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Prospectus                                                    December 31, 1997
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Managed Municipals Portfolio II Inc.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
    

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

   
     This Prospectus sets forth concisely the information about the Portfolio
that a prospective investor ought to know before investing and should be
retained for future reference. A Statement of Additional Information dated
December 31, 1997 (the "SAI") containing additional information about the
Portfolio has been filed with the Securities and Exchange Commission (the "SEC")
and is hereby incorporated by reference in its entirety into this Prospectus. A
copy of the SAI may be obtained without charge by calling or writing to the
Portfolio at the telephone number or address set forth above or by contacting a
Smith Barney Financial Consultant.
    

     Smith Barney Inc. ("Smith Barney" or the "Distributor") intends to make a
market in the Portfolio's Common Stock, although it is not obligated to conduct
market-making activities and any such activities may be discontinued at any time
without notice, at the sole discretion of Smith Barney. The shares of Common
Stock that may be offered from time to time pursuant to this Prospectus were
issued and sold by the Portfolio in a public offering which commenced September
24, 1992, at a price of $12.00 per share. No assurance can be given as to the
liquidity of, or the trading market for, the Common Stock as a result of any
market-making activities undertaken by Smith Barney. The Portfolio will not
receive any proceeds from the sale of any Common Stock offered pursuant to this
Prospectus.

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

SMITH BARNEY INC.
Distributor

SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager and Administrator

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


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Table of Contents
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Prospectus Summary                                                            3
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Portfolio Expenses                                                            5
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Financial Highlights                                                          7
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The Portfolio                                                                 8
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The Offering                                                                  8
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Use of Proceeds                                                               8
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Investment Objective and Policies                                             8
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Net Asset Value                                                              15
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Share Price Data                                                             16
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Taxation                                                                     17
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Management of the Portfolio                                                  18
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Dividends and Distributions; Dividend Reinvestment Plan                      19
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Certain Provisions of the Articles of Incorporation                          21
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Description of Common Stock                                                  22
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Custodian and Transfer Agent                                                 23
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Independent Auditors                                                         23
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Further Information                                                          23
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Appendix A                                                                  A-1
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      No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Portfolio or the
Distributor. This Prospectus does not constitute an offer by the Portfolio 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.
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2
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Prospectus Summary
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      The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and in the SAI. Cross
references in this summary are to headings in the Prospectus.

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

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

TAX-EXEMPT INCOME The Portfolio is intended to operate in such a manner that
dividends paid by the Portfolio may be excluded by the Portfolio's shareholders
from their gross income for regular Federal income tax purposes. See "Investment
Objective and Policies" and "Taxation." The Portfolio has the right to invest
without limitation in state and local obligations that are "private activity
bonds," the income from which may be taxable as a specific preference item for
purposes of the Federal alternative minimum tax. Thus, the Portfolio may not be
a suitable investment for investors who are subject to the alternative minimum
tax. See "Investment Objective and Policies" and "Taxation."

   
QUALITY OF INVESTMENTS The Portfolio will invest substantially all of its assets
in long-term investment grade Municipal Obligations. At least 80% of the
Portfolio's total assets will be invested in securities rated investment grade
by Moody's Investor Services L.P. ("Moody's"), Standard & Poor's Ratings Group
("S&P"), Fitch IBCA Inc. (formerly Fitch Investor Services, Inc.) ("Fitch") or
another nationally recognized rating agency (that is, rated no lower than Baa,
MIG3 or Prime-1 by Moody's, BBB, SP-2 or A-1 by S&P, or BBB or F 1 by Fitch). Up
to 20% of the Portfolio's total assets may be invested in unrated securities
that are deemed by the Portfolio's investment manager to be of a quality
comparable to investment grade. See "Investment Objective and Policies."
    

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

LISTING NYSE

SYMBOL MTU

   
INVESTMENT MANAGER AND ADMINISTRATOR Smith Barney Mutual Funds Management Inc.
("SBMFM" or the "Investment Manager") serves as the Portfolio's investment
manager. The Investment Manager provides investment advisory and management
services to investment companies affiliated with Smith Barney. SBMFM is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc. 
    


                                                                               3
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Prospectus Summary (continued)
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("Holdings"), which is in turn a wholly owned subsidiary of Travelers Group Inc.
("Travelers"). Subject to the supervision and direction of the Portfolio's Board
of Directors, the Investment Manager manages the securities held by the
Portfolio in accordance with the Portfolio's stated investment objective and
policies, makes investment decisions for the Portfolio, places orders to
purchase and sell securities on behalf of the Portfolio and employs professional
portfolio managers. SBMFM acts as administrator of the Portfolio and in that
capacity provides certain administrative services, including overseeing the
Portfolio's non-investment operations and its relations with other service
providers and providing executive and other officers to the Portfolio. The
Portfolio pays the Investment Manager a fee ("Management Fee") for services
provided to the Portfolio that is computed daily and paid monthly at the annual
rate of 0.70% of the value of the Portfolio's average daily net assets. The
Portfolio will bear other expenses and costs in connection with its operation in
addition to the costs of investment management services. See "Management of the
Portfolio -- Investment Manager."

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

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

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

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

      The Portfolio may invest up to 20% of its total assets in unrated
securities that the Investment Manager determines to be of comparable quality to
the securities rated investment grade in which the Portfolio may invest. Dealers
may not maintain daily markets in unrated securities and retail secondary
markets for many of them may not exist; this lack of markets may affect the
Portfolio's ability to sell these securities when the Investment Manager deems
it appropriate.

RISK FACTORS AND SPECIAL CONSIDERATIONS Certain of the instruments held 


4
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Prospectus Summary (continued)
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by the Portfolio, and certain of the investment techniques that the Portfolio
may employ, might expose the Portfolio to special risks. The instruments
presenting the Portfolio with risks are municipal leases, zero coupon
securities, custodial receipts, municipal obligation components, floating and
variable rate demand notes and bonds, and participation interests. Entering into
securities transactions on a when-issued or delayed delivery basis, entering
into repurchase agreements, lending portfolio securities, and engaging in
financial futures and options transactions are investment techniques involving
risks to the Portfolio. As a non-diversified fund within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"), the Portfolio may
invest a greater proportion of its assets in the obligations of a smaller number
of issuers and, as a result, may be subject to greater risk than a diversified
fund with respect to its holdings of securities. See "Investment Objective and
Policies -- Risk Factors and Special Considerations."

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

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

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

   
================================================================================
Annual Expenses
      (as a percentage of net assets attributable to Common Stock)
      Management Fees..................................................    0.90%
      Other Expenses*..................................................    0.20%
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Total Annual Operating Expenses........................................    1.10%
================================================================================
    

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


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Portfolio Expenses (continued)
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     EXAMPLE

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

              One Year         Three Years      Five Years         Ten Years
================================================================================
                 $11               $35              $61              $134
================================================================================

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


6
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Financial Highlights
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The following information for the three years ended August 31, 1997 has been
audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon
appears in the Portfolio's Annual Report dated August 31, 1997. The information
for the two years ended August 31, 1994 has been audited by other independent
auditors. The following information should be read in conjunction with the
financial statements and related notes that also appear in the Portfolio's
Annual Report, which is incorporated by reference into this Prospectus.

<TABLE>
<CAPTION>
                      For a Share of Capital Stock Outstanding Throughout Each Year:
=======================================================================================================
                                              1997        1996        1995        1994       1993(1)
-------------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>         <C>         <C>     
Net Asset Value,
  Beginning of Year                        $  11.98    $  12.36    $  12.15    $  13.37    $  12.00
-------------------------------------------------------------------------------------------------------
Income From Operations:
  Net investment income                        0.63        0.66        0.69        0.64        0.62
  Net realized and unrealized gain (loss)      0.48       (0.21)       0.32       (0.61)       1.34
-------------------------------------------------------------------------------------------------------
Total Income From Operations                   1.11        0.45        1.01        0.03        1.96
-------------------------------------------------------------------------------------------------------
Offering Cost Credited
  (Charged) to Paid-in Capital                 --          --          --          0.01       (0.04)
-------------------------------------------------------------------------------------------------------
Less Distributions From:
  Net investment income                       (0.66)      (0.67)      (0.68)      (0.67)      (0.55)
  Net realized gains                          (0.28)      (0.16)      (0.12)      (0.59)       --
-------------------------------------------------------------------------------------------------------
Total Distributions                           (0.94)      (0.83)      (0.80)      (1.26)      (0.55)
-------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year               $  12.15    $  11.98    $  12.36    $  12.15    $  13.37
-------------------------------------------------------------------------------------------------------
Total Return, Based on
  Market Value                                 7.75%       7.35%       8.86%       0.72%       9.97%++
-------------------------------------------------------------------------------------------------------
Total Return, Based on
  Net Asset Value                              9.86%       4.01%       9.20%       0.48%      16.46%++
=======================================================================================================
Net Assets, End of Year
  (in 000's)                               $136,517    $134,429    $138,649    $136,248    $149,970
=======================================================================================================
Ratios to Average Net Assets:
  Expenses                                     1.10%       1.09%       1.14%       1.12%       1.10%+
  Net investment income                        5.23        5.31        5.80        5.08        5.21+
-------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate                          97%         63%         95%         85%        163%
-------------------------------------------------------------------------------------------------------
Market Value, End of Period                $ 11.688    $ 11.750    $ 11.625    $ 11.500    $ 12.625
=======================================================================================================
</TABLE>

(1)  For the period from September 24, 1992 (commencement of operations) to
     August 31, 1993. 
++   Total return is not annualized, as it may not be representative of the
     total return for the year. 
+    Annualized.


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The Portfolio
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      The Portfolio is a non-diversified, closed-end management investment
company that seeks as high a level of current income exempt from Federal income
tax as is consistent with the preservation of principal. The Portfolio, which
was incorporated under the laws of the State of Maryland on July 23, 1992, is
registered under the 1940 Act, and has its principal office at 388 Greenwich
Street, New York, New York 10013. The Portfolio's telephone number is (800)
451-2010.

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

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

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

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


8
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Investment Objective and Policies (continued)
--------------------------------------------------------------------------------

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

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

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

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


                                                                               9
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Investment Objective and Policies (continued)
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full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenue derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source, but not from the general taxing power. Notes
are short-term obligations of issuing municipalities or agencies and are sold in
anticipation of a bond sale, collection of taxes or receipt of other revenues.
Municipal Obligations bear fixed, floating and variable rates of interest, and
variations exist in the security of Municipal Obligations, both within a
particular classification and between classifications. The types of Municipal
Obligations in which the Portfolio may invest are described in Appendix A to
this Prospectus.

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

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

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

     Investment Techniques

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


10
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Investment Objective and Policies (continued)
--------------------------------------------------------------------------------

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

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

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

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


                                                                              11
<PAGE>

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

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 Portfolio.

     Lending Securities. The Portfolio is authorized to lend securities it holds
to brokers, dealers and other financial organizations, but it will not lend
securities to any affiliate of the Investment Manager unless the Portfolio
applies for and receives specific authority to do so from the SEC. Loans of the
Portfolio's securities, if and when made, may not exceed 3311/43 % of the value
of the Portfolio's total assets taken at value. The Portfolio's loans of
securities will be collateralized by cash, letters of credit or U.S. government
securities that will be maintained at all times in a segregated account with PNC
Bank in an amount equal to the current market value of the loaned securities.

     Repurchase Agreements. The Portfolio may enter into repurchase agreement
transactions with banks which are the issuers of instruments acceptable for
purchase by the Portfolio 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 Portfolio would acquire an
underlying debt obligation for a relatively short period subject to an
obligation of the seller to repurchase, and the Portfolio to resell, the
obligation at an agreed-upon price and time, thereby determining the yield
during the Portfolio's holding period. This arrangement results in a fixed rate
of return that is not subject to market fluctuations during the Portfolio's
holding period. Under each repurchase agreement, the selling institution will be
required to maintain the value of the securities subject to the repurchase
agreement at not less than their repurchase price.

