PROSPECTUS
SMITH BARNEY
New Jersey
Municipals
Fund Inc.
NOVEMBER 7, 1994
Prospectus begins on page one.
Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERYDAY.
PROSPECTUS November 7, 1994
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney New Jersey Municipals Fund Inc. (the "Fund") is a non- diver-
sified municipal fund that seeks to provide New Jersey investors with as
high a level of dividend income exempt from Federal income taxes and New
Jersey state personal income tax as is consistent with prudent investment
management and the preservation of capital.
This Prospectus concisely sets forth certain information about the Fund,
including sales charges, distribution and service fees and expenses, that
investors will find helpful in making an investment decision. Investors
are encouraged to read this Prospectus carefully and retain it for future
reference.
Additional information about the Fund is contained in a Statement of Addi-
tional Information dated November 7, 1994, as amended or supplemented from
time to time, that is available upon request and without charge by calling
or writing the Fund at the telephone number or address set forth above or
by contacting a Smith Barney Financial Consultant. The Statement of Addi-
tional Information has been filed with the Securities and Exchange Commis-
sion (the "SEC") and is incorporated by reference into this Prospectus in
its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SE-
CURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<S>
<C>
PROSPECTUS SUMMARY
3
FINANCIAL HIGHLIGHTS
11
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
14
NEW JERSEY MUNICIPAL SECURITIES
21
VALUATION OF SHARES
23
DIVIDENDS, DISTRIBUTIONS AND TAXES
23
PURCHASE OF SHARES
27
EXCHANGE PRIVILEGE
34
REDEMPTION OF SHARES
38
MINIMUM ACCOUNT SIZE
40
PERFORMANCE
40
MANAGEMENT OF THE FUND
41
DISTRIBUTOR
43
ADDITIONAL INFORMATION
44
</TABLE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Pro-
spectus. See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, non-diversified, management
investment company that seeks to provide New Jersey investors with as high
a level of dividend income exempt from Federal income taxes and New Jersey
state personal income tax as is consistent with prudent investment manage-
ment and the preservation of capital. Its investments consist primarily of
intermediate- and long-term investment-grade municipal securities issued
by or on behalf of the State of New Jersey or any of its instrumentali-
ties, and its political subdivisions, agencies and public authorities and
certain other municipal issuers such as the Commonwealth of Puerto Rico,
the Virgin Islands and Guam ("New Jersey Municipal Securities") that pay
interest which is excluded from gross income for Federal income tax pur-
poses and exempt from New Jersey state personal income taxes.
Intermediate- and long-term municipal securities have remaining maturities
at the time of purchase of between three and twenty years. See "Investment
Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of
shares ("Classes") to investors designed to provide them with the flexi-
bility of selecting an investment best suited to their needs. The general
public is offered three Classes of shares: Class A shares, Class B shares
and Class C shares, which differ principally in terms of sales charges and
rate of expenses to which they are subject. A fourth Class of shares,
Class Y shares, is offered only to investors meeting an initial investment
minimum of $5,000,000. See "Purchase of Shares" and "Redemption of
Shares."
Class A Shares. Class A shares are sold at net asset value plus an ini-
tial sales charge of up to 4.00% and are subject to an annual service fee
of 0.15% of the average daily net assets of the Class. The initial sales
charge may be reduced or waived for certain purchases. Purchases of Class
A shares, which when combined with current holdings of Class A shares of-
fered 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
contingent deferred sales charge ("CDSC") of 1.00% on redemptions made
within 12 months of purchase. See "Prospectus Summary -- Reduced or No
Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to
a maximum CDSC of 4.50% of redemption proceeds, declining by .50% the
first year after purchase and by 1.00% each year thereafter to zero. This
CDSC may be waived for certain redemptions. Class B shares are subject to
an annual service fee of 0.15% and an annual distribution fee of 0.50% of
the average daily net assets of this Class. The Class B shares' distribu-
tion fee may cause that Class to have higher expenses and pay lower divi-
dends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automati-
cally to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares
will no longer be subject to an annual distribution fee. In addition, a
certain portion of Class B shares that have been acquired through the re-
investment of dividends and distributions ("Class B Dividend Shares") will
be converted at that time. See "Purchase of Shares -- Deferred Sales
Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no ini-
tial sales charge. They are subject to an annual service fee of 0.15% and
an annual distribution fee of 0.55% of the average daily net assets of the
Class C shares, and investors pay a CDSC of 1.00% if they redeem Class C
shares within 12 months of purchase. This CDSC may be waived for certain
redemptions. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A shares. Pur-
chases of Class C shares, which when combined with current holdings of
Class C shares of the Fund equal or exceed $500,000 in the aggregate,
should be made in Class A shares at net asset value with no sales charge,
and will be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net
asset value with no initial sales charge or CDSC. They are not subject to
any service or distribution fees.
In deciding which class of Fund shares to purchase, investors should con-
sider the following factors, as well as any other relevant facts and cir-
cumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his
or her investment. Shareholders who are planning to establish a program of
regular investment may wish to consider Class A shares; as the investment
accumulates shareholders may qualify for reduced sales charges and the
shares are subject to lower ongoing expenses over the term of the invest-
ment. As an alternative, Class B and Class C shares are sold without any
initial sales charge so the entire purchase price is immediately invested
in the Fund. Any investment return on these additional invested amounts
may partially or wholly offset the higher annual expenses of these
Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than
Class B shares, they do not have a conversion feature, and therefore, are
subject to an ongoing distribution fee. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to any initial sales charge, CDSC or service or dis-
tribution fees. The maximum purchase amount for Class A shares is
$4,999,999, Class B shares is $249,999 and Class C shares is $499,999.
There is no maximum purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers, and the entire pur-
chase price will be immediately invested in the Fund. In addition, Class A
share purchases, which when combined with current holdings of Class A
shares offered with a sales charge equal or exceed $500,000 in the aggre-
gate, will be made at net asset value with no initial sales charge, but
will be subject to a CDSC of 1.00% on redemptions made within 12 months of
purchase. The $500,000 aggregate investment may be met by adding the pur-
chase to the net asset value of all Class A shares held in funds sponsored
by Smith Barney Inc. ("Smith Barney") listed under "Exchange Privilege."
Other Class A share purchases may also be eligible for a reduced initial
sales charge. See "Purchase of Shares." Because the ongoing expenses of
Class A shares may be lower than those for Class B and Class C shares,
purchasers eligible to purchase Class A shares at net asset value or at a
reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose
of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete de-
scription of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and
Taxes" and "Exchange Privilege" for other differences between the Classes
of shares.
PURCHASE OF SHARES Shares may be purchased through the Fund's distribu-
tor, 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. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may
open an account by making an initial investment of at least $1,000 for
each account. Investors in Class Y shares may open an account for an ini-
tial investment of $5,000,000. Subsequent investments of at least $50 may
be made for all Classes. The minimum initial investment requirement for
Class A, Class B and Class C shares and the subsequent investment require-
ment for all Classes through the Systematic Investment Plan described
below is $100. There is no minimum investment requirement in Class A for
unitholders who invest distributions from a unit investment trust ("UIT")
sponsored by Smith Barney. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic In-
vestment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares in an amount of at
least $100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Mangement Inc., ("for-
merly Greenwich Street Advisors) ("SBMFM") serves as the Fund's investment
adviser. SBMFM provides investment advisory and management services to in-
vestment companies affiliated with Smith Barney. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of The Travelers Inc. ("Travelers"), a diversified
financial services holding company engaged through its subsidiaries prin-
cipally in four business segments: Investment Services, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Ser-
vices.
SBMFM serves as the Fund's administrator and The Boston Company Advisors,
Inc. ("Boston Advisors") serves as the Fund's sub-administrator. Boston
Advisors is a wholly owned subsidiary of The Boston Company, Inc. ("TBC"),
which in turn is a wholly owned subsidiary of Mellon Bank Corporation
("Mellon"). See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the
same class of certain other funds of the Smith Barney Mutual Funds at the
respective net asset values next determined, plus any applicable sales
charge differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day gener-
ally is quoted daily in the financial section of most newspapers and is
also available from Smith Barney Financial Consultants. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are de-
clared daily and paid on the last business day of the Smith Barney state-
ment month. Distributions of net realized long- and short-term capital
gains, if any, are declared and paid annually after the end of the fiscal
year in which they were earned. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset
value. Shares acquired by dividend and distribution reinvestments will not
be subject to any sales charge or CDSC. Class B shares acquired through
dividend and distribution reinvestments will become eligible for conver-
sion to Class A shares on a pro rata basis. See "Dividends, Distributions
and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund will achieve its investment objective. Assets of the Fund also may be
invested in the municipal securities of non-New Jersey municipal issuers
("Other Municipal Securities" and, together with New Jersey Municipal Se-
curities, "Municipal Securities"). Dividends paid by the Fund that are de-
rived from interest attributable to New Jersey Municipal Securities will
be excluded from gross income for Federal income tax purposes and exempt
from New Jersey state personal income taxes (but not from New Jersey state
franchise tax or New Jersey state corporate income tax), provided, how-
ever, the Fund is a qualified investment fund under New Jersey law. Divi-
dends derived from interest on Other Municipal Securities will be exempt
from Federal income taxes, but may be subject to New Jersey state personal
income taxes. Dividends derived from certain Municipal Securities (includ-
ing New Jersey Municipal Securities), however, may be a specific tax pref-
erence item for Federal alternative minimum tax purposes. The Fund may in-
vest without limit in securities subject to the Federal alternative mini-
mum tax. See "Investment Objective and Management Policies" and
"Dividends, Distributions and Taxes."
