File No. 2-99861
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 34
to the
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
and
THE INVESTMENT COMPANY ACT OF 1940
SMITH BARNEY MUNI FUNDS
(Formerly, Smith Barney Muni Bond Funds)
(Exact name of Registrant as specified
in the Declaration of Trust)
388 Greenwich Street, New York, New York 100
13
(Address of principal executive offices)
(212) 816-6474
(Registrant's telephone number)
Christina T. Sydor
388 Greenwich Street New York, New York 10013
(22nd floor)
(Name and address of agent for service)
To amend Parts A, B and C
Rule 24f-2(a) (1) Declaration:
The shares of beneficial interest of Smith
Barney Muni Funds previously registered
hereunder as an indefinite number of shares
of beneficial interest are classified as
Florida Portfolio Shares, New Jersey
Portfolio Shares, Limited Term Portfolio
Shares, National Portfolio Shares, California
Portfolio Shares, New York Portfolio Shares,
California Money Market Portfolio Shares, New
York Money Market Portfolio Shares,
California Limited Term Portfolio Shares,
Florida Limited Term Portfolio Shares,
Arizona Portfolio Shares, Connecticut
Portfolio Shares, Georgia Portfolio Shares,
Massachusetts Portfolio Shares, Michigan
Portfolio Shares, Ohio Portfolio Shares,
Pennsylvania Portfolio Shares, Texas
Portfolio Shares, Washington Portfolio Shares
and New Jersey Money Market Portfolio Shares.
Registrant filed its Rule 24f-2 Notice on May
26, 1995
for its most recent fiscal year ended March
31, 1995.
It is proposed that this Post-Effective Amen
dment will become effective
July 31, 1995 pursuant to paragraph (b) of
Rule 485.
CROSS REFERENCE SHEET
(as required by Rule 495(a)
Part A of Form N-1A Prospectus
Caption
1. Cover Page cover page
2. Synopsis "Prospectus
Table"
3. Condensed Financial Information
"Financial Highlights"
4. General Description of Registrant
"Additional Information"
cover page
"Investmen
t
Objective
and
Policies"
5. Management of the Fund "Management
of the Fund"
"Prospectu
s Summary"
6. Capital Stock and Other Securities
"Additional Information"
"Redemptio
n of
Shares"
cover page
"Dividends
,
Distributi
ons
and Taxes"
7. Purchase of Securities Being
Offered "Purchase
of Shares"
"Prospectu
s Summary"
"Managemen
t of the
Fund"
"Valuation
of Shares"
8. Redemption or Repurchase "Redemption
of Shares"
"Minimum
Account
Size"
9. Legal Proceedings not
applicable
Statement of Additional
Part B of Form N-1A
Information Caption
10. Cover Page cover page
11. Table of Contents "Table of
Contents"
12. General Information and History
not applicable
13. Investment Objectives and Policies
cover page
"Additional
Information
Regarding
Investment Policies"
"Investmen
t
Restrictio
ns"
See
Prospectus-
"Investmen
t
Objective
and
Management
Policies"
14. Management of the Registrant "Trustees
and Officers"
15. Control Persons and Principal
Holders of Securities See
Prospectus - "Additional Information"
16. Investment Advisory and
Other Services See
Prospectus - "Management
of the
Fund"
"Trustees
and
Officers"
"Independe
nt
Auditors"
"Custodian
"
17. Brokerage Allocation See
Prospectus - "Management of
the Fund"
18. Capital Stock and Other Securities
See Prospectus - "Additional Information"
"Voting
Rights"
"The Fund"
19. Purchase, Redemption and Pricing
of Securities Being Offered See
Prospectus -
"Purchase
of Shares"
"Prospectu
s Summary"
"Determina
tion of
Net Asset
Value"
See
Prospectus
-
"Valuation
of Shares"
"Financial
Statements
"
"Redemptio
n of
Shares"
20. Tax Status See
Prospectus - "Dividends,
Distributi
ons and
Taxes"
21. Underwriters See
Prospectus - "Management
of the
Fund"
"Purchase
of Shares"
22. Calculation of Performance Data
"Performance Information"
See
Prospectus
-
"Performan
ce"
23. Financial Statements "Financial
Statements"
Part C of Form N-1A
Information required to be included in Part C
is set forth under the appropriate item, so
numbered in Part C of this Post-Effective
Amendment to the Registration Statement.
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
California
Limited
Term
Portfolio
JULY 31, 1995
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
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Prospectus
July 31, 1995
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388 Greenwich Street
New York, New York 10013
(212) 723-9218
The California Limited Term Portfolio
(the "Portfolio") is one of thirteen
investment portfolios that currently comprise
Smith Barney Muni Funds (the
"Fund"). The Portfolio seeks to pay its
shareholders as high a level of income
exempt from Federal income taxes and
California personal income taxes as is
consistent with prudent investing. The
Portfolio seeks to achieve its objective
by investing primarily in obligations issued
by the State of California and its
political subdivisions, agencies and
instrumentalities. At least 80% of the
Portfolio's assets will be invested in
obligations with remaining maturities of
less than ten years and the dollar-weighted
average maturity of the entire
portfolio will normally not exceed ten years.
The Portfolio may invest without
limit in municipal obligations whose interest
is a tax preference for purposes
of the Federal alternative minimum tax.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including sales charges,
distribution and service fees and
expenses, that prospective investors will
find helpful in making an investment
decision. Investors are encouraged to read
this Prospectus carefully and retain
it for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated July 31, 1995,
as amended or supplemented from time
to time, that is available upon request and
without charge by calling or writing
the Fund at the telephone number or address
set forth above or by contacting a
Smith Barney Financial Consultant. The
Statement of Additional Information has
been filed with the Securities and Exchange
Commission (the "SEC") and is
incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
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Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
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Table of Contents
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Prospectus Summary
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
9
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
10
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
14
- ---------------------------------------------
- -----------------------------------
Dividends, Distributions and Taxes
15
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
17
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
23
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
27
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
28
- ---------------------------------------------
- -----------------------------------
Performance
29
- ---------------------------------------------
- -----------------------------------
Management of the Fund
30
- ---------------------------------------------
- -----------------------------------
Distributor
31
- ---------------------------------------------
- -----------------------------------
Additional Information
32
- ---------------------------------------------
- -----------------------------------
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===================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
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===================================
2
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Smith Barney Muni Funds --
California Limited Term Portfolio
=============================================
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Prospectus Summary
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===================================
The following summary is qualified in
its entirety by detailed information
appearing elsewhere in this Prospectus and in
the Statement of Additional
Information. Cross references in this summary
are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio seeks
to pay its shareholders as high a
level of income exempt from Federal income
taxes and California personal income
taxes as is consistent with prudent
investing. The Portfolio seeks to achieve
its objective by investing primarily in
obligations issued by the State of
California and its political subdivisions,
agencies and instrumentalities. At
least 80% of the Portfolio's assets will be
invested in obligations with
remaining maturities of less than ten years
and the dollar-weighted average
maturity of the entire portfolio will
normally not exceed ten years. The
Portfolio may invest without limit in
municipal obligations whose interest is a
tax preference for purposes of the Federal
alternative minimum tax. See
"Investment Objective and Management
Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The
Portfolio offers three classes of
shares ("Classes") to investors designed to
provide them with the flexibility of
selecting an investment best suited to their
needs. The general public is
offered two Classes of shares: Class A shares
and Class C shares, which differ
principally in terms of sales charges and
rate of expenses to which they are
subject. A third Class of shares, Class Y
shares, is offered only to investors
meeting an initial investment minimum of
$5,000,000. See "Purchase of Shares"
and "Redemption of Shares."
Class A Shares. Class A shares are sold
at net asset value plus an initial
sales charge of 2.00% and are subject to an
annual service fee of 0.15% of the
average daily net assets of the Class. The
initial sales charge may be waived
for certain purchases. Purchases of Class A
shares, which when combined with
current holdings of Class A shares offered
with a sales charge equal or exceed
$500,000 in the aggregate, will be made at
net asset value with no initial sales
charge, but will be subject to a contingent
deferred sales charge ("CDSC") of
1.00% on redemptions made within 12 months of
purchase. See "Prospectus Summary
- -- No Initial Sales Charge."
Class C Shares. Class C shares are sold
at net asset value with no initial
sales charge. They are subject to an annual
service fee of 0.15% and an annual
distribution fee of 0.20% of the average
daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem
Class C shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have
higher expenses and pay lower
dividends than Class A shares. Purchases of
Portfolio shares, which when
combined with current holdings of Class C
shares of the Portfolio equal or
3
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Smith Barney Muni Funds --
California Limited Term Portfolio
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Prospectus Summary (continued)
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===================================
exceed $500,000 in the aggregate, should be
made in Class A shares at net asset
value with no sales charge, and will be
subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase.
Class Y Shares. Class Y shares are
available only to investors meeting an
initial investment minimum of $5,000,000.
Class Y shares are sold at net asset
value with no initial sales charge or CDSC.
They are not subject to any service
or distribution fees.
In deciding which Class of Portfolio
shares to purchase, investors should
consider the following factors, as well as
any other relevant facts and
circumstances:
Intended Holding Period. The decision as
to which Class of shares is more
beneficial to an investor depends on the
amount and intended length of his or
her investment. Shareholders who are planning
to establish a program of regular
investment may wish to consider Class A
shares; as the investment accumulates
shareholders may qualify for purchase of
shares without an initial sales charge
and the shares are subject to lower ongoing
expenses over the term of the
investment. As an alternative, Class C shares
are sold without any initial sales
charge so the entire purchase price is
immediately invested in the Portfolio.
Any investment return on these additional
invested amounts may partially or
wholly offset the higher annual expenses of
this Class. Because the Portfolio's
future return cannot be predicted, however,
there can be no assurance that this
would be the case. Finally, investors should
consider the effect of the CDSC
period in the context of their own investment
time frame.
Investors investing a minimum of
$5,000,000 must purchase Class Y shares,
which are not subject to an initial sales
charge, CDSC or service or
distribution fees. The maximum purchase
amount for Class A shares is $4,999,999
and Class C shares is $499,999. There is no
maximum purchase amount for Class Y
shares.
No Initial Sales Charge. The initial
sales charge on Class A shares may be
waived for certain eligible purchasers and
the entire purchase price will be
immediately invested in the Portfolio. In
addition, Class A share purchases,
which when combined with current holdings of
Class A shares offered with a sales
charge equal or exceed $500,000 in the
aggregate, will be made at net asset
value with no initial sales charge, but will
be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The $500,000 aggregate investment
may be met by adding the purchase with the
net asset value of all Class A shares
offered with a sales charge held in funds
sponsored by Smith Barney Inc. ("Smith
Barney") listed under "Exchange Privilege."
See "Purchase of Shares." Because
the ongoing expenses of Class A shares may be
lower than those for Class C
4
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Smith Barney Muni Funds --
California Limited Term Portfolio
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Prospectus Summary (continued)
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shares, purchasers eligible to purchase Class
A shares at net asset value should
consider doing so.
Smith Barney Financial Consultants may
receive different compensation for
selling each Class of shares. Investors
should understand that the purpose of
the CDSC on the Class C shares is the same as
that of the initial sales charge
on the Class A shares.
See "Purchase of Shares" and "Management
of the Fund" for a complete
description of the sales charges and service
and distribution fees for each
Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes"
and "Exchange Privilege" for other
differences between the Classes of shares.
PURCHASE OF SHARES Shares may be
purchased through the Portfolio's
distributor, Smith Barney, a broker that
clears securities transactions through
Smith Barney on a fully disclosed basis (an
"Introducing Broker") or an
investment dealer in the selling group. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A
and Class C shares may open an
account by making an initial investment of at
least $1,000 for each account.
Investors in Class Y shares may open an
account for an initial investment of
$5,000,000. Subsequent investments of at
least $50 may be made for all Classes.
The minimum initial investment requirement
for Class A and Class C shares and
the subsequent investment requirement for all
Classes through the Systematic
Investment Plan described below is $50. It is
not recommended that the Portfolio
be used as a vehicle for Keogh, IRA or other
qualified retirement plans. See
"Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a Systematic
Investment Plan under which they may
authorize the automatic placement of a
purchase order each month or quarter for
Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be
redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Smith Barney
Mutual Funds Management Inc.
("SBMFM" or the "Manager") serves as the
Portfolio's investment manager. SBMFM
provides investment advisory and management
services to investment companies
affiliated with Smith Barney. SBMFM is a
wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of Travelers
Group Inc. ("Travelers"), a diversified
financial services holding company
engaged, through its subsidiaries,
principally in four business segments:
5
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Smith Barney Muni Funds --
California Limited Term Portfolio
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Prospectus Summary (continued)
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Investment Services, Consumer Finance
Services, Life Insurance Services and
Property & Casualty Insurance Services. As of
March 31, 1995, SBMFM had
aggregate assets under management in excess
of $54 billion. See "Management of
the Fund."
EXCHANGE PRIVILEGE Shares of a Class may
be exchanged for shares of the
same Class of certain other funds of the
Smith Barney Mutual Funds at the
respective net asset values next determined,
plus any applicable sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of
the Portfolio for the prior day
generally is quoted daily in the financial
section of most newspapers and is
also available from a Smith Barney Financial
Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends
from net investment income are paid
monthly. Distributions of net realized
capital gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of any
Class will be reinvested automatically,
unless otherwise specified by an
investor, in additional shares of the same
Class at current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or CDSC. See "Dividends,
Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS
There can be no assurance that the
Portfolio's investment objective will be
achieved. The Portfolio's concentration
in California obligations involves certain
additional risks that should be
considered carefully by investors. Changes in
California laws and regulations
could result in adverse consequences
affecting California obligations.
Additionally, the value of the Portfolio's
investments, and thus the net asset
value of the Portfolio's shares, will
fluctuate in response to changes in market
and economic conditions, as well as the
financial condition and prospects of
issuers of municipal obligations purchased by
the Portfolio. See "Investment
Objective and Management."
6
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Smith Barney Muni Funds --
California Limited Term Portfolio
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Prospectus Summary (continued)
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THE PORTFOLIO'S EXPENSES The following
expense table lists the costs and
expenses an investor will incur either
directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales
charge or maximum CDSC that may be
incurred at the time of purchase or
redemption and the Portfolio's current
operating expenses:
Class A Class C Class Y
- ---------------------------------------------
- -----------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
...... 2.00% None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds,
whichever is lower)
...................... None* 1.00%
None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees(after fee
waiver)............................ 0.05%
0.05% 0.05%
12b-1 Fees***
.............................. 0.15
0.35
Other Expenses (after reimbursement)
0.34% 0.29% 0.38%
Total Fund Operating Expenses ............
0.54% 0.69% 0.43%
- ---------------------------------------------
- -----------------------------------
* Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions
made within 12 months.
** "Management fees" and "12b-1 fees"
have been restated to reflect current
expenses of the Portfolio. These expenses
reflect the management fee waiver currently
in effect for the Portfolio. Absent the fee
waiver, the management fee would be incurred
at the rate of 0.45% of each Class' average
daily net assets for the current fiscal
period. Absent the fee waiver ( and expense
reimbursements), total expenses would be
incurred at the rate of 0.94%, 1.09%, 0.83%
for Class A Class C and Class Y shares,
respectively. "Other expenses," for Class Y
shares have been estimated because no Class Y
shares were outstanding during the period
ended March 31, 1995.
*** Class C shares are subject to an
ongoing distribution fee and, as a
result, long-term shareholders of Class C
shares may pay more than the economic
equivalent of the maximum front-end sales
charge permitted by the National
Association of Securities Dealers, Inc.
The sales charge and CDSC set forth in
the above table are the maximum
charges imposed on purchases or redemptions
of Portfolio shares and investors
may actually pay lower or no charges
depending on the amount purchased and, in
the case of Class C shares and certain Class
A shares, the length of time the
shares are held. See "Purchase of Shares" and
"Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee
of 0.15% of the value of average
daily net assets of Class A shares. Smith
Barney also receives with respect to
Class C shares an annual 12b-1 fee of 0.35%
of the value of average daily net
assets of that Class, consisting of a 0.20%
distribution fee and a 0.15% service
fee. "Other expenses" in the above table
include fees for shareholder services,
custodial fees, legal and accounting fees,
printing costs and registration fees.
7
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Smith Barney Muni Funds --
California Limited Term Portfolio
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Prospectus Summary (continued)
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EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares" and "Management of the
Fund."
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10
Years
- ---------------------------------------------
- ---------------------------------------------
- -----------------------------------------
<S>
<C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000
investment, assuming (1) 5.00% annual
return and
(2) redemption at the end of each time
period:
Class A
.............................................
................ $25 $37
$50 $86
Class C
.............................................
................ 17 22
38 86
Class Y
.............................................
................ 4 14
24 54
An investor would pay the following expenses
on the
same investment, assuming the same annual
return
and no redemption:
Class A
.............................................
................ $25 $37
$50 $86
Class C
.............................................
................ 7 22
38 86
Class Y
.............................................
................ 4 14
24 54
- ---------------------------------------------
- ---------------------------------------------
- -----------------------------------------
</TABLE>
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses and
actual expenses may be greater or
less than those shown.
8
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Smith Barney Muni Funds -
California Limited Term Portfolio
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Financial Highlights
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The following schedule has been audited
in conjunction with the annual
audits of the financial statements of Smith
Barney Muni Funds by KPMG Peat
Marwick LLP, independent auditors. The 1995
Financial Statements and the
independent auditors' report thereon appear
in the March 31, 1995 Annual Report
to Shareholders.
For a Portfolio share outstanding throughout
each period:
<TABLE>
<CAPTION>
Class A Class C(a)
Class Y (b)
- --------------------- -------------
- --------- --------------------
March 31,
1995 1994(c) 1995
1994(d) 1995 1994(e)
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<S>
<C> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period
$6.41 $6.50 $6.41
$6.51 $6.41 $6.57
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Income from Investment Operations:
Net investment income (1)
0.32 0.27 0.30
0.25 0.31 0.15
Net realized and and unrealized
gain (loss) on investments
0.04 (0.12) 0.05
(0.12) 0.05 (0.15)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Income from Investment Operations
0.36 0.15 0.35
0.13 0.36 --
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Less Distributions:
Dividends from net investment income
(0.32) (0.24) (0.31)
(0.23) (0.32) (0.16)
Distributions from net realized gains
on security transactions
(0.01) -- (0.01)
- -- (0.01) --
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Distributions
(0.33) (0.24) (0.32)
(0.23) (0.33) (0.16)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Asset Value, End of Period
$6.44 $6.41 $6.44
$6.41 $6.44 $6.41
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Total Return#
5.89% 2.29%++ 5.56%
1.87%++ 5.87% N/A
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Assets, End of Period (000s)
$5,377 $8,020 $1,786
$2,361 $523 $494
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Ratios to Average Net Assets:
Expenses (1)
0.40% 0.19%+ 0.69%
0.53%+ 0.43% 0.35%+
Net investment income
4.89 4.99+ 4.63
4.52+ 4.89 4.84+
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Portfolio Turnover Rate
27.40% 47.91% 27.40%
47.91% 27.40% 47.91%
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</TABLE>
(a) On November 7, 1994 the former Class B
shares were renamed Class C shares.
(b) On November 7, 1994 the former Class C
shares were renamed Class Y shares.
(c) For the period from April 27, 1993
(inception date) to March 31, 1994.
(d) For the period from May 18, 1993
(inception date) to March 31, 1994.
(e) For the period from June 23, 1993
(inception date) to March 31, 1994.
++ Not annualized, as the result may not be
representative of the total return
for the year.
+ Annualized.
# Total returns do not reflect sales loads
or contingent deferred sales
charges.
(1) The manager has waived all of its fees
and reimbursed expenses of $8,087
and $10,992 for the year ended March 31,
1995 and the period ended March
31, 1994, respectively. If such fees
were not waived, the per share
decrease of net investment income and
the ratios of expenses to average net
assets would be as follows:
Expense Ratios
Per Share
Decreases Without Fee Waivers*
------------
- -------------------------------
1995
1994 1995 1994
----
- ---- ---- ----
Class A $0.037
$0.032 0.95% 0.75%+
Class C 0.037
0.041 1.23 1.18+
Class Y 0.036
0.011 1.98 0.88+
* As a result of voluntary expense
limitations, the ratio of expenses to
average net assets will not exceed
0.80%, 1.00% and 0.65% for Class A, C
and Y Shares, respectively.
9
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The California Limited Term Portfolio
seeks as high a level of income
exempt from Federal income taxes and
California personal income taxes as is
consistent with prudent investing. The
Portfolio will invest primarily in
obligations issued by the State of California
and its political subdivisions,
agencies and instrumentalities, the interest
from which is, in the opinion of
bond counsel for the various issuers, exempt
from Federal income taxes at the
time of their issuance. At least 80% of the
Portfolio's assets will be invested
in obligations with remaining maturities of
less than ten years and the
dollar-weighted average maturity of the
entire portfolio will normally not
exceed ten years. (For certain shareholders,
a portion of the Portfolio's income
may be subject to the alternative minimum tax
("AMT") on tax-exempt income
discussed below.) Such obligations are issued
to raise money for a variety of
public projects that enhance the quality of
life including health facilities,
housing, airports, schools, highways and
bridges.
Under the Tax Reform Act of 1986,
interest income from municipal
obligations issued to finance certain
"private activities" ("AMT-Subject Bonds")
becomes an item of "tax preference" which is
subject to the AMT when received by
a person in a tax year during which he is
subject to that tax. Such private
activity bonds include bonds issued to
finance such projects as certain solid
waste disposal facilities, student loan
programs, and water and sewage projects.
Because interest income on AMT-Subject Bonds
is taxable to certain investors, it
is expected, although there can be no
guarantee, that such municipal obligations
generally will provide somewhat higher yields
than other municipal obligations
of comparable quality and maturity. There is
no limitation on the percent or
amount of the Portfolio's assets that may be
invested in AMT-Subject Bonds.
Municipal bonds purchased for the
Portfolio must, at the time of purchase,
be investment grade municipal bonds and at
least two-thirds of the Portfolio's
municipal bonds must be rated in the category
of A or better. Investment grade
bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc.
("Moody's") and AAA, AA, A and BBB by
Standard & Poor's Corporation ("S&P") or
have an equivalent rating by any nationally
recognized statistical rating
organization; pre-refunded bonds escrowed by
U.S. Treasury obligations will be
considered AAA rated even though the issuer
does not obtain a new rating. Up to
one-third of the assets of the Portfolio may
be invested in municipal bonds
rated Baa or BBB (this grade, while regarded
as having an adequate capacity to
pay interest and repay principal, is
considered to be of medium quality and has
speculative characteristics) or in unrated
municipal bonds if, based upon credit
analysis by the Manager, it is believed that
such securities are at least of
comparable quality to those securities in
which the Portfolio may invest. In
determining the suitability of an investment
in an unrated municipal bond, the
10
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
Manager will take into consideration debt
service coverage, the purpose of the
financing, history of the issuer, existence
of other rated securities of the
issuer and other general conditions as may be
relevant, including comparability
to other issues. After the Portfolio
purchases a municipal bond, the issue may
cease to be rated or its rating may be
reduced below the minimum required for
purchase. Such an event would not require the
elimination of the issue from the
Portfolio but the Manager will consider such
an event in determining whether the
Portfolio should continue to hold the
security.
The Portfolio's short-term municipal
obligations will be limited to high
grade obligations (obligations that are
secured by the full faith and credit of
the United States or are rated MIG 1 or MIG
2, VMIG 1 or VMIG 2 or Prime-1 or Aa
or better by Moody's or SP-1+, SP-1, SP-2, or
A-1 or AA or better by S&P or have
an equivalent rating by any nationally
recognized statistical rating
organization or obligations determined by the
Manager to be equivalent). Among
the types of short-term instruments in which
the Portfolio may invest are
floating or variable rate demand instruments,
tax-exempt commercial paper
(generally having a maturity of less than
nine months), and other types of notes
generally having maturities of less than
three years, such as Tax Anticipation
Notes, Revenue Anticipation Notes, Tax and
Revenue Anticipation Notes and Bond
Anticipation Notes. Demand instruments
usually have an indicated maturity of
over one year, but contain a demand feature
that enables the holder to redeem
the investment on no more than 30 days'
notice; variable rate demand instruments
provide for automatic establishment of a new
interest rate on set dates;
floating rate demand instruments provide for
automatic adjustment of their
interest rates whenever some other specified
interest rate changes (e.g., the
prime rate). The Portfolio may purchase
participation interests in variable rate
tax-exempt securities (such as Industrial
Development Bonds) owned by banks.
Participations are frequently backed by an
irrevocable letter of credit or
guarantee of a bank that the Manager has
determined meets the prescribed quality
standards for the Portfolio. Participation
interests will be purchased only if
management believes interest income on such
interests will be tax-exempt when
distributed as dividends to shareholders.
The Portfolio will not invest more than
15% of the value of its net assets
in illiquid securities, including those that
are not readily marketable or for
which there is no established market.
The Portfolio may purchase new issues of
municipal obligations on a
when-issued basis, i.e. delivery and payment
normally take place 15 to 45 days
after the purchase date. The payment
obligation and the interest rate to be
received are each fixed on the purchase date,
although no interest accrues with
respect to a when-issued security prior to
its stated delivery date. During the
11
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
period between purchase and settlement,
assets consisting of cash or liquid high
grade debt securities, marked-to-market
daily, of a dollar amount sufficient to
make payment at settlement will be segregated
at the custodian bank. Interest
rates at settlement may be lower or higher
than on the purchase date, which
would result in appreciation or depreciation,
respectively. Although the
Portfolio will only purchase a municipal
obligation on a when-issued basis with
the intention of actually acquiring the
securities, the Portfolio may sell these
securities before the settlement date if it
is deemed advisable.
Portfolio transactions will be
undertaken primarily to accomplish the
Portfolio's objective in relation to
anticipated movements in the general level
of interest rates, but the Portfolio may also
engage in short-term trading
consistent with its objective.
The Portfolio may invest in municipal
bond index futures contracts
(currently traded on the Chicago Board of
Trade) or in listed contracts based on
U.S. Government Securities as a hedging
policy in pursuit of its investment
objective; provided that immediately
thereafter not more than 33 1/3% of its net
assets would be hedged or the amount of
margin deposits on the Portfolio's
existing futures contracts would not exceed
5% of the value of its total assets.
Since any income would be taxable, it is
anticipated that such investments will
be made only in those circumstances when the
Manager anticipates the possibility
of an extreme change in interest rates or
market conditions but does not wish to
liquidate the Portfolio's securities. A
further discussion of futures contracts
and their associated risks is contained in
the Statement of Additional
Information.
It is a fundamental policy that under
normal market conditions, the
Portfolio will seek to invest 100% of its
assets - and the Portfolio will invest
not less than 80% of its assets - in
municipal obligations the interest on which
is exempt from Federal income taxes (other
than the alternative minimum tax). It
is also a fundamental policy that under
normal market conditions, the Portfolio
will invest at least 65% of its assets in
municipal obligations issued by the
State of California, its political
subdivisions and their agencies and
instrumentalities. The Portfolio may invest
up to 20% of its assets in taxable
fixed-income securities, but only in
obligations issued or guaranteed by the
full faith and credit of the United States,
and may invest more than 20% of its
assets in U.S. Government securities during
periods when in the Manager's
opinion a temporary defensive posture is
warranted, including any period when
the Fund's monies available for investment
exceed the municipal obligations
available for purchase that meet the Fund's
rating, maturity and other
investment criteria. To the extent the
Portfolio is so invested, the investment
objective may not be achieved.
12
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
RISK FACTORS AFFECTING CALIFORNIA
On July 15, 1994, Moody's and S&P, each,
citing California's deteriorating
financial position lowered California's
general obligations bond ratings, Aa to
A1 and A+ to A, respectively. The Portfolio's
concentration in California
obligations involves certain additional risks
that should be considered
carefully by investors. Certain California
constitutional amendments,
legislative measures, executive orders,
administrative regulations, court
decisions and voter initiatives could result
in certain adverse consequences
affecting California obligations. In
particular, there are risks resulting from
certain recent amendments to the California
Constitution and other statutes that
limit the taxing and spending authority of
California governmental entities, and
these may have the effect of impairing the
ability of certain issuers of
California obligations to pay principal and
interest on their obligations.
("Appendix B" in the Statement of Additional
Information provides additional
details.)
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve
its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the municipal bond
markets, the size of a particular offering,
the maturity of the obligation and
the rating of the issue. In general, the
longer the maturity of a municipal
obligation, the higher the rate of interest
it pays. However, a longer average
maturity is generally associated with a
higher level of volatility in the market
value of a municipal obligation. During
periods of falling interest rates, the
values of long-term, municipal obligations
generally rise; conversely, during
periods of rising interest rates, the values
of such securities generally
decline. Changes in the value of Portfolio
securities will not affect interest
income derived from those securities but will
affect the Portfolio's net asset
value. Since the Portfolio's objective is to
provide high current income, it
will invest in municipal obligations with an
emphasis on income rather than
stability of net asset values.
The Fund is registered as a "non-
diversified" company under the 1940 Act in
order for the Portfolio to have the ability
to invest more than 5% of its assets
in the securities of any issuer. The
Portfolio intends to comply with Subchapter
M of the Internal Revenue Code that limits
the aggregate value of all holdings
(except U.S. Government and cash items, as
defined in the Code) that exceed 5%
of the Portfolio's total assets to an
aggregate amount of 50% of such assets.
13
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
Also, holdings of a single issuer (with the
same exceptions) may not exceed 25%
of the Portfolio's total assets. These limits
are measured at the end of each
quarter. Under the Subchapter M limits,"non-
diversification" allows up to 50%
of a Portfolio's total assets to be invested
in as few as two single issuers. In
the event of decline of creditworthiness or
default upon the obligations of one
or more such issuers exceeding 5%, an
investment in the Portfolio will entail
greater risk than in a portfolio having a
policy of "diversification" because a
high percentage of the Portfolio's assets may
be invested in municipal
obligations of one or two issuers.
Furthermore, a high percentage of investments
among few issuers may result in a greater
degree of fluctuation in the market
value of the assets of the Portfolio, and
consequently a greater degree of
fluctuation of the Portfolio's net asset
value, because the Portfolio will be
more susceptible to economic, political, or
regulatory developments affecting
these securities than would be the case with
a portfolio composed of varied
obligations of more issuers.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Portfolio's portfolio securities
ordinarily are purchased from and sold
to parties acting as either principal or
agent. Newly issued securities
ordinarily are purchased directly from the
issuer or from an underwriter; other
purchases and sales usually are placed with
those dealers from which it appears
that the best price or execution will be
obtained. Usually no brokerage
commissions, as such, are paid by the
Portfolio for purchases and sales
undertaken through principal transactions,
although the price paid usually
includes an undisclosed compensation to the
dealer acting as agent.
The Portfolio cannot accurately predict
its portfolio turnover rate, but
anticipates that the annual turnover will not
exceed 100%. An annual turnover
rate of 100% would occur when all of the
securities held by the Portfolio are
replaced one time during a period of one
year. The Manager will not consider
turnover rate a limiting factor in making
investment decisions consistent with
the investment objective and policies of the
Portfolio.
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on the NYSE on each day that
the NYSE is open by dividing the
value of the Portfolio's net assets
attributable to each Class by the total
number of shares of the Class outstanding.
14
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Valuation of Shares (continued)
=============================================
===================================
When, in the judgment of the pricing
service, quoted bid prices for
investments are readily available and are
representative of the bid side of the
market, these investments are valued at the
mean between the quoted bid and
asked prices. Investments for which, in the
judgment of the pricing service,
there is no readily obtainable market
quotation (which may constitute a majority
of the portfolio securities) are carried at
fair value of securities of similar
type, yield and maturity. Pricing services
generally determine value by
reference to transactions in municipal
obligations, quotations from municipal
bond dealers, market transactions in
comparable securities and various
relationships between securities. Short-term
instruments maturing within 60 days
will be valued at cost plus (minus) amortized
discount (premium), if any, when
the Trustees have determined that amortized
cost equals fair value. Securities
and other assets that are not priced by a
pricing service and for which market
quotations are not available will be valued
in good faith at fair value by or
under the direction of the Trustees.
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of the
Portfolio's net investment income are
declared and paid monthly and any realized
capital gains are declared and
distributed annually.
If a shareholder does not otherwise
instruct, dividends and capital gain
distributions will be reinvested
automatically in additional shares of the
same
Class at net asset value, subject to no sales
charge or CDSC.
Income dividends and capital gain
distributions that are invested are
credited to shareholders' accounts in
additional shares at the net asset value
as of the close of business on the payment
date. A shareholder may change the
option at any time by notifying his or her
Financial Consultant. Accounts held
directly by the Fund's transfer agent, The
Shareholder Services Group
Inc.("TSSG") should notify TSSG in writing at
least five business days prior to
the payment date to permit the change to be
entered in the shareholder's
account.
The per share dividends on Class C
shares of the Portfolio may be lower
than the per share dividends on Class A and
Class Y shares principally as a
result of the distribution fee applicable
with respect to Class C shares. The
per share dividends on Class A shares of the
Portfolio may be lower than the per
share dividends on Class Y shares principally
as a result of the service fee
applicable to Class A shares. Distributions
of capital gains, if any, will be in
the same amount for Class A, Class C and
Class Y shares.
15
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
TAXES
The Portfolio intends to qualify as a
"regulated investment company" and to
meet the requirements for distributing
"exempt-interest dividends" under the
Internal Revenue Code (the "Code") so that no
Federal income taxes will be
payable by the Portfolio and dividends
representing net interest received on
municipal obligations will not be includable
by shareholders in their gross
income for Federal income tax purposes. To
the extent dividends are derived from
taxable income from temporary investments,
from market discounts or from the
excess of net short-term capital gain over
net long-term capital loss, they are
treated as ordinary income whether the
shareholder has elected to receive them
in cash or in additional shares. No portion
of such dividends would qualify for
the corporate dividends-received deduction.
Distributions derived from the
excess of net long-term capital gain over net
short-term capital loss are
treated as long-term capital gain regardless
of the length of time a shareholder
has owned shares of the Portfolio and
regardless of whether such distributions
are received in cash or in additional shares.
Exempt-interest dividends allocable to
interest received by the Portfolio
from the AMT-Subject Bonds in which the
Portfolio may invest will be treated as
interest paid directly on such obligations
and will give rise to an "item of tax
preference" that will increase a
shareholder's alternative minimum taxable
income. In addition, for corporations,
alternative minimum taxable income will
be increased by a percentage of the amount by
which a special measure of income
(including exempt-interest dividends) exceeds
the amount otherwise determined to
be alternative minimum taxable income.
Accordingly, investment in the Portfolio
may cause shareholders to be subject to (or
result in an increased liability
under) the AMT. The Fund will annually
furnish to Portfolio shareholders a
report indicating the ratable portion of
exempt-interest dividends attributable
to AMT-Subject Bonds.
Each Portfolio of the Fund will be
treated as a separate regulated
investment company for Federal tax purposes.
Accordingly, each Portfolio's net
investment income is determined separately
based on the income earned on its
securities less its costs of operations. Each
Portfolio's net long-term and
short-term gain (loss) realized on
investments will be determined separately and
net capital gains distributed by the
Portfolio are determined after offsetting
any capital loss carryover of the Portfolio
from prior periods.
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Fund will not be
deductible to the extent that the Fund's
distributions are exempt from Federal income
tax. In addition, any loss realized
upon the redemption of shares held less than
6 months will be disallowed to the
extent of any exempt-interest dividends
received by the shareholder during such
16
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
period. Further, persons who may be
"substantial users" (or "related persons" of
substantial users) of facilities financed by
industrial development bonds should
consult their tax advisors concerning an
investment in the Fund.
CALIFORNIA STATE TAXES
The Portfolio's shareholders will not be
subject to California state
personal income tax on Portfolio dividends to
the extent that such distributions
qualify as exempt-interest dividends under
the Code and California law;
provided, that at the close of each quarter
of the Fund's taxable year at least
50% of the Portfolio's total assets are
invested in municipal obligations of
California issuers. To the extent that
distributions are derived from taxable
income, including long or short-term capital
gains, such distributions will not
be exempt from California state personal
income tax. Dividends on the Portfolio
are not excluded in determining California
state franchise taxes on corporations
and financial institutions.
