SMITH BARNEY MUNI FUNDS, 497, 1995-10-30

SMITH BARNEY MUNI FUNDS
497, 1995-10-30

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<PAGE>1

Rule 497(d)
33-62017

[Smith Barney Letterhead]

A SPECIAL NOTICE TO SHAREHOLDERS OF
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.

Your Vote is Important

Dear Shareholder:

The Board of Directors of Smith Barney New York Municipals Fund Inc. ("New
York Fund") has recently reviewed and unanimously endorsed a proposal for a
reorganization of New York Fund which it judges to be in the best interests of
New York Fund's shareholders.

UNDER THE TERMS OF THE PROPOSAL, SMITH BARNEY MUNI FUNDS ON BEHALF OF ITS NEW
YORK PORTFOLIO ("NEW YORK PORTFOLIO") WOULD ACQUIRE ALL OR SUBSTANTIALLY ALL
OF THE ASSETS AND LIABILITIES OF NEW YORK FUND. After the transaction, New
York Fund will be liquidated and you will become a shareholder of New York
Portfolio, having received shares with an aggregate value equivalent to the
aggregate net asset value of your investment in New York Fund at the time of
the transaction. No sales charge will be imposed in the transaction. The
transaction will, in the opinion of counsel, be free from federal income taxes
to you, New York Fund and New York Portfolio, and it is intended that the
combined fund will be managed by the same portfolio manager who currently
manages New York Portfolio.

The Board of Directors of New York Fund has determined that it is advantageous
to combine New York Fund with New York Portfolio as part of the consolidation
and integration of the two separate and distinct groups of mutual funds
currently distributed by Smith Barney Inc. that resulted from the acquisition
by Travelers Group Inc. (formerly Primerica Corporation) of certain assets of
Lehman Brothers Inc. (formerly Shearson Lehman Brothers Inc.), including its
retail brokerage and domestic asset management business. In particular, the
combination of New York Fund and New York Portfolio is expected to eliminate
investor confusion associated with the offering by Smith Barney Inc. of two
similar New York municipal bond funds that provide differing yields and also
should permit the funds' investment personnel to concentrate their efforts on
the management of one fund rather than having to divide their attention
between two funds with similar investment objectives.

In addition, the Board of Directors of New York Fund has determined that the
proposed reorganization should provide benefits to Class A, Class B and Class
C shareholders of New York Fund due, in part, to savings in expenses borne by
such shareholders. Specifically, it is anticipated that the expense ratio for
Class A, Class B and Class C shares of the combined fund would be lower than
the expense ratio currently applicable to Class A, Class B and Class C shares
of New York Fund.

<PAGE>2

SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT

To consider this transaction, we have called a Special Meeting of Shareholders
to be held on November 14, 1995. WE STRONGLY INVITE YOUR PARTICIPATION BY
ASKING YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY PROMPTLY.

Detailed information about the proposed transaction is described in the
enclosed proxy statement. On behalf of the Board of Directors, I thank you
for your participation as a shareholder and urge you to please exercise your
right to vote by completing, dating and signing the enclosed proxy card. A
self-addressed, postage-paid envelope has been enclosed for your convenience.

If you have any questions regarding the proposed transaction, please feel free
to call your Smith Barney Financial Consultant who will be pleased to assist
you.

IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED PROMPTLY.

Sincerely,

Heath B. McLendon
Chairman of the Board

October 26, 1995

<PAGE>3

SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held on November 14, 1995

Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Smith Barney New York Municipals Fund Inc. ("New York Fund")
will be held at 388 Greenwich Street, 26th Floor, New York, New York on
November 14, 1995, commencing at 2:30 p.m. for the following purposes:

1. To approve or disapprove the Agreement and Plan of Reorganization
dated as of October 23, 1995 providing for (i) the acquisition of
all or substantially all of the assets of New York Fund by Smith
Barney Muni Funds on behalf of its New York Portfolio ("New York
Portfolio") in exchange for shares of New York Portfolio and the
assumption by Smith Barney Muni Funds on behalf of New York
Portfolio of scheduled liabilities of New York Fund, (ii) the
distribution of such shares of New York Portfolio to shareholders of
New York Fund in liquidation of New York Fund and (iii) the
subsequent dissolution of New York Fund.

2. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.

The Board of Directors of New York Fund has fixed the close of
business on September 25, 1995 as the record date for the determination of
shareholders of New York Fund entitled to notice of and to vote at the Meeting
and any adjournment or adjournments thereof.

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.

SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE
URGED TO SIGN AND RETURN WITHOUT DELAY THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXY CARDS ARE SET FORTH ON THE FOLLOWING PAGE. PROXIES MAY BE
REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY THE SUBSEQUENT EXECUTION AND
SUBMISSION OF A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO NEW
YORK FUND AT ANY TIME BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT
THE MEETING.

<PAGE>4

By Order of the Board of Directors

Christina T. Sydor, Esq.
Secretary

October 26, 1995

YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.

<PAGE>5

PROSPECTUS/PROXY STATEMENT DATED OCTOBER 26, 1995

Acquisition Of The Assets Of

SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 224-7523

By And In Exchange For Shares Of

NEW YORK PORTFOLIO
a separate investment portfolio of
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
(800) 224-7523

This Prospectus/Proxy Statement is being furnished to shareholders
of the Smith Barney New York Municipals Fund Inc. (the "Acquired Fund") in
connection with a proposed plan of reorganization to be submitted to
shareholders of the Acquired Fund for consideration at a Special Meeting of
Shareholders to be held on November 14, 1995 at 2:30 p.m. (the "Meeting"), at
the offices of Smith Barney Inc. ("Smith Barney") located at 388 Greenwich
Street, 26th Floor, New York, New York 10013, or any adjournment or
adjournments thereof.

The plan provides for all or substantially all of the assets of the
Acquired Fund to be acquired by Smith Barney Muni Funds, on behalf of its New
York Portfolio (the "Acquiring Fund"), in exchange for shares of the Acquiring
Fund and the assumption by Smith Barney Muni Funds on behalf of the Acquiring
Fund of scheduled liabilities of the Acquired Fund (hereinafter referred to as
the "Reorganization"). (The Acquiring Fund and the Acquired Fund are
sometimes referred to hereinafter as the "Funds" and individually as a
"Fund".) Shares of the Acquiring Fund would be distributed to shareholders of
the Acquired Fund in liquidation of the Acquired Fund and thereafter the
Acquired Fund would be dissolved. As a result of the proposed Reorganization,
each shareholder of the Acquired Fund will receive that number of shares of
the Acquiring Fund having an aggregate value equal to the aggregate net asset
value of such shareholder's shares of the Acquired Fund immediately prior to
the Reorganization. Holders of Class A shares of the Acquired Fund will
receive Class A shares of the Acquiring Fund, and no sales charge will be
imposed on the Class A shares of the Acquiring Fund received by the Acquired
Fund Class A shareholders. Holders of Class B or Class C shares of the
Acquired Fund will receive Class B or Class C shares, respectively, of the
Acquiring Fund. No contingent deferred sales

<PAGE>6

charge ("CDSC") will be imposed on Class B or Class C shares of the Acquiring
Fund upon consummation of the Reorganization. However, any CDSC which is
applicable to a shareholder's investment will continue to apply and, in
calculating the applicable CDSC payable upon the subsequent redemption of
Class B or Class C shares of the Acquiring Fund, the period during which an
Acquired Fund shareholder held Class B or Class C shares of the Acquired Fund
will be counted. This transaction is structured to be tax-free for federal
income tax purposes to shareholders and to both the Acquiring Fund and the
Acquired Fund.

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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The Acquired Fund is an open-end, non-diversified management
investment company whose investment objective is to provide New York investors
with as high a level of dividend income exempt from federal income taxes and
New York State and New York City personal income taxes as is consistent with
prudent investment management and the preservation of capital. The Acquiring
Fund is a separate investment portfolio of Smith Barney Muni Funds, an open-
end, non-diversified management investment company, whose investment objective
is to pay its shareholders as high a level of income exempt from federal
income taxes and from New York State and City personal income taxes as is
consistent with prudent investing.

Smith Barney Mutual Funds Management Inc., 388 Greenwich Street, New
York, New York 10013 (the "Manager"), serves as investment manager to both the
Acquiring Fund and the Acquired Fund. The Manager is a wholly owned
subsidiary of Smith Barney Holdings Inc. which, in turn, is a wholly owned
subsidiary of Travelers Group Inc. It is proposed that, in connection with
the Reorganization, Peter M. Coffey, the portfolio manager who manages the
Acquiring Fund's portfolio, would manage the combined fund. Mr. Coffey, a
Managing Director of Smith Barney, has served as Vice President and Investment
Officer of the Acquiring Fund since its inception on July 16, 1987, and
manages the day-to-day operations of the Acquiring Fund, including making
substantially all investment decisions.

The investment policies of the Acquiring Fund are generally similar
to those of the Acquired Fund. Certain differences in the investment policies
of the Acquiring Fund and the Acquired Fund, however, are described under
"Comparison of Investment Objectives and Policies" in this Prospectus/Proxy
Statement.

<PAGE>7

This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective investor should know before investing. Certain relevant
documents listed below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated in whole or in part by reference. A
Statement of Additional Information dated October 26, 1995, relating to this
Prospectus/Proxy Statement and the Reorganization, has been filed with the SEC
and is incorporated by reference into this Prospectus/Proxy Statement. A copy
of such Statement of Additional Information is available upon request and
without charge by writing to the Acquired Fund at the address listed on the
cover page of this Prospectus/Proxy Statement or by contacting a Smith Barney
Financial Consultant.

1. The Prospectus of Smith Barney Muni Funds -- New York Portfolio
dated July 31, 1995, as supplemented by a Prospectus Supplement
dated October 2, 1995, is incorporated in its entirety by reference,
and a copy is included herein.

2. The Prospectus of Smith Barney New York Municipals Fund Inc. dated
March 1, 1995, as supplemented by Prospectus Supplements dated May
25, 1995, July 11, 1995, July 15, 1995 and July 20, 1995, is
incorporated in its entirety by reference.

Also accompanying this Prospectus/Proxy Statement as Exhibit A is a
copy of the Agreement and Plan of Reorganization (the "Plan") for the proposed
transaction.

<PAGE>8

TABLE OF CONTENTS

PAGE

ADDITIONAL MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . 5

FEE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

REASONS FOR THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . 17

INFORMATION ABOUT THE REORGANIZATION . . . . . . . . . . . . . . . . . . 20

INFORMATION ABOUT THE ACQUIRING FUND . . . . . . . . . . . . . . . . . . 25

INFORMATION ABOUT THE ACQUIRED FUND . . . . . . . . . . . . . . . . . . . 33

COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . 44

INFORMATION ON SHAREHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . 52

ADDITIONAL INFORMATION ABOUT SMITH BARNEY NEW YORK
MUNICIPALS FUND INC. AND SMITH BARNEY MUNI FUNDS . . . . . . . . . . . . 55

OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

FINANCIAL STATEMENTS AND EXPERTS . . . . . . . . . . . . . . . . . . . . 57

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . . . . A-1

<PAGE>9

ADDITIONAL MATERIALS

The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated October 26, 1995
relating to this Prospectus/Proxy Statement and the Reorganization, will be
sent to all shareholders requesting a copy of such Statement of Additional
Information.

1. Statement of Additional Information of Smith Barney Muni Funds dated
July 31, 1995.

2. Annual Report of Smith Barney Muni Funds -- New York Portfolio for
the fiscal year ended March 31, 1995.

3. Annual Report of Smith Barney New York Municipals Fund Inc. for the
fiscal year ended December 31, 1994.

4. Semi-Annual Report of Smith Barney New York Municipals Fund Inc. for
the six-month period ended June 30, 1995.

5. Pro Forma Financial Statements.

<PAGE>10

FEE TABLES

Following are tables showing current costs and expenses of the
Acquired Fund and the Acquiring Fund and the pro forma costs and expenses
expected to be incurred by the Acquiring Fund after giving effect to the
Reorganization, each based on the maximum sales charge or maximum CDSC that
may be incurred at the time of purchase or redemption.

CLASS A SHARES

Acquired Acquiring
Fund Fund Pro Forma***
<S> <C> <C> <C>

Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of
offering price) . . . . . . . . . . . . . . . . . . . . . 4.00% 4.00% 4.00%

Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) . . . . . . . . . None* None* None*

Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . . . 0.54%**** 0.45% 0.50%*****
12b-1 fees . . . . . . . . . . . . . . . . . . . . . . . . 0.15 0.15****** 0.15
Other expenses** . . . . . . . . . . . . . . . . . . . . . 0.08 0.13 0.07

Total Operating Expenses . . . . . . . . . . . . . . . . . . 0.77% 0.73% 0.72%

<FN>

* Purchases of Class A shares, which when combined with
current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, 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.

** "Other expenses" for Class A shares of the Acquired Fund
are based on expenses for the six-month period ended June
30, 1995, for the Acquiring Fund on expenses for the
fiscal year ended March 31, 1995, and for the pro forma
financial figures are based on estimated expenses for the
fiscal year ended March 31, 1995.

*** The pro forma financial figures are intended to provide
shareholders with information about the continuing impact
of the Reorganization as if the Reorganization had taken
place as of April 1, 1994.

**** For investment advisory services, the Acquired Fund pays
the Manager a fee at the following annual rates of average
daily net assets: 0.35% up to $500 million and 0.32% in
excess of $500 million. For administrative services
rendered, the Acquired Fund pays the Manager a fee at the
following annual rates of average daily net assets: 0.20%
to $500 million and 0.18% in excess of $500 million.
Effective on November 17, 1995 (the anticipated date of
the Reorganization), the Manager has agreed to reduce the
Acquired Fund's aggregate management fee to 0.50% of the
Acquired Fund's average daily net assets.

***** Assumes approval by shareholders of the Acquiring Fund of
a proposal to increase the management fees payable by the
Acquiring Fund from 0.45% to 0.50% of the Acquiring Fund's
average daily net assets. See "Reasons for the
Reorganization."

****** 12b-1 fees for the fiscal year ended March 31, 1995 have
been restated to reflect the annualized level of 12b-1
fees currently authorized to be paid. 12b-1 fees were
instituted by the Acquiring Fund in November 1994.

<PAGE>11

CLASS B SHARES

</TABLE>
<TABLE>
<CAPTION>

Acquired Acquiring
Fund Fund Pro Forma***
<S> <C> <C> <C>

Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of offering
price) . . . . . . . . . . . . None None None

Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) . . . . . . 4.50% 4.50% 4.50%

Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . 0.54%**** 0.45% 0.50%*****
12b-1 fees* . . . . . . . . . . . . . . . . . . . . . 0.65 0.65 0.65
Other expenses** . . . . . . . . . . . . . . . . . . . 0.10 0.17 0.08

Total Operating Expenses . . . . . . . . . . . . . . . . 1.29% 1.27% 1.23%

<FN>

* Upon conversion of Class B shares to Class A shares, such
shares will no longer be subject to a distribution fee.

** "Other expenses" for Class B shares of the Acquired Fund
are based on expenses for the six-month period ended June
30, 1995, for the Acquiring Fund on expenses for the
fiscal year ended March 31, 1995, and for the pro forma
financial figures are based on estimated expenses for the
fiscal year ended March 31, 1995.

</TABLE>

<PAGE>12

CLASS C SHARES

Acquired Acquiring
Fund Fund Pro Forma***
<S> <C> <C> <C>

Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of offering
price) . . . . . . . . . . . . . . . . . . . . . . . None None None

Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) . . . . . . . . . . . . . . . . . 1.00% 1.00% 1.00%

Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . 0.54%**** 0.45% 0.50%*****
12b-1 fees* . . . . . . . . . . . . . . . . . . . . . 0.70 0.70 0.70
Other expenses** . . . . . . . . . . . . . . . . . . 0.11 0.13 0.08

Total Operating Expenses . . . . . . . . . . . . . . . . 1.35% 1.28% 1.28%

<FN>

* 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.

** "Other expenses" for Class C shares of the Acquired Fund
are based on expenses for the six-month period ended June
30, 1995, for the Acquiring Fund on expenses for the
fiscal year ended March 31, 1995, and for the pro forma
financial figures are based on estimated expenses for
the fiscal year ended March 31, 1995.

**** For investment advisory services, the Acquired Fund pays the Manager a fee
at the following annual rates of average daily net
assets: 0.35% up to $500 million and 0.32% in excess of
$500 million. For administrative services rendered, the
Acquired Fund pays the Manager a fee at the following
annual rates of average daily net assets: 0.20% to $500
million and 0.18% in excess of $500 million. Effective
on November 17, 1995 (the anticipated date of the
Reorganization), the Manager has agreed to reduce the
Acquired Fund's aggregate management fee to 0.50% of the
Acquired Fund's average daily net assets.

***** Assumes approval by shareholders of the Acquiring Fund of a proposal to
increase the management fees payable by the Acquiring
Fund from 0.45% to 0.50% of the Acquiring Fund's average
daily net assets. See "Reasons for the Reorganization."

</TABLE>

<PAGE>13

Examples

The following examples are intended to assist an investor in understanding
the various costs that an investor will bear directly or indirectly. The
examples assume payment of operating expenses at the levels set forth in the
tables above.

1 Year 3 Years 5 Years 10 Years*
<S> <C> <C> <C> <C>

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
Acquired Fund . . . . . . . . . . . . . . . . . $48 $64 $81 $132
Acquiring Fund . . . . . . . . . . . . . . . . . 47 62 79 127
Pro Forma . . . . . . . . . . . . . . . . . . . 47 62 78 126

Class B
Acquired Fund . . . . . . . . . . . . . . . . . $58 $71 $81 $141
Acquiring Fund . . . . . . . . . . . . . . . . . 58 70 80 138
Pro Forma . . . . . . . . . . . . . . . . . . . 58 69 78 135

Class C
Acquired Fund . . . . . . . . . . . . . . . . . $24 $43 $74 $162
Acquiring Fund . . . . . . . . . . . . . . . . . 23 42 70 155
Pro Forma . . . . . . . . . . . . . . . . . . . 23 41 70 155

<FN>

* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.

