SMITH BARNEY MUNI FUNDS, 497, 1995-12-26

SMITH BARNEY MUNI FUNDS
497, 1995-12-26

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<PAGE>1

[Smith Barney Letterhead]

A SPECIAL NOTICE TO SHAREHOLDERS OF
SMITH BARNEY LIMITED MATURITY MUNICIPALS FUND

Your Vote is Important

Dear Shareholder:

The Board of Trustees of Smith Barney Investment Trust (formerly Smith Barney
Income Trust) has recently reviewed and unanimously endorsed a proposal for a
reorganization of Smith Barney Limited Maturity Municipals Fund ("Municipals
Fund"), a separate investment portfolio of Smith Barney Investment Trust,
which it judges to be in the best interests of Municipals Fund's shareholders.

Under the terms of the proposal, Smith Barney Muni Funds, on behalf of its
Limited Term Portfolio ("Limited Term Portfolio"), would acquire all or
substantially all of the assets and liabilities of Municipals Fund. After the
transaction, Municipals Fund would be liquidated and you would become a
shareholder of Limited Term Portfolio having received shares with an aggregate
value equivalent to the aggregate net asset value of your investment in
Municipals Fund at the time of the transaction. No sales charge would be
imposed in the transaction. The transaction would, in the opinion of counsel,
be free from federal income taxes to you, Municipals Fund and Limited Term
Portfolio, and it is intended that the combined fund would be managed by the
same portfolio manager who currently manages Municipals Fund.

The Board of Trustees of Smith Barney Investment Trust has determined that it
is advantageous to combine Municipals Fund with Limited Term 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 Municipals Fund and Limited Term Portfolio
is expected to eliminate investor confusion associated with the offering by
Smith Barney Inc. of two similar limited term 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 Trustees of Smith Barney Investment Trust has
determined that the proposed reorganization should provide benefits to Class A
and Class C shareholders of

<PAGE>2

Municipals Fund due, in part, to savings in expenses borne by such
shareholders. Specifically, it is anticipated that the expense ratio for
Class A and Class C shares of the combined fund would be lower than the
expense ratio currently applicable to Class A and Class C shares of Municipals
Fund.

SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT

To consider this transaction, we have called a Special Meeting of Shareholders
to be held on January 26, 1996. 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 Trustees, 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,

/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board

December 15, 1995

<PAGE>3

SMITH BARNEY LIMITED MATURITY MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held on January 26, 1996

Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Smith Barney Limited Maturity Municipals Fund ("Municipals
Fund") will be held at 388 Greenwich Street, 22nd Floor, New York, New York on
January 26, 1996, commencing at 9:30 a.m. for the following purposes:

1. To approve or disapprove the Agreement and Plan of Reorganization
dated as of December 14, 1995 providing for (i) the acquisition of
all or substantially all of the assets of Municipals Fund by Smith
Barney Muni Funds on behalf of its Limited Term Portfolio ("Limited
Term Portfolio") in exchange for shares of Limited Term Portfolio
and the assumption by Smith Barney Muni Funds on behalf of Limited
Term Portfolio of scheduled liabilities of Municipals Fund, (ii) the
distribution of such shares of Limited Term Portfolio to
shareholders of Municipals Fund in liquidation of Municipals Fund
and (iii) the subsequent termination of Municipals Fund.

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

The Board of Trustees of Smith Barney Investment Trust (formerly
Smith Barney Income Trust), of which the Municipals Fund is a separate
investment portfolio, has fixed the close of business on November 27, 1995 as
the record date for the determination of shareholders of Municipals 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
MUNICIPALS 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 Trustees

Christina T. Sydor
Secretary

December 15, 1995

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

<PAGE>5--

PROSPECTUS/PROXY STATEMENT DATED DECEMBER 15, 1995

Acquisition Of The Assets Of

SMITH BARNEY LIMITED MATURITY MUNICIPALS FUND
a separate investment portfolio of
SMITH BARNEY INVESTMENT TRUST
388 Greenwich Street
New York, New York 10013
(800) 224-7523

By And In Exchange For Shares Of

LIMITED TERM 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 Limited Maturity Municipals Fund (the "Acquired Fund"), a
separate investment portfolio of Smith Barney Investment Trust (formerly Smith
Barney Income Trust), 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 January 26, 1996 at 9:30 a.m.
(the "Meeting"), at the offices of Smith Barney Inc. ("Smith Barney") located
at 388 Greenwich Street, 22nd 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
Limited Term 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 will be distributed to shareholders
of the Acquired Fund in liquidation of the Acquired Fund and thereafter the
Acquired Fund would be terminated. 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

<PAGE>6-

the Class A shares of the Acquiring Fund received by the Acquired Fund Class A
shareholders. Holders of Class C shares of the Acquired Fund will receive
Class C shares of the Acquiring Fund. No contingent deferred sales charge
("CDSC") will be imposed on 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 C shares of
the Acquiring Fund, the period during which an Acquired Fund shareholder held
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. The Acquired Fund currently
neither offers nor has outstanding shares of any other class. The Acquiring
Fund currently offers and has outstanding Class Y shares.

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 a separate investment portfolio of Smith Barney
Investment Trust, an open-end, diversified management investment company whose
investment objective is to seek as high a level of current income exempt from
federal income taxes as is consistent with preservation of principal. 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 seek as high a level of income exempt from federal 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, Lawrence T. McDermott, the portfolio manager who manages
the Acquired Fund's portfolio, would manage the combined fund. Mr. McDermott,
a Managing Director of Smith Barney, has served as Vice President and
Investment Officer of the Acquired Fund since its inception on December 31,
1991, and manages the day-to-day operations of the Acquired 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

<PAGE>7-

the Acquired Fund, however, are described under "Comparison of Investment
Objectives and Policies" in this Prospectus/Proxy Statement.

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 December 15, 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 -- Limited Term Portfolio
dated July 31, 1995, as supplemented by a Prospectus Supplement
dated December 15, 1995, is incorporated in its entirety by reference,
and a copy accompanies this Prospectus/Proxy Statement.

2. The Prospectus of Smith Barney Limited Maturity Municipals Fund
dated January 29, 1995, as supplemented by Prospectus Supplements
dated May 25, 1995, July 11, 1995, July 20, 1995, August 22, 1995
and September 14, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

REASONS FOR THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . 19

INFORMATION ABOUT THE REORGANIZATION . . . . . . . . . . . . . . . . . . 22

INFORMATION ABOUT THE ACQUIRING FUND . . . . . . . . . . . . . . . . . . 28

INFORMATION ABOUT THE ACQUIRED FUND . . . . . . . . . . . . . . . . . . . 35

COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . 42

INFORMATION ON SHAREHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . 49

ADDITIONAL INFORMATION ABOUT SMITH BARNEY INVESTMENT
TRUST AND SMITH BARNEY MUNI FUNDS . . . . . . . . . . . . . . . . . 52

OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

FINANCIAL STATEMENTS AND EXPERTS . . . . . . . . . . . . . . . . . . . . 55

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

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 December 15, 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 -- Limited Term Portfolio
for the fiscal year ended March 31, 1995.

3. Semi-Annual Report of Smith Barney Muni Funds -- Limited Term
Portfolio for the six-month period ended September 30, 1995.

4. Annual Report of Smith Barney Limited Maturity Municipals Fund for
the fiscal year ended November 30, 1994.

5. Semi-Annual Report of Smith Barney Limited Maturity Municipals Fund
for the six-month period ended May 31, 1995.

6. Pro Forma Financial Statements.

<PAGE>10

FEE TABLES

Following are tables showing 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) . . . . . . . . . . . . . . . . . . 2.00% 2.00% 2.00%

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 . . . . . . . . . . . . . . . . . . 0.55%**** 0.45%+ 0.50%++
12b-1 fees . . . . . . . . . . . . . . . . . . . . . 0.15 0.15 0.15
Other expenses . . . . . . . . . . . . . . . . . 0.24 0.13 0.11

Total Operating Expenses . . . . . . . . . . . . . . . 0.94% 0.73%+ 0.76%++

</TABLE>

* 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.

** Annual operating expenses (a) for Class A shares of the Acquired
Fund are based on expenses for the six-month period ended May 31,
1995, (b) for Class A shares of the Acquiring Fund are based on
expenses for the six-month period ended September 30, 1995, and (c)
for the pro forma financial figures are based on estimated expenses
for the six-month period ended September 30, 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, 1995.

<PAGE>11

waiver of such management fees, "management fees" and "total operating
expenses" for Class A shares were 0.41% and 0.80%, respectively, of
the average daily net assets of the Acquired Fund. Effective on
November 17, 1995, 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.

+ The Manager has voluntarily agreed to waive a portion of its
management fee due from the Acquiring Fund to the extent necessary to
maintain the Acquiring Fund's total operating expenses at 0.65% of the
Acquiring Fund's average daily net assets for that fiscal year,
exclusive of 12b-1 fees, taxes, brokerage, interest and extraordinary
expenses (such as litigation costs). This expense limitation will be
in effect until it is terminated by the Manager after notice to
shareholders and supplement to the then-current prospectus of the
Acquiring Fund.

++ Reflects 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 and an
increase from 0.65% to 0.70% in the expense limitation described in
the immediately preceding footnote. The increased management fee and
expense limitation will be effective as of December 18, 1995. See
"Reasons for the Reorganization."

