As filed with the Securities and Exchange Commission on September 
28, 1998

Registration Nos.   33-12792
		    811-5066

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER 
THE SECURITIES ACT OF 1933
 
[   ]  Pre-Effective Amendment No.  

[X]  Post-Effective Amendment No.      22     

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940, as amended 

[X] Amendment No.      23     

SMITH BARNEY ARIZONA MUNICIPALS FUND INC.
(Exact name of Registrant as specified in Charter)

388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)

(212) 816-6474
Registrant's Telephone Number, including area code

Christina T. Sydor
Secretary

Smith Barney Arizona Municipals Fund Inc.
388 Greenwich Street 
New York, NewYork 10013
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: Continuous

It is proposed that this filing becomes effective (check 
appropriate box):
   
[    ]  Immediately upon filing pursuant to paragraph (b)
[ X ]  on September 28, 1998 pursuant to paragraph (b)
[    ]  60 days after filing pursuant to paragraph (a) (1)
[    ]  on (date) pursuant to paragraph (a) (1) 
[    ]  75 days after filing pursuant to paragraph (a) (2)
[    ]  on (date) pursuant to paragraph (a) (2) of Rule 485
    

If appropriate, check the following box:

[   ]  This post-effective amendment designates a new effective 
date for a previously filed post-effective amendment

Title of Securities Being Registered: Shares of Common 
Stock/Shares of Beneficial Interest

SMITH BARNEY ARIZONA MUNICIPALS FUND INC.

FORM N-1A

CROSS REFERENCE SHEET

PURSUANT TO RULE 495(a)

Part A.
Item No.

Prospectus Caption

1. Cover Page

Cover Page

2. Synopsis

Prospectus Summary

3. Financial Highlights

Financial Highlights

4. General Description of 
Registrant

Cover Page; Prospectus Summary; 
Investment Objectives and 
Management Policies; Additional 
Information

5.  Management of the Fund

Management of the Fund; 
Distributor; Additional Information

6.  Capital Stock and Other 
Securities

Investment Objective and Management 
Policies; Dividends, Distributions 
and Taxes; Additional Information

7.  Purchase of Securities Being 
Offered

Purchase of Shares; Valuation of 
Shares; Redemption of Shares; 
Exchange Privilege; Minimum Account 
Size; Distributor; Additional 
Information

8. Redemption or Repurchase

Purchase of Shares; Redemption of 
Shares; Exchange Privilege

9. Legal Proceedings

Not Applicable


Part B
Item No.

Statement of Additional Information 
Caption

10.  Cover Page

Cover Page

11.  Table of Contents

Contents

12.  General Information

Distributor; Additional Information

13.  Investment Objective and  
Policies

Investment Objective and Management 
Policies

14.  Management of the Fund

Management of the Fund; Distributor

15.  Control Persons and Principal 
Holders of Securities

Management of the Fund

16.  Investment Advisory and other 
Services

Management of the Fund; Distributor

17.  Brokerage Allocation

Investment Objective and Management 
Policies; Distributor

18.  Capital Stock and Other 
Securities 

Investment Objectives and 
Management Policies; Purchase of 
Shares; Redemption of Shares; Taxes

19.  Purchase, Redemption and 
Pricing of Securities being Offered

Purchase of Shares; Redemption of 
Shares; Valuation of Shares; 
Exchange Privilege; Distributor

20.  Tax Status

Taxes

21.  Underwriters

Distributor

22.  Calculation of Performance 
Data

Performance Data

23.  Financial Statements

Financial Statements
 

SMITH BARNEY ARIZONA MUNICIPALS FUND INC.

PART A

PROSPECTUS

                                                                    SMITH BARNEY

                                                                         ARIZONA
                                                                      MUNICIPALS
                                                                       FUND INC.

   
                                                              SEPTEMBER 28, 1998
    
                                                                          
                                                   Prospectus begins on page one

[LOGO] Smith Barney Mutual Funds
       Investing for your future.
       Every day.
<PAGE>

   
--------------------------------------------------------------------------------
Prospectus                                                    September 28, 1998
--------------------------------------------------------------------------------
    

      Smith Barney Arizona Municipals Fund Inc.
      388 Greenwich Street
      New York, New York 10013
      (800) 451-2010

      Smith Barney Arizona Municipals Fund Inc. (the "Fund") is a diversified
municipal fund that seeks to provide Arizona investors with the maximum amount
of income exempt from Federal and Arizona state income taxes as is consistent
with the preservation of capital.

      This Prospectus concisely sets forth certain information about the Fund,
including sales charges, distribution and service fees and expenses, that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.

   
      Additional information about the Fund is contained in a Statement of
Additional Information (the "SAI") dated September 28, 1998, as amended or
supplemented from time to time, that is available upon request and without
charge by calling or writing the Fund at the telephone number or address set
forth above or by contacting a Salomon Smith Barney Financial Consultant. The
SAI has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated by reference into this Prospectus in its entirety. 

SALOMON SMITH BARNEY INC. 

Distributor

MUTUAL MANAGEMENT CORP.

Investment Adviser and Administrator

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

                                                                               1
<PAGE>

--------------------------------------------------------------------------------
Table of Contents
--------------------------------------------------------------------------------

   
Prospectus Summary                                                             3
--------------------------------------------------------------------------------
Financial Highlights                                                          10
--------------------------------------------------------------------------------
Investment Objective and Management Policies                                  14
--------------------------------------------------------------------------------
Valuation of Shares                                                           23
--------------------------------------------------------------------------------
Dividends, Distributions and Taxes                                            23
--------------------------------------------------------------------------------
Purchase of Shares                                                            26
--------------------------------------------------------------------------------
Exchange Privilege                                                            32
--------------------------------------------------------------------------------
Redemption of Shares                                                          35
--------------------------------------------------------------------------------
Minimum Account Size                                                          38
--------------------------------------------------------------------------------
Performance                                                                   38
--------------------------------------------------------------------------------
Management of the Fund                                                        39
--------------------------------------------------------------------------------
Distributor                                                                   41
--------------------------------------------------------------------------------
Additional Information                                                        42
-------------------------------------------------------------------------------
    

--------------------------------------------------------------------------------
      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.
--------------------------------------------------------------------------------

2
<PAGE>

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

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

INVESTMENT OBJECTIVE The Fund is an open-end, diversified management investment
company that seeks to provide Arizona investors with the maximum amount of
income exempt from Federal and Arizona state income taxes as is consistent with
the preservation of capital. Its investments consist primarily of intermediate-
and long-term investment-grade municipal securities issued by the State of
Arizona and its political subdivisions, agencies, authorities and
instrumentalities, and certain other municipal issuers such as the Commonwealth
of Puerto Rico, the Virgin Islands and Guam ("Arizona Municipal Securities")
that pay interest which is excluded from gross income for Federal income tax
purposes and exempt from Arizona state personal income taxes. Intermediate- and
long-term securities have remaining maturities at the time of purchase of three
to in excess of twenty years. See "Investment Objective and Management
Policies."

   
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class L
shares, which differ principally in terms of sales charges and rates of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $15,000,000. See
"Purchase of Shares" and "Redemption of Shares."
    

      Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.00% of the purchase price and are subject to an annual
service fee of 0.15% of the average daily net assets of the Class. The initial
sales charge may be reduced or waived for certain purchases. Purchases of Class
A shares of $500,000 or more will be made at net asset value with no initial
sales charge, but will be subject to a contingent deferred sales charge ("CDSC")
of 1.00% on redemptions made within 12 months of purchase. See "Prospectus
Summary -- Reduced or No Initial Sales Charge."

      Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% the first year
after purchase and by 1.00% each year thereafter to zero. This CDSC may be
waived for certain redemptions. Class B shares are subject to an annual service
fee of 0.15% and an annual distribution fee of 0.50% of the average daily net
assets of the Class. The Class B shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A shares.


                                                                               3
<PAGE>

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

      Class B Shares Conversion Feature. Class B shares will convert
automatically to Class A shares, based on relative net asset value, eight years
after the date of the original purchase. Upon conversion, these shares will no
longer be subject to an annual distribution fee. In addition, a certain portion
of Class B shares that have been acquired through the reinvestment of dividends
and distributions ("Class B Dividend Shares") will be converted at that time.
See "Purchase of Shares -- Deferred Sales Charge Alternatives."

   
      Class L Shares. Class L shares are sold at net asset value plus an initial
sales charge of 1.00% of the purchase price. They are subject to an annual
service fee of 0.15% and an annual distribution fee of 0.55% of the average
daily net assets of the Class, and investors pay a CDSC of 1.00% if they redeem
Class L shares within 12 months of purchase. This CDSC may be waived for certain
redemptions. The Class L shares' distribution fee may cause that Class to have
higher expenses and pay lower dividends than Class A and Class B shares.
Purchases of Fund shares which, when combined with current holdings of Class L
shares of the Fund, equal or exceed $500,000 in the aggregate, should be made in
Class A shares at net asset value with no sales charge, and will be subject to a
CDSC of 1.00% on redemptions made within 12 months of purchase.

      Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $15,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
    

      In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:

   
      Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended duration of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an alternative, Class
B shares are sold without any initial sales charge so the entire purchase price
is immediately invested in the Fund. Any investment return on these additional
invested amounts may partially or wholly offset the higher annual expenses of
this Class. Because the Fund's future return cannot be predicted, however, there
can be no assurance that this would be the case. Finally, Class L shares which
have a lower upfront sales charge but are subject to higher distribution fees
than Class A shares, are suitable for investors who are not investing or
intending to invest an amount which would receive a substantial sales charge
discount and who have a short-term or undetermined time frame.
    


4
<PAGE>

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

   
      Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class L shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
L shares to investors with longer term investment outlooks.

      Reduced or No Initial Sales Charge. The initial sales charge on Class A
shares may be waived for certain eligible purchasers and the entire purchase
price would be immediately invested in the Fund. In addition, Class A share
purchases of $500,000 or more will be made at net asset value with no initial
sales charge, but will be subject to a CDSC of 1.00% on redemptions made within
12 months of purchase. The $500,000 aggregate investment may be met by adding
the purchase to the net asset value of all Class A shares offered with a sales
charge held in certain other funds sponsored by Salomon Smith Barney Inc.
("Salomon Smith Barney") listed under "Exchange Privilege." Class A share
purchases may also be eligible for a reduced initial sales charge. See "Purchase
of Shares."

      Salomon Smith Barney Financial Consultants may receive different
compensation for selling different Classes of shares. Investors should
understand that the purpose of the CDSC on the Class B, Class L and certain
Class A shares is the same as that of an initial sales charge. See "Purchase of
Shares" and "Management of the Fund" for a complete description of the sales
charges and service and distribution fees for each Class of shares and
"Valuation of Shares," "Dividends, Distributions and Taxes" and "Exchange
Privilege" for other differences between the Classes of shares.

PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Salomon Smith Barney, a broker that clears securities transactions through
Salomon Smith Barney on a fully disclosed basis (an "Introducing Broker") or an
investment dealer in the selling group. See "Purchase of Shares."

INVESTMENT MINIMUMS Investors in Class A, Class B and Class L shares may open an
account by making an initial investment of at least $1,000. Investors in Class Y
shares may open an account for an initial investment of $15,000,000. Subsequent
investments of at least $50 may be made for all Classes. The minimum investment
requirements for Class A, Class B and Class L shares and the subsequent
investment for all Classes through the Systematic Investment Plan are described
below.

SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares. The minimum initial invest-
    

                                                                               5
<PAGE>

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

   
ment requirement for Class A, Class B and Class L shares and the subsequent
investment requirement for all Classes for shareholders purchasing shares
through the Systematic Investment Plan on a monthly basis is $25 and on a
quarterly basis is $50. See "Purchase of Shares."
    

REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."

   
MANAGEMENT OF THE FUND MUTUAL Management Corp. ("MMC" or the "Adviser")
(formerly known as Smith Barney Mutual Funds Management Inc.) serves as the
Fund's investment adviser and administrator. The Adviser provides investment
advisory and management services to investment companies affiliated with Salomon
Smith Barney. The Adviser is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings"). 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,
including Asset Management, Consumer Finance Services, Life Insurance Services
and Property & Casualty Insurance Services. See "Management of the Fund."
    

EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
Class of certain other Smith Barney Mutual Funds at the respective net asset
value next determined. See "Exchange Privilege."

   
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Salomon Smith Barney Financial Consultants. See "Valuation of Shares."

DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are paid
monthly. Distributions of net realized capital gains, if any, are declared and
paid at least annually. See "Dividends, Distributions and Taxes."
    

REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of any
Class will be reinvested automatically in additional shares of the same Class at
current net asset value unless otherwise specified by an investor. Shares
acquired by dividend and distribution reinvestments will not be subject to any
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes."


6
<PAGE>

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

RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the Fund
will achieve its investment objective. Assets of the Fund may be invested in the
municipal securities of non-Arizona municipal issuers ("Other Municipal
Securities"). Dividends paid by the Fund which are derived from interest
attributable to Arizona Municipal Securities will be excluded from gross income
for Federal income tax purposes and exempt from Arizona state personal income
taxes (but not from Arizona state franchise tax or Arizona state corporate
income tax). Dividends derived from interest on obligations of non-Arizona
municipal issuers will be exempt from Federal income taxes, but may be subject
to Arizona state personal income taxes. Dividends derived from certain municipal
securities (including Arizona Municipal Securities), however, may be a specific
tax item for Federal alternative minimum tax purposes. The Fund may invest
without limit in securities subject to the Federal alternative minimum tax. See
"Investment Objective and Management Policies" and "Dividends, Distributions and
Taxes."

   
      The Fund is more susceptible to factors adversely affecting issuers of
Arizona municipal securities than is a municipal bond fund that does not
emphasize these issuers. See "Investment Objectives and Management Policies" in
the Prospectus and "Special Considerations Relating to Arizona Municipal
Securities" in the SAI for further details about the risks of investing in
Arizona obligations.

      The Fund generally will invest at least 80% of its assets in securities
rated investment grade, and may invest the remainder of its assets in securities
rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D by
Standard & Poor's Ratings Group ("S&P"), or have an equivalent rating by any
nationally recognized statistical rating organization ("NRSRO") or in unrated
obligations deemed by the Adviser to be of comparable quality. Securities in
the fourth highest rating category, though considered to be investment grade,
have speculative characteristics. Securities rated as low as D are extremely
speculative and are in actual default of interest and/or principal payments.
    

      There are several risks in connection with the use of certain portfolio
strategies by the Fund, such as the use of when-issued securities, puts,
stand-by commitments, municipal leases, financial futures contracts and related
put and call options and options on debt securities and securities indices. See
"Investment Objective and Management Policies -- Certain Portfolio Strategies."


                                                                               7
<PAGE>

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

THE FUND'S EXPENSES The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption based on the Fund's current operating expenses
for its most recent fiscal year:

   
<TABLE>
<CAPTION>

Smith Barney Arizona Municipals Fund Inc.           Class A   Class B     Class L*   Class Y
============================================================================================
<S>                                                  <C>        <C>        <C>         <C>
Shareholder Transaction Expenses
  Maximum sales charge imposed on purchases
    (as a percentage of offering price)              4.00%      None       1.00%       None
  Maximum CDSC (as a percentage of original cost or
    redemption proceeds, whichever is lower)         None**     4.50%      1.00%       None
============================================================================================
Annual Fund Operating Expenses
  (as a percentage of average net assets)
  Management fees                                    0.50%      0.50%      0.50%       0.50%
  12b-1 fees***                                      0.15       0.65       0.70        None
  Other expenses****                                 0.20       0.23       0.22        0.20
============================================================================================
TOTAL FUND OPERATING EXPENSES                        0.85%      1.38%      1.42%       0.70%
============================================================================================
</TABLE>

*     Class L shares were called Class C shares until June 12, 1998. For
      shareholders who owned Class C shares of the Fund as of June 12, 1998,
      Class L shares may be purchased without including the 1% initial sales
      charge until June 25, 1999.
**    Purchases of Class A shares of $500,000 or more will be made at net asset
      value with no sales charge, but will be subject to a CDSC of 1.00% on
      redemptions made within 12 months of purchase.
***   Upon conversion of Class B shares to Class A shares, such shares will no
      longer be subject to a distribution fee. Class L shares do not have a
      conversion feature and, therefore, are subject to an ongoing distribution
      fee. As a result, long-term shareholders of Class L shares may pay more
      than the economic equivalent of the maximum front-end sales charge
      permitted by the National Association of Securities Dealers, Inc.
****  For Class Y shares, "Other expenses" have been estimated based on expenses
      incurred by Class A shares because no Class Y shares were outstanding as
      of May 31, 1998.

      Class A shares of the Fund purchased through the Smith Barney Asset One
Program will be subject to an annual asset-based fee, payable quarterly, in lieu
of the initial sales charge. The fee will vary to a maximum of 1.50%, depending
on the amount of assets held through the Program. For more information, please
call your Salomon Smith Barney Financial Consultant.

   The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
actually pay lower or no charges depending on the amount purchased and, in the
case of Class B, Class L and certain Class A shares, the length of time the
shares are held. See "Purchase of Shares" and "Redemption of Shares." Salomon
Smith Barney receives an annual 12b-1 service fee of 0.15% of the value of
average daily net assets of Class A shares. Salomon Smith Barney also receives,
with respect to Class B shares, an annual 12b-1 fee of 0.65% of the value of
average daily net assets of that Class, consisting of a 0.50% distribution fee
and a 0.15% service fee. For Class L shares, Salomon Smith Barney receives an
annual 12b-1 fee of 0.70% 

    

8
<PAGE>

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

of the value of average daily net assets of that Class, consisting of a 0.55%
distribution fee and a 0.15% service fee. "Other Expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees. 

   
EXAMPLE The following example is intended to assist an investor in understanding
the various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares" and
"Management of the Fund."

Smith Barney Arizona Municipals Fund Inc.  1 Year   3 Years   5 Years  10 Years*
================================================================================
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemption 
at the end of each time period:
  Class A                                    $48      $66       $85       $141
  Class B                                     59       74        81        151
  Class L                                     34       54        87        178
  Class Y                                      7       22        39         87

An investor would pay the following 
expenses on the same investment, assuming
the same annual return and no redemption:
  Class A                                    $48      $66       $85       $141
  Class B                                     14       44        76        151
  Class L                                     24       54        87        178
  Class Y                                      7       22        39         87
================================================================================
    

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

      The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. This example should not be considered a
representation of past or future expenses and actual expenses may be greater or
less than those shown.


                                                                               9
<PAGE>

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

   
      The following information for each of the years in the four-year period
ended May 31, 1998 has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report thereon appears in the Fund's Annual Report dated May 31,
1998. The following information for the fiscal years from May 31, 1989 to May
31, 1994 has been audited by other auditors. This information should be read in
conjunction with the financial statements and related notes that also appear in
the Fund's Annual Report, which is incorporated by reference into the SAI. As of
May 31, 1998, no Class Y shares were outstanding and, accordingly, no comparable
information is available at this time for that class. 

For a share of each class of capital stock outstanding throughout each year(1):

Smith Barney Arizona
Municipals Fund Inc.

<TABLE>
<CAPTION>

Class A Shares                        1998       1997      1996      1995     1994(2)      1993
=================================================================================================
<S>                                  <C>        <C>       <C>       <C>       <C>         <C>
Net Asset Value, Beginning of Year   $10.21     $ 9.95    $10.09    $ 9.82    $10.40      $ 9.84
-------------------------------------------------------------------------------------------------
Income From Operations:                                             
  Net investment income(3)             0.50       0.53      0.53      0.54      0.54        0.58
  Net realized and unrealized                                       
    gain/(loss)                        0.40       0.26     (0.15)     0.33     (0.38)       0.65
-------------------------------------------------------------------------------------------------
Total Income from Operations           0.90       0.79      0.38      0.87      0.16        1.23
=================================================================================================
Less Distributions From:                                            
  Net investment income               (0.52)     (0.53)    (0.52)    (0.54)    (0.53)      (0.57)
  Net realized gains                  (0.05)        --        --     (0.06)    (0.21)      (0.08)
  Capital                                --         --        --        --        --       (0.02)
-------------------------------------------------------------------------------------------------
Total Distributions                   (0.57)     (0.53)    (0.52)    (0.60)    (0.74)      (0.67)
=================================================================================================
Net Asset Value, End of Year         $10.54     $10.21    $ 9.95    $10.09    $ 9.82      $10.40
-------------------------------------------------------------------------------------------------
Total Return                           9.00%      8.06%     3.82%     9.38%     1.33%      12.92%
-------------------------------------------------------------------------------------------------
Net Assets End of Year (in 000's)   $46,183    $37,304   $40,917   $43,222   $44,552     $44,055
-------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:                                       
  Expenses(3)                          0.85%      0.88%     0.82%     0.82%     0.83%       0.77%
  Net investment income                4.87       5.17      5.20      5.37      5.24        5.66
-------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                  42%        27%       22%       21%       49%         44%
=================================================================================================
</TABLE>

(1)   Certain prior year numbers have been restated to reflect current
      year's presentation. Net investment income, net realized gains and net
      assets were not affected by this change.
(2)   Per share amounts have been calculated using the monthly average shares
      method rather than the undistributed net investment income method, because
      it more accurately reflects the per share data for the period.
(3)   The investment adviser waived all or part of its fees for the five years
      ended May 31, 1996. If such fees had not been waived, the per share effect
      on net investment income and the expense ratios would have been as
      follows:
    

                Per Share Decreases                     Expense Ratios
             to Net Investment Income                 Without Fee Waiver
         ---------------------------------    --------------------------------
         1996   1995   1994   1993   1992     1996   1995   1994   1993   1992
         ----   ----   ----   ----   ----     ----   ----   ----   ----   ----
Class A  $0.02  $0.04  $0.02  $0.04  $0.02    0.99%  1.01%  1.05%  1.10%  0.90%


10
<PAGE>

--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------

For a share of each class of capital stock outstanding throughout each year:

Smith Barney Arizona
Municipals Fund Inc.

