<PAGE>

                                   PROSPECTUS

                                                                    SMITH BARNEY

                                                                      New Jersey
                                                                      Municipals
                                                                       Fund Inc.

   
                                                                   JULY 29, 1997
    

                                                   Prospectus begins on page one


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--------------------------------------------------------------------------------
Prospectus                                                         July 29, 1997
--------------------------------------------------------------------------------

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

     Smith Barney New Jersey Municipals Fund Inc. (the "Fund") is a
non-diversified municipal fund that seeks to provide New Jersey investors with
as high a level of dividend income exempt from Federal income taxes and New
Jersey state personal income tax as is consistent with prudent investment
management and the preservation of capital.

   
     This Prospectus concisely sets forth certain information about the Fund,
including sales charges, distribution and service fees and expenses, that
investors will find helpful in making an investment decision. Investors are
encouraged to read this Prospectus carefully and retain it for future reference.
Additional information about the Fund is contained in a Statement of Additional
Information dated July 29, 1997, as amended or supplemented from time to time,
that is available upon request and without charge by calling or writing the Fund
at the telephone number or address set forth above or by contacting a Smith
Barney Financial Consultant. The Statement of Additional Information has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference into this Prospectus in its entirety.
    

SMITH BARNEY INC.
Distributor

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator

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


                                                                               1
<PAGE>

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Table of Contents
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Prospectus Summary                                                             3
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Financial Highlights                                                          10
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Investment Objective and Management Policies                                  14
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New Jersey Municipal Securities                                               21
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Valuation of Shares                                                           22
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Dividends, Distributions and Taxes                                            22
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Purchase of Shares                                                            24
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Exchange Privilege                                                            31
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Redemption of Shares                                                          34
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Minimum Account Size                                                          37
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Performance                                                                   37
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Management of The Fund                                                        38
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Distributor                                                                   39
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Additional Information                                                        40
--------------------------------------------------------------------------------

================================================================================
     No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund or
the Distributor. This Prospectus does not constitute an offer by the Fund or the
Distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
================================================================================


2
<PAGE>

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

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

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

ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."

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

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


                                                                               3
<PAGE>

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

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

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

     Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. Class Y shares are not subject to
any service or distribution fees.

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

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

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


4
<PAGE>

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

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

     Smith Barney Financial Consultants may receive different compensation for
selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B and Class C shares is the same as that of the
initial sales charge on the Class A shares.

     See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.

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

   
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open an
account by making an initial investment of at least $1,000 for each account.
Investors in Class Y shares may open an account for an initial investment of
$5,000,000. Subsequent investments of at least $50 may be made for all Classes.
The minimum initial investment requirement for Class A, Class B and Class C
shares and the subsequent investment requirement for all Classes through the
Systematic Investment Plan are described below. There is no minimum investment
requirement in Class A for unitholders who invest distributions from a unit
investment trust ("UIT") sponsored by Smith Barney. See "Purchase of Shares."

SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares. The minimum investment requirement for
Class A, Class B and Class C shares and the subsequent investment requirements
for all classes for shareholders purchasing shares through the Systematic
Investment Plan on a monthly basis is $25 and on a quarterly basis is $50. See
"Purchase of Shares." 
    


                                                                               5
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--------------------------------------------------------------------------------
Prospectus Summary (continued)
--------------------------------------------------------------------------------

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

MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM"),
serves as the Fund's investment adviser and administrator. SBMFM provides
investment advisory and management services to investment companies affiliated
with Smith Barney. SBMFM is a wholly owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial services holding company engaged, through
its subsidiaries, principally in four business segments: Investment Services,
Consumer Finance Services, Life Insurance Services and Property & Casualty
Insurance Services. See "Management of the Fund."

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

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

DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are paid    
monthly    . Distributions of net realized long- and short-term
capital gains, if any, are declared and paid annually after the end of the
fiscal year in which they were earned. See "Dividends, Distributions and Taxes."

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

RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the Fund
will achieve its investment objective. Assets of the Fund also may be invested
in the municipal securities of non-New Jersey municipal issuers ("Other
Municipal Securities" and, together with New Jersey Municipal Securities,
"Municipal Securities"). Dividends paid by the Fund that are derived from
interest attributable to New Jersey Municipal Securities will be excluded from
gross income for Federal income tax purposes and exempt from New Jersey state
personal income taxes (but not from New Jersey state franchise tax or New Jersey
state corporate income tax), provided, however, the Fund is a qualified
investment fund under New Jersey law. Dividends derived from interest on Other
Municipal Securities will be exempt from Federal income taxes, but may be
subject to New 


6
<PAGE>

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

Jersey state personal income taxes. Dividends derived from certain Municipal
Securities (including New Jersey Municipal Securities), however, may be a
specific tax preference item for Federal alternative minimum tax purposes. The
Fund may invest without limit in securities subject to the Federal alternative
minimum tax. See "Investment Objective and Management Policies" and "Dividends,
Distributions and Taxes."

     The Fund is more susceptible to factors adversely affecting issuers of New
Jersey Municipal Securities than is a municipal bond fund that does not
emphasize these issuers. See "New Jersey Municipal Securities" in the Prospectus
and "Special Considerations Relating to New Jersey Municipal Securities" in the
Statement of Additional Information for further details about the risks of
investing in New Jersey obligations.

     The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), which means that
the Fund is not limited by the 1940 Act in the proportion of its assets that it
may invest in the obligations of a single issuer. The Fund's assumption of large
positions in the obligations of a small number of issuers may cause the Fund's
share price to fluctuate to a greater extent than that of a diversified company
as a result of changes in the financial conditions or in the market's assessment
of the issuers.

   
     The Fund generally will invest at least 75% of its assets in securities
rated investment grade, and may invest the remainder of its assets in securities
rated as low as C by Moody's Investors Service, Inc. ("Moody's") or D by
Standard & Poor's Ratings Group ("S&P"), or in unrated obligations of comparable
quality. Securities in the fourth highest rating category, though considered to
be investment grade, have speculative characteristics. Securities rated as low
as D are extremely speculative and are in actual default of interest and/or
principal payments.
    

     There are several risks in connection with the use of when-issued
securities, municipal bond index and interest rate futures contracts and put and
call options thereon as hedging devices, and municipal leases. See "Investment
Objective and Management Policies -- Certain Portfolio Strategies."


                                                                               7
<PAGE>

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

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

   
New Jersey Municipals Fund Inc.
    

<TABLE>
<CAPTION>
                                                     Class A  Class B  Class C  Class Y
=======================================================================================
<S>                                                   <C>      <C>      <C>      <C>  
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
  (as a percentage of offering price) ............    4.00%    None     None     None
Maximum CDSC (as a  percentage of original cost or
  redemption proceeds, whichever is lower) .......    None*    4.50%    1.00%    None
=======================================================================================
   
Annual Fund Operating Expenses
(as a percentage of average net assets)
   Management fees ...............................    0.50%    0.50%    0.50%    0.50%
   12b-1 fees** ..................................    0.15     0.65     0.70     None
   Other expenses*** .............................    0.11     0.13     0.12     0.11
=======================================================================================
TOTAL FUND OPERATING EXPENSES ....................    0.76%    1.28%    1.32%    0.61%
=======================================================================================
    
</TABLE>

   
*    Purchase of Class A shares of $500,000 or more will be made at net asset
     value with no sales charge, but will be subject to a CDSC of 1.00% on
     redemptions made within 12 months of purchase.
    
**   Upon conversion of Class B shares to Class A shares, such shares will no
     longer be subject to a distribution fee. Class C shares do not have a
     conversion feature and, therefore, are subject to an ongoing distribution
     fee. As a result, long-term shareholders of Class C shares may pay more
     than the economic equivalent of the maximum front-end sales charge
     permitted by the National Association of Securities Dealers, Inc.
   
***  For Class Y shares, "Other expenses" have been estimated based on expenses
     incurred by Class A shares because no Class Y shares had been purchased as
     of March 31, 1997.

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

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


8
<PAGE>

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

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

   
EXAMPLE

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

New Jersey Municipals Fund Inc.
    

                                             1 Year  3 Years  5 Years  10 Years*
--------------------------------------------------------------------------------
   
An investor would pay the following expenses on
a $1,000 investment, assuming (1) 5.00% annual
return and (2) redemption at the end of each 
time period:
      Class A.................................. $47     $63      $81      $130
      Class B..................................  58      71       80       140
      Class C..................................  23      42       72       159
      Class Y..................................   6      20       34        76
--------------------------------------------------------------------------------
An investor would pay the following expenses on 
the same investment, assuming the same annual 
return and no redemption:
      Class A.................................. $47     $63      $81      $130
      Class B..................................  13      41       70       140
      Class C..................................  13      42       72       159
      Class Y..................................   6      20       34        76
--------------------------------------------------------------------------------
    

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

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


                                                                               9
<PAGE>

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

   
     The following information for each of the two years ended March 31, 1997
has been audited by KPMG Peat Marwick LLP, independent auditors, whose report
thereon appears in the Fund's Annual Report dated March 31, 1997. The
information for the fiscal years ended March 31, 1989 through March 31, 1995 has
been audited by other auditors. 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 the Statement
of Additional Information. As of March 31, 1997, no Class Y shares were
outstanding and, accordingly, no comparable information is available at this
time for that Class.
    

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

New Jersey Municipals Fund Inc.

<TABLE>
<CAPTION>
   
Class A Shares                              1997      1996      1995      1994      1993      1992
=====================================================================================================
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>   
Net Asset Value, Beginning of Year         $12.88    $12.62    $12.55    $13.16    $12.44    $12.17
-----------------------------------------------------------------------------------------------------
Income From Operations:
  Net investment income(1)                   0.70      0.70      0.70      0.70      0.75      0.77
  Net realized and unrealized gain/(loss)    0.02      0.26      0.07     (0.46)     0.87      0.44
-----------------------------------------------------------------------------------------------------
Total Income From Operations                 0.72      0.96      0.77      0.24      1.62      1.21
=====================================================================================================
Less Distributions From:
  Net investment income                     (0.68)    (0.70)    (0.70)    (0.70)    (0.75)    (0.77)
  Net realized gains                           --        --        --     (0.15)    (0.14)    (0.13)
  Capital                                      --        --        --        --     (0.01)    (0.04)
-----------------------------------------------------------------------------------------------------
Total Distributions                         (0.68)    (0.70)    (0.70)    (0.85)    (0.90)    (0.94)
-----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year               $12.92    $12.88    $12.62    $12.55    $13.16    $12.44
-----------------------------------------------------------------------------------------------------
Total Return                                 5.74%     7.77%     6.37%     1.66%    13.49%    10.22%
-----------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions)         $  148    $  154    $  107    $  120    $  116    $   93
-----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(1)(2)                             0.76%     0.84%     0.88%     0.83%     0.74%     0.67%
  Net investment income                      5.44      5.41      5.61      5.17      5.76      6.18
-----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                        36%       22%       32%       32%       58%       98%
=====================================================================================================
    
</TABLE>

   
(1)  The investment adviser has waived all or part of its fees for the fiscal
     years ended March 31, 1992, 1993 and 1994. If such fees had not been
     waived, the per share effects on net investment income and expense ratios
     would have been as follows:

                   Per Share Decreases                 Expense Ratios
                 in Net Investment Income            Without Fee Waivers
                 ------------------------            -------------------
    

                    1994   1993   1992               1994   1993   1992
                    ----   ----   ----               ----   ----   ----
                          
Class A            $0.01  $0.02  $0.02               0.88%  0.90%  0.83%

   
(2)  Expense ratios exclude interest expense. Expense ratios including interest
     expense would have been 0.89% and 0.68% for the years ended March 31, 1995
     and March 31, 1992, respectively.
    

       


10
<PAGE>

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

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

   
New Jersey Municipals Fund Inc.
    

Class A Shares                                1991      1990      1989*
=========================================================================
Net Asset Value, Beginning of Year          $11.92    $11.67    $11.40
-------------------------------------------------------------------------
Income From Operations:
  Net investment income***                    0.82      0.83      0.82
  Net realized and unrealized gain/(loss)     0.32      0.27      0.28
-------------------------------------------------------------------------
Total From Operations                         1.14      1.10      1.10
=========================================================================
   
Less Distributions From:
  Net investment income                      (0.83)    (0.82)    (0.82)
  Net realized gains                         (0.05)    (0.03)    (0.01)
  Capital                                    (0.01)       --        --
-------------------------------------------------------------------------
Total Distributions                          (0.89)    (0.85)    (0.83)
-------------------------------------------------------------------------
Net Asset Value, End of Year                $12.17    $11.92    $11.67
-------------------------------------------------------------------------
Total Return                                  9.89%     9.62%     9.84%++
-------------------------------------------------------------------------
Net Assets, End of Year (millions)          $   65    $   39    $   29
-------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses                                    0.57%     0.55%     0.52%**
  Net investment income                       6.74      6.89      7.23**
-------------------------------------------------------------------------
Portfolio Turnover Rate                         44%       42%       25%
=========================================================================
    

*    The Fund commenced operations on April 22, 1988. Those shares in existence
     prior to November 6, 1992 were designated as Class A shares.
**   Annualized.
   
***  Net investment income before waiver of fees and/or reimbursement of
     expenses by the investment adviser, sub-investment adviser and/or
     administrator for the years ended March 31, 1991, 1990, and 1989 would have
     been $.78, $.77, and $.74, respectively.
++   Total return is not annualized, as it may not be representative of the
     total return for the year.
    


                                                                              11
<PAGE>

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

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

   
New Jersey Municipals Fund Inc.
    

<TABLE>
<CAPTION>
   
Class B Shares                              1997        1996        1995        1994        1993(1)
====================================================================================================
<S>                                        <C>         <C>         <C>         <C>         <C>   
Net Asset Value, Beginning of Year         $12.88      $12.62      $12.55      $13.16      $12.75
----------------------------------------------------------------------------------------------------
Income From Operations:
  Net investment income(2)                   0.64        0.63        0.63        0.64        0.28
  Net realized and unrealized gain/(loss)    0.02        0.26        0.06       (0.47)       0.55
----------------------------------------------------------------------------------------------------
Total Income From Operations                 0.66        0.89        0.69        0.17        0.83
====================================================================================================
Less Distributions From:
  Net investment income                     (0.62)      (0.63)      (0.62)      (0.63)      (0.27)
  Net realized gains                           --          --          --       (0.15)      (0.14)
  Capital                                      --          --          --          --       (0.01)
----------------------------------------------------------------------------------------------------
Total Distributions                         (0.62)      (0.63)      (0.62)      (0.78)      (0.42)
----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year               $12.92      $12.88      $12.62      $12.55      $13.16
----------------------------------------------------------------------------------------------------
Total Return                                 5.23%       7.20%       5.76%       1.15%       6.60%++
----------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions)         $   62      $   63      $   55      $   48      $   16
----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses(2)(3)                             1.28%       1.36%       1.39%       1.36%       1.33%+
  Net investment income                      4.92        4.90        5.09        4.64        5.17+
----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                        36%         22%         32%         32%         58%
====================================================================================================
    
</TABLE>

   
(1)  For the period from November 6, 1992 (inception date) to March 31, 1993.
(2)  The investment adviser has waived all or part of its fees for each of the
     years ended March 31, 1993 and 1994. If such fees had not been waived, the
     per share effects on net investment income and expense ratios would have
     been as follows:

                 Per Share Decreases                  Expense Ratios
               in Net Investment Income             Without Fee Waivers
               ------------------------             -------------------
                                             
                    1994      1993                     1994      1993
                    ----      ----                     ----      ----

Class B             $0.01     $0.01                    1.41%     1.49%+

   
(3)  Expense ratios exclude interest expense. The expense ratio including
     interest expense would have been 1.40% for the years ended March 31, 1995.
++   Total return is not annualized, as it may not be representative of the
     total return for the year.
    
+    Annualized.