<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 . . . . . . . . . . . . . . . . . . 0.55%**** 0.45%+ 0.50%++
12b-1 fees* . . . . . . . . . . . . . . . . . . . . 0.35 0.35 0.35
Other expenses . . . . . . . . . . . . . . . . . 0.22 0.14 0.12

Total Operating Expenses . . . . . . . . . . . . . . . . 1.12% 0.94%+ 0.97%++

</TABLE>

* 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.

** Annual operating expenses (a) for Class C shares of the Acquired Fund
are based on expenses for the six-month period ended May 31, 1995, (b)
for Class C shares of the Acquiring Fund are based on expenses for the
six-month period ended September 30, 1995, and (c) and for the pro
forma financial figures are based on estimated expenses for the
six-month period ended September 30, 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, 1995.

**** For investment advisory services, the Acquired Fund pays the Manager a
fee at the annual rate of 0.35% of average daily net assets. For
administrative services rendered, the Acquired Fund pays the Manager a
fee at the annual rate of 0.20% of average daily net assets. The
Manager has voluntarily The Manager has voluntarily waived a portion
of the Acquired Fund's aggregate management fees in an annual amount
equal to 0.14% of the Acquired Fund's average daily net assets. This
has the effect of lowering the Acquired Fund's overall expenses and
increasing returns available to investors. After waiver of such
management fees, "management fees" and "total operating expenses" for
Class C shares were 0.41% and 0.98%, respectively, of the average
daily net assets of the Acquired Fund. Effective on November 17,
1995, 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.

<PAGE>13

++ Reflects 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 and an
increase from 0.65% to 0/70% in the expense limitation described in
the immediately preceding footnote. The increased management fee
and expense limitation will be effective as of December 18, 1995.
See "Reasons for the Reorganization."

<PAGE>14

CLASS Y 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) . . . . . . . None None None

Annual Operating Expenses*
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . 0.55%*** 0.45%+ 0.50%++
12b-1 fees . . . . . . . . . . . . . . . . . . . . . . 0.00 0.00 0.00
Other expenses . . . . . . . . . . . . . . . . . . . 0.24 0.10 0.09

Total Operating Expenses . . . . . . . . . . . . . . . . 0.79% 0.55%+ 0.59%++

</TABLE>

* Annual operating expenses (a) for Class Y shares of the Acquired Fund
are based on expenses for the six-month period ended May 31, 1995, (b)
for Class Y shares of the Acquiring Fund are based on expenses for the
six-month period ended September 30, 1995, and (c) and for the pro
forma financial figures are based on estimated expenses for the
six-month period ended September 30, 1995. "Other expenses" of the
Acquired Fund have been estimated because as of the date hereof, no
Class Y shares of the Acquired Fund had been sold.

** 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, 1995.

*** For investment advisory services, the Acquired Fund pays the Manager a
fee at the annual rate of 0.35% of average daily net assets. For
administrative services rendered, the Acquired Fund pays the Manager a
fee at the annual rate of 0.20% of average daily net assets. The
Manager has voluntarily waived a portion of the Acquired Fund's
aggregate management fees in an annual amount equal to 0.14% of the
Acquired Fund's average daily net assets. This has the effect of
lowering the Acquired Fund's overall expenses and increasing returns
otherwise available to investors. After waiver of such management
fees, "management fees" and "total operating expenses" for Class Y
shares were 0.41% and 0.65%, respectively, of the average daily net
assets of the Acquired Fund. Effective on November 17, 1995, 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.

<PAGE>15

++ Reflects 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 and an
increase from 0.65% to 0/70% in the expense limitation described in
the immediately preceding paragraph. The increased management fee
and expense limitations will be effective as of December 18, 1995. See
"Reasons for the Reorganization."

<PAGE>16

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 . . . . . . . . . . . . . . . . . $29 $49 $71 $133
Acquiring Fund . . . . . . . . . . . . . . . . . 27 43 60 109
Pro Forma . . . . . . . . . . . . . . . . . . . 28 44 61 112

Class C
Acquired Fund . . . . . . . . . . . . . . . . . $21 $36 $62 $136
Acquiring Fund . . . . . . . . . . . . . . . . . 20 30 52 115
Pro Forma . . . . . . . . . . . . . . . . . . . 20 31 54 119

Class Y
Acquired Fund . . . . . . . . . . . . . . . . . $8 $25 $44 $98
Acquiring Fund . . . . . . . . . . . . . . . . . 6 18 31 69
Pro Forma . . . . . . . . . . . . . . . . . . . 6 19 33 74

</TABLE>

<PAGE>17

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 . . . . . . . . . . . . . . . $29 $49 $71 $133
Acquiring Fund . . . . . . . . . . . . . . . 27 43 60 109
Pro Forma . . . . . . . . . . . . . . . . . 28 44 61 112

Class C
Acquired Fund . . . . . . . . . . . . . . . $11 $36 $62 $136
Acquiring Fund . . . . . . . . . . . . . . . 10 30 52 115
Pro Forma . . . . . . . . . . . . . . . . . 10 31 54 119

Class Y
Acquired Fund . . . . . . . . . . . . . . . $8 $25 $44 $98
Acquiring Fund . . . . . . . . . . . . . . . 6 18 31 69
Pro Forma . . . . . . . . . . . . . . . . . 6 19 33 74

</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>18

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 December 15, 1995, and the Prospectus of the Acquired Fund dated January
29, 1995, as supplemented by Prospectus Supplements dated May 25, 1995,
July 11, 1995, July 20, 1995, August 22, 1995 and September 14, 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 such 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 or Class C shares
of the Acquired Fund will receive Class A 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 Trustees of Smith Barney Investment Trust,
including the Trustees who are not "interested persons" (the "Independent
Trustees"), 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, as
defined in the 1940 Act, of the outstanding shares of the Acquired Fund, which
is the lesser of: (i) 67% of the voting securities of the Acquired Fund
present at the Meeting, if the holders of more than 50% of the outstanding
voting securities of the Acquired Fund are present or represented by proxy,

<PAGE>19

or (ii) more than 50% of the outstanding shares of the Acquired Fund. For
purposes of voting with respect to the Reorganization, the Class A and Class C
shares of the Acquired Fund will vote together as a single class. See "Voting
Information."

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 a separate investment portfolio of Smith
Barney Investment Trust, an open-end, diversified management investment
company, whose investment objective is to seek as a high a level of current
income exempt from federal income taxes as is consistent with preservation of
principal. 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 seek as high a level of income exempt from
federal 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 2.00% 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 such Fund offered by Smith Barney held by
such person and applying the (reduced) sales charge applicable to such
aggregate. Purchases of Class A shares of either Fund, which when combined
with current holdings of such Fund's 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 C shares of both Funds are

<PAGE>20

sold without an initial sales charge but are subject to higher ongoing
expenses than Class A shares and are subject to a CDSC payable upon certain
redemptions. 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 the date hereof, no Class Y shares of
the Acquired Fund had been sold.

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 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 First Data Investor Services
Group, Inc. (the "transfer agent"). 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 C shares
acquired in the exchange will be deemed to have been purchased on the same
date as the Class C shares that were exchanged therefor. See "Exchange
Privilege" in the accompanying Prospectus of the Acquiring Fund.

Dividends. Dividends from net investment income of the Acquired
Fund are declared monthly and paid on the last Friday of each month.
Dividends of substantially all of the Acquiring Fund's net investment income
are declared and paid monthly. Both Funds declare and distribute any realized
capital gains 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.

<PAGE>21

Shareholder Voting Rights. Smith Barney Investment Trust and Smith
Barney Muni Funds are both registered with the SEC as open-end, management
investment companies. The Acquired Fund is a separate series of Smith Barney
Investment Trust, a Massachusetts business trust having a Board of Trustees.
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 Trustees unless and until such time as less than a
majority of the Fund's Trustees holding office has been elected by
shareholders of such Fund. At that time, the Fund's Trustees then in office
will call a shareholders' meeting for the election of Trustees.

In addition, under the laws of the Commonwealth of Massachusetts,
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 and Class C shares of the Acquired Fund will vote together as a
single class. See "Information on Shareholders' Rights -- Voting Rights."

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 investing
in a managed portfolio of limited term municipal obligations. 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, by
the Acquired Fund, are described herein under "Comparison of Investment
Objectives and Policies."

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. Yields on municipal obligations are the
product of a variety of factors, including the general conditions of the
municipal bond markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue.

<PAGE>22

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.

The Acquiring Fund is classified as a non-diversified investment
company under the 1940 Act, which means that the Acquiring Fund is not limited
by the 1940 Act in the proportion of its assets that it may invest in the
assets 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 of a diversified company as a result of
changes in the financial condition or in the market's assessment of the
issuers. Notwithstanding the foregoing, each Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes
of the Internal Revenue Code of 1986, as amended, 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.

From time to time, proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income tax exemption
for interest on municipal obligations and similar proposals may be introduced
in the future. If one of these proposals were enacted, the availability of
tax exempt obligations for investment by the Funds and the value of their
respective portfolio securities would be affected. The Trustees of each Fund
would then reevaluate the respective Fund's investment objectives and
policies.

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

REASONS FOR THE REORGANIZATION

The Board of Trustees of Smith Barney Investment Trust 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.