</TABLE>

<PAGE>14

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

1 Year 3 Years 5 Years 10 Years*
<S> <C> <C> <C> <C>

Class A
Acquired Fund . . . . . . . . . . . . . . . $48 $64 $81 $132
Acquiring Fund . . . . . . . . . . . . . . . 47 62 79 127
Pro Forma . . . . . . . . . . . . . . . . . 47 62 78 126

Class B
Acquired Fund . . . . . . . . . . . . . . . $13 $41 $71 $141
Acquiring Fund . . . . . . . . . . . . . . . 13 40 70 138
Pro Forma . . . . . . . . . . . . . . . . . 13 39 68 135

Class C
Acquired Fund . . . . . . . . . . . . . . . $14 $43 $74 $162
Acquiring Fund . . . . . . . . . . . . . . . 13 41 70 155
Pro Forma . . . . . . . . . . . . . . . . . 13 41 70 155

<FN>

* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
</TABLE>
The examples also provide 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, each Fund's actual return will vary and
may be greater or less than 5.00%. THESE EXAMPLES SHOULD NOT BE CONSIDERED
REPRESENTATIONS OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.

<PAGE>15

SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
ADDITIONAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT,
THE AGREEMENT AND PLAN OF REORGANIZATION, A COPY OF WHICH IS ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS EXHIBIT A, THE ACCOMPANYING PROSPECTUS OF THE
ACQUIRING FUND DATED JULY 31, 1995, AS SUPPLEMENTED BY A PROSPECTUS SUPPLEMENT
DATED OCTOBER 2, 1995, AND THE PROSPECTUS OF THE ACQUIRED FUND DATED MARCH 1,
1995, AS SUPPLEMENTED BY PROSPECTUS SUPPLEMENTS DATED MAY 25, 1995, JULY 11,
1995, JULY 15, 1995 AND JULY 20, 1995.

PROPOSED REORGANIZATION. The Plan provides for the transfer of all
or substantially all of the assets of the Acquired Fund to Smith Barney Muni
Funds on behalf of the Acquiring Fund in exchange for shares of the Acquiring
Fund and the assumption by Smith Barney Muni Funds on behalf of the Acquiring
Fund of scheduled liabilities of the Acquired Fund. The Plan also calls for
the distribution of shares of the Acquiring Fund to the Acquired Fund's
shareholders in liquidation of the Acquired Fund. (The foregoing proposed
transaction is referred to in this Prospectus/Proxy Statement as the
"Reorganization.") As a result of the Reorganization, each shareholder of the
Acquired Fund will become the owner of that number of full and fractional
shares of the Acquiring Fund having an aggregate value equal to the aggregate
net asset value of the shareholder's shares of the Acquired Fund as of the
close of business on the date that the Acquired Fund's assets are exchanged
for shares of the Acquiring Fund. (Shareholders of Class A, Class B or Class
C shares of the Acquired Fund will receive Class A, Class B or Class C shares,
respectively, of the Acquiring Fund.) See "Information About the
Reorganization -- Plan of Reorganization."

For the reasons set forth below under "Reasons for the
Reorganization," the Board of Directors of the Acquired Fund, including the
Directors of the Acquired Fund who are not "interested persons" (the
"Independent Directors"), as that term is defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), has concluded that the
Reorganization would be in the best interests of the shareholders of the
Acquired Fund and that the interests of the Acquired Fund's existing
shareholders will not be diluted as a result of the transaction contemplated
by the Reorganization and therefore has submitted the Plan for approval by the
Acquired Fund's shareholders. The Board of Trustees of Smith Barney Muni
Funds has reached similar conclusions with respect to the Acquiring Fund and
has also approved the Reorganization in respect of the Acquiring Fund.

Approval of the Reorganization will require the affirmative vote of
a majority of the total number of votes entitled to be cast thereon at the
Meeting, in person or by proxy, if a quorum is present. For purposes of
voting with respect to the Reorganization, the Class A, Class B and Class C
shares of the Acquired Fund will vote together as a single class. See "Voting
Information."

<PAGE>16

TAX CONSEQUENCES. Prior to completion of the Reorganization, the
Funds will have received an opinion of counsel that, upon the Reorganization
and the transfer of the assets of the Acquired Fund, no gain or loss will be
recognized by the Acquired Fund or its shareholders for federal income tax
purposes. The holding period and aggregate tax basis of the Acquiring Fund
shares received by an Acquired Fund shareholder will be the same as the
holding period and aggregate tax basis of the shares of the Acquired Fund
previously held by such shareholder. In addition, the holding period and tax
basis of the assets of the Acquired Fund in the hands of the Acquiring Fund as
a result of the Reorganization will be the same as in the hands of the
Acquired Fund immediately prior to the Reorganization.

INVESTMENT OBJECTIVES AND POLICIES. The Acquiring Fund and the
Acquired Fund have generally similar investment objectives, policies and
restrictions. The Acquired Fund is an open-end, non-diversified management
investment company whose investment objective is to provide New York investors
with as a high a level of dividend income exempt from federal income taxes and
New York State and New York City personal income taxes as is consistent with
prudent investment management and the preservation of capital. The Acquiring
Fund is a separate investment portfolio of Smith Barney Muni Funds, an open-
end, non-diversified management investment company, whose investment objective
is to pay its shareholders as high a level of income exempt from federal
income taxes and from New York State and City personal income taxes as is
consistent with prudent investing. For a discussion of the differences
between the investment policies of the Acquiring Fund and the Acquired Fund,
see "Comparison of Investment Objectives and Policies."

PURCHASE AND REDEMPTION PROCEDURES. The purchase and redemption
procedures available to shareholders of the Acquiring Fund are virtually
identical to those of the Acquired Fund. Purchase of shares of the Acquiring
Fund and the Acquired Fund may be made through the Funds' 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, at their respective public offering prices (net asset value
next determined plus any applicable sales charge). Class A shares of both the
Acquiring Fund and the Acquired Fund are sold subject to a maximum initial
sales charge of 4.00% of the public offering price. Class A shares of either
Fund may be purchased at a reduced sales charge or at net asset value,
determined by aggregating the dollar amount of a new purchase and the total
asset value of all Class A shares of Funds offered by Smith Barney held by
such person that are exchangeable with Class A shares of either Fund and
applying the (reduced) sales charge applicable to such aggregate. Purchases
of Class A shares of both Funds, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, 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. Class B and
Class C shares of both Funds are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares

<PAGE>17

and are subject to a CDSC payable upon certain redemptions. In addition,
Class Y shares of both Funds are sold without an initial sales charge or CDSC,
and are available only to investors meeting an initial investment minimum of
$5,000,000. As of September 25, 1995 (the "Record Date"), no Class Y shares
of either Fund had been sold. Further, the Acquired Fund is authorized to
issue a fifth class of shares, Class Z shares, exclusively for sale to tax-
exempt employee benefit and retirement plans of Smith Barney and to certain
unit investment trusts sponsored by Smith Barney or any of its affiliates. As
of the date hereof, the Acquired Fund has not sold any Class Z shares. The
Acquiring Fund does not offer Class Z shares.

Class A shares of both the Acquiring and the Acquired Fund may be
redeemed at their respective net asset values per share next determined
without charge, except as set forth in the preceding paragraph. Class B
shares of both Funds may be redeemed at their net asset value per share,
subject to a maximum CDSC of 4.50% of the lower of original cost or redemption
proceeds, declining by 0.50% the first year after purchase and by 1.00% each
year thereafter to zero. Class C shares of both Funds may be redeemed at
their net asset value per share, subject to a CDSC of 1.00% if such shares are
redeemed during the first 12 months following their purchase. Shares of both
Funds held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. All other shares may
be redeemed through a Smith Barney Financial Consultant, Introducing Broker or
dealer in the selling group or by forwarding a written request for redemption
to The Shareholder Services Group, Inc. ("TSSG" or the "transfer agent"), a
subsidiary of First Data Corporation. See "Redemption of Shares" in the
accompanying Prospectus of the Acquiring Fund.

EXCHANGE PRIVILEGES. The exchange privileges available to
shareholders of the Acquiring Fund are virtually identical to those available
to shareholders of the Acquired Fund. Shareholders of both the Acquired Fund
and the Acquiring Fund may exchange at net asset value all or a portion of
their shares for shares of the same class in certain other funds of the Smith
Barney Mutual Funds. Any exchange will be a taxable event for which a
shareholder may have to recognize a gain or a loss under federal income tax
provisions. No initial sales charge is imposed on the shares being acquired
in an exchange, and no CDSC is imposed on the shares being disposed of in the
exchange. A sales charge differential, however, may apply to exchanges of
Class A shares with other Smith Barney Mutual Funds. For purposes of
computing the CDSC that may be payable upon a disposition, the Class B and
Class C shares acquired in the exchange will be deemed to have been purchased
on the same date as the Class B and Class C shares that were exchanged
therefor. Class B shares of the Funds that are exchanged for Class B shares
of other Smith Barney Mutual Funds imposing a higher CDSC will be subject to
the higher applicable CDSC. See "Exchange Privilege" in the accompanying
Prospectus of the Acquiring Fund.

<PAGE>18

DIVIDENDS. The Acquired Fund declares dividends from its net
investment income (that is, income other than its net realized long- and
short-term capital gains) monthly, and ordinarily pays dividends on the last
Friday of each month to shareholders of record as of the preceding Tuesday.
Distributions of net realized long- and short-term capital gains, if any, are
declared and paid annually after the end of the fiscal year in which they have
been earned. Dividends of substantially all of the Acquiring Fund's net
investment income are declared and paid monthly and any realized capital gains
are declared and distributed annually. With respect to both Funds, unless a
shareholder otherwise instructs, 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. The distribution option
currently in effect for a shareholder of the Acquired Fund will remain in
effect after the Reorganization. After the Reorganization, however, the
former Acquired Fund shareholders may change their distribution option at any
time by contacting a Smith Barney Financial Consultant. See "Dividends and
Distributions" in the accompanying Prospectus of the Acquiring Fund.

SHAREHOLDER VOTING RIGHTS. The Acquired Fund and Smith Barney Muni
Funds are both registered with the SEC as open-end, investment companies. The
Acquired Fund is a Maryland corporation having a Board of Directors. The
Acquiring Fund is a separate series of Smith Barney Muni Funds, a
Massachusetts business trust having a Board of Trustees. Shareholders of both
Funds have similar voting rights. Neither Fund holds a meeting of
shareholders annually, and there is normally no meeting of shareholders held
for the purpose of electing Directors/Trustees unless and until such time as
less than two-thirds of the Directors or a majority of the Trustees holding
office, as the case may be, have been elected by shareholders. At that time,
the Directors/Trustees in each Fund then in office will call a shareholders'
meeting for the election of Directors/Trustees.

In addition, under the laws of the State of Maryland, shareholders
of the Acquired Fund do not have appraisal rights in connection with a
combination or acquisition of the assets of the Fund by another entity.
Shareholders of the Acquired Fund may, however, redeem their shares at net
asset value (subject to any applicable CDSC) prior to the date of the
Reorganization.

For purposes of voting with respect to the Reorganization, the Class
A, Class B and Class C shares of the Acquired Fund will vote together as a
single class. See "Information on Shareholders' Rights -- Voting Rights."

<PAGE>19

RISK FACTORS

Due to the similarities of investment objectives and policies of the
Acquiring Fund and the Acquired Fund, the investment risks are substantially
similar. Such risks are generally those typically associated with municipal
securities, primarily those of New York issuers. The following is a summary
of certain risk factors associated with investing in shares of the Acquiring
Fund, certain of which are also applicable to the Acquired Fund. This summary
is qualified in its entirety by the accompanying Prospectus of the Acquiring
Fund. In addition, certain risks associated with various investment
strategies utilized by the Acquiring Fund, and where applicable, the Acquired
Fund, are described herein under "Comparison of Investment Objectives and
Policies."

Risk Factors Affecting New York

Each Fund's ability to achieve its investment objective is dependent
upon the ability of the issuers of New York obligations to meet their
continuing obligations for the payment of principal and interest. New York
State and New York City face long-term economic problems that could seriously
affect their ability and that of other issuers of New York obligations to meet
their financial obligations.

Certain substantial issuers of New York obligations (including
issuers whose obligations may be acquired by the Funds) have experienced
serious financial difficulties in recent years. These difficulties have at
times jeopardized the credit standing and impaired the borrowing abilities of
all New York issuers and have generally contributed to higher interest costs
for their borrowings and fewer markets for their outstanding debt obligations.
In recent years, several different issues of municipal securities of New York
State and its agencies and instrumentalities and of New York City have been
downgraded by S&P and Moody's. On the other hand, strong demand for New York
obligations has more recently had the effect of permitting New York
obligations to be issued with yields relatively lower, and after issuance, to
trade in the market at prices relatively higher, than comparably rated
municipal obligations issued by other jurisdictions. A recurrence of the
financial difficulties previously experienced by certain issuers of New York
obligations could result in defaults or declines in the market values of those
issuer's existing obligations and, possibly in the obligations of other
issuers of New York obligations.

During the most recent economic downturn, New York City has faced
recurring extraordinary budget gaps that have been addressed by undertaking
one-time, one-shot budgetary initiatives to close then projected budget gaps
in order to achieve a balanced budget as required by laws of New York State.
Even though New York City has managed to close substantial budget gaps in
recent years, there can be no assurance that New York City will continue to
maintain a balanced budget as required by New York State law without

<PAGE>20

additional tax or other revenue increases or reduction in New York City
services, which could adversely affect the City's economic base.

Risk Factors and Investment Consideration

The ability of each Fund to achieve its investment objective is
dependent on a number of factors, including the skills of the Manager in
purchasing municipal obligations whose issuers have the continuing ability to
meet their obligations for the payment of interest and principal when due.
The ability to achieve a high level of income is dependent on the yields of
the securities in a Fund's portfolio, which are the product of factors such as
general conditions of the municipal bond markets, the size of a particular
offering, the maturity of the obligations and the rating of the issue.
Changes in the market value of portfolio securities will not affect interest
income derived from those securities but will affect the Acquiring Fund's net
asset value. Since the Acquiring Fund's objective is to provide high current
income, it will invest in municipal obligations with an emphasis on income
rather than stability of net asset values.

Each Fund is classified as a non-diversified investment company
under the 1940 Act, which means that the Funds are not limited by the 1940 Act
in the proportion of its assets that it may invest in the obligations of a
single issuer. A Fund's assumption of large positions in the obligations of a
small number of issuers may cause such Fund's share price to fluctuate to a
greater extent than that of a diversified company as a result of changes in
the financial condition or in the market's assessment of the issuers.

There are several risks in connection with the use of certain
portfolio strategies by the Acquiring Fund, and when applicable, by the
Acquired Fund. These investment strategies include purchasing when-issued
securities and municipal bond index futures contracts. See "Comparison of
Investment Objectives."

REASONS FOR THE REORGANIZATION

The Board of Directors of the Acquired Fund has determined that it
is advantageous to combine the Acquired Fund with the Acquiring Fund. The
Funds have generally similar investment objectives and policies and have the
same investment adviser, distributor and transfer agent. In reaching this
conclusion, the Board considered a number of factors as described below.

Among the factors considered by the Board of Directors of the
Acquired Fund was the 1993 transaction pursuant to which Travelers Group Inc.
(formerly Primerica Corporation) acquired certain assets of Lehman Brothers
Inc. (formerly Shearson Lehman Brothers Inc.), including its retail brokerage
and domestic asset management business. As a

<PAGE>21

result of this transaction, Smith Barney became the sponsor of two separate
and totally distinct families of mutual funds, each with, among other things,
differing pricing structures, classes of shares, exchange privileges, sweep
functions and types of funds. The Board was advised that, with the completion
of the merger of back-office brokerage operations and the implementation of a
uniform pricing and class structure on November 7, 1994, significant
consolidation of the two mutual fund groups had been made feasible and
desirable. The Board was further informed that the next step in this process
would be to eliminate the duplication of funds within the consolidated Smith
Barney fund complex. The Board of Directors of the Acquired Fund was
presented with information that indicated that investors have been and will
continue to be confused in the face of similar New York municipal bond funds
managed by the same investment adviser (although the Acquired Fund and the
Acquiring Fund have different portfolio managers, i.e., the individual
primarily responsible for each Fund's day-to-day investment decisions). In
particular, the Board was presented with information to the effect that, with
two different funds, Smith Barney was confronted with operational and
shareholder services issues, including: (i) dilution of the firm's money
management and research expertise due to the splitting of attention between
the two highly similar funds; and (ii) investor confusion associated with
offering similar funds that provide differing yields. The Board also
considered that no sales charges would be imposed in effecting the
Reorganization and the advantages of eliminating duplication inherent in
marketing two funds with similar investment objectives.

