SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC, 497, 1995-10-30

SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC
497, 1995-10-30

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<PAGE>1
Rule 497(d)
33-62015
[Smith Barney Letterhead]

A SPECIAL NOTICE TO SHAREHOLDERS OF
SMITH BARNEY MUNI FUNDS -- NEW JERSEY PORTFOLIO

Your Vote is Important

Dear Shareholder:

The Board of Trustees of Smith Barney Muni Funds has recently reviewed and
unanimously endorsed a proposal for a reorganization of the New Jersey
Portfolio (the "New Jersey Portfolio") of Smith Barney Muni Funds which it
judges to be in the best interests of New Jersey Portfolio's shareholders.

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

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

<PAGE>2

SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT

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

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

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

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

Sincerely,

Heath B. McLendon
Chairman of the Board

October 26, 1995

<PAGE>3

SMITH BARNEY MUNI FUNDS -- NEW JERSEY PORTFOLIO
388 Greenwich Street
New York, New York 10013

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held on November 14, 1995

Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of the New Jersey Portfolio ("New Jersey Portfolio") of Smith
Barney Muni Funds will be held at 388 Greenwich Street, 26th Floor, New York,
New York on November 14, 1995, commencing at 4:00 p.m. for the following
purposes:

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

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

The Board of Trustees of Smith Barney Muni Funds has fixed the close
of business on September 25, 1995 as the record date for the determination of
shareholders of New Jersey Portfolio entitled to notice of and to vote at the
Meeting and any adjournment or adjournments thereof.

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.

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

<PAGE>4

By Order of the Board of Trustees

Christina T. Sydor, Esq.
Secretary

October 26, 1995

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

<PAGE>5

PROSPECTUS/PROXY STATEMENT DATED OCTOBER 26, 1995

Acquisition Of The Assets Of

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

By And In Exchange For Shares Of

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

This Prospectus/Proxy Statement is being furnished to shareholders
of the New Jersey Portfolio (the "Acquired Fund") of Smith Barney Muni Funds
in connection with a proposed plan of reorganization to be submitted to
shareholders of the Acquired Fund for consideration at a Special Meeting of
Shareholders to be held on November 14, 1995 at 4:00 p.m. (the "Meeting"), at
the offices of Smith Barney Inc. ("Smith Barney") located at 388 Greenwich
Street, 26th Floor, New York, New York 10013, or any adjournment or
adjournments thereof.

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

<PAGE>6

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

Smith Barney Mutual Funds Management Inc., 388 Greenwich Street, New
York, New York 10013 (the "Manager"), serves as investment manager to both the
Acquiring Fund and the Acquired Fund. The Manager is a wholly owned
subsidiary of Smith Barney Holdings, Inc. which, in turn, is a wholly owned
subsidiary of Travelers Group Inc. It is proposed that, in connection with
the Reorganization, Lawrence T. McDermott, the portfolio manager who manages
the Acquiring Fund's portfolio, would manage the combined fund. Mr.
McDermott, a Managing Director of Smith Barney, has served as Vice President
and Investment Officer of the Acquiring Fund since it commenced operations on
April 22, 1988, and manages the day-to-day operations of the Acquiring Fund,
including making substantially all investment decisions.

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

This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective

<PAGE>7

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

1. The Prospectus of Smith Barney New Jersey Municipals Fund Inc. dated
May 29, 1995, as supplemented by a Prospectus Supplement dated
September 1, 1995 is incorporated in its entirety by reference and a
copy is included herein.

2. The Prospectus of Smith Barney Muni Funds -- New Jersey Portfolio
dated November 7, 1994 as supplemented by a Prospectus Supplement
dated July 26, 1995, is incorporated in its entirety by reference.

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

<PAGE>8

TABLE OF CONTENTS

PAGE

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

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

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

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

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

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

INFORMATION ABOUT THE ACQUIRING FUND . . . . . . . . . . . . . . . . . . 26

INFORMATION ABOUT THE ACQUIRED FUND . . . . . . . . . . . . . . . . . . . 37

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

INFORMATION ON SHAREHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . 54

ADDITIONAL INFORMATION ABOUT
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC.
AND SMITH BARNEY MUNI FUNDS . . . . . . . . . . . . . . . . . . . . . . . 57

OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

FINANCIAL STATEMENTS AND EXPERTS . . . . . . . . . . . . . . . . . . . . 60

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

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

<PAGE>9

ADDITIONAL MATERIALS

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

1. Statement of Additional Information of Smith Barney New Jersey
Municipals Fund Inc. dated May 29, 1995.

2. Annual Report of Smith Barney New Jersey Municipals Fund Inc. for the
fiscal year ended March 31, 1995.

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

4. Pro Forma Financial Statements.

<PAGE>10

FEE TABLES

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

CLASS A SHARES

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

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

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

Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . . . 0.45% 0.55%**** 0.50%*****
12b-1 fees . . . . . . . . . . . . . . . . . . . . . . . . 0.15****** 0.15 0.15
Other expenses** . . . . . . . . . . . . . . . . . . . . . 0.09 0.18 0.13

Total Operating Expenses . . . . . . . . . . . . . . . . . . 0.69% 0.88% 0.78%

<FN>

* Purchases of Class A shares, which when combined with
current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be
made at net asset value with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12
months.

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

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

**** For investment advisory services, the Acquiring Fund pays
the Manager a fee at the following annual rates of average
daily net assets: 0.35% up to $500 million and 0.32% in
excess of $500 million. For administrative services
rendered, the Acquiring Fund pays the Manager a fee at the
following annual rates of average daily net assets: 0.20%
to $500 million and 0.18% in excess of $500 million.

***** Effective on November 17, 1995 (the anticipated date of
the Reorganization), the Manager has agreed to reduce the
Acquiring Fund's aggregate management fees to 0.50% of the
Acquiring Fund's average daily net assets.

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

</TABLE>

<PAGE>11

CLASS B SHARES

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

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

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

Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . 0.45% 0.55%**** 0.50%*****
12b-1 fees* . . . . . . . . . . . . . . . 0.65 0.65 0.65
Other expenses**. . . . . . . . . . . . . . . . 0.13 0.19 0.15

Total Operating Expenses . . . . . . . . . . . . . . . 1.23% 1.39% 1.30%

<FN>

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

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

</TABLE>

<PAGE>12

CLASS C SHARES

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

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

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

Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . 0.45% 0.55%**** 0.50%****
12b-1 fees* . . . . . . . . . . . . . . . . . . . . . 0.70 0.70 0.70
Other expenses** . . . . . . . . . . . . . . . . . . 0.12 0.19 0.15

Total Operating Expenses . . . . . . . . . . . . . . . . 1.27% 1.44% 1.35%

<FN>

* Class C shares do not have a conversion feature and,
therefore, are subject to an ongoing distribution fee. As
a result, long-term shareholders of Class C shares may pay
more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of
Securities Dealers, Inc.

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

**** For investment advisory services, the Acquiring Fund pays the Manager a
fee at the following annual rates of average daily net
assets: 0.35% up to $500 million and 0.32% in excess of
$500 million. For administrative services rendered, the
Acquiring Fund pays the Manager a fee at the following
annual rates of average daily net assets: 0.20% to $500
million and 0.18% in excess of $500 million.

***** Effective on November 17, 1995 (the anticipated date of the
Reorganization), the Manager has agreed to reduce the
Acquiring Fund's aggregate management fees to 0.50% of the
Acquiring Fund's average daily net assets.

</TABLE>

<PAGE>13

Examples

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

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

An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5.00% annual return
and (2) redemption at the end of each time period:

Class A
Acquired Fund . . . . . . . . . . . . . . . . . $47 $61 $77 $122
Acquiring Fund . . . . . . . . . . . . . . . . . 49 67 87 144
Pro Forma . . . . . . . . . . . . . . . . . . . 48 64 82 133

Class B
Acquired Fund . . . . . . . . . . . . . . . . . $58 $69 $78 $134
Acquiring Fund . . . . . . . . . . . . . . . . . 59 74 86 153
Pro Forma . . . . . . . . . . . . . . . . . . . 58 71 81 142

Class C
Acquired Fund . . . . . . . . . . . . . . . . . $23 $40 $70 $153
Acquiring Fund . . . . . . . . . . . . . . . . . 25 46 79 172
Pro Forma . . . . . . . . . . . . . . . . . . . 24 43 74 162

<FN>

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

</TABLE>

<PAGE>14

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

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

Class A
Acquired Fund . . . . . . . . . . . . . . . $47 $61 $77 $122
Acquiring Fund . . . . . . . . . . . . . . . 49 67 87 144
Pro Forma . . . . . . . . . . . . . . . . . 48 64 82 133

Class B
Acquired Fund . . . . . . . . . . . . . . . $13 $39 $68 $134
Acquiring Fund . . . . . . . . . . . . . . . 14 44 76 153
Pro Forma . . . . . . . . . . . . . . . . . 13 41 70 142

Class C
Acquired Fund . . . . . . . . . . . . . . . $13 $40 $70 $153
Acquiring Fund . . . . . . . . . . . . . . . 15 46 79 172
Pro Forma . . . . . . . . . . . . . . . . . 14 43 74 162

<FN>

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

The examples also provide a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00%
annual return assumption. However, each Fund's actual return will vary and
may be greater or less than 5.00%. THESE EXAMPLES SHOULD NOT BE CONSIDERED
REPRESENTATIONS OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.

<PAGE>15

SUMMARY

THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
ADDITIONAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT,
THE AGREEMENT AND PLAN OF REORGANIZATION, A COPY OF WHICH IS ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS EXHIBIT A, THE ACCOMPANYING PROSPECTUS OF THE
ACQUIRING FUND DATED MAY 29, 1995, AS SUPPLEMENTED BY A PROSPECTUS SUPPLEMENT
DATED SEPTEMBER 1, 1995, AND THE PROSPECTUS OF THE ACQUIRED FUND DATED
NOVEMBER 7, 1994 AS SUPPLEMENTED BY A PROSPECTUS SUPPLEMENT DATED JULY 26,
1995.