     Risk Factors and Special Considerations

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

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


12
<PAGE>

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

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

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

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

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

     Non-Publicly Traded Securities. As suggested above, the Portfolio may, from
time to time, invest a portion of its assets in non-publicly traded Municipal
Obligations. Non-publicly traded securities may be less liquid than publicly
traded 


                                                                              13
<PAGE>

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

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

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

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

     Financial Futures and Options. Although the Portfolio intends to enter into
financial futures contracts and options on financial futures contracts that are
traded on a U.S. exchange or board of trade only if an active market exists for
those instruments, no assurance can be given that an active market will exist
for them at any particular time. If closing a futures position in anticipation
of adverse price movements is not possible, the Portfolio would be required to
make daily cash payments of variation margin. In those circumstances, an
increase in the value of the portion of the Portfolio's investments being
hedged, if any, may offset partially or completely losses on the futures
contract. No assurance can be given, however, that the price of the securities
being hedged will correlate with the price movements in a futures contract and,
thus, provide an offset to losses on the futures contract or option on the
futures contract. In addition, in light of the risk of an imperfect correlation
between securities held by the Portfolio 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 Portfolio 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
Portfolio that were the subject of the hedge. If the Portfolio has hedged
against the possibility of an increase in interest rates adversely affecting the
value of securities it holds and rates decrease instead, the Portfolio will lose
part or all of the benefit of the increased value of securities that it has
hedged because it will have offsetting losses in its futures or options
positions.

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

14
<PAGE>

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

     Investment Restrictions

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

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

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

     The valuation of the Portfolio's assets is made by the Investment Manager
after consultation with an independent pricing service (the "Service") approved
by the Board of Directors. When, in the judgment of the Service, quoted bid
prices for investments are readily available and are representative of the bid
side of the market, these investments are valued at the mean between the quoted
bid prices and asked prices. Investments for which, in the judgment of the
Service, no readily obtainable market quotation is available (which may
constitute a majority of the


                                                                              15
<PAGE>

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

Portfolio's portfolio securities), are carried at fair value as determined by
the Service. The Service may use electronic data processing techniques and/or a
matrix system to determine valuations. The procedures of the Service are
reviewed periodically by the officers of the Portfolio under the general
supervision and responsibility of the Board of Directors, which may replace the
Service at any time if it determines it to be in the best interests of the
Portfolio to do so.

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

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

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

                   Quarterly High Price              Quarterly Low Price
                   --------------------              -------------------
                                    Premium                           Premium
              Net Asset   NYSE     (Discount)   Net Asset   NYSE     (Discount)
                Value     Price      to NAV       Value     Price      to NAV
===============================================================================
11/30/95        $12.72    11.875     (6.64)%      $12.28    11.375     (7.37) %
2/29/96          12.84    12.500     (2.65)        12.59    11.750     (6.67)
5/31/96          12.75    12.125     (0.62)        12.15    11.625     (0.525)
8/31/96          12.37    11.875     (4.00)        11.98    11.250     (6.09)
11/30/96         12.49    11.186    (10.42)        11.99    11.313     (5.65)
2/28/97          12.36    11.750     (4.94)        11.86    11.125     (6.20)
5/31/97          11.87    11.625     (2.06)        11.53    11.188     (2.97)
8/31/97          12.35    12.125     (1.82)        11.95    11.375     (4.81)
11/30/97         12.36    11.750     (4.94)        12.18    11.375     (6.61)
===============================================================================

As of November 28, 1997, the price of Common Stock as quoted on the NYSE was
$11.50, representing a 6.96% discount from the Common Stock's net asset value
calculated on that day.

     Since the commencement of the Portfolio's operations, the Portfolio's
Common Stock has traded in the market at prices that were at times above, but
generally below, net asset value.


16
<PAGE>

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

   
     The following is a summary of the material Federal tax considerations
affecting the Portfolio and Portfolio shareholders; please refer to the SAI for
further discussion. In addition to the considerations described below and in the
SAI, there may be other Federal, state, local or foreign tax applications to
consider. Because taxes are a complex matter, prospective shareholders are urged
to consult their tax advisors for more detailed information with respect to the
tax consequences of any investment.

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

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

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

     The interest expense incurred by a shareholder on borrowings made to
purchase or carry Portfolio shares are not deductible for Federal income tax
purposes to the extent related to the exempt-interest dividends received on such
shares.

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

     Distributions, if any, from net realized long-term securities gains are
taxable as long-term capital gains, regardless of the length of time a share
holder has owned Portfolio shares. The recently enacted Taxpayer Relief Act of
1997 provides that net capital gains, for taxpayers other than corporations,
generally will not be subject
    


                                                                              17
<PAGE>

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

   
to Federal income taxes at a rate in excess of 28% for assets held for more than
one year but not more than 18 months, with a reduced maximum rate of 20% for
assets held more than 18 months.
    

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

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

--------------------------------------------------------------------------------
Management of the Portfolio
--------------------------------------------------------------------------------

     Board of Directors

   
     Overall responsibility for management and supervision of the Portfolio
rests with the Portfolio's Board of Directors. The  Board of Directors approve
all significant agreements with the Portfolio's investment manager,
administrator, custodian and transfer agent. The day-to-day operations of the 
Portfolio are delegated to SBMFM, the Portfolio's investment adviser and
administrator. The SAI contains background information regarding each Director
and executive officer of the Portfolio.
    

     Investment Manager and Administrator

   
     SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Portfolio's investment manager. SBMFM (through its predecessor entities) has
been in the investment counseling business since 1934 and is a registered
investment adviser. SBMFM renders investment advice to a wide variety of
individuals and institutional clients, and had aggregate assets under management
as of November 30, 1997 in excess of $85 billion.
    

     Subject to the supervision and direction of the Portfolio's Board of
Directors, the Investment Manager manages the securities held by the Portfolio
in accordance with the Portfolio's stated investment objective and policies,
makes investment 


18
<PAGE>

--------------------------------------------------------------------------------
Management of the Portfolio (continued)
--------------------------------------------------------------------------------

   
decisions for the Portfolio, places orders to purchase and sell securities on
behalf of the Portfolio and employs managers and securities analysts who provide
research services to the Portfolio. The Portfolio pays the Investment Manager a
Management Fee for investment advisory services provided to the Portfolio that
is computed daily and paid monthly at the annual rate of 0.70% of the value of
the Portfolio's average daily net assets. In addition, SBMFM serves as the
Portfolio's administrator and is paid a fee by the Portfolio that is computed
daily and paid monthly at a rate of 0.20% of the value of its average daily net
assets.
    

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

     Portfolio Management

   
     Joseph P. Deane, Vice President and Investment Officer of the Portfolio, is
primarily responsible for the day-to-day management of the Portfolio's assets.
Mr. Deane has served the Portfolio in this capacity since the Portfolio
commenced operations in 1992 and manages the day-to-day investment activities of
the Portfolio, including making all investment decisions. Mr. Deane is an
Investment Officer of SBMFM and is the senior asset manager for a number of
investment companies and other accounts.
    

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

   
     The Portfolio generally expects to pay monthly dividends of net investment
income (income other than net realized capital gains) and to distribute net
realized capital gains, if any, annually. From time to time, when the Portfolio
makes a substantial capital gains ditribution, it may do so in lieu of paying
its regular monthly dividend. All dividends or distributions with respect to
shares of Common Stock are reinvested automatically in additional shares through
participation in the Portfolio's Dividend Reinvestment Plan (the "Plan"), unless
a shareholder elects to receive cash.

     Under the Portfolio's Dividend Reinvestment Plan, a shareholder whose
shares of Common Stock are registered in his or her own name will have all
distributions from the Portfolio reinvested automatically by First Data as
purchasing agent under 
    


                                                                              19
<PAGE>

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

   
the Plan, unless the shareholder elects to receive cash. Distributions with
respect to shares registered in the name of a broker-dealer or other nominee
(that is, in "street name") will be reinvested by the broker or nominee in
additional shares under the Plan, unless the service is not provided by the
broker or nominee or the shareholder elects to receive distributions in cash.
Investors who own Common Stock registered in street name should consult their
broker-dealers for details regarding reinvestment. All distributions to
Portfolio shareholders who do not participate in the Plan will be paid by check
mailed directly to the record holder by or under the direction of First Data as
dividend paying agent.

     The number of shares of Common Stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. Whenever
the market price of the Common Stock is equal to or exceeds the net asset value
per share on the date of valuation, Plan participants will be issued shares of
Common Stock at a price equal to the greater of (1) the net asset value per
share most recently determined as described under "Net Asset Value" or (2) 95%
of the market price.

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

     First Data maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in each account, including information
needed by a shareholder for personal and tax records. The automatic reinvestment
of dividends 


20
<PAGE>

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

   
and capital gains distributions will not relieve Plan participants
of any income tax that may be payable on the dividends or capital gains
distributions. Common Stock in the account of each Plan participant will be held
by First Data in uncertificated form in the name of each Plan participant.

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

     Experience under the Plan may indicate that changes to it are desirable.
The Portfolio reserves the right to amend or terminate the Plan as applied to
any dividend or capital gains distribution paid subsequent to written notice of
the change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by First Data, with the Portfolio's prior written consent, on at
least 30 days' written notice to Plan participants. All correspondence
concerning the Plan should be directed by mail to First Data Investor Services
Group, P.O. Box 1376, Boston, Massachusetts 02104 or by telephone at
1-800-331-1710.
    

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

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

     The Board of Directors is classified into three classes, each with a term
of three years, with only one class of directors standing for election in any
year. Such classification may prevent replacement of a majority of the directors
for up to a two-year period. Directors may be removed from office only for cause
by vote of at least 75% of the shares entitled to be voted on the matter. If
approved by two-thirds of the Portfolio's Board Members, a majority of the
shares entitled to vote may approve the conversion of the Portfolio from a
closed-end to an open-end investment company. If fewer than two-thirds of the
Board Members approve such conversion, the affirmative vote of shareholders
holding at least two-thirds of the outstanding shares will be required to
approve such action. If approved by three-fourths of the Portfolio's Board
Members, a majority of the shares entitled to vote may approve: (i) the
dissolution or liquidation of the Portfolio; (ii) the merger, consolidation or
share exchange of the Portfolio with or into any other entity; or (iii) any
sale, lease, exchange or other disposition by the Portfolio of any assets of 
    


                                                                              21
<PAGE>

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

the Portfolio having an aggregate market value of $1,000,000, except for
transactions in securities in the ordinary course of business. If fewer than
three-fourths of the Board Members approve the actions described in (i) through
(iii) above, or in the case of any business combination described above, the
affirmative vote of shareholders holding at least three-fourths of the
outstanding shares will be required. The affirmative vote of at least 75% of the
shares will be required to amend the Articles of Incorporation or Bylaws to
change any of the foregoing provisions.

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

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

                                                            Amount Outstanding
                                                            Exclusive of Shares
                                           Amount Held     Held by Portfolio for
                                        by Portfolio for   its Own Account as of
Title of Class      Amount Authorized    its Own Account     December 12, 1997
================================================================================
 Common Stock      500,000,000 Shares          --             11,239,705.413
================================================================================

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

     Under the rules of the NYSE applicable to listed companies, the Portfolio
is required to hold an annual meeting of shareholders in each year. If the
Portfolio's shares are no longer listed on the NYSE (or any other national
securities exchange the rules of which require annual meetings of shareholders),
the Portfolio may decide not to hold annual meetings of shareholders.
    

     The Portfolio has no current intention of offering additional shares,
except that additional shares may be issued under the Plan. See "Dividends and
Distributions; Dividend Reinvestment Plan." Other offerings of shares, if made,
will require approval of the Portfolio's Board of Directors and will be subject
to the requirement 


22
<PAGE>

--------------------------------------------------------------------------------
Description of Common Stock (continued)
--------------------------------------------------------------------------------

of the 1940 Act that shares may not be sold at a price below the then current
net asset value (exclusive of underwriting discounts and commissions) except in
connection with an offering to existing shareholders or with the consent of
holders of a majority of the Portfolio's outstanding shares.

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

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

--------------------------------------------------------------------------------
Independent Auditors
--------------------------------------------------------------------------------

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

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

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

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


                                                                              23
<PAGE>

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

                         TYPES OF MUNICIPAL OBLIGATIONS

      The Portfolio may invest in the following types of Municipal Obligations
and in such other types of Municipal Obligations as become available on the
market from time to time.

      Municipal Bonds

      Municipal bonds are debt obligations issued to obtain funds for various
public purposes. The two principal classifications of municipal bonds are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or from another specific
source, such as the user of the facility being financed. Certain municipal bonds
are "moral obligation" issues, which normally are issued by special purpose
public authorities. In the case of such issues, an express or implied "moral
obligation" of a stated government unit is pledged to the payment of the debt
service but is usually subject to annual budget appropriations.