The Fund is more susceptible to factors adversely affecting issuers of New
Jersey Municipal Securities than is a municipal bond fund that does not
emphasize these issuers. See "New Jersey Municipal Securities" in the Pro-
spectus and "Special Considerations Relating to New Jersey Municipal Secu-
rities" in the Statement of Additional Information for further details
about the risks of investing in New Jersey obligations.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), which means
that the Fund is not limited by the 1940 Act in the proportion of its as-
sets that it may invest in the obligations of a single issuer. The Fund's
assumption of large positions in the obligations of a small number of is-
suers may cause the Fund's share price to fluctuate to a greater extent
than that of a diversified company as a result of changes in the financial
conditions or in the market's assessment of the issuers.
The Fund generally will invest at least 75% of its assets in securities
rated investment grade, and may invest the remainder of its assets in se-
curities rated as low as C by Moody's Investors Service, Inc. ("Moody's")
or D by Standard & Poor's Corporation ("S&P"), or in unrated obligations,
of comparable quality. Securities in the fourth highest rating category,
though considered to be investment grade, have speculative characteris-
tics. Securities rated as low as D are extremely speculative and are in
actual default of interest and/or principal payments.
There are several risks in connection with the use of when-issued securi-
ties, municipal bond index and interest rate futures contracts and put and
call options thereon as hedging devices, and municipal leases. See "In-
vestment Objective and Management Policies -- Certain Portfolio Strate-
gies."
THE FUND'S EXPENSES The following expense table lists the costs and ex-
penses an investor will incur either directly or indirectly as a share-
holder of the Fund, based on the maximum sales charge or maximum CDSC that
may be incurred at the time of purchase or redemption and, unless other-
wise noted the Fund's operating expenses for its most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS
B CLASS C CLASS Y
<S> <C> <C>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.00%
NONE NONE NONE
Maximum CDSC (as a percentage of original cost
or redemption proceeds, whichever is lower) NONE*
4.50% 1.00% NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.50%
0.50% 0.50% 0.50%
12b-1 fees** 0.15
0.65 0.70 --
Other expenses*** 0.18
0.21 0.18 0.18
TOTAL FUND OPERATING EXPENSES 0.83%
1.36% 1.38% 0.68%
<FN>
*Purchase 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.
**Upon conversion of Class B shares to Class A shares, such shares will
no longer be subject to a distribution fee. Class C shares do not have
a conversion feature and, therefore, are subject to an ongoing distri-
bution 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.
***For Class C and Class Y shares, "Other expenses" have been estimated
based on expenses incurred by Class A shares because Class C and Class
Y shares were not available for purchase prior to November 7, 1994.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors
may actually pay lower or no charges depending on the amount purchased
and, in the case of Class B, Class C and certain Class A shares, the
length of time the shares are held. See "Purchase of Shares" and "Redemp-
tion of Shares." Smith Barney receives an annual 12b-1 service fee of
0.15% of the value of average daily net assets of Class A shares. Smith
Barney also receives, with respect to Class B shares, an annual 12b-1 fee
of 0.65% of the value of average daily net assets of that Class, consist-
ing of a 0.50% distribution and a 0.15% service fee, and with respect to
Class C shares, Smith Barney receives an annual 12b-1 fee of 0.70% of the
value of average daily net assets of the Class, consisting of a 0.55% dis-
tribution fee and a 0.15% service fee. "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and account-
ing fees, printing costs and registration fees.
During the fiscal year ended March 31, 1994, the Fund's investment adviser
and former administrator voluntarily waived portions of their fees in
amounts equal to .03% and .02%, respectively, of the value of the Fund's
average daily net assets. This had the effect of lowering the Fund's over-
all expenses and increasing the returns otherwise available to investors.
If these fees had not been waived, the Fund's total operating expenses for
the 1994 fiscal year, as a percentage of its average daily net assets,
would have been 0.88%, 1.41%, 1.43% and 0.73% for Class A shares, Class B
shares and Class Y shares, respectively.
The following example is intended to assist an investor in understanding
the various costs that an investor in the Fund will bear directly or indi-
rectly. The example assumes payment by the Fund of operating expenses at
the levels set forth in the table above. See "Purchase of Shares," "Re-
demption of Shares" and "Management of the Fund."
<TABLE>
<CAPTION>
EXAMPLE 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 $48 $65
$84 $139
Class B 59 73
84 149
Class C 24 44
76 166
Class Y 7 22
38 85
An investor would pay the following expenses on the
same investment, assuming the same annual return and
no redemption:
Class A 48 65
84 139
Class B 14 43
74 149
Class C 14 44
76 166
Class Y 7 22
38 85
<FN>
*Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
</TABLE>
The example also provides a means for the investor to compare expense lev-
els of funds with different fee structures over varying investment peri-
ods. To facilitate such comparison, all funds are required to utilize a
5.00% annual return assumption. However, the Fund's actual return will
vary and may be greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
Except where otherwise noted, the following information has been audited
by Coopers & Lybrand, independent accountants, whose report thereon ap-
pears in the Fund's Annual Report dated March 31, 1994. This information
should be read in conjunction with the financial statements and related
notes that also appear in the Fund's Annual Report, which is incorporated
by reference into the Statement of Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR
YEAR
ENDED ENDED
ENDED
3/31/94 3/31/93
3/31/92
<S> <C> <C> <C>
Net asset value, beginning of year $13.16 $12.44
$12.17
Income from investment operations:
Net investment income*** 0.70 0.75
0.77
Net realized and unrealized gain/(loss) on
investments (0.46) 0.87
0.44
Total from investment operations 0.24 1.62
1.21
Distributions:
Distributions from net investment income (0.69) (0.75)
(0.77)
Distributions in excess of net investment
income (0.01) --
- --
Distributions from net realized gains (0.15) (0.14)
(0.13)
Distributions from capital (0.00)** (0.01)
(0.04)
Total distributions (0.85) (0.90)
(0.94)
Net asset value, end of year $12.55 $13.16
$12.44
Total return+++ 1.66% 13.49%
10.22%
Ratios/supplemental data:
Net assets, end of year (in 000's) $119,913 $115,694
$92,797
Ratio of operating expenses to average net
assets+ 0.83% 0.74%
0.67%++
Ratio of net investment income to average
net assets 5.17% 5.76%
6.18%
Portfolio turnover rate 32% 58%
98%
<FN>
** Amount represents less than $0.01 per Class A share.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, sub-investment adviser and administra-
tor for the years ended March 31, 1994, 1993, 1992, 1991,1990 and 1989
would have been $.69, $.73, $.75, $.78, $.77 and $.74, respectively.
+ Expense ratios before partial waiver of fees by investment adviser and
sub-investment adviser and/or administrator for the years ended March
31, 1994, 1993, 1992, 1991, and 1990 and before the partial waiver of
fees and reimbursement of expenses by investment adviser and sub-
investment adviser and/or administrator for the period ended March 31,
1989 were 0.88%, 0.90%, 0.83%, 1.08% and 1.23%, respectively.
++ The operating expense ratio excludes interest expense. The operating
expense ratio including interest expense was 0.68% for the year ended
March 31, 1992.
+++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
</TABLE>
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR
PERIOD
ENDED ENDED
ENDED
3/31/91 3/31/90
3/31/89*
<S> <C> <C> <C>
Net asset value, beginning of year $11.92 $11.67
$11.40
Income from investment operations:
Net investment income*** 0.82 0.83
0.82
Net realized and unrealized gain on invest-
ments 0.32 0.27
0.28
Total from investment operations 1.14 1.10
1.10
Distributions:
Distributions from net investment income (0.83) (0.82)
(0.82)
Distributions in excess of net investment
income -- --
- --
Distributions from net realized gains (0.05) (0.03)
(0.01)
Distributions from capital (0.01) --
- --
Total distributions (0.89) (0.85)
(0.83)
Net asset value, end of year $12.17 $11.92
$11.67
Total return++ 9.89% 9.62%
9.84%
Ratios/supplemental data:
Net assets, end of year (in 000's) $65,378 $38,728
$29,265
Ratio of operating expenses to average net
assets+ 0.57% 0.55%
0.52%**
Ratio of net investment income to average
net assets 6.74% 6.89%
7.23%**
Portfolio turnover rate 44% 42%
25%
<FN>
* The Fund commenced operations on April 22, 1988. Those shares in ex-
istence prior to November 6, 1992 were designated as Class A shares.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment adviser, sub-investment adviser and/or adminis-
trator for the years ended March 31, 1994, 1993, 1992, 1991,1990, and
1989 would have been $.69, $.73, $.75, $.78, $.77, and $.74,
respectively.
+ Expense ratios before partial waiver of fees by investment adviser and
sub-investment adviser and administrator for the years ended March 31,
1994, 1993, 1992, 1991, and 1990 and before the partial waiver of fees
and reimbursement of expenses by investment adviser and sub-investment
adviser and administrator for the period ended March 31, 1989 were
0.88%, 0.90%, 0.83%, 1.08% and 1.23%, respectively.
++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
</TABLE>
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
3/31/94
3/31/93*
<S> <C> <C>
Net asset value, beginning of period $13.16
$12.75
Income from investment operations:
Net investment income*** 0.64
0.28
Net realized and unrealized gain/(loss) on in-
vestments (0.47)
0.55
Total from investment operations 0.17
0.83
Distributions:
Distributions from net investment income (0.62)
(0.27)
Distributions in excess of net investment income (0.01)
- --
Distributions from net realized gains (0.15)
(0.14)
Distributions from capital (0.00)+++
(0.01)
Total distributions (0.78)
(0.42)
Net asset value, end of period $12.55
$13.16
Total return++ 1.15%
6.60%
Ratios/supplemental data:
Net assets, end of period (in 000's) $48,375
$16,293
Ratio of operating expenses to average net as-
sets+ 1.36%
1.33%**
Ratio of net investment income to average net
assets 4.64%
5.17%**
Portfolio turnover rate 32%
58%
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Annualized.