Investors purchasing municipal
obligations of their state of residence, or
a fund comprised of such obligations, should
recognize that the benefits of the
exemption from local taxes, in addition to
the exemption from Federal taxes,
necessarily limits the fund's ability to
diversify geographically. The Portfolio
will make available annually to its
shareholders information concerning the tax
status of its distributions, including the
amount of its dividends designated as
exempt-interest dividends and as capital gain
dividends.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional Information.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
=============================================
===================================
Purchase of Shares
=============================================
===================================
GENERAL
The Portfolio offers three classes of
shares. Class A shares are sold to
investors with an initial sales charge and
Class C shares are sold without an
initial sales charge but are subject to a
CDSC payable upon certain redemptions.
Class Y shares are sold without an initial
sales charge or a CDSC and are
available only to investors investing a
minimum of $5,000,000. See "Prospectus
Summary -- Alternative Purchase Arrangements"
for a discussion of factors to
consider in selecting which Class of shares
to purchase.
17
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney, an Introducing
Broker or an investment dealer in
the selling group. When purchasing shares of
the Portfolio, investors must
specify whether the purchase is for Class A,
Class C or Class Y shares. No
maintenance fee will be charged by the Fund
in connection with a brokerage
account through which an investor purchases
or holds shares.
Investors in Class A and Class C shares
may open an account by making an
initial investment of at least $1,000 for
each account in the Portfolio.
Investors in Class Y shares may open an
account by making an initial investment
of $5,000,000. Subsequent investments of at
least $50 may be made for all
Classes. For participants in the Portfolio's
Systematic Investment Plan, the
minimum initial investment requirement for
Class A and Class C shares and the
subsequent investment requirement for all
Classes is $50. There are no minimum
investment requirements in Class A shares for
employees of Travelers and its
subsidiaries, including Smith Barney,
Trustees of the Fund, and their spouses
and children. The Fund reserves the right to
waive or change minimums, to
decline any order to purchase its shares and
to suspend the offering of shares
from time to time. Shares purchased will be
held in the shareholder's account by
the Fund's transfer agent, TSSG, a subsidiary
of First Data Corporation. Share
certificates are issued only upon a
shareholder's written request to TSSG. It is
not recommended that the Portfolio be used as
a vehicle for Keogh, IRA or other
qualified retirement plans.
Purchase orders received by the Fund or
Smith Barney prior to the close of
regular trading on the NYSE, on any day the
Portfolio calculates its net asset
value, are priced according to the net asset
value determined on that day (the
"trade date"). Orders received by dealers or
Introducing Brokers prior to the
close of regular trading on the NYSE on any
day the Portfolio calculates its net
asset value, are priced according to the net
asset value determined on that day,
provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. Payment for
Portfolio shares is due on the third
business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
TSSG is authorized through
preauthorized transfers of $50 or more to
charge the regular bank account or
other financial institution indicated by the
shareholder on a monthly or
quarterly basis to provide systematic
additions to the shareholder's Portfolio
account. A shareholder who has insufficient
funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney
or TSSG. The Systematic Investment
18
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Plan also authorizes Smith Barney to apply
cash held in the shareholder's Smith
Barney brokerage account or redeem the
shareholder's shares of a Smith Barney
money market fund to make additions to the
account. Additional information is
available from the Fund or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE --
CLASS A SHARES
The sales charges applicable to
purchases of Class A shares of the
Portfolio are as follows:
=============================================
===================================
Sales
Charge Dealer's
% of
% of Amount Reallowance as % of
Amount of Investment Offering Price
Invested Offering Price
- ---------------------------------------------
- -----------------------------------
Less than $500,000 2.00%
2.04% 1.80%
$500,000 and over *
* *
=============================================
===================================
*Purchases of Class A shares, which when
combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
without any initial sales charge, but
will be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The CDSC on Class A shares is
payable to Smith Barney which
compensates Smith Barney Financial
Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC
is waived in the same circumstances
in which the CDSC applicable to Class C
shares is waived. See "Deferred Sales
Charge Alternatives -- Waivers of CDSC."
Members of the selling group may receive
up to 90% of the sales charge and
may be deemed to be underwriters of the Fund
as defined in the Securities Act of
1933, as amended.
The $500,000 investment may be met by
aggregating the purchases of Class A
shares of the Portfolio made at one time by
"any person," which includes an
individual, his or her spouse and children,
or a trustee or other fiduciary of a
single trust estate or single fiduciary
account. It may also be met by
aggregating the purchase with the net asset
value of all Class A shares offered
with a sales charge held in funds sponsored
by Smith Barney listed under
"Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made
at net asset value without a sales
charge in the following circumstances: (a)
sales of Class A shares to trustees
of the Fund, employees of Travelers and its
subsidiaries, and employees of
members of the National Association of
Securities Dealers, Inc.., or to the
spouse and children of such persons
(including the surviving spouse of a
deceased Trustee or employee, and retired
Trustees or employees); (b) offers of
19
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Class A shares to any other investment
company in connection with the
combination of such company with the
Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares
by any client of a newly employed
Smith Barney Financial Consultant (for a
period up to 90 days from the
commencement of the Financial Consultant's
employment with Smith Barney), on the
condition the purchase of Class A shares is
made with the proceeds of the
redemption of shares of a mutual fund which
(i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to
the client by the Financial
Consultant and (iii) was subject to a sales
charge; (d) shareholders who have
redeemed Class A shares in the Portfolio (or
Class A shares of another fund of
the Smith Barney Mutual Funds that are
offered with a sales charge equal to or
greater than the maximum sales charge of the
Portfolio) and who wish to reinvest
their redemption proceeds in the Portfolio,
provided the reinvestment is made
within 60 calendar days of the redemption;
and (e) accounts managed by
registered investment advisory subsidiaries
of Travelers. In order to obtain
such discounts, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Portfolio may be
purchased by "any person" (as
defined above) at net asset value determined
by aggregating the dollar amount of
the new purchase and the total net asset
value of all Class A shares of the
Portfolio and of funds sponsored by Smith
Barney which are offered with a sales
charge listed under "Exchange Privilege" then
held by such person and applying
the sales charge applicable to such
aggregate. In order to obtain such discount,
the purchaser must provide sufficient
information at the time of purchase to
permit verification that the purchase
qualifies for purchase at net asset value.
The right of accumulation is subject to
modification or discontinuance at any
time with respect to all shares purchased
thereafter.
GROUP PURCHASES
Upon completion of certain automated
systems, purchase at net asset value
will also be available to employees (and
partners) of the same employer
purchasing as a group, provided each
participant makes the minimum initial
investment required. The sales charge
applicable to purchases by each member of
such a group will be determined by the table
set forth above under "Initial
Sales Charge Alternative -- Class A Shares,"
and will be based upon the
aggregate sales of Class A shares of Smith
Barney Mutual Funds offered with a
sales charge to, and share holdings of, all
members of the group. To be eligible
for such purchase at net asset value, all
purchases must be pursuant to an
employer- or partnership-sanctioned plan
meeting certain requirements. One such
20
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
requirement is that the plan must be open to
specified partners or employees of
the employer and its subsidiaries, if any.
Such plan may, but is not required
to, provide for payroll deductions. Smith
Barney may also offer a net asset
value purchase for aggregating related
fiduciary accounts under such conditions
that Smith Barney will realize economies of
sales efforts and sales related
expenses. An individual who is a member of a
qualified group may also purchase
Class A shares at the sales charge applicable
to the group as a whole. The sales
charge is based upon the aggregate dollar
value of Class A shares offered with a
sales charge that have been previously
purchased and are still owned by the
group, plus the amount of the current
purchase. A "qualified group" is one which
(a) has been in existence for more than six
months, (b) has a purpose other than
acquiring Portfolio shares at a discount and
(c) satisfies uniform criteria
which enable Smith Barney to realize
economies of scale in its costs of
distributing shares. A qualified group must
have more than 10 members, must be
available to arrange for group meetings
between representatives of the Portfolio
and the members, and must agree to include
sales and other materials related to
the Portfolio in its publications and
mailings to members at no cost to Smith
Barney. In order to purchase at net asset
value, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase qualifies for purchase at net asset
value. Approval of group purchase
at net asset value is subject to the
discretion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for
amounts of $500,000 or more provides
an opportunity for an investor to purchase
shares at net asset value by
aggregating the investments over a 13 month
period, provided that the investor
refers to such Letter when placing orders.
For purposes of a Letter of Intent,
the "Amount of Investment" as referred to in
the preceding sales charge table
includes purchases of all Class A shares of
the Portfolio and other funds of the
Smith Barney Mutual Funds offered with a
sales charge over a 13 month period
based on the total amount of intended
purchases plus the value of all Class A
shares previously purchased and still owned.
An alternative is to compute the 13
month period starting up to 90 days before
the date of execution of a Letter of
Intent. Each investment made during the
period receives the sales charge
applicable to the total amount of the
investment goal. If the goal is not
achieved within the period, the investor must
pay the difference between the
sales charges applicable to the purchases
made and the charges previously paid,
or an appropriate number of escrowed shares
will be redeemed. Please contact a
Smith Barney Financial Consultant or TSSG to
obtain a Letter of Intent
application.
21
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Class Y Shares. A Letter of Intent may
also be used as a way for investors
to meet the minimum investment requirement
for Class Y shares. Such investors
must make an initial minimum purchase of
$1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of
$5,000,000 of Class Y shares of the
same Portfolio within six months from the
date of the Letter. If a total
investment of $5,000,000 is not made within
the six-month period, all Class Y
shares purchased to date will be transferred
to Class A shares, where they will
be subject to all fees (including a service
fee of 0.15%) and expenses
applicable to the Portfolio's Class A shares,
which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial
Consultant or TSSG for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset
value next determined without an
initial sales charge so that the full amount
of an investor's purchase payment
may be immediately invested in the Portfolio.
A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC
Shares" are: (a) Class C shares and
(b) Class A shares which when combined with
Class A shares offered with a sales
charge currently held by an investor equal or
exceed $500,000 in the aggregate.
Any applicable CDSC will be assessed on
an amount equal to the lesser of
the original cost of the shares being
redeemed or their net asset value at the
time of redemption. CDSC Shares that are
redeemed will not be subject to a CDSC
to the extent that the value of such shares
represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of
dividends or capital gain
distributions; or (c) shares redeemed more
than 12 months after their purchase.
CDSC Shares are subject to a 1.00% CDSC if
redeemed within 12 months of
purchase.
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestment of
dividends and capital gain distributions
and finally of other shares held by the
shareholder for the longest period of
time. The length of time that CDSC Shares
acquired through an exchange have been
held will be calculated from the date that
the shares exchanged were initially
acquired in one of the other Smith Barney
Mutual Funds, and Portfolio shares
being redeemed will be considered to
represent, as applicable, capital
appreciation or dividend and capital gain
distribution reinvestments in such
other funds. For Federal income tax purposes,
the amount of the CDSC will reduce
the gain or increase the loss, as the case
may be, on the amount realized on
redemption. The amount of any CDSC will be
paid to Smith Barney.
To provide an example, assume an
investor purchased 100 Class C shares at
22
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
$10 per share for a cost of $1,000.
Subsequently, the investor acquired 5
additional shares through dividend
reinvestment. During the tenth month after
the purchase, the investor decided to redeem
$500 of his or her investment.
Assuming at the time of the redemption the
net asset value had appreciated to
$12 per share, the value of the investor's
shares would be $1,260 (105 shares at
$12 per share). The CDSC would not be applied
to the amount which represents
appreciation ($200) and the value of the
reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be
charged at a rate of 1.00% (the applicable
rate for Class C shares) for a total
deferred sales charge of $2.40.
WAIVERS OF CDSC
The CDSC will be waived on: (a)
exchanges (see "Shareholder Services --
Exchange Privilege"); (b) automatic cash
withdrawals in amounts equal to or less
than 1.00% per month of the value of the
shareholder's shares at the time the
withdrawal plan commences (see "Automatic
Cash Withdrawal Plan") (provided,
however, that automatic cash withdrawals in
amounts equal to or less than 2.00%
per month of the value of the shareholder's
shares will be permitted for
withdrawal plans that were established prior
to November 7, 1994); (c)
redemptions of shares within twelve months
following the death or disability of
the shareholder; (d) involuntary redemptions;
and (e) redemptions of shares in
connection with a combination of the
Portfolio with any investment company by
merger, acquisition of assets or otherwise.
In addition, a shareholder who has
redeemed shares from other funds of the Smith
Barney Mutual Funds may, under
certain circumstances, reinvest all or part
of the redemption proceeds within 60
days and receive pro rata credit for any CDSC
imposed on the prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A and Class C
shares are subject to minimum
investment requirements and all shares are
subject to the other requirements of
the fund into which exchanges are made and a
sales charge differential may
apply.
23
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Fund Name
- ---------------------------------------------
- -----------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund
Inc.
Smith Barney Appreciation Fund, Inc.
Smith Barney Fundamental Value Fund
Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
* Smith Barney Adjustable Rate
Government Income Fund
Smith Barney Diversified Strategic
Income Fund
Smith Barney Funds, Inc. -- Income
Return Account Portfolio
* Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities
Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond
Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc.
Smith Barney California Municipals
Fund Inc.
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Managed Municipals Fund
Inc.
Smith Barney Massachusetts Municipals
Fund
Smith Barney Muni Funds -- Florida
Limited Term Portfolio
Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Georgia
Portfolio
Smith Barney Muni Funds -- Limited
Term Portfolio
24
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Smith Barney Muni Funds -- National
Portfolio
Smith Barney Muni Funds -- New York
Portfolio
Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney Muni Funds --
Pennsylvania Portfolio
Smith Barney New Jersey Municipals
Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, Inc. --
Pacific Portfolio
Money Market Funds
** Smith Barney Exchange Reserve Fund
* Smith Barney Money Funds, Inc. -- Cash
Portfolio
* Smith Barney Money Funds, Inc. --
Government Portfolio
*** Smith Barney Money Funds, Inc. --
Retirement Portfolio
* Smith Barney Municipal Money Market
Fund, Inc.
* Smith Barney Muni Funds -- California
Money Market Portfolio
* Smith Barney Muni Funds -- New York
Money Market Portfolio.
- ----------
*Available for exchange with Class A and
Class Y shares of the Portfolio.
**Available for exchange with Class C shares
of the Portfolio.
***Available for exchange with Class A shares
of the Portfolio.
Class A Exchanges. Class A shares of
Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of
such shares for Class A shares of a
fund sold with a higher sales charge. The
"sales charge differential" is limited
to a percentage rate no greater than the
excess of the sales charge rate
applicable to purchases of shares of the
mutual fund being acquired in the
exchange over the sales charge rate(s)
actually paid on the mutual fund shares
relinquished in the exchange and on any
predecessor of those shares. For
purposes of the exchange privilege, shares
obtained through automatic
reinvestment of dividends and capital gain
distributions are treated as having
paid the same sales charges applicable to the
shares on which the dividends or
25
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
distributions were paid; however, if no sales
charge was imposed upon the
initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales
charge differential upon exchange. Class
A shares held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of the
Smith Barney Mutual Funds will not be
subject to a sales charge differential.
Class C Exchanges. Upon an exchange, the
new Class C shares will be deemed
to have been purchased on the same date as
the Class C shares of the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment manager may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
manager will notify Smith Barney
that the Fund may, at its discretion, decide
to limit additional purchases
and/or exchanges by the shareholder. Upon
such a determination, the Fund will
provide notice in writing or by telephone to
the shareholder at least 15 days
prior to suspending the exchange privilege
and during the 15 day period the
shareholder will be required to (a) redeem
his or her shares in the Portfolio or
(b) remain invested in the Portfolio or
exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily
available, which position the shareholder
would be expected to maintain for a
significant period of time. All relevant
factors will be considered in determining
what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed below
are also applicable for exchanging shares,
and exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
26
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Redemption of Shares
=============================================
===================================
The Fund is required to redeem the
shares of the Portfolio tendered to it,
as described below, at a redemption price
equal to their net asset value per
share next determined after receipt of a
written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the
close of regular trading on the NYSE are
priced at the net asset value next
determined.
If a shareholder holds shares in more
than one Class, any request for
redemption must specify the Class being
redeemed. In the event of a failure to
specify which Class, or if the investor owns
fewer shares of the Class than
specified, the redemption request will be
delayed until the Fund's transfer
agent receives further instructions from
Smith Barney, or if the shareholder's
account is not with Smith Barney, from the
shareholder directly. The redemption
proceeds will be remitted on or before the
third business day following receipt
of proper tender, except on any days on which
the NYSE is closed or as permitted
under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney
brokerage account, these funds will not
be invested for the shareholder's benefit
without specific instruction and Smith
Barney will benefit from the use of
temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other
than a certified or official bank
check, will be remitted upon clearance of the
check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian
must be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request for redemption
to:
Smith Barney Muni Funds/California
Limited Term Portfolio
Class A, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
27
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an
automatic cash withdrawal plan, under
which shareholders who own shares with a
value of at least $10,000 may elect to
receive cash payments of at least $50 monthly
or quarterly. The withdrawal plan
will be carried over on exchanges between
funds or Classes of the Portfolio. Any
applicable CDSC will not be waived on amounts
withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the
CDSC at the time the withdrawal plan
commences. (With respect to withdrawal
plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00%
per month of the value of the
shareholder's shares subject to the CDSC.)
For further information regarding the
automatic cash withdrawal plan, shareholders
should contact a Smith Barney
Financial Consultant.
=============================================
===================================
Minimum Account Size
=============================================
===================================
The Fund reserves the right to
involuntarily liquidate any shareholder's
account if the aggregate net asset value of
the shares held in the Portfolio
account is less than $500. (If a shareholder
has more than one account in this
Portfolio, each account must satisfy the
minimum account size). The Fund,
however, will not redeem shares based solely
on market reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring
the account up to the minimum to
avoid involuntary liquidation.
=============================================
===================================
Performance
=============================================
===================================
From time to time the Portfolio may
include its yield, tax equivalent
yield, total return and average annual total
return in advertisements. In other
types of sales literature the Fund may also
include a Portfolio's distribution
rate. These figures are computed separately
for Class A, Class C and Class Y
shares of the Portfolio. These figures are
based on historical earnings and are
not intended to indicate future performance.
The yield of a Portfolio Class
28
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Performance (continued)
=============================================
===================================
refers to the net income earned by an
investment in the Class over a thirty-day
period ending at month end. This net income
is then annualized, i.e., the amount
of income earned by the investment during
that thirty-day period is assumed to
be earned each 30-day period for twelve
periods and is expressed as a percentage
of the investment. The net income earned on
the investment for six periods is
also assumed to be reinvested at the end of
the sixth 30-day period. The tax
equivalent yield is calculated similarly to
the yield, except that a stated
income tax rate is used to demonstrate the
taxable yield necessary to produce an
after-tax yield equivalent to the tax-exempt
yield of the Class. The yield and
tax equivalent yield quotations are
calculated according to a formula prescribed
by the SEC to facilitate comparison with
yields quoted by other investment
companies. The distribution rate is
calculated by annualizing the latest daily
dividend rate and dividing the result by the
maximum offering price per share as
of the end of the period to which the
distribution relates. The distribution
rate is not computed in the same manner as,
and therefore can be significantly
different from, the above described yield.
Total return is computed for a
specified period of time assuming deduction
of the maximum sales charge, if any,
from the initial amount invested and
reinvestment of all income dividends and
capital gains distributions on the
reinvestment dates at prices calculated as
stated in this Prospectus, then dividing the
value of the investment at the end
of the period so calculated by the initial
amount invested and subtracting 100%.
The standard average annual total return, as
prescribed by the SEC, is derived
from this total return, which provides the
ending redeemable value. Such
standard total return information may also be
accompanied with nonstandard total
return information for differing periods
computed in the same manner but without
annualizing the total return or taking sales
charges into account. The Fund may
also include comparative performance
information in advertising or marketing its
shares. Such performance information may
include data from Lipper Analytical
Services, Inc. and other financial
publications.
=============================================
===================================
Management of the Fund
=============================================
===================================
TRUSTEES
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment manager,
custodian and transfer agent. The day-to-day
operations of the Portfolio are
delegated to the Portfolio's investment
manager. The Statement of Additional
29
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
Information contains background information
regarding each Trustee and executive
officer of the Fund.
MANAGER
Prior to December 31, 1994, Mutual
Management Corp. ("MMC") managed the
day-to-day operations of the Portfolio
pursuant to a management agreement
entered into by the Fund on behalf of the
Portfolio. Effective December 31,
1994, the Trustees of the Fund approved the
transfer of all of the management
agreements with MMC to Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the
"Manager"), an affiliate of MMC. Investment
management of the Portfolio under
SBMFM is conducted by the same personnel who
managed the Portfolio under MMC.
The reporting requirements for these
individuals has also remained unchanged. In
addition, because the original management
agreement with MMC was simply
transferred to SBMFM, the terms of the
agreement (including the fee) have
remained the same. SBMFM, which until
November, 1994 operated under the name
Smith, Barney Advisers, Inc. was incorporated
in 1968 under the laws of
Delaware. SBMFM is a subsidiary of Holdings,
the parent company of Smith Barney
(the "Distributor"). Holdings is a wholly
owned subsidiary of Travelers, which
is a financial services holding company
engaged, through its subsidiaries,
principally in four business segments:
Investment Services, Consumer Finance
Services, Life Insurance Services and
Property & Casualty Insurance Services.
SBMFM, Holdings and Smith Barney are each
located at 388 Greenwich Street, New
York, New York 10013.
SBMFM provides the Portfolio with
investment management services and
executive and other personnel, pays the
remuneration of Fund officers, provides
the Fund with office space and equipment,
furnishes the Fund with bookkeeping,
accounting, administrative services and
services relating to research,
statistical work and supervision of the
Portfolio. For the services provided,
the management agreement provides that the
Portfolio will pay SBMFM a daily fee
at the annual rate of 0.45% of the
Portfolio's net assets. SBMFM waived its
management fee for the Portfolio for the
period ended march 31, 1995. For the current
fiscal year, total expenses were
0.54% of the average daily net assets for
Class A shares; 0.69% of the average
daily net assets for Class C shares; and
0.43% of the average daily net assets
for Class Y shares. "Management fees" and
"12b-1 fees" have been restated to reflect
current expenses of the Portfolio. These
expenses reflect the management fee waiver
currently in effect and the anticipated level
of 12b-1 fees for the current fiscal period.
SBMFM has agreed to waive its fee with
respect to any Class to the extent that it is
necessary if in any fiscal year the aggregate
expenses
of such Class exclusive of 12b-1 fees, taxes,
brokerage, interest and
extraordinary expenses, such as litigation
costs, exceed 0.65% of its average
daily net assets for that fiscal year. The
0.65% expense limitation shall be in
effect until it is terminated by notice to
shareholders and by supplement to the
then current prospectus.
30
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
PORTFOLIO MANAGEMENT
Peter M. Coffey, a Managing Director of
Smith Barney, has served as Vice
President of the Fund and portfolio manager
of the Portfolio since its inception
(April 27, 1993) and manages its day-to-day
operations, including making all
investment decisions. Mr. Coffey also serves
as the portfolio manager for the
Fund's other non-money market Portfolios.
Management's discussion and analysis,
and additional performance
information regarding the Portfolio during
the fiscal year ended March 31, 1995
is included in the Annual Report dated March
31, 1995. A copy of the Annual
Report may be obtained upon request and
without charge from a Smith Barney
Financial Consultant or by writing or calling
the Fund at the address or phone
number listed on page one of this Prospectus.
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
a service fee with respect to Class A and
Class C shares of the Portfolio at the
annual rate of 0.15% of the average daily net
assets attributable to these
Classes. Smith Barney is also paid a
distribution fee with respect to Class C
shares at the annual rate of 0.20% of the
average daily net assets attributable
to these shares. The fees are used by Smith
Barney to pay its Financial
Consultants for servicing shareholder
accounts and, in the case of Class C
shares, to cover expenses primarily intended
to result in the sale of those
shares. These expenses include: advertising
expenses; the cost of printing and
mailing prospectuses to potential investors;
payments to and expenses of Smith
Barney Financial Consultants and other
persons who provide support services in
connection with the distribution of shares;
interest and/or carrying charges;
and indirect and overhead costs of Smith
Barney associated with the sale of
Portfolio shares, including lease, utility,
communications and sales promotion
expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A and
Class C shares, a continuing fee
for servicing shareholder accounts for as
long as a shareholder remains a holder
31
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Distributor (continued)
=============================================
===================================
of that Class. Smith Barney Financial
Consultants may receive different levels
of compensation for selling the different
Classes of shares.
Payments under the Plan with respect to
Class C shares are not tied
exclusively to the distribution and
shareholder services expenses actually
incurred by Smith Barney and the payments may
exceed distribution expenses
actually incurred. The Fund's Trustees will
evaluate the appropriateness of the
Plan and its payment terms on a continuing
basis and in so doing will consider
all relevant factors, including expenses
borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end non-diversified,
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
one of twenty separate Portfolios. The assets
of each Portfolio are segregated
and separately managed. Class A, Class C and
Class Y shares of the Portfolio
represent interests in the assets of the
Portfolio and have identical voting,
dividend, liquidation and other rights on the
same terms and conditions, except
that expenses related to the service and
distribution of Class A and Class C
shares are borne by the respective Classes
and each such Class of shares has
exclusive voting rights with respect to
provisions of the Portfolio's Rule 12b-1
distribution plan which pertain to that
Class. It is the intention of the Fund
not to hold annual meetings of shareholders.
The Trustees may call meetings of
shareholders for action by shareholder vote
as may be required by the 1940 Act
or the Declaration of Trust, and shareholders
are entitled to call a meeting of
shareholders upon a vote of 10% of the Fund's
outstanding shares for purposes of
voting on removal of a Trustee or Trustees.
Shareholders will receive assistance
in communicating with other shareholders in
connection with the removal of
Trustees as required by Section 16(c) of the
Act. Shares do not have cumulative
voting rights or preemptive rights and have
only such conversion or exchange
rights as the Trustees may grant in their
discretion. When issued for payment as
described in this Prospectus, the Fund's
shares will be fully paid and
transferrable (subject to the Portfolio's
minimum account size). Shares are
redeemable as set forth under "Redemption of
Shares" and are subject to
involuntary redemption as set forth under
"Minimum Account Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, PA 19103, serves as custodian
of the Portfolio's investments.
32
<PAGE>
Smith Barney Muni Funds -
California Limited Term Portfolio
=============================================
===================================
Additional Information (continued)
=============================================
===================================
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the
Portfolio at the end of the period covered.
In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to
consolidate the mailing of its
semi-annual and annual reports by household.
This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report. In
addition, the Fund also plans to
consolidate the mailing of its Prospectus so
that a shareholder having multiple
accounts will receive a single Prospectus
annually. Shareholders who do not want
this consolidation to apply to their account
should contact their Smith Barney
Financial Consultant or the Fund's transfer
agent.
33
<PAGE>
SMITH BARNEY
- ------------
A Member of Travelers Group [LOGO]
Smith Barney
Muni Funds
California Limited
Term Portfolio
388 Greenwich Street
New York, New York 10013
FD 0607 7/95
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
FLORIDA
PORTFOLIO
JULY 31, 1995
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Everyday.
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, NY 10013
(212) 723-9218
The Florida Portfolio (the "Portfolio")
is one of thirteen investment
portfolios that currently comprise Smith
Barney Muni Funds (the "Fund"). The
Portfolio seeks to pay its shareholders as
high a level of monthly income exempt
from Federal income taxes as is consistent
with prudent investing. The Portfolio
will invest primarily in obligations issued
by the State of Florida and its
political subdivisions, agencies and
instrumentalities. The Portfolio will seek
generally to select investments that will
enable its shares to be exempt from
the Florida intangibles tax. The Portfolio
may invest without limit in municipal
obligations whose interest is a tax
preference for purposes of the Federal
alternative minimum tax.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including sales charges,
distribution and service fees and
expenses, that prospective investors will
find helpful in making an investment
decision. Investors are encouraged to read
this Prospectus carefully and retain
it for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated JULY 31, 1995,
as amended or supplemented from
time to time, that is available upon request
and without charge by calling or
writing the Fund at the telephone number or
address set forth above or by
contacting a Smith Barney Financial
Consultant. The Statement of Additional
Information has been filed with the
Securities and Exchange Commission (the
"SEC") and is incorporated by reference into
this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Prospectus Summary
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
9
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
11
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
16
- ---------------------------------------------
- -----------------------------------
Dividends, Distributions and Taxes
16
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
19
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
27
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
30
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
32
- ---------------------------------------------
- -----------------------------------
Performance
32
- ---------------------------------------------
- -----------------------------------
Management of the Fund
33
- ---------------------------------------------
- -----------------------------------
Distributor
34
- ---------------------------------------------
- -----------------------------------
Additional Information
35
- ---------------------------------------------
- -----------------------------------
=============================================
===================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
=============================================
===================================
2
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Prospectus Summary
=============================================
===================================
The following summary is qualified in
its entirety by detailed information
appearing elsewhere in this Prospectus and in
the Statement of Additional
Information. Cross references in this summary
are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio seeks to
pay its shareholders as high a level
of monthly income exempt from Federal income
taxes as is consistent with prudent
investing. The Portfolio will invest
primarily in obligations issued by the
State of Florida and its political
subdivisions, agencies and instrumentalities.
The Portfolio will seek generally to select
investments that will enable its
shares to be exempt from the Florida
intangibles tax. The Portfolio may invest
without limit in municipal obligations whose
interest is a tax preference for
purposes of the Federal alternative minimum
tax. See "Investment Objective and
Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The
Portfolio offers several classes of shares
("Classes") to investors designed to provide
them with the flexibility of
selecting an investment best suited to their
needs. The general public is
offered three Classes of shares: Class A
shares, Class B shares and Class C
shares, which differ principally in terms of
sales charges and rate of expenses
to which they are subject. A fourth Class of
shares, Class Y shares, is offered
only to investors meeting an initial
investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of
Shares."
Class A Shares. Class A shares are sold
at net asset value plus an initial
sales charge of up to 4.00% and are subject
to an annual service fee of 0.15% of
the average daily net assets of the Class.
The initial sales charge may be
reduced or waived for certain purchases.
Purchases of Class A shares, which when
combined with current holdings of Class A
shares offered with a sales charge
equal or exceed $500,000 in the aggregate,
will be made at net asset value with
no initial sales charge, but will be subject
to a contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made
within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial
Sales Charge."
Class B Shares. Class B shares are
offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds,
declining by 0.50% the first year
after purchase and by 1.00% each year
thereafter to zero. This CDSC may be
waived for certain redemptions. Class B
shares are subject to an annual service
fee of 0.15% and an annual distribution fee
of 0.50% of the average daily net
assets of the Class. The Class B shares'
distribution fee may cause that Class
to have higher expenses and pay lower
dividends than Class A shares.
Class B Shares Conversion Feature. Class
B shares will convert
automatically to Class A shares, based on
relative net asset value, eight years
after the date of the
3
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
original purchase. Upon conversion, these
shares will no longer be subject to an
annual distribution fee. In addition, a
certain portion of Class B shares that
have been acquired through the reinvestment
of dividends and distributions
("Class B Dividend Shares") will be converted
at that time. See "Purchase of
Shares -- Deferred Sales Charge
Alternatives."
Class C Shares. Class C shares are sold
at net asset value with no initial
sales charge. They are subject to an annual
service fee of 0.15% and an annual
distribution fee of 0.55% of the average
daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem
Class C shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have
higher expenses and pay lower
dividends than Class A shares. Purchases of
Portfolio shares, which when
combined with current holdings of Class C
shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be
made in Class A shares at net asset
value with no sales charge, and will be
subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase.
Class Y Shares. Class Y shares are
available only to investors meeting an
initial investment minimum of $5,000,000.
Class Y shares are sold at net asset
value with no initial sales charge or CDSC.
They are not subject to any service
or distribution fees.
In deciding which Class of Portfolio
shares to purchase, investors should
consider the following factors, as well as
any other relevant facts and
circumstances:
Intended Holding Period. The decision as
to which Class of shares is more
beneficial to an investor depends on the
amount and intended length of his or
her investment. Shareholders who are planning
to establish a program of regular
investment may wish to consider Class A
shares; as the investment accumulates
shareholders may qualify for reduced sales
charges and the shares are subject to
lower ongoing expenses over the term of the
investment. As an alternative, Class
B and Class C shares are sold without any
initial sales charge so the entire
purchase price is immediately invested in the
Portfolio. Any investment return
on these additional invested amounts may
partially or wholly offset the higher
annual expenses of these Classes. Because the
Portfolio's future return cannot
be predicted, however, there can be no
assurance that this would be the case.
Finally, investors should consider the
effect of the CDSC period and any
conversion rights of the Classes in the
context of their own investment time
frame. For example, while Class C shares have
a shorter CDSC period than Class B
shares, they do not have a conversion
feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B
shares may be more attractive than Class
C shares to investors with longer term
investment outlooks.
4
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Investors investing a minimum of
$5,000,000 must purchase Class Y shares,
which are not subject to an initial sales
charge, CDSC or service or
distribution fees. The maximum purchase
amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares
is $499,999. There is no maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The
initial sales charge on Class A
shares may be waived for certain eligible
purchasers and the entire purchase
price would be immediately invested in the
Portfolio. In addition, Class A share
purchases, which when combined with current
holdings of Class A shares offered
with a sales charge equal or exceed $500,000
in the aggregate, will be made at
net asset value with no initial sales charge,
but will be subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The $500,000 aggregate
investment may be met by adding the purchase
to the net asset value of all Class
A shares offered with a sales charge held in
funds sponsored by Smith Barney
Inc. ("Smith Barney") listed under "Exchange
Privilege." Class A share purchases
may also be eligible for a reduced initial
sales charge. See "Purchase of
Shares." Because the ongoing expenses of
Class A shares may be lower than those
for Class B and Class C shares, purchasers
eligible to purchase Class A shares
at net asset value or at a reduced sales
charge should consider doing so.
Smith Barney Financial Consultants may
receive different compensation for
selling each Class of shares. Investors
should understand that the purpose of
the CDSC on the Class B and Class C shares is
the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management
of the Fund" for a complete
description of the sales charges and service
and distribution fees for each
Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes"
and "Exchange Privilege" for other
differences between the Classes of shares.
PURCHASE OF SHARES Shares may be purchased
through the Portfolio's distributor,
Smith Barney, a broker that clears securities
transactions through Smith Barney
on a fully disclosed basis (an "Introducing
Broker") or an investment dealer in
the selling group. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A,
Class B and Class C shares may open an
account by making an initial investment of at
least $1,000 for each account.
Investors in Class Y shares may open an
account for an initial investment of
$5,000,000. Subsequent investments of at
least $50 may be made for all Classes.
The minimum initial investment requirement
for Class A, Class B and Class C
shares and the subsequent investment
requirement for all Classes through the
Systematic Investment Plan described below is
$50. There is no minimum
investment requirement in
5
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Class A for unitholders who invest
distributions from a unit investment trust
("UIT") sponsored by Smith Barney. It is not
recommended that the Portfolio be
used as a vehicle for Keogh, IRA or other
qualified retirement plans. See
"Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a
Systematic Investment Plan under which they
may authorize the automatic
placement of a purchase order each month or
quarter for Portfolio shares in an
amount of at least $50. See "Purchase of
Shares."
REDEMPTION OF SHARES Shares may be redeemed
on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Smith Barney
Mutual Funds Management Inc. ("SBMFM"
or the "Manager") serves as the Portfolio's
investment manager. SBMFM provides
investment advisory and management services
to investment companies affiliated
with Smith Barney. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial
services holding company engaged, through
its subsidiaries, principally in four
business segments: Investment Services,
Consumer Finance Services, Life Insurance
Services and Property & Casualty
Insurance Services. As of March 31, 1995,
SBMFM had aggregate assets under
management in excess of $54 billion. See
"Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be
exchanged for shares of the same
Class of certain other funds of the Smith
Barney Mutual Funds at the respective
net asset values next determined, plus any
applicable sales charge differential.
See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the
Portfolio for the prior day generally
is quoted daily in the financial section of
most newspapers and is also
available from a Smith Barney Financial
Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends are
paid monthly from net investment
income. Distributions of net realized capital
gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of a Class
will be reinvested automatically, unless
otherwise specified by an investor, in
additional shares of the same Class at
current net asset value. Shares acquired
by dividend and distribution reinvestments
will not be subject to any sales
charge or CDSC. Class B shares acquired
through dividend and distribution
reinvestments will become eligible for
conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and
Taxes."
6
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
RISK FACTORS AND SPECIAL CONSIDERATIONS There
can be no assurance that the
Portfolio's investment objective will be
achieved. The Portfolio's concentration
in Florida obligations involves certain
additional risks that should be
considered carefully by investors.