At its July 19, 1995 meeting, the Board was shown pro forma financial
information which indicated that, assuming the same level of assets for the
combined fund after the Reorganization as on April 30, 1995, it is estimated
that Class A, Class B and Class C shareholders of the Acquired Fund should
experience a 0.06% decrease in total operating expenses, resulting from a
decrease of 0.04% in management fees paid to the Manager accompanied by a
decrease of 0.02% in certain other operating expenses. Subsequently, the
following information became available: audited expenses of the Acquiring
Fund for the fiscal year ended March 31, 1995, and expenses of the Acquired
Fund for the six-month period ended June 30, 1995, which is included under the
caption "Fee Tables" in this Prospectus/Proxy Statement. Based upon these
levels of expenses, and assuming the same level of assets of the combined fund
after the Reorganization as on March 31, 1995, it is estimated that Class A,
Class B and Class C shareholders of the Acquired Fund should respectively
experience a 0.05%, 0.06% and 0.07% decrease in total operating expenses,
resulting from a decrease of 0.04% in management fees paid to the Manager
accompanied by a 0.01%, 0.02% and 0.03% decrease in certain other operating
expenses applicable to Class A, Class B and Class C shares, respectively. The
pro forma total operating expenses considered by the Board are identical to
the pro forma total operating expenses included under the caption "Fee Tables"
in this Prospectus/Proxy Statement. The Board considered, among other things,
the impact of the Reorganization on the Acquired Fund's shareholders, the
nature and quality of services provided to shareholders, including
performance, the impact of economies of scale and comparative fee structures.
The Board was presented with information illustrating that the pro forma
management fee to be paid by the combined fund following the Reorganization
would be 0.02% lower than the average management fee paid by New York
municipal funds included in a survey using data prepared by Lipper Analytical
Services, Inc. (the "Lipper New York Muni Average") with respect to front-end
load shares (which are comparable to Class A shares of the Funds) as of April
30, 1995 (without giving effect to management fee waivers and expense
reimbursements), and that the pro forma total operating expenses of the
combined fund following the Reorganization would be lower than the Lipper New
York Muni Average. The Board also considered, among other things, the terms
and conditions of the Reorganization and the comparative investment
performance of the Funds. In addition, the Board was advised that the
Reorganization would be effected as a tax-free reorganization.

<PAGE>22

In light of the foregoing, the Board of Directors of the Acquired
Fund, including the Independent Directors, has determined that it is in the
best interests of the Acquired Fund and its shareholders to combine with the
Acquiring Fund. The Board of Directors has also determined that a combination
of the Acquired Fund and the Acquiring Fund would not result in a dilution of
the interests of the Acquired Fund's shareholders.

The Board of Trustees of Smith Barney Muni Funds has also determined
that it is advantageous to the Acquiring Fund to acquire the assets of the
Acquired Fund. At its June 7, 1995 meeting, the Board of Trustees was
presented with information indicating that investors will continue to be
confused in the face of similar New York municipal bond funds managed by the
same adviser. The Board also was presented with information to the effect
that, with two different funds, Smith Barney experienced: (i) dilution of the
firm's money management and research expertise due to the splitting of
attention between the two highly similar funds; and (ii) client confusion
associated with offering similar funds that provide differing yields. In
addition, among other factors, the Board of Trustees considered the proposed
increase in management fee rates described below as well as pro forma
financial information provided by the Manager which indicated that the
Reorganization should result in a modest decrease in the expense ratio on
Class A shares of the Acquiring Fund, and should not cause an increase in the
expense ratio on Class B and Class C shares of the Acquiring Fund.
Subsequently, the following information became available: audited expenses of
the Acquiring Fund for the fiscal year ended March 31, 1995, and expenses of
the Acquired Fund for the six-month period ended June 30, 1995, which is
included under the caption "Fee Tables" in this Prospectus/Proxy Statement.
Based upon these levels of expenses, and assuming the same level of assets of
the combined fund after the Reorganization as on March 31, 1995, it is
estimated that Class A and Class B shareholders of the Acquiring Fund should
experience a modest decrease in total operating expenses, while Class C
shareholders of the Acquiring Fund should experience no increase in total
operating expenses. The Board of Trustees also considered the terms and
conditions of the Reorganization and representations that the Reorganization
would be effected as a tax-free reorganization. Accordingly, the Board of
Trustees, including a majority of the independent Trustees, has determined
that the Reorganization is in the best interests of the Acquiring Fund's
shareholders and that the interests of the Acquiring Fund's shareholders would
not be diluted as a result of the Reorganization.

The Board of Trustees of Smith Barney Muni Funds has approved, and
intends to submit to shareholders of the Acquiring Fund, a proposal to adopt a
new management agreement which, if approved by shareholders, would increase
the management fees payable by the Acquiring Fund from 0.45% to 0.50% of the
Acquiring Fund's average daily net assets. All pro forma information relating
to the Acquiring Fund after the Reorganization assumes that this new
management agreement has been approved by the shareholders of the Acquiring
Fund. In the event that the proposed new management agreement is not approved
by shareholders of the Acquiring Fund, Smith Barney Muni Funds, on behalf of
the Acquiring Fund, will consider the various alternatives available to it,
including postponing the consummation of the Reorganization until such time as
it determines that a satisfactory new management agreement has been approved
or such time as it determines not to seek approval of a new management
agreement.

<PAGE>23

INFORMATION ABOUT THE REORGANIZATION

PLAN OF REORGANIZATION. The following summary of the Plan is
qualified in its entirety by reference to the Plan (Exhibit A hereto). The
Plan provides that Smith Barney Muni Funds on behalf of the Acquiring Fund
will acquire all or substantially all of the assets of the Acquired Fund in
exchange for shares of the Acquiring Fund and the assumption by Smith Barney
Muni Funds on behalf of the Acquiring Fund of scheduled liabilities of the
Acquired Fund on November 17, 1995 or such later date as may be agreed upon by
the parties (the "Closing Date").

Prior to the Closing Date, the Acquired Fund will endeavor to
discharge all of its known liabilities and obligations. The Acquiring Fund
will not assume any liabilities or obligations other than those reflected on
an unaudited statement of assets and liabilities of the Acquired Fund prepared
as of the close of regular trading on the New York Stock Exchange, currently
4:00 p.m., New York City time, on the Closing Date. The number of full and
fractional Class A, Class B and Class C shares of the Acquiring Fund to be
issued to the Acquired Fund shareholders will be determined on the basis of
the Acquiring Fund's and the Acquired Fund's relative net asset value per
Class A, Class B and Class C shares, respectively. The net asset value per
share of each class will be determined by dividing assets, less liabilities,
by the total number of outstanding shares of the relevant class.

The Acquired Fund and the Acquiring Fund will utilize the procedures
set forth in the Prospectus of the Acquiring Fund to determine the value of
their respective portfolio securities and to determine the aggregate value of
each Fund's portfolio. The method of valuation employed will be consistent
with the requirements set forth in the Prospectus of the Acquiring Fund, Rule
22c-1 under the 1940 Act and the interpretation of such rule by the SEC's
Division of Investment Management.

At or prior to the Closing Date, the Acquired Fund will, and the
Acquiring Fund may, declare a dividend or dividends which, together with all
previous such dividends, will have the effect of distributing to their
respective shareholders all taxable income for the taxable period ending on or
prior to the Closing Date (computed without regard to any deduction for
dividends paid). In addition, the Acquired Fund's dividend will include its
net capital gains realized in the taxable year ending on or prior to the
Closing Date (after reductions for any capital loss carryforward).

As soon after the Closing Date as conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to shareholders of record
as of the close of business on the Closing Date the full and fractional shares
of the Acquiring Fund received by the Acquired Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the
names of the Acquired Fund's shareholders on the share records of the
Acquiring Fund's transfer agent. Each account will represent the respective
pro rata number

<PAGE>24

of full and fractional shares of the Acquiring Fund due to each of the
Acquired Fund's shareholders. After such distribution and the winding up of
its affairs, the Acquired Fund will be dissolved.

The consummation of the Reorganization is subject to the conditions
set forth in the Plan. Notwithstanding approval of the Acquired Fund's
shareholders, the Plan may be terminated at any time at or prior to the
Closing Date (i) by mutual agreement of Smith Barney Muni Funds on behalf of
the Acquiring Fund, and the Acquired Fund, (ii) by Smith Barney Muni Funds on
behalf of the Acquiring Fund, in the event that the Acquired Fund shall, or
the Acquired Fund, in the event that Smith Barney Muni Funds shall, materially
breach any representation, warranty or agreement contained in the Plan to be
performed at or prior to the Closing Date, or (iii) by Smith Barney Muni Funds
on behalf of the Acquired Fund, or by the Acquiring Fund, if a condition to
the Plan expressed to be precedent to the obligations of the terminating party
has not been met and it reasonably appears that it will not or cannot be met.

Approval of the Plan will require the affirmative vote of a majority
of the total number of votes entitled to be cast thereon at the Meeting, in
person or by proxy, if a quorum is present. If the Reorganization is not
approved by shareholders of the Acquired Fund, the Board of Directors of the
Acquired Fund will consider other possible courses of action available to it.

DESCRIPTION OF THE ACQUIRING FUND'S SHARES. Full and fractional
shares of beneficial interest of the Acquiring Fund will be issued to the
Acquired Fund in accordance with the procedures detailed in the Plan and as
described in the Acquiring Fund's Prospectus. Generally, the Acquiring Fund
does not issue share certificates to shareholders unless a specific request is
submitted to the Acquiring Fund's transfer agent. See "Information on
Shareholders' Rights" and the Prospectus of the Acquiring Fund for additional
information with respect to the shares of the Acquiring Fund.

FEDERAL INCOME TAX CONSEQUENCES. The exchange of assets for shares
of the Acquiring Fund is intended to qualify for federal income tax purposes
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). As a condition to the closing of the
Reorganization, Smith Barney Muni Funds on behalf of the Acquiring Fund and
the Acquired Fund will receive an opinion from Willkie Farr & Gallagher,
counsel to the Acquired Fund, to the effect that, on the basis of the existing
provisions of the Code, U.S. Treasury regulations issued thereunder, current
administrative rules, pronouncements and court decisions, for federal income
tax purposes, upon consummation of the Reorganization:

(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund's shares and the assumption by
the Acquiring Fund

<PAGE>25

of scheduled liabilities of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(D) of the Code,
and the Acquiring Fund and the Acquired Fund are each a "party to a
reorganization" within the meaning of Section 368(b) of the Code;

(2) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund's shares and the assumption of scheduled liabilities of
the Acquired Fund;

(3) no gain or loss will be recognized by the Acquired Fund upon
the transfer of the Acquired Fund's assets to the Acquiring Fund in
exchange for the Acquiring Fund's shares and the assumption of scheduled
liabilities of the Acquired Fund or upon the distribution (whether actual
or constructive) of the Acquiring Fund's shares to the Acquired Fund's
shareholders;

(4) no gain or loss will be recognized by shareholders of the
Acquired Fund upon the exchange of their shares of the Acquired Fund for
shares of the Acquiring Fund;

(5) the aggregate tax basis for shares of the Acquiring Fund
received by each shareholder of the Acquired Fund pursuant to the
Reorganization will be the same as the aggregate tax basis of shares of
the Acquired Fund surrendered therefor, and the holding period of shares
of the Acquiring Fund to be received by each shareholder of the Acquired
Fund will include the period during which shares of the Acquired Fund
exchanged therefor were held by such shareholder (provided shares of the
Acquired Fund were held as capital assets on the date of the
Reorganization); and

(6) the tax basis to the Acquiring Fund of the Acquired Fund's
assets acquired by the Acquiring Fund will be the same as the tax basis
of such assets to the Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets of the Acquired Fund
in the hands of the Acquiring Fund will include the period during which
those assets were held by the Acquired Fund.

Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should also consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.

CAPITALIZATION. The following table shows the capitalization of the
Acquiring Fund and the Acquired Fund as of September 25, 1995, and on a pro
forma basis as of that date, giving effect to the proposed acquisition of
assets at net asset value.

<PAGE>26

Smith Barney New York Smith Barney Muni Funds - Pro Forma for
Municipals Fund Inc. New York Portfolio Reorganization
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>

(In thousands, except per share values)
Class A Shares
Net assets . . . . . . . . . . . . . . . . . $490,443 $84,692 $575,135
Net asset value per share . . . . . . . . . . $16.57 $13.08 $13.08
Shares outstanding . . . . . . . . . . . . . 29,593 6,475 43,964

Class B Shares
Net assets . . . . . . . . . . . . . . . . . $166,206 $10,409 $176,615
Net asset value per share . . . . . . . . . . $16.57 $13.08 $13.08
Shares outstanding . . . . . . . . . . . . . 10,031 796 13,503

Class C Shares
Net assets . . . . . . . . . . . . . . . . . $770 $6,628 $7,398
Net asset value per share . . . . . . . . . . $16.56 $13.07 $13.07
Shares outstanding . . . . . . . . . . . . . 46 507 565

Class Y Shares
Net assets . . . . . . . . . . . . . . . . . $0 $0 $0
Net asset value per share . . . . . . . . . . $0 $0 $0
Shares outstanding . . . . . . . . . . . . . 0 0 0

Class Z Shares
Net assets . . . . . . . . . . . . . . . . . $0 N/A N/A
Net asset value per share . . . . . . . . . . $0 N/A N/A
Shares outstanding . . . . . . . . . . . . . 0 N/A N/A
<FN>
- --------------
* Less than 1.00%
</TABLE>

As of the Record Date, there were 6,474,614 outstanding Class A
shares, 795,850 outstanding Class B shares, 507,305 outstanding Class C shares
and no outstanding Class Y shares or Class Z shares of the Acquiring Fund, and
29,593,137 outstanding Class A shares, 10,030,588 outstanding Class B shares,
46,480 outstanding Class C shares and no outstanding Class Y shares or Class Z
shares of the Acquired Fund. As of the Record Date, the officers and Trustees
of Smith Barney Muni Funds beneficially owned as a group less than 1% of the
outstanding shares of each class of the Acquiring Fund. To the best knowledge
of the Trustees of Smith Barney Muni Funds, as of the Record Date, no
shareholder or "group" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), owned beneficially or
of record more than 5% of the outstanding shares of a class of the Acquiring
Fund. As of the Record Date, the officers and Directors of the Acquired Fund
beneficially owned as a group less than 1% of the outstanding shares of each
class of the Acquired Fund. Except as set forth in the table below, to the
best knowledge of the Directors of the Acquired Fund, as of the Record Date,
no shareholder or "group" (as that term is used in Section 13(d) of the
Exchange Act) owned

<PAGE>27

beneficially or of record more than 5% of the outstanding shares of a class of
the Acquiring Fund.

Percentage of
Class Owned
of Record
or Beneficially

Name and Fund Upon Consummation of the
Address and Class As of the Record Date Reorganization

Sara Bernstein Rudnick Acquired Fund 13.54% 1.41%
James Rudnick JTWROS Class C
799 Union Street
Brooklyn, NY 11215

Harry Shiffman Acquired Fund 8.97 *
Irene Shiffman JTWROS Class C
180 South Middle Neck Road
Great Neck, NY 11021

Harry Shiffman Acquired Fund 7.57 *
180 South Middle Neck Road Class C
Great Neck, NY 11021

Wayne Salvatore Porter and Acquired Fund 7.30 *
Cynthia Porter JTWROS Class C
827 Canal Street
Lindenhurst, NY 11757

John R. Davis C. F. Acquired Fund 6.25 *
V. Ace Davis Class C
UNYUGTMA Until Age 21
c/o I. Squared R. Element
12600 Clarence Center Road
Akron, NY 14001

</TABLE>

INFORMATION ABOUT THE ACQUIRING FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS OF MARKET CONDITIONS AND
PORTFOLIO REVIEW (THROUGH MARCH 31, 1995).

Market and Economic Overview

Since management's last report to shareholders in November 1994, the
fixed-income markets, and municipal bonds in particular, have enjoyed a
powerful rally.

<PAGE>28

Municipal bond yields have declined more than a full percentage point, as
evidenced by the drop in the average yield on The Bond Buyer's weekly 25-Bond
Revenue Index of 30-year municipal bonds from a high of 7.37% on November 17,
1994 to 6.29% on March 31, 1995. This was substantially better than the
performance of the benchmark 30-year Treasury bond, which experienced a
decline in yield of 70 basis points from 8.13% to 7.43% during the same time
frame.

The vastly improved bond markets reflect a growing consensus that
inflation will remain under control, and the Federal Reserve Board will be
successful in engineering a "soft landing" by slowing the economy down to a
more sustainable, non-inflationary rate of growth. The seven increases in the
federal funds rate (the rate banks charge each other for overnight loans),
orchestrated by the Federal Reserve Board since February 1994, appear to be
slowing the pace of economic growth. Recent economic reports show a slower
rate of increase in employment, producer prices, and retail prices, and retail
sales. Industrial production and capacity utilization were also lower than
expected, signalling a possible slowdown in the country's strong manufacturing
sector. These generally favorable economic fundamentals are more than
offsetting concerns about the substantial decline in the value of the dollar
relative to the Japanese yen and German mark on the foreign exchange markets.

Late in April, several tax-reform proposals which recommend a flat
federal income tax rate began to receive increased attention in the national
financial press and from municipal bond market participants. Adoption of a
flat tax would diminish the advantages of tax exemption for municipal bonds.
Although the various plans being circulated are only proposals, the publicity
surrounding them has recently caused some investors to back away from the
municipal bond market. In management's opinion it is much too early in the
process to predict what changes in the tax laws, if any, will actually take
place, but tax reform will certainly be a major topic of political debate over
the next few years. Many observers believe that the more radical proposals
for changes in the way taxes are collected have little chance for enactment.

Absent these tax-reform concerns, municipals would probably continue
to be strong performers relative to Treasuries and other taxable investments
due to the low supply of new issues. Not only did last year's spike in
interest rates sharply reduce refinancing activity in the municipal market,
but voter pressure on states and municipalities to rein in spending and cut
taxes, or at least avoid tax increases, has also resulted in roughly 30%
decline in new-money financing. In addition, the universe of existing
municipal bonds is shrinking. In 1995, an estimated $230 billion of older,
high-coupon issues will mature or be called as they reach their first optional
call dates. With estimates of new-issues volume at less than $150 billion,
the net reduction in municipal debt outstanding could approach $100 billion
this year, contracting the market by about eight percent. Ordinarily, a
reduction in supply of this magnitude would be expected to provide a powerful
boost for municipal bond values as it did earlier this year. Uncertainties
about various tax proposals, however, will

<PAGE>29

probably keep municipals from trading any better than their normal
relationship to taxable investment alternatives.

The New York State Economy

Economic conditions in New York remain below average, although financial
performance has shown recent signs of improvement. In 1994, for the second
consecutive year, the state closed the fiscal year with a budget surplus.
Governor Pataki has proposed a cut in personal income taxes as well as cuts in
the current budget's spending plan for transportation, education, health and
social services. The rating agencies will be scrutinizing his tax-cut plans
for offsetting reductions in expenditures. As of the date of this report to
shareholders, New York is rated A by Moody's and A- (with a positive outlook)
by Standard & Poor's.