*** Net investment income before waiver of fees and/or reimbursement of
expenses by investment
adviser, sub-investment adviser and/or administrator for the years
ended March 31, 1994 and 1993 would have been $.63 and $.27,
respectively.
+ Annualized expense ratio before partial waivers of fees by investment
adviser and sub-investment adviser and administrator for the years
ended March 31, 1994 and 1993 were 1.41% and 1.49%, respectively.
++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any
applicable sales charges.
+++ Amount represents less than $0.01 per Class B share.
</TABLE>
Prior to November 7, 1994, the Fund did not offer Class C or Class Y
shares and, accordingly, no comparable financial information is available
at this time for those Classes.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is to provide New Jersey investors
with as high a level of income exempt from Federal and New Jersey personal
income taxes as is consistent with prudent investment management and the
preservation of capital. This investment objective may not be changed
without the approval of the holders of a majority of the Fund's outstand-
ing shares. There can be no assurance that the Fund's investment objective
will be achieved.
The Fund operates subject to an investment policy providing that, under
normal market conditions, the Fund will invest at least 80% of its net as-
sets in Municipal Securities and at least 65% of the aggregate principal
amount of the Fund's investments in New Jersey Municipal Securities. When-
ever less than 80% of the Fund's assets are invested in New Jersey Munici-
pal Securities, the Fund, in order to maintain its status as a "qualified
investment fund" under New Jersey law, will seek to invest in debt obliga-
tions which, in the opinion of counsel to the issuers, are free from state
or local taxation under New Jersey or Federal laws ("Tax-Exempt Obliga-
tions"). The Fund's investments in New Jersey Municipal Securities and
Tax-Exempt Obligations will represent at least 80% of the aggregate prin-
cipal amount of all of its investments, excluding cash and cash items (in-
cluding receivables). Subject to these minimum investment intentions, the
Fund also may acquire intermediate- and long-term debt obligations con-
sisting of Other Municipal Securities, the interest on which is at least
exempt from Federal income taxation (not including the possible applica-
bility of the alternative minimum tax). When SBMFM believes that market
conditions warrant adoption of a temporary defensive investment posture,
the Fund may invest without limit in Other Municipal Securities and in
"Temporary Investments" as described below.
The Fund generally will invest at least 75% of its total assets in
investment- grade debt obligations rated no lower than Baa, MIG 3 or
Prime-1 by Moody's or BBB, SP-2 or A-1 by S&P, or in unrated obligations
of comparable quality. Unrated securities will be considered to be of in-
vestment grade if deemed by SBMFM to be comparable in quality to instru-
ments so rated, or if other outstanding obligations of the issuers of the
unrated securities are rated Baa or better by Moody's or BBB or better by
S&P. The balance of the Fund's assets may be invested in securities rated
as low as C by Moody's or D by S&P, or comparable unrated securities. Se-
curities in the fourth highest rating category, though considered to be
investment grade, have speculative characteristics. Securities rated as
low as D are extremely speculative and are in actual default of interest
and/or principal payments.
The Fund's average weighted maturity will vary from time to time based on
the judgment of SBMFM. The Fund intends to focus on intermediate- and
long- term obligations, that is, obligations with remaining maturities at
the time of purchase of between three and twenty years. Obligations which
are rated Baa by Moody's or BBB by S&P and those which are rated lower
than investment grade are subject to greater market fluctuation and more
uncertainty as to payment of principal and interest, and therefore gener-
ate higher yields, than obligations rated above Baa or BBB.
While the market values of lower-rated and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher- rated securities, the market values of certain lower-
rated and comparable unrated municipal securities also tend to be more
sensitive than higher-rated securities to short-term corporate and indus-
try developments and changes in economic conditions (including recession)
in specific regions or localities or among specific types of issuers. In
addition, lower-rated securities and comparable unrated securities gener-
ally present a higher degree of credit risk. During an economic downturn
or a prolonged period of rising interest rates, the ability of issuers of
lower-rated and comparable unrated securities to service their payment ob-
ligations, meet projected goals or obtain additional financing may be im-
paired. The risk of loss due to default by such issuers is significantly
greater because lower-rated and comparable unrated securities generally
are unsecured and frequently are subordinated to the prior payment of se-
nior indebtedness. The Fund may incur additional expenses to the extent it
is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings.
While the market for municipal bonds is considered to be generally ade-
quate, the existence of limited markets for particular lower-rated and
comparable unrated securities may diminish the Fund's ability to (a) ob-
tain accurate market quotations for purposes of valuing such securities
and calculating its net asset value and (b) sell the securities at fair
value either to meet redemption requests or to respond to changes in the
economy or in the financial markets. A severe economic recession would
likely disrupt the market for such securities and adversely affect the
ability of the issuers of such securities to repay principal and pay in-
terest thereon.
Fixed-income securities, including lower-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit
their issuers to call or repurchase the securities from their holders,
such as the Fund. If an issuer exercises these rights during periods of
declining interest rates, the Fund may have to replace the security with a
lower yielding security, thus resulting in a decreased return to the Fund.
A description of the rating systems of Moody's and S&P is contained in the
Statement of Additional Information.
Because many issuers of New Jersey Municipal Securities may choose not to
have their obligations rated, it is possible that a large portion of the
Fund's portfolio may consist of unrated obligations. Unrated obligations
are not necessarily of lower quality than rated obligations, but to the
extent the Fund invests in unrated obligations, the Fund will be more re-
liant on SBMFM's judgment, analysis and experience than would be the case
if the Fund invested only in rated obligations.
The Fund may invest without limit in participations in municipal lease ob-
ligations or installment purchase contract obligations, (collectively,
"municipal lease obligations") of state and local governments or authori-
ties to finance the acquisition of equipment or facilities. The interest
on such obligations is, in the opinion of counsel to the issuers, excluded
from gross income for Federal and New Jersey State personal income tax
purposes provided that the liability for payments of principal and inter-
est is solely that of a New Jersey governmental entity. Although lease ob-
ligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropri-
ate and make the payments due under the lease obligation. However, certain
lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on
a yearly basis. In addition to the "non- appropriation" risk, these secu-
rities represent a relatively new type of financing that has not yet de-
veloped the depth of marketability associated with more conventional
bonds. Although "non-appropriation" lease obligations are often secured by
the underlying property, disposition of the property in the event of fore-
closure might prove difficult. There is no limitation on the percentage of
the Fund's assets that may be invested in municipal lease obligations. In
evaluating municipal lease obligations, SBMFM will consider such factors
as it deems appropriate, which may include: (a) whether the lease can be
canceled; (b) the ability of the lease obligee to direct the sale of the
underlying assets; (c) the general creditworthiness of the lease obligor;
(d) the likelihood that the municipality will discontinue appropriating
funding for the leased property in the event such property is no longer
considered essential by the municipality; (e) the legal recourse of the
lease obligee in the event of such a failure to appropriate funding; (f)
whether the security is backed by a credit enhancement such as insurance;
and (g) any limitations which are imposed on the lease obligor's ability
to utilize substitute property or services rather than those covered by
the lease obligation.
The Fund may invest without limit in private activity bonds. Interest in-
come 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 min-
imum taxes. Individual and corporate shareholders may be subject to a Fed-
eral alternative minimum tax to the extent the Fund's dividends are de-
rived from interest on those bonds. Dividends derived from interest income
on Municipal Securities are a component of the "current earnings" adjust-
ment items for purposes of the Federal corporate alternative minimum tax.
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. The 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 (the "Code"), which will relieve the Fund of any lia-
bility for Federal income tax to the extent its earnings are distributed
to shareholders. The Fund must qualify as a regulated investment company
to be a qualified investment fund under New Jersey law. To so qualify,
among other requirements, the 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 the Fund's total assets will be invested in the secu-
rities 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 as-
sets will be invested in the securities of a single issuer and the Fund
will not own more than 10% of the outstanding voting securities of a sin-
gle issuer. The Fund's assumption of large positions in the obligations of
a small number of issuers may cause the Fund's share price to fluctuate to
a greater extent than that of a diversified company as a result of changes
in the financial condition or in the market's assessment of the issuers.
The Fund may invest without limit in debt obligations that are repayable
out of revenue streams generated from economically related projects or fa-
cilities. Revenue securities may also include private activity bonds which
may be issued by or on behalf of public authorities to finance various
privately operated facilities and are not payable from the unrestricted
revenues of the issuer. Sizeable investments in such obligations could in-
volve an increased risk to the Fund should any of the related projects or
facilities experience financial difficulties. The Fund also may invest up
to 15% of its total assets in securities with contractual or other re-
strictions on resale and other instruments which are not readily market-
able. Notwithstanding the foregoing, the Fund will not invest more than
10% of its assets in securities (excluding those subject to Rule 144A
under the Securities Act of 1933, as amended) that are restricted. The
Fund does not expect to invest more than 5% of its assets in repurchase
agreements. In addition, the Fund may invest up to 5% of its assets in the
securities of issuers which have been in continuous operation for less
than three years. The Fund also is authorized to borrow in an amount of up
to 10% of its total assets (including the amount borrowed) valued at mar-
ket less liabilities (not including the amount borrowed) in order to meet
anticipated redemptions and to pledge its assets to the same extent in
connection with the borrowings.
Further information about the Fund's investment policies, including a list
of those restrictions on the Fund's investment activities that cannot be
changed without shareholder approval, appears in the Statement of Addi-
tional Information.
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may employ,
among others, the following strategies:
When-Issued Securities. New issues of Municipal Securities frequently are
offered on a when-issued basis, which means that delivery and payment for
the securities normally take place 15 to 45 days after the date of the
commitment to purchase. The payment obligation and interest rate that will
be received on when-issued securities are fixed at the time that the buyer
enters into the commitment. As a result, the yields obtained on the secu-
rities may be higher or lower than the yields available in the market on
the dates when the instruments are actually delivered to the buyers. In
addition, during the period before delivery and payment, there is no ac-
crual of interest and there may be fluctuations in the price of the secu-
rities so that there may be an unrealized loss at the time of delivery.
