or loss from these investment 
positions (including premiums on options that expire unexercised) 
will be treated as 60% long-term and 40% short-term capital gain 
or loss, regardless of the period of time particular positions 
actually are held by a Fund. 

	A portion of the mark-to-market gain on instruments held for 
less than three months at the close of a Fund's taxable year may 
represent a gain on securities held for less than three months for 
purposes of the 30% test discussed above. Accordingly, a Fund may 
have to restrict its fourth-quarter transactions in section 1256 
contracts.

	Straddles. While the mark-to-market system is limited to 
section 1256 contracts, the Code contains other rules applicable 
to transactions which create positions which offset positions in 
section 1256 or other investment contracts. Those rules, 
applicable to "straddle" transactions, are intended to eliminate 
any special tax advantages for such transactions. "Straddles" are 
defined to include "offsetting positions" in actively-traded 
personal property. Under current law, it is not clear under what 
circumstances one investment made by a Fund, such as an option or 
futures contract, would be treated as "offsetting" another 
investment also held by the Fund, such as the underlying security 
(or vice versa) and, therefore, whether the Fund would be treated 
as having entered into a straddle. In general, investment 
positions may be "offsetting" if there is a substantial diminution 
in the risk of loss from holding one position by reason of holding 
one or more other positions (although certain "qualified" covered 
call stock options written by a Fund may be treated as not 
creating a straddle). Also, the forward currency contracts entered 
into by a Fund may result in the creation of "straddles" for 
Federal income tax purposes.

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

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

	Section 988. Foreign currency gain or loss from transactions 
in (a) bank forward contracts not traded in the interbank market 
and (b) futures contracts traded on a foreign exchange may be 
treated as ordinary income or loss under the Code section 988. A 
Fund may elect to have section 988 apply to section 1256 
contracts. Pursuant to that election, foreign currency gain or 
loss from these transactions would be treated entirely as ordinary 
income or loss when realized. A Fund will make the election 
necessary to gain such treatment if the election is otherwise in 
the best interests of the Fund. 

Taxation of the Trust's Shareholders

Dividends paid by a Fund from investment income and distributions 
of short-term capital gains will be taxable to shareholders as 
ordinary income for Federal income tax purposes, whether received 
in cash or reinvested in additional shares. Distributions of 
long-term capital gains will be taxable to shareholders as 
long-term capital gain, whether paid in cash or reinvested in 
additional shares, and regardless of the length of time that the 
shareholder has held his or her shares of the Fund.

	Dividends of investment income (but not capital gains) from 
any Fund generally will qualify for the Federal dividends-received 
deduction for domestic corporate shareholders to the extent that 
such dividends do not exceed the aggregate amount of dividends 
received by the Fund from domestic corporations. If securities 
held by a Fund are considered to be "debt-financed" (generally, 
acquired with borrowed funds), are held by the Fund for less than 
46 days (91 days in the case of certain preferred stock), or are 
subject to certain forms of hedges or short sales, the portion of 
the dividends paid by the Fund which corresponds to the dividends 
paid with respect to such securities will not be eligible for the 
corporate dividends-received deduction.

	If a shareholder (a) incurs a sales charge in acquiring or 
redeeming Fund shares and (b) disposes of those shares and 
acquires within 90 days after the original acquisition, or (c) 
acquires within 90 days of the redemption, shares in a mutual fund 
for which the otherwise applicable sales charge is reduced by 
reason of a reinvestment right (i.e., exchange privilege), the 
original sales charge increases the shareholder's tax basis in the 
original shares only to the extent the otherwise applicable sales 
charge for the second acquisition is not reduced. The portion of 
the original sales charge that does not increase the shareholder's 
tax basis in the original shares would be treated as incurred with 
respect to the second acquisition and, as a general rule, would 
increase the shareholder's tax basis in the newly acquired shares. 
Furthermore, the same rule also applies to a disposition of the 
newly acquired or redeemed shares made within 90 days of the 
second acquisition. This provision prevents a shareholder from 
immediately deducting the sales charge by shifting his or her 
investment in a family of mutual funds.

	Capital Gains Distribution. As a general rule, a shareholder 
who redeems or exchanges his or her shares will recognize 
long-term capital gain or loss if the shares have been held for 
more than one year, and will recognize short-term capital gain or 
loss if the shares have been held for one year or less. However, 
if a shareholder receives a distribution taxable as long-term 
capital gain with respect to shares of a Fund and redeems or 
exchanges the shares before he or she has held them for more than 
six months, any loss on such redemption or exchange that is less 
than or equal to the amount of the distribution will be treated as 
a long-term capital loss.

