--------------------------------------------------------------------------------
Prospectus                                                   September 26, 1997
--------------------------------------------------------------------------------

Greenwich Street Municipal Fund Inc.
388 Greenwich Street
New York, New York 10013
(800) 451-2010

     Greenwich Street Municipal Fund Inc. (the "Fund") is a non-diversified,
closed-end management investment company that seeks as high a level of current
income exempt from Federal income tax as is consistent with the preservation of
principal. Under normal conditions, the Fund will, in seeking its investment
objective, invest substantially all of its assets in long-term, investment-grade
obligations issued by state and local governments, political subdivisions,
agencies and public authorities ("Municipal Obligations"). For a discussion of
the risks associated with certain of the Fund's investments, see "Investment
Objective and Policies."

     The Fund seeks to invest substantially all of its assets in Municipal
Obligations and, under normal conditions, at least 80% of the Fund's assets will
be invested in Municipal Obligations rated investment grade by Moody's Investors
Service Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P"), Fitch
Investors Service, Inc. ("Fitch") or another nationally recognized statistical
rating agency (that is, no lower than Baa, MIG or Prime-1 by Moody's, BBB, Sp-2
or A-1 by S&P or BBB or F-1 by Fitch). The Fund is intended to operate in such a
manner that dividends paid by the Fund may be excluded by the Fund's
shareholders from their gross incomes for Federal income tax purposes. See
"Investment Objective and Policies" and "Taxation."

     This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and should be retained for
future reference. A Statement of Additional Information dated September 26, 1997
(the "SAI") containing additional information about the Fund has been filed with
the Securities and Exchange Commission ("SEC") and is hereby incorporated by
reference in its entirety into this Prospectus. A copy of the SAI may be
obtained without charge by calling or writing to the Fund at the telephone
number or address set forth above or by contacting a Smith Barney Financial
Consultant.

                                                           (Continued on page 2)

SMITH BARNEY INC.
Distributor

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager and Administrator

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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.


                                                                               1

<PAGE>

--------------------------------------------------------------------------------
Prospectus (continued)                                       September 26, 1997
--------------------------------------------------------------------------------

     Smith Barney Inc. ("Smith Barney") intends to make a market in the Fund's
Common Stock ("Common Stock"), although it is not obligated to conduct
market-making activities and any such activities may be discontinued at any time
without notice, at the sole discretion of Smith Barney. The shares of Common
Stock that may be offered from time to time pursuant to this Prospectus were
issued and sold by the Fund in a public offering which commenced July 16, 1994,
at a price of $12.00 per share. No assurance can be given as to the liquidity
of, or the trading market for, the Common Stock as a result of any market-making
activities undertaken by Smith Barney. The Fund will not receive any proceeds
from the sale of any Common Stock offered pursuant to this Prospectus.

   
     All dealers effecting transactions in the registered securities, whether or
not participating in this distribution, may be required to deliver a Prospectus.
    


                                                                               2

<PAGE>

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Table of Contents
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Prospectus Summary                                                             4
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Fund Expenses                                                                  7
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Financial Highlights                                                           8
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The Fund                                                                       9
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The Offering                                                                   9
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Use of Proceeds                                                                9
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Investment Objective and Policies                                              9
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Share Price Data                                                              17
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Net Asset Value                                                               17
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Taxation                                                                      18
    
--------------------------------------------------------------------------------
Management of the Fund                                                        19
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Dividends and Distribution; Dividend Reinvestment Plan                        21
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Description of Common Stock                                                   23
    
--------------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation
and Market Discount                                                           23
--------------------------------------------------------------------------------
   
Custodian and Transfer Agent                                                  25
--------------------------------------------------------------------------------
Experts                                                                       25
    
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Further Information                                                           25
--------------------------------------------------------------------------------
Appendix A                                                                   A-1
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================================================================================
      No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund or
the Distributor. This Prospectus does not constitute an offer by the Fund or the
Distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
================================================================================


                                                                               3

<PAGE>

--------------------------------------------------------------------------------
Prospectus Summary
--------------------------------------------------------------------------------

     The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and in the SAI. Cross
references in this summary are to headings in the Prospectus.

THE FUND The Fund is a non-diversified, closed-end management investment
company. See "The Fund."

INVESTMENT OBJECTIVE The Fund seeks as high a level of current income exempt
from Federal income tax as is consistent with the preservation of principal. See
"Investment Objective and Policies."

TAX-EXEMPT INCOME The Fund is intended to operate in such a manner that
dividends paid by the Fund may be excluded by the Fund's shareholders from their
gross income for Federal income tax purposes. See "Investment Objective and
Policies" and "Taxation."

QUALITY INVESTMENTS The Fund will invest substantially all of its assets in
long-term investment-grade Municipal Obligations. At least 80% of the Fund's
total assets will be invested in securities rated investment grade by Moody's,
S&P, Fitch or another nationally-recognized rating agency (that is, rated no
lower than Baa, MIG or Prime-1 by Moody's, BBB, SP-2 or A-1 by S&P or BBB or F-1
by Fitch). Up to 20% of the Fund's total assets may be invested in unrated
securities that are deemed by the Fund's investment manager to be of a quality
comparable to investment grade. See "Investment Objective and Policies."

THE OFFERING The Common Stock is listed for trading on the New York Stock
Exchange, Inc. ("NYSE"). In addition, Smith Barney intends to make a market in
the Common Stock. Smith Barney, however, is not obligated to conduct
market-making activities and such activities may be discontinued at any time
without notice, at the sole discretion of Smith Barney. See "The Offering."

LISTING NYSE

SYMBOL GSI

   
INVESTMENT MANAGER AND ADMINISTRATOR The Greenwich Street Advisors
division of Smith Barney Mutual Funds Management Inc. ("SBMFM"), serves as 
the Fund's investment manager and administrator (the "Investment Manager" or
"Administrator"). The Investment Manager provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings"), which
is in turn a wholly owned subsidiary of Travelers Group Inc. ("Travelers").
Subject to the supervision and direction of the Fund's Board of Directors, the
Investment Manager manages the securities held by the Fund in accordance with
the Fund's stated investment objective and policies, makes investment decisions
for the Fund, places orders to purchase and sell securities on behalf of the
Fund and employs professional fund managers. SBMFM also acts as administrator of
the 
    


4

<PAGE>

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

Fund and in that capacity provides certain administrative services, including
overseeing the Fund's non-investment operations and its relations with other
service providers and providing executive and other officers to the Fund. The
Fund pays the Investment Manager a fee for services provided to the Fund that is
computed daily and paid monthly at the annual rate of 0.70% of the value of the
Fund's average daily net assets. The Fund pays SBMFM a fee for administrative
services provided to the Fund that is computed daily and paid monthly at the
annual rate of 0.20% of the value of the Fund's average daily net assets. The
Fund will bear other expenses and costs in connection with its operation in
addition to the costs of investment management services. See "Management of the
Fund -- Investment Manager and Administrator."

CUSTODIAN PNCBank, National Association ("PNCBank")serves as the Fund's
custodian. See "Custodian and Transfer Agent."

TRANSFER AGENT First Data Investor Services Group, Inc. ("First Data") serves as
the Fund's transfer agent, dividend-paying agent and registrar. See "Custodian
and Transfer Agent."

   
DIVIDENDS AND DISTRIBUTIONS The Fund expects to pay monthly dividends of net
investment income (income other than net realized capital gains) and to
distribute net realized capital gains, if any, annually. All dividends or
distributions with respect to shares of Common Stock are reinvested
automatically in additional shares through participation in the Fund's Dividend
Reinvestment Plan, unless a shareholder elects to receive cash. See "Dividends
and Distributions; Dividend Reinvestment Plan."
    