<PAGE>23

Among the factors considered by the Board of Trustees of Smith
Barney Investment Trust 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 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 mutual fund
complex. The Board of Trustees of Smith Barney Investment Trust was presented
with information indicating that investors have been and will continue to be
confused in the face of similar limited term 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) client confusion associated with offering similar funds that provide
differing yields. The Board of Trustees of Smith Barney Investment Trust 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 of Trustees of the Acquired
Fund was presented by the Manager with information reflecting operating
expenses of the Acquiring Fund and the Acquired Fund as of April 30, 1995.
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, Class A and Class C shareholders of the
Acquired Fund should respectively experience a 0.04% and 0.03% decrease in
total operating expenses after giving effect to management fee waivers
currently in effect. The pro forma operating expenses for Class A and Class C
shares would represent a 0.05% decrease respectively in management fees
payable to the Manager (before fee waivers), accompanied by a 0.13% and 0.12%
decrease in other operating expenses. The Trustees recognized that, while the
pro forma management fees would be 0.05% lower than management fees currently
payable by the Acquired Fund, the pro forma management fees would be 0.09%
higher than currently actually incurred by the Fund, because the Manager does
not currently expect to continue to waive management fees after the
Reorganization. This management fee waiver had the effect of lowering the
Acquired Fund's overall expenses and increasing returns available

<PAGE>24

to investors. However, the Board recognized that even without a management
fee waiver, the pro forma total operating expenses of the combined funds would
be reduced following the Reorganization.

Subsequently, information became available as to the expenses of the
Acquiring Fund for the six-month period ended September 30, 1995, and the
expenses of the Acquired Fund for the six-month period ended May 31, 1995.
This information is reflected 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
September 30, 1995, it is estimated that Class A and Class C shareholders of
the Acquired Fund should respectively experience a 0.18% and 0.15% decrease in
total operating expenses before giving effect to management fee waivers
currently in effect (a 0.04% and 0.01% decrease after management fee waivers),
resulting from a 0.05% decrease in management fees paid to the Manager
accompanied by a 0.13% and 0.10% decrease, respectively, in other operating
expenses, but anticipating no further waiver of management fees. In
anticipation of the Reorganization, effective November 17, 1995, the Manager
has voluntarily reduced the Acquired Fund's aggregate management fee from
0.55% to 0.50% of the Acquired Fund's average daily net assets. Based upon
this reduced management fee and the other expense information reflected under
the caption "Fee Tables" in this Prospectus/Proxy Statement, it is estimated
that Class A and Class C shareholders of the Acquired Fund should respectively
experience a 0.13% and 0.10% decrease in total operating expenses before
giving effect to management fee waivers currently in effect, resulting from a
0.13% and 0.10% decrease in other operating expenses. Since November 17, 1995
the Manager has voluntarily waived a portion of its management fees in an
amount equal to 0.09% of the value of the Acquired Fund's net assets with
respect to Class A and Class C shares, respectively. This fee waiver had the
effect of lowering the Acquired Fund's overall expenses and increasing returns
otherwise available to investors. There is no guaranty that the Manager will
continue to waive a portion of the management fees payable by the Acquired
Fund and, as noted above, the Manager does not anticipate waiving any
portion of its management fees after the Reorganization.

The Board also considered, among other things, the impact of the
decreased operating expenses 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
payable by the combined fund following the Reorganization would be lower than
the average management fee payable by the limited term municipal funds
included in a survey using data prepared by Lipper Analytical Services, Inc.
(the "Lipper Limited Term Muni Average") as of April 30, 1995
(without giving effect to management fee waivers and expense reimbursements).
Pro forma total operating expenses of the combined fund
following the Reorganization also would be lower than the Lipper Limited Term
Muni Average, but the pro forma total operating expenses of the combined fund
following the Reorganization could be higher than the Lipper Limited
Term Muni Average after fee waivers and expense reimbursements benefiting the
other funds included in the Lipper Limited Term 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>25

In light of the foregoing, the Board of Trustees of Smith Barney
Investment Trust, including the Independent Trustees, 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 Trustees 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. The Board of Trustees was presented with information that
indicated that investors have been and will continue to be confused in the
face of similar limited term municipal bond funds managed by the same adviser.
The Board 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. At its June 7, 1995 and
September 6, 1995 meetings, the Board of Trustees of the Acquiring Fund was
presented by the Manager with information reflecting operating expenses as of
April 30, 1995, which took into account the effects of various changes in
operating expenses applicable to the Funds, such as changes in certain
transfer agency expenses. The Board was shown pro forma financial information
which indicated that operating expenses before management fees for the
Acquiring Fund should decrease by 0.01%, 0.02% and 0.01% of average daily net
assets with respect to Class A, Class C and Class Y shares of the Acquiring
Fund, respectively. However, data prepared for the Board also indicated that
Class A and Class C shares of the Acquiring Fund would each experience a 0.05%
increase in management fees, which is estimated to result in total operating
expenses of 0.76%, 0.97% and 0.59% of average daily net assets with respect to
Class A, Class C and Class Y shares of the Acquiring Fund, respectively.
Based upon the information regarding the operating expenses of the Acquiring
Fund and the Acquired Fund reflecting expenses of the Acquiring Fund for the
six-month period ended September 30, 1995, and expenses of the Acquired Fund
for the six-month period ended May 31, 1995, that is included under the
caption "Fee Tables" in this Prospectus/Proxy Statement, and, assuming the
same level of assets for the combined fund after the Reorganization, Class A,
Class C and Class Y shares of the Acquiring Fund would each experience a 0.05%
increase in management fees, accompanied by a 0.02%, 0.02% and 0.01% decrease
in other operating expenses with respect to Class A, Class C and Class Y
shares. This is also estimated to result in total operating expenses of
0.76%, 0.97% and 0.59% of average daily net assets with respect to Class A,
Class C and Class Y shares of the combined fund, respectively.

The Board of Trustees of Smith Barney Muni Funds was also informed
that the Reorganization was one of a number of proposed reorganizations
involving Smith Barney Muni Funds and other municipal bond funds within the
Smith Barney mutual fund complex. In connection with these reorganizations,
it has been proposed that the surviving fund's management fee be either
increased or decreased, as the case may be, to 0.50% of such

<PAGE>26

fund's average daily net assets. The Board members were also informed that
the pro forma total operating expenses for the combined fund would be
consistent with the reorganizations involving the other series of Smith Barney
Muni Funds, and that the pro forma management fee would be lower than the
Lipper Limited Term Muni Average (without giving effect to management fee
waivers and expense reimbursements). The Board of Trustees was further
informed that the Reorganization would increase the size of the Acquiring Fund
by approximately 25%, and considered that such an increase could in the long-
term help to stabilize the Acquiring Fund's operating expenses and contribute
to economies of operation. 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.

At a meeting held December 15, 1995, shareholders of the Acquiring
Fund approved a proposal to adopt a new management agreement, which increases
the management fees payable by the Acquiring Fund from 0.45% to 0.50% of the
Acquiring Fund's average daily net assets. The increased management fee will
become effective on December 18, 1995.

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 February 2, 1996 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

<PAGE>27

fractional Class A and Class C shares of the Acquiring Fund to be
issued to the Acquired Fund's shareholders will be determined on the basis of
the Acquiring Fund's and the Acquired Fund's relative net asset value per
Class A 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 year 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 period 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 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 terminated.

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 Smith Barney Investment Trust on behalf of the Acquired
Fund; (ii) by Smith Barney Muni Funds on behalf of the Acquiring Fund in the
event that Smith Barney Investment Trust shall, or Smith Barney Investment
Trust on behalf of 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 Acquiring Fund, or by Smith Barney
Investment Trust on behalf of the Acquired Fund, if

<PAGE>28

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, as defined in the
1940 Act, of the outstanding shares of the Acquired Fund, which is the lesser
of: (i) 67% of the voting securities of the Acquired Fund present at the
Meeting, if the holders of more than 50% of the outstanding voting securities
of the Acquired Fund are present or represented by proxy, or (ii) more than
50% of the outstanding shares of the Acquired Fund. If the Reorganization is
not approved by shareholders of the Acquired Fund, the Board of Trustees of
Smith Barney Investment Trust 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, the Acquiring Fund and Smith Barney Investment Trust on behalf
of 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
Smith Barney Muni Funds on behalf of the Acquiring Fund of scheduled
liabilities of the Acquired Fund will constitute a "reorganization"
within the meaning of Section 368(a)(1)(C) 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 by Smith Barney Muni Funds on
behalf of the Acquiring Fund of scheduled liabilities of the Acquired
Fund;

<PAGE>29

(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 by Smith
Barney Muni Funds on behalf of the Acquiring Fund 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 Smith Barney Muni Funds on behalf of 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.

<PAGE>30

Capitalization. The following table shows the capitalization of the
Acquiring Fund and the Acquired Fund as of November 27, 1995 (the "Record
Date"), and on a pro forma basis as of that date, giving effect to the
proposed acquisition of assets at net asset value.

