SMITH BARNEY INCOME FUNDS
On behalf of
SMITH BARNEY UTILITIES FUND
(the "Fund")
Supplement dated May 15, 1998 to
Prospectus dated November 28, 1997
On May 7, 1998 shareholders of the Fund approved: 1)
changing the Fund's investment objective so that income and
capital appreciation receive equal consideration; and 2) changing
the Fund's investment policies by imposing a target asset
allocation of approximately 60% in equity securities and
approximately 40% in fixed-income securities while no longer
requiring the Fund to invest primarily in equity and debt
securities of companies in the utilities industry.
In conjunction with shareholders approving these changes,
the Board of Trustees has approved increasing the portion of the
Fund's assets invested in high yield securities from a maximum of
10% to a maximum of 25% and changing the Fund's name to Smith
Barney Balanced Fund ("Balanced Fund").
The equity portion of the Balanced Fund will purchase
common stocks, preferred stocks, warrants and securities
convertible into common stocks, which are deemed to afford
attractive opportunities for capital appreciation and income.
The Balanced Fund may invest in securities of companies with
attractive relative valuations based on underlying assets or
earnings potential, as well as the securities of companies with
favorable growth prospects. In analyzing securities for
investment, Mutual Management Corp. ("MMC"), the Balanced Fund's
investment adviser, will consider many factors including, but not
limited to, historical and future earnings and growth potential,
current market valuation, management strategy and economic and
financial factors that may affect the price of the securities.
The Balanced Fund will invest in a broadly diversified portfolio
across a wide range of industries consisting of middle to large
capitalization companies, though it may on occasion invest in
smaller capitalized companies when, in the opinion of MMC, such
companies offer attractive capital appreciation opportunities.
The fixed-income portion of the Balanced Fund will invest
in a diversified portfolio of fixed-income securities that are
believed to afford opportunities for income and capital
appreciation. Fixed-income securities the Balanced Fund will
invest in, include obligations of the U.S. government, its
agencies and instrumentalities, corporate securities (including
bonds, notes and convertible issues), mortgage-backed and asset-
backed securities. The fixed-income management strategies will
be driven by the shape of the yield curve and yield spread
analysis. There are no maturity restrictions on the fixed-income
securities in which the Balanced Fund invests. Under normal
market conditions the weighted average portfolio maturity for the
fixed-income portfolio will be in the 5 to 15 year range.
The Balanced Fund may invest up to 25% of its total assets
in fixed-income securities rated less than investment grade by a
nationally recognized statistical rating organization ("NRSRO")
such as Moody's and S&P. Such securities are commonly referred to
as "junk bonds." The Balanced Fund may also hold, from time to
time, securities rated Caa by Moody's or CCC by S&P or, if
unrated or rated by other NRSROs, securities of comparable
quality as determined by MMC. While this portion of the
securities held by the Balanced Fund are expected to provide
greater income and, possibly, opportunity for greater gain than
investments in more highly rated securities, they may be subject
to greater risk of loss of income and principal and are more
speculative in nature.
The equity portion of the Balanced Fund will be managed by
Jack Levande and Chad Graves. Mr. Levande is the current
portfolio manager of the Fund and has been responsible for
making all investment decisions since the Fund commenced
operations in 1988. He is currently a Managing Director of Smith
Barney Inc. ("Smith Barney"). Mr. Graves is also a Managing
Director of Smith Barney and has had portfolio management
responsibilities for the Concert Social Awareness Fund. The
fixed-income portion of the Balanced Fund will be managed by
James Conroy and John Bianchi. Mr. Conroy, a Managing Director
of Smith Barney, is currently the portfolio manager of the Smith
Barney Diversified Strategic Income Fund, Smith Barney Government
Securities Fund and Short-term U.S. Treasury Securities Fund.
Mr. Bianchi, also a Managing Director of Smith Barney, is the
portfolio manager of 10 open and closed-end Smith Barney mutual
funds including the Smith Barney High Income Fund.
As the Fund is restructured into the Balanced Fund, it will
be required to divest many of its holdings in the utilities
industry. This restructuring of the Fund will likely result in
the realization of short- and long-term capital gains for
shareholders. Distributions of any net long-term capital gains
earned by the Fund will be made annually after the close of the
fiscal year in which they are earned. Distributions of short-
term capital gains may be paid more frequently with dividends
from net investment income. In particular, investors should be
careful to consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that
time includes the amount of the forthcoming distribution, but the
distribution generally would be taxable to the investor. In
addition, the restructured portfolio, with an emphasis on capital
appreciation, will cover a broader spectrum of market sectors
than the Fund's current portfolio, thus resulting in a lower
monthly distribution rate to shareholders.
FD 01450