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

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

Approval of the Reorganization will require the affirmative vote of
a majority, as defined in the 1940 Act, of the outstanding shares of the
Acquired Fund, which is the lesser of: (i) 67% of the voting securities of
the Acquired Fund present at the Meeting, if the holders of more than 50% of
the outstanding voting securities of the Acquired Fund are

<PAGE>16

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

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

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

PURCHASE AND REDEMPTION PROCEDURES. The purchase and redemption
procedures available to shareholders of the Acquiring Fund are virtually
identical to those of the Acquired Fund. Purchase of shares of the Acquiring
Fund and the Acquired Fund may be made through the Funds' distributor, Smith
Barney, a broker that clears securities transactions through Smith Barney on a
fully disclosed basis (an "Introducing Broker") or an investment dealer in the
selling group, at their respective public offering prices (net asset value
next determined plus any applicable sales charge). Class A shares of both the
Acquiring Fund and the Acquired Fund are sold subject to a maximum initial
sales charge of 4.00% of the public offering price. Class A shares of either
Fund may be purchased at a reduced sales charge or at net asset value,
determined by aggregating the dollar amount of a new purchase and the total
asset value of all Class A shares of Funds offered by Smith Barney held by
such person that are exchangeable with Class A shares of either Fund and
applying the (reduced) sales charge applicable to such aggregate. Purchases

<PAGE>17

of Class A shares of both Funds, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12 months. Class B and
Class C shares of both Funds are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares and are subject to a
CDSC payable upon certain redemptions. In addition, Class Y shares of both
Funds are sold without an initial sales charge or CDSC, and are available only
to investors meeting an initial investment minimum of $5,000,000. As of
September 25, 1995 (the "Record Date"), no Class Y shares of either Fund were
outstanding. Further, the Acquiring Fund is authorized to issue a fifth class
of shares, Class Z shares, exclusively for sale to tax-exempt employee benefit
and retirement plans of Smith Barney and to certain unit investment trusts
sponsored by Smith Barney or any of its affiliates. As of the date hereof,
the Acquiring Fund has not sold any Class Z shares. The Acquired Fund does
not offer Class Z shares.

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

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

<PAGE>18

exchanged therefor. Class B shares of the Funds that are exchanged for Class
B shares of other Smith Barney Mutual Funds imposing a higher CDSC will be
subject to the higher applicable CDSC. See "Exchange Privilege" in the
accompanying Prospectus of the Acquiring Fund.

DIVIDENDS. The Acquiring Fund pays dividends from its net
investment income (that is, income other than its net realized long- and
short-term capital gains) on the last Friday of each calendar month to
shareholders of record as of the preceding Tuesday. Distributions of net
realized long- and short-term capital gains, if any, are declared and paid
annually after the end of the fiscal year in which they have been earned.
Similarly, dividends of substantially all of the Acquired Fund's net
investment income are declared and paid monthly and any realized capital gains
are declared and distributed annually. With respect to both Funds, unless a
shareholder otherwise instructs, dividends and capital gains distributions
will be reinvested automatically in additional shares of the same class at net
asset value, subject to no sales charge or CDSC. The distribution option
currently in effect for a shareholder of the Acquired Fund will remain in
effect after the Reorganization. After the Reorganization, however, the
former Acquired Fund shareholders may change their distribution option at any
time by contacting a Smith Barney Financial Consultant. See "Dividends and
Distributions" in the accompanying Prospectus of the Acquiring Fund.

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

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

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

<PAGE>19

RISK FACTORS

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

The Funds are more susceptible to factors adversely affecting
issuers of New Jersey municipal securities than is a municipal bond fund that
does not emphasize these issuers. Economic, financial and other conditions
relating to the State of New Jersey have an obvious impact upon the state's
general obligation bonds and the bonds issued by the state's political
subdivisions, agencies and public authorities, including special obligation
bonds. 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 vulnerable
during recessionary periods, a recurrence of high levels of unemployment 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. The balanced
budget plan may adversely affect a municipality's or county's ability to repay
its obligations. Each municipality, county or other political subdivision
also will be subject to different economic, financial and other conditions,
which will affect its ability to pay the principal and interest on its bonds.
Similarly, special obligation or revenue bonds payable from revenues generated
by particular projects or other specific 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 obligations, the income derived by a Fund, the ability to
preserve or realize appreciation of a Fund's capital and a Fund's liquidity
could be adversely affected.

Each 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. A Fund's assumption of large positions in the obligations of a
small number of issuers may cause such Fund's share price

<PAGE>20

to fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.

There are several risks in connection with the use of certain
portfolio strategies by the Acquiring Fund, and where applicable, by the
Acquired Fund. These portfolio strategies include purchasing when-issued
securities, municipal bond index futures contracts and put and call options
thereon as hedging devices, and municipal leases. See "Comparison of
Investment Objectives."

REASONS FOR THE REORGANIZATION

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

Among the factors considered by the Board of Trustees of Smith
Barney Muni Funds was the 1993 transaction pursuant to which Travelers Group
Inc. (formerly Primerica Corporation) acquired certain assets of Lehman
Brothers Inc. (formerly Shearson Lehman Brothers Inc.), including its retail
brokerage and domestic asset management business. As a result of this
transaction, Smith Barney became the sponsor of two separate and totally
distinct families of mutual funds, each with, among other things, differing
pricing structures, classes of shares, exchange privileges, sweep functions
and types of funds. The Board was advised that, with the completion of the
merger of back-office brokerage operations and the implementation of a uniform
pricing and class structure on November 7, 1994, significant consolidation of
the two mutual fund groups had been made feasible and desirable. The Board
was further informed that the next step in this process would be to eliminate
the duplication of funds within the consolidated Smith Barney fund complex.
The Board of Trustees of Smith Barney Muni Funds was presented with
information that indicated that investors have been and will continue to be
confused in the face of similar New Jersey municipal bond funds managed by the
same investment adviser (although the Acquired Fund and the Acquiring Fund
have different portfolio managers, i.e., the individual primarily responsible
for each Fund's day-to-day investment decisions). In particular, the Board
was presented with information to the effect that, with two different funds,
Smith Barney was confronted with operational and shareholder services issues,
including (i) dilution of the firm's money management and research expertise
due to the splitting of attention between the two highly similar funds; and
(ii) investor confusion associated with offering similar funds that provide
differing yields. The Board also considered that no sales charges would be
imposed in effecting the Reorganization and the advantages of eliminating
duplication inherent in marketing two funds with similar investment
objectives.

<PAGE>21

Information regarding operating expenses of the Acquired Fund and the
Acquiring Fund reflecting expenses for the fiscal year ended March 31, 1995, is
included under the caption "Fee Tables" in this Prospectus/Proxy Statement.
Based upon these levels of expenses, assuming the same level of assets of the
combined fund after the Reorganization as on March 31, 1995, it is estimated
that Class A, Class B, and Class C shareholders of the Acquired Fund should
experience a 0.09%, 0.07% and 0.08% increase, respectively, in total operating
expenses, resulting from an increase of 0.05% in management fees paid to the
Manager accompanied by an increase of 0.04%, 0.02% and 0.03%, respectively, in
certain other operating expenses.

At its June 7, 1995 meeting, the Board of Directors of the
Acquired Fund was presented by the Manager with more current information,
reflecting operating expenses as of April 30, 1995, which took into account
the effects of various changes in operating expenses applicable to the Funds,
such as changes in certain transfer agency expenses. The Board was shown pro
forma financial information which indicated that, assuming the same level of
assets for the combined fund after the Reorganization as on April 30, 1995, it
is estimated that Class A, Class B and Class C shareholders of the Acquired
Fund should experience a 0.02%, 0.03%, and 0.03% increase, respectively, in
total operating expenses, resulting from an increase of 0.05% in management
fees paid to the Manager accompanied by a decrease of 0.03%, 0.02% and 0.02%,
respectively, in certain other operating expenses. The pro forma
total operating expenses considered by the Board are identical to the
pro forma total operating expenses included under the caption "Fee
Tables" in this Prospectus/Proxy Statement. However, the Board also considered,
among other things, the impact of the increased operating expenses on the
Acquired Fund's shareholders, the nature and quality of services provided to
shareholders, including performance, the impact of economies of scale and
comparative fee structures. Further, the Board was presented with information
illustrating that the pro forma management fee to be paid by the combined fund
following the Reorganization would be lower than the average management fee
paid by New Jersey municipal funds included in a survey using data prepared by
Lipper Analytical Services, Inc. (the "Lipper New Jersey Muni Average") with
respect to front-end load shares (which are comparable to Class A shares of
the Funds) as of March 31, 1995 (without giving effect to management fee
waivers and expense reimbursements), and that while the pro forma total
operating expenses of the combined fund following the Reorganization would be
higher than the Lipper New Jersey Muni Average, the pro forma total operating
expenses of the combined fund following the Reorganization would actually be
lower than the Lipper New Jersey Muni Average before giving effect to fee
waivers and expense reimbursements. The pro forma management fees, the Board
was also informed, would be more in line with fees paid by comparable funds.
Further, the Board was shown pro forma financial information which indicated
that, assuming the same level of assets for the combined fund after the
Reorganization, the aggregate total management fees paid by the combined fund
to the Manager would be approximately $50,000 less than would otherwise be
paid annually to the Manager by the Acquiring Fund and the Acquired Fund had
the Reorganization and the proposed decrease in the Acquiring Fund's
management fee not taken place. The Board also considered, among other
things, the terms and conditions of the Reorganization and the comparative
investment performance of the Funds. In addition, the Board was advised that
the Reorganization would be effected as a tax-free reorganization.