Smith Barney Muni Funds
Smith Barney Limited Maturity - Limited Pro Forma for
Municipals Fund Term Portfolio Reorganization
(Unaudited) (Unaudited) (Unaudited)

<S> <C>

(In thousands, except per share values)
Class A Shares

Net assets . . . . . . . . . . . . . . . . . $53,747 $234,195 $287,942
Net asset value per share . . . . . . . . . . $ 8.17 $ 6.70 $ 6.70

Shares outstanding . . . . . . . . . . . . . 6,580 34,947 42,971

Class C Shares
Net assets . . . . . . . . . . . . . . . . . $ 1,695 $ 25,545 $ 27,240

Net asset value per share . . . . . . . . . . $ 8.17 $ 6.70 $ 6.70
Shares outstanding . . . . . . . . . . . . . 207 3,814 4,067

Class Y Shares

Net assets . . . . . . . . . . . . . . . . . $ 0 $ 213 $ 213
Net asset value per share . . . . . . . . . . $ 0 $ 6.71 $ 6.71

Shares outstanding . . . . . . . . . . . . . 0 32 32

</TABLE>

As of the Record Date, there were 34,947,018 outstanding Class A
shares, 3,813,779 outstanding Class C shares and 31,690 outstanding Class Y
shares of the Acquiring Fund, and 6,580,338 outstanding Class A shares,
207,413 outstanding Class C shares and no outstanding Class Y 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")), except as set forth in
the table below, 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 Trustees of Smith Barney Investment Trust 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 Trustees of Smith Barney Investment Trust, as of the Record Date, no
or "group" (as that term is used in Section 13(d) of the

<PAGE>31

Exchange Act) owned beneficially or of record more than 5% of the outstanding
shares of a class of the Acquired Fund.
<TABLE>
<CAPTION>

Percentage of
Class Owned
of Record
or Beneficially

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

Kurt F. Wilkening, Trustee Acquiring Fund 100.00% 100.00%
UA DTD 9/28/95 Class Y
FBO Kurt F. Wilkening
243 Robin Drive
Sarasota, FL 34236

Holly M. Nelson Acquired Fund 12.89 *
P.O. Box 1110 Class C
Delta Junction, AK 99737

James J. Haven Acquired Fund 10.46 *
5808 Glacier Way Class C
Yakima, WA 98908

Douglas B. Fingannon Acquired Fund 8.88 *
1528 Prairie Lane Class C
Montgomery, AL 36117

E.F. Smith Acquired Fund 7.96 *
Attn: Ron Smith Class C
215 Lefevre Road
Stockertown, PA 18083

Robert S. Angel Acquired Fund 6.16 *
Personal Rep. Class C
Estate of Gary Everson
1932 First Avenue, Ste. 802
Seattle, WA 98101

Marika J. Hutchinson Acquired Fund 6.05 *
4744 Woodhaven Drive Class C
Galena, OH 43021

Donald H. Yaeger and Acquired Fund 5.04 *
Joyce A. Yaeger JTWROS Class C
Route 1, Box 392
Rockford, AL 35136

</TABLE>

________________________
* Less than 1.00%

<PAGE>32

INFORMATION ABOUT THE ACQUIRING FUND

Management's Discussion and Analysis of Market Conditions and
Portfolio Review (through March 31, 1995).

Municipal bond prices posted extremely strong gains in the first
quarter of 1995, erasing most of the losses from last year's turbulent market.
The Fund had a total return of 5.69% (Class A shares) for the fiscal year.
This return compared favorably with the 5.59% average total return for all
intermediate-term municipal bond funds over the same period, as reported by
Lipper Analytical Services.

Over the past five years ended March 31, 1995, the Fund produced a
cumulative total return of 40.61%. It should be noted that this longer-term
performance has been achieved without the necessity for any capital-gains
distributions, an important consideration for investors interested in after-
tax income.

Market and Economic Overview

Since November 1994, the fixed-income markets, and municipal bonds
in particular, have enjoyed a powerful rally. Municipal bond yields have
declined more than a full percentage point, as evidenced by the drop in the
average yield on Moody's 10-Year AA Muni Bond Index from a high of 6.53% on
November 18, 1994 to 5.33% on March 31, 1995. This was substantially better
than the performance of the 10-year Treasury, which experienced a decline in
yield of 80 basis points from 8.13% to 7.20% 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 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 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 1995, 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

<PAGE>33

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 1994'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 a 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-issue 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 probably keep municipals from trading any better than
their normal relationship to taxable investment alternatives.

Portfolio Strategy and Outlook

While management generally has a positive outlook for the fixed-
income markets, the size of the rally the market has 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 taking a more cautious
approach to structuring the interest-rate sensitivity of the Fund. Relative
stability of principal is a key element of the Fund, which is positioned in
the short end of the five- to ten-year intermediate maturity range. In this
regard, management is placing emphasis on higher coupon issues trading at a
premium to their face value. Such bonds will decline less in price than
current coupon or market discount bonds should the economy rebound and cause a
rise in interest rates. In addition, the maturities of these holdings are
effectively shorter than their stated maturity date, which serves to further
reduce the Fund's interest-rate sensitivity. Examples of such issues are
bonds priced to a call date earlier than maturity, bonds with sinking funds
designed to retire a portion of the issue prior to maturity, and housing bonds
that are subject to early call from prepayments on mortgages. Management
believes that positioning the

<PAGE>34
Fund in this manner is the best way to achieve the Fund's objective of the
highest tax-free income consistent with prudent investment risk.

Management's Update (through November 1, 1995).

Over the past six months, fixed income markets have been
characterized by generally lower interest rates, as measured by the decline of
10-Year Treasuries from 7.20% on March 31, 1995 to 5.98% on November 1, 1995,
a drop of more than 100 basis points. Comparable maturity municipal bond
yields declined less dramatically over this period, dropping about 50 basis
points over the previous six months as measured by Moody's 10-Year AA Muni
Bond Index. By this measure, intermediate municipal yields averaged about 78%
of the yield on 10-Year Treasuries during the period. The failure of
municipals to fully participate in a declining interest rate environment can
be attributed primarily to uncertainty about the direction that tax reform
will take.

Although some analysts have been forecasting a slight pick-up in
economic activity during the final quarter of 1995, it now appears that the
Federal Reserve Board has been successful in controlling inflation and
encouraging a sustainable and slower rate of economic growth this year. The
Board has recently declined to alter the federal funds rate, a move that
reflects its confidence in the current rate of economic growth. However,
while the economy did pick up steam compared to the sluggish first quarter, it
has yet to make up its mind for the year and conflicting indicators all point
to continued uncertainty going into 1996. Consumer spending is rising at an
annual pace of 2.5% to 3%, a relatively neutral rate further tempered by
recent indications that consumer households are growing more cautious. A
number of other economic indicators edged up over the past six months compared
to early 1995, including car buying, housing starts and industrial production,
before slowing again in September. The overall result was confirmation of
management's expectations for slow economic growth and steady, or even lower,
interest rates by year-end.

In response to these conditions, the municipal bond market continued
to lag somewhat relative to Treasuries. The big uncertainty over the
municipal market continues to be tax reform. The current budget, which is
turning into a showdown in Washington, contains a capital gains cut but does
not address broader tax reform. Flat tax proposals are still being discussed,
but a number of alternate reform measures are on the table as well.
Management expects tax reform to emerge as the centerpiece of the 1996
Presidential elections.

In short, until a more definite consensus emerges from Washington,
we cannot be certain of the impact on municipal bonds and are holding fast to
our relatively cautious investment approach. Looking forward, and absent
radical tax reform, management expects municipal bonds to perform well
relative to taxable investments, due primarily to diminishing supply. There
continues to be little refinancing or new issue activity. New issue activity

<PAGE>35

is increasing toward year-end but remains well below the levels seen in
previous years. The Public Securities Association now predicts approximately
$140 billion in new issues by the end of 1995, less than half the record
amount that came to market in 1993. This reduction in supply has helped to
support underlying values. If the supply situation continues into 1996 as
management expects, the Portfolio's commitments at current market levels
should prove to be excellent values.

Portfolio Strategy and Outlook

The events of the past six months have done little to change
management's overall strategy. While management's longer-term outlook for the
economy and interest rates is positive and radical tax reform is not expected,
management would rather err on the side of caution in structuring the
Portfolio's risk profile. Intermediate- and shorter-maturity municipals are
currently providing only 70% to 80% of the yield available on comparable
maturity Treasuries. This makes their relative trading value somewhat
vulnerable to reductions in the top marginal income tax brackets, a scenario
deemed more likely than adoption of any of the more far-reaching tax reform
proposals that could completely eliminate the tax-free income advantage of
municipal bonds.

The Portfolio continues to be positioned at its normal average
maturity point in the shorter end of the 5- to 10-year intermediate range in
order to provide relative stability of principal. We also continue to
emphasize higher coupon issues trading at a premium, including a substantial
commitment in bonds priced to a call date earlier than maturity and bonds with
extraordinary call features such as sinking funds designed to retire a portion
of debt early and housing bonds subject to early call because of mortgage
prepayments. Such bonds will tend to decline less in price compared to
current coupon or discounted bonds should interest rates rise in response to a
pick-up in economic activity or in the event of unfavorable changes in the tax
code. Because many of these holdings feature effective maturities that are
shorter than their stated maturity date, they further reduce the Portfolio's
overall market sensitivity while providing relatively high income.

<PAGE>36
Smith Barney Muni Funds -- Limited Term 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)
<S> <C> <C> <C> <C> <C>

3/31/95 $6.55 $6.54 $0.37 $0.00 5.69%
3/31/94 6.68 6.55 0.37 0.00 3.65
3/31/93 6.45 6.68 0.39 0.00 9.82
3/31/92 6.38 6.45 0.42 0.00 7.99
3/31/91 6.28 6.38 0.40 0.00 8.23
3/31/90 6.20 6.28 0.46 0.00 9.07
Inception* - 3/31/89 6.25 6.20 0.13 0.00 1.09

Total $2.54 $0.00

</TABLE>

Historical Performance Class C Shares

Net Asset Value

Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)
<S> <C> <C> <C> <C> <C>
3/31/95 $6.54 $6.54 $0.35 $0.00 5.51%
3/31/94 6.68 6.54 0.35 0.00 3.15
Inception* - 3/31/93 6.62 6.68 0.09 0.00 2.28
Total $0.79 $0.00

</TABLE>

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

<PAGE>37

Smith Barney Muni Funds -- Limited Term Portfolio
<TABLE>
<CAPTION>

Average Annual Total Return

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

Year Ended 3/31/95 5.69% 5.51%
Five Years Ended 3/31/95 7.05 N/A
Inception* through 3/31/95 7.16 4.92
<CAPTION>
With Sales Charge(2)

Class A Class C

Year Ended 3/31/95 3.64% 4.51%
Five Years Ended 3/31/95 6.62 N/A
Inception* through 3/31/95 6.82 4.92

</TABLE>

Cumulative Total Return

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

Class A (Inception* through 3/31/95) 55.03%
Class C (Inception* through 3/31/95) 11.32

</TABLE>

(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 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 2.00% and 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 and Class C shares are November 28, 1988 and
January 5, 1993, respectively.

