Notes to Financial Statements (unaudited)
1. Significant Accounting Policies
The Smith Barney Premium Total Return Fund ("Fund"), a separate investment fund of Smith Barney Income
Funds ("Trust"), a Massachusetts business trust, is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The Trust consists of this Fund and seven
other separate investment funds: Smith Barney Exchange Reserve Fund, Smith Barney Convertible Fund, Smith
Barney High Income Fund, Smith Barney Municipal High Income Fund, Smith Barney Diversified Strategic
Income Fund, Smith Barney Balanced Fund and Smith Barney Total Return Bond Fund. The financial statements
and financial highlights for the other Funds are presented in separate semi-annual reports.
The significant accounting policies consistently followed by the Fund are: (a) security transactions are accounted
for on trade date; (b) investments are valued at market value or, in the absence of market value with respect to
any portfolio securities, at fair value as determined by or under the direction of the Board of Trustees. Portfolio
securities that are traded primarily on a domestic or foreign exchange are 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 each day. Options are generally valued at the
mean of the quoted bid and asked prices. Investments in U.S. government securities (other than short-term
securities) are valued at the mean of the quoted bid and asked price; (c) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which approximates value; (d) interest
income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis; (e)
dividend income is recorded on the ex-dividend date; foreign dividend income is recorded on the ex-dividend