      Industrial Development Bonds and Private Activity Bonds

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

     Municipal Lease Obligations

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


                                                                             A-1
<PAGE>

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

the lessee's use or occupancy of such property. This "abatement risk" may be
reduced by the existence of insurance covering the leased property, the
maintenance by the lessee of reserve funds or the provision of credit
enhancements such as letters of credit.

      The liquidity of municipal lease obligations varies. Municipal leases held
by the Portfolio will be considered illiquid securities unless the Portfolio's
Board of Directors determines on an on-going basis that the leases are readily
marketable. Certain municipal lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. In the case of a "non-appropriation" lease, the
Portfolio's ability to recover under the lease in the event of non-appropriation
or default will be limited solely to the repossession of the leased property,
without recourse to the general credit of the lessee, and disposition of the
property in the event of foreclosure might be difficult. The Portfolio will not
invest more than 5% of its assets in such "non-appropriation" municipal lease
obligations.

      Zero Coupon Obligations

      The Portfolio may invest up to 10% of its total assets in zero coupon
Municipal Obligations. Such obligations include "pure zero" obligations, which
pay no interest for their entire life (either because they bear no stated rate
of interest or because their stated rate of interest is not payable until
maturity), and "zero/fixed" obligations, which pay no interest for an initial
period and thereafter pay interest currently. Zero coupon obligations also
include securities representing the principal-only components of Municipal
Obligations from which the interest components have been stripped and sold
separately by the holders of the underlying Municipal Obligations. Zero coupon
securities usually trade at a deep discount from their face or par value and
will be subject to greater fluctuations in market value in response to changing
rates than obligations of comparable maturity that make current distributions of
interest. While zero coupon Municipal Obligations will not contribute to the
cash available to the Portfolio, SBMFM believes that limited investments in such
securities may facilitate the Portfolio's ability to preserve capital while
generating tax-exempt income through the accrual of original interest discount.
Zero coupon Municipal Obligations generally are liquid, although such liquidity
may be reduced from time to time due to interest rate volatility and other
factors.

      Floating Rate Obligations

      The Portfolio may purchase floating and variable rate municipal notes and
bonds, which frequently permit the holder to demand payment of principal at any
time, or at specified intervals, and permit the issuer to prepay principal, plus
accrued interest, at its discretion after a specified notice period. The
issuer's obliga-


A-2
<PAGE>

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

tions under the demand feature of such notes and bonds generally
are secured by bank letters of credit or other credit support arrangements.
There frequently will be no secondary market for variable and floating rate
obligations held by the Portfolio, although the Portfolio may be able to obtain
payment of principal at face value by exercising the demand feature of the
obligation.

      Participation Interests

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

      Custodial Receipts

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


                                                                             A-3
<PAGE>

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

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

      Municipal Obligation Components

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

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


A-4
<PAGE>

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

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

                                             SMITH BARNEY                      
                                             
                                             A Member of TravelersGroup[Logo]
                                             
                                             Managed 
                                             Municipals  
                                             Portfolio II
                                             Inc.
                                             
                                             Common Stock
                                             
                                             388 Greenwich Street
                                             New York, New York 10013
                                             
                                             FD0505  12/97



Managed Municipals Portfolio II Inc. 
 
388 Greenwich Street 
New York, New York  10013 
(800) 451-2010 
 
STATEMENT OF ADDITIONAL INFORMATION 
    
December 31, 1997 
     
 
	Managed Municipals Portfolio II Inc. (the  
"Portfolio") is a non-diversified, closed-end  
management investment company that seeks as high a  
level of current income exempt from Federal income tax  
as is consistent with the preservation of principal.   
Under normal conditions, the Portfolio will, in  
seeking its investment objective, invest substantially  
all of its assets in long-term, investment grade  
obligations issued by state and local governments,  
political subdivisions, agencies and public  
authorities ("Municipal Obligations").  No assurance  
can be given that the Portfolio will be able to  
achieve its investment objective. 
 
    
	This Statement of Additional Information ("SAI")  
expands upon and supplements the information contained  
in the current Prospectus of the Portfolio, dated  
December 31, 1997, as amended or supplemented from  
time to time (the "Prospectus"), and should be read in  
conjunction with the Prospectus.  The Prospectus may  
be obtained from any Smith Barney Financial Consultant  
or by writing or calling the Portfolio at the address  
or telephone number set forth above.  This SAI,  
although not itself a prospectus, is incorporated by  
reference into the Prospectus in its entirety. 
     
 
	No person has been authorized to give any  
information or to make any representations not  
contained in the Prospectus or this SAI and, if given  
or made, such information must not be relied upon as  
having been authorized by the Portfolio or the  
Portfolio's investment adviser.  The Prospectus and  
this SAI do not constitute an offer to sell or a  
solicitation of any offer to buy any security other  
than the shares of Common Stock.  The Prospectus and  
this SAI do not constitute an offer to sell or a  
solicitation of an offer to buy the shares of the  
Portfolio's common stock (the "Common Stock") by  
anyone in any jurisdiction in which such offer or  
solicitation would be unlawful.  Neither the delivery  
of the Prospectus nor any sale made hereunder shall,  
under any circumstances, create any implication that  
there has been no change in the affairs of the  
Portfolio since the date hereof.  If any material  
change occurs while the Prospectus is required by law  
to be delivered, however, the Prospectus or this SAI  
will be supplemented or amended accordingly. 
 
 
 
 
TABLE OF CONTENTS 
								 
 
 
PAGE 
 
Investment Objective and Policies (see  
in the Prospectus "Investment Objective  
and Policies" and "Appendix A") 
 
 
2 
 
 
 
 
Management of the Portfolio (see in the   
Prospectus "Management of the  
Portfolio") 
 
13 
 
 
 
 
Taxes (see in Prospectus "Taxation") 
18 
 
 
Stock Purchases and Tenders (see in the  
Prospectus "Description of Common  
Stock") 
 
 
22 
 
 
 
 
Certain Provisions of the Articles of  
Incorporation (see in the Prospectus  
"Certain Provisions of the Articles of  
Incorporation") 
22 
 
 
 
 
Additional Information (see in the  
Prospectus "Custodian and Transfer  
Agent") 
 
24 
 
 
 
 
Financial Statements 
25 
 
 
 
    
Appendix Description of Moody's Investor  
Service, Inc. (Moody's), Standard &  
Poors Ratings Group (S&P) and Fitch IBCA, Inc.
formerly (Fitch Investors Service, L.P.)(Fitch)
Ratings 
    

A-1 
 
 
 
 
 
 
INVESTMENT OBJECTIVE AND POLICIES 
 
	The Prospectus discusses the Portfolio's  
investment objective and the policies it employs to  
achieve that objective.  The following discussion  
supplements the description of the Portfolio's  
investment policies in the Prospectus.  The  
Portfolio's investment objective is to seek as high a  
level of current income exempt from Federal income  
taxes as is consistent with the preservation of  
principal by investing substantially all of its assets  
in a variety of Municipal Obligations.  The  
Portfolio's investment objective may not be changed  
without the affirmative vote of the holders of a  
majority (as defined in the Investment Company Act of  
1940, as amended (the "1940 Act")) of the Portfolio's  
outstanding voting shares.  No assurance can be given  
that the Portfolio's investment objective will be  
achieved. 
 
 
 
Use of Ratings as Investment Criteria 
 
	In general, the ratings of Moody's, S&P and  
Fitch represent the opinions of those agencies as to  
the quality of the Municipal Obligations and long-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 as initial criteria for the  
selection of securities, but the Portfolio also will  
rely upon the independent advice of its investment  
adviser,  Smith Barney Mutual Funds Management Inc.  
("SBMFM" or the "Investment Manager").  Among the  
factors that will also be considered by the Investment  
Manager in evaluating potential Municipal Obligations  
to be held by the Portfolio are the price, coupon and  
yield to maturity of the obligations, the Investment  
Manager's assessment of the credit quality of the  
issuer of the obligations, the issuer's available cash  
flow and the related coverage ratios, the property, if  
any, securing the obligations, and the terms of the  
obligations, including subordination, default, sinking  
fund and early redemption provisions.  To the extent  
the Portfolio invests in lower-rated and comparable  
unrated securities, the Portfolio's achievement of its  
investment objective may be more dependent on the  
Investment Manager's credit analysis of such  
securities than would be the case for a portfolio  
consisting entirely of higher-rated securities.  The  
Appendix to this SAI contains information concerning  
the ratings of Moody's, S&P and Fitch and their  
significance. 
 
	Subsequent to its purchase by the Portfolio, an  
issue of Municipal Obligations may cease to be rated  
or its rating may be reduced below the rating given at  
the time the securities were acquired by the  
Portfolio.  Neither event will require the sale of  
such Municipal Obligations by the Portfolio, but the  
Investment Manager will consider such event in its  
determination of whether the Portfolio should continue  
to hold the Municipal Obligations.  In addition, to  
the extent the ratings change as a result of changes  
in the rating systems or due to a corporate  
restructuring of Moody's, S&P or Fitch, the Portfolio  
will attempt to use comparable ratings as standards  
for its investments in accordance with its investment  
objectives and policies. 
 
	The Portfolio will seek to invest substantially  
all of its assets in Municipal Obligations, and under  
normal conditions at least 80% of the Portfolio's  
total assets will be invested in investment grade  
Municipal Obligations. 
 
	The Portfolio may invest in Municipal  
Obligations rated as low as Baa by Moody's, BBB by S&P  
or BBB by Fitch or in unrated Municipal Obligations  
deemed to be of comparable quality.  Although such  
securities are considered investment grade, they may  
be subject to greater risks than other higher-rated  
investment grade securities. 
 
	While the market for Municipal Obligations is  
considered to be generally adequate, the existence of  
limited markets for particular lower-rated and  
comparable unrated securities may diminish the  
Portfolio's ability to (1) obtain accurate market  
quotations for purposes of valuing such securities and  
calculating its net asset value and (2) sell the  
securities at fair value to respond to changes in the  
economy or in the financial markets.  The market for  
certain lower-rated and comparable unrated securities  
is relatively new and has not fully weathered a major  
economic recession.  Any such economic downturn could  
adversely affect the ability of the issuers of such  
securities to repay principal and pay interest  
thereon. 
 
Taxable Investments 
 
	Under normal conditions the Portfolio may hold  
up to 20% of its assets in cash or money market  
instruments, including taxable money market  
instruments (collectively, "Taxable Investments"). 
 
	Money market instruments in which the Portfolio  
may invest include: U.S. government securities; tax- 
exempt notes of municipal issuers rated, at the time  
of purchase no lower than MIG1 by Moody's, SP-1 by S&P  
or F-1 by Fitch or, if not rated, by issuers having  
outstanding unsecured debt then rated within the three  
highest rating categories; bank obligations (including  
certificates of deposit, time deposits and bankers'  
acceptances of domestic banks, domestic savings and  
loan associations and similar institutions);  
commercial paper rated no lower than P-1 by Moody's,  
A-1 by S&P or F-l by Fitch or the equivalent from  
another nationally recognized rating service or, if  
unrated, of an issuer having an outstanding, unsecured  
debt issue then rated within the three highest rating  
categories; and repurchase agreements.  At no time  
will the Portfolio's investments in bank obligations,  
including time deposits, exceed 25% of the value of  
its assets. 
 
	U.S. government securities in which the  
Portfolio may invest include direct obligations of the  
United States and obligations issued by U.S.  
government agencies and instrumentalities.  Included  
among direct obligations of the United States are  
Treasury bills, Treasury notes and Treasury bonds,  
which differ principally in terms of their maturities.   
Included among the securities issued by U.S.  
government agencies and instrumentalities are:  
securities that are supported by the full faith and  
credit of the United States (such as Government  
National Mortgage Association certificates);  
securities that are supported by the right of the  
issuer to borrow from the U.S. Treasury (such as  
securities of Federal Home Loan Banks); and securities  
that are supported by the credit of the  
instrumentality (such as Federal National Mortgage  
Association and Federal Home Loan Mortgage Corporation  
bonds). 
 