New York Portfolio

The New York Portfolio had a total return of 6.32% (Class A shares)
for the fiscal year ended March 31, 1995. That was well above the 5.20%
average total return for all New York municipal bond funds over the same
period, as reported by Lipper Analytical Services.

Long-term performance of the Portfolio is also excellent relative to
its peers. The Portfolio's five-year cumulative total return (excluding sales
charge) of 52.14% (Class A shares) substantially outperformed the average
cumulative total return of 46.48% for all New York municipal bond funds in the
Lipper survey for the period ended March 31, 1995. It is also noteworthy that
this strong performance over the last five years has been achieved without the
necessity for any capital gains distributions, an important consideration for
investors interested in after-tax income.

While management has a generally positive outlook for the fixed-
income markets, the size of the rally experienced so far would seem to leave
little room for disappointment, and any sign of a rebound in economic activity
is likely to result in a return to higher interest rates. Management also
believes that the unique supply and demand characteristics of the municipal
market and tax-reform uncertainties will tend to exaggerate price swings
relative to taxable investments.

In light of this viewpoint, management is maintaining a balanced
approach to structuring the interest-rate sensitivity of the Portfolio by
investing in a combination of both long and short effective maturities. Most
long-term municipal bonds are callable prior to their stated maturity date.
When a bond has a coupon higher than prevailing market yields, its maturity is
effectively shortened to the call date for trading purposes because of the
possibility that the issuer will exercise its option to replace the bond with
lower-cost debt.

<PAGE>30

Management is retaining high-coupon bonds that trade well above their face
value for the defensiveness of their shorter effective maturities and the
above-market level of income they provide. However, management is also
focusing on eliminating bonds with shorter call dates when they are trading
near face value. Such bonds have unfavorable performance characteristics
because they retain the downside risk of their longer maturity if rates should
rise, but their appreciation potential is limited by the shorter call date if
interest rates decline. Management is replacing such issues with bonds that
have similar stated maturities but greater call protection.

Although this strategy sacrifices some of the current income being
generated by the Portfolio, it enhances long-term performance potential if
interest rates continue to decline without adding to downside risk if interest
rates rise. Management believes that positioning the Portfolio in this manner
is the best way to achieve its objective of the highest tax-free income
consistent with prudent investment risk.

Management's Update (through September 13, 1995).

The fixed-income markets have been rallying in recent weeks in
response to economic reports pointing to slower growth and lower inflation.
This rally has pushed the yield on the benchmark 30-year Treasury bond to the
low end of the 6.5% to 7% range, where it has been trading over the last
several months. After significantly underperforming Treasuries during the
strong rally earlier in the year, long-term municipals have kept pace with 30-
year Treasuries as reflected in the movement in the yield of The Bond Buyer's
25 Revenue Bond Index to 6.16% from it recent peak of 6.44% reached in mid-
August. However, municipal bonds are still quite cheap relative to Treasuries
with long-term single A issues providing over 90% of the yield available on
long-term Treasuries. The primary reason for this historically high
taxable/tax-exempt yield ratio is investor concern over the potential impact
of various highly publicized "flat tax" proposals discussed in management's
last report to shareholders. At these levels management believes that all but
the most radical tax reform proposals have been more than fully discounted,
and that long-term municipals represent excellent value.

While inflation remains quite subdued, and management does not
expect it to accelerate meaningfully from current levels, in management's
opinion any sign of a rebound in economic activity is likely to result in a
move to higher interest rates over the near term. Management intends to
retain most of the Fund's more defensive high-coupon issues for income
purposes but will have a bias toward putting new cash flows to work in non-
callable and lower-coupon bonds in what it believes will be a positive
environment for fixed-income investments over the longer term.

<PAGE>31

The New York Economy

Governor Pataki has so far been successful in reducing spending and
government overhead. He has also merged some of the bond issuing agencies and
curtailed capital spending, resulting in a slowdown in state bond issuance. A
reduction in the state income tax rate is possible if certain revenue
projections are achieved. Although the 1995 budget was generally balanced, it
was 62 days late. The rating agencies have scrutinized the upcoming budget,
and while indicating some concerns, each has maintained its rating. New York
is currently rated A by Moody's and A- (with a positive outlook) by Standard &
Poor's.

<PAGE>32

Smith Barney Muni Funds -- New York Portfolio
<TABLE>
<CAPTION>

Historical Performance Class A Shares

Net Asset Value
Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)

3/31/95 $12.83 $12.83 $0.77 $0.00 6.32%
3/31/94 13.25 12.83 0.79 0.00 2.66
3/31/93 12.33 13.25 0.81 0.00 14.48
3/31/92 11.80 12.33 0.81 0.00 11.98
3/31/91 11.67 11.80 0.85 0.00 8.74
3/31/90 11.48 11.67 0.87 0.00 9.28
3/31/89 11.25 11.48 0.86 0.00 10.03
3/3/88 12.46 11.25 0.85 0.00 (2.63)

Inception* - 3/31/87 12.50 12.46 0.13 0.00 (0.52)

Total $6.74 $0.00

</TABLE>

Historical Performance Class B Shares
<S> <C> <C> <C> <C> <C>

Net Asset Value

Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)

Inception* - 3/31/95 $11.96 $12.84 $0.29 $0.00 9.92%

</TABLE>

Historical Performance Class C Shares
<S> <C> <C> <C> <C> <C>

Net Asset Value
Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)

3/31/95 $12.82 $12.83 $0.68 $0.00 5.66%

3/31/94 13.24 12.82 0.70 0.00 1.96
Inception* - 3/31/93 12.84 13.24 0.12 0.00 4.04

Total $1.50 $0.00

</TABLE>

It is the Fund's policy to distribute dividends monthly and capital
gains, if any, annually.

<PAGE>33

Smith Barney Muni Funds -- New York Portfolio
<TABLE>
<CAPTION>

Average Annual Total Return

Without Sales Charge(1)
Class A Class B Class C

Year Ended 3/31/95 6.32% N/A 5.66%

Five Years Ended 3/31/95 8.75 N/A N/A

Inception* through 3/31/95 7.36 9.92% 5.25
<CAPTION>
With Sales Charge(2)

Class A Class B Class C

Year Ended 3/31/95 2.10% N/A 4.66%

Five Years Ended 3/31/95 7.86 N/A N/A

Inception* through 3/31/95 6.82 5.42% 5.25

</TABLE>

Cumulative Total Return

<S> <C>
Without Sales Charge(1)

Class A (Inception* through 3/31/95) 79.06%
Class B (Inception* through 3/31/95) 9.92
Class C (Inception* through 3/31/95) 12.06

<FN>

(1) Assumes reinvestment of all dividends and capital gain distributions at
net asset value and does not reflect deduction of the applicable sales
charge with respect to Class A shares or the applicable CDSC with
respect to Class B and Class C shares.

(2) Assumes reinvestment of all dividends and capital gain distributions at
net asset value. In addition, Class A shares reflect the deduction of
the maximum initial sales charge of 4.00%; Class B shares reflect the
deduction of a 4.50% CDSC, which applies if shares are redeemed less
than one year from initial purchase. This CDSC declines by 0.50% the
first year after purchase and by 1.00% per year thereafter until no CDSC
is incurred. Class C shares reflect the deduction of a 1.00% CDSC which
applies if shares are redeemed within the first year of purchase.

* Inception dates for Class A, Class B and Class C shares are January 16,
1987, November 11, 1994 and January 8, 1993, respectively.

</TABLE>

<PAGE>34

Growth of $10,000 Invested in
Class A Shares of New York Portfolio vs.
Lehman Long Bond Index*
(unaudited)

January 1987 - March 1995

Description of Mountain Chart - Class A

A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
January 16, 1987 in Class A shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman Long Bond Index. The plot points
used to draw the line graphs were as follows:

Growth of $10,000 Investment in Growth of $10,000 Investment in
Month Ended Class A Shares Lehman Long Bond Index

01/16/87 $9,600.61 $10,000.00
03/87 9,595.60 10,212.00
03/88 9,315.30 10,381.11
03/89 10,218.70 11,362.32
03/90 11,134.80 12,599.33
03/91 12,072.70 13,580.13
03/92 13,481.20 15,119.56
03/93 15,394.10 17,327.37
03/94 15,767.20 17,520.61
03/95 16,739.50 19,102.61

<FN>

* Hypothetical illustration of $10,000 invested in Class A shares at
inception on January 16, 1987, assuming deduction of the maximum 4.00%
sales charge at the time of investment and reinvestment of dividends
(after deduction of applicable sales charges, if any) and capital gains
(at net asset value) through March 31, 1995. The index is unmanaged and
is not subject to the same management and trading expenses of a mutual
fund. The performance of the Portfolio's other classes may be greater or
less than the Class A shares' performance indicated on this chart,
depending on whether greater or lesser sales charges and fees were
incurred by shareholders investing in the other classes.

All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
</TABLE>

Performance information is not available for Class Y shares of the
Acquiring Fund because, as of the Record Date, no Class Y shares of the
Acquiring Fund had been sold.

<PAGE>35

INFORMATION ABOUT THE ACQUIRED FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS OF MARKET CONDITIONS AND
PORTFOLIO REVIEW (THROUGH DECEMBER 31, 1994).

The year ended December 31, 1994 was one of great disappointments
and difficulties for investors in the tax-exempt market. 1994 began with
great expectations: both interest rates and bond issuance were low, which
should have portended another good performance year for the municipal market.
The first blow to these expectations was dealt in February by the Federal
Reserve's first interest increase in five years. The goal of this and the
five following increases in the Federal Fund's rate was to slow the pace of
economic growth and forestall a feared increase in the rate of inflation.
Each increase in short-term interest rates resulted in an increase in long-
term rates and downward pressure on the price of municipal bonds. As the year
progressed and prices for bonds continued to decline, selling pressures
increased and in turn put additional downward pressure on the tax-exempt
market. The Fund was not immune to this difficult market environment and
ended the year with a negative total return.

The year 1994 was also noteworthy because the Republican party
regained control of both houses of Congress as well as 30 state legislatures.
New York, of course, contributed to this trend in the gubernatorial election
of Republican George Pataki. He, like most victors this past November, ran on
a campaign platform that stressed less government spending and a reduction in
the state's high personal income tax rate. It is still too early to tell if
and when Governor Pataki will be able to achieve this mandate since state tax
receipts have been weak and the state has a potentially high budget deficit.

Management believes that the investment climate in 1995 is likely to
be more positive than it was in 1994. Management believes that the Federal
Reserve has been successful in controlling inflation and will therefore no
longer need to raise interest rates, which should help stabilize the fixed
income markets. The supply/demand balance of the municipal market will be a
very important contributor to its stability and stronger performance in 1995.
Estimates call for a substantial reduction in the amount of new issuance in
1995, while at the same time a large amount of older, higher-coupon debt will
be either called or matured from the market. Demand for tax-free bonds should
continue to be strong, especially in high-tax states such as New York, which
should lead to strong bond prices.

On the budget front, both New York State and New York City have
recently announced that they are facing large budget deficits because of an
acute slowdown in tax receipts. Mayor Giuliani recently announced extensive
reductions in employment and social service spending programs that should
enable him to balance the City's budget. Governor Pataki, in his recent State
of the State budget message, called for the elimination of 11,000

<PAGE>36

state jobs and significant reductions in spending to reflect the state's
financial situation. Governor Pataki also indicated that the state and its
agencies will be reducing its bond issuance in 1995 in order to avert a
downgrade in the state's debt rating. This alone will be a positive for the
New York municipal market since it will not have to absorb large, deficit-
financing bond issuance. Management's outlook for New York is quite positive
as the governor and the legislature work together between now and the April 1,
1995 budget deadline to curtail spending and increase tax receipts which will
improve the overall financial health of the Empire State.

Portfolio Summary

In response to the Federal Reserve's policy of higher short-term
interest rates and declining prices in the New York tax-exempt market,
management's investment strategy has been to keep the Fund's average maturity
at approximately 22 years, which enabled the Fund to maximize its tax-exempt
income. At the end of this reporting period, nearly 95% of the Fund's assets
were invested in municipal bonds rated as investment grade by Standard &
Poor's Corporation or Moody's Investors Service, Inc. These high quality
investments provide the portfolio with greater protection against credit risk
and are also more liquid. The majority of the Fund's holdings were in general
obligation, hospital, housing and education.

Management's Update (through September 20, 1995).

Economic Overview

While the Orange County, California bankruptcy crisis remains a
lingering concern to investors, management believes that over the last six
months, tax reform has emerged as the major factor behind periodic weakness in
the tax-exempt market. The most publicized of several tax-reform proposals
currently circulating on Capitol Hill would reduce the value of tax-exempt
investments along with home mortgage interest and state and local tax
deductions. Management emphasizes that this and other plans are only
proposals, and real legislative action is still probably several years away.

Although the performance of tax-exempt investment has been excellent
so far in 1995 relative to last year's poor results, tax-reform concerns,
along with competition from a strong equity market, have caused municipal
bonds to underperform other fixed-income securities in recent months.
Municipal bonds are now quite cheap relative to Treasuries with long-term
single A issues providing over 90% of the yield available on long-term
Treasuries. At these levels, management believes that tax-exempt investors
are being compensated for any tax-reform plans that might be implemented in
the next two to three years.

During the last three to four months, interest rates have stayed
within a 25-basis point trading range, as the Federal Reserve Board's tight
monetary policy slowed

<PAGE>37

economic growth. In July, the Fed began to reverse its policy, and lowered
the federal funds rate by one-quarter percentage point from 6% to 5.75% in an
effort to stimulate growth. Management expects that the Fed will probably
lower rates again some time in the fourth quarter.

Update on the State of New York

Economic conditions in New York, compared to the U.S. as a whole,
have been below average for most of this year. Management believes that a
positive factor for the state is the new governor who has a mandate to reduce
state taxes which are among the highest in the nation. What's more, Governor
Pataki has pledged to reduce the size of state government and decrease
spending in order to finance the tax reductions. He has also promised to make
the state a more friendly place for business. As a result of his efforts,
there has been a merging of state agencies, a slowdown in bond issuance, and
most important, an improvement in tax collections. Due to this progress, New
York's bond market has improved. Management now believes that an upgrade in
New York's general obligation bond rating is possible in the next six months.
Currently New York State is rated A by Moody's Investors Services and A- by
Standard & Poor's Corporation. While the fiscal situation in New York City
has also improved, this did not stop Standard & Poor's from reducing New York
City's rating from A- to BBB+ this past July. Despite this setback,
management is confident that it will continue to see improvement in New York
City's finances over the next year and continues to hold city bond issues in
the Fund's portfolio.

<PAGE>38

Smith Barney New York Municipals Fund Inc.

Historical Performance Class A Shares

Year Ended December Net Asset Value Capital Gains Dividends Paid Return of Total Return*
31 Beginning Ending Paid Capital

1985 $13.90 $15.48 -- $1.24 -- 21.03%

1986 15.48 16.71 $0.29 1.20 -- 18.13

1987 16.71 15.37 0.01 1.14 -- (1.09)
1988 15.37 15.97 -- 1.16 -- 11.82

1989 15.97 16.26 -- 1.13 -- 9.18

1990 16.26 15.94 -- 1.16 -- 5.41
1991 15.94 16.77 -- 1.16 -- 12.98

1992 16.77 17.12 0.03 1.12 $0.01 9.36

1993 17.12 17.68 0.23 1.03 -- 10.93
1994 17.68 15.44 0.10 0.99 -- (6.62)

Total $0.66 $11.33 $0.01

Cumulative Total Return - (1/1/85 through 12/31/94) 132.91%

<FN>

* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value and do not assume deduction of the front-
end sales charge (maximum 4.00%).
</TABLE>

The Fund's policy is to distribute dividends monthly and capital gains, if
any, annually.

<PAGE>39

Average Annual Total Return** Class A Shares

Without Sales Charge With Sales Charge***

Year Ended 12/31/94 (6.62)% (10.36)%

Five Years Ended
12/31/94 6.17% 5.31%

Ten Years Ended
12/31/94 8.82% 8.38%

<FN>

** All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value.

*** Average annual total return figures shown assume the deduction of the
maximum 4.00% sales charge.

Note: On November 6, 1992, existing shares of the Fund were designated
Class A shares and were subject to a maximum 4.50% front-end sales charge
and service fee of 0.15% of the value of the average daily net assets
attributable to that class. Effective November 7, 1994, the front-end
sales charge for Class A shares was reduced to 4.00%. The figures in the
above table have been recalculated on the basis of this new sales charge.
The Fund's average annual rates of return would have been lower had
service fees been in effect prior to November 6, 1992.
</TABLE>

<PAGE>40

Growth of $10,000 Invested in Class A Shares of Smith Barney New York
Municipals Fund Inc. vs. Lehman Brothers Municipal Bond Index and Lipper New
York Municipal Fund Average*

December 31, 1984 - December 31, 1994

Description of Mountain Chart -- Class A

A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
December 31, 1984 in Class A shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman Brothers Municipal Bond Index and
the Lipper New York Municipal Fund Average. The plot points used to draw the
line graphs were as follows:

Growth of $10,000 Growth of $10,000
Growth of $10,000 Investment in the Investment in the
Month Invested in Class A Lehman Brothers Lipper New York
Ended Shares of the Fund Municipal Bond Index Municipal Fund Average
<S> <C> <C> <C>
11/84 $10,000 -- --
12/84 $9,600 $10,000 $10,000
03/85 $10,016 $10,403 $10,408
06/85 $10,830 $11,275 $11,216
09/85 $10,744 $11,107 $11,149
12/85 $11,619 $12,005 $11,976
03/86 $12,698 $13,221 $12,939
06/86 $12,516 $13,139 $12,870
09/86 $13,146 $13,845 $13,446
12/86 $13,726 $14,323 $14,022
03/87 $14,059 $14,669 $14,373
06/87 $13,395 $14,271 $13,547
09/87 $13,011 $13,916 $13,096
12/87 $13,576 $14,538 $13,798
03/88 $13,966 $15,038 $14,170
06/88 $14,308 $15,329 $14,471
09/88 $14,745 $15,720 $14,890
12/88 $15,181 $16,013 $15,271
03/89 $15,224 $16,119 $15,334
06/89 $16,133 $17,073 $16,233
09/89 $16,118 $17,085 $16,171
12/89 $16,574 $17,742 $16,688
03/90 $16,591 $17,821 $16,613
06/90 $16,958 $18,237 $17,025
09/90 $16,912 $18,248 $16,918
12/90 $17,470 $19,035 $17,528
03/91 $17,901 $19,464 $17,941
06/91 $18,347 $19,880 $18,359

<PAGE>41

09/91 $19,130 $20,654 $19,241
12/91 $19,737 $21,347 $19,858
03/92 $19,866 $21,411 $19,879
06/92 $20,625 $22,224 $20,833
09/92 $21,179 $22,816 $21,337
12/92 $21,585 $23,231 $21,768
03/93 $22,342 $24,093 $22,677
06/93 $22,994 $24,882 $23,479
09/93 $23,676 $25,722 $24,257
12/93 $23,945 $26,083 $24,534
03/94 $22,610 $24,651 $23,081
06/94 $22,746 $24,924 $23,167
09/94 $22,830 $25,095 $23,201
12/94 $22,359 $24,734 $22,694

<FN>

* Illustration of $10,000 invested in Class A shares on
December 31, 1984 assuming deduction of the maximum 4.00%
front-end sales charge at the time of investment and
reinvestment of dividends and capital gains at net asset
value through December 31, 1994.