Additionally, the value of the Portfolio's
investments, and thus the net asset value of
the Portfolio's shares, will
fluctuate in response to changes in market
and economic conditions, as well as
the financial condition and prospects of
issuers of municipal obligations
purchased by the Portfolio. The market value
of long-term municipal bonds may be
adversely effected during periods of rising
interest rates. Additionally,
changes in Federal income tax laws effecting
the tax exemption for interest on
municipal obligations could effect the
availability of tax exempt obligations
for purchase and the value of the Portfolio's
securities would be affected. See
"Investment Objective and Management
Policies."
THE PORTFOLIO'S EXPENSES The following
expense table lists the costs and
expenses an investor will incur either
directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales
charge or maximum CDSC that may be
incurred at the time of purchase or
redemption and, unless otherwise noted, the
Portfolio's operating expenses for its most
recent fiscal year:
<TABLE>
<CAPTION>
Class A Class B Class C
Class Y
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
<S>
<C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
...........................
4.00% None None
None
Maximum CDSC (as a percentage of original
cost
or redemption proceeds, whichever is
lower) ................... None*
4.50% 1.00% None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management Fees
.............................................
.... 0.45% 0.45%
0.45% 0.45%
12b-1 Fees***
.............................................
....... 0.15 0.65
0.70 --
Other Expenses
.............................................
.. 0.09 0.10
0.10 0.08%
- ---- ---- ---- ---
- -
Total Portfolio Operating Expenses
.................................
0.69% 1.20% 1.25%
0.53%
- ---- ---- ---- ---
- -
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
</TABLE>
* Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales
charge equal or exceed $500,000 in the
aggregate, will be made at net asset
value with no sales charge, but will
be subject to a CDSC of 1.00% on
redemptions made within 12 months.
** "Management Fees" and "Other Expenses"
for Class A shares are based on actual
amounts for the fiscal year ended March 31,
1995. 12b-1 fees have been restated to
reflect the anticipated level of 12b-1 fees
for the current fiscal period. "Other
Expenses" for Class Y shares have been
estimated because no Class Y shares were
outstanding for the period ended March 31,
1995.
*** Upon conversion of Class B shares to
Class A shares, such shares will no
longer be subject to a distribution
fee. Class C shares do not have a
conversion feature and, therefore, are
subject to an ongoing distribution
fee. As a result, long-term
shareholders of Class C shares may pay more
than the economic equivalent of the
maximum front-end sales charge
permitted by the National Association
of Securities Dealers, Inc.
7
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
The sales charge and CDSC set forth in
the above table are the maximum
charges imposed on purchases or redemptions
of Portfolio shares and investors
may actually pay lower or no charges,
depending on the amount purchased and, in
the case of Class B, Class C and certain
Class A shares, the length of time the
shares are held. See "Purchase of Shares" and
"Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee
of 0.15% of the value of average
daily net assets of Class A shares. Smith
Barney also receives with respect to
Class B shares an annual 12b-1 fee of 0.65%
of the value of average daily net
assets of that Class, consisting of a 0.50%
distribution fee and a 0.15% service
fee. With respect to Class C shares, Smith
Barney also receives an annual 12b-1
fee of 0.70% of the value of average daily
net assets of that Class, consisting
of a 0.55% distribution fee and a 0.15%
service fee. "Other expenses" in the
above table include fees for shareholder
services, custodial fees, legal and
accounting fees, printing costs and
registration fees.
EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares" and "Management of the
Fund."
1 Year 3 Years 5 Years 10 Years*
- ---------------------------------------------
- -----------------------------------
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A
................................ $47
$61 $77 $122
Class B
................................ 57
68 76 132
Class C
................................ 23
40 69 151
Class Y
................................ 5
17 30 66
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A
$47 $61 $77 $122
Class B
12 38 66 132
Class C
13 40 69 151
CLASS Y
5 17 30 66
- ---------------------------------------------
- -----------------------------------
* Ten-year figures assume conversion of
Class B shares to Class A shares at
the end of the eighth year following the date
of purchase.
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses.
Actual expenses may be greater or
less than those shown.
8
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule of the Florida
Portfolio of Smith Barney Muni Funds
has been audited in conjunction with the
annual audits of the financial
statements of Smith Barney Muni Funds by KPMG
Peat Marwick LLP, independent
auditors. The 1995 financial statements and
the independent auditors' report
thereon appear in the March 31, 1995 Annual
Report to Shareholders. No
information is presented for Class Y shares,
which were not outstanding for the
periods presented below.
For a Portfolio share outstanding throughout
each period:
<TABLE>
<CAPTION>
Class A Shares(a)
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------
Period Ended March 31,
1995 1994 1993
1992(b)
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------
<S>
<C> <C> <C>
<C>
Net Asset Value,
Beginning of Period
$12.82 $13.21
$12.32 $12.00
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------
Net investment income
0.75 0.77 0.79
0.73
Net realized and change in unrealized
gains (losses) on investments(2)
0.08 (0.39) 0.91
0.29
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------
Total from Investment Operations
0.83 0.38 1.70
1.02
=============================================
=============================================
======================================
Less Distributions:
Dividends from net investment income
(0.76) (0.77)
(0.80) (0.70)
Distributions from Net Realized Gains
- -- -- (0.01)
- --
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------
Total Distributions
(0.76) (0.77)
(0.81) (0.70)
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------
Net Asset Value, End of Period
$12.89 $12.82
$13.21 $12.32
=============================================
=============================================
======================================
Total Return#
6.77% 2.75% 14.21%
8.70%++
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------
Net Assets, End of Period (000's)
$107,724 $104,681
$102,202 $67,998
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------
Ratios to Average Net Assets:
Expenses (1)
0.61% 0.54% 0.46%
0.23%+
Net Investment Income
5.97% 5.71% 6.15%
6.70%+
- ---------------------------------------------
- ---------------------------------------------
- --------------------------------------
Portfolio Turnover Rate
43.23% 20.40%
25.57% 41.72%
=============================================
=============================================
======================================
</TABLE>
(a) On October 10, 1994, the former Class C
shares were exchanged into Class A
shares.
(b) From April 2, 1991 (commencement of
operations) to March 31, 1992.
+ Annualized.
++ Total returns are not annualized as it
may not be representative of the
total return for the year.
# Total returns do not reflect sales loads
or contingent deferred sales
charges.
See page 10 for full footnote disclosures for
(1) and (2).
9
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Financial Highlights (continued)
=============================================
===================================
<TABLE>
<CAPTION>
Class B Shares Class C
Shares (a)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Period Ended March 31,
1995 (c) 1995
1994 1993 (b)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
<S>
<C> <C> <C>
<C>
Net Asset Value,
Beginning of Period
$11.91 $12.81
$13.20 $12.86
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Income from Investment Operations:
Net Investment Income
0.30 0.67 0.68
0.19
Net Realized and Unrealized
Gain on Investments (2)
0.97 0.08 (0.39)
0.33
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total from Investment Operations
1.27 0.75 0.29
0.52
=============================================
=============================================
==========================================
Less Distributions:
Dividends from Net Investment Income
(0.29) (0.67)
(0.68) (0.18)
Distributions from Net Realized Gains
- -- -- --
- --
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Distributions
(0.29) (0.67)
(0.68) (0.18)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Asset Value, End of Period
$12.89 $12.89
$12.81 $13.20
=============================================
=============================================
==========================================
Total Return#
10.77%++ 6.12%
2.05% 4.05%++
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Assets, End of Period (000's)
$1,990 $2,750
$2,487 $691
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Ratios to Average Net Assets:
Expenses
1.20%+ 1.25% 1.24%
1.24%+
Net Investment Income
5.57%+ 5.40% 4.95%
5.21%+
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Portfolio Turnover Rate
43.23% 43.23%
20.40% 25.57%
=============================================
=============================================
==========================================
</TABLE>
(a) On November 7, 1994 the former Class B
shares were renamed Class C shares.
(b) For the period from January 5, 1993
(inception date) to March 31, 1993.
(c) For the period from November 16, 1994
(inception date) to March 31, 1995.
++ Not annualized as the result may not be
representative of the total return
for the year.
+ Annualized.
# Total returns do not reflect sales loads
or contingent deferred sales
charges.
(1) The manager has waived all or part of
its fees in each of the periods in the two-
year period ended March 31, 1993. If such
fees were not waived, the per share decrease
of net investment income and the ratios of
expenses to average net asets would be as
follows:
Expense Ratios
Per Share Decreases without
FeeWaivers*
1993 1992
1993 1992
Class A $.012
$.040 0.56%
0.59%+
* As a result of voluntary expense
limitations, the ratios of expenses to
average net assets will not exceed 0.80%,
1.30% and 1.35% for Class A, B and C shares,
respectively.
(2) Includes the net per share effect of
shareholder sales and redemptions
activity during the period, most of
which occurred at net asset values less
than the beginning of the period.
10
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The Florida Portfolio seeks as high a
level of income exempt from Federal
income taxes as is consistent with prudent
investing. The Portfolio invests
primarily in obligations that are issued by
the State of Florida and its
political subdivisions, agencies and
instrumentalities, the interest from which
is, in the opinion of bond counsel for the
various issuers, exempt from Federal
income taxes at the time of their issuance.
(For certain shareholders, a portion
of the Portfolio's income may be subject to
the alternative minimum tax ("AMT")
on tax-exempt income discussed below.) Such
obligations are issued to raise
money for a variety of public projects that
enhance the quality of life
including health facilities, housing,
airports, schools, highways and
bridges.The Portfolio will seek generally to
select investments which will
enable its shares to be exempt from the
Florida intangibles tax.
Under the Tax Reform Act of 1986,
interest income from municipal
obligations issued to finance certain
"private activities" ("AMT-Subject Bonds")
becomes an item of "tax preference" which is
subject to the AMT when received by
a person in a tax year during which he is
subject to that tax. Such private
activity bonds include bonds issued to
finance such projects as certain solid
waste disposal facilities, student loan
programs, and water and sewage projects.
Because interest income on AMT-Subject Bonds
is taxable to certain investors, it
is expected, although there can be no
guarantee, that such municipal obligations
generally will provide some-what higher
yields than other municipal obligations
of comparable quality and maturity. There is
no limitation on the percent or
amount of the Portfolio's assets that may be
invested in AMT-Subject Bonds.
Municipal bonds purchased for the
Portfolio must, at the time of purchase,
be investment grade municipal bonds and at
least two-thirds of the Portfolio's
municipal bonds must be rated in the category
of A or better. Investment grade
bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc.
("Moody's") or AAA, AA, A and BBB by Standard
& Poor's Corporation ("S&P") or
have an equivalent rating by any nationally
recognized statistical rating
orga-nization; pre-refunded bonds escrowed by
U.S. Treasury obligations will be
considered AAA-rated even though the issuer
does not obtain a new rating. Up to
one-third of the assets of the Portfolio may
be invested in municipal bonds
rated Baa or BBB (this grade, while regarded
as having an adequate capacity to
pay interest and repay principal, is
considered to be of medium quality and has
speculative characteristics; in addition,
changes in economic conditions or
other circumstances are more likely to lead
to a weakened capacity to make
principal and interest payments than is the
case with higher grade bonds) or in
unrated municipal bonds if, based upon credit
analysis by the Manager, it is
believed that such securities are at least of
comparable quality to those
securities in which the Portfolio may invest.
In determining the suitability of
an investment in an unrated
11
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
municipal bond, the Manager will take into
consideration debt service coverage,
the purpose of the financing, history of the
issuer, existence of other rated
securities of the issuer and other general
conditions as may be relevant,
including comparability to other issues.
After the Portfolio purchases a
municipal bond, the issue may cease to be
rated or its rating may be reduced
below the minimum required for purchase. Such
an event would not require the
elimination of the issue from the Portfolio
but the Manager will consider such
an event in determining whether the Portfolio
should continue to hold the
security.
The Portfolio's short-term municipal
obligations will be limited to high
grade obligations (obligations that are
secured by the full faith and credit of
the United States or are rated MIG 1 or MIG
2, VMIG 1 or VMIG 2 or Prime-1 or Aa
or better by Moody's or SP-1 +, SP-1, SP-2,
or A-1 or AA or better by S&P or
have an equivalent rating by any nationally
recognized statistical rating
organization or obligations determined by the
Manager to be equivalent). Among
the types of short-term instruments in which
the Portfolio may invest are
floating or variable rate demand instruments,
tax-exempt commercial paper
(generally having a maturity of less than
nine months), and other types of notes
generally having maturities of less than
three years, such as Tax Anticipation
Notes, Revenue Anticipation Notes, Tax and
Revenue Anticipation Notes and Bond
Anticipation Notes. Demand instruments
usually have an indicated maturity of
over one year, but contain a demand feature
that enables the holder to redeem
the investment on no more than 30 days'
notice; variable rate demand instruments
provide for automatic establishment of a new
interest rate on set dates;
floating rate demand instruments provide for
automatic adjustment of their
interest rates whenever some other specified
interest rate changes (e.g., the
prime rate). The Portfolio may purchase
participation interests in variable rate
tax-exempt securities (such as Industrial
Development Bonds) owned by banks.
Participations are frequently backed by an
irrevocable letter of credit or
guarantee of a bank that the Manager has
determined meets the prescribed quality
standards for the Portfolio. Participation
interests will be purchased only if
management believes interest income on such
interests will be tax-exempt when
distributed as dividends to shareholders.
The Portfolio will not invest more than
10% of the value of its net assets
in illiquid securities, including those that
are not readily marketable or for
which there is no established market.
The Portfolio may purchase new issues of
municipal obligations on a
when-issued basis, i.e., delivery and payment
normally take place 15 to 45 days
after the purchase date. The payment
obligation and the interest rate to be
received are each fixed on the purchase date,
although no interest accrues with
respect to a when-issued security prior to
its stated delivery date. During the
period between purchase
12
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
and settlement, assets consisting of cash or
liquid high grade debt securities,
marked-to-market daily, of a dollar amount
sufficient to make payment at
settlement will be segregated at the
custodian bank. Interest rates at
settlement may be lower or higher than on the
purchase date, which would result
in appreciation or depreciation,
respectively. Although the Portfolio will
only
purchase a municipal obligation on a when-
issued basis with the intention of
actually acquiring the securities, the
Portfolio may sell these securities
before the settlement date if it is deemed
advisable.
Portfolio transactions will be
undertaken primarily to accomplish the
Portfolio's objective in relation to
anticipated movements in the general level
of interest rates, but the Portfolio may also
engage in short-term trading
consistent with its objective.
Though it has not done so, the Portfolio
may invest in municipal bond index
futures contracts (currently traded on the
Chicago Board of Trade) or in listed
contracts based on U.S. Government Securities
as a hedging policy in pursuit of
its investment objective; provided that
immediately thereafter not more than
331/3% of its net assets would be hedged or
the amount of margin deposits on the
Portfolio's existing futures would not exceed
5% of the value of its total
assets. Since any income would be taxable, it
is anticipated that such
investments will be made only in those
circumstances when the Manager
anticipates the possibility of an extreme
change in interest rates or market
conditions but does not wish to liquidate the
Portfolio's securities. A further
discussion of futures contracts and their
associated risks is contained in the
Statement of Additional Information.
It is a fundamental policy that under
normal market conditions, the
Portfolio will seek to invest 100% of its
assets -- and the Portfolio will
invest not less than 80% of its assets -- in
municipal obligations the interest
on which is exempt from Federal income taxes
(other than the alternative minimum
tax). It is also a fundamental policy that
under normal market conditions, the
Portfolio will invest at least 65% of its net
assets in municipal obligations
issued by the State of Florida, its political
subdivisions and their agencies
and instrumentalities and in other municipal
obligations which are exempt from
the Florida intangibles tax. The Portfolio
may invest up to 20% of its assets in
taxable fixed-income securities, but only in
obligations issued or guaranteed by
the full faith and credit of the United
States, and may invest more than 20% of
its assets in U.S. Government securities
during periods when in the Manager's
opinion a temporary defensive posture is
warranted, including any period when
the Portfolio's monies available for
investment exceed the municipal obligations
available for purchase that meet the
Portfolio's rating, maturity and other
investment criteria.
13
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
RISK FACTORS AFFECTING FLORIDA
Investors should be aware that Florida
municipal obligations may be
adversely affected by political and economic
conditions and developments within
the State of Florida. Population growth in
Florida since 1982 has been
increasing approximately 2.5% annually. The
state's current population,
estimated at 13.5 million, is the fourth
highest in the nation. Services and
trade continue to be the largest employment
and earning sectors reflecting the
tourist element of the economy as well as
growth in these activities to meet the
needs of Florida's expanding population.
Manufacturing, primarily high
technology, construction, construction-
related manufacturing industries and
financial services are rapidly growing and
diversifying elements of Florida's
economy. Agriculture, once sharing with
tourism the role of dominant economic
sector, is now only one of several important
elements.
Florida's rapid growth is straining
resources, but is also having some
positive results. In many cases, the
expansion of local governments is creating
greater economic depth and diversity. For
example, numerous insurance companies
have located in Jacksonville over the past
ten years, making the city a leading
insurance center. During the same period,
Miami's financial services sector has
expanded significantly, primarily in
international banking and international
trade. Many other Florida cities and counties
have also succeeded in their
economic development efforts, as evidenced by
the significant business
investment throughout the state.
Florida has taken the lead among U.S.
states with a long-term comprehensive
growth management plan for local governments.
The plan should enhance economic
development by keeping growth in line with
developing resources and costs. The
growth initiative affects population,
infrastructure, employment, education,
transportation, and water supply -- all vital
elements of economic stability.
("Appendix E" in the Statement of Additional
Information provides additional
details.)
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve
its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the Portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the municipal bond
markets, the size of a particular offering,
the maturity of the obligations and
the rating of the issue. In general, the
longer the maturity of a municipal
obligation, the higher the rate of interest
it pays. However,
14
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
a longer average maturity is generally
associated with a higher level of
volatility in the market value of a municipal
obligation. During periods of
falling interest rates, the values of long-
term municipal obligations generally
rise. Conversely, during periods of rising
interest rates, the values of such
securities generally decline. Changes in the
value of Portfolio securities will
not affect interest income derived from those
securities but will affect the
Portfolio's net asset value. Since the
Portfolio's objective is to provide high
current income, it will invest in municipal
obligations with an emphasis on
income rather than stability of net asset
values.
The Fund is registered as a "non-
diversified" company under the Investment
Company Act of 1940 (the "1940 Act"), in
order for the Portfolio to have the
ability to invest more than 5% of its assets
in the securities of any issuer.
The Portfolio intends to comply with
Subchapter M of the Internal Revenue Code
that limits the aggregate value of all
holdings (except U.S. Government and cash
items, as defined in the Code) that exceed 5%
of the Portfolio's total assets to
an aggregate amount of 50% of such assets.
Also, holdings of a single issuer
(with the same exceptions) may not exceed 25%
of the Portfolio's total assets.
These limits are measured at the end of each
quarter. Under the Subchapter M
limits, "non-diversification" allows up to
50% of a Portfolio's total assets to
be invested in as few as two single issuers.
In the event of decline of
creditworthiness or default upon the
obligations of one or more such issuers
exceeding 5%, an investment in the Portfolio
will entail greater risk than in a
portfolio having a policy of
"diversification" because a high percentage
of the
Portfolio's assets may be invested in
municipal obligations of one or two
issuers. Furthermore, a high percentage of
investments among few issuers may
result in a greater degree of fluctuation in
the market value of the assets of
the Portfolio, and consequently a greater
degree of fluctuation of the
Portfolio's net asset value, because the
Portfolio will be more susceptible to
economic, political, or regulatory
developments affecting these securities than
would be the case with a portfolio composed
of varied obligations of more
issuers.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Portfolio's securities ordinarily
are purchased from and sold to
parties acting as either principal or agent.
Newly issued securities ordinarily
are purchased directly from the issuer or
from an underwriter; other purchases
and sales usually are placed with those
dealers from which it appears that the
best price or execution will be obtained.
Usually no brokerage commissions, as
such, are paid by the Portfolio for purchases
and sales undertaken through
principal transactions, although the price
paid usually includes an undisclosed
compensation to the dealer acting as agent.
15
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
The Portfolio cannot accurately predict
its portfolio turnover rate, but
anticipates that the annual turnover will not
exceed 100%. An annual turnover
rate of 100% would occur when all of the
securities held by the Portfolio are
replaced one time during a period of one
year. The Manager will not consider
turnover rate a limiting factor in making
investment decisions consistent with
the investment objective and policies of the
Portfolio.
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on the NYSE, which is
currently 4:00 P.M. New York City time on
each day that the NYSE is open, by dividing
the Portfolio's net assets
attributable to each Class by the total
number of shares of the Class
outstanding.
When, in the judgment of the pricing
service, quoted bid prices for
investments are readily available and are
representative of the bid side of the
market, these investments are valued at the
mean between the quoted bid and
asked prices. Investments for which, in the
judgment of the pricing service,
there is no readily obtainable market
quotation (which may constitute a majority
of the portfolio securities) are carried at
fair value of securities of similar
type, yield and maturity. Pricing services
generally determine value by
reference to transactions in municipal
obligations, quotations from municipal
bond dealers, market transactions in
comparable securities and various
relationships between securities. Short-term
instruments maturing within 60 days
will be valued at cost plus (minus) amortized
discount (premium), if any, when
the Trustees have determined that amortized
cost equals fair value. Securities
and other assets that are not priced by a
pricing service and for which market
quotations are not available will be valued
in good faith at fair value by or
under the direction of the Trustees.
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of the
Portfolio's net investment income are
declared and paid monthly and any realized
capital gains are declared and
distributed annually.
If a shareholder does not otherwise
instruct, dividends and capital gains
distributions will be reinvested
automatically in additional shares of the
same
Class
16
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
at net asset value, subject to no sales
charge or CDSC.
Income dividends and capital gains
distributions that are invested are
credited to shareholders' accounts in
additional shares at the net asset value
as of the close of business on the payment
date. A shareholder may change the
option at any time by notifying his or her
Financial Consultant. Accounts held
directly by the Fund's transfer agent, The
Shareholder Services Group Inc.
("TSSG") should notify TSSG in writing at
least five business days prior to the
payment date to permit the change to be
entered in the shareholder's account.
The per share dividends on Class B and
Class C shares of the Portfolio may
be lower than the per share dividends on
Class A and Class Y shares principally
as a result of the distribution fee
applicable with respect to Class B and Class
C shares. The per share dividends on Class A
shares of the Portfolio may be
lower than the per share dividends on Class Y
shares principally as a result of
the service fee applicable to Class A shares.
Distributions of capital gains, if
any, will be in the same amount for Class A,
Class B, Class C and Class Y
shares.
TAXES
The Portfolio intends to qualify as a
"regulated investment company" and to
meet the requirements for distributing
"exempt-interest dividends" under the
Internal Revenue Code (the "Code") so that no
Federal income taxes will be
payable by the Portfolio and dividends
representing net interest received on
municipal obligations will not be includable
by shareholders in their gross
income for Federal income tax purposes. To
the extent dividends are derived from
taxable income from temporary investments,
market discounts or from the excess
of net short-term capital gain over net long-
term capital loss, they are treated
as ordinary income whether the shareholder
has elected to receive them in cash
or in additional shares. Capital gains
distributions, if any, whether paid in
cash or invested in shares of the Portfolio,
will be taxable to shareholders.
Exempt-interest dividends allocable to
interest received by the Portfolio
from the AMT-Subject Bonds in which the
Portfolio may invest will be treated as
interest paid directly on such obligations
and will give rise to an "item of tax
preference" that will increase a
shareholder's alternative minimum taxable
income. In addition, for corporations,
alternative minimum taxable income will
be increased by a percentage of the amount by
which a special measure of income
(including exempt-interest dividends) exceeds
the amount otherwise determined to
be alternative minimum taxable income.
Accordingly, investment in the Portfolio
may cause shareholders to be subject to (or
result in an increased liability
under) the AMT. The Fund will annually
furnish to its shareholders a report
indicating the ratable
17
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
portion of exempt-interest dividends
attributable to AMT-Subject Bonds.
The Portfolio will be treated as a
separate regulated investment company
for Federal tax purposes. Accordingly, the
Portfolio's net investment income is
determined separately based on the income
earned on its securities less its
costs of operations. The Portfolio's net long-
term and short-term gain (loss)
realized on investments is determined after
offsetting any capital loss
carryover of the Portfolio from prior
periods.
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Fund will not be
deductible to the extent that the Fund's
distributions are exempt from Federal income
tax. In addition, any loss realized
upon the redemption of shares held less than
6 months will be disallowed to the
extent of any exempt-interest dividends
received by the shareholder during such
period. Further, persons who may be
"substantial users" (or "related persons" of
substantial users) of facilities financed by
industrial development bonds should
consult their tax advisors concerning an
investment in the Fund.
FLORIDA TAXES
Florida currently does not impose an
income tax on individuals. Thus
individual shareholders of the Portfolio will
not be subject to any Florida
state income tax on distributions received
from the Portfolio. However, certain
distributions will be taxable to corporate
shareholders that are subject to
Florida corporate income tax.
Florida currently imposes an
"intangibles tax" on certain securities and
other intangible assets owned by Florida
residents. Certain types of municipal
obligations of Florida issuers, U.S. Treasury
securities and municipal
obligations issued by certain U.S.
territories and possessions are exempt from
this intangibles tax. Consistent with its
fundamental policy to invest not less
than 80% of its assets in municipal
obligations the interest on which is exempt
from Federal income taxes (other than the
alternative minimum tax), the
Portfolio will seek generally to select
investments that will enable its shares
to be exempt from the Florida intangibles tax
and will attempt to ensure that
all of its assets held on the annual
assessment date are exempt from this tax.
The Fund also has received a ruling from the
Florida Department of Revenue that,
if on the annual assessment date of any year
the Portfolio consists solely of
such exempt assets, then the Portfolio's
shares will be exempt from the Florida
intangibles tax. The Portfolio intends to
provide shareholders annually with
information relating to its assets necessary
to permit shareholders to determine
whether the value of Portfolio shares held is
exempt from the Florida
intangibles tax.
18
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
Investors purchasing municipal
obligations of their state of residence, or
a fund comprised of such obligations, should
recognize that the benefits of the
exemption from local taxes, in addition to
the exemption from Federal taxes,
necessarily limits the fund's ability to
diversify geographically. The Portfolio
will make available annually to its
shareholders information concerning the tax
status of its distributions, including the
amount of its dividends designated as
exempt-interest dividends and as capital gain
dividends.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional Information.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
=============================================
===================================
Purchase of Shares
=============================================
===================================
GENERAL
The Portfolio offers four Classes of
shares. Class A shares are sold to
investors with an initial sales charge and
Class B and Class C shares are sold
without an initial sales charge but are
subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without
an initial sales charge or CDSC and
are available only to investors investing a
minimum of $5,000,000. See
"Prospectus Summary - Alternative Purchase
Arrangements" for a discussion of
factors to consider in selecting which Class
of shares to purchase.
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney, an Introducing
Broker or an investment dealer in
the selling group. When purchasing shares of
the Portfolio, investors must
specify whether the purchase is for Class A,
Class B, Class C or Class Y shares.
No maintenance fee will be charged by the
Portfolio in connection with a
brokerage account through which an investor
purchases or holds shares.
Investors in Class A, Class B and Class
C shares may open an account by
making an initial investment of at least
$1,000 for each account in the
Portfolio. Investors in Class Y shares may
open an account by making an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. For participants in the
Portfolio's Systematic Investment Plan, the
minimum initial investment requirement for
Class A, Class B and Class C shares
and the subsequent investment requirement for
all Classes is $50. There are no
minimum investment requirements in
19
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Purchase of Shares
=============================================
===================================
Class A for employees of Travelers and its
subsidiaries, including Smith Barney,
and their spouses and children, unitholders
who invest distributions from a UIT
sponsored by Smith Barney and Trustees of the
Fund and their spouses and
children. The Fund reserves the right to
waive or change minimums, to decline
any order to purchase its shares and to
suspend the offering of shares from time
to time. Shares purchased will be held in the
shareholder's account by the
Fund's transfer agent, TSSG, a subsidiary of
First Data Corporation. Share
certificates are issued only upon a
shareholder's written request to TSSG. It is
not recommended that the Portfolio be used as
a vehicle for Keogh, IRA or other
qualified retirement plans.
Purchase orders received by the Fund or
Smith Barney prior to the close of
regular trading on the NYSE, on any day the
Portfolio calculates its net asset
value, are priced according to the net asset
value determined on that day (the
"trade date"). Orders received by dealers or
introducing brokers prior to the
close of regular trading on the NYSE on any
day the Portfolio calculates its net
asset value, are priced according to the net
asset value determined on that day,
provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. Payment for
Portfolio shares is due on the third
business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
TSSG is authorized through
preauthorized transfers of $50 or more to
charge the regular bank account or
other financial institution indicated by the
shareholder on a monthly or
quarterly basis to provide systematic
additions to the shareholder's Portfolio
account. A shareholder who has insufficient
funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney
or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply
cash held in the shareholder's Smith
Barney brokerage account or redeem the
shareholder's shares of a Smith Barney
money market fund to make additions to the
account. Additional information is
available from the Fund or a Smith Barney
Financial Consultant.
20
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
INITIAL SALES CHARGE ALTERNATIVE - CLASS
A SHARES
The sales charges applicable to
purchases of Class A shares of the
Portfolio are as follows:
=============================================
===================================
Sales
Charge Dealer's
% of
% of Amount Reallowance as % of
Amount of Investment Offering Price
Invested Offering Price
- ---------------------------------------------
- -----------------------------------
Less than $25,000 4.00%
4.17% 3.60%
$25,000 - 49,999 3.50
3.63 3.15
$50,000 - 99,999 3.00
3.09 2.70
$100,000 - 249,999 2.50
2.56 2.25
$250,000 - 499,999 1.50
1.52 1.35
$500,000 and over *
* *
=============================================
===================================
* Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
without any initial sales charge, but
will be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The CDSC on Class A shares is
payable to Smith Barney, which
compensates Smith Barney Financial
Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC
is waived in the same circumstances
in which the CDSC applicable to Class B and
Class C shares is waived. See
"Deferred Sales Charge Alternatives" and
"Waivers of CDSC."
Members of the selling group may receive
up to 90% of the sales charge and
may be deemed to be underwriters of the Fund
as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above
apply to the aggregate of purchases
of Class A shares of the Portfolio made at
one time by "any person," which
includes an individual, his or her spouse and
children, or a trustee or other
fiduciary of a single trust estate or single
fiduciary account. The reduced
sales charge minimums may also be met by
aggregating the purchase with the net
asset value of all Class A shares offered
with a sales charge held in funds
sponsored by Smith Barney listed under
"Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made
at net asset value without a sales
charge in the following circumstances: (a)
sales of Class A shares to Trustees
of the Fund, employees of Travelers and its
subsidiaries, and employees of
members of the National Association of
Securities Dealers, Inc., or to the
spouses and children of such persons
(including the surviving spouse of a
deceased Trustee or employee, and retired
Trustees or employees); (b) offers of
Class A shares to any other
21
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
investment company in connection with the
combination of such company with the
Portfolio by merger, acquisition of assets or
otherwise; (c) purchases of Class
A shares by any client of a newly employed
Smith Barney Financial Consultant
(for a period up to 90 days from the
commencement of the Financial Consultant's
employment with Smith Barney), on the
condition the purchase of Class A shares
is made with the proceeds of the redemption
of shares of a mutual fund which (i)
was sponsored by the Financial Consultant's
prior employer, (ii) was sold to the
client by the Financial Consultant and (iii)
was subject to a sales charge; (d)
shareholders who have redeemed Class A shares
in the Portfolio (or Class A
shares of another fund of the Smith Barney
Mutual Funds that are offered with a
sales charge equal to or greater than the
maximum sales charge of the Portfolio)
and who wish to reinvest their redemption
proceeds in the Portfolio, provided
the reinvestment is made within 60 calendar
days of the redemption; (e) accounts
managed by registered investment advisory
subsidiaries of Travelers; and (f)
investments of distributions from a UIT
sponsored by Smith Barney. In order to
obtain such discounts, the purchaser must
provide sufficient information at the
time of purchase to permit verification that
the purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of a Portfolio may be
purchased by "any person" (as defined
above) at a reduced sales charge or at net
asset value determined by aggregating
the dollar amount of the new purchase and the
total net asset value of all Class
A shares of the Portfolio and of funds
sponsored by Smith Barney which are
offered with a sales charge listed under
"Exchange Privilege" then held by such
person and applying the sales charge
applicable to such aggregate. In order to
obtain such discount, the purchaser must
provide sufficient information at the
time of purchase to permit verification that
the purchase qualifies for the
reduced sales charge. The right of
accumulation is subject to modification or
discontinuance at any time with respect to
all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated
systems, a reduced sales charge or
purchase at net asset value will also be
available to employees (and partners)
of the same employer purchasing as a group,
provided each participant makes the
minimum initial investment required. The
sales charge applicable to purchases by
each member of such a group will be
determined by the table set forth above
under "Initial Sales Charge Alternative --
Class A Shares," and will be based
upon the aggregate sales of Class A shares of
Smith Barney Mutual Funds offered
with a sales charge to, and
22
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
share holdings of, all members of the group.
To be eligible for such reduced
sales charges or to purchase at net asset
value, all purchases must be pursuant
to an employer-or partnership-sanctioned plan
meeting certain requirements. One
such requirement is that the plan must be
open to specified partners or
employees of the employer and its
subsidiaries, if any. Such plan may, but is
not required to, provide for payroll
deductions. Smith Barney may also offer a
reduced sales charge or net asset value
purchase for aggregating related
fiduciary accounts under such conditions that
Smith Barney will realize
economies of sales efforts and sales related
expenses. An individual who is a
member of a qualified group may also purchase
Class A shares at the reduced
sales charge applicable to the group as a
whole. The sales charge is based upon
the aggregate dollar value of Class A shares
offered with a sales charge that
have been previously purchased and are still
owned by the group, plus the amount
of the current purchase. A "qualified group"
is one which (a) has been in
existence for more than six months, (b) has a
purpose other than acquiring
Portfolio shares at a discount and (c)
satisfies uniform criteria which enable
Smith Barney to realize economies of scale in
its costs of distributing shares.
A qualified group must have more than 10
members, must be available to arrange
for group meetings between representatives of
the Portfolio and the members, and
must agree to include sales and other
materials related to the Portfolio in its
publications and mailings to members at no
cost to Smith Barney. In order to
obtain such reduced sales charge or to
purchase at net asset value, the
purchaser must provide sufficient information
at the time of purchase to permit
verification that the purchase qualifies for
the reduced sales charge. Approval
of group purchase reduced sales charge plans
is subject to the discretion of
Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for
amounts of $50,000 or more provides
an opportunity for an investor to obtain a
reduced sales charge by aggregating
investments over a 13 month period, provided
that the investor refers to such
Letter when placing orders. For purposes of a
Letter of Intent, the "Amount of
Investment" as referred to in the preceding
sales charge table includes
purchases of all Class A shares of the
Portfolio and other funds of the Smith
Barney Mutual Funds offered with a sales
charge over the 13 month period based
on the total amount of intended purchases
plus the value of all Class A shares
previously purchased and still owned. An
alternative is to compute the 13 month
period starting up to 90 days before the date
of execution of a Letter of
Intent. Each investment made during the
period receives the reduced sales charge
applicable to the total amount of the
investment goal. If the goal is not
achieved within the
23
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
period, the investor must pay the difference
between the sales charges
applicable to the purchases made and the
charges previously paid, or an
appropriate number of escrowed shares will be
redeemed. Please contact a Smith
Barney Financial Consultant or TSSG to obtain
a Letter of Intent application.
Class Y Shares. A Letter of Intent may
also be used as a way for investors
to meet the minimum investment requirement
for Class Y shares. Such investors
must make an initial minimum purchase of
$1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of
$5,000,000 of Class Y shares of the
same Portfolio within six months from the
date of the Letter. If a total
investment of $5,000,000 is not made within
the six-month period, all Class Y
shares purchased to date will be transferred
to Class A shares, where they will
be subject to all fees (including a service
fee of 0.15%) and expenses
applicable to the Portfolio's Class A shares,
which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial
Consultant or TSSG for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset
value next determined without an
initial sales charge so that the full amount
of an investor's purchase payment
may be immediately invested in the Portfolio.