Lending Securities 
 
	By lending its securities, the Portfolio can  
increase its income by continuing to receive interest  
on the loaned securities, by investing the cash  
collateral in short-term instruments or by obtaining  
yield in the form of interest paid by the borrower  
when U.S. government securities are used as  
collateral.  The Portfolio will adhere to the  
following conditions whenever it lends its securities:  
(1) the Portfolio must receive at least 100% cash  
collateral or equivalent securities from the borrower,  
which will be maintained by daily marking-to-market;  
(2) the borrower must increase the collateral whenever  
the market value of the securities loaned rises above  
the level of the collateral; (3) the Portfolio must be  
able to terminate the loan at any time; (4) the  
Portfolio must receive reasonable interest on the  
loan, as well as any dividends, interest or other  
distributions on the loaned securities, and any  
increase in market value; (5) the Portfolio may pay  
only reasonable custodian fees in connection with the  
loan; and (6) voting rights on the loaned securities  
may pass to the borrower, except that, if a material  
event adversely affecting the investment in the loaned  
securities occurs, the Portfolio's Board of Directors  
must terminate the loan and regain the Portfolio's  
right to vote the securities.  From time to time, the  
Portfolio may pay a part of the interest earned from  
the investment of collateral received for securities  
loaned to the borrower and/or a third party that is  
unaffiliated with the Portfolio and that is acting as  
a "finder." 
 
Repurchase Agreements 
 
	The Portfolio may enter into repurchase  
agreements with certain member banks of the Federal  
Reserve System and certain dealers on the Federal  
Reserve Bank of New York's list of reporting dealers.   
Under the terms of a typical repurchase agreement, the  
Portfolio would acquire an underlying debt obligation  
for a relatively short period (usually not more than  
one week) subject to an obligation of the seller to  
repurchase and the Portfolio to resell the obligation  
at an agreed-upon price and time, thereby determining  
the yield during the Portfolio's holding period.   
Under each repurchase agreement, the selling  
institution will be required to maintain the value of  
the securities subject to the repurchase agreement at  
not less than their repurchase price.  The Investment  
Manager, acting under the supervision of the  
Portfolio'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 Portfolio enters into such transactions. The  
Portfolio will bear a risk of loss in the event that  
the other party to the transaction defaults on its  
obligations and the Portfolio is delayed or prevented  
from exercising its rights to dispose of the  
underlying securities, including the risk of a  
possible decline in the value of the underlying  
securities during the period in which the Portfolio  
seeks to assert its rights to them, the risk of  
incurring expenses associated with asserting those  
rights and the risk of losing all or a part of the  
income from the agreement. 
 
Investments in Municipal Obligation Index and Interest  
Rate Futures Contracts and Options on Interest Rate  
Futures Contracts 
 
	The Portfolio may invest in Municipal Obligation  
index and interest rate futures contracts and options  
on interest rate futures contracts that are traded on  
a domestic exchange or board of trade.  Such  
investments may be made by the Portfolio solely for  
the purpose of hedging against changes in the value of  
its portfolio securities due to anticipated changes in  
interest rates and market conditions, and not for  
purposes of speculation.  Further, such investments  
will be made only in unusual circumstances such as  
when the Investment Manager anticipates an extreme  
change in interest rates or market conditions. 
 
	Municipal Obligation Index and Interest Rate  
Futures Contracts.  A Municipal Obligation index  
futures contract is an agreement to take or make  
delivery of an amount of cash equal to a specific  
dollar amount times the difference between the value  
of the index at the close of the last trading day of  
the contract and the price at which the index contract  
is originally written.  No physical delivery of the  
underlying Municipal Obligations in the index is made.   
Interest rate futures contracts are contracts for the  
future purchase or sale of specified interest rate  
sensitive debt securities of the U.S. Treasury, such  
as U.S. Treasury bills, bonds and notes, obligations  
of the Government National Mortgage Association and  
bank certificates of deposit.  Although most interest  
rate futures contracts require the delivery of the  
underlying securities, some settle in cash.  Each  
contract designates the price date, time and place of  
delivery. 
 
	The purpose of the Portfolio's entering into a  
Municipal Obligation index or interest rate futures  
contract, as the holder of long-term Municipal  
Obligations, is to protect the Portfolio from  
fluctuation in interest rates on tax-exempt securities  
without actually buying or selling Municipal  
Obligations.  The Portfolio 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. 
 
	Unlike the purchase or sale of a Municipal  
Obligation, no consideration is paid or received by  
the Portfolio upon the purchase or sale of a futures  
contract.  Initially, the Portfolio will be required  
to deposit with the futures commission merchant an  
amount of cash or cash equivalents equal to  
approximately 5% of the contract amount (this amount  
is subject to change by the board of trade on which  
the contract is traded and members of such board of  
trade may charge a higher amount).  This amount is  
known as "initial margin" and is in the nature of a  
performance bond or good faith deposit on the contract  
which is returned to the Portfolio upon termination of  
the futures contract, assuming that all contractual  
obligations have been satisfied.  Subsequent payments  
known as "variation margin," to and from the futures  
commission merchant, will be made on a daily basis as  
the price of the index or securities fluctuates making  
the long and short positions in the futures contract  
more or less valuable, a process known as marking-to- 
market.  At any time prior to the expiration of the  
contract, the Portfolio may elect to close the  
position by taking an opposite position, which will  
operate to terminate the Portfolio's existing position  
in the futures contract. 
 
	There are several risks in connection with the  
use of a Municipal Obligation index and interest rate  
futures contracts as a hedging device.  Successful use  
of these futures contracts by the Portfolio is subject  
to the Investment Manager's ability to predict  
correctly movements in the direction of interest  
rates.  Such predictions involve skills and techniques  
which may be different from those involved in the  
management of a long-term Municipal Obligation  
portfolio.  In addition, there can be no assurance  
that a correlation would exist between movements in  
the price of the Municipal Obligation index or the  
debt security underlying the futures contract and  
movement in the price of the Municipal Obligations  
which are the subject of the hedge.  The degree of  
imperfection of correlation depends upon various  
circumstances, such as variations in speculative  
market demand for futures contracts and Municipal  
Obligations and technical influences on futures  
trading. The Portfolio's Municipal Obligations and the  
Municipal Obligations in the index may also differ in  
such respects as interest rate levels, maturities and  
creditworthiness of issuers. A decision of whether,  
when and how to hedge involves the exercise of skill  
and judgment and even a well-conceived hedge may be  
unsuccessful to some degree because of market behavior  
or unexpected trends in interest rates. 
 
	Although the Portfolio intends to enter into  
futures contracts only if an active market exists for  
such contracts, there can be no assurance that an  
active market will exist for a contract at any  
particular time. Most domestic futures exchanges and  
boards of trade limit the amount of fluctuation  
permitted in futures contract prices during a single  
trading day.  The daily limit establishes the maximum  
amount the price of a futures contract may vary either  
up or down from the previous day's settlement price at  
the end of a trading session.  Once the daily limit  
has been reached in a particular contract, no trades  
may be made that day at a price beyond that limit.   
The daily limit governs only price movement during a  
particular trading day and therefore does not limit  
potential losses because the limit may prevent the  
liquidation of unfavorable positions.  It is possible  
that futures contract prices could move to the daily  
limit for several consecutive trading days with little  
or no trading, thereby preventing prompt liquidation  
of futures positions and subjecting some futures  
traders to substantial losses.  In such event it will  
not be possible to close a futures position and in the  
event of adverse price movements, the Portfolio would  
be required to make daily cash payments of variation  
margin.  In such circumstances, an increase in the  
value of the portion of the portfolio being hedged, if  
any, may partially or completely offset losses on the  
futures contract.  As described above, however, there  
is no guarantee the price of Municipal Obligations  
will, in fact, correlate with the price movements in a  
futures contract and thus provide an offset to losses  
on a futures contract.   
 
	If the Portfolio has hedged against the  
possibility of an increase in interest rates adversely  
affecting the value of Municipal Obligations it holds  
and rates decrease instead, the Portfolio will lose  
part or all of the benefit of the increased value of  
the Municipal Obligations it has hedged because it  
will have offsetting losses in its futures positions.   
In addition, in such situations, if the Portfolio has  
insufficient cash, it may have to sell securities to  
meet daily variation margin requirements.  Such sales  
of securities may, but will not necessarily, be at  
increased prices which reflect the decline in interest  
rates.  The Portfolio may have to sell securities at a  
time when it may be disadvantageous to do so.   
 
	Options on Interest Rate Futures Contracts.  The  
Portfolio may purchase put and call options on  
interest rate futures contracts which are traded on a  
domestic exchange or board of trade as a hedge against  
changes in interest rates, and may enter into closing  
transactions with respect to such options to terminate  
existing positions.  The Portfolio will sell put and  
call options on interest rate futures contracts only  
as part of closing sale transactions to terminate its  
options positions.  There is no guarantee such closing  
transactions can be effected. 
 
	Options on interest rate futures contracts, as  
contrasted with the direct investment in such  
contracts, give the purchaser the right, in return for  
the premium paid, to assume a position in interest  
rate futures contracts at a specified exercise price  
at any time prior to the expiration date of the  
options.  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 interest rate futures  
contracts is limited to the premium paid for the  
option (plus transaction costs).  Because the value of  
the option is fixed at the point of sale, there are no  
daily cash payments to reflect changes in the value of  
the underlying contract; however, the value of the  
option does change daily and that change would be  
reflected in the net asset value of the Portfolio. 
 
	There are several risks relating to options on  
interest rate futures contracts.  The ability to  
establish and close out positions on such options will  
be subject to the existence of a liquid market.  In  
addition, the Portfolio's purchase of put or call  
options will be based upon predictions as to  
anticipated interest rate trends by the Investment  
Manager, which could prove to be inaccurate.  Even if  
the Investment Manager's expectations are correct,  
there may be an imperfect correlation between the  
change in the value of the options and of the  
Portfolio's securities. 
 
Municipal Obligations 
 
	General Information.  Municipal Obligations  
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 obtain funds to provide  
privately operated facilities are included within the  
term Municipal Obligations 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 Obligations are  
dependent upon a variety of factors, including general  
economic and monetary conditions, general money market  
conditions, general conditions of the Municipal  
Obligations market, the financial condition of the  
issuer, the size of a particular offering, the  
maturity of the obligation offered and the rating of  
the issue.  Municipal Obligations are also subject to  
the provisions of bankruptcy, insolvency and other  
laws affecting the rights and remedies of creditors,  
such as the Federal Bankruptcy Code, and laws, if any,  
that may be enacted by Congress or state legislatures  
extending the time for payment of principal or  
interest, or both, or imposing other constraints upon  
enforcement of the obligations or upon the ability of  
municipalities to levy taxes.   There is also the  
possibility that as a result of litigation or other  
conditions the power or ability of any one or more  
issuer to pay, when due, principal of and interest on  
its, or their, Municipal Obligations may be materially  
affected.   
 
	The net asset value of the Common Stock will  
change with changes in the value of the Portfolio's  
securities.  Because the Portfolio will invest  
primarily in fixed-income securities, the net asset  
value of the Common Stock can be expected to change as  
levels of interest rates fluctuate; generally, when  
prevailing interest rates increase, the value of  
fixed-income securities held by the Portfolio can be  
expected to decrease and when prevailing interest  
rates decrease, the value of the fixed-income  
securities held by the Portfolio can be expected to  
increase.  The value of the fixed-income securities  
held by the Portfolio and thus the Portfolio's net  
asset value, may also be affected by other economic,  
market and credit factors. 
 
	From time to time, the Portfolio's investments  
may include securities as to which the Portfolio, by  
itself or together with other funds or accounts  
managed by the Investment Manager, holds a major  
portion or all of an issue of Municipal Obligations.   
Because relatively few potential purchasers may be  
available for these investments and, in some cases,  
contractual restrictions may apply on resales, the  
Portfolio may find it more difficult  to sell these  
securities at a time when the Investment Manager  
believes it is advisable to do so. 
 
	When-Issued Securities.  The Portfolio may  
purchase Municipal Obligations 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 Obligations purchased on a when- 
issued basis are each fixed at the time the buyer  
enters into the commitment.  Although the Portfolio  
will purchase Municipal Obligations on a when-issued  
basis only with the intention of actually acquiring  
the securities, the Portfolio may sell these  
securities before the settlement date if it is deemed  
advisable as a matter of investment strategy.  
 
	Municipal Obligations 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 Obligations tend to appreciate when  
interest rates decline and depreciate when interest  
rates rise.  Purchasing Municipal Obligations on a  
when-issued basis, therefore, can involve the risk  
that the yields available in the market when the  
delivery takes place actually may be higher than those  
obtained in the transaction itself.  To account for  
this risk, a separate account of the Portfolio  
consisting of cash or liquid debt securities equal to  
the amount of the when-issued commitments will be  
established at the Portfolio'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 on a  
daily basis so that the value of the account will  
equal the amount of such commitments by the Portfolio.   
Placing securities rather than cash in the segregated  
account may have a leveraging effect on the  
Portfolio's net assets.  That is, to the extent the  
Portfolio 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 commitment.   
Upon the settlement date of the when-issued  
securities, the Portfolio will meet its obligations  
from then-available cash flow, sale of securities held  
in the segregated account, sale of other securities  
or, although it would not normally expect to do so,  
from the sale of the when-issued securities themselves  
(which may have a value greater or less than the  
Portfolio's payment obligations).  Sales of securities  
to meet such obligations may involve the realization  
of capital gains, which are not exempt from Federal  
income taxes. 
 