The Lehman Brothers Municipal Bond Index is comprised of approximately
21,000 bonds. The bonds are all investment grade, fixed rate, long term
(greater than two years) and are selected from issues larger than $50
million.

The Lipper New York Municipal Fund Average is composed of an average of the
Fund's peer group of mutual funds of 83 mutual funds.

Index information is available at month-end only; therefore the closest
month-end to inception date of the class has been used.

Note: All figures cited here and on the previous page represent past
performance of Class A shares and do not guarantee future results.

</TABLE>

<PAGE>42

Smith Barney New York Municipals Fund Inc.

Historical Performance Class B Shares

Year Ended Net Asset Value Capital Gains Dividends Total
December 31 Beginning Ending Paid Paid Return*

11/6/92-2/28/92 $16.93 $17.12 $0.03 $0.15 2.23%

1993 17.12 17.68 0.23 0.95 10.33

1994 17.68 15.44 0.10 0.90 (7.17)

Total $0.36 $2.00
Cumulative Total Return (11/6/92 through 12/31/94) 4.70%

<FN>

* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value and do not assume deduction of the CDSC.
</TABLE>

Average Annual Total Return** Class B Shares

Without CDSC With CDSC***

Year Ended 12/31/94 (7.17)% (11.10)%

Inception 11/6/92 through 12/31/94 2.16% 0.91%

<FN>

** All average annual total return figures shown reflect
reinvestment of dividends and capital gains at net asset
value.

*** Average annual total return figures assume the deduction
of the maximum applicable CDSC which is described in the
Acquired Fund's prospectus.

Note: The Fund began offering Class B shares on November 6, 1992. Class
B shares are subject to a maximum 4.50% CDSC and service and distribution
fees of 0.15% and 0.50%, respectively, of the value of the average daily
net assets attributable to that class.

</TABLE>

<PAGE>43

Growth of $10,000 Invested in Class B Shares of
Smith Barney New York Municipals Fund Inc. vs.
Lehman Brothers Municipal Bond Index and
Lipper New York Municipal Fund Average*

November 6, 1992 - February 10, 1995

Description of Mountain Chart -- Class B

A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
November 6, 1992 in Class B shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman Brothers Municipal Bond Index and
the Lipper New York Municipal Fund Average. The plot points used to draw the
line graphs were as follows:

Growth of $10,000 Growth of $10,000 Investment in
Growth of $10,000 Investment in the the
Month Invested in Class B Lehman Brothers Lipper New York
Ended Shares of the Fund Municipal Bond Index Municipal Fund Average
<S> <C> <C> <C>
10/31/92 -- $10,000 $10,000
11/06/92 $10,000 -- --
11/92 $10,108 $10,179 $10,245
12/92 $10,223 $10,283 $10,374
03/93 $10,569 $10,664 $10,807
06/93 $10,858 $11,013 $11,190
09/93 $11,169 $11,385 $11,560
12/93 $11,279 $11,545 $11,692
03/94 $10,633 $10,911 $11,000
06/94 $10,681 $11,032 $11,041
09/94 $10,706 $11,108 $11,057
12/94 $10,470** $10,948 $10,815
12/94 $10,197***

<FN>

* Illustration of $10,000 invested in Class B shares on
November 6, 1992 assuming deduction of the maximum CDSC at
the time of investment and reinvestment of dividends and
capital gains at net asset value through December 31, 1994.

** Value does not assume deduction of applicable CDSC.

*** Value assumes deduction of applicable CDSC (assuming
deduction on December 31, 1994).

The Lipper New York Municipal Fund Average is composed of an average of
the Fund's peer group of mutual funds of 83 mutual funds.

<PAGE>44

Index information is available at month-end only; therefore, the closest
month-end to inception date of the Fund has been used.

Note: All figures cited here and on the following pages represent past
performance of Class B shares and do not guarantee future results.

</TABLE>

<PAGE>45

Smith Barney New York Municipals Fund Inc.
<TABLE>
<CAPTION>

Historical Performance Class C Shares

Year Ended Net Asset Value Capital Dividends Total
December 31 Beginning Ending Gains Paid Paid Return*

11/10/94-12/31/94 $15.19 $15.44 $0.10 $0.12 3.08%

Total $0.10 $0.12

Cumulative Total Return (11/10/94 through 12/31/94) 3.08%

<FN>

* Figures assume reinvestment of all dividends and capital
gains distributions at net asset value and do not assume
deduction of the CDSC.
</TABLE>

Aggregate Total Return** -- Class C Shares

<S> <C> <C>
Without CDSC With CDSC***

Inception 11/10/94 through 2/28/95 3.08% 2.08%

<FN>

** All average annual total return figures shown reflect
reinvestment of dividends and capital gains at net asset
value.

*** Average annual total return figures assume the deduction
of the maximum applicable CDSC.

Note: The Fund began offering Class C shares on November 7,
1994. Class C shares are subject to a maximum 1.00%
CDSC and annual service and distribution fees of 0.15%
and 0.55%, respectively, of the value of the average
daily net assets attributable to that class.
</TABLE>

Performance information is not available for Class Y shares of the
Acquired Fund because, as of the Record Date, no Class Y shares of the
Acquired Fund had been sold.

<PAGE>46

COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES

The following discussion comparing investment objectives, policies
and restrictions of the Acquiring Fund and the Acquired Fund is based upon and
qualified in its entirety by the disclosure in the prospectuses of the
Acquiring Fund and the Acquired Fund with respect to the Funds' respective
investment objective, policies and restrictions. For a full discussion of
these issues as they relate to the Acquiring Fund, refer to the Prospectus of
the Acquiring Fund, which accompanies this Prospectus/Proxy Statement, under
the caption "Investment Objective and Management Policies," and for a
discussion of these issues as they relate to the Acquired Fund, refer to the
Prospectus of the Acquired Fund under the caption "Investment Objective and
Management Policies."

INVESTMENT OBJECTIVE. The Acquiring Fund and the Acquired Fund have
generally similar investment objectives. The Acquired Fund seeks to provide
New York investors with as high a level of dividend income exempt from federal
income taxes and New York State and New York City personal income taxes as is
consistent with prudent investment management and the preservation of capital.
The Acquiring Fund seeks to provide as high a level of income exempt from
federal income taxes and from New York State and City personal income taxes as
is consistent with prudent investing. There can be no assurance that either
Fund will be able to achieve its investment objective. Both the Acquiring
Fund's and the Acquired Fund's investment objectives are considered
fundamental policies which cannot be changed without the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the respective Fund, which is the lesser of: (i) 67% of the voting securities
of the Fund present at a meeting of shareholders, if the holders of more than
50% of the outstanding voting securities of such Fund are present or
represented by proxy; or (ii) more than 50% of the outstanding voting
securities of such Fund.

PRIMARY INVESTMENTS. The Acquired Fund operates subject to an
investment policy providing that, under normal market conditions, it will
invest at least 80% of its net assets in New York municipal securities which
pay interest which is excluded from gross income for federal income tax
purposes and which is exempt from New York State and New York City personal
income tax. Municipal obligations are issued to raise money for a variety of
public projects, such as health facilities, housing, airports, schools,
highways and bridges. The Acquired Fund may invest up to 20% of its net
assets in municipal securities of non-New York municipal issuers, the interest
on which is excluded from gross income for federal income tax purposes (not
including the possible applicability of the federal alternative minimum tax),
but which is subject to New York State and New York City personal income tax.
When the Manager believes that market conditions warrant adoption of a
temporary defensive investment posture, the Acquiring Fund may invest without
limit in non-New York municipal issuers and in temporary investments as
described below. The Acquiring Fund operates subject to a fundamental policy
that under normal market conditions it will seek to

<PAGE>47

invest 100% of its assets, and will invest not less than 80% of its assets, in
municipal obligations the interest on which is exempt from federal income
taxes (other than the alternative minimum tax) and not less than 65% of its
assets in municipal obligations the interest on which is also exempt from New
York State personal income taxes in the opinion of bond counsel to the
issuers. The Acquiring Fund may invest up to 20% of its assets in taxable
fixed income securities, but only in obligations issued or guaranteed by the
full faith and credit of the United States ("U.S. government securities"), and
may invest more than 20% of its assets in U.S. government securities during
periods when in the Manager's opinion a temporary defensive posture is
warranted, including any period when the Acquiring Fund's monies available for
investment exceed New York's municipal obligations available for purchase that
meet the Acquiring Fund's rating, maturity and other investment criteria.

The Acquired Fund generally will invest at least 75% of its total
assets in investment grade debt obligations rated no lower than Baa, MIG 3 or
Prime-1 by Moody's Investors Services, Inc. ("Moody's") or BBB, SP-2 or A-1 by
Standard & Poor's Corporation ("S&P"), or in unrated obligations of comparable
quality. Unrated obligations will be considered to be of investment grade if
deemed by the Manager to be comparable in quality to instruments so rated, or
if other outstanding obligations of the issuers thereof are rated Baa or
better by Moody's or BBB or better by S&P. The balance of the Acquiring
Fund's assets may be invested in securities rated as low as C by Moody's or D
by S&P, or comparable unrated securities which are often referred to as "junk
bonds." Securities in the fourth highest rating category, though considered
to be investment grade, have speculative characteristics. Securities rated as
low as D are extremely speculative and are in actual default of interest
and/or principal payments.

Municipal bonds purchased by the Acquiring Fund must, at the time of
purchase, be investment grade municipal bonds and at least two-thirds of the
Acquiring Fund's municipal bonds must be rated in the category of A or better.
Investment grade bonds are those rated Aaa, Aa, A or Baa by Moody's or AAA,
AA, A or BBB by S&P or have an equivalent rating by any nationally recognized
statistical rating organization; pre-refunded bonds escrowed by U.S. Treasury
obligations will be considered AAA rated even though the issuer does not
obtain a new rating. Up to one-third of the assets of the Acquiring Fund may
be invested in municipal bonds rated Baa or BBB (this grade, while regarded as
having an adequate capacity to pay interest and repay principal, is considered
to be of medium quality and has 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 bonds) or in unrated municipal bonds if, based upon
credit analysis by the Manager, it is believed that such securities are at
least of comparable quality to those securities in which the Acquiring Fund
may invest. After the Acquiring Fund purchases a municipal bond, the issuer
may cease to be rated or its rating may be reduced below the minimum required
for purchase. Such an event would not require the elimination of the issue
from the Acquiring Fund's portfolio but

<PAGE>48

the Manager will consider such an event in determining whether the Acquiring
Fund should continue to hold the security. The Acquiring Fund's short-term
municipal obligations will be limited to high grade obligations (obligations
that are secured by the full faith and credit of the United States or rated
MIG1 or MIG2, VMIG1 or VMIG2 or Prime-1 or Aa or better by Moody's or SP-1+,
SP-1, SP-2, or A-1 or AA or better by S&P or have an equivalent rating by any
nationally recognized statistical rating organization or obligations
determined by the Manager to be equivalent). Among the types of short-term
instruments in which the Acquiring Fund may invest are floating or variable
rate term demand instruments, tax-exempt commercial paper (generally having a
maturity of less than nine months), and other types of notes generally having
maturities of less than three years, such as Tax Anticipation Notes, Revenue
Anticipation Notes, Tax and Revenue Anticipation Notes and Bond Anticipation
Notes. Demand instruments usually have an indicated maturity of more than one
year, but contain a demand feature that enables the holder to redeem the
investment on no more than 30 days' notice; variable rate demand instruments
provide for automatic establishment of a new interest rate on set dates;
floating rate demand instruments provide for automatic adjustment of their
interest rates whenever some other specified interest rate changes (e.g., the
prime rate). The Acquiring Fund may purchase participation interests
("Participations") in variable rate tax-exempt securities (such as Industrial
Development Bonds) owned by banks. Participations are frequently backed by an
irrevocable letter of credit or guarantee of a bank that the Manager has
determined meets the prescribed quality standards for the Acquiring Fund.
Participations will be purchased only if management believes interest income
on such Participations will be tax-exempt when distributed as dividends to
shareholders.

The Acquired Fund's average weighted maturity will vary from time to
time based on the judgment of the Manager. The Acquired Fund intends to focus
on intermediate- and long-term obligations, that is, obligations with
remaining maturities at the time of purchase of between three and twenty
years. The Acquiring Fund invests its assets in securities of ranging
maturities, without limitation, depending on market conditions. Typically,
the average maturity of the Acquiring Fund's bonds will range between five and
thirty years.

Each Fund may invest without limits in private activity bonds.
Interest income on certain types of private activity bonds issued after August
7, 1986 to finance non-governmental activities is a specific tax preference
item for purposes of the federal individual and corporate alternative minimum
taxes. Individual and corporate shareholders may be subject to a federal
alternative minimum tax to the extent that a Fund's dividends are derived from
interest on those bonds. Dividends derived from interest income on New York
municipal securities are a component of the "current earnings" adjustment item
for purposes of the federal corporate alternative minimum tax.

<PAGE>49

Each of the Acquired Fund and Smith Barney Muni Funds is classified
as a non-diversified investment company under the 1940 Act, which means that
each Fund is not limited by the 1940 Act in the proportion of its assets that
it may invest in the obligations of a single issuer. Each Fund intends to
conduct its operations, however, so as to qualify as a "regulated investment
company" for purposes of the Code, which will relieve the Fund of any
liability for federal income tax to the extent its earnings are distributed to
shareholders. To so qualify, among other requirements, each Fund will limit
its investments so that, at the close of each quarter of the taxable year, (a)
not more than 25% of the market value of such Fund's total assets will be
invested in the securities of a single issuer and (b) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer.

New York Municipal Securities. The two principal classifications of
New York municipal securities are "general obligation bonds" and "revenue
bonds." General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source, but not from the general taxing
power. Sizeable investments in such obligations could involve an increased
risk to the Fund should any of such related facilities experience financial
difficulties. In addition, certain types of private activity bonds issued by
or on behalf of public authorities to obtain funds for privately operated
facilities are included in the term New York municipal securities, provided
the interest paid thereon qualifies as excluded from gross income for federal
income tax purposes and as exempt from New York State and New York City
personal income tax. Private activity bonds are in most cases revenue bonds
and generally do not carry the pledge of the credit of the issuing
municipality.

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

When-Issued Securities. New issues of New York municipal securities
(and other tax-exempt obligations) frequently are offered on a when-issued
basis, which means that delivery and payment for such securities normally take
place within 45 days after the date of the commitment to purchase. Each Fund
will not accrue income with respect to a when-issued security prior to its
stated delivery date. When-issued securities may decline in value before
their actual delivery to a Fund. Each Fund will establish a segregated
account with the Fund's custodian consisting of cash, U.S. government
securities or other high grade debt obligations in an amount equal to the
purchase price of the Fund's when-issued commitments. A Fund generally will
make commitments to purchase New York municipal securities (and other tax-
exempt obligations) on a when-issued basis only with the intention of actually
acquiring the securities, but the Fund may sell such securities before the
delivery date if it is deemed advisable.

<PAGE>50

Temporary Investments. Under normal market conditions, the Acquired
Fund may hold up to 20% of its total assets in cash or money market
instruments, including taxable money market instruments ("Temporary
Investments"). In addition, when the Manager believes that market conditions
warrant, including when acceptable New York municipal securities are
unavailable, the Acquired Fund may take a temporary defensive posture and
invest without limitation in Temporary Investments. Securities eligible for
short-term investment by the Acquired Fund under such circumstances are tax-
exempt notes of municipal issuers having, at the time of purchase, a rating
within the three highest grades of Moody's or S&P or, if not rated, having an
issue of outstanding debt securities rated within the three highest grades of
Moody's or S&P, and certain taxable short-term instruments having quality
characteristics comparable to those for tax-exempt investments. Similarly,
the Acquiring Fund may invest up to 20% of its assets in taxable fixed income
securities, but only in U.S. government securities, and may invest more than
20% of its assets in U.S. government securities during periods when in the
Manager's opinion a temporary defensive posture is warranted, including any
period when the Acquiring Fund's monies available for investments exceed New
York's municipal obligations available for purchase that meet the Acquiring
Fund's rating, maturity and other investment criteria. To the extent a Fund
holds Temporary Investments, it may not achieve its investment objective.