12
<PAGE>

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

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

   
New Jersey Municipals Fund Inc.
    

Class C Shares                             1997         1996         1995(1)
==============================================================================
Net Asset Value, Beginning of Year        $12.88       $12.62       $11.86
------------------------------------------------------------------------------
Income From Operations:
  Net investment income                     0.63         0.62         0.20
  Net realized and unrealized gain          0.02         0.27         0.74
------------------------------------------------------------------------------
Total Income From Operations                0.65         0.89         0.94
==============================================================================
Less Distributions From:
  Net investment income                    (0.61)       (0.63)       (0.18)
------------------------------------------------------------------------------
   
Total Distributions                        (0.61)       (0.63)       (0.18)
------------------------------------------------------------------------------
    
Net Asset Value, End of Year              $12.92       $12.88       $12.62
------------------------------------------------------------------------------
Total Return                                5.17%        7.17%        8.01%++
------------------------------------------------------------------------------
   
Net Assets, End of Year (000s)            $4,861       $3,812       $  248
------------------------------------------------------------------------------
Ratios to Average Net Assets:
  Expenses                                  1.32%        1.41%        1.44%+
  Net investment income                     4.88         4.82         5.05+
------------------------------------------------------------------------------
    
Portfolio Turnover Rate                       36%          22%          32%
==============================================================================

(1)  For the period from December 13, 1994 (inception date) to March 31, 1995.
   
++   Total return is not annualized, as it may not be representative of the
     total return for the year.
    
+    Annualized.


                                                                              13
<PAGE>

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

     The investment objective of the Fund is to provide New Jersey investors
with as high a level of income exempt from Federal and New Jersey personal
income taxes as is consistent with prudent investment management and the
preservation of capital. This investment objective may not be changed without
the approval of the holders of a majority of the Fund's outstanding shares.
There can be no assurance that the Fund's investment objective will be achieved.

     The Fund operates subject to an investment policy providing that, under
normal market conditions, the Fund will invest at least 80% of its net assets in
Municipal Securities and at least 65% of the aggregate principal amount of the
Fund's investments in New Jersey Municipal Securities. Whenever less than 80% of
the Fund's assets are invested in New Jersey Municipal Securities, the Fund, in
order to maintain its status as a "qualified investment fund" under New Jersey
law, will seek to invest in debt obligations which, in the opinion of counsel to
the issuers, are free from state or local taxation under New Jersey or Federal
laws ("Tax-Exempt Obligations"). The Fund's investments in New Jersey Municipal
Securities and Tax-Exempt Obligations will represent at least 80% of the
aggregate principal amount of all of its investments, excluding cash and cash
items (including receivables). Subject to these minimum investment requirements,
the Fund also may acquire intermediate- and long-term debt obligations
consisting of Other Municipal Securities, the interest on which is at least
exempt from Federal income taxation (not including the possible applicability of
the alternative minimum tax). When SBMFM believes that market conditions warrant
adoption of a temporary defensive investment posture, the Fund may invest
without limit in Other Municipal Securities and in "Temporary Investments" as
described below.

     The Fund generally will invest at least 75% of its total assets in
investment grade debt obligations rated no lower than Baa, MIG 3 or Prime-1 by
Moody's or BBB, SP-2 or A-1 by S&P, or in unrated obligations of comparable
quality. Unrated securities will be considered to be of investment grade if
deemed by SBMFM to be comparable in quality to instruments so rated, or if other
outstanding obligations of the issuers of the unrated securities are rated Baa
or better by Moody's or BBB or better by S&P. The balance of the Fund's assets
may be invested in securities rated as low as C by Moody's or D by S&P, or
comparable unrated securities. (These securities are sometimes referred to as
"junk bonds.") Securities in the fourth highest rating category, though
considered to be investment grade, have speculative characteristics. Securities
rated as low as D are extremely speculative and are in actual default of
interest and/or principal payments. A description of the rating systems of
Moody's and S&P is contained in the Statement of Additional Information.

     The Fund's average weighted maturity will vary from time to time based on
the judgment of SBMFM. The Fund intends to focus on intermediate- and long-term
obligations, that is, obligations with remaining maturities at the time of
purchase of 


14
<PAGE>

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

three to in excess of twenty years. Obligations which are rated Baa by Moody's
or BBB by S&P and those which are rated lower than investment grade are subject
to greater market fluctuation and more uncertainty as to payment of principal
and interest, and therefore generate higher yields, than obligations rated above
Baa or BBB.

     The value of debt securities varies inversely to changes in the direction
of interest rates. When interest rates rise, the value of debt securities
generally falls, and when interest rates fall, the value of debt securities
generally rises.

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

     While the market for municipal bonds is considered to be generally
adequate, the existence of limited markets for particular lower-rated and
comparable unrated securities may diminish the Fund's ability to (a) obtain
accurate market quotations for purposes of valuing such securities and
calculating its net asset value and (b) sell the securities at fair value either
to meet redemption requests or to respond to changes in the economy or in the
financial markets. A severe economic recession would likely disrupt the market
for such securities and adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon.

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

     Because many issuers of New Jersey Municipal Securities may choose not to
have their obligations rated, it is possible that a large portion of the Fund's
portfolio 


                                                                              15
<PAGE>

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

may consist of unrated obligations. Unrated obligations are not necessarily of
lower quality than rated obligations, but to the extent the Fund invests in
unrated obligations, the Fund will be more reliant on SBMFM's judgment, analysis
and experience than would be the case if the Fund invested only in rated
obligations.

   
     Municipal Lease Obligations. The Fund may invest without limit in
participations in municipal lease obligations or installment purchase contract
obligations (collectively, "municipal lease obligations") of state and local
governments or authorities to finance the acquisition of equipment or
facilities. The interest on such obligations is, in the opinion of counsel to
the issuers, excluded from gross income for Federal and New Jersey state
personal income tax purposes provided the liability for payments of principal
and interest is solely that of a New Jersey governmental entity. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are often secured by the underlying
property, disposition of the property in the event of foreclosure might prove
difficult. There is no limitation on the percentage of the Fund's assets that
may be invested in municipal lease obligations. In evaluating municipal lease
obligations, SBMFM will consider such factors as it deems appropriate, which may
include: (a) whether the lease can be canceled; (b) the ability of the lease
obligee to direct the sale of the underlying assets; (c) the general
creditworthiness of the lease obligor; (d) the likelihood that the municipality
will discontinue appropriating funding for the leased property in the event such
property is no longer considered essential by the municipality; (e) the legal
recourse of the lease obligee in the event of such a failure to appropriate
funding; (f) whether the security is backed by a credit enhancement such as
insurance; and (g) any limitations which are imposed on the lease obligor's
ability to utilize substitute property or services rather than those covered by
the lease obligation.

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

     Private Activity Bonds. The Fund may invest without limit in private
activity bonds. 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 


16
<PAGE>

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

purposes of the Federal individual and corporate alternative minimum taxes.
Individual and corporate shareholders may be subject to a Federal alternative
minimum tax to the extent the Fund's dividends are derived from interest on
those bonds. Dividends derived from interest income on Municipal Securities are
a component of the "current earnings" adjustment item for purposes of the
Federal corporate alternative minimum tax.

     The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. The Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which will relieve the Fund of any liability for
Federal income tax to the extent its earnings are distributed to shareholders.
The Fund must qualify as a regulated investment company to be a qualified
investment fund under New Jersey law. To so qualify, among other requirements,
the Fund will limit its investments so that, at the close of each quarter of the
taxable year, (a) not more than 25% of the market value of the Fund's total
assets will be invested in the securities of a single issuer and (b) with
respect to 50% of the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the securities of a single
issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. The Fund's assumption of large positions in the
obligations of a small number of issuers may cause the Fund's share price to
fluctuate to a greater extent than that of a diversified company as a result of
changes in the financial condition or in the market's assessment of the issuers.

     The Fund may invest without limit in debt obligations that are repayable
out of revenue streams generated from economically related projects or
facilities. Revenue securities may also include private activity bonds which may
be issued by or on behalf of public authorities to finance various privately
operated facilities and are not payable from the unrestricted revenues of the
issuer. Sizable investments in such obligations could involve an increased risk
to the Fund should any of the related projects or facilities experience
financial difficulties. The Fund also may invest up to 15% of its total assets
in securities with contractual or other restrictions on resale and other
instruments which are not readily marketable. Notwithstanding the foregoing, the
Fund will not invest more than 10% of its assets in securities (excluding those
subject to Rule 144A under the Securities Act of 1933, as amended) that are
restricted. The Fund does not expect to invest more than 5% of its assets in
repurchase agreements. In addition, the Fund may invest up to 5% of its assets
in the securities of issuers which have been in continuous operation for less
than three years. The Fund also is authorized to borrow in an amount of up to
10% of its total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) in order to meet anticipated
redemptions and to pledge its assets to the same extent in connection with the
borrowings.


                                                                              17
<PAGE>

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

     Further information about the Fund's investment policies, including a list
of those restrictions on the Fund's investment activities that cannot be changed
without shareholder approval, appears in the Statement of Additional
Information.

     CERTAIN PORTFOLIO STRATEGIES

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

   
     When-Issued Securities. New issues of Municipal Securities frequently are
offered on a when-issued basis, which means that delivery and payment for the
securities normally take place 15 to 45 days after the date of the commitment to
purchase. The payment obligation and interest rate that will be received on
when-issued securities are fixed at the time that the buyer enters into the
commitment. As a result, the yields obtained on the securities may be higher or
lower than the yields available in the market on the dates when the instruments
are actually delivered to the buyers. In addition, during the period before
delivery and payment, there is no accrual of interest and there may be
fluctuations in the price of the securities so that there may be an unrealized
loss at the time of delivery. The Fund will establish a segregated account with
the Fund's custodian consisting of cash, debt securities of any grade or equity
securities, having a value equal to or greater than the Fund's purchase
commitments, provided such securities have been determined by the SBMFM to be
liquid and unencumbered, and are marked to market daily, pursuant to guidelines
established by the Directors. Placing securities rather than cash in the
segregated account may have a leveraging effect on the Fund's net assets. The
Fund generally will make commitments to purchase Municipal Securities and other
tax-exempt obligations on a when-issued basis with the intention of actually
acquiring the securities, but the Fund may sell the securities before the
delivery date if it is deemed advisable.
    

     Temporary Investments. Under normal market conditions, the Fund may hold up
to 20% of its total assets in cash or money market instruments, including
taxable money market instruments ("Temporary Investments"). In addition, when
SBMFM believes that market conditions warrant, including when acceptable New
Jersey Municipal Securities are unavailable, the Fund may take a temporary
defensive posture and invest without limitation in Temporary Investments. To the
extent the Fund holds Temporary Investments, it will not achieve its investment
objective. Tax-exempt securities eligible for short-term investment by the Fund
under such circumstances are municipal notes rated at the time of purchase
within the three highest grades by Moody's or S&P or, if not rated, issued by
issuers with outstanding debt securities rated within the three highest grades
by Moody's or S&P. Any Temporary Investments made for defensive purposes will be
made in conformity with the requirements of a qualified investment fund under
New Jersey law. Since the commencement of its operations, the Fund has not found
it necessary to invest in taxable Temporary Investments.


18
<PAGE>

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

     Financial Futures and Options Transactions. To hedge against a decline in
the value of Municipal Securities it owns or an increase in the price of
Municipal Securities it proposes to purchase, the Fund may enter into financial
futures contracts and invest in options on financial futures contracts that are
traded on a domestic 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 Securities or
relate to debt securities the prices of which are anticipated by SBMFM to
correlate with the prices of the Municipal Securities 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 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 if
the Fund enters into futures contracts for speculative purposes, that the
aggregate initial 


                                                                              19
<PAGE>

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

margin deposits and premiums paid by the Fund will not exceed 5% of the market
value of its assets. In addition, the Fund will, with respect to its purchases
of financial futures contracts, establish a segregated account consisting of
cash or cash equivalents in an amount equal to the total market value of the
futures contracts, less the amount of initial margin on deposit for the
contracts. The Fund's ability to trade in financial futures contracts and
options on financial futures contracts may be limited to some extent by the
requirements of the Code applicable to a regulated investment company, in
addition to the requirements of a qualified investment fund under New Jersey
law, that are described below under "Dividends, Distributions and Taxes."

     Although the Fund intends to enter into financial futures contracts and
options on financial futures contracts that are traded on a domestic exchange or
board of trade only if an active market exists for those instruments, no
assurance can be given that an active market will exist for them at any
particular time. If closing a futures position in anticipation of adverse price
movements is not possible, the Fund would be required to make daily cash
payments of variation margin. In those circumstances, an increase in the value
of the portion of the Fund's investments being hedged, if any, may offset
partially or completely   ,     losses on the futures contract. No assurance 
can begiven, however, that the price of the securities being hedged will 
correlate
with the price movements in a futures contract and, thus, provide an offset to
losses on the futures contract or option on the futures contract. In addition,
in light of the risk of an imperfect correlation between securities held by the
Fund that are the subject of a hedging transaction and the futures or options
used as a hedging device, the hedge may not be fully effective because, for
example, losses on the securities held by the Fund may be in excess of gains on
the futures contract or losses on the futures contract may be in excess of gains
on the securities held by the Fund that were the subject of the hedge. In an
effort to compensate for the imperfect correlation of movement in the price of
the securities being hedged and movements in the price of futures contracts, the
Fund may enter into financial futures contracts or options on financial futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the futures contract has
been less or greater than that of the securities. This "over hedging" or "under
hedging" may adversely affect the Fund's net investment results if market
movements are not as anticipated when the hedge is established.

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


20
<PAGE>

--------------------------------------------------------------------------------
New Jersey Municipal Securities
--------------------------------------------------------------------------------

   
     As used in this Prospectus, the term "New Jersey Municipal Securities"
generally refers to intermediate- and long-term investment grade municipal
securities issued by the State of New Jersey and its political subdivisions,
agencies and public authorities (together with certain other governmental
issuers such as the Commonwealth of Puerto Rico, the Virgin Islands and Guam) to
obtain funds for various public purposes. The interest on such obligations is,
in the opinion of bond counsel to the issuers, excluded from gross income for
Federal income tax purposes and exempt under the New Jersey Gross Income Tax
Act. For that reason, interest on these obligations is generally fixed at a
lower rate than it would be if it were subject to such taxes. Interest income on
certain New Jersey Municipal Securities is a specific tax preference item for
purposes of the Federal individual and corporate alternative minimum taxes. See
"Dividends, Distributions and Taxes."
    

     CLASSIFICATIONS

     The two principal classifications of New Jersey Municipal Securities are
"general obligation bonds" and "revenue bonds." General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds are payable from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source, but not from the general taxing power. In addition, certain types of
"private activity bonds" issued by or on behalf of public authorities to obtain
funds for privately operated facilities are included in the term New Jersey
Municipal Securities, so long as the interest paid on the bonds qualifies as
excluded from gross income for Federal income tax purposes and exempt under the
New Jersey Gross Income Tax Act. Private activity bonds are in most cases
revenue bonds and generally do not carry the pledge of the full faith, credit
and taxing power of the issuing entity.

     SPECIAL CONSIDERATIONS

     Economic, financial and other conditions relating to the State of New
Jersey have an obvious impact upon the state's general obligation bonds. These
conditions, to varying degrees, also will affect the bonds issued by the state's
political subdivisions, agencies and public authorities, including special
obligation bonds. In general, the State of New Jersey has a diversified economic
base consisting of, among others, commerce, construction and service industries,
selective commercial, agriculture, insurance, tourism, petroleum refining and
manufacturing, although New Jersey's manufacturing industry has shown a downward
trend in the last few years.  While New Jersey's economic base has
become more diversified over time and thus its economy appears to be less
vulnerable during recessionary periods, a recurrence 


                                                                              21
<PAGE>

--------------------------------------------------------------------------------
New Jersey Municipal Securities (continued)
--------------------------------------------------------------------------------

of high levels of unemployment could adversely affect New Jersey's overall
economy and its ability to meet its financial obligations.