RISK FACTORS AND SPECIAL CONSIDERATIONS Shares of common stock of closed-end
investment companies frequently trade at a discount from net asset value, or in
some cases trade at a premium. Shares of closed-end investment companies
investing primarily in fixed income securities tend to trade on the basis of
income yield on the market price of the shares and the market price may also be
affected by trading volume, general market conditions and economic conditions
and other factors beyond the control of the Fund. As a result, the market price
of the Fund's shares may be greater or less than the net asset value. Since the
commencement of the Fund's operations, the Fund's shares have traded in the
market at prices that were at times equal to, but generally were below, net
asset value.

     Some closed-end companies have taken certain actions, including the
repurchase of common stock in the market at market prices and the making of one
or more tender offers for common stock at net asset value, in an effort to
reduce or mitigate the discount, and others have converted to an open-end
investment company, the shares of which are redeemable at net asset value. The
Fund's Board of Directors has seen no reason to adopt any of the steps, which
some other closed-end funds have used to address the discount. In addition, the
experience of many closed-end funds suggests that the effect of many of these
steps (other than open-


                                                                               5

<PAGE>

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

ending) on the discount may be temporary or insignificant. Accordingly, there
can be no assurance that any of these actions will be taken or, if undertaken,
will cause the Fund's shares to trade at a price equal to their net asset value.

     The Fund will not purchase securities that are rated lower than Baa by
Moody's or BBB by S&P or Fitch at the time of purchase. Although obligations
rated Baa by Moody's or BBB by S&P or Fitch are considered to be investment
grade, they may be subject to greater risks than other higher-rated investment
grade securities.

     The Fund may invest up to 20% of its total assets in unrated securities
that the Investment Manager determines to be of comparable quality to the
securities rated investment grade in which the Fund may invest. Dealers may not
maintain daily markets in unrated securities and retail secondary markets for
many of them may not exist; this lack of markets may affect the Fund's ability
to sell these securities when the Investment Manager deems it appropriate. The
Fund has the right to invest without limitation in state and local obligations
that are "private activity bonds," the income from which may be taxable as a
specific preference item for purposes of the Federal alternative minimum tax
(the "AMT"). Thus, the Fund may not be a suitable investment for investors who
are subject to the AMT. See "Investment Objective and Policies" and "Taxation."

     Certain of the instruments held by the Fund, and certain of the investment
techniques that the Fund may employ, might expose the Fund to special risks. The
instruments presenting the Fund with risks are municipal leases, zero coupon
securities, custodial receipts, municipal obligation components, floating and
variable rate demand notes and bonds, and participation interests. Entering into
securities transactions on a when-issued or delayed-delivery basis, entering
into repurchase agreements, lending Fund securities and engaging in financial
futures and options transactions are investment techniques involving risks to
the Fund. As a non-diversified fund within the meaning of the Investment Company
Act of 1940, as amended (the "1940 Act"), the Fund may invest a greater
proportion of its assets in the obligations of a smaller number of issuers and,
as a result, may be subject to greater risk than a diversified fund with respect
to its holdings of securities. See "Investment Objective and Policies -- Risk
Factors and Special Considerations."

     The combined annual rate of fees paid by the Fund for advisory and
administrative services, 0.90% of the value of the Fund's average daily net
assets, is higher than the rates for similar services paid by other publicly
offered, closed-end management investment companies that have investment
objectives and policies similar to those of the Fund. The Fund will bear, in
addition to the costs of advisory and administrative services, other expenses
and costs in connection with its operation. See "Management of the Fund."


6

<PAGE>

--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

     The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund and of depriving shareholders of an opportunity to sell their shares
of Common Stock at a premium over prevailing market prices. See "Certain
Provisions of the Articles of Incorporation and Market Discount."

--------------------------------------------------------------------------------
Fund Expenses
--------------------------------------------------------------------------------

The following tables are intended to assist investors in understanding the
various costs and expenses associated with investing in the Fund.

--------------------------------------------------------------------------------
Annual Expenses
      (as a percentage of net assets attributable to Common Stock)
      Management Fees..................................................    0.90%
      Other Expenses*..................................................    0.13%
--------------------------------------------------------------------------------
Total Annual Operating Expenses........................................    1.03%
================================================================================

* "Other Expenses," as shown above, are based upon amounts of expenses for the
  fiscal year ended May 31, 1997.

     EXAMPLE

     The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based upon payment by
the Fund of operating expenses at the levels set forth in the table above.

     An investor would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) reinvestment of all dividends and
distributions at net asset value:

              One Year         Three Years      Five Years         Ten Years
--------------------------------------------------------------------------------
                 $11               $33              $57              $126
--------------------------------------------------------------------------------

     While the example assumes a 5% annual return, the Fund's performance will
vary and may result in a return greater or less than 5%. In addition, while the
example assumes reinvestment of all dividends and distributions at net asset
value, participants in the Fund's Dividend Reinvestment Plan may receive shares
purchased or issued at a price or value different from net asset value. See
"Dividends and Distributions; Dividend Reinvestment Plan." This example should
not be considered a representation of future expenses of the Fund and actual
expenses may be greater or less than those shown.


                                                                               7

<PAGE>

--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------

The following information for the two years ended March 31, 1997 has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon
appears in the Fund's annual report dated May 31, 1997. The following
information for the fiscal period ended May 31, 1995 has been audited by other
independent auditors. The information set forth below should be read in
conjunction with the financial statements and related notes that also appear in
the Fund's Annual Report to Shareholders, which is incorporated by reference
into this Prospectus.

For a share of capital stock outstanding throughout each year:

For the year ended May 31,                      1997      1996       1995(1)
================================================================================
Net Asset Value, Beginning of Year           $  12.19   $  12.84    $  12.00
--------------------------------------------------------------------------------
Income From Operations:
     Net investment income                       0.66       0.66        0.63
     Net realized and unrealized gain (loss)    (0.26)     (0.42)       0.77
--------------------------------------------------------------------------------
Total Income From Operations                     0.40       0.24        1.40
--------------------------------------------------------------------------------
Offering Costs Charged to Paid-In Capital          --         --       (0.02)
--------------------------------------------------------------------------------
Less Distributions From:
     Net investment income                      (0.66)     (0.66)      (0.54)
     Net realized gains                         (0.34)     (0.23)         --
--------------------------------------------------------------------------------
Total Distributions                             (1.00)     (0.89)      (0.54)
--------------------------------------------------------------------------------
Net Asset Value, End of Year                 $  11.59   $  12.19    $  12.84
--------------------------------------------------------------------------------
Total Return, Based on Market Value              8.97%      5.52%       1.65%++
--------------------------------------------------------------------------------
Total Return, Based on Net Asset Value*          3.61%      2.40%      12.28%++
--------------------------------------------------------------------------------
Net Assets, End of Year (millions)           $    228   $    238    $    251
--------------------------------------------------------------------------------
Ratios to Average Net Assets:
     Expenses                                    1.03%      1.06%       1.05%+
     Net investment income                       5.57       5.17        5.63+
--------------------------------------------------------------------------------
Portfolio Turnover Rate                           115%        42%        115%
--------------------------------------------------------------------------------
Market Value, End of Year                    $ 11.375   $ 11.375    $ 11.625
================================================================================
(1)   For the period from June 24, 1994 (commencement of operations) to May 31,
      1995.
*     The total return assumes the purchase and redemption of shares using the
      Fund's net asset value rather than the market value. Dividends are
      reinvested in accordance with the Fund's Dividend Reinvestment Plan.
++    Total return is not annualized, as it may not be representative of the
      total return for the year.
+     Annualized.