<TABLE>
<CAPTION>
Class A Shares(1)                             1992        1991        1990       1989
=======================================================================================
<S>                                         <C>         <C>         <C>         <C> 
Net Asset Value, Beginning of Year          $  9.63     $  9.49     $  9.66     $ 9.22
---------------------------------------------------------------------------------------
Income From Operations:
  Net investment income(2)                     0.59        0.68        0.71       0.82
  Net realized and unrealized gain/(loss)      0.32        0.14       (0.12)      0.31
---------------------------------------------------------------------------------------
Total Income from Operations                   0.91        0.82        0.59       1.13
=======================================================================================
Less Distributions From:
  Net investment income                       (0.60)      (0.68)      (0.71)     (0.69)
  Net realized gains                          (0.06)         --       (0.05)        --
  Capital                                     (0.04)         --          --         --
---------------------------------------------------------------------------------------
Total Distributions                           (0.70)      (0.68)      (0.76)     (0.69)
=======================================================================================
Net Asset Value, End of Year                $  9.84     $  9.63     $  9.49     $ 9.66
---------------------------------------------------------------------------------------
Total Return                                   9.86%       8.92%       6.31%     12.70%
---------------------------------------------------------------------------------------
Net Assets End of Year (in 000's)           $38,759     $28,373     $18,167     $4,903
---------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(2)                                  0.68%       0.14%       0.03%      0.34%
  Net investment income                        6.02        7.06        7.34       7.23
---------------------------------------------------------------------------------------
Portfolio Turnover Rate                          44%         49%         86%        63%
=======================================================================================
</TABLE>

(1)   Any shares outstanding prior to November 6, 1992 were designated as Class
      A shares.
(2)   The investment adviser waived all or part of its fees for the four years
      ended May 31, 1991. If such fees had not been waived, the per share effect
      on net investment income and the expense ratios would have been as
      follows:

             Per Share Decreases                  Expense Ratios      
          to Net Investment Income              Without Fee Waiver    
          ------------------------              ------------------   
          1991    1990  1989  1988          1991   1990   1989   1988   
          ----    ----  ----  ----          ----   ----   ----   ----
Class A  $0.10   $0.20  $0.66 $0.13         1.13%  2.13%  6.20%  2.58%  


                                                                              11
<PAGE>

--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------

   
For a share of each class of capital stock outstanding throughout each year(1):

Smith Barney Arizona
Municipals Fund Inc.

<TABLE>
<CAPTION>
Class B Shares                                1998        1997        1996        1995       1994(2)     1993(3)
=================================================================================================================
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>
Net Asset Value, Beginning of Year          $ 10.21     $  9.95     $ 10.09     $  9.82     $ 10.40     $ 9.97
-----------------------------------------------------------------------------------------------------------------
Income From Operations:
  Net investment income(4)                     0.45        0.48        0.48        0.49        0.49       0.31
  Net realized and unrealized gain/(loss)      0.40        0.26       (0.15)       0.33       (0.37)      0.50
-----------------------------------------------------------------------------------------------------------------
Total Income from Operations                   0.85        0.74        0.33        0.82        0.12       0.81
=================================================================================================================
Less Distributions From:
  Net investment income                       (0.47)      (0.48)      (0.47)      (0.49)      (0.49)     (0.29)
  Net realized gains                          (0.05)         --          --       (0.06)      (0.21)     (0.08)
  Capital                                        --          --          --          --          --      (0.01)
-----------------------------------------------------------------------------------------------------------------
Total Distributions                           (0.52)      (0.48)      (0.47)      (0.55)      (0.70)     (0.38)
=================================================================================================================
Net Asset Value, End of Year                $ 10.54     $ 10.21     $  9.95     $ 10.09     $  9.82     $10.40
-----------------------------------------------------------------------------------------------------------------
Total Return                                   8.46%       7.53%       3.30%       8.78%       0.84%      8.31%++
-----------------------------------------------------------------------------------------------------------------
Net Assets End of Year (in 000's)           $19,721     $19,886     $22,369     $22,838     $19,306     $8,149
-----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(4)                                  1.38%       1.39%       1.33%       1.33%       1.35%      1.33%+
  Net investment income                        4.35        4.66        4.69        4.85        4.73       5.10+
-----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                          42%         27%         22%         21%         49%        44%
=================================================================================================================
</TABLE>
    

(1)   Certain prior year numbers have been restated to reflect current year's
      presentation. Net investment income, net realized gains and net assets
      were not affected by this change.
(2)   Per share amounts have been calculated using the monthly average shares
      method rather than the undistributed net investment income method, because
      it more accurately reflects the per share data for the period.
(3)   For the period from November 6, 1992 (inception date) to May 31, 1993.

   
(4)   The investment adviser waived all or part of its fees for the four years
      ended May 31, 1996. If such fees had not been waived, the per share effect
      on net investment income and the expense ratios would have been as
      follows:
    

            Per Share Decreases                       Expense Ratios       
          to Net Investment Income                 Without Fee Waiver
         --------------------------             -------------------------
         1996    1995   1994   1993             1996   1995   1994    1993     
         ----    ----   ----   ----             ----   ----   ----    ----     
Class B  $0.02  $0.03  $0.02  $0.02             1.50%  1.52%  1.57%  1.66%+   
                                             
++    Total return is not annualized, as it may not be representative of the
      total return for the year.
+     Annualized.


12
<PAGE>

--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------

   
For a share of each class of capital stock outstanding throughout each year(1):
    

Smith Barney Arizona
Municipals Fund Inc.

   
Class L Shares(2)                           1998     1997     1996     1995(3)
================================================================================
Net Asset Value, Beginning of Year         $10.21   $ 9.95   $10.09    $ 9.28
--------------------------------------------------------------------------------
Income From Operations:                                      
  Net investment income(4)                   0.45     0.47     0.48      0.24
  Net realized and unrealized gain (loss)    0.39     0.26    (0.15)     0.86
--------------------------------------------------------------------------------
Total Income from Operations                 0.84     0.73     0.33      1.10
================================================================================
Less Distributions From:                                     
  Net investment income                     (0.47)   (0.47)   (0.47)    (0.23)
  Net realized gains                        (0.05)      --       --     (0.06)
--------------------------------------------------------------------------------
Total Distributions                         (0.52)   (0.47)   (0.47)    (0.29)
================================================================================
Net Asset Value, End of Year               $10.53   $10.21   $ 9.95    $10.09
--------------------------------------------------------------------------------
Total Return                                 8.30%    7.49%    3.26%    12.10%++
--------------------------------------------------------------------------------
  Net Assets End of Year (in 000's)          $875     $822     $554      $386
--------------------------------------------------------------------------------
Ratios to Average Net Assets:                                
  Expenses(4)                                1.42%    1.42%    1.39%     1.38%+
  Net investment income                      4.30     4.63     4.63      4.81+
--------------------------------------------------------------------------------
Portfolio Turnover Rate                        42%      27%      22%       21%
================================================================================
    

(1)   Certain prior year numbers have been restated to reflect current year's
      presentation. Net investment income, net realized gains and net assets
      were not affected by this change.

   
(2)   Class L shares were called Class C shares until June 12, 1998.
(3)   For the period from December 8, 1994 (inception date) to May 31, 1995.
(4)   The investment adviser waived all or part of its fees for the two years
      ended May 31, 1996 and the period ended May 31, 1995. If such fees had not
      been waived, the per share effect on net investment income and the expense
      ratios would have been as follows:

            Per Share Decreases         Expense Ratios
         to Net Investment Income     Without Fee Waiver
         ------------------------     ------------------
                1996   1995              1996    1995
                ----   ----              ----    ----
Class L         $0.02  $0.01             1.56%   1.56%+

++    Total return is not annualized, as it may not be representative of the
      total return for the year.
+     Annualized.
    


                                                                              13
<PAGE>

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

      The investment objective of the Fund is to provide Arizona investors the
maximum amount of income exempt from Federal and Arizona state income taxes as
is consistent with the preservation of capital. This investment objective may
not be changed without the approval of the holders of a majority of the Fund's
outstanding shares. The Fund attempts to achieve its objective by investing
primarily in debt securities, the interest on which is excluded from gross
income for Federal income tax purposes and which is exempt from Arizona state
income taxes. The Fund may purchase and sell financial futures contracts, and
options thereon, and may purchase and sell options on debt securities and
securities indices. There can be no assurance that the Fund's investment
objective will be achieved.

   
      The Fund will operate subject to an investment policy which provides that,
under normal market conditions, the Fund will invest at least 80% of its net
assets in Arizona Municipal Securities. The Fund may invest up to 20% of its net
assets in Other Municipal Securities, the interest on which is excluded from
gross income for Federal income tax purposes (not including the possible
applicability of a Federal alternative minimum tax), but which is subject to
Arizona state personal income tax. For temporary defensive purposes, the Fund
may invest without limit in non-Arizona municipal issuers and in "Temporary
Investments" as described below.

      The Fund generally will invest at least 80% of its total assets in
investment grade debt obligations rated no lower than Baa, MIG 3 or Prime-1 by
Moody's or BBB, SP-2 or A-1 by S&P, or have the equivalent rating by any NRSRO,
or in unrated obligations deemed by the Adviser to be of comparable quality.
Unrated obligations will be considered to be of investment grade if deemed by
the Adviser to be comparable in quality to instruments so rated, or if other
outstanding obligations of the issuers thereof are rated Baa or better by
Moody's or BBB or better by S&P. The balance of the Fund's assets may be
invested in securities rated as low as C by Moody's or D by S&P, or have the
equivalent rating by any NRSRO, or in unrated obligations deemed by the Adviser
to be of comparable quality, which are sometimes referred to as "junk bonds."
Securities in the fourth highest rating category, though considered to be
investment grade, have speculative characteristics. Securities rated as low as D
are extremely speculative and are in actual default of interest and/or principal
payments. The Fund will not purchase an unrated municipal security if, after
such purchase, more than 20% of the Fund's total assets would be invested in
unrated municipal securities. A description of the rating systems of S&P and
Moody's is contained in the Appendix to the SAI.

      The Fund's average weighted maturity will vary from time to time based on
the judgment of the Adviser. The Fund intends to focus on intermediate- and
long-term obligations -- obligations with remaining maturities at the time of
purchase of from three to in excess of twenty years.
    

      While the market values of low-rated and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher-


14
<PAGE>

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

rated securities, the market values of certain low-rated and comparable unrated
municipal securities also tend to be more sensitive than higher-rated securities
to short-term corporate and industry developments and changes in economic
conditions (including recession) in specific regions or localities or among
specific types of issuers. In addition, low-rated securities and comparable
unrated securities generally present a higher degree of credit risk. During an
economic downturn or a prolonged period of rising interest rates, the ability of
issuers of low-rated and comparable unrated securities to service their payment
obligations, meet projected goals or obtain additional financing may be
impaired. The risk of loss due to default by such issuers is significantly
greater because low-rated and comparable unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. The Fund may incur additional expenses to the extent it is
required to seek recovery upon a default in payment of principal or interest on
its portfolio holdings.

      While the market for municipal securities is considered to be generally
adequate, the existence of limited markets for particular low-rated and
comparable unrated securities may diminish the Fund's ability to (a) obtain
accurate market quotations for purposes of valuing such securities and
calculating its net asset value and (b) sell the securities at fair value either
to meet redemption requests or to respond to changes in the economy or in the
financial markets. The market for certain low-rated and comparable unrated
securities has not fully weathered a major economic recession. Any such
recession, however, would likely disrupt severely the market for such securities
and adversely affect the value of the securities and the ability of the issuers
of such securities to repay principal and pay interest thereon.

      Fixed-income securities, including low-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the
Fund. If an issuer exercises these rights during periods of declining interest
rates, the Fund may have to replace the security with a lower yielding security,
thus resulting in a decreased return to the Fund.

      Municipal bonds are debt obligations which generally have a maturity at
the time of issue in excess of one year and are 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 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 specific revenue source but
not from the general taxing power. Private activity bonds issued by or on behalf
of public authorities to obtain funds for privately operated facilities are in
most cases revenue bonds which do not generally carry the pledge of the full
faith and credit of the issuer of such bonds, but 


                                                                              15
<PAGE>

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

depend for payment on the ability of the industrial user to meet its obligations
(or any property pledged as security).

      The Fund may invest without limit in private activity bonds which can be
classified as Arizona Municipal Securities. Interest income on certain types of
private activity bonds issued after August 7, 1986 to finance non-governmental
activities is a specific tax preference item for purposes of the Federal
individual and corporate alternative minimum taxes. Individual and corporate
shareholders may be subject to a Federal alternative minimum tax to the extent
the Fund's dividends are derived from interest on these bonds. Dividends derived
from interest income on Arizona Municipal Securities are a component of the
"current earnings" adjustment item for purposes of the Federal corporate
alternative minimum tax.

      The Fund may invest without limit in debt obligations that are repayable
out of revenue streams generated from economically related projects or
facilities or debt obligations whose issuers are located in the same state.
Sizeable investments in such obligations could involve an increased risk to the
Fund should any of the related projects or facilities experience financial
difficulties.

   
      The Fund may invest without limit in "municipal leases," which generally
are participations in intermediate- and short-term debt obligations issued by
municipalities consisting of leases or installment purchase contracts. Although
lease obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate and
make the payments due under the lease obligation. However, certain lease
obligations contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease or installment purchase payments in
future years unless money is appropriated for such purpose on a yearly basis. In
addition to the "non-appropriation" risk, these securities represent a
relatively new type of financing that has not yet developed the depth of
marketability associated with more conventional bonds. Although
"non-appropriation" lease obligations are often secured by the underlying
property, disposition of the property in the event of foreclosure might prove
difficult. In evaluating municipal lease obligations, the Adviser will consider
such factors as it deems appropriate, which may include: (a) whether the lease
can be canceled; (b) the ability of the lease obligee to direct the sale of the
underlying assets; (c) the general creditworthiness of the lease obligor; (d)
the likelihood that the municipality will discontinue appropriating funding for
the leased property in the event such property is no longer considered essential
by the municipality; (e) the legal recourse of the lease obligee in the event of
such a failure to appropriate funding; (f) whether the security is backed by a
credit enhancement such as insurance; and (g) any limitations which are imposed
on the lease obligor's ability to utilize substitute property or services rather
than those covered by the lease obligation.
    


16
<PAGE>

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

   
      The Fund may also invest in zero coupon bonds. Such bonds carry an
additional risk in that, unlike bonds which pay interest throughout the period
to maturity, the Fund will realize no cash until the cash payment date unless a
portion of such securities is sold and, if the issuer defaults, the Fund may
obtain no return at all on its investment.
    

      The value of the Fund's portfolio securities, and therefore its net asset
value per share, may fluctuate due to various factors, including fluctuations in
interest rates generally, as well as changes in the ability of issuers of
municipal securities to pay interest and principal. The Fund's portfolio will be
actively managed in pursuit of its objective, and therefore may have higher
portfolio turnover than that of other funds with similar objectives. A high
portfolio turnover rate may cause the Fund to incur additional expenses.
Portfolio turnover may result in the realization of net gains, which are not
tax-exempt when distributed to shareholders.

      From time to time, proposed legislation restricting or eliminating the
Federal tax-exempt status of issues of municipal securities has been introduced
before Congress. Legislative developments may affect the value of the portfolio
securities of the Fund and therefore the value of the Fund's shares, as well as
the tax-exempt status of dividends. The Fund will monitor the progress of any
such proposals to determine what, if any, defensive action may be taken, if any
legislation which would have a material adverse effect on the ability of the
Fund to pursue its objective were adopted, the investment objective and policies
of the Fund would be reconsidered by the Board of Directors.

      A more detailed explanation of the Fund's investments, together with
certain investment restrictions which the Fund has adopted and which cannot be
changed without the majority vote of the outstanding shares of the Fund, is
discussed below and in the SAI.

      Special Considerations Relating to Arizona Municipal Securities. Because
the Fund concentrates its investments in Arizona Municipal Securities, the Fund
is more susceptible to factors adversely affecting Arizona issuers than is a
municipal bond fund that is not concentrated in these issuers to this degree.
Investors should realize the risks associated with an investment in such
securities.

   
      Arizona local governmental entities are subject to certain limitations on
their ability to assess taxes and levies which could affect their ability to
meet their financial obligations. If either Arizona or any of its local
governmental entities is unable to meet its financial obligations, the income
derived by the Fund, the ability to preserve or realize appreciation of the
Fund's capital, and the Fund's liquidity could be adversely affected.
    

      Additional financial considerations relating to the risks associated with
investing in Arizona Municipal Securities are summarized in the SAI.


                                                                              17
<PAGE>

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

      CERTAIN PORTFOLIO STRATEGIES

      In attempting to achieve its investment objective, the Fund may employ,
among others, the following investment techniques:

   
      When-Issued Securities: New issues of Arizona Municipal Securities (and
other tax-exempt obligations) frequently are offered on a when-issued basis,
which means that delivery and payment for such securities normally take place
within 45 days after the date of the commitment to purchase. The payment
obligation and interest rate that will be received on when-issued securities are
fixed at the time the buyer enters into the commitment. Arizona Municipal
Securities, like other investments made by the Fund, may decline or appreciate
in value before their actual delivery to the Fund. Due to the fluctuations in
the value of securities purchased and sold on a when-issued basis, the yields
obtained on these securities may be higher or lower than the yields available in
the market on the date when the instruments actually are delivered to the
buyers. The Fund will not accrue income with respect to a when-issued security
prior to its stated delivery date. The Fund will establish a segregated account
with the Fund's custodian consisting of cash, debt securities of any grade,
having a value equal to or greater than the Fund's purchase commitments,
provided such securities have been determined by the Adviser to be liquid and
unencumbered, and are marked to market daily, pursuant to guidelines established
by the directors. Placing securities rather than cash in the segregated account
may have a leveraging effect on the Fund's net assets. The Fund generally will
make commitments to purchase Arizona Municipal Securities (and other tax-exempt
obligations) on a when-issued basis only with the intention of actually
acquiring the securities, but the Fund may sell the securities before the
delivery date if it is deemed advisable.
    

      Puts or Stand-by Commitments. The Fund may purchase municipal securities
together with the right (a "put" or "stand-by commitment") to resell the
securities to the seller at an agreed-upon price or yield within a specified
period prior to the maturity date of the securities. The Fund uses puts for
liquidity purposes (i.e., to provide a ready market for its municipal securities
to meet cash needs).

   
      Temporary Investments. Under normal market conditions, the Fund may hold
up to 20% of its total assets in cash or money market instruments, including
taxable money market instruments ("Temporary Investments"). In addition, when
the Adviser believes that market conditions warrant, including when acceptable
Arizona Municipal Securities are unavailable, the Fund may take a temporary
defensive posture and invest without limitation in Temporary Investments.
Securities eligible for short-term investment by the Fund are tax-exempt notes
of municipal issuers having, at the time of purchase, a rating within the three
highest grades by Moody's or S&P or having the equivalent rating by any NRSRO
or, if not rated, issued by issuers with outstanding debt securities rated
within the two highest grades by Moody's or S&P or having the equivalent rating
by any NRSRO, 
    


18
<PAGE>

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

and certain taxable short-term instruments having quality characteristics
comparable to those for tax-exempt investments. To the extent the Fund holds
Temporary Investments, it may not achieve its investment objective.

      The Fund also may invest for the same purpose in repurchase agreements
with certain banks and dealers. the Manager considers the value of the
collateral and the creditworthiness of banks and broker-dealers with which the
Fund enters into repurchase agreements. Repurchase agreements may be entered
into with respect to any securities eligible for investment by the Fund,
including Arizona Municipal Securities. The income from a repurchase agreement
with respect to a municipal security would not be tax-exempt. Since the
commencement of its operations, the Fund has not found it necessary to make
taxable Temporary Investments.

      See the SAI for a further description of short-term municipal and taxable
investments and the Moody's and S&P ratings.

      Financial Futures Contracts and Related Options. The Fund may purchase and
sell financial futures contracts and related options. Financial futures
contracts are commodities contracts which obligate the long or short holder to
take or make delivery at a future date of a specified quantity of a financial
instrument such as Treasury bonds or bills (although they generally are settled
in cash) or the cash value of a securities index. A "sale" of a futures contract
means the undertaking of a contractual obligation to deliver the securities or
the index value called for by the contract at a specified price on a specified
date. A "purchase" of a futures contract means the acquisition of a contractual
obligation to acquire the securities or cash value of an index at a specified
price on a specified date. Currently, futures contracts are available on several
types of fixed-income securities including Treasury bonds, notes and bills,
commercial paper and certificates of deposit, as well as municipal bond indices.

      The Fund will engage in financial futures transactions as a hedge against
the effects of fluctuating interest rates and other market conditions. For
example, if the Fund owned long-term bonds, and interest rates were expected to
rise, it could sell futures contracts ("short hedge") which would have much the
same effect as selling some of the long-term bonds that it owned. If interest
rates did increase, the value of the debt securities in the portfolio would
decline, but the value of the Fund's futures contracts should increase, thus
keeping the net asset value of the Fund from declining as much as it otherwise
would have.

      If the Fund anticipated a decline in long-term interest rates, the Fund
could hold short-term municipal securities and benefit from the income earned by
holding such securities while purchasing futures contracts ("long hedge") in an
attempt to gain the benefit of rising long-term bond prices, because the value
of the futures contracts should rise with the long-term bonds. In so doing, the
Fund could take advantage of the anticipated rise in the value of long-term
bonds without actually buying them.


                                                                              19
<PAGE>

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

      The Fund could accomplish similar results by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to rise or by buying bonds with long maturities and selling bonds with
short maturities when interest rates are expected to decline. However, by using
futures contracts, the Fund could accomplish the same results more easily and
more quickly due to the generally greater liquidity in the financial futures
markets than in the municipal securities markets.

      The Fund also may purchase and write call and put options on financial
futures contracts. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time during the period of the
option. Upon exercise, the writer of the option delivers to the holder the
futures position together with the accumulated balance in the writer's futures
margin account (the amount by which the market price of the futures contract
varies from the exercise price). The Fund will be required to deposit or pay
initial margin and maintenance margin with respect to put and call options on
futures contracts written by it.

      The Fund also may purchase and write call and put options on securities
indices. Options on indices are similar to options on securities except that
settlement is made in cash. No physical delivery of the underlying securities in
the index is made. Unlike options on specific securities, gain or loss depends
on the price movements in the securities included in the index rather than price
movements in individual securities. When the Fund writes an option on a
securities index, it will be required to deposit and maintain with a custodian
portfolio securities equal in value to 100% of the exercise price in the case of
a put, or the contract value in the case of a call. In addition, when the
contract value of a call option written by the Fund exceeds the exercise price,
the Fund will segregate cash or cash equivalents equal in value to such excess.

   
      Regulations of the Commodity Futures Trading Commission applicable to the
Fund require that its transactions in financial futures contracts and options on
financial futures contracts be engaged in for bona fide hedging purposes, or if
the Fund enters into futures contracts for speculative purposes, that the
aggregate initial margin deposits and premiums paid by the Fund will not exceed
5% of the market value of its assets. In addition, the Fund will, with respect
to its purchases of financial futures contracts, establish a segregated account
consisting of cash, cash equivalents, U.S. government securities or debt
securities of any grade (provided such assets are liquid, unencumbered and
marked to market daily) in an amount equal to the total market value of the
futures contracts, less the amount of initial margin on deposit for the
contracts.
    