<PAGE>38

Growth of $10,000 Invested in
Class A Shares of Limited Term Portfolio vs. Lehman 5 Year Bond Index and
Lehman Long Bond Index*
(unaudited)

November 1988 - March 1995

[Graph Appears Here]

A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
November 1988 in Class A shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman 5 Year Bond Index and 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 Growth of $10,000 Investment in
Month Ended Class A Shares Lehman 5 Year Bond Index Lehman Long Bond Index

11/28/8 $ 9,796.24 $10,000.00 $10,000.00
3/89 9,899.70 10,023.99 10,100.00
3/90 10,781.32 10,994.09 11,199.58
3/91 11,653.54 12,021.99 12,071.42
3/92 12,567.94 13,046.06 13,439.83
3/93 13,785.75 14,394.90 15,402.35
3/94 14,273.46 14,821.36 15,574.13
3/95 15,075.90 15,666.58 16,980.37

</TABLE>

* Hypothetical illustration of $10,000 invested in Class A shares at
inception on November 28, 1988, assuming deduction of the maximum 2.00%
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 indices are unmanaged
and are not subject to the same management and trading expenses of a
mutual fund. The performance of the Fund'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.

<PAGE>39

INFORMATION ABOUT THE ACQUIRED FUND

Management's Discussion and Analysis of Market Conditions and
Portfolio Review (through November 30, 1994).

Since July 1994, prices for tax-exempt bonds continued to weaken as
the Federal Reserve raised interest rates. As a result, the net asset value
per Class A share of the Fund declined to $7.94 from $8.26; however, the
Fund's tax-exempt distributions of $0.34 per Class A share offset this
decline, and resulted in a slightly positive total return for this fiscal
period of 0.23% for Class A shares.

Economic and Interest Rate Overview

The Federal Reserve raised short-term interest rates six times in
1994 beginning in February, which is a remarkable number of increases in less
than one year. The Federal Reserve's goal was to curb any creeping inflation
before it actually appeared. However, the rise in short-term interest rates
also resulted in a rise in longer-term interest rates and consequently a
decline in the asset value of many longer-term investments. As a result, most
fixed income investments performed poorly in 1994, especially in comparison to
the strong performance they experienced in 1993.

1994 was also a politically intriguing year. First, higher federal
income tax rates that were retroactive to 1993 took effect. Second, Congress
became embroiled in controversial legislation on health care which, had it
been successful, could have led to higher taxes. Third, the NAFTA and GATT
trade agreements were successfully passed. Fourth, and perhaps most
significant, the Republicans achieved an overwhelming victory in both the
House and Senate by promising lower taxes and spending, and much less
government. The many Republican victories at the state level -- not only in
the state legislatures but also the governorships -- are even more significant
as these 30 states will have much power over the electoral process in 1996.

For many investors this was the first glance into a new and more
challenging investment environment that tested their ability to maintain a
long-term investment focus. However, management anticipates that interest
rates will soon stabilize as the results of the new Congress become more
apparent and the effects of the Federal Reserve's interest rate policy become
more positive. Management expects that the recent GATT and NAFTA trade pacts
will also demonstrate that the U.S. is still a world leader in both economic
policy and financial markets.

<PAGE>40

Portfolio Summary

In response to the Federal Reserve's policy of higher short-term
interest rates and generally declining prices in the tax-exempt market,
management's investment strategy has been to keep the Fund's average maturity
at approximately 3 years, which enables the Fund to maximize its tax-exempt
income yet minimize its exposure to rising interest rates. At the end of
1994, over half of the Acquired Fund's assets were invested in municipal bonds
rated AAA/Aaa and AA/Aa by Standard & Poor's Ratings Group or Moody's Investor
Services, Inc., respectively. Management believes 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, education and housing issues.

Dividend Policy

The Fund does not pay a level monthly dividend rate but instead
distributes to shareholders the accrued monthly income earned by the
portfolio. The management will continue to strive to offer an attractive
dividend distribution as the Fund also faces uncertain interest rates and
continued volatility.

Management's Update (through November 1, 1995).

Both the stock and bond markets have generally improved over the
past six months as the Federal Reserve has moved to lower interest rates
albeit at a slow pace. Anticipation of further interest rate reductions has
helped the markets rally well into the third quarter. The tax-exempt market,
while participating in this improved environment, has lagged the treasury
market as concerns that a major overhaul of the tax structure will make these
investments less attractive. While management shares these concerns,
management also believes that as 1996 is an election year and much mileage can
be achieved by politicians at no cost to themselves, tax reform will continue
to be a hot topic. Management believes that the effects of tax reform not
only on taxpayers, but more importantly on state and local governments, are
such that it will take longer to accomplish than has been suggested and that
in the end, the tax code will resemble the present system.

Portfolio Summary

During the last few months, management has maintained a short
average maturity. However, with a more attractive outlook for interest rates,
and in preparation for the merger of the Fund into the Smith Barney Muni
Funds--Limited Term Portfolio, management will be extending out to a 4-to-5
year average maturity.

<PAGE>41

Smith Barney Limited Maturity Municipals Fund

Historical Performance Class A Shares (Unaudited)

Year Ended November 30 Net Asset Value Capital Gains Paid Dividends Paid Total Return*
Beginning Ending
<S> <C> <C> <C> <C> <C>
12/31/91- $7.90 $8.07 ---- $0.36 6.88%
11/30/92
1993 8.07 8.26 $0.00** 0.36 6.98
1994 8.26 7.94 0.00** 0.34 0.23

Total $0.00** $1.06

Cumulative Total Return - (12/31/91 through 11/30/94) 14.59%

</TABLE>

* 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 2.00%).

** Amount represents less than $0.01 per share.

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

Average Annual Total Return** -- Class A Shares (Unaudited)

Without Sales Charge With Sales Charge***

With Fee Waiver Without Fee With Fee Waiver Without Fee Waiver
Waiver
<S> <C> <C> <C> <C>

Year Ended 11/30/94 0.23% (0.09)% (1.78)% (1.92)%
Inception (12/31/91) through 11/30/94 4.78% 4.37% 4.06% 3.65%

</TABLE>

** All average annual total return figures shown reflect reinvestment of
dividends and capital gains distributions at net asset value. The Fund's
investment adviser and former administrator waived investment advisory
and administration fees from December 31, 1991 to November 30, 1994. A
shareholder's actual return for the period during which waivers were in
effect would be the higher of the two numbers shown.

*** Average annual total return figures shown assume the deduction of the
maximum 2.00% sales charge.

Note: On November 7, 1994, existing shares of the Acquired Fund were
designated Class A shares. Class A shares are sold subject to a 2.00%
front-end sales charge; however, 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 initial sales charge but will be subject to a 1.00%
CDSC if redeemed within 12 months of purchase. Class A shares of the
Acquired Fund are subject to an annual service fee of 0.15% of the value
of the average daily net assets attributable to that class.

<PAGE>42

Growth of $10,000 Invested in Class A Shares of Smith Barney Limited Maturity
Municipals Fund vs. Lehman Brothers 5-Year Municipal Bond Index and Lipper
Analytical Services, Inc. Peer Group Average Index

December 31, 1991 - November 30, 1994

[Graph Appears Here]

A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
December 31, 1991 in Class A shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman Brothers 5-Year Municipal Bond
Index and Lipper Analytical Services, Inc. Peer Group Average Index. The plot
points used to draw the line graphs were as follows:

Growth of $10,000
Growth of $10,000 Investment in the Growth of $10,000 Investment in
Month Invested in Class A Lehman Municipal the Lipper Analytical Services,
Ended Shares of the Fund Bond Index Inc. Peer Group Average Index
<S> <C> <C> <C>
12/31/91 $9,800 $10,000 $10,000
12/91 $9,800 -- --
3/92 $9,889 $10,006 $10,066
6/92 $10,139 $10,342 $10,301
9/92 $10,350 $10,611 $10,489
12/92 $10,547 $10,762 $10,636
3/93 $10,790 $11,045 $10,852
6/93 $11,004 $11,301 $11,022
9/93 $11,214 $11,560 $11,190
12/93 $11,310 $11,701 $11,306
3/94 $11,107 $11,372 $11,139
6/94 $11,196 $11,494 $11,222
9/94 $11,303 $11,605 $11,314
11/94 $11,230 $11,422 $11,234

</TABLE>

* Illustration of $10,000 invested in Class A shares on December 31, 1991
through November 30, 1994 assuming deduction of the maximum 2.00% front-end
sales charge at the time of investment and reinvestment of dividends and
capital gains distributions at net asset value.