8

<PAGE>

--------------------------------------------------------------------------------
The Fund
--------------------------------------------------------------------------------

     The Fund is a non-diversified, closed-end management investment company
that seeks as high a level of current income exempt from Federal income tax as
is consistent with the preservation of principal. The Fund, which was
incorporated under the laws of the State of Maryland on February 19, 1993, is
registered under the 1940 Act and has its principal office at 388 Greenwich
Street, New York, New York 10013. The Fund's telephone number is (800) 451-2010.

--------------------------------------------------------------------------------
The Offering
--------------------------------------------------------------------------------

     Smith Barney intends to make a market in the Fund's Common Stock, although
it is not obligated to conduct market-making activities and any such activities
may be discontinued at any time without notice at the sole discretion of Smith
Barney. No assurance can be given as to the liquidity of, or the trading market
for, the Common Stock as a result of any market-making activities undertaken by
Smith Barney. This Prospectus is to be used by Smith Barney in connection with
offers and sales of the Common Stock in market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale.

--------------------------------------------------------------------------------
Use of Proceeds
--------------------------------------------------------------------------------

     The Fund will not receive any proceeds from the sale of Common Stock
offered pursuant to this Prospectus. Proceeds received by Smith Barney as a
result of its market-making in Common Stock will be utilized by Smith Barney in
connection with its secondary market operations and for general corporate
purposes.

--------------------------------------------------------------------------------
Investment Objective and Policies
--------------------------------------------------------------------------------

     The Fund's investment objective is to seek as high a level of current
income exempt from Federal income taxes as is consistent with the preservation
of principal. The Fund's investment objective may not be changed without the
affirmative vote of the holders of a majority (as defined in the 1940 Act) of
the Fund's outstanding shares. In seeking its objective, the Fund will invest in
long-term Municipal Obligations. The Fund will operate subject to a fundamental
investment policy providing that, under normal conditions, the Fund will invest
at least 80% of its net assets in Municipal Obligations. No assurance can be
given that the Fund's investment objective will be achieved.

     The Fund normally invests at least 80% of its net assets in Municipal
Obligations rated investment grade, that is, rated no lower than Baa, MIG-3 or
Prime-1 by Moody's, BBB, SP-2 or A-1 by S&P or BBB or F-1 by Fitch. Up to 20% of
the 


                                                                               9

<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Policies (continued)
--------------------------------------------------------------------------------

Fund's total assets may be invested in unrated securities that are deemed by the
Investment Manager to be of a quality comparable to investment grade. The Fund
will not invest in Municipal Obligations that are rated lower than Baa by
Moody's or BBB by S&P or Fitch at the time of purchase. A description of the
relevant Moody's, S&P and Fitch ratings is set forth in the Appendix to the SAI.
Although Municipal Obligations rated Baa by Moody's or BBB by S&P or Fitch are
considered to be investment grade, they may be subject to greater risks than
other higher-rated investment-grade securities. Municipal Obligations rated Baa
by Moody's, for example, are considered medium-grade obligations that lack
outstanding investment characteristics and have speculative characteristics as
well. Municipal Obligations rated BBB by S&P are regarded as having an adequate
capacity to pay principal and interest. Municipal Obligations rated BBB by Fitch
are deemed to be subject to a higher likelihood that their rating will fall
below investment grade than higher-rated bonds.

     The Fund is classified as a non-diversified fund under the 1940 Act, which
means that the Fund is not limited by the 1940 Act in the proportion of its
assets that it may invest in the obligations of a single issuer. The Fund
intends to conduct its operations, however, so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"), which will relieve the Fund of any liability for Federal
income tax to the extent that its earnings are distributed to shareholders. To
qualify as a regulated investment company, the Fund will, among other things,
limit its investments so that, at the close of each quarter of its taxable year
(1) not more than 25% of the market value of the Fund's total assets will be
invested in the securities of a single issuer and (2) with respect to 50% of the
market value of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of a single issuer. See
"Taxation."

     The Fund generally will not invest more than 25% of its total assets in any
industry. Governmental issuers of Municipal Obligations are not considered part
of any industry. Municipal Obligations backed only by the assets and revenues of
non-governmental users may be deemed to be issued by the non-governmental users,
and would be subject to the Fund's 25% industry limitation. The Fund may invest
more than 25% of its total assets in a broad segment of the Municipal
Obligations market if the Investment Manager determines that the yields
available from obligations in a particular segment of the market justify the
additional risks associated with a large investment in the segment. The Fund
reserves the right to invest more than 25% of its assets in industrial
development bonds ("IDBs") or in issuers located in the same state, although it
has no current intention of investing more than 25% of its assets in issuers
located in the same state. If the Fund were to invest more than 25% of its total
assets in issuers located in the same state, it would be more susceptible to
adverse economic, business or regulatory conditions in that state.

     Municipal Obligations are classified as general obligation bonds, revenue
bonds and notes. General obligation bonds are secured by the issuer's pledge of
its 


10

<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Policies (continued)
--------------------------------------------------------------------------------

full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source, but not from the general
taxing power. Notes are short-term obligations of issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal Obligations bear fixed, floating and
variable rates of interest, and variations exist in the security of Municipal
Obligations, both within a particular classification and between
classifications. The types of Municipal Obligations in which the Fund may invest
are described in Appendix A to this Prospectus.

     The yields on, and values of, Municipal Obligations depend on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations markets, size of a particular
offering, maturity of the obligation and rating of the issue. Consequently,
Municipal Obligations with the same maturity, coupon and rating may have
different yields or values, whereas obligations of the same maturity and coupon
with different ratings may have the same yield or value.

     Opinions relating to the validity of Municipal Obligations and to the
exemption of interest on them from Federal taxes are rendered by bond counsel to
the respective issuers at the time of issuance. Neither the Fund nor the
Investment Manager will review the procedures relating to the issuance of
Municipal Obligations or the basis for opinions of counsel. Issuers of Municipal
Obligations may be subject to the provisions of bankruptcy, insolvency and other
laws, such as the Federal Bankruptcy Reform Act of 1978, affecting the rights
and remedies of creditors. In addition, the obligations of those issuers may
become subject to laws enacted in the future by Congress, state legislatures or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of the obligations or upon the
ability of municipalities to levy taxes. The possibility also exists that, as a
result of litigation or other conditions, the power or ability of any issuer to
pay, when due, the principal of, and interest on, its obligations may be
materially affected.

     Under normal conditions, the Fund may hold up to 20% of its total assets in
cash or money market instruments, including taxable money market instruments
(collectively, "Taxable Investments"). In addition, the Fund may take a
temporary defensive posture and invest without limitation in short-term
Municipal Obligations and Taxable Investments, upon a determination by the
Investment Manager that market conditions warrant such a posture. To the extent
the Fund holds Taxable Investments, the Fund may not be fully achieving its
investment objective.

     Investment Techniques

     The Fund may employ, among others, the investment techniques described
below, which may give rise to taxable income:


                                                                              11

<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Policies (continued)
--------------------------------------------------------------------------------

     When-Issued and Delayed-Delivery Securities. The Fund may purchase
securities on a when-issued basis, or may purchase or sell securities for
delayed delivery. In when-issued or delayed-delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but no payment or
delivery will be made by the Fund prior to the actual delivery or payment by the
other party to the transaction. The Fund will not accrue income with respect to
a when-issued or delayed-delivery security prior to its stated delivery date.
The Fund will establish with PNC Bank a segregated account consisting of cash,
U.S. government securities, or debt obligations of any grade in an amount equal
to or greater than the amount of the Fund's when-issued and delayed-delivery
purchase commitments, provided such securities have been determined by the
Investment Manager to be liquid and unencumbered and are marked to market daily
pursuant to guidelines established by the Fund's Directors. Placing securities
rather than cash in the segregated account may have a leveraging effect on the
Fund's net asset value per share; that is, to the extent that the Fund remains
substantially fully invested in securities at the same time that it has
committed to purchase securities on a when-issued or delayed-delivery basis,
greater fluctuations in its net asset value per share may occur than if it had
set aside cash to satisfy its purchase commitments.