The Board of Trustees of Smith Barney Muni Funds was informed that the
Reorganization was one of a number of proposed reorganizations involving Smith
Barney Muni Funds and other municipal bond funds within the Smith Barney
mutual fund complex. In connection with these reorganizations, it has been
proposed that the surviving fund's management fee be either increased or
decreased, as the case may be, to 0.50% of such Fund's average daily net
assets. The Board members were informed that the pro forma total operating
expenses for the combined fund would be consistent with the reorganizations
involving the other series of Smith Barney Muni Funds. Based in part on this
discussion of the ongoing consolidation of the Smith Barney mutual fund
complex, the Board of Trustees of Smith Barney Muni Funds approved, subject to
shareholder approval, a new investment management agreement for the Acquired
Fund. The new investment management agreement, which is otherwise
substantively identical to the Acquired Fund's current investment

<PAGE>22

management agreement, would provide for an increase in management fees from
0.45% to 0.50% of the Acquired Fund's average daily net assets. To save
unnecessary proxy expenses to the Acquired Fund, however, the Board of
Trustees has determined first to seek shareholder approval of the
Reorganization, as approval thereof would obviate the need for a second
solicitation of shareholder votes to approve the proposed investment
management agreement. Effective on November 17, 1995 (the anticipated date of
the Reorganization), the Board of Directors of the Acquiring Fund approved an
investment management fee of 0.50% of the Acquiring Fund's average daily net
assets, representing a decrease from the Acquiring Fund's current fee of
0.55%. No shareholder approval is necessary to effectuate this reduced
management fee.

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

The Board of Directors of the Acquiring Fund has also determined
that it is advantageous to the Acquiring Fund to acquire the assets of the
Acquired Fund. The Board of Directors was presented with information that
indicated that investors will continue to be confused in the face of similar
New Jersey municipal bond funds managed by the same adviser. The Board also
was presented with information to the effect that, with two different funds,
Smith Barney experienced: (i) dilution of the firm's money management and
research expertise due to the splitting of attention between the two highly
similar funds; and (ii) client confusion associated with offering similar
funds that provide differing yields. In addition, among other factors, the
Board of Directors considered the proposed decrease in management fee rates as
well as pro forma financial information provided by the Manager which
indicated that the Reorganization should result in a decrease in the expense
ratio on shares of the Acquiring Fund. The Board of Directors also considered
the terms and conditions of the Reorganization and representations that the
Reorganization would be effected as a tax-free reorganization. Accordingly,
the Board of Directors, including a majority of the independent Directors, has
determined that the Reorganization is in the best interests of the Acquiring
Fund's shareholders and that the interests of the Acquiring Fund's
shareholders would not be diluted as a result of the Reorganization.

INFORMATION ABOUT THE REORGANIZATION

PLAN OF REORGANIZATION. The following summary of the Plan is
qualified in its entirety by reference to the Plan (Exhibit A hereto). The
Plan provides that the Acquiring Fund will acquire all or substantially all of
the assets of the Acquired Fund in exchange for shares of the Acquiring Fund
and the assumption by the Acquiring Fund of

<PAGE>23

scheduled liabilities of the Acquired Fund on November 17, 1995 or such later
date as may be agreed upon by the parties (the "Closing Date").

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

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

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

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

The consummation of the Reorganization is subject to the conditions
set forth in the Plan. Notwithstanding approval of the Acquired Fund's
shareholders, the Plan may be terminated at any time at or prior to the
Closing Date (i) by mutual agreement of Smith

<PAGE>24

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

Approval of the Plan will require the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding shares of the
Acquired Fund, which is the lesser of: (i) 67% of the voting securities of the
Acquired Fund present at the Meeting, if the holders of more than 50% of the
outstanding voting securities of the Acquired Fund are present or represented
by proxy; or (ii) more than 50% of the outstanding voting securities of the
Acquired Fund. If the Reorganization is not approved by shareholders of the
Acquired Fund, the Board of Trustees of Smith Barney Muni Funds will consider
courses of action available to it, including re-submitting the Reorganization
proposal to shareholders. Alternatively, the Board may choose to submit to
shareholders a proposal, already approved by Trustees, to adopt a new
investment management agreement that provides for an increase in the
management fee currently payable by the Acquired Fund to the Manager from
0.45% to 0.50% of the Acquired Fund's average daily net assets. The new
investment management agreement would otherwise be substantively identical to
the investment management agreement currently in effect between the Acquired
Fund and the Manager.

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

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

<PAGE>25

(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund's shares and the assumption by
the Acquiring Fund of scheduled liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code, and the Acquiring Fund and the Acquired Fund are each a
"party to a reorganization" within the meaning of Section 368(b) of the
Code;

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

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

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

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

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

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

<PAGE>26

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

<TABLE>
<CAPTION>
Smith Barney
Smith Barney Muni New Jersey
Funds New Jersey Municipals Pro Forma for
Portfolio Fund Inc. Reorganization
(Unaudited) (Unaudited) (Unaudited)

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

Net assets . . . . . . . . . . . . . . . . . $57,054 $105,579 $162,633
Net asset value per share . . . . . . . . . . $ 13.54 $ 12.88 $ 12.88
Shares outstanding . . . . . . . . . . . . . 4,215 8,198 12,629

Class B Shares

Net assets . . . . . . . . . . . . . . . . . $ 2,121 $ 58,657 $ 60,778
Net asset value per share . . . . . . . . . . $ 13.52 $ 12.87 $ 12.87
Shares outstanding . . . . . . . . . . . . . 157 4,556 4,721

Class C Shares

Net assets . . . . . . . . . . . . . . . . . $ 3,453 $ 326 $ 3,779
Net asset value per share . . . . . . . . . . $ 13.52 $ 12.87 $ 12.87
Shares outstanding . . . . . . . . . . . . . 255 25 293

Class Y Shares

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

Class Z Shares
Net assets . . . . . . . . . . . . . . . . . N/A $0 $0
Net asset value per share . . . . . . . . . . N/A $0 $0
Shares outstanding . . . . . . . . . . . . . N/A 0 0

</TABLE>

As of the Record Date, there were 4,214,864 outstanding Class A
shares, 156,832 outstanding Class B shares, 255,362 outstanding Class C shares
and no outstanding Class Y shares of the Acquired Fund, and 8,198,416
outstanding Class A shares, 4,556,302 outstanding Class B shares, 25,350
outstanding Class

<PAGE>27

C shares and no outstanding Class Y shares or Class Z shares of the Acquiring
Fund. As of the Record Date, the officers and Trustees of Smith Barney Muni
Funds beneficially owned as a group less than 1% of the outstanding shares of
each class of the Acquired Fund. To the best knowledge of the Trustees of
Smith Barney Muni Funds, as of the Record Date, no shareholder or "group" (as
that term is used in Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")), except as set forth in the table below, owned beneficially
or of record more than 5% of the outstanding shares of a class of the Acquired
Fund. As of the Record Date, the officers and Directors of the Acquiring Fund
beneficially owned as a group less than 1% of the outstanding shares of each
class of the Acquiring Fund. Except as set forth in the table below, to the
best knowledge of the Directors of the Acquiring Fund, as of the Record Date,
no shareholder or "group" (as that term is used in Section 13(d) of the
Exchange Act) owned beneficially or of record more than 5% of the outstanding
shares of a class of the Acquiring Fund.

Percentage of
Class Owned
of Record
or Beneficially

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

Michael Donawick Acquired Fund 5.54% *
21 Whitmore Drive Class B
Toms River, NJ 08757

Carleton N. Rowe Acquired Fund 6.10 5.57%
Margaret T. Rowe Class C
206 Lenape Trail
Wenonah, NJ 08090

Theresa Stark Acquiring Fund 60.66 5.23
9 Brook Road Class C
P.O. Box 731
Tenafly, NJ 07670

Pascal John Ricatto & Acquiring Fund 12.31 1.06
Pamela Frederick Ricatto Class C
JTWROS
518 Morningside Road
Ridgewood, NJ 07450
<FN>
_________________
* Less than 1.00%

</TABLE>

<PAGE>28

INFORMATION ABOUT THE ACQUIRING FUND

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

Although municipal bond prices declined during the first half of the
Fund's fiscal year ended March 31, 1995, they rebounded quite sharply during
its second half. Despite this variable and oftentimes difficult investment
environment, the Fund provided investors in Class A shares with a total return
of 6.37% and Class B shares with a total return of 5.76% for the twelve months
ended March 31, 1995. Reflecting the improvement in the municipal market that
began in late 1994, Class C shares, a newly-available class of shares, earned
a total return of 8.01% for the period between December 13, 1994 and March 31,
1995.

Economic and Market Overview

Much can be said about the municipal bond and other fixed income
markets of the past twelve months ended March 31, 1995, but they certainly
cannot be described as dull. The Federal Reserve increased interest rates six
times in 1994 and once in 1995 in an attempt to slow the rate of economic
growth and prevent inflation from increasing. This process resulted in
declining bond prices and rising interest rates during the first half of the
Fund's fiscal year. During the second half of the year, the market produced a
powerful bond rally that began in December 1994 as investors came to the
conclusion that an elusive "soft landing" was indeed possible and inflation
posed no real threat. The Fund's net asset value rebounded as a result of
this rally, allowing it to post an increase for this fiscal year. Management
anticipates that slower economic growth (at least over the near term) will
contribute to a more stable interest rate environment in 1995 than investors
experienced in 1994. Management believes that this will be particularly true
of the tax-exempt market.

Prices for New Jersey tax-exempt securities rallied along with the
rest of the municipal sector as investors, who had experienced a very
difficult downturn in the market and perhaps even a significant erosion in the
value of their investments, became more comfortable with the economic scenario
that began unfolding in late 1994. In addition, Governor Whitman's tax
reductions and general approach to less government have been viewed favorably
by tax-exempt investors. As a result, demand from individual investors has
exceeded issuance and this, too, has led to higher prices for New Jersey tax-
exempt securities.