     New Jersey maintains a balanced budget, which generally restricts total
appropriation increases to only 5% annually to any municipality or county or an
index rate determined annually by the Director of the Division of Local
Government Services, whichever is less. New Jersey law provides for those
situations where the index percentage rate exceeds 5%. As a result, the balanced
budget plan may adversely affect a municipality's or county's ability to repay
its obligations. Of course, each municipality, county or other political
subdivision will be subject to different economic, financial and other
conditions, which will affect its ability to pay the principal and interest on
its bonds. Similarly, special obligation or revenue bonds payable from revenues
generated by particular projects or other specific revenue sources also will be
subject to unique economic, financial and other conditions. If New Jersey or any
of its political subdivisions, agencies or public authorities is unable to meet
its financial obligations, the income derived by the Fund, the ability to
preserve or realize appreciation of the Fund's capital and the Fund's liquidity
could be adversely affected.

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

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

     Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Directors.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Board of Directors determines that amortized cost is fair
value. Further information regarding the Fund's valuation policies is contained
in the Statement of Additional Information.

--------------------------------------------------------------------------------
Dividends, Distributions And Taxes
--------------------------------------------------------------------------------

     DIVIDENDS AND DISTRIBUTIONS

     The Fund declares dividends from its net investment income (that is, income
other than net realized long- and short-term capital gains) monthly; dividends
ordinarily will be paid on the last Friday of each calendar month to
shareholders of 


22
<PAGE>

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

record as of three business days prior thereto. Distributions of net realized
long- and short-term capital gains, if any, are declared and paid annually after
the end of the fiscal year in which they have been earned.

     If a shareholder does not otherwise instruct, dividends or capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. In addition, in
order to avoid the application of a 4.00% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains, the Fund may make a
distribution shortly before December 31 in each year of any undistributed
ordinary income or capital gains and expects to make any other distributions as
are necessary to avoid the application of this tax.

     If, for any full fiscal year, the Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions
generally will be treated as a tax-free return of capital (up to the amount of
the shareholder's tax basis in his or her shares). The amount treated as a
tax-free return of capital will reduce a shareholder's adjusted basis in his or
her shares. Pursuant to the requirements of the 1940 Act and other applicable
laws, a notice will accompany any distribution paid from sources other than net
investment income. In the event the Fund distributes amounts in excess of its
net investment income and net realized capital gains, such distributions may
have the effect of decreasing the Fund's total assets, which may increase the
Fund's expense ratio.

     The per share dividends on Class B shares and Class C shares may be lower
than the per share dividends on Class A and Class Y shares principally as a
result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the service
fee applicable to Class A shares. Distributions of capital gains, if any, will
be in the same amount for Class A, B, C and Y shares.

     TAXES

     The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code, and will designate and pay exempt
interest dividends derived from interest earned on qualifying tax-exempt
obligations. Such exempt-interest dividends may be excluded by shareholders from
their gross income for regular Federal income tax purposes although (a) all or a
portion of such exempt-interest dividends will be a specific preference item for
purposes of the Federal individual and corporate alternative minimum taxes to
the extent that they are derived from certain types of private activity bonds
issued after August 7, 1986 and (b) all exempt-interest dividends will be a
component of the "current earnings" adjustment item for purposes of the Federal
corporate alternative minimum tax. In addition, corporate shareholders may incur
a greater Federal 


                                                                              23
<PAGE>

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

"environmental" tax liability through the receipt of Fund dividends and
distributions. Distributions paid by the Fund, provided it is a "qualified
investment fund" under New Jersey law, attributable to interest on or gains from
New Jersey Municipal Securities and Tax-Exempt Obligations will be exempt from
the New Jersey personal income tax (but not the New Jersey Corporation Business
Tax).

     Dividends paid from taxable net investment income, if any, and
distributions of net realized short-term capital gains are taxable to
shareholders at ordinary income rates, regardless of how long shareholders have
held their Fund shares and whether such dividends or distributions are received
in cash or reinvested in additional shares. Distributions of net realized
long-term capital gains are taxable to shareholders as long-term capital gains,
regardless of how long they have held their Fund shares and whether such
distributions are received in cash or reinvested in Fund shares. Furthermore, as
a general rule, a shareholder's gain or loss on a sale or redemption of his or
her shares will be a long-term capital gain or loss if the shareholder has held
the shares for more than one year and will be a short-term capital gain or loss
if the shareholder has held the shares for one year or less. Gains resulting
from the redemption or sales of shares of the Fund, provided it is a qualified
investment fund under New Jersey law, would be exempt from the New Jersey
personal income tax. The Fund's dividends and distributions do not qualify for
the dividends-received deduction for corporations.

     Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder will also receive, if
appropriate, various written notices after the close of the Fund's prior taxable
year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during the Fund's prior taxable
year. These statements may set forth the dollar amount of income excluded or
exempt from regular Federal income or New Jersey state personal income taxes and
the dollar amount, if any, subject to such taxes. Moreover, these statements
will designate the amount of exempt-interest dividends that is a specific
preference item for purposes of the Federal individual and corporate alternative
minimum taxes. Shareholders should consult their tax advisors with specific
reference to their own tax situations.

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

     GENERAL

   
     The Fund currently offers four Classes of shares. Class A shares are sold
to investors with an initial sales charge and Class B and Class C shares are
sold without an initial sales charge but are subject to a CDSC payable upon
certain redemptions. Class Y shares are sold without an initial sales charge or
CDSC and are available 
    


24
<PAGE>

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

   
only to investors investing a minimum of $5,000,000 (except purchases of Class Y
shares by Smith Barney Concert Allocation Series Inc., for which there is no
minimum purchase amount). See "Prospectus Summary--Alternative Purchase
Arrangements" for a discussion of factors to consider in selecting which Class
of shares to purchase.

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

     Investors in Class A, Class B and Class C shares may open an account in the
Fund by making an initial investment of at least $1,000. Investors in Class Y
shares may open an account by making an initial investment of $5,000,000.
Subsequent investments of at least $
    
   50     may be made for all 
Classes.     For shareholders purchasing shares of the Fund through the
 Systematic Investment Plan on a monthly basis, the mimimum initial investment
 requirement for Class A, Class B and Class C shares and subsequent investments 
requirement for all Classes is $25.     For
shareholders purchasing shares of the Fund through the Systematic Investment
Plan on a quarterly basis, the minimum initial investment required for Class A,
Class B and Class C shares and the subsequent investment requirement for all
Classes is $50. There are no minimum investment requirements for Class A shares
for employees of Travelers and its subsidiaries, including Smith Barney,
unitholders who invest distributions from a UIT sponsored by Smith Barney, and
Directors of the Fund and their spouses and children. The Fund reserves the
right to waive or change minimums, to decline any order to purchase its shares
and to suspend the offering of shares from time to time. Shares purchased will
be held in the shareholder's account by the Transfer Agent. Share certificates
are issued only upon a shareholder's written request to the Transfer Agent.

     The minimum intial and subsequent investment requirements in a Fund for an
account established under the Uniform Gift to Minors Act is $250 and the
subsequent investment requirement is $50.


     Purchase orders received by the Fund or Smith Barney prior to the close of
regular trading on the NYSE, on any day the Fund calculates its net asset value,
are priced according to the net asset value determined on that day (the "trade
date"). Orders received by dealers or Introducing Brokers prior to the close of
regular trading on the NYSE on any day the Fund calculates its net asset value,
are priced according to the net asset value determined on that day, provided the
order is received by the Fund or Smith Barney prior to Smith Barney's close of
business. For shares purchased through Smith Barney or Introducing Brokers
purchasing 


                                                                              25
<PAGE>

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

through Smith Barney, payment for Fund shares is due on the third business day
after the trade date (the "settlement date"). In all other cases, payment must
be made with the purchase order.

     SYSTEMATIC INVESTMENT PLAN

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

     INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES

     The sales charges applicable to purchases of Class A shares of the Fund are
as follows:

                            Sales Charge     Sales Charge         Dealer's
                             as a % of        as a % of      Reallowance as % of
   Amount of Investment     Transaction    Amount Invested     Offering Price
================================================================================

   Less than - $25,000         4.00%             4.17%              3.60%
   $ 25,000 -  $49,999         3.50              3.63               3.15
   $ 50,000 -  $99,999         3.00              3.09               2.70
   $100,000 -  $249,999        2.50              2.56               2.25
   $250,000 -  $499,999        1.50              1.52               1.35
   $500,000 and over             *                 *                  *
================================================================================

   
*    Purchases of Class A shares of $500,000 or more will be made at net asset
     value without any initial sales charge, but will be subject to a CDSC of
     1.00% on redemptions made within 12 months of purchase. The CDSC on Class A
     shares is payable to Smith Barney which compensates Smith Barney Financial
     Consultants and other dealers whose clients make purchases of $500,000 or
     more. The CDSC is waived in the same circumstances in which the CDSC
     applicable to Class B and Class C shares is waived. See "Deferred Sales
     Charge Alternatives" and "Waivers of CDSC."
    

     Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.


26
<PAGE>

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

   
     The reduced sales charges shown on the preceding page apply to the
aggregate of purchases of Class A shares of the Fund made at one time by "any
person," which includes an individual and his or her immediate family, or a
trustee or other fiduciary of a single trust estate or single fiduciary account.
    

     INITIAL SALES CHARGE WAIVERS

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


     RIGHT OF ACCUMULATION

     Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregating
the dollar amount of the new purchase and the total net asset value of all Class
A shares of the Fund and of funds sponsored by Smith Barney which are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the 


                                                                              27
<PAGE>

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

purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. The right
of accumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.

     GROUP PURCHASES

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

     LETTER OF INTENT

     Class A Shares. A Letter of Intent for an amount of $50,000 or more
provides an opportunity for an investor to obtain a reduced sales charge by
aggregating investments over a 13 month period, provided that the investor
refers to such Letter 


28
<PAGE>

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

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

   
     Class Y Shares. A Letter of Intent may also be used as a way for investors
to meet the minimum investment requirement for Class Y shares (except purchases
of Class Y shares by Smith Barney Concert Allocation Series Inc., for which
there is no minimum purchase amount). Such investors must make an initial
minimum purchase of $1,000,000 in Class Y shares of the Fund and agree to
purchase a total of $5,000,000 of Class Y shares of the Fund within six months
from the date of the Letter. If a total investment of $5,000,000 is not made
within the six month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject to all fees (including
a service fee of 0.15%) and expenses applicable to the Fund's Class A shares,
which may include a CDSC of 1.00%. Please contact a Smith Barney Financial
Consultant or the Transfer Agent for further information.
    

     DEFERRED SALES CHARGE ALTERNATIVES

   
     "CDSC Shares" are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares that were purchased without an initial
sales charge but are subject to a CDSC.
    

     Any applicable CDSC will be assessed on an amount equal to the lesser of
the original cost of the shares being redeemed or their net asset value at the
time of redemption. CDSC Shares that are redeemed will not be subject to a CDSC
to the extent that the value of such shares represents: (a) capital appreciation
of Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than five years after their
purchase; or (d) with respect to Class C shares and Class A shares that are CDSC
Shares, shares redeemed more than 12 months after their purchase.


                                                                              29
<PAGE>

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

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

     Year Since Purchase
     Payment Was Made                                                  CDSC
================================================================================
   
     First                                                             4.50%
     Second                                                            4.00
     Third                                                             3.00
     Fourth                                                            2.00
     Fifth                                                             1.00
     Sixth and thereafter                                              0.00

     Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. They will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholders as the total
number of his or her Class B shares converting at the time bears to the total
number of outstanding Class B shares (other than Class B Dividend Shares) owned
by the shareholder. See "Prospectus Summary--Alternative Purchase
Arrangements--Class B Shares Conversion Feature."
    

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

     To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividend reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 


30
<PAGE>

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

redemption proceeds ($500 minus $260) would be charged at a rate of 4.00% (the
applicable rate for Class B shares) for a total deferred sales charge of $9.60.

     WAIVERS OF CDSC

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

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

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

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

     FUND NAME

     Growth Funds

   
     Smith Barney Aggressive Growth Fund Inc.
     Smith Barney Appreciation Fund Inc.
     Smith Barney Disciplined Small Cap Fund     Inc.
     Smith Barney Fundamental Value Fund Inc.
     Smith Barney Growth Opportunity Fund
     Smith Barney Large Capitalization Growth Fund
     Smith Barney Managed Growth Fund



                                                                              31
<PAGE>

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

     Smith Barney Natural Resources Fund Inc.
     Smith Barney Special Equities Fund

     Growth and Income Funds

   
     Concert Social Awareness Fund
     Smith Barney Convertible Fund
     Smith Barney Funds, Inc. -- Equity Income Portfolio
     Smith Barney Growth and Income Fund
     Smith Barney Premium Total Return Fund
     Smith Barney Utilities Fund
    

     Taxable Fixed-Income Funds

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

     Tax-Exempt Funds

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

     International Funds

     Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
     Smith Barney World Funds, Inc. -- European Portfolio
     Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
     Smith Barney World Funds, Inc. -- International Balanced Portfolio


32
<PAGE>

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

     Smith Barney World Funds, Inc. -- International Equity Portfolio
     Smith Barney World Funds, Inc. -- Pacific Portfolio

   
     Smith Barney Concert Allocation Series Inc.

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

     Money Market Funds

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

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

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

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

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

     Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. SBMFM may
determine that a pattern of frequent exchanges is excessive and contrary to the
best 


                                                                              33
<PAGE>

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

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

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

--------------------------------------------------------------------------------
Redemption of Shares
--------------------------------------------------------------------------------

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

   
     If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Transfer Agent
receives further instructions from Smith Barney, or if the shareholder's account
is not with Smith Barney, from the shareholder directly. Redemption proceeds
will be remitted on or before the third business day following receipt of proper
tender, except on any days on which the NYSE is closed or as permitted under the
1940 Act in extraordinary circumstances. Generally, if the redemption proceeds
are remitted to a Smith Barney brokerage account, these funds will not be
invested for the shareholder's benefit without specific instruction and Smith
Barney will benefit from the use of temporarily uninvested funds. Redemption
proceeds for shares 
    


34
<PAGE>

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

purchased by check, other than a certified or official bank check, will be
remitted upon clearance of the check, which may take up to ten days or more.

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

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

     A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power) and
must be submitted to the Transfer Agent together with the redemption request.
Any signature appearing on a share certificate, stock power or a written request
in excess of $2,000, must be guaranteed by an eligible guarantor institution
such as a domestic bank, savings and loan institution, domestic credit union,
member bank of the Federal Reserve System or member firm of a national
securities exchange. The Transfer Agent may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees or guardians. A redemption request will not be deemed properly received
until the Transfer Agent receives all required documents in proper form.
    

     TELEPHONE REDEMPTION AND EXCHANGE PROGRAM FOR SHAREHOLDERS WHO DO NOT HAVE
     A SMITH BARNEY BROKERAGE ACCOUNT

     Certain shareholders may be eligible to redeem and exchange Fund shares by
telephone. To determine if a shareholder is entitled to participate in this
program, he or she should contact the Transfer Agent at (800) 451-2010. Once
eligibility is confirmed, the shareholder must complete and return a
Telephone/Wire Authorization form, including a signature guarantee, that will be
provided by the Transfer Agent upon request. (Alternatively, an investor may
authorize telephone redemptions on the new account application with a signature
guarantee when making his/her initial investment in the Fund.)

     Redemptions. Redemption requests of up to $10,000 of any class or classes
of the Fund's shares may be made by eligible shareholders by calling the
Transfer Agent at (800) 451-2010. Such requests may be made between 9:00 a.m.
and 4:00 


                                                                              35
<PAGE>

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

p.m. (New York City time) on any day the NYSE is open. Redemptions of shares for
which certificates have been issued are not permitted under this program.