	Backup Withholding. If a shareholder fails to furnish a 
correct taxpayer identification number, fails to fully report 
dividend or interest income, or fails to certify that he or she 
has provided a correct taxpayer identification number and that he 
or she is not subject to such withholding, then the shareholder 
may be subject to a 31% "backup withholding tax" with respect to 
(a) any taxable dividends and distributions and (b) any proceeds 
of any redemption of Trust shares. An individual's taxpayer 
identification number is his or her social security number. The 
backup withholding tax is not an additional tax and may be 
credited against a shareholder's regular Federal income tax 
liability.

	Tax-Exempt Income Fund. Because the Tax-Exempt Income Fund 
will distribute exempt-interest dividends, interest on 
indebtedness incurred by shareholders, directly or indirectly, to 
purchase or carry shares of the Fund will not be deductible for 
Federal income tax purposes. If a shareholder redeems or exchanges 
shares of the Fund with respect to which he receives an 
exempt-interest dividend before holding the shares for more than 
six months, no loss will be allowed on the redemption or exchange 
to the extent of the dividend received. Also, that portion of any 
dividend from the Fund which represents income from private 
activity bonds other than those issued for charitable, educational 
and certain other purposes held by the Fund may not retain its 
tax-exempt status in the hands of a shareholder who is a 
"substantial user" of a facility financed by such bonds or a 
person "related" to a substantial user. Investors should consult 
their own tax advisors to see whether they may be substantial 
users or related persons with respect to a facility financed by 
bonds in which the Fund may invest. Moreover, investors receiving 
social security or certain other retirement benefits should be 
aware that tax-exempt interest received from the Fund may under 
certain circumstances cause up to one-half of such retirement 
benefits to be subject to tax. If the Fund receives taxable 
investment income, it will designate as taxable the same 
percentage of each dividend as the actual taxable income bears to 
the total investment income earned during the period for which the 
dividend is paid. The percentage of each dividend designated as 
taxable, if any, may, therefore, vary. Dividends derived from 
interest from Municipal Securities which are exempt from Federal 
tax also may be exempt from personal income taxes in the state 
where the issuer is located, but in most cases will not be exempt 
under the tax laws of other states or local authorities. Annual 
statements will set forth the amount of interest from Municipal 
Securities earned by the Fund in each state or possession in which 
issuers of portfolio securities are located.


ADDITIONAL INFORMATION

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

	PNC Bank is located at 17th and Chestnut Streets, 
Philadelphia, Pennsylvania 19103, and serves as the custodian for 
each of the Funds, except Diversified Strategic Income Fund. 
Chase, located at Chase Metrotech Center, Brooklyn, NY 11245 
serves as the custodian for Diversified Strategic Income Fund. 
Under their respective custodian agreements with the respective 
Funds, each custodian is authorized to establish separate accounts 
for foreign securities owned by the appropriate Fund to be held 
with foreign branches of other U.S. banks as well as with certain 
foreign banks and securities depositories. For its custody 
services to the Trust, each custodian receives monthly fees based 
upon the month-end aggregate net asset value of the appropriate 
Fund, plus certain charges for securities transactions including 
out-of-pocket expenses, and costs of any foreign and domestic 
sub-custodians. The assets of the Trust are held under bank 
custodianship in compliance with the 1940 Act.

	First Data is located at Exchange Place, Boston, 
Massachusetts 02109, and serves as the Trust's transfer agent. 
Under the transfer agency agreement, First Data maintains the 
shareholder account records for the Trust, handles certain 
communications between shareholders and the Trust and distributes 
dividends and distributions payable by each Fund. For these 
services First Data receives from each Fund a monthly fee computed 
on the basis of the number of shareholder accounts maintained 
during the year for each Fund and is reimbursed for certain 
out-of-pocket expenses.

FINANCIAL STATEMENTS

The Funds' Annual Reports for the fiscal year ended July 31, 1996 
(except for the Premium Total Return Fund, whose Annual Report is 
for the fiscal year ended December 31, 1996), accompany this 
Statement of Additional Information and are incorporated herein by 
reference in their entirety.



