As filed with the Securities and Exchange Commission on    November 18, 
1998    
Securities Act File No. 33-54549
Investment Company Act File No. 811-7201

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM N-2

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [    ]
Post-Effective Amendment No. 4    [ X ]    

and/or

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No.    6       [ X ]

(check appropriate box or boxes)
___________

GREENWICH STREET CALIFORNIA
MUNICIPAL 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)

Registrant's Telephone Number, including Area Code: (800) 451-2010

Christina T. Sydor, Secretary
Greenwich Street California Municipal Fund Inc.
388 Greenwich Street, 22nd Floor
New York, New York 10013
(Name and Address of Agent for Service of Process)
___________
Copies to:

John Baumgardner, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004


	Approximate Date of Proposed Public Offering:  As soon as 
practicable after 
the effective date of this Registration Statement.

	If any of the securities being registered on this Form N-2 are to 
be 
offered on a delayed or continuous basis pursuant to Rule 415 of the 
Securities Act of 1933, as amended (the "1933 Act"), other than 
securities 
offered only in connection with dividend or interest reinvestment plans, 
check 
the following box. [ X ]

	It is proposed that this filing will become effective:
	[ X ] when declared effective pursuant to section 8(c).

	This Registration Statement relates to the registration of an 
indeterminate number of shares solely for market-making transactions.  
This Registration Statement relates to shares previously 
registered on Form N-2. (Registration No. 33-54549).

	Registrant amends this Registration Statement under the 1933 Act, 
on such date as may be necessary to delay its effective date until 
Registrant files a further amendment that specifically states that this 
Registration Statement will thereafter become effective in accordance 
with the provisions of Section 8(a) of the 1933 Act, or until the 
Registration Statement becomes effective on such date as the 
Securities and Exchange Commission, acting pursuant to Section 8(a),
may determine.



GREENWICH STREET CALIFORNIA MUNICIPAL FUND INC.
Form N-2
Cross-Reference Sheet
Parts A and B of Prospectus*



Items in Parts A and B of Form N-2*

Location





 1.
Outside Front Cover	
Outside Front Cover

 2.
Inside Front and Outside Back Cover 
Page	
Inside Front and Outside Back Cover 
Page

 3.
Fee Table and Synopsis	
Prospectus Summary; Fee Table

 4.
Financial Highlights	
Financial Highlights

 5.
Plan of Distribution	
Outside Front Cover

 6.
Selling Shareholders	
Not Applicable

 7.
Use of Proceeds	
Use of Proceeds; Investment Objective 
and Management Policies

 8.
General Description of Registrant	
The Fund; Investment Objective and 
Management Policies; Investment 
Restrictions; Net Asset Value; 
Securities Transactions and Turnover; 
Description of Shares

 9.
Management	
Management of the Fund; Custodian, 
Transfer Agent, Dividend-Paying Agent, 
Registrar and Plan Agent

10.
Capital Stock, Long-Term Debt, and 
Other Securities	
Dividends and Distributions; Dividend 
Reinvestment Plan; Description of 
Shares; Taxation

11.
Defaults and Arrears on Senior 
Securities	
Not Applicable

12.
Legal Proceedings	
Not Applicable

13.
Table of Contents of Statement of 
Additional Information	

Not Applicable

14
Cover Page
Not Applicable

15.
Table of Contents
Not Applicable

16.
General Information and  History	
The Fund, Investment Objective and 
Management Policies

17.
Investment Objective and Policies
Investment Objective and Management 
Policies; Investment Restrictions; 
Securities Transactions and Turnover

18.
Management
Management of the Fund; Custodian, 
Transfer Agent, Dividend-Paying Agent, 
Registrar and Plan Agent

19.
Control Persons and Principal Holders 
of Securities
Description of Shares


* Pursuant to General Instructions of Form N-2, all information required 
to be set forth in 
   Part B: Statement of Additional Information, has been included in 
Part A:  
The Prospectus.




20.
Investment Advisory and Other Services	
Management of the Fund

21.
Brokerage Allocation and Other 
Practices	
Securities Transactions and Turnover

22.
Tax Status	
Dividends and Distributions; Dividend 
Reinvestment Plan; Taxation

23.
Financial Statements	
Experts

PART A
PROSPECTUS

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

                                        SALOMON SMITH BARNEY            
                                                                        
                                        A member of citigroup [LOGO]

                                        Greenwich                
                                        Street                   
                                        California               
                                        Municipal                
                                        Fund Inc.                
                                                                 
                                        388 Greenwich Street     
                                        New York, New York 10013 
                                                                 
                                        Common Stock             

   
All dealers effecting transactions in the fund's securities, whether or not
participating in this distribution, may be required to give investors a
prospectus.

If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. This prospectus does not offer any
security other than the fund's shares of common stock. Neither the fund nor
Salomon Smith Barney is offering to sell shares of the fund to any person to
whom the fund may not lawfully sell its shares.

There may be changes in the fund's affairs that occur after the date of the
prospectus. The fund will publish a supplement to the prospectus if there are
any material changes in its business.
<PAGE>
    

--------------------------------------------------------------------------------
Prospectus                                                     December 31, 1998
--------------------------------------------------------------------------------

   
Greenwich Street California Municipal Fund Inc.

Common Stock
     Listed on the American Stock Exchange
     Trading symbol--GCM

Greenwich Street California Municipal Fund Inc. is a non-diversified, closed-end
management investment company. The fund's investment objective is to seek as
high a level of current income exempt from federal income tax and California
personal income tax as is consistent with preservation of principal. The fund
invests primarily in long-term, investment grade municipal debt securities
issued by, or on behalf of, the State of California, its agencies,
instrumentalities or political subdivisions or multistate agencies or
authorities.

      Shares of closed-end funds frequently have market prices that are less
than the net asset value per share. For more information about this or other
risks of investing in the fund, see "Risk Factors" on page 22.

      The prospectus contains important information about the fund. For your
benefit and protection, please read it before you invest, and keep it on hand
for future reference.

      Shareholder reports can be obtained without charge from your Salomon Smith
Barney Financial Consultant or from the fund by calling 1-800-451-2010 or
writing to the fund at 388 Greenwich Street, New York, New York 10013. You can
review the fund's shareholder reports at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. The Commission charges a
fee for this service. Information about the Public Reference Room may be
obtained by calling 1-800-SEC-0330. You can get the same information free from
the Commission's Internet web site at www.sec.com

      The Securities and Exchange Commission has not approved the fund's shares
as an investment or determined whether this prospectus is accurate or complete.
Any statement to the contrary is a crime.

SALOMON SMITH BARNEY INC.
    


                                                                               1
<PAGE>

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

   
Prospectus Summary                                                             3
--------------------------------------------------------------------------------
Fund Expenses                                                                  7
--------------------------------------------------------------------------------
Financial Highlights                                                           9
--------------------------------------------------------------------------------
The Fund                                                                      10
--------------------------------------------------------------------------------
The Offering                                                                  10
--------------------------------------------------------------------------------
Use of Proceeds                                                               10
--------------------------------------------------------------------------------
Investment Objective and Management Policies                                  10
--------------------------------------------------------------------------------
Investment Restrictions                                                       26
--------------------------------------------------------------------------------
Share Price Data                                                              27
--------------------------------------------------------------------------------
Management of the Fund                                                        28
--------------------------------------------------------------------------------
Securities Transactions and Turnover                                          32
--------------------------------------------------------------------------------
Dividends and Distributions; Dividend Reinvestment Plan                       33
--------------------------------------------------------------------------------
Net Asset Value                                                               35
--------------------------------------------------------------------------------
Taxation                                                                      36
--------------------------------------------------------------------------------
Description of Shares                                                         41
--------------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation                           41
--------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend-Paying Agent,
  Registrar and Plan Agent                                                    43
--------------------------------------------------------------------------------
Reports to Shareholders                                                       43
--------------------------------------------------------------------------------
Experts                                                                       44
--------------------------------------------------------------------------------
Further Information                                                           44
--------------------------------------------------------------------------------
Appendix A                                                                   A-1
--------------------------------------------------------------------------------
    

2
<PAGE>

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

The following is a summary of more complete information appearing later in the
prospectus. You should read the entire prospectus because it contains details
that are not in the summary. Cross references in the summary to headings in the
prospectus will help you locate information.

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

INVESTMENT OBJECTIVE AND PRIMARY INVESTMENTS The fund's investment objective is
to seek as high a level of current income exempt from federal income tax and
 California
personal income tax as is consistent with the preservation of principal. The
fund invests primarily in long-term, investment grade municipal obligations
issued by, or on behalf of, the State of California and its political
subdivisions, agencies or instrumentalities or multistate agencies or
authorities. Investment grade debt securities are rated in one of the four
highest rating categories by a nationally recognized statistical rating
organization.

      Municipal obligations include bonds and notes such as:

      o     General obligation bonds issued for various public purposes and
            supported by the municipal issuer's credit and taxing power.

      o     Revenue bonds whose principal and interest is payable only from the
            revenues of a particular project or facility. Industrial revenue
            bonds depend on the credit standing of a private issuer and may be
            subject to the federal alternative minimum tax (AMT).

      o     Notes that are short-term obligations of municipalities or agencies
            sold in anticipation of a bond sale, collection of taxes or receipt
            of other revenues.

      Municipal obligations may have all types of interest rate payment and
reset terms, including fixed rate, adjustable rate, zero coupon, payment in kind
and auction rate features. See "Investment Objective and Management Policies."

TAX-EXEMPT INCOME The fund invests with the objective that dividends paid by the
fund may be excluded by shareholders from their gross incomes for federal income
tax and California personal income tax purposes. A portion of the fund's
dividends may be taxable. See "Investment Objective and Management Policies" and
"Taxation."

THE OFFERING The fund's shares of common stock trade on the American Stock
Exchange. In addition, Salomon Smith Barney intends to buy and sell the fund's
shares and will make a market in the common stock. Salomon Smith Barney is not
obligated to conduct market-making activities and may stop doing so at any time
without notice to the fund or its shareholders. See "The Offering" and "Use of
Proceeds."

LISTING AMEX.

SYMBOL GCM.


                                                                               3
<PAGE>

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

INVESTMENT MANAGER Mutual Management Corp. (MMC) (formerly Smith Barney Mutual
Funds Management Inc.). The manager selects and manages the fund's investments
in accordance with the fund's investment objective and policies. MMC is also the
fund's administrator and oversees the fund's non-investment operations and its
relations with its service providers. For its services, MMC receives a fee equal
on an annual basis to 0.90% of the fund's average daily net assets.

      Joseph P. Deane, a vice president of the fund, has been primarily
responsible for the day-to-day management of the fund since 1994, when the fund
commenced operations. Mr. Deane is a managing director of Salomon Smith Barney.

      The manager and Salomon Smith Barney are subsidiaries of Citigroup Inc.
Citigroup businesses produce a broad range of financial services--asset
management, banking and consumer finance, credit and charge cards, insurance,
investments, investment banking and trading--and use diverse channels to make
them available to consumer and corporate customers around the world. Among these
businesses are Citibank, Commercial Credit, Primerica Financial Services,
Salomon Smith Barney, SSBC Asset Management, Travelers Life & Annuity, and
Travelers Property Casualty. See "Management of the Fund."

RISK FACTORS AND SPECIAL CONSIDERATIONS The value of the securities in the
fund's portfolio fluctuate in price and the value of your investment in the fund
will go up and down in value. This means that you could lose money on your
investment in the fund or the fund could perform less well than other possible
investments. In addition, the price of the shares is determined by market prices
on the AMEX and elsewhere, so you may receive a price that is less than net
asset value when you sell your shares. Specific risks associated with an
investment in the fund are described below.

Municipal obligations   The fund invests primarily in municipal obligations and
                        may be affected by any of the following:

                        o     Interest rates rise, causing the value of the
                              fund's portfolio generally to decline
                                                                                
                        o     Adverse conditions in the California economy
                              negatively affect the amount of state or local tax
                              receipts or legislative or electoral action is
                              taken to reduce the tax revenues available to
                              issuers of California obligations
                                                                                
                        o     When interest rates are declining, the issuer of a
                             security may exercise its right to prepay principal
                              earlier than scheduled, forcing the fund to
                              reinvest in lower yielding securities. This is
                              known as call or prepayment risk


4
<PAGE>

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

                        o     The underlying revenue source for a municipal
                              obligation other than a general obligation bond is
                              insufficient to pay principal or interest in a
                              timely manner

                        o     The issuer of a security owned by the fund has its
                              credit rating downgraded or defaults on its
                              obligation to pay principal and/or interest

                        o     The manager's judgment about the attractiveness,
                              value or income potential of a particular bond
                              proves to be incorrect

                        o     Municipal bonds fall out of favor with investors

                        o     Unfavorable legislation affects the tax-exempt
                              status of municipal bonds

Investment grade and    The fund invests in investment grade debt securities,   
unrated securities      and unrated securities that the manager believes are of 
                        comparable quality. Investment grade securities that are
                        not in the highest rating category may be subject to    
                        greater risk of downgrade and issuer default than higher
                        rated securities and may have speculative               
                        characteristics. The fund may experience more difficulty
                        selling unrated securities because markets for these    
                        securities may be less liquid.                          

Issuer diversification  The fund is not diversified, which means that it can    
and concentration       invest a higher percentage of its assets in any one     
                        issuer. Also, the fund concentrates its investments in  
                        California issuers. Being non-diversified and           
                        concentrated may magnify the fund's losses from adverse 
                        political or economic events affecting a particular     
                        issuer or California issuers as a group.                