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

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

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

     AUTOMATIC CASH WITHDRAWAL PLAN

     The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 many elect to
receive cash payments of at least $50 monthly or quarterly. The withdrawal plan
will be carried over on exchanges between funds or Classes of the Fund. Any
applicable CDSC will not be waived on amounts withdrawn by a shareholder that
exceed 1.00% per month of the value of the shareholder's shares subject to the
CDSC at the time the withdrawal plan commences. (With respect to withdrawal
plans in effect prior to November 7, 1994, any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00% per month of the shareholder's shares
subject to the CDSC.) For further information regarding the automatic cash
withdrawal plan, shareholders should contact a Smith Barney Financial
Consultant.


36
<PAGE>

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

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

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

     YIELD

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

     The equivalent taxable yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to the Fund's tax-exempt yield for
each Class. It is calculated by increasing the yield shown for the Class to the
extent necessary to reflect the payment of taxes at specified tax rates. Thus,
the equivalent taxable yield always will exceed the Fund's yield. For more
information on equivalent taxable yields, please refer to the table under
"Dividends, Distributions and Taxes."

     TOTAL RETURN

     From time to time the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount invested
and subtracting 100%. The standard average annual total return, as prescribed by
the SEC, is derived from this total 


                                                                              37
<PAGE>

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

return, which provides the ending redeemable value. Such standard total return
information may also be accompanied with nonstandard total return information
for differing periods computed in the same manner but without annualizing the
total return or taking sales charges into account. The Fund calculates current
dividend return for each Class by annualizing the most recent monthly
distribution and then dividing by the net asset value or the maximum public
offering price (including sales charge) on the last day of the period for which
current dividend return is presented. The current dividend return for each Class
may vary from time to time depending on market conditions, the composition of
the Fund's investment portfolio and operating expenses. These factors and
possible differences in the methods used in calculating current dividend return
should be considered when comparing a Class' current return to yields published
for other investment companies and other investment vehicles. The Fund may also
include comparative performance information in advertising or marketing its
shares. Such performance information may include data from Lipper Analytical
Services, Inc. or similar independent services that monitor the performance of
mutual funds, or other industry publications.

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

     BOARD OF DIRECTORS

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

     INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM

   
     SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser pursuant to a transfer of the advisory agreement,
effective November 7, 1994, from its affiliate, Mutual Management Corp. ("MMC").
The agreement was most recently approved by the Fund's Board of Directors on
July 16, 1997. MMC and SBMFM are both wholly owned subsidiaries of Holdings.
SBMFM (through predecessor entities) has been in the investment counseling
business since 1934 and is a registered investment adviser. SBMFM renders
investment advice to a wide variety of individual, institutional and investment
company clients that had aggregate assets under management as of May 31, 1997 in
excess of $87 billion.
    


38
<PAGE>

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

   
     Subject to the supervision and direction of the Fund's Board of Directors,
SBMFM manages the Fund's portfolio in accordance with the Fund's investment
objective and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities and employs professional portfolio managers and
securities analysts who provide research services to the Fund. For investment
advisory services rendered, the Fund pays SBMFM an investment advisory fee at
the annual rate of 0.30% of the Fund's average daily net assets. Prior to
November 17, 1995, the Fund paid SBMFM investment advisory fees at the following
annual rates: 0.35% of average daily net assets up to $500 million and 0.32% of
average daily net assets in excess of $500 million. For the fiscal year ended
March 31, 1997, SBMFM was paid investment advisory fees equal to 0.30% of the
value of the average daily net assets of the Fund.

     SBMFM also serves as the Fund's administrator and oversees all aspects of
the Fund's administration. For administration services rendered, the Fund pays
SBMFM a fee at the following annual rates of average daily net assets: 0.20% to
$500 million; and 0.18% in excess of $500 million. For the fiscal year ended
March 31, 1997, the Fund paid administration fees equal to 0.20% of its average
daily net assets.
    

     PORTFOLIO MANAGEMENT

     Lawrence T. McDermott, an Investment Officer of SBMFM, has served as Vice
President and Investment Officer of the Fund since it commenced operations, and
manages the day-to-day operations of the Fund, including making all investment
decisions.

   
     Management's discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended March 31, 1997, are
included in the Annual Report dated March 31, 1997. A copy of the Annual Report
may be obtained upon request and without charge from a Smith Barney Financial
Consultant or by writing or calling the Fund at the address or telephone number
listed on page one of this Prospectus.
    

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

     Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee with
respect to Class A, Class B and Class C shares of the Fund at the annual rate of
0.15% of the 


                                                                              39
<PAGE>

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

average daily net assets of the respective Class. Smith Barney is also paid a
distribution fee with respect to Class B and Class C shares at the annual rate
of 0.50% and 0.55%, respectively, of the average daily net assets attributable
to those Classes. Class B shares which automatically convert to Class A shares
eight years after the date of original purchase will no longer be subject to a
distribution fee. The fees are used by Smith Barney to pay its Financial
Consultants for servicing shareholder accounts and, in the case of Class B and
Class C shares, to cover expenses primarily intended to result in the sale of
those shares. These expenses include: advertising expenses; the cost of printing
and mailing prospectuses to potential investors; payments to and expenses of
Smith Barney Financial Consultants and other persons who provide support
services in connection with the distribution of shares; interest and/or carrying
charges; and indirect and overhead costs of Smith Barney associated with the
sale of Fund shares, including lease, utility, communications and sales
promotion expenses.

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

   
     Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Fund's Board of
Directors will evaluate the appropriateness of the Plan and its payment terms on
a continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
    

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

     The Fund was incorporated under the laws of the State of Maryland on
November 12, 1987, and is registered with the SEC as a non-diversified, open-end
management investment company.

     The Fund offers shares of common stock currently classified into four
Classes--A, B, C and Y. Each Class of the Fund's shares has a par value of $.001
per share and represents an identical interest in the Fund's investment
portfolio. As a result, the Classes have the same rights, privileges and
preferences, except with respect to: (a) the designation of each Class; (b) the
effect of the respective sales charges, if any, for each Class; (c) the
distribution and/or service fees, if any, borne by each Class; (d) the expenses
allocable exclusively to each Class; (e) voting rights 


40
<PAGE>

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

on matters exclusively affecting a single Class; (f) the exchange privilege of
each Class; and (g) the conversion feature of the Class B shares. The Board of
Directors does not anticipate that there will be any conflicts among the
interests of the holders of the different Classes. The Directors, on an ongoing
basis, will consider whether any such conflict exists and, if so, will take
appropriate action.

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

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

     The Transfer Agent, located at Exchange Place, Boston, Massachusetts 02109,
serves as the Fund's transfer agent.

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


                                                                              41
<PAGE>

                                                                    Smith Barney

                                                A Member of TravelersGroup[LOGO]

                                                                    Smith Barney
                                                                      New Jersey
                                                                      Municipals
                                                                      Funds Inc.

                                                            388 Greenwich Street
                                                        New York, New York 10013

                                                                    FD0231  7/97

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



Statement of Additional 
Information	May 29, 1996
July 29, 1997


This Statement of Additional Information expands upon and 
supplements the information contained in the current Prospectus of 
Smith Barney New Jersey Municipals Fund Inc. (the "Fund''), dated 
July 29, 1997, as amended or supplemented from time to time, and 
should be read in conjunction with the Fund's Prospectus. The 
Fund's Prospectus may be obtained from a Smith Barney Financial 
Consultant or by writing or calling the Fund at the address or 
telephone number set forth above. This Statement of Additional 
Information, although not in itself a prospectus, is incorporated 
by reference into the Prospectus in its entirety.

TABLE OF CONTENTS
For ease of reference the same section headings are used in 
both the Prospectus and the Statement of Additional Information, 
except where shown below:
Management of the Fund		1
Investment Objective and Management Policies		5
Municipal Bonds (See in the Prospectus "New Jersey Municipal 
Securities'')		9
Purchase of Shares		15
Redemption of Shares		16
Distributor		   17    
Valuation of Shares		18
Exchange Privilege		19
Performance Data (See in the Prospectus "Performance'') 		   20    
Taxes (See in the Prospectus "Dividends, Distributions and 
Taxes'') 		22
Additional Information		   25    
Financial Statements		25
Appendix		A1

MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the 
organizations that provide services to the Fund. These 
organizations are as follows:
Name	Service
Smith Barney Inc.
("Smith Barney'')	
	Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM'')	
	Investment 
Adviser and 
	
	Administrato
r
PNC Bank, National Association
("PNC")	
	Custodian
First Data Investor Services Group, Inc. (the "Transfer Agent"),
a subsidiary of First Data Corporation	
	Transfer 
Agent 

These organizations and the functions they perform for the Fund 
are discussed in the Prospectus and in this Statement of 
Additional Information.

Directors and Executive Officers of the Fund

The names of the Directors and executive officers of the Fund, 
together with information as to their principal business 
occupations during the past five years, are shown below. Each 
Director who is an ''interested person'' of the Fund, as defined 
in the Investment Company Act of 1940, as amended (the "1940 
Act''), is indicated by an asterisk.

Herbert Barg, Director (Age 74). Private Investor. His address 
is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania 19004.

*Alfred J. Bianchetti, Director (Age 74). Retired; formerly 
Senior Consultant to Dean Witter Reynolds Inc. His address is 19 
Circle End Drive, Ramsey, New Jersey 07466. 

Martin Brody, Director (Age 75). Vice Chairman of the Board of 
Restaurant Associates Industries Corp.; Inc. His address is HMK 
Associates, Three ADP Boulevard, Roseland, New Jersey 07068. 

Dwight B. Crane, Director (Age 59). Professor, Graduate School 
of Business Administration, Harvard University; Business 
Consultant. His address is Graduate School of Business 
Administration, Harvard University, Boston, Massachusetts 02163. 

Burt N. Dorsett, Director (Age 66). Managing Partner of 
Dorsett, McCabe Capital Management, Inc., an investment counseling 
firm; Director of Research Corporation Technologies, Inc., a non-
profit patent-clearing and licensing firm. His address is 540 
Madison Avenue, New York, New York 10021. 

Elliot S. Jaffe, Director (Age 71). Chairman of the Board and 
President of The Dress Barn, Inc. His address is 30 Dunnigan 
Drive, Suffern, New York 10901. 

Stephen E. Kaufman, Director (Age 65). Attorney. His address is 
277 Park Avenue, New York, New York 10017. 

Joseph J. McCann, Director (Age 66). Financial Consultant. His 
address is 200 Oak Park Place, Pittsburgh, Pennsylvania 15243. 

*Heath B. McLendon, Chairman of the Board and Investment 
Officer (Age 64). Managing Director of Smith Barney, Chairman of 
the Board of Smith Barney Strategy Advisers Inc. and President of 
SBMFM; prior to July 1993, Senior Executive Vice President of 
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers''), Vice 
Chairman of Asset Management Division of Shearson Lehman Brothers; 
a Director of PanAgora Asset Management, Inc. and PanAgora Asset 
Management Limited. Mr. McLendon is Chairman of 41 Smith Barney 
Mutual Funds. His address is 388 Greenwich Street, New York, New 
York 10013. 

Cornelius C. Rose, Jr., Director (Age 63). President, Cornelius 
C. Rose Associates, Inc., financial consultants, and Chairman and 
Director of Performance Learning Systems, an educational 
consultant. His address is P.O. Box 355, Fair Oaks, Enfield, New 
Hampshire 03748. 

James J. Crisona, Director emeritus (Age 89). Attorney; 
formerly Justice of the Supreme Court of the State of New York. 
His address is 118 East 60th Street, New York, New York 10022. 

Lewis E. Daidone, Senior Vice President and Treasurer (Age 39). 
Managing Director of Smith Barney; Director and Senior Vice 
President of SBMFM.  Mr. Daidone serves as Senior Vice President 
and Treasurer of 41 Smith Barney Mutual Funds.  His address is 388 
Greenwich Street, New York, New York 10013. 

Lawrence T. McDermott, Vice President and Investment Officer 
(Age 48). Investment Officer of SBMFM; prior to July 1993, 
Managing Director of Shearson Lehman Advisors, the predecessor to 
Greenwich Street Advisors. Mr. McDermott serves as Investment 
Officer of 11 Smith Barney Mutual Funds. His address is 388 
Greenwich Street, New York, New York 10013. 

Christina T. Sydor, Secretary (Age 46). Managing Director of 
Smith Barney; General Counsel and Secretary of SBMFM.  Ms. Sydor 
also serves as Secretary of 41 Smith Barney Mutual Funds.  Her 
address is 388 Greenwich Street, New York, New York 10013. 

As of July 14, 1997, the Directors and officers of the Fund as 
a group owned less than 1.00% of the outstanding common stock of 
the Fund. To the best knowledge of the Directors, as of July 14, 
1997 no shareholder or "group" (as such term is defined in Section 
13(d) of the Securities Exchange Act of 1934, as amended) owned 
beneficially or of record more than 5% of the shares of the Funds.

No Director, officer or employee of Smith Barney or of any of 
its affiliates receives any compensation from the Fund for serving 
as an officer or Director of the Fund. The Fund pays each Director 
who is not an officer, director or employee of Smith Barney or any 
of its affiliates a fee of $1,000 per annum plus $100 per in-
person meeting.  Each Director emeritus who is not an officer, 
director or employee of Smith Barney or any of its affiliates 
receives a fee of $500 per annum plus $50 per in-person meeting. 
The Fund reimburses all Directors for travel and out-of-pocket 
expenses incurred to attend meetings.  For the fiscal year ended 
March 31, 1997, such fees and expenses totaled $14,207.

For the fiscal year ended March 31, 1997, the Directors of the 
Fund were paid the following compensation: 



Aggregate 
Compensation


Aggregate 
Compensation
from the Smith 
Barney

Director(*)
from the Fund
Mutual Funds**

Herbert Barg (18)
	$1,700
	$105,175

Alfred J. Bianchetti 
(13)
	1,600
	51,500

Martin Brody (21)
	1,500
	124,286

Dwight B. Crane (24)
	1,600
	140,375

Burt N. Dorsett (13) 
+
               
1,600
	47,400

Elliot S. Jaffe (13)
	1,600
	51,100

Stephen E. Kaufman 
(15)
	1,700
	92,336

Joseph J. McCann 
(13)
	1,700
	52,700

Heath B. McLendon 
(41)
	-- 
	--

Cornelius C. Rose 
(13)
	1,700
	51,400

James J. Crisona*** 
                  
800
                
20,575

_____________________
*	Number of directorships/trusteeships held with Smith 
Barney Mutual Funds.
**	Aggregate compensation for all Smith Barney Mutual 
Funds is for calendar year ended December 31, 1996.
***
	
Director emeritus. A Director emeritus may attend 
meetings of the Fund's Board of Directors but has no 
voting rights at such meetings. Mr. Crisona became a 
Director emeritus as of July 20, 1994.
+	Pursuant to the Fund's deferred compensation plan the 
indicated Director had elected to defer the following 
payment of some or all of their compensation: Burt N. 
Dorsett - $1,150.  As of January 1, 1997, Mr. Dorsett 
has elected not to defer his future compensation.
Upon attainment of age 80 Directors are required to change 
to emeritus status.  Directors Emeritus are entitled to 
serve in emeritus status for a maximum of ten years during 
which time they are paid 50% of the annual retainer fee 
and meeting fees otherwise applicable to the Fund 
Directors together with reasonable out-of-pocket expenses 
for each meeting attended.  During the Fund's last fiscal 
year aggregate compensation paid by the Fund to Directors 
achieving emeritus status totaled $800.