     Stand-By Commitments. The Fund may acquire "stand-by commitments" with
respect to Municipal Obligations it holds. Under a stand-by commitment, which
resembles a put option, a broker, dealer or bank is obligated to repurchase at
the Fund's option specified securities at a specified price. Each exercise of a
stand-by commitment, therefore, is subject to the ability of the seller to make
payment on demand. The Fund will acquire stand-by commitments solely to
facilitate liquidity and does not intend to exercise the rights afforded by the
commitments for trading purposes.

     Financial Futures and Options Transactions. To hedge against a decline in
the value of Municipal Obligations it owns or an increase in the price of
Municipal Obligations it proposes to purchase, the Fund may enter into financial
futures contracts and invest in options on financial futures contracts that are
traded on a U.S. exchange or board of trade. The futures contracts or options on
futures contracts that may be entered into by the Fund will be restricted to
those that are either based on an index of Municipal Obligations or relate to
debt securities the prices of which are anticipated by the Investment Manager to
correlate with the prices of the Municipal Obligations owned or to be purchased
by the Fund. Commodity Futures Trading Commission ("CFTC") regulations
applicable to the Fund require that its transactions in futures and options be
engaged in for "bona fide hedging" purposes or other permitted purposes,
provided that aggregate initial margin deposits and premiums required to
establish positions other than those considered by the CFTC to be "bona fide
hedging" will not exceed 5% of the Fund's net asset value, after taking into
account unrealized profits and unrealized losses on such contracts.

     A financial futures contract provides for the future sale by one party and
the purchase by another party of a certain amount of a specified property at a
specified 


12

<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Policies (continued)
--------------------------------------------------------------------------------

price, date, time and place. Unlike a direct investment in a futures
contract, an option on a financial futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in the financial
futures contract at a specified exercise price at any time prior to the
expiration date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the futures contract. The potential
loss related to the purchase of an option on financial futures contracts is
limited to the premium paid for the option (plus transaction costs). The value
of the option may change daily and that change would be reflected in the net
asset value of the Fund.

     Lending Securities. The Fund is authorized to lend securities it holds to
brokers, dealers and other financial organizations, but it will not lend
securities to any affiliate of the Investment Manager unless the Fund applies
for and receives specific authority to do so from the SEC. Loans of the Fund's
securities, if and when made, may not exceed 331 1/43% of the value of the
Fund's total assets taken at value. The Fund's loans of securities will be
collateralized by cash, letters of credit or U.S. government securities that
will be maintained at all times in a segregated account with PNC Bank in an
amount equal to the current market value of the loaned securities.

     Repurchase Agreements. The Fund may enter into repurchase agreement
transactions with banks which are the issuers of instruments acceptable for
purchase by the Fund and with certain dealers on the Federal Reserve Bank of New
York's list of reporting dealers. A repurchase agreement is a contract under
which the buyer of a security simultaneously commits to resell the security to
the seller at an agreed-upon price on an agreed-upon date. Under the terms of a
typical repurchase agreement, the Fund would acquire an underlying debt
obligation for a relatively short period subject to an obligation of the seller
to repurchase, and the Fund to resell, the obligation at an agreed-upon price
and time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. Under each repurchase agreement,
the selling institution will be required to maintain the value of the securities
subject to the repurchase agreement at not less than their repurchase price.

     Risk Factors and Special Considerations

     Investment in the Fund involves risk factors and special considerations,
such as those described below:

     Municipal Obligations. Market rates of interest available with respect to
Municipal Obligations generally may be lower than those available with respect
to taxable securities, although the differences may be wholly or partially
offset by 


                                                                              13

<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Policies (continued)
--------------------------------------------------------------------------------

the effects of Federal income tax on income derived from taxable securities. The
amount of available information about the financial condition of issuers of
Municipal Obligations may be less extensive than that for corporate issuers with
publicly traded securities, and the market for Municipal Obligations may be less
liquid than the market for corporate debt obligations. Although the Fund's
policy will generally be to hold Municipal Obligations until their maturity, the
relative illiquidity of some of the Fund's securities may adversely affect the
ability of the Fund to dispose of the securities in a timely manner and at a
fair price. The market for less liquid securities tends to be more volatile than
the market for more liquid securities, and market values of relatively illiquid
securities may be more susceptible to change as a result of adverse publicity
and investor perceptions than are the market values of more liquid securities.
Although the issuer of certain Municipal Obligations may be obligated to redeem
the obligations at face value, redemption could result in capital losses to the
Fund to the extent that the Municipal Obligations were purchased by the Fund at
a premium to face value.

     Although the Municipal Obligations in which the Fund may invest will be
rated, at the time of investment, investment grade, municipal securities, like
other debt obligations, are subject to the risk of non-payment by their issuers.
The ability of issuers of Municipal Obligations to make timely payments of
interest and principal may be adversely affected in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
Federal, state and local governmental units. Non-payment by an issuer would
result in a reduction of income to the Fund, and could result in a reduction in
the value of the Municipal Obligations experiencing non-payment and a potential
decrease in the net asset value of the Fund.

     Unrated Securities. The Fund may invest in unrated securities that the
Investment Manager determines to be of comparable quality to the rated
securities in which the Fund may invest. Dealers may not maintain daily markets
in unrated securities, and retail secondary markets for many of them may not
exist. As a result, the Fund's ability to sell these securities when the
Investment Manager deems it appropriate may be diminished.

     Municipal Leases. Municipal leases in which the Fund may invest have
special risks not normally associated with Municipal Obligations. Municipal
leases frequently contain non-appropriation clauses that provide that the
governmental issuer of the obligation need not make future payments under the
lease or contract unless money is appropriated for that purpose by a legislative
body annually or on another periodic basis. Moreover, although a municipal lease
typically will be secured by financed equipment or facilities, the disposition
of the equipment or facilities in the event of foreclosure might prove
difficult.

     Non-Publicly Traded Securities. As suggested above, the Fund may, from time
to time, invest a portion of its assets in non-publicly traded Municipal
Obligations. 


14

<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Policies (continued)
--------------------------------------------------------------------------------

Non-publicly traded securities may be less liquid than publicly traded
securities. Although non-publicly traded securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund.

     When-Issued and Delayed-Delivery Transactions. Securities purchased on a
when-issued or delayed-delivery basis may expose the Fund to risk because the
securities may experience fluctuations in value prior to their delivery.
Purchasing securities on a when-issued or delayed-delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place may be higher than that obtained in the transaction itself.

     Lending Securities. The risks associated with lending Fund securities, as
with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially.

     Financial Futures and Options. Although the Fund intends to enter into
financial futures contracts and options on financial futures contracts that are
traded on a U.S. 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 Fund would be required to make
daily cash payments of variation margin. In those circumstances, an increase in
the value of the portion of the Fund's investments being hedged, if any, may
offset partially or completely losses on the futures contract. No assurance can
be given, however, that the price of the 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
Fund that are the subject of a hedging transaction and the futures or options
used as a hedging device, the hedge may not be fully effective because, for
example, losses on the securities held by the Fund may be in excess of gains on
the futures contract or losses on the futures contract may be in excess of gains
on the securities held by the Fund that were the subject of the hedge. If the
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 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 positions.

     Non-Diversified Classification. Investment in the Fund, which is classified
as a non-diversified fund under the 1940 Act, may present greater risks to
investors than an investment in a diversified fund. The investment return on a
non-diversified fund typically is dependent upon the performance of a smaller
number of securities relative to the number of securities held in a diversified
fund. The Fund's assumption of large positions in the obligations of a small
number of issuers will affect the value of the securities it holds to a greater
extent than that of a diversified fund in the event of changes in the financial
condition, or in the market's assessment, of the issuers.