The Fund will establish a segregated account with the Fund's custodian
consisting of cash, obligations issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S. government securi-
ties") or other high grade debt obligations in an amount equal to the pur-
chase price of the Fund's when-issued securities. Placing securities
rather than cash in the segregated account may have a leveraging effect on
the Fund's net assets. The Fund generally will make commitments to pur-
chase Municipal Securities and other tax-exempt obligations on a when-
issued basis with the intention of actually acquiring the securities, but
the Fund may sell the securities before the delivery date if it is deemed
advisable.
Temporary Investments. Under normal market conditions, the Fund may hold
up to 20% of its total assets in cash or money market instruments, includ-
ing taxable money market instruments ("Temporary Investment"). In addi-
tion, when SBMFM believes that market conditions warrant, including when
acceptable New Jersey Municipal Securities are unavailable, the Fund may
take a temporary defensive posture and invest without limitation in Tempo-
rary Investments. To the extent the Fund holds Temporary Investments, it
will not achieve its investment objective. Tax-exempt securities eligible
for short-term investment by the Fund under such circumstances are munici-
pal notes rated at the time of purchase within the three highest grades by
Moody's or S&P or, if not rated, issued by issuers with outstanding debt
securities rated within the three highest grades by Moody's or S&P. Any
Temporary Investments made for defensive purposes will be made in confor-
mity with the requirements of a qualified investment fund under New Jersey
law. Since the commencement of its operations, the Fund has not found it
necessary to invest in taxable Temporary Investments.
Financial Futures and Options Transactions. To hedge against a decline in
the value of Municipal Securities it owns or an increase in the price of
Municipal Securities it proposes to purchase, the Fund may enter into fi-
nancial futures contracts and invest in options on financial futures con-
tracts that are traded on a domestic exchange or board of trade. The fu-
tures contracts or options on futures contracts that may be entered into
by the Fund will be restricted to those that are either based on an index
of Municipal Securities or relate to debt securities the prices of which
are anticipated by SBMFM to correlate with the prices of the Municipal Se-
curities owned or to be purchased by the Fund.
In entering into a financial futures contract, the Fund will be required
to deposit with the broker through which it undertakes the transaction an
amount of cash or cash equivalents equal to approximately 5% of the con-
tract amount. This amount, which is known as "initial margin," is subject
to change by the exchange or board of trade on which the contract is
traded, and members of the exchange or board of trade may charge a higher
amount. Initial margin is in the nature of a performance bond or good
faith deposit on the contract that is returned to the Fund upon termina-
tion of the futures contract, assuming all contractual obligations have
been satisfied. In accordance with a process known as "marking-to-market,"
subsequent payments, known as "variation margin," to and from the broker
will be made daily as the price of the index or securities underlying the
futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable. At any time prior to the expira-
tion of a futures contract, the Fund may elect to close the position by
taking an opposite position, which will operate to terminate the Fund's
existing position in the contract.
A financial futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified prop-
erty at a specified price, date, time and place. Unlike the direct invest-
ment in a futures contract, an option on a financial futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in the financial futures contract at a specified exercise price
at any time prior to the expiration date of the option. Upon exercise of
an option, the delivery of the futures position by the writer of the op-
tion to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account, which repre-
sents the amount by which the market price of the futures contract ex-
ceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The potential loss
related to the purchase of an option on financial futures contracts is
limited to the premium paid for the option (plus transaction costs). The
value of the option may change daily and that change would be reflected in
the net asset value of the Fund.
Regulations of the Commodity Futures Trading Commission applicable to the
Fund require that its transactions in financial futures contracts and op-
tions on financial futures contracts be engaged in for bona fide hedging
purposes, or if the Fund enters into futures contracts for speculative
purposes, that the aggregate initial margin deposits and premiums paid by
the Fund will not exceed 5% of the market value of its assets. In addi-
tion, the Fund will, with respect to its purchases of financial futures
contracts, establish a segregated account consisting of cash or cash
equivalents in an amount equal to the total market value of the futures
contracts, less the amount of initial margin on deposit for the contracts.
The Fund's ability to trade in financial futures contracts and options on
financial futures contracts may be limited to some extent by the require-
ments of the Code applicable to a regulated investment company, in addi-
tion to the requirements of a qualified investment fund under New Jersey
law, that are described below under "Dividends, Distributions and Taxes."
Although the Fund intends to enter into financial futures contracts and
options on financial futures contracts that are traded on a domestic ex-
change or board of trade only if an active market exists for those instru-
ments, no assurance can be given that an active market will exist for them
at any particular time. If closing a futures position in anticipation of
adverse price movements is not possible, the Fund would be required to
make daily cash payments of variation margin. In those circumstances, an
increase in the value of the portion of the Fund's investments being
hedged, if any, may offset partially or completely losses on the futures
contract. No assurance can be given, however, that the price of the secu-
rities being hedged will correlate with the price movements in a futures
contract and, thus, provide an offset to losses on the futures contract or
option on the futures contract. In addition, in light of the risk of an
imperfect correlation between securities held by the Fund that are the
subject of a hedging transaction and the futures or options used as a
hedging device, the hedge may not be fully effective because, for example,
losses on the securities held by the Fund may be in excess of gains on the
futures contract or losses on the futures contract may be in excess of
gains on the securities held by the Fund that were the subject of the
hedge. In an effort to compensate for the imperfect correlation of move-
ment in the price of the securities being hedged and movements in the
price of futures contracts, the Fund may enter into financial futures con-
tracts or options on financial futures contracts in a greater of lesser
dollar amount than the dollar amount of the securities being hedged if the
historical volatility of the futures contract has been less or greater
than that of the securities. This "over hedging" or "under hedging" may
adversely affect the Fund's net investment results if market movements are
not as anticipated when the hedge is established.
If the Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of securities it holds and rates de-
crease instead, the Fund will lose part or all of the benefit of the in-
creased value of securities that it has hedged because it will have off-
setting losses in its futures or options position. In addition, in those
situations, if the Fund has insufficient cash, it may have to sell securi-
ties to meet daily variation margin requirements on the futures contracts
at a time when it may be disadvantageous to do so. These sales of securi-
ties may, but will not necessarily, be at increased prices that reflect
the decline in interest rates.
NEW JERSEY MUNICIPAL SECURITIES
As used in this Prospectus, the term "New Jersey Municipal Securities"
generally refers to intermediate- and long-term debt obligations issued by
the State of New Jersey and its political subdivisions, agencies and pub-
lic authorities (together with certain other governmental issuers such as
the Commonwealth of Puerto Rico, the Virgin Islands and Guam) to obtain
funds for various public purposes. The interest on such obligations is, in
the opinion of bond counsel to the issuers, excluded from gross income for
Federal income tax purposes and exempt under the New Jersey Gross Income
Tax Act. For that reason, interest on these obligations is generally fixed
at a lower rate than it would be if it were subject to such taxes. Inter-
est income on certain New Jersey Municipal Securities is a specific tax
preference item for purposes of the Federal individual and corporate al-
ternative minimum taxes. See "Dividends, Distributions and Taxes."
CLASSIFICATIONS
The two principal classifications of New Jersey Municipal Securities are
"general obligation bonds" and "revenue bonds." General obligation bonds
are secured by the issuer's pledge of its full faith, credit and taxing
power for the payment of principal and interest. Revenue bonds are payable
from the revenues derived from a particular facility or class of facili-
ties or, in some cases, from the proceeds of a special excise tax or other
specific revenue source, but not from the general taxing power. In addi-
tion, certain types of "private activity bonds" issued by or on behalf of
public authorities to obtain funds for privately operated facilities are
included in the term New Jersey Municipal Securities, so long as the in-
terest paid on the bonds qualifies as excluded from gross income for Fed-
eral income tax purposes and exempt under the New Jersey Gross Income Tax
Act. Private activity bonds are in most cases revenue bonds and generally
do not carry the pledge of the full faith, credit and taxing power of the
issuing entity.
SPECIAL CONSIDERATIONS
Economic, financial and other conditions relating to the State of New Jer-
sey have an obvious impact upon the state's general obligation bonds.
These conditions, to varying degrees, also will affect the bonds issued by
the state's political subdivisions, agencies and public authorities, in-
cluding special obligation bonds. In general, the State of New Jersey has
a diversified economic base consisting of, among others, commerce, con-
struction and service industries, selective commercial, agriculture, in-
surance, tourism, petroleum refining and manufacturing, although New Jer-
sey's manufacturing industry has shown a downward trend in the last few
years. New Jersey is a major recipient of Federal assistance and, of all
the states, is among the highest in the amount of Federal aid received.
Hence, a decrease in Federal financial assistance may adversely affect New
Jersey's financial condition. While New Jersey's economic base has become
more diversified over time and thus its economy appears to be less vulner-
able during recessionary periods, a recurrence of high levels of unemploy-
ment could adversely affect New Jersey's overall economy and its ability
to meet its financial obligations.
New Jersey maintains a balanced budget, which generally restricts total
appropriation increases to only 5% annually to any municipality or county
or an index rate determined annually by the Director of the Division of
Local Government Services, whichever is less. New Jersey law provides for
those situations where the index percentage rate exceeds 5%. As a result,
the balanced budget plan may adversely affect a municipality's or county's
ability to repay its obligations. Of course, each municipality, county or
other political subdivision will be subject to different economic, finan-
cial and other conditions, which will affect its ability to pay the prin-
cipal and interest on its bonds. Similarly, special obligation or revenue
bonds payable from revenues generated by particular projects or other spe-
cific revenue sources also will be subject to unique economic, financial
and other conditions. If New Jersey or any of its political subdivisions,
agencies or public authorities is unable to meet its financial obliga-
tions, the income derived by the Fund, the ability to preserve or realize
appreciation of the Fund's capital and the Fund's liquidity could be ad-
versely affected.