A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC
Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which
when combined with Class A shares
offered with a sales charge currently held by
an investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on
an amount equal to the lesser of
the original cost of the shares being
redeemed or their net asset value at the
time of redemption. CDSC Shares that are
redeemed will not be subject to a CDSC
to the extent that the value of such shares
represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of
dividends or capital gain
distributions; (c) with respect to Class B
shares, shares redeemed more than
five years after their purchase; or (d) with
respect to Class C shares and Class
A shares that are CDSC Shares, shares
redeemed more than 12 months after their
purchase.
Class C shares and Class A shares that
are CDSCShares are subject to a
1.00% CDSC if redeemed within 12 months of
purchase. In circumstances in which
the CDSCis imposed on Class B shares, the
amount of the charge will depend on
the number of years since the shareholder
made the purpose payment from which
the amount is being redeemed. Solely for
purposes of determining the number of
years since a purchase payment, all purchase
payments made during a month will
be
24
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
aggregated and deemed to have been made on
the last day of the preceding Smith
Barney statement month. The following table
sets forth the rates of the charge
for redemptions of Class B shares by
shareholders:
Year Since Purchase
Payment Was Made
CDSC
----------------------------------------
- -----------------------------------
First
4.50%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
----------------------------------------
- -----------------------------------
Class B shares will convert
automatically to Class A shares eight years
after the date on which they were purchased
and thereafter will no longer be
subject to any distribution fees. There will
also be converted at that time such
proportion of Class B Dividend Shares owned
by the shareholder as the total
number of his or her Class B shares
converting at the time bears to the total of
number of outstanding Class B shares (other
than Class B Dividend Shares) owned
by the shareholder. Shareholders who held
Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the
"Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange
those shares for Class B shares of
the Portfolio will be offered the opportunity
to exchange all such Class B
shares for Class A shares of the Portfolio
four years after the date on which
those shares were deemed to have been
purchased. Holders of such Class B shares
will be notified of the pending exchange in
writing approximately 30 days before
the fourth anniversary of the purchase date
and, unless the exchange has been
rejected in writing, the exchange will occur
on or about the fourth anniversary
date. See "Prospectus Summary -- Alternative
Purchase Arrangements -- Class B
Shares Conversion Feature."
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestment of
dividends and capital gain distributions
and finally of other shares held by the
shareholder for the longest period of
time. The length of time that CDSC Shares
acquired through an exchange have been
held will be calculated from the date that
the shares exchanged were initially
acquired in one of
25
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
the other Smith Barney Mutual Funds, and
Portfolio shares being redeemed will be
considered to represent, as applicable,
capital appreciation or dividend and
capital gain distribution reinvestments in
such other funds. For Federal income
tax purposes, the amount of the CDSC will
reduce the gain or increase the loss,
as the case may be, on the amount realized on
redemption. The amount of any CDSC
will be paid to Smith Barney.
To provide an example, assume an
investor purchased 100 Class B shares at
$10 per share for a cost of $1,000.
Subsequently, the investor acquired 5
additional shares through dividend
reinvestment. During the fifteenth month
after the purchase, the investor decided to
redeem $500 of his or her
investment. Assuming at the time of the
redemption the net asset value had
appreciated to $12 per share, the value of
the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would
not be applied to the amount which
represents appreciation ($200) and the value
of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable
rate for Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on:(a) exchanges
(see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal
to or less than 1.00% per month of
the value of the shareholder's shares at the
time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan")
(provided, however, that automatic cash
withdrawals in amounts equal to or less than
2.00% per month of the value of the
shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within twelve
months following the death or disability of
the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in
connection with a combination of
the Portfolio with any investment company by
merger, acquisition of assets or
otherwise. In addition, a shareholder who has
redeemed shares from other funds
of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all
or part of the redemption proceeds within 60
days and receive pro rata credit
for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.
26
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A, Class B and
Class C shares are subject to
minimum investment requirements and all
shares are subject to the other
requirements of the fund into which exchanges
are made and a sales charge
differential may apply.
Fund Name
- ---------------------------------------------
- -----------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund
Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund
Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic
Income Fund
* Smith Barney Funds, Inc. -- Income
Return Account Portfolio
*** Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc.
Smith Barney California Municipals Fund
Inc.
27
<PAGE>
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
* Smith Barney Intermediate Maturity
California Municipals Fund
* Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Managed Municipals Fund
Inc.
Smith Barney Massachusetts Municipals
Fund
* Smith Barney Muni Funds -- Florida
Limited Term Portfolio
Smith Barney Muni Funds -- Georgia
Portfolio
* Smith Barney Muni Funds -- Limited Term
Portfolio
Smith Barney Muni Funds -- National
Portfolio
Smith Barney Muni Funds -- New York
Portfolio
Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney New Jersey Municipals Fund
Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, Inc. --
Pacific Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
*** Smith Barney Money Funds, Inc. -- Cash
Portfolio
*** Smith Barney Money Funds, Inc. --
Government Portfolio
++ Smith Barney Money Funds, Inc. --
Retirement Portfolio
*** Smith Barney Municipal Money Market
Fund, Inc.
*** Smith Barney Muni Funds -- California
Money Market Portfolio
*** Smith Barney Muni Funds -- New York
Money Market Portfolio
- ------------
* Available for exchange with Class A,
Class C and Class Y shares of the
Portfolio.
** Available for exchange with Class A,
Class B and Class Y shares
of the Portfolio.
*** Available for exchange with Class A and
Class Y shares of the Portfolio.
+ Available for exchange with Class B and
Class C shares of the Portfolio.
++ Available for exchange with Class A
shares of the Portfolio.
28
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Class A Exchanges. Class A shares of
Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of
such shares for Class A shares of a
fund sold with a higher sales charge. The
"sales charge differential" is limited
to a percentage rate no greater than the
excess of the sales charge rate
applicable to purchases of shares of the
mutual fund being acquired in the
exchange over the sales charge rate(s)
actually paid on the mutual fund shares
relinquished in the exchange and on any
predecessor of those shares. For
purposes of the exchange privilege, shares
obtained through automatic
reinvestment of dividends and capital gain
distributions are treated as having
paid the same sales charges applicable to the
shares on which the dividends or
distributions were paid; however, if no sales
charge was imposed upon the
initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales
charge differential upon exchange. Class
A shares held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of the
Smith Barney Mutual Funds will not be
subject to a sales charge differential.
Class B Exchanges. In the event a Class
B shareholder (unless such
shareholder was a Class B shareholder of the
Short-Term World Income Fund on
July 15, 1994) wishes to exchange all or a
portion of his or her shares in any
of the funds imposing a higher CDSC than that
imposed by the Portfolio, the
exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an
exchange, the new Class B shares will be
deemed to have been purchased on the
same date as the Class B shares of the
Portfolio that have been exchanged.
Class C Exchanges. Upon an exchange, the
new Class C shares will be deemed
to have been purchased on the same date as
the Class C shares of the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment adviser may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
adviser will notify Smith Barney
that the Fund may, at its discretion, decide
to limit additional purchases
and/or exchanges by the shareholder. Upon
29
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
such a determination, the Fund will provide
notice in writing or by telephone to
the shareholder at least 15 days prior to
suspending the exchange privilege and
during the 15 day period the shareholder will
be required to (a) redeem his or
her shares in the Portfolio or (b) remain
invested in the Portfolio or exchange
into any of the funds of the Smith Barney
Mutual Funds ordinarily available,
which position the shareholder would be
expected to maintain for a significant
period of time. All relevant factors will be
considered in determining what
constitutes an abusive pattern of exchanges.
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed below
are also applicable for exchanging shares,
and exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
=============================================
===================================
Redemption of Shares
=============================================
===================================
The Fund is required to redeem the
shares of the Portfolio tendered to it,
as described below, at a redemption price
equal to their net asset value per
share next determined after receipt of a
written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the
close of regular trading on the NYSE are
priced at the net asset value next
determined. If a shareholder holds shares in
more than one Class, any request
for redemption must specify the Class being
redeemed. In the event of a failure
to specify which Class, or if the investor
owns fewer shares of the Class than
specified, the redemption request will be
delayed until the Fund's transfer
agent receives further instructions from
Smith Barney, or if the shareholder's
account is not with Smith Barney, from the
shareholder directly. The redemption
proceeds will be remitted on or before the
third business day following receipt
of proper tender, except on any days on which
the NYSE is closed or as permitted
under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney
brokerage account, these funds will not
be invested for the shareholder's benefit
without specific instruction and Smith
Barney will benefit from the use of
30
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
temporarily uninvested funds. Redemption
proceeds for shares purchased by check,
other than a certified or official bank
check, will be remitted upon clearance
of the check, which may take up to ten days
or more.
Shares held by Smith Barney as custodian
must be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request for redemption
to:
Smith Barney Muni Funds/Florida
Portfolio
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an
automatic cash withdrawal plan, under
which shareholders who own shares with a
value of at least $10,000 may elect to
receive cash payments of at least $50 monthly
or quarterly. The withdrawal plan
will be carried over on exchanges between
funds or Classes of the Portfolio. Any
applicable CDSC will not be waived on amounts
withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the
CDSC at the time the withdrawal plan
commences. (With respect to withdrawal
plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00%
per month of the value of the
31
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
shareholder's shares subject to the CDSC.)
For further information regarding the
automatic cash withdrawal plan, shareholders
should contact a Smith Barney
Financial Consultant.
=============================================
===================================
Minimum Account Size
=============================================
===================================
The Fund reserves the right to redeem
involuntarily any shareholder's
account if the aggregate value of the shares
held in a Portfolio account is less
than $500. (If a shareholder has more than
one account in this Portfolio, each
account must satisfy the minimum account
size.) The Fund, however, will not
redeem shares based solely on market
reductions in net asset value. Before the
Fund exercises such right, shareholders will
receive written notice and will be
permitted 60 days to bring the account up to
the minimum to avoid involuntary
liquidation.
=============================================
===================================
Performance
=============================================
===================================
From time to time the Portfolio may
include its yield, tax equivalent
yield, total return and average annual total
return in advertisements. In
addition, in other types of sales literature
the Portfolio may also include its
distribution rate. These figures are computed
separately for Class A, Class B,
Class C and Class Y shares of the Portfolio.
These figures are based on
historical earnings and are not intended to
indicate future performance. The
yield of a Portfolio class refers to the net
income earned by an investment in
the Class over a thirty-day period ending at
month end. This net income, which
does not include any element of non-tax
exempt income if any, is then
annualized, i.e., the amount of income earned
by the investment during that
thirty-day period is assumed to be earned
each 30-day period for twelve periods
and is expressed as a percentage of the
investment. The net income earned on the
investment for six periods is also assumed to
be reinvested at the end of the
sixth 30-day period. The tax equivalent yield
is calculated similarly to the
yield, except that a stated income tax rate
is used to demonstrate the taxable
yield necessary to produce an after-tax yield
equivalent to the tax-exempt yield
of the Class. The yield and tax equivalent
yield quotations are calculated
according to a formula prescribed by the SEC
to facilitate comparison with
yields quoted by other investment companies.
The distribution rate is calculated
by annualizing the latest monthly
distribution and dividing the result by the
maximum offering price per share as of the
end of the period to which the
distribution relates. The distribution rate
is not
32
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Performance
=============================================
===================================
computed in the same manner as, and therefore
can be significantly different
from, the above described yield. Total return
is computed for a specific period
of time assuming deduction of the maximum
sales charge, if any, from the initial
amount invested and reinvestment of all
income dividends and capital gains
distributions on the reinvestment dates at
prices calculated as stated in this
Prospectus, then dividing the value of the
investment at the end of the period
so calculated by the initial amount invested
and subtracting 100%. The standard
average annual total return, as prescribed by
the SEC, is derived from this
total return, which provides the ending
redeemable value. Such standard total
return information may also be accompanied
with nonstandard total return
information for differing periods computed in
the same manner but without
annualizing the total return or taking sales
charges into account. The Portfolio
may also include comparative performance
information in advertising or marketing
its shares. Such performance information may
include data from Lipper Analytical
Services, Inc. and other financial
publications.
=============================================
===================================
Management of the Fund
=============================================
===================================
TRUSTEES
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment adviser,
custodian and transfer agent. The day-to-day
operations of the Portfolio are
delegated to the Portfolio's investment
adviser. The Statement of Additional
Information contains background information
regarding each Trustee and executive
officer of the Fund.
MANAGER
Prior to December 31, 1994, Mutual
Management Corp. ("MMC") managed the
day-to-day operations of the Portfolio
pursuant to a management agreement
entered into by the Fund on behalf of the
Portfolio. Effective December 31,
1994, the Trustees of the Fund approved the
transfer of all of the management
agreements with MMC to Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the
"Manager"), an affiliate of MMC. Investment
management of the Portfolio under
SBMFM is conducted by the same personnel who
managed the Portfolio under MMC.
The reporting requirements for these
individuals has also remained unchanged. In
addition, because the original management
agreement with MMC was simply
transferred to SBMFM, the terms of the
agreement (including the fee) have
remained the same.
33
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
SBMFM, which until November, 1994
operated under the name Smith, Barney
Advisers, Inc., was incorporated in 1968
under the laws of Delaware. SBMFM is a
subsidiary of Holdings, the parent company of
Smith Barney (the "Distributor").
Holdings is a wholly-owned subsidiary of
Travelers which is a financial services
holding company engaged, through its
subsidiaries, principally in four business
segments: Investment Services, Consumer
Finance Services, Life Insurance
Services and Property & Casualty Insurance
Services. SBMFM, Holdings and Smith
Barney are each located at 388 Greenwich
Street, New York, New York 10013.
SBMFM provides the Fund with investment
management services and executive
and other personnel, pays the remuneration of
Fund officers, provides the Fund
with office space and equipment, furnishes
the Fund with bookkeeping,
accounting, administrative services and
services relating to research,
statistical work and supervision of the
Portfolio. For the Fund's last fiscal
year, the management fee was 0.45% of the
Portfolio's average daily net assets
for each Class of shares. For the fiscal year
ended March 31, 1995, total
expenses were 0.69% of the average daily net
assets for Class A shares (total expenses for
Class A shares are based on actual Portfolio
operating expenses for fiscal year ended
March 31, 1995. However, 12b-1 fees have
been restated to reflect the anticipated
level of 12b-1 fees for the current fiscal
period.); 1.20% of
the average daily net assets for Class B
shares; and 1.25% of the average daily
net assets for Class C shares.
PORTFOLIO MANAGEMENT
Peter M. Coffey, a Managing Director of
Smith Barney, has served as Vice
President of the Fund and portfolio manager
of the Portfolio since its inception
(April 2, 1991) and manages the day-to-day
operations of the Fund, including
making all investment decisions. Mr. Coffey
also serves as the portfolio manager
for the Fund's other non-money market
Portfolios.
Management's discussion and analysis,
and additional performance
information regarding the Portfolio during
the fiscal year ended March 31, 1995
is included in the Annual Report dated March
31, 1995. A copy of the Annual
Report may be obtained upon request and
without charge from a Smith Barney
Financial Consultant or by writing or calling
the Fund at the address or phone
number listed on page one of this Prospectus.
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to
34
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Distributor (continued)
=============================================
===================================
the public. Pursuant to a plan of
distribution adopted by the Portfolio under
Rule 12b-1 under the 1940 Act (the "Plan"),
Smith Barney is paid a service fee
with respect to Class A, Class B and Class C
shares of the Portfolio at the
annual rate of 0.15% of the average daily net
assets attributable to these
Classes. Smith Barney is also paid a
distribution fee with respect to Class B
and Class C shares at the annual rate of
0.50% and 0.55%, respectively, of the
average daily net assets attributable to
these Classes. Class B shares that
automatically convert to Class A shares eight
years after the date of original
purchase, will no longer be subject to a
distribution fee. The fees are used by
Smith Barney to pay its Financial Consultants
for servicing shareholder accounts
and, in the case of Class B and Class C
shares, to cover expenses primarily
intended to result in the sale of those
shares. These expenses include:
advertising expenses; the cost of printing
and mailing prospectuses to potential
investors; payments to and expenses of Smith
Barney Financial Consultants and
other persons who provide support services in
connection with the distribution
of shares; interest and/or carrying charges;
and indirect and overhead costs of
Smith Barney associated with the sale of
Portfolio shares, including lease,
utility, communications and sales promotion
expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A,
Class B and Class C shares, a
continuing fee for servicing shareholder
accounts for as long as a shareholder
remains a holder of that Class. Smith Barney
Financial Consultants may receive
different levels of compensation for selling
the different Classes of shares.
Payments under the Plan with respect to
Class B and Class C shares are not
tied exclusively to the distribution and
shareholder services expenses actually
incurred by Smith Barney and the payments may
exceed distribution expenses
actually incurred. The Fund's Trustees will
evaluate the appropriateness of the
Plan and its payment terms on a continuing
basis and in so doing will consider
all relevant factors, including expenses
borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end, non-diversified
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
one
35
<PAGE>
Smith Barney Muni Funds - Florida Portfolio
=============================================
===================================
Additional Information (continued)
=============================================
===================================
of twenty separate Portfolios. The assets of
each Portfolio are segregated and
separately managed and a shareholder's
interest is in the assets of the
Portfolio in which he or she holds shares.
Class A, Class B, Class C and Class Y
shares of the Portfolio represent interests
in the assets of the Portfolio and
have identical voting, dividend, liquidation
and other rights on the same terms
and conditions except that expenses related
to the shareholder service and
distribution of Class A, Class B and Class C
shares are borne solely by the
respective Class and each such Class of
shares has exclusive voting rights with
respect to provisions of the Fund's Rule 12b-
1 distribution plan which pertain
to that particular Class. It is the intention
of the Fund not to hold annual
meetings of shareholders. The Trustees may
call meetings of shareholders for
action by shareholder vote as may be required
by the 1940 Act or the Declaration
of Trust, and shareholders are entitled to
call a meeting of shareholders upon a
vote of 10% of the Fund's outstanding shares
for purposes of voting on removal
of a Trustee or Trustees. Shareholders will
receive assistance in communicating
with other shareholders in connection with
the removal of Trustees as required
by Section 16(c) of the 1940 Act. Shares do
not have cumulative voting rights or
preemptive rights and have only such
conversion or exchange rights as the
Trustees may grant in their discretion. When
issued for payment as described in
this Prospectus, the Fund's shares will be
fully paid and transferrable (subject
to the Portfolio's minimum account size).
Shares are redeemable as set forth
under "Redemption of Shares" and are subject
to involuntary redemption as set
forth under "Minimum Account Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, PA 19103 serves as custodian of
the Portfolio's investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the
Portfolio at the end of the period covered.
In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to
consolidate the mailing of its
semi-annual and annual reports by household.
This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report. In
addition, the Fund also plans to
consolidate the mailing of its Prospectus so
that a shareholder having multiple
accounts will receive a single Prospectus
annually. Shareholders who do not want
this consolidation to apply to their account
should contact their Smith Barney
Financial Consultant or the Fund's transfer
agent.
36
<PAGE>
SMITH BARNEY
- ------------
A Member of Travelers Group [LOGO]
Smith Barney
Muni Funds
Florida Portfolio
388 Greenwich Street
New York, New York 10013
FD 2360 7/95
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
Florida
Limited
Term
Portfolio
JULY 31, 1995
Prospectus begins on page one
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Florida Limited Term Portfolio (the
"Portfolio") is one of thirteen
investment portfolios that currently comprise
Smith Barney Muni Funds (the
"Fund"). The Portfolio seeks to pay its
shareholders as high a level of income
exempt from Federal income taxes as is
consistent with prudent investing. The
Portfolio seeks to achieve its objective by
investing primarily in obligations
issued by the State of Florida and its
political subdivisions, agencies and
instrumentalities. At least 80% of the
Portfolio's assets will be invested in
obligations with remaining maturities of less
than ten years and the
dollar-weighted average maturity of the
entire portfolio will normally not
exceed ten years. The Portfolio will seek
generally to select investments that
will enable its shares to be exempt from the
Florida intangibles tax. See
"Florida Taxes." The Portfolio may invest
without limit in municipal obligations
whose interest is a tax preference for
purposes of the Federal alternative
minimum tax.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including sales charges,
distribution and service fees and
expenses, that prospective investors will
find helpful in making an investment
decision. Investors are encouraged to read
this Prospectus carefully and retain
it for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated JULY 31, 1995,
as amended or supplemented from time
to time, that is available upon request and
without charge by calling or writing
the Fund at the telephone number or address
set forth above or by contacting a
Smith Barney Financial Consultant. The
Statement of Additional Information has
been filed with the Securities and Exchange
Commission (the "SEC") and is
incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Prospectus Summary
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
9
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
11
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
16
- ---------------------------------------------
- -----------------------------------
Dividends, Distributions and Taxes
16
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
19
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
26
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
29
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
31
- ---------------------------------------------
- -----------------------------------
Performance
31
- ---------------------------------------------
- -----------------------------------
Management of the Fund
32
- ---------------------------------------------
- -----------------------------------
Distributor
34
- ---------------------------------------------
- -----------------------------------
Additional Information
34
- ---------------------------------------------
- -----------------------------------
=============================================
===================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
=============================================
===================================
2
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Prospectus Summary
=============================================
===================================
The following summary is qualified in
its entirety by detailed information
appearing elsewhere in this Prospectus and in
the Statement of Additional
Information. Cross references in this summary
are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio seeks
to pay its shareholders as high a
level of income exempt from Federal income
taxes as is consistent with prudent
investing. The Portfolio seeks to achieve its
objective by investing primarily
in obligations issued by the State of Florida
and its political subdivisions,
agencies and instrumentalities. At least 80%
of the Portfolio's assets will be
invested in obligations with remaining
maturities of less than ten years and the
dollar-weighted average maturity of the
entire portfolio will normally not
exceed ten years. The Portfolio will seek
generally to select investments that
will enable its shares to be exempt from the
Florida intangibles tax. See
"Florida Taxes." The Portfolio may invest
without limit in municipal obligations
whose interest is a tax preference for
purposes of the Federal alternative
minimum tax. See "Investment Objective and
Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The
Portfolio offers three classes of
shares ("Classes") to investors designed to
provide them with the flexibility of
selecting an investment best suited to their
needs. The general public is
offered two Classes of shares: Class A shares
and Class C shares, which differ
principally in terms of sales charges and
rate of expenses to which they are
subject. A third Class of shares, Class Y
shares, is offered only to investors
meeting an initial investment minimum of
$5,000,000. See "Purchase of Shares"
and "Redemption of Shares."
Class A Shares. Class A shares are sold
at net asset value plus an initial
sales charge of 2.00% and are subject to an
annual service fee of 0.15% of the
average daily net assets of the Class. The
initial sales charge may be waived
for certain purchases. Purchases of Class A
shares, which when combined with
current holdings of Class A shares offered
with a sales charge equal or exceed
$500,000 in the aggregate, will be made at
net asset value with no initial sales
charge, but will be subject to a contingent
deferred sales charge ("CDSC") of
1.00% on redemptions made within 12 months of
purchase. See "Prospectus Summary
- -- No Initial Sales Charge."
Class C Shares. Class C shares are sold
at net asset value with no initial
sales charge. They are subject to an annual
service fee of 0.15% and an annual
distribution fee of 0.20% of the average
daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem
Class C shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have
higher expenses and pay lower
3
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
dividends than Class A shares. Purchases of
Portfolio shares, which when
combined with current holdings of Class C
shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be
made in Class A shares at net asset
value with no sales charge, and will be
subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase.
Class Y Shares. Class Y shares are
available only to investors meeting an
initial investment minimum of $5,000,000.
Class Y shares are sold at net asset
value with no initial sales charge or CDSC.
They are not subject to any service
or distribution fees.
In deciding which Class of Portfolio
shares to purchase, investors should
consider the following factors, as well as
any other relevant facts and
circumstances:
Intended Holding Period. The decision as
to which Class of shares is more
beneficial to an investor depends on the
amount and intended length of his or
her investment. Shareholders who are planning
to establish a program of regular
investment may wish to consider Class A
shares; as the investment accumulates
shareholders may qualify for purchase of
shares without an initial sales charge
and the shares are subject to lower ongoing
expenses over the term of the
investment. As an alternative, Class C shares
are sold without any initial sales
charge so the entire purchase price is
immediately invested in the Portfolio.
Any investment return on these additional
invested amounts may partially or
wholly offset the higher annual expenses of
this Class. Because the Portfolio's
future return cannot be predicted, however,
there can be no assurance that this
would be the case. Finally, investors should
consider the effect of the CDSC
period in the context of their own investment
time frame.
Investors investing a minimum of
$5,000,000 must purchase Class Y shares,
which are not subject to an initial sales
charge, CDSC or service or
distribution fees. The maximum purchase
amount for Class A shares is $4,999,999
and Class C shares is $499,999. There is no
maximum purchase amount for Class Y
shares.
No Initial Sales Charge. The initial
sales charge on Class A shares may be
waived for certain eligible purchasers and
the entire purchase price will be
immediately invested in the Portfolio. In
addition, Class A share purchases,
which when combined with current holdings of
Class A shares offered with a sales
charge equal or exceed $500,000 in the
aggregate, will be made at net asset
value with no initial sales charge, but will
be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The $500,000 aggregate investment
may be met by adding the purchase to the net
asset value of all Class A shares
offered with a sales charge held in funds
sponsored by Smith Barney Inc. ("Smith
Barney") listed under "Exchange Privilege."
See "Purchase of Shares." Because
4
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
the ongoing expenses of Class A shares may be
lower than those for Class C
shares, purchasers eligible to purchase Class
A shares at net asset value should
consider doing so.
Smith Barney Financial Consultants may
receive different compensation for
selling each Class of shares. Investors
should understand that the purpose of
the CDSC on the Class C shares is the same as
that of the initial sales charge
on the Class A shares.
See "Purchase of Shares" and "Management
of the Fund" for a complete
description of the sales charges and service
and distribution fees for each
Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes"
and "Exchange Privilege" for other
differences between the Classes of shares.
PURCHASE OF SHARES Shares may be
purchased through the Portfolio's
distributor, Smith Barney, a broker that
clears securities transactions through
Smith Barney on a fully disclosed basis (an
"Introducing Broker") or an
investment dealer in the selling group. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A
and Class C shares may open an
account by making an initial investment of at
least $1,000 for each account.
Investors in Class Y shares may open an
account for an initial investment of
$5,000,000. Subsequent investments of at
least $50 may be made for all Classes.
The minimum initial investment requirement
for Class A and Class C shares and
the subsequent investment requirement for all
Classes through the Systematic
Investment Plan described below is $50. It is
not recommended that the Portfolio
be used as a vehicle for Keogh, IRA or other
qualified retirement plans. See
"Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a Systematic
Investment Plan under which they may
authorize the automatic placement of a
purchase order each month or quarter for
Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be
redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Smith Barney
Mutual Funds Management Inc.
("SBMFM" or the "Manager") serves as the
Portfolio's investment manager. SBMFM
provides investment advisory and management
services to investment companies
affiliated with Smith Barney. SBMFM is a
wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of Travelers
Group Inc. ("Travelers"), a diversified
financial services holding company
5
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
engaged, through its subsidiaries,
principally in four business segments:
Investment Services, Consumer Finance
Services, Life Insurance Services and
Property & Casualty Insurance Services. As of
March 31, 1995, SBMFM had
aggregate assets under management in excess
of $54 billion. See "Management of
the Fund."
EXCHANGE PRIVILEGE Shares of a Class may
be exchanged for shares of the
same Class of certain other funds of the
Smith Barney Mutual Funds at the
respective net asset values next determined,
plus any applicable sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of
the Portfolio for the prior day
generally is quoted daily in the financial
section of most newspapers and is
also available from a Smith Barney Financial
Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends
from net investment income are paid
monthly. Distributions of net realized
capital gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of any
Class will be reinvested automatically,
unless otherwise specified by an
investor, in additional shares of the same
Class at current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or CDSC. See "Dividends,
Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS
There can be no assurance that the
Portfolio's investment objective will be
achieved. The Portfolio's concentration
in Florida obligations involves certain
additional risks that should be
considered carefully by investors.
Additionally, the value of the Portfolio's
investments, and thus the net asset value of
the Portfolio's shares, will
fluctuate in response to changes in market
and economic conditions, as well as
the financial condition and prospects of
issuers of municipal obligations
purchased by the Portfolio. See "Investment
Objective and Management Policies."
6
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
THE PORTFOLIO'S EXPENSES The following
expense table lists the costs and
expenses an investor will incur either
directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales
charge or maximum CDSC that may be
incurred at the time of purchase or
redemption and the Portfolio's current
operating expenses:
Class A Class C Class Y
- ---------------------------------------------
- ---------------------------------------------
- --
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
2.00% None None
Maximum CDSC (as a percentage of original
cost or
redemption proceeds, whichever is lower)
None* 1.00% None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees (after fee waiver)
0.05% 0.05% 0.05%
12b-1 fees***
0.15 0.35 --
Other expenses 0.32
0.30 0.31
Total Portfolio Operating Expenses
0.52% 0.70% 0.36%
==== ==== ====
- ---------------------------------------------
- ---------------------------------------------
- --
*Purchase of Class A shares, which when
combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions
made within 12 months.
**"Management fees" and "12b-1 fees"
have been restated to reflect current
expenses of the Portfolio. These expenses
reflect the management fee waiver currently
in effect for the Portfolio. Absent the fee
waiver, the management fee would be incurred
at the rate of 0.45% of each Class' average
daily net assets for the current fiscal
period. Absent the fee waiver, total
expenses would be incurred at the rate of
0.92%, 1.10% and 0.76% for Class A, Class C
and Class Y shares, respectively. "Other
expenses" of Class Y shares are estimated
because no Class Y shares were outstanding
during the fiscal
year ended March 31, 1995.
***Class C shares are subject to an
ongoing distribution fee and, as a
result, long-term shareholders of Class C
shares may pay more than the economic
equivalent of the maximum front-end sales
charge permitted by the National
Association of Securities Dealers, Inc.
The sales charge and CDSC set forth in
the above table are the maximum
charges imposed on purchases or redemptions
of Portfolio shares and investors
may actually pay lower or no charges,
depending on the amount purchased and, in
the case of Class C shares and certain Class
A shares, the length of time the
shares are held. See "Purchase of Shares" and
"Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee
of 0.15% of the value of average
daily net assets of Class A shares. Smith
Barney also receives with respect to
Class C shares an annual 12b-1 fee of 0.35%
of the value of average daily net
assets of that Class, consisting of a 0.20%
distribution fee and a 0.15% service
fee. "Other expenses" in the above table
include fees for shareholder services,
custodial fees, legal and accounting fees,
printing costs and registration fees.
7
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares" and "Management of the
Fund."
1
Year 3 Years 5 Years 10 Years
- ---------------------------------------------
- -----------------------------------
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A
$25 $36 $48 $84
Class C 17 22
3987
Class Y 4 12
2046
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A
$25 $36 $48 $84
Class C 7 22
3987
Class Y 4 12
2046
- ---------------------------------------------
- -----------------------------------
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses and
actual expenses may be greater or
less than those shown.
8
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule of the Florida
Limited Term Portfolio of Smith
Barney Muni Funds has been audited in
conjunction with the annual audits of the
financial statements of Smith Barney Muni
Funds by KPMG Peat Marwick LLP,
independent auditors. The 1995 financial
statements and the independent
auditors' report thereon appear in the March
31, 1995 Annual Report to
Shareholders. No information is presented for
Class Y shares, since no Class Y
shares were outstanding during the periods
indicated below.
For a Portfolio share outstanding throughout
each year:
Class A Shares (a)
1995 1994 (b)
=============================================
===================================
Net Asset Value, Beginning of Year
$6.44 $6.50
- ---------------------------------------------
- -----------------------------------
Income from Investment Operations:
Net investment income (1)
0.34 0.26
Net realized and unrealized gain (loss)
on investments
0.11 (0.08)
- ---------------------------------------------
- -----------------------------------
Total Income from Investment Operations
0.45 0.18
- ---------------------------------------------
- -----------------------------------
Less Distributions:
Dividends from net investment income
(0.33) (0.24)
Distributions from net realized gains
on security transactions
- -- --
- ---------------------------------------------
- -----------------------------------
Total Distributions
(0.33) (0.24)
- ---------------------------------------------
- -----------------------------------
Net Asset Value, End of Year
$6.56 $6.44
- ---------------------------------------------
- -----------------------------------
Total Return#
7.17% 2.74%++
- ---------------------------------------------
- -----------------------------------
Net Assets, End of Year (000s)
$15,277 $13,147
- ---------------------------------------------
- -----------------------------------
Ratios to Average Net Assets:
Expenses (1)
0.44% 0.20%+
Net investment income
5.37 4.90+
- ---------------------------------------------
- -----------------------------------
Portfolio Turnover Rate
54.65% 16.28%
=============================================
===================================
(a) On October 10, 1994 the former Class C
shares were exchanged into Class A
shares.
(b) For the period from April 27, 1993
(inception date) to March 31, 1994.
(1) See footnote (1) on page 10 for full
footnote disclosure.
++ Not annualized as the result may not be
representative of the total return
for the year.
+ Annualized.
# Total returns do not reflect sales loads
or contingent deferred sales
charges.
9
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Financial Highlights (continued)
=============================================
===================================
Class C Shares (a)
1995 1994 (b)
=============================================
===================================
Net Asset Value, Beginning of Year
$6.43 $6.51
- ---------------------------------------------
- -----------------------------------
Income from Investment Operations:
Net investment income (1)
0.32 0.24
Net realized and unrealized gain (loss)
on investments
0.11 (0.09)
- ---------------------------------------------
- -----------------------------------
Total Income from Investment Operations
0.43 0.15
- ---------------------------------------------
- -----------------------------------
Less Distributions:
Dividends from net investment income
(0.31) (0.23)
Distributions from net realized gains
on security transactions
- -- --
- ---------------------------------------------
- -----------------------------------
Total Distributions
(0.31) (0.23)
- ---------------------------------------------
- -----------------------------------
Net Asset Value, End of Year
$6.55 $6.43
- ---------------------------------------------
- -----------------------------------
Total Return#
6.84% 2.17%++
- ---------------------------------------------
- -----------------------------------
Net Assets, End of Year (000s)
$3,246 $3,815
- ---------------------------------------------
- -----------------------------------
Ratios to Average Net Assets:
Expenses (1)
0.70% 0.52%+
Net investment income
4.98 4.28+
- ---------------------------------------------
- -----------------------------------
Portfolio Turnover Rate
54.65% 16.28%
=============================================
===================================
(a) On November 7, 1994 the former Class B
shares were renamed Class C shares.
(b) For the period from May 4, 1993
(inception date) to March 31, 1994.
++ Not annualized as the result may not be
representative of the total return
for the year.
+ Annualized.
# Total returns do not reflect sales loads
or contingent deferred sales
charges.
(1) The manager has waived all or part of
its fees in each of the periods in
the two-year period ended March 31,
1995. If such fees were not waived, the
per share decrease of net investment
income and the ratios of expenses to
average net assets would be as follows:
Expense Ratios
Per Share
Decreases without Fee Waivers*
------------------
- - --------------------
1995 1994
1995 1994
---- ----
- ---- ----
Class A $.010 $.029
0.82% 0.71%+
Class C .025 .033
1.09 1.04+
* As a result of voluntary expense
limitations, the ratios of expenses to
average net assets will not exceed 0.80%
and 1.00% for Class A and C
shares, respectively.
10
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The Florida Limited Term Portfolio seeks
as high a level of income exempt
from Federal income taxes as is consistent
with prudent investing. The Portfolio
will invest primarily in obligations issued
by the State of Florida and its
political subdivisions, agencies and
instrumentalities, the interest from which
is, in the opinion of bond counsel for the
various issuers, exempt from Federal
income taxes at the time of their issuance.
At least 80% of the Portfolio's
assets will be invested in obligations with
remaining maturities of less than
ten years and the dollar-weighted average
maturity of the entire portfolio will
normally not exceed ten years. (For certain
shareholders, a portion of the
Portfolio's income may be subject to the
alternative minimum tax ("AMT") on
tax-exempt income discussed below.) Such
obligations are issued to raise money
for a variety of public projects that enhance
the quality of life including
health facilities, housing, airports,
schools, highways and bridges.
Under the Tax Reform Act of 1986,
interest income from municipal
obligations issued to finance certain
"private activities" ("AMT-Subject Bonds")
becomes an item of "tax preference" which is
subject to the AMT when received by
a person in a tax year during which he is
subject to that tax. Such private
activity bonds include bonds issued to
finance such projects as certain solid
waste disposal facilities, student loan
programs, and water and sewage projects.