Municipal Bond Index Futures Contracts and Options on Interest Rates
Futures Contracts. The Acquired Fund may enter into municipal bond index
futures contracts and purchase and sell options on interest rate financial
futures contracts that are traded on a United States securities exchange or
board of trade. Such investments, if any, by the Acquired Fund will be made
solely for the purpose of hedging against the changes in the value of its
portfolio securities due to anticipated changes in interest rates and market
conditions and where the transactions are economically appropriate to the
reduction of risks inherent in the management of the Acquired Fund. The
Acquired Fund may not purchase or sell municipal bond index futures contracts
if, immediately thereafter, more than 33-1/3% of its net assets would be
hedged. When the Acquired Fund enters into futures contracts to purchase an
index or debt securities or purchases call options, an amount of cash, U.S.
Government securities or other high grade debt securities equal to the market
value of the contract will be maintained in a segregated account with the
Acquired Fund's custodian to collateralize the positions, thereby insuring
that the use of the contract is unleveraged. The Acquiring Fund may also
invest in municipal bond index futures contracts (currently traded on the
Chicago Board of Trade) or in listed contracts based on U.S. government
securities as a hedging policy in pursuit of its investment objective;
provided that immediately thereafter not more than 33-1/3% of its net assets
would be hedged or the amount of margin deposit on the Acquired Fund's net
assets would not exceed 5% of the value of its total assets. Since any income
would be taxable, it is anticipated that such investments would be made only
in those circumstances when the Manager anticipates the possibility of an
extreme change in interest rates or in market conditions but does not wish to
liquidate the Acquiring Fund's securities.

<PAGE>51

Lending of Portfolio Securities. The Acquired Fund has the ability
to lend securities from its portfolio to brokers, dealers and other financial
organizations. Such loans, if and when made, may not exceed 20% of the
Acquiring Fund's total assets, taken at value. Loans of portfolio securities
by the Fund will be collateralized by cash, letters of credit or U.S.
government securities which are maintained at all times in an amount equal to
at least 100% of the current market value (determined by marking to market
daily) of the loaned securities. The Acquiring Fund does not have an
expressed policy regarding the lending of portfolio securities.

Illiquid Securities. The Acquired Fund will not invest more than
15% of its net assets in illiquid securities, including those that are not
readily marketable or for which there is no established market. The Acquiring
Fund adheres to an operating policy of not investing more than 10% of its net
assets in illiquid securities.

INVESTMENT RESTRICTIONS. Each Fund has adopted the following
investment restrictions for the protection of shareholders. These
restrictions may not be changed without the approval of the holders of a
majority, as defined in the 1940 Act, of the voting securities of the Fund.

1. The Acquired Fund may not issue senior securities, as defined in
the 1940 Act and the rules and orders thereunder, except insofar as the
Acquiring Fund may be deemed to have issued senior securities by reason
of borrowing money or purchasing securities on a when-issued or delayed-
delivery basis, purchasing or selling futures contracts and options on futures
contracts and other similar instruments, and issuing separate classes of
shares. The Acquiring Fund does not have a similar investment restriction.

2. The Acquired Fund may not invest more than 25% of its total
assets in securities of issuers in the same industry. For purposes of this
limitation, U.S. government securities and securities of state or municipal
governments and their political subdivisions are not considered to be issued
by members of any industry. Similarly, the Acquiring Fund may not invest more
than 25% of its total assets taken at market value in any one industry, except
that municipal obligations and securities of the U.S. government, its agencies
and instrumentalities, and New York municipal obligations are not considered
an industry for purposes of this limitation.

3. Neither Fund may borrow money, except that a Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests which might otherwise require the untimely
disposition of securities, in an amount not exceeding 10% of the value of the
respective Fund's total assets (including, in the case of the Acquired Fund,
the amount borrowed) valued at market less liabilities (not including the
amount borrowed) at the time the borrowing is made. Whenever borrowings
exceed 5% of the value of a Fund's total assets, such Fund will not make any
additional

<PAGE>52

investments. The Acquiring Fund is further prohibited from mortgaging or
pledging its assets, except to secure borrowing permitted by the previous
sentence.

4. Neither Fund may make loans. For the Acquired Fund, this
restriction does not apply to the purchase of the debt obligations in which
the Fund may invest consistent with its investment objective and policies,
repurchase agreements, and loans of its portfolio securities. For the
Acquiring Fund, this restriction does not apply except to the extent the
purchase of bonds or other evidences of indebtedness, the entry into repurchase
agreements or deposits with banks, including the Acquiring Fund's custodian,
may be considered loans.

5. The Acquired Fund may not engage in the business of underwriting
securities issued by other persons, except to the extent that the Acquired
Fund may technically be deemed to be an underwriter under the Securities Act
of 1933, as amended (the "1933 Act"), in disposing of portfolio securities.
Similarly, the Acquiring Fund may not underwrite the securities of other
issuers.

6. The Acquired Fund may not purchase or sell real estate, real
estate mortgages, real estate investment trust ("REIT") securities,
commodities or commodity contracts, but this shall not prevent the Acquired
Fund from investing in securities of issuers engaged in the real estate
business and securities which are secured by real estate or interests therein,
holding or selling real estate received in connection with securities it
holds, or trading in futures contracts and options on futures contracts. The
Acquiring Fund may not purchase or hold any real estate, except that it may
invest in securities secured by real estate or interests therein or issued by
persons (other than REITs) which deal in real estate or interests therein, and
may not purchase or sell commodities and commodity contracts, except that it
may invest in or sell municipal bond futures index contracts, provided
immediately thereafter not more than 33-1/3% of its net assets would be hedged
or the amount of margin deposits on the Acquired Fund's existing futures
contracts would not exceed 5% of the value of its total assets.

7. Neither Fund may purchase any securities on margin (except, in
the case of the Acquired Fund, for such short-term credits as are necessary
for the clearance of purchases and sales of portfolio securities) or sell any
securities short (except, in the case of the Acquired Fund, against the box).
For purposes of this restriction, the deposit or payment by the Acquired Fund
of initial maintenance margin in connection with futures contracts and related
options and options on securities is not considered to be the purchase of a
security on margin.

8. The Acquiring Fund will not invest more than 10% of its net
assets in illiquid securities, including those that are not readily marketable
or for which there is no established market. The Acquired Fund may not
purchase or otherwise acquire any security

<PAGE>53

if, as a result, more than 15% of its net assets would be invested in
securities that are illiquid. This is not a fundamental investment
restriction with respect to the Acquired Fund and may be changed by the
Acquired Fund's Board of Directors at any time.

9. The Acquiring Fund may not write or purchase put, call, straddle
or spread options. The Acquired Fund may not engage in the purchase or sale
of put, call, straddle or spread options or in the writing of such options,
except that the Fund may purchase and sell options on interest rate futures
contracts. This is not a fundamental investment restriction with respect to
the Acquired Fund and may be changed by the Acquired Fund's Board of Directors
at any time.

Other Non-Fundamental Investment Restrictions

1. The Acquired Fund may not invest more than 5% of the value of
its total assets in the securities of issuers having a record, including
predecessors, of less than three years of continuous operation, except U.S.
government securities. This is not a fundamental investment restriction with
respect to the Acquired Fund and may be changed by the Acquired Fund's Board
of Directors at any time. For purposes of this restriction, issuers include
predecessors, sponsors, controlling persons, general partners, guarantors and
originators of underlying assets. Similarly, as a matter of operating policy,
the Acquiring Fund will not invest more than 5% of its assets in unseasoned
issuers, including their predecessors, which have been in operation for less
than three years.

2. The Acquired Fund may not invest in companies for the purpose of
exercising control. This is not a fundamental investment restriction with
respect to the Acquired Fund and may be changed by the Acquired Fund's Board
of Directors at any time. The Acquiring Fund does not have a similar
investment restriction.

3. The Acquired Fund may not invest in securities of other
investment companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and to the extent permitted by Section
12 of the 1940 Act. This is not a fundamental investment restriction with
respect to the Acquired Fund and may be changed by the Acquired Fund's Board
of Directors at any time. The Acquiring Fund does not have a similar
investment restriction but must comply with the provisions of Section 12 of
the 1940 Act.

4. The Acquiring Fund, as a matter of operating policy, will not
purchase oil, gas, or other mineral leases, rights or royalty contracts or
exploration or development programs, except that the Acquiring Fund may invest
in the securities of issuers which operate, invest in, or sponsor such
programs. The Acquired Fund may not purchase or sell oil and gas interests.
This is not a fundamental investment restriction with respect to the Acquired
Fund and may be changed by the Acquired Fund's Board of Directors at any time.

<PAGE>54

INFORMATION ON SHAREHOLDERS' RIGHTS

General. The Acquired Fund and Smith Barney Muni Funds are open-
end, management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The
Acquired Fund is a Maryland corporation which was incorporated on October 6,
1983 and is governed by its Articles of Incorporation, By-Laws and Board of
Directors. The Acquiring Fund is a series of Smith Barney Muni Funds, which
was organized on August 14, 1985 under the laws of Massachusetts and is a
business entity commonly known as a "Massachusetts business trust." Smith
Barney Muni Funds is governed by its Declaration of Trust, By-Laws and
Trustees. Each Fund is also governed by applicable state and federal law.
The Acquired Fund has an authorized capital of 500,000,000 shares of common
stock with a par value of $.01 per share. The beneficial interest in the
Acquiring Fund is divided into shares, all with a par value of $.001 per
share. The number of authorized shares of the Acquiring Fund that may be
issued is unlimited. The Trustees of Smith Barney Muni Funds have authorized
the issuance of twenty series of shares, each representing shares in one of
twenty separate portfolios, and may authorize the issuance of additional
series of shares in the future. In both the Acquiring Fund and the Acquired
Fund, Class A shares, Class B shares and Class C shares represent interests in
the assets of the Fund and have identical voting, dividend, liquidation and
other rights on the same terms and conditions except that expenses related to
the distribution of each class of shares are borne solely by each class and
each class of shares has exclusive voting rights with respect to provisions of
each Fund's Rule 12b-1 distribution plan which pertains to a particular class.
Notwithstanding the foregoing, Class B shares of either Fund will convert
automatically to Class A shares of such Fund, based on relative net asset
value, eight years after the date of the original purchase of such shares.
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 will be
converted to Class A shares of the respective Fund at that time.

Directors/Trustees. The By-Laws of the Acquired Fund provide that
Directors shall be elected by written ballot at any meeting of shareholders
held for that purpose, and the term of office of each director shall be from
the time of his election and qualification until his or her successor shall
have been elected and shall have qualified or until his death, resignation or
removal, or as otherwise provided by law. The Declaration of Trust of Smith
Barney Muni Funds provides that the term of office of each Trustee shall be
from the time of his or her election until the termination of the Trust or
until such Trustee sooner dies, resigns or is removed. Any Director of the
Acquired Fund may be removed by the vote of at least a majority of the votes
then entitled to be cast for the election of Directors. A Trustee of Smith
Barney Muni Funds may be removed with cause by written instrument, signed by
at least two-thirds of the remaining Trustees. Vacancies on the Boards of
either the Acquired Fund or Smith Barney Muni Funds may be filled by the
Directors or Trustees, as the case

<PAGE>55

may be, remaining in office. A meeting of shareholders will be required for
the purpose of electing additional Directors or Trustees whenever fewer than
two-thirds of the Directors or a majority of the Trustees then in office were
elected by shareholders.

Voting Rights. Neither the Acquired Fund nor the Acquiring Fund
holds a meeting of shareholders annually, and there normally is no meeting of
shareholders for the purpose of electing Directors/Trustees unless and until
such time as less than two-thirds of the Directors or a majority of the
Trustees holding office have been elected by shareholders. A meeting of
shareholders of the Acquired Fund or the Acquiring Fund, for any purpose, must
be called upon the written request of shareholders holding at least 25% of
such Fund's outstanding shares, except that a meeting of shareholders of the
Acquired Fund for the purpose of removing a Director must be called upon the
written request of shareholders holding at least 10% of the Acquired Fund's
outstanding shares. On each matter submitted to a vote of the shareholders of
the Acquired Fund or the Acquiring Fund, each shareholder is entitled to one
vote for each whole share owned and a proportionate, fractional vote for each
fractional share outstanding in the shareholder's name on the Fund's books.
With respect to the Acquired Fund, a majority of the votes cast on an action
at a shareholder meeting at which a quorum is present shall decide any
questions except when a different vote is required or permitted by any
provision of the 1940 Act or other applicable law or as may otherwise be set
forth in the Acquired Fund's organizational documents, or in cases where the
vote is submitted to the holders of one or more but not all classes, a
majority of the votes cast of the particular class affected by the matter
shall decide such matter. With respect to matters relating to Smith Barney
Muni Funds requiring a majority shareholder vote as described in the
Declaration of Trust, a majority of shares represented in person or by proxy
and entitled to vote at a meeting of shareholders at which a quorum is present
shall decide such matter. In cases where the vote is submitted to the holders
of one or more but not all series or classes, a majority of the outstanding
shares of the particular series or class affected by the matter shall decide
such matter.

Liquidation or Dissolution. In the event of the liquidation or
termination of any of the portfolios of Smith Barney Muni Funds or the
liquidation or dissolution of the Acquired Fund, the shareholders of the
respective Fund are entitled to receive, when, and as declared by the Trustees
or Directors, as the case may be, the excess of the assets over the
liabilities belonging to the liquidated or terminated portfolio of Smith
Barney Muni Funds or of the liquidated or dissolved Acquired Fund, as the case
may be. The assets so distributed to shareholders of Smith Barney Muni Funds
will be distributed among the shareholders in proportion to the number of
shares of the particular class held by them and recorded on the books of the
liquidated or terminated portfolio of the Fund. The assets so distributed to
shareholders of the Acquired Fund will be distributed among the shareholders
in proportion to the number of shares of the particular class held by them and
recorded on the books of the Acquired Fund.

<PAGE>56

Liability of Directors/Trustees. The Articles of Incorporation of
the Acquired Fund provide that Directors and officers shall not be liable for
monetary damages as a Director or officer, except as to the extent such
exemption from liability is not permitted by law. The By-Laws of the Acquired
Fund provide that Directors and officers shall be indemnified to the fullest
extent permitted by Maryland General Corporation Law, the 1933 Act and the
1940 Act, except that a Director or officer may not be indemnified with
respect to any liability to which the person is subject by reason of his or
her own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office. The By-Laws
further provide that Directors and officers will be indemnified for the
expenses of litigation against them to the fullest extent permitted by
Maryland General Corporation Law, the 1933 Act and the 1940 Act. Under the
Declaration of Trust and By-Laws of the Smith Barney Muni Funds, a Trustee
will be personally liable only for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee. The Declaration of Trust of Smith Barney
Muni Funds further provides that Trustees and officers will be indemnified for
the expenses of litigation against them unless it is determined that the
person did not act in good faith in the reasonable belief that the person's
actions were in or not opposed to the best interest of the Smith Barney Muni
Funds or the person's conduct is determined to constitute willful misfeasance,
bad faith, gross negligence or reckless disregard of the person's duties.

Rights of Inspection. Maryland law permits any shareholder of the
Acquired Fund or any agent of such shareholder to inspect and copy during the
Acquired Fund's usual business hours the Acquired Fund's By-Laws, minutes of
shareholder proceedings, annual statements of the Acquired Fund's affairs and
voting trust agreements on file at its principal office. Shareholders of
Smith Barney Muni Funds have the same inspection rights as are permitted
shareholders of a Massachusetts corporation under Massachusetts corporate law.
Currently, each shareholder of a Massachusetts corporation is permitted to
inspect the records, accounts and books of a corporation for any legitimate
business purpose.

Shareholder Liability. Under Maryland law, the Acquired Fund's
shareholders do not have personal liability for the Acquired Fund's corporate
acts and obligations. Under Massachusetts law, shareholders of the Acquiring
Fund may, under certain circumstances, be held personally liable for the
obligations of the Acquiring Fund. Smith Barney Muni Funds' Declaration of
Trust, however, disclaims shareholder liability for acts or obligations of the
Acquiring Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund. The
Declaration of Trust also provides indemnification out of the property of the
Acquired Fund for all losses and expenses of any shareholder held personally
liable for the obligations of the Acquired Fund. Shares of the Acquiring Fund
issued to the shareholders of the Acquired Fund in the Reorganization will be
fully paid and nonassessable when issued, transferable without restrictions
and will have no preemptive rights.

<PAGE>57

The foregoing is only a summary of certain characteristics of the
operations of the Acquiring Fund and the Acquired Fund. The foregoing is not
a complete description of the documents cited. Shareholders should refer to
the provisions of the corporate documents or trust documents and state laws
governing each Fund for a more thorough description.

ADDITIONAL INFORMATION ABOUT
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
AND
SMITH BARNEY MUNI FUNDS

SMITH BARNEY NEW YORK MUNICIPALS FUND INC. Information about the
Acquired Fund is included in its current Prospectus dated March 1, 1995, as
supplemented by Prospectus Supplements dated May 25, 1995, July 11, 1995, July
15, 1995 and July 20, 1995 and in its Statement of Additional Information
dated March 1, 1995, as supplemented on July 11, 1995, that have been filed
with the SEC, both of which are incorporated herein by reference. A copy of
the Prospectus and the Statement of Additional Information are available upon
request and without charge by writing to the Acquired Fund at the address
listed on the cover page of this Prospectus/Proxy Statement or by calling
(800) 224-7523.

SMITH BARNEY MUNI FUNDS. Information about the Acquiring Fund is
incorporated herein by reference from its current Prospectus dated July 31,
1995, as supplemented by a Prospectus Supplement dated October 2, 1995, and
the Statement of Additional Information of Smith Barney Muni Funds dated July
31, 1995. A copy of such Prospectus accompanies this Prospectus/Proxy
Statement, and a copy of such Statement of Additional Information is available
upon request and without charge by writing to the Acquired Fund at the address
listed on the cover page of this Prospectus/Proxy Statement or by calling
(800) 224-7523.