Portfolio Strategy

Management has continued to invest the Fund's assets in a portfolio
of high-quality New Jersey tax-exempt securities with an average maturity of
approximately 21 years. As of the end of the Fund's fiscal year ended March
31, 1995, 68% of the portfolio was invested in issues rated Aaa/AAA or Aa/AA
the two highest ratings in the investment grade category by Moody's
Investors Services and Standard & Poor's Corporation, respectively.
Management believes these securities offer shareholders the best value. The
majority of assets were invested in general obligation, hospital, education,
utility and pollution control bonds. These types of bonds provide the Fund
with competitive yields and a high degree of liquidity, which makes it easier
to navigate through turbulent market periods.

<PAGE>29

Outlook

While the fixed income market has had a meaningful rally since the
beginning of 1995, management thinks that it will be difficult to sustain for
the balance of the year. Although the market may encounter some periodic
volatility, management believes that it will be relatively stable for the
remainder of the year. Municipal bond issuance in New Jersey is almost 70%
lower to date in 1995 than it was in 1994, and this trend is expected to
continue for the balance of the year. This scarcity of supply should have a
steadying effect on the market over the months ahead.

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

Economic Overview

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

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

During the last three to four months, interest rates have stayed
within a 25-basis point trading range, as the Federal Reserve Board's tight
monetary policy slowed economic growth. In July, the Fed began to reverse its
policy, and lowered the federal funds rate by one-quarter percentage point
from 6% to 5.75% in an effort to stimulate growth. Management expects that
the Fed will probably lower rates again some time in the fourth quarter.

Update on the State of New Jersey

New Jersey bond issuance has been subdued over the past several
months as the state develops new guidelines for bond sales. Governor Whitman
has followed through on her campaign promise to reduce income taxes by 30%
with the next installment of the reduction plan to be reflected in 1995 income
taxes. However, this reduction has been achieved at the expense of local
property taxes which have increased an average of 3% to 3.5% statewide. New
Jersey's success in lowering income taxes was also achieved by reducing
spending and the size of state government. The rating agencies have
recognized this accomplishment by reconfirming the state's excellent rating
(Aa1 from Moody's Investors Service and AA+ from Standard & Poor's
Corporation). Management continues to maintain a 20.9 year average maturity
in the Fund with a concentration of AAA rated issues (47.6%). Management
believes that this area represents the best value currently available in the
New Jersey municipal bond market.

<PAGE>30

Smith Barney New Jersey Municipals Fund Inc.

Historical Performance Class A Shares (unaudited)

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

4/22/88-3/31/89 $11.40 $11.67 $0.01 $0.82 -- 9.84%
1990 $11.67 $11.92 $0.03 $0.82 -- 9.62%
1991 $11.92 $12.17 $0.05 $0.83 $0.01 9.89%
1992 $12.17 $12.44 $0.13 $0.77 $0.04 10.22%
1993 $12.44 $13.16 $0.14 $0.75 $0.01 13.49%
1994 $13.16 $12.55 $0.15 $0.70 -- 1.66%
1995 $12.55 $12.62 -- $0.70 -- 6.37%

Total $0.51 $ 5.39 $0.06

Cumulative Total Return - (4/22/88 through 3/31/95) 78.96%

__________________
<FN>

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

</TABLE>

THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.

<PAGE>31

Average Annual Total Return** Class A Shares

Without Sales Charge With Sales Charge***
With Without With Without
Fee Waiver Fee Waiver Fee Waiver Fee Waiver
and Expense and Expense and Expense and Expense
Reimbursement Reimbursement Reimbursement Reimbursement

Year Ended 3/31/95 N/A 6.37% N/A 2.11%

Five Years Ended
3/31/95 8.25% 8.09% 7.37% 7.21%

Inception 4/22/88
through 3/31/95 8.75% 8.46% 8.11% 7.82%

__________________
<FN>

** All average annual total return figures shown reflect
reinvestment of dividends and capital gains at net asset
value. The Acquiring Fund commenced operations on April
22, 1988. The Acquiring Fund's investment adviser,
sub-investment adviser and/or administrator waived
investment advisory and sub-investment advisory and
administration fees and/or reimbursed expenses from April
22, 1988 to March 31, 1994. A shareholder's actual return
for periods during which waivers and reimbursements were
in effect would be the higher of the two numbers shown.

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

Note: On November 6, 1992, existing shares of the Fund were designated
Class A shares. Class A shares are subject to a maximum 4.00% front-end
sales charge and an annual service fee of 0.15% of the value of the
average daily net assets attributable to that class. The Acquiring Fund's
average annual rates of return would have been lower had service fees been
in effect prior to November 6, 1992.
</TABLE>

<PAGE>32

GROWTH OF $10,000 INVESTED IN CLASS A SHARES OF SMITH BARNEY NEW JERSEY
MUNICIPALS FUND INC. VS. LIPPER NEW JERSEY PEER GROUP AVERAGE AND LEHMAN
MUNICIPAL BOND INDEX*

April 22, 1988 - March 31, 1995

Description of Mountain Chart -- Class A

A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on April
22, 1988 in Class A shares of the Acquiring Fund as compared with the growth
of a $10,000 investment in the Lipper New Jersey Peer Group Average and the
Lehman Brothers Municipal Bond Index. The plot points used to draw the line
graphs were as follows:

Growth of $10,000 Growth of $10,000 Investment
Growth of $10,000 Investment in the in the
Month Invested in Class A Lipper New Jersey Lehman Municipal
Ended Shares of the Fund Peer Group Average Bond Index
<S> <C> <C> <C>
04/22/88 $ 9,600 -- --
04/88 $ 9,651 $10,000 $10,000
05/88 $ 9,726 $10,002 $ 9,971
06/88 $ 9,916 $10,215 $10,117
09/88 $10,236 $10,531 $10,375
12/88 $10,530 $10,835 $10,568
03/89 $10,545 $10,895 $10,638
06/89 $11,160 $11,571 $11,268
09/89 $11,159 $11,501 $11,276
12/89 $11,506 $11,905 $11,709
03/90 $11,559 $11,926 $11,761
06/90 $11,861 $11,218 $12,036
09/90 $11,855 $12,167 $12,043
12/90 $12,429 $12,749 $12,563
03/91 $12,701 $13,042 $12,846
06/91 $12,943 $13,321 $13,121
09/91 $13,526 $13,873 $13,631
12/91 $13,949 $14,303 $14,089
03/92 $13,999 $14,331 $14,131
06/92 $14,577 $15,261 $14,667
09/92 $14,970 $14,914 $15,058
12/92 $15,264 $15,573 $15,332
03/93 $15,888 $16,169 $15,901
06/93 $16,452 $16,768 $16,421
09/33 $17,038 $17,349 $16,976
12/93 $17,246 $17,522 $17,214
03/94 $16,152 $16,463 $16,269
06/94 $16,299 $16,549 $16,540
09/94 $16,384 $16,644 $16,562

<PAGE>33

12/94 $16,039 $16,348 $16,324
03/95 $17,181 $17,406 $17,478

<FN>
___________________

* Illustration of $10,000 invested in Class A shares on
April 22, 1988 assuming deduction of the maximum 4.00%
sales charge at the time of investment and reinvestment of
dividends and capital gains at net asset value through
March 31, 1995.

Lipper New Jersey Municipal Fund Average - The Lipper New Jersey Peer Group
Average is composed of an average of the Fund's peer group of mutual funds
(50 as of March 31, 1995) investing in New Jersey tax-exempt bonds.

Lehman Municipal Bond Index - The Lehman Municipal Bond Index is an
unmanaged, broad-based index which includes about 8,000 tax-free bonds and
reflects approximately $300 billion of market capitalization.

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

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

</TABLE>

<PAGE>34

Smith Barney New Jersey Municipals Fund Inc.

Historical Performance Class B Shares (unaudited)

Year Ended Net Asset Value Capital Gains Dividends Return of
March 31 Beginning Ending Paid Paid Capital Total Return *
<S> <C> <C> <C> <C> <C> <C>

11/6/92-3/31/93 $12.75 $13.16 $0.14 $0.27 $0.01 6.60%
1994 $13.16 $12.55 $0.15 $0.63 -- 1.15%
1995 $12.55 $12.62 -- $0.62 -- 5.76%

Total $0.29 $1.52 $0.01

Cumulative Total Return (11/6/92 through 3/31/95) 14.04%

__________________
<FN>

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

Average Annual Total Return** Class B Shares

Year Ended 3/31/95 N/A 5.76% N/A 1.26%

Inception 11/6/92
through 3/31/95 5.63% 5.55% 4.47% 4.40%
__________________
<FN>

** All average annual total return figures shown reflect
reinvestment of dividends and capital gains distributions
at net asset value. The Fund's investment adviser,
sub-investment adviser and/or administrator waived fees
and/or reimbursed expenses from November 6, 1992 to March
31, 1994. A shareholder's actual return for periods
during which waivers and reimbursements were in effect
would be the higher of the two numbers shown.

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

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

</TABLE>

<PAGE>35

GROWTH OF $10,000 INVESTED IN CLASS B SHARES OF
SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC. VS.
LIPPER NEW JERSEY PEER GROUP AVERAGE AND
LEHMAN MUNICIPAL BOND INDEX*

NOVEMBER 6, 1992 - MARCH 31, 1995

Description of Mountain Chart -- Class B

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

Growth of $10,000 Growth of $10,000 Investment
Growth of $10,000 Investment in the in the
Month Invested in Class B Lipper New Jersey Lehman Municipal
Ended Shares of the Fund Peer Group Average Bond Index
<S> <C> <C> <C>
10/31/92 - $10,000 $10,000
11/06/92 $10,000 - -
11/92 $10,140 $10,265 $10,179
12/92 $10,255 $10,398 $10,283
03/93 $10,660 $10,797 $10,664
06/93 $11,025 $11,197 $11,013
09/93 $11,404 $11,585 $11,385
12/93 $11,529 $11,700 $11,545
03/94 $10,782 $10,993 $10,911
06/94 $10,865 $11,051 $11,032
09/94 $10,907 $11,114 $11,108
12/94 $10,662 $10,916 $10,948
03/95 $11,404** $11,623 $11,722
03/95 $11,107***

<FN>

* Illustration of $10,000 invested in Class B shares on
November 6, 1992 assuming reinvestment of dividends and
capital gains distributions at net asset value through
March 31, 1995.