APPENDIX

Description of Ratings

Description of S&P Corporate Bond Ratings

	AAA

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

	AA

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

	A

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

	BBB

	Bonds rated BBB are regarded as having an adequate capacity to pay 
interest and repay principal. Whereas they normally exhibit adequate 
protection parameters, adverse economic conditions or changing 
circumstances are more likely to lead to a weakened capacity to pay 
interest and repay principal for bonds in this category than for bonds 
in higher rated categories.

	BB, B and CCC

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


Description of Moody's Corporate Bond Ratings

	Aaa

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

	Aa

	Bonds which are rated Aa are judged to be of high quality by all 
standards. Together with the Aaa group they comprise what are generally 
known as high grade bonds. They are rated lower than the best bonds 
because margins of protection may not be as large as in Aaa securities, 
or fluctuation of protective elements may be of greater amplitude or 
there may be other elements present which make the long-term risks 
appear somewhat larger than in Aaa securities.

	A

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

	Baa

	Bonds which are rated Baa are considered as medium grade 
obligations, i.e., they are neither highly protected nor poorly secured. 
Interest payments and principal security appear adequate for the present 
but certain protective elements may be lacking or may be 
characteristically unreliable over any great length of time. Such bonds 
lack outstanding investment characteristics and in fact have speculative 
characteristics as well.

	Ba

	Bonds which are rated Ba are judged to have speculative elements; 
their future cannot be considered as well assured. Often the protection 
of interest and principal payments may be very moderate and thereby not 
well safeguarded during both good and bad times over the future. 
Uncertainty of position characterizes bonds in this class.

	B

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

	Caa

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

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


Description of S&P Municipal Bond Ratings

	AAA

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

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

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

	AA

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

	A

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

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

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

	BBB

	Medium Grade -- Of the investment grade ratings, this is the 
lowest. Bonds in this group are regarded as having an adequate capacity 
to pay interest and repay principal. Whereas they normally exhibit 
adequate protection parameters, adverse economic conditions or changing 
circumstances are more likely to lead to a weakened capacity to pay 
interest and repay principal for bonds in this category than for bonds 
in higher rated categories.

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

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

	BB, B, CCC and CC

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

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

	D

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

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


Description of S&P Municipal Note Ratings

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


Description of Moody's Municipal Bond Ratings

	Aaa

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

	Aa

	Bonds which are rated Aa are judged to be of high quality by all 
standards. Together with the Aaa group they comprise what are generally 
known as high grade bonds. They are rated lower than the best bonds 
because margins of protection may not be as large as in Aaa securities, 
or fluctuation of protective elements may be of greater amplitude, or 
there may be other elements present which make the long-term risks 
appear somewhat larger than in Aaa securities.

	A

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

	Baa

	Bonds which are rated Baa are considered as medium grade 
obligations, i.e., they are neither highly protected nor poorly secured. 
Interest payments and principal security appear adequate for the present 
but certain protective elements may be lacking or may be 
characteristically unreliable over any great length of time. Such bonds 
lack outstanding investment characteristics and in fact have speculative 
characteristics as well.

	Ba

	Bonds which are rated Ba are judged to have speculative elements; 
their future cannot be considered as well assured. Often the protection 
of interest and principal payments may be very moderate and thereby not 
well safeguarded during both good and bad times over the future. 
Uncertainty of position characterize bonds in this class.

	B

	Bonds which are rated B generally lack characteristics of the 
desirable investment. Assurance of interest and principal payments or of 
maintenance of other terms of the contract over any long period of time 
may be small.

	Caa

	Bonds which are rated Caa are of poor standing. Such issues may be 
in default or there may be present elements of danger with respect to 
principal or interest.

	Ca

	Bonds which are rated Ca represent obligations which are 
speculative in a high degree. Such issues are often in default or have 
other marked shortcomings.

	C

	Bonds which are rated C are the lowest rated class of bonds, and 
issues so rated can be regarded as having extremely poor prospects of 
ever attaining any real investment standing.
	Moody's applies the numerical modifiers 1, 2 and 3 in each generic 
rating classification from Aa through B. The modifier 1 indicates that 
the security ranks in the higher end of its generic ratings category; 
the modifier 2 indicates a mid-range ranking; and the modifier 3 
indicates that the issue ranks in the lower end of its generic ratings 
category.