Possibility of taxable  It is possible that some of the fund's income and       
income or gains         gainsmay be subject to federal taxation. The fund may   
                        realize taxable gains on the sale of its securities, and
                        some of the fund's income may be subject to the federal 
                        alternative minimum tax.                                

Derivatives             The fund holds securities or uses investment techniques 
                        that provide for payments based on or "derived" from the
                        performance of an underlying asset, index or other      
                        economic benchmark.                                     


                                                                               5
<PAGE>

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

   
                        The fund may use derivatives:

                        o     To shorten or lengthen the fund's effective
                              maturity or duration

                        o     As a substitute for purchasing or selling
                              securities

                        o     To hedge against adverse changes caused by
                              changing interest rates in the market value of
                              securities held or to be bought by the fund

                        A derivative contract will obligate or entitle the fund
                        to deliver or receive an asset or cash payment that is
                        based on the change in value of one or more securities
                        or indices. Even a small investment in derivative
                        contracts can have a big impact on the fund's interest
                        rate exposure. Therefore, using derivatives can
                        disproportionately increase losses and reduce
                        opportunities for gains when interest rates are
                        changing. The fund may not fully benefit from or may
                        lose money on derivatives if changes in their value do
                        not correspond accurately to changes in the value of the
                        fund's holdings. The other parties to certain derivative
                        contracts present the same types of default risk as
                        issuers of fixed income securities. Derivatives can also
                        make the fund less liquid and harder to value,
                        especially in declining markets.

Closed-end investment   The fund is a closed-end investment company and its  
company                 shares may trade on the AMEX at a price that is less 
                        than its net asset value.                            

                        Certain provisions in the fund's governing documents may
                        limit the ability of other entities to acquire control
                        of the fund. This could deprive shareholders of the
                        opportunity to sell their shares at a premium over
                        prevailing market prices.

                        See "Investment Objective and Policies."

DIVIDENDS AND DISTRIBUTIONS Any dividends from net investment income (that is,
income other than net realized capital gains) are paid monthly and any
distributions of net realized capital gains are paid annually. Your dividends or
distributions are reinvested in additional fund shares through participation in
the Dividend Reinvestment Plan, unless you elect to receive cash. The number of
shares issued to you by the plan depends on the price of the shares. The price
of the shares is determined by the market price at the time the shares are
purchased.
    


6
<PAGE>

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

<TABLE>
<CAPTION>
   Market Price of Fund Shares Greater    Price of Fund Shares Issued by Plan Shares issued at net
   than or equal to net asset value       asset value or 95% of market price, whichever is greater
==================================================================================================
   <S>                                    <C>
   Less than net asset value              Market price
</TABLE>

      See "Dividends and Distributions; Dividend Reinvestment Plan."

CUSTODIAN PNC Bank, National Association (PNC Bank) is the fund's custodian. See
"Custodian, Transfer Agent, Dividend-Paying Agent, Registrar and Plan Agent."

TRANSFER AGENT, DIVIDEND-PAYING AGENT, REGISTRAR AND PLAN AGENT First Data
Investor Services Group, Inc. (First Data) is the fund's transfer agent,
dividend-paying agent and registrar. See "Custodian, Transfer Agent,
Dividend-Paying Agent, Registrar and Plan Agent."

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

      The following table shows the expenses the fund pays. As a shareholder,
you indirectly bear these expenses.

Greenwich Street California Municipal Fund Inc.
--------------------------------------------------------------------------------
  Annual Expenses
    (as a percentage of net assets)
    Management Fees                                                        0.90%
    Other Expenses*                                                        0.30 
--------------------------------------------------------------------------------
    TOTAL ANNUAL OPERATING EXPENSES*                                       1.20%
================================================================================

* "Other Expenses," as shown above, is based upon amounts of expenses for the
  fiscal year ended August 31, 1998.

      EXAMPLE

      The following example estimates the dollar amount of total cumulative
expenses that you would pay indirectly over various periods with respect to a
hypothetical investment in the fund. These amounts are based upon payment by the
fund of operating expenses at the levels set forth in the table above.

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

                                          1 year  3 years  5 years  10 years
--------------------------------------------------------------------------------
                                            $12     $38      $66      $145

      This example should not be considered a representation of future expenses
of the fund. Actual expenses may be greater or less. Moreover, while the



                                                                               7
<PAGE>

--------------------------------------------------------------------------------
Fund Expenses (continued)
--------------------------------------------------------------------------------

example assumes a 5% annual return, the fund's performance will vary and may
result in a return greater or less than 5%. In addition, while the example
assumes reinvestment of all dividends and distributions at net asset value,
participants in the fund's Dividend Reinvestment Plan may receive shares
purchased or issued at a price or value different from net asset value. See
"Dividends and Distributions; Dividend Reinvestment Plan."


8
<PAGE>

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

      The following information for the three-year period ended August 31, 1998
and for the period from September 23, 1994 (commencement of operations) to
August 31, 1995 has been audited by KPMG Peat Marwick LLP, independent auditors,
whose report thereon appears in the funds's August 31, 1998 Annual Report to
Shareholders. The information set out below 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 this prospectus.

For a share of capital stock outstanding throughout each year:

<TABLE>
<CAPTION>
Greenwich Street California Municipal Fund Inc.         1998           1997           1996           1995(1)(2)
=========================================================================================================
<S>                                                 <C>            <C>            <C>            <C>     
Net Asset Value, Beginning of Year                  $  13.66       $  13.13       $  12.92       $  12.00
---------------------------------------------------------------------------------------------------------
Income From Investment Operations:
     Net investment income(3)                           0.60           0.62           0.63           0.60
     Net realized and unrealized gain                   0.80           0.87           0.30           0.84
---------------------------------------------------------------------------------------------------------
Total Income from Investment Operations                 1.40           1.49           0.93           1.44
---------------------------------------------------------------------------------------------------------
Less Distributions From:
     Net investment income                             (0.59)         (0.63)         (0.70)         (0.52)
     Net realized gains                                (0.10)         (0.33)         (0.02)            --
---------------------------------------------------------------------------------------------------------
Total Distributions                                    (0.69)         (0.96)         (0.72)         (0.52)
---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year                        $  14.37       $  13.66       $  13.13       $  12.92
---------------------------------------------------------------------------------------------------------
Total Return, Based on Market Value                     7.56%         13.39%         11.92%          0.25%++
---------------------------------------------------------------------------------------------------------
Total Return, Based on Net Asset Value                 10.98%         12.19%          7.96%         12.24%++
---------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s)                    $ 52,574       $ 49,985       $ 48,030       $ 47,250
---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
     Expenses(3)                                        1.20%          1.21%          1.15%          1.02%+
     Net investment income                              4.25           4.64           4.75           5.16+
---------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                                    7%            28%            42%             7%
---------------------------------------------------------------------------------------------------------
Market Price at End of Period                       $  13.00       $  12.75       $  12.13       $  11.50
=========================================================================================================
</TABLE>

(1)   Based on weighted average shares outstanding for period.
(2)   For the period from September 23, 1994 (commencement of operations) to
      August 31, 1995.
(3)   The manager waived a portion of its fees for the period from September 23,
      1994 to August 31, 1995. If such fees were not waived, the per share
      decrease in net investment income would have been $0.01, and the ratio of
      expenses to average net assets would have been 1.14%, annualized.
+     Annualized.
++    Total return is not annualized as it may not be representative of the
      total return for the period.


                                                                               9
<PAGE>

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

   
      The fund is a non-diversified, closed-end management investment company.
The fund's investment objective is as high a level of current income exempt from
federal income tax and California personal income taxes as is consistent with
the preservation of principal. The fund was incorporated under the laws of the
State of Maryland on July 8, 1994 and is registered under the Investment Company
Act of 1940, as amended (the 1940 Act). Its principal office is located at 388
Greenwich Street, New York, New York 10013. The fund's telephone number is (800)
451-2010.
    

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

   
      Salomon Smith Barney currently makes a market in the common stock. Salomon
Smith Barney is not required to make a market in the common stock and may stop
doing so at any time. You should not rely on Salomon Smith Barney's market
making activites to provide an active or liquid trading market for the common
stock. This prospectus is to be used by Salomon Smith Barney in connection with
offers and sales of the common stock in market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of the sale.
    

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

   
      The fund will not receive any proceeds from the sale of the common stock
offered pursuant to this prospectus. Proceeds received by Salomon Smith Barney
as a result of its market-making in the common stock will be used by Salomon
Smith Barney in connection with its secondary market operations and for general
corporate purposes.
    

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

   
      The investment objective and principal investment policies of the fund.
The fund may not achieve its investment objective. The fund's investment
objective may be changed only with the approval of a majority of the fund's
outstanding voting securities which is defined in the 1940 Act as the lesser of
(1) 67% or more of the shares present at a meeting of the fund, if the holders
of more than 50% of the outstanding shares of the fund are present or
represented by proxy, or (2) more than 50% of the outstanding shares of the
fund.
    

      GENERAL

   
      The fund's investment objective is to seek as high a level of current
income exempt from federal income tax and California personal income taxes as is
    


10
<PAGE>

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

consistent with the preservation of principal. In seeking its objective, the
fund invests primarily in investment grade debt obligations issued by, or on
behalf of, the State of California and its political subdivisions, agencies and
instrumentalities or multistate agencies or authorities, the interest from which
is, in the opinion of bond counsel to the issuers, excluded from gross income
for the purposes of federal income tax as well as California personal income
tax. The fund operates subject to a fundamental investment policy providing
that, under normal conditions, the fund will invest not less than 80% of its net
assets in municipal obligations the interest on which is exempt from federal
income tax (other than the alternative minimum tax) (municipal obligations)
and not less than 65% of its net assets in municipal obligations the interest on
which is also exempt from California personal income tax in the opinion of bond
counsel to the issuers (California obligations). The fund generally invests in
long-term municipal obligations; under normal market conditions, the weighted
average maturity of the fund's securities is generally in excess of 20 years.

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

      The fund generally does not invest more than 25% of its total assets in
any industry. Governmental issuers of municipal obligations are not considered
part of any "industry." Municipal obligations backed only by the assets and
revenues of non-governmental users may be deemed to be issued by the
non-governmental users, and would be subject to the fund's 25% industry
limitation.

      The fund may invest more than 25% of its total assets in a broad segment
of the municipal obligations market, such as revenue obligations of hospitals
and other health care facilities, housing agency revenue obligations, or airport
revenue obligations, if the manager determines that the yields available from
obligations in a particular segment of the market justify the additional risks
associated with a large investment in the segment. Although these municipal
obligations could be supported by the credit of governmental users, or by the
credit of non-governmental users engaged in a number of industries, economic,
business, political and other developments generally affecting the revenues of
the users (for example, proposed 


                                                                              11
<PAGE>

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

legislation or pending court decisions affecting the financing of projects and
market factors affecting the demand for their services or products) may have a
general adverse effect on all municipal securities in such a market segment.

      From time to time, the fund's investments include securities as to which
the fund, by itself or together with other funds or accounts managed by the
manager, holds a major portion or all of an issue of municipal obligations.
Because relatively few potential purchasers may by available for these
investments and, in some cases, contractual restrictions may apply on resales,
the fund may find it more difficult to sell these securities at a time when the
manager believes it is advisable to do so.

      MUNICIPAL OBLIGATIONS

      Municipal obligations are classified as general obligation bonds, revenue
bonds and notes. General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general taxing
power. Notes are short-term obligations of issuing municipalities or agencies
and are sold in anticipation of a bond sale, collection of taxes or receipt of
other revenues. Municipal obligations bear fixed, floating and variable rates of
interest, and variations exist in the security of Municipal obligations, both
within a particular classification and between classifications.

      The yields on, and values of, municipal obligations are dependent on a
variety of factors, including general economic and monetary conditions, money
market factors, conditions in the municipal obligation markets, size of a
particular offering, maturity of the obligation and rating of the issue.
Consequently, municipal obligations with the same maturity, coupon and rating
may have different yields or values, whereas obligations of the same maturity
and coupon with different ratings may have the same yield or value. See "Risk
Factors and Special Considerations -- Municipal Obligations."

      Issuers of municipal obligations may be subject to the provisions of
bankruptcy, insolvency and other laws, such as the Federal Bankruptcy Reform Act
of 1978, affecting the rights and remedies of creditors. In addition, the
obligations of those issuers may become subject to laws enacted in the future by
Congress, state legislatures or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of the
obligations or upon the ability of municipalities to levy taxes. The possibility
also exists that, as a result of litigation or other conditions, the power or
ability of any issuer to pay, when due, the principal of, and interest on, its
obligations may be materially affected.


12
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Investment Objective and Management Policies (continued)
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      QUALITY STANDARDS

   
      The fund typically purchases municipal obligations if the manager believes
that the yield of the obligation is sufficiently attractive in light of the
risks of ownership of the obligation. In determining whether the fund should
invest in particular municipal obligations, the manager generally considers
factors such as:

      o     the price, coupon and yield to maturity of the obligations;

      o     the manager's assessment of the credit quality of the issuer of the
            obligations;

      o     the issuer's available cash flow and the related coverage ratios;

      o     the property, if any, securing the obligations;

      o     the terms of the obligations, including subordination, default,
            sinking fund and early redemption provisions.

The manager will also review the ratings, if any, assigned to the securities by
Moody's Investors Service, Inc. (Moody's), Standard & Poor's Rating Group (S&P)
or Fitch IBCA, Inc. (Fitch) or another nationally recognized statistical rating
agency (NRSRO).