Investment Adviser and Administrator -- SBMFM

SBMFM serves as investment adviser to the Fund pursuant to a 
transfer of the investment advisory agreement effective November 
7, 1994, which was most recently approved by the Board of 
Directors, including a majority of those Directors who are not 
"interested persons" of the Fund or Smith Barney ("Independent 
Directors"), on July 16, 1997.  The advisory agreement was 
transferred from Mutual Management Corp.  Both Mutual Management 
Corp. and SBMFM are wholly owned subsidiaries of Smith Barney 
Holdings Inc. ("Holdings''). Holdings is a wholly owned subsidiary 
of Travelers Group Inc. ("Travelers''). The advisory agreement is 
dated July 30, 1993 (the "Advisory Agreement'') and was first 
approved by the Board of Directors, including a majority of the 
Independent Directors  , on April 7, 1993. The services provided 
by SBMFM under the Advisory Agreement are described in the 
Prospectus under "Management of the Fund.'' SBMFM pays the salary 
of any officer or employee who is employed by both it and the 
Fund.

As compensation for investment advisory services, the Fund pays 
SBMFM a fee computed daily and paid monthly at the annual rate of 
0.30% of the Fund's average daily net assets.  Prior to November 
17, 1995, the Fund paid SBMFM investment advisory fees computed at 
the following annual rates of the Fund's average daily net assets: 
0.35% up to $500 million; and 0.32% in excess of $500 million. For 
the 1995, 1996 and 1997 fiscal years, the investment advisory fees 
paid to SBMFM and its predecessors amounted to $579,652, $612,606 
and $651,616, respectively.

SBMFM also serves as administrator to the Fund pursuant to a 
written agreement dated April 20, 1994 (the "Administration 
Agreement'') which was most recently approved by the Fund's Board 
of Directors, including a majority of the Independent Directors, 
on July 16, 1997.  The services provided by SBMFM under the 
Administration Agreement are described in the Prospectus under 
"Management of the Fund.'' SBMFM pays the salary of any officer 
and employee who is employed by both it and the Fund and bears all 
expenses in connection with the performance of its services. 

As compensation for administration services rendered to the 
Fund, SBMFM receives a fee paid at the following annual rates: 
0.20% of average daily net assets up to $500 million; and 0.18% of 
average daily net assets in excess of $500 million. For the fiscal 
year ended March 31, 1997, administration fees paid to SBMFM 
equaled $434,410.

Prior to June 12, 1995, The Boston Company Advisors, Inc. 
("Boston Advisors"), an indirect wholly-owned subsidiary of Mellon 
Bank Corporation, served as the Fund's sub-administrator.  For the 
fiscal years ended March 31, 1995 and 1996 the Fund paid Boston 
Advisors $331,230 and $65,523 respectively, in sub-investment 
advisory and/or administration fees.

SBMFM maintains office facilities for the Fund, furnishes the 
Fund with statistical and research data, clerical help and 
accounting, data processing, bookkeeping, internal auditing and 
legal services and certain other services required by the Fund, 
prepares reports to the Fund's shareholders, and prepares tax 
returns, reports to and filings with the Securities and Exchange 
Commission (the "SEC'') and state Blue Sky authorities.

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

SBMFM has agreed that if in any fiscal year the aggregate 
expenses of the Fund (including fees payable pursuant to the 
Advisory Agreement and Administration Agreement, but excluding 
interest, taxes, brokerage fees paid pursuant to the Fund's 
services and distribution plan, and, with the prior written 
consent of the necessary state securities commissions, 
extraordinary expenses) exceed the expense limitation of any state 
having jurisdiction over the Fund, SBMFM will, to the extent 
required by state law, reduce its management fees by the amount of 
such excess expenses. Such fee reductions, if any, will be 
reconciled on a monthly basis. For the fiscal year ended March 31, 
1997 no such fee reduction was required.

Counsel and Auditors

Willkie Farr & Gallagher serves as legal counsel to the Fund.  
The Independent Directors of the Fund have selected Stroock & 
Stroock & Lavan LLP as their legal counsel. 

KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 
10154, has been selected as the Fund's independent auditors to 
examine and report on the Fund's financial statements for the 
fiscal year ending March 31, 1998.

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES

The Prospectus discusses the Fund's investment objective and 
the policies it employs to achieve that objective. The following 
discussion supplements the description of the Fund's investment 
policies in the Prospectus. For purposes of this Statement of 
Additional Information, obligations of non-New Jersey municipal 
issuers, the interest on which is at least exempt from Federal 
income taxation ("Other Municipal Securities''), and obligations 
of the State of New Jersey and its political subdivisions, 
agencies and public authorities (together with certain municipal 
issuers such as the Commonwealth of Puerto Rico, the Virgin 
Islands and Guam) that pay interest which is excluded from gross 
income for Federal income tax purposes and exempt from New Jersey 
personal income taxes ("New Jersey Municipal Securities'') are 
collectively referred to as "Municipal Bonds.''

As noted in the Prospectus, the Fund is classified as a non-
diversified investment company under the 1940 Act, which means 
that the Fund is not limited by the 1940 Act in the proportion of 
its assets that may be invested in the obligations of a single 
issuer. The identification of the issuer of Municipal Bonds 
generally depends upon the terms and conditions of the security. 
When the assets and revenues of an agency, authority, 
instrumentality or other political subdivision are separate from 
those of the government creating the issuing entity and the 
security is backed only by the assets and revenues of such entity, 
such entity would be deemed to be the sole issuer. Similarly, in 
the case of a private activity bond, if that bond is backed only 
by the assets and revenues of the nongovernmental user, then such 
nongovernmental user is deemed to be the sole issuer. If in either 
case, however, the creating government or some other entity 
guarantees a security, such a guarantee would be considered a 
separate security and would be treated as an issue of such 
government or other entity. 

Ratings as Investment Criteria

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

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

Temporary Investments

The Fund may invest in short-term investments ("Temporary 
Investments'') consisting of (a) the following tax-exempt 
securities: notes of municipal issuers having, at the time of 
purchase, a rating within the three highest grades of Moody's or 
S&P or, if not rated, having an issue of outstanding Municipal 
Bonds rated within the three highest grades by Moody's or S&P; and 
(b) the following taxable securities: obligations of the United 
States government, its agencies or instrumentalities ("U.S. 
government securities''), repurchase agreements, other debt 
securities rated within the three highest grades by Moody's and 
S&P, commercial paper rated in the highest grade by either of such 
rating services, and certificates of deposit of domestic banks 
with assets of $1 billion or more. The Fund intends to purchase 
tax-exempt Temporary Investments pending the investment of the 
proceeds of the sale of portfolio securities or shares of the 
Fund's common stock, or in order to have highly liquid securities 
available to meet anticipated redemptions. At no time will more 
than 20% of the Fund's total assets be invested in Temporary 
Investments unless the Fund has adopted a defensive investment 
policy; provided, however, that the Fund will seek, to the extent 
that it makes Temporary Investments for defensive purposes, to 
make such investments in conformity with the requirements of a 
qualified investment fund under New Jersey law.

Repurchase Agreements. As a defensive position only, the Fund 
may enter into repurchase agreements with banks which are the 
issuers of instruments acceptable for purchase by the Fund and 
with certain dealers on the Federal Reserve Bank of New York's 
list of reporting dealers. A repurchase agreement is a contract 
under which the buyer of a security simultaneously commits to 
resell the security to the seller at an agreed-upon price on an 
agreed-upon date. Under the terms of a typical repurchase 
agreement, the Fund would acquire an underlying debt obligation 
for a relatively short period (usually not more than seven days) 
subject to an obligation of the seller to repurchase, and the Fund 
to resell, the obligation at an agreed-upon price and time, 
thereby determining the yield during the Fund's holding period. 
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. 
Repurchase agreements could involve certain risks in the event of 
default or insolvency of the other party, including possible 
delays or restrictions upon the Fund's ability to dispose of the 
underlying securities, the risk of a possible decline in the value 
of the underlying securities during the period in which the Fund 
seeks to assert its rights to them, the risk of incurring expenses 
associated with asserting those rights and the risk of losing all 
or part of the income from the agreement. SBMFM, acting under the 
supervision of the Fund's Board of Directors, reviews on an 
ongoing basis the value of the collateral and the creditworthiness 
of those banks and dealers with which the Fund enters into 
repurchase agreements to evaluate potential risks.

Investment Restrictions

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

1. Issue senior securities as defined in the 1940 Act and any 
rules and orders thereunder, except insofar as the Fund may be 
deemed to have issued senior securities by reason of: (a) 
borrowing money or purchasing securities on a when-issued or 
delayed-delivery basis; (b) purchasing or selling futures 
contracts and options on futures contracts and other similar 
instruments; and (c) issuing separate classes of shares.

2. Invest more than 25% of its total assets in securities, the 
issuers of which are in the same industry. For purposes of this 
limitation, U.S. government securities and securities of state 
or municipal governments and their political subdivisions are 
not considered to be issued by members of any industry. 

3. Borrow money, except that the Fund may borrow from banks for 
temporary or emergency (not leveraging) purposes, including the 
meeting of redemption requests which might otherwise require 
the untimely disposition of securities, in an amount not 
exceeding 10% of the value of the Fund's total assets 
(including the amount borrowed) valued at market less 
liabilities (not including the amount borrowed) at the time the 
borrowing is made. Whenever borrowings exceed 5% of the value 
of the Fund's total assets, the Fund will not make additional 
investments. 

4. Make loans. This restriction does not apply to: (a) the 
purchase of debt obligations in which the Fund may invest 
consistent with its investment objective and policies; (b) 
repurchase agreements; and (c) loans of its portfolio 
securities. 

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

6. Purchase or sell real estate, real estate mortgages, real 
estate investment trust securities, commodities or commodity 
contracts, but this shall not prevent the Fund from: (a) 
investing in securities of issuers engaged in the real estate 
business and securities which are secured by real estate or 
interests therein; (b) holding or selling real estate received 
in connection with securities it holds; or (c) trading in 
futures contracts and options on futures contracts. 

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

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

9. Purchase or sell oil and gas interests. 

10. Invest more than 5% of the value of its total assets in the 
securities of issuers having a record, including predecessors, 
of less than three years of continuous operation, except U.S. 
government securities. (For purposes of this restriction 
issuers include predecessors, sponsors, controlling persons, 
general partners, guarantors and originators of underlying 
assets.) 

11. Invest in companies for the purpose of exercising control. 

12. Invest in securities of other investment companies, except 
as they may be acquired as part of a merger, consolidation or 
acquisition of assets and except to the extent permitted by 
Section 12 of the 1940 Act (currently, up to 5% of the total 
assets of the Fund and no more than 3% of the total outstanding 
voting stock of any one investment company). 

13. Engage in the purchase or sale of put, call, straddle or 
spread options or in the writing of such options, except that 
the Fund may engage in transactions involving municipal bond 
index and interest rate futures contracts and options thereon 
after approval of these investment strategies by the Board of 
Directors and notice thereof to the Fund's shareholders. 

Certain restrictions listed above permit the Fund to engage in 
investment practices that the Fund does not currently pursue. The 
Fund has no present intention of altering its current investment 
practices as otherwise described in the Prospectus and this 
Statement of Additional Information and any future change in those 
practices would require Board of Directors' approval and 
appropriate disclosure to investors.

If a percentage restriction is complied with at the time of an 
investment, a later increase or decrease in the percentage of 
assets resulting from a change in the values of portfolio 
securities or in the amount of the Fund's assets will not 
constitute a violation of such restriction. In order to permit the 
sale of the Fund's shares in certain states, the Fund may make 
commitments more restrictive than the restrictions described 
above. Should the Fund determine that any such commitment is no 
longer in the best interests of the Fund and its shareholders, it 
will revoke the commitment by terminating sales of its shares in 
the state involved. 

Portfolio Transactions

Decisions to buy and sell securities for the Fund are made by 
SBMFM subject to the overall supervision and review of the Fund's 
Board of Directors.  Portfolio securities transactions are 
effected by or under the supervision of SBMFM.

Newly issued securities normally are purchased directly from 
the issuer or from an underwriter acting as principal. Other 
purchases and sales usually are placed with those dealers from 
which it appears that the best price or execution will be 
obtained; those dealers may be acting as either agents or 
principals. The purchase price paid by the Fund to underwriters of 
newly issued securities usually includes a concession paid by the 
issuer to the underwriter, and purchases of after-market 
securities from dealers normally are executed at a price between 
the bid and asked prices. The Fund has paid no brokerage 
commissions since its commencement of operations.

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

The Fund will not purchase Municipal Bonds during the existence 
of any underwriting or selling group relating thereto of which 
SBMFM is a member, except to the extent permitted by the SEC. 
Under certain circumstances, the Fund may be at a disadvantage 
because of this limitation in comparison with other investment 
companies which have a similar investment objective but which are 
not subject to such limitation. The Fund also may execute 
portfolio transactions through Smith Barney and its affiliates in 
accordance with rules promulgated by the SEC. 

While investment decisions for the Fund are made independently 
from those of the other accounts managed by SBMFM, investments of 
the type that the Fund may make also may be made by such other 
accounts. When the Fund and one or more other accounts managed by 
SBMFM are prepared to invest in, or desire to dispose of, the same 
security, available investments or opportunities for sales will be 
allocated in a manner believed by SBMFM to be equitable to each. 
In some cases, this procedure may adversely affect the price paid 
or received by the Fund or the size of the position obtained or 
disposed of by the Fund. 

Portfolio Turnover

The Fund's portfolio turnover rate (the lesser of purchases or 
sales of portfolio securities during the year excluding purchases 
or sales of short-term securities divided by the monthly average 
value of portfolio securities) generally is not expected to exceed 
100%, but the portfolio turnover rate will not be a limiting 
factor whenever the Fund deems it desirable to sell or purchase 
securities. Securities may be sold in anticipation of a rise in 
interest rates (market decline) or purchased in anticipation of a 
decline in interest rates (market rise) and later sold. In 
addition, a security may be sold and another security of 
comparable quality may be purchased at approximately the same time 
in order to take advantage of what the Fund believes to be a 
temporary disparity in the normal yield relationship between the 
two securities. These yield disparities may occur for reasons not 
directly related to the investment quality of particular issues or 
the general movement of interest rates, such as changes in the 
overall demand or supply of various types of tax-exempt 
securities. For the fiscal years ended March 31, 1996 and 1997, 
the Fund's portfolio turnover rate was  22% and 36%, respectively.

MUNICIPAL BONDS

General Information

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

The yields on Municipal Bonds are dependent upon a variety of 
factors, including general economic and monetary conditions, 
general money market factors, the financial condition of the 
issuer, the general conditions of the Municipal Bond market, the 
size of a particular offering, the maturity of the obligation 
offered and the rating of the issue. Municipal Bonds are subject 
to the provisions of bankruptcy, insolvency and other laws 
affecting the rights and remedies of creditors, such as the 
Federal Bankruptcy Code, and laws, if any that may be enacted by 
Congress or state legislatures extending the time for payment of 
principal or interest, or both, or imposing other constraints upon 
enforcement of the obligations or upon the ability of 
municipalities to levy taxes. The possibility also exists that as 
a result of litigation or other conditions, the power or ability 
of any one or more issuers to pay, when due, principal of and 
interest on its, or their, Municipal Bonds may be materially and 
adversely affected. 

Zero Coupon Securities 

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

Current Federal income tax laws may require the holder of a 
zero coupon security to accrue income with respect to that 
security prior to the receipt of cash payments.  To maintain its 
qualification as a registered investment company and avoid 
liability for Federal income taxes, the Fund may be required to 
distribute income accrued with respect to zero coupon securities 
and may have to dispose of portfolio securities under 
disadvantageous circumstances in order to generate cash to satisfy 
these distribution requirements.



When-Issued Securities

The Fund may purchase Municipal Bonds on a "when-issued'' basis 
(i.e., for delivery beyond the normal settlement date at a stated 
price and yield). The payment obligation and the interest rate 
that will be received on the Municipal Bonds purchased on a when-
issued basis are each fixed at the time the buyer enters into the 
commitment. Although the Fund will purchase Municipal Bonds on a 
when-issued basis only with the intention of actually acquiring 
the securities, the Fund may sell these securities before the 
settlement date if it is deemed advisable as a matter of 
investment strategy.