Both the Acquiring Fund and Smith Barney Muni Funds are subject to
the informational requirements of the Exchange Act and in accordance therewith
file reports and other information including proxy material, reports and
charter documents with the SEC. These materials can be inspected and copies
obtained at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the New York Regional Office of
the SEC at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
of such material can also be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549 at
prescribed rates.

<PAGE>58

OTHER BUSINESS

The Directors of the Acquired Fund do not intend to present any
other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of
proxy will vote thereon in accordance with their judgment.

VOTING INFORMATION

This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of the Acquired Fund to be
used at the Special Meeting of Shareholders of the Acquired Fund to be held at
2:30 p.m. on November 14, 1995, at 388 Greenwich Street, New York, New York
10013 and at any adjournment or adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of the Meeting and a proxy card, is first being
mailed to shareholders of the Acquired Fund on or about October 27, 1995.
Only shareholders of record as of the close of business on the Record Date
will be entitled to notice of, and to vote at, the Meeting or any adjournment
thereof. The holders of a majority of the shares of the Acquired Fund
outstanding at the close of business on the Record Date present in person or
represented by proxy will constitute a quorum for the Meeting. For purposes
of determining a quorum for transacting business at the Meeting, abstentions
and broker "non-votes" (that is, proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owner or
other persons entitled to vote shares on a particular matter with respect to
which the brokers or nominees do not have discretionary power) will be treated
as shares that are present but which have not been voted. For this reason,
abstentions and broker non-votes will have the effect of a "no" vote for
purposes of obtaining the requisite approval of the Plan. If the enclosed
form of proxy is properly executed and returned in time to be voted at the
Meeting, the proxies named therein will vote the shares represented by the
proxy in accordance with the instructions marked thereon. Unmarked proxies
will be voted FOR approval of the proposed Reorganization and FOR approval of
any other matters deemed appropriate. A proxy may be revoked at any time on
or before the Meeting by written notice to the Secretary of the Acquired Fund,
Christina T. Sydor, Esq., 388 Greenwich Street, New York, New York 10013.
Unless revoked, all valid proxies will be voted in accordance with the
specifications thereon or, in the absence of such specifications, FOR approval
of the Plan and the Reorganization contemplated thereby.

Approval of the Plan will require the affirmative vote of a majority
of the total number of votes entitled to be cast thereon at the Meeting, in
person or by proxy, if a quorum is present. Shareholders of Class A, Class B
and Class C shares of the Acquired Fund will vote together as a single class.
Shareholders of the Acquired Fund are entitled to one vote for each share.
Fractional shares are entitled to proportional voting rights.

<PAGE>59

Proxy solicitations will be made primarily by mail, but proxy
solicitations also may be made by telephone, telegraph or personal interviews
conducted by officers and employees of Smith Barney and its affiliates and/or
by TSSG. In addition, Applied Mailing Systems, Inc., an affiliate of TSSG
("Applied Mailing"), or an agent of Applied Mailing, may call shareholders to
ask if they would be willing to authorize Applied Mailing or its agent to
execute a proxy on their behalf authorizing the voting of their shares in
accordance with the instructions given over the telephone by the shareholders.
The latter telephone solicitation procedure is designed to authenticate the
shareholder's identity by asking the shareholder to provide his or her social
security number (in the case of an individual) or taxpayer identification
number (in the case of an entity). The shareholder's instructions will be
implemented in a proxy executed by Applied Mailing or its agent and a
confirmation will be sent to the shareholder to ensure that the vote has been
authorized in accordance with the shareholder's instructions. Although a
shareholder's vote may be solicited and cast in this manner, each shareholder
will receive a copy of this Prospectus/Proxy Statement and may vote by mail
using the enclosed proxy card. The Acquired Fund believes that this
telephonic voting system will comply with Maryland law and will obtain an
opinion of counsel to that effect prior to implementing such procedures. The
aggregate cost of solicitation of the shareholders of the Acquired Fund is
expected to be approximately $24,650. Expenses of the Reorganization,
including the costs of the proxy solicitation and the preparation of
enclosures to the Prospectus/Proxy Statement, reimbursement of expenses of
forwarding solicitation material to beneficial owners of shares of the
Acquired Fund and expenses incurred in connection with the preparation of this
Prospectus/Proxy Statement will be borne by the Acquiring Fund and the
Acquired Fund in proportion to their assets.

In the event that a quorum necessary for a meeting of shareholders
is not present or sufficient votes to approve the Reorganization are not
received by November 14, 1995, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies.
In determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon a
decision to adjourn the Meeting.

The votes of the shareholders of the Acquiring Fund are not being
solicited by this Prospectus/Proxy Statement.

FINANCIAL STATEMENTS AND EXPERTS

The statement of assets and liabilities of the Acquiring Fund,
including the schedule of investments, as of March 31, 1995, the related
statement of operations for the

<PAGE>60

year then ended, the statement of changes in net assets for each of the years
in the two-year period then ended and the financial highlights for each of the
years in the five-year period then ended, have been incorporated by reference
into this Prospectus/Proxy Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent accountants, given on the authority of such firm as
experts in accounting and auditing. The statement of assets and liabilities
of the Acquired Fund, including the schedule of investments, as of December
31, 1994, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
ten-year period then ended have been incorporated by reference into this
Prospectus/Proxy Statement in reliance upon the report of Coopers & Lybrand
L.L.P., independent accountants, and upon the authority of such firm as
experts in accounting and auditing.

LEGAL MATTERS

Certain legal matters concerning the issuance of shares of the
Acquiring Fund will be passed upon by Sullivan & Cromwell, 125 Broad Street,
New York, New York 10004. In rendering such opinion, Sullivan & Cromwell may
rely on an opinion of Ropes & Gray as to certain matters under Massachusetts
law.

THE BOARD OF DIRECTORS OF THE ACQUIRED FUND, INCLUDING THE
INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN, AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR
OF APPROVAL OF THE PLAN.

<PAGE>61

EXHIBIT A

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
as of this 23rd day of October, 1995, by and between Smith Barney New York
Municipals Fund Inc., a Maryland corporation with its principal place of
business at 388 Greenwich Street, New York, New York 10013 (the "Acquired
Fund"), and Smith Barney Muni Funds, a Massachusetts business trust, with its
principal place of business at 388 Greenwich Street, New York, New York 10013,
on behalf of its New York Portfolio (the "Acquiring Fund").

This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(D) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund in exchange for Class A,
Class B and Class C shares of beneficial interest of the Acquiring Fund
(collectively, the "Acquiring Fund Shares" and each, an "Acquiring Fund
Share") and the assumption by the Acquiring Fund of scheduled liabilities of
the Acquired Fund and the distribution, after the Closing Date herein referred
to, of Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund and the subsequent dissolution of the
Acquired Fund, all upon the terms and conditions hereinafter set forth in this
Agreement.

WHEREAS, the Acquired Fund and Smith Barney Muni Funds are
registered investment companies of the management type and the Acquired Fund
owns securities that generally are assets of the character in which the
Acquiring Fund is permitted to invest;

WHEREAS, Smith Barney Muni Funds is authorized to issue shares of
beneficial interest in respect of its sub-trusts and the Acquired Fund is
authorized to issue shares of common stock;

WHEREAS, the Board of Directors of the Acquired Fund has determined
that the exchange of all or substantially all of the assets and scheduled
liabilities of the Acquired Fund for Acquiring Fund Shares and the assumption
of such liabilities by the Acquiring Fund is in the best interests of the
Acquired Fund's shareholders and that the interests of the existing
shareholders of the Acquired Fund would not be diluted as a result of this
transaction;

WHEREAS, the Board of Trustees of Smith Barney Muni Funds has
determined that the exchange of all or substantially all the assets and
scheduled liabilities of the Acquired Fund for Acquiring Fund Shares and the
assumption of such liabilities by the

<PAGE>62

Acquiring Fund is in the best interests of the Acquiring Fund's shareholders
and that the interests of the existing shareholders of the Acquiring Fund
would not be diluted as a result of this transaction.

NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties hereto covenant
and agree as follows:

1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND ASSUMPTION OF SCHEDULED LIABILITIES OF THE ACQUIRED FUND AND
LIQUIDATION AND DISSOLUTION OF THE ACQUIRED FUND

1.1. Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, the Acquired
Fund agrees to transfer the Acquired Fund's assets as set forth in paragraph
1.2 to Smith Barney Muni Funds on behalf of the Acquiring Fund, and the
Acquiring Fund agrees in exchange therefor: (i) to deliver to the Acquired
Fund the number of Class A Acquiring Fund Shares, including fractional Class A
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class A shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class A Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; (ii) to deliver to the Acquired Fund the
number of Class B Acquiring Fund Shares, including fractional Class B
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class B shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class B Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; (iii) to deliver to the Acquired Fund the
number of Class C Acquiring Fund Shares, including fractional Class C
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class C shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class C Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; and (iv) to assume scheduled liabilities of
the Acquired Fund, as set forth in paragraph 1.3. Such transactions shall
take place at the closing provided for in paragraph 3.1 (the "Closing"). The
Acquired Fund and Smith Barney Muni Funds will file Articles of Transfer as
required by Maryland law.

1.2. (a) The assets of the Acquired Fund to be acquired by Smith
Barney Muni Funds on behalf of the Acquiring Fund shall consist of all or
substantially all property, including, without limitation, all cash,
securities and dividends or interest receivables which are owned by the
Acquired Fund and any deferred or prepaid expenses shown as an asset on the
books of the Acquired Fund on the closing date provided in paragraph 3.1 (the
"Closing Date").

<PAGE>63

(b) The Acquired Fund has provided the Acquiring Fund with a
list of all of the Acquired Fund's assets as of the date of execution of this
Agreement. The Acquired Fund reserves the right to sell any of these
securities but will not, without the prior approval of the Acquiring Fund,
acquire any additional securities other than securities of the type in which
the Acquiring Fund is permitted to invest. The Acquiring Fund will, within a
reasonable time prior to the Closing Date, furnish the Acquired Fund with a
statement of the Acquiring Fund's investment objectives, policies and
restrictions and a list of the securities, if any, on the Acquired Fund's list
referred to in the first sentence of this paragraph which do not conform to
the Acquiring Fund's investment objectives, policies and restrictions. In the
event that the Acquired Fund holds any investments which the Acquiring Fund
may not hold, the Acquired Fund will dispose of such securities prior to the
Closing Date. In addition, if it is determined that the portfolios of the
Acquired Fund and the Acquiring Fund, when aggregated, would contain
investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Acquired Fund, if
requested by the Acquiring Fund, will dispose of and/or reinvest a sufficient
amount of such investments as may be necessary to avoid violating such
limitations as of the Closing Date.

1.3. The Acquired Fund will endeavor to discharge all the Acquired
Fund's known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume all liabilities, expenses, costs, charges and
reserves reflected on an unaudited Statement of Assets and Liabilities of the
Acquired Fund prepared by Smith Barney Mutual Fund Management Inc. (the
"Manager"), as adviser of the Acquired Fund, as of the Valuation Date (as
defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. Smith Barney
Muni Funds on behalf of the Acquiring Fund shall assume only those liabilities
of the Acquired Fund reflected in that unaudited Statement of Assets and
Liabilities and shall not assume any other liabilities, whether absolute or
contingent, not reflected thereon.

1.4. As provided in paragraph 3.3, as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to the Acquired Fund's shareholders of
record determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares it receives pursuant
to paragraph 1.1. Shareholders of Class A, Class B and Class C of the
Acquired Fund shall receive Class A, Class B and Class C shares, respectively,
of the Acquiring Fund. Such liquidation and distribution will be accomplished
by the transfer of the Acquiring Fund Shares then credited to the account of
the Acquired Fund on the books of the Acquiring Fund to open accounts on the
share records of the Acquiring Fund in the name of the Acquired Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of the Acquired
Fund, although any outstanding share certificates representing interests in
the Acquired Fund will represent a number of Acquiring Fund Shares after the
Closing Date as determined in accordance with

<PAGE>64

paragraph 1.1. The Acquiring Fund shall not issue certificates representing
the Acquiring Fund Shares in connection with such exchange.

1.5. Ownership of Acquiring Fund Shares will be shown on the books
of the Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued
in the manner described in the Acquiring Fund's current prospectus and
statement of additional information.

1.6. Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund Shares
on the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.

1.7. Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Acquired Fund up to and including the Closing
Date and such later dates on which the Acquired Fund is terminated.

1.8. The Acquired Fund shall, following the Closing Date and the
making of all distributions pursuant to paragraph 1.4, be dissolved under the
laws of the State of Maryland and in accordance with its governing documents
and shall apply for an order of the Securities and Exchange Commission (the
"Commission") under Section 8(f) of the Investment Company Act of 1940, as
amended (the "1940 Act"), declaring that it has ceased to be an investment
company.

2. VALUATION

2.1. The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of regular trading on the New York Stock Exchange, Inc. (the "NYSE") on
the Closing Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's then
current prospectus or statement of additional information.

2.2. The net asset value of Acquiring Fund Shares shall be the net
asset value per share computed as of the close of regular trading on the NYSE
on the Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then current prospectus or statement of additional
information.

2.3. All computations of value shall be made by the Manager in
accordance with its regular practice as pricing agent for the Acquired Fund
and the Acquiring Fund, respectively.

<PAGE>65

3. CLOSING AND CLOSING DATE

3.1. The Closing Date shall be November 17, 1995, or such later
date as the parties may agree to in writing. All acts taking place at the
Closing shall be deemed to take place simultaneously as of the close of
business on the Closing Date unless otherwise provided. The Closing shall be
held as of 5:00 p.m. at the offices of Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, or at such other time and/or place as the
parties may agree.

3.2. In the event that on the Valuation Date (a) the NYSE or
another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
shall be disrupted so that accurate appraisal of the value of the net assets
of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.

3.3. The Acquired Fund shall deliver at the Closing a list of the
names and addresses of the Acquired Fund's Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing, certified on behalf of the Acquired Fund by
the Chairman of the Board or President of the Acquired Fund. The Acquiring
Fund shall issue and deliver a confirmation evidencing the Acquiring Fund
Shares to be credited to the Acquired Fund's account on the Closing Date to
the Secretary of the Acquired Fund, or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request.

4. REPRESENTATIONS AND WARRANTIES

4.1. The Acquired Fund represents and warrants to Smith Barney Muni
Funds and the Acquiring Fund as follows:

(a) The Acquired Fund is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Maryland;

(b) The Acquired Fund is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect;

<PAGE>66

(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of its
Articles of Incorporation or By-laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquired Fund is
a party or by which it is bound;

(d) The Acquired Fund has no material contracts or other
commitments (other than this Agreement) which will be terminated with
liability to the Acquired Fund prior to the Closing Date;

(e) No litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or to the
Acquired Fund's knowledge threatened against the Acquired Fund or any of the
Acquired Fund's properties or assets (other than that previously disclosed to
the other party to the Agreement) which, if adversely determined, would
materially and adversely affect its financial condition or the conduct of its
business. The Acquired Fund knows of no facts which might form the basis for
the institution of such proceedings and is not party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;

(f) The Statements of Assets and Liabilities of the Acquired Fund
for each of the ten fiscal years ended March 31, 1995 have been audited by
Coopers & Lybrand L.L.P., independent accountants, and are in accordance with
generally accepted accounting principles consistently applied, and such
statements (copies of which have been furnished to the Acquiring Fund) fairly
reflect the financial condition of the Acquired Fund as of such dates, and
there are no known contingent liabilities of the Acquired Fund as of such
dates not disclosed therein;

(g) The Acquired Fund will file its final federal and other tax
returns for the period ending on the Closing Date in accordance with the Code.
At the Closing Date, all federal and other tax returns and reports of the
Acquired Fund required by law then to have been filed prior to the Closing
Date shall have been filed, and all federal and other taxes shown as due on
such returns shall have been paid so far as due, or provision shall have been
made for the payment thereof and, to the best of the Acquired Fund's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to such returns;

(h) For the most recent fiscal year of its operation, the Acquired
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company;

(i) All issued and outstanding shares of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable.

<PAGE>67

All of the issued and outstanding shares of the Acquired Fund will, at the
time of Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.3. The Acquired Fund
does not have outstanding any options, warrants or other rights to subscribe
for or purchase any shares of the Acquired Fund, nor is there outstanding any
security convertible into any shares of the Acquired Fund (other than Class B
shares of the Acquired Fund which, under certain circumstances, are
convertible into Class A shares of the Acquired Fund);

(j) At the Closing Date, the Acquired Fund will have good and
marketable title to its assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.2 and full right, power and authority to sell, assign,
transfer and deliver such assets hereunder and, upon delivery and payment for
such assets and the filing of Articles of Transfer with the Maryland State
Department of Assessments and Taxation, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the Securities Act
of 1933, as amended (the "1933 Act"), other than as disclosed to the Acquiring
Fund;

(k) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action on the part of the Acquired
Fund's Board of Directors, and subject to the approval of the Acquired Fund's
shareholders, this Agreement, assuming due authorization, execution and
delivery by Smith Barney Muni Funds on behalf of the Acquiring Fund, will
constitute a valid and binding obligation of the Acquired Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;

(l) The information to be furnished by the Acquired Fund for use in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto; and

(m) The proxy statement of the Acquired Fund (the "Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.7 (other than information therein that relates to Smith Barney
Muni Funds or the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.