Description of Moody's Municipal Note Ratings

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


Description of Commercial Paper Ratings

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

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

	Short-term obligations, including commercial paper, rated A-1+ by 
IBCA Limited or its affiliate IBCA Inc. are obligations supported by the 
highest capacity for timely repayment. Obligations rated A-1 have a very 
strong capacity for timely repayment. Obligations rated A-2 have a 
strong capacity for timely repayment, although such capacity may be 
susceptible to adverse changes in business, economic and financial 
conditions.

	Thomson BankWatch employs the rating "TBW-1" as its highest 
category, which indicates that the degree of safety regarding timely 
repayment of principal and interest is very strong. "TBW-2" is its 
second highest rating category. While the degree of safety regarding 
timely repayment of principal and interest is strong, the relative 
degree of safety is not as high as for issues rated "TBW-1".

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

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

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








								Smith Barney
								INCOME FUNDS





							Statement of
							Additional Information
							November 28, 1996
							amended April 30, 1997



Convertible Fund



Diversified Strategic Income Fund



Exchange Reserve Fund



High Income Fund



Premium Total Return Fund



Tax-Exempt Income Fund



Utilities Fund











Smith Barney
Income Funds
388 Greenwich Street
New York, New York 10013					SMITH BARNEY
								A Member of Travelers 
Groups



								FD 01217     11/96

* Effective December 8, 1996; prior to that date, Morgan Guaranty Bank of
New York served as custodian 
to the Diversified Strategic Income Fund.


SMITH BARNEY INCOME FUNDS
PART C
Item 24.	Financial Statements and Exhibits
   
(a)	Financial Statements:

Not Applicable.

    
   
(b)	Exhibits:

All references are to the Registrant's registration statement 
on Form N-1A (the "Registration Statement") as filed with the 
Securities and Exchange Commission (the "SEC") on March 13, 
1985 (File Nos. 2-96408 and 811-4254).

(1)	Registrant's First Amended and Restated Master Trust 
Agreement dated November 5, 1993 and Amendment No. 1 
to the Master Trust Agreement dated July 30, 1993 are 
incorporated by reference to Post-Effective Amendment 
No. 36.

(2)	Registrant's By-Laws are incorporated by reference to 
the Registration Statement.

(3)	Not Applicable.

(4)(a)	Registrant's form of stock certificates for 
Class A, Class B, Class C and Class Y shares of 
beneficial interest of Smith Barney Convertible Fund, 
Smith Barney Diversified Strategic Income Fund, Smith 
Barney Exchange Reserve Fund, Smith Barney High Income 
Fund, Smith Barney Premium Total Return Fund, Smith 
Barney Tax-Exempt Income Fund and Smith Barney 
Utilities Fund are incorporated by reference to Post-
Effective Amendment No. 34 to the Registration 
Statement.

    
   
(b)	Registrant's form of stock certificates for Class A, 
Class B, Class C and Class Y shares of beneficial 
interest of Smith Barney Total Return Bond Fund to be 
filed by amendment.
    
(5)(a)	Transfer of Investment Advisory Agreements 
between the Registrant and Smith Barney Mutual Funds 
Management with respect to Smith Barney Diversified 
Strategic Income Fund, Smith Barney Utilities Fund, 
Smith Barney Convertible Securities Fund, Smith Barney 
High Income Fund, Smith Barney Tax-Exempt Income Fund 
and Smith Barney Exchange Reserve Fund are 
incorporated by reference to Post-Effective Amendment 
No. 40. 

(b)	Investment Advisory Agreement between Registrant and 
Smith Barney Strategy Advisers Inc. with respect to 
Smith Barney Premium Total Return Fund is incorporated 
by reference to Post-Effective Amendment No. 41 to the 
Registration Statement.

(c)	Sub-Investment Advisory Agreement among the 
Registrant, Smith Barney Strategy Advisers, Inc. and 
Boston Partners Asset Management, L.P with respect to 
Smith Barney Premium Total Return Fund is incorporated 
by reference to Post-Effective Amendment No. 41 to the 
Registration Statement.

(d)	Sub-Investment Advisory Agreement between the 
Registrant and Smith Barney Global Capital Management 
Inc. with respect to Smith Barney Diversified 
Strategic Income Fund is incorporated by reference to 
Post-Effective Amendment No. 40.
   
(e)	Investment Management Agreement betweent the 
Registrant and Smith Barney Mutual Funds Management 
with respect to Smith Barney Total Return Bond Fund to 
be filed by amendment.
    