      There are certain risks associated with the use of futures contracts and
related options. There is no assurance that the Fund will be able to close out
its futures positions at any time, in which case it would be required to
maintain the margin 


20
<PAGE>

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

   
deposits on the contract. The costs incurred in connection with futures
transactions could reduce the Fund's yield. There can be no assurance that
hedging transactions will be successful, as they depend upon the Adviser's
ability to predict changes in interest rates. Furthermore, there may be an
imperfect correlation (or no correlation) between the price movements of the
futures contracts and price movements of the Fund's portfolio securities being
hedged. This lack of correlation could result from differences between the
securities being hedged and the securities underlying the futures contracts in
interest rate levels, maturities and creditworthiness of issuers, as well as
from variations in speculative market demand for futures contracts and debt
securities. Where futures contracts are purchased to hedge against an increase
in the price of long-term securities, but the long-term market declines and the
Fund does not invest in long-term securities, the Fund would realize a loss on
the futures contracts, which would not be offset by a reduction in the price of
the securities purchased. Where futures contracts are sold to hedge against a
decline in the value of long-term securities in the Fund's portfolio, but the
long-term market advances, the Fund would lose part or all of the benefit of the
advance due to offsetting losses in its futures positions. Options on futures
contracts and index options involve risks similar to those risks relating to
transactions in financial futures contracts, described above. The use of futures
contracts and related options may be expected to result in taxable income to the
Fund and its shareholders.
    

      Options on Debt Securities. In connection with its hedging activities, the
Fund may purchase and sell put and call options on debt securities on national
securities exchanges. The Fund proposes to purchase put options as a defensive
measure to minimize the impact of market price declines on the value of certain
of the securities in the Fund's portfolio. The Fund may write listed call
options only if the calls are "covered" throughout the life of the option. A
call is "covered" if the Fund owns the optioned securities or maintains in a
segregated account with the Fund's custodian cash, cash equivalents, U.S.
government securities or debt securities of any grade (provided such assets are
liquid, unencumbered and marked to market daily) with a value sufficient to meet
its obligations under the call. When the Fund writes a call, it receives a
premium and gives the purchaser the right to buy the underlying security at any
time during the call period (usually not more than fifteen months) at a fixed
exercise price regardless of market price changes during the call period. If the
call is exercised, the Fund would forego any gain from an increase in the market
price of the underlying security over the exercise price. The Fund may purchase
a call on securities only to effect a "closing purchase transaction," which is
the purchase of a call covering the same underlying security, and having the
same exercise price and expiration date as a call previously written by the Fund
on which it wishes to terminate its obligations.

      The Fund also may write and purchase put options ("puts"). When the Fund
writes a put, it receives a premium and gives the purchaser of the put the right
to sell the underlying security to the Fund at the exercise price at any time
during the 


                                                                              21
<PAGE>

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

option period. When the Fund purchases a put, it pays a premium in return for
the right to sell the underlying security at the exercise price at any time
during the option period. If any put is not exercised or sold, it will become
worthless on its expiration date. The Fund will not purchase puts if more than
10% of its net assets would be invested in premiums on puts.

      The Fund may write puts only if the puts are "secured." A put is "secured"
if the Fund maintains cash, cash equivalents, U.S. government securities or debt
securities of any grade (provided such assets are liquid, unencumbered and
marked to market daily) with a value equal to the exercise price in a segregated
account or holds a put on the same underlying security at an equal or greater
exercise price. The aggregate value of the obligations underlying puts written
by the Fund will not exceed 50% of its net assets. The Fund also may write
"straddles," which are combinations of secured puts and covered calls on the
same underlying security.

      The Fund will realize a gain (or loss) on a closing purchase transaction
with respect to a call or put previously written by the Fund if the premium,
plus commission costs, paid to purchase the call or put is less (or greater)
than the premium, less commission costs, received on the sale of the call or
put. A gain also will be realized if a call or put which the Fund has written
lapses unexercised, because the Fund would retain the premium.

      The Fund's option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, but there can be no
assurance that a liquid secondary market will exist at a given time for any
particular option. In this regard, trading in options on U.S. government
securities is relatively new, so that it is impossible to predict to what extent
liquid markets will develop or continue. The use of options may be expected to
result in taxable income to the Fund.

   
      Year 2000 -- The investment management services provided to the Fund by
the Adviser and the services provided to shareholders by Salomon Smith Barney
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot recognize the year 2000, but revert to 1900
or some other date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the Fund's operations,
including the handling of securities trades, pricing and account services. The
Adviser and Salomon Smith Barney have advised the Fund that they have been
reviewing all of their computer systems and actively working on necessary
changes to their systems to prepare for the year 2000 and expect that their
systems will be compliant before that date. In addition, the Adviser has been
advised by the Fund's custodian, transfer agent and accounting service agent
that they are also in the process of modifying their systems with the same goal.
There can, however, be no assurance that the Adviser, Salomon Smith Barney or
any other service provider will be successful, or that interaction with other
non-complying computer systems will not impair Fund services at that time.
    


22
<PAGE>

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

   
      In addition, the ability of issuers to make timely payments of interest
and principal or to continue their operations or services may be impaired by the
inadequate preparation of their computer systems for the year 2000. This may
adversely affect the market values of securities of specific issuers or of
securities generally if the inadequacy of preparation is perceived as widespread
or as affecting trading markets.
    

--------------------------------------------------------------------------------
Valuation of Shares
--------------------------------------------------------------------------------

   
      The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE, on each day that the NYSE is open, by dividing the
value of the Fund's net assets attributable to each Class by the total number of
shares of that Class outstanding.

      When, in the judgement of the pricing 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 and
asked prices. Investments for which, in the judgement of the pricing service,
there is no readily obtainable market quotation (which may constitute a majority
of the portfolio securities) are carried at fair value of securities of similar
type, yield and maturity. Pricing services generally determine value by
reference to transactions in municipal obligations, quotations from municipal
bond dealers, market transactions in comparable securities and various
relationships between securities. Short-term investments that mature in 60 days
or less are valued at amortized cost whenever the Board of Directors determines
that amortized cost is fair value. Amortized cost valuation involves valuing an
instrument at its cost initially and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. Securities and
other assets that are not priced by a pricing service and for which quotations
are not available will be valued in good faith at fair value by or under the
direction of the Fund's Board of Directors. Further information regarding the
Fund's valuation policies is contained in the SAI.
    

--------------------------------------------------------------------------------
Dividends, Distributions and Taxes
--------------------------------------------------------------------------------

   
      DIVIDENDS AND DISTRIBUTIONS

      The Fund's policy is to declare and pay exempt-interest dividends monthly.
Dividends from net realized capital gains, if any, will be distributed annually.
The Fund may also pay additional dividends shortly before December 31 from
certain amounts of undistributed ordinary income and capital gains, in order to
avoid a Federal excise tax liability. If a shareholder does not otherwise
instruct, exempt-interest dividends and capital gain distributions will be
reinvested automatically in 
    


                                                                              23
<PAGE>

--------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
--------------------------------------------------------------------------------

   
additional shares of the same Class at net asset value, with no additional sales
charge or CDSC.

      The per share amounts of the exempt-interest dividends on Class B and
Class L shares may be lower than on Class A and Class Y shares, mainly as a
result of the distribution fees applicable to Class B and Class L shares.
Similarly, the per share amounts of exempt-interest dividends on Class A shares
may be lower than on Class Y shares, as a result of the service fee attributable
to Class A shares. Capital gain distributions, if any, will be the same for all
Classes of Fund shares (A, B, L and Y).

      TAXES

      The following is a summary of the material federal tax considerations
affecting the Fund and Fund shareholders. Please refer to the SAI for 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 advisors for more detailed information with respect to the
tax consequences of any investment.

      The Fund intends to qualify, as it has in prior years, under Subchapter M
of the Internal Revenue 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, although they may be considered taxable for certain state and local
income (or intangible) tax purposes. Arizona resident shareholders will not be
subject to Arizona personal income tax on exempt-interest dividends and capital
gain distributions, attributable to municipal obligations of Arizona and its
political subdivisions, as well as certain other Federal obligations considered
exempt for Arizona purposes. Exempt-interest dividends and capital gain
distributions, may not be excluded from the net income tax computation by
corporate shareholders subject to the Arizona Corporation Business Tax.

      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 alternative minimum tax computation. All
exempt-interest dividends will be a component of the "current earnings"
adjustment item for purposes of the Federal corporate alternative minimum tax.
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.
    


24
<PAGE>

--------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
--------------------------------------------------------------------------------

   
      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 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, if any, 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 derived from the sale of bonds
held by the Fund for more than one year, are taxable as long-term capital gains,
regardless of the length of time a shareholder has owned Fund shares.

      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 promptly after the close of each calendar year.

      A shareholder's gain or loss on the disposition of Fund shares (whether by
redemption, sale or exchange), generally will be a long-term or short-term gain
or loss depending on the length of time the shares had been owned at
disposition. Losses realized by a shareholder on the disposition of Fund shares
owned for six months or less will be treated as a long-term capital loss to the
extent a capital gain dividend had been distributed on such shares. Gains
resulting from the disposition of Fund shares attributable to interest or gain
from municipal obligations of Arizona and its political subdivisions, as well as
certain other Federal obligations are considered exempt from Arizona personal
income tax. Gains on the disposition of Fund shares by corporate shareholders
are included in the net income tax base for purposes of computing the Arizona
Corporation Business Tax.

      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.
    

                                                                              25
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares
--------------------------------------------------------------------------------

   
      SALES CHARGE ALTERNATIVES

      The following Classes of shares are available for purchase through this
Prospectus. See "Prospectus Summary -- Alternative Purchase Arrangements" for a
discussion of factors to consider in selecting which Class of shares to
purchase.

      Class A Shares. Class A shares are sold to investors at the public
offering price, which is the net asset value plus an initial sales charge as
follows:

                            Sales              Sales               Dealers
                         Charge as a %      Charge as a %       Reallowance as
Amount of Investment    of Transaction   of Amount Invested  % of Offering Price
--------------------------------------------------------------------------------
   Less than-$25,000         4.00%              4.17%             3.60%
     $25,000-$49,999         3.50               3.63              3.15
     $50,000-$99,999         3.00               3.09              2.70
   $100,000-$249,999         2.50               2.56              2.25
   $250,000-$499,999         1.50               1.52              1.35
   $500,000 and over            *                  *                 *     
================================================================================
*     Purchases of Class A shares of $500,000 or more will be made at net asset
      value without any initial sales charge, but will be subject to a CDSC of
      1.00% on redemptions made within 12 months of purchase. The CDSC on Class
      A shares is payable to Salomon Smith Barney, which compensates Salomon
      Smith Barney Financial Consultants and other dealers whose clients make
      purchases of $500,000 or more. The CDSC is waived in the same
      circumstances in which the CDSC applicable to Class B and Class L shares
      is waived. See "Deferred Sales Charge Provisions" and "Waivers of CDSC."

      Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended (the "1933 Act"). The reduced sales charges shown above apply
to the aggregate of purchases of Class A shares of the Fund made at one time by
"any person," which includes an individual and his or her immediate family, or a
trustee or other fiduciary of a single trust estate or single fiduciary account.

      Class B Shares. Class B shares are sold without an initial sales charge
but are subject to a CDSC payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.

      Class L Shares. Class L shares are sold with an initial sales charge of 1%
(which is equal to 1.01% of the amount invested) and are subject to a CDSC
payable upon certain redemptions. See "Deferred Sales Charge Provisions" below.
Until June 25, 1999 purchases of Class L shares by investors who were holders of
Class C shares of the Fund on June 12, 1998 will not be subject to the 1%
front-end sales charge.

      Class Y Shares. Class Y shares are sold without an initial sales charge or
CDSC and are available only to investors investing a minimum of $15,000,000
(except purchase of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount).

      GENERAL

      Purchases of Fund shares must by made through a brokerage account
maintained
    


26
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

   
with Salomon Smith Barney, an Introducing Broker or an investment dealer in the
selling group. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A, Class B, Class L or Class Y shares. Salomon
Smith Barney and other broker/dealers may charge their customers an annual
account maintenance fee in connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly at the Fund's
transfer agent, First Data Investor Services Group, Inc. ("First Data" or the
"Transfer Agent") are not subject to a maintenance fee.

      Investors in Class A, Class B and Class L shares may open an account in
the Fund by making an initial investment of at least $1,000. Investors in Class
Y shares may open an account by making an initial investment of $15,000,000.
Subsequent investments of at least $50 may be made for all Classes. For
shareholders purchasing shares of the Fund through the Systematic Investment
Plan on a monthly basis, the minimum initial investment requirement for Class A,
Class B and Class L shares and subsequent investment requirement for all Classes
is $25. For shareholders purchasing shares of the Fund through the Systematic
Investment Plan on a quarterly basis, the minimum initial investment required
for Class A, Class B and Class L shares and the subsequent investment
requirement for all Classes is $50. There are no minimum investment requirements
for Class A shares for employees of Travelers and its subsidiaries, including
Salomon Smith Barney, and Directors/Trustees of any of the Smith Barney Mutual
Funds and their spouses and children. The Fund reserves the right to waive or
change minimums, to decline any order to purchase its shares and to suspend the
offering of shares from time to time. Shares purchased will be held in the
shareholder's account by the Transfer Agent. Share certificates are issued only
upon a shareholder's written request to the Transfer Agent. It is not
recommended that the Fund be used as a vehicle for Keogh, IRA or other qualified
retirement plans.

      Purchase orders received by the Fund or Salomon Smith Barney prior to the
close of regular trading on the NYSE, on any day the Fund calculates its net
asset value, are priced according to the net asset value determined on that day
(the "trade date"). Orders received by dealers or Introducing Brokers prior to
the close of regular trading on the NYSE on any day the Fund calculates its net
asset value, are priced according to the net asset value determined on that day,
provided the order is received by the Fund or Salomon Smith Barney prior to
Salomon Smith Barney's close of business. For shares purchased through Salomon
Smith Barney or Introducing Brokers purchasing through Salomon Smith Barney,
payment for Fund shares is due on the third business day after the trade date.
In all other cases, payment must be made with the purchase order.

      SYSTEMATIC INVESTMENT PLAN

      Shareholders may make additions to their accounts at any time by
purchasing shares through a service known as the Systematic Investment Plan.
Under the 
    


                                                                              27
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

   
Systematic Investment Plan, Salomon Smith Barney or the Transfer Agent is
authorized through preauthorized transfers of at least $25 on a monthly basis or
at least $50 on a quarterly basis to charge the shareholder's account held with
a bank or other financial institution on a monthly or quarterly basis as
indicated by the shareholder to provide for systematic additions to the
shareholder's Fund account. A shareholder who has insufficient funds to complete
the transfer will be charged a fee of up to $25 by Salomon Smith Barney or the
Transfer Agent. The Systematic Investment Plan also authorizes Salomon Smith
Barney to apply cash held in the shareholder's Salomon Smith Barney brokerage
account or redeem the shareholder's shares of a Smith Barney money market fund
to make additions to the account. Additional information is available from the
Fund or a Smith Barney Financial Consultant.

      SALES CHARGE WAIVERS AND REDUCTIONS
      INITIAL SALES CHARGE WAIVERS

      Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i) Board Members and
employees of Travelers and its subsidiaries and any Travelers Affiliated Funds
including the Smith Barney Mutual Funds (including retired Board Members and
employees); the immediate families of such persons (including the surviving
spouse of a deceased Board Member or employee); and to a pension, profit-sharing
or other benefit plan for such persons and (ii) employees of members of the
National Association of Securities Dealers, Inc., provided such sales are made
upon the assurance of the purchaser that the purchase is made for investment
purposes and that the securities will not be resold except through redemption or
repurchase, (b) offers of Class A shares to any other investment company to
effect the combination of such company with the Fund by merger, acquisition of
assets or otherwise; (c) purchases of Class A shares by any client of a newly
employed Salomon Smith Barney Financial Consultant (for a period up to 90 days
from the commencement of the Financial Consultant's employment with Salomon
Smith Barney), on the condition the purchase of Class A shares is made with the
proceeds of the redemption of shares of a mutual fund which (i) was sponsored by
the Financial Consultant's prior employer, (ii) was sold to the client by the
Financial Consultant and (iii) was subject to a sales charge; (d) purchases by
shareholders who have redeemed Class A shares in the Fund (or Class A shares of
another Smith Barney Mutual Fund that is offered with a sales charge) and who
wish to reinvest their redemption proceeds in the Fund, provided the
reinvestment is made within 60 calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory subsidiaries of Travelers;
and (f) purchases by investors participating in a Salomon Smith Barney fee-based
arrangement. In order to obtain such discounts, the purchaser must provide
sufficient information at the time of purchase to permit verification that the
purchase would qualify for the elimination of the sales charge.
    


28
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

   
      RIGHT OF ACCUMULATION

      Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregating
the dollar amount of the new purchase and the total net asset value of all Class
A shares of the Fund and of funds sponsored by Smith Barney which are offered 
with a sales charge as currently listed under "Exchange Privilege" then
held by such person and applying the sales charge applicable to such aggregate.
In order to obtain such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
qualifies for the reduced sales charge. The right of accumulation is subject to
modification or discontinuance at any time with respect to all shares purchased
thereafter.

      GROUP PURCHASES

      Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Sales Charge Alternatives -- Class A Shares" and will be based upon the
aggregate sales of Class A shares of Smith Barney Mutual Funds offered with a
sales charge to, and share holdings of, all members of the group. To be eligible
for such reduced sales charges or to purchase at net asset value, all purchases
must be pursuant to an employee or partnership sanctioned plan meeting certain
requirements. One such requirement is that the plan must be open to specified
partners or employees of the employer and its subsidiaries, if any. Such plan
may, but is not required to, provide for payroll deductions. Salomon Smith
Barney may also offer a reduced sales charge or net asset value purchase for
aggregating related fiduciary accounts under such conditions that Salomon Smith
Barney will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
of the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of Class A shares offered
with a sales charge that have been previously purchased and are still owned by
the group, plus the amount of the current purchase. A "qualified group" is one
which (a) has been in existence for more than six months, (b) has a purpose
other than acquiring Fund shares at a discount and (c) satisfies uniform
criteria which enable Salomon Smith Barney to realize economies of scale in its
costs of distributing shares. A qualified group must have more than 10 members,
must be available to arrange for group meetings between representatives of the
Fund and the members, and must agree to include sales and other materials
related to the Fund in its publications and mailings to members at no cost to
Salomon Smith Barney. In order to obtain such reduced sales 
    


                                                                              29
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

   
charge or to purchase at net asset value, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
qualifies for the reduced sales charge. Approval of group purchase reduced sales
charge plans is subject to the discretion of Salomon Smith Barney.

      LETTER OF INTENT

      Class A Shares. A Letter of Intent for an amount of $50,000 or more
provides an opportunity for an investor to obtain a reduced sales charge by
aggregating investments over a 13 month period, provided that the investor
refers to such Letter when placing orders. For purposes of a Letter of Intent,
the "Amount of Investment" as referred to in the preceding sales charge table
includes (i) all Class A shares of the Fund and other Smith Barney Mutual Funds
offered with a sales charge acquired during the term of the Letter plus (ii) the
value of all Class A shares previously purchased and still owned. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If the goal is not achieved within
the period, the investor must pay the difference between the sales charges
applicable to the purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed. The term of the Letter
will commence upon the date the Letter is signed, or at the option of the
investor, up to 90 days before such date. Please contact a Salomon Smith Barney
Financial Consultant or the Transfer Agent to obtain a Letter of Intent
application.

      Class Y Shares. A Letter of Intent may also be used as a way for investors
to meet the minimum investment requirement for Class Y shares (except purchases
of Class Y shares by Smith Barney Concert Allocation Series Inc., for which
there is no minimum purchase amount). Such investors must make an initial
minimum purchase of $5,000,000 in Class Y shares of the Fund and agree to
purchase a total of $15,000,000 of Class Y shares of the Fund within 13 months
from the date of the Letter. If a total investment of $15,000,000 is not made
within the 13 month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject to all fees (including
a service fee of 0.15%) and expenses applicable to the Fund's Class A shares,
which may include a CDSC of 1.00%. Please contact a Salomon Smith Barney
Financial Consultant or the Transfer Agent for further information.

      DEFERRED SALES CHARGE PROVISIONS

      "CDSC Shares" are: (a) Class B shares; (b) Class L shares; and (c) Class A
shares that were purchased without an initial sales charge but are subject to a
CDSC. A CDSC may be imposed on certain redemptions of these shares.

      Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents: (a) capital appreciation
of Fund 
    


30
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

   
assets; (b) reinvestment of dividends or capital gain distributions; (c) with
respect to Class B shares, shares redeemed more than five years after their
purchase; or (d) with respect to Class L shares and Class A shares that are CDSC
Shares, shares redeemed more than 12 months after their purchase.

      Class A shares and Class L shares that are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of purchase. In circumstances in which
the CDSC is imposed on Class B shares, the amount of the charge will depend on
the number of years since the shareholder made the purchase payment from which
the amount is being redeemed. Solely for purposes of determining the number of
years since a purchase payment, all purchase payments made during a month will
be aggregated and deemed to have been made on the last day of the preceding
Salomon Smith Barney statement month. The following table sets forth the rates
of the charge for redemptions of Class B shares by shareholders.

      Year Since Purchase    
      Payment Was Made                                             CDSC
      ------------------------------------------------------------------
                                                 
      First                                                        4.50%
      Second                                                       4.00
      Third                                                        3.00
      Fourth                                                       2.00
      Fifth                                                        1.00
      Sixth and thereafter                                         0.00
      ------------------------------------------------------------------
                                
      Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. See "Prospectus Summary -- Alternative Purchase Arrangements
-- Class B Shares Conversion Feature."

      The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption. The
amount of any CDSC will be paid to Salomon Smith Barney.

      To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, 
    


                                                                              31
<PAGE>

--------------------------------------------------------------------------------
Purchase of Shares (continued)
--------------------------------------------------------------------------------

   
the value of the investor's shares would be $1,260 (105 shares at $12 per
share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.

      WAIVERS OF CDSC

      The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan") (provided, however, that automatic cash
withdrawals in amounts equal to or less than 2.00% per month of the value of the
shareholder's shares will be permitted for withdrawal plans that were
established prior to November 7, 1994); (c) redemptions of shares within 12
months following the death or disability of the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares to effect a combination of the Fund
with any investment company by merger, acquisition of assets or otherwise. In
addition, a shareholder who has redeemed shares from other Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit for any CDSC imposed on the
prior redemption.

      CDSC waivers will be granted subject to confirmation (by Salomon Smith
Barney in the case of shareholders who are also Salomon Smith Barney clients or
by the Transfer Agent in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.