	When the Portfolio 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 Portfolio's incurring a loss or missing an  
opportunity to obtain a price considered to be  
advantageous. 
 
	Municipal Leases.  Municipal leases may take the  
form of a lease or an installment purchase contract  
issued by state and local government authorities to  
obtain funds to acquire a wide variety of equipment  
and facilities such as fire and sanitation vehicles,  
computer equipment and other capital assets.  These  
obligations have evolved to make it possible for state  
and local government authorities to acquire property  
and equipment without meeting constitutional and  
statutory requirements for the issuance of debt.   
Thus, municipal leases have special risks not normally  
associated with Municipal Obligations.  These  
obligations frequently contain "non-appropriation"  
clauses providing that the governmental issuer of the  
obligation has no obligation to make future payments  
under the lease or contract unless money is  
appropriated for such purposes by the legislative body  
on a yearly or other periodic basis.  In addition to  
the "non-appropriation" risk, municipal leases  
represent a type of financing that has not yet  
developed the depth of marketability associated with  
Municipal Obligations; moreover, although the  
obligations will be secured by the leased equipment,  
the disposition of the equipment in the event of  
foreclosure might prove difficult. 
 
	To limit the risks associated with municipal  
leases, the Portfolio will invest no more than 5% of  
its total assets in lease obligations that contain  
non-appropriation clauses and will only purchase a  
non-appropriation lease obligation with respect to  
which (1) the nature of the leased equipment or other  
property is such that its ownership or use is  
reasonably essential to a governmental function of the  
issuing municipality, (2) the lease payments will  
begin to amortize the principal balance due at an  
early date, resulting in an average life of five years  
or less for the lease obligation, (3) appropriate  
covenants will be obtained from the municipal obligor  
prohibiting the substitution or purchase of similar  
equipment or other property if lease payments are not  
appropriated, (4) the lease obligor has maintained  
good market acceptability in the past, (5) the  
investment is of a size that will be attractive to  
institutional investors and (6) the underlying leased  
equipment or other property has elements of  
portability and/or use that enhance its marketability  
in the event that foreclosure on the underlying  
equipment or other property were ever required. 
 
	Municipal leases that the Portfolio may acquire  
will be both rated and unrated.  Rated leases that may  
be held by the Portfolio include those rated  
investment grade at the time of investment (that is,  
rated no lower than Baa by Moody's, BBB by S&P or BBB  
by Fitch).  The Portfolio may acquire unrated issues  
that the Investment Manager deems to be comparable in  
quality to rated issues in which the Portfolio is  
authorized to invest.  A determination by the  
Investment Manager that an unrated lease obligation is  
comparable in quality to a rated lease obligation will  
be made on the basis of, among other things,  
consideration of whether the nature of the leased  
equipment or other property is such that its ownership  
or use is reasonably essential to a governmental  
function of the issuing municipality.  In addition,  
all such determinations made by the Investment Manager  
will be subject to oversight and approval by the  
Portfolio's Board of Directors. 
 
	Municipal leases held by the Portfolio will be  
considered illiquid securities unless the Portfolio's  
Board of Directors determines on an ongoing basis that  
the leases are readily marketable. An unrated  
municipal lease with a non-appropriation risk that is  
backed by an irrevocable bank letter of credit or an  
insurance policy issued by a bank or insurer deemed by  
the Investment Manager to be of high quality and  
minimal credit risk is not be deemed to be illiquid  
solely because the underlying municipal lease is  
unrated, if the Investment Manager determines that the  
lease is readily marketable because it is backed by  
the letter of credit or insurance policy. 
 
 
 
Investment Restrictions 
 
	The Portfolio has adopted certain fundamental  
investment restrictions that may not be changed  
without the prior approval of the holders of a  
majority of the Portfolio's outstanding voting  
securities.  A "majority of the Portfolio's  
outstanding voting securities" for this purpose means  
the lesser of (1) 67% or more of the shares of the  
Portfolio's Common Stock present at a meeting of  
shareholders, if the holders of 50% of the outstanding  
shares are present or represented by proxy at the  
meeting or (2) more than 50% of the outstanding  
shares.  For purposes of the restrictions listed  
below, all percentage limitations apply immediately  
after a purchase or initial investment, and any  
subsequent change in applicable percentage resulting  
from market fluctuations will not require elimination  
of any security from the portfolio.  Under its  
fundamental restrictions, the Portfolio may not: 
 
1. Purchase securities other than Municipal  
Obligations and Taxable Investments as those  
terms are described in the Prospectus and this  
SAI.  
2. Borrow money, except for temporary or emergency  
purposes, or for clearance of transactions, and  
then only in amounts not exceeding 15% of its  
total assets (not including the amount borrowed)  
and as otherwise described in the Prospectus and  
this SAI.  When the Portfolio's borrowings exceed  
5% of the value of its total assets, the  
Portfolio will not make any additional  
investments. 
3. Sell securities short or purchase securities on  
margin, except for such short-term credits as are  
necessary for the clearance of transactions, but  
the Portfolio may make margin deposits in  
connection with transactions in options, futures  
and options on futures. 
4. Underwrite any issue of securities, except to the  
extent that the purchase of Municipal Obligations  
may be deemed to be an underwriting. 
5. Purchase, hold or deal in real estate or oil and  
gas interests, except that the Portfolio may  
invest in Municipal Obligations secured by real  
estate or interests in real estate. 
6. Invest in commodities, except that the Portfolio  
may enter into futures contracts, including those  
relating to indexes and options on futures  
contracts or indexes described in the Prospectus  
and this SAI. 
7. Lend any funds or other assets except through  
purchasing Municipal Obligations or Taxable  
Investments, lending portfolio securities and  
entering into repurchase agreements consistent  
with the Portfolio's investment objective. 
8. Issue senior securities.  
9. Invest more than 25% of its total assets in the  
securities of issuers in any single industry,  
except that this limitation will not be  
applicable to the purchase of Municipal  
Obligations and U.S. government securities. 
10. Make any investments for the purpose of  
exercising control or management of any company. 
 
Portfolio Transactions 
 
	Newly issued securities normally are purchased  
directly from the issuer or from an underwriter acting  
as principal.  Other purchases and sales usually are  
placed with those dealers from which it appears the  
best price or execution will be obtained; those  
dealers may be acting as either agents or principals.   
The purchase price paid by the Portfolio 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 Portfolio has paid no  
brokerage commissions since its commencement of  
operations. 
 
	Allocation of transactions, including their  
frequency, to various dealers is determined by the  
Investment Manager in its best judgment and in a  
manner deemed fair and reasonable to shareholders.   
The primary considerations are availability of the  
desired security and the prompt execution of orders in  
an effective manner at the most favorable prices.   
Subject to these considerations, dealers that provide  
supplemental investment research and statistical or  
other services to the Investment Manager may receive  
orders for portfolio transactions by the Portfolio.   
Information so received is in addition to, and not in  
lieu of, services required to be performed by the  
Investment Manager, and the fees of the Investment  
Manager are not reduced as a consequence of their  
receipt of such supplemental information.  Such  
information may be useful to the Investment Manager in  
serving both the Portfolio and other clients and  
conversely, supplemental information obtained by the  
placement of business of other clients may be useful  
to the Investment Manager in carrying out its  
obligations to the Portfolio. 
 
	The Portfolio will not purchase Municipal  
Obligations during the existence of any underwriting  
or selling group relating thereto of which Smith  
Barney Inc. ("Smith Barney") or its affiliates are  
members except to the extent permitted by the  
Securities and Exchange Commission (the "SEC"),  
including Rule 10f-3 under the 1940 Act.  Under  
certain circumstances, the Portfolio 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 because they are not affilated with Smith  
Barney. 
 
	While investment decisions for the Portfolio are  
made independently from those of the other accounts  
managed by the Investment Manager, investments of the  
type the Portfolio may make also may be made by those  
other accounts.  When the Portfolio and one or more  
other accounts managed by the Investment Manager are  
prepared to invest in, or desire to dispose of, the  
same security, available investments or opportunities  
for sales will be allocated in a manner believed by  
the Investment Manager to be equitable to each.  In  
some cases, this procedure may adversely affect the  
price paid or received by the Portfolio or the size of  
the position obtained or disposed of by the Portfolio. 
 
	The Portfolio's Board of Directors will review  
periodically the commissions paid by the Portfolio to  
determine if the commissions paid over representative  
periods of time were reasonable in relation to the  
benefits inuring to the Portfolio. 
 
 
 
 
Portfolio Turnover 
 
	The Portfolio's portfolio turnover rate (the  
lesser of purchases or sales of portfolio securities  
during the last fiscal 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 Portfolio 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 Portfolio believes to be a  
temporary disparity in the normal yield relationship  
between the two securities.  These yield disparities  
may occur for reasons not directly related to the  
investment quality of particular issues or the general  
movement of interest rates, such as changes in the  
overall demand for or supply of various types of tax- 
exempt securities.  For the fiscal years ended August  
31, 1995, 1996 and 1997 the Portfolio's portfolio  
turnover rate was 95%, 63% and 97%, respectively. 
 
MANAGEMENT OF THE PORTFOLIO 
 
	The executive officers of the Portfolio are  
employees of certain of the organizations that provide  
services to the Portfolio. These organizations are as  
follows: 
 
Name 
Service 
 
SBMFM  
Investment Manager and 
 
Administrator 
 
Smith Barney 
Distributor (Sponsor) 
 
PNC Bank, N.A. 
	Custodian 
("PNC Bank")	 
 
First Data Investor Services Group, Inc. 
Transfer Agent 
("First Data") 
 
These organizations and the functions they  
perform for the Portfolio are discussed in the  
Prospectus and this SAI.   
 
Directors and Executive Officers of the Portfolio 
 
	The overall management of the business and  
affairs of the Portfolio is vested with its Board of  
Directors. The Board of Directors approves all  
significant agreements between the Portfolio and  
persons or companies furnishing services to it,  
including the Portfolio's agreements with its  
investment manager, administrator, custodian and  
transfer agent, dividend paying agent, registrar and  
plan agent. The day-to day operations of the Portfolio  
are delegated to its officers and SBMFM, subject  
always to the investment objective and policies of the  
Portfolio and to general supervision by the  
Portfolio's Board of Directors.  
 
	The Directors and executive officers of the  
Portfolio, their addresses together with information  
as to their principal business occupations during the  
past five years, are shown below:  
 
 
Name (Age) and Address 
Positions Held  
With the Fund 
Principal Occupations  
During Past 5 Years 
 
 
 
 
 
*+Heath B. McLendon  
(64) 
	388 Greenwich Street 
	New York NY 10013 
 
    
Chairman of the  
Board,  
Chief Executive  
Officer  
and President 
     
 
Managing Director of Smith  
Barney Inc.; President and  
Director of SBMFM; President  
and Director of Travelers  
Advisers, Inc. ("TIA");  
Chairman of Smith Barney  
Strategy Advisers Inc. Prior  
to July 1993, Senior  
Executive Vice President of  
Shearson Lehman Brothers Inc.  
; Vice Chairman of Shearson  
Asset Management. 
 
 
+Martin Brody (76) 
	c/o HMK Associates 
	30 Columbia Turnpike 
	Florham Park, NJ  
07932 
Director 
Consultant, HMK Associates;  
Retired Vice Chairman of the  
Board of Restaurant  
Associates Corp.; Director of  
Jaclyn, Inc. 
 
 
+Allan J. Bloostein  
(68) 
	717 Fifth Avenue 
	21st Floor 
	New York, NY 10022 
 
Director 
President, Allan J. Bloostein  
Associates, Consultant and  
retired Vice Chairman of the  
Board of May Department  
Stores Company; Director of  
Taubman Centers, Inc. and CVS  
Corporation. 
 
 
+Dwight B. Crane (59) 
	Harvard Business  
School 
	Soldiers Field Road 
	Boston, MA 02163 
 
Director 
Professor, Harvard Business  
School. 
 