      The fund will invest at least 80% of its total assets in municipal
obligations rated investment grade by Moody's, S&P, Fitch or any other NRSRO at
the time of investment. For a description of investment grade ratings, see
Appendix A.

      The ratings of NRSROs such as Moody's, S&P and Fitch represent their
opinions as to the quality of the municipal obligations that they undertake to
rate; the ratings are relative and subjective and are not absolute standards of
quality. The manager's judgment as to the credit quality of a municipal
obligation, thus, may differ from that suggested by the ratings published by a
rating service. The policies of the fund described above as to ratings of
investments will apply only at the time of the purchase of a security, and the
fund will not be required to dispose of a security in the event an NRSRO
downgrades its assessment of the credit characteristics of the security's
issuer.
    

      PRIVATE ACTIVITY BONDS

   
      The fund may invest without limit in municipal obligations that are
tax-exempt "private activity bonds," as defined in the Code, which are in most
cases revenue bonds. Private activity bonds generally do not carry the pledge of
the credit of the issuing municipality, but are guaranteed by the corporate
entity on whose behalf they are issued. Interest income on certain types of
private activity bonds issued after August 7, 1986 to finance non-governmental
activities is a specific tax preference item for purposes of the federal
individual and corporate alternative minimum taxes. Individual and corporate
shareholders may be subject to a federal alternative minimum tax to the extent
that the fund's dividends are derived from interest on these bonds. Dividends
derived from interest income on municipal 
    


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Investment Objective and Management Policies (continued)
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obligations are a "current earnings" adjustment item for purposes of the federal
corporate alternative minimum tax. See "Taxation." Private activity bonds held
by the fund will be included in the term municipal obligations for purposes of
determining compliance with the fund's policy of investing at least 80% of its
total assets in municipal obligations.

      TYPES OF MUNICIPAL OBLIGATIONS HELD BY THE PORTFOLIO

      Municipal Leases. Among the municipal obligations in which the fund may
invest are municipal leases, which may take the form of a lease or an
installment purchase or conditional sales contract to acquire a wide variety of
equipment and facilities. Interest payments on qualifying municipal leases are
exempt from federal income taxes and state income taxes within the state of
issuance. The fund may invest in municipal leases containing "non-appropriation"
clauses that provide that the governmental issuer has no obligation to make
future payments under the lease or contract unless money is appropriated for the
purpose by the applicable legislative body on a yearly or other periodic basis.

      Municipal leases that the fund may acquire will be both rated and unrated.
Rated leases that may be held by the fund include those rated investment grade
at the time of investment. The fund may acquire unrated issues that the manager
deems to be comparable in quality to rated issues in which the fund is
authorized to invest. A determination by the manager that an unrated lease
obligation is comparable in quality to a rated lease obligation will be made on
the basis of, among other things, a consideration of whether the nature of the
leased equipment or other property is such that its ownership or use is
reasonably essential to a governmental function of the issuing municipality. In
addition, all such determinations made by the manager will be subject to
oversight and approval by the fund's board of directors.

      Municipal leases held by the fund are considered illiquid securities
unless the fund's board of directors determines on an ongoing basis that the
leases are readily marketable. An unrated municipal lease with a
non-appropriation risk that is backed by an irrevocable bank letter of credit or
an insurance policy issued by a bank or insurer deemed by the manager to be of
high quality and minimal credit risk will not be deemed to be illiquid solely
because the underlying municipal lease is unrated, if the manager determines
that the lease is readily marketable because it is backed by the letter of
credit or insurance policy.

      Municipal leases are subject to special risks described below under "Risk
Factors and Special Considerations." To limit those risks, the fund will invest
no more than 5% of its total assets in lease obligations that contain
non-appropriation clauses and will only purchase a non-appropriation lease
obligation with respect to which (1) the nature of the leased equipment or other
property is such that its ownership or use is reasonably essential to a
governmental function of the issuing 


14 
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Investment Objective and Management Policies (continued)
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municipality, (2) the lease payments will begin to amortize the principal
balance due at an early date, resulting in an average life of five years or less
for the lease obligation, (3) appropriate covenants will be obtained from the
municipal obligor prohibiting the substitution or purchase of similar equipment
or other property if lease payments are not appropriated, (4) the lease obligor
has maintained good market acceptability in the past, (5) the investment is of a
size that will be attractive to institutional investors and (6) the underlying
leased equipment or other property has elements of portability and/or use that
enhance its marketability in the event that foreclosure on the underlying
equipment or other property were ever required.

      Zero Coupon Securities. The fund may invest its assets in zero coupon
municipal obligations. Zero coupon municipal obligations are generally divided
into two categories: pure zero obligations, which are those that pay no interest
for their entire term, and zero/fixed obligations, which pay no interest for
some initial period and thereafter pay interest currently. In the case of a pure
zero obligation, the failure to pay interest currently may result from the
obligation's having no stated interest rate, in which case the obligation pays
only principal at maturity and is issued at a discount from its stated principal
amount. A pure zero obligation may, in the alternative, specify a stated
interest rate, but provide that no interest is payable until maturity, in which
case accrued unpaid interest on the obligation may be capitalized as incremental
principal. The value to the investor of a zero coupon municipal obligation
consists of the economic accretion either of the difference between the purchase
price and the nominal principal amount (if no interest is stated to accrue) or
of accrued, unpaid interest during the municipal obligation's life or payment
deferral period.

      Custodial Receipts. The fund may acquire custodial receipts or
certificates underwritten by securities dealers or banks that evidence ownership
of future interest payments, principal payments or both on certain municipal
obligations. The underwriter of these certificates or receipts typically
purchases municipal obligations and deposits the obligations in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Custodial receipts
evidencing specific coupon or principal payments have the same general
attributes as zero coupon municipal obligations described above. Although under
the terms of a custodial receipt, the fund would be typically authorized to
assert its rights directly against the issuer of the underlying obligation, the
fund could be required to assert through the custodian bank those rights as may
exist against the underlying issuer. Thus, in the event the underlying issuer
fails to pay principal and/or interest when due, the fund may be subject to
delays, expenses and risks that are greater than those that would have been
involved if the fund had purchased a direct obligation of the issuer. In
addition, in the event that the trust or custodial account in which the
underlying 


                                                                              15
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Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

security has been deposited is determined to be an association taxable as a
corporation, instead of a non-taxable entity, the yield on the underlying
security would be reduced in recognition of any taxes paid and the income earned
by the fund could be taxable.

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

      Because the interest rate paid to holders of residual components, which
are also sometimes referred to as "inverse floaters," is generally determined by
subtracting the interest rate paid to the holders of auction components from a
fixed amount, the interest rate paid to residual component holders will decrease
as the auction component's rate increases and increase as the auction
component's rate decreases. Moreover, the extent of the increases and decreases
in market value of residual components may be larger than comparable changes in
the market value of an equal principal amount of a fixed rate municipal
obligation having similar credit quality, redemption provisions and maturity.

      Floating and Variable Rate Instruments. The fund may purchase floating and
variable rate demand notes and bonds, which are municipal obligations normally
having a stated maturity in excess of one year, but which permit their holder to
demand payment of principal at any time, or at specified intervals. The issuer
of floating and variable rate demand obligations normally has a corresponding
right, after a given period, to prepay at its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days' notice to the holders of the obligations. The interest rate on a
floating rate demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time that rate is
adjusted. The interest rate on a variable rate demand obligation is adjusted
automatically at specified intervals. Frequently, floating and variable rate
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Use of letters of credit or other credit support
arrangements will not adversely affect the tax-exempt status of these
obligations.

      Because they are direct lending arrangements between the lender and
borrower, floating and variable rate obligations will generally not be traded.
In addition, no secondary market generally exists for these obligations,
although their holders may 


16
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Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

   
demand their payment at face value. For these reasons, when floating and
variable rate obligations held by the fund are not secured by letters of credit
or other credit support arrangements, the fund's right to demand payment is
dependent on the ability of the borrower to pay principal and interest on
demand. The manager, on behalf of the fund, will consider, on an ongoing basis,
the creditworthiness of the issuers of floating and variable rate demand
obligations held by the fund. To the extent the fund holds certain floating and
variable rate demand obligations or auction components, the fund may not, under
certain market conditions, be fully achieving its investment objective.

      Participation Interests. The fund may purchase from financial institutions
tax-exempt participation interests in municipal obligations. A participation
interest gives the fund an undivided interest in the municipal obligation in the
proportion that the fund's participation interest bears to the total amount of
the municipal obligation. These instruments may have floating or variable rates
of interest. If the participation interest is unrated, it will be backed by an
irrevocable letter of credit or guarantee of a bank that the fund's board of
directors has determined meets certain quality standards or the payment
obligation otherwise will be collateralized by obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities (U.S. Government
securities). The fund will have the right, with respect to certain participation
interests, to demand payment, on a specified number of days' notice, for all or
any part of the fund's interest in the municipal obligation, plus accrued
interest. The fund intends to exercise its right with respect to these
instruments to demand payment only upon a default under the terms of the
municipal obligation or to maintain or improve the quality of the instruments it
holds. In addition, the fund will invest no more than 5% of its total assets in
participation interests.
    

      TAXABLE INVESTMENTS

   
      Under normal conditions, the fund may hold up to 20% of its total assets
in cash or money market instruments, including taxable money market instruments
(collectively, taxable investments). In addition, the fund may take a temporary
defensive posture and invest without limitation in short-term municipal
obligations and taxable investments, upon a determination by the manager that
market conditions warrant such a posture. To the extent the fund holds taxable
investments, the fund will not be pursuing its investment objective.

      Money market instruments in which the fund may invest include: U.S.
Government securities; tax-exempt notes of municipal issuers rated, at the time
of purchase, no lower than MIG 1 by Moody's, SP-1 by S&P or F-1 by Fitch or, if
not rated, by issuers having outstanding, unsecured debt then rated within the
three highest rating categories; bank obligations (including certificates of
deposit, time deposits and bankers' acceptances of domestic banks, domestic
savings and loan 
    


                                                                              17
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Investment Objective and Management Policies (continued)
--------------------------------------------------------------------------------

associations and similar institutions); commercial paper rated no lower than P-1
by Moody's, A-1 by S&P or F-1 by Fitch or the equivalent from another nationally
recognized rating agency or, if unrated, of an issuer having an outstanding,
unsecured debt issue then rated within the three highest rating categories; and
repurchase agreements. At no time will the fund's investments in bank
obligations, including time deposits, exceed 25% of the value of its assets.

      U.S. Government securities in which the fund may invest include direct
obligations of the United States and obligations issued by U.S. Government
agencies and instrumentalities. Included among direct obligations of the United
States are Treasury bills, Treasury notes and Treasury bonds, which differ
principally in terms of their maturities. Included among the securities issued
by U.S. Government agencies and instrumentalities are: securities that are
supported by the full faith and credit of the United States (such as Government
National Mortgage Association certificates); securities that are supported by
the right of the issuer to borrow from the U.S. Treasury (such as securities of
Federal Home Loan Banks); and securities that are supported only by the credit
of the instrumentality (such as Federal National Mortgage Association and
Federal Home Loan Mortgage Corporation bonds).

      The fund may enter into repurchase agreement transactions with member
banks of the Federal Reserve System or with certain dealers listed 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
portfolio would acquire an underlying debt obligation for a relatively short
period subject to an obligation of the seller to repurchase, and the fund to
resell, the obligation at an agreed-upon price and time, thereby determining the
yield during the portfolio's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the fund's
holding period. Under each repurchase agreement, the selling institution will be
required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price.

      The value of the securities underlying a repurchase agreement of the fund
will be monitored on an ongoing basis by the manager to ensure that the value is
at least equal at all times to the total amount of the repurchase obligation,
including interest. The manager will also monitor, on an ongoing basis to
evaluate potential risks, the creditworthiness of the banks and dealers with
which the fund enters into repurchase agreements.

      INVESTMENT TECHNIQUES

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


18
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Investment Objective and Management Policies (continued)
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      When-Issued and Delayed Delivery Securities. The fund may purchase
securities on a when-issued basis, or may purchase or sell securities for
delayed delivery. In when-issued or delayed delivery transactions, delivery of
the securities occurs beyond normal settlement periods, but no payment or
delivery will be made by the fund prior to the actual delivery or payment by the
other party to the transaction. The fund will not accrue income with respect to
a when-issued or delayed delivery security prior to its stated delivery date.
The fund will establish with PNC Bank a segregated account consisting of cash,
or liquid securities having a value equal to or greater than the fund's purchase
commitments marked to market daily, pursuant to guidelines. Placing securities
rather than cash in the segregated account may have a leveraging effect on the
fund's net asset value per share; that is, to the extent that the fund remains
substantially fully invested in securities at the same time that it has
committed to purchase securities on a when-issued or delayed delivery basis,
greater fluctuations in its net asset value per share may occur than if it had
set aside cash to satisfy its purchase commitments.

      Stand-By Commitments. The fund may acquire "stand-by commitments" with
respect to municipal obligations it holds. Under a stand-by commitment, which
resembles a put option, a broker, dealer or bank is obligated to repurchase at
the fund's option specified securities at a specified price. Each exercise of a
stand-by commitment, therefore, is subject to the ability of the seller to make
payment on demand. The fund will acquire stand-by commitments solely to
facilitate liquidity and does not intend to exercise the rights afforded by the
commitments for trading purposes. The fund anticipates that stand-by commitments
will be available from brokers, dealers and banks without the payment of any
direct or indirect consideration. The fund may pay for stand-by commitments if
payment is deemed necessary, thus increasing to a degree the cost of the
underlying municipal obligation and similarly decreasing the obligation's yield
to investors.