Municipal Bonds are subject to changes in value based upon the 
public's perception of the creditworthiness of the issuers and 
changes, real or anticipated, in the level of interest rates. In 
general, Municipal Bonds tend to appreciate when interest rates 
decline and depreciate when interest rates rise. Purchasing 
Municipal Bonds on a when-issued basis, therefore, can involve the 
risk that the yields available in the market when the delivery 
takes place may actually be higher than those obtained in the 
transaction itself. To account for this risk, a segregated account 
of the Fund consisting of cash or liquid debt securities equal to 
the amount of the when-issued commitments will be established at 
the Fund's custodian bank. For the purpose of determining the 
adequacy of the securities in the account, the deposited 
securities will be valued at market or fair value. If the market 
or fair value of such securities declines, additional cash or 
securities will be placed in the account daily so that the value 
of the account will equal the amount of such commitments by the 
Fund. Placing securities rather than cash in the segregated 
account may have a leveraging effect on the Fund's net assets. 
That is, to the extent the Fund remains substantially fully 
invested in securities at the same time it has committed to 
purchase securities on a when-issued basis, there will be greater 
fluctuations in its net assets than if it had set aside cash to 
satisfy its purchase commitments. Upon the settlement date of the 
when-issued securities, the Fund will meet its obligations from 
then-available cash flow, sale of securities held in the 
segregated account, sale of other securities or, although it 
normally would not expect to do so, from the sale of the when-
issued securities themselves (which may have a value greater or 
less than the Fund's payment obligations). Sales of securities to 
meet such obligations may involve the realization of capital 
gains, which may not be exempt from New Jersey personal income 
taxes, and from Federal income taxes. 

When the Fund engages in when-issued transactions, it relies on 
the seller to consummate the trade. Failure of the seller to do so 
may result in the Fund's incurring a loss or missing an 
opportunity to obtain a price considered to be advantageous. 

Special Considerations Relating to New Jersey Municipal Securities

Some of the significant financial considerations relating to 
the investments of the Fund are summarized below. The following 
information constitutes only a brief summary, does not purport to 
be a complete description and is largely based on information 
drawn from official statements relating to securities offerings of 
New Jersey municipal obligations available as of the date of this 
Statement of Additional Information. The accuracy and completeness 
of the information contained in such offering statements has not 
been independently verified.

Risk Factors:  Prospective investors should consider the recent 
financial difficulties and pressures which the State of New Jersey 
(the "State") and certain of its public authorities have 
undergone.  

The State's    1997     fiscal year budget became law on 
   June 27, 1997    .

Effective January 1, 1994, New Jersey personal income tax rates 
were cut by 5% for all taxpayers.  Effective January 1, 1995, the 
personal income tax rates were cut by an additional 10% for most 
taxpayers.  By a bill signed into law on July 4, 1995, New Jersey 
personal income tax rates have been further reduced so that 
coupled with the prior rate reductions, beginning with tax year 
1996, personal income tax rates will be , depending on a 
taxpayer's level of income and filing status, 30%, 15% or 9% lower 
than 1993 rates.  At this time, the effect of the tax reductions 
cannot be evaluated.

Reflecting the downturn, the rate of unemployment in the State 
rose from a low of 3.6% during the first quarter of 1989 to a 
recessionary peak of    8.5    % during 1992. Since then, the 
unemployment rate fell to    an average of 6.4% in 1995 and 6.1% 
for the four month period from May 1996 through August 1996.    

   For the recovery period as a whole, May 1992 to August 1996, 
service-producing employment in New Jersey has expanded by 228,500 
jobs. Hiring has been reported by food stores, auto dealers, 
wholesale distributors, trucking and warehousing firms, utilities, 
business and engineering/management service firms, hotels/hotel 
casinos, service agencies and health care providers other than 
hospitals.  Employment growth was particularly strong in business 
services and its personnel supply component with increases of 
17,500 and 8,100, respectively, in the 12 month period ending 
August 1996.

In the manufacturing sector, the employment losses slowed 
between 1992 and 1994. After an average annual job loss of 33,500 
from 1989 through 1992, New Jersey's factory job losses fell to 
13,300 during 1993 and 7,300 during 1994.  During 1995, however, 
manufacturing job losses increased slightly to 9,100, reflecting a 
slowdown in national manufacturing production activity.  While 
experiencing growth in the number of production workers in 1994, 
the number declined in 1995 at the same time that managerial and 
office staff were also reduced as a part of nationwide downsizing.  
Through August 1996 layoffs of white collar workers and corporate 
downsizing appears to be abating.

Conditions have slowly improved in the construction industry, 
where employment has risen by 15,600 since its low in May 1992.  
Between 1992 and 1995, this sector's hiring rebound was driven 
primarily by increased homebuilding and nonresidential projects.  
During 1996, public works projects and homebuilding became the 
growth segment while nonresidential construction lessened.

Nonresidential construction activity, as measured by contract 
awards, grew by 9.7% in 1993, 19.6% in 1994 and 3.0% in 1995.  
More recently, nonresidential building construction contracts fell 
by 20.5% in the first eight months of 1996.  This decline is 
largely attributable to an abundance of large, one-time contract 
awards during 1995, including a $202.9 million contract for the 
construction of a state prison.

Residential construction contracts through August 1996, despite 
monthly fluctuations, increased by 1.4% for the first eight months 
of 1996 as compared to the first eight months of 1995($1,502 
million and $1,481 million respectively).  Nonbuilding or 
infrastructure construction rose by 17.8% during this period. 
Despite these increases, total construction contracts declined by 
3.9% when comparing the first eight months of 1995 and 1996.

Improvements in overall employment opportunities and the 
economy in general have led to an increased consumer spending 
during the recovery.  While overall retail sales in New Jersey 
grew by only 1.6% during 1993, they performed much better in 1994, 
advancing by 7.8% which exceeded the 7.5% growth registered 
nationwide.  During 1995, especially the winter months, consumer 
confidence and actual consumer spending moderated both nationally 
and in the State.  For all of 1995, retail sales in New Jersey 
grew by 2.3%.  Retail sales regained momentum in 1996 and have 
been on a moderate upward trend, rising to an annual rate of $76.5 
billion through June.  The State's pickup in growth after a 
blizzard-related January decline resulted in sales growth of 4.2% 
when comparing the first six months of 1995 with those of 1996.  
The rising trend in retail sales has translated into steady 
increases in retail trade jobs (both full- and part-time) with a 
rise in retail employment from December 1995 to August 1996 of 
6,900 jobs.

Total new vehicle registrations (new passenger cars and light 
trucks and vans) rose robustly in 1993 by more than 18% and in 
1994 by 5.8%, but declined by 4.4% in 1995. Through July 1996 
however, total new vehicle registration rose by 3.5% compared to 
the same time period in 1995.

Unemployment in the State through August 1996 has been 
receding.  According to the U.S. Bureau of Labor Statistics, the 
jobless rate dropped from 7.5% in 1993 to 6.8% in 1994 and to 6.4% 
in 1995.  Subsequently it has dropped to 6.1% for the four-month 
period from May 1996 through August 1996.

The insured unemployment rate, i.e., the number of individuals 
claming benefits as a percentage of the number of workers covered 
by unemployment insurance, declined from 3.9% during calendar 
years 1991 and 1992 to 3.3% during 1993 and then averaged 3.2% 
throughout 1994, 1995 and the first six months of 1996.  As of 
August 1, 1996 the State's unemployment insurance trust fund 
balance stood at $2.1 billion.    

State Aid to Local Governments is the largest portion of fiscal 
year    1997     appropriations.  In fiscal year    1997, 
$6,419.0     million of the State's appropriations consisted of 
funds which are distributed to municipalities, counties and school 
districts.  The largest State Aid appropriation, in the amount of 
   $4,877.4     million, was provided for local elementary and 
secondary education programs.  Of this amount,    $2,721.7     
million is provided as foundation aid to school districts by 
formula based upon the number of students and the ability of a 
school district to raise taxes from its own base.  In addition, 
the State provided    $601.1     million for special education 
programs for children with disabilities.  A $292.9 million program 
was also funded for pupils at risk of educational failure, 
including basic skills improvement.  The State appropriated 
   $667.4     million on behalf of school districts as the 
employer share of the teachers' pension and benefits programs, 
   $247.2     million to pay for the cost of pupil transportation.

Appropriations to the Department of Community Affairs ("DCA") 
total    $840.4     million in State Aid monies for fiscal year 
   1997.       Many of the DCA State Aid programs and many 
Treasury State Aid appropriations to the State Department of the 
Treasury total    $212.4     million in State Aid monies for 
fiscal year    1997    .  The principal programs funded by these 
appropriations are:    aid to county colleges ($128.8 million), 
    the cost of senior citizens, disabled and veterans property 
tax deductions and exemptions (   $55.8     million);    the State 
contribution to the Consolidated Police and Firemen's Pension fund 
($9.7 million)    and aid to densely populated municipalities 
(   $9.0     million).

The second largest portion of appropriations in fiscal 
   1997     is applied to Direct State Services:  the operation of 
State government's 16 departments, the Executive Office, several 
commissions, the State Legislature and the Judiciary.  In fiscal 
   1997,     appropriations for Direct State Services aggregate 
   $5,175.7     million.  Some of the major appropriations for 
Direct State Services during fiscal    1997     are detailed 
below.

   $602.1     million was appropriated for programs 
administered by the Department of Human Services    of that 
amount, $439.2 million is appropriated for mental health and 
developmentally disabled programs, including the operation of 
seven psychiatric institutions and eight development centers.    

The Department of Health    and Senior Services was     
appropriated    $45.1     million for the prevention and treatment 
of diseases, alcohol and drug abuse programs, regulation of health 
care facilities, and the uncompensated care program,    and senior 
services programs.    

   $732.9 million is appropriated for the support of nine State 
colleges, Rutgers University, the New Jersey Institute of 
Technology and the University of Medicine and Dentistry of New 
Jersey.    

   $908.4     million was appropriated to the Department of Law 
and Public Safety and the Department of Corrections.

   $159.4     million was appropriated to the Department of 
Transportation for the various programs it administers, such as 
the maintenance and improvement of the State highway systems and 
   the registration and regulation of motor vehicles and licensed 
drivers.    

   $179.9     million was appropriated to the Department of 
Environmental Protection for the protection of air, land, water, 
forest, wildlife and shellfish resources and for the provision of 
outdoor recreational facilities.

The primary method for State financing of capital projects is 
through the sale of the general obligation bonds of the State.  
These bonds are backed by the full faith and credit of the State.  
State tax revenues and certain other fees are pledged to meet the 
principal, and interest payments    and if provided, redemption 
premium payments, if any required to fully pay the bonds.  The 
appropriation for debt servicing obligation on outstanding 
indebtedness is $446.9 million for fiscal 1997     required to pay 
the debt fully.  No general obligation debt can be issued by the 
State without prior voter approval, except that no voter approval 
is required for any law authorizing the creation of a debt for the 
purpose of refinancing all or a portion of outstanding debt of the 
State, so long as such law requires that the refinancing provide a 
debt service savings.

   Taxes:  By the end of June 1997, Governor Christine Todd 
Whitman claims that tax cut savings will total $2.8 billion.  By 
the end of the next fiscal year, those savings will rise to $4.4 
Billion.  Even though she has cut taxes 10 times, total revenues 
have gone up by $1.2 billion.

In Fact, between school funding, county court takeover, 
transportation aid, and other forms of assistance, the State will 
provide nearly $750 million more property tax relief this year 
than when she took office.  The 1997-1998 budget preserves the 30% 
income tax cut, the property tax deduction, and all other tax 
cuts, as well as maintaining a $550mm surplus.

Revenues:  The budget reflects an estimated bottom line loss 
for fiscal year ended June 30, 1997 of $419million with total 
tate revenues equaled 
to $15.7 billion and total state expenditures equaled to $16.2 
billion.  The largest decrease in sources of revenues are in the 
Miscellaneous Taxes, Fees and Revenue category, primarily the 1) 
Executive Branch, a (80.31%) decrease; 2) Department of Health and 
Senior Services, a (40.26%) decrease; Department of Human 
Services, a (20.50%) decrease; 4) Department of Labor, a (42.96%) 
decrease; 5) the Judicial Branch, a (27.31%) decrease.  The 
Revenue Fund also decreased (8.22%) to $313million.
  Major Tax revenues 
decreased (0.47%) from fiscal year 1996 to fiscal year 1997.

Expenditures:  On the expenditure side, total state 
expenditures have decreased(0.80%) from fiscal year 1996 to fiscal 
year 1997.  The largest decrease in expenditures are in the 
Executive Branch, primarily the 1) Department of Agriculture, a 
(15.99%) decrease; 2) Department of Labor, a (15.99%) decrease; 2) 
Department of Labor, a  (14.59%) decrease; 3) Department of 
Military and VA, a (23.27%) decrease; and 4) Department of 
Personnel, a (15.25%) decrease.

Increased spending occurred in the following categories: the 
Department of Commerce and Economic Development, a 10.61% 
increase; 2) the Department of Education, a 17.06% increase; and 
3) Department of Transportation, 11.34% increase.    

Litigation. At any given time, there are various numbers of 
claims and cases pending against New Jersey, New Jersey agencies 
and employees, seeking recovery of monetary damages that are 
primarily paid out of the fund created pursuant to the Tort Claims 
Act, N.J.S.A. 59:1-1 et seq. (the "Tort Claims Act''). At any 
given time there are various contract and other claims against New 
Jersey and New Jersey agencies, including environmental claims 
arising from the alleged disposal of hazardous waste, seeking 
recovery of monetary damages or other relief which would require 
the expenditure of funds. In addition, at any given time there are 
various numbers of claims and cases pending against the University 
of Medicine and Dentistry of New Jersey and its employees, seeking 
recovery of monetary damages or other relief which would require 
the expenditure of funds. New Jersey is unable to estimate its 
exposure for these claims. 