 
 +Robert A. Frankel  
(69) 
	102 Grand Street 
	Croton-on-Hudson, 
	New York, NY 10520 
 
Director 
Managing Partner of Robert A.  
Frankel Management  
Consultants; formerly  
Corporate Vice President of  
The Reader's Digest  
Association, Inc. 
 
 
 
*	Director who is an "interested person" of the  
Portfolio (as defined in the 1940 Act). 
 
+	Director and/or trustee of other registered  
investment companies with which Smith Barney is  
affiliated. 
 
 
 
 
 
Name (Age)and Address 
Positions Held  
With the Fund 
Principal Occupations  
During Past 5 Years 
 
 
 +William R.  
Hutchinson (54) 
	Amoco Corp. 
	200 East Randolph  
Drive 
	Chicago, IL  60601 
 
Director 
Vice President, Financial  
Operations of Amoco Corp.;  
Director of Associated Banks  
and Associated Bank Corp. 
 
  Joseph P. Deane (49) 
	388 Greenwich Street 
	New York. NY 10013 
 
 
Vice President and  
Investment Officer 
Managing Director of Smith  
Barney;. Investment Officer  
of SBMFM.  Prior to July  
1993, Senior Vice President  
and Managing Director of  
Shearson Lehman Advisors. 
 
 
  Lewis E. Daidone  
(40) 
	388 Greenwich Street 
	New York, NY 10105 
 
 
Senior Vice  
President 
and Treasurer 
Managing Director of Smith  
Barney; Director and Senior  
Vice President of SBMFM and  
TIA. 
 
  Christina T. Sydor  
(46) 
	388 Greenwich Street 
	New York, NY 10013 
 
Secretary 
Managing Director of Smith  
Barney; General Counsel and  
Secretary of SBMFM and TIA. 
 
 
 
________________________________ 
    
 
     
+	Director and/or trustee of other registered  
investment companies with which Smith Barney is  
affiliated. 
 
	The Portfolio pays each of its directors who is  
not a director, officer or employee of SBMFM, or any  
of its affiliates, an annual fee of $5,000 plus $500  
for each Board of Directors meeting attended, and $100  
for each Board meeting held via telephone.  In  
addition, the Portfolio will reimburse these Directors  
for travel and out-of-pocket expenses incurred  
connection with Board of Directors meetings.  For the  
fiscal year ended August 31, 1997 such fees and  
expenses totaled $46,082 
 
 
 
 
 
 
 
 
Director 
 
 
 
 
Aggregate  
Compensation from  
Fund 
Pension or  
Retirement  
Benefits  
Accrued as  
part of  
Fund  
Expenses 
 
Total  
Compensati 
on from  
Fund and  
Fund  
Complex 
 
Total  
Number of  
Funds for  
which  
Director  
Serves  
Within Fund  
Complex 
 
Charles Barber*@ 
$5,750 
$0 
$38,700 
6 
 
Martin Brody 
7,000 
0 
124,286 
19 
 
Dwight Crane 
7,500 
0 
140,375 
22 
 
Allan Bloostein 
7,500 
0 
83,150 
8 
 
Robert Frankel 
7,500 
0 
66,100 
8 
 
William R.  
Hutchinson 
7,000 
0 
38,600 
6 
 
Heath B. McLendon 
------ 
0 
----- 
41 
 
 
	Pursuant to the Fund's deferred compensation plan,  
Mr. Barber elected, effective January 2, 1996, to  
defer the payment of some or all of the compensation  
due to him from the Fund. 
@Upon attainment of age 80, Fund Directors are  
required to change to emeritus status.  Directors  
Emeritus are entitled to serve in emeritus status  
for a maximum of 10 years, during which time they  
are paid 50% of the annual retainer fee and meeting  
fees otherwise applicable to Fund Directors,  
together with reasonable out-of-pocket expenses for  
each meeting attended.  Effective February 26, 1997,  
Mr. Barber became a Director Emeritus. 
 
Investment Manager and Administrator-- SBMFM  
 
	The Investment Manager serves as investment  
adviser to the Portfolio pursuant to a written  
agreement dated July 30, 1993 (the "Advisory  
Agreement"), a form of which was most recently  
approved by the Board of Directors, including a  
majority of those Directors who are not "interested  
persons" of the Portfolio or the Investment Manager  
("Non-Interested Directors") on August 20, 1997.   
Unless terminated sooner, the Advisory Agreement will  
continue for successive annual periods provided that  
such continuance is specifically approved at least  
annually: (1) by a majority vote of the Non-Interested  
Directors cast in person at a meeting called for the  
purpose of voting on such approval; and (2) by the  
Board of Directors or by a vote of a majority of the  
outstanding shares of Common Stock.  The Investment  
Manager is a division of SBMFM, which is in turn a  
wholly owned subsidiary of Salomon Smith Barney  
Holdings Inc. ("Holdings"), which is in turn a wholly  
owned subsidiary of Travelers Group Inc.  The  
Investment Manager pays the salary of any officer or  
employee who is employed by both it and the Portfolio.   
The Investment Manager bears all expenses in  
connection with the performance of its services as  
investment adviser.  
 
	For services rendered to the Portfolio, the  
Investment Manager receives from the Portfolio a fee,  
computed and paid monthly at the annual rate of 0.70%  
of the value of the Portfolio's average daily net  
assets.  For the fiscal years ended August 31, 1995,  
1996 and 1997, such fees amounted to $934,964,  
$979,107 and $946,120, respectively. 
 
	Under the Advisory Agreement, the Investment  
Manager will not be liable for any error of judgment  
or mistake of law or for any loss suffered by the  
Portfolio in connection with the Advisory Agreement,  
except a loss resulting from willful misfeasance, bad  
faith or gross negligence on the part of the  
Investment Manager in the performance of its duties or  
from reckless disregard of its duties and obligations  
under the Advisory Agreement.  The Advisory Agreement  
is terminable by vote of the Board of Directors or by  
the holders of a majority of Common Stock, at any time  
without penalty on 60 days' written notice to the  
Investment Manager.  The Advisory Agreement may also  
be terminated by the Investment Manager on 90 days'  
written notice to the Portfolio.  The Advisory  
Agreement terminates automatically upon its  
assignment. 
 
	SBMFM also serves as administrator to the  
Portfolio pursuant to a written agreement dated June  
1, 1994 (the "Administration Agreement").  The  
services provided by SBMFM under the Administration  
Agreement are described in the Prospectus under  
"Management of the Portfolio." 
 
	For services rendered to the Portfolio, SBMFM  
receives from the Portfolio an administration fee  
computed and paid monthly at the annual rate of 0.20%  
of the value of the Portfolio's average daily assets.   
For the fiscal years ended August 31, 1995, 1996 and  
1997, SBMFM received $267,133, $279,745 and $270,320,  
respectively, in administration fees. 
 
	Pursuant to the Administration Agreement, SBMFM  
will exercise its best judgment in rendering its  
services to the Portfolio. SBMFM will not be liable  
for any error of judgment or mistake of law or for any  
loss suffered by the Portfolio in connection with the  
matters to which the Administration Agreement relates,  
except by reason of SBMFM's reckless disregard of its  
obligations and duties under the Administration  
Agreement. 
 
	The Administration Agreement will continue  
automatically for successive annual periods provided  
that such continuance is approved at least annually by  
the Board of Directors of the Portfolio including a  
majority of the Non-Interested Directors by vote cast  
in person at a meeting called for the purpose of  
voting such approval. The Agreement is terminable,  
without penalty, upon 60 days' written notice, by the  
Board of Directors of the Portfolio or by vote of  
holders of a majority of the Portfolio's shares of  
Common Stock, or upon 90 days' written notice, by  
SBMFM. 
 
	The Portfolio bears expenses incurred in its  
operation including: fees of the investment adviser  
and administrator; taxes, interest brokerage fees and  
commissions, if any; fees of Directors who are not  
officers, directors, shareholders or employees of  
Smith Barney; SEC fees and state blue sky  
qualification fees; charges of the 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 and  
statements of additional information for regulatory  
purposes and for distribution to shareholders;  
shareholders' reports and corporate meetings of the  
officers, Board of Directors and shareholders of the  
Portfolio. 
 
 
 
 
Principal Stockholders 
    
	There are no persons known to the Portfolio to  
be "control persons" of the Portfolio, as such term is  
defined in Section 2(a)(9) of the 1940 Act. There is  
no person known to the Portfolio to hold beneficially  
more than 5% of the outstanding shares of Common  
Stock. The following person is the only person holding  
of record more than 5% of the Portfolio's outstanding  
shares of Common Stock as of December 12, 1997: 
     
 
Percent of 
Amount of 
Common 
Name and Address 
Record 
Stock 
of Record Owner 
Ownership 
Outstanding 
Cede & Co., as Nominee for 
1 
0,987,216.291	    
97.75% 
The Depository Trust Company 
P.O. Box 20 
Bowling Green Station 
New York, New York 10004 
 
    
 
     
	As of December 12, 1997, the Directors and  
officers of the Portfolio, as a group, beneficially  
owned less than 1% of the Portfolio's outstanding  
shares of Common Stock. 
 
TAXES 
 
	As described above and in the Prospectus, the  
Portfolio is designed to provide investors with  
current income which is excluded from gross income for  
Federal income tax purposes. The Portfolio 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 Portfolio  
would not be suitable for tax-exempt institutions,  
qualified retirement plans, H.R. 10 plans and  
individual retirement accounts because such investors  
would not gain any additional tax benefit from the  
receipt of tax-exempt income. 
 
	The following is a summary of selected Federal  
income tax considerations that may affect the  
Portfolio 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  
Portfolio. 
 
Taxation of the Portfolio and its Investments 
 
	The Portfolio has qualified and intends to  
qualify as a "regulated investment company" under  
Subchapter M of the Internal Revenue Code of 1986, as  
amended (the "Code"). In addition, the Portfolio  
intends to satisfy conditions contained in the Code  
that will enable interest from Municipal Obligations,  
excluded from gross income for Federal income tax  
purposes with respect to the Portfolio, to retain that  
tax-exempt status when distributed to the shareholders  
of the Portfolio (that is, to be classified as "exempt  
interest" dividends of the Portfolio). 
 
	If it qualifies as a regulated investment  
company, the Portfolio will pay no Federal income  
taxes on its taxable net investment income (that is,  
taxable income other than net realized capital gains)  
and its net realized capital gains that are  
distributed to shareholders. To qualify under  
Subchapter M of the Code, the Portfolio must among  
other things: (1) distribute to its shareholders at  
least 90% of its taxable net investment income (for  
this purpose consisting of taxable net investment  
income and net realized short-term capital gains) and  
90% of its tax-exempt net investment income (reduced  
by certain expenses); (2) derive at least 90% of its  
gross income from dividends, interest, payments with  
respect to loans of securities, gains from the sale or  
other disposition of securities, or other income  
(including, but not limited to, gains from options,  
futures, and forward contracts) derived with respect  
to the Portfolio's business of investing in  
securities; and (3) diversify its holdings so that at  
the end of each fiscal quarter of the Portfolio (a) at  
least 50% of the market value of the Portfolio's  
assets is represented by cash, U.S. government  
securities and other securities, with those other  
securities limited with respect to any one issuer, to  
an amount no greater than 5% of the Portfolio's assets  
and (b) not more than 25% of the market value of the  
Portfolio's assets is invested in the securities of  
any one issuer (other than U.S. government securities  
or securities of other regulated investment companies)  
or of two or more issuers that the Portfolio controls  
and that are determined to be in the same or similar  
trades or businesses or related trades or businesses.   
As a regulated investment company, the Portfolio will  
be subject to a 4% non-deductible excise tax measured  
with respect to certain undistributed amounts of  
ordinary income and capital gain. The Portfolio  
expects to pay dividends and distributions necessary  
to avoid the application of this excise tax. 
 
	As described above in this SAI and in the  
Prospectus, the Portfolio may invest in financial  
futures contracts and options on financial futures  
contracts that are traded on a U.S. exchange or board  
of trade. The Portfolio anticipates that these  
investment activities will not prevent the Portfolio  
from qualifying as a regulated investment company. As  
a general rule, these investment activities will  
increase or decrease the amount of long-term and  
short-term capital gains or losses realized by the  
Portfolio and, thus, will affect the amount of capital  
gains distributed to the Portfolio shareholders. 
 