      Financial Futures and Options Transactions. To hedge against a decline in
the value of municipal obligations it owns or an increase in the price of
municipal obligations it proposes to purchase, the fund may enter into financial
futures contracts and invest in options on financial futures contracts that are
traded on a U.S. exchange or board of trade. The futures contracts or options on
futures contracts that may be entered into by the fund will be restricted to
those that are either based on an index of municipal obligations or relate to
debt securities the prices of which are anticipated by the manager to correlate
with the prices of the municipal obligations owned or to be purchased by the
fund.

      In entering into a financial futures contract, the fund will be required
to deposit with the broker through which it undertakes the transaction an amount
of cash or cash equivalents equal to approximately 5% of the contract amount.
This amount, which is known as "initial margin," is subject to change by the
exchange or board of 


                                                                              19
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Investment Objective and Management Policies (continued)
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trade on which the contract is traded, and members of the exchange or board of
trade may charge a higher amount. Initial margin is in the nature of a
performance bond or good faith deposit on the contract that is returned to the
fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. In accordance with a process known as
"marking-to-market," subsequent payments, known as "variation margin," to and
from the broker will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable. At any time prior to the
expiration of a futures contract, the fund may elect to close the position by
taking an opposite position, which will operate to terminate the fund's existing
position in the contract.

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

      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
other permitted purposes, and that no such transactions may be entered into by
the fund if the aggregate initial margin deposits and premiums paid by the fund
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 or liquid securities in an amount equal to the total
market value of the futures contracts, less the amount of initial margin on
deposit for the contracts. The fund's ability to trade in financial futures
contracts and options on financial futures contracts may be limited to some
extent by the requirements of the Code applicable to a regulated investment
company that are described below under "Taxation."

      Lending Securities. The fund is authorized to lend securities it holds to
brokers, dealers and other financial organizations, but it will not lend
securities to any affiliate of the manager, including Salomon Smith Barney,
unless the fund applies for and receives specific authority to do so from the
SEC. Loans of the 


20
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Investment Objective and Management Policies (continued)
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fund's securities, if and when made, may not exceed 331/3 % of the fund's assets
taken at value. The funds's loans of securities will be collateralized by cash,
letters of credit or U.S. Government securities that will be maintained at all
times in a segregated account with PNC Bank in an amount equal to the current
market value of the loaned securities. From time to time, the fund may pay a
part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the fund and that is acting as a "finder."

      By lending its securities, the fund can increase its income by continuing
to receive interest on the loaned securities, by investing the cash collateral
in short-term instruments or by obtaining yield in the form of interest (which
is taxable to shareholders as ordinary income) paid by the borrower when U.S.
Government securities are used as collateral. The fund will adhere to the
following conditions whenever it lends its securities: (1) the fund must receive
at least 100% cash collateral or equivalent securities from the borrower which
amount of collateral will be maintained by daily marking to market; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned rises above the level of the collateral; (3) the fund must
able to terminate the loan any time; (4) the fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
on the loaned securities, and any increase in market value; (5) the fund may pay
only reasonable custodian fees in connection with the loan; and (6) voting
rights on the loaned securities may pass to the borrower, except that, if a
material event adversely affecting the investment in the loaned securities
occurs, the fund's board of directors must terminate the loan and retain the
fund's right to vote the securities.

      Year 2000. The investment management services and administration provided
to the fund by MMC depend on the smooth functioning of its 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. MMC has advised the fund that it has been reviewing all its computer
systems and actively working on necessary changes to its systems to prepare for
the year 2000 and expect that its systems will be compliant before that date. In
addition, MMC 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 MMC 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.
    


                                                                              21
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Investment Objective and Management Policies (continued)
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      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.

      RISK FACTORS AND SPECIAL CONSIDERATIONS

      There are risks associated with an investment in the fund. You should
consider whether the fund is an appropriate investment for you. The fund invests
substantially all of its assets in municipal obligations of California issuers,
and circumstances or events that affect the value of California municipal
obligations or the state of California will affect the fund's net asset value.

      Interest rate sensitivity

      o Municipal obligations are fixed-income securities which are sensitive to
changes in interest rates. Generally, when interest rates are rising, the value
of the fund's fixed-income securities can be expected to decrease. When interest
rates are declining, the value of the fund's fixed-income securities can be
expected to increase. The fund's net asset value may fluctuate in response to
the increasing or decreasing value of the fund's fixed-income securities.

      Less liquid markets for some municipal obligations

      o The market for municipal obligations may be less liquid than for
corporate bonds. The market for special obligation bonds, lease obligations,
participation certificates and variable rate instruments, which the fund may
purchase, may be less liquid than for general obligation bonds.

      o Liquid secondary trading in unrated municipal obligations may not exist.
The fund may not be able to sell these securities when the manager determines it
appropriate.

      o Less liquid markets tend to be more volatile and react more negatively
to adverse publicity and investor perception than more liquid markets. If
markets are less liquid, the fund may not be able to dispose of municipal
obligations in a timely manner and at a fair price.

      o There may be no established trading markets for certain municipal
obligations, and trading in these securities may be relatively inactive. Some of
the fund's investments may be restricted as to resale. Although restricted
securities may be sold in private transactions, a security's value may be less
than the price originally paid by the fund. The ability of the manager to value
illiquid or restricted securities will be more difficult and the manager's
judgment may play a greater role in their valuation.


22
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Investment Objective and Management Policies (continued)
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      Issuer of a municipal obligation may default on its obligation to pay

      o The issuer of a municipal obligation may not be able to make timely
payments of interest and principal because of general economic downturns or
adverse allocation of government cost burdens. If an issuer did not make timely
payments, the fund would not receive the anticipated income from the investment
and the value of the investment might be reduced. This could result in a
decrease in the fund's net asset value. This risk of default may be greater for
private activity bonds or other municipal obligation whose payments are
dependent upon a specific source of revenue.

      o Even if the issuer does not actually default, adverse changes in the
issuer's financial condition may negatively affect its credit rating or presumed
creditworthiness. These developments would adversely affect the market value of
the issuer's obligations.

      Issuer of a municipal obligation declares bankruptcy

      o The issuer of a municipal obligation might declare bankruptcy and the
fund could experience delays collecting interest and principal. To enforce its
rights, the fund might be required to take possession of and manage the assets
securing the issuer's obligation. This may increase the fund's expenses and
reduce its net asset value.

      o If the fund took possession of a bankrupt issuer's assets, income
derived from the fund's ownership and management of the assets may not be
tax-exempt. Shareholders may receive more of the total distributions from the
fund in taxable form.

      o The fund might not be able to take possession of the assets of a
bankrupt issuer because of laws protecting state and local institutions, limits
on the investments the fund is permitted to make, and the nature of the income
the fund is entitled to receive from its investments imposed on it by the Code.
If the fund cannot take possession of the assets and enforce its rights, the
value of the security may be greatly diminished. This could reduce the fund's
net asset value.

      Adverse governmental action

      o The U.S. government has enacted laws that have restricted or diminished
the income tax exemption on some municipal obligations and it may do so again in
the future. If this were to happen, shareholders could receive more of the
distributions from the fund in taxable form.

      o The creditworthiness of issuers of California obligations is highly
dependent upon the continued strength of the California economy. Governmental
activity, either at the federal or state levels, that negatively impacts the
California economy may adversely affect the value of the fund's investments.


                                                                              23
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Investment Objective and Management Policies (continued)
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      o Voters in California have adopted ballot initiatives in the past
restricting revenue sources of state and local governments. The adoption of
restrictive measures or the passage of tax reduction legislation by the
California Assembly may adversely affect the ability of issuers of California
obligations to make timely payment of principal or interest.

      Other

      o The issuer of a municipal obligation may be obligated to redeem the
security at face value, but if the fund paid more than face value for the
security, the fund may lose money on the security when it is sold.

      o Market rates of interest may be lower for municipal obligations than for
taxable securities but this may be offset by the federal income tax on income
derived from taxable securities.

      o There may be less extensive information available about the financial
condition of issuers of municipal obligations than for corporate issuers with
publicly traded securities.

      The fund may invest in municipal leases that have special risks not
associated with municipal obligations.

      o These leases frequently contain clauses that permit the governmental
issuer to stop making interest and principal payments if money is not
appropriated by the legislature annually or on some other periodic basis.

      o These leases are less liquid than municipal obligations and may be
difficult to value and to sell at a fair price.

      o If the issuer is foreclosed, the assets securing these leases may be
difficult to dispose of.

      When-Issued and Delayed Delivery Transactions

      The fund may use when-issued and delayed delivery transactions to purchase
securities. The value of securities purchased in these transactions may decrease
before they are delivered to the fund. Also, the yield on securities purchased
in these transactions may be higher in the market when the delivery takes place.

      Repurchase Agreements

      The fund may use repurchase agreements to manage its cash position. If the
other party to the agreement defaults, the fund may not be able to sell the
underlying securities. If the fund must assert its rights against the other
party to recover the securities, the fund will incur unexpected expenses, risk
losing the income on the security and bear the risk of loss in the value of the
security.

      Financial Futures and Options

      The fund may use financial futures contracts and options on these
contracts to protect the fund from a decline in the price of municipal
obligations it owns or an 
    


24
<PAGE>

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

increase in the price of a municipal obligation it plans to buy. There are risks
associated with futures and options transaction.

      o Because it is not possible to perfectly correlate the price of the
securities being hedged with the price movement in a futures contract, it is not
possible to provide a perfect offset on losses on the futures contract or the
option on the contract.

      o Because there is imperfect correlation between the fund's securities
that are hedged and the futures contract, the hedge may not be fully effective.
Losses on the fund's security may be greater than gains on the future contract,
or losses on the futures contract may be greater than gains on the securities
subject to the hedge.

      o To compensate for imperfect correlation, the fund may over-hedge or
under-hedge by entering into a futures contract or options on futures contracts
in dollar amounts greater or lesser than the dollar amounts of the securities
being hedged. If market movements are not as anticipated, the fund could lose
money from these positions.

      o If the fund hedges against an increase in interest rates, and rates
decline instead, the fund will lose all or part of the benefit of the increase
in value of the securities it hedged because it will have offsetting losses in
its futures or options positions. Also, in order to meet margin requirements,
the fund may have to sell securities at a time it would not normally choose.

      Non-diversification

      The fund is non-diversified. This means that the fund may invest more of
its assets in a smaller number of issuers. The fund may be more adversely
affected by events affecting a single issuer than if it were diversified and
investing in a greater number of issuers.

      Concentration in California obligations

      The fund concentrates its investments in California obligations and this
involves additional risk to the fund that you should consider before you invest
in the fund.

      The following is a summary of special factors affecting California
obligations.

      Generally From the late 1980s through the early 1990s, an economic
recession eroded California's revenue base. At the same time rapid population
growth caused State expenditures to exceed budget appropriations.

      o     As a result California experienced a period of sustained budget
            imbalance.

      o     Since that time the California economy has improved and the extreme
            budgetary pressures have begun to lessen.

      State Government The 1997-98 Budget Act allocated a State budget of
approximately $66.9 Billion and contains no tax increases or reductions. Despite


                                                                              25
<PAGE>

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

   
this somewhat improved state, California's budget is still subject to certain
unforeseeable events. For example:

o     In December, 1994, Orange County and its investment pool filed for
      bankruptcy. While a settlement has been reached, the full impact on the
      State and Orange County is still unknown.

o     California faces constant fluctuations in other expenses (including health
      and welfare caseloads, property tax receipts, federal funding and natural
      disaster relief) that will undoubtedly create new budgetary pressure and
      reduce issuers' ability to pay their debts.

o     California's general obligation bonds were recently rated A1 by Moody's
      and A+ by Standard & Poor's. The ratings merely reflect the opinions of
      the rating agencies and can change at any time. See Appendix A.

o     California's economy is dependent to some extent on the ability of its
      local businesses to export goods to foreign markets. Global events that
      adversely affect foreign markets may adversely affect the California
      economy.

      Other Risks Issuers' ability to make payments on bonds (and the remedies
available to bondholders) could also be adversely affected by the following
constraints:

o     Certain provisions of California's Constitution, laws and regulatory
      system contain tax, spending and appropriations limits and prohibit
      certain new taxes.

o     Certain other California laws subject the users of bond proceeds to strict
      rules and limits regarding revenue repayment.

o     Bonds of health care institutions which are subject to the strict rules
      and limits regarding reimbursement payments of California's Medi-Cal
      program for health care services to welfare recipients and bonds secured
      by liens on real property are two of the types of bonds affected by these
      provisions.
    

--------------------------------------------------------------------------------
Investment Restrictions
--------------------------------------------------------------------------------

   
      The fund has adopted certain fundamental investment restrictions that may
not be changed without the prior approval of the holders of a majority of the
fund's outstanding voting securities as defined in the 1940 Act. All percentage
limitations included in the investment restrictions below apply immediately
after a purchase or initial investment, and any subsequent change in any
applicable percentage resulting from market fluctuations will not require the
fund to dispose of any security that it holds. Under its fundamental
restrictions, the fund may not:
    


26
<PAGE>

--------------------------------------------------------------------------------
Investment Restrictions
--------------------------------------------------------------------------------

      1. Borrow money, except for temporary or emergency purposes, or for
      clearance of transactions, and then only in amounts not exceeding 15% of
      its total assets (not including the amount borrowed) and as otherwise
      described in this prospectus. When the fund's borrowings exceed 5% of the
      value of its total assets, the fund will not make any additional
      investments.