As of August, 1994, the following cases are presently pending 
or threatened in which New Jersey has the potential for either a 
significant loss of revenue or significant unanticipated 
expenditures: Abbot v. Burke, challenging the constitutionality of 
the Quality Education Act of 1990, which was found to be 
unconstitutional by the Trial Court and was recently affirmed by 
the New Jersey Supreme Court and requires that a funding formula 
be adopted by September, 1996 which will achieve by the 1997-98 
school year the mandated parity in spending and will address the 
special educational needs of children in poor and urban school 
districts; County of Essex v. Waldman, et al. and similar cases 
involving eleven other counties, challenging the methods by which 
the New Jersey Department of Human Services shares with county 
governments and maintenance recoveries and costs for residents in 
New Jersey psychiatric hospitals and residential facilities for 
the developmentally disabled, all of which are on appeal in the 
New Jersey courts; County of Essex v. Commissioner of Human 
Services, et al. and similar cases involving ten other counties, 
in which the Appellate Division ruled that all counties were 
entitled to 100% of Social Security benefits and other maintenance 
recoveries received by New Jersey and were entitled to credits for 
payments made to New Jersey for the maintenance of Medicare and 
Medicaid-eligible county residents of certain New Jersey 
facilities, which is on petition for review by the New Jersey 
Supreme Court; New Jersey Association of Health Care Facilities, 
Inc., et al. v. Gibbs, et al., a class action on behalf of all New 
Jersey long-term care facilities providing services to Medicaid 
patients, seeking a declaration that the New Jersey Department of 
Human Services has violated Federal law in the setting and paying 
of 1990 long-term care facility Medicaid payment rates, where the 
Third Circuit affirmed the District Court's denial of plaintiff's 
motion for preliminary injunction, and the parties are currently 
negotiating the form of an order to dismiss the action with 
prejudice; Exxon v. Hunt and related cases, where taxpayers sought 
refund of taxes paid to the Spill Compensation Fund and the New 
Jersey Supreme Court, on remand from the U.S. Supreme Court, ruled 
that plaintiffs would receive refunds only in the event the New 
Jersey Legislature refused to reimburse the Spill Compensation 
Fund for expenditures for preempted purposes and, after exhaustion 
of appeals and other legal avenues, a motion by the State for 
dismissal of all such claims is pending before the Tax Court; Fair 
Automobile Insurance Reform Act ("FAIR Act'') litigation 
challenging various portions of FAIR Act, including surtax and 
assessment provisions, is still pending; County of Passaic v. 
State of New Jersey alleging tort and contractual claims against 
New Jersey and the New Jersey Department of Environmental 
Protection in connection with a resource recovery facility 
plaintiffs had planned to build in Passaic County, seeking 
approximately $30 million in damages; Pelletier, et al., v. 
Waldman, et al., a challenge by State Medicaid-eligible children 
to the adequacy of Medicaid reimbursement for services rendered by 
doctors and dentists, is currently in mediation; Barnett Memorial 
Hospital v. Commissioner of Health, an appeal by several hospitals 
of the Commissioner's calculation of the hospital assessment 
required by the Health Care Cost Reduction Act of 1991, was 
decided against the Commission and successful claimants were 
refunded the amount of their overpayment in April, 1994, which 
amount totaled $4,636,576; New Jersey Hospital Association, et al. 
v. Leonard Fishman, seeking the same relief as in Barnett; Robert 
E. Brennan v. Richard Barry, et al., a suit filed against two 
members of the New Jersey Bureau of Securities alleging causes of 
action for defamation, injury to reputation, abuse of process and 
improper disclosure, based on the Bureau's investigation of 
certain publicly-traded securities to which the state has filed a 
motion to dismiss and/or for summary judgment; Camden Co. v. 
Waldman, et al., now consolidated with similar suits filed by 
Middlesex, Monmouth and Atlantic Counties, seeking reimbursement 
of federal funds received by New Jersey for disproportionate share 
hospital payments made to county psychiatric facilities from July 
1, 1988 through July 1, 1991 has been transferred to the Appellate 
Division; Interfaith Community Organization v. Fox, et al., a suit 
filed by a coalition of churches and church leaders in Hudson 
County against the Governor, the Commissioners of the Department 
of Environmental Protection and Energy and the Department of 
Health, concerning chromium contamination in Liberty State Park in 
Jersey City; American Trucking Associations, Inc. and Tri-State 
Motor Transit v. State of New Jersey, challenging the 
constitutionality of annual hazardous and solid waste licensure 
fees collected by the Department of Environmental Protection, 
seeking a permanent injunction enjoining future collection of fees 
and refund of all renewal fees, fines and penalties collected; and 
Waste Management of Pennsylvania, et al. v. Shinn, et al., an 
action filed in federal district court seeking declaratory and 
injunctive relief and compensatory damages from Department of 
Environmental Protection Commissioner Shinn and Acting 
Commissioner Fox, alleging violations of the Commerce Clause and 
the Contracts Clause of the United States Constitution based on 
emergency redirection orders and a draft permit. 

In addition to litigation against New Jersey, at any given time 
there are various numbers of claims and cases pending or 
threatened against the political subdivisions of New Jersey, 
including but not limited to New Jersey authorities, counties, 
municipalities and school districts, which have potential for 
either a significant loss of revenue or significant unanticipated 
expenditures. 

Ratings. In July 1991, S&P downgraded its rating of New Jersey 
General Obligation Bonds from AAA to AA+. Subsequently on June 4, 
1992, S&P moved New Jersey's General Obligation Bonds from Credit 
Watch and affirmed its AA+ ratings of New Jersey's general 
obligation and various lease and appropriation backed debt, but 
its ratings outlook was revised to negative for the longer term 
horizon (beyond four months) for resolution of two items cited in 
the Credit Watch listing: (a) the Federal Health Care Facilities 
Administration ruling concerning retroactive Medicaid hospital 
reimbursements and (b) New Jersey's uncompensated health care 
funding system, which is pending review by the United States 
Supreme Court. Citing a developing pattern of reliance on non-
recurring measures to achieve budgetary balance, four years of 
financial operations marked by revenue shortfalls and operating 
deficits, and the likelihood that financial pressures will 
persist, on August 24, 1992 Moody's lowered its rating of New 
Jersey General Obligation Bonds from Aaa to Aa1. There is no 
assurance that the ratings of New Jersey General Obligation Bonds 
will continue for any given period of time or that they will not 
be revised downward or withdrawn entirely. Any such downward 
revision or withdrawal could have an adverse effect on the market 
prices of the New Jersey's general obligation bonds. 

The various political subdivisions of New Jersey are rated 
independently by S&P and/or Moody's. These ratings are based upon 
information supplied to the rating agency by the political 
subdivision. There is no assurance that such ratings will continue 
for any given period of time or that they will not be revised 
downward or withdrawn entirely. Any such downward revision or 
withdrawal could have an adverse effect on the market prices of 
bonds issued by the political subdivision. 

PURCHASE OF SHARES 

Volume Discounts

The schedule of sales charges on Class A shares described in 
the Prospectus applies to purchases made by any "purchaser,'' 
which is defined to include the following: (a) an individual; (b) 
an individual and his or her immediate family purchasing shares 
for his or her own account; (c) a trustee or other fiduciary 
purchasing shares for a single trust estate or single fiduciary 
account; (d) a pension, profit-sharing or other employee benefit 
plan qualified under Section 401(a) of the Internal Revenue Code 
of 1986, as amended (the "Code''), and qualified employee benefit 
plans of employers who are "affiliated persons'' of each other 
within the meaning of the 1940 Act; (e) tax-exempt organizations 
enumerated in Section 501(c)(3) or (13) of the Code; and (f) a 
trustee or other professional fiduciary (including a bank, or an 
investment adviser registered with the SEC under the Investment 
Advisers Act of 1940, as amended) purchasing shares of the Fund 
for one or more trust estates or fiduciary accounts. Purchasers 
who wish to combine purchase orders to take advantage of volume 
discounts should contact a Smith Barney Financial Consultant. 

Combined Right of Accumulation

Reduced sales charges, in accordance with the schedule in the 
Prospectus, apply to any purchase of Class A shares if the 
aggregate investment in Class A shares of the Fund and in Class A 
shares of other Smith Barney Mutual Funds that are offered with a 
sales charge, including the purchase being made, of any purchaser 
is $25,000 or more. The reduced sales charge is subject to 
confirmation of the shareholder's holdings through a check of 
appropriate records. The Fund reserves the right to terminate or 
amend the combined right of accumulation at any time after written 
notice to shareholders. For further information regarding the 
right of accumulation, shareholders should contact a Smith Barney 
Financial Consultant. 

Determination of Public Offering Price

The Fund offers its shares to the public on a continuous basis. 
The public offering price for a Class A and Class Y share of the 
Fund is equal to the net asset value per share at the time of 
purchase, plus for Class A shares an initial sales charge based on 
the aggregate amount of the investment. The public offering price 
for a Class B and Class C share (and Class A share purchases, 
including applicable rights of accumulation, equaling or exceeding 
$500,000), is equal to the net asset value per share at the time 
of purchase and no sales charge is imposed at the time of 
purchase. A contingent deferred sales charge ("CDSC''), however, 
is imposed on certain redemptions of Class B and Class C shares, 
and Class A shares when purchased in amounts exceeding $500,000. 
The method of computation of the public offering price is shown in 
the Fund's financial statements, incorporated by reference in 
their entirety into this Statement of Additional Information.

REDEMPTION OF SHARES 

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


Distribution in Kind

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

Automatic Cash Withdrawal Plan

An automatic cash withdrawal plan (the "Withdrawal Plan'') is 
available to shareholders who own shares with a value of at least 
$10,000 and who wish to receive specific amounts of cash monthly 
or quarterly. Withdrawals of at least $100 may be made under the 
Withdrawal Plan by redeeming as many shares of the Fund as may be 
necessary to cover the stipulated withdrawal payment. Any 
applicable CDSC will not be waived on amounts withdrawn by 
shareholders that exceed 1.00% per month of the value of a 
shareholder's shares at the time the Withdrawal Plan commences. 
(With respect to Withdrawal Plans in effect prior to November 7, 
1994, any applicable CDSC will be waived on amounts withdrawn that 
do not exceed 2.00% per month of the value of a shareholder's 
shares at the time the Withdrawal Plan commences.) To the extent 
withdrawals exceed dividends, distributions and appreciation of a 
shareholder's investment in the Fund, there will be a reduction in 
the value of the shareholder's investment, and continued 
withdrawal payments will reduce the shareholder's investment and 
may ultimately exhaust it. Withdrawal payments should not be 
considered as income from investment in the Fund. Furthermore, as 
it generally would not be advantageous to a shareholder to make 
additional investments in the Fund at the same time he or she is 
participating in the Withdrawal Plan, purchases by such 
shareholders in amounts of less than $5,000 ordinarily will not be 
permitted.

Shareholders who wish to participate in the Withdrawal Plan and 
who hold their shares in certificate form must deposit their share 
certificates with the Transfer Agent as agent for Withdrawal Plan 
members. All dividends and distributions on shares in the 
Withdrawal Plan are reinvested automatically at net asset value in 
additional shares of the Fund.  Withdrawal Plans should be set up 
with a Smith Barney Financial Consultant. A shareholder who 
purchases shares directly through the Transfer Agent may continue 
to do so and applications for participation in the Withdrawal Plan 
must be received by the Transfer Agent no later than the eighth 
day of the month to be eligible for participation beginning with 
that month's withdrawal. For additional information, shareholders 
should contact a Smith Barney Financial Consultant. 

DISTRIBUTOR

Smith Barney serves as the Fund's distributor on a best efforts 
basis pursuant to a written agreement dated July 30, 1993 (the 
"Distribution Agreement'') which was most recently approved by the 
Fund's Board of Directors on July 16, 1997. For the fiscal years 
ended March 31, 1995, 1996 and 1997, Smith Barney received 
$199,930, $154,000 and 139,000, respectively, in sales charges 
from the sale of the Fund's Class A shares, and did not reallow 
any portion thereof to dealers.  For the fiscal years ended March 
31, 1995, 1996 and 1997 Smith Barney received $178,656, $117,000 
and $160,000 respectively, representing CDSC on redemptions of the 
Fund's Class B and Class C shares.

For the fiscal year ended March 31, 1997, Smith Barney incurred 
distribution expenses totaling approximately $749,783, consisting 
of approximately $50,800 for advertising, $6,834 for printing and 
mailing of Prospectuses, $332,025 for support services, $349,544 
to Smith Barney Financial Consultants, and $10,579 in accruals for 
interest on the excess of Smith Barney expenses incurred in 
distributing the Fund's shares over the sum of the distribution 
fees and CDSC received by Smith Barney from the Fund.

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

Distribution Arrangements

To compensate Smith Barney for the services it provides and for 
the expense it bears under the Distribution Agreement, the Fund 
has adopted a services and distribution plan (the "Plan'') 
pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the 
Fund pays Smith Barney a service fee, accrued daily and paid 
monthly, calculated at the annual rate of 0.15% of the value of 
the Fund's average daily net assets attributable to the Class A, 
Class B and Class C shares. In addition, the Fund pays Smith 
Barney a distribution fee primarily intended to compensate Smith 
Barney for its initial expense of paying Financial Consultants a 
commission upon sales of the respective shares. The Class B 
distribution fee is calculated at the annual rate of 0.50% of the 
value of the Fund's average net assets attributable to the shares 
of the Class. The Class C distribution fee is calculated at the 
annual rate of 0.55% of the value of the Fund's average net assets 
attributable to the shares of the Class. 

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


Service Fees



   3/31/97
     
3/31/96
       
3/31/95

Class A	
$224,109
	$185,007
	$170,371

Class B	
    95,133
	89,476
	77,993

Class C	
      6,565
	2,101
               
58





Distribution Fees



 3/31/97
     
3/31/96
      
3/31/95

Class B	
$317,111
	$298,253
	$259,976

Class C	
    24,073
	7,704
            
214




For the 1995, 1996 and 1997 fiscal years, Smith Barney received 
$508,612, $582,541 and $666,991, respectively, in the aggregate 
from the Plan.

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

VALUATION OF SHARES

Each Class' net asset value per share is calculated on each 
day, Monday through Friday, except days on which the NYSE is 
closed. The NYSE currently is scheduled to be closed on New Year's 
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, 
Labor Day, Thanksgiving and Christmas, and on the preceding Friday 
or subsequent Monday when one of these holidays falls on a 
Saturday or Sunday, respectively. Because of the differences in 
distribution fees and Class-specific expenses, the per share net 
asset value of each Class may differ. The following is a 
description of the procedures used by the Fund in valuing its 
assets.

The valuation of the Fund's assets is made by SBMFM after 
consultation with an independent pricing service (the "Service'') 
approved by the Board of Directors. When, in the judgment of the 
Service, quoted bid prices for investments are readily available 
and are representative of the bid side of the market, these 
investments are valued at the mean between the quoted bid and 
asked prices. Investments for which, in the judgment of the 
Service, there is no readily obtainable market quotation (which 
may constitute a majority of the portfolio securities) are carried 
at fair value as determined by the Service. For the most part, 
such investments are liquid and may be readily sold. The Service 
may employ electronic data processing techniques and/or a matrix 
system to determine valuations. The procedures of the Service are 
reviewed periodically by the officers of the Fund under the 
general supervision and responsibility of the Board of Directors, 
which may replace any such Service at any time if it determines it 
to be in the best interests of the Fund to do so. 

EXCHANGE PRIVILEGE 

Except as noted below, shareholders of any Smith Barney Mutual 
Fund may exchange all or part of their shares for shares of the 
same Class of other Smith Barney Mutual Funds, to the extent such 
shares are offered for sale in the shareholder's state of 
residence, as listed in the Prospectus, on the basis of relative 
net asset value per share at the time of exchange as follows:

A. Class A shares of any fund purchased with a sales charge may 
be exchanged for Class A shares of any of the other funds.  
Class A shares of any fund may be exchanged without a sales 
charge for shares of the funds that are offered without a sales 
charge. Class A shares of any fund purchased without a sales 
charge may be exchanged for shares sold with a sales charge.

B. Class A shares of any fund acquired by a previous exchange 
of shares purchased with a sales charge may be exchanged for 
Class A shares of any of the other funds.

C. Class B shares of any fund may be exchanged without a sales 
charge. Class B shares of the Fund exchanged for Class B shares 
of another fund will be subject to the higher applicable CDSC 
of the two funds and, for purposes of calculating CDSC rates 
and conversion periods, will be deemed to have been held since 
the date the shares being exchanged were deemed to be 
purchased. 

Dealers other than Smith Barney must notify the Transfer Agent 
of the investor's prior ownership of Class A shares of Smith 
Barney High Income Fund and the account number in order to 
accomplish an exchange of shares of Smith Barney High Income 
Fund under paragraph B above. 

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

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



PERFORMANCE DATA

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


Average Annual Total Return

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

	P (1+T)n = ERV

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

The following total return figures for Class A shares assume 
that the maximum 4.00% sales charge has been deducted from the 
investment at the time of purchase and have been restated to show 
the change in the maximum sales charge. The average annual total 
return for Class A shares was as follows for the period indicated: 

1.49% for the one-year period beginning April 1, 1996 through 
March 31, 1997.

6.07% per annum during the five-year period beginning on April 1, 
1992 through March 31, 1997.

7.80% per annum during the period from the Fund's commencement of 
operations on April 22, 1988 through March 31, 1997.

These total return figures assume that the maximum 4.00% sales 
charge assessed by the Fund on purchases of Class A shares has 
been deducted from the investment at the time of purchase. Had the 
investment advisory, sub-investment advisory and/or administration 
fees not been partially waived (and assuming that the maximum 
4.00% sales charge had not been deducted), the Class A's average 
annual total return would have been 5.74%, 6.94% and 8.29%, 
respectively, for those same periods.