The Lehman Brothers 5-Year Municipal Bond Index is an unmanaged, broad-
based index which includes about 3,400 tax-free issues totaling
approximately $39 billion of market capitalization. The average maturity
of the securities in the index is approximately 5.09 years.

Lipper Analytical Services, Inc. Peer Group Average Index is composed of an
average of the Acquired Fund's peer group of mutual funds (47 as of
November 30, 1994) investing in limited maturity municipal securities.

<PAGE>43

This period was one in which municipal bond prices fluctuated and the
results should not be considered as a representation of the dividend income
or capital gain or loss which may be realized from an investment in the
Fund today. No adjustment has been made for shareholder tax liability on
dividends or capital gains distributions.

Note: All figures cited here represent past performance and do not
guarantee future results.

<PAGE>44

Smith Barney Limited Maturity Municipals Fund

Historical Performance Class C Shares (Unaudited)
Net Asset Value Capital Gains Dividends Paid
Beginning Ending Distributed Total Return*
<S> <C> <C> <C> <C> <C>
Inception (11/17/94 $7.92 $7.94 $0.00 $0.00 0.31%
through 11/30/94)

</TABLE>

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

Average Annual Total Return** Class C Shares (Unaudited)

Without Fee Waiver With Fee Waiver
<S> <C> <C>

Inception (11/17/94)
through 11/30/94 0.31% 0.31%

</TABLE>

** All cumulative total return figures shown reflect reinvestment of
dividends and capital gains distributions
at net asset value. The Fund's investment advisor and administrator
waived investment advisory and administration fees from November 17, 1994
to November 30, 1994. A shareholder's actual return for the period
during which waivers were in effect would be the higher of the two
numbers shown.

Note: On November 7, 1994, the Fund began offering Class C and Class Y
shares. Class C shares may be subject to a 1.00% CDSC if redeemed within
12 months of purchase and are subject to annual service and distribution
fees of 0.15% and 0.20%, respectively, of the value of the average daily
net assets attributable to that class.

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

<PAGE>45

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 as high a
level of current income exempt from federal income taxes as is consistent with
preservation of principal. The Acquiring Fund seeks as high a level of income
exempt from federal income taxes as is consistent with prudent investing.
There can be no assurance that either Fund will be able to achieve its
investment objective.

Primary Investments. In seeking its objective, the Acquired Fund
will invest in a diversified portfolio of investment-grade debt obligations
issued by, or on behalf of, states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities or multistate agencies or authorities, the interest from
which is, in the opinion of bond counsel for the issuer, excluded from gross
income for federal income tax purposes ("Municipal Obligations"). 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 operates subject to a fundamental investment policy providing
that, under normal market conditions, it will invest at least 80% of its net
assets in Municipal Obligations. It is a fundamental policy that under normal
market conditions, the Acquiring Fund will seek to invest 100% of its assets,
and it will not invest less than 80% of its assets, in Municipal Obligations
the interest on which was, in the opinion of bond counsel to the issuer,
exempt from federal income taxes (other than the alternative minimum tax) at
the time of their issuance. 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 Municipal Obligations available for purchase
that meet the Acquiring Fund's rating, maturity and other investment criteria.

<PAGE>46

The Acquired Fund generally will invest at least 80% of its total
assets in Municipal Obligations rated investment-grade, that is, rated no
lower than Baa, MIG3 or Prime-1 by Moody's Investors Services, Inc.
("Moody's"), BBB, SP-2 or A-1 by Standard & Poor's Ratings Group ("S&P") or
BBB or F-1 by Fitch Investor Services, L.P. ("Fitch"). Up to 20% of the
Acquired Fund's total assets may be invested in unrated obligations that are
deemed by the Manager to be of comparable quality. The Acquired Fund will not
invest in Municipal Obligations that are rated lower than Baa by Moody's or
BBB by S&P or Fitch. Although Municipal Obligations rated Baa by Moody's, BBB
by S&P or BBB by Fitch are considered to be investment-grade, they may be
viewed as being subject to greater risk than other investment-grade
securities.

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 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 (U.S. Government securities or obligations
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 having 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 Acquired 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

<PAGE>47

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.

Each Fund's average weighted maturity will vary from time to time
based on the judgment of the Manager. Under normal circumstances, the
Acquired Fund will invest exclusively in limited maturity securities; the
weighted average maturity of the Acquired Fund's portfolio securities will
normally be no less than two nor more than five years. The maximum remaining
maturity of the securities in which the Acquired Fund will normally invest
will be no greater than ten years. Currently, the Acquiring Fund invests at
least 80% of its assets in Municipal Obligations with remaining maturities of
less than ten years, and the dollar-weighted average maturity of the Acquiring
Fund will not normally exceed six years. However, the Board of Trustees of
Smith Barney Muni Funds has approved certain changes to the investment
policies of the Acquiring Fund with respect to the Acquiring Fund's
portfolio's dollar-weighted average maturity. Effective on or about February
5, 1996, the Acquiring Fund will normally invest in securities with remaining
maturities no greater than twenty years. The dollar-weighted average maturity
of the Acquiring Fund's portfolio will normally be not less than three nor
more than ten years.

Each Fund may invest without limitation 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 Municipal
Obligations are a "current earnings" adjustment item for purposes of the
federal corporate alternative minimum tax. Because interest income on certain
types of private activity bonds is taxable to certain investors, it is
expected, although there can be no guarantee, that such Municipal Obligations
generally will provide somewhat higher yields than other Municipal Obligations
of comparable quality and maturity.

Municipal Obligations. Municipal Obligations are classified as
general obligation bonds, revenue bonds and notes. 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. Notes are short-term
obligations of issuing municipalities or agencies and are sold in anticipation
of a bond sale, collection of taxes or receipt of other revenues.

<PAGE>48

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

When-Issued Securities. Each Fund may purchase new issues of
Municipal Obligations 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 this actual delivery to a Fund. Each
Fund will establish a segregated account with the Fund's custodian consisting
of cash or U.S. Government securities (or in the case of the Acquiring Fund,
other liquid high grade debt obligations) in an amount equal to the purchase
price of the Fund's when-issued commitments. The Acquiring Fund generally
will purchase Municipal Obligations on a when-issued basis only with the
intention of actually acquiring the securities, but the Acquiring Fund may
sell such securities before the delivery date if it is deemed advisable.

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, the Acquired Fund may take a temporary defensive posture and invest
without limitation in short-term Municipal Obligations and Temporary
Investments. Money market instruments in which the Acquired Fund may invest
include: U.S. Government securities; tax-exempt notes of municipal issuers
rated, at the time of purchase, no lower than MIG 1 by Moody's, SP-1 by S&P or
F-1 by Fitch or, if not rated, by issuers having outstanding, unsecured debt
then rated within the three highest rating categories; bank obligations;
commercial paper rated no lower than P-1 by Moody's, A-1 by S&P or F-1 by
Fitch or the equivalent from another major rating service or, if unrated, of
an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements. At no time will
the Acquired Fund's investments in bank obligations, including time deposits,
exceed 25% of the value of its assets. 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 Municipal Obligations available for
purchase that meet the Acquiring Fund's rating, maturity and other investment
criteria.

Municipal Bond Index Futures Contracts. The Acquiring Fund may
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
existing futures contracts would not exceed 5% of the value of its total
assets. Since any income

<PAGE>49

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. The Acquired Fund does not have
express policies regarding these types of investments.

Illiquid Securities. Each of the Acquired Fund and the Acquiring
Fund may invest up to 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 also purchase municipal leases, zero coupon
Municipal Obligations, and custodial receipts. The Acquiring Fund does not
have expressed policies regarding these types of investments.

Investment Restrictions. Each Fund has adopted the following
fundamental investment restrictions for the protection of its 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 invest more than 25% of its total
assets in securities of issuers in the same industry, except that this
limitation is not applicable to the Fund's investment in U.S. Government
securities. Similarly, the Acquiring Fund may not invest more than 25% of its
total assets taken at market value in any one industry, except that securities
of the U.S. Government, its agencies and instrumentalities, and Municipal
Obligations are not considered an industry for purposes of this limitation.

2. 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 such
Fund's total assets (in the case of the Acquired Fund, including the amount
borrowed and 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
investments. Each Fund is further prohibited from pledging, hypothecating,
mortgaging or otherwise encumbering its assets, except to secure permitted
borrowing.

3. Neither Fund may make loans. For the Acquired Fund, this
restriction does not apply to the purchase of Municipal Obligations and other
permitted investments and the entering into repurchase agreements, each in a
manner consistent with the Acquired Fund's investment objective. For the
Acquiring Fund, this restriction does not apply 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.

<PAGE>50

4. The Acquired Fund may not purchase securities other than
Municipal Obligations and other investments permitted under its prospectus or
its statement of additional information. The Acquiring Fund does not have a
similar investment restriction.

5. The Acquired Fund may not purchase securities (other than U.S.
Government securities) of any issuer if, as a result of the purchase, more
than 5% of the value of the Acquired Fund's total assets would be invested in
the securities of such issuer, except that up to 25% of the value of the
Acquired Fund's total assets may be invested without regard to this 5%
limitation. The Acquiring Fund does not have a similar investment
restriction.

6. The Acquired Fund may not purchase more than 10% of the voting
securities of any one issuer, except that this limitation is not applicable to
the Fund's investments in U.S. Government securities, and up to 25% of the
Acquired Fund's assets may be invested without regard to this 10% limitation.
The Acquiring Fund does not have a similar investment restriction.

7. The Acquired Fund may not purchase securities on margin, except
that the Fund may obtain any short-term credits necessary for the clearance of
purchases and sales of securities. Similarly, the Acquiring Fund may not
purchase securities on margin.