--------------------------------------------------------------------------------
Exchange Privilege
--------------------------------------------------------------------------------

      Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the
following Smith Barney Mutual Funds, to the extent shares are offered for sale
in the shareholder's state of residence. Exchanges of Class A, Class B and Class
L shares are subject to minimum investment requirements and all shares are
subject to the other requirements of the fund into which exchanges are made.
    

   FUND NAME

   
   Growth Funds
     Concert Peachtree Growth Fund
     Concert Social Awareness Fund
     Smith Barney Aggressive Growth Fund, Inc.
     Smith Barney Appreciation Fund Inc.
     Smith Barney Balanced Fund
    


32
<PAGE>

--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------

   
     Smith Barney Contrarian Fund
     Smith Barney Convertible Fund
     Smith Barney Fundamental Value Fund Inc.
     Smith Barney Funds, Inc. -- Large Cap Value Fund
     Smith Barney Large Cap Blend Fund
     Smith Barney Large Capitalization Growth Fund
     Smith Barney Mid Cap Blend Fund
     Smith Barney Natural Resources Fund
     Smith Barney Premium Total Return Fund
     Smith Barney Small Cap Blend Fund, Inc.
     Smith Barney Special Equities Fund

   Taxable Fixed-Income Funds
  ** Smith Barney Adjustable Rate Government Income Fund
     Smith Barney Diversified Strategic Income Fund
  ++ Smith Barney Funds, Inc. -- Short-Term High Grade Bond Fund
     Smith Barney Funds, Inc. -- U.S. Government Securities Fund
     Smith Barney Government Securities Fund
     Smith Barney High Income Fund
     Smith Barney Investment Grade Bond Fund
     Smith Barney Managed Governments Fund Inc.
     Smith Barney Total Return Bond Fund

   Tax-Exempt Funds
     Smith Barney California Municipals Fund Inc.
   * Smith Barney Intermediate Maturity California Municipals Fund
   * Smith Barney Intermediate Maturity New York Municipals Fund
     Smith Barney Managed Municipals Fund Inc.
     Smith Barney Massachusetts Municipals Fund
     Smith Barney Municipal High Income Fund
     Smith Barney Muni Funds -- Florida Portfolio
     Smith Barney Muni Funds -- Georgia Portfolio
   * Smith Barney Muni Funds -- Limited Term Portfolio
     Smith Barney Muni Funds -- National Portfolio
     Smith Barney Muni Funds -- New York Portfolio
     Smith Barney Muni Funds -- Pennsylvania Portfolio
     Smith Barney New Jersey Municipals Fund Inc.
     Smith Barney Oregon Municipals Fund

   Global-International Funds
     Smith Barney Hansberger Global Small Cap Value Fund
     Smith Barney Hansberger Global Value Fund
     Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
    


                                                                              33
<PAGE>

--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------

     Smith Barney World Funds, Inc. -- European Portfolio
     Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
     Smith Barney World Funds, Inc. -- International Balanced Portfolio
     Smith Barney World Funds, Inc. -- International Equity Portfolio
     Smith Barney World Funds, Inc. -- Pacific Portfolio

   
   Smith Barney Concert Allocation Series Inc.
     Smith Barney Concert Allocation Series Inc. -- Balanced Portfolio
     Smith Barney Concert Allocation Series Inc. -- Conservative Portfolio
     Smith Barney Concert Allocation Series Inc. -- Global Portfolio
     Smith Barney Concert Allocation Series Inc. -- Growth Portfolio
     Smith Barney Concert Allocation Series Inc. -- High Growth Portfolio
     Smith Barney Concert Allocation Series Inc. -- Income Portfolio
    

   Money Market Funds
   + Smith Barney Exchange Reserve Fund
  ++ Smith Barney Money Funds, Inc. -- Cash Portfolio
  ++ Smith Barney Money Funds, Inc. -- Government Portfolio
 *** Smith Barney Money Funds, Inc. -- Retirement Portfolio
  ++ Smith Barney Municipal Money Market Fund, Inc.
  ++ Smith Barney Muni Funds--California Money Market Portfolio
  ++ Smith Barney Muni Funds--New York Money Market Portfolio

================================================================================
   
  * Available for exchange with Class A, Class L and Class Y shares of the Fund.
 ** Available for exchange with Class A and Class B shares of the Fund.
*** Available for exchange with Class A shares of the Fund.
  + Available for exchange with Class B and Class L shares of the Fund.
 ++ Available for exchange with Class A and Class Y shares of the Fund.
    

      Class B Exchanges. In the event a Class B shareholder wishes to exchange
all or a portion of his or her shares in any of the funds imposing a higher CDSC
than that imposed by the Fund, the exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the Class B shares of the Fund
that have been exchanged.

   
      Class L Exchanges. Upon an exchange, the new Class L shares will be deemed
to have been purchased on the same date as the Class L shares of the Fund that
have been exchanged.
    

      Class A and Class Y Exchanges. Class A and Class Y shareholders of the
Fund who wish to exchange all or a portion of their shares for shares of the
respective class in any of the funds identified above may do so without
imposition of any charge.

      Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be 


34
<PAGE>

--------------------------------------------------------------------------------
Exchange Privilege (continued)
--------------------------------------------------------------------------------

   
detrimental to the Fund's performance and its shareholders. The Adviser may
determine that a pattern of frequent exchanges is excessive and contrary to the
best interests of the Fund's other shareholders. In this event, the Fund may, at
its discretion, decide to limit additional purchases and/or exchanges by a
shareholder. Upon such a determination, the Fund will provide notice in writing
or by telephone to the shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the shareholder will be required
to (a) redeem his or her shares in the Fund or (b) remain invested in the Fund
or exchange into any Smith Barney Mutual Funds ordinarily available, which
position the shareholder would be expected to maintain for a significant period
of time. All relevant factors will be considered in determining what constitutes
an abusive pattern of exchanges.
    

      Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares -- Telephone Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined. Redemption procedures
discussed below are also applicable for exchanging shares, and exchanges will be
made upon receipt of all supporting documents in proper form. If the account
registration of the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no signature guarantee is
required. A capital gain or loss for tax purposes will be realized upon the
exchange, depending upon the cost or other basis of shares redeemed. Before
exchanging shares, investors should read the current prospectus describing the
shares to be acquired. The Fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to shareholders.

--------------------------------------------------------------------------------
Redemption of Shares
--------------------------------------------------------------------------------
 
      The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.

   
      If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Salomon Smith Barney, or if the
shareholder's account is not with Salomon Smith Barney, from the shareholder
directly. The redemption proceeds will be remitted on or before the third
business day following receipt of proper tender, except on any days on which the
NYSE is closed or as permitted under the Investment Company Act of 1940, as
amended (the "1940 Act") in extraordinary circumstances. Generally, if the
redemption proceeds are remitted 
    


                                                                              35
<PAGE>

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------

   
to a Salomon Smith Barney brokerage account, these funds will not be invested
for the shareholder's benefit without specific instruction and Salomon Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which may take up to ten
days or more.

      Shares held by Salomon Smith Barney as custodian must be redeemed by
submitting a written request to a Salomon Smith Barney Financial Consultant.
Shares other than those held by Salomon Smith Barney as custodian may be
redeemed through an investor's Financial Consultant, Introducing Broker or
dealer in the selling group or by submitting a written request for redemption
to:

            Smith Barney Arizona Municipals Fund Inc. 
            Class A, B, L or Y (please specify) 
            c/o First Data Investor Services Group, Inc.
            P.O. Box 5128
            Westborough, Massachusetts 01581-5128

      A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power) and
must be submitted to First Data together with the redemption request. Any
signature appearing on a share certificate, stock power or written redemption
request in excess of $10,000, must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $10,000 or less do
not require a signature guarantee unless more than one such redemption request
is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees or guardians. A redemption request will not be deemed properly received
until First Data receives all required documents in proper form.
    

      AUTOMATIC CASH WITHDRAWAL PLAN

      The Fund offers shareholders an automatic cash withdrawal plan, under
which shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. The withdrawal plan
will be carried over on exchanges between funds or Classes of the Fund. Any
applicable CDSC will not be waived on amounts withdrawn by a shareholder that
exceed 1.00% per month of the value of the shareholder's shares subject to the
CDSC at the time the


36
<PAGE>

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------

   
withdrawal plan commences. (With respect to withdrawal plans in effect prior to
November 7, 1994, any applicable CDSC will be waived on amounts withdrawn that
do not exceed 2.00% per month of the value of the shareholder's shares subject
to the CDSC.) For further information regarding the automatic cash withdrawal
plan, shareholders should contact a Salomon Smith Barney Financial Consultant or
their financial consultant, Introducing Broker or dealer in the selling group.
    

      TELEPHONE REDEMPTION AND EXCHANGE PROGRAM

   
      Shareholders who do not have a Salomon Smith Barney brokerage account may
be eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should contact
First Data at 1-800-451-2010. Once eligibility is confirmed, the shareholder
must complete and return a Telephone/Wire Authorization Form, along with a
signature guarantee that will be provided by First Data upon request.
(Alternatively, an investor may authorize telephone redemption on the new
account application with the applicant's signature guarantee when making his/her
initial investment in the Fund.)

      Redemptions. Redemption requests of up to $10,000 of any class or classes
of the Fund's shares may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 4:00 p.m.
(Eastern time) on any day the NYSE is open. Redemption requests received after
the close of regular trading on the NYSE are priced at the net asset value next
determined. Redemption of shares (i) by retirement plans or (ii) for which
certificates have been issued are not permitted under this program.
    

      A shareholder will have the option of having the redemption proceeds
mailed to his/her address of record or wired to a bank account predesignated by
the shareholder. Generally, redemption proceeds will be mailed or wired, as the
case may be, on the next business day following the redemption request. In order
to use the wire procedures, the bank receiving the proceeds must be a member of
the Federal Reserve System or have a correspondent relationship with a member
bank. The Fund reserves the right to charge shareholders a nominal fee for each
wire redemption. Such charges, if any, will be assessed against the
shareholder's account from which shares were redeemed. In order to change the
bank account designated to receive redemption proceeds, a shareholder must
complete a new Telephone/Wire Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a signature guarantee and
certain other documentation.

   
      Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests may
be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern time) on any day on which the NYSE is open. Exchange requests received
    


                                                                              37
<PAGE>

--------------------------------------------------------------------------------
Redemption of Shares (continued)
--------------------------------------------------------------------------------

after the close of regular trading on the NYSE are processed at the net asset
value next determined.

      Additional Information Regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. The Fund and its agents will employ procedures designed to verify the
identity of the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and phone calls may be
recorded). The Fund reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a charge for this service
at any time following at least seven (7) days' prior notice to shareholders.

--------------------------------------------------------------------------------
Minimum Account Size
--------------------------------------------------------------------------------

      The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
the Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.

--------------------------------------------------------------------------------
Performance
--------------------------------------------------------------------------------

      YIELD

      From time to time, the Fund may advertise its 30-day "yield" and
"equivalent taxable yield" for each Class of shares. The yield refers to the
income generated by an investment in those shares over the 30-day period
identified in the advertisement and is computed by dividing the net investment
income per share earned by the Class during the period by the maximum public
offering price per share on the last day of the period. This income is
"annualized" by assuming that the amount of income is generated each month over
a one-year period and is compounded semi-annually. The annualized income is then
shown as a percentage of the net asset value.

      The equivalent taxable yield demonstrates the yield on a taxable
investment necessary to produce an after-tax yield equal to the Fund's
tax-exempt yield for each Class. It is calculated by increasing the yield shown
for the Class to the extent necessary to reflect the payment of taxes at
specified tax rates. Thus, the equivalent taxable yield always will exceed the
Fund's yield.


38
<PAGE>

--------------------------------------------------------------------------------
Performance (continued)
--------------------------------------------------------------------------------

      TOTAL RETURN

      From time to time, the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class L and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and reinvestment of all income
dividends and capital gains distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount invested
and subtracting 100%. The standard average annual total return, as prescribed by
the SEC, is derived from this total return, which provides the ending redeemable
value. Such standard total return information may also be accompanied by
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the last
day of the period for which current dividend return is presented. The current
dividend return for each Class may vary from time to time depending on market
conditions, the composition of its investment portfolio and operating expenses.
These factors and possible differences in the methods used in calculating
current dividend return should be considered when comparing a Class' current
return to yields published for other investment companies and other investment
vehicles. The Fund may also include comparative performance information in
advertising or marketing its shares. Such performance information may include
data from Lipper Analytical Services, Inc. or similar independent services that
monitor the performance of mutual funds or other industry publications.

--------------------------------------------------------------------------------
Management of the Fund
--------------------------------------------------------------------------------

      BOARD OF DIRECTORS

      Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Directors approve all significant
agreements between the Fund and the companies that furnish services to the Fund,
including agreements with its distributor, investment adviser and administrator,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated by the Board to the Fund's investment adviser and administrator. The
SAI contains background information regarding each Director and executive
officer of the Fund.


                                                                              39
<PAGE>

--------------------------------------------------------------------------------
Management of the Fund
--------------------------------------------------------------------------------

   
      INVESTMENT ADVISER AND ADMINISTRATOR

      The Fund's investment adviser, MMC, is a registered investment adviser
whose principal executive offices are located at 388 Greenwich Street, New York,
New York 10013. MMC was incorporated in March, 1968 under the laws of Delaware
and renders investment advice to a wide variety of individual, institutional and
investment company clients that had aggregate assets under management as of
August 31, 1998 in excess of $106 billion.

      Subject to the supervision and direction of the Fund's Board of Directors,
the Adviser manages the Fund's portfolio in accordance with the Fund's stated
investment objective and policies, makes investment decisions for the Fund,
places orders to purchase and sell securities and employs professional portfolio
managers and securities analysts who provide research services to the Fund. For
investment advisory services rendered, the Fund pays the Adviser an investment
advisory fee at the annual rate of 0.30% of the Fund's average daily net assets.
This fee is computed daily and paid monthly. For the fiscal year ended May 31,
1998, the Adviser was paid investment advisory fees equal to 0.30% of the value
of the average daily net assets of the Fund.

      MMC serves as the Fund's administrator and oversees all aspects of the
Fund's administration. For administration services rendered, the Fund pays MMC a
fee at the following annual rates of average daily net assets: 0.20% to $500
million and 0.18% in excess of $500 million. This fee is computed daily and paid
monthly. For the fiscal year ended May 31, 1998, MMC was paid administration
fees equal to 0.20% of the value of the average daily net assets of the Fund.

      PORTFOLIO MANAGEMENT

      Lawrence T. McDermott, an Investment Officer of MMC and a Managing
Director of Salomon Smith Barney, has served as Vice President and Investment
Officer of the Fund since October 1988 and manages the day-to-day operations of
the Fund, including making all investment decisions.

      Management's discussion and analysis and additional performance
information regarding the Fund during the fiscal year ended May 31, 1998 is
included in the Annual Report dated May 31, 1998. A copy of the Annual Report
may be obtained upon request and without charge from a Salomon Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this prospectus.

     On April 6, 1998, Travelers announced that it had entered into a Merger 
Agreement with Citicorp.  The transaction was approved by the 
stockholders of both Travelers and Citicorp on June 22, 1998 and by the 
Federal Reserve Board on September 23, 1998.  The companies expect the 
merger to close on or about October 8, 1998, creating a new entity to 
be called Citigroup. By approving the merger, the Federal Reserve 

    


40
<PAGE>

--------------------------------------------------------------------------------
Management of the Fund (continued)
--------------------------------------------------------------------------------
   
Board approved Travelers, as the surviving entity, becoming a bank 
holding company subject to regulation under the Bank Holding Company 
Act of 1956 (the "BHCA"), the requirements of the Glass-Steagall Act 
and certain other laws and regulations.  MMC does not believe that its 
compliance with the applicable law will have a material adverse effect 
on its ability to continue to provide the Fund with the same level of 
investment advisory services that it currently receives.
    

--------------------------------------------------------------------------------
Distributor
--------------------------------------------------------------------------------

   
      Salomon Smith Barney is located at 388 Greenwich Street, New York, New
York 10013. Salomon Smith Barney distributes shares of the Fund as principal
underwriter and as such conducts a continuous offering pursuant to a "best
efforts" arrangement requiring Salomon Smith Barney to take and pay for only
such securities as may be sold to the public. Pursuant to a plan of distribution
adopted by the Fund under Rule 12b-1 under the 1940 Act (the "Plan"), Salomon
Smith Barney is paid a service fee with respect to Class A, Class B and Class L
shares of the Fund at the annual rate of 0.15% of the value of the average daily
net assets of the respective Class. Salomon Smith Barney is also paid an annual
distribution fee with respect to Class B and Class L shares at the annual rate
of 0.50% and 0.55%, respectively, of the average daily net assets attributable
to those Classes. Class B shares which automatically convert to Class A shares
eight years after the date of original purchase, will no longer be subject to a
distribution fee. The fees are used by Salomon Smith Barney to pay its Financial
Consultants for servicing shareholder accounts and, in the case of Class B and
Class L shares, to cover expenses primarily intended to result in the sale of
those shares. These expenses include: advertising expenses; the cost of printing
and mailing prospectuses to potential investors; payments to and expenses of
Salomon Smith Barney Financial Consultants and other persons who provide support
services in connection with the distribution of shares; interest and/or carrying
charges; and indirect and overhead costs of Salomon Smith Barney in connection
with the sale of Fund shares, including lease, utility, communications and sales
promotion expenses.

      The payments to Salomon Smith Barney Financial Consultants for selling
shares of a Class include a commission or fee paid by the investor or Salomon
Smith Barney at the time of sale and, with respect to Class A, Class B and Class
L shares, a continuing fee for servicing shareholder accounts for as long as a
shareholder remains a holder of that Class. Salomon Smith Barney Financial
Consultants may receive different levels of compensation for selling different
Classes of shares.

      Payments under the Plan are not tied exclusively to the distribution and
shareholder services expenses actually incurred by Salomon Smith Barney and the
    


                                                                              41
<PAGE>

--------------------------------------------------------------------------------
Distributor (continued)
--------------------------------------------------------------------------------

   
payments may exceed distribution expenses actually incurred. The Fund's Board of
Directors will evaluate the appropriateness of the Plan and its payment terms on
a continuing basis and in so doing will consider all relevant factors, including
expenses borne by Salomon Smith Barney, amounts received under the Plan and
proceeds of the CDSC.

      The Glass-Steagall Act currently prohibits certain financial institutions
from underwriting securities of open-end investment companies, such as the Fund.
Therefore, in connection with the merger of Travelers and Citicorp and as a 
consequence of the applicability of the BHCA and the Glass-Steagall Act, the 
Fund plans to retain the services of a new entity (which is not otherwise 
affiliated with Travelers) to act as distributor of the Fund's shares.
    

--------------------------------------------------------------------------------
Additional Information
--------------------------------------------------------------------------------

      The Fund was incorporated under the laws of the State of Maryland on May
4, 1987 and is registered with the SEC as a diversified, open-end management
investment company.

      Each Class of the Fund represents an identical interest in the Fund's
investment portfolio. As a result, the Classes have the same rights, privileges
and preferences, except with respect to: (a) the designation of each Class; (b)
the effect of the respective sales charges, if any, for each Class; (c) the
distribution and/or service fees borne by each Class; (d) the expenses allocable
exclusively to each Class; (e) voting rights on matters exclusively affecting a
single Class; (f) the exchange privilege of each Class; and (g) the conversion
feature of the Class B shares. The Board of Directors does not anticipate that
there will be any conflicts among the interests of the holders of the different
Classes. The Directors, on an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.

      The Fund does not hold annual shareholder meetings. There normally will be
no meeting of shareholders for the purpose of electing Directors unless and
until such time as less than a majority of the Directors holding office have
been elected by shareholders. The Directors will call a meeting for any purpose
upon written request of shareholders holding at least 10% of the Fund's
outstanding shares and the Fund will assist shareholders in calling such a
meeting as required by the 1940 Act. When matters are submitted for shareholder
vote, shareholders of each Class will have one vote for each full share owned
and a proportionate, fractional vote for any fractional share held of that
Class. Generally, shares of the Fund vote on a Fund-wide basis on all matters
except matters affecting only the interests of one Class.

      PNC Bank, National Association, is located at 17th and Chestnut Streets,


                                                                              42
<PAGE>

--------------------------------------------------------------------------------
Additional Information (continued)
--------------------------------------------------------------------------------

Philadelphia, Pennsylvania 19103, and serves as custodian of the Fund's
investments.

   
      First Data, located at Exchange Place, Boston, Massachusetts 02109, and
serves as transfer agent of the Fund.

      The Fund sends to each of its shareholders a semi-annual report and an
audited annual report, which include listings of the investment securities held
by the Fund at the end of the reporting period. In an effort to reduce the
Fund's printing and mailing costs, the Fund plans to consolidate the mailing of
its semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. Shareholders who do not want this
consolidation to apply to their account should contact their Financial
Consultants or the Fund's Transfer Agent.
    

                                                                              43
<PAGE>

                                                            SALOMON SMITH BARNEY
                                              ----------------------------------
                                              A Memember of TravelersGroup[LOGO]


                                                                    Smith Barney
                                                                         Arizona
                                                                 Municipals Fund
                                                                            Inc.


                                                            388 Greenwich Street
                                                        New York, New York 10013
                                                                  (800) 451-2010

   
                                                                     FD0238 9/98
    


SMITH BARNEY ARIZONA MUNICIPALS FUND INC.

PART B
Smith Barney
Arizona Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
   
Statement of Additional Information 	September 28, 1998

This Statement of Additional Information (the "SAI") expands 
upon and supplements the information contained in the current 
Prospectus of Smith Barney Arizona Municipals Fund Inc. (the 
"Fund"), dated September 28, 1998, as amended or supplemented from 
time to time, and should be read in conjunction with the Fund's 
Prospectus. The Fund's Prospectus may be obtained from a Salomon 
Smith Barney Financial Consultant or by writing or calling the 
Fund at the address or telephone number set forth above. This SAI, 
although not in itself a prospectus, is incorporated by reference 
into the Prospectus in its entirety.
    