Because interest income on AMT-Subject Bonds
is taxable to certain investors, it
is expected, although there can be no
guarantee, that such municipal obligations
generally will provide somewhat higher yields
than other municipal obligations
of comparable quality and maturity. There is
no limitation on the percent or
amount of the Portfolio's assets that may be
invested in AMT-Subject Bonds.
Municipal bonds purchased for the
Portfolio must, at the time of purchase,
be investment grade municipal bonds and at
least two-thirds of the Portfolio's
municipal bonds must be rated in the category
of A or better. Investment grade
bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc.
("Moody's") and AAA, AA, A and BBB by
Standard & Poor's Corporation ("S&P") or
have an equivalent rating by any nationally
recognized statistical rating
organization; pre-refunded bonds escrowed by
U.S. Treasury obligations will be
considered AAA rated even though the issuer
does not obtain a new rating. Up to
one-third of the assets of the Portfolio may
be invested in municipal bonds
rated Baa or BBB (this grade, while regarded
as having an adequate capacity to
pay interest and repay principal, is
considered to be of medium quality and has
speculative characteristics) or in unrated
municipal bonds if, based upon credit
analysis by the Manager, it is believed that
such securities are at least of
comparable quality to those securities in
which the Portfolio may invest. In
determining the suitability of an investment
in an unrated municipal bond, the
11
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
Manager will take into consideration debt
service coverage, the purpose of the
financing, history of the issuer, existence
of other rated securities of the
issuer and other general conditions as may be
relevant, including comparability
to other issues. After the Portfolio
purchases a municipal bond, the issue may
cease to be rated or its rating may be
reduced below the minimum required for
purchase. Such an event would not require the
elimination of the issue from the
Portfolio but the Manager will consider such
an event in determining whether the
Portfolio should continue to hold the
security.
The Portfolio's short-term municipal
obligations will be limited to high
grade obligations(obligations that are
secured by the full faith and credit of
the United States or are rated MIG 1 or MIG
2, VMIG 1 or VMIG 2 or Prime-1 or Aa
or better by Moody's or SP-1+, SP-1, SP-2, or
A-1 or AA or better by S&P or have
an equivalent rating by any nationally
recognized statistical rating
organization or obligations determined by the
Manager to be equivalent). Among
the types of short-term instruments in which
the Portfolio may invest are
floating or variable rate demand instruments,
tax-exempt commercial paper
(generally having a maturity of less than
nine months), and other types of notes
generally having maturities of less than
three years, such as Tax Anticipation
Notes, Revenue Anticipation Notes, Tax and
Revenue Anticipation Notes and Bond
Anticipation Notes. Demand instruments
usually have an indicated maturity of
over one year, but contain a demand feature
that enables the holder to redeem
the investment on no more than 30 days'
notice; variable rate demand instruments
provide for automatic establishment of a new
interest rate on set dates;
floating rate demand instruments provide for
automatic adjustment of their
interest rates whenever some other specified
interest rate changes (e.g., the
prime rate). The Portfolio may purchase
participation interests in variable rate
tax-exempt securities (such as Industrial
Development Bonds) owned by banks.
Participations are frequently backed by an
irrevocable letter of credit or
guarantee of a bank that the Manager has
determined meets the prescribed quality
standards for the Portfolio. Participation
interests will be purchased only if
management believes interest income on such
interests will be tax-exempt when
distributed as dividends to shareholders.
The Portfolio will not invest more than
15% of the value of its net assets
in illiquid securities, including those that
are not readily marketable or for
which there is no established market.
The Portfolio may purchase new issues of
municipal obligations on a
when-issued basis, i.e. delivery and payment
normally take place 15 to 45 days
after the purchase date. The payment
obligation and the interest rate to be
received are each fixed on the purchase date,
although no interest accrues with
respect to a when-issued security prior to
its stated delivery date. During the
12
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
period between purchase and settlement,
assets consisting of cash or liquid high
grade debt securities, marked-to-market
daily, of a dollar amount sufficient to
make payment at settlement will be segregated
at the custodian bank. Interest
rates at settlement may be lower or higher
than on the purchase date, which
would result in appreciation or depreciation,
respectively. Although the
Portfolio will only purchase a municipal
obligation on a when-issued basis with
the intention of actually acquiring the
securities, the Portfolio may sell these
securities before the settlement date if it
is deemed advisable.
Portfolio transactions will be
undertaken primarily to accomplish the
Portfolio's objective in relation to
anticipated movements in the general level
of interest rates, but the Portfolio may also
engage in short-term trading
consistent with its objective.
The Portfolio may invest in municipal
bond index futures contracts
(currently traded on the Chicago Board of
Trade) or in listed contracts based on
U.S. Government securities as a hedging
policy in pursuit of its investment
objective; provided that immediately
thereafter not more than 33 1/3% of its net
assets would be hedged or the amount of
margin deposits on the Portfolio's
existing futures contracts would not exceed
5% of the value of its total assets.
Since any income would be taxable, it is
anticipated that such investments will
be made only in those circumstances when the
Manager anticipates the possibility
of an extreme change in interest rates or
market conditions but does not wish to
liquidate the Portfolio's securities. A
further discussion of futures contracts
and their associated risks is contained in
the Statement of Additional
Information.
It is a fundamental policy that under
normal market conditions, the
Portfolio will seek to invest 100% of its
assets - and the Portfolio will invest
not less than 80% of its assets - in
municipal obligations the interest on which
is exempt from Federal income taxes (other
than the alternative minimum tax). It
is also a fundamental policy that under
normal market conditions, the Portfolio
will invest at least 65% of its total assets
in municipal obligations issued by
the State of Florida, its political
subdivisions and their agencies and
instrumentalities and in other municipal
obligations which are exempt from the
Florida intangibles tax. The Portfolio may
invest up to 20% of its assets in
taxable fixed-income securities, but only in
obligations issued or guaranteed by
the full faith and credit of the United
States, and may invest more than 20% of
its assets in U.S. Government securities
during periods when in the Manager's
opinion a temporary defensive posture is
warranted, including any period when
the Fund's monies available for investment
exceed the municipal obligations
available for purchase that meet the Fund's
rating, maturity and other
13
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
investment criteria. To the extent the
Portfolio is so invested, the investment
objective may not be achieved.
RISK FACTORS AFFECTING FLORIDA
Investors should be aware that Florida
municipal obligations may be
adversely affected by political and economic
conditions and developments within
the State of Florida. Population growth in
Florida since 1982 has been
increasing approximately 2.5% annually. The
state's current population,
estimated at 13 million, is the fourth
highest in the nation. Services and trade
continue to be the largest employment and
earning sectors reflecting the tourist
element of the economy as well as growth in
these activities to meet the needs
of Florida's expanding population.
Manufacturing, primarily high technology,
construction, construction-related
manufacturing industries and financial
services are rapidly growing and diversifying
elements of Florida's economy.
Agriculture, once sharing with tourism the
role of dominant economic sector, is
now only one of several important elements.
Florida's rapid growth is straining
resources, but is also having some
positive results. In many cases, the
expansion of local governments is creating
greater economic depth and diversity. For
example, numerous insurance companies
have located in Jacksonville over the past
ten years, making the city a leading
insurance center. During the same period,
Miami's financial services sector has
expanded significantly, primarily in
international banking and international
trade. Many other Florida cities and counties
have also succeeded in their
economic development efforts, as evidenced by
the significant business
investment throughout the state.
Florida has taken the lead among U.S.
states with a long-term comprehensive
growth management plan for local governments.
The plan should enhance economic
development by keeping growth in line with
developing resources and costs. The
growth initiative affects population,
infrastructure, employment, education,
transportation, and water supply - all vital
elements of economic stability.
("Appendix E" in the Statement of Additional
Information provides additional
details.)
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve
its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the municipal bond
14
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
markets, the size of a particular offering,
the maturity of the obligation and
the rating of the issue. In general, the
longer the maturity of a municipal
obligation, the higher the rate of interest
it pays. However, a longer average
maturity is generally associated with a
higher level of volatility in the market
value of a municipal obligation. During
periods of falling interest rates, the
values of long-term municipal obligations
generally rise. Conversely, during
periods of rising interest rates, the values
of such securities generally
decline. Changes in the value of Portfolio
securities will not affect interest
income derived from those securities but will
affect the Portfolio's net asset
value. Since the Portfolio's objective is to
provide high current income, it
will invest in municipal obligations with an
emphasis on income rather than
stability of net asset values.
The Fund is registered as a "non-
diversified" company under the Investment
Company Act of 1940 (the "1940 Act"), in
order for the Portfolio to have the
ability to invest more than 5% of its assets
in the securities of any issuer.
The Portfolio intends to comply with
Subchapter M of the Internal Revenue Code
(the "Code") that limits the aggregate value
of all holdings (except U.S.
Government and cash items, as defined in the
Code) that exceed 5% of the
Portfolio's total assets to an aggregate
amount of 50% of such assets. Also,
holdings of a single issuer (with the same
exceptions) may not exceed 25% of the
Portfolio's total assets. These limits are
measured at the end of each quarter.
Under the Subchapter M limits, "non-
diversification" allows up to 50% of a
Portfolio's total assets to be invested in as
few as two single issuers. In the
event of decline of creditworthiness or
default upon the obligations of one or
more such issuers exceeding 5%, an investment
in the Portfolio will entail
greater risk than in a portfolio having a
policy of "diversification" because a
high percentage of the Portfolio's assets may
be invested in municipal
obligations of one or two issuers.
Furthermore, a high percentage of investments
among few issuers may result in a greater
degree of fluctuation in the market
value of the assets of the Portfolio, and
consequently a greater degree of
fluctuation of the Portfolio's net asset
value, because the Portfolio will be
more susceptible to economic, political, or
regulatory developments affecting
these securities than would be the case with
a portfolio composed of varied
obligations of more issuers.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Portfolio's securities ordinarily
are purchased from and sold to
parties acting as either principal or agent.
Newly issued securities ordinarily
are purchased directly from the issuer or
from an underwriter; other purchases
and sales usually are placed with those
dealers from which it appears that the
best price or execution will be obtained.
Usually no brokerage commissions, as
such, are paid by the Portfolio for purchases
and sales undertaken through
15
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
principal transactions, although the price
paid usually includes an undisclosed
compensation to the dealer acting as agent.
The Portfolio cannot accurately predict
its portfolio turnover rate, but
anticipates that the annual turnover will not
exceed 100%. An annual turnover
rate of 100% would occur when all of the
securities held by the Portfolio are
replaced one time during a period of one
year. The Manager will not consider
turnover rate a limiting factor in making
investment decisions consistent with
the investment objective and policies of the
Portfolio.
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on the NYSE on each day that
the NYSE is open, by dividing the
value of the Portfolio's net assets
attributable to each Class by the total
number of shares of the Class outstanding.
When, in the judgement of the pricing
service, quoted bid prices for
investments are readily available and are
representative of the bid side of the
market, these investments are valued at the
mean between the quoted bid and
asked prices. Investments for which, in the
judgement of the pricing service,
there is no readily obtainable market
quotation (which may constitute a majority
of the portfolio securities) are carried at
fair value of securities of similar
type, yield and maturity. Pricing services
generally determine value by
reference to transactions in municipal
obligations, quotations from municipal
bond dealers, market transactions in
comparable securities and various
relationships between securities. Short-term
instruments maturing within 60 days
will be valued at cost plus (minus) amortized
discount (premium), if any, when
the Trustees have determined that amortized
cost equals fair value. Securities
and other assets that are not priced by a
pricing service and for which market
quotations are not available will be valued
in good faith at fair value by or
under the direction of the Trustees.
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of the
Portfolio's net investment income are
declared and paid monthly and any realized
capital gains are declared and
distributed annually.
16
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
If a shareholder does not otherwise
instruct, dividends and capital gain
distributions will be reinvested
automatically in additional shares of the
same
Class at net asset value, subject to no sales
charge or CDSC.
Income dividends and capital gain
distributions that are invested are
credited to shareholders' accounts in
additional shares at the net asset value
as of the close of business on the payment
date. A shareholder may change the
option at any time by notifying his or her
Financial Consultant. Accounts held
directly by the Fund's transfer agent, The
Shareholder Services Group Inc.
("TSSG") should notify TSSG in writing at
least five business days prior to the
payment date to permit the change to be
entered in the shareholder's account.
The per share dividends on Class C
shares of the Portfolio may be lower
than the per share dividends on Class A and
Class Y shares principally as a
result of the distribution fee applicable
with respect to Class C shares. The
per share dividends on Class A shares of the
Portfolio may be lower than the per
share dividends on Class Y shares principally
as a result of the service fee
applicable to Class A shares. Distributions
of capital gains, if any, will be in
the same amount for Class A, Class C and
Class Y shares.
TAXES
The Portfolio intends to qualify as a
"regulated investment company" and to
meet the requirements for distributing
"exempt-interest dividends" under the
Internal Revenue Code (the "Code") so that no
Federal income taxes will be
payable by the Portfolio and dividends
representing net interest received on
municipal obligations will not be includable
by shareholders in their gross
income for Federal income tax purposes. To
the extent dividends are derived from
taxable income from temporary investments,
from market discounts or from the
excess of net short-term capital gain over
net long-term capital loss, they are
treated as ordinary income whether the
shareholder has elected to receive them
in cash or in additional shares. No portion
of such dividends would qualify for
the corporate dividends-received deduction.
Distributions derived from the
excess of net long-term capital gain over net
short-term capital loss are
treated as long-term capital gain regardless
of the length of time a shareholder
has owned shares of the Portfolio and
regardless of whether such distributions
are received in cash or in additional shares.
Exempt-interest dividends allocable to
interest received by the Portfolio
from the AMT-Subject Bonds in which the
Portfolio may invest will be treated as
interest paid directly on such obligations
and will give rise to an "item of tax
preference" that will increase a
shareholder's alternative minimum taxable
income. In addition, for corporations,
alternative minimum taxable income will
17
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
be increased by a percentage of the amount by
which a special measure of income
(including exempt-interest dividends) exceeds
the amount otherwise determined to
be alternative minimum taxable income.
Accordingly, investment in the Portfolio
may cause shareholders to be subject to (or
result in an increased liability
under) the AMT. The Fund will annually
furnish to Portfolio shareholders a
report indicating the ratable portion of
exempt-interest dividends attributable
to AMT-Subject Bonds.
Each Portfolio of the Fund will be
treated as a separate regulated
investment company for Federal tax purposes.
Accordingly, each Portfolio's net
investment income is determined separately
based on the income earned on its
securities less its costs of operations. Each
Portfolio's net long-term and
short-term gain (loss) realized on
investments will be determined separately and
net capital gains distributed by the
Portfolio are determined after offsetting
any capital loss carryover of the Portfolio
from prior periods.
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Fund will not be
deductible to the extent that the Fund's
distributions are exempt from Federal income
tax. In addition, any loss realized
upon the redemption of shares held less than
6 months will be disallowed to the
extent of any exempt-interest dividends
received by the shareholder during such
period. Further, persons who may be
"substantial users" (or "related persons" of
substantial users) of facilities financed by
industrial development bonds should
consult their tax advisors concerning an
investment in the Fund.
FLORIDA TAXES
Florida currently does not impose an
income tax on individuals. Thus
individual shareholders of the Portfolio will
not be subject to any Florida
state income tax on distributions received
from the Portfolio. However, certain
distributions will be taxable to corporate
shareholders that are subject to
Florida corporate income tax.
Florida currently imposes an
"intangibles tax" on certain securities and
other intangible assets owned by Florida
residents. Certain types of municipal
obligations of Florida issuers, U.S. Treasury
securities and municipal
obligations issued by certain U.S.
territories and possessions are exempt from
this intangibles tax. Consistent with its
fundamental policy to invest not less
than 80% of its assets in municipal
obligations the interest on which is exempt
from Federal income taxes (other than the
alternative minimum tax), the
Portfolio will seek generally to select
investments that will enable its shares
to be exempt from the Florida intangibles tax
and will attempt to ensure that
all of its assets held on the annual
assessment date are exempt from this tax.
18
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Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
The Fund also will apply for a ruling from
the Florida Department of Revenue
that, if on the annual assessment date of any
year the Portfolio consists solely
of such exempt assets, then the Portfolio's
shares will be exempt from the
Florida intangibles tax. There is no
assurance that the ruling will actually be
issued. If the Fund receives the ruling, the
value of Portfolio shares held by a
shareholder should under normal circumstances
be exempt from the Florida
intangibles tax. The Portfolio intends to
provide shareholders annually with
information relating to its assets necessary
to permit shareholders to determine
whether the value of Portfolio shares held is
exempt from the Florida
intangibles tax.
Investors purchasing municipal
obligations of their state of residence, or
a fund comprised of such obligations, should
recognize that the benefits of the
exemption from local taxes, in addition to
the exemption from Federal taxes,
necessarily limits the fund's ability to
diversify geographically. The Portfolio
will make available annually to its
shareholders information concerning the tax
status of its distributions, including the
amount of its dividends designated as
exempt-interest dividends and as capital gain
dividends.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional Information.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
=============================================
===================================
Purchase of Shares
=============================================
===================================
GENERAL
The Portfolio offers three Classes of
shares. Class A shares are sold to
investors with an initial sales charge and
Class C shares are sold without an
initial sales charge but are subject to a
CDSC payable upon certain redemptions.
Class Y shares are sold without an initial
sales charge or a CDSC and are
available only to investors investing a
minimum of $5,000,000. See "Prospectus
Summary-Alternative Purchase Arrangements"
for a discussion of factors to
consider in selecting which Class of shares
to purchase.
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney, an Introducing
Broker or an investment dealer in
the selling group. When purchasing shares of
the Portfolio, investors must
specify whether the purchase is for Class A,
Class C or Class Y shares. No
maintenance fee will be charged by the Fund
in connection with a brokerage
19
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
account through which an investor purchases
or holds shares.
Investors in Class A and Class C shares
may open an account by making an
initial investment of at least $1,000 for
each account. Investors in Class Y
shares may open an account by making an
initial investment of $5,000,000.
Subsequent investments of at least $50 may be
made for all Classes. For
participants in the Portfolio's Systematic
Investment Plan, the minimum initial
investment requirement for Class A and Class
C shares and the subsequent
investment requirement for all Classes is
$50. There are no minimum investment
requirements in Class A shares for employees
of Travelers and its subsidiaries,
including Smith Barney, Trustees of the Fund,
and their spouses and children.
The Fund reserves the right to waive or
change minimums, to decline any order to
purchase its shares and to suspend the
offering of shares from time to time.
Shares purchased will be held in the
shareholder's account by the Fund's
transfer agent, TSSG, a subsidiary of First
Data Corporation. Share certificates
are issued only upon a shareholder's written
request to TSSG. It is not
recommended that the Portfolio be used as a
vehicle for Keogh, IRA or other
qualified retirement plans.
Purchase orders received by the Fund or
Smith Barney prior to the close of
regular trading on the NYSE, on any day the
Portfolio calculates its net asset
value, are priced according to the net asset
value determined on that day (the
"trade date"). Orders received by dealers or
Introducing Brokers prior to the
close of regular trading on the NYSE on any
day the Portfolio calculates its net
asset value, are priced according to the net
asset value determined on that day,
provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. Payment for
Portfolio shares is due on the third
business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
TSSG is authorized through
preauthorized transfers of $50 or more to
charge the regular bank account or
other financial institution indicated by the
shareholder on a monthly or
quarterly basis to provide systematic
additions to the shareholder's Portfolio
account. A shareholder who has insufficient
funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney
or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply
cash held in the shareholder's Smith
Barney brokerage account or redeem the
shareholder's shares of a Smith Barney
money market fund to make additions to the
account. Additional information is
available from the Fund or a Smith Barney
Financial Consultant.
20
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
INITIAL SALES CHARGE ALTERNATIVE - CLASS
A SHARES
The sales charges applicable to
purchases of Class A shares of the
Portfolio are as follows:
=============================================
===================================
Sales
Charge as
-----
- ---------- Dealer's
% of
% of Amount Reallowance as % of
Amount of Investment Offering
Price Invested Offering Price
- ---------------------------------------------
- -----------------------------------
Less than $500,000 2.00%
2.04% 1.80%
$500,000 and over *
* *
=============================================
===================================
*Purchases of Class A shares, which when
combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
without any initial sales charge, but
will be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The CDSC on Class A shares is
payable to Smith Barney which
compensates Smith Barney Financial
Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC
is waived in the same circumstances
in which the CDSC applicable to Class C
shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive
up to 90% of the sales charge and
may be deemed to be underwriters of the Fund
as defined in the Securities Act of
1933, as amended.
The $500,000 investment may be met by
aggregating the purchases of Class A
shares of the Portfolio made at one time by
"any person," which includes an
individual, his or her spouse and children,
or a trustee or other fiduciary of a
single trust estate or single fiduciary
account. It may also be met by
aggregating the purchase with the net asset
value of all Class A shares offered
with a sales charge held in funds sponsored
by Smith Barney listed under
"Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made
at net asset value without a sales
charge in the following circumstances: (a)
sales of Class A shares to Trustees
of the Fund, employees of Travelers and its
subsidiaries, and employees of
members of the National Association of
Securities Dealers Inc., or to the spouse
and children of such persons (including the
surviving spouse of a deceased
Trustee or employee, and retired Trustees or
employees); (b) offers of Class A
shares to any other investment company in
connection with the combination of
such company with the Portfolio by merger,
acquisition of assets or otherwise;
(c) purchases of Class A shares by any client
of a newly employed Smith Barney
Financial Consultant (for a period up to 90
days from the commencement of the
21
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Financial Consultant's employment with Smith
Barney), on the condition the
purchase of Class A shares is made with the
proceeds of the redemption of shares
of a mutual fund which (i) was sponsored by
the Financial Consultant's prior
employer, (ii) was sold to the client by the
Financial Consultant and (iii) was
subject to a sales charge; (d) shareholders
who have redeemed Class A shares in
the Portfolio (or Class A shares of another
fund of the Smith Barney Mutual
Funds that are offered with a sales charge
equal to or greater than the maximum
sales charge of the Portfolio) and who wish
to reinvest their redemption
proceeds in the Portfolio, provided the
reinvestment is made within 60 calendar
days of the redemption; and (e) accounts
managed by registered investment
advisory subsidiaries of Travelers. In order
to obtain such discounts, the
purchaser must provide sufficient information
at the time of purchase to permit
verification that the purchase would qualify
for the elimination of the sales
charge.
RIGHT OF ACCUMULATION
Class A shares of the Portfolio may be
purchased by "any person" (as
defined above) at net asset value determined
by aggregating the dollar amount of
the new purchase and the total net asset
value of all Class A shares of the
Portfolio and of funds sponsored by Smith
Barney which are offered with a sales
charge, listed under "Exchange Privilege"
then held by such person and applying
the sales charge applicable to such
aggregate. In order to obtain such discount,
the purchaser must provide sufficient
information at the time of purchase to
permit verification that the purchase
qualifies for purchase at net asset value.
The right of accumulation is subject to
modification or discontinuance at any
time with respect to all shares purchased
thereafter.
GROUP PURCHASES
Upon completion of certain automated
systems, purchase at net asset value
will also be available to employees (and
partners) of the same employer
purchasing as a group, provided each
participant makes the minimum initial
investment required. The sales charge
applicable to purchases by each member of
such a group will be determined by the table
set forth above under "Initial
Sales Charge Alternative -- Class A Shares,"
and will be based upon the
aggregate sales of Class A shares of Smith
Barney Mutual Funds offered with a
sales charge to, and share holdings of, all
members of the group. To be eligible
for such purchase at net asset value, all
purchases must be pursuant to an
employer- or partnership-sanctioned plan
meeting certain requirements. One such
requirement is that the plan must be open to
specified partners or employees of
the employer and its subsidiaries, if any.
Such plan may, but is not required
22
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
to, provide for payroll deductions. Smith
Barney may also offer a net asset
value purchase for aggregating related
fiduciary accounts under such conditions
that Smith Barney will realize economies of
sales efforts and sales related
expenses. An individual who is a member of a
qualified group may also purchase
Class A shares at the sales charge applicable
to the group as a whole. The sales
charge is based upon the aggregate dollar
value of Class A shares offered with a
sales charge that have been previously
purchased and are still owned by the
group, plus the amount of the current
purchase. A "qualified group" is one which
(a) has been in existence for more than six
months, (b) has a purpose other than
acquiring Portfolio shares at a discount and
(c) satisfies uniform criteria
which enable Smith Barney to realize
economies of scale in its costs of
distributing shares. A qualified group must
have more than 10 members, must be
available to arrange for group meetings
between representatives of the Portfolio
and the members, and must agree to include
sales and other materials related to
the Portfolio in its publications and
mailings to members at no cost to Smith
Barney. In order to purchase at net asset
value, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase qualifies for the purchase at net
asset value. Approval of group
purchase at net asset value is subject to the
discretion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for
amounts of $500,000 or more provides
an opportunity for an investor to purchase
shares at net asset value by
aggregating investments over a 13 month
period, provided that the investor
refers to such Letter when placing orders.
For purposes of a Letter of Intent,
the "Amount of Investment" as referred to in
the preceding sales charge table
includes purchases of all Class A shares of
the Portfolio and other funds of the
Smith Barney Mutual Funds offered with a
sales charge over a 13 month period
based on the total amount of intended
purchases plus the value of all Class A
shares previously purchased and still owned.
An alternative is to compute the 13
month period starting up to 90 days before
the date of execution of a Letter of
Intent. Each investment made during the
period receives the sales charge
applicable to the total amount of the
investment goal. If the goal is not
achieved within the period, the investor must
pay the difference between the
sales charges applicable to the purchases
made and the charges previously paid,
or an appropriate number of escrowed shares
will be redeemed. Please contact a
Smith Barney Financial Consultant or TSSG to
obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may
also be used as a way for investors
to meet the minimum investment requirement
for Class Y shares. Such investors
23
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
must make an initial minimum purchase of
$1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of
$5,000,000 of Class Y shares of the
same Portfolio within six months from the
date of the Letter. If a total
investment of $5,000,000 is not made within
the six-month period, all Class Y
shares purchased to date will be transferred
to Class A shares, where they will
be subject to all fees (including a service
fee of 0.15%) and expenses
applicable to the Portfolio's Class A shares,
which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial
Consultant or TSSG for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC" Shares are sold at net asset
value next determined without an
initial sales charge so that the full amount
of an investor's purchase payment
may be immediately invested in the Portfolio.
A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC
Shares" are: (a) Class C shares and
(b) Class A shares which when combined with
Class A shares offered with a sales
charge currently held by an investor equal or
exceed $500,000 in the aggregate.
Any applicable CDSC will be assessed on
an amount equal to the lesser of
the original cost of the shares being
redeemed or their net asset value at the
time of redemption. CDSC Shares that are
redeemed will not be subject to a CDSC
to the extent that the value of such shares
represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of
dividends or capital gain
distributions; or (c) shares redeemed more
than 12 months after their purchase.
CDSC Shares are subject to a 1.00% CDSC if
redeemed within 12 months of
purchase.
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestment of
dividends and capital gain distributions
and finally of other shares held by the
shareholder for the longest period of
time. The length of time that CDSC Shares
acquired through an exchange have been
held will be calculated from the date that
the shares exchanged were initially
acquired in one of the other Smith Barney
Mutual Funds, and Portfolio shares
being redeemed will be considered to
represent, as applicable, capital
appreciation or dividend and capital gain
distribution reinvestments in such
other funds. For Federal income tax purposes,
the amount of the CDSC will reduce
the gain or increase the loss, as the case
may be, on the amount realized on
redemption. The amount of any CDSC will be
paid to Smith Barney.
To provide an example, assume an
investor purchased 100 Class C shares at
24
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
$10 per share for a cost of $1,000.
Subsequently, the investor acquired 5
additional shares through dividend
reinvestment. During the tenth month after
the purchase, the investor decided to redeem
$500 of his or her investment.
Assuming at the time of the redemption the
net asset value had appreciated to
$12 per share, the value of the investor's
shares would be $1,260 (105 shares at
$12 per share). The CDSC would not be applied
to the amount which represents
appreciation ($200) and the value of the
reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be
charged at a rate of 1.00% (the applicable
rate for Class C shares) for a total
deferred sales charge of $2.40.
WAIVERS OF CDSC
The CDSC will be waived on: (a)
exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal
to or less than 1.00% per month of
the value of the shareholder's shares at the
time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan")
(provided, however, that automatic cash
withdrawals in amounts equal to or less than
2.00% per month of the value of the
shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within twelve
months following the death or disability of
the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in
connection with a combination of
the Portfolio with any investment company by
merger, acquisition of assets or
otherwise. In addition, a shareholder who has
redeemed shares from other funds
of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all
or part of the redemption proceeds within 60
days and receive pro rata credit
for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.Except as otherwise noted below,
shares of each Class may be
exchanged for shares of the same Class in the
following funds of the Smith
Barney Mutual Funds, to the extent shares are
offered for sale in the
shareholder's state of residence. Exchanges
of Class A and Class C shares are
subject to minimum investment requirements
and all shares are subject to the
other requirements of the fund into which
exchanges are made and a sales charge
differential may apply.
25
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A and Class C
shares are subject to the minimum
investment requirements and all shares are
subject to other requirements of the
fund into which exchanges are made and a
sales charge differential may apply.
Fund Name
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund
Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund
Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic
Income Fund
* Smith Barney Funds, Inc. -- Income
Return Account Portfolio
*** Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc.
Smith Barney California Municipals Fund
Inc.
26
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
* Smith Barney Intermediate Maturity
California Municipals Fund
* Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Managed Municipals Fund
Inc.
Smith Barney Massachusetts Municipals
Fund
Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Georgia
Portfolio
* Smith Barney Muni Funds -- Limited Term
Portfolio
Smith Barney Muni Funds -- National
Portfolio
Smith Barney Muni Funds -- New York
Portfolio
Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney New Jersey Municipals Fund
Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, inc. --
Pacific Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
*** Smith Barney Money Funds, Inc. -- Cash
Portfolio
*** Smith Barney Money Funds, Inc. --
Government Portfolio
++ Smith Barney Money Funds, Inc. --
Retirement Portfolio
*** Smith Barney Municipal Money Market
Fund, Inc.
*** Smith Barney Muni Funds -- California
Money Market Portfolio
*** Smith Barney Muni Funds -- New York
Money Market Portfolio
- ------------
* Available for exchange with Class A,
Class C and Class Y shares of the
Portfolio.
** Available for exchange with Class A,
Class B and Class Y shares of the
Portfolio.
*** Available for exchange with Class A and
Class Y shares of the Portfolio.
+ Available for exchange with Class B and
Class C shares of the Portfolio.
++ Available for exchange with Class A
shares of the Portfolio.
27
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Class A Exchanges. Class A shares of
Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of
such shares for Class A shares of a
fund sold with a higher sales charge. The
"sales charge differential" is limited
to a percentage rate no greater than the
excess of the sales charge rate
applicable to purchases of shares of the
mutual fund being acquired in the
exchange over the sales charge rate(s)
actually paid on the mutual fund shares
relinquished in the exchange and on any
predecessor of those shares. For
purposes of the exchange privilege, shares
obtained through automatic
reinvestment of dividends and capital gain
distributions are treated as having
paid the same sales charges applicable to the
shares on which the dividends or
distributions were paid; however, if no sales
charge was imposed upon the
initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales
charge differential upon exchange. Class
A shares held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of the
Smith Barney Mutual Funds will not be
subject to a sales charge differential.
Class C Exchanges. Upon an exchange, the
new Class C shares will be deemed
to have been purchased on the same date as
the Class C shares of the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment manager may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
manager will notify Smith Barney
that the Fund may, at its discretion, decide
to limit additional purchases
and/or exchanges by the shareholder. Upon
such a determination, the Fund will
provide notice in writing or by telephone to
the shareholder at least 15 days
prior to suspending the exchange privilege
and during the 15 day period the
shareholder will be required to (a) redeem
his or her shares in the Portfolio or
(b) remain invested in the Portfolio or
exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily
available, which position the shareholder
would be expected to maintain for a
significant period of time. All relevant
factors will be considered in determining
what constitutes an abusive pattern of
exchanges.
28
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed below
are also applicable for exchanging shares,
and exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
=============================================
===================================
Redemption of Shares
=============================================
===================================
The Fund is required to redeem the
shares of the Portfolio tendered to it,
as described below, at a redemption price
equal to their net asset value per
share next determined after receipt of a
written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the
close of regular trading on the NYSE are
priced at the net asset value next
determined.
If a shareholder holds shares in more
than one Class, any request for
redemption must specify the Class being
redeemed. In the event of a failure to
specify which Class, or if the investor owns
fewer shares of the Class than
specified, the redemption request will be
delayed until the Fund's transfer
agent receives further instructions from
Smith Barney, or if the shareholder's
account is not with Smith Barney, from the
shareholder directly. The redemption
proceeds will be remitted on or before the
third business day following receipt
of proper tender, except on any days on which
the NYSE is closed or as permitted
under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney
brokerage account, these funds will not
be invested for the shareholder's benefit
without specific instruction and Smith
Barney will benefit from the use of
temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other
than a certified or official bank
check, will be remitted upon clearance of the
check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian
must be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request for redemption
to:
29
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
Smith Barney Muni Funds/Florida Limited
Term Portfolio
Class A, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an
automatic cash withdrawal plan, under
which shareholders who own shares with a
value of at least $10,000 may elect to
receive cash payments of at least $50 monthly
or quarterly. The withdrawal plan
will be carried over on exchanges between
funds or Classes of the Portfolio. Any
applicable CDSC will not be waived on amounts
withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the
CDSC at the time the withdrawal plan
commences. (With respect to withdrawal
plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00%
per month of the value of the
shareholder's shares subject to the CDSC.)
For further information regarding the
automatic cash withdrawal plan, shareholders
should contact a Smith Barney
Financial Consultant.
30
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Minimum Account Size (continued)
=============================================
===================================
The Fund reserves the right to
involuntarily liquidate any shareholder's
account if the aggregate net asset value of
the shares held in the Portfolio
account is less than $500. (If a shareholder
has more than one account in this
Portfolio, each account must satisfy the
minimum account size.) The Fund,
however, will not redeem shares based solely
on market reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring
the account up to the minimum to
avoid involuntary liquidation.
=============================================
===================================
Performance
=============================================
===================================
From time to time the Portfolio may
include its yield, tax equivalent
yield, total return and average annual total
return in advertisements. In other
types of sales literature the Fund may also
include a Portfolio's distribution
rate. These figures are computed separately
for Class A, Class C and Class Y
shares of the Portfolio. These figures are
based on historical earnings and are
not intended to indicate future performance.
The yield of a Portfolio Class
refers to the net income earned by an
investment in the Class over a thirty-day
period ending at month end. This net income
is then annualized, i.e., the amount
of income earned by the investment during
that thirty-day period is assumed to
be earned each 30-day period for twelve
periods and is expressed as a percentage
of the investment. The net income earned on
the investment for six periods is
also assumed to be reinvested at the end of
the sixth 30-day period. The tax
equivalent yield is calculated similarly to
the yield, except that a stated
income tax rate is used to demonstrate the
taxable yield necessary to produce an
after-tax yield equivalent to the tax-exempt
yield of the Class. The yield and
tax equivalent yield quotations are
calculated according to a formula prescribed
by the SEC to facilitate comparison with
yields quoted by other investment
companies. The distribution rate is
calculated by annualizing the latest daily
dividend rate and dividing the result by the
maximum offering price per share as
of the end of the period to which the
distribution relates. The distribution
rate is not computed in the same manner as,
and therefore can be significantly
different from, the above described yield.
Total return is computed for a
specified period of time assuming deduction
of the maximum sales charge, if any,
from the initial amount invested and
reinvestment of all income dividends and
capital gains distributions on the
reinvestment dates at prices calculated as
stated in this Prospectus, then dividing the
value of the investment at the end
of the period so calculated by the initial
amount invested and subtracting 100%.
The standard average annual total return, as
prescribed by the SEC, is derived
from this total return, which provides the
ending redeemable value. Such
31
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Performance (continued)
=============================================
===================================
standard total return information may also be
accompanied with nonstandard total
return information for differing periods
computed in the same manner but without
annualizing the total return or taking sales
charges into account. The Fund may
also include comparative performance
information in advertising or marketing its
shares. Such performance information may
include data from Lipper Analytical
Services, Inc. and other financial
publications.
=============================================
===================================
Management of the Fund
=============================================
===================================
TRUSTEES
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment manager,
custodian and transfer agent. The day-to-day
operations of the Portfolio are
delegated to the Portfolio's investment
manager. The Statement of Additional
Information contains background information
regarding each Trustee and executive
officer of the Fund.