                                                                              15

<PAGE>

--------------------------------------------------------------------------------
Investment Objective and Policies (continued)
--------------------------------------------------------------------------------

     Investment Restrictions

     The Fund has adopted certain fundamental investment restrictions that may
not be changed without the prior approval of the holders of a majority of the
Fund's outstanding voting securities. A "majority of the Fund's outstanding
voting securities" for this purpose means the lesser of (1) 67% or more of the
shares of the Fund's Common Stock present at a meeting of shareholders, if the
holders of 50% of the outstanding shares are present or represented by proxy at
the meeting or (2) more than 50% of the outstanding shares. Among the investment
restrictions applicable to the Fund is that the Fund is prohibited from
borrowing money, except for temporary or emergency purposes, or for clearance of
transactions, and then only in amounts not exceeding 15% of its total assets
(not including the amount borrowed) and as otherwise described in this
Prospectus. When the Fund's borrowings exceed 5% of the value of its total
assets, the Fund will not make any additional investments. In addition, the Fund
will not invest more than 25% of its total assets in the securities of issuers
in any single industry, except that this limitation will not be applicable to
the purchase of U.S. government securities. Also, the Fund may not purchase
securities other than Municipal Obligations and Taxable Investments. For a
complete listing of the investment restrictions applicable to the Fund, see
"Investment Objective and Policies -- Investment Restrictions" in the SAI. All
percentage limitations included in the investment restrictions apply immediately
after a purchase or initial investment, and any subsequent change in any
applicable percentage resulting from market fluctuations will not require the
Fund to dispose of any security that it holds.


16

<PAGE>

--------------------------------------------------------------------------------
Share Price Data
--------------------------------------------------------------------------------

   
     The Fund's Common Stock is listed on the NYSE under the symbol "GSI." Smith
Barney intends to make a market in the Fund's Common Stock.
    

     The following table sets forth the high and low sales prices for the Fund's
Common Stock, the net asset value per share and the discount or premium to net
asset value represented by the quotation for each quarterly period since the
Fund's commencement of operations.

                     Quarterly High Price             Quarterly Low Price
                     --------------------             -------------------
                                     Premium                         Premium
                 Net Asset  NYSE   (Discount)     Net Asset   NYSE  (Discount)
                   Value    Price    to NAV         Value    Price   to NAV
================================================================================
11/30/95         $13.09   $11.875     (10.23)%     $12.73   $11.375   (11.91)%
 2/29/96          12.94    12.250      (5.63)       12.80    11.750    (8.94)
 5/31/96          12.80    12.000      (6.67)       12.20    11.250    (8.44)
 8/31/96          11.98    11.750      (1.96)       12.10    11.250    (7.56)
11/29/96          12.33    11.750      (4.70)       11.98    11.375    (5.05)
 2/28/97          12.29    11.750      (4.39)       11.65    11.250    (3.43)
 5/30/97          11.62    11.025      (5.12)       11.26    11.125    (1.20)
 8/29/97          11.98    12.000       0.17        11.71    11.500    (1.79)
================================================================================

   
     As of September 5, 1997, the price of Common Stock as quoted on the NYSE
was $11.625, representing a 1.32% discount from the Common Stock's net asset
value calculated on that day.
    

--------------------------------------------------------------------------------
Net Asset Value
--------------------------------------------------------------------------------

   
     The Fund's net asset value will be calculated as of the close of regular
trading on the NYSE, currently 4:00 p.m., New York time, on the last day on
which the NYSE is open for trading of each week and month. Net asset value is
calculated by dividing the value of the Fund's net assets (the value of its
assets less its liabilities, exclusive of capital stock and surplus) by the
total number of shares of Common Stock outstanding. Investments in U.S.
government securities having a maturity of 60 days or less are valued at
amortized cost. All other securities and assets are taken at fair value as
determined in good faith by or under the direction of the Board of Directors.
    

     The valuation of the Fund's assets is made by the Investment Manager after
consultation with an independent pricing service (the "Service") approved by the
Board of Directors. When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these investments are valued at the mean between the quoted bid prices
and asked 


                                                                              17

<PAGE>

--------------------------------------------------------------------------------
Net Asset Value (continued)
--------------------------------------------------------------------------------

   
prices. Investments for which, in the judgment of the Service, no readily
obtainable market quotation is available (which may constitute a majority of the
Fund's portfolio securities) are carried at fair value as determined by the
Service. The Service may use electronic data processing techniques and/or a
matrix system to determine valuations. The procedures of the Service are
reviewed periodically by the officers of the Fund under the general supervision
and responsibility of the Board of Directors, which may replace the Service at
any time if it determines it to be in the best interests of the Fund to do so.
    
--------------------------------------------------------------------------------
Taxation
--------------------------------------------------------------------------------
   
     The following is a summary of the material Federal tax considerations
affecting the Fund and Fund shareholders; please refer to the SAI for a further
discussion. In addition to the considerations described below and in the SAI,
there may be other Federal, state, local, or foreign tax applications to
consider. Because taxes are a complex matter, prospective shareholders are urged
to consult their tax advisers for more detailed information with respect to the
consequences of any investment.

     The Fund has qualified and intends to qualify, as it has in prior years,
under Subchapter M of the Code for tax treatment as a regulated investment
company. In each taxable year that the Fund qualifies, so long as such
qualification is in the best interests of its shareholders, the Fund will pay no
Federal income tax on its net investment income and long-term capital gain that
is distributed to shareholders. The Fund also intends to satisfy conditions that
will enable it to pay "exempt-interest dividends" to shareholders.
Exempt-interest dividends are generally not subject to regular Federal income
taxes but may be considered taxable for state and local income (or intangible)
tax purposes.

     Exempt-interest dividends attributable to interest received by the Fund on
certain "private-activity" bonds will be treated as a specific tax preference
item to be included in a shareholder's AMT computation. In addition to the AMT,
corporate shareholders must include 75% of the interrest as an adjustment (the
"current earnings adjustment") in computing corporate minimum taxable income.
Exempt-interest dividends derived from the interest earned on private activity
bonds will not be exempt from Federal income tax for those shareholders
who are "substantial users" (or persons related to "substantial users") of the
facilities financed by these bonds.

     Shareholders who receive social security or equivalent railroad retirement
benefits should note that exempt-interest dividends are one of the items taken
into consideration in determining the amount of these benefits that may be
subject to Federal income tax.

     The interest expense incurred by a shareholder on borrowings made to
purchase or 


18

<PAGE>

--------------------------------------------------------------------------------
Taxation (continued)
--------------------------------------------------------------------------------

carry Fund shares is not deductible for Federal income tax purposes to the
extent related to the exempt-interest dividends received on such shares.

     Dividends paid by the Fund from interest income on taxable investments, net
realized short-term securities gains, and all, or a portion of, any gains
realized from the sale or other disposition of certain market discount bonds are
subject to Federal income tax as ordinary income.

   Distributions, if any, from net realized long-term securities gains are
taxable as long-term capital gains, regardless of the length of time a
shareholder has owned Fund shares. The recently enacted Taxpayer Relief Act
of 1997 provides that net capital gain for taxpayers other than corporations
generally will not be subject to Federal income taxes at a rate in excess of
28% for assets held for more than one year but not more than 18 months,
with a reduced maximum rate of 20% for assets held more than 18 months.

     Shareholders are required to pay tax on all taxable distributions even if
those distributions are automatically reinvested in additional Fund shares. None
of the dividends paid by the Fund will qualify for the corporate dividends
received deduction. The Fund will inform shareholders of the source and tax
status of all distributions, including their eligibility for the reduced
maximum 20% capital gains tax rate, promptly after the close of each
calendar year.