      2. Sell securities short or purchase securities on margin, except for
      short-term credits as are necessary for the clearance of transactions, but
      the fund may make margin deposits in connection with transactions in
      options, futures and options on futures.

      3. Underwrite any issue of securities, except to the extent that the
      purchase of municipal obligations may be deemed to be an underwriting.

      4. Purchase, hold or deal in real estate or oil and gas interests, except
      that the fund may invest in municipal obligations secured by real estate
      or interests in real estate.

      5. Invest in commodities, except that the fund may enter into futures
      contracts, including those relating to indexes, and options on futures
      contracts or indexes, as described in this prospectus.

      6. Lend any funds or other assets, except through purchasing municipal
      obligations or taxable investments, lending securities and entering into
      repurchase agreements consistent with the fund's investment objective.

      7. Issue senior securities.

      8. Invest more than 25% of its total assets in the securities of issuers
      in any single industry, except that this limitation will not be applicable
      to the purchase of U.S. Government securities.

      9. Make any investments for the purpose of exercising control or
      management of any company.

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

      The common stock is listed on the AMEX under the symbol "GCM." Salomon
Smith Barney also currently intends to make a market in the common stock.

      The following table sets forth the high and low sales prices for the
fund's common stock, the net asset value per share and the discount or premium
to net asset value represented by the quotation for each quarterly period for
the two most recent fiscal years and each full fiscal quarter since the
beginning of the current fiscal year.


                                                                              27
<PAGE>

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

   
                                                     AMEX
                         AMEX                      Price at   NAV at
                         Price          NAV        Quarter-  Quarter-   Premium
Three Months Ended       Range         Range          End       End   (Discount)
================================================================================
 8/31/96            11.38- 12.88   12.82- 13.53     12.13     13.13     (7.65)
11/30/96            11.75- 12.75   13.08- 13.76     12.63     13.49     (6.41)
 2/28/97            12.06- 12.88   13.13- 13.52     12.75     13.32     (4.28)
 5/31/97            12.25- 12.88   12.86- 13.26     12.63     13.26     (4.79)
 8/31/97            12.44- 13.25   13.41- 13.84     12.75     13.66     (6.66)
11/30/97            12.63- 13.19   13.70- 14.00     12.75     14.00     (8.93)
 2/28/98            13.00- 14.00   14.09- 14.42     13.00     14.09     (7.74)
 5/31/98            13.00- 14.00   13.99- 14.25     13.00     14.11     (7.87)
 8/31/98            13.00- 14.00   14.15- 14.35     14.00     14.37     (2.57)
================================================================================

      As of October 30, 1998, the price per share of common stock as quoted on
the AMEX was $13.94, representing a 3.61% discount from the common stock's net
asset value calculated on that day.
    

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

      DIRECTORS AND OFFICERS

   
      The business and affairs of the fund, including the general supervision of
the duties performed by the manager under the management agreement, are the
responsibility of the fund's board of directors. The Directors and officers of
the fund, their addresses and their principal occupations for at least the past
five years are set forth below:
    

<TABLE>
<CAPTION>
   
                       Positions Held               Principal Occupations
Name and Address       with the Fund                During Past Five Years and Age
=======================================================================================
<S>                    <C>                          <C> 
*+Heath B. McLendon    Chairman of the Board of     Managing Director of Salomon Smith 
388 Greenwich Street   Directors, President and     Barney; Director of fifty-nine     
New York, NY 10013     Chief Executive Officer      investment companies associated    
                                                    with Salomon Smith Barney;         
                                                    Chairman of the Board of 
                                                    Smith Barney Strategy Advisers     
                                                    Inc. and Director and President of 
                                                    MMC and Travelers Investment       
                                                    Adviser, Inc.("TIA"); 65.     
=======================================================================================
</TABLE>

*     Director who is an "interested person" of the fund as defined in the 1940 
      Act.
+     Director, trustee and/or general partner of other investment companies
      registered under the 1940 Act with which Salomon Smith Barney is 
      affiliated.
    


28
<PAGE>

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

   
                        Positions Held                Principal Occupations
Name and Address        with the Fund             During Past Five Years and Age
================================================================================
+Donald R. Foley        Director                  Retired; Director of ten      
3668 Freshwater Drive                             investment companies          
Jupiter, FL 33477                                 associated with Salomon Smith 
                                                  Barney. Formerly Vice         
                                                  President of Edwin Bird       
                                                  Wilson, Incorporated          
                                                  (advertising); 76.            

+Paul Hardin            Director                  Professor of Law at the       
60134 Davie Street                                University of North Carolina  
Chapel Hill, NC 27599                             at Chapel Hill; Director of   
                                                  twelve investment companies   
                                                  associated with Salomon Smith 
                                                  Barney. Director of The Summit
                                                  Bancorporation. Formerly,     
                                                  Chancellor of the University  
                                                  of North Carolina at Chapel   
                                                  Hill; 67.                     
 
+Roderick C. Rasmussen  Director                  Investment Counselor; Director
9 Cadence Court                                   of ten investment companies   
Morristown, NJ 07960                              associated with Salomon Smith 
                                                  Barney. Formerly Vice         
                                                  President of Dresdner and     
                                                  Company Inc. (Investment      
                                                  counselors); 72.              
                                                                                

+John P. Toolan         Director                  Retired; Director of ten      
13 Chadwell Place                                 investment companies          
Morristown, NJ 07960                              associated with Salomon Smith 
                                                  Barney; Director of John      
                                                  Hancock Funds. Formerly       
                                                  Director and Chairman of Smith
                                                  Barney Trust Company; Director
                                                  of Smith Barney and MMC; 68.
    

Lewis F. Daidone        Senior Vice President     Managing Director of Salomon  
388 Greenwich Street    and Treasurer             Smith Barney, Senior Vice     
New York, NY 10013                                President and Treasurer of    
                                                  other investment companies    
                                                  associated with Salomon Smith 
                                                  Barney; Director and Senior   
                                                  Vice President of MMC and TIA,
                                                  and Senior Vice President of  
                                                  Smith Barney Strategy 
                                                  Advisers Inc.; 41.            

Joseph P. Deane         Vice President and        Managing Director of Salomon 
388 Greenwich Street    Investment Officer        Smith Barney and investment  
New York, NY 10013                                officer of other investment  
                                                  companies associated with    
                                                  Salomon Smith Barney; 50.    

Thomas M. Reynolds      Controller                Director of Salomon Smith     
388 Greenwich Street                              Barney and Controller and     
New York, NY 10013                                Assistant Secretary of certain
                                                  other investment companies    
                                                  associated with Salomon Smith 
                                                  Barney; 37.                   

   
================================================================================
+ Director, trustee and/or general partner of other investment companies
registered under the 1940 Act with which Salomon Smith Barney is affiliated.
    


                                                                              29
<PAGE>

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

   
                        Positions Held                Principal Occupations
Name and Address        with the Fund             During Past Five Years and Age
--------------------------------------------------------------------------------
    

Christina T. Sydor      Secretary                 Managing Director of Salomon  
388 Greenwich Street                              Smith Barney; Secretary of the
New York, NY 10013                                other investment companies    
                                                  associated with Salomon Smith 
                                                  Barney; Secretary and General 
                                                  Counsel of MMC and TIA; 47.   
--------------------------------------------------------------------------------

   
      Fees for directors who are not "interested persons" of the fund, all of
whom are board members of a group of funds sponsored by Salomon Smith Barney,
are set at $42,000 per annum and are allocated based on relative net assets of
each fund in the group. In addition, these directors receive $100 per fund for
each board meeting attended ($100 per underlying portfolio of each registrant,
in the case of in-person meetings), plus reimbursement for travel and
out-of-pocket expenses incurred in connection with board meetings.

      The following table shows the compensation paid by the fund to each person
who was a director during the fund's fiscal year ended August 31, 1998.
    

                               COMPENSATION TABLE

<TABLE>
<CAPTION>
   
                                                                                                    Total
                                                   Pension or             Compensation            Number of
                                                   Retirement               from Fund             Funds for
                             Aggregate          Benefits Accrued            and Fund           Which Director
                           Compensation            as part of                Complex            Serves Within
    Name of Person           from Fund            Fund Expenses         Paid to Directors       Fund Complex
    --------------         -------------        -----------------        ---------------       --------------
<S>                              <C>                    <C>                  <C>                     <C>
Joseph H. Fleiss+                $449**                 0                    $54,900                 10
Donald R. Foley                   742**                 0                     55,400                 10
Paul Hardin                       641                   0                      73,000                 12
Heath B. McLendon*                  0                   0                          0                 59
Roderick C. Rasmussen             741                   0                     55,400                 10
John P. Toolan                    641**                 0                     55,400                 10
Francis Martin                    111**                 0                     53,000                 10
</TABLE>

--------------
*     Designates a director who is an "interested person" of the fund as defined
      under the 1940 Act.

**    Pursuant to the fund's deferred compensation plan, the indicated directors
      have elected to defer the following amounts of their compensation from the
      fund: Joseph H. Fleiss--$6; Donald R. Foley--$21; John P. Toolan--$641;
      and Francis Martin--$111, and the following amounts of their total
      compensation from the fund complex: Joseph H. Fleiss--$21,000; Donald R.
      Foley--$21,000; John P. Toolan--$55,400; and Francis Martin--$53,000.

+     Effective January 1, 1998, Mr. Fleiss became a director emeritus. Upon
      attainment of age 72 the fund's current directors may elect to change to
      emeritus status. Any directors elected or appointed to the board of
      directors in the future will be required to change to emeritus status upon
      attainment of age 80. 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's directors, together with reasonable out-of-pocket expenses for each
      meeting attended. During the fund's last fiscal year, total compensation
      paid by the fund to directors emeritus (other than Mr. Fleiss, who is
      covered in the table above) totalled $171.
    


30
<PAGE>

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

   
      At the close of business on November 2, 1998, 3,604,656 shares of common
stock, or 98.45% of the fund's total shares outstanding on that date, were held
of record, but not beneficially owned, by CEDE & Co., c/o The Depository Trust
Company, Box 20, Bowling Green Station, NY, NY 10004-9998. As of that date, the
officers and Board members of the fund as a group beneficially owned less than
1% of the outstanding shares of the fund.
    

      INVESTMENT MANAGER

   
      MMC serves as the fund's investment manager. The manager provides
investment advisory and management services to investment companies affiliated
with Salomon Smith Barney. MMC was incorporated in 1968 and manages investment
companies that had total assets in excess of $~105 billion as of October 31,
1998. MMC is located at 388 Greenwich Street, New York, New York 10013.

      Subject to the supervision and direction of the fund's board of directors,
the manager manages the securities held by the fund in accordance with the
fund's stated investment objectives and policies, makes investment decisions for
the fund, places orders to purchase and sell securities on behalf of the fund
and employs managers and securities analysts who provide research services to
the fund. MMC also provides certain administration services to the fund,
including overseeing the fund's non-investment operations and its relations with
other service providers and providing executive and other officers to the fund.
The fund pays the manager a management fee for the services provided to the fund
that is computed daily and paid monthly at the annual rate of 0.90% of the value
of the fund's average daily net assets, which is higher than the rates for
similar services paid by other recently organized publicly offered, closed-end
management investment companies that have investment objectives and policies
similar to those of the fund. For the fiscal year ended August 31, 1998, the
fund paid $463,925 in management fees to MMC.

      Citigroup is 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.

      Salomon Smith Barney and the manager believe that the manager's services
under the Management Agreement and the market-making activities performed by
Salomon Smith Barney are not underwriting and are consistent with the BHCA, the
Glass-Steagall Act and other federal and state laws applicable to Citigroup.
However, there is little controlling precedent regarding the performance of the
combination of investment advisory and administrative activities by subsidiaries
of bank holding companies. If Salomon Smith Barney and the manager, or their
affiliates, were to be prevented from acting as the manager or administrator,
the fund would seek alternative means for obtaining these services. The fund
does not expect that shareholders would suffer any adverse financial
consequences as a result of any such occurrence.
    


                                                                              31
<PAGE>

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

      Joseph P. Deane, vice president and investment officer of the fund, is
primarily responsible for management of the fund's assets. Mr. Deane is a
managing director of Salomon Smith Barney and is the senior asset manager for
seven other investment companies.

      The manager bears all expenses in connection with the performance of the
services it provides to the fund. The fund will bear all other expenses to be
incurred in its operation including, but not limited to, the costs incurred in
connection with the fund's organization; management fees; fees for necessary
professional and brokerage services fees for any pricing service; the costs of
regulatory compliance; the costs associated with maintaining the fund's
corporate existence; and costs of corresponding with the fund's shareholders.

--------------------------------------------------------------------------------
Securities Transactions and Turnover
--------------------------------------------------------------------------------

      GENERAL

      The fund's securities ordinarily are purchased from and sold to parties
acting as either principal or agent. Newly issued securities ordinarily are
purchased directly from the issuer or from an underwriter; other purchases and
sales usually are placed with those dealers from which the manager determines
that the best prices or execution will be obtained. Usually no brokerage
commissions, as such, are paid by the fund for purchases and sales undertaken
through principal transactions, although the price paid usually includes an
undisclosed compensation to the dealer. The prices paid to underwriters of newly
issued securities typically include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers ordinarily
are executed at a price between the bid and asked price.