	For Federal income tax purposes, gain or loss on  
the futures and options described above (collectively  
referred to as "Section 1256 Contracts") would, as a  
general rule, be taxed pursuant to a special "mark-to- 
market system." Under the mark-to-market system, the  
Portfolio may be treated as realizing a greater or  
lesser amount of gains or losses than actually  
realized. As a general rule gain or loss on Section  
1256 Contracts is treated as 60% long term capital  
gain or loss and 40% short-term capital gain or loss,  
and as a result, the mark-to-market system will  
generally affect the amount of capital gains or losses  
taxable to the Portfolio and the amount of  
distributions taxable to a shareholder. Moreover, if  
the Portfolio invests in both Section 1256 Contracts  
and offsetting positions in those contracts, then the  
Portfolio might not be able to receive the benefit of  
certain realized losses for an indeterminate period of  
time. The Portfolio expects that its activities with  
respect to Section 1256 Contracts and offsetting  
positions in those Contracts (1) will not cause it or  
its shareholders to be treated as receiving a  
materially greater amount of capital gains or  
distributions than actually realized or received and  
(2) will permit it to use substantially all of its  
losses for the fiscal years in which the losses  
actually occur. 
 
Taxation of the Portfolio's Shareholders 
 
	The Portfolio anticipates that all dividends it  
pays, other than dividends from Taxable Investments  
and from income or gain derived from securities  
transactions and from the use of certain of the  
investment techniques described under "Investment  
Objective and Policies" will be derived from interest  
on Municipal Obligations and thus will be exempt- 
interest dividends that may be excluded by  
shareholders from their gross income for Federal  
income tax purposes if the Portfolio satisfies certain  
asset percentage requirements. The Portfolio's net  
realized short-term capital gains are taxable to  
shareholders of the Portfolio as ordinary income, and  
distributions of net realized long-term capital gains  
are taxable to shareholders as long-term capital  
gains, regardless of the length of time shareholders  
have held shares of Common Stock and whether the   
distributions are received in cash or reinvested in  
additional shares.  As a general rule, a shareholder's  
gain or loss on a sale of his or her shares of Common  
Stock will be a long-term gain or loss if he or she  
has held his or her shares for more than one year and  
will be a short-term capital gain or loss if he or she  
has held his or her shares for one year or less.  Gain  
on shares held for more than 18 months will be  
eligible for the reduced 20% maximum capital gains tax  
rate.  Dividends and distributions paid by the  
Portfolio will not qualify for the Federal dividends- 
received deduction for corporations. 
 
Exempt-Interest Dividends 
 
	Interest on indebtedness incurred by a  
shareholder to purchase or carry shares of Common  
Stock is not deductible for Federal income tax  
purposes. If a shareholder receives exempt-interest  
dividends with respect to any share of Common Stock  
and if the share is held by the shareholder for six  
months or less, then any loss on the sale of the share  
may, to the extent of the exempt-interest dividends,  
be disallowed. The Code may also require a shareholder  
if he or she receives exempt-interest dividends to  
treat as taxable income a portion of certain otherwise  
non-taxable social security and railroad retirement  
benefit payments. In addition, the portion of any  
exempt-interest dividend paid by the Portfolio that  
represents income derived from private activity bonds  
held by the Portfolio may not retain its tax-exempt  
status in the hands of a shareholder who is a  
"substantial user" of a facility financed by the  
bonds, or a "related person" of the substantial user.  
Although the Portfolio's exempt-interest dividends may  
be excluded by shareholders from their gross income  
for Federal income tax purposes, some or all of the  
Portfolio's exempt-interest dividends may be a  
specific preference item, or a component of an  
adjustment item, for purposes of the Federal  
individual and corporate alternative minimum taxes.   
The receipt of dividends and distributions from the  
Portfolio may affect a foreign corporate shareholder's  
Federal "branch profits" tax liability and a corporate  
shareholder's Federal "excess net passive income" tax  
liability. Shareholders should consult their own tax  
advisors to determine whether they are (1)  
"substantial users" with respect to a facility or  
"related" to those users within the meaning of the  
Code or (2) subject to a Federal alternative minimum  
tax, the Federal "branch profits" tax, or the Federal  
"excess net passive income" tax. 
 
Dividend Reinvestment Plan 
 
	A shareholder of the Portfolio receiving  
dividends or distributions in additional shares  
pursuant to the Plan should be treated for Federal  
income tax purposes as receiving a distribution in an  
amount equal to the amount of money that a shareholder  
receiving cash dividends or distributions receives and  
should have a cost basis in the shares received equal  
to that amount. 
 
Statements and Notices 
 
	Statements as to the tax status of the dividends  
and distributions received by shareholders of the  
Portfolio are mailed annually. These statements show  
the dollar amount of income excluded from Federal  
income taxes and the dollar amount, if any, subject to  
Federal income taxes, including the portion, if any,  
of long-term capital gains distributions eligible for  
the reduced 20% maximum capital gains tax rate.  The  
statements will also designate the amount of exempt  
interest dividends that are a specific preference item  
for purposes of the Federal individual and corporate  
alternative minimum taxes and will indicate the  
shareholder's share of the investment expenses of the  
Portfolio. The Portfolio will notify shareholders  
annually as to the interest excluded from Federal  
income taxes earned by the Portfolio with respect to  
those states and possessions in which the Portfolio  
has or had investments. The dollar amount of dividends  
paid by the Portfolio that is excluded from Federal  
income taxation and the dollar amount of dividends  
paid by the Portfolio that is subject to Federal  
income taxation, if any, will vary for each  
shareholder depending upon the size and duration of  
the shareholder's investment in the Portfolio. To the  
extent that the Portfolio earns taxable net investment  
income, it intends to designate as taxable dividends  
the same percentage of each day's dividend as its  
taxable net investment income bears to its total net  
investment income earned on that day. Therefore, the  
percentage of each day's dividend designated as  
taxable, if any, may vary from day to day. 
 
Backup Withholding 
 
	If a shareholder fails to furnish a correct  
taxpayer identification number, fails to report fully  
dividend or interest income, or fails to certify that  
he has provided a correct taxpayer identification  
number and that he is not subject to "backup  
withholding," the shareholder may be subject to a 31%  
"backup withholding" tax with respect to (1) taxable  
dividends and distributions and (2) the proceeds of  
any sales or repurchases of shares of Common Stock. An  
individual's taxpayer identification number is his or  
her social security number. The 31% backup withholding  
tax is not an additional tax and may be credited  
against a taxpayer's Federal income tax liability. 
 
 
 
STOCK PURCHASES AND TENDERS 
 
	The Portfolio may repurchase shares of its  
Common Stock in the open market or in privately  
negotiated transactions when the Portfolio can do so  
at prices below their then current net asset value per  
share on terms that the Portfolio's Board of Directors  
believes represent a favorable investment opportunity.  
In addition, the Board of Directors currently intends  
to consider, at least once a year, making an offer to  
each shareholder of record to purchase at net asset  
value shares of Common Stock owned by the shareholder.   
The portfolio turnover rate of the Portfolio may or  
may not be affected by the Portfolio's repurchases of  
shares of Common Stock pursuant to a tender offer. 
 
 
	No assurance can be given that repurchases  
and/or tenders will result in the Portfolio's shares  
trading at a price that is equal to their net asset  
value. The market prices of the Portfolio shares will,  
among other things, be determined by the relative  
demand for and supply of the shares in the market, the  
Portfolio's investment performance, the Portfolio's  
dividends and yield and investor perception of the  
Portfolio's overall attractiveness as an investment as  
compared with other investment alternatives. The  
Portfolio's acquisition of Common Stock will decrease  
the total assets of the Portfolio and therefore have  
the effect of increasing the Portfolio's expense  
ratio. The Portfolio may borrow money to finance the  
repurchase of shares subject to the limitations  
described in the Prospectus. Any interest on the  
borrowings will reduce the Portfolio's net income.  
Because of the nature of the Portfolio's investment  
objective, policies and securities holdings, the  
Investment Manager does not anticipate that  
repurchases and tenders will have an adverse effect on  
the Portfolio's investment performance and does not  
anticipate any material difficulty in disposing of  
securities to consummate Common Stock repurchases and  
tenders. 
 
	When a tender offer is authorized to be made by  
the Portfolio's Board of Directors, it will be an  
offer to purchase at a price equal to the net asset  
value of all (but not less than all) of the shares  
owned by the shareholder (or attributed to him or her  
for Federal income tax purposes under Section 38 of  
the Code). A shareholder who tenders all shares owned  
or considered owned by him or her, as required, will  
realize a taxable gain or loss depending upon his or  
her basis in his or her shares. 
 
 
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION 
 
	The Portfolio's Articles of Incorporation  
include provisions that could have the effect of  
limiting the ability of other entities or persons to  
acquire control of the Portfolio or to change the  
composition of its Board of Directors and could have  
the effective of depriving shareholders of an  
opportunity to sell their shares of Common Stock at a  
premium over the prevailing market prices by  
discouraging a third party from seeking to obtain  
control of the Portfolio.  Commencing with the first  
annual meeting of shareholders, the Board of Directors  
will be divided into three classes.  At the annual  
meeting of shareholders in each year thereafter, the  
term of one class will expire and each Director  
elected to the class will hold office for a term of  
three years.  The classification of the Board of  
Directors in this manner could delay for up to two  
years the replacement of majority of the Board.  The  
Articles of Incorporation provide that the maximum  
number of Directors that may constitute the  
Portfolio's entire board is 12.  A Director may be  
removed from office, or the maximum number of  
Directors increased, only by vote of the holder of at  
least 75% of shares of Common Stock entitled to be  
voted on the matter. 
 
	The Portfolio's Articles of Incorporation  
require the favorable vote of the holders of at least  
two-thirds of the shares of Common Stock then entitled  
to be voted to authorized the conversion of the  
Portfolio from a closed-end to an open-end investment  
company's defined in the 1940 Act, unless two-thirds  
of the Continuing Directors (as defined below) approve  
such a conversion.  In the latter case, the  
affirmative vote of a majority of the shares  
outstanding will be required to approve the amendment  
to the Portfolio's Articles of Incorporation providing  
for the conversion of the Portfolio. 
 
	The affirmative votes of a least 75% of the  
Directors and the holders of at least 75% of the  
shares of the Portfolio are required to authorize any  
of the following transactions (referred to  
individually as a "Business Combination"): (1) a  
merger, consolidation or share exchange of the  
Portfolio with or into any other person (referred to  
individually as a "Reorganization Transaction"): (2)  
the issuance or transfer by the Portfolio (in one or a  
series of transactions in any 12-month period) of any  
securities of the Portfolio to any other person or  
entity for cash, securities of other property (or  
combinations thereof) having an aggregate fair market  
value of $1,000,000 or more, excluding sales of  
securities of the Portfolio in connection with a  
public offering, issuance of securities of the  
Portfolio pursuant to a dividend reinvestment plan  
adopted by the Portfolio and issuances of securities  
of the Portfolio upon the exercise of any stock  
subscriptions rights distributed by the Portfolio: (3)  
a sale, lease, exchange, mortgage, pledge, transfer or  
other disposition by the Portfolio (in one or a series  
of transactions in any 12-month period) to or with any  
person of any assets of the Portfolio having aggregate  
fair market value of $1,000,000 or more, except for  
transactions in securities effected by the Portfolio  
in the ordinary course of its business (each such  
sale, lease, exchange, mortgage, pledge, transfer or  
other disposition being referred to individually as a  
"Transfer Transaction").  The same affirmative votes  
are required with respect to: any proposal as to the  
voluntary liquidation or dissolution of the Portfolio  
or any amendment to the Portfolio's Articles of  
Incorporation to terminate its existence (referred to  
individually as a "Termination Transaction"); and any  
shareholder proposal as to specific investment  
decisions made or to be made with respect to the  
Portfolio's assets. 
 
	A 75% shareholder vote will not be required with  
respect to a Business Combination if the transaction  
is approved by a vote of a least 75% of the Continuing  
Directors (as defined below) or if certain conditions  
regarding the consideration paid by the person  
entering into, or proposing to enter into, a Business  
Combination with the Portfolio and various other  
requirements are satisfied.  In such case, a majority  
of the votes entitled to be cast by shareholders of  
the Portfolio will be required to approve the  
transaction if it is a Reorganization Transactions or  
a Transfer Transaction that involves substantially all  
of the Portfolio's assets and no shareholder vote will  
be required to approve the transaction if it is any  
other Business Combination.  In addition, a 75%  
shareholder vote will not be required with respect to  
a Termination Transaction if it is approved by a vote  
of at least 75% of the Continuing Directors, in which  
case a majority of the votes entitled to be cast by  
shareholders of the Portfolio will be required to  
approve the transaction. 
 