VALUATION OF SHARES
The Fund's net asset value per share is determined as of the close of reg-
ular trading on the NYSE, on each day that the NYSE is open, by dividing
the value of the Fund's net assets attributable to each Class by the total
number of shares of that Class outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Directors.
Short- term investments that mature in 60 days or less are valued at amor-
tized cost whenever the Board of Directors determines that amortized cost
is fair value. Further information regarding the Fund's valuation policies
is contained in the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its net investment income (that is, in-
come other than net realized long- and short-term capital gains) on each
day the Fund is open for business and pays dividends on the last business
day of the Smith Barney statement month. Distributions of net realized
long- and short-term capital gains, if any, are declared and paid annually
after the end of the fiscal year in which they have been earned.
If a shareholder does not otherwise instruct, dividends or 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
Fund's earnings for Saturdays, Sundays and holidays are declared as divi-
dends on the next business day. Shares redeemed during the month are enti-
tled to dividends declared up to and including the date of redemption. In
addition, in order to avoid the application of a 4.00% nondeductible ex-
cise tax on certain undistributed amounts of ordinary income and capital
gains, the Fund may make a distribution shortly before December 31 in each
year of any undistributed ordinary income or capital gains and expects to
make any other distributions as are necessary to avoid the application of
this tax.
If, for any full fiscal year, the Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions
generally will be treated as a tax-free return of capital (up to the
amount of the shareholder's tax basis in his or her shares). The amount
treated as a tax-free return of capital will reduce a shareholder's ad-
justed basis in his or her shares. Pursuant to the requirements of the
1940 Act and other applicable laws, a notice will accompany any distribu-
tion paid from sources other than net investment income. In the event the
Fund distributes amounts in excess of its net investment income and net
realized capital gains, such distributions may have the effect of decreas-
ing the Fund's total assets, which may increase the Fund's expense ratio.
The per share dividends on Class B shares and Class C shares may be lower
than the per share dividends on Class A and Class Y shares principally as
a result of the distribution fee applicable with respect to Class B and
Class C shares. The per share dividends on Class A shares of the Fund may
be lower than the per share dividends on Class Y shares principally as a
result of the service fee applicable to Class A shares. Distributions of
capital gains, if any, will be in the same amount for Class A, B, C and Y
shares.
TAXES
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code, and will designate and pay
exempt- interest dividends derived from interest earned on qualifying tax-
exempt obligations. Such exempt-interest dividends may be excluded by
shareholders from their gross income for Federal income tax purposes al-
though (a) all or a portion of such exempt-interest dividends will be a
specific preference item for purposes of the Federal individual and corpo-
rate alternative minimum taxes to the extent that they are derived from
certain types of private activity bonds issued after August 7, 1986 and
(b) all exempt-interest dividends will be a component of the "current
earnings" adjustment item for purposes of the Federal corporate alterna-
tive minimum tax. In addition, corporate shareholders may incur a greater
Federal "environmental" tax liability through the receipt of Fund divi-
dends and distributions. With the exception of gains derived from invest-
ments in financial options, futures, forward contracts or similar finan-
cial instruments, distributions paid by the Fund, provided it is a quali-
fied investment fund under New Jersey law, attributable to interest on or
gains from New Jersey Municipal Securities and Tax-Exempt Obligations also
will be exempt from the New Jersey personal income tax (but not the New
Jersey Corporation Business Tax).
Dividends paid from taxable net investment income, if any, and distribu-
tions of net realized short- and long-term capital gains from taxable se-
curities are taxable to shareholders at ordinary income rates, regardless
of how long shareholders have held their Fund shares and whether such div-
idends or distributions are received in cash or reinvested in additional
shares. Distributions of net realized long-term capital gains are taxable
to shareholders as long-term capital gains, regardless of how long they
have held their Fund shares and whether such distributions are received in
cash or reinvested in Fund shares. Furthermore, as a general rule, a
shareholder's gain or loss on a sale or redemption of his or her shares
will be a long-term capital gain or loss if the shareholder has held the
shares for more than one year and will be a short-term capital gain or
loss if the shareholder has held the shares for one year or less. Gains
resulting from the redemption or sales of shares of the Fund, provided it
is a qualified investment fund under New Jersey law, would be exempt from
the New Jersey personal income tax. The Fund's dividends and distributions
will not qualify for the dividends-received deduction for corporations.
Any dividends or distributions paid by the Fund attributable to invest-
ments other than New Jersey Municipal Securities or Tax-Exempt Obligations
will be subject to the New Jersey personal income tax.
Statements as to the tax status of each shareholder's dividends and dis-
tributions are mailed annually. Each shareholder will also receive, if ap-
propriate, various written notices after the close of the Fund's prior
taxable year as to the Federal income tax status of his or her dividends
and distributions which were received from the Fund during the Fund's
prior taxable year. These statements may set forth the dollar amount of
income excluded or exempt from Federal income or New Jersey state personal
income taxes and the dollar amount, if any, subject to such taxes. More-
over, these statements will designate the amount of exempt-interest divi-
dends that is a specific preference item for purposes of the Federal indi-
vidual and corporate alternative minimum taxes. Shareholders should con-
sult their tax advisors with specific reference to their own tax
situations.
TAX-EXEMPT INCOME VS. TAXABLE INCOME
The table below shows New Jersey taxpayers how to translate Federal and
New Jersey state tax savings from investments such as the Fund into an
equivalent return from a taxable investment. The combined effective mar-
ginal tax rate is lower than the sum of the Federal and New Jersey state
marginal rates because the state taxes shareholders pay are deductible
from Federal taxable income. The yields used below are for illustration
only and are not intended to represent current or future yields for the
Fund, which may be higher or lower than those shown.
<TABLE>
<CAPTION>
A NEW JERSEY TAX-
EXEMPT INCOME FUND YIELD OF:
1994
COMBINED
EFFECTIVE
NEW
JERSEY
NEW AND
JERSEY COMBINED FEDERAL
MARGINAL MARGINAL TAX
TAXABLE INCOME* FEDERAL RATE RATE BRACKET** 2.0% 3.0% 4.0%
5.0% 6.0% 7.0% 8.0% 9.0%
<S> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
SINGLE
$ 0- 20,000 15.00% 1.900% 16.900% 16.62% 2.40% 3.60% 4.80%
6.00% 7.20% 8.39% 9.59% 10.79%
20,001- 22,750 15.00 2.375 17.375 17.02 2.41 3.62 4.82
6.03 7.23 8.44 9.64 10.85
22,751- 35,000 28.00 2.375 30.375 29.71 2.85 4.27 5.69
7.11 8.54 9.96 11.38 12.80
35,001- 40,000 28.00 4.750 32.750 31.42 2.92 4.37 5.83
7.29 8.75 10.21 11.67 13.12
40,001- 55,100 28.00 6.175 34.175 32.45 2.96 4.44 5.92
7.40 8.88 10.36 11.84 13.32
55,101- 75,000 31.00 6.175 37.175 35.26 3.09 4.63 6.18
7.72 9.27 10.81 12.36 13.90
75,001-115,000 31.00 6.650 37.650 35.59 3.11 4.66 6.21
7.76 9.32 10.87 12.42 13.97
115,001-250,000 36.00 6.650 42.650 40.26 3.35 5.02 6.70
8.37 10.04 11.72 13.39 15.06
250,001 or more 39.60 6.650 46.250 43.62 3.55 5.32 7.09
8.87 10.64 12.42 14.19 15.96
JOINT
$ 0- 20,000 15.00% 1.900% 16.900% 16.62% 2.40% 3.60% 4.80%
6.00% 7.20% 8.39% 9.59% 10.79%
20,001- 38,000 15.00 2.375 17.375 17.02 2.41 3.62 4.82
6.03 7.23 8.44 9.64 10.85
38,001- 50,000 28.00 2.375 30.375 29.71 2.85 4.27 5.69
7.11 8.54 9.96 11.38 12.80
50,001- 70,000 28.00 3.325 31.325 30.39 2.87 4.31 5.75
7.18 8.62 10.06 11.49 12.93
70,001- 80,000 28.00 4.750 32.750 31.42 2.92 4.37 5.83
7.29 8.75 10.21 11.67 13.12
80,001- 91,850 28.00 6.175 34.175 32.45 2.96 4.44 5.92
7.40 8.88 10.36 11.84 13.32
91,851-140,000 31.00 6.175 37.175 35.26 3.09 4.63 6.18
7.72 9.27 10.81 12.36 13.90
140,001-150,000 36.00 6.175 42.175 39.95 3.33 5.00 6.66
8.33 9.99 11.66 13.32 14.99
150,001-250,000 36.00 6.650 42.650 40.26 3.35 5.02 6.70
8.37 10.04 11.72 13.39 15.06
250,001 or more 39.60 6.650 46.250 43.62 3.55 5.32 7.09
8.87 10.64 12.42 14.19 15.96
<FN>
* This amount represents taxable income as defined in the Code. It is as-
sumed that taxable income as defined in the Code is the same as under
the New Jersey personal income tax, however, New Jersey taxable income
may differ due to differences in exemptions, itemized deductions, and
other items.
** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1994, including indexing for inflation. These rates
include the effect of deducting state and city taxes on your Federal
return. The calculations also assume that no income will be subject to
the Federal alternative minimum tax.
</TABLE>
Legislation currently under consideration would increase the number of
federal tax brackets and the top marginal rate. The calculations assume
that no income will be subject to Federal, state or local individual al-
ternate minimum taxes.