MANAGER
Prior to December 31, 1994, Mutual
Management Corp. ("MMC") managed the
day-to-day operations of the Portfolio
pursuant to a management agreement
entered into by the Fund on behalf of the
Portfolio. Effective December 31,
1994, the Trustees of the Fund approved the
transfer of all of the management
agreements with MMC to Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the
"Manager"), an affiliate of MMC. Investment
management of the Portfolio under
SBMFM is conducted by the same personnel who
managed the Portfolio under MMC.
The reporting requirements for these
individuals has also remained unchanged. In
addition, because the original management
agreement with MMC was simply
transferred to SBMFM, the terms of the
agreement (including the fee) have
remained the same.
SBMFM, which until November, 1994
operated under the name Smith, Barney
Advisers, Inc., was incorporated in 1968
under the laws of Delaware. SBMFM is a
subsidiary of Holdings, the parent company of
Smith Barney (the "Distributor").
Holdings is a wholly-owned subsidiary of
Travelers, which is a financial
services holding company engaged, through its
subsidiaries, principally in four
business segments: Investment Services,
Consumer Finance Services, Life
32
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
Insurance Services and Property & Casualty
Insurance Services. SBMFM, Holdings
and Smith Barney are each located at 388
Greenwich Street, New York, New York
10013.
SBMFM provides the Portfolio with
investment management services and
executive and other personnel, pays the
remuneration of Fund officers, provides
the Fund with office space and equipment,
furnishes the Fund with bookkeeping,
accounting, administrative services and
services relating to research,
statistical work and supervision of the
Portfolio. For the services provided,
the management agreement provides that the
Portfolio will pay SBMFM a daily fee
at the annual rate of 0.45% of the
Portfolio's average daily net assets. SBMFM
waived its management fee for the Period
ended March 31, 1995. For the current fiscal
period total expenses are anticipated to be
0.52% of the average daily net assets for
Class A shares and 0.70% of the average daily
net assets for Class C shares. "Management
fees" and "12b-1 fees" have been restated to
reflect current expenses of the Portfolio.
These expenses reflect the management fee
waiver currently in effect and the
anticipated level of 12b-1 fees for the
current fiscal period. SBMFM has agreed to
waive its fee with respect to any Class to
the extent that it is necessary if in any
fiscal year the aggregate expenses of such
Class
exclusive of 12b-1 fees, taxes, brokerage,
interest and extraordinary expenses,
such as litigation costs, exceed 0.65% of its
average daily net assets for that
fiscal year. The 0.65% expense limitation
shall be in effect until it is
terminated by notice to shareholders and by
supplement to the then current
prospectus.
PORTFOLIO MANAGEMENT
Peter M. Coffey, a Managing Director of
Smith Barney, has served as Vice
President of the Fund and portfolio manager
of the Portfolio since its inception
(April 27, 1993) and manages its day to day
operations, including making all
investment decisions. Mr. Coffey also serves
as the portfolio manager for the
Fund's other non-money market Portfolios.
Management's discussion and analysis,
and additional performance
information regarding the Portfolio during
the fiscal year ended March 31, 1995
is included in the Annual Report dated March
31, 1995. A copy of the Annual
Report may be obtained upon requestand
without charge from a Smith Barney
Financial Consultant or by writing or calling
the Fund at the address or phone
number listed on page one of this Prospectus.
33
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
a service fee with respect to Class A and
Class C shares of the Portfolio at the
annual rate of 0.15% of the average daily net
assets attributable to these
Classes. Smith Barney is also paid a
distribution fee with respect to Class C
shares at the annual rate of 0.20% of the
average daily net assets attributable
to these shares. The fees are used by Smith
Barney to pay its Financial
Consultants for servicing shareholder
accounts and, in the case of Class C
shares, to cover expenses primarily intended
to result in the sale of those
shares. These expenses include: advertising
expenses; the cost of printing and
mailing prospectuses to potential investors;
payments to and expenses of Smith
Barney Financial Consultants and other
persons who provide support services in
connection with the distribution of shares;
interest and/or carrying charges;
and indirect and overhead costs of Smith
Barney associated with the sale of
Portfolio shares, including lease, utility,
communications and sales promotion
expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A and
Class C shares, a continuing fee
for servicing shareholder accounts for as
long as a shareholder remains a holder
of that Class. Smith Barney Financial
Consultants may receive different levels
of compensation for selling different Classes
of shares.
Payments under the Plan with respect to
Class C shares are not tied
exclusively to the distribution and
shareholder services expenses actually
incurred by Smith Barney and the payments may
exceed distribution expenses
actually incurred. The Fund's Trustees will
evaluate the appropriateness of the
Plan and its payment terms on a continuing
basis and in so doing will consider
all relevant factors, including expenses
borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end non-diversified,
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
34
<PAGE>
Smith Barney Muni Funds -
Florida Limited Term Portfolio
=============================================
===================================
Additional Information (continued)
=============================================
===================================
one of twenty separate Portfolios. The assets
of each Portfolio are segregated
and separately managed. Class A, Class C and
Class Y shares of the Portfolio
represent interests in the assets of the
Portfolio and have identical voting,
dividend, liquidation and other rights on the
same terms and conditions, except
that expenses related to the service and
distribution of Class A and Class C
shares are borne by the respective Class and
each such Class of shares has
exclusive voting rights with respect to
provisions of the Portfolio's Rule 12b-1
distribution plan which pertain to that
Class. It is the intention of the Fund
not to hold annual meetings of shareholders.
The Trustees may call meetings of
shareholders for action by shareholder vote
as may be required by the 1940 Act
or the Declaration of Trust, and shareholders
are entitled to call a meeting of
shareholders upon a vote of 10% of the Fund's
outstanding shares for purposes of
voting on removal of a Trustee or Trustees.
Shareholders will receive assistance
in communicating with other shareholders in
connection with the removal of
Trustees as required by Section 16(c) of the
Act. Shares do not have cumulative
voting rights or preemptive rights and have
only such conversion or exchange
rights as the Trustees may grant in their
discretion. When issued for payment as
described in this Prospectus, the Fund's
shares will be fully paid and
transferrable (subject to the Portfolio's
minimum account size). Shares are
redeemable as set forth under "Redemption of
Shares" and are subject to
involuntary redemption as set forth under
"Minimum Account Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, PA 19103, serves as custodian
of the Portfolio's investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the
Portfoilo at the end of the period covered.
In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to
consolidate the mailing of its
semi-annual and annual reports by household.
This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report. In
addition, the Fund also plans to
consolidate the mailing of its Prospectus so
that a shareholder having multiple
accounts will receive a single Prospectus
annually. Shareholders who do not want
this consolidation to apply to their account
should contact their Smith Barney
Financial Consultant or the Fund's transfer
agent.
35
<PAGE>
SMITH BARNEY
- ------------
A
Member of the Travelers Group [Logo]
Smith Barney
Muni Funds
Florida Limited
Term Portfolio
388 Greenwich Street
New York, New York 10013
FD 0606 7/95
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
Georgia
Portfolio
JULY 31, 1995
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Georgia Portfolio (the "Portfolio")
is one of thirteen investment
portfolios that currently comprise Smith
Barney Muni Funds (the "Fund"). The
Portfolio seeks to pay its shareholders as
high a level of income exempt from
Federal income taxes and Georgia personal
income taxes as is consistent with
prudent investing. The Portfolio will invest
primarily in obligations issued by
the State of Georgia and its political
subdivisions, agencies and
instrumentalities. The Portfolio may invest
without limit in municipal
obligations whose interest is a tax
preference item for purposes of the Federal
alternative minimum tax.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including sales charges,
distribution and service fees and
expenses, that prospective investors will
find helpful in making an investment
decision. Investors are encouraged to read
this Prospectus carefully and retain
it for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated JULY 31, 1995,
as amended or supplemented from time
to time, that is available upon request and
without charge by calling or writing
the Fund at the telephone number or address
set forth above or by contacting a
Smith Barney Financial Consultant. The
Statement of Additional Information has
been filed with the Securities and Exchange
Commission (the "SEC") and is
incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Prospectus Summary
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
10
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
11
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
16
- ---------------------------------------------
- -----------------------------------
Dividends, Distributions and Taxes
16
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
19
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
26
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
29
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
31
- ---------------------------------------------
- -----------------------------------
Performance
31
- ---------------------------------------------
- -----------------------------------
Management of the Fund
32
- ---------------------------------------------
- -----------------------------------
Distributor
34
- ---------------------------------------------
- -----------------------------------
Additional Information
35
=============================================
===================================
=============================================
===================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
=============================================
===================================
2
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Prospectus Summary
=============================================
===================================
The following summary is qualified in
its entirety by detailed information
appearing elsewhere in this Prospectus and in
the Statement of Additional
Information. Cross references in this summary
are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio seeks
to pay its shareholders as high a
level of income exempt from Federal income
taxes and Georgia personal income
taxes as is consistent with prudent
investing. The Portfolio will invest
primarily in obligations issued by the State
of Georgia and its political
subdivisions, agencies and instrumentalities.
The Portfolio may invest without
limit in municipal obligations whose interest
is a tax-preference item for
purposes of the Federal alternative minimum
tax. See "Investment Objective and
Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The
Portfolio offers several classes of
shares ("Classes") to investors designed to
provide them with the flexibility of
selecting an investment best suited to their
needs. The general public is
offered three Classes of shares: Class A
shares, Class B shares and Class C
shares, which differ principally in terms of
sales charges and rate of expenses
to which they are subject. A fourth Class of
shares, Class Y shares, is offered
only to investors meeting an initial
investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of
Shares."
Class A Shares. Class A shares are sold
at net asset value plus an initial
sales charge of up to 4.00% and are subject
to an annual service fee of 0.15% of
the average daily net assets of the Class.
The initial sales charge may be
reduced or waived for certain purchases.
Purchases of Class A shares, which when
combined with current holdings of Class A
shares offered with a sales charge
equal or exceed $500,000 in the aggregate,
will be made at net asset value with
no initial sales charge, but will be subject
to a contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made
within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial
Sales Charge."
Class B Shares. Class B shares are
offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds,
declining by 0.50% the first year
after purchase and by 1.00% each year
thereafter to zero. This CDSC may be
waived for certain redemptions. Class B
shares are subject to an annual service
fee of 0.15% and an annual distribution fee
of 0.50% of the average daily net
assets of the Class. The Class B shares'
distribution fee may cause that Class
to have higher expenses and pay lower
dividends than Class A shares.
Class B Shares Conversion Feature. Class
B shares will convert
automatically to Class A shares, based on
relative net asset value, eight years
3
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
after the date of the original purchase. Upon
conversion, these shares will no
longer be subject to an annual distribution
fee. In addition, a certain portion
of Class B shares that have been acquired
through the reinvestment of dividends
and distributions ("Class B Dividend Shares")
will be converted at that time.
See "Purchase of Shares -- Deferred Sales
Charge Alternatives."
Class C Shares. Class C shares are sold
at net asset value with no initial
sales charge. They are subject to an annual
service fee of 0.15% and an annual
distribution fee of 0.55% of the average
daily net assets of the Class and
investors pay a CDSC of 1.00% if they redeem
Class C shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have
higher expenses and pay lower
dividends than Class A shares. Purchases of
Portfolio shares, which when
combined with current holdings of Class C
shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be
made in Class A shares at net asset
value with no sales charge, and will be
subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase.
Class Y Shares. Class Y shares are
available only to investors meeting an
initial investment minimum of $5,000,000.
Class Y shares are sold at net asset
value with no initial sales charge or CDSC.
They are not subject to any service
or distribution fees.
In deciding which Class of Portfolio
shares to purchase, investors should
consider the following factors, as well as
any other relevant facts and
circumstances:
Intended Holding Period. The decision as
to which Class of shares is more
beneficial to an investor depends on the
amount and intended length of his or
her investment. Shareholders who are planning
to establish a program of regular
investment may wish to consider Class A
shares; as the investment accumulates
shareholders may qualify for reduced sales
charges and the shares are subject to
lower ongoing expenses over the term of the
investment. As an alternative, Class
B and Class C shares are sold without any
initial sales charge so their entire
purchase price is immediately invested in the
Portfolio. Any investment return
on these additional invested amounts may
partially or wholly offset the higher
annual expenses of these Classes. Because the
Portfolio's future return cannot
be predicted, however, there can be no
assurance that this would be the case.
Finally, investors should consider the
effect of the CDSC period and any
conversion rights of the Classes in the
context of their own investment time
frame. For example, while Class C shares have
a shorter CDSC period than Class B
shares, they do not have a conversion
feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B
shares may be more attractive than Class
C shares to investors with longer term
investment outlooks.
4
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Investors investing a minimum of
$5,000,000 must purchase Class Y shares,
which are not subject to an initial sales
charge, CDSC or service or
distribution fees. The maximum purchase
amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares
is $499,999. There is no maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The
initial sales charge on Class A
shares may be waived for certain eligible
purchasers and the entire purchase
price would be immediately invested in the
Portfolio. In addition, Class A share
purchases, which when combined with current
holdings of Class A shares offered
with a sales charge equal or exceed $500,000
in the aggregate, will be made at
net asset value with no initial sales charge,
but will be subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The $500,000 aggregate
investment may be met by adding the purchase
to the net asset value of all Class
A shares offered with a sales charge held in
funds sponsored by Smith Barney
Inc. ("Smith Barney") listed under "Exchange
Privilege." Class A share purchases
may also be eligible for a reduced initial
sales charge. See "Purchase of
Shares." Because the ongoing expenses of
Class A shares may be lower than those
for Class B and Class C shares, purchasers
eligible to purchase Class A shares
at net asset value or at a reduced sales
charge should consider doing so.
Smith Barney Financial Consultants may
receive different compensation for
selling each Class of shares. Investors
should understand that the purpose of
the CDSC on the Class B and Class C shares is
the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management
of the Fund" for a complete
description of the sales charges and service
and distribution fees for each
Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes"
and "Exchange Privilege" for other
differences between the Classes of shares.
PURCHASE OF SHARES Shares may be
purchased through the Portfolio's
distributor, Smith Barney, a broker that
clears securities transactions through
Smith Barney on a fully disclosed basis (an
"Introducing Broker") or an
investment dealer in the selling group. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class
A, Class B and Class C shares may
open an account by making an initial
investment of at least $1,000 for each
account. Investors in Class Y shares may open
an account for an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. The minimum initial investment
requirement for Class A, Class B and
Class C shares and the subsequent investment
for all Classes through the
Systematic Investment Plan described below is
$50. It is not recommended that
5
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
the Portfolio be used as a vehicle for Keogh,
IRA or other qualified retirement
plans. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a Systematic
Investment Plan under which they may
authorize the automatic placement of a
purchase order each month or quarter for
Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be
redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Smith Barney
Mutual Funds Management Inc.
("SBMFM" or the "Manager") serves as the
Portfolio's investment manager. SBMFM
provides investment advisory and management
services to investment companies
affiliated with Smith Barney. SBMFM is a
wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of Travelers
Group Inc. ("Travelers"), a diversified
financial services holding company
engaged, through its subsidiaries,
principally in four business segments:
Investment Services, Consumer Finance
Services, Life Insurance Services and
Property & Casualty Insurance Services. As of
March 31, 1995, SBMFM had
aggregate assets under management in excess
of $54 billion. See "Management of
the Fund."
EXCHANGE PRIVILEGE Shares of a Class may
be exchanged for shares of the
same Class of certain other funds of the
Smith Barney Mutual Funds at the
respective net asset values next determined,
plus any applicable sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of
the Portfolio for the prior day
generally is quoted daily in the financial
section of most newspapers and is
also available from a Smith Barney Financial
Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends
are paid monthly from net investment
income. Distributions of net realized capital
gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of a
Class will be reinvested automatically,
unless otherwise specified by an
investor, in additional shares of the same
Class at current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or CDSC. Class B shares
acquired through dividend and
distribution reinvestments will become
eligible for conversion to Class A shares
on a pro rata basis. See "Dividends,
Distributions and Taxes."
6
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
RISK FACTORS AND SPECIAL CONSIDERATIONS
There can be no assurance that the
Portfolio's investment objective will be
achieved. The Portfolio's concentration
in Georgia obligations involves certain
additional risks that should be
carefully considered by an investor.
Additionally, the value of the Portfolio's
investments, and thus the net asset value of
the Portfolio's shares, will
fluctuate in response to changes in market
and economic conditions, as well as
the financial condition and prospects of
issuers of municipal obligations
purchased by the Portfolio. The market value
of long-term municipal bonds may be
adversely effected during periods of rising
interest rates. Additionally,
changes in Federal income tax laws effecting
the tax exemption for interest on
municipal obligations could effect the
availability of tax exempt obligations
for purchase and the value of th Portfolio's
securities would be affected. See
"Investment Objective and Management
Policies."
7
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
THE PORTFOLIO'S EXPENSES The following
expense table lists the costs and
expenses an investor will incur either
directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales
charge or maximum CDSC that may be
incurred at the time of purchase or
redemption:
Class A Class B Class C Class Y
- ---------------------------------------------
- -----------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed
on purchases
(as a percentage of
offering price) .................
4.00% None None None
Maximum CDSC
(as a percentage of original
cost or redemption proceeds,
whichever is lower) ..............
None* 4.50% 1.00% None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees (after fee waiver)
................... 0.05% 0.05%
0.05% 0.05%
12b-1 fees*** .....................
0.15 0.65 0.70 --
Other expenses (after
reimbursement).................... 0.19
0.20 0.20 0.18
Total Portfolio Operating Expenses
0.39% 0.90% 0.95% 0.23%
==== ==== ==== ====
- ---------------------------------------------
- -----------------------------------
*Purchases of Class A shares, which when
combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions
made within 12 months.
**"Management fees" and "12b-1 fees"
have been restated to reflect current
expenses of the Portfolio. These expenses
reflect the management fee waiver currently
in effect for the Portfolio. Absent the fee
waiver, the management fee would be incurred
at the rate of 0.45% of each Class' average
daily assets for the current fiscal period.
After fee waiver and expense reimbursements,
total expenses are anticipated to be incurred
at the rate of 1.07%, 1.57%, 1.62% and 0.91%
for Class A, Class B, Class C and Class Y
shares, respectively. For Class Y shares,
"Other expenses" have been estimated because
no Class Y shares were oustanding for the
period ended March 31, 1995.
***Upon conversion of Class B shares to
Class A shares such shares will no
longer be subject to a distribution fee.
Class C shares do not have a conversion
feature and, therefore, are subject to an
ongoing distribution fee. As a result,
long-term shareholders of Class C shares may
pay more than the economic
equivalent of the maximum front-end sales
charge permitted by the National
Association of Securities Dealers, Inc.
The sales charge and CDSC set forth in
the above table are the maximum
charges imposed on purchases or redemptions
of Portfolio shares and investors
may actually pay lower or no charges,
depending on the amount purchased and, in
the case of Class B, Class C and certain
Class A shares, the length of time the
shares are held. See "Purchase of Shares" and
"Redemption of Shares." Smith
8
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Barney receives an annual 12b-1 service fee
of 0.15% of the value of average
daily net assets of Class A shares. Smith
Barney also receives with respect to
Class B shares an annual 12b-1 fee of 0.65%
of the value of average daily net
assets of that Class, consisting of a 0.50%
distribution fee and a 0.15% service
fee. With respect to Class C shares, Smith
Barney also receives an annual 12b-1
fee of 0.70% of the value of average daily
net assets of that Class, consisting
of a 0.55% distribution fee and a 0.15%
service fee. "Other expenses" in the
above table include fees for shareholder
services, custodial fees, legal and
accounting fees, printing costs and
registration fees.
EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares" and "Management of the
Fund."
1 Year 3 Years 5 Years 10 Years*
- ---------------------------------------------
- -----------------------------------
Aninvestor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the
end of each time period:
Class A ..............................
$44 $52 $61 $87
Class B ..............................
5459 60 96
Class C ..............................
2030 53 117
Class Y ..............................
2 7 13 29
Aninvestor would pay the following expenses
on the same investment, assuming the
same annual return and no redemption:
Class A ..............................
$44 $52 $61 $87
Class B ..............................
929 50 96
Class C ..............................
1030 53 117
Class Y ..............................
2 7 13 29
- ---------------------------------------------
- -----------------------------------
* Ten-year figures assume conversion of
Class B shares to Class A shares at
the end of the eighth year following the date
of purchase.
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses,
and actual expenses may be greater or
less than those shown.
9
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule of the Georgia
Portfolio of Smith Barney Muni Funds
has been audited in conjunction with the
annual audits of the financial
statements of Smith Barney Muni Funds by KPMG
Peat Marwick LLP, independent
auditors. The 1995 financial statements and
the independent auditors' report
thereon appear in the March 31, 1995 Annual
Report to Shareholders. No
information is presented for Class Yshares,
which were not outstanding for the
periods presented below.
For a Portfolio share outstanding throughout
each period:
1995
Class A(a) Class B(b) Class C(c)
- ---------------------------------------------
- -----------------------------------
Net Asset Value, Beginning of Period
$12.00 $12.27 $12.06
- ---------------------------------------------
- -----------------------------------
Income From Investment Operations:
Net investment income(1)
0.62 0.49 0.55
Net realized and unrealized gain (loss
on investments(2)
0.10 (0.16) 0.04
- ---------------------------------------------
- -----------------------------------
Total Income from Investment Operations
0.72 0.33 0.59
- ---------------------------------------------
- -----------------------------------
Less Distributions:
Dividends from net investment income
(0.62) (0.49) (0.56)
Distributions from net realized gains
on security transactions
- -- -- --
- ---------------------------------------------
- -----------------------------------
Total Distributions
(0.62) (0.49) (0.56)
- ---------------------------------------------
- -----------------------------------
Net Asset Value, End of Period
$12.10 $12.11 $12.09
- ---------------------------------------------
- -----------------------------------
Total Return*
6.29%++ 2.88%++ 5.11%++
- ---------------------------------------------
- -----------------------------------
Net Assets, End of Period (000s)
$8,520 $2,551 $1,295
- ---------------------------------------------
- -----------------------------------
Ratios to Average Net Assets:
Expenses(1)
0.28%+ 0.85%+ 0.90%+
Net investment income
5.43+ 5.37+ 5.22+
- ---------------------------------------------
- -----------------------------------
Portfolio Turnover Rate
34.05% 34.05% 34.05%
=============================================
===================================
(a) From April 4, 1994 (commencement of
operations) to March 31, 1995.
(b) From June 15, 1994 (inception date) to
March 31, 1995.
(c) From April 14, 1994 (inception date) to
March 31, 1995.
+ Annualized.
++ Not annualized as the result may not be
representative of the total return
for the year.
* Total returns do not reflect sales loads
or contingent deferred sales
charges.
(1) The manager has waived all of its fees
and reimbursed expenses of $42,317
for the year ended March 31, 1995. If
such fees were not waived and
expenses not reimbursed, the per share
decrease of net investment income
and the ratios of expenses to average
net assets would have been:
Expense Ratios
Per Share
Decreases Without Fee Waivers*
---------------
- ---- --------------------
Class A $0.12
1.20%+
Class B 0.11
1.82+
Class C 0.12
1.85+
* As a result of voluntary expense
limitations, expense ratios would not
exceed 0.80%, 1.30% and 1.35% for Class
A, B and C shares, respectively.
(2) Includes the net per share effect of
shareholder sales and redemptions
activity during the period, most of
which occurred at net asset values less
than the beginning of the period.
10
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The Portfolio seeks as high a level of
income exempt from Federal income
taxes and from the personal income taxes of
the State of Georgia, as is
consistent with prudent investing. The
Portfolio will invest primarily in
obligations of the State of Georgia and its
political subdivisions, agencies and
instrumentalities, the interest from which
is, in the opinion of bond counsel
for the various issuers, exempt from the
state's as well as Federal income taxes
at the time of their issuance. (For certain
shareholders, a portion of the
Portfolio's income may be subject to the
alternative minimum tax ("AMT") on
tax-exempt income discussed below.) Such
obligations are issued to raise money
for a variety of public projects that enhance
the quality of life including
health facilities, housing, airports,
schools, highways and bridges. The
Portfolio invests its assets in securities of
ranging maturities, without
limitation, depending on market conditions.
Typically, the remaining maturity of
municipal bonds will range between 5 and 30
years.
Under the Tax Reform Act of 1986,
interest income from municipal
obligations issued to finance certain
"private activities" ("AMT-Subject Bonds")
becomes an item of "tax preference" which is
subject to the AMT when received by
a person in a tax year during which he is
subject to that tax. Such private
activity bonds include bonds issued to
finance such projects as certain solid
waste disposal facilities, student loan
programs, and water and sewage projects.
Because interest income on AMT-Subject Bonds
is taxable to certain investors, it
is expected, although there can be no
guarantee, that such municipal obligations
generally will provide somewhat higher yields
than other municipal obligations
of comparable quality and maturity. There is
no limitation on the percent or
amount of the Portfolio's assets that may be
invested in AMT-Subject Bonds.
Municipal bonds purchased for the
Portfolio must, at the time of purchase,
be investment grade municipal bonds and at
least two-thirds of the Portfolio's
municipal bonds must be rated in the category
of A or better. Investment grade
bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc.
("Moody's") and AAA, AA, A and BBB by
Standard & Poor's Corporation ("S&P") or
have an equivalent rating by any nationally
recognized statistical rating
organization; pre-refunded bonds escrowed by
U.S. Treasury obligations will be
considered AAA rated even though the issuer
does not obtain a new rating. Up to
one-third of the assets of the Portfolio may
be invested in municipal bonds
rated Baa or BBB (this grade, while regarded
as having an adequate capacity to
pay interest and repay principal, is
considered to be of medium quality and has
speculative characteristics) or in unrated
municipal bonds if, based upon credit
analysis by the Manager, it is believed that
such securities are at least of
comparable quality to those securities in
which the Portfolio may invest. In
11
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
determining the suitability of an investment
in an unrated municipal bond, the
Manager will take into consideration debt
service coverage, the purpose of the
financing, history of the issuer, existence
of other rated securities of the
issuer and other general conditions as may be
relevant, including comparability
to other issues. After the Portfolio
purchases a municipal bond, the issue may
cease to be rated or its rating may be
reduced below the minimum required for
purchase. Such an event would not require the
elimination of the issue from the
Portfolio but the Manager will consider such
an event in determining whether the
Portfolio should continue to hold the
security.
The Portfolio's short-term municipal
obligations will be limited to high
grade obligations (obligations that are
secured by U.S. Government securities or
are rated MIG 1 or MIG 2, VMIG 1 or VMIG 2 or
Prime-1 or Aa or better by Moody's
or SP-1+, SP-1, SP-2, or A-1 or AA or better
by S&P or have an equivalent rating
by any nationally recognized statistical
rating organization or obligations
determined by the Manager to be equivalent).
Among the types of short-term
instruments in which the Portfolio may invest
are floating or variable rate
demand instruments, tax-exempt commercial
paper (generally having a maturity of
less than nine months), and other types of
notes generally having maturities of
less than three years, such as Tax
Anticipation Notes, Revenue Anticipation
Notes, Tax and Revenue Anticipation Notes and
Bond Anticipation Notes. Demand
instruments usually have an indicated
maturity of over one year, but contain a
demand feature that enables the holder to
redeem the investment on no more than
30 days' notice; variable rate demand
instruments provide for automatic
establishment of a new interest rate on set
dates; floating rate demand
instruments provide for automatic adjustment
of their interest rates whenever
some other specified interest rate changes
(e.g., the prime rate). The Portfolio
may purchase participation interests in
variable rate tax-exempt securities
(such as Industrial Development Bonds) owned
by banks. Participations are
frequently backed by an irrevocable letter of
credit or guarantee of a bank that
the Manager has determined meets the
prescribed quality standards for the
Portfolio. Participation interests will be
purchased only if management believes
interest income on such interests will be tax-
exempt when distributed as
dividends to shareholders.
The Portfolio will not invest more than
15% of the value of its net assets
in illiquid securities, including those that
are not readily marketable or for
which there is no established market.
The Portfolio may purchase new issues of
municipal obligations on a
when-issued basis, i.e. delivery and payment
normally take place 15 to 45 days
after the purchase date. The payment
obligation and the interest rate to be
12
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
received are each fixed on the purchase date,
although no interest accrues with
respect to a when-issued security prior to
its stated delivery date. During the
period between purchase and settlement,
assets consisting of cash or liquid high
grade debt securities, marked-to-market
daily, of a dollar amount sufficient to
make payment at settlement will be segregated
at the custodian bank. Interest
rates at settlement may be lower or higher
than on the purchase date, which
would result in appreciation or depreciation,
respectively. Although a Portfolio
will only purchase a municipal obligation on
a when-issued basis with the
intention of actually acquiring the
securities, the Portfolio may sell these
securities before the settlement date if it
is deemed advisable.
Portfolio transactions will be
undertaken primarily to accomplish the
Portfolio's objective in relation to
anticipated movements in the general level
of interest rates, but the Portfolio may also
engage in short-term trading
consistent with its objective.
The Portfolio may invest in municipal
bond index futures contracts
(currently traded on the Chicago Board of
Trade) or in listed contracts based on
U.S. Government securities as a hedging
policy in pursuit of its investment
objective; provided that immediately
thereafter not more than 33 1/3% of its net
assets would be hedged or the amount of
margin deposits on the Portfolio's
existing futures contracts would not exceed
5% of the value of its total assets.
Since any income would be taxable, it is
anticipated that such investments will
be made only in those circumstances when the
Manager anticipates the possibility
of an extreme change in interest rates or
market conditions but does not wish to
liquidate the Portfolio's securities. A
further discussion of futures contracts
and their associated risks is contained in
the Statement of Additional
Information.
It is a fundamental policy that under
normal market conditions, the
Portfolio will seek to invest 100% of its
assets - and the Portfolio will invest
not less than 80% of its assets - in
municipal obligations the interest on which
is exempt from Federal income taxes (other
than the alternative minimum tax). It
is also a fundamental policy that under
normal market conditions, the Portfolio
will invest at least 65% of its assets in
municipal obligations the interest on
which is also exempt from the personal income
taxes of the State of Georgia in
the opinion of bond counsel to the issuers.
The Portfolio may invest up to 20%
of its assets in taxable fixed-income
securities, but only in obligations issued
or guaranteed by the full faith and credit of
the United States, and may invest
more than 20% of its assets in U.S.
Government securities during periods when in
the Manager's opinion a temporary defensive
posture is warranted, including any
period when the Portfolio's monies available
for investment exceed the municipal
13
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
obligations available for purchase that meet
the Portfolio's rating, maturity
and other investment criteria. To the extent
the Portfolio is so invested, the
investment objective may not be achieved.
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve
its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the municipal bond
markets, the size of a particular offering,
the maturity of the obligation and
the rating of the issue. In general, the
longer the maturity of a municipal
obligation, the higher the rate of interest
it pays. However, a longer average
maturity is generally associated with a
higher level of volatility in the market
value of a municipal obligation. During
periods of falling interest rates, the
values of long-term, municipal obligations
generally rise. Conversely, during
periods of rising interest rates, the values
of such securities generally
decline. Changes in the value of portfolio
securities will not affect interest
income derived from those securities but will
affect the Portfolio's net asset
value. Since the Portfolio's objective is to
provide high current income, it
will invest in municipal obligations with an
emphasis on income rather than
stability of net asset value.
The Fund is registered as a "non-
diversified" company under the Investment
Company Act of 1940 ( the "1940 Act"), in
order for the Portfolio to have the
ability to invest more than 5% of its assets
in the securities of any issuer.
The Portfolio intends to comply with
Subchapter M of the Internal Revenue Code
(the "Code") that limits the aggregate value
of all holdings (except U.S.
Government and cash items, as defined in the
Code) that exceed 5% of the
Portfolio's total assets to an aggregate
amount of 50% of such assets. Also,
holdings of a single issuer (with the same
exceptions) may not exceed 25% of the
Portfolio's total assets. These limits are
measured at the end of each quarter.
Under the Subchapter M limits, "non-
diversification" allows up to 50% of the
Portfolio's total assets to be invested in as
few as two single issuers. In the
event of decline of creditworthiness or
default upon the obligations of one or
more such issuers exceeding 5%, an investment
in the Portfolio will entail
greater risk than in a portfolio having a
policy of "diversification" because a
high percentage of the Portfolio's assets may
be invested in municipal
obligations of one or two issuers.
Furthermore, a high percentage of investments
among few issuers may result in a greater
degree of fluctuation in the market
value of the assets of the Portfolio, and
consequently a greater degree of
14
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
fluctuation of the Portfolio's net asset
value, because the Portfolio will be
more susceptible to economic, political, or
regulatory developments affecting
these securities than would be the case with
a portfolio composed of varied
obligations of more issuers.
RISK FACTORS AFFECTING GEORGIA
Georgia's economy has experienced
sustained economic expansion, a low debt
burden, conservative fiscal management, and
historically strong, but recently
weakened, financial position. Since 1980,
Georgia's employment gains
substantially exceeded that of the region and
the U.S. Despite slower growth
projections over the near term, the long-term
rate of increase is still expected
to exceed the national average. While general
obligation debt issuances have
increased recently, debt burden remains low
and the retirement schedule is
rapid. The Portfolio's ability to achieve
its investment objective is dependent upon
the ability of the issuers of Georgia
obligations to meet their continuing
obligations for the payment of principal and
interest. The Portfolio's concentration in
Georgia obligations involves certain
additional risks that should be considered
carefully by investors. Certain Georgia
constitutional and statutory limitations with
respect to indebtedness incurred by Georgia
governmental entities, departmentsand
agencies could result in certain adverse
consequences affecting Georgia obligations
and may have the effect of impairing the
ability of certain issuers of Georgia
obligations to pay principal and interest on
their obligations.
Additional information regarding the state is
included in the Statement of
Additional Information.
PORTFOLIO TRANSACTIONS AND TURNOVER
Portfolio securities ordinarily are
purchased from and sold to parties
acting as either principal or agent. Newly
issued securities ordinarily are
purchased directly from the issuer or from an
underwriter; other purchases and
sales usually are placed with those dealers
from which it appears that the best
price or execution will be obtained. Usually
no brokerage commissions, as such,
are paid by the Portfolio for purchases and
sales undertaken through principal
transactions, although the price paid usually
includes an undisclosed
compensation to the dealer acting as agent.
The Portfolio cannot accurately predict
its portfolio turnover rate, but
anticipates that the annual turnover will not
exceed 100%. An annual turnover
rate of 100% would occur when all of the
securities held by the Portfolio are
replaced one time during a period of one
year. The Manager will not consider
15
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
turnover rate a limiting factor in making
investment decisions consistent with
the investment objective and policies of the
Portfolio.
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on the NYSE, which is
currently 4:00 P.M. New York City time on
each day that the NYSE is open, by dividing
the Portfolio's net assets
attributable to each Class by the total
number of shares of the Class
outstanding.
When, in the judgment of the pricing
service, quoted bid prices for
investments are readily available and are
representative of the bid side of the
market, these investments are valued at the
mean between the quoted bid and
asked prices. Investments for which, in the
judgment of the pricing service,
there is no readily obtainable market
quotation (which may constitute a majority
of the portfolio securities) are carried at
fair value of securities of similar
type, yield and maturity. Pricing services
generally determine value by
reference to transactions in municipal
obligations, quotations from municipal
bond dealers, market transactions in
comparable securities and various
relationships between securities. Short-term
instruments maturing within 60 days
will be valued at cost plus (minus) amortized
discount (premium), if any, when
the Trustees have determined that amortized
cost equals fair value. Securities
and other assets that are not priced by a
pricing service and for which market
quotations are not available will be valued
in good faith at fair value by or
under the direction of the Trustees.
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of the
Portfolio's net investment income are
declared and paid monthly and any realized
capital gains are declared and
distributed annually.
If a shareholder does not otherwise
instruct, dividends and capital gain
distributions will be reinvested
automatically in additional shares of the
same
Class at net asset value, subject to no sales
charge or CDSC.
Income dividends and capital gain
distributions that are invested are
credited to shareholders' accounts in
additional shares at the net asset value
as of the close of business on the payment
date. A shareholder may change the
option at any time by notifying his or her
Financial Consultant. Accounts held
16
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
directly by the Fund's transfer agent, The
Shareholder Services Group Inc.
("TSSG") should notify TSSG in writing at
least five business days prior to the
payment date to permit the change to be
entered in the shareholder's account.