TABLE OF CONTENTS

	For ease of reference the same section headings are used in 
both the Prospectus and the SAI, except where shown below:
   
Management of the Fund		  1
Investment Objective and Management Policies		  6
Municipal Bonds (See in the Prospectus "Investment Objective 
and Management  Policies'')		13
Purchase of Shares		17
Redemption of Shares		18
Distributor (See in the Prospectus "Management of the Fund")	19
Valuation of Shares		20
Exchange Privilege		21
Performance Data (See in the Prospectus "Performance")		22
Taxes (See in the Prospectus "Dividends, Distributions and 
Taxes")		25
Additional Information.		28
Financial Statements.		28
Appendix		A-1
    

MANAGEMENT OF THE FUND

	The executive officers of the Fund are employees of certain of 
the organizations that provide services to the Fund. These 
organizations are as follows:
   
Name	Service
Salomon Smith Barney Inc.
("Salomon Smith Barney'' or "Distributor")		Distributor
Mutual Management Corp. (formerly known Smith Barney 
Mutual Funds Management Inc.)
("MMC'' or "Adviser" or "Administrator")	.	Investment 
Adviser and Administrator
PNC Bank, National Association
("PNC'' or the "Custodian").		Custodian
First Data Investor Services Group, Inc. 
("First Data'' or the "Transfer Agent")		Transfer Agent
    
These organizations and the functions they perform for the Fund 
are discussed in the Prospectus and in this SAI.

Directors and Executive Officers of the Fund

	The names of the Directors and executive officers of the Fund, 
together with information as to their principal business 
occupations during the past five years, are shown below. Each 
Director who is an "interested person'' of the Fund, as defined in 
the Investment Company Act of 1940, as amended (the "1940 Act''), 
is indicated by an asterisk.
   
Herbert Barg, Director (Age 75). Private Investor. His address 
is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.

*Alfred J. Bianchetti, Director (Age 75). Retired; formerly 
Senior Consultant to Dean Witter Reynolds Inc. His address is 19 
Circle End Drive, Ramsey, New Jersey 07446.

Martin Brody, Director (Age 77). Consultant, HMK Associates; 
Retired Vice Chairman of the Board of Restaurant Associates Corp.; 
His address is HMK Associates, 30 Columbia Turnpike, Florham Park, 
New Jersey  07932.

Dwight B. Crane, Director (Age 60). Professor, Harvard Business 
School. His address is Harvard Business School, Soldiers Field 
Road, Boston, Massachusetts 02163.

Burt N. Dorsett, Director (Age 67). Managing Partner of Dorsett 
McCabe Management, Inc., an investment counseling firm; Trustee of 
Research Corporation Technologies, Inc., a non-profit patent-
clearing and licensing firm. His address is 201 East 62nd Street, 
New York, New York 10021.

Elliot S. Jaffe, Director (Age 72). Chairman of the Board and 
Chief Executive Officer of The Dress Barn, Inc. His address is 30 
Dunnigan Drive, Suffern, New York 10901.

Stephen E. Kaufman, Director (Age 66). Attorney. His address is 
277 Park Avenue, New York, New York 10172.

Joseph J. McCann, Director (Age 68). Financial Consultant; 
Retired Financial Executive of Ryan Homes Inc.. His address is 200 
Oak Park Place, Pittsburgh, Pennsylvania 15243.

*Heath B. McLendon, Chairman of the Board and Investment 
Officer (Age 65). Managing Director of Salomon Smith Barney, 
Chairman of the Board of Smith Barney Strategy Advisors Inc. and 
President of MMC and Travelers Investment Adviser, Inc. ("TIA").  
Mr. McLendon is Chairman or Co-Chairman of the Board and Director 
of 58 investment companies associated with Salomon Smith Barney 
Holdings Inc. Prior to July 1993, Senior Executive Vice President 
of Shearson Lehman Brothers Inc., Vice Chairman of Shearson Asset 
Management, Director of PanAgora Asset Management, Inc. and 
PanAgora Asset Management Limited.  His address is 388 Greenwich 
Street, New York, New York 10013.

Cornelius C. Rose, Jr., Director (Age 64). Chairman of the 
Board, Cornelius C. Rose Associates, Inc., financial consultants, 
and Chairman of Performance Learning Systems, an educational 
consultant. His address is Meadowbrook Village, West Lebanon, New 
Hampshire 03784.

Lewis E. Daidone, Senior Vice President and Treasurer (Age 41). 
Managing Director of Salomon Smith Barney; Chief Financial Officer 
of the Smith Barney Mutual Funds; Director and Senior Vice 
President of MMC and TIA.  Mr. Daidone serves as Senior Vice 
President and Treasurer of 42 Smith Barney Mutual Funds.  His 
address is 388 Greenwich Street, New York, New York 10013.

Lawrence T. McDermott, Vice President and Investment Officer 
(Age 50). Investment Officer of MMC; prior to July 1993, Managing 
Director of Shearson Lehman Advisors.  Mr. McDermott serves as 
Investment Officer of 6 Smith Barney Mutual Funds.  His address is 
388 Greenwich Street, New York, New York 10013.

Christina T. Sydor, Secretary (Age 47). Managing Director of 
Salomon Smith Barney; General Counsel and Secretary of MMC and 
TIA.  Ms. Sydor serves as Secretary of 42 Smith Barney Mutual 
Funds.  Her address is 388 Greenwich Street, New York, New York 
10013.

	As of September 4, 1998, the Directors and officers of the Fund 
as a group owned less than 1% of the outstanding common stock of 
the Fund. As of September 4, 1998, to the knowledge of the Fund 
and the Board, the following shareholders or "group" (as that term 
is used in Section 13(d) of the Securities Act of 1934) 
beneficially owned more than 5% of the outstanding shares of the 
Fund: 

Class L Shares (effective June 12, 1998, the former Class C shares 
were renamed Class L shares)

American Western Trading Co.
6531 N. 3rd Ave. #15
Phoenix, AZ 85013-1258
owned 29,835.42 (28.45%) shares

J. Rukin Jelks
Carolyn G. Jelks TTEESS
U/A/D 5/12/98
Charitable Remainder Uni Trust
HCI Box 380
Elgin, AZ  86511-9727
Owned 18,796.99 (17.92%)

Rachel Fritch Harris & Richard
Franklin Harris Co-TTEES
FBO Rachel Fritch Harris Trust
U/A/D 5/1/89
7046 N. 59th Place
Scottsdale, AZ 85253-3412
owned 11,891.96 (11.34%) shares

GT Kearney TTEE
FBO Glenn T. Kearney Trust
U/A/D 8/11/93
101 S. Yucca Street, #156
Chandler, AZ 85224-8177
owned 7,524.11 (7.17%) shares

Robert A. Nichol
2381 Stroke Drive
Lake Havasu City, AZ  86406-7625
owned 7,011122 (6.69%) shares


Each Director also serves as a director, trustee and/or general 
partner of certain other mutual funds for which Salomon Smith 
Barney serves as distributor.  No Director, officer or employee of 
Salomon Smith Barney or of any parent or subsidiary receives any 
compensation from the Fund for serving as an officer or Director 
of the Fund. The Fund pays each Director who is not an officer, 
director or employee of Salomon Smith Barney or any of its 
affiliates a fee of $1,000 per annum plus $100 per in-person 
meeting and $100 per telephonic meeting. Upon attainment of age 
80, Directors are required to change to emeritus status.  
Directors Emeritus are entitled to serve in emeritus status for a 
maximum of 10 years during which time they are paid 50% of the 
annual retainer fee and meeting fees otherwise applicable to the 
Fund Directors, together with reasonable out-of-pocket expenses for 
each meeting attended.  During the Fund's last fiscal year 
aggregate compensation paid by the Fund to Directors achieving 
emeritus status totaled $750.  All Directors are reimbursed for 
travel and out-of-pocket expenses incurred to attend such 
meetings. For the fiscal year ended May 31, 1998, such fees and 
expenses totaled $11,423. 

For the fiscal year ended May 31, 1998, the Directors of the 
Fund were paid the following compensation: 

Compensation Table


Name of 
Director


Aggregate 
Compensation 
from the Fund

Pension or 
Retirement 
Benefits 
Accrued as Part 
of Fund's 
Expenses

Total 
Compensation 
from Fund 
Complex*

Total Number 
of Funds for 
Which Director 
Serves within
Fund Complex

Herbert Barg 
$1,500
$0
$101,600
16

Alfred J. Bianchetti** 
1,500
0
49,600
11

Martin Brody 
1,300
0
119,814
19

Dwight B. Crane 
1,300
0
133,850
22

Burt N. Dorsett
1,500
0
46,600
11

Elliot S. Jaffe 
1,400
0
48,500
11

Stephen E. Kaufman 
1,500
0
91,964
13

Joseph J. McCann 
1,500
0
49,600
11

Heath B. McLendon**
0
0
0
58

Cornelius C. Rose, Jr. 
1,500
0
49,600
11

______________________________________
  *	Reflects compensation paid during the calendar year ended 
December 31, 1997.
**	Designates a director who is an "interested person" of the Fund. 

Investment Adviser and Administrator - MMC

	MMC serves as investment adviser to the Fund.  The Adviser is a 
wholly owned subsidiary of Salomon Smith Barney Holdings Inc. 
("Holdings'') and Holdings is a wholly owned subsidiary of 
Travelers Group Inc. ("Travelers''). The advisory agreement (the 
"Advisory Agreement'') was approved by the Board of Directors, 
including a majority of those Directors who are not "interested 
persons'' of the Fund or the Adviser ("Independent Directors"). 
The services provided by the Adviser under the Advisory Agreement 
are described in the Prospectus under "Management of the Fund.''  
The Adviser pays the salary of any officer or employee who is 
employed by both it and the Fund and bears all expenses in 
connection with the performance of its services.

	The Fund pays the Adviser a fee for investment advisory 
services at the annual rate of 0.30% of the value of its daily net 
assets.  This fee is computed daily and paid monthly.  For the 
1996, 1997 and 1998 fiscal years, the Fund paid $218,249, $184,078 
and $185,780, respectively, in investment advisory fees. MMC and 
its predecessors voluntarily waived investment advisory fees for 
the fiscal year ended May 31, 1996 in the amount of $64,184.  

MMC also serves as administrator to the Fund pursuant to a 
written agreement (the "Administration Agreement''), which was 
approved by the Fund's Board of Directors, including a majority of 
Independent Directors.  The services provided by MMC under the 
Administration Agreement are described in the Prospectus under 
"Management of the Fund."  MMC pays the salary of any officer and 
employee who is employed by both it and the Fund and bears all 
expenses in connection with the performance of its services.

As compensation for administrative services rendered to the 
Fund, MMC received a fee paid monthly at the following annual 
percentage of average daily net assets: 0.20% up to $500 million; 
and 0.18% thereafter. For the fiscal years ended May 31, 1996, 
1997 and 1998, the Fund paid MMC $134,359, $122,719 and $123,853, 
respectively, in administration fees. MMC and its predecessors 
voluntarily waived administrative fees for the fiscal year ended 
May 31, 1996 in the amount of $46,226. 

The Fund bears expenses incurred in its operations, including: 
taxes, interest, brokerage fees and commissions, if any; fees of 
Directors who are not officers, directors, shareholders or 
employees of Salomon Smith Barney or the Adviser; Securities and 
Exchange Commission (the "SEC") fees and state Blue Sky 
qualification fees; charges of custodian; transfer and dividend 
disbursing agent's fees; certain insurance premiums; outside 
auditing and legal expenses; costs of maintaining corporate 
existence; costs of investors services (including allocated 
telephone and personnel expenses); costs of preparation and 
printing of prospectuses for regulatory purposes and for 
distribution to existing shareholders; costs of shareholders' 
reports and shareholder meetings; and meetings of the officers or 
Board of Directors of the Fund.

The Adviser and the Fund have agreed that if in any fiscal year 
the aggregate expenses of the Fund (including fees payable 
pursuant to the Advisory Agreement and Administration Agreement, 
but excluding interest, taxes and brokerage fees paid pursuant to 
the Fund's services and distribution plan, and, with the prior 
written consent of the necessary state securities commissions, 
extraordinary expenses) exceed the expense limitation of any state 
having jurisdiction over the Fund, the Adviser will, to the extent 
required by state law, reduce its fees by the amount of such 
excess expenses. Such fee reductions, if any, will be reconciled 
on a monthly basis. No fee reduction was required for the 1996, 
1997 and 1998 fiscal years.
    
Counsel and Auditors

	Willkie Farr & Gallagher serves as legal counsel to the Fund.  
The Independent Directors have selected Stroock & Stroock & Lavan 
LLP as their legal counsel.
   
	KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 
10154, has been selected as the Fund's independent auditor to 
examine and report on the Fund's financial statements and 
highlights for the fiscal year ending May 31, 1999.
    

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES

	The Prospectus discusses the Fund's investment objective and 
the policies it employs to achieve that objective. The following 
discussion supplements the description of the Fund's investment 
policies in the Prospectus.
    
	Under normal market conditions, the Fund will invest at least 
80% of its total assets in municipal securities rated no lower 
that Baa, MIG 3 or Prime-1 by Moody's Investors Service, Inc. 
("Moody's") or BBB, SP-2 or A-1 by Standard & Poor's Ratings Group 
("S&P"), or the equivalent of other nationally recognized 
statistical ratings organizations ("NRSROs") or unrated 
obligations of comparable quality. The balance of the Fund's 
assets may be invested in securities rated as low as C by Moody's, 
D by S&P or any other NRSRO.  A description of the ratings of 
Moody's and S&P is contained in the Appendix to this SAI. 

	Use of Ratings as Investment Criteria. In general, the ratings 
of Moody's, S&P or any NRSROs represent the opinions of those 
agencies as to the quality of the securities and short-term 
investments which they rate. It should be emphasized, however, 
that such ratings are relative and subjective, are not absolute 
standards of quality and do not evaluate the market risk of 
securities. These ratings will be used by the Fund as initial 
criteria for the selection of portfolio securities, but the Fund 
also will rely upon the independent advice of the Adviser to 
evaluate potential investments. Among the factors which will be 
considered are the long-term ability of the issuer to pay 
principal and interest and general economic trends. To the extent 
the Fund invests in lower rated and comparable unrated securities, 
the Fund's achievement of its investment objective may be more 
dependent on the Adviser's credit analysis of such securities than 
would be the case for a portfolio consisting entirely of higher 
rated securities.

	Subsequent to its purchase by the Fund, an issue of securities 
may cease to be rated or its rating may be reduced below the 
rating given at the time the securities were acquired by the Fund. 
Neither event will require the sale of such securities by the 
Fund, but the Adviser will consider such event in its 
determination of whether the Fund should continue to hold such 
securities. In addition, to the extent the ratings change as a 
result of changes in such organizations or their rating systems or 
due to a corporate restructuring of Moody's, S&P or any other 
NRSRO, the Fund will attempt to use comparable ratings as 
standards for its investments in accordance with its investment 
objective and policies.

	The Fund generally may invest up to 20% of its total assets in 
securities rated below Baa, MIG 3 or Prime-1 (P-1) by Moody's or 
BBB, SP-2 or A-1 by S&P, or in unrated securities of comparable 
quality or the equivalent from any other NRSRO.  Such securities 
(a) will likely have some quality and protective characteristics 
that, in the judgment of the rating organization, are outweighed 
by large uncertainties or major risk exposures to adverse 
conditions and (b) are predominantly speculative with respect to 
the issuer's capacity to pay interest and repay principal in 
accordance with the terms of the obligations.

	Zero coupon bonds involve special considerations.  Zero coupon 
bonds are debt obligations which do not entitle the holder to any 
periodic payments of interest prior to maturity of a specified 
cash payment date when the securities begin paying current 
interest (the "cash payment date") and therefore are issued and 
traded at a discount from their face amounts or par values.  The 
discount varies depending on the time remaining until maturity or 
cash payment date, prevailing interest rates, liquidity of the 
security and the perceived credit quality of the issuer.  The 
discount, in the absence of financial difficulties of the issuer, 
decreases as the final maturity or cash payment date of the 
security approaches.  The market prices of zero coupon securities 
generally are more volatile than the market prices of other debt 
securities that pay interest periodically and are likely to 
respond to changes in interest rates to a greater degree than do 
debt securities having similar maturities and credit quality.  The 
credit risk factors pertaining to low-rated securities also apply 
to low-rated zero coupon bonds.  Such zero coupon bonds carry an 
additional risk in that, unlike bonds which pay interest 
throughout the period to maturity, the Fund will realize no cash 
until the cash payment date unless portfolio securities are sold 
and, if the issuer defaults, the Fund may obtain no return at all 
on its investment.

	When-Issued Purchases and Firm Commitment Agreements. When the 
Fund purchases new issues of municipal securities on a when-issued 
basis, a segregated account equal to the amount of the commitment 
will be established by the Fund's custodian.  The segregated 
assets may consist of cash or debt securities of any grade having 
a value equal to or greater than the Fund's purchase commitments, 
provided such securities have been determined by MMC to be liquid 
and unencumbered, and marked to market daily, pursuant to 
guidelines established by the Directors.  If the value of 
securities in the account should decline, additional cash or 
securities will be placed in the account so that the market value 
of the account will equal the amount of such commitments by the 
Fund on a daily basis.
    
	Securities purchased on a when-issued basis and the securities 
held in the Fund's portfolio are subject to changes in market 
value based upon various factors, including changes in the level 
of market interest rates. Generally, the value of such securities 
will fluctuate inversely to changes in interest rates (i.e., they 
will appreciate in value when market interest rates decline, and 
decrease in value when market interest rates rise). For this 
reason, placing securities rather than cash in a segregated 
account may have a leveraging effect on the Fund's net assets. 
That is, to the extent the Fund remains substantially fully 
invested in securities at the same time that it has committed to 
purchase securities on a when-issued basis, there will be greater 
fluctuations in its net assets than if it had set aside cash to 
satisfy its purchase commitment.

	Upon the settlement date of the when-issued securities, the 
Fund ordinarily will meet its obligation to purchase the 
securities from available cash flow or from use of the cash (or 
liquidation of securities) held in the segregated account or sale 
of other securities. Although it normally would not expect to do 
so, the Fund also may meet its obligation from the sale of the 
when-issued securities themselves (which may have a current market 
value greater or less than the Fund's payment obligation). Sale of 
securities to meet such obligations carries with it a greater 
potential for the realization of net capital gains, which are not 
exempt from Federal income tax.

	When the Fund engages in when-issued transactions, it relies on 
the seller to consummate the trade. Failure of the seller to do so 
may result in the Fund's incurring a loss of opportunity to obtain 
a price considered to be advantageous.
   
	The Fund also may enter into firm commitment agreements for the 
purchase of securities at an agreed-upon price on a specified 
future date. During the time that the Fund is obligated to 
purchase such securities, it will maintain in a segregated account 
with the Fund's custodian in an aggregate value sufficient to make 
payment for the securities.  The segregated assets may consist of 
cash, U.S. government securities or debt obligations of any grade 
so long as such assets are liquid , unencumbered and marked to 
market daily. 
    
	Puts or Stand-by Commitments. As discussed in the Prospectus, 
the Fund may acquire puts or stand-by commitments which will 
enable the Fund to improve its portfolio liquidity by providing a 
ready market for certain municipal securities in its portfolio at 
an acceptable price. The price the Fund pays for municipal 
securities with puts generally is higher than the price which 
otherwise would be paid for the municipal securities alone. The 
put generally is for a shorter term than the maturity of the 
municipal security and does not restrict in any way the Fund's 
ability to dispose of (or retain) the municipal security.

	In order to ensure that the interest on municipal securities 
subject to puts is tax-exempt for the Fund, the Fund will limit 
its use of puts in accordance with current interpretations or 
rulings of the Internal Revenue Service (the "IRS"). The IRS has 
issued a ruling (Rev. Rule. 82-144) in which it determined that a 
regulated investment company was the owner for tax purposes of 
municipal securities subject to puts (with the result that 
interest on those securities would not lose its tax-exempt status 
when paid to the company). The IRS position in Rev. Rule. 82-144 
relates to a particular factual situation, including that (a) the 
municipal securities with puts were purchased at prices higher 
than the underlying municipal securities without puts, (b) a 
relatively small number of the municipal securities owned by the 
company were subject to puts, (c) the puts were nonassignable and 
terminated upon disposal of the underlying securities by the 
company, (d) the puts were for periods substantially less than the 
terms of the underlying securities, (e) the puts did not include 
call arrangements or restrict the disposal of the underlying 
securities by the company and gave the seller no rights in the 
underlying securities, and (f) the securities were acquired by the 
company for its own account and not as security for a loan from 
the seller.

	Because it is difficult to evaluate the likelihood of exercise 
or the potential benefit of a put, it is expected that puts will 
be determined to have a "value" of zero, regardless of whether any 
direct or indirect consideration was paid. Where the Fund has paid 
for a put, its cost will be reflected as unrealized depreciation 
in the underlying security for the period during which the 
commitment is held, and therefore would reduce any potential gains 
on the sale of the underlying security by the cost of the put. 
There is a risk that the seller of the put may not be able to 
repurchase the security upon exercise of the put by the Fund.
   
	Temporary Investments. When the Fund is maintaining a defensive 
position, the Fund may invest in short-term investments 
("Temporary Investments") consisting of tax-exempt securities in 
the form of notes of municipal issuers having, at the time of 
purchase, a rating within the three highest grades of Moody's, S&P 
or any other NRSRO or, if not rated, having an issue of 
outstanding municipal bonds of Arizona issuers rated within the 
three highest grades by Moody's S&P or the equivalent from any 
other NRSRO and certain taxable short-term instruments having 
quality characteristics comparable to those for tax-exempt 
investments.  The Fund may invest in Temporary Investments for 
defensive reasons in anticipation of a market decline.  At no time 
will more than 20% of the Fund's total assets be invested in 
Temporary Investments unless the Fund has adopted a defensive 
investment policy.  The Fund intends, however, to purchase tax-
exempt Temporary Investments pending the investing of the proceeds 
of the sale of portfolio securities or shares of the Fund's common 
stock, or in order to have highly liquid securities available to 
meet anticipated redemptions.  For the fiscal year ended May 31, 
1998, the Fund did not invest in taxable Temporary Investments.

	From time to time on a temporary basis, the Fund may invest in 
fixed-income obligations on which the interest is subject to 
Federal income tax. Except when the Fund is in a "defensive" 
investment position, it will not purchase a taxable security if, 
as a result, more than 20% of its total assets would be invested 
in taxable securities. This limitation is a fundamental policy of 
the Fund, that is, it may not be changed without a majority vote 
of the shareholders of the outstanding securities of the Fund. 
Temporary taxable investments of the Fund may consist of U.S. 
government securities, commercial paper rated A-1 by S&P or Prime-
1 by Moody's, corporate obligations rated AAA or AA by S&P or Aaa 
or Aa by Moody's or the equivalent from any other NRSRO, 
certificates of deposit or bankers' acceptances of domestic banks 
or thrift institutions with at least $1 billion in assets, or 
repurchase agreements with certain banks or dealers. Repurchase 
agreements may be entered into with respect to any securities 
eligible for investment by the Fund, including municipal 
securities. 