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to inves-
tors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon
certain redemptions. Class Y shares are sold without an initial sales
charge or a CDSC and are available only to investors investing a minimum
of $5,000,000. See "Prospectus Summary -- Alternative Purchase Arrange-
ments" for a discussion of factors to consider in selecting which Class of
shares to purchase.
Purchases of Fund shares must by made through a brokerage account main-
tained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. When purchasing shares of the Fund, investors must
specify whether the purchase is for Class A, Class B, Class C or Class Y
shares. No maintenance fee will be charged by the Fund in connection with
a brokerage account through which an investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account in the
Fund. Investors in Class Y shares may open an account by making an initial
investment of $5,000,000. Subsequent investments of at least $50 may be
made for all Classes. For the Fund's Systematic Investment Plan, the mini-
mum initial investment requirement for Class A, Class B and Class C shares
and the subsequent investment requirement for all Classes is $100. There
are no minimum investment requirements for Class A shares for employees of
Travelers and its subsidiaries, including Smith Barney, unitholders who
invest distributions from a UIT sponsored by Smith Barney, and Directors
of the Fund and their spouses and children. The Fund reserves the right to
waive or change minimums, to decline any order to purchase its shares and
to suspend the offering of shares from time to time. Shares purchased will
be held in the shareholder's account by the Fund's transfer agent, The
Shareholder Services Group, Inc., a subsidiary of First Data Corporation
("TSSG"). Share certificates are issued only upon a shareholder's written
request to TSSG.
Purchase orders received by Smith Barney prior to the close of regular
trading on the NYSE, on any day the Fund calculates its net asset value,
are priced according to the net asset value determined on that day. Orders
received by dealers or Introducing Brokers prior to the close of regular
trading on the NYSE on any day the Fund calculates its net asset value,
are priced according to the net asset value determined on that day, pro-
vided the order is received by Smith Barney prior to Smith Barney's close
of business (the "trade date"). Currently, payment for Fund shares is due
on the fifth business day (the "settlement date") after the trade date.
The Fund anticipates that, in accordance with regulatory changes, begin-
ning on or about June 1, 1995, the settlement date will be the third busi-
ness day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchas-
ing shares through a service known as the Systematic Investment Plan.
Under the Systematic Investment Plan, Smith Barney or TSSG is authorized
through preauthorized transfers of $100 or more to charge the regular bank
account or other financial institution indicated by the shareholder on a
monthly or quarterly basis to provide systematic additions to the share-
holder's Fund account. A shareholder who has insufficient funds to com-
plete the transfer will be charged a fee of up to $25 by Smith Barney or
TSSG. The Systematic Investment Plan also authorizes Smith Barney to apply
cash held in the shareholder's Smith Barney brokerage account or redeem
the shareholder's shares of a Smith Barney money market fund to make addi-
tions to the account. Additional information is available from the Fund or
a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are as follows:
<TABLE>
<CAPTION>
DEALERS
SALES CHARGE AS % SALES CHARGE AS %
REALLOWANCE AS
AMOUNT OF INVESTMENT OF TRANSACTION OF AMOUNT INVESTED %
OF OFFERING PRICE
<S> <C> <C> <C>
Less than $25,000 4.00% 4.17%
3.60%
$25,000 -- $49,999 3.50% 3.63%
3.15%
$50,000 -- $99,999 3.00% 3.09%
2.70%
$100,000 -- $249,999 2.50% 2.56%
2.25%
$250,000 -- $499,999 1.50% 1.52%
1.35%
$500,000 and over* * *
*
<FN>
* Purchases of Class A shares, which when combined with current holdings
of Class A shares offered with a sales charge equal or exceed $500,000
in the aggregate, will be made at net asset value without any initial
sales charge, but will be subject to a CDSC of 1.00% on redemptions made
within 12 months of purchase. The CDSC on Class A shares is payable to
Smith Barney which compensates Smith Barney Financial Consultants and
other dealers whose clients make purchases of $500,000 or more. The CDSC
is waived in the same circumstances in which the CDSC applicable to
Class B and Class C shares is waived. See "Deferred Sales Charge Alter-
natives" and "Waivers of CDSC."
</TABLE>
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities
Act of 1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the Fund made at one time by "any person," which in-
cludes an individual, including his or her spouse and children, or a
trustee or other fiduciary of a single trust estate or single fiduciary
account. The reduced sales charge minimums may also be met by aggregating
the purchase with the net asset value of all Class A shares held in funds
sponsored by Smith Barney that are offered with a sales charge listed
under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to Di-
rectors of the Fund and employees of Travelers and its subsidiaries, or to
the spouses and children of such persons (including the surviving spouse
of a deceased Director or employee, and retired Directors or employees);
(b) offers of Class A shares to any other investment company in connection
with the combination of such company with the Fund by merger, acquisition
of assets or otherwise; (c) purchases of Class A shares by any client of a
newly employed Smith Barney Financial Consultant (for a period up to 90
days from the commencement of the Financial Consultant's employment with
Smith Barney), on the condition the purchase of Class A shares is made
with the proceeds of the redemption of shares of a mutual fund which (i)
was sponsored by the Financial Consultant's prior employer, (ii) was sold
to the client by the Financial Consultant and (iii) was subject to a sales
charge; (d) shareholders who have redeemed Class A shares in the Fund (or
Class A shares of another fund of the Smith Barney Mutual Funds that are
offered with a sales charge equal to or greater than the maximum sales
charge of the Fund) and who wish to reinvest their redemption proceeds in
the Fund, provided the reinvestment is made within 60 calendar days of the
redemption; (e) accounts managed by registered investment advisory subsid-
iaries of Travelers; and (f) investments of distributions from a UIT spon-
sored by Smith Barney. In order to obtain such discounts, the purchaser
must provide sufficient information at the time of purchase to permit ver-
ification that the purchase would qualify for the elimination of the sales
charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by ag-
gregating the dollar amount of the new purchase and the total net asset
value of all Class A shares of the Fund and of funds sponsored by Smith
Barney which are offered with a sales charge listed under "Exchange Privi-
lege" then held by such person and applying the sales charge applicable to
such aggregate. In order to obtain such discount, the purchaser must pro-
vide sufficient information at the time of purchase to permit verification
that the purchase qualifies for the reduced sales charge. The right of ac-
cumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and part-
ners) of the same employer purchasing as a group, provided each partici-
pant makes the minimum initial investment required. The sales charge ap-
plicable to purchases by each member of such a group will be determined by
the table set forth above under "Initial Sales Charge Alternative -- Class
A Shares" and will be based upon the aggregate sales of Class A shares of
Smith Barney Mutual Funds offered with a sales charge to, and share hold-
ings of, all members of the group. To be eligible for such reduced sales
charges or to purchase at net asset value, all purchases must be pursuant
to an employee or partnership-sanctioned plan meeting certain require-
ments. One such requirement is that the plan must be open to specified
partners or employees of the employer and its subsidiaries, if any. Such
plan may, but is not required to, provide for payroll deductions. Smith
Barney may also offer a reduced sales charge or net asset value purchase
for aggregating related fiduciary accounts under such conditions that
Smith Barney will realize economies of sales efforts and sales related ex-
penses. An individual who is a member of a qualified group may also pur-
chase Class A shares of the Fund at the reduced sales charge applicable to
the group as a whole. The sales charge is based upon the aggregate dollar
value of Class A shares offered with a sales charge that have been previ-
ously purchased and are still owned by the group, plus the amount of the
current purchase. A "qualified group" is one which (a) has been in exist-
ence for more than six months, (b) has a purpose other than acquiring Fund
shares at a discount and (c) satisfies uniform criteria which enable Smith
Barney to realize economies of scale in its costs of distributing shares.
A qualified group must have more than 10 members, must be available to ar-
range for group meetings between representatives of the Fund and the mem-
bers, and must agree to include sales and other materials related to the
Fund in its publications and mailings to members at no cost to Smith Bar-
ney. In order to obtain such reduced sales charge or to purchase at net
asset value, the purchaser must provide sufficient information at the time
of purchase to permit verification that the purchase qualifies for the re-
duced sales charge. Approval of group purchase reduced sales charge plans
is subject to the discretion of Smith Barney.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity
for an investor to obtain a reduced sales charged by aggregating invest-
ments over a 13-month period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter of Intent, the
"Amount of Investment" as referred to in the preceding sales charge table
includes purchases of all Class A shares of the Fund and other funds of
the Smith Barney Mutual Funds offered with a sales charge over the 13-
month period based on the total amount of intended purchases plus the
value of all Class A shares previously purchased and still owned. An al-
ternative is to compute the 13- month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during
the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the pe-
riod, the investor must pay the difference between the sales charges ap-
plicable to the purchases made and the charges previously paid, or an ap-
propriate number of escrowed shares will be redeemed. New Letters of In-
tent will be accepted beginning January 1, 1995. Please contact a Smith
Barney Financial Consultant or TSSG to obtain a letter of Intent applica-
tion.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an ini-
tial sales charge so that the full amount of an investor's purchase pay-
ment may be immediately invested in the Fund. A CDSC, however, may be im-
posed on certain redemptions of these shares. "CDSC Shares" are: (a) Class
B shares; (b) Class C shares; and (c) Class A shares which when combined
with Class A shares offered with a sales charge currently held by an in-
vestor equal or exceed $500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at the time
of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents; (a) capital appre-
ciation of Fund assets; (b) reinvestment of dividends or capital gain dis-
tributions; (c) with respect to Class B shares, shares redeemed more than
five years after their purchase; or (d) with respect to Class C shares and
Class A shares that are CDSC Shares, shares redeemed more than 12 months
after their purchase.