      Transactions on behalf of the fund are allocated to various dealers by the
manager in its best judgment. The primary consideration is prompt and effective
execution of orders at the most favorable price. Subject to that primary
consideration, dealers may be selected for research, statistical or other
services to enable the manager to supplement its own research and analysis with
the views and information of other securities firms.

      Research services furnished by broker-dealers through which the fund
effects securities transactions may be used by the manager in managing other
investment funds and accounts and conversely, research services furnished to the
manager by broker-dealers in connection with other funds and accounts the
manager advises may be used by the manager in advising the fund. Although it is
not possible to place a dollar value on these services, the manager is of the
view that the receipt of the services should not reduce the overall costs of its
research services.

      Investment decisions for the fund are made independently from those of
other investment companies or accounts managed by the manager. If those
investment 


32
<PAGE>

--------------------------------------------------------------------------------
Securities Transactions and Turnover (continued)
--------------------------------------------------------------------------------

   
companies or accounts are prepared to invest in, or desire to dispose of,
municipal obligations or taxable investments at the same time as the fund,
however, available investments or opportunities for sales will be allocated
equitably to each client of the manager. In some cases, this procedure may
adversely affect the size of the position obtained for or disposed of by the
fund or the price paid or received by the fund.
    

      TURNOVER

   
      The fund cannot accurately predict its turnover rate, but anticipates that
its annual turnover rate will not exceed 100%. The fund's turnover rate is
calculated by dividing the lesser of the fund's sales or purchases of securities
during a year (excluding any security the maturity of which at the time of
acquisition is one year or less) by the average monthly value of the fund's
securities for the year. Higher turnover rates can result in corresponding
increases in the fund's transaction costs. The fund will not consider turnover
rate a limiting factor in making investment decisions consistent with its
investment objective and policies.
    

--------------------------------------------------------------------------------
Dividends and Distributions; Dividend Reinvestment Plan
--------------------------------------------------------------------------------

   
      The fund expects to pay monthly dividends of substantially all net
investment income to the holders of the common stock. Net investment income is
income (including tax-exempt income and accrued original issue discount income)
other than net realized capital gains. Under the fund's current policy, which
may be changed at any time by its board of directors, the fund's monthly
dividends will be paid at a level that reflects the past and projected
performance of the fund, which policy over time will result in the distribution
of all net investment income of the fund. From time to time, when the fund makes
a capital gains distribution, it may do so in lieu of paying its regular monthly
dividend. Net income of the fund consists of all interest income accrued on the
fund's assets less all expenses of the fund. Expenses of the fund are accrued
each day. Net realized capital gains, if any, will be distributed to the
shareholders at least once per year.

      Under the fund's Dividend Reinvestment Plan (plan) a shareholder whose
shares of common stock are registered in his own name will have all
distributions from the fund reinvested automatically by First Data as agent
under the plan, unless the shareholder elects to receive cash. Distributions
with respect to shares registered in the name of a broker-dealer or other
nominee (that is, in street name) will be reinvested by the broker or nominee in
additional shares under the plan, unless the service is not provided by the
broker or nominee or the shareholder elects to receive distributions in cash.
Investors who own common stock registered in street name should consult their
broker-dealers for details regarding reinvestment. All distributions to
shareholders who do not participate in the plan will be paid by check 
    


                                                                              33
<PAGE>

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

   
mailed directly to the record holder by or under the direction of First Data as
dividend paying agent.

      The number of shares of common stock distributed to participants in the
plan in lieu of a cash dividend is determined in the following manner. When the
market price of the common stock is equal to or exceeds the net asset value per
share of the common stock on the determination date (generally, the record date
for the distribution), plan participants will be issued shares of common stock
by the fund at a price equal to the greater of net asset value most recently
determined as described below under "Net Asset Value" or 95% of the market price
of the common stock.

      If the market price of the common stock is less than the net asset value
of the common stock at the time of valuation (which is the close of business on
the determination date), or if the fund declares a dividend or capital gains
distribution payable only in cash, First Data will buy common stock in the open
market, on the AMEX or elsewhere, for the participants' accounts. If following
the commencement of the purchases and before First Data has completed its
purchases, the market price exceeds the net asset value of the common stock as
of the valuation time, First Data will attempt to terminate purchases in the
open market and cause the fund to issue the remaining portion of the dividend or
distribution in shares at a price equal to the greater of (a) net asset value as
 of the valuation time or
(b) 95% of the then current market price. In this case, the number of shares
received by a plan participant will be based on the weighted average of prices
paid for shares purchased in the open market and the price at which the fund
issues the remaining shares. To the extent First Data is unable to stop open
market purchases and cause the fund to issue the remaining shares, the average
per share purchase price paid by First Data may exceed the net asset value of
the common stock as of the valuation time, resulting in the acquisition of fewer
shares than if the dividend or capital gains distribution had been paid in
common stock issued by the fund at such net asset value. First Data will begin
to purchase common stock on the open market as soon as practicable after the
determination date for the dividend or capital gains distribution, but in no
event shall such purchases continue later than 30 days after the payment date
for such dividend or distribution, or the record date for a succeeding dividend
or distribution, except when necessary to comply with applicable provisions of
the federal securities laws.

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

      Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the plan. First Data's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
fund. No brokerage charges apply with respect to shares of common stock issued
directly by the fund 
    


34
<PAGE>

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

   
under the plan. Each plan participant will, however, bear a proportionate share
of any brokerage commissions actually incurred with respect to any open market
purchases made under the plan.

      Experience under the plan may indicate that changes to it are desirable.
The fund reserves the right to amend or terminate the plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The plan also may be amended or
terminated by First Data, with the fund's prior written consent, on at least 30
days' written notice to plan participants. All correspondence concerning the
plan should be directed by mail to First Data Investor Services Group, P.O. Box
8030, Boston, Massachusetts 02266-8030 or by telephone at 1-800-331-1710.
    

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

   
      The net asset value of shares of the common stock will be calculated as of
the close of regular trading on the New York Stock Exchange (NYSE), currently
4:00 p.m. New York time, on each day on which the NYSE is open for trading. The
fund reserves the right to cause its net asset value to be calculated on a less
frequent basis as determined by the fund's board of directors. For purposes of
determining net asset value, futures contracts and options on futures contracts
will be valued 15 minutes after the close of regular trading on the NYSE.

      Net asset value per share of common stock is calculated based on the value
of the fund's total assets less liabilities. In general, the fund's investments
will be valued at market value, or, in the absence of market value, at fair
value as determined by or under the direction of the fund's board of directors.

      Short-term investments that mature in 60 days or less are valued on the
basis of amortized cost (which involves valuing an investment at its cost and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the effect of fluctuating interest rates on the market
value of the investment) when the board of directors has determined that
amortized cost represents fair value.

      The valuation of the fund's assets is made after consultation with an
independent pricing service approved by the fund's board of directors. When, in
the judgment of the service, quoted bid prices for investments are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices and asked
prices. Investments for which, in the judgment of the service, no readily
obtainable market quotation is available, are 
    


                                                                              35
<PAGE>

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

carried at fair value as determined by the service, based on methods that
include consideration of: yields or prices of municipal obligations of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. The service may use electronic data
processing techniques and/or a matrix system to determine valuations. The
procedures of the service are reviewed periodically by the officers of the fund
under the general supervision and responsibility of the board of directors,
which may replace the service at any time if it determines it to be in the best
interests of the fund to do so.

--------------------------------------------------------------------------------
Taxation
--------------------------------------------------------------------------------

      The discussion set out below of tax considerations generally affecting the
fund and its shareholders is intended to be only a summary and is not intended
as a substitute for careful tax planning by prospective shareholders.

      TAXATION OF THE FUND AND ITS INVESTMENTS

      The fund has qualified and intends to continue to qualify each year as a
"regulated investment company" under Subchapter M of the Code. In addition, the
fund intends to satisfy each year conditions contained in the Code that will
enable interest from municipal obligations, excluded from gross income for
federal income tax purposes with respect to the fund, to retain that tax-exempt
status when distributed to the shareholders of the fund (that is, to be
classified as "exempt-interest" dividends of the fund).

      As a regulated investment company, the fund pays no federal income taxes
on its taxable net investment income (that is, taxable income other than net
realized capital gains) and its net realized capital gains that are distributed
to shareholders. To qualify under Subchapter M of the Code, the fund must, among
other things: (1) distribute to its shareholders at least 90% of its taxable net
investment income (for this purpose consisting of taxable net investment income
and any net realized short-term capital gain in excess of net realized long-term
capital loss) and 90% of its tax-exempt net investment income (reduced by
certain expenses); (2) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of securities, gains from the sale or
other disposition of securities, or other income (including, but not limited to,
gains from options, futures and forward contracts) derived with respect to the
fund's business of investing in securities; and (3) diversify its holdings so
that, at the end of each fiscal quarter of the fund (a) at least 50% of the
market value of the fund's assets is represented by cash, U.S. Government
securities and securities of other regulated investment companies, and other
securities, with those other securities limited, with respect to any one issuer,
to an amount no greater than 5% of the fund's assets and (b) not more than 25%
of the market value of the fund's assets is invested in the securities of any
one issuer 


36
<PAGE>

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

(other than U.S. Government securities or securities of other regulated
investment companies) or of two or more issuers that the fund controls and that
are determined to be in the same or similar trades or businesses or related
trades or businesses. As a regulated investment company, the fund is subject to
a 4% non-deductible excise tax measured with respect to certain undistributed
amounts of ordinary income and capital gain. The fund pays dividends and
distributions necessary to avoid the application of this excise tax.

      As described above, the fund may invest in financial futures contracts and
options on financial futures contracts that are traded on a U.S. exchange or
board of trade. 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, thus, will affect the amount of capital gains distributed to
the fund's shareholders.

      For federal income tax purposes, gain or loss on the futures and options
described above (collectively referred to as "Section 1256 Contracts") would, as
a general rule, be taxed pursuant to a special "mark-to-market system." Under
the mark-to-market system, the fund may be treated as realizing a greater or
lesser amount of gains or losses than actually realized. As a general rule, gain
or loss on Section 1256 Contracts is treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss, and as a result, the
mark-to-market system will generally affect the amount of capital gains or
losses taxable to the fund and the amount of distributions taxable to a
shareholder. Moreover, if the fund invests in both Section 1256 Contracts and
offsetting positions to those contracts, then the fund might not be able to
receive the benefit of certain realized losses for an indeterminate period of
time. The fund expects that its activities with respect to Section 1256
Contracts and offsetting positions to those Contracts (1) will not cause it or
its shareholders to be treated as receiving a materially greater amount of
capital gains or distributions than actually realized or received and (2) will
permit it to use substantially all of its losses for the fiscal years in which
the losses actually occur (to the extent it realizes corresponding gains in such
years).

      TAXATION OF THE FUND'S STOCKHOLDERS

      Dividends paid by the fund, other than dividends from taxable investments
and market discount on municipal obligations and from income or gain derived
from securities transactions and from the use of certain of the investment
techniques described under "Investment Objective and Management
Policies--Investment Techniques," are derived from interest on municipal
obligations and are exempt-interest dividends that may be excluded by
shareholders from their gross income for federal income tax purposes if the fund
satisfies certain asset percentage requirements. Distributions of the fund's net
realized short-term capital gains are taxable to shareholders of the fund as
ordinary income, and distributions of net realized long-term capital gains are
taxable to shareholders as long-term capital 


                                                                              37
<PAGE>

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

gains, regardless of the length of time shareholders have held shares of common
stock and whether the distributions are received in cash or reinvested in
additional shares. As a general rule, a shareholder's gain or loss on a sale of
his shares of common stock will be a long-term gain or loss if he has held his
shares for more than one year and will be a short-term capital gain or loss if
he has held his shares for one year or less. Dividends and distributions paid by
the fund do not qualify for the federal dividends-received deduction for
corporations.

      In general, investors should recognize that the benefits of the exemption
from state and local taxes, in addition to the exemption from federal taxes,
necessarily limits the fund's ability to diversify geographically.

      EXEMPT-INTEREST DIVIDENDS

      Interest on indebtedness incurred by a shareholder to purchase or carry
shares of common stock is not deductible for federal income tax purposes to the
extent it is deemed related to exempt-interest dividends. If a shareholder
receives exempt-interest dividends with respect to any share of common stock and
if the share is held by the shareholder for six months or less, then any loss on
the sale of the share may, to the extent of the exempt-interest dividends, be
disallowed. The Code may also require a shareholder, if he receives
exempt-interest dividends, to treat as taxable income a portion of certain
otherwise non-taxable social security and railroad retirement benefit payments.
In addition, the portion of any exempt-interest dividend paid by the fund that
represents income derived from private activity bonds held by the fund may not
retain its tax-exempt status in the hands of a shareholder who is a "substantial
user" of a facility financed by the bonds, or a "related person" of the
substantial user. Although the fund's exempt-interest dividends may be excluded
by shareholders from their gross income for federal income tax purposes, some or
all of the fund's exempt-interest dividends may be a specific preference item,
or a component of an adjustment item, for purposes of the federal individual and
corporate alternative minimum taxes. The receipt of dividends and distributions
from the Portfolio may affect a foreign corporate shareholder's federal "branch
profits" tax liability and the federal "excess net passive income" tax liability
of a shareholder of an S corporation. Shareholders should consult their own tax
advisors to determine whether they are (1) "substantial users" with respect to a
facility or "related" to those users within the meaning of the Code or (2)
subject to a federal alternative minimum tax, the federal "branch profits" tax,
or the federal "excess net passive income" tax.