<PAGE>68

4.2. Smith Barney Muni Funds and the Acquiring Fund represent and
warrant to the Acquired Fund as follows:

(a) The Acquiring Fund is a portfolio of Smith Barney Muni Funds,
which is a business trust, duly organized and validly existing under the laws
of the Commonwealth of Massachusetts;

(b) Smith Barney Muni Funds is a registered investment company
classified as a management company of the open-end type and its registration
with the Commission as an investment company under the 1940 Act is in full
force and effect;

(c) The current prospectus of the Acquiring Fund and statement of
additional information of Smith Barney Muni Funds conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act and
the rules and regulations of the Commission thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not materially
misleading;

(d) At the Closing Date, Smith Barney Muni Funds will have good and
marketable title to the Acquiring Fund's assets;

(e) Smith Barney Muni Funds is not, and the execution, delivery and
performance of this Agreement on behalf of the Acquiring Fund will not result,
in a material violation of Smith Barney Muni Funds' Declaration of Trust or
By-laws or of any agreement, indenture, instrument, contract, lease or other
undertaking with respect to the Acquiring Fund to which Smith Barney Muni
Funds or the Acquiring Fund is a party or by which it is bound;

(f) No litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or threatened
against the Acquiring Fund or Smith Barney Muni Funds with respect to the
Acquiring Fund or any of the Acquiring Fund's properties or assets. Smith
Barney Muni Funds and the Acquiring Fund know of no facts which might form the
basis for the institution of such proceedings and neither Smith Barney Muni
Funds nor the Acquiring Fund is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially
and adversely affects the Acquiring Fund's business or Smith Barney Muni
Funds' ability on behalf of the Acquiring Fund to consummate the transactions
contemplated herein;

(g) The Statement of Assets and Liabilities of the Acquiring Fund
for the eight fiscal years ended March 31, 1995 and for the period January 16,
1987 (commencement of operations) to March 31, 1987 have been audited by KPMG
Peat Marwick LLP, independent accountants, and are in accordance with
generally accepted

<PAGE>69

accounting principles consistently applied, and such statements (copies of
which have been furnished to the Acquired Fund) fairly reflect the financial
condition of the Acquiring Fund as of such dates, and there are no known
contingent liabilities of the Acquiring Fund as of such dates not disclosed
therein;

(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to have been filed by such
date shall have been filed, and all federal and other taxes shown as due on
said returns and reports shall have been paid so far as due, or provision
shall have been made for the payment thereof and, to the best of the Acquiring
Fund's knowledge, no such return is currently under audit and no assessment
has been asserted with respect to such returns;

(i) For the most recent fiscal year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company and the Acquiring Fund intends
to do so in the future;

(j) At the date hereof, all issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly issued
and outstanding, fully paid and non-assessable. The Acquiring Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any shares of the Acquiring Fund, nor is there outstanding any
security convertible into shares of the Acquiring Fund (other than Class B
shares of the Acquiring Fund which, under certain circumstances, are
convertible into Class A shares of the Acquiring Fund);

(k) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action, if any, on the part of Smith
Barney Muni Funds' Board of Trustees, and this Agreement, assuming due
authorization, execution and delivery by the Acquired Fund, constitutes a
valid and binding obligation of Smith Barney Muni Funds on behalf of the
Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;

(l) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable;

(m) The information to be furnished by the Acquiring Fund for use
in no-action letters, applications for exemptive orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete in all material respects and shall comply

<PAGE>70

in all material respects with federal securities and other laws and
regulations applicable thereto;

(n) The Proxy Statement to be included in the Registration
Statement (only insofar as it relates to Smith Barney Muni Funds and the
Acquiring Fund) will, on the effective date of the Registration Statement and
on the Closing Date, not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which such
statements were made, not misleading; and

(o) Smith Barney Muni Funds, on behalf of the Acquiring Fund,
agrees to use all reasonable efforts to obtain the approvals and
authorizations required by the 1933 Act, the 1940 Act and such of the state
Blue Sky or securities laws as it may deem appropriate in order to continue
the Acquiring Fund's operations after the Closing Date.

5. COVENANTS OF THE ACQUIRING FUND, SMITH BARNEY MUNI FUNDS AND THE ACQUIRED
FUND

5.1. The Acquired Fund and Smith Barney Muni Funds on behalf of the
Acquiring Fund each will operate its business in the ordinary course between
the date hereof and the Closing Date. It is understood that such ordinary
course of business will include the declaration and payment of customary
dividends and distributions and any other dividends and distributions deemed
advisable, in each case payable either in cash or in additional shares.

5.2. The Acquired Fund will call a meeting of its shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.

5.3. The Acquired Fund covenants that the Acquiring Fund Shares to
be issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this
Agreement.

5.4. The Acquired Fund will assist the Acquiring Fund in obtaining
such information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund's shares.

5.5. Subject to the provisions of this Agreement, the Acquired Fund
and Smith Barney Muni Funds on behalf of the Acquiring Fund, each will take,
or cause to be taken, all action, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.

<PAGE>71

5.6. As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in
such form as is reasonably satisfactory to the Acquiring Fund, a statement of
the earnings and profits of the Acquired Fund for federal income tax purposes
which will be carried over to the Acquiring Fund as a result of Section 381 of
the Code and which will be certified by the Chairman of the Board or President
and the Treasurer of the Acquired Fund.

5.7. The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus (the
"Prospectus") which will include the Proxy Statement, referred to in paragraph
4.1(m), all to be included in a Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933
Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act in
connection with the meeting of the Acquired Fund's shareholders to consider
approval of this Agreement and the transactions contemplated herein.

6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND

The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Smith Barney Muni Funds and the Acquiring Fund of all of the obligations to be
performed by them hereunder on or before the Closing Date and, in addition
thereto, the following further conditions:

6.1. All representations and warranties of Smith Barney Muni Funds
and the Acquiring Fund contained in this Agreement shall be true and correct
in all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing
Date with the same force and effect as if made on and as of the Closing Date;

6.2. Smith Barney Muni Funds on behalf of the Acquiring Fund shall
have delivered to the Acquired Fund a certificate executed in its name by its
Chairman of the Board, President or Vice President and its Treasurer or
Assistant Treasurer, in a form reasonably satisfactory to the Acquired Fund
and dated as of the Closing Date, to the effect that the representations and
warranties of Smith Barney Muni Funds and the Acquiring Fund made in this
Agreement are true and correct in all material respects at and as of the
Closing Date, except as they may be affected by the transactions contemplated
by this Agreement; and

6.3. The Acquired Fund shall have received on the Closing Date a
favorable opinion from Sullivan & Cromwell, counsel to the Acquiring Fund,
dated as of the Closing Date, in a form reasonably satisfactory to Christina
T. Sydor, Esq., Secretary of the Acquired Fund, covering the following points:

<PAGE>72

That (a) Smith Barney Muni Funds is a business trust duly organized and
validly existing under the laws of the Commonwealth of Massachusetts; (b)
Smith Barney Muni Funds is an open-end management investment company
registered under the 1940 Act; (c) this Agreement, the Reorganization
provided for hereunder and the execution of this Agreement have been duly
authorized and approved by all requisite action of Smith Barney Muni
Funds, and this Agreement has been duly executed and delivered by Smith
Barney Muni Funds and, assuming due authorization by the Acquired Fund,
is a valid and binding obligation of Smith Barney Muni Funds with respect
to the Acquiring Fund, enforceable in accordance with its terms against
the assets of the Acquiring Fund, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; and (d) the Acquiring Fund Shares to be issued
to the Acquired Fund for distribution to its shareholders pursuant to
this Agreement have been duly authorized and, when issued in accordance
with this Agreement, will be validly issued and fully paid and
non-assessable.

Such opinion may state that it is solely for the benefit of the
Acquired Fund, its Directors and its officers. Such counsel may rely, as to
matters governed by the laws of the Commonwealth of Massachusetts, on an
opinion of Massachusetts counsel.

7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SMITH BARNEY MUNI FUNDS IN RESPECT
OF THE ACQUIRING FUND

The obligations of Smith Barney Muni Funds on behalf of the
Acquiring Fund to complete the transactions provided for herein shall be
subject, at its election, to the performance by the Acquired Fund of all the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:

7.1. All representations and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;

7.2. The Acquired Fund shall have delivered to Smith Barney Muni
Funds on behalf of the Acquiring Fund a statement of the Acquired Fund's
assets and liabilities, together with a list of the Acquired Fund's portfolio
securities showing the tax basis of such securities by lot and the holding
periods of such securities, as of the Closing Date, certified by the Treasurer
or Assistant Treasurer of the Acquired Fund;

7.3. The Acquired Fund shall have delivered to Smith Barney Muni
Funds on behalf of the Acquiring Fund on the Closing Date a certificate
executed in its name by its Chairman of the Board, President or Vice President
and its Treasurer or Assistant Treasurer,

<PAGE>73

in form and substance satisfactory to the Acquiring Fund and dated as of the
Closing Date, to the effect that the representations and warranties of the
Acquired Fund made in this Agreement are true and correct in all material
respects at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement; and

7.4. The Acquiring Fund shall have received on the Closing Date a
favorable opinion of Willkie Farr & Gallagher, counsel to the Acquired Fund,
in a form satisfactory to Christina T. Sydor, Esq., Secretary of the Acquiring
Fund, covering the following points:

That (a) the Acquired Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland; (b) the Acquired Fund
is an open-end management investment company registered under the 1940
Act; and (c) this Agreement, the Reorganization provided for hereunder
and the execution of this Agreement have been duly authorized and
approved by all requisite action of the Acquired Fund, and this Agreement
has been duly executed and delivered by the Acquired Fund and, assuming
due authorization, execution and delivery by Smith Barney Muni Funds with
respect to the Acquiring Fund, is a valid and binding obligation of the
Acquired Fund enforceable in accordance with its terms against the assets
of the Acquired Fund, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.

Such opinion may state that it is solely for the benefit of Smith
Barney Muni Funds, its Trustees and its officers. Such counsel may rely, as
to matters governed by the laws of the State of Maryland, on an opinion of
Maryland counsel.

8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND, SMITH
BARNEY MUNI FUNDS AND THE ACQUIRING FUND

If any of the conditions set forth below do not exist on or before
the Closing Date with respect to Smith Barney Muni Funds on behalf of the
Acquiring Fund, or the Acquired Fund, the other party to this Agreement shall,
at its option, not be required to consummate the transactions contemplated by
this Agreement:

8.1. This Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of its Articles
of Incorporation and By-laws and certified copies of the votes evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquired Fund nor Smith Barney
Muni Funds on behalf of the Acquiring Fund may waive the conditions set forth
in this paragraph 8.1;

<PAGE>74

8.2. On the Closing Date, no action, suit or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;

8.3. All consents of other parties and all other consents, orders
and permits of federal, state and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no-action" positions of and exemptive orders from such federal and
state authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the assets or properties of the Acquiring Fund or the
Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;

8.4. The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act;

8.5. The Acquired Fund shall have declared and paid a dividend or
dividends on the outstanding shares of the Acquired Fund which, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Acquired Fund all of the investment company taxable income
of the Acquired Fund for all taxable years ending on or prior to the Closing
Date. The dividend declared and paid by the Acquired Fund shall also include
all of such fund's net capital gain realized in all taxable years ending on or
prior to the Closing Date (after reduction for any capital loss carryforward);

8.6. The parties shall have received a favorable opinion of Willkie
Farr & Gallagher, addressed to the Acquired Fund and Smith Barney Muni Funds
in respect of the Acquiring Fund and satisfactory to Christina T. Sydor, Esq.,
as Secretary of each of the Funds, substantially to the effect that for
federal income tax purposes:

(a) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of scheduled liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(D)
of the Code, and the Acquiring Fund and the Acquired Fund are each a
"party to a reorganization" within the meaning of Section 368(b) of the
Code; (b) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of
scheduled liabilities of the Acquired Fund; (c) no gain or loss will be
recognized by the Acquired Fund upon the transfer of the

<PAGE>75

Acquired Fund's assets to the Acquiring Fund in exchange for Acquiring Fund
Shares and the assumption by the Acquiring Fund of scheduled liabilities of
the Acquired Fund or upon the distribution (whether actual or constructive) of
Acquiring Fund Shares to Acquired Fund's shareholders; (d) no gain or loss
will be recognized by shareholders of the Acquired Fund upon the exchange of
their Acquired Fund shares for the Acquiring Fund Shares; (e) the aggregate
tax basis for Acquiring Fund Shares received by each of the Acquired Fund's
shareholders pursuant to the Reorganization will be the same as the aggregate
tax basis of the Acquired Fund shares held by such shareholder immediately
prior to the Reorganization, and the holding period of Acquiring Fund Shares
to be received by each Acquired Fund shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by such
shareholder (provided that the Acquired Fund shares were held as capital
assets on the date of the Reorganization); and (f) the tax basis to the
Acquiring Fund of the Acquired Fund's assets acquired by the Acquiring Fund
will be the same as the tax basis of such assets to the Acquired Fund
immediately prior to the Reorganization, and the holding period of the assets
of the Acquired Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Acquired Fund.

Notwithstanding anything herein to the contrary, neither the
Acquired Fund nor Smith Barney Muni Funds on behalf of the Acquiring Fund may
waive the conditions set forth in this paragraph 8.6.

9. BROKERAGE FEES AND EXPENSES

9.1. The Acquired Fund represents and warrants to Smith Barney Muni
Funds on behalf of the Acquiring Fund, and Smith Barney Muni Funds on behalf
of the Acquiring Fund represents and warrants to the Acquired Fund, that there
are no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.

9.2. (a) Except as may be otherwise provided herein, Smith
Barney Inc., the distributor of the Acquiring Fund and the Acquired Fund,
shall be liable for the expenses incurred in
connection with entering into and carrying out the provisions of this
Agreement, including the expenses of: (i) counsel and independent
accountants associated with the Reorganization; (ii) printing and mailing the
Prospectus/Proxy Statement and soliciting proxies in connection with the
meeting of shareholders of the Acquired Fund referred to in paragraph 5.2
hereof; (iii) any special pricing fees associated with the valuation of the
Acquired Fund's or the Acquiring Fund's portfolio on the Closing Date; (iv)
expenses associated with preparing this Agreement and preparing and filing the
Registration Statement under the 1933 Act covering the Acquiring Fund Shares
to be issued in the Reorganization; (v) registration or qualification fees and
expenses of preparing and filing such forms, if any, necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be

<PAGE>76

issued in connection with the Reorganization. The Acquired Fund shall be
liable for: (x) all fees and expenses related to the liquidation and
dissolution of the Acquired Fund; and (y) fees and expenses of the Acquired
Fund's custodian and transfer agent incurred in connection with the
Reorganization. The Acquiring Fund shall be liable for any fees and expenses
of the Acquiring Fund's custodian and transfer agent incurred in connection
with the Reorganization.

(b) Consistent with the provisions of paragraph 1.3, the Acquired
Fund, prior to the Closing, shall pay for or include in the unaudited
Statement of Assets and Liabilities prepared pursuant to paragraph 1.3 all of
its known and reasonably estimated expenses associated with the transactions
contemplated by this Agreement.

10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES

10.1. The parties hereto agree that no party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.

10.2. The representations, warranties and covenants contained in
this Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.

11. TERMINATION

11.1. This Agreement may be terminated at any time prior to the
Closing Date by: (i) the mutual agreement of Smith Barney Muni Funds on
behalf of the Acquiring Fund and the Acquired Fund; (ii) Smith Barney Muni
Funds on behalf of the Acquiring Fund in the event that the Acquired Fund
shall, or the Acquired Fund in the event that Smith Barney Muni Funds or the
Acquiring Fund shall, materially breach any representation, warranty or
agreement contained herein to be performed at or prior to the Closing Date; or
(iii) Smith Barney Muni Funds on behalf of the Acquiring Fund, or by the
Acquired Fund, if a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably
appears that it will not or cannot be met.

11.2. In the event of any such termination, there shall be no
liability for damages on the part of either Smith Barney Muni Funds on behalf
of the Acquiring Fund or the Acquired Fund or their respective Trustees,
Directors or officers to the other party, but each shall bear the expenses
incurred by it incidental to the preparation and carrying out of this
Agreement as provided in paragraph 9.

<PAGE>77

12. AMENDMENTS; WAIVERS

12.1. This Agreement may be amended, modified or supplemented in
such manner as may be mutually agreed upon in writing by the authorized
officers of Smith Barney Muni Funds and the Acquired Fund; provided, however,
that following the meeting of the Acquired Fund shareholders called by the
Acquired Fund pursuant to paragraph 5.2 of this Agreement, no such amendment
may have the effect of changing the provisions for determining the number of
Acquiring Fund Shares to be issued to the Acquired Fund's shareholders under
this Agreement to the detriment of such shareholders without their further
approval.

12.2. At any time prior to the Closing Date either party hereto
may by written instrument signed by it (i) waive any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions made for its benefit
contained herein.

13. NOTICES

Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by hand
delivery, prepaid telegraph, telecopy or certified mail addressed to Smith
Barney Muni Funds, 388 Greenwich Street, 22nd Floor, New York, New York 10013,
Attention: Heath B. McLendon; or to Smith Barney New York Municipals Fund
Inc., 388 Greenwich Street, 22nd Floor, New York, New York 10013, Attention:
Jessica Bibliowicz.

14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY

14.1. The article and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

14.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.

14.3. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.

14.4. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer

<PAGE>78

upon or give any person, firm, corporation or other entity, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.

14.5. It is expressly agreed that the obligations of Smith
Barney Muni Funds in respect of the Acquiring Fund shall not be binding upon
any Trustees, shareholders, nominees, officers, agents or employees
personally, but bind only the trust property of Smith Barney Muni Funds as
provided in the Declaration of Trust of Smith Barney Muni Funds. The
execution and delivery of this Agreement have been authorized by the Trustees
of Smith Barney Muni Funds and this Agreement has been executed by authorized
officers of Smith Barney Muni Funds, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of Smith Barney Muni Funds as provided in Smith Barney Muni Funds'
Declaration of Trust.

<PAGE>79

IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its Chairman of the Board, President or Vice
President and attested by its Secretary or Assistant Secretary.

Attest: SMITH BARNEY MUNI FUNDS
on behalf of NEW YORK PORTFOLIO

/s/ Christina T. Sydor By: Heath B. McLendon
Name: Christina T. Sydor Name: Heath B. McLendon
Title: Secretary Title: Chairman of the Board

Attest: SMITH BARNEY NEW YORK MUNICIPALS
FUND INC.

/s/ Christina T. Sydor By: /s/ Jessica Bibliowcz
Name: Christina T. Sydor Name: Jessica Bibliowicz
Title: Secretary Title: President