(6)(a)	Distribution Agreement between the Registrant on 
behalf of Smith Barney Convertible Fund, Smith Barney 
Diversified Strategic Income Fund, Smith Barney 
Exchange Reserve Fund, Smith Barney High Income Fund, 
Smith Barney Premium Total Return Fund, Smith Barney 
Tax-Exempt Income Fund and Smith Barney Utilities Fund 
and Smith Barney Inc. is incorporated by reference to 
the Post-Effective Amendment No. 40.

(b)	Distribution Agreement between the Registrant on 
behalf of Smith Barney Exchange Reserve Fund and PFS 
Distributors, Inc. is incorporated by reference to 
Post-Effective Amendment No. 43 to the Registration 
Statement.
   
(c)	Distribution Agreement between the Registrant on 
behalf of Smith Barney Total Return Bond Fund and 
Smith Barney Inc. to be filed by amendment.
    

(7)	Not Applicable.

(8)(a)	Custodian Agreement between the Registrant on 
behalf of Smith Barney Convertible Fund, Smith Barney 
Exchange Reserve Fund, Smith Barney High Income Fund, 
Smith Barney Premium Total Return Fund, Smith Barney 
Tax-Exempt Income Fund and Smith Barney Utilities Fund 
and PNC Bank, National Association ("PNC Bank") is 
incorporated by reference to Post-Effective Amendment 
No. 41 to the Registration Statement.

(b)	A form of Custodian Agreement between the Registrant 
and Chase Manhattan Bank is incorporated by reference 
to Post-Effective Amendment No. 43 to the Registration 
Statement.
   
(c)	Custodian Agreement between the Registrant on behalf 
of Smith Barney Total Return Bond Fund and PNC Bank to 
be filed by amendment.
    

(9)(a)	Administration Agreement between the Registrant 
and SBMFM is incorporated by reference to 
Post-Effective Amendment No. 40.

(b)	Transfer Agency and Registrar Agreement between the 
Registrant and First Data Investor Services Group, 
Inc., (formerly The Shareholder Services Group, Inc.) 
is incorporated by reference to Post-Effective 
Amendment No. 40 to the Registration Statement.

(10)	Opinion of Counsel was filed with Registrant's 24f-2 
Notice on February 25, 1997 as accession number 
0000091155-97-000095.
   
(11)	Not applicable.
    
(12)	Not applicable.

(13)	Not applicable.

(14)	Not applicable.

(15)(a)	Services and Distribution Plans pursuant to Rule 
12b-1 between the Registrant on behalf of Smith Barney 
Diversified Strategic Income Fund, Smith Barney 
Utilities Fund, Smith Barney Convertible Securities 
Fund, Smith Barney High Income Fund, Smith Barney 
Premium Total Return Fund, Smith Barney Tax-Exempt 
Income Fund and Smith Barney Exchange Reserve Fund are 
incorporated by reference to Post-Effective Amendment 
No. 40.
   
(b)	Services and Distribution Plans pursuant to Rule 12b-1 
between the Registrant on behalf of Smith Barney Total 
Return Bond Fund to be filed by amendment.
    

(16)	Performance Data for Registrant is incorporated by 
reference to Post-Effective Amendments No. 14, 15 and 
30 to the Registration Statement filed on September 
30, 1988, December 30, 1988 and January 29, 1992, 
respectively.
   
(17)	Not applicable.
    
(18)	Plan pursuant to Rule 18f-3 is incorporated by 
reference to Post-Effective Amendment No. 41 to the 
Registration Statement.

Item 25.  Persons Controlled by or Under Common Control with 
Registrant

None.

Item 26.  Number of Holders of Securities

   
Not applicable.
    

Item 27.  Indemnification

The response to this item is incorporated by reference to 
Registrant's Post-Effective Amendment No. 2 to the Registration 
Statement.

Item 28.  (a)  Business and Other Connections of Investment 
Adviser

Investment Adviser - - Smith Barney Mutual Funds Management 
Inc. ("SBMFM")

SBMFM, formerly known as Smith, Barney Advisers, Inc. SBMFM 
was incorporated in December 1968 under the laws of the 
State of Delaware. SBMFM is a wholly owned subsidiary of 
Smith Barney Holdings Inc. ("Holdings") (formerly known as 
Smith Barney Shearson Holdings Inc.), which in turn is a 
wholly owned subsidiary of Travelers Group Inc. (formerly 
known as Primerica Corporation) ("Travelers"). SBMFM is 
registered as an investment adviser under the Investment 
Advisers Act of 1940 (the "Advisers Act").