	Repurchase Agreements. The Fund may enter into repurchase 
agreements 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 of time 
(usually not more than seven days) 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.  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. Repurchase agreements could involve 
certain risks in the event of default or insolvency of the other 
party, including possible delays or restrictions upon the Fund's 
ability to dispose of the underlying securities, the risk of a 
possible decline in the value of the underlying securities during 
the period in which the Fund seeks to assert its rights to them, 
the risk of incurring expenses associated with asserting those 
rights and the risk of losing all or part of the income from the 
agreement. In evaluating these potential risks, the Adviser, 
acting under the supervision of the Fund's Board of Directors, 
reviews on an ongoing basis the value of the collateral and the 
creditworthiness of those banks and dealers with which the Fund 
enters into repurchase agreements.
    
Investment Restrictions

	The Fund has adopted the following investment restrictions for 
the protection of shareholders. Restrictions 1 through 7 below are 
fundamental policies, and may not be changed without the approval 
of the holders of a majority of the outstanding shares of the 
Fund, defined as the lesser of (a) 67% of the Fund's shares 
present at a meeting, if the holders of more than 50% of the 
outstanding shares of the Fund are present or represented by 
proxy, or (b) more than 50% of the Fund's outstanding shares. The 
remaining restrictions may be changed by the Fund's Board of 
Directors at any time.
   
The Fund may not:

1.	Invest in a manner that would cause it to fail to be a 
"diversified company" under the 1940 Act and the rules, 
regulations and orders thereunder.

2.	Issue "senior securities" as defined in the 1940 Act and the 
rules, regulations and orders thereunder, except as permitted 
under the 1940 Act and the rules, regulations and orders 
thereunder
 
3.	Invest more than 25% of its total assets in securities, the 
issuers of which are in the same industry. For purposes of 
this limitation, U.S. government securities and securities 
of state or municipal governments and their political 
subdivisions are not considered to be issued by members of 
any industry.

4.	Borrow money, except that (a) the Fund may borrow from banks 
for temporary or emergency (not leveraging) purposes, 
including the meeting of redemption requests which might 
otherwise require the untimely disposition of securities, and 
(b) the Fund may, to the extent consistent with its 
investment policies, enter into reverse repurchase 
agreements, forward roll transactions and similar investment 
strategies and techniques.  To the extent that it engages in 
transactions described in (a) and (b), the Fund will be 
limited so that no more than 33 1/3% of the value of its 
total assets (including the amount borrowed), valued at the 
lesser of cost or market, less liabilities (not including the 
amount borrowed) valued at the time the borrowing is made, is 
derived from such transactions.

5.	Make loans.  This restriction does not apply to: (a) the 
purchase of debt obligations in which the Fund may invest 
consistent with its investment objectives and policies; (b) 
repurchase agreements; and (c) loans of its portfolio 
securities, to the fullest extent permitted under the 1940 
Act.

6.	Engage in the business of underwriting securities issued by 
other persons, except to the extent that the Fund may 
technically be deemed to be an underwriter under the 
Securities Act of 1933, as amended, in disposing of 
portfolio securities.

7.	Purchase or sell real estate, real estate mortgages, 
commodities or commodity contracts, but this restriction 
shall not prevent the Fund from (a) investing in securities 
of issuers engaged in the real estate business or the 
business of investing in real estate (including interests in 
limited partnerships owning or otherwise engaging in the real 
estate business or the business of investing in real estate) 
and securities which are secured by real estate or interests 
therein; (b) holding or selling real estate received in 
connection with securities it holds or held; (c) trading in 
futures contracts and options on futures contracts (including 
options on currencies to the extent consistent with the 
Funds' investment objective and policies); or (d) investing 
in real estate investment trust securities.

8.	Purchase any securities on margin (except for such short-term 
credits as are necessary for the clearance of purchases and 
sales of portfolio securities) or sell any securities short 
(except "against the box").  For purposes of this 
restriction, the deposit or payment by the Fund of underlying 
securities and other assets in escrow and collateral 
agreements with respect to initial or maintenance margin in 
connection with futures contracts and related options and 
options on securities, indexes or similar items is not 
considered to be the purchase of a security on margin. 

9.	Purchase or otherwise acquire any security if, as a result, 
more than 15% of its net assets would be invested in 
securities that are illiquid. 

10.	Invest in oil, gas or other mineral exploration or 
development programs. 

	Certain restrictions listed above permit the Fund to engage in 
investment practices that the Fund does not currently pursue. The 
Fund has no present intention of altering its current investment 
practices as otherwise described in the Prospectus and this SAI 
and any future change in those practices would require Board 
approval and appropriate notice to shareholders. If a percentage 
restriction is complied with at the time of investment, a later 
increase or decrease in the percentage of assets resulting from a 
change in values of portfolio securities or in the amount of the 
Fund's assets will not constitute a violation of such restriction. 
In order to permit the sale of the Fund's shares in certain 
states, the Fund may make commitments more restrictive than the 
restrictions described above. Should the Fund determine that any 
such commitment is no longer in the best interests of the Fund and 
its shareholders it will revoke the commitment by terminating 
sales of its shares in the state involved.
    
Portfolio Transactions
   
	Newly issued securities normally are purchased directly from 
the issuer or from an underwriter acting as principal. Other 
purchases and sales usually are placed with those dealers from 
which it appears the best price or execution will be obtained; 
those dealers may be acting as either agents or principals.  The 
purchase price paid by the Fund to underwriters of newly issued 
securities usually includes a concession paid by the issuer to the 
underwriter, and purchases of after-market securities from dealers 
normally are executed at a price between the bid and asked prices.  
The Fund paid no brokerage commissions for the 1996, 1997 and 1998 
fiscal years.

	Allocation of transactions, including their frequency, to 
various dealers is determined by the Adviser in its best judgment 
and in a manner deemed fair and reasonable to shareholders.  The 
primary considerations are availability of the desired security 
and the prompt execution of orders in an effective manner at the 
most favorable prices.  Subject to these considerations, dealers 
that provide supplemental investment research and statistical or 
other services to the Adviser may receive orders for portfolio 
transactions by the Fund.  Information so received enables the 
Adviser to supplement its own research and analysis with the views 
and information of other securities firms.  Such information may 
be useful to the Adviser in serving both the Fund and other 
clients, and conversely, supplemental information obtained by the 
placement of business of other clients may be useful to the 
Adviser in carrying out its obligations to the Fund.

	The Fund will not purchase municipal bonds during the existence 
of any underwriting or selling group relating thereto of which 
Salomon Smith Barney or any affiliate is a member, except to the 
extent permitted by the SEC.  Under certain circumstances, the 
Fund may be at a disadvantage because of this limitation in 
comparison with other investment companies which have a similar 
investment objective but which are not subject to such limitation.

	While investment decisions for the Fund are made independently 
from those of the other accounts managed by the Adviser, 
investments of the type the Fund may make also may be made by such 
other accounts. When the Fund and one or more other accounts 
managed by the Adviser are prepared to invest in, or desire to 
dispose of, the same security, available investments or 
opportunities for sales will be allocated in a manner believed by 
the Adviser to be equitable to each. In some cases, this procedure 
may adversely affect the price paid or received by the Fund or the 
size of the position obtained or disposed of by the Fund.
    
Portfolio Turnover
   
	The Fund's portfolio turnover rate (the lesser of purchases or 
sales of portfolio securities during the year, excluding purchases 
or sales of short-term securities, divided by the monthly average 
value of portfolio securities) generally is not expected to exceed 
100%, but the portfolio turnover rate will not be a limiting 
factor whenever the Fund deems it desirable to sell or purchase 
securities. Securities may be sold in anticipation of a rise in 
interest rates (market decline) or purchased in anticipation of a 
decline in interest rates (market rise) and later sold. In 
addition, a security may be sold and another security of 
comparable quality may be purchased at approximately the same time 
in order to take advantage of what the Fund believes to be a 
temporary disparity in the normal yield relationship between the 
two securities. These yield disparities may occur for reasons not 
directly related to the investment quality of particular issues or 
the general movement of interest rates, such as changes in the 
overall demand for or supply of various types of tax-exempt 
securities. For the fiscal years ended May 31, 1996, 1997 and 
1998, the Fund's portfolio turnover rates were 22%, 27 % and 42%, 
respectively. 
    

MUNICIPAL BONDS

General Information

	Municipal bonds generally are understood to include debt 
obligations issued to obtain funds for various public purposes, 
including the construction of a wide range of public facilities, 
refunding of outstanding obligations, payment of general operating 
expenses and extensions of loans to public institutions and 
facilities. Private activity bonds issued by or on behalf of 
public authorities to finance privately operated facilities are 
included within the term municipal bonds if the interest paid 
thereon qualifies as excludable from gross income (but not 
necessarily from alternative minimum taxable income) for Federal 
income tax purposes in the opinion of bond counsel to the issuer.

	The yields on municipal bonds are dependent upon a variety of 
factors, including general economic and monetary conditions, 
general money market conditions, general conditions of the 
municipal bond market, the financial condition of the issuer, the 
size of a particular offering, the maturity of the obligation 
offered and the rating of the issue. 

	Municipal bonds also are subject to the provisions of 
bankruptcy, insolvency and other laws affecting the rights and 
remedies of creditors, such as the Federal Bankruptcy Code, and 
laws, if any, that may be enacted by Congress or state 
legislatures extending the time for payment of principal or 
interest, or both, or imposing other constraints upon enforcement 
of the obligations or upon the ability of municipalities to levy 
taxes. There is also the possibility that, as a result of 
litigation or other conditions, the power or ability of any one or 
more issuers to pay, when due, principal of and interest on its, 
or their, municipal bonds may be materially affected.

	Interest on certain types of private activity bonds (generally 
small issues and obligations to finance certain exempt facilities 
which may be leased to or used by persons other than the issuer) 
will not be excluded from gross income for Federal income tax 
purposes when received by "substantial users" or persons related 
to "substantial users" as defined in the Internal Revenue Code of 
1986, as amended (the "Code"). The term "substantial user" 
generally includes any "non-exempt person" who regularly uses in 
his or her trade or business as part of a facility financed from 
the proceeds of private activity bonds. The Fund may invest 
periodically in private activity bonds and, therefore, may not be 
an appropriate investment for entities which are substantial users 
of facilities financed by such bonds or "related persons" of 
substantial users. Generally, an individual will not be a related 
person of a substantial user under the Code unless the person or 
his or her immediate family (spouse, brothers, sisters, ancestors 
and lineal descendants) owns directly or indirectly in the 
aggregate more than 50% in value of the equity of the substantial 
user, although special related persons rules apply when the 
substantial user is a partnership or Subchapter S corporation.

	Special Considerations Relating to Arizona Municipal 
Securities. Some of the significant financial considerations 
relating to the Fund's investments in Arizona municipal securities 
are summarized below. This summary information is derived 
principally from official statements and prospectuses relating to 
securities offerings of the State of Arizona and various local 
agencies in Arizona available as of the date of this SAI, and does 
not purport to be a complete description of any of the 
considerations mentioned herein.  The accuracy and completeness of 
the information contained in such official statements and 
documents has not been independently verified and this summary is 
qualified by reference to the information from such documents.

	As of July 1996, Arizona's population stood at an estimated 
4,297,775.  Over the past five years, the population has grown at 
an average annual rate of nearly 2.9%.  Arizona Department of 
Economic Security projections call for a 2.5% increase for 1997 
with net migration levels declining from their currently high 
rate.  Although 73% of the population growth is the result of net 
migration, the natural population growth rate of 0.9% still 
exceeds the national average of 0.6%.

	The State's principal economic sectors include services, 
manufacturing dominated by electrical, transportation and military 
equipment, government, trade, construction, finance, insurance and 
real estate, tourism and the military.
	
	The State's seasonally adjusted unemployment rate as of 
February 1997, stood at 5.0%, which is on par with the national 
rate of 5.0%.  Total wage and salary employment has grown at a 
3.8% average annual rate from 1990 to 1995, with annual gains of 
6.7% and 5.4%, respectively for 1994 and 1995.  Major expansions 
are presently underway by Microsoft, Charles Schwab, Intel, 
Microchip Technology and MCI.  However, there are signs that the 
rate of employment growth has begun to slow.  Total wage and 
salary employment is forecast to increase by more moderate rates 
of 3.3% in 1997 and 2.4% in 1998.  The services sector is 
projected to experience the highest rate of growth over the next 
two years, with increases of 5.5% and 4.8%.  Manufacturing 
employment is expected to increase 2.9% and 0.9% over the same 
period while construction employment is expected to increase 0.2% 
in 1997 and decline 2.5% in 1998.  This compares with construction 
employment increases of 21.6% in 1994 and 10.6% in 1995.

	Due to the international diversification of Arizona's economy 
and the development of expanded tourism opportunities the State's 
economy is becoming less seasonal in nature. Exports rose 45.2% 
from 1993 to 1995 to $9.7 billion. To further promote Arizona 
exports, the Arizona Department of Commerce opened a foreign trade 
office in London in October 1995.  High-tech products account for 
about 75% of total exports.  This provides better options for both 
employers and employees.  

	Arizona is required by law to maintain a balanced budget. To 
achieve this objective, the State has, in the past, utilized a 
combination of spending reductions and tax increases.  Arizona's 
top individual income tax rate of 6.9% is moderately high and 
there is no local income tax levied by any city or county.  The 
general sales tax rate matches the US median at 5.0%, although 
county and city taxes push combined rates as high as 7.20%.  
General governmental revenues totaled about $10.32 billion for 
June 30,1996, a 7.2%  increase over 1995.  The higher sales tax 
revenues are reflective of statewide economic growth, while the 
rise in motor vehicle and fuel taxes resulted from increases in 
vehicle registrations and vehicle usage.  

	The general fund ended the June 30, 1996 fiscal year with a 
$628.2 million unreserved fund balance, which is about 8.5 % of 
general fund revenues.  In addition, there is a $309.3 million 
reserved fund balance that includes $233.1 million for a "rainy 
day fund" established by the State Legislature in 1991.  The fund 
is capped at 15% of general fund revenue and is funded by a 
formula comparing real net personal income growth to a seven year 
trend.

	Arizona's state constitution limits the amount of debt that may 
be contracted by the State to $350,000. However, certain other 
issuers have the power to issue obligations which affect the whole 
or large portions of the State. For example, the Transportation 
Board of the State of Arizona Department of Transportation may 
issue debt for highways which is paid from revenues generated from 
state gasoline taxes. Salt River Project Agricultural & 
Improvement District, an agricultural improvement district that 
operates the Salt River Project (a Federal reclamation project and 
an electric system which generates, purchases, and distributes 
electric power to residential, commercial, industrial, and 
agricultural power users in a 2,900 square-mile service area 
around Phoenix), may issue debt payable from a number of sources.

	Arizona has no general obligation debt.  Revenue bonds have 
been issued by the Arizona Department of Transportation ("ADOT"), 
three state universities, the Arizona Power Authority and the 
University Medical Center.  The total par value of outstanding 
revenue bonds is approximately $2.2 billion.  

	Outstanding ADOT issues total approximately $1.5 billion and 
include highway revenue bonds secured by a pledge of motor vehicle 
related fuel fees of the state highway fund and by transportation 
excise taxes collected by the Arizona Department of Revenue on 
behalf of Maricopa County.  Virtually all of the numerous ADOT 
issues are insured and carry underlying ratings by S&P ranging 
from "A-" on subordinate excise tax issues to "AA-" on senior lien 
issues.

	Arizona has issued certificates of participation ("COPs") 
currently outstanding in the amount of $429 million, to finance 
construction or improvements to office buildings, higher education 
facilities and prisons.  The lease payments are subject to annual 
appropriation by the State Legislature.  Nearly all of the 
outstanding COPs are insured and carry  S&P's underlying ratings 
ranging from "A-" to "A+", depending on a particular project.

	Arizona's state constitution also restricts the debt of certain 
of the State's political subdivisions. No county, city, town, 
school district, or other municipal corporation of the State may 
for any purpose become indebted in any manner in an amount 
exceeding six percent of the taxable property in such county, 
city, town, school district, or other municipal corporation 
without the assent of a majority of the qualified electors thereof 
voting at an election provided by law to be held for that purpose; 
provided, however, that (a) under no circumstances may any county 
or school district of the State become indebted in an amount 
exceeding fifteen percent (or thirty percent in the case of a 
unified school district) of such taxable property and (b) any 
incorporated city or town of the State with such assent may be 
allowed to become indebted up to a twenty percent additional 
amount for supplying such city or town with (i) water, artificial 
light, or sewers, when the works for supplying such water, light, 
or sewers are or shall be owned and controlled by the 
municipality, (ii) the acquisition and development by the 
incorporated city or town of land or interests therein for open 
space preserves, parks, playgrounds and recreational facilities, 
or (iii) the construction, reconstruction, improvement or 
acquisition of streets, highways or bridges or interests in land 
for rights-of-way for streets, highways or bridges. Irrigation, 
power, electrical, agricultural improvement, drainage, flood 
control and tax levying public improvement districts are, however, 
exempt from such restrictions of the constitution.

	Annual property tax levies for the payment of general 
obligation bonded indebtedness of political subdivisions are 
unlimited as to rate or amount. Other obligations may be issued by 
such entities, sometimes without an election, which are payable 
from, among other sources, project revenues, special assessments 
and excise taxes.

	Arizona's local governmental entities are subject to certain 
other limitations on their ability to assess taxes and levies 
which could affect their ability to meet their financial 
obligations. Subject to certain exceptions, the maximum amount of 
property taxes levied by any Arizona county, city, town or 
community college district for their operations and maintenance 
expenditures cannot exceed the amount levied in a preceding year 
by more than two percent. Certain taxes are specifically exempt 
from this limit, including taxes levied for debt service payments. 


PURCHASE OF SHARES 

Volume Discounts

The schedule of sales charges on Class A shares described in the 
Prospectus applies to purchases made by any "purchaser,'' which is 
defined to include the following: (a) an individual; (b) an 
individual's spouse and his or her children purchasing shares for 
his or her own account; (c) a trustee or other fiduciary 
purchasing shares for a single trust estate or single fiduciary 
account; (d) a pension, profit-sharing or other employee benefit 
plan qualified under Section 401(a) of the Code and qualified 
employee benefit plans of employers who are "affiliated persons'' 
of each other within the meaning of the 1940 Act; (e) tax-exempt 
organizations enumerated in Section 501(c)(3) or (13) of the Code; 
and (f) a trustee or other professional fiduciary (including a 
bank, or an investment adviser registered with the SEC under the 
Investment Advisers Act of 1940, as amended) purchasing shares of 
the Fund for one or more trust estates or fiduciary accounts. 
Purchasers who wish to combine purchase orders to take advantage 
of volume discounts should contact a Salomon Smith Barney 
Financial Consultant.

Combined Right of Accumulation
   
Reduced sales charges, in accordance with the schedule in the 
Prospectus, apply to any purchase of Class A shares if the 
aggregate investment in Class A shares of the Fund and in Class A 
shares of other Smith Barney Mutual Funds that are offered with a 
sales charge, including the purchase being made, of any purchaser 
is $25,000 or more. The reduced sales charge is subject to 
confirmation of the shareholder's holdings through a check of 
appropriate records. The Fund reserves the right to terminate or 
amend the combined right of accumulation at any time after written 
notice to shareholders. For further information regarding the 
right of accumulation, shareholders should contact a Salomon Smith 
Barney Financial Consultant.
    
Determination of Public Offering Price
   
The Fund offers its shares to the public on a continuous basis. 
The public offering price for a Class A, Class L and Class Y share 
of the Fund is equal to the net asset value per share at the time 
of purchase, plus for Class A and for Class L shares an initial 
sales charge based on the aggregate amount of the investment. The 
public offering price for a Class B (and Class A share purchases, 
including applicable rights of accumulation, equaling or exceeding 
$500,000), is equal to the net asset value per share.  A 
contingent deferred sales charge ("CDSC''), however, is imposed on 
certain redemptions of Class B and Class L shares, and Class A 
shares when purchased in amounts exceeding $500,000. The method of 
computation of the public offering price is shown in the Fund's 
financial statements, incorporated by reference in their entirety 
into this Statement of Additional Information.
    

REDEMPTION OF SHARES

	The right of redemption may be suspended or the date of payment 
postponed (a) for any period during which the New York Stock 
Exchange, Inc. ("NYSE'') is closed (other than for customary 
weekend and holiday closings), (b) when trading in markets the 
Fund normally utilizes is restricted, or an emergency exists, as 
determined by the SEC, so that disposal of the Fund's investments 
or determination of net asset value is not reasonably practicable 
or (c) for such other periods as the SEC by order may permit for 
protection of the Fund's shareholders.

Distribution in Kind

	If the Board of Directors of the Fund determines that it would 
be detrimental to the best interests of the remaining shareholders 
to make a redemption payment wholly in cash, the Fund may pay, in 
accordance with SEC rules, any portion of a redemption in excess 
of the lesser of $250,000 or 1% of the Fund's net assets by a 
distribution in kind of portfolio securities in lieu of cash. 
Securities issued as a distribution in kind may incur brokerage 
commissions when shareholders subsequently sell those securities.

Automatic Cash Withdrawal Plan

	An automatic cash withdrawal plan (the "Withdrawal Plan'') is 
available to shareholders who own shares with a value of at least 
$10,000 and who wish to receive specific amounts of cash monthly 
or quarterly. Withdrawals of at least $50 may be made under the 
Withdrawal Plan by redeeming as many shares of the Fund as may be 
necessary to cover the stipulated withdrawal payment. Any 
applicable CDSC will not be waived on amounts withdrawn by 
shareholders that exceed 1.00% per month of the value of a 
shareholder's shares at the time the Withdrawal Plan commences. 
(With respect to Withdrawal Plans in effect prior to November 7, 
1994, any applicable CDSC will be waived on amounts withdrawn that 
do not exceed 2.00% per month of the value of a shareholder's 
shares that are subject to a CDSC.) To the extent withdrawals 
exceed dividends, distributions and appreciation of a 
shareholder's investment in the Fund, there will be a reduction in 
the value of the shareholder's investment, and continued 
withdrawal payments will reduce the shareholder's investment and 
may ultimately exhaust it. Withdrawal payments should not be 
considered as income from investment in the Fund. Furthermore, as 
it generally would not be advantageous to a shareholder to make 
additional investments in the Fund at the same time he or she is 
participating in the Withdrawal Plan, purchases by such 
shareholder in amounts of less than $5,000 ordinarily will not be 
permitted.  All dividends and distributions on shares in the 
Withdrawal Plan are reinvested automatically at net asset value in 
additional shares of the Fund.
   