** Value does not assume deduction of applicable CDSC.

*** Value assumes deduction of applicable CDSC (assuming
redemption on March 31, 1995).

Lipper New Jersey Peer Group Average - The Lipper New Jersey Municipal Fund
Average is composed of an average of the Fund's peer group of mutual funds (50
as of March 31, 1995) investing in New Jersey municipal bonds.

Lehman Municipal Bond Index - The Lehman Brothers Municipal Bond Index is an
unmanaged, broad-based index which includes about 8,000 tax-free bonds and
reflects approximately $300 billion of market capitalization.

<PAGE>36

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

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

</TABLE>

<PAGE>37

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

Historical Performance Class C Shares (unaudited)

Year Ended Net Asset Value Capital Dividends Total
March 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>

12/13/94-3/31/95 $11.86 $12.62 $0.00 $0.18 8.01%

Cumulative Total Return (12/13/94 through 3/31/95) 8.01%
____________________
<FN>

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

Aggregate Total Return** -- Class C Shares

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

Inception 12/13/94 through 3/31/95 8.01% 7.01%
____________________
<FN>

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

*** Aggregate total return figures assume the deduction of the
maximum applicable CDSC, which is described in the
Acquiring Fund's prospectus.

Note: The Fund began offering Class C shares on November 7,
1994 and commenced selling these shares on December
13, 1994. Class C shares are subject to a maximum
1.00% CDSC and annual service and distribution fees of
0.15% and 0.55%, respectively, of the value of the
average daily net assets attributable to that class.
</TABLE>

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

<PAGE>38

INFORMATION ABOUT THE ACQUIRED FUND

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

Municipal bond prices posted extremely strong gains in the first
quarter of 1995, erasing most of the losses from last year's turbulent market.
The New Jersey Portfolio had a total return of 6.64% (Class A shares) for the
fiscal year. That was significantly above the 5.68% average total return for
all New Jersey municipal bond funds over the same period, as reported by
Lipper Analytical Services.

Longer-term performance of the Portfolio is also excellent relative
to its peers. The Portfolio's three-year cumulative total return (excluding
sales charge) of 23.73% (Class A shares) outperformed the average cumulative
total return of 22.61% for all New Jersey municipal bond funds in the Lipper
survey for the period ended March 31, 1995. It should be noted that this
strong performance over the last three years has been achieved with the need
for only minimal capital gains distributions, an important consideration for
investors interested in after-tax income.

Market and Economic Overview

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

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

<PAGE>39

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

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

The New Jersey Economy

Economic conditions in New Jersey are slowly recovering, producing
increased state revenue collections. A proposed tax-cut plan will be closely
watched by the major rating agencies for offsetting reductions in
expenditures. New Jersey's general obligation debt carries as of March 31,
1995, an Aa1 rating from Moody's and an AA+ rating from Standard & Poor's with
a "stable" outlook.

Portfolio Strategy and Outlook

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

<PAGE>40

In light of this viewpoint, management is maintaining a balanced
approach to structuring the interest-rate sensitivity of the Portfolio by
investing in a combination of both long and short effective maturities. Most
long-term municipal bonds are callable prior to their stated maturity date.
When a bond has a coupon higher than prevailing market yields, its maturity is
effectively shortened to the call date for trading purposes because of the
possibility that the issuer will exercise its option to replace the bond with
lower-cost debt. Management is retaining high-coupon bonds that trade well
above their face value for the defensiveness of their shorter effective
maturities and the above-market level of income they provide. However,
management is also focusing on eliminating bonds with shorter call dates when
they are trading near their face value. Such bonds have unfavorable
performance characteristics because they retain the downside risk of their
longer maturity if rates should rise, but their appreciation potential is
limited by the shorter call date if interest rates decline. Management is
replacing such issues with bonds that have similar stated maturities but
greater call protection.

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

Management's Update (as of September 13, 1995).

The fixed-income markets have been rallying in recent weeks in
response to economic reports pointing to slower growth and lower inflation.
This rally has pushed the yield on the benchmark 30-year Treasury bond to the
low end of the 6.5% to 7% range, where it has been trading over the last
several months. After significantly underperforming Treasuries during the
strong rally earlier in the year, long-term municipals have kept pace with 30-
year Treasuries as reflected in the movement in the yield of The Bond Buyer's
25 Revenue Bond Index to 6.16% from its recent peak of 6.44% reached in mid-
August. However, municipal bonds are still quite cheap relative to Treasuries
with long-term single A issues providing over 90% of the yield available on
long-term Treasuries. The primary reason for this historically high
taxable/tax-exempt yield ratio is investor concern over the potential impact
of various highly publicized "flat tax" proposals discussed in management's
March 31, 1995 report to shareholders. At these levels, management believes
that all but the most radical tax reform proposals have been more than fully
discounted, and that long-term municipals represent excellent value.

While inflation remains quite subdued, and management does not
expect it to accelerate meaningfully from current levels, in management's
opinion any sign of a rebound in economic activity is likely to result in a
move to higher interest rates over the near term.

<PAGE>41

Management intends to retain most of the Portfolio's more defensive high-
coupon issues for income purposes but will have a bias toward putting new cash
flows to work in non-callable and lower-coupon bonds in what it believes will
be a positive environment for fixed-income investments over the longer term.

The New Jersey Economy

Economic conditions in New Jersey continue to recover. There has
been no change in the state's ratings, which are Aa1 from Moody's and AA+
(with a stable outlook) from Standard & Poor's.

<PAGE>42

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

Historical Performance Class A Shares

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

3/31/95 $13.23 $13.29 $0.78 $0.00 6.64%
3/31/94 13.71 13.23 0.80 0.00 2.17
3/31/93 12.90 13.71 0.82 0.06 13.55
3/31/92 12.52 12.90 0.85 0.08 10.73
Inception* - 3/31/91 12.00 12.52 0.33 0.00 7.12

Total $3.58 $0.14

</TABLE>

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

Net Asset Value

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

Inception* - 3/31/95 $12.26 $13.28 $0.29 $0.00 10.86%

</TABLE>

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

Net Asset Value

Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)
3/31/95 $13.22 $13.28 $0.69 $0.00 5.91%
3/31/94 13.71 13.22 0.71 0.00 1.40
Inception* - 3/31/93 13.36 13.71 0.19 0.00 4.04

Total $1.59 $0.00

</TABLE>

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

<PAGE>43

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

Average Annual Total Return

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

Year Ended 3/31/95 6.64% N/A 5.91%
Inception* through 3/31/95 8.96 10.86 5.10
<CAPTION>
With Sales Charge(2)
Class A Class B Class C

Year Ended 3/31/95 2.38% N/A 4.91%
Inception* through 3/31/95 7.97 6.36 5.10

</TABLE>

Cumulative Total Return
<S> <C>

Without Sales Charge(1)

Class A (Inception* through 3/31/95) 46.74%
Class B (Inception* through 3/31/95) 10.86
Class C (Inception* through 3/31/95) 11.74

<FN>

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

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

* Inception dates for Class A, Class B and Class C shares are October 11,
1990, November 16, 1994 and January 5, 1993, respectively.

</TABLE>

<PAGE>44

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

October 1990 - March 1995

Description of Mountain Chart - Class A

A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
October 11, 1990 in Class A shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman Brothers Long Bond Index. The
plot points used to draw the line graphs were as follows:

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

October 11, 1990 $ 9,600.00 $10,000.00
March 31, 1991 10,273.03 10,757.71
March 31, 1992 11,345.40 11,982.77
March 31, 1993 12,851.10 13,735.72
March 31, 1994 13,099.60 13,893.25
March 31, 1995 13,949.80 15,147.72

<FN>

* Hypothetical illustration of $10,000 invested in Class A shares at
inception on October 11, 1990, assuming deduction of the maximum 4.00%
sales charge at the time of investment and reinvestment of dividends
(after deduction of applicable sales charges, if any) and capital gains
(at net asset value) through March 31, 1995. The Index is unmanaged and
is not subject to the same management and trading expenses of a mutual
fund. The performance of the Portfolio's other classes may be greater or
less than the Class A shares' performance indicated on this chart,
depending on whether greater or lesser sales charges and fees were
incurred by shareholders investing in the other classes.