	The voting provisions described above could have  
the effect of depriving shareholders of the Portfolio  
of an opportunity to sell their Common Stock at a  
premium over prevailing market prices by discouraging  
a third party from seeking to obtain control of the  
Portfolio in a tender offer or similar transaction.   
In the view of the Portfolio's Board of Directors,  
however, these provisions offer several possible  
advantages including: (1) requiring persons seeking  
control of the Portfolio to negotiate with its  
management regarding the price to be paid for the  
amount of Common Stock required to obtain control: (2)  
promoting continuity and stability; and (3) enhancing  
the Portfolio's ability to pursue long-term strategies  
that are consistent with its investment objective and  
management policies.  The Board of Directors has  
determined that the voting requirements under Maryland  
law and the 1940 Act are in the best interests of  
shareholders generally. 
 
	A "Continuing Director," as used in the  
discussion above, is any member of the Portfolio's  
Board of Directors (1) who is not person or affiliate  
of a person who enters or proposes to enter into a  
Business Combination with the Portfolio (such person  
or affiliate being referred to individually as an  
"Interested Party") and (2) who has been a member of  
the Board of Directors for a period of least 12  
months, or is a successor of a Continuing Director who  
is unaffiliated with an Interested Party and is  
recommended to succeed a Continuing Director by a  
majority of the Continuing Directors of the Board. 
 
ADDITIONAL INFORMATION 
 
Legal Matters 
 
	Willkie Farr & Gallagher serves as legal counsel  
to the Portfolio. The Directors who are not  
"interested persons" of the Portfolio have selected  
Stroock & Stroock & Lavan LLP as their counsel. 
 
Independent Public Accountants 
 
	For the fiscal year ending August 31, 1998, KPMG  
Peat Marwick LLP, 345 Park Avenue, New York, New York  
10154, have been selected as independent auditors for  
the Portfolio to examine and report on the Portfolio's  
financial statements. 
 
Custodian and Transfer Agent 
 
	PNC Bank, N.A. is located at 17 Chestnut Street,  
Philadelphia, Pennsylvania 19103 and serves as the  
Portfolio's custodian pursuant to a custody agreement.  
Under the custody agreement, PNC Bank holds the  
Portfolio's securities and keeps all necessary  
accounts and records.  The assets of the Portfolio are  
held under bank custodianship in compliance with the  
1940 Act.  First Data is located at Exchange Place  
Boston, Massachusetts 02109, and pursuant to a  
transfer agency agreement serves as the Portfolio's  
transfer agent.  Under the transfer agency agreement,  
First Data maintains the shareholder account records  
for the Portfolio, handles certain communications  
between shareholders and the Portfolio, and  
distributes dividends and distributions payable by the  
Portfolio. 
 
FINANCIAL STATEMENTS 
 
	The Portfolio sends unaudited semi-annual and  
audited annual financial statements of the Portfolio  
to shareholders, including a list of the investments  
held by the Portfolio. 
 
	The Portfolio's Annual Report for the fiscal  
year ended August 31, 1997 is incorporated into this  
Statement of Additional Information by reference in  
its entirety. A copy of these Reports may be obtained  
from any Smith Barney Financial Consultant or by  
calling or writing to the Portfolio at the telephone  
number or address set forth on the cover page of this  
SAI. 
 
 
 
 
APPENDIX 
 
DESCRIPTION OF MOODY'S, S&P AND FITCH RATINGS 
 
Description of Moody's Municipal Bond Ratings: 
 
Aaa - Bonds that are rated Aaa are judged to be of the  
best quality, carry the smallest degree of investment  
risk and are generally referred to as "gilt edge. "  
Interest payments with respect to these bonds are  
protected by a large or by an exceptionally stable  
margin, and principal is secure. Although the various  
protective elements applicable to these bonds are  
likely to change, those changes are most unlikely to  
impair the fundamentally strong position of these  
bonds. 
 
Aa - Bonds that are rated Aa are judged to be of high  
quality by all standards and together with the Aaa  
group comprise what are generally known as high grade  
bonds. They are rated lower than the best bonds  
because margins of protection may not be as large as  
in Aaa securities or fluctuation of protective  
elements may be of greater amplitude, or other  
elements may be present that make the long-term risks  
appear somewhat larger than in Aaa securities 
 
A - Bonds that are rated A possess many favorable  
investment attributes and are to be considered as  
upper medium grade obligations. Factors giving  
security to principal and interest with respect to  
these bonds are considered adequate, but elements may  
be present that suggest a susceptibility to impairment  
sometime in the fixture. 
 
Baa - Bonds rated Baa are considered to be medium  
grade obligations, that is they are neither highly  
protected nor poorly secured. Interest payment and  
principal security appear adequate for the present but  
certain protective elements may be lacking or may be  
characteristically unreliable over any great length of  
time. These bonds lack outstanding investment  
characteristics and may have speculative  
characteristics as well. 
 
	Moody's applies the numerical modifiers 1, 2 and  
3 in each generic rating classification from Aa  
through B. The modifier 1 indicates that the security  
ranks in the higher end of its generic rating  
category; the modifier 2 indicates a mid-range  
ranking; and the modifier 3 indicates that the issue  
ranks in the lower end of its generic rating category. 
 
Description of Moody's Municipal Note Ratings: 
 
	Moody's ratings for state and municipal notes  
and other short-term loans are designated Moody's  
Investment Grade (MIG) and for variable demand  
obligations are designated Variable Moody's Investment  
Grade (VMIG). This distinction recognizes the  
differences between short- and long-term credit risk.  
Loans bearing the designation MIG1/VMIG 1 are of the  
best quality, enjoying strong protection from  
established cash flows of funds for their servicing or  
from established and broad-based access to the market  
for refinancing, or both. Loans bearing the  
designation MIG 2/VMIG 2 are of high quality, with  
margins of protection ample, although not as large as  
the preceding group. Loans bearing the designation  
MIG3/VMIG 3 are of favorable quality, with all  
security elements accounted for but lacking the  
undeniable strength of the preceding grades. Market  
access for refinancing, in particular, is likely to be  
less well established. 
 
Description of Moody's Commercial Paper Ratings: 
 
	The rating Prime-1 is the highest commercial  
paper rating assigned by Moody's. Issuers rated Prime-  
1 (or related supporting institutions) are considered  
to have a superior capacity for repayment of short- 
term promissory obligations. Issuers rated Prime-2 (or  
related supporting institutions) are considered to  
have a strong capacity for repayment of short-term  
promissory obligations, normally evidenced by many of  
the characteristics of issuers rated Prime-1 but to a  
lesser degree. Earnings trends and coverage ratios,  
while sound, will be more subject to variation.  
Capitalization characteristics, while still  
appropriate, may be more affected by external  
conditions. Ample alternative liquidity is maintained. 
 
 
Description of S&P Municipal Bond Ratings: 
 
AAA - These bonds are obligations of the highest  
quality and have the strongest capacity for timely  
payment of debt service. 
 
General Obligation Bonds Rated AAA - In a period of  
economic stress the issuers of these bonds will suffer  
the smallest declines in income and will be least  
susceptible to autonomous decline. Debt burden is  
moderate. A strong revenue structure appears more than  
adequate to meet future expenditure requirements.  
Quality of management appears superior. 
 
Revenue Bonds Rated AAA - Debt service coverage with  
respect to these bonds has been, and is expected to  
remain, substantial. Stability of the pledged revenues  
is also exceptionally strong due to the competitive  
position of the municipal enterprise or to the nature  
of the revenues. Basic security provisions (including  
rate covenant, earnings test for issuance of  
additional bonds, debt service reserve requirements)  
are rigorous. There is evidence of superior management 
 
AA - The investment characteristics of bonds in this  
group are only slightly less marked than those of the  
prime quality issues. Bonds rated AA have the second  
strongest capacity for payment of debt service 
 
A - Principal and interest payments on bonds in this  
category are regarded as safe although the bonds are  
somewhat more susceptible to the adverse effects of  
changes in circumstances and economic conditions than  
bonds in high rated categories. This rating describes  
the third strongest capacity for payment of debt  
service. 
 
General Obligation Bonds Rated A - There is some  
weakness either in the local economic base, in debt  
burden, in the balance between revenues and  
expenditures or in quality of management. Under  
certain adverse circumstances, any one such weakness  
might impair the ability of the issuer to meet debt  
obligations at some fixture date. 
 
Revenue Bonds Rated A - Debt service coverage is good  
but not exceptional. Stability of the pledged revenues  
could show some variations because of increased  
competition or economic influences on revenues. Basic  
security provisions, while satisfactory, are less  
stringent. Management performance appears adequate. 
 
BBB - The bonds in this group are regarded as having  
an adequate capacity to pay interest and repay  
principal. Whereas bonds in this group normally  
exhibit adequate protection parameters, adverse  
economic conditions or changing circumstances are more  
likely to lead to a weakened capacity to pay interest  
and repay principal for debt in this category than in  
higher rated categories. Bonds rated BBB have the  
fourth strongest capacity for payment of debt service. 
 
	S&P's letter ratings may be modified by the  
addition of a plus or a minus sign, which is used to  
show relative standing within the major rating  
categories except in the AAA category. 
 
Description of S&P Municipal Note Ratings: 
 
	Municipal notes with maturities of three years  
or less are usually given note ratings (designated SP- 
1 -2 or -3) to distinguish more clearly the credit  
quality of notes as compared to bonds. Notes rated SP-  
1 have a very strong or strong capacity to pay  
principal and interest. Those issues determined to  
possess overwhelming safety characteristics are given  
the designation of SP- 1+. Notes rated SP-2 have a  
satisfactory capacity to pay principal and interest. 
 
 
 
 
 
   

Description of S&P Commercial Paper Ratings: 
 
	Commercial paper rated A-1 by S&P indicates that the 
degree of safety regarding timely payment is either overwhelming 
or very strong.  Those issues determined to possess overwhelming 
safety characteristics are denoted A-1+.  Capacity for timely 
payment on commercial paper rated A-2 is strong, but the relative 
degree of safety is not as high as for issues designated A-1. 
 
Description of Fitch Municipal Bond Ratings: 
 
	AAA - Bonds rated AAA by Fitch have the lowest 
expectation of credit risk.  The obligor has an exceptionally 
strong capacity for timely payment of financial commitments 
which is highly unlikely to be adversely affected by foreseeable 
events. 
 
	AA - Bonds rated AA by Fitch have a very low 
expectation of credit risk.  They indicate very strong capacity for 
timely payment of financial commitment.  This capacity is not 
significantly vulnerable to foreseeable events. 
 
	A - Bonds rated A by Fitch are considered to have a low 
expectation of credit risk.  The capacity for timely payment of 
financial commitments is considered to be strong, but may be 
more vulnerable to changes in economic conditions and 
circumstances than bonds with higher ratings. 
 
	BBB - Bonds rated BBB by Fitch currently have a low 
expectation of credit risk.  The capacity for timely payment of 
financial commitments is considered to be adequate.  Adverse 
changes in economic conditions and circumstances, however, are 
more likely to impair this capacity .  This is the lowest investment 
grade category assigned by Fitch. 
 
	Plus and minus signs are used by Fitch to indicate the 
relative position of a credit within a rating category.  Plus and 
minus signs however, are not used in the AAA category  
 
Description of Fitch Short -Term Ratings: 
 
	Fitch's short-term ratings apply to debt obligations that 
are payable on demand or have original maturities of generally up 
to three years, including commercial paper, certificates of deposit, 
medium-term notes, and municipal and investment notes. 
 
	The short-term rating places greater emphasis than a 
long-term rating on the existence of liquidity necessary to meet 
financial commitment in a timely manner. 
 
	Fitch's short-term ratings are as follows: 
 
	F1+ - Issues assigned this rating are regarded as having 
the strongest capacity for timely payments of financial 
commitments.  The "+" denotes an exceptionally strong credit 
feature.  
 
	F1 - Issues assigned this rating are regarded as having the 
strongest capacity for timely payment of financial commitments. 
 
	F2 - Issues assigned this rating have a satisfactory 
capacity for timely payment of financial commitments, but the 
margin of safety is not as great as in the case of the higher 
ratings. 
 
	F3 - The capacity for the timely payment of financial 
commitments is adequate; however, near-term adverse changes 
could result in a reduction to non investment grade.