The per share dividends on Class B and
Class C shares of the Portfolio may
be lower than the per share dividends on
Class A and Class Y shares principally
as a result of the distribution fee
applicable with respect to Class B and Class
C shares. The per share dividends on Class A
shares of the Portfolio may be
lower than the per share dividends on Class Y
shares principally as a result of
the service fee applicable to Class A shares.
Distributions of capital gains, if
any, will be in the same amount for Class A,
Class B, Class C and Class Y
shares.
TAXES
The Portfolio intends to qualify as a
"regulated investment company" and to
meet the requirements for distributing
"exempt-interest dividends" under the
Internal Revenue Code (the "Code") so that no
Federal income taxes will be
payable by the Portfolio and dividends
representing net interest received on
municipal obligations will not be includable
by shareholders in their gross
income for Federal income tax purposes. To
the extent dividends are derived from
taxable income from temporary investments,
market discounts or from the excess
of net short-term capital gain over net long-
term capital loss, they are treated
as ordinary income whether the shareholder
has elected to receive them in cash
or in additional shares. Capital gains
distributions, if any, whether paid in
cash or invested in shares of the Portfolio,
will be taxable to shareholders.
Exempt-interest dividends allocable to
interest received by the Portfolio
from the AMT-Subject Bonds in which the
Portfolio may invest will be treated as
interest paid directly on such obligations
and will give rise to an "item of tax
preference" that will increase a
shareholder's alternative minimum taxable
income. In addition, for corporations,
alternative minimum taxable income will
be increased by a percentage of the amount by
which a special measure of income
(including exempt-interest dividends) exceeds
the amount otherwise determined to
be alternative minimum taxable income.
Accordingly, investment in the Portfolio
may cause shareholders to be subject to (or
result in an increased liability
under) the AMT. The Fund will annually
furnish to its shareholders a report
indicating the ratable portion of exempt-
interest dividends attributable to
AMT-Subject Bonds.
The Portfolio will be treated as a
separate regulated investment company
for Federal tax purposes. Accordingly, the
Portfolio's net investment income is
determined separately based on the income
earned on its securities less its
costs of operations. The Portfolio's net long-
term and short-term gain (loss)
17
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
realized on investments is determined after
offsetting any capital loss
carryover of the Portfolio from prior
periods.
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Portfolio will not be
deductible to the extent that the
Portfolio's distributions are exempt from
Federal income tax. In addition, any
loss realized upon the redemption of shares
held less than 6 months will be
disallowed to the extent of any exempt-
interest dividends received by the
shareholder during such period. Further,
persons who may be "substantial users"
(or "related persons" of substantial users)
of facilities financed by industrial
development bonds should consult their tax
advisors concerning an investment in
the Portfolio.
GEORGIA TAXES
Dividends and distributions by the
Portfolio to a Georgia resident that are
attributable to interest on Georgia municipal
obligations or direct obligations
of the United States and its territories and
possessions will not be subject to
the State of Georgia income tax. Dividends or
other distributions by the
Portfolio which are attributable to other
sources, including all distributions
that qualify as capital gains dividends for
Federal income tax purposes, will be
subject to the State of Georgia income tax at
the applicable rate. There is no
specific statutory or regulatory exception
that would exempt shares of a
regulated investment company, including
regulated investment companies that only
hold municipal obligations or other direct
obligations of the United States and
its territories and possessions, from the
Georgia intangibles tax. Except, the
Georgia Department of Revenue has now
conceded that the intangibles tax does not
apply to shares of a mutual fund or a unit
investment trust to the extent the
value of the shares reflects the value of
U.S. Government Securities held by the
fund, if the fund or trust is organized as a
business trust.
Investors purchasing municipal
obligations of their state of residence, or
a fund comprised of such obligations, should
recognize that the benefits of the
exemption from local taxes, in addition to
the exemption from Federal taxes,
necessarily limits the Portfolio's ability to
diversify geographically. The
Portfolio will make available annually to its
shareholders information
concerning the tax status of its
distributions, including the amount of its
dividends designated as exempt-interest
dividends and as capital gains
dividends.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of revelance to
particular investors is contained in
the Statement of Additional Information.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
18
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Purchase of Shares
=============================================
===================================
GENERAL
The Portfolio offers four Classes of
shares. Class A shares are sold to
investors with an initial sales charge and
Class B and Class C shares are sold
without an initial sales charge but are
subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without
an initial sales charge or CDSC and
are available only to investors investing a
minimum of $5,000,000. See
"Prospectus Summary-Alternative Purchase
Arrangements" for a discussion of
factors to consider in selecting which Class
of shares to purchase.
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney, an Introducing
Broker or an investment dealer in
the selling group. When purchasing shares of
the Portfolio, investors must
specify whether the purchase is for Class A,
Class B, Class C or Class Y shares.
No maintenance fee will be charged by the
Portfolio in connection with a
brokerage account through which an investor
purchases or holds shares.
Investors in Class A, Class B and Class
C shares may open an account by
making an initial investment of at least
$1,000 for each account in the
Portfolio. Investors in Class Y shares may
open an account by making an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. For participants in the
Portfolio's Systematic Investment Plan, the
minimum initial investment requirement for
Class A, Class B and Class C shares
and the subsequent investment requirement for
all Classes is $50. There are no
minimum investment requirements in Class A
for employees of Travelers and its
subsidiaries, including Smith Barney, and
Trustees of the Fund, and their
spouses and children. The Fund reserves the
right to waive or change minimums,
to decline any order to purchase its shares
and to suspend the offering of
shares from time to time. Shares purchased
will be held in the shareholder's
account by the Fund's transfer agent, TSSG, a
subsidiary of First Data
Corporation. Share certificates are issued
only upon a shareholder's written
request to TSSG. It is not recommended that
the Portfolio be used as a vehicle
for Keogh, IRA or other qualified retirement
plans.
Purchase orders received by the Fund or
Smith Barney prior to the close of
regular trading on the NYSE, on any day the
Portfolio calculates its net asset
value, are priced according to the net asset
value determined on that day (the
"trade date"). Orders received by dealers or
introducing brokers prior to the
close of regular trading on the NYSE on any
day the Portfolio calculates its net
asset value, are priced according to the net
asset value determined on that day,
provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. Payment for
Portfolio shares is due on the third
business day after the trade date.
19
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
TSSG is authorized through
preauthorized transfers of $50 or more to
charge the regular bank account or
other financial institution indicated by the
shareholder on a monthly or
quarterly basis to provide systematic
additions to the shareholder's Portfolio
account. A shareholder who has insufficient
funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney
or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply
cash held in the shareholder's Smith
Barney brokerage account or redeem the
shareholder's shares of a Smith Barney
money market fund to make additions to the
account. Additional information is
available from the Fund or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE - CLASS
A SHARES
The sales charges applicable to
purchases of Class A shares of the
Portfolio are as follows:
=============================================
===================================
Sales
Charge
--------
- ---- Dealer's
% of
% of Amount Reallowance as % of
Amount of Investment Offering Price
Invested Offering Price
- ---------------------------------------------
- -----------------------------------
Less than $25,000 4.00%
4.17% 3.60%
$ 25,000- 49,999 3.50
3.63 3.15
50,000- 99,999 3.00
3.09 2.70
100,000-249,999 2.50
2.56 2.25
250,000-449,999 1.50
1.52 1.25
500,000 and over* *
* *
=============================================
===================================
* Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
without any initial sales charge, but
will be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The CDSC on Class A shares is
payable to Smith Barney, which
compensates Smith Barney Financial
Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC
is waived in the same circumstances
in which the CDSC applicable to Class B and
Class C shares is waived. See
"Deferred Sales Charge Alternatives" and
"Waivers of CDSC."
Members of the selling group may receive
up to 90% of the sales charge and
may be deemed to be underwriters of the Fund
as defined in the Securities Act of
1933, as amended.
20
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
The reduced sales charges shown above
apply to the aggregate of purchases
of Class A shares of the Portfolio made at
one time by "any person," which
includes an individual, his or her spouse and
children, or a trustee or other
fiduciary of a single trust estate or single
fiduciary account. The reduced
sales charge minimums may also be met by
aggregating the purchase with the net
asset value of all Class A shares offered
with a sales charge held in funds
sponsored by Smith Barney listed under
"Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made
at net asset value without a sales
charge in the following circumstances: (a)
sales of Class A shares to Trustees
of the Fund, employees of Travelers and its
subsidiaries and employees of
members of the National Association of
Securities Dealers, Inc., or to the
spouses and children of such persons
(including the surviving spouse of a
deceased Trustee or employee, and retired
Trustees or employees); (b) offers of
Class A shares to any other investment
company in connection with the
combination of such company with the
Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares
by any client of a newly employed
Smith Barney Financial Consultant (for a
period up to 90 days from the
commencement of the Financial Consultant's
employment with Smith Barney), on the
condition the purchase of Class A shares is
made with the proceeds of the
redemption of shares of a mutual fund which
(i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to
the client by the Financial
Consultant and (iii) was subject to a sales
charge; (d) shareholders who have
redeemed Class A shares in the Portfolio (or
Class A shares of another fund of
the Smith Barney Mutual Funds that are sold
with a sales charge equal to or
greater than the maximum sales charge of the
Portfolio) and who wish to reinvest
their redemption proceeds in the Portfolio,
provided the reinvestment is made
within 60 calendar days of the redemption;
and (e) accounts managed by
registered investment advisory subsidiaries
of Travelers. In order to obtain
such discounts, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of a Portfolio may be
purchased by "any person" (as defined
above) at a reduced sales charge or at net
asset value determined by aggregating
the dollar amount of the new purchase and the
total net asset value of all Class
A shares of the Portfolio and of funds
sponsored by Smith Barney which are
offered with a sales charge listed under
"Exchange Privilege" then held by such
21
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
person and applying the sales charge
applicable to such aggregate. In order to
obtain such discount, the purchaser must
provide sufficient information at the
time of purchase to permit verification that
the purchase qualifies for the
reduced sales charge.The right of
accumulation is subject to modification or
discontinuance at any time with respect to
all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated
systems, a reduced sales charge or
purchase at net asset value will also be
available to employees (and partners)
of the same employer purchasing as a group,
provided each participant makes the
minimum initial investment required. The
sales charge applicable to purchases by
each member of such a group will be
determined by the table set forth under
"Initial Sales Charge Alternative -- Class A
Shares," and will be based upon the
aggregate sales of Class A shares of Smith
Barney Mutual Funds offered with a
sales charge to, and share holdings of, all
members of the group. To be eligible
for such reduced sales charges or to purchase
at net asset value, all purchases
must be pursuant to an employer- or
partnership-sanctioned plan meeting certain
requirements. One such requirement is that
the plan must be open to specified
partners or employees of the employer and its
subsidiaries, if any. Such plan
may, but is not required to, provide for
payroll deductions. Smith Barney may
also offer a reduced sales charge or net
asset value purchase for aggregating
related fiduciary accounts under such
conditions that Smith Barney will realize
economies of sales efforts and sales related
expenses. An individual who is a
member of a qualified group may also purchase
Class A shares of the Portfolio at
the reduced sales charge applicable to the
group as a whole. The sales charge is
based upon the aggregate dollar value of
Class A shares offered with a sales
charge that have been previously purchased
and are still owned by the group,
plus the amount of the current purchase. A
"qualified group" is one which (a)
has been in existence for more than six
months, (b) has a purpose other than
acquiring Portfolio shares at a discount and
(c) satisfies uniform criteria
which enable Smith Barney to realize
economies of scale in its costs of
distributing shares. A qualified group must
have more than 10 members, must be
available to arrange for group meetings
between representatives of the Portfolio
and the members, and must agree to include
sales and other materials related to
the Portfolio in its publications and
mailings to members at no cost to Smith
Barney. In order to obtain such reduced sales
charge or to purchase at net asset
value, the purchaser must provide sufficient
information at the time of purchase
to permit verification that the purchase
qualifies for the reduced sales charge.
Approval of group purchase reduced sales
charge plans is subject to the
discretion of Smith Barney.
22
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
LETTER OF INTENT
Class A Shares. A Letter of Intent for
amounts of $50,000 or more provides
an opportunity for an investor to obtain a
reduced sales charge by aggregating
investments over a 13 month period, provided
that the investor refers to such
Letter when placing orders. For purposes of a
Letter of Intent, the "Amount of
Investment" as referred to in the preceding
sales charge table includes
purchases of all Class A shares of the
Portfolio and other funds of the Smith
Barney Mutual Funds offered with a sales
charge over the 13 month period based
on the total amount of intended purchases
plus the value of all Class A shares
previously purchased and still owned. An
alternative is to compute the 13 month
period starting up to 90 days before the date
of execution of a Letter of
Intent. Each investment made during the
period receives the reduced sales charge
applicable to the total amount of the
investment goal. If the goal is not
achieved within the period, the investor must
pay the difference between the
sales charges applicable to the purchases
made and the charges previously paid,
or an appropriate number of escrowed shares
will be redeemed. Please contact a
Smith Barney Financial Consultant or TSSG to
obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may
also be used as a way for investors
to meet the minimum investment requirement
for Class Y shares. Such investors
must make an initial minimum purchase of
$1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of
$5,000,000 of Class Y shares of the
same Portfolio within six months from the
date of the Letter. If a total
investment of $5,000,000 is not made within
the six-month period, all Class Y
shares purchased to date will be transferred
to Class A shares, where they will
be subject to all fees (including a service
fee of 0.15%) and expenses
applicable to the Portfolio's Class A shares,
which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial
Consultant or TSSG for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset
value next determined without an
initial sales charge so that the full amount
of an investor's purchase payment
may be immediately invested in the Portfolio.
A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC
Shares" are (a) Class B shares; (b)
Class C shares; and (c) Class A shares which
when combined with Class A shares
offered with a sales charge currently held by
an investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on
an amount equal to the lesser of
the original cost of the shares being
redeemed or their net asset value at the
23
<PAGE>
tiSmith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
time of redemption. CDSC Shares that are
redeemed will not be subject to a CDSC
to the extent that the value of such shares
represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of
dividends or capital gain
distributions; (c) with respect to Class B
shares, shares redeemed more than
five years after their purchase; or (d) with
respect to Class C shares and Class
A shares that are CDSC Shares, shares
redeemed more than 12 months after their
purchase.
Class C shares and Class A shares that
are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of
purchase. In circumstances in which
the CDSC is imposed on Class B shares, the
amount of the charge will depend on
the number of years since the shareholder
made the purchase payment from which
the amount is being redeemed. Solely for
purposes of determining the number of
years since a purchase payment, all purchase
payments made during a month will
be aggregated and deemed to have been made on
the last day of the preceding
Smith Barney statement month. The following
table sets forth the rates of the
charge for redemptions of Class B shares by
shareholders:
Year Since Purchase
Payment Was Made
CDSC
- ---------------------------------------------
- -----------------------------------
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth
0.00
Seventh
0.00
Eighth
0.00
- ---------------------------------------------
- -----------------------------------
Class B shares will convert
automatically to Class A shares eight years
after the date on which they were purchased
and thereafter will no longer be
subject to any distribution fees. There will
also be converted at that time such
proportion of Class B Dividend Shares owned
by the shareholder as the total
number of his or her Class B shares
converting at the time bears to the total
number of outstanding Class B shares (other
than Class B Dividend Shares) owned
by the shareholder. Shareholders who held
Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the
"Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange
those shares for Class B shares of
the Portfolio will be offered the opportunity
to exchange all such Class B
shares for Class A shares of the Portfolio
four years after the date on which
those shares were deemed to have been
purchased. Holders of such Class B shares
will be notified of the pending exchange in
writing approximately 30 days before
the fourth anniversary of the purchase date
and, unless the exchange has been
24
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
rejected in writing, the exchange will occur
on or about the fourth anniversary
date. See "Prospectus Summary -- Alternative
Purchase Arrangements -- Class B
Shares Conversion Feature."
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestment of
dividends and capital gain distributions
and finally of other shares held by the
shareholder for the longest period of
time. The length of time that CDSC Shares
acquired through an exchange have been
held will be calculated from the date that
the shares exchanged were initially
acquired in one of the other Smith Barney
Mutual Funds, and Portfolio shares
being redeemed will be considered to
represent, as applicable, capital
appreciation or dividend and capital gain
distribution reinvestments in such
other funds. For Federal income tax purposes,
the amount of the CDSC will reduce
the gain or increase the loss, as the case
may be, on the amount realized on
redemption. The amount of any CDSC will be
paid to Smith Barney.
To provide an example, assume an
investor purchased 100 Class B shares at
$10 per share for a cost of $1,000.
Subsequently, the investor acquired 5
additional shares through dividend
reinvestment. During the fifteenth month
after the purchase, the investor decided to
redeem $500 of his or her
investment. Assuming at the time of the
redemption the net asset value had
appreciated to $12 per share, the value of
the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would
not be applied to the amount which
represents appreciation ($200) and the value
of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable
rate for Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a)
exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal
to or less than 1.00% per month of
the value of the shareholder's shares at the
time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan")
(provided, however, that automatic cash
withdrawals in amounts equal to or less than
2.00% per month of the value of the
shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within twelve
months following the death or disability of
the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in
connection with a combination of
the Portfolio with any investment company by
merger, acquisition of assets or
otherwise. In addition, a shareholder who has
redeemed shares from other funds
of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all
25
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
or part of the redemption proceeds within 60
days and receive pro rata credit
for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A, Class B and
Class C shares are subject to
minimum investment requirements and all
shares are subject to other requirements
of the fund into which exchanges are made and
a sales charge differential may
apply.
FUND NAME
- ---------------------------------------------
- -----------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund
Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund
Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic
Income Fund
* Smith Barney Funds, Inc. -- Income
Return Account Portfolio
*** Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
26
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc.
Smith Barney California Municipals Fund
Inc.
* Smith Barney Intermediate Maturity
California Municipals Fund
* Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Managed Municipals Fund
Inc.
Smith Barney Massachusetts Municipals
Fund
* Smith Barney Muni Funds -- Florida
Limited Term Portfolio
Smith Barney Muni Funds -- Florida
Portfolio
* Smith Barney Muni Funds -- Limited Term
Portfolio
Smith Barney Muni Funds -- National
Portfolio
Smith Barney Muni Funds -- New York
Portfolio
Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney New York Municipals Fund
Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, inc. --
Pacific Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
*** Smith Barney Money Funds, Inc. -- Cash
Portfolio
*** Smith Barney Money Funds, Inc. --
Government Portfolio
++ Smith Barney Money Funds, Inc. --
Retirement Portfolio
27
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
*** Smith Barney Municipal Money Market
Fund, Inc.
*** Smith Barney Muni Funds -- California
Money Market Portfolio
*** Smith Barney Muni Funds -- New York
Money Market Portfolio
- ------------
* Available for exchange with Class A,
Class C and Class Y shares of the
Portfolio. ** Available for exchange
with Class A, Class B and Class Y
shares of the Portfolio.
*** Available for exchange with Class A and
Class Y shares of the Portfolio. +
Available for exchange with Class B and
Class C shares of the Portfolio.
++ Available for exchange with Class A
shares of the Portfolio.
Class A Exchanges. Class A shares of
Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of
such shares for Class A shares of a
fund sold with a higher sales charge. The
"sales charge differential" is limited
to a percentage rate no greater than the
excess of the sales charge rate
applicable to purchases of shares of the
mutual fund being acquired in the
exchange over the sales charge rate(s)
actually paid on the mutual fund shares
relinquished in the exchange and on any
predecessor of those shares. For
purposes of the exchange privilege, shares
obtained through automatic
reinvestment of dividends and capital gain
distributions are treated as having
paid the same sales charges applicable to the
shares on which the dividends or
distributions were paid; however, if no sales
charge was imposed upon the
initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales
charge differential upon exchange. Class
A shares held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of the
Smith Barney Mutual Funds will not be
subject to a sales charge differential.
Class B Exchanges. In the event a Class
B shareholder (unless such
shareholder was a Class B shareholder of the
Short-Term World Income Fund on
July 15, 1994) wishes to exchange all or a
portion of his or her shares in any
of the funds imposing a higher CDSC than that
imposed by the Portfolio, the
exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an
exchange, the new Class B shares will be
deemed to have been purchased on the
same date as the Class B shares of the
Portfolio that have been exchanged.
Class C Exchanges. Upon an exchange, the
new Class C shares will be deemed
to have been purchased on the same date as
the Class C shares of the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
28
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment adviser may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
manager will notify Smith Barney
that the Fund may, at its discretion, decide
to limit additional purchases
and/or exchanges by the shareholder. Upon
such a determination, the Fund will
provide notice in writing or by telephone to
the shareholder at least 15 days
prior to suspending the exchange privilege
and during the 15-day period the
shareholder will be required to (a) redeem
his or her shares in the Portfolio or
(b) remain invested in the Portfolio or
exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily
available, which position the shareholder
would be expected to maintain for a
significant period of time. All relevant
factors will be considered in determining
what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed below
are also applicable for exchanging
shares, and exchanges will be made upon
receipt of all supporting documents in
proper form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus
describing the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
=============================================
===================================
Redemption of Shares
=============================================
===================================
The Fund is required to redeem the
shares of the Portfolio tendered to it,
as described below, at a redemption price
equal to their net asset value per
share next determined after receipt of a
written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the
close of regular trading on the NYSE are
priced at the net asset value next
determined. If a shareholder holds shares in
more than one Class, any request
for redemption must specify the Class being
redeemed. In the event of a failure
to specify which Class, or if the investor
owns fewer shares of the Class than
specified, the redemption request will be
delayed until the Fund's transfer
agent receives further instructions from
Smith Barney, or if the shareholder's
29
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Redemption of Shares
=============================================
===================================
account is not with Smith Barney, from the
shareholder directly. The redemption
proceeds will be remitted on or before the
third business day following receipt
of proper tender, except on any days on which
the NYSE is closed or as permitted
under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney
brokerage account, these funds will not
be invested for the shareholder's benefit
without specific instruction and Smith
Barney will benefit from the use of
temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other
than a certified or official bank
check, will be remitted upon clearance of the
check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian
must be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request for redemption
to:
Smith Barney Muni Funds/Georgia
Portfolio Class A,B,C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an
automatic cash withdrawal plan, under
which shareholders who own shares with a
value of at least $10,000 may elect to
receive cash payments of at least $50 monthly
or quarterly. The withdrawal plan
30
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Redemption of Shares continued)
=============================================
===================================
will be carried over on exchanges between
funds or Classes of the Portfolio. Any
applicable CDSC will not be waived on amounts
withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the
CDSC at the time the withdrawal plan
commences. (With respect to withdrawal
plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00%
per month of the value of the
shareholder's shares subject to the CDSC.)
For further information regarding the
automatic cash withdrawal plan, shareholders
should contact a Smith Barney
Financial Consultant.
=============================================
===================================
Minimum Account Size
=============================================
===================================
The Fund reserves the right to
involuntarily liquidate any shareholder's
account if the aggregate value of the shares
held in a Portfolio account is less
than $500. (If a shareholder has more than
one account in this Portfolio, each
account must satisfy the minimum account
size.) The Fund, however, will not
redeem shares based solely on market
reductions in net asset value. Before the
Fund exercises such right, shareholders will
receive written notice and will be
permitted 60 days to bring the account up to
the minimum to avoid involuntary
liquidation.
=============================================
===================================
Performance
=============================================
===================================
From time to time the Fund may include a
Portfolio's yield, tax equivalent
yield, total return and average annual total
return in advertisements. In other
types of sales literature the Fund may also
include the Portfolio's distribution
rate. These figures are computed separately
for Class A, Class B, Class C and
Class Y shares of the Portfolio. These
figures are based on historical earnings
and are not intended to indicate future
performance. The yield of a Portfolio
Class refers to the net income earned by an
investment in the Class over a
thirty-day period ending at month end. This
net income is then annualized, i.e.,
the amount of income earned by the investment
during that thirty-day period is
assumed to be earned each 30-day period for
twelve periods and is expressed as a
percentage of the investment. The net income
earned on the investment for six
periods is also assumed to be reinvested at
the end of the sixth 30-day period.
The tax equivalent yield is calculated
similarly to the yield, except that a
stated income tax rate is used to demonstrate
the taxable yield necessary to
produce an after-tax yield equivalent to the
tax-exempt yield of the Class. The
yield and tax equivalent yield quotations are
calculated according to a formula
prescribed by the SEC to facilitate
comparison with yields quoted by other
investment companies. The distribution rate
is calculated by analyzing the
31
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Performance (continued)
=============================================
===================================
latest daily dividend rate and dividing the
result by the maximum offering price
per share as of the end of the period to
which the distribution relates. The
distribution rate is not computed in the same
manner as, and therefore can be
significantly different from, the above
described yield. Total return is
computed for a specified period of time
assuming deduction of the maximum sales
charge, if any, from the initial amount
invested and reinvestment of all income
dividends and capital gains distributions on
the reinvestment dates at prices
calculated as stated in this Prospectus, then
dividing the value of the
investment at the end of the period so
calculated by the initial amount invested
and subtracting 100%. The standard average
annual total return, as prescribed by
the SEC, is derived from this total return,
which provides the ending redeemable
value. Such standard total return information
may also be accompanied with
nonstandard total return information for
differing periods computed in the same
manner but without analyzing the total return
or taking sales charges into
account. The Fund may also include
comparative performance information in
advertising or marketing its shares. Such
performance information may include
data from Lipper Analytical Services, Inc.
and other financial publications.
=============================================
===================================
Management of the Fund
=============================================
===================================
TRUSTEES
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment manager,
custodian and transfer agent. The day-to-day
operations of the Portfolio are
delegated to the Portfolio's investment
manager. The Statement of Additional
Information contains background information
regarding each Trustee and executive
officer of the Fund.
MANAGER
Prior to December 31, 1994, Mutual
Management Corp. ("MMC") managed the
day-to-day operations of the Portfolio
pursuant to a management agreement
entered into by the Fund on behalf of the
Portfolio. Effective December 31,
1994, the Trustees of the Fund approved the
transfer of all of the management
agreements with MMC to Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the
"Manager"), an affiliate of MMC. Investment
management of the Portfolio under
SBMFM is conducted by the same personnel who
managed the Portfolio under MMC.
The reporting requirements for these
individuals has also remained unchanged. In
addition, because the original management
agreement with MMC was simply
32
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
transferred to SBMFM, the terms of the
agreement (including the fee) have
remained the same.
SBMFM, which until November, 1994
operated under the name Smith, Barney
Advisers, Inc., was incorporated in 1968
under the laws of Delaware. SBMFM is a
subsidiary of Holdings, the parent company of
Smith Barney (the "Distributor").
Holdings is a wholly-owned subsidiary of
Travelers, which is a financial
services holding company engaged, through its
subsidiaries, principally in four
business segments: Investment Services,
Consumer Finance Services, Life
Insurance Services and Property & Casualty
Insurance Services. SBMFM, Holdings
and Smith Barney are each located at 388
Greenwich Street, New York, New York
10013.
SBMFM provides the Fund with investment
management services and executive
and other personnel, pays the remuneration of
Fund officers, provides the Fund
with office space and equipment, furnishes
the Fund with bookkeeping,
accounting, administrative services and
services relating to research,
statistical work and supervision of the
Portfolio. For the services provided,
the management agreement provides that the
Fund will pay SBMFM an annual fee
calculated at the rate of 0.45% of the
Portfolio's average daily net assets for
each Class of shares. SBMFM waived its
management fee for the Portfolio for the
period ended March 31, 1995. For the current
fiscal period, total expenses
are anticipated to be 0.39% of the average
daily net assets for Class A shares; 0.90% of
the
average daily net assets for Class B shares;
and 0.95% of the average daily net
assets for Class C shares. "Management fees"
and "12b-1 fees" have been restated to
reflect current expenses of the Portfolio.
These expenses reflect the management fee
waiver currently in effect and the
anticipated level of 12b-1 fees for the
current period.
PORTFOLIO MANAGEMENT
Peter M. Coffey, a Managing Director of
Smith Barney, has served as Vice
President of the Fund and portfolio manager
of the Portfolio since it commenced
operations (April 4, 1994) and manages the
day-to-day operations of the
Portfolio, including making all investment
decisions. Mr. Coffey also serves as
the portfolio manager for many of the Fund's
other non-money market Portfolios.
Management's discussion and analysis,
and additional performance
information regarding the Portfolio during
the fiscal year ended March 31, 1995
is included in the Annual Report dated March
31, 1995. A copy of the Annual
Report may be obtained upon request and
without charge from a Smith Barney
Financial Consultant or by writing or calling
the Fund at the address or phone
number listed on page one of this Prospectus.
33
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
a service fee with respect to Class A, Class
B and Class C shares of the
Portfolio at the annual rate of 0.15% of the
average daily net assets
attributable to these Classes. Smith Barney
is also paid a distribution fee with
respect to Class B and Class C shares at the
annual rate of 0.50% and 0.55%,
respectively, of the average daily net assets
attributable to these Classes.
Class B shares, that automatically convert to
Class A shares eight years after
the date of original purchase, will no longer
be subject to a distribution fee.
The fees are used by Smith Barney to pay its
Financial Consultants for servicing
shareholder accounts and, in the case of
Class B and Class C shares, to cover
expenses primarily intended to result in the
sale of those shares. These
expenses include: advertising expenses; the
cost of printing and mailing
prospectuses to potential investors; payments
to and expenses of Smith Barney
Financial Consultants and other persons who
provide support services in
connection with the distribution of shares;
interest and/or carrying charges;
and indirect and overhead costs of Smith
Barney associated with the sale of
Portfolio shares, including lease, utility,
communications and sales promotion
expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A,
Class B and Class C shares, a
continuing fee for servicing shareholder
accounts for as long as a shareholder
remains a holder of that Class. Smith Barney
Financial Consultants may receive
different levels of compensation for selling
the different Classes of shares.
Payments under the Plan with respect to
Class B and Class C shares are not
tied exclusively to the distribution and
shareholder services expenses actually
incurred by Smith Barney and the payments may
exceed distribution expenses
actually incurred. The Fund's Trustees will
evaluate the appropriateness of the
plan and its payment terms on a continuing
basis and in so doing will consider
all relevant factors, including expenses
borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end, non-diversified
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
34
<PAGE>
Smith Barney Muni Funds - Georgia Portfolio
=============================================
===================================
Additional Information (continued)
=============================================
===================================
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
one of twenty separate Portfolios. The assets
of each Portfolio are segregated
and separately managed. Class A, Class B,
Class C and Class Y shares of each
Portfolio represent interests in the assets
of that Portfolio and have identical
voting, dividend, liquidation and other
rights on the same terms and conditions,
except that expenses related to the
shareholder service and distribution of
Class A, Class B and Class C shares are borne
solely by the respective Class and
each such Class of shares has exclusive
voting rights with respect to provisions
of the Fund's Rule 12b-1 distribution plan
which pertains to that Class. It is
the intention of the Fund not to hold annual
meetings of shareholders. The
Trustees may call meetings of shareholders
for action by shareholder vote as may
be required by the Act or the Declaration of
Trust, and shareholders are
entitled to call a meeting of shareholders
upon a vote of 10% of the Fund's
outstanding shares for purposes of voting on
removal of a Trustee or Trustees.
Shareholders will receive assistance in
communicating with other shareholders in
connection with the removal of Trustees as
required by Section 16(c) of the 1940
Act. Shares do not have cumulative voting
rights or preemptive rights and have
only such conversion or exchange rights as
the Trustees may grant in their
discretion. When issued for payment as
described in this Prospectus, the Fund's
shares will be fully paid and transferrable
(subject to the Portfolio's minimum
account size). Shares are redeemable as set
forth under "Redemption of Shares"
and are subject to involuntary redemption as
set forth under "Minimum Account
Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, PA 19103, serves as custodian
of the Portfolio's investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the
Portfolio at the end of the period covered.
In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to
consolidate the mailing of its
semi-annual and annual reports by household.
This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report. In
addition, the Fund also plans to
consolidate the mailing of its Prospectus so
that a shareholder having multiple
accounts will receive a single Prospectus
annually. Shareholders who do not want
this consolidation to apply to their account
should contact their Smith Barney
Financial Consultant or the Fund's transfer
agent.
35
<PAGE>
SMITH BARNEY
- ------------
A Member of Travelers Group [LOGO]
Smith Barney
Muni Funds
Georgia Portfolio
388 Greenwich Street
New York, New York 10013
FD 0771 7/95
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
Limited
Term
Portfolio
JULY 31, 1995
Prospectus begins on page one
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Limited Term Portfolio (the
"Portfolio") is one of thirteen investment
portfolios that currently comprise Smith
Barney Muni Funds (the "Fund"). The
Portfolio seeks to pay its shareholders as
high a level of monthly income exempt
from Federal income taxes as is consistent
with prudent investing. At least 80%
of the Portfolio's assets will be invested in
obligations with remaining
maturities of less than ten years and the
dollar-weighted average maturity of
the entire portfolio will normally not exceed
six years. The Portfolio may
invest without limit in municipal obligations
whose interest is a tax preference
for purposes of the Federal alternative
minimum tax.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including sales charges,
distribution and service fees and
expenses, that prospective investors will
find helpful in making an investment
decision. Investors are encouraged to read
this Prospectus carefully and retain
it for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated JULY 31, 1995,
as amended or supplemented from time
to time, that is available upon request and
without charge by calling or writing
the Fund at the telephone number or address
set forth above or by contacting a
Smith Barney Financial Consultant. The
Statement of Additional Information has
been filed with the Securities and Exchange
Commission (the "SEC") and is
incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
#
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Prospectus Summary
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
9
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
11
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
15
- ---------------------------------------------
- -----------------------------------
Dividends, Distributions and Taxes
15
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
18
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
24
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
27
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
29
- ---------------------------------------------
- -----------------------------------
Performance
29
- ---------------------------------------------
- -----------------------------------
Management of the Fund
30
- ---------------------------------------------
- -----------------------------------
Distributor
32
- ---------------------------------------------
- -----------------------------------
Additional Information
32
- ---------------------------------------------
- -----------------------------------
=============================================
===================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
2
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Prospectus Summary
=============================================
===================================
The following summary is qualified in
its entirety by detailed information
appearing elsewhere in this Prospectus and in
the Statement of Additional
Information. Cross references in this summary
are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio seeks
to pay its shareholders as high a
level of monthly income exempt from Federal
income taxes as is consistent with
prudent investing. At least 80% of the
Portfolio's assets will be invested in
obligations with remaining maturities of less
than ten years and the
dollar-weighted average maturity of the
entire portfolio will normally not
exceed six years. The Portfolio may invest
without limit in municipal
obligations whose interest is a tax
preference for purposes of the Federal
alternative minimum tax. See "Investment
Objective and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The
Portfolio offers three classes of
shares ("Classes") to investors designed to
provide them with the flexibility of
selecting an investment best suited to their
needs. The general public is
offered two Classes of shares: Class A shares
and Class C shares, which differ
principally in terms of sales charges and
rate of expenses to which they are
subject. A third Class of shares, Class Y
shares, is offered only to investors
meeting an initial investment minimum of
$5,000,000. See "Purchase of Shares"
and "Redemption of Shares."
Class A Shares. Class A shares are sold
at net asset value plus an initial
sales charge of 2.00% and are subject to an
annual service fee of 0.15% of the
average daily net assets of the Class. The
initial sales charge may be waived
for certain purchases. Purchases of Class A
shares, which when combined with
current holdings of Class A shares offered
with a sales charge equal or exceed
$500,000 in the aggregate, will be made at
net asset value with no initial sales
charge, but will be subject to a contingent
deferred sales charge ("CDSC") of
1.00% on redemptions made within 12 months of
purchase. See "Prospectus Summary
- -- No Initial Sales Charge."
Class C Shares. Class C shares are sold
at net asset value with no initial
sales charge. They are subject to an annual
service fee of 0.15% and an annual
distribution fee of 0.20% of the average
daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem
Class C shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have
higher expenses and pay lower
dividends than Class A shares. Purchases of
Portfolio shares, which when
combined with current holdings of Class C
shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be
made in Class A shares at net asset
value with no sales charge, and will be
subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase.
3
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Class Y Shares. Class Y shares are
available only to investors meeting an
initial investment minimum of $5,000,000.
Class Y shares are sold at net asset
value with no initial sales charge or CDSC.
They are not subject to any service
or distribution fees.
In deciding which Class of Portfolio
shares to purchase, investors should
consider the following factors, as well as
any other relevant facts and
circumstances:
Intended Holding Period. The decision as
to which Class of shares is more
beneficial to an investor depends on the
amount and intended length of his or
her investment. Shareholders who are planning
to establish a program of regular
investment may wish to consider Class A
shares; as the investment accumulates
shareholders may qualify for purchase of
shares without an initial sales charge
and the shares are subject to lower ongoing
expenses over the term of the
investment. As an alternative, Class C shares
are sold without any initial sales
charge so the entire purchase price is
immediately invested in the Portfolio.