     The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption,
regardless of whether gain or loss is realized upon the redemption, for
shareholders who do not provide the Fund with a correct taxpayer identification
number (social security or employer identification number). Withholding from
taxable dividends and capital gain distributions also is required for
shareholders who otherwise are subject to backup withholding. Any tax withheld
as a result of backup withholding does not constitute an additional tax, and may
be claimed as a credit on the shareholders' Federal income tax return.
    
--------------------------------------------------------------------------------
Management of the Fund
--------------------------------------------------------------------------------

     Board of Directors

   
     Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Directors approve all significant
agreements with the Fund's Investment Manager, Administrator, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's Investment Manager. The SAI contains background information regarding
each Director and executive officer of the Fund.
    

     Investment Manager and Administrator

     SBMFM, through its Greenwich Street Advisors division, located at 388
Greenwich Street, New York, New York 10013, serves as the Fund's Investment
Manager. 


                                                                              19

<PAGE>

--------------------------------------------------------------------------------
Management of the Fund (continued)
--------------------------------------------------------------------------------

   
SBMFM (through its predecessor entities) has been in the investment counseling
business since 1934 and is a registered investment adviser. SBMFM renders
investment advice to a wide variety of individuals and institutional clients
that had aggregate assets under management as of August 31, 1997 in excess of
$81 billion. SBMFM is wholly owned by Smith Barney Holdings Inc., ("Holdings")
the parent company of Smith Barney. Holdings is a wholly owned subsidiary of
Travelers Group Inc. ("Travelers"), a financial services holding company
engaged, through its subsidiaries, principally in four business segments:
Investment Services, Consumer Finance Services, Life Insurance Services and
Property & Casualty Insurance Services. SBMFM, Holdings and Smith Barney are
each located at 388 Greenwich Street, New York, New York 10013.
    

     Subject to the supervision and direction of the Fund's Board of Directors,
the Investment Manager manages the securities held by the Fund in accordance
with the Fund's stated investment objective and policies, makes investment
decisions for the Fund, places orders to purchase and sell securities on behalf
of the Fund and employs managers and securities analysts who provide research
services to the Fund. The Fund pays the Investment Manager a fee for investment
advisory services provided to the Fund that is computed daily and paid monthly
at the annual rate of 0.70% of the value of the Fund's average daily net assets.
In addition, SBMFM serves as the Fund's administrator and is paid a fee by the
Fund that is computed daily and paid monthly at a rate of 0.20% of the value of
its average daily net assets.

     Transactions on behalf of the Fund are allocated to various dealers by the
Investment Manager in its best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected for their research, statistical
or other services to enable the Investment Manager to supplement its own
research and analysis with the views and information of other securities firms.
The Fund may use Smith Barney in connection with the purchase or sale of
securities when the Investment Manager believes that the broker's charge for the
transaction does not exceed usual and customary levels. The same standard
applies to the use of Smith Barney as a broker in connection with entering into
options and futures contracts. The Fund paid no brokerage commissions in the
last fiscal year.

     Fund Management

   
     Joseph P. Deane, Vice President and Investment Officer of the Fund, is
primarily responsible for the management of the Fund's assets. Mr. Deane has
served in this capacity since the Fund commenced operations in 1994 and manages
the day-to-day operations of the Fund, including making all investment
decisions. Mr. Deane is an Investment Officer of SBMFM and is the senior asset
manager for a number of investment companies and other accounts investing in
tax-exempt securities.
    


20

<PAGE>

--------------------------------------------------------------------------------
Dividends and Distribution; Dividend Reinvestment Plan
--------------------------------------------------------------------------------

     The Fund expects to pay monthly dividends of substantially all net
investment income (that is income, including its tax-exempt income and its
accrued original issue discount income, other than net realized capital gains)
to the holders of Common Stock. Under the Fund's current policy, which may be
changed at any time by its Board of Directors, the Fund's monthly dividends will
be made at a level that reflects the past and projected performance of the Fund,
which policy over time will result in the distribution of all net investment
income of the Fund. Net income of the Fund consists of all interest income
accrued on the Fund's assets less all expenses of the Fund. Expenses of the Fund
are accrued each day. Net realized capital gains, if any, will be distributed to
the shareholders at least once a year. Net income available for distribution
will also be reduced by dividends on any preferred stock.

     Under the Fund's Dividend Reinvestment Plan (the "Plan"), a shareholder
whose shares of Common Stock are registered in his or her own name will have all
distributions from the Fund reinvested automatically by First Data as agent
under the Plan, unless the shareholder elects to receive cash. Distributions
with respect to shares registered in the name of a broker-dealer or other
nominee ("Street Name") will be reinvested by the broker or nominee in
additional shares under the Plan, unless the service is not provided by the
broker-dealer or nominee, or the shareholder elects to receive distributions in
cash. Investors who own Common Stock registered in Street Name should consult
their broker-dealers for details regarding reinvestment. All distributions to
Fund shareholders who do not participate in the Plan will be paid by check
mailed directly to the record holder by or under the direction of First Data as
dividend-paying agent.

     The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price of the Common Stock is equal to or exceeds the net asset value
per share at the time shares are valued for purposes of determining the number
of shares equivalent to the cash dividend or capital gains distribution, Plan
participants will be issued shares of Common Stock valued at the greater of (1)
the net asset value per share most recently determined as described under "Net
Asset Value" or (2) 95% of the market value. To the extent the Fund issues
shares to participants in the Plan at a discount to net asset value, the
remaining shareholders' interests in the Fund's net assets will be
proportionately diluted.

     If the net asset value per share of Common Stock at the time of valuation
exceeds the market price of the Common Stock, or if the Fund declares a dividend
or capital gains distribution payable only in cash, First Data will buy Common
Stock in the open market, on the NYSE or elsewhere, for the participants'
accounts. If, following the commencement of the purchases and before First Data
has completed its purchases, the market price exceeds the net asset value of the
Common Stock, First Data will attempt to terminate purchases in the open market
and cause the Fund to 


                                                                              21

<PAGE>

--------------------------------------------------------------------------------
Dividends and Distribution; Dividend Reinvestment Plan (continued)
--------------------------------------------------------------------------------

   
issue the remaining dividend or distribution in shares a price equal to the
greater of (a)net asset value or (b) 95% of the then-current market price. In
this case, the number of shares of Common Stock received by a Plan participant
will be based on the weighted average of prices paid for shares purchased in the
open market and the price at which the Fund issues the remaining shares. To the
extent First Data is unable to stop open market purchases and cause the Fund to
issue the remaining shares, the average per share purchase price paid by First
Data may exceed the net asset value of the Common Stock, resulting in the
acquisition of fewer shares than if the dividend or capital gains distribution
had been paid in Common Stock issued by the Fund at net asset value. First Data
will begin to purchase Common Stock on the open market as soon as practicable
after the record date of the dividend or capital gains distribution, but in no
event shall such purchases continue later than 30 days after the payment date
thereof, except when necessary to comply with applicable provisions of the
Federal securities laws.
    

     First Data maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends and capital gains distributions will not relieve Plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant will be held
by First Data in uncertificated form in the name of each Plan participant, and
each shareholder's proxy will include those shares purchased pursuant to the
Plan.

     Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions. First Data's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Fund. No brokerage
charges apply with respect to shares of Common Stock issued directly by the Fund
as a result of dividends or capital gains distributions payable either in Common
Stock or in cash. Each Plan participant will, however, bear a proportionate
share of brokerage commissions incurred with respect to open market purchases
made in connection with the reinvestment of dividends or capital gains
distributions.