Class C shares and Class A shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in
which the CDSC is imposed on Class B shares, the amount of the charge will
depend on the number of years since the shareholder made the purchase pay-
ment from which the amount is being redeemed. Solely for purposes of de-
termining the number of years since a purchase payment, all purchase pay-
ments made during a month will be aggregated and deemed to have been made
on the last day of the preceding Smith Barney statement month. The follow-
ing table sets forth the rates of the charge for redemptions of Class B
shares by shareholders.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE
CDSC
<S>
<C>
First
4.50%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
</TABLE>
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer
be subject to any distribution fees. There will also be converted at that
time such proportion of Class B Dividend Shares owned by the shareholders
as the total number of his or her Class B shares converting at the time
bears to the total number of outstanding Class B shares (other than Class
B Dividend Shares) owned by the shareholder. Shareholders who held Class B
shares of Smith Barney Shearson Short-Term World Income Fund (the "Short-
Term World Income Fund") on July 15, 1994 and who subsequently exchange
those shares for Class B shares of the Fund will be offered the opportu-
nity to exchange all such Class B shares for Class A shares of the Fund
four years after the date on which those shares were deemed to have been
purchased. Holders of such Class B shares will be notified of the pending
exchange in writing approximately 30 days before the fourth anniversary of
the purchase date and, unless the exchange has been rejected in writing,
the exchange will occur on or about the fourth anniversary date. See "Pro-
spectus Summary -- Alternative Purchase Arrangements -- Class B Shares
Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were ini-
tially acquired in one of the other Smith Barney Mutual Funds, and Fund
shares being redeemed will be considered to represent, as applicable, cap-
ital appreciation or dividend and capital gain distribution reinvestments
in such other funds. For Federal income tax purposes, the amount of the
CDSC will reduce the gain or increase the loss, as the case may be, on the
amount realized on redemption. The amount of any CDSC will be paid to
Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth
month after the purchase, the investor decided to redeem $500 of his or
her investment. Assuming at the time of the redemption the net asset value
had appreciated to $12 per share, the value of the investor's shares would
be $1,260 (105 shares at $12 per share). The CDSC would not be applied to
the amount which represents appreciation ($200) and the value of the rein-
vested dividend shares ($60). Therefore, $240 of the $500 redemption pro-
ceeds ($500 minus $260) would be charged at a rate of 4.00% (the applica-
ble rate for Class B shares) for a total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege");
(b) automatic cash withdrawals in amounts equal to or less than 1.00% per
month of the value of the shareholder's shares at the time the withdrawal
plan commences (see below) (provided, however, that automatic cash with-
drawals in amounts equal to or less than 2.00% per month of the value of
the shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within
12 months following the death or disability of the shareholder; (d)
involuntary redemptions; and (e) redemptions of shares in connection with
a combination of the Fund with any investment company by merger,
acquisition
of assets or otherwise. In addition, a shareholder who has redeemed shares
from other funds of the Smith Barney Mutual Funds may, under certain
circumstances, reinvest all or part of the redemption proceeds within 60
days and receive pro rata credit for any CDSC imposed on the prior
redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by TSSG in
the case of all other shareholders) of the shareholder's status or hold-
ings, as the case may be.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the
following funds of the Smith Barney Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of residence. Exchanges of
Class A, Class B and Class C shares are subject to minimum investment re-
quirements and all shares are subject to other requirements of the fund
into which exchanges are made, and a sales charge differential may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -- Capital Appreciation Portfolio
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- Monthly Payment Government Portfolio
++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities
Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Funds, Inc. -- Utility Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
* Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Municipal Bond Funds
* Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
* Smith Barney Muni Funds -- California Limited Term Portfolio
Smith Barney Muni Funds -- California Portfolio
* Smith Barney Muni Funds -- Florida Limited Term Portfolio
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
* Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. -- Cash Portfolio
++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
++ Smith Barney Municipal Money Market Fund, Inc.
++ Smith Barney Muni Funds -- California Money Market Portfolio
++ Smith Barney Muni Funds -- New York Money Market Portfolio
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A, Class B and Class Y shares of the
Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund.
Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold with-
out a sales charge or with a maximum sales charge of less than the maximum
charged by other Smith Barney Mutual Funds will be subject to the appro-
priate "sales charge differential" upon the exchange of such shares for
Class A shares of a fund sold with a higher sales charge. The "sales
charge differential" is limited to a percentage rate no greater than the
excess of the sales charge rate applicable to purchases of shares of the
mutual fund being acquired in the exchange over the sales charge rate(s)
actually paid on the mutual fund shares relinquished in the exchange and
on any predecessor of those shares. For purposes of the exchange privi-
lege, shares obtained through automatic reinvestment of dividends and cap-
ital gains distributions are treated as having paid the same sales charges
applicable to the shares on which the dividends or distributions were
paid; however, if no sales charge was imposed upon the initial purchase of
the shares, any shares obtained through automatic reinvestment will be
subject to a sales charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund
on July 15, 1994) wishes to exchange all or a portion of his or her shares
in any of the funds imposing a higher CDSC than that imposed by the Fund,
the exchanged Class B shares will be subject to the higher applicable
CDSC. Upon an exchange, the new Class B shares will be deemed to have been
purchased on the same date as the Class B shares of the Fund that have
been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be
deemed to have been purchased on the same date as the Class C shares of
the Fund that have been exchanged.
Class Y Exchanges. Class Y shareholders of the Fund who wish to exchange
all or a portion of their Class Y shares for Class Y shares in any of the
funds identified above may do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the ex-
change privilege is an important benefit, excessive exchange transactions
can be detrimental to the Fund's performance and its shareholders. SBMFM
may determine that a pattern of frequent exchanges is excessive and con-
trary to the best interests of the Fund's other shareholders. In this
event, the SBMFM will notify Smith Barney and Smith Barney may, at its
discretion, decide to limit additional purchases and/or exchanges by a
shareholder. Upon such a determination, Smith Barney will provide notice
in writing or by telephone to the shareholder at least 15 days prior to
suspending the exchange privilege and during the 15 day period the share-
holder will be required to (a) redeem his or her shares of the Fund or (b)
remain invested in the Fund or exchange into any of the funds of the Smith
Barney Mutual Funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of time. All rele-
vant factors will be considered in determining what constitutes an abusive
pattern of exchanges.
Exchanges will be processed at the net asset value next determined, plus
any applicable sales charge differential. Redemption procedures discussed
below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the ac-
count registration of the shares of the fund being acquired is identical
to the registration of the shares of the fund exchanged, no signature
guarantee is required. A capital gain or loss for tax purposes will be re-
alized upon the exchange, depending upon the cost or other basis of shares
redeemed. Before exchanging shares, investors should read the current pro-
spectus describing the shares to be acquired. The Fund reserves the right
to modify or discontinue exchange privileges upon 60 days' prior notice to
shareholders.
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per
share next determined after receipt of a written request in proper form at
no charge other than any applicable CDSC. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value next determined.
If a shareholder holds shares in more than one Class, any request for re-
demption must specify the Class being redeemed. In the event of a failure
to specify which Class, or if the investor owns fewer shares of the Class
than specified, the redemption request will be delayed until the Fund's
transfer agent receives further instructions from Smith Barney, or if the
shareholder's account is not with Smith Barney, from the shareholder di-
rectly. The redemption proceeds will be remitted on or before the seventh
day following receipt of proper tender, except on any days on which the
NYSE is closed or as permitted under the 1940 Act in extraordinary circum-
stances. The Fund anticipates that, in accordance with regulatory changes,
beginning on or about June 1, 1995, payment will be made on the third
business day after receipt of proper tender. Generally, if the redemption
proceeds are remitted to a Smith Barney brokerage account, these funds
will not be invested for the shareholder's benefit without specific in-
struction and Smith Barney will benefit from the use of temporarily unin-
vested funds. Redemption proceeds for shares purchased by check, other
than a certified or official bank check, will be remitted upon clearance
of the check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than
those held by Smith Barney as custodian may be redeemed through an inves-
tor's Financial Consultant, Introducing Broker or dealer in the selling
group or by submitting a written request for redemption to:
Smith Barney New Jersey Municipals Fund Inc.
Class A, B, C or Y (please specify)
c/o The Shareholders Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or dollar
amount of shares to redeemed, (b) identify the shareholder's account num-
ber and (c) be signed by each registered owner exactly as the shares are
registered. If the shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to TSSG together with the re-
demption request. Any signature appearing on a redemption request, share
certificate or stock power must be guaranteed by an eligible guarantor in-
stitution such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of
a national securities exchange. TSSG may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees or guardians. A redemption request will not be deemed properly
received until TSSG receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 many
elect to receive cash payments of at least $100 monthly or quarterly. The
withdrawal plan will be carried over on exchanges between funds or Classes
of the Fund. Any applicable CDSC will not be waived on amounts withdrawn
by a shareholder that exceed 1.00% per month of the value of the share-
holder's shares subject to the CDSC at the time the withdrawal plan com-
mences. (With respect to withdrawal plans in effect prior to November 7,
1994, any applicable CDSC will be waived on amounts withdrawn that do not
exceed 2.00% per month of the shareholder's shares subject to the CDSC.)
For further information regarding the automatic cash withdrawal plan,
shareholders should contact a Smith Barney Financial Consultant.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholders'
account in the Fund if the aggregate net asset value of the shares held in
the Fund account is less than $500. (If a shareholder has more than one
account in this Fund, each account must satisfy the minimum account size.)
The Fund, however, will not redeem shares based solely on market reduc-
tions in net asset value. Before the Fund exercises such right, sharehold-
ers will receive written notice and will be permitted 60 days to bring ac-
counts up to the minimum to avoid automatic redemption.
PERFORMANCE
YIELD
From time to time, the Fund may advertises the 30-day "yield" and "equiva-
lent taxable yield" of each Class of shares. The yield refers to the in-
come generated by an investment in those shares of the Fund over the 30-
day period identified in the advertisement and is computed by dividing the
net investment income per share earned by the Class during the period by
the maximum public offering price per share on the last day of the period.