Shareholders who wish to participate in the Withdrawal Plan and 
who hold their shares in certificate form must deposit their share 
certificates with First Data as agent for Withdrawal Plan members. 
All other investors should contact a Salomon Smith Barney 
Financial Consultant. A shareholder who purchases shares directly 
through First Data may continue to do so and applications for 
participation in the Withdrawal Plan must be received by First 
Data no later than the eighth day of the month to be eligible for 
participation beginning with that month's withdrawal.
    

DISTRIBUTOR
   
	Salomon Smith Barney serves as the Fund's distributor on a best 
efforts basis pursuant to a written agreement (the "Distribution 
Agreement'') which was approved by the Fund's Board of Directors. 
For the fiscal years ended May 31, 1996, 1997 and 1998, Salomon 
Smith Barney received, approximately $62,000, $32,000 and 
$120,000, respectively, in sales charges from the sale of the 
Fund's Class A shares, and did not reallow any portion thereof to 
dealers. For the fiscal years ended May 31, 1996, 1997 and 1998, 
Salomon Smith Barney, received approximately $55,000, $79,000 and 
$35,000, respectively, representing CDSC on redemptions of the 
Fund's Class B shares.

When payment is made by the investor before settlement date, 
unless otherwise noted by the investor, the funds will be held as 
a free credit balance in the investor's brokerage account and 
Salomon Smith Barney may benefit from the temporary use of the 
funds. The investor may designate another use for the funds prior 
to settlement date, such as an investment in a money market fund 
(other than Smith Barney Exchange Reserve Fund) of the Smith 
Barney Mutual Funds. If the investor instructs Salomon Smith 
Barney to invest in a Smith Barney money market fund, the amount 
of the investment will be included as part of the average daily 
net assets of both the Fund and the money market fund, and 
affiliates of Salomon Smith Barney that serve the funds in an 
investment advisory or administrative capacity will benefit from 
the fact they are receiving fees from both such investment 
companies for managing these assets, computed on the basis of 
their average daily net assets. The Fund's Board of Directors has 
been advised of the benefits to Salomon Smith Barney resulting 
from these settlement procedures and will take such benefits into 
consideration when reviewing the Advisory, Administration and 
Distribution Agreements for continuance.

For the calendar year ended December 31, 1997, Salomon Smith 
Barney incurred distribution expenses totaling $134,549, 
consisting of $11,064 for advertising, $1,395 for printing and 
mailing of prospectuses, $75,057 for support services, $46,991 to 
Salomon Smith Barney Financial Consultants, and $42, for accruals 
for interest on the excess of Salomon Smith Barney expenses 
incurred in distribution of the Fund's shares over the sum of the 
distribution fees and CDSC received by Salomon Smith Barney from 
the Fund.
    
Distribution Arrangements
   
	To compensate Salomon Smith Barney for the services it provides 
and for the expense it bears under the Distribution Agreement, the 
Fund has adopted a services and distribution plan (the "Plan'') 
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the 
Fund pays Salomon Smith Barney a service fee, accrued daily and 
paid monthly, calculated at the annual rate of 0.15% of the value 
of the Fund's average daily net assets attributable to the Class 
A, Class B and Class L shares. In addition, the Fund pays Salomon 
Smith Barney a distribution fee primarily intended to compensate 
Salomon Smith Barney for its initial expense of paying Financial 
Consultants a commission upon sales of those shares. The Class B 
distribution fee is calculated at the annual rate of 0.50% of the 
value of the Fund's average net assets attributable to the shares 
of the Class. The Class L distribution fee is calculated at the 
annual rate of 0.55% of the value of the Fund's average net assets 
attributable to the shares of the Class.

The following service and distribution fees were incurred 
during the fiscal years ended as indicated:

Distribution Plan Fees

     
5/31/98

5/31/97

5/31/96    

Class A....
$61,866
$59,503
$65,532

Class B..
128,784
136,622
149,271

Class L 
6,087
4,702
3,655
    
Under its terms, the Plan continues from year to year, provided 
such continuance is approved annually by vote of the Fund's Board 
of Directors, including a majority of the Independent Directors 
who have no direct or indirect financial interest in the operation 
of the Plan or in the Distribution Agreement. The Plan may not be 
amended to increase the amount of the service and distribution 
fees without shareholder approval, and all material amendments of 
the Plan also must be approved by the Directors and the 
Independent Directors in the manner described above. The Plan may 
be terminated with respect to a Class at any time, without 
penalty, by vote of a majority of the Independent Directors or by 
a vote of a majority of the outstanding voting securities of the 
Class (as defined in the 1940 Act). Pursuant to the Plan, Salomon 
Smith Barney will provide the Board of Directors with periodic 
reports of amounts expended under the Plan and the purpose for 
which such expenditures were made. 


VALUATION OF SHARES
   
	Each Class' net asset value per share is calculated on each 
day, Monday through Friday, except days on which the NYSE is 
closed. The NYSE currently is scheduled to be closed on New Year's 
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, 
Memorial Day, Independence Day, Labor Day, Thanksgiving and 
Christmas, and on the preceding Friday or subsequent Monday when 
one of these holidays falls on a Saturday or Sunday, respectively. 
Because of the differences in distribution fees and Class-specific 
expenses, the per share net asset value of each Class may differ. 
The following is a description of the procedures used by the Fund 
in valuing its assets.
    
The valuation of the Fund's assets is made by MMC 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 representative of the bid side of the market, these 
investments are valued at the mean between the quoted bid and 
asked prices. Investments for which, in the judgment of the 
Service, there is no readily obtainable market quotation (which 
may constitute a majority of the portfolio securities) are carried 
at fair value as determined by the Service. For the most part, 
such investments are liquid and may be readily sold. The Service 
may employ 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 any such Service at any time if it determines it 
to be in the best interest of the Fund to do so.


EXCHANGE PRIVILEGE

	Except as noted below, shareholders of certain Smith Barney 
Mutual Funds may exchange all or part of their shares for shares 
of the same Class of other Smith Barney Mutual Funds, to the 
extent such shares are offered for sale in the shareholder's state 
of residence, on the basis of relative net asset value per share 
at the time of exchange as follows:
   
A.	Class A and Class Y shareholders of the Fund who wish to 
exchange all or a portion of their shares for shares of the 
respective Class in any of the funds of the Smith Barney 
Mutual Fund Complex may do so without imposition of any 
charge. 

B.	Class B shares of any fund may be exchanged without a sales 
charge.  Class B shares of the Fund exchanged for Class B 
shares of another fund will be subject to the higher 
applicable CDSC of the two funds.  Upon an exchange, the new 
Class B shares will be deemed to have been purchased on the 
same date as the Class B shares of the Fund that have been 
exchanged. 

C.	Upon exchange, the new Class L shares will be deemed to have 
been purchased on the same date as the Class L shares of the 
fund that have been exchanged. 
    
Dealers other than Salomon Smith Barney must notify First Data 
of the investor's prior ownership of Class A shares of Smith 
Barney High Income Fund and the account number in order to 
accomplish an exchange of shares of Smith Barney High Income Fund 
under paragraph A above.

The exchange privilege enables shareholders to acquire shares 
of the same Class in a fund with different investment objectives 
when they believe that a shift between funds is an appropriate 
investment decision. This privilege is available to shareholders 
residing in any state in which the fund shares being acquired may 
legally be sold. Prior to any exchange, the shareholder should 
obtain and review a copy of the current prospectus of each fund 
into which an exchange is being considered. Prospectuses may be 
obtained from a Salomon Smith Barney Financial Consultant.

Upon receipt of proper instructions and all necessary 
supporting documents, shares submitted for exchange are redeemed 
at the then-current net asset value and, subject to any applicable 
CDSC, the proceeds are immediately invested, at a price as 
described above, in shares of the fund being acquired. Salomon 
Smith Barney reserves the right to reject any exchange request. 
The exchange privilege may be modified or terminated at any time 
after written notice to shareholders.


PERFORMANCE DATA

	From time to time, the Fund may quote yield or total return of 
a Class in advertisements or in reports and other communications 
to shareholders. The Fund may include comparative performance 
information in advertising or marketing the Fund's shares. Such 
performance information may be included in the following industry 
and financial publications: Barron's, Business Week, CDA 
Investment Technologies, Inc., Changing Times, Forbes, Fortune, 
Institutional Investor, Investors Daily, Money, Morningstar Mutual 
Fund Values, The New York Times, USA Today and The Wall Street 
Journal. To the extent any advertisement or sales literature of 
the Fund describes the expenses or performance of any Class, it 
will also disclose such information for the other Classes.

Yield

	A Class' 30-day yield figure described below is calculated 
according to a formula prescribed by the SEC. The formula can be 
expressed as follows:

YIELD = 2[((a-b) +1)6-1]
						       cd

Where:	 a = dividends and interest earned during the period.
		 b = expenses accrued for the period (net of 
reimbursement).
		 c = the average daily number of shares outstanding 
during the period that were 
		       entitled to receive dividends.
	 d = the maximum offering price per share on the last 
day of the period.

For the purpose of determining the interest earned (variable 
"a'' in the formula) on debt obligations that were purchased by 
the Fund at a discount or premium, the formula generally calls for 
amortization of the discount or premium. The amortization schedule 
will be adjusted monthly to reflect changes in the market values 
of the debt obligations.

The Fund's equivalent taxable 30-day yield for a Class of 
shares is computed by dividing that portion of the Class' 30-day 
yield which is tax-exempt by one minus a stated income tax rate 
and adding the product to that portion, if any, of the Class' 
yield that is not tax-exempt.

The yields on municipal securities are dependent upon a variety 
of factors, including general economic and monetary conditions, 
conditions of the municipal securities market, size of a 
particular offering, maturity of the obligation offered and rating 
of the issue. Investors should recognize that in periods of 
declining interest rates the Fund's yield for each Class of shares 
will tend to be somewhat higher than prevailing market rates, and 
in periods of rising interest rates the Fund's yield for each 
Class of shares will tend to be somewhat lower. Also, when 
interest rates are falling, the inflow of net new money to the 
Fund from the continuous sale of its shares will likely be 
invested in portfolio instruments producing lower yields than the 
balance of the Fund's portfolio, thereby reducing the current 
yield of the Fund. In periods of rising interest rates, the 
opposite can be expected to occur.
   
The Fund's yield for Class A, Class B and Class L shares for 
the 30-day period ended May 31, 1998 was 4.14%, 3.79% and 3.74%, 
respectively.  The equivalent taxable yield for Class A, Class B 
and Class L shares for that same period was 7.55%, 6.92% and 
6.82%, respectively, assuming the payment of Federal income taxes 
at a rate of 39.6% and Arizona taxes at a rate of 5.6%.
    
Average Annual Total Return

	"Average annual total return'' figures are computed according 
to a formula prescribed by the SEC. The formula can be expressed 
as follows:

P (1+T) n = ERV

	Where:	P = a hypothetical initial payment of $1,000.
		T = average annual total return.
		n = number of years.
	       ERV = Ending Redeemable Value of a hypothetical 
$1,000 investment made at the
		       beginning of a 1-, 5- or 10-year period at the 
end of the 1-, 5- or 10-
		       year period (or fractional portion thereof), 
assuming reinvestment of all 
		       dividends and distributions.

The average annual total return for Class A shares was as 
follows for the periods indicated: 
   
	4.60% for the one-year period beginning June 1, 1997 through 
May 31, 1998.

	5.41% per annum during the five-year period beginning June 1, 
1993 through May 31, 1998.

	7.74% per annum during the ten-year period beginning on June 
1, 1988 through May 31, 1998.

These Class A average annual total return figures assume that 
the maximum 4.00% sales charge has been deducted from the 
investment at the time of purchase. Had the investment advisory, 
sub-investment advisory and/or administration fees not been 
partially waived (and assuming that the maximum 4.00% sales charge 
had not been deducted), the Class A's average annual total return 
would have been 9.00%, 6.27% and 8.17%, respectively, for those 
same periods.

The average annual total return for Class B shares was as 
follows for the periods indicated: 

	3.96% for the one-year period beginning June 1, 1997 through 
May 31, 1998.

	5.57% per annum during the 5-year period beginning June 1, 
1993 through May 31, 1998.

	6.65% per annum for the period from the Fund's commencement 
of operations on November 6, 1992 through May 31, 1998.

These average annual total return figures assume that the 
maximum applicable CDSC has been deducted from the investment. Had 
the investment advisory and sub-investment advisory and/or 
administration fees not been partially waived and the CDSC had not 
been deducted, the average annual total return on the Fund's Class 
B shares would have been 8.46%, 5.73% and 6.65%, respectively, for 
those same periods.  

The average annual total return for Class L shares was as 
follows for the periods indicated: 

	7.30% for the one-year period beginning June 1, 1997 through 
May 31, 1998.

	8.95% per annum for the period from the Fund's commencement 
of operations on December 8, 1994 through May 31, 1998.

	These average annual total return figures assume that the 
maximum applicable CDSC has been deducted from the investment.  If 
the CDSC had not been deducted, the average annual total return on 
the Fund's Class L shares would have been 8.30% and 8.95%, 
respectively for those same periods.
    
Performance will vary from time to time depending upon market 
conditions, the composition of the Fund's portfolio and operating 
expenses and the expenses exclusively attributable to the Class.  
Consequently, any given performance quotation should not be 
considered representative of the Class' performance for any 
specified period in the future.  Because the performance will 
vary, it may not provide a basis for comparing an investment in 
the Class with certain bank deposits or other investments that pay 
a fixed yield for a stated period of time.  Investors comparing a  
Class' performance with that of other mutual funds should give 
consideration to the quality and maturity of the respective 
investment companies' portfolio securities.  It is important to 
note that the total return figures set forth above are based on 
historical earnings and are not intended to indicate future 
performance. Each Class' net investment income changes in response 
to fluctuation in interest rates and the expenses of the Fund.



TAXES

	The following is a summary of selected Federal income tax 
considerations that may affect the Fund and its shareholders. This 
summary is not intended as a substitute for individual tax advice 
and investors are urged to consult their own tax advisors as to 
the tax consequences of an investment in the Fund.
   
As described above and in the Prospectus, the Fund is designed 
to provide shareholders with current income which is excluded from 
gross income for Federal income tax purposes and exempt from 
Arizona personal income taxes. The Fund is not intended to 
constitute a balanced investment program and is not designed for 
investors seeking capital gains or maximum tax-exempt income 
irrespective of fluctuations in principal. Investment in the Fund 
would not be suitable for tax-exempt institutions, qualified 
retirement plans, H.R. 10 plans and individual retirement accounts 
since such investors would not gain any additional tax benefit 
from the receipt of tax-exempt income.

The Fund has qualified and intends to continue to qualify each 
year as a "regulated investment company'' under the Code. Provided 
that the Fund (a) qualifies as a regulated investment company and 
(b) distributes at least 90% of its taxable net investment income 
and net realized short-term capital gains, and 90% of its tax-
exempt interest income (reduced by certain expenses), the Fund 
will not be liable for Federal and state income taxes to the 
extent its taxable net investment income long-term capital gains, 
if any, are distributed to shareholders. 

Because the Fund will distribute exempt-interest dividends, 
interest on indebtedness incurred by a shareholder to purchase or 
carry Fund shares is not deductible for Federal income and Arizona 
personal income tax purposes. If a shareholder receives exempt-
interest dividends with respect to any share and if the share is 
held by the shareholder for six months or less, then, for Federal 
income tax purposes, any loss on the sale or exchange of such 
share, to the extent of the exempt-interest dividend, may be 
disallowed. In addition, the Code may require a shareholder, if he 
or she receives exempt-interest dividends, to treat as taxable 
income, a portion of certain otherwise non-taxable social security 
and railroad retirement benefit payments. Furthermore, that 
portion of any dividends paid by the Fund which represent income 
derived from private activity bonds held by the Fund may not 
retain its Federal tax-exempt status in the hands of a shareholder 
who is a "substantial user'' of a facility financed by such bonds, 
or a "related person'' thereof. Moreover some or all of the Fund's 
dividends and distributions may be a specific tax preference item, 
or a component of an adjustment item, for purposes of the Federal 
individual and corporate alternative minimum taxes. Shareholders 
should consult their own tax advisors as to whether they are (a) 
"substantial users'' with respect to a facility or related to such 
users within the meaning of the Code and (b) subject to a Federal 
alternative minimum tax. 

As described above and in the Prospectus, the Fund may invest 
in municipal bond index and interest rate futures contracts and 
options on these futures contracts.  As a general rule, these 
investment activities will increase or decrease the amount of 
long-term and short-term capital gains or losses realized by the 
Fund and, accordingly, would affect the amount of capital gains 
distributed to the Fund's shareholders.  For Federal income tax 
purposes, gain or loss on the futures contracts and options 
(collectively referred to as "section 1256 contracts'') is taxed 
pursuant to a special "mark-to-market'' system. Under the mark-to-
market system, section 1256 contracts held by the Fund at its 
fiscal year end are treated as if sold for their fair market 
value. As a result, the Fund will be recognizing gains or losses 
before they are actually realized. As a general rule, gain or loss 
on section 1256 contracts generally is treated as 60% long-term 
capital gain or loss and 40% short-term capital gain or loss, and, 
accordingly, the tax rules applicable to such contracts generally 
will affect the amount of capital gains or losses taxable to the 
Fund and the amount of distributions to a shareholder. Moreover, 
if the Fund invests in both section 1256 contracts and offsetting 
positions in those contracts, which together constitute a 
straddle, then the Fund may be required to defer certain realized 
losses. The Fund expects that its activities with respect to 
section 1256 contracts and offsetting positions in those contracts 
will not cause it to be treated as recognizing a materially 
greater amount of capital gains than actually realized and will 
permit it to use substantially all of the losses of the Fund for 
the fiscal years in which the losses actually occur. 

Long-term capital gains, if any, will be distributed annually 
as described in the Prospectus. Such distributions ("capital gain 
dividends''), if any, will be taxable to shareholders as long-term 
capital gains, regardless of how long they have held Fund shares, 
and will be designated as capital gain dividends in a written 
notice mailed to shareholders after the close of the Fund's 
taxable year. If a shareholder receives a capital gain dividend 
with respect to any share and if such share has been held by the 
shareholder for six months or less, then any loss (to the extent 
not disallowed pursuant to the other six month rule described 
above relating to exempt-interest dividends) on the sale or 
exchange of such share will be treated as a long-term capital loss 
to the extent of the capital gain dividend.
    
If a shareholder incurs a sales charge when acquiring shares of 
the Fund, disposes of those shares within 90 days and acquires 
shares in a mutual fund for which the otherwise applicable sales 
charge is reduced by reason of a reinvestment right (that is, 
exchange privilege), the original sales charge will not be taken 
into account when computing gain or loss on the original shares to 
the extent the subsequent sales charge is reduced. The portion of 
the original sales charge that does not increase the shareholder's 
tax basis in the original shares would be treated as incurred with 
respect to the second acquisition and, as a general rule, will 
increase the shareholder's tax basis in the newly acquired shares. 
Furthermore, the same rule also applies to a disposition of the 
newly acquired shares made within 90 days of the second 
acquisition. This provision prevents a shareholder from 
immediately deducting the sales charge by shifting his or her 
investment in a family of mutual funds. 
   
Each shareholder will receive after the close of the calendar 
year an annual statement as to the Federal income tax and Arizona 
personal income tax status of his or her dividends and 
distributions from the Fund for the prior calendar year. These 
statements also will designate the amount of exempt-interest 
dividends that is a specific preference item for purposes of the 
Federal individual and corporate alternative minimum taxes. Each 
shareholder also will receive, if appropriate, written notice 
after the close of the Fund's taxable year as to the Federal 
income tax status of his or her dividends and distributions.  
Shareholders should consult their tax advisors as to any other 
state and local taxes that may apply to these dividends and 
distributions. The dollar amounts of dividends excluded or exempt 
from Federal income taxation or Arizona personal income taxation 
and the dollar amount of dividends subject to Federal income 
taxation or Arizona personal income taxation, if any, will vary 
for each shareholder depending upon the size and duration of each 
shareholder's investment in the Fund. 
    
Investors considering buying shares of the Fund just prior to a 
record date for a capital gain distribution should be aware that, 
regardless of whether the price of the Fund shares to be purchased 
reflects the amount of the forthcoming distribution payment, any 
such payment will be a taxable distribution payment.

If a shareholder fails to furnish the Fund with a correct 
taxpayer identification number, fails to report fully dividend or 
interest income, or fails to certify to the Fund that he or she 
has provided a correct taxpayer identification number and that he 
or she is not subject to "backup withholding,'' then the 
shareholder may be subject to a 31% "backup withholding'' tax with 
respect to (a) taxable dividends and distributions, if any, and 
(b) proceeds of any redemption of Fund shares. An individual's 
taxpayer identification number is his or her social security 
number. The "backup withholding'' tax is not an additional tax and 
may be credited against a shareholder's Federal income tax 
liability.

   
Sections 43-1021(4) and 43-1121(3) of the Arizona Income Tax Code state that 
interest on obligations of the state of Arizona or its political subdivisions 
is exempt from personal and corporate income tax.  Sections 43-1022(6) and 
43-1122(6) provide similar tax-exempt treatment for interest on obligations 
of the U.S. or its territories (including Puerto Rico, Guam and the Virgin 
Islands).  Pursuant to State Income Tax Ruling Number 84-10-5, Arizona does 
not tax dividend income from regulated investment companies, such as the 
Fund, to the extent that such income is derived from such exempt 
obligations.  Dividends paid from interest earned on indirect U.S. government 
obligations (GNMAs, FNMAs, etc.), or obligations from other states and their 
political subdivisions are fully taxable.  To the extent that such taxable 
investments are made by the fund for temporary or defensive purposes, the 
distributions will be taxable.

Any distributions of net short-term and net long-term capital gain earned by 
the fund are included in each shareholder's Arizona taxable income as 
dividend income and long-term capital gain, respectively, and are taxed at 
ordinary income tax rates.

    
The Arizona personal income tax is not applicable to 
corporations. For all corporations subject to the Arizona 
Corporation Business Tax, dividends and distributions from a 
"qualified investment fund'' are included in the net income tax 
base for purposes of computing the Corporation Business Tax. 
Furthermore, any gain upon the redemption or sale of Fund shares 
by a corporate shareholder is also included in the net income tax 
base for purposes of computing the Corporation Business Tax.

The foregoing is only a summary of certain tax considerations 
generally affecting the Fund and its shareholders, and is not 
intended as a substitute for careful tax planning. Shareholders 
are urged to consult their tax advisors with specific reference to 
their own tax situations.