   
     Experience under the Plan may indicate that changes to it are desirable.
The Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by First Data, with the Fund's prior written consent, on at least 30
days' written notice to Plan participants. All correspondence concerning the
Plan should be directed by mail to First Data, P.O. Box 5128, Westborough,
Massachusetts 01581-5128 or by telephone at (800) 451-2010.
    


22

<PAGE>

--------------------------------------------------------------------------------
Description of Common Stock
--------------------------------------------------------------------------------

   
                                                            Amount Outstanding
                                                            Exclusive of Shares
                                        Amount Held    Held by Portfolio for Its
                         Amount       by Portfolio for     Own Account as of
 Title of Class        Authorized     Its Own Account      September 5, 1997
================================================================================
  Common Stock     500,000,000 Shares         0                 19,759,732
================================================================================
    

     No shares, other than those currently outstanding, are offered for sale
pursuant to this Prospectus. All shares of Common Stock have equal
non-cumulative voting rights and equal rights with respect to dividends, assets
and liquidation. Shares of Common Stock will be fully paid and non-assessable
when issued and have no preemptive, conversion or exchange rights. A majority of
the votes cast at any meeting of the shareholders is sufficient to take or
authorize action, except for election of Directors or as otherwise provided in
the Fund's Articles of Incorporation as described under "Certain Provisions of
the Articles of Incorporation and Market Discount."

     Under the rules of the NYSE applicable to listed companies, the Fund will
be required to hold an annual meeting of shareholders in each year. If the
Fund's shares are no longer listed on the NYSE (or any other national securities
exchange the rules of which require annual meetings of shareholders), the Fund
may decide not to hold annual meetings of shareholders. See "Stock Purchases and
Tenders" in the SAI.

     The Fund has no current intention of offering additional shares, except
that additional shares may be issued under the Plan. See "Dividends and
Distributions; Dividend Reinvestment Plan." Other offerings of shares, if made,
will require approval of the Fund's Board of Directors and will be subject to
the requirement of the 1940 Act that shares may not be sold at a price below the
then-current net asset value (exclusive of underwriting discounts and
commissions) except in connection with an offering to existing shareholders or
with the consent of holders of a majority of the Fund's outstanding shares.

--------------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation and Market Discount
--------------------------------------------------------------------------------

     ANTI-TAKEOVER PROVISIONS

     The Fund presently has provisions in its Articles of Incorporation and
By-Laws (commonly referred to as "anti-takeover" provisions) which may have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund, to cause it to engage in certain transactions or to modify its
structure.

     The Board of Directors is classified into three classes, each with a term
of three years with only one class of Directors standing for election in any
year. Such classification may prevent replacement of a majority of the Directors
for up to a two-year period. The Articles of Incorporation provide that the
maximum number of Directors that may constitute the Fund's entire board is 12.
Directors may be removed from 


                                                                              23

<PAGE>

--------------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation (continued)
--------------------------------------------------------------------------------

office, or the maximum number of Directors increased, only by vote of at least
75% of the shares entitled to be voted on the matter. If approved by two-thirds
of the Fund's Directors, a majority of the shares entitled to vote may approve
the conversion of the Fund from a closed-end to an open-end investment company.
If fewer than two-thirds of the Directors approve such conversion, the
affirmative vote of shareholders holding at least two-thirds of the outstanding
shares will be required to approve such action. If approved by three-fourths of
the Fund's Directors, a majority of the shares entitled to vote may approve: (i)
the dissolution or liquidation of the Fund; (ii) the merger, consolidation or
share exchange of the Fund with or into any other person; or (iii) any sale,
lease, exchange or other disposition by the Fund of any assets of the Fund
having an aggregate market value of $1,000,000, except for transactions in
securities in the ordinary course of business. If fewer than three-fourths of
the Directors approve the actions described in (i) through (iii) above, or in
the case of any business combination described above, the affirmative vote of
shareholders holding at least three-fourths of the outstanding shares will be
required. The affirmative vote of at least 75% of the shares will be required to
amend the Articles of Incorporation or By-Laws to change any of the foregoing
provisions.

     The percentage votes required under these provisions, which are greater
than the minimum requirements under Maryland law or the 1940 Act, will make a
change in the Fund's business or management more difficult and may have the
effect of depriving shareholders of an opportunity to sell shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar transaction. The Fund's
Board of Directors, however, has considered these anti-takeover provisions and
believes they are in the best interests of shareholders.

     MARKET DISCOUNT

     Shares of common stock of closed-end investment companies frequently trade
at a discount from net asset value, or in some cases trade at a premium. Shares
of closed-end investment companies investing primarily in fixed-income
securities tend to trade on the basis of income yield on the market price of the
shares and the market price may also be affected by trading volume, general
market conditions and economic conditions, and other factors beyond the control
of the Fund. As a result, the market price of the Fund's shares may be greater
or less than the net asset value. Since the commencement of the Fund's
operations, the Fund's shares have traded in the market at prices that were at
times equal to, but generally were below, net asset value.

     Some closed-end investment companies have taken certain actions, including
the repurchase of common stock in the market at market prices and the making of
one or more tender offers for common stock at net asset value, in an effort to
reduce or mitigate the discount, and others have converted to an open-end
investment company, the shares of which are redeemable at net asset value.


24

<PAGE>

--------------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation (continued)
--------------------------------------------------------------------------------

     The Fund's Board of Directors has seen no reason to adopt any of the steps,
which some other closed-end funds have used to address the discount. In
addition, the experience of many closed-end funds suggests that the effect of
many of these steps (other than open-ending) on the discount may be temporary or
insignificant. Accordingly, there can be no assurance that any of these actions
will be taken or, if undertaken, will cause the Fund's shares to trade at a
price equal to their net asset value.

--------------------------------------------------------------------------------
Custodian and Transfer Agent
--------------------------------------------------------------------------------

     PNC Bank, located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, acts as custodian of the Fund's investments.
First Data, located at One Exchange Place, Boston, Massachusetts 02109, serves
as agent in connection with the Plan and serves as the Fund's transfer agent,
dividend-paying agent and registrar.

--------------------------------------------------------------------------------
Experts
--------------------------------------------------------------------------------

     The audited financial statements have been incorporated by reference in the
SAI in reliance upon the report of KPMG Peat Marwick LLP, independent auditors,
and upon the authority of said firm as experts in accounting and auditing.

--------------------------------------------------------------------------------
Further Information
--------------------------------------------------------------------------------

     This Prospectus does not contain all of the information set forth in the
Registration Statement filed with the SEC. The complete Registration Statement
may be obtained from the SEC upon payment of the fee prescribed by its Rules and
Regulations.

     No person has been authorized to give any information or make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund, the Investment Manager, or Smith Barney. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any security
other than the shares of Common Stock, nor does it constitute an offer to sell
or a solicitation of any offer to buy the shares of Common Stock by anyone in
any jurisdiction in which the offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Fund since the date hereof. If any material change occurs while
this Prospectus is required by law to be delivered, however, this Prospectus
will be supplemented or amended accordingly.


                                                                              25

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Appendix A
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                         TYPES OF MUNICIPAL OBLIGATIONS

     The Portfolio may invest in the following types of Municipal Obligations
and in such other types of Municipal Obligations.

     Municipal Bonds

     Municipal bonds are debt obligations issued to obtain funds for various
public purposes. The two principal classifications of municipal bonds are
"general obligation" 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 only 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 from another specific
source, such as the user of the facility being financed. Certain municipal bonds
are "moral obligation" issues, which normally are issued by special purpose
public authorities. In the case of such issues, an express or implied "moral
obligation" of a stated government unit is pledged to the payment of the debt
service but is usually subject to annual budget appropriations.