The list required by this Item 28 of officers and directors 
of SBMFM together with information as to any other business, 
profession, vocation or employment of a substantial nature 
engaged in by such officers and directors during the past 
two fiscal years, is incorporated by reference to Schedules 
A and D of FORM ADV filed by SBMFM pursuant to the Advisers 
Act (SEC File No. 801-14437).

Investment Adviser - Smith Barney Strategy Advisers Inc. 
("Strategy Advisers")

Strategy Advisers was incorporated on October 22, 1986 under 
the laws of the State of Delaware. On June 1, 1994, Strategy 
Advisers changed its name from Smith Barney-Shearson 
Strategy Advisers Inc. to its current name. Strategy 
Advisers is a wholly owned subsidiary of SBMFM. Strategy 
Advisers is registered as an investment adviser under the 
Investment Advisers Act of 1940 (the "Advisers Act"). 
Strategy Advisers is also registered with the Commodity 
Futures Trading Commission (the "CFTC") as a commodity pool 
operator under the Commodity Exchange Act (the "CEA"), and 
is a member of the National Futures Association (the "NFA").

The list required by this Item 28 of officers and directors 
of SBMFM and Strategy Advisers, together with information as 
to any other business, profession, vocation or employment of 
a substantial nature engaged in by such officers and 
directors during the past two years, in incorporated b 
reference to Schedules A and D of FORM ADV filed by SBMFM on 
behalf of Strategy Advisers pursuant to the Advisers Act 
(SEC File No. 801-8314).

Sub-Investment Adviser - Boston Partners Asset Management, L.P. 
("Boston Partners")

Boston Partners was organized in April, 1995 under the laws 
of the State of Delaware as a Limited Partnership and 
provides a comprehensive range of financial products and 
services in domestic and selected international markets. 
Boston Partners is an investment adviser registered under 
the Investment Advisers Act of 1940 (the "Advisers Act") and 
provides investment advice to endowment plans, Taft Hartley 
Health and Welfare Plans, VEBAS and institutional clients. 
It also serves as investment adviser and sub-investment 
adviser to other investment companies.

The list required by this Item 28 of officers and directors 
of Boston Partners, together with information as to any 
other business profession, vocation or employment of a 
substantial nature engaged in by such officers and directors 
during the past two years, is incorporated by reference to 
Schedules A and D of FORM ADV filed by Boston Partners 
pursuant to the Advisers Act (SEC File No. 801-49059).

Sub-Investment Adviser - Smith Barney Global Capital Management 
Inc. ("SBGCM")

SBGCM was incorporated on January 22, 1988 under the laws of 
the State of Delaware. SBGCM is an indirect wholly owned 
subsidiary of Holdings. SBGCM is an investment adviser 
registered with the Securities and Exchange Commission in 
the United States and with the Investment Management 
Regulatory  Organization Limited in the United Kingdom. 
SBGCM conducts its operations primarily in the United 
Kingdom.

The list required by this Item 28 of officers and directors 
of SBGCM, together with information as to any other 
business, profession, vocation or employment of a 
substantial nature engaged in by such officers and directors 
during the past two years, is incorporated by reference to 
Schedules A and D of FORM ADV filed by SBGCM pursuant to the 
Advisers Act (SEC File No. 801-31824).