8. The Acquired Fund may not make short sales of securities or
maintain a short position. Similarly, the Acquiring Fund may not make short
sales of securities.

9. The Acquired Fund may not purchase or sell real estate or real
estate limited partnership interests. Similarly, 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
real estate investment trusts) which deal in real estate or interests therein.

10. The Acquired Fund may not purchase or sell commodities or
commodity contracts. The Acquiring Fund may not purchase or sell commodities
or commodity contracts, except that it may invest in or sell municipal bond
index futures contracts as described above.

11. The Acquired Fund may not act as underwriter of securities,
except that the Acquired Fund may acquire securities under circumstances in
which, if the securities were sold, the Acquired Fund could be deemed to be an
underwriter for purposes of the Securities Act of 1933, as amended.
Similarly, the Acquiring Fund may not underwrite the securities of other
issuers.

<PAGE>51

12. The Acquired Fund may not invest in oil, gas or other mineral
leases or explorations or development programs. The Acquiring Fund has a
similar investment restriction; however, it is an non-fundamental operating
policy.

13. The Acquired Fund may not write or sell puts, calls, straddles,
spreads or combinations of those transactions, except as permitted under the
Acquired Fund's investment objective and policies (as summarized above).
Similarly, the Acquiring Fund may not write or purchase put, call, straddle or
spread options.

Other Non-Fundamental Investment Restrictions

1. The Acquired Fund may not purchase any security if, as a result
(unless the security is acquired pursuant to a plan of reorganization or an
offer of exchange), the Acquired Fund would own any securities of an open-end
investment company or more than 3% of the total outstanding voting stock of
any closed-end investment company, or more than 5% of the value of the
Acquired Fund's total assets would be invested in securities of any one or
more closed-end investment companies. This is not a fundamental investment
restriction with respect to the Acquired Fund and may be changed by the
Acquired Fund's Board of Trustees at any time. The Acquiring Fund does not
have a similar investment restriction.

2. The Acquired Fund may not purchase a security if, as a result,
the Acquired Fund would then have more than 5% of its total assets invested in
securities of issuers (including predecessors) that have been in continuous
operation for fewer than three years except that in the case of private
activity bonds purchased, this limitation will be deemed to apply to the
entity supplying the revenues from which the issue is to be paid. This is not
a fundamental investment restriction with respect to the Acquired Fund and may
be changed by the Acquired Fund's Board of Trustees at any time. The
Acquiring Fund has a similar investment restriction.

3. The Acquired Fund may not make investments for the purpose of
exercising control of management. This is not a fundamental investment
restriction with respect to the Acquired Fund and may be changed by the
Acquired Fund's Board of Trustees at any time. The Acquiring Fund does not
have a similar investment restriction.

4. The Acquired Fund may not purchase or retain securities of any
issuer if any of the officers or Trustees of Smith Barney Investment Trust or
any officer or director of the Manager individually owns more than 1/2 of 1%
of the outstanding securities of the issuer and together they own beneficially
more than 5% of the 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 Trustees at any time. The Acquiring Fund does not
have a similar investment restriction.

<PAGE>52

5. The Acquired Fund may not lend its portfolio 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 Trustees at any time. The
Acquiring Fund does not have an express policy regarding the lending of its
portfolio securities.

INFORMATION ON SHAREHOLDERS' RIGHTS

General. Smith Barney Investment Trust 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
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. The Acquired
Fund is a series of Smith Barney Investment Trust, also a Massachusetts
business trust governed by its Master Trust Agreement, By-Laws, and Board of
Trustees. Each Fund is also governed by Massachusetts state and federal law.
The Acquired Fund has an unlimited number of authorized shares with a par
value of $.001 per share. The Trustees of Smith Barney Investment Trust have
authorized the issuance of four series of shares, each representing shares in
one of the four separate portfolios, and may authorize the issuance of
additional series of shares in the future. 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 Smith Barney Muni Funds 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 C shares and Class Y 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.

Trustees. The Master Trust Agreement of Smith Barney Investment
Trust provides that each Trustee shall serve as a Trustee of Smith Barney
Investment Trust during the lifetime of the trust and until its termination
(as provided in the Master Trust Agreement), his death, resignation or
removal. 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 Trustee of the Smith Barney Investment Trust may
be removed by the vote of at least two-thirds of the number of Trustees prior
to such removal or by vote or written declaration of shareholders holding not
less than two-thirds of the shares of the trust then

<PAGE>53

outstanding. 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 Smith Barney Investment Trust or
Smith Barney Muni Funds may be filled by the respective Trustees remaining in
office. A meeting of shareholders will be required for the purpose of
electing additional Trustees whenever fewer than 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 Trustees unless and until such time
as less than a majority of the Trustees holding office have been elected by
shareholders. A meeting of shareholders of 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. A meeting of shareholders of the
Acquired Fund may be called by the Trustees, who shall call such meeting for
the purpose of removing any Trustee upon written request of shareholders
holding not less than 10% of the shares then outstanding. 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 Smith Barney
Investment Trust, 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 Termination. In the event of the liquidation or
termination of any of the portfolios of Smith Barney Muni Funds or of Smith
Barney Investment Trust, the shareholders of the respective Fund are entitled
to receive, when, and as declared by the Trustees, 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 Smith Barney Investment
Trust, as the case may be. The assets so distributed to shareholders of the
liquidated or terminated portfolio of Smith Barney Muni Funds or Smith Barney
Investment Trust 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

<PAGE>54

portfolio of Smith Barney Muni Funds or Smith Barney Investment Trust, as the
case may be.

Liability of Trustees. The Master Trust Agreement of Smith Barney
Investment Trust provides that Smith Barney Investment Trust shall indemnify
each Trustee and officer against liabilities in connection with the defense or
disposition of any action, suit or other proceeding. Under the Master Trust
Agreement of Smith Barney Investment Trust, a Trustee or officer will be
personally liable only if he did not act in good faith in the reasonable
belief that his action was in or not opposed to the best interest of Smith
Barney Investment Trust, and for 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 Master Trust Agreement further provides
that Trustees and officers will be indemnified for the expenses of litigation
against them. 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. Shareholders of Smith Barney Muni Funds and
Smith Barney Investment Trust 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 Massachusetts law, shareholders of a
Massachusetts business trust may, under certain circumstances, be held
personally liable for the obligations of such Massachusetts business trust.
Smith Barney Muni Funds' Declaration of Trust and Smith Barney Investment
Trust's Master Trust Agreement, however, disclaim shareholder liability for
acts or obligations of Smith Barney Muni Funds or Smith Barney Investment
Trust, respectively, and require that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by such
fund. Smith Barney Muni Fund's Declaration of Trust and Smith Barney
Investment Trust's Master Trust Agreement also provide for indemnification out
of the property of Smith Barney Muni Funds or Smith Barney Investment Trust,
respectively, for all losses and expenses of any shareholder held personally
liable for the obligations of such 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>55

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 trust documents and state laws governing each Fund for a
more thorough description.

ADDITIONAL INFORMATION ABOUT
SMITH BARNEY INVESTMENT TRUST
AND
SMITH BARNEY MUNI FUNDS

Smith Barney Investment Trust. Information about the Acquired Fund
is included in its current Prospectus dated January 29, 1995, as supplemented
by Prospectus Supplements dated May 25, 1995, July 11, 1995, July 20, 1995 and
August 22, 1995 and in the Statement of Additional Information of Smith Barney
Investment Trust dated January 29, 1995, as supplemented on July 11, 1995,
August 22, 1995 and September 14, 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 December 15, 1995, a copy
of which accompanies this Prospectus/Proxy Statement, and the Statement of
Additional Information of Smith Barney Muni Funds dated July 31, 1995. 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 Smith Barney Investment Trust 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>56

OTHER BUSINESS

The Trustees of Smith Barney Investment Trust 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 Trustees of Smith Barney Investment
Trust to be used at the Special Meeting of Shareholders to be held at 9:30
a.m. on January 26, 1996, 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 December 20, 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.

<PAGE>57

50% of the outstanding shares of the Acquired Fund. For purposes of voting
with respect to the Reorganization, the Class A and Class C shares
of the Acquired Fund will vote together as a single class. Fractional shares
are entitled to proportional voting rights.

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 of
the Acquired Fund to ask if they would be willing to have their votes recorded
by telephone. The latter telephone voting 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 telephone
vote will be recorded and a confirmation will be sent to the shareholder to
ensure that the vote has been taken in accordance with the shareholder's
instructions. Although a shareholder's vote may be taken by telephone, each
shareholder of the Acquired Fund will receive a copy of this Prospectus/Proxy
Statement and may vote by mail using the enclosed proxy card. Smith Barney
Investment Trust has been advised by Massachusetts counsel that this
telephonic voting system complies with Massachusetts law. The aggregate cost
of solicitation of the shareholders of the Acquired Fund is expected to be
approximately $2,500. 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 Smith Barney.

In the event that a quorum necessary for a meeting of shareholders
of the Acquired Fund is not present or sufficient votes to approve the
Reorganization are not received by January 26, 1996, 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 of the Acquired
Fund 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.

<PAGE>58

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 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 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 November 30, 1994, the related statement of
operations for the year then ended, the statements of changes in net assets
and financial highlights for the two-year period then ended and for the period
December 31, 1991 (commencement of operations) through November 30, 1992, 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 Goodwin, Procter & Hoar as to certain matters under
Massachusetts law.