     Industrial Development Bonds and Private Activity Bonds

     Industrial development bonds ("IDBs") and private activity bonds ("PABs")
are municipal bonds issued by or on behalf of public authorities to finance
various privately operated facilities, such as airports or pollution control
facilities. IDBs and PABs generally do not carry the pledge of the credit of the
issuing municipality, but are guaranteed by the corporate entity on whose behalf
they are issued. IDBs and PABs are generally revenue bonds and thus are not
payable from the unrestricted revenue of the issuer. The credit quality of IDBs
and PABs is usually directly related to the credit standing of the user of the
facilities being financed.

     Municipal Lease Obligations

     Municipal lease obligations are Municipal Obligations that may take the
form of leases, installment purchase contracts or conditional sales contracts,
or certificates of participation with respect to such contracts or leases.
Municipal lease obligations are issued by state and local governments and
authorities to purchase land or various types of equipment and facilities.
Although municipal lease obligations do not constitute general obligations of
the municipality for which the municipality's taxing authority is pledged, they
ordinarily are backed by the municipality's covenant to budget for, appropriate
and make the payments due under the lease obligation. The leases underlying
certain Municipal Obligations, however, provide that lease payments are subject
to partial or full abatement if, because of material damage or destruction of
the leased property, there is substantial interference with the lessee's use or
occupancy of such property. This "abatement risk" may be reduced by the
existence of insurance covering the leased property, the maintenance 


                                                                             A-1

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Appendix A (continued)
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by the lessee of reserve funds or the provision of credit enhancements such as
letters of credit.

     The liquidity of municipal lease obligations varies. Municipal leases held
by the Portfolio will be considered illiquid securities unless the Portfolio's
Board of Directors determines on an on-going basis that the leases are readily
marketable. Certain municipal 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 the case of a "non-appropriation" lease, the
Portfolio's ability to recover under the lease in the event of non-appropriation
or default will be limited solely to the repossession of the leased property,
without recourse to the general credit of the lessee, and disposition of the
property in the event of foreclosure might be difficult. The Portfolio will not
invest more than 5% of its assets in such "non-appropriation" municipal lease
obligations.

     Zero Coupon Obligations

     The Portfolio may invest in zero coupon Municipal Obligations. Such
obligations include "pure zero" obligations, which pay no interest for their
entire life (either because they bear no stated rate of interest or because
their stated rate of interest is not payable until maturity), and "zero/fixed"
obligations, which pay no interest for an initial period and thereafter pay
interest currently. Zero coupon obligations also include securities representing
the principal-only components of Municipal Obligations from which the interest
components have been stripped and sold separately by the holders of the
underlying Municipal Obligations. Zero coupon securities usually trade at a deep
discount from their face or par value and will be subject to greater
fluctuations in market value in response to changing rates than obligations of
comparable maturity that make current distributions of interest. While zero
coupon Municipal Obligations will not contribute to the cash available to the
Portfolio, SBMFM believes that limited investments in such securities may
facilitate the Portfolio's ability to preserve capital while generating
tax-exempt income through the accrual of original interest discount. Zero coupon
Municipal Obligations generally are liquid, although such liquidity may be
reduced from time to time due to interest rate volatility and other factors.

     Floating- and Variable-Rate Obligations

     The Portfolio may purchase floating- and variable-rate municipal notes and
bonds, which frequently permit the holder to demand payment of principal at any
time, or at specified intervals, and permit the issuer to prepay principal, plus
accrued interest, at its discretion after a specified notice period. The
issuer's obligations under the demand feature of such notes and bonds generally
are secured by bank letters of credit or other credit support arrangements.
There frequently will be 


A-2

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Appendix A (continued)
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no secondary market for variable- and floating-rate obligations held by the
Portfolio, although the Portfolio may be able to obtain payment of principal at
face value by exercising the demand feature of the obligation.

     Participation Interests

     The Portfolio may invest up to 5% of its total assets in participation
interests in municipal bonds, including IDBs, PABs and floating- and
variable-rate securities. A participation interest gives the Portfolio an
undivided interest in a municipal bond owned by a bank. The Portfolio has the
right to sell the instrument back to the bank. If the participation interest is
unrated, it will be backed by an irrevocable letter of credit or guarantee of a
bank that the Portfolio's Board of Directors has determined meets certain credit
quality standards or the payment obligation will otherwise be collateralized by
U.S. government securities. The Portfolio will have the right, with respect to
certain participation interests, to draw on the letter of credit on demand,
after specified notice for all or any part of the principal amount of the
Portfolio's participation interest, plus accrued interest. Generally, the
Portfolio intends to exercise the demand under the letters of credit or other
guarantees only upon a default under the terms of the underlying bond, or to
maintain the Portfolio's assets in accordance with its investment objective and
policies. The ability of a bank to fulfill its obligations under a letter of
credit or guarantee might be affected by possible financial difficulties of its
borrowers, adverse interest rate or economic conditions, regulatory limitations
or other factors. SBMFM will monitor the pricing, quality and liquidity of the
participation interests held by the Portfolio and the credit standing of the
banks issuing letters of credit or guarantees supporting such participation
interests on the basis of published financial information reports of rating
services and bank analytical services.

     Custodial Receipts

     The Portfolio may acquire custodial receipts or certificates underwritten
by securities dealers or banks that evidence ownership of future interest
payments, principal payments or both on certain Municipal Obligations. The
underwriter of these certificates or receipts typically purchases Municipal
Obligations and deposits the obligations in an irrevocable trust or custodial
account with a custodian bank, which then issues receipts or certificates that
evidence ownership of the periodic unmatured coupon payments and the final
principal payment on the obligations. Custodial receipts evidencing specific
coupon or principal payments have the same economic attributes as zero coupon
Municipal Obligations described above. Although under the terms of the custodial
receipt the Portfolio would be typically authorized to assert its rights
directly against the issuer of the underlying obligation, the Portfolio could be
required to assert through the custodian bank those rights that may exist
against the underlying issuer. Thus, in the event the underlying issuer 


                                                                             A-3

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Appendix A (continued)
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fails to pay principal or interest when due, the Portfolio may be subject to
delays, expenses and risks that are greater than those that would have been
involved if the Portfolio had purchased a direct obligation of the issuer. In
addition, in the event that the trust or custodial account in which the
underlying security has been deposited is determined to be an association
taxable as a corporation, instead of a non-taxable entity, the yield on the
underlying security would be reduced in recognition of any taxes paid.

     Municipal Obligation Components

   
     The Portfolio may invest in Municipal Obligations, the interest rate on
which has been divided by the issuer into two different and variable component,
which together result in a fixed interest rate. Typically, the first component
(the "Auction Component") pays an interest rate that is reset periodically
through an auction process, whereas the second component (the "Residual
Component") pays a residual interest rate based on the difference between the
total interest paid by the issuer on the Municipal Obligation and the auction
rate paid on the Auction Component. The Portfolio may purchase both Auction and
Residual Components.
    

     Because the interest rate paid to holders of Residual Components is
generally determined by subtracting the interest rate paid to the holders of
Auction Components from a fixed amount, the interest rate paid to Residual
Component holders will decrease as the Auction Component's rate increases and
increase as the Auction Component's rate decreases. Moreover, the extent of the
increases and decreases in market value of Residual Components may be larger
than comparable changes in the market value of an equal principal amount of a
fixed-rate Municipal Obligation having similar credit quality, redemption
provisions and maturity.


A-4

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--------------------------------------------------------------------------------
                              
                              SMITH BARNEY

                              A Member of TravelersGroup[LOGO]


                              Greenwich 
                              Street 
                              Municipal 
                              Fund 
                              Inc.

                              Common Stock

                              388 Greenwich Street
                              New York, New York 10013

                              FDO  1204 10/97