      DIVIDEND REINVESTMENT PLAN

      A shareholder of the fund receiving dividends or distributions in
additional shares purchased in the open market pursuant to the plan should be
treated for federal income tax purposes as receiving a distribution in an amount
equal to the amount of money that a shareholder receiving cash dividends or
distributions


38
<PAGE>

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

   
receives, and should have a cost basis in the shares received equal to that
amount. With respect to distributions consisting of newly issued shares of the
fund, the amount of the distribution for tax purposes is the fair market value
of the issued shares on the payment date, and the difference between such fair
market value and the amount of cash the shareholder would otherwise have
received may be treated as a return of capital. In the case of shares issued by
the fund, the shareholder's tax basis in each share received is its fair market
value on the payment date, adjusted by any amount treated as a return of capital
to the shareholder.
    

      CALIFORNIA TAXATION

   
      California law relating to taxation of regulated investment companies and
their shareholders was generally conformed to federal law effective January 1,
1997. In any year in which the fund qualifies as a regulated investment company
under the Code and is exempt from federal income tax, (i) the fund will also be
exempt from the California corporate income and franchise taxes to the extent it
distributes its income and (ii) provided 50% or more of the value of the total
assets of the fund at the close of each quarter of its taxable year consists of
"California obligations, the interest on which (when held by an individual) is
exempt from personal income taxation under the laws of California, the fund will
be qualified under California law to pay exempt-interest dividends which will be
exempt from the California personal income tax.

      Individual shareholders of the fund who reside in California will not be
subject to the California personal income tax on distributions received from the
fund which are exempt-interest dividends. The portion of any distribution
constituting exempt-interest dividends is that (i) portion derived from
California obligations and (ii) designated as such by the fund. The total amount
of exempt-interest dividends paid by the fund to its shareholders with respect
to any taxable year cannot exceed the amount of interest received by the fund
during such year on California obligations less any expenses and expenditures
deemed to have been paid from such interest.

      Distributions from the fund that are attributable to sources other than
California obligations, generally will be taxable to such shareholders as
ordinary income. In addition, distributions of short-term capital gains realized
by the fund will be taxable to the shareholders as ordinary income.
Distributions of long-term capital gains will be taxable as such to the
shareholders regardless of how long they held their shares. Any dividends paid
to corporate shareholders subject to the California franchise tax will be taxed
to such shareholders.

      Interest on indebtedness incurred or continued by shareholders to purchase
or carry shares of the fund will not be deductible for California personal
income tax purposes. As a result of California's incorporation of certain
provisions of the Code, a loss realized by a shareholder upon the sale of shares
held for six months or less may be disallowed to the extent of any
exempt-interest dividends received with
    


                                                                              39
<PAGE>

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

respect to such shares. Any loss realized upon the redemption of shares within
30 days before or after the acquisition of other shares of the same series may
be disallowed under the "wash sale" rules. With respect to individual
shareholders, California does not treat tax-exempt interest as a tax preference
item for purposes of its alternative minimum tax. To the extent a corporate
shareholder receives dividends which are exempt from California taxation, a
portion of such dividends may be subject to the alternative minimum tax.

      STATEMENTS AND NOTICES

      Statements as to the tax status of the dividends and distributions
received by shareholders of the fund are mailed annually. These statements show
the dollar amount of income excluded from federal income taxes and the dollar
amount, if any, subject to federal income taxes including the portion, if any,
of long-term capital gains distributions eligible for the reduced 20% maximum
capital gains tax rate. The statements will also designate the amount of
exempt-interest dividends that are a specific preference item for purposes of
the federal individual and corporate alternative minimum taxes. The fund will
notify shareholders annually as to the interest excluded from federal income
taxes earned by the fund with respect to those states and possessions in which
the fund has or had investments. The dollar amount of dividends paid by the fund
that is excluded from federal income taxation and the dollar amount of dividends
paid by the fund that is subject to federal income taxation, if any, will vary
for each shareholder depending upon the size and duration of the shareholder's
investment in the fund. To the extent that the fund earns taxable net investment
income, it intends to designate as taxable dividends the same percentage of each
day's dividend as its taxable net investment income bears to its total net
investment income earned on that date. Therefore, the percentage of each day's
dividend designated as taxable, if any, may vary from day to day.

      BACKUP WITHHOLDING

      If a shareholder fails to furnish a correct taxpayer identification
number, fails to report fully dividend or interest income, or fails to certify
that he has provided a correct taxpayer identification number and that he is not
subject to "backup withholding," the shareholder may be subject to a 31% "backup
withholding" tax with respect to (1) taxable dividends and distributions and (2)
the proceeds of any sales or repurchases of shares of common stock. An
individual's taxpayer identification number is his social security number. The
31% backup withholding tax is not an additional tax and may be credited against
a taxpayer's federal income tax liability.


40
<PAGE>

--------------------------------------------------------------------------------
Description of Shares
--------------------------------------------------------------------------------

   
      The fund was incorporated under the laws of the State of Maryland on July
8, 1994 pursuant to its Articles of Incorporation. The Articles of Incorporation
authorize issuance of the common stock. The Articles of Incorporation provide
that the fund shall continue without limitation of time.
    

COMMON STOCK

   
                                                                Amount
                                                              Outstanding
                                                          Exclusive of Shares
                                                       Held by the Fund for its
                                      Amount Held          Own Account as of
                       Shares    by the Fund for Its         November 2,
  Title of Class     Authorized       Own Account                1998
================================================================================
Common Stock         500,000,000           0                   3,658,334

      No shares, other than those currently outstanding, are offered for sale
pursuant to this prospectus. All shares of common stock have equal
non-cumulative voting rights and equal rights with respect to dividends, assets
and liquidation. Shares of common stock will be fully paid and non-assessable
when issued and have no preemptive, conversion or exchange rights.
    

--------------------------------------------------------------------------------
Certain Provisions of the Articles of Incorporation
--------------------------------------------------------------------------------

      ANTI-TAKEOVER PROVISIONS

   
      The fund's Articles of Incorporation include provisions that could have
the effect of limiting the ability of other entities or persons to acquire
control of the fund or to change the composition of its board of directors and
could have the effect of depriving shareholders of an opportunity to sell their
shares of common stock at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the fund.
Commencing with the first annual meeting of shareholders, the board of directors
will be divided into three classes. At the annual meeting of shareholders in
each year thereafter, the term of one class will expire and each director
elected to the class will hold office for a term of three years. The
classification of the board of directors in this manner could delay for up to
two years the replacement of a majority of the board. The Articles of
Incorporation provide that the maximum number of directors that may constitute
the fund's entire board is 12. A director may be removed from office, or the
maximum number of directors increased, only by vote of the holders of at least
75% of the shares of common stock entitled to be voted on the matter.

      The affirmative votes of at least 75% of the directors and the holders of
at least 75% of the shares of the fund are required to authorize any of the
following 
    


                                                                              41
<PAGE>

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

transactions (referred to individually as a business combination): (1) a merger,
consolidation or share exchange of the fund with or into any other person
(referred to individually as a reorganization transaction); (2) the issuance or
transfer by the fund (in one or a series of transactions in any 12-month period)
of any securities of the fund to any other person or entity for cash, securities
or other property (or combination thereof) having an aggregate fair market value
of $1,000,000 or more, excluding sales of securities of the fund in connection
with a public offering, issuances of securities of the fund pursuant to a
dividend reinvestment plan adopted by the fund and issuances of securities of
the fund upon the exercise of any stock subscription rights distributed by the
fund; or (3) a sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the fund (in one or a series of transactions in any 12-month
period) to or with any person of any assets of the fund having an aggregate fair
market value of $1,000,000 or more, except for transactions in securities
effected by the fund in the ordinary course of its business (each such sale,
lease, exchange, mortgage, pledge, transfer or other disposition being referred
to individually as a transfer transaction). The same affirmative votes are
required with respect to: any proposal as to the voluntary liquidation or
dissolution of the fund or any amendment to the fund's Articles of Incorporation
to terminate its existence (referred to individually as termination
transaction); and any shareholder proposal as to specific investment decisions
made or to be made with respect to the fund's assets.

      A 75% shareholder vote will not be required with respect to a business
combination if the transaction is approved by a vote of at least 75% of the
continuing directors (as defined below) or if certain conditions regarding the
consideration paid by the person entering into, or proposing to enter into, a
business combination with the fund and various other requirements are satisfied.
In such case, a majority of the votes entitled to be cast by shareholders of the
fund will be required to approve the transaction if it is a reorganization
transaction or a transfer transaction that involves substantially all of the
fund's assets and no shareholder vote will be required to approve the
transaction if it is any other business combination. In addition, a 75%
shareholder vote will not be required with respect to a termination transaction
if it is approved by a vote of at least 75% of the continuing directors, in
which case a majority of the votes entitled to be cast by shareholders of the
fund will be required to approve the transaction.

      The voting provisions described above could have the effect of depriving
shareholders of the fund of an opportunity to sell their common stock at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the fund in a tender offer or similar transaction. In view
of the fund's board of directors, however, these provisions offer several
possible advantages, including: (1) requiring persons seeking control of the
fund to negotiate with its management regarding the price to be paid for the
amount of common stock 


42
<PAGE>

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

   
required to obtain control; (2) promoting continuity and stability; and (3)
enhancing the fund's ability to pursue long-term strategies that are consistent
with its investment objective and management policies. The board of directors
has determined that the voting requirements described above, which are generally
greater than the minimum requirements under Maryland law and the 1940 Act, are
in the best interests of shareholders generally.

      A "continuing director," as used in the discussion above, is any member of
the fund's board of directors (1) who is not a person or affiliate of a person
who enters or proposes to enter into a business combination with the fund (such
a person or affiliate being referred to individually as an interested party) and
(2) who has been a member of the board of directors for a period of at least 12
months (or since the commencement of the fund's operations, if less than 12
months), or is a successor of a continuing director who is unaffiliated with an
interested party and is recommended to succeed a continuing director by a
majority of the continuing directors then members of the board of directors.
    

      Conversion to Open-End Fund

   
      The fund's Articles of Incorporation require the favorable vote of the
holders of at least two-thirds of the shares of common stock then entitled to be
voted to authorize the conversion of the fund from a closed-end to an open-end
investment company as defined in the 1940 Act, unless two-thirds of the
Continuing Directors (as defined above) approve such a conversion. In the latter
case, the affirmative vote of a majority of the shares outstanding will be
required to approve the amendment to the fund's Articles of Incorporation
providing for the conversion of the fund.

Market Discount

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

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

      The fund's board of directors has seen no reason to adopt any of the steps
specified above, which some other closed-end funds have used to address the
discount. The experience of any closed-end funds suggests that the effect of
many of these steps (other than open-ending) on the discount may be temporary or
insignificant. Accordingly, there can be no assurance that any of these actions
will be taken or, if undertaken, will cause the fund's shares to trade at a
price equal to their net asset value. The fund's investment manager may
voluntarily waive its fees from time to time in order to increase the fund's
dividend yield in an effort to reduce the discount. Any such waiver may be
terminated at any time, and there can be no assurance that such actions would
be successful at reducing the discount.
    

--------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend-Paying Agent, Registrar and Plan Agent
--------------------------------------------------------------------------------

   
      PNC Bank, located at 17th and Chestnut Streets, Philadelphia, Pennsylvania
19103, acts as custodian of the fund's investments.

      First Data, located at One Exchange Place, Boston, Massachusetts 02109,
serves as the fund's transfer agent, dividend-paying agent and registrar. First
Data also serves as purchasing agent in connection with the plan.
    

--------------------------------------------------------------------------------
Reports to Shareholders
--------------------------------------------------------------------------------

   
      The fund sends unaudited quarterly and audited annual reports, including a
list of investments held, to its stockholders. 
    


                                                                              43
<PAGE>

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

      The audited financial statements incorporated into this prospectus have
been so included in reliance on the report of KPMG Peat Marwick LLP, independent
auditors, given on the authority of said firm as experts in auditing and
accounting.

      KPMG Peat Marwick LLP, 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 August 31, 1999.

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

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


44
<PAGE>

--------------------------------------------------------------------------------
Appendix A
--------------------------------------------------------------------------------

                  DESCRIPTION OF MOODY'S, S&P AND FITCH RATINGS

   DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS:

      Aaa -- Bonds that are rated Aaa are judged to be of the best quality,
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments with respect to these bonds are protected by a
large or by an exceptionally stable margin, and principal is secure. Although
the various protective elements applicable to these bonds are likely to change,
those changes are most unlikely to impair the fundamentally strong position of
these bonds.

      Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards and together with the Aaa group 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 other elements may be
present that make the long-term risks appear somewhat larger than in Aaa
securities.

      A -- Bonds that 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 with respect to these bonds are considered
adequate, but elements may be present that suggest a susceptibility to
impairment sometime in the future.

      Baa -- Bonds rated Baa are considered to be medium grade obligations, that
is they are neither highly protected nor poorly secured. Interest payment 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. These bonds lack outstanding investment characteristics and may
have speculative characteristics as well.

      Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.

      DESCRIPTION OF MOODY'S MUNICIPAL NOTE RATINGS:

      Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans 


                                                                             A-1
<PAGE>

--------------------------------------------------------------------------------
Appendix A (continued)
--------------------------------------------------------------------------------

bearing the designation MIG 1/VMIG 1 are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both. Loans
bearing the description MIG 2/VMIG 2 are of high quality, with margins of
protection ample, although not as large as the preceding group. Loans bearing
the designation MIG 3/VMIG 3 are of favorable quality, with all security
elements accounted for but lacking the undeniable strength of the preceding
grades. Market access for refinancing, in particular, is likely to be less well
established.

      DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS:

      The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rates Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations, normally evidenced by many of the characteristics of issuers rated
Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.

      DESCRIPTION OF S&P MUNICIPAL BOND RATINGS:

      AAA -- These bonds are the obligations of the higher quality and have the
strongest capacity for timely payment of debt service.

      General Obligation Bonds rated AAA -- In a period of economic stress, the
issuers of these bonds will suffer the smallest declines in income and will be
least susceptible to autonomous decline. Debt burden is moderate. A strong
revenue structure appears more than adequate to meet future expenditure
requirements. Quality of management appears superior.

      Revenue Bonds Rated AAA -- Debt service coverage with respect to these
bonds has been, and is expected to remain, substantial. Stability of the pledged
revenues is also exceptionally strong due to the competitive position of the
municipal enterprise or to the nature of the revenues. Basic security provisions
(including rate covenant, earnings test for issuance of additional bonds, debt
service reserve requirements) are rigorous. There is evidence of superior
management.

      AA -- The investment characteristics of bonds in this group are only
slightly less marked than those of the prime quality issues. Bonds rated AA have
the second strongest capacity for payment of debt service.


A-2
<PAGE>

--------------------------------------------------------------------------------
Appendix A (continued)
--------------------------------------------------------------------------------

      A -- Principal and interest payments on bonds in this category are
regarded as safe although the bonds are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories. This rating describes the third strongest capacity for payment
of debt service.

      General Obligation Bonds Rated A -- There is some weakness, either in the
local economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse circumstances,
any one such weakness might impair the ability of the issuer to meet debt
obligations at some future date.

      Revenue Bonds Rated A -- Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show some variations
because of increased competition or economic influences on revenues. Basic
security provisions, while satisfactory, are less stringent. Management
performance appearance appears adequate.

      BBB -- The bonds in this group are regarded as having an adequate capacity
to pay interest and repay principal. Whereas bonds in this group normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Bonds
rated BBB have the fourth strongest capacity or payment of debt service.

      S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA category.

      DESCRIPTION OF S&P MUNICIPAL NOTE RATINGS:

      Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given the designation of SP-1+.
Notes rated SP-2 have a satisfactory capacity to pay principal and interest.


                                                                             A-3
<PAGE>

--------------------------------------------------------------------------------
Appendix A (continued)
--------------------------------------------------------------------------------

      DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS:

      Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted A-1+.
Capacity for timely payment on commercial paper rated A-2 is strong, but the
relative degree of safety is not as high as for issues designated A-1.

      DESCRIPTION OF FITCH MUNICIPAL BOND RATINGS:

      AAA -- Bonds rated AAA by Fitch have the lowest expectation of credit
risk. The obligor has an exceptionally strong capacity for timely payment of
financial commitments, which is highly unlikely to be adversely affected by
foreseeable events.

      AA -- Bonds rated AA by Fitch have a very low expectation of credit risk.
They indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.

      A -- Bonds rated A by Fitch are considered to have a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered to be strong, but may be more vulnerable to changes in economic
conditions and circumstances than bonds with higher ratings.

      BBB -- Bonds rated BBB by Fitch currently have a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered to
be adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to impair this capacity. This is the lowest investment grade
category assigned by Fitch.

      Plus and minus signs are used by Fitch to indicate the relative position
of a credit within a rating category. Plus and minus signs, however, are not
used in the AAA category.


A-4
<PAGE>

--------------------------------------------------------------------------------
Appendix A (continued)
--------------------------------------------------------------------------------

      DESCRIPTION OF FITCH SHORT-TERM RATINGS:

      Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

      The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet financial commitments in a timely
manner.

      Fitch's short-term ratings are as follows:

      F1+ -- Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments. The "+" denotes an
exceptionally strong credit feature.

      F1 -- Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.

      F2 -- Issues assigned this rating have a satisfactory capacity for timely
payment of financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.

      F3 -- The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.


                                                                             A-5
<PAGE>

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<PAGE>

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PART C




Information required to be included in Part C is set forth, under the 
appropriate item so numbered, in Part C of this Registration Statement.



	PART C
	OTHER INFORMATION

Item 24. Financial Statements and Exhibits

	(1) Financial Statements 

	Parts A and B
		(a)	Financial Highlights

	(b)	   The Registrant's Annual Report for the period ended 
		August 	31, 1998, and the Independent Auditors' Report 
dated October 15, 1998 are 
		Incorporated by reference to the definitive 30b2-1 filed on 
November 4, 
		1998 as accession number 0000091155-98-000656.    

	Part C
		None

	(2)	Exhibits:

	Exhibit
	Number			Description

	(a)		Articles of Incorporation of Registrant*
	(b)		By-Laws*
	(c)		Not Applicable
	(d)		Form of Specimen Certificate representing shares of
			Common Stock, par value $.001 per share**
	(e)		Registrant's Dividend Reinvestment Plan (filed 
herewith)
	(f)		Not Applicable
	(g)(1)		Form of Investment Management Agreement**
	    (2)		Form of Transfer and Assumption of Investment
			Management Agreement between Registrant, Mutual
			Management Corp. and Smith Barney Mutual Funds
			Management Inc.***
	(h)(1)		Form of Purchase Agreement*
	    (2)		Form of Underwriting Agreement**
	(i)		Not Applicable
	(j)		Form of Custodian Services Agreement**
	(k)		Form of Transfer Agency and Registrar Agreement*
	(l)(1)		Opinion and consent of Willkie Farr & 
Gallagher**
	   (2)		Opinion and consent of Venable, Baetjer and 
Howard**
	(m)		Not Applicable.
	(n)		Consent of KPMG Peat Marwick LLP (filed  herewith)
	(o)		Not Applicable.
	(p)		Not Applicable
	(q)		Not Applicable.
	(r)		Financial Data Schedule (filed herewith)

*   Previously filed by Registrant with its initial Registration 
Statement (No. 33-54549) on July 12, 1994.

** Previously filed by Registrant with Pre-Effective Amendment No. 2 to 
its Registration Statement (No. 33-54549) on September 22, 1994.

***Previously filed by Registrant with Post-Effective Amendment No. 2 to 
its Registration Statement on December 21, 1995.

Item 25. Marketing Arrangements

	Reference is made to the Purchase Agreement and the Underwriting 
Agreement filed as Exhibits (h)(1) and (h)(2) by Registrant with Pre-
Effective 
Amendment No. 2 to its Registration Statement.

Item 26. Other Expenses of Issuance and Distribution

			The following table sets forth the estimated expenses 
to be incurred in 
connection with the offering described in this Registration Statement:

Securities and Exchange Commission registration fees $   N/A    
Printing (other than stock 
certificates).$ 9,000  
Legal fees and 
expenses.......................................................
 ..............$_________
Accounting fees and 
expenses................................................................
 ......
 ......$______      
Miscellaneous...........................................................
 ......
 ...................................$________ 
		
	TOTAL.............................................................
 ..........
 ........................... $9,000        


Item 27. Person Controlled by or Under Common Control


	None. 

Item 28. Number of Holders of Securities

	The number of record holders of Registrant as of November    2, 
1998 
     is as follows: 

		(1)						(2)

	Title of Class:				Number of Record Holders:

	Shares of  Common Stock,		   	58     
	$.001 Par Value

Item 29. Indemnification

	Under Article Seventh of Registrant's Articles of Incorporation, 
any 
past or present director or officer of Registrant is indemnified to the 
fullest extent permitted by the Maryland General Corporation Law 
("MGCL") 
against liability and all expenses reasonable incurred by him in 
connection 
with any action, suit or proceeding to which he may be a party or 
otherwise 
involved by reason of his being or having been a Director or officer of 
Registrant. This provision does not authorize indemnification when it is 
determined that the Director or officer would otherwise be liable to 
Registrant or its shareholders by reason of willful misfeasance, bad 
faith, 
gross negligence or reckless disregard of his duties. Expenses may be 
paid by 
Registrant to its currently acting and its former Directors and 
officers, to 
the fullest extent that indemnification of directors is permitted by the 
MGCL, 
the 1933 Act and the 1940 Act, in advance of the final dispositions of 
any 
action, suit or proceeding. The Board may, by by-law, resolution or 
agreement, 
make further provision for indemnification of Directors, officers, 
employees 
and agents to the fullest extent permitted by MGCL.

	Insofar as indemnification for liabilities arising under the 1933 
Act 
may be permitted to directors, officers and controlling persons of 
Registrant 
pursuant to the foregoing provisions, or otherwise, Registrant has been 
advised that, in the opinion of the SEC, such indemnification is against 
public policy as expressed in the 1933 Act and is, therefore, 
unenforceable. 
In the event that a claim for indemnification against such liabilities 
(other 
than the payment by Registrant of expenses incurred or paid by a 
director, 
officer or controlling person of Registrant in the successful defense of 
any 
action, suit or proceeding) is asserted by such director, officer or 
controlling person in connection with the securities being registered, 
Registrant will, unless in the opinion of its counsel the matter has 
been 
settled by controlling precedent, submit to a court of appropriate 
jurisdiction the question of whether such indemnification by it is 
against 
public policy as expressed in the 1933 Act and will be governed by the 
final 
adjudication of such issue.


Item 30. Business and Other Connections of the Investment Adviser

	Mutual Management Corp. (formerly known as Smith Barney Mutual 
Funds Management Inc. ("MMC"). MMC was incorporated in 1968 and is 
a wholly owned subsidiary of  Salomon Smith Barney Holdings Inc. 
("Holdings"), which is 
in turn a wholly owned subsidiary of Citigroup Inc. ("Citigroup"). 

	The list required by this Item 30 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 fiscal years, is incorporated 
by 
reference to Schedules A and D of FORM ADV filed by MMC pursuant to the 
Investment Advisers Act of 1940, as amended (SEC File No. 801-8314). 

Item 31. Location of Accounts and Records

	Each Person maintaining physical possession of accounts, books and 
other 
documents required to be maintained pursuant to Section 31(a) of the 
1940 Act 
is listed below:

		(1)	Salomon Smith Barney Inc.
			388 Greenwich Street
			New York, New York  10013 

		(2)	Greenwich Street California Municipal Fund Inc.
			388 Greenwich Street
			New York, New York  10013

		(3)	Mutual Management Corp.
			388 Greenwich Street
	`		New York, New York 10013

		(4) 	PNC Bank, National Association
			17th and Chestnut Streets
			Philadelphia, Pennsylvania 19103

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

Item 32. Management Services

	Not applicable. 

Item 33. Undertakings

	(1) Not Applicable.

	(2) Not Applicable.

	(3) Not applicable. 

	(4) (a)	Registrant undertakes to file, during any period in 
which 
offers or sales are being made, a Post-Effective Amendment to the 
Registration 
Statement:

		(1) to include any prospectus required by Section 10(a)(3) 
of 
the 1933 Act;

		(2) to reflect in the prospectus any facts or events after 
the 
effective date of the Registration Statement (or the most recent Post-
Effective Amendment hereof) which, individually or in the aggregate, 
represent 
a fundamental change in the information set forth in the Registration 
Statement; and

		(3) to include any material information with respect to the 
plan 
of distribution not previously disclosed in this Registration Statement 
or any 
material change to such information in this Registration Statement.

	(4) (b)	Registrant undertakes that, for the purpose of 
determining 
any liability under the 1933 Act, each subsequent Post-Effective 
Amendment 
shall be deemed to be a new Registration Statement relating to the 
securities 
offered therein, and the offering of those securities at that time shall 
be 
deemed to be the initial bona fide offering thereof.

	(4) (c)	Not applicable.

	(5)	Not applicable. 

	(6)	Not Applicable


	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 Post-Effective Amendment No. 3 to its Registration Statement 
on 
Form N-2 to be signed on its behalf by the undersigned, thereunto duly 
authorized, in the City of New York, on the 
    
   18th day of November , 
1998. 
    

						GREENWICH STREET CALIFORNIA
						MUNICIPAL FUND INC.

						By	/s/ HEATH B. MCLENDON
							_________________
							Heath B. McLendon
							Chairman of the Board, 
President and
							Chief Executive Officer

	Pursuant to the requirements of the Securities Act of 1933, as 
amended, 
this Post-Effective Amendment to the Registration Statement has been 
signed by 
the following persons in the capacities and on the dates indicated: 

Signature
Title
Date



/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board and
Chief Executive Officer
   11/18/98     


        



/s/ Joseph H. Fleiss*
Joseph H. Fleiss
Director
   11/18/98     




/s/ Donald R. Foley*
Donald R. Foley

Director
   11/18/98     




/s/ Paul Hardin III*
Paul Hardin III
Director
   11/18/98     




        


/s/ Roderick C. 
Rasmussen*
Roderick C. Rasmussen
Director

   11/18/98     



/s/ John P. Toolan*
John P. Toolan
Director
[/R]11/18/98 [/R]





/s/ Lewis E. Daidone
Lewis E. Daidone
Senior Vice President,
Treasurer (Chief Financial
and Accounting Officer)
[/R]11/18/98 [/R]


*By: /s/ Lewis E. Daidone
        Lewis E. Daidone
        Pursuant to a Power of Attorney




GREENWICH STREET CALIFORNIA MUNICIPAL FUND INC.

EXHIBIT INDEX

Exhibit No.			Description of Exhibit

(e)			Dividend Reinvestment Plan.

(n)			Consent of KPMG Peat Marwick LLP, independent
			accountants for the  Fund.

(r)			Financial Data Schedule