This income is "annualized" by assuming that the amount of income is gen-
erated each month over a one-year period and is compounded semi-annually.
The annualized income is then shown as a percentage of the net asset
value.
The equivalent taxable yield demonstrates the yield on a taxable invest-
ment necessary to produce an after-tax yield equal to the Fund's tax-
exempt yield for each Class. It is calculated by increasing the yield
shown for the Class to the extent necessary to reflect the payment of
taxes at specified tax rates. Thus, the equivalent taxable yield always
will exceed the Fund's yield. For more information on equivalent taxable
yields, please refer to the table under "Dividends, Distributions and
Taxes."
TOTAL RETURN
From time to time the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other
types of sales literature. These figures are computed separately for Class
A, Class B, Class C and Class Y shares of the Fund. These figures are
based on historical earnings and are not intended to indicate future per-
formance. Total return is computed for a specified period of time assuming
deduction of the maximum sales charge, if any, from the initial amount in-
vested and reinvestment of all income dividends and capital gain distribu-
tions on the reinvestment dates at prices calculated as stated in this
Prospectus, then dividing the value of the investment at the end of the
period so calculated by the initial amount invested and subtracting 100%.
The standard average annual total return, as prescribed by the SEC, is de-
rived from this total return, which provides the ending redeemable value.
Such standard total return information may also be accompanied with non-
standard total return information for differing periods computed in the
same manner but without annualizing the total return or taking sales
charges into account. The Fund calculates current dividend return for each
Class by annualizing the most recent monthly distribution and dividing by
the net asset value or the maximum public offering price (including sales
charge) on the last day of the period for which current dividend return is
presented. The current dividend return for each Class may vary from time
to time depending on market conditions, the composition of its investment
portfolio and operating expenses. These factors and possible differences
in the methods used in calculating current dividend return should be con-
sidered when comparing a Class' current return to yields published for
other investment companies and other investment vehicles. The Fund may
also include comparative performance information in advertising or market-
ing its shares. Such performance information may include data from Lipper
Analytical Services, Inc. or similar independent services that monitor the
performance of mutual funds, or other industry publications. The Fund will
include performance data for Class A, Class B, Class C and Class Y shares
in any advertisement or information including performance data of the
Fund.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the
Fund, including agreements with the Fund's distributor, investment ad-
viser, administrator, sub- administrator, custodian and transfer agent.
The day-to-day operations of the Fund are delegated to the Fund's invest-
ment adviser, administrator and sub- administrator. The Statement of Addi-
tional Information contains general background information regarding each
Director and executive officer of the Fund.
INVESTMENT ADVISER -- SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves
as the Fund's investment adviser pursuant to a transfer of the advisory
agreement, effective November 7, 1994, from its affiliate, Mutual Manage-
ment Corp. (Mutual Management Corp. and SBMFM are both wholly owned sub-
sidiaries of Holdings.) Investment advisory services continue to be pro-
vided to the Fund by the same portfolio managers who had provided services
under the agreement with Mutual Management Corp. SBMFM (through predeces-
sor entities) has been in the investment counseling business since 1934
and is a registered investment adviser. SBMFM renders investment advice to
investment companies that had aggregate assets under management as of Sep-
tember 30, 1994 in excess of $52.4 billion.
Subject to the supervision and direction of the Fund's Board of Directors,
SBMFM manages the Fund's portfolio in accordance with the Fund's invest-
ment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities and employs professional
portfolio managers and securities analysts who provide research services
to the Fund. For investment advisory services rendered, the Fund pays
SBMFM an investment advisory fee at the following annual rates: .35% of
average daily net assets up to $500 million; and .32% of average daily net
assets in excess of $500 million. For the fiscal year ended March 31,
1994, Mutual Management Corp. was paid investment advisory fees equal to
0.32% of the value of the average daily net assets of the Fund and SBMFM
waived investment advisory fees in an amount equal to 0.03% of the value
of the average daily net assets of the Fund.
PORTFOLIO MANAGEMENT
Lawrence T. McDermott, an Investment Officer of SBMFM, has served as Vice
President and Investment Officer of the Fund since it commenced opera-
tions, and manages the day-to-day operations of the Fund, including making
all investment decisions.
Management's discussion and analysis, and additional performance informa-
tion regarding the Fund during the fiscal year ended March 31, 1994, are
included in the Annual Report dated March 31, 1994. A copy of the Annual
Report may be obtained upon request and without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or
telephone number listed on page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects of
the Fund's administration. For administration services rendered, the Fund
pays SBMFM a fee at the following annual rates of average daily net as-
sets: 0.20% to $500 million; and 0.18% in excess of $500 million.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-administrator. Boston Advisors provides invest-
ment management, investment advisory and/or administrative services to in-
vestment companies which had aggregate assets under management as of Sep-
tember 30, 1994, in excess of $48.6 billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a sub-administration agreement dated July 20, 1994, Bos-
ton Advisors is paid a portion of the fee paid by the Fund to SBMFM at a
rate agreed upon from time to time between Boston Advisors and SBMFM.
Prior to July 20, 1994, Boston Advisors served as the Fund's administra-
tor. For the fiscal year ended March 31, 1994, the Fund paid administra-
tion fees to Boston Advisors in an amount equal to 0.18% of the value of
the average daily net assets of the Fund and Boston Advisors waived admin-
istration fees payable to it in an amount equal to 0.02% of the value of
the average daily net assets of the Fund.
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and
as such conducts a continuous offering pursuant to a "best efforts" ar-
rangement requiring Smith Barney to take and pay for only such securities
as may be sold to the public. Pursuant to a plan of distribution adopted
by the Fund under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney
is paid a service fee with respect to Class A, Class B and Class C shares
of the Fund at the annual rate of 0.15% of the average daily net assets of
the respective Class. Smith Barney is also paid a distribution fee with
respect to Class B and Class C shares at the annual rate of 0.50% and
0.55%, respectively, of the average daily net assets attributable to those
Classes. Class B shares which automatically convert to Class A shares
eight years after the date of original purchase will no longer be subject
to a distribution fee. The fees are used by Smith Barney to pay its Finan-
cial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result
in the sale of those shares. These expenses include: advertising expenses;
the cost of printing and mailing prospectuses to potential investors; pay-
ments to and expenses of Smith Barney Financial Consultants and other per-
sons who provide support services in connection with the distribution of
shares; interest and/or carrying charges; and indirect and overhead costs
of Smith Barney associated with the sale of Fund shares, including lease,
utility, communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at
the time of sale and, with respect to Class A, Class B and Class C shares,
a continuing fee for servicing shareholder accounts for as long as a
shareholder remains a holder of that Class. Smith Barney Financial Con-
sultants may receive different levels of compensation for selling differ-
ent Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the
payments may exceed distribution expenses actually incurred. The Fund's
Board of Directors will evaluate the appropriateness of the Plan and its
payment terms on a continuing basis and in so doing will consider all rel-
evant factors, including expenses borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on No-
vember 12, 1987, and is registered with the SEC as a non-diversified,
open-end management investment company. The Fund offers shares of common
stock currently classified into four Classes -- A, B, C and Y. Each Class
of shares has a par value of $.001 per share and represents identical in-
terest in the Fund's investment portfolio. As a result, the Classes have
the same rights, privileges and preferences, except with respect to: (a)
the designation of each Class; (b) the effect of the respective sales
charges, if any, for each Class; (c) the distribution and/or service fees,
if any, borne by each Class; (d) the expenses allocable exclusively to
each Class; (e) voting rights on matters exclusively affecting a single
Class; (f) the exchange privilege of each Class; and (g) the conversion
feature of the Class B shares. The Board of Directors does not anticipate
that there will be any conflicts among the interests of the holders of the
different Classes. The Directors, on an ongoing basis, will consider
whether any such conflict exists and, if so, take appropriate action.
The Fund does not hold annual shareholder meetings. There normally will be
no meetings of shareholders for the purpose of electing Directors unless
and until such time as less than a majority of the Directors holding of-
fice have been elected by shareholders. The Directors will call a meeting
for any purpose upon written request of shareholders holding at least 10%
of the Fund's outstanding shares, and the Fund will assist shareholders in
calling such a meeting as required by the 1940 Act. When matters are sub-
mitted for shareholder vote, shareholders of each Class will have one vote
for each full share owned and a proportionate, fractional vote for any
fractional share held of that Class. Generally, shares of the Fund will be
voted on a Fund- wide basis on all matters except matters affecting only
the interests of one Class.
Boston Safe Deposit and Trust Company is an indirect wholly owned subsid-
iary of Mellon and is located at One Boston Place, Boston, Massachusetts
02108, and serves as custodian of the Fund's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Fund's transfer agent.
The Fund sends to each of its shareholders a semi-annual report and an au-
dited annual report, which include listings of investment securities held
by the Fund at the end of each reporting period. In an effort to reduce
the Fund's printing and mailing costs, the Fund plans to consolidate the
mailing of its semi- annual and annual reports by household. This consoli-
dation means that a household having multiple accounts with the identical
address of record will receive a single copy of each report. Shareholders
who do not want this consolidation to apply to their account should con-
tact their Smith Barney Financial Consultant or TSSG.
No person has been authorized to give any information or to make any rep-
resentations in connection with this offering other than those contained
in this Prospectus and, if given or made, such other information or repre-
sentations must not be relied upon as having been authorized by the Fund
or the Distributor. This Prospectus does not constitute an offer by the
Fund or the Distributor to sell or a solicitation of an offer to buy any
of the securities offered hereby in any jurisdiction to any person to whom
it is unlawful to make such an offer or solicitation in such jurisdiction.
Recycled
Recyclable
SMITH BARNEY
A Member of Travelers Group
Smith Barney
New Jersey
Municipals
Fund Inc.
388 Greenwich Street
New York, New York 10013
Fund 66,206
FD 0231j4