THE BOARD OF TRUSTEES OF SMITH BARNEY INVESTMENT TRUST, INCLUDING
THE INDEPENDENT TRUSTEES, 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>59

EXHIBIT A

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
as of this 14th day of December, 1995, by and between Smith Barney Investment
Trust, a Massachusetts business trust with its principal place of business at
388 Greenwich Street, New York, New York 10013, on behalf of its Smith Barney
Limited Maturity Municipals Fund (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 Limited Term
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)(C) 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
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 Smith Barney Muni Funds on behalf of 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 termination of the Acquired Fund, all upon the terms
and conditions hereinafter set forth in this Agreement.

WHEREAS, Smith Barney Investment Trust and Smith Barney Muni Funds
are registered investment companies of the management type and Smith Barney
Investment Trust on behalf of 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 Smith Barney Investment
Trust is authorized to issue shares of beneficial interest in respect of its
sub-trusts;

WHEREAS, the Board of Trustees of Smith Barney Investment Trust 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 Smith Barney Muni Funds on behalf of 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;

<PAGE>60

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 Smith Barney Muni Funds on behalf of the
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 TERMINATION 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, Smith Barney
Investment Trust on behalf of 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 Smith Barney Muni Funds on behalf
of the Acquiring Fund agrees in exchange therefor: (i) to deliver to Smith
Barney Investment Trust on behalf of 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 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 (iii) 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").

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

<PAGE>61

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").

(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 investment manager 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 and Class C of the Acquired Fund
shall receive Class A 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

<PAGE>62

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 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 date 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 terminated under the
laws of the Commonwealth of Massachusetts and in accordance with its governing
documents.

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>63

3. CLOSING AND CLOSING DATE

3.1. The Closing Date shall be February 2, 1996, 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. Smith Barney Investment Trust and the Acquired Fund represent
and warrant to Smith Barney Muni Funds and the Acquiring Fund as follows:

(a) The Acquired Fund is a portfolio of Smith Barney Investment
Trust, a business trust duly organized and validly existing under the laws of
the Commonwealth of Massachusetts;

(b) Smith Barney Investment Trust is a registered investment
company classified as a management company of the open-end type, and its
registration with the Securities and Exchange Commission (the "Commission") as
an investment company under the Investment Company Act of 1940, as amended
(the "1940 Act) is in full force and effect;

<PAGE>64

(c) Smith Barney Investment Trust is not, and the execution,
delivery and performance of this Agreement will not result, in a material
violation of its Master Trust Agreement or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking with respect to
the Acquired Fund to which the trust or the Acquired Fund is a party or by
which it or the Acquired Fund is bound;

(d) Smith Barney Investment Trust and the Acquired Fund have 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 Smith
Barney Investment Trust's knowledge threatened against the Acquired Fund or
Smith Barney Investment Trust with respect to 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. Smith Barney Investment Trust and the Acquired Fund know of no
facts which might form the basis for the institution of such proceedings and
neither Smith Barney Investment Trust nor the Acquired 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 its business or its
ability to consummate the transactions herein contemplated;

(f) The Statements of Assets and Liabilities of the Acquired Fund
for the two years ended November 30, 1994 and for the period from December 31,
1991 (commencement of operations) through November 30, 1992 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 Smith Barney Investment
Trust's knowledge, no such return is currently under audit and no assessment
has been asserted with respect to such returns;

<PAGE>65

(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. 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;

(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, 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 Board of
Trustees of Smith Barney Investment Trust on behalf of the Acquired Fund, 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 Smith Barney Investment Trust on behalf 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 Smith Barney Investment
Trust or 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 Smith Barney Investment Trust in respect
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

<PAGE>66

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.

4.2. Smith Barney Muni Funds and the Acquiring Fund represent and
warrant to Smith Barney Investment Trust and 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 its 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 Statements of Assets and Liabilities of the Acquiring Fund
for the six fiscal years ended March 31, 1995 and for the period November 28,
1988 (commencement

<PAGE>67

of operations) to March 31, 1989, have been audited by KPMG Peat Marwick LLP,
independent accountants and are in accordance with generally accepted
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;

(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 Smith Barney Investment Trust on
behalf of 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

<PAGE>68

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 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, THE ACQUIRED
FUND AND SMITH BARNEY INVESTMENT TRUST

5.1. Smith Barney Investment Trust on behalf of 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. Smith Barney Investment Trust on behalf of the Acquired Fund
will call a meeting of the Acquired Fund's 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. Smith Barney Investment Trust and the Acquired Fund covenant
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. Smith Barney Investment Trust and 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, Smith Barney
Investment Trust on behalf of 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,

<PAGE>69

all things reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.

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 Smith Barney Investment Trust.

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 SMITH BARNEY INVESTMENT TRUST ON
BEHALF OF THE ACQUIRED FUND

The obligations of Smith Barney Investment Trust in respect 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 Smith Barney Investment Trust on behalf of 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

<PAGE>70

6.3. Smith Barney Investment Trust on behalf of 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:

That (a) the Acquiring Fund is a series of Smith Barney Muni Funds, a
voluntary association of the type commonly referred to as a Massachusetts
business trust, duly organized and validly existing pursuant to its
Declaration of Trust 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
Smith Barney Investment Trust on behalf of 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 by Smith Barney Muni Funds.

Such opinion may state that it is solely for the benefit of the
Acquired Fund, Smith Barney Investment Trust, its Trustees 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 Smith Barney Investment Trust
and the Acquired Fund of all the obligations to be performed by them hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:

7.1. All representations and warranties of Smith Barney Investment
Trust and 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;

<PAGE>71

7.2. Smith Barney Investment Trust on behalf of 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 Smith
Barney Investment Trust;

7.3. Smith Barney Investment Trust on behalf of 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, 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 Smith Barney Investment Trust and 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. Smith Barney Investment Trust on behalf of 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 series of Smith Barney Investment Trust,
a voluntary association of the type commonly referred to as a
Massachusetts business trust duly organized and validly existing pursuant
to its Master Trust Agreement under the laws of the Commonwealth of
Massachusetts; (b) Smith Barney Investment Trust 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 Smith Barney Investment Trust on behalf of the Acquired Fund,
and this Agreement has been duly executed and delivered by Smith Barney
Investment Trust on behalf of the Acquired Fund and, assuming due
authorization, execution and delivery by Smith Barney Muni Funds on
behalf of the Acquiring Fund, is a valid and binding obligation of Smith
Barney Investment Trust on behalf 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 the
Acquiring Fund, Smith Barney Muni Funds, its Trustees 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.

<PAGE>72

8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF SMITH BARNEY INCOME TRUST,
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 Smith Barney Investment Trust on behalf of 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 Smith Barney
Investment Trust's Master Trust Agreement 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 Smith Barney
Investment Trust on behalf of 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;

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. Smith Barney Investment Trust 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 shareholders of the Acquired

<PAGE>73

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 Smith Barney Investment Trust in respect of 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 Smith Barney Investment Trust in respect of 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 Smith
Barney Muni Funds on behalf of the Acquiring Fund of scheduled
liabilities of the Acquired Fund will constitute a "reorganization"
within the meaning of Section 368(a)(1)(C) 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 Smith Barney Muni Funds on behalf of 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 Acquired Fund's
assets to the Acquiring Fund in exchange for Acquiring Fund Shares and
the assumption by Smith Barney Muni Funds on behalf of 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 surrendered therefor, 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.

<PAGE>74

Notwithstanding anything herein to the contrary, neither Smith
Barney Investment Trust on behalf of 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. Smith Barney Investment Trust on behalf of 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 Smith Barney Investment Trust on behalf of 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 each
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; and (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 issued in connection with the Reorganization. The
Acquired Fund shall be liable for: (x) all fees and expenses related to the
liquidation and termination 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.

<PAGE>75

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 Smith Barney Investment Trust on behalf of
the Acquired Fund; (ii) Smith Barney Muni Funds on behalf of the Acquiring
Fund in the event that Smith Barney Investment Trust or the Acquired Fund
shall, or Smith Barney Investment Trust on behalf of 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 Smith Barney Investment Trust on behalf of 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 Smith Barney Investment Trust on behalf of the
Acquired Fund or their respective Trustees 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.

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 Smith Barney Investment Trust;
provided, however, that following the meeting of the Acquired Fund
Shareholders called by Smith Barney Investment Trust on behalf of 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 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.

<PAGE>76

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 Limited Maturity Municipals
Fund, 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 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 Investment Trust in respect of the Acquired Fund, and Smith Barney Muni
Funds in respect of the Acquiring Fund, shall not be binding upon any of their
respective Trustees, shareholders, nominees, officers, agents or employees
personally, but bind only the trust property of the Acquired Fund or the
Acquiring Fund, as the case may be, as provided in the trust instruments of
Smith Barney Investment Trust and Smith Barney Muni Funds. The execution and
delivery of this Agreement have been authorized by the Trustees of each of
Smith Barney Investment Trust and of Smith Barney Muni Funds and this
Agreement has been executed by authorized officers of each of Smith Barney
Investment Trust and 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

<PAGE>77

property of the Acquired Fund or the Acquiring Fund, as the case may be, as
provided in Smith Barney Investment Trust's Master Trust Agreement and Smith
Barney Muni Funds' Declaration of Trust, respectively.

<PAGE>78

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 LIMITED TERM PORTFOLIO

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

Attest: SMITH BARNEY INVESTMENT TRUST
on behalf of SMITH BARNEY LIMITED MATURITY
MUNICIPALS FUND

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