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

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

<PAGE>45

COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES

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

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

PRIMARY INVESTMENTS. The Acquiring Fund operates subject to an
investment policy providing that, under normal market conditions, it will
invest at least 80% of its net assets in municipal securities and at least 65%
of the aggregate principal amount of the Acquiring Fund's investments in New
Jersey municipal securities, which pay interest which is excluded from gross
income for federal income tax purposes and which is exempt under the New
Jersey Gross Income Tax Act. Municipal obligations are issued to raise money
for a variety of public projects, such as health facilities, housing,
airports, schools, highways and bridges. Whenever less than 80% of the
Acquired Fund's assets are invested in New Jersey municipal securities, the
Acquired Fund, in order to maintain its status as a "qualified investment
fund" under New Jersey law, will seek to invest in debt obligations which, in
the opinion of counsel to the issuers, are free from state or local taxation
under New Jersey or federal laws ("Tax-Exempt Obligations"). The Acquired
Fund's investments in New Jersey municipal securities and Tax-Exempt
Obligations will represent at least 80% of the aggregate principal amount of
all of its investments, excluding cash and cash items (including receivables).
Subject to these minimum investment intentions, the Acquiring Fund

<PAGE>46

also may acquire intermediate- and long-term debt obligations consisting of
municipal securities, the interest on which is at least exempt from federal
income taxation (not including the possible applicability of the alternative
minimum tax). When the Manager believes that market conditions warrant
adoption of a temporary defensive investment posture, the Acquiring Fund may
invest without limit in non-New Jersey municipal issuers and in temporary
investments as described below. The Acquired Fund operates subject to a
fundamental policy that under normal market conditions it will seek to invest
100% of its assets, and will invest not less than 80% of its assets, in
municipal obligations the interest on which is exempt from federal income
taxes (other than the alternative minimum tax) and not less than 65% of its
assets in municipal obligations the interest on which is also exempt from New
Jersey personal income taxes in the opinion of bond counsel to the issuers.
The Acquired Fund may invest up to 20% of its assets in taxable fixed income
securities, but only in obligations issued or guaranteed by the full faith and
credit of the United States ("U.S. government securities"), and may invest
more than 20% of its assets in U.S. government securities during periods when
in the Manager's opinion a temporary defensive posture is warranted, including
any period when the Acquired Fund's monies available for investment exceed New
Jersey's municipal obligations available for purchase that meet the Acquired
Fund's rating, maturity and other investment criteria.

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

Municipal bonds purchased by the Acquired Fund must, at the time of
purchase, be investment grade municipal bonds and at least two-thirds of the
Acquired Fund's municipal bonds must be rated in the category of A or better.
Investment grade bonds are those rated Aaa, Aa, A or Baa by Moody's or AAA,
AA, A or BBB by S&P or have an equivalent rating by any nationally recognized
statistical rating organization; pre-refunded bonds escrowed by U.S. Treasury
obligations will be considered AAA rated even though the issuer does not
obtain a new rating. Up to one-third of the assets of the Acquired

<PAGE>47

Fund may be invested in municipal bonds rated Baa or BBB (this grade, while
regarded as having an adequate capacity to pay interest and repay principal,
is considered to be of medium quality and has speculative characteristics; in
addition, changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with higher grade bonds) or in unrated municipal bonds if,
based upon credit analysis by the Manager, it is believed that such securities
are at least of comparable quality to those securities in which the Acquired
Fund may invest. After the Acquired Fund purchases a municipal bond, the
issuer may cease to be rated or its rating may be reduced below the minimum
required for purchase. Such an event would not require the elimination of the
issue from the Acquired Fund's portfolio but the Manager will consider such an
event in determining whether the Acquired Fund should continue to hold the
security. The Acquired Fund's short-term municipal obligations will be
limited to high grade obligations (obligations that are secured by the full
faith and credit of the United States or rated MIG1 or MIG2, VMIG1 or VMIG2 or
Prime-1 or Aa or better by Moody's or SP-1+, SP-1, SP-2, or A-1 or AA or
better by S&P or have an equivalent rating by any nationally recognized
statistical rating organization or obligations determined by the Manager to be
equivalent). Among the types of short-term instruments in which the Acquired
Fund may invest are floating or variable rate term demand instruments, tax-
exempt commercial paper (generally having a maturity of less than nine
months), and other types of notes generally having maturities of less than
three years, such as Tax Anticipation Notes, Revenue Anticipation Notes, Tax
and Revenue Anticipation Notes and Bond Anticipation Notes. Demand
instruments usually have an indicated maturity of more than one year, but
contain a demand feature that enables the holder to redeem the investment on
no more than 30 days' notice; variable rate demand instruments provide for
automatic establishment of a new interest rate on set dates; floating rate
demand instruments provide for automatic adjustment of their interest rates
whenever some other specified interest rate changes (e.g., the prime rate).
The Acquired Fund may purchase participation interests ("Participations") in
variable rate tax-exempt securities (such as Industrial Development Bonds)
owned by banks. Participations are frequently backed by an irrevocable letter
of credit or guarantee of a bank that the Manager has determined meets the
prescribed quality standards for the Acquired Fund. Participations will be
purchased only if management believes interest income on such Participations
will be tax-exempt when distributed as dividends to shareholders.

Each Fund's average weighted maturity will vary from time to time
based on the judgment of the Manager. The Acquiring Fund intends to focus on
intermediate- and long-term obligations, that is, obligations with remaining
maturities at the time of purchase of between three and twenty years. The
average maturity of the Acquired Fund's bonds will typically range between
five and thirty years.

Because many issuers of New Jersey municipal securities may chose
not to have their obligations rated, it is possible that a large portion of
each Fund's portfolio may consist of unrated obligations. Unrated obligations
are not necessarily of lower quality than

<PAGE>48

rated obligations, but to the extent a Fund invests in unrated obligations,
the Fund will be more reliant on the Manager's judgment, analysis and
experience than would be the case if such Fund invested only in rated
obligations.

The Acquiring Fund may invest without limit in municipal leases,
which generally are participations in intermediate- and short-term debt
obligations issued by municipalities consisting of leases or installment
purchase contracts for property or equipment. Although lease obligations 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, appropriate 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 securities represent a relatively new
type of financing that has not yet developed 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 foreclosure might prove difficult. There is no
limitation on the percentage of the Acquiring Fund's assets that may be
invested in municipal lease obligations. The Acquired Fund does not have an
expressed position with respect to investing in municipal leases.

Each Fund may invest without limits in private activity bonds.
Sizable investments in such obligations could involve an increased risk to the
Funds should any of the related projects or facilities experience financial
difficulties. Interest income on certain types of private activity bonds
issued after August 7, 1986 to finance non-governmental activities is a
specific tax preference item for purposes of the federal individual and
corporate alternative minimum taxes. Individual and corporate shareholders
may be subject to a federal alternative minimum tax to the extent that a
Fund's dividends are derived from interest on those bonds. Dividends derived
from interest income on New Jersey municipal securities are a component of the
"current earnings" adjustment item for purposes of the federal corporate
alternative minimum tax.

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

<PAGE>49

assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer.

New Jersey Municipal Securities. 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 facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source, but not from the general taxing
power. Sizeable investments in such obligations could involve an increased
risk to the Fund should any of such related facilities experience financial
difficulties. In addition, certain types of private activity bonds issued by
or on behalf of public authorities to obtain funds for privately operated
facilities are included in the term New Jersey municipal securities, provided
the interest paid thereon qualifies as excluded from gross income for federal
income tax purposes and as exempt from New Jersey state personal income tax.
Private activity bonds are in most cases revenue bonds and generally do not
carry the pledge of the credit of the issuing municipality.

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

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

Temporary Investments. Under normal market conditions, the
Acquiring Fund may hold up to 20% of its total assets in cash or money market
instruments, including taxable money market instruments ("Temporary
Investments"). In addition, when the Manager believes that market conditions
warrant, including when acceptable New Jersey municipal securities are
unavailable, the Acquiring Fund may take a temporary defensive posture and
invest without limitation in Temporary Investments. Securities eligible for
short-term investment by the Acquiring Fund under such circumstances are tax-
exempt notes of municipal issuers having, at the time of purchase, a rating
within the three highest grades of

<PAGE>50

Moody's or S&P or, if not rated, having an issue of outstanding debt
securities rated within the three highest grades of Moody's or S&P, and
certain taxable short-term instruments having quality characteristics
comparable to those for tax-exempt investments. Since the commencement of its
operations, the Acquiring Fund has not found it necessary to invest in taxable
Temporary Investments and it is not expected that such action will be
necessary. Similarly, the Acquired Fund may invest up to 20% of its assets in
taxable fixed income securities, but only in U.S. government securities, and
may invest more than 20% of its assets in U.S. government securities during
periods when in the Manager's opinion a temporary defensive posture is
warranted, including any period when the Acquired Fund's monies available for
investments exceed New Jersey's municipal obligations available for purchase
that meet the Acquired Fund's rating, maturity and other investment criteria.
To the extent a Fund holds Temporary Investments, it may not achieve its
investment objective.

Financial Futures and Options Transactions. The Acquiring Fund may
enter into financial futures contracts and invest in options on financial
futures contracts that are traded on a domestic exchange or board of trade.
Such investments, if any, by the Acquiring Fund will be made solely for the
purpose of hedging against the changes in the value of its portfolio
securities due to anticipated changes in interest rates and market conditions
and where the transactions are economically appropriate to the reduction of
risks inherent in the management of the Acquiring Fund. The futures contracts
or options on futures contracts that may be entered into by the Acquiring Fund
will be restricted to those that are either based on a municipal securities
index or related to debt securities, the prices of which are anticipated by
the Manager to correlate with the prices of the New Jersey municipal
securities owned or to be purchased by the Acquiring Fund. Regulations of the
Commodity Futures Trading Commission applicable to the Acquiring Fund (and the
Acquired Fund) require that its transactions in financial futures contracts
and options 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 addition, the
Acquiring Fund's ability to trade in financial futures contracts and options
on financial futures contracts may be limited to some extent by the
requirements of the Code, applicable to a regulated investment company, that
are described in the accompanying Prospectus of the Acquiring Fund under
"Dividends, Distributions and Taxes."

Although the Acquiring Fund intends to enter into financial futures
contracts and options on financial futures contracts that are traded on a
domestic exchange or board of trade only if an active market exists for those
instruments, 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 Acquiring 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 Acquiring Fund's investments being
hedged, if any, may offset partially or completely losses on the futures
contract. No assurance can be

<PAGE>51

given, however, that the price of the securities 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 Acquiring 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 Acquiring
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
Acquiring Fund that were the subject of the hedge. In an effort to compensate
for the imperfect correlation of movement in the price of the securities being
hedged and movements in the price of futures contracts, the Acquiring Fund may
enter into financial futures contracts or options on financial futures
contracts in a greater or 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 Acquiring Fund's net investment
results if market movements are not as anticipated when the hedge is
established.