Item 29.  Principal Underwriters
   
Consulting Group Capital Markets Funds; Global Horizons Investment 
Series (Cayman Islands); Greenwich Street California Municipal 
Fund Inc.; Greenwich Street Municipal Fund Inc.; Greenwich Street 
Series Fund; High Income Opportunity Fund Inc.; The Italy Fund 
Inc.; Managed High Income Portfolio Inc.; Managed Municipals 
Portfolio II Inc.; Managed Municipals Portfolio Inc.; Municipal 
High Income Fund Inc.; Puerto Rico Daily Liquidity Fund Inc.; 
Smith Barney Adjustable Rate Government Income Fund; Smith Barney 
Aggressive Growth Fund Inc.; Smith Barney Appreciation Fund Inc.; 
Smith Barney Arizona Municipals Fund Inc.; Smith Barney California 
Municipals Fund Inc.; Smith Barney Concert Series Inc.; Smith 
Barney Disciplined Small Cap Fund, Inc.; Smith Barney Equity 
Funds; Smith Barney Fundamental Value Fund Inc.; Smith Barney 
Funds, Inc.; Smith Barney Income Funds; Smith Barney Income Trust; 
Smith Barney Institutional Cash Management Fund, Inc.; Smith 
Barney Intermediate Municipal Fund, Inc.; Smith Barney Investment 
Funds Inc.; Smith Barney Investment Trust; Smith Barney Large 
Capitalization Growth Fund; Smith Barney Managed Governments Fund 
Inc.; Smith Barney Managed Municipals Fund Inc.; Smith Barney 
Massachusetts Municipals Fund; Smith Barney Money Funds, Inc.; 
Smith Barney Muni Funds; Smith Barney Municipal Fund, Inc.; Smith 
Barney Municipal Money Market Fund, Inc.; Smith Barney Natural 
Resources Fund Inc.; Smith Barney New Jersey Municipals Fund Inc.; 
Smith Barney Oregon Municipals Fund Inc.; Smith Barney Principal 
Return Fund; Smith Barney Telecommunications Trust; Smith Barney 
Variable Account Funds; Smith Barney World Funds, Inc.; Smith 
Barney Worldwide Special Fund N.V. (Netherlands Antilles); 
Travelers Series Fund Inc.; The USA High Yield Fund N.V.; 
Worldwide Securities Limited  (Bermuda); Zenix Income Fund Inc. 
and various series of unit investment trusts.
    
Smith Barney is a wholly owned subsidiary of Holdings. On June 1, 
1994, Smith Barney changed its name from Smith Barney Shearson 
Inc. to its current name. The information required by this Item 29 
with respect to each director, officer and partner of Smith Barney 
is incorporated by reference to Schedule A of FORM BD filed by 
Smith Barney pursuant to the Securities Exchange Act of 1934 (SEC 
File No. 812-8510).

Item 30.  Location of Accounts and Records

(1)	Smith Barney Inc.
388 Greenwich Street
New York, New York  10013

(2)	Smith Barney Income Funds
388 Greenwich Street
New York, New York  10013

(3)	Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York  10013

(4)	Boston Partners Asset Management, L.P.
One Financial Center
43rd floor
Boston, Massachusetts  02111

(5)	Smith Barney Global Capital Management Inc.
10 Piccadilly
London W1V 9LA
England

(6)	PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, PA  19103

(7)	First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts  02109

Item 31.  Management Services

Not Applicable.

Item 32.  Undertakings

(a)	The Registrant hereby undertakes to call a meeting of 
its shareholders for the purpose of voting upon the question 
of removal of a trustee or trustees of Registrant when 
requested in to do so by the holders of at least 10% of 
Registrant's outstanding shares. Registrant undertakes 
further, in connection with the meeting, to comply with the 
provisions of Section 16(c) of the 1940 Act relating to 
communications with the shareholders of certain common-law 
trusts.



	SIGNATURES

	Pursuant to the requirements of the Securities Act of 1933, 
as amended, and the Investment Company Act of 1940, as amended, 
the Registrant, SMITH BARNEY INCOME FUNDS, has duly caused this 
Amendment to the Registration Statement to be signed on its behalf 
by the undersigned, thereunto duly authorized, all in the City of 
New York, State of New York on the    7th day of November,     
1997.

	SMITH BARNEY INCOME FUNDS
	By: /s/ Heath B. McLendon
	Heath B. McLendon, Chairman of 
the Board

	Pursuant to the requirements of the Securities Act of 1933, 
as amended, this Post-Effective Amendment to the Registration 
Statement has been signed below by the following persons in the 
capacities and on the dates indicated.

Signature		Title				Date

/s/ Heath B. McLendon	Chairman of the Board	
	   11/7/97    
Heath B. McLendon	(Chief Executive Officer)

/s/ Lewis E. Daidone	Senior Vice President and	
	   11/7/97    
Lewis E. Daidone	Treasurer (Chief Financial
			and Accounting Officer)

/s/ Lee Abraham*	Trustee				   11/7/97    
Lee Abraham

/s/ Allan J. Bloostein*	Trustee			
	   11/7/97    
Allan J. Bloostein

/s/ Richard E. Hanson*	Trustee			
	   11/7/97    
Richard E. Hanson

* Signed by Heath B. McLendon, their duly authorized 
attorney-in-fact, pursuant to power of attorney dated September 4, 
1996.

/s/ Heath B. McLendon
Heath B. McLendon
u:\legal\funds\slip\1997\secdocs\pea46.doc