ADDITIONAL INFORMATION

	The Fund was incorporated under the laws of the State of 
Maryland on May 4, 1987 and commenced operations on June 1, 1987 
under the name Hutton Municipal Series Inc. On December 29, 1988, 
March 31, 1992, July 30, 1993 and October 14, 1994, the Fund 
changed its name to SLH Municipals Series Fund Inc., Shearson 
Lehman Brothers Arizona Municipals Fund Inc., Smith Barney 
Shearson Arizona Municipals Fund Inc. and Smith Barney Arizona 
Municipals Fund Inc., respectively.

PNC, located at Chestnut and 17th Streets, Philadelphia, 
Pennsylvania 19103, serves as the custodian of the Fund. Under the 
custody agreement, PNC holds the Fund's portfolio securities and 
keeps all necessary accounts and records. For its services, PNC 
receives a monthly fee based upon the month-end market value of 
securities held in custody and also receives securities 
transaction charges. The assets of the Fund are held under bank 
custodianship in compliance with the 1940 Act.   

First Data, located at Exchange Place, Boston, Massachusetts 
02109, serves as the Fund's transfer agent. Under the transfer 
agency agreement, First Data maintains the shareholder account 
records for the Fund, handles certain communications between 
shareholders and the Fund and distributes dividends and 
distributions payable by the Fund. For these services, First Data 
receives a monthly fee computed on the basis of assets of the Fund 
during the month and is reimbursed for out-of-pocket expenses.


FINANCIAL STATEMENTS
   
	The Fund's Annual Report for the fiscal year ended May 31, 1998 
is incorporated herein by reference in its entirety.
    

   
APPENDIX A

Description of S&P and Moody's ratings:

S&P Ratings for Municipal Bonds

S&P's Municipal Bond ratings cover obligations of states and 
political subdivisions. Ratings are assigned to general obligation 
and revenue bonds. General obligation bonds are usually secured by 
all resources available to the municipality and the factors 
outlined in the rating definitions below are weighed in 
determining the rating. Because revenue bonds in general are 
payable from specifically pledged revenues, the essential element 
in the security for a revenue bond is the quantity and quality of 
the pledged revenues available to pay debt service.

Although an appraisal of most of the same factors that bear on 
the quality of general obligation bond credit is usually 
appropriate in the rating analysis of a revenue bond, other 
factors are important, including particularly the competitive 
position of the municipal enterprise under review and the basic 
security covenants. Although a rating reflects S&P's judgment as 
to the issuer's capacity for the timely payment of debt service, 
in certain instances it may also reflect a mechanism or procedure 
for an assured and prompt cure of a default, should one occur, 
i.e., an insurance program, Federal or state guarantee or the 
automatic withholding and use of state aid to pay the defaulted 
debt service.

The ratings are based, in varying degrees, on the following 
considerations:

I. Likelihood of default - capacity and willingness of the 
obligor as to the timely payment of interest and repayment 
of principal in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the 
obligation in the event of bankruptcy, reorganization or 
other arrangement under the laws of bankruptcy and other 
laws affecting creditors' rights.

AAA - This is the highest rating assigned by Standard & Poor's 
to a debt obligation and indicates an extremely strong capacity to 
pay interest and repay principal.

AA - Bonds rated AA have a very strong capacity to pay interest 
and repay principal, and in the majority of instances they differ 
from AAA issues only in small degrees.

A - Bonds rated A have a strong capacity to pay interest and 
repay principal, although they are somewhat more susceptible to 
the adverse effects of changes in circumstances and economic 
conditions than bonds in higher-rated categories.

BBB - Bonds rated BBB are regarded as having an adequate 
capacity to pay interest and repay principal. Whereas they 
normally exhibit adequate protection parameters, adverse economic 
conditions or changing circumstances are more likely to lead to 
weakened capacity to pay interest and repay principal for bonds in 
this category than for bonds in the higher-rated categories.

BB - An obligation rated BB is less vulnerable to nonpayment 
than other speculative issues.  However, it faces major ongoing 
uncertainties or exposure to adverse business, financial, or 
economic conditions which could lead to the obligor's inadequate 
capacity to meet its financial commitment on the obligation.

B - An obligation rated B is more vulnerable to nonpayment than 
obligations rated BB, but the obligor currently has the capacity 
to meet its financial commitment on the obligation. Adverse 
business, financial, or economic conditions will likely impair the 
obligor's capacity or willingness to meet its financial commitment 
on the obligation.

CCC - An obligation rated CCC is currently vulnerable to 
nonpayment, and is dependent upon favorable business, financial, 
and economic conditions for the obligor to meet its financial 
commitment on the obligation. In the event of adverse business, 
financial, or economic conditions, the obligor is not likely to 
have the capacity to meet its financial commitment on the 
obligation.

CC - An obligation rated CC is currently highly vulnerable to 
nonpayment.

C - The C rating may be used to cover a situation where a 
bankruptcy petition has been filed or similar action has been 
taken, but payments on this obligation are being continued.

D - An obligation rated D is in payment default. The D rating 
category is used when payments on an obligation are not made on 
the date due even if the applicable grace period has not expired, 
unless Standard & Poor's believes that such payments will be made 
during such grace period. The 'D' rating also will be used upon 
the filing of a bankruptcy petition or the taking of a similar 
action if payments on an obligation are jeopardized.

Plus(+) or minus(-) - The ratings from AA to CCC may be 
modified by the addition of a plus or minus sign to show relative 
standing within the major rating categories.

P - The letter P following a rating indicates the rating is 
provisional. A provisional rating assumes the successful 
completion of the project being financed by the issuance of the 
bonds being rated and indicates that payment of debt service 
requirements is largely or entirely dependent upon the successful 
and timely completion of the project. This rating, however, while 
addressing credit quality subsequent to completion, makes no 
comment on the likelihood of, or the risk of default upon failure 
of, such completion.  Accordingly, the investor should exercise 
his own judgment with respect to such likelihood and risk.

L - The letter L indicates that the rating pertains to the 
principal amount of those bonds to the extent that the underlying 
deposit collateral is federally insured, and interest is 
adequately collateralized. In the case of certificates of deposit, 
the letter L indicates that the deposit, combined with other 
deposits being held in the same right and capacity, will be 
honored for principal and pre-default interest up to federal 
insurance limits within 30 days after closing of the insured 
institution or, in the event that the deposit is assumed by a 
successor insured institution, upon maturity.

	Conditional rating(s), indicated by "Con" are given to bonds 
for which the continuance of the security rating is contingent 
upon Standard & Poor's receipt of an executed copy of the escrow 
agreement or closing documentation confirming investments and cash 
flows and/or the security rating is conditional upon the issuance 
of insurance by the respective insurance company.

NR - Not rated.

S&P Ratings for Municipal Notes

	Municipal notes with maturities of three years or less are 
usually given note ratings (designated SP-1, -2 or -3) by S&P to 
distinguish more clearly the credit quality of notes as compared 
to bonds. Notes rated SP-1 have a strong capacity to pay principal 
and interest. An issue determined to possess a very strong 
capacity to pay debt service is given a plus(+) designation. Notes 
rated SP-2 have a satisfactory capacity to pay principal and 
interest, with some vulnerability to adverse financial and 
economic changes over the term of the notes. Notes rated SP-3 have 
speculative capacity to pay principal and interest. 

Commercial Paper Ratings

A-1 - This designation indicates that the degree of safety 
regarding timely payment is strong. Those issues determined to 
possess extremely strong safety characteristics are denoted with a 
plus sign (+) designation.

A-2 - Capacity for timely payment on issues with this 
designation is satisfactory. However, the relative degree of 
safety is not as high as for issues designated A-1.

A-3 - Issues carrying this designation have an adequate 
capacity for timely payment. They are, however, more vulnerable to 
the adverse effects of changes in circumstances than obligations 
carrying the higher designations.

B - Issues rated B are regarded as having only speculative 
capacity for timely payment.

C - This rating is assigned to short-term debt obligations with 
a doubtful capacity for payment.

D - Debt rated D is in payment default. The D rating category 
is used when interest payments or principal payments are not made 
on the due date, even if the applicable grace period has not 
expired, unless Standard & Poor's believes such payments will be 
made during such grace period.

Moody's Ratings for Municipal Bonds

Aaa - Bonds which are Aaa are judged to be of the best quality. 
They carry the smallest degree of investment risk and are 
generally referred to as "gilt edge.'' Interest payments are 
protected by a large or by an exceptionally stable margin and 
principal is secure. While the various protective elements are 
likely to change, such changes as can be visualized are most 
unlikely to impair the fundamentally strong position of such 
issues.

Aa - Bonds which are rated Aa are judged to be of high quality 
by all standards. Together with the Aaa group they comprise what 
are generally known as high-grade bonds. They are rated lower than 
the best bonds because margins of protection may not be as large 
as in Aaa securities or fluctuation of protective elements may be 
of greater amplitude or there may be other elements present which 
make the long-term risks appear somewhat larger than in Aaa 
securities.

A - Bonds which are rated A possess many favorable investment 
attributes and are to be considered as upper medium-grade 
obligations. Factors giving security to principal and interest are 
considered adequate, but elements may be present which suggest a 
susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium-grade 
obligations, i.e., they are neither highly protected nor poorly 
secured. Interest payments and principal security appear adequate 
for the present but certain protective elements may be lacking or 
may be characteristically unreliable over any great length of 
time. Such bonds lack outstanding investment characteristics and 
in fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative 
elements; their future cannot be considered as well assured. Often 
the protection of interest and principal payments may be very 
moderate and thereby not well safeguarded during both good and bad 
times over the future. Uncertainty of position characterizes bonds 
in this class.

B - Bonds which are rated B generally lack characteristics of 
the desirable investment. Assurance of interest and principal 
payments or of maintenance of other terms of the contract over any 
long period of time may be small.

Caa - Bonds that are rated Caa are of poor standing. These 
issues may be in default or present elements of danger may exist 
with respect to principal or interest.

Ca - Bonds that are rated Ca represent obligations that are 
speculative in a high degree. These issues are often in default or 
have other marked short-comings.

C - Bonds that are rated C are the lowest rated class of bonds, 
and issues so rated can be regarded as having extremely poor 
prospects of ever attaining any real investment standing.

Rating symbols may include numerical modifiers "1," "2", or 
"3".  The numerical modifier "1" indicates that the security ranks 
at the high end, "2" in the mid-range, and "3" nearer the low end 
of the generic category. These modifiers of rating symbols "Aa", 
"A" and "Baa" are to give investors a more precise indication of 
relative debt quality in each of the historically defined 
categories.

Moody's Ratings for Municipal Notes

	Moody's ratings for state and municipal notes and other 
short-term loans are designated Moody's Investment Grade ("MIG") 
and for variable rate demand obligations are designated Variable 
Moody's Investment Grade ("VMIG"). This distinction is in 
recognition of the differences between short-term credit risk and 
long-term risk. Loans bearing the designation MIG 1 or VMIG 1 are 
of the best quality, enjoying strong protection by established 
cash flows of funds for their servicing, superior liquidity 
support or from established and broad-based access to the market 
for refinancing or both. Loans bearing the designation MIG 2 or 
VMIG 2 are of high quality, with ample margins of protection 
although not as large as the preceding group. Loans bearing the 
designation MIG 3 or VMIG 3 are of favorable quality, with all 
security elements accounted for, but lacking the undeniable 
strength of the preceding grades. Liquidity and cash flow may be 
narrow and market access for refinancing is likely to be less well 
established.

Description of Moody's Prime-1 Commercial Paper Rating

The rating Prime-1 is the highest commercial paper rating 
assigned by Moody's. Among the factors considered by Moody's in 
assigning ratings are the following: (a) evaluation of the 
management of the issuer; (b) economic evaluation of the issuer's 
industry or industries and an appraisal of speculative-type risks 
which may be inherent in certain areas; (c) evaluation of the 
issuer's products in relation to competition and customer 
acceptance; (d) liquidity; (e) amount and quality of long-term 
debt; (f) trend of earnings over a period of ten years; (g) 
financial strength of a parent company and the relationships which 
exist with the issuer; and (h) recognition by the management of 
obligations which may be present or may arise as a result of 
public interest questions and preparations to meet such 
obligations.
    


u:\legal\funds\azmu\1998\secdocs\sai998.doc	28
U:\legal\funds\azmu\1998\secdocs\sai998 	A-5
u:legal\funds\azmu\1998\secdocs\sai998.doc	A-1


PART C 

Item 24.	Financial Statements and Exhibits

(a)	Financial Statements

		Included in Part A:

	Financial Highlights

		Included in Part B:
   
The Registrant's Annual Report for the fiscal year ended May 31, 
1998 and the Report of Independent Accountants dated July 15, 
1998, are incorporated by reference to the Definitive 30b2-1 filed 
on August 12, 1998 as Accession #0000091155-98-496.
    
		Included in Part C:

		Consent of Independent Accountant is filed herein.

(b)	Exhibits

All references are to the Registrant's Registration Statement on 
Form N-1A as filed with the Securities and Exchange Commission 
("SEC") File Nos. 33-12792 and 811-5066 (the "Registration 
Statement").

(1)	Registrant's Articles of Incorporation and Amendments to 
Articles of Incorporation dated December 29, 1988, November 5, 
1992 and July 30, 1993 are incorporated by reference to Post-
Effective Amendment No. 14 to the Registration Statement filed on 
October 1, 1993 ("Post-Effective Amendment No. 14"). Amendment to 
Articles of Incorporation dated November 7, 1994 is incorporated 
by reference to Post-Effective Amendment No. 17. 

   
     (a)	Amendment to Registrant's Articles of Incorporation 
dated June 12, 1998 filed herein. 
    

(2)	Registrant's By-Laws are incorporated by reference to Pre-
Effective Amendment No. 2 to the Registration Statement filed on 
May 26, 1987 ("Pre-Effective Amendment No. 2").

(3)	Not Applicable.

(4)	Registrant's form of stock certificate is incorporated by 
reference to Post-Effective Amendment No. 11 to the Registration 
Statement filed on October 23, 1992 ("Post-Effective Amendment No. 
11").
	
(5)(a)	Investment Advisory Agreement dated July 30, 1993 
between the Registrant and Greenwich Street Advisors is 
incorporated by reference to Post-Effective Amendment No. 14.

    (b)	Form of Transfer and Assumption of Investment Advisory 
Agreement dated November 7, 1994 is incorporated by reference to 
Post-Effective Amendment No. 17.

    (c)	Form of Amendment to Investment Advisory Agreement 
dated as of November 17, 1995 is incorporated by reference to 
Post-Effective Amendment No. 19.

(6)	Distribution Agreement dated July 30, 1993, between the 
Registrant and Smith Barney Shearson Inc. is incorporated by 
reference to Post-Effective Amendment No. 14.

(7)	Not Applicable.

(8)	Form of Custodian Agreement dated as of  June 19, 1995 
between the Registrant and PNC Bank, National Association is 
incorporated by reference to Post-Effective Amendment No. 17.

(9)(a)	Transfer Agency Agreement between the Registrant and 
The Shareholder Services Group, Inc. (now known as First Data 
Investor Services Group, Inc.) is incorporated by reference to 
Post-Effective Amendment No. 16 to the Registration Statement 
filed on August 30, 1994.  
	
    (b)	Administration Agreement dated April 20, 1994 between 
the Registrant and Smith, Barney Advisers, Inc. is incorporated by 
reference to Post-Effective Amendment No. 15 to the Registration 
Statement filed on July 29, 1994.

(10)	Not Applicable.

(11)	Consent of Independent Accountants is filed herein.

(12)	Not Applicable.

(13)	Not Applicable.

(14)	Not Applicable.

(15)	Amended Service and Distribution Plan dated as of November 
7, 1994 pursuant to Rule 12b-1 between the Registrant and Smith 
Barney Inc. is incorporated by reference to Post-Effective 
Amendment No. 17.

(16)	Performance Data is incorporated by reference to Post-
Effective Amendment No. 6 to the Registration Statement filed on 
July 31, 1989.

(17)	Financial Data Schedule is filed herewith.
   
(18)	Form of Registrant's Amended Rule 18f-(3)d Multiple Class 
Plan is filed herein. 
    

Item 25.	Persons Controlled by or Under Common Control with 
Registrant

		None.

Item 26.	Number of Holders of Securities
   
	(1)			(2)
Title of Class			Number of Record Holders
				by Class as of September 4, 1998

Class A				664
Class B				462
Class L*				20
Class Y				0

*Effective June 12, 1998 the former Class C shares were renamed 
Class L shares.
    

Item 27.	Indemnification.

The response to this item is incorporated by reference to Post-
Effective Amendment No. 11.

Item 28(a).	Business and Other Connections of Investment Adviser
   
Investment Adviser-- Mutual Management Corp. ("MMC") (formerly 
known as Smith Barney Mutual Funds Management Inc.)

MMC was incorporated in December 1968 under the laws of the State 
of Delaware. MMC is a wholly owned subsidiary of Salomon Smith 
Barney Holdings Inc., ("Holdings") which in turn is a wholly owned 
subsidiary of Travelers Group Inc. ("Travelers"). MMC is 
registered as an investment adviser under the Investment Advisers 
Act of 1940 ("Advisers Act").

The list required by this Item 28 of officers and directors of MMC 
together with information as to any other business, profession, 
vocation or employment of a substantial nature engaged in by such 
officers and directors during the past two years, is incorporated 
by reference to Schedules A and D of Form ADV filed by MMC 
pursuant to the Advisers Act (SEC File No. 801-8314).
    

Item 29.	Principal Underwriters
   
(a) Salomon Smith Barney Inc. ("Salomon Smith Barney") currently 
acts as distributor for  
Concert Investment Series
Consulting Group Capital Markets Funds
Global Horizons Investment Series (Cayman Islands)
Global Horizons Investment Series (Ireland)
Greenwich Street California Municipal Fund Inc.
Greenwich Street Municipal Fund Inc.
Greenwich Street Series Fund
High Income Opportunity Fund Inc. 
The Italy Fund Inc.
Managed High Income Portfolio Inc. 
Managed Municipals Portfolio II Inc.
Managed Municipals Portfolio Inc.
Municipal High Income Fund Inc.
Puerto Rico Daily Liquidity Fund Inc.
Puerto Rico Equity Index & Income Fund, Inc.
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Concert Allocation Series Inc. 
Smith Barney Equity Funds
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.
Smith Barney Global Enhanced Income Fund
Smith Barney Income Funds
Smith Barney Institutional Cash Management Fund, Inc.
Smith Barney Intermediate Municipal Fund, Inc.
Smith Barney Investment Funds Inc.
Smith Barney Investment Trust
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc.
Smith Barney Muni Funds
Smith Barney Municipal Fund, Inc.
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Natural Resources Fund Inc.
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Inc.
Smith Barney Principal Return Fund
Smith Barney Small Cap Blend Fund, Inc. 
Smith Barney Telecommunications Trust
Smith Barney Variable Account Funds
Smith Barney World Funds, Inc.
Smith Barney Worldwide Special Fund N.V. (Netherlands Antilles)
Travelers Series Fund Inc. 
The USA High Yield Fund N.V. (Netherlands Antilles)
Worldwide Securities Limited (Bermuda)
Zenix Income Fund Inc.
and various series of unit investment trusts.

Salomon Smith Barney is a wholly owned subsidiary of Holdings, 
which in turn is a wholly owned subsidiary of Travelers. The 
information required by this Item 29 with respect to each officer, 
director and partner of Salomon Smith Barney is incorporated by 
reference to Schedule A of Form BD filed by Salomon Smith Barney 
pursuant to the Securities Exchange Act of 1934 (SEC File No. 812-
8510).
    

Item 30.	Location of Accountants and Records

(1)	Smith Barney Arizona Municipals Fund Inc.
	388 Greenwich Street 
	New York, New York 10013
   
(2)	Mutual Management Corp.
	388 Greenwich Street
	New York, New York 10013
    
(3)	PNC Bank, National Association
	17th and Chestnut Streets 
	Philadelphia, Pennsylvania  19103

 (4)	First Data Investor Services Group, Inc.
	One Exchange Place
	Boston, Massachusetts 02109      

Item 31.	Management Services

		Not Applicable.

Item 32.	Undertakings

		(a) Not applicable.

		(b) Not applicable.

	(c) Registrant undertakes to furnish each person to 
whom a prospectus is delivered with a copy of 
Registrant's latest annual report to shareholders, 
upon request and without charge.
   
485(b) Certification
	The Registrant hereby certifies that it meets all the 
requirements for effectiveness pursuant to Rule 485(b)(1)(ix) 
under the Securities Act or 1933, as amended.
    


SIGNATURES
   
	Pursuant to the requirements of the Securities Act of 1933, 
as amended and the Investment Company Act of 1940, as amended, the 
Registrant has duly caused this Amendment to its Registration 
Statement to be signed on its behalf by the undersigned, thereunto 
duly authorized, in the City of New York and State of New York, on 
the 28th day of September, 1998.
    

			SMITH BARNEY ARIZONA MUNICIPALS FUND INC.


				By:/s/Heath B. McLendon
				      Health B. McLendon
				      Chairman of the Board


	Pursuant to the requirements of the Securities Act of 1933, 
as amended, this Amendment to the Registration Statement and the 
above Power of Attorney has been signed below by the following 
persons in the capacities and as of the dates indicated.

   
Signature                     Title                   Date

/s/Heath B. McLendon       Chairman of the Board,     September 28, 1998
Heath B. McLendon          President and Chief 
                           Executive Officer

/s/ Lewis E. Daidone       Senior Vice President      September 28, 1998
Lewis E. Daidone           and Treasurer, Chief 
                           Financial and Accounting 
                           Officer

/s/ Herbert Barg*          Director                    September 28, 1998
Herbert Barg

/s/Alfred J. Bianchetti*   Director                    September 28, 1998
Alfred J. Bianchetti

/s/Martin Brody*            Director                   September 28, 1998
Martin Brody

/s/Dwight B. Crane*         Director                   September 28, 1998
Dwight B. Crane

/s/Burt N. Dorsett*         Director                   September 28, 1998
Burt N. Dorsett

/s/Elliot S. Jaffe*         Director                   September 28, 1998
Elliot S. Jaffe

/s/Stephen E. Kaufman*      Director                   September 28, 1998
Stephen E. Kaufman

/s/Joseph J. McCann*        Director                   September 28, 1998
Joseph J. McCann

/s/Cornelius C. Rose, Jr.*  Director                   September 28, 1998
Cornelius C. Rose, Jr.


    

* Signed by Heath B. McLendon, their duly authorized attorney-in-
fact, pursuant to power of attorney dated September 30, 1996.

/s/ Heath B. McLendon
Heath B. McLendon


EXHIBIT INDEX


Exhibit No.	Exhibit

(1)(a)	Amendment to Articles of Incorporation  

(11)(a)	Consent of KPMG Peat Markwick LLP

(17)		Financial Data Schedule

(18)		Rule 18f-3(d) Multiple Class Plan

		Cover page