If the Acquiring Fund has hedged against the possibility of an
increase in interest rates adversely affecting the value of securities it
holds and rates decrease instead, the Acquiring Fund will lose part or all of
the benefit of the increased value of securities that it has hedged because it
will have offsetting losses in its futures or options position. In addition,
in those situations, if the Acquiring Fund has insufficient cash, it may have
to sell securities to meet daily variation margin requirements on the futures
contracts at a time when it may be disadvantageous to do so. These sales of
securities may, but will not necessarily, be at increased prices that reflect
the decline in interest rates.

The Acquired Fund may also invest in municipal bond index futures
contracts (currently traded on the Chicago Board of Trade) or in listed
contracts based on U.S. government securities as a hedging policy in pursuit
of its investment objective; provided that immediately thereafter not more
than 33-1/3% of its net assets would be hedged or the amount of margin deposit
on the Acquired Fund's net assets would not exceed 5% of the value of its
total assets. Since any income would be taxable, it is anticipated that such
investments would be made only in those circumstances when the Manager
anticipates the possibility of an extreme change in interest rates or in
market conditions but does not wish to liquidate the Acquired Fund's
securities.

Lower Rated Securities or "Junk Bonds." Although the Acquiring Fund
has not substantially done so in the past, the Acquiring Fund may invest up to
25% of its total assets in Securities that are rated as low as C by Moody's or
D by S&P, or comparable unrated securities. While the market values of low-
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 low-rated and comparable unrated municipal securities
also tend to be more sensitive than higher-rated securities to short-term
corporate and

<PAGE>52

industry 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 generally
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 obligations,
meet projected goals or obtain additional financing may be impaired. The risk
of loss due to default by such issuers is significantly greater because low-
rated and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. The Acquiring
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 securities is considered to be
generally adequate, the existence of limited markets for particular low-rated
and comparable unrated securities may diminish the Acquiring Fund's ability to
(a) obtain 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. The market for certain low-rated and comparable
unrated securities has not fully weathered a major economic recession. Any
such recession, however, would likely disrupt severely the market for such
securities and adversely affect the value of such securities. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.

Fixed-income securities, including low-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 Acquiring Fund. If an issuer exercises the rights during periods
of declining interest rates, the Acquiring Fund may have to replace the
security with a lower yielding security, thus resulting in a decreased return
to the Acquiring Fund.

The Acquired Fund may not purchase comparable lower rated
securities.

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

1. The Acquiring Fund may not issue senior securities, as defined
in the 1940 Act and the rules and orders thereunder, except insofar as the
Acquiring Fund may be deemed to have issued senior securities by reason
of borrowing money or purchasing securities on a when-issued or delayed-
delivery basis, purchasing or selling futures contracts

<PAGE>53

and options on futures contracts and other similar instruments, and issuing
separate classes of shares. The Acquired Fund does not have a similar
investment restriction.

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

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

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

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

6. The Acquiring Fund may not purchase or sell real estate, real
estate mortgages, real estate investment trust ("REIT") securities,
commodities or commodity contracts, but this shall not prevent the Acquiring
Fund from investing in securities of issuers engaged in the real estate
business and securities which are secured by real estate or interests therein,
holding or selling real estate received in connection with securities it
holds, or trading in futures contracts and options on futures contracts. The
Acquired Fund may not

<PAGE>54

purchase or hold any real estate, except that it may invest in securities
secured by real estate or interests therein or issued by persons (other than
REITs) which deal in real estate or interests therein, and may not purchase or
sell commodities and commodity contracts, except that it may invest in or sell
municipal bond futures index contracts, provided immediately thereafter not
more than 33-1/3% of its net assets would be hedged or the amount of margin
deposits on the Acquired Fund's existing futures contracts would not exceed 5%
of the value of its total assets.

7. Neither Fund may purchase any securities on margin (except, in
the case of the Acquiring Fund, for such short-term credits as are necessary
for the clearance of purchases and sales of portfolio securities) or sell any
securities short (except, in the case of the Acquiring Fund, against the box).
For purposes of this restriction, the deposit or payment by the Acquiring
Fund of initial maintenance margin in connection with futures contracts and
related options and options on securities is not considered to be the purchase
of a security on margin. 8. The Acquired Fund will not invest more than
10% of its net assets in illiquid securities, including those that
are not readily marketable or for which there is no established market. The
Acquiring Fund may not purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets would be invested in securities that
are illiquid. This is not a fundamental investment restriction with respect
to the Acquiring Fund and may be changed by the Acquiring Fund's Board of
Directors at any time.

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

Other Non-Fundamental Investment Restrictions

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

<PAGE>55

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

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

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

INFORMATION ON SHAREHOLDERS' RIGHTS

General. The Acquiring Fund and Smith Barney Muni Funds are open-
end, management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The
Acquiring Fund is a Maryland corporation which was incorporated on November
12, 1987 and is governed by its Articles of Incorporation, By-Laws and Board
of Directors. The Acquired Fund is a series of Smith Barney Muni Funds, which
was organized on August 14, 1985 under the laws of Massachusetts and is a
business entity commonly known as a "Massachusetts business trust." Smith
Barney Muni Funds is governed by its Declaration of Trust, By-Laws and
Trustees. Each Fund is also governed by applicable state and federal law.
The Acquiring Fund has an authorized capital of 100,000,000 shares of common
stock with a par value of $.001 per share. The beneficial interest in the
Acquired Fund is divided into shares, all with a par value of $.001 per share.
The number of authorized shares of the Acquired Fund that may be issued is
unlimited. The Trustees of Smith Barney Muni Funds have authorized the
issuance of twenty series of shares, each representing shares in one of twenty
separate portfolios, and may authorize the issuance of additional series of
shares in the future. In both the Acquiring Fund and the Acquired Fund, Class
A shares, Class B shares and Class C shares represent interests in the assets
of the Fund and have identical voting, dividend, liquidation and other rights
on the same terms and conditions except that expenses related to the
distribution of each class of shares are borne solely by each class and each
class of shares has exclusive voting rights with respect to provisions of each
Fund's Rule 12b-1 distribution

<PAGE>56

plan which pertains to a particular class. Notwithstanding the foregoing,
Class B shares of either Fund will convert automatically to Class A shares of
such Fund, based on relative net asset value, eight years after the date of
the original purchase of such shares. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain
portion of Class B shares that have been acquired through the reinvestment of
dividends and distributions will be converted to Class A shares of the
respective Fund at that time.

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

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

<PAGE>57

respect to matters relating to Smith Barney Muni Funds requiring a majority
shareholder vote as described in the Declaration of Trust, a majority of
shares represented in person or by proxy and entitled to vote at a meeting of
shareholders at which a quorum is present shall decide such matter. In cases
where the vote is submitted to the holders of one or more but not all series
or classes, a majority of the outstanding shares of the particular series or
class affected by the matter shall decide such matter.

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

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

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

<PAGE>58

Currently, each shareholder of a Massachusetts corporation is permitted to
inspect the records, accounts and books of a corporation for any legitimate
business purpose.

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

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

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

SMITH BARNEY NEW JERSEY MUNICIPALS FUND INC. Information about the
Acquiring Fund is included in its current Prospectus dated May 29, 1995, as
supplemented by a Prospectus Supplement dated September 1, 1995 and in the
Statement of Additional Information dated May 29, 1995 that has been filed
with the SEC, both of which are incorporated herein by reference. A copy of
the Prospectus is attached hereto, and a copy of the Statement of Additional
Information is available upon request and without charge by writing to the
Acquiring Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling (800) 224-7523.

SMITH BARNEY MUNI FUNDS. Information about the Acquired Fund is
incorporated herein by reference from its current Prospectus dated November 7,
1994, as supplemented by a Prospectus Supplement dated July 26, 1995, and the
Statement of Additional Information of Smith Barney Muni Funds dated July 31,
1995. A copy of such Prospectus and Statement of Additional Information is
available upon request and without

<PAGE>59

charge by writing to the Acquired Fund at the address listed on the cover page
of this Prospectus/Proxy Statement or by calling (800) 224-7523.

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

OTHER BUSINESS

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

VOTING INFORMATION

This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of Smith Barney Muni Funds to
be used at the Special Meeting of Shareholders of the Acquired Fund to be held
at 4:00 p.m. on November 14, 1995, at 388 Greenwich Street, New York, New York
10013, and at any adjournment or adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of the Meeting and a proxy card, is first being
mailed to shareholders of the Acquired Fund on or about October 27, 1995.
Only shareholders of record as of the close of business on the Record Date
will be entitled to notice of, and to vote at, the Meeting or any adjournment
thereof. The holders of one-third of the shares of the Acquired Fund
outstanding at the close of business on the Record Date present in person or
represented by proxy will constitute a quorum for the Meeting. For purposes
of determining a quorum for transacting business at the Meeting, abstentions
and broker "non-votes" (that is, proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owner or
other persons entitled to vote shares on a particular matter with respect to
which the brokers or nominees do not have discretionary power) will be treated
as shares that are present but which have not been voted. For this reason,
abstentions and broker non-votes will have the effect of a "no" vote for
purposes of obtaining the requisite approval of the Plan. If the enclosed
form of proxy is properly executed and returned in time to be voted at the
Meeting, the proxies named therein will vote the shares represented by the
proxy in accordance with

<PAGE>60

the instructions marked thereon. Unmarked proxies will be voted FOR approval
of the proposed Reorganization and FOR approval of any other matters deemed
appropriate. A proxy may be revoked at any time on or before the Meeting by
written notice to the Secretary of the Acquired Fund, Christina T. Sydor,
Esq., 388 Greenwich Street, New York, New York 10013. Unless revoked, all
valid proxies will be voted in accordance with the specifications thereon or,
in the absence of such specifications, FOR approval of the Plan and the
Reorganization contemplated thereby.