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

0.73% for the one-year period from April 1, 1996 through March 31, 
1997.

5.70% per annum for the period from November 6, 1992 (commencement 
of operations) through March 31, 1997.

These average annual total return figures assume that the 
applicable maximum CDSC has been deducted from the investment. Had 
the investment advisory and sub-investment advisory and/or 
administration fees not been partially waived and the CDSC had not 
been deducted, the average annual total return on the Fund's Class 
B shares would have been 5.23% and 5.89%, respectively, for those 
same periods.


The Fund's average annual total return for Class C shares was 
as follows for the periods indicated:

4.17% for the one year period from April 1, 1996 through March 31, 
1997; and
8.94% per annum for the period from December 13, 1994 
(commencement of operations) through March 31, 1997.

These average annual total return figures assume that the 
applicable CDSC has been deducted from the investment.  Had the 
CDSC not been deducted, the average annual total return on the 
Fund's Class C shares would have been 5.17% and 8.94%, 
respectively, for those same periods.


Aggregate Total Return

Aggregate total return figures described below represent the 
cumulative change in the value of an investment in the Class for 
the specified period and are computed by the following formula:

	ERV-P
	    P

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

The aggregate total return for Class A shares was as follows 
for the periods indicated (reflecting the partial waiver of the 
investment advisory and sub-investment advisory and/or 
administration fees):

1.49% for the one-year period beginning April 1, 1995 through 
March 31, 1997.

34.24% for the five-year period from April 1, 1992 through March 
31, 1997; and

95.84% for the period from the Fund's commencement of operations 
on April 22, 1988 through March 31, 1997.

These aggregate total return figures assume that the maximum 
4.00% sales charge assessed by the Fund on purchases of Class A 
shares has been deducted from the investment at the time of 
purchase. If the maximum sales charge had not been deducted at the 
time of purchase, the Fund's aggregate total return reflecting the 
partial waiver of the investment advisory and sub-investment 
advisory and/or administration fees for those same periods would 
have been 5.74%, 39.85% and 103.92%, respectively. 

The Fund's aggregate total return for Class B shares was as 
follows for the periods indicated: 

0.73% for the one-year period from April 1, 1996 through March 31, 
1997; and

27.63% for the period beginning on November 6, 1992 (commencement 
of operations) through March 31, 1997.

These figures assume that the applicable maximum 4.50% CDSC has 
been deducted from the investment at the time of purchase. If the 
investment advisory and sub-investment advisory and/or 
administration fees had not been partially waived and the maximum 
CDSC had not been deducted at the time of purchase, the Fund's 
aggregate total returns for the same period would have been 5.23% 
and 28.64%, respectively, for those same periods.


The Fund's aggregate total return for Class C shares was as 
follows for the periods indicated:

4.17% for the one year period from April 1, 1996 through March 31, 
1997; and
21.75% per annum for the period from December 13, 1994 
(commencement of operations) through March 31, 1997.

These aggregate total return figures assume that the applicable 
CDSC has been deducted from the investment.  Had the CDSC not been 
deducted, the average annual total return on the Fund's Class C 
shares would have been 5.17% and 21.75%, respectively, for those 
same periods.


It is important to note that the total return figures set forth 
above are based on historical earnings and are not intended to 
indicate future performance. Each Class' net investment income 
changes in response to fluctuation in interest rates and the 
expenses of the Fund. Performance will vary from time to time 
depending upon market conditions, the composition of the Fund's 
portfolio and its operating expenses and the expenses exclusively 
attributable to the Class. Consequently, any given performance 
quotation should not be considered representative of the Class' 
performance for any specified period in the future. In addition, 
because the performance will vary, it may not provide a basis for 
comparing an investment in the Class with certain bank deposits or 
other investments that pay a fixed yield for a stated period of 
time. Investors comparing a Class' performance with that of other 
mutual funds should give consideration to the quality and maturity 
of the respective investment companies' portfolio securities.

TAXES

The following is a summary of selected Federal income tax 
considerations that may affect the Fund and its shareholders. The 
summary is not intended as a substitute for individual tax advice 
and investors are urged to consult their own tax advisors as to 
the tax consequences of an investment in the Fund.

As described above and in the Prospectus, the Fund is designed 
to provide investors with current income which is excluded from 
gross income for regular Federal income tax purposes and exempt 
from New Jersey personal income taxes. The Fund is not intended to 
constitute a balanced investment program and is not designed for 
investors seeking capital gains or maximum tax-exempt income 
irrespective of fluctuations in principal. Investment in the Fund 
would not be suitable for tax-exempt institutions, qualified 
retirement plans, H.R. 10 plans and individual retirement accounts 
since such investors would not gain any additional tax benefit 
from the receipt of tax-exempt income. 

The Fund has qualified and intends to continue to qualify each 
succeeding year as a "regulated investment company'' under the 
Code. Provided the Fund (a) qualifies as a regulated investment 
company and (b) distributes at least 90% of the sum of its taxable 
net investment income and 90% of its tax-exempt interest income 
(reduced by certain expenses), the Fund will not be liable for 
Federal income taxes to the extent of all of its taxable net 
investment income and net realized long-term and short-term 
capital gains, if any, are distributed to its shareholders. 
Although the Fund expects to be relieved of substantially all 
Federal and state income or franchise taxes, depending upon the 
extent of its activities in states and localities in which its 
offices are maintained, in which its agents or independent 
contractors are located or in which it is otherwise deemed to be 
conducting business, that portion of the Fund's income which is 
treated as earned in any such state or locality could be subject 
to state and local tax. Any such taxes paid by the Fund would 
reduce the amount of income and gains available for distribution 
to shareholders. All net investment income and net capital gains 
earned by the Fund will be reinvested automatically in additional 
shares of the same Class of the Fund at net asset value, unless 
the shareholder elects to receive dividends and distributions in 
cash. 

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

As described above and in the Prospectus, the Fund may invest 
in municipal bond index and interest rate futures contracts and 
options on these futures contracts. The Fund anticipates that 
these investment activities would not prevent the Fund from 
qualifying as a regulated investment company. As a general rule, 
these investment activities would increase or decrease the amount 
of long-term and short-term capital gains or losses realized by 
the Fund and, accordingly, would affect the amount of capital 
gains distributed to the Fund's shareholders. 

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

While the Fund does not expect to realize a significant amount 
of net long-term capital gains, any such gains will be distributed 
annually as described in the Prospectus. Such distributions 
("capital gain dividends''), if any, may be taxable to 
shareholders as long-term capital gains, regardless of how long 
they have held Fund shares, and will be designated as capital gain 
dividends in a written notice mailed by the Fund to shareholders 
within 60 days after the close of the Fund's prior taxable year. 
If a shareholder receives a capital gain dividend with respect to 
any share and if such share has been held by the shareholder for 
six months or less, then any loss (to the extent not disallowed 
pursuant to the other six month rule described above) on the sale 
or exchange of such share will be treated as a long-term capital 
loss to the extent of the capital gain dividend. 

No loss will be allowed on the sale, exchange or redemption of 
shares in the Fund to the extent that the shareholder acquired 
other shares in the Fund within a period beginning 30 days before 
the sale or disposition of the loss shares and ending 30 days 
after such date (Fund shareholders should note that such 
acquisitions may occur through the automatic dividend reinvestment 
plan or the Systematic Investment Plan described in the 
Prospectus).

When a shareholder incurs a sales charge when acquiring shares 
of the Fund, disposes of those shares within 90 days and acquires 
shares in a mutual fund for which the otherwise applicable sales 
charge is reduced by reason of a reinvestment right (that is, 
exchange privilege), the original sales charge increases the 
shareholder's tax basis in the original shares only to the extent 
the otherwise applicable sales charge for the second acquisition 
is not reduced. The portion of the original sales charge that does 
not increase the shareholder's tax basis in the original shares 
would be treated as incurred with respect to the second 
acquisition and, as a general rule, would increase the 
shareholder's tax basis in the newly acquired shares. Furthermore, 
the same rule also applies to a disposition of the newly acquired 
shares made within 90 days of the second acquisition. This 
provision prevents a shareholder from immediately deducting the 
sales charge or CDSC by shifting his or her investment in a family 
of mutual funds. 

Each shareholder will receive after the close of the calendar 
year an annual statement as to the Federal income tax and New 
Jersey personal income tax status of his or her dividends and 
distributions from the Fund for the prior calendar year. These 
statements also will designate the amount of exempt-interest 
dividends that is a preference item for purposes of the Federal 
individual and corporate alternative minimum taxes. Each 
shareholder also will receive, if appropriate, various written 
notices after the close of the Fund's prior taxable year as to the 
Federal income tax status of his or her dividends and 
distributions which were received from the Fund during the Fund's 
prior taxable year. Shareholders should consult their tax advisors 
as to any other state and local taxes that may apply to these 
dividends and distributions. The dollar amounts of dividends 
excluded or exempt from regular Federal income taxation or New 
Jersey personal income taxation and the dollar amount of dividends 
subject to regular Federal income taxation or New Jersey personal 
income taxation, if any, will vary for each shareholder depending 
upon the size and duration of each shareholder's investment in the 
Fund. 

Investors considering buying shares of the Fund just prior to a 
record date for a capital gain distribution should be aware that, 
regardless of whether the price of the Fund shares to be purchased 
reflects the amount of the forthcoming distribution payment, any 
such payment will be a taxable distribution payment. 

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

Income distributions, including interest income and gains 
realized by the Fund upon disposition of investments paid from a 
"qualified investment fund'' should be exempt from the New Jersey 
personal income tax to the extent attributable to New Jersey 
Municipal Securities or to obligations that are free from state or 
local taxation under New Jersey or Federal laws ("Tax-Exempt 
Obligations''). A "qualified investment fund'' is any investment 
or trust company, or series of such investment company or trust 
registered with the SEC, which for the calendar year in which a 
distribution is paid, has no investments other than interest-
bearing obligations, obligations issued at a discount, financial 
options, futures, forward contracts or other similar financial 
instruments related to interest-bearing obligations, obligations 
issued at a discount or related bond indexes and cash and cash 
items, including receivables, and which has, at the close of each 
quarter of the taxable year, at least 80% of the aggregate 
principal amount of all of its investments, excluding financial 
options, futures, forward contracts, or other similar financial 
instruments related to interest-bearing obligations, obligations 
issued at a discount or bond indexes related thereto as authorized 
under the Code, cash and cash items, such as receivables, invested 
in New Jersey Municipal Securities or in Tax-Exempt Obligations. 
Furthermore, gains resulting from the redemption or sale of shares 
of the Fund to the extent attributable to interest or gain from 
obligations issued by New Jersey or its local government entities 
or obligations which are free from state or local taxes under New 
Jersey or Federal law, are exempt from the New Jersey personal 
income tax.

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

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

ADDITIONAL INFORMATION

The Fund was incorporated under the laws of the State of 
Maryland on November 12, 1987. The Fund commenced operations on 
April 22, 1988 under the name Shearson Lehman New Jersey 
Municipals Inc. On December 15, 1988, March 31, 1992, July 30, 
1993 and October 14, 1994, the Fund changed its name to SLH New 
Jersey Municipals Fund Inc., Shearson Lehman Brothers New Jersey 
Municipals Fund Inc., Smith Barney Shearson New Jersey Municipals 
Fund Inc. and Smith Barney New Jersey Municipals Fund Inc., 
respectively. 

PNC, located at 17th and Chestnut Streets, Philadelphia, 
Pennsylvania 19101, serves as  the Fund's custodian pursuant to a 
custody agreement. Under the custody agreement, PNC holds the 
Fund's portfolio securities and keeps all necessary accounts and 
records. For its services, PNC receives a monthly fee based upon 
the month-end market value of securities held in custody and also 
receives securities transaction charges. The assets of the Fund 
are held under bank custodianship in compliance with the 1940 Act. 

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

FINANCIAL STATEMENTS

The Fund's Annual Report for the fiscal year ended March 31, 
1997, accompanies this Statement of Additional Information and is 
incorporated herein by reference in its entirety.



APPENDIX

Description of S&P and Moody's ratings:

S&P Ratings for Municipal Bonds

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

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

AAA

Prime -- These are obligations of the highest quality. They have the 
strongest capacity for timely payment of debt service.

General Obligation Bonds -- In a period of economic stress, the issuers 
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 -- Debt service coverage 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, and debt service reserve requirements) 
are rigorous. There is evidence of superior management. 

AA

High Grade -- The investment characteristics of general obligation and 
revenue 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
 
Good Grade -- Principal and interest payments on bonds in this category are 
regarded as safe. This rating describes the third strongest capacity for 
payment of debt service. It differs from the two higher ratings because: 

General Obligation Bonds -- 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 -- 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 
appears adequate. 

BBB

Medium Grade -- Of the investment grade ratings, this is the lowest. 

General Obligation Bonds -- Under certain adverse conditions, several of 
the above factors could contribute to a lesser capacity for payment of debt 
service. The difference between "A'' and "BBB'' ratings is that the latter 
shows more than one fundamental weakness, or one very substantial fundamental 
weakness, whereas the former shows only one deficiency among the factors 
considered. 

Revenue Bonds -- Debt coverage is only fair. Stability of the pledged 
revenues could show substantial variations, with the revenue flow possibly 
being subject to erosion over time. Basic security provisions are no more than 
adequate. Management performance could be stronger. 

BB, B, CCC and CC

Bonds rated BB, B, CCC and CC are regarded, on balance, as predominately 
speculative with respect to capacity to pay interest and repay principal in 
accordance with the terms of the obligation. BB indicates the lowest degree of 
speculation and CC the highest degree of speculation. While such bonds will 
likely have some quality and protective characteristics, these are outweighed 
by large uncertainties or major risk exposures to adverse conditions. 

C

The rating C is reserved for income bonds on which no interest is being 
paid. 

D

Bonds rated D are in default, and payment of interest and/or repayment of 
principal is in arrears. 

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-Prime Grade category. 

S&P Ratings for Municipal Notes

Municipal notes with maturities of three years or less are usually given 
note ratings (designated SP-1, -2 or -3) by S&P to distinguish more clearly 
the credit quality of notes as compared to bonds. Notes rated SP-1 have a 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.

Moody's Ratings for Municipal Bonds

Aaa

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

Aa

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

A

Bonds 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 are considered adequate, but elements may be present 
which suggest a susceptibility to impairment sometime in the future. 

Baa

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

Ba

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

B

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

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. 

Caa

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

Ca

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

C

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

Moody's Ratings for Municipal Notes

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

Description of S&P A-1+ and A-1 Commercial Paper Rating

The rating A-1+ is the highest, and A-1 the second highest, commercial 
paper rating assigned by S&P. Paper rated A-1+ must have either the direct 
credit support of an issuer or guarantor that possesses excellent long-term 
operating and financial strengths combined with strong liquidity 
characteristics (typically, such issuers or guarantors would display credit 
quality characteristics which would warrant a senior bond rating of "AA-'' or 
higher), or the direct credit support of an issuer or guarantor that possesses 
above average long-term fundamental operating and financing capabilities 
combined with ongoing excellent liquidity characteristics. Paper rated A-1 by 
S&P has the following characteristics: liquidity ratios are adequate to meet 
cash requirements; long-term senior debt is rated "A'' or better; the issuer 
has access to at least two additional channels of borrowing; basic earnings 
and cash flow have an upward trend with allowance made for unusual 
circumstances; typically, the issuer's industry is well established and the 
issuer has a strong position within the industry; and the reliability and 
quality of management are unquestioned.

Description of Moody's Prime-1 Commercial Paper Rating

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



	Smith Barney
	New Jersey
	Municipals
	Fund Inc.

Statement of


Additional 
Information























July 29, 1997 












Smith Barney
New Jersey Municipals Fund Inc.
388 Greenwich Street
New York, NY  10013


	SMITH BARNEY
	A Member of Travelers Group
	29

	A-4