SMITH BARNEY GOVERNMENT SECURITIES FUND (the "Fund")
Supplement dated November 1, 1996 to Prospectus dated April 29, 1996
The following information supplements the information contained in the Fund's
Prospectus under the section "Investment Objective and Management Policies":
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 obligations
of comparable maturities which make periodic distributions of
interest. On the other hand, because there are no periodic
interest payments to be reinvested prior to maturity, zero coupon
securities eliminate the reinvestment risk and lock in a rate of
return to maturity.
Dollar Roll Transactions. The Fund may enter into "dollar
rolls", in which the Fund sells fixed income securities and
simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date.
During this "roll" period, the Fund would forego principal and
interest paid on such securities. The Fund would be compensated
by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned
on the cash proceed of the initial sale. Since the Fund will
receive interest on the securities in which it invests the
transaction proceeds, such transactions may involve leverage.
However, since the proceeds will be invested only in U.S. Treasury
obligations and since the Fund will enter into dollar roll
transactions only with dealers of sufficient creditworthiness in
the judgment of the Fund's investment adviser, such transactions
do not present the risks to the Fund that are associated with
other types of leverage. Dollar roll transactions are considered
borrowings by the Fund and will be subject to the Fund's overall
borrowing limitation.