Proxy solicitations will be made primarily by mail, but proxy
solicitations also may be made by telephone, telegraph or personal interviews
conducted by officers and employees of Smith Barney and its affiliates and/or
by TSSG. In addition, Applied Mailing Systems, Inc., an affiliate of TSSG
("Applied Mailing"), or an agent of Applied Mailing, may call shareholders to
ask if they would be willing to have their votes recorded by telephone. The
latter telephone voting procedure is designed to authenticate the shareholder's
identity by asking the shareholder to provide his or her social security
number (in the case of an individual) or taxpayer identification number (in
the case of an entity). The shareholder's telephone vote will be recorded and
a confirmation will be sent to the shareholder to ensure that the vote has
been taken in accordance with the shareholder's instructions. Although a
shareholder's vote may be taken by telephone, each shareholder will receive a
copy of this Prospectus/Proxy Statement and may vote by mail using the
enclosed proxy card. The Acquired Fund has been advised by Massachusetts
counsel that this telephonic voting system complies with Massachusetts law.
The aggregate cost of solicitation of the shareholders of the Acquired Fund is
expected to be approximately $2,610. Expenses of the Reorganization,
including the costs of the proxy solicitation and the preparation of
enclosures to the Prospectus/Proxy Statement, reimbursement of expenses of
forwarding solicitation material to beneficial owners of shares of the
Acquired Fund and expenses incurred in connection with the preparation of this
Prospectus/Proxy Statement will be borne by the Acquiring Fund and the
Acquired Fund in proportion to their assets.

In the event that a quorum necessary for a shareholders meeting is
not present or sufficient votes to approve the Reorganization are not received
by November 14, 1995, the persons named as proxies may propose one or more
adjournments of the Meeting to

<PAGE>61

permit further solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the percentage of votes
actually cast, the percentage of negative votes actually cast, the nature of
any further solicitation and the information to be provided to shareholders
with respect to the reasons for the solicitation. Any such adjournment will
require an affirmative vote by the holders of a majority of the shares present
in person or by proxy and entitled to vote at the Meeting. The persons named
as proxies will vote upon a decision to adjourn the Meeting.

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

FINANCIAL STATEMENTS AND EXPERTS

The statement of assets and liabilities of the Acquired Fund,
including the schedule of investments, as of March 31, 1995, the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the
financial highlights for each of the years in the four-year period then ended,
and for the period October 11, 1990 (commencement of operations) to March 31,
1991, have been incorporated by reference into this Prospectus/Proxy Statement
in reliance upon the reports of KPMG Peat Marwick LLP, independent
accountants, given on the authority of such firm as experts in accounting and
auditing. The statement of assets and liabilities of the Acquiring Fund,
including the schedule of investments, as of March 31, 1995, the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended and the
financial highlights for each of the years in the six-year period then ended,
and for the period August 22, 1988 (commencement of operations) to March 31,
1989, have been incorporated by reference into this Prospectus/Proxy Statement
in reliance upon the report of Coopers & Lybrand L.L.P., independent
accountants, and upon the authority of such firm as experts in accounting and
auditing.

LEGAL MATTERS

Certain legal matters concerning the issuance of shares of the
Acquiring Fund will be passed upon by Willkie Farr & Gallagher, One Citicorp
Center, 153 East 53rd Street, New York, New York 10022. In rendering such
opinion, Willkie Farr & Gallagher may rely on an opinion of Venable, Baetjer
and Howard, LLP as to certain matters under Maryland law.

THE BOARD OF TRUSTEES OF THE SMITH BARNEY MUNI FUNDS, INCLUDING THE
INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN, AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR
OF APPROVAL OF THE PLAN.

<PAGE>62

EXHIBIT A

AGREEMENT AND PLAN OF REORGANIZATION

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

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

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

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

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

WHEREAS, the Board of Directors of the Acquiring Fund has determined
that the exchange of all or substantially all the assets and scheduled
liabilities of the Acquired Fund for Acquiring Fund Shares and the assumption
of such liabilities by the Acquiring Fund is in the best interests of the
Acquiring Fund's shareholders and that the interests of the

<PAGE>63

existing shareholders of the Acquiring Fund would not be diluted as a result
of this transaction.

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

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

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

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

(b) The Acquired Fund has provided the Acquiring Fund with a
list of all of the Acquired Fund's assets as of the date of execution of this
Agreement. The

<PAGE>64

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

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

1.4. As provided in paragraph 3.3, as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to the Acquired Fund's shareholders of
record determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares it receives pursuant
to paragraph 1.1. Shareholders of Class A, Class B and Class C of the
Acquired Fund shall receive Class A, Class B and Class C shares, respectively,
of the Acquiring Fund. Such liquidation and distribution will be accomplished
by the transfer of the Acquiring Fund Shares then credited to the account of
the Acquired Fund on the books of the Acquiring Fund to open accounts on the
share records of the Acquiring Fund in the name of the Acquired Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of the Acquired
Fund, although any outstanding share certificates representing interests in
the Acquired Fund will represent a number of Acquiring Fund Shares after the
Closing Date as determined in accordance with paragraph 1.1. The Acquiring
Fund shall not issue certificates representing the Acquiring Fund Shares in
connection with such exchange.

<PAGE>65

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

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

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

1.8. The Acquired Fund shall, following the Closing Date and the
making of all distributions pursuant to paragraph 1.4, be terminated under the
laws of the Commonwealth of Massachusetts and in accordance with its governing
documents.

2. VALUATION

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

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

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

3. CLOSING AND CLOSING DATE

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

<PAGE>66

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

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

4. REPRESENTATIONS AND WARRANTIES

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

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

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

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

<PAGE>67

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

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

(f) The Statements of Assets and Liabilities of the Acquired Fund
for each of the four fiscal years ended March 31, 1995, and for the period
October 11, 1990 (commencement of operations) to March 31, 1991, have been
audited by KPMG Peat Marwick LLP, independent accountants, and are in
accordance with generally accepted accounting principles consistently applied,
and such statements (copies of which have been furnished to the Acquiring
Fund) fairly reflect the financial condition of the Acquired Fund as of such
dates, and there are no known contingent liabilities of the Acquired Fund as
of such dates not disclosed therein;

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

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

(i) All issued and outstanding shares of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable. All of the issued and outstanding shares of the
Acquired Fund will, at the time of Closing, be held by the persons and in the
amounts set forth in the records of the transfer agent as

<PAGE>68

provided in paragraph 3.3. The Acquired Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any shares of
the Acquired Fund, nor is there outstanding any security convertible into any
shares of the Acquired Fund (other than Class B shares of the Acquired Fund
which, under certain circumstances, are convertible into Class A shares of the
Acquired Fund);

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

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

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

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

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

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

<PAGE>69

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

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

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

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

(f) No litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or threatened
against the Acquiring Fund or any of the Acquiring Fund's properties or
assets. The Acquiring Fund knows of no facts which might form the basis for
the institution of such proceedings and the Acquiring Fund is not a party to
or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects the Acquiring Fund's
business or ability to consummate the transactions contemplated herein;

(g) The Statement of Assets and Liabilities of the Acquiring Fund
for the six fiscal years ended March 31, 1995, and for the period August 22,
1988 (commencement of operations) to March 31, 1989, have been audited by
Coopers & Lybrand L.L.P., independent accountants, and are in accordance with
generally accepted accounting principles consistently applied, and such
statements (copies of which have been furnished to the Acquired Fund) fairly
reflect the financial condition of the Acquiring Fund as of such dates, and
there are no known contingent liabilities of the Acquiring Fund as of such
dates not disclosed therein;

(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to have been filed by such
date shall have been filed, and all federal and other taxes shown as due on
said returns and reports shall have been paid so far as due, or provision
shall have been made for the payment thereof and, to the best of

<PAGE>70

the Acquiring Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;

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

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

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

(l) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable with no
personal liability attaching to the ownership thereof;

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

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

<PAGE>71

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

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

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

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

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

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

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

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

5.7. The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus (the
"Prospectus") which will

<PAGE>72

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

6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SMITH BARNEY MUNI FUNDS IN RESPECT
OF THE ACQUIRED FUND

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

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

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

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

That (a) the Acquiring Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland; (b) the Acquiring Fund
is an open-end management investment company registered under the 1940
Act; (c) this Agreement, the Reorganization provided for hereunder and
the execution of this Agreement have been duly authorized and approved by
all requisite action of the Acquiring Fund, and this Agreement has been
duly executed and delivered by the Acquiring Fund and, assuming due
authorization by Smith Barney Muni Funds on behalf of the Acquired Fund,
is a valid and binding obligation of the Acquiring Fund, enforceable in
accordance with its terms against the assets of the Acquiring Fund,
subject to

<PAGE>73

bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles; and (d) the Acquiring Fund Shares to
be issued to the Acquired Fund for distribution to its shareholders pursuant
to this Agreement have been, to the extent of the number of Acquiring Fund
Shares of the particular class authorized to be issued by the Acquiring Fund
in its Articles of Incorporation and then unissued, duly authorized and,
subject to the receipt by the Acquiring Fund of consideration equal to the
respective net asset values thereof (but in no event less than the par value
thereof), such Acquiring Fund Shares, when issued in accordance with this
Agreement, will be validly issued and fully paid and non-assessable.

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

7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND

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

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

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

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

<PAGE>74

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

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

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

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

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

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

8.2. On the Closing Date, no action, suit or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or

<PAGE>75

obtain damages or other relief in connection with, this Agreement or the
transactions contemplated herein;

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

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

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

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

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

<PAGE>76

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

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

9. BROKERAGE FEES AND EXPENSES

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

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

<PAGE>77

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

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

10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES

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

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

11. TERMINATION

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

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

<PAGE>78

12. AMENDMENTS; WAIVERS

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

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

13. NOTICES

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

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

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

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

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

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

<PAGE>79

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

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

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

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

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

Attest: SMITH BARNEY NEW JERSEY MUNICIPALS
FUND INC.

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