Any investment return on these additional
invested amounts may partially or
wholly offset the higher annual expenses of
this Class. Because the Portfolio's
future return cannot be predicted, however,
there can be no assurance that this
would be the case. Finally, investors should
consider the effect of the CDSC
period in the context of their own investment
time frame.
Investors investing a minimum of
$5,000,000 must purchase Class Y shares,
which are not subject to an initial sales
charge, CDSC or service or
distribution fees. The maximum purchase
amount for Class A shares is $4,999,999
and Class C shares is $499,999. There is no
maximum purchase amount for Class Y
shares.
No Initial Sales Charge. The initial
sales charge on Class A shares may be
waived for certain eligible purchasers, and
the entire purchase price would be
immediately invested in the Portfolio. In
addition, Class A share purchases,
which when combined with current holdings of
Class A shares offered with a sales
charge equal or exceed $500,000 in the
aggregate, will be made at net asset
value with no initial sales charge, but will
be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The $500,000 aggregate investment
may be met by adding the purchase to the net
asset value of all Class A shares
offered with a sales charge held in funds
sponsored by Smith Barney Inc. ("Smith
Barney") listed under "Exchange Privilege."
See "Purchase of Shares." Because
the ongoing expenses of Class A shares will
be lower than those for Class C
shares, purchasers eligible to purchase Class
A shares at net asset value should
consider doing so.
Smith Barney Financial Consultants may
receive different compensation for
selling each Class of shares. Investors
should understand that the purpose of
the CDSC on the Class C shares is the same as
that of the initial sales charge
on the Class A shares.
4
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
See "Purchase of Shares" and "Management
of the Fund" for a complete
description of the sales charges and service
and distribution fees for each
Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes"
and "Exchange Privilege" for other
differences between the Classes of shares.
PURCHASE OF SHARES Shares may be
purchased through the Portfolio's
distributor, Smith Barney, a broker that
clears securities transactions through
Smith Barney on a fully disclosed basis (an
"Introducing Broker") or an
investment dealer in the selling group. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A
and Class C shares may open an
account by making an initial investment of at
least $1,000 for each account.
Investors in Class Y shares may open an
account for an initial investment of
$5,000,000. Subsequent investments of at
least $50 may be made for all Classes.
The minimum initial investment requirement
for Class A and Class C shares and
the subsequent investment requirement for all
Classes through the Systematic
Investment Plan described below is $50. It is
not recommended that the Portfolio
be used as a vehicle for Keogh, IRA or other
qualified retirement plans. There
is no minimum investment requirement in Class
A for unitholders who invest
distributions from a unit investment trust
("UIT") sponsored by Smith Barney.
See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a Systematic
Investment Plan under which they may
authorize the automatic placement of a
purchase order each month or quarter for
Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be
redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Smith Barney
Mutual Funds Management Inc.
("SBMFM" or the "Manager") serves as the
Portfolio's investment manager. SBMFM
provides investment advisory and management
services to investment companies
affiliated with Smith Barney. SBMFM is a
wholly owned subsidiary of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of Travelers
Group Inc. ("Travelers"), a diversified
financial services holding company
engaged, through its subsidiaries,
principally in four business segments:
Investment Services, Consumer Finance
Services, Life Insurance Services and
Property & Casualty Insurance Services. As of
March 31, 1995, SBMFM had
aggregate assets under management in excess
of $54 billion. See "Management of
the Fund."
5
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Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
EXCHANGE PRIVILEGE Shares of a Class may
be exchanged for shares of the
same Class of certain other funds of the
Smith Barney Mutual Funds at the
respective net asset values next determined,
plus any applicable sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of
the Portfolio for the prior day
generally is quoted daily in the financial
section of most newspapers and is
also available from a Smith Barney Financial
Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends
from net investment income are paid
monthly. Distributions of net realized
capital gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of any
Class will be reinvested automatically,
unless otherwise specified by an
investor, in additional shares of the same
Class at current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or CDSC. See "Dividends,
Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS
There can be no assurance that the
Portfolio's investment objective will be
achieved. The value of the Portfolio's
investments, and thus the net asset value of
the Portfolio's shares, will
fluctuate in response to changes in market
and economic conditions, as well as
the financial condition and prospects of
issuers of municipal obligations
purchased by the Portfolio. See "Investment
Objective and Management Policies."
6
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Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
THE PORTFOLIO'S EXPENSES The following
expense table lists the costs and
expenses an investor will incur either
directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales
charge or maximum CDSC that may be
incurred at the time of purchase or
redemption and, unless otherwise noted, the
Portfolio's operating expenses for its most
recent fiscal year:
Class A Class C Class Y
- ---------------------------------------------
- ---------------------------------------------
- -----
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
2.00% None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds,whichever is
lower) None* 1.00%
None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees
0.45% 0.45% 0.45%
12b-1 fees***
0.15% 0.35% --
Other expenses
0.12% 0.09% 0.11%
- ---- ---- ----
Total Portfolio Operating Expenses
0.72% 0.89% 0.56%
==== ==== ====
- ---------------------------------------------
- ---------------------------------------------
- ----
* Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales
charge equal or exceed $500,000 in the
aggregate, will be made at net asset
value with no sales charge, but will
be subject to a CDSC of 1.00% on
redemptions made within 12 months.
** "Management Fees" and "Other Expenses"
for Class A shares are based on actual
amounts for the fiscal year ended March 31,
1995. 12b-1 fees have been restated to
reflect the anticipated level of 12b-1 fees
for the current fiscal period. "Other
Expenses" for Class Y shares have been
estimated because no Class Y shares were
outstanding for the period ended March 31,
1995.
*** Upon conversion of Class B shares to
Class A shares, such shares will no
longer be subject to a distribution
fee. Class C shares do not have a
conversion feature and, therefore, are
subject to an ongoing distribution
fee. As a result, long-term
shareholders of Class C shares may pay more
than the economic equivalent of the
maximum front-end sales charge
permitted by the National Association
of Securities Dealers, Inc.
The sales charge and CDSC set forth in
the above table are the maximum
charges imposed on purchases or redemptions
of Portfolio shares and investors
may actually pay lower or no charges,
depending on the amount purchased and, in
the case of Class C shares and certain Class
A shares, the length of time the
shares are held. See "Purchase of Shares" and
"Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee
of 0.15% of the value of average
daily net assets of Class A shares. Smith
Barney also receives with respect to
Class C shares an annual 12b-1 fee of 0.35%
of the value of average daily net
assets of that Class, consisting of a 0.20%
distribution fee and a 0.15% service
fee. "Other expenses" in the above table
include fees for shareholder services,
custodial fees, legal and accounting fees,
printing costs and registration fees.
7
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares" and "Management of the
Fund."
1
Year 3 Years 5 Years 10 Years
- ---------------------------------------------
- -----------------------------------
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A...............................
$27 $43 $59 $108
Class C...............................
19 28 49 110
Class Y...............................
6 18 31 70
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A...............................
$27 $43 $59 $108
Class C...............................
9 28 49 110
Class Y...............................
6 18 31 70
- ---------------------------------------------
- -----------------------------------
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses and
actual expenses may be greater or
less than those shown.
8
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule of the Limited
Term Portfolio of Smith Barney Muni
Funds has been audited in conjunction with
the annual audits of the financial
statements of Smith Barney Muni Funds by KPMG
Peat Marwick LLP, independent
auditors. The 1995 financial statements and
the independent auditors' report
thereon appear in the March 31, 1995 Annual
Report to Shareholders. No
information is presented for Class Y Shares,
because no Class Y Shares were
outstanding for the periods shown.
For a Portfolio share outstanding throughout
each period:
Period Ended March 31,
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Class A Shares:
1995 1994 1993 1992
1991 1990 1989(a)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Asset Value, Beginning of Period
$6.55 $6.68 $6.45 $6.38
$6.28 $6.20 $6.25
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net investment income
0.36 0.37 0.39 0.42
0.43 0.44 0.13
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net realized and unrealized gain
(or loss) on investments
- -- (0.13) 0.23 0.07
0.07 0.10 (0.05)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total from Investment Operations
0.36 0.24 0.62 0.49
0.50 0.54 0.08
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Less Dividends from Net Investment Income
(0.37) (0.37) (0.39) (0.42)
(0.40) (0.46) (0.13)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Less Distributions from Net Realized Gains
0.00 0.00 0.00 0.00
0.00 0.00 0.00
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Distributions
(0.37) (0.37) (0.39) (0.42)
(0.40) (0.36) (0.13)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Asset Value, End of Period
6.54 6.55 6.68 6.45
6.38 6.28 6.20
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Return#
5.69% 3.65% 9.82% 7.99%
8.23% 9.07% 1.09%++
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Assets, End of Period (in millions)
$245 $282 $242 $157
$65 $20 $5
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Ratios to Average Net Assets:
Expenses (1)
0.61% 0.53% 0.55% 0.49%
0.33% 0.30% 0.30%+
Net investment income
5.61% 5.53% 5.90% 6.42%
6.77% 6.98% 6.58%+
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Portfolio Turnover Rate
21.80% 24.72% 24.53% 26.27%
14.92% 64.50% 14.27%
=============================================
=============================================
==========================================
9
<PAGE>
Smith Barney Muni Funds - Limited Term
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=============================================
===================================
Financial Highlights (continued)
=============================================
===================================
Period Ended March 31,
- ---------------------------------------------
- ---------------------------------------------
- --
Class C Shares (c):
1995 1994 1993 (b)
- ---------------------------------------------
- ---------------------------------------------
- --
Net Asset Value, Beginning of Period
$6.54 $6.68 $6.62
- ---------------------------------------------
- ---------------------------------------------
- --
Net Investment Income
0.35 0.35 0.10
- ---------------------------------------------
- ---------------------------------------------
- --
Net Realized and Unrealized Gain (or Loss) on
Investments 0.00 (0.14) 0.05
- ---------------------------------------------
- ---------------------------------------------
- --
Total from Investment Operations
0.35 0.21 0.15
- ---------------------------------------------
- ---------------------------------------------
- --
Less Dividends from Net Investment Income
(0.35) (0.35) (0.09)
- ---------------------------------------------
- ---------------------------------------------
- --
Less Distributions from Net Realized Gains
0.00 0.00 0.00
- ---------------------------------------------
- ---------------------------------------------
- --
Total Distributions
(0.35) (0.35) (0.09)
- ---------------------------------------------
- ---------------------------------------------
- --
Net Asset Value, End of Period
$6.54 $6.54 $6.68
Total Return#
5.51% 3.15% 2.28%++
- ---------------------------------------------
- ---------------------------------------------
- --
Net Assets, End of Period (in millions)
$27 $27 $6
- ---------------------------------------------
- ---------------------------------------------
- --
Ratios to Average Net Assets:
Expenses (1)
0.89% 0.88% 0.88%+
Net investment income
5.34% 5.10% 5.35%+
- ---------------------------------------------
- ---------------------------------------------
- --
Portfolio Turnover Rate
21.80% 24.72% 24.53%
=============================================
=============================================
==
(1) The Manager has waived all or a part of
its fees for each of the years in
the six-year period ended March 31,
1992. If such fees were not waived, the
per share effect on expenses and ratios
of expenses to average net assets
would be as follows:
Increase in Per Share Expenses 1995
1994 1993 1992 1991 1990
1989 1988 1987
- ---------------------------------------------
- ---------------------------------------------
- -----------------------
Class A --
- -- -- $.003 $.011 $.018
$.022(b) -- --
- ---------------------------------------------
- ---------------------------------------------
- -----------------------
Ratio of Expenses to Average Net Assets
- ---------------------------------------------
- ---------------------------------------------
- -----------------------
Class A --
- -- -- .56% .30%* .30%*
.30%*+(b) -- --
- ---------------------------------------------
- ---------------------------------------------
- -----------------------
* As a result of expense limitations.
+ Annualized.
++ Figures are not annualized, as they may
not be representative of the total return for
the year.
# Total returns do not reflect sales loads
or contingent deferred sales charges.
(a) From November 28, 1988 (commencement of
operations) to March 31, 1989.
(b) From January 5, 1993 (inception date) to
March 31, 1993.
(c) On November 7, 1994 the former Class B
Shares were renamed Class C Shares.
10
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The Portfolio seeks as high a level of
income exempt from Federal income
taxes as is consistent with prudent
investing.
The Portfolio invests at least 80% of
its assets in a diversified portfolio
of municipal obligations with remaining
maturities of less than ten years, and
the dollar-weighted average maturity of the
entire Portfolio will normally not
exceed six years.
The Portfolio will seek to be fully
invested in obligations that are issued
by or on behalf of states, territories and
possessions of the United States and
their political subdivisions, agencies and
instrumentalities that were, in the
opinion of bond counsel to the issuer, exempt
from Federal income taxes at the
time of their issuance. (For certain
shareholders, a portion of the Portfolio's
income may be subject to the alternative
minimum tax ("AMT") on tax-exempt
income discussed below.) Such obligations are
issued to raise money for a
variety of public projects that enhance the
quality of life including health
facilities, housing, airports, schools,
highways and bridges.
Under the Tax Reform Act of 1986,
interest income from municipal
obligations issued to finance certain
"private activities" ("AMT-Subject Bonds")
becomes an item of "tax preference" which is
subject to the AMT when received by
a person in a tax year during which he or she
is subject to that tax. Such
private activity bonds include bonds issued
to finance such projects as certain
solid waste disposal facilities, student loan
programs, and water and sewage
projects. Because interest income on AMT-
Subject Bonds is taxable to certain
investors, it is expected, although there can
be no guarantee, that such
municipal obligations generally will provide
somewhat higher yields than other
municipal obligations of comparable quality
and maturity. There is no limitation
on the percent or amount of the Portfolio's
assets that may be invested in
AMT-Subject Bonds.
Municipal bonds purchased for the
Portfolio must, at the time of purchase,
be investment grade municipal bonds and at
least two thirds of the Portfolio's
municipal bonds must be rated in the category
of A or better. Investment grade
bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc.
("Moody's") or AAA, AA, A and BBB by Standard
& Poor's Corporation ("S&P") or
have an equivalent rating by any nationally
recognized statistical rating
organization; pre-refunded bonds escrowed by
U.S. Treasury obligations will be
considered AAA rated even though the issuer
does not obtain a new rating. Up to
one third of the assets of the Portfolio may
be invested in municipal bonds
rated Baa or BBB (this grade, while regarded
as having an adequate capacity to
pay interest and repay principal, is
considered to be of medium quality and has
speculative characteristics; in addition,
changes in economic conditions or
11
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
other circumstances are more likely to lead
to a weakened capacity to make
principal and interest payments than is the
case with higher grade bonds) or in
unrated municipal bonds if, based upon credit
analysis by the Manager, it is
believed that such securities are at least of
comparable quality to those
securities in which the Portfolio may invest.
In determining the suitability of
an investment in an unrated municipal bond,
the Manager will take into
consideration debt service coverage, the
purpose of the financing, history of
the issuer, existence of other rated
securities of the issuer and other general
conditions as may be relevant, including
comparability to other issues. After
the Portfolio purchases a municipal bond, the
issue may cease to be rated or its
rating may be reduced below the minimum
required for purchase. Such an event
would not require the elimination of the
issue from the Portfolio but the
Manager will consider such an event in
determining whether the Portfolio should
continue to hold the security.
The Portfolio's short-term municipal
obligations will be limited to high
grade obligations (obligations that are
secured by the full faith and credit of
the United States or are rated MIG I or MIG
2, VMIG I or VMIG 2 or Prime-1 or Aa
or better by Moody's or SP-I +, SP-I, SP-2,
or A-l or AA or better by S&P or
have an equivalent rating by any nationally
recognized statistical rating
organization, or obligations determined by
the Manager to be equivalent). Among
the types of short-term instruments in which
the Portfolio may invest are
floating or variable rate demand instruments,
tax-exempt commercial paper
(generally having a maturity of less than
nine months), and other types of notes
generally having maturities of less than
three years, such as Tax Anticipation
Notes, Revenue Anticipation Notes, Tax and
Revenue Anticipation Notes and Bond
Anticipation Notes. Demand instruments
usually have an indicated maturity of
more than one year, but contain a demand
feature that enables the holder to
redeem the investment on no more than 30
days' notice; variable rate demand
instruments provide for automatic
establishment of a new interest rate on set
dates; floating rate demand instruments
provide for automatic adjustment of
their interest rates whenever some other
specified interest rate changes (e.g.,
the prime rate). The Portfolio may purchase
participation interests in variable
rate tax-exempt securities (such as
Industrial Development Bonds) owned by
banks. Participations are frequently backed
by an irrevocable letter of credit
or guarantee of a bank that the Manager has
determined meets the prescribed
quality standards for the Portfolio.
Participation interests will be purchased
only if management believes interest income
on such interests will be tax-exempt
when distributed as dividends to
shareholders.
The Portfolio will not invest more than
10% of the value of its net assets
in illiquid securities, including those that
are not readily marketable or for
which there is no established market.
12
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
The Portfolio may purchase new issues of
municipal obligations on a
when-issued basis, i.e. delivery and payment
normally take place 15 to 45 days
after the purchase date. The payment
obligation and the interest rate to be
received are each fixed on the purchase date,
although no interest accrues with
respect to a when-issued security prior to
its stated delivery date. During the
period between purchase and settlement,
assets consisting of cash or liquid high
grade debt securities, marked-to-market
daily, of a dollar amount sufficient to
make payment at settlement will be segregated
at the custodian bank. Interest
rates at settlement may be lower or higher
than on the purchase date, which
would result in appreciation or depreciation,
respectively. Although the
Portfolio will only purchase a municipal
obligation on a when- issued basis with
the intention of actually acquiring the
securities, the Portfolio may sell these
securities before the settlement date if it
is deemed advisable.
Portfolio transactions will be
undertaken principally to accomplish the
Portfolio's objective in relation to
anticipated movements in the general level
of interest rates, but the Portfolio may also
engage in short-term trading
consistent with its objective.
Though it has not done so, the Portfolio
may invest in municipal bond index
futures contracts (currently traded on the
Chicago Board of Trade) or in listed
contracts based on U.S. Government securities
as a hedging policy in pursuit of
its investment objective; provided that
immediately thereafter not more than
331/3% of its net assets would be hedged or
the amount of margin deposits on the
Portfolio's existing futures contracts would
not exceed 5% of the value of its
total assets. Since any income would be
taxable, it is anticipated that such
investments will be made only in those
circumstances when the Manager
anticipates the possibility of an extreme
change in interest rates or market
conditions but does not wish to liquidate the
Portfolio's securities. A further
discussion of futures contracts and their
associated risks is contained in the
Statement of Additional Information.
In each of the Fund's prior fiscal
years, 100% of the Portfolio's dividends
were exempt-interest dividends, excludable
from gross income for Federal income
tax purposes. It is a fundamental policy that
under normal market conditions,
the Portfolio will seek to invest 100% of its
assets -- and the Portfolio will
invest not less than 80% of its assets -- in
municipal obligations the interest
on which is exempt from Federal income taxes
(other than the alternative minimum
tax.) The Portfolio may invest up to 20% of
its assets in taxable fixed-income
securities but only in obligations issued or
guaranteed by the full faith and
credit of the United States and may invest
more than 20% of its assets in U.S.
Government securities during periods when in
the Manager's opinion a temporary
defensive posture is warranted, including any
period when the Fund's monies
13
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
available for investment exceed the municipal
obligations available for purchase
that meet the Fund's rating, maturity and
other investment criteria.
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve
its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the municipal bond
markets, the size of a particular offering,
the maturity of the obligation and
the rating of the issue. In general, the
longer the maturity of a municipal
obligation, the higher the rate of interest
it pays. However, a longer average
maturity is generally associated with a
higher level of volatility in the market
value of a municipal obligation. During
periods of falling interest rates, the
values of long-term municipal obligations
generally rise. Conversely, during
periods of rising interest rates, the values
of such securities generally
decline. Changes in the value of Portfolio
securities will not affect interest
income derived from those securities but will
affect the Portfolio's net asset
value. Since the Portfolio's objective is to
provide high current income, they
will invest in municipal obligations with an
emphasis on income rather than
stability of net asset values.
From time to time, proposals have been
introduced before Congress for the
purpose of restricting or eliminating the
Federal income tax exemption for
interest on municipal obligations and similar
proposals may be introduced in the
future. If one of these proposals were
enacted, the availability of tax exempt
obligations for investment by the Portfolios
and the value of the portfolio
securities would be affected. The Trustees
would then reevaluate the Portfolios'
investment objectives and policies.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Portfolio's portfolio securities
ordinarily are purchased from and sold
to parties acting as either principal or
agent. Newly issued securities
ordinarily are purchased directly from the
issuer or from an underwriter; other
purchases and sales usually are placed with
those dealers from which it appears
that the best price or execution will be
obtained. Usually no brokerage
commissions, as such, are paid by the
Portfolio for purchases and sales
undertaken through principal transactions,
although the price paid usually
includes an undisclosed compensation to the
dealer acting as agent.
14
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
The Portfolio cannot accurately predict
its portfolio turnover rate, but
anticipates that the annual turnover will not
exceed 100%. An annual turnover
rate of 100% would occur when all of the
securities held by the Portfolio are
replaced one time during a period of one
year. The Manager will not consider
turnover rate a limiting factor in making
investment decisions consistent with
the investment objective and policies of the
Portfolio.
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on the NYSE, on each day that
the NYSE is open, by dividing the
value of the Portfolio's net assets
attributable to each Class by the total
number of shares of the Class outstanding.
When, in the judgment of the pricing
service, quoted bid prices for
investments are readily available and are
representative of the bid side of the
market, these investments are valued at the
mean between the quoted bid and
asked prices. Investments for which, in the
judgment of the pricing service,
there is no readily obtainable market
quotation (which may constitute a majority
of the portfolio securities) are carried at
fair value of securities of similar
type, yield and maturity. Pricing services
generally determine value by
reference to transactions in municipal
obligations, quotations from municipal
bond dealers, market transactions in
comparable securities and various
relationships between securities. Short-term
instruments maturing within 60 days
will be valued at cost plus (minus) amortized
discount (premium), if any, when
the Trustees have determined that amortized
cost equals fair value. Securities
and other assets that are not priced by a
pricing service and for which market
quotations are not available will be valued
in good faith at fair value by or
under the direction of the Trustees.
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of the
Portfolio's net investment income are
declared and paid monthly and any realized
capital gains are declared and
distributed annually.
If a shareholder does not otherwise
instruct, dividends and capital gain
distributions will be reinvested
automatically in additional shares of the
same
Class at net asset value, subject to no sales
charge or CDSC.
15
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
Income dividends and capital gain
distributions that are invested are
credited to shareholders' accounts in
additional shares at the net asset value
as of the close of business on the payment
date. A shareholder may change the
option at any time by notifying his or her
Financial Consultant. Accounts held
directly by the Fund's transfer agent, The
Shareholder Services Group Inc.
("TSSG"), should notify TSSG in writing at
least five business days prior to the
payment date to permit the change to be
entered in the shareholder's account.
The per share dividends on Class C
shares of the Portfolio may be lower
than the per share dividends on Class A and
Class Y shares principally as a
result of the distribution fee applicable
with respect to Class C shares. The
per share dividends on Class A shares of the
Portfolio may be lower than the per
share dividends on Class Y shares principally
as a result of the service fee
applicable to Class A shares. Distributions
of capital gains, if any, will be in
the same amount for Class A, Class C and
Class Y shares.
TAXES
The Portfolio intends to qualify as a
"regulated investment company" and to
meet the requirements for distributing
"exempt-interest dividends" under the
Internal Revenue Code (the "Code") so that no
Federal income taxes will be
payable by the Portfolio and dividends
representing net interest received on
municipal obligations will not be includable
by shareholders in their gross
income for Federal income tax purposes. To
the extent dividends are derived from
taxable income from temporary investments,
from market discounts or from the
excess of net short-term capital gain over
net long-term capital loss, they are
treated as ordinary income whether the
shareholder has elected to receive them
in cash or in additional shares. No portion
of such dividends would qualify for
the corporate dividends-received deduction.
Distributions derived from the
excess of net long-term capital gain over net
short-term capital loss are
treated as long-term capital gain regardless
of the length of time a shareholder
has owned shares of the Portfolio and
regardless of whether such distributions
are received in cash or in additional shares.
Exempt-interest dividends allocable to
interest received by the Portfolio
from the AMT-Subject Bonds in which the
Portfolio may invest will be treated as
interest paid directly on such obligations
and will give rise to an "item of tax
preference" that will increase a
shareholder's alternative minimum taxable
income. In addition, for corporations,
alternative minimum taxable income will
be increased by a percentage of the amount by
which a special measure of income
(including exempt-interest dividends) exceeds
the amount otherwise determined to
be alternative minimum taxable income.
Accordingly, investment in the Portfolio
16
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
may cause shareholders to be subject to (or
result in an increased liability
under) the AMT. The Fund will annually
furnish to its shareholders a report
indicating the ratable portion of exempt-
interest dividends attributable to
AMT-Subject Bonds.
The Portfolio will be treated as a
separate regulated investment company
for Federal tax purposes. Accordingly, the
Portfolio's net investment income is
determined separately based on the income
earned on its securities less its
costs of operations. The Portfolio's net long-
term and short-term gain (loss)
realized on investments is determined
separately and net capital gains
distributed by the Portfolio are determined
after offsetting any capital loss
carryover of the Portfolio from prior
periods.
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Fund will not be
deductible to the extent that the Fund's
distributions are exempt from Federal income
tax. In addition, any loss realized
upon the redemption of shares held less than
6 months will be disallowed to the
extent of any exempt-interest dividends
received by the shareholder during such
period. However, this holding period may be
shortened by the Treasury Department
to a period of not less than the greater of
31 days or the period between
regular dividend distributions. Further,
persons who may be "substantial users"
(or "related persons" of substantial users)
of facilities financed by industrial
development bonds should consult their tax
advisors before purchasing Fund
shares.
Distributions that are exempt for
Federal income tax purposes will not
necessarily result in exemption under the
income or other tax laws of any state
or local taxing authority. Generally, only
interest earned on obligations issued
by the state or locality in which the
investor resides will be exempt from state
and local taxes; however, the laws of the
several states and local taxing
authorities vary with respect to the taxation
of exempt-interest income paid by
investment companies, and each shareholder
should consult a tax advisor in that
regard.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional lnformation.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
17
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Purchase of Shares
=============================================
===================================
GENERAL
The Portfolio offers three Classes of
shares. Class A shares are sold to
investors with an initial sales charge and
Class C shares are sold without an
initial sales charge but are subject to a
CDSC payable upon certain redemptions.
Class Y shares are sold without an initial
sales charge or a CDSC and are
available only to investors investing a
minimum of $5,000,000. See "Prospectus
Summary -- Alternative Purchase Arrangements"
for a discussion of factors to
consider in selecting which Class of shares
to purchase.
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney, an Introducing
Broker or an investment dealer in
the selling group. When purchasing shares of
the Portfolio, investors must
specify whether the purchase is for Class A,
Class C or Class Y shares. No
maintenance fee will be charged by the Fund
in connection with a brokerage
account through which an investor purchases
or holds shares.
Investors in Class A and Class C shares
may open an account by making an
initial investment of at least $1,000 for
each account in the Portfolio.
Investors in Class Y shares may open an
account by making an initial investment
of $5,000,000. Subsequent investments of at
least $50 may be made for all
Classes. For participants in the Portfolio's
Systematic Investment Plan, the
minimum initial investment requirement for
Class A and Class C shares and the
subsequent investment requirement for all
Classes is $50. There are no minimum
investment requirements in Class A shares for
employees of Travelers and its
subsidiaries, including Smith Barney,
unitholders who invest distributions from
a UIT sponsored by Smith Barney and Trustees
of the Fund and their spouses and
children. The Fund reserves the right to
waive or change minimums, to decline
any order to purchase its shares and to
suspend the offering of shares from time
to time. Shares purchased will be held in the
shareholder's account by the
Fund's transfer agent, TSSG, a subsidiary of
First Data Corporation. Share
certificates are issued only upon a
shareholder's written request to TSSG. It is
not recommended that the Portfolio be used as
a vehicle for Keogh, IRA or other
qualified retirement plans.
Purchase orders received by the Fund or
Smith Barney prior to the close of
regular trading on the NYSE, on any day the
Portfolio calculates its net asset
value, are priced according to the net asset
value determined on that day (the
"trade date"). Orders received by dealers or
Introducing Brokers prior to the
close of regular trading on the NYSE on any
day the Portfolio calculates its net
asset value, are priced according to the net
asset value determined on that day,
provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. Payment for
Portfolio shares is due on the third
business day after the trade date.
18
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
TSSG is authorized through
preauthorized transfers of $50 or more to
charge the regular bank account or
other financial institution indicated by the
shareholder on a monthly or
quarterly basis to provide systematic
additions to the shareholder's Portfolio
account. A shareholder who has insufficient
funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney
or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply
cash held in the shareholder's Smith
Barney brokerage account or redeem the
shareholder's shares of a Smith Barney
money market fund to make additions to the
account. Additional information is
available from the Fund or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE - CLASS
A SHARES
The sales charges applicable to
purchases of Class A shares of the
Portfolio are as follows:
=============================================
===================================
Sales Charge
----
- -------- Dealer's
% of
% of Amount Reallowance as % of
Amount of Investment Offering
Price Invested Offering Price
- ---------------------------------------------
- -----------------------------------
Less than $500,000 2.00%
2.04% 1.80%
$500,000 and over *
* *
=============================================
===================================
* Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
without any initial sales charge, but
will be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The CDSC on Class A shares is
payable to Smith Barney, which
compensates Smith Barney Financial
Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC
is waived in the same circumstances
in which the CDSC applicable to Class C
shares is waived. See "Deferred Sales
Charge Alternatives" and "Waivers of CDSC."
Members of the selling group may receive
up to 90% of the sales charge and
may be deemed to be underwriters of the Fund
as defined in the Securities Act of
1933, as amended.
The $500,000 investment may be met by
aggregating the purchases of Class A
shares of the Portfolio made at one time by
"any person," which includes an
individual, his or her spouse and children,
or a trustee or other fiduciary of a
single trust estate or single fiduciary
account. It may also be met by
19
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
aggregating the purchase with the net asset
value of all Class A shares offered
with a sales charge held in funds sponsored
by Smith Barney listed under
"Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made
at net asset value without a sales
charge in the following circumstances: (a)
sales of Class A shares to Trustees
of the Fund, employees of Travelers and its
subsidiaries and employees of
members of the National Association of
Securities Dealers, Inc., or to the
spouses and children of such persons
(including the surviving spouse of a
deceased Trustee or employee, and retired
Trustees or employees); (b) offers of
Class A shares to any other investment
company in connection with the
combination of such company with the
Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares
by any client of a newly employed
Smith Barney Financial Consultant (for a
period up to 90 days from the
commencement of the Financial Consultant's
employment with Smith Barney), on the
condition the purchase of Class A shares is
made with the proceeds of the
redemption of shares of a mutual fund which
(i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to
the client by the Financial
Consultant and (iii) was subject to a sales
charge; (d) shareholders who have
redeemed Class A shares in the Portfolio (or
Class A shares of another fund of
the Smith Barney Mutual Funds that are
offered with a sales charge equal to or
greater than the maximum sales charge of the
Portfolio) and who wish to reinvest
their redemption proceeds in the Portfolio,
provided the reinvestment is made
within 60 calendar days of the redemption;
(e) accounts managed by registered
investment advisory subsidiaries of
Travelers; and (f) investments of
distributions from a UIT sponsored by Smith
Barney. In order to obtain such
discounts, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of a Portfolio may be
purchased by "any person" (as defined
above) at net asset value determined by
aggregating the dollar amount of the new
purchase and the total net asset value of all
Class A shares of the Portfolio
and of funds sponsored by Smith Barney which
are offered with a sales charge
listed under "Exchange Privilege" then held
by such person and applying the
sales charge applicable to such aggregate. In
order to obtain such discount, the
purchaser must provide sufficient information
at the time of purchase to permit
verification that the purchase qualifies for
purchase at net asset value. The
right of accumulation is subject to
modification or discontinuance at any time
with respect to all shares purchased
thereafter.
20
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
GROUP PURCHASES
Upon completion of certain automated
systems, purchase at net asset value
will also be available to employees (and
partners) of the same employer
purchasing as a group, provided each
participant makes the minimum initial
investment required. The sales charge
applicable to purchases by each member of
such a group will be determined by the table
set forth above under "Initial
Sales Charge Alternative -- Class A Shares,"
and will be based upon the
aggregate sales of Class A shares of Smith
Barney Mutual Funds offered with a
sales charge to, and share holdings of, all
members of the group. To be eligible
for such purchase at net asset value, all
purchases must be pursuant to an
employer- or partnership-sanctioned plan
meeting certain requirements. One such
requirement is that the plan must be open to
specified partners or employees of
the employer and its subsidiaries, if any.
Such plan may, but is not required
to, provide for payroll deductions. Smith
Barney may also offer net asset value
purchase for aggregating related fiduciary
accounts under such conditions that
Smith Barney will realize economies of sales
efforts and sales related expenses.
An individual who is a member of a qualified
group may also purchase Class A
shares at the sales charge applicable to the
group as a whole. The sales charge
is based upon the aggregate dollar value of
Class A shares offered with a sales
charge that have been previously purchased
and are still owned by the group,
plus the amount of the current purchase. A
"qualified group" is one which (a)
has been in existence for more than six
months, (b) has a purpose other than
acquiring Portfolio shares at a discount and
(c) satisfies uniform criteria
which enable Smith Barney to realize
economies of scale in its costs of
distributing shares. A qualified group must
have more than 10 members, must be
available to arrange for group meetings
between representatives of the Portfolio
and the members, and must agree to include
sales and other materials related to
the Portfolio in its publications and
mailings to members at no cost to Smith
Barney. In order to purchase at net asset
value, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase qualifies for purchase at net asset
value. Approval of group purchase
at net asset value is subject to the
discretion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for
amounts of $500,000 or more provides
an opportunity for an investor to purchase
shares at net asset value by
aggregating the investments over a 13 month
period, provided that the investor
refers to such Letter when placing orders.
For purposes of a Letter of Intent,
the "Amount of Investment" as referred to in
the preceding sales charge table
21
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
includes purchases of all Class A shares of
the Portfolio and other funds of the
Smith Barney Mutual Funds offered with a
sales charge over a 13 month period
based on the total amount of intended
purchases plus the value of all Class A
shares previously purchased and still owned.
An alternative is to compute the 13
month period starting up to 90 days before
the date of execution of a Letter of
Intent. Each investment made during the
period receives the sales charge
applicable to the total amount of the
investment goal. If the goal is not
achieved within the period, the investor must
pay the difference between the
sales charges applicable to the purchases
made and the charges previously paid,
or an appropriate number of escrowed shares
will be redeemed. Please contact a
Smith Barney Financial Consultant or TSSG to
obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may
also be used as a way for investors
to meet the minimum investment requirement
for Class Y shares. Such investors
must make an initial minimum purchase of
$1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of
$5,000,000 of Class Y shares of the
same Portfolio within six months from the
date of the Letter. If a total
investment of $5,000,000 is not made within
the six-month period, all Class Y
shares purchased to date will be transferred
to Class A shares, where they will
be subject to all fees (including a service
fee of 0.15%) and expenses
applicable to the Portfolio's Class A shares,
which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial
Consultant or TSSG for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset
value next determined without an
initial sales charge so that the full amount
of an investor's purchase payment
may be immediately invested in the Fund. A
CSDC, however, may be imposed on
certain redemptions of these shares. "CDSC
Shares" are: (a) Class C shares; and
(b) Class A shares which when combined with
Class A shares offered with a sales
charge currently held by an investor equal or
exceed $500,000 in the aggregate.
Any applicable CDSC will be assessed on
an amount equal to the lesser of
the original cost of the shares being
redeemed or their net asset value at the
time of redemption. CDSC Shares that are
redeemed will not be subject to a CDSC
to the extent that the value of such shares
represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of
dividends or capital gain
distributions; or (c) shares redeemed more
than 12 months after their purchase.
CDSC Shares are subject to a 1.00% CDSC if
redeemed within 12 months of
purchase.
In determining the applicability of any
CDSC, it will be assumed that a
22
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestment of
dividends and capital gain distributions
and finally of other shares held by the
shareholder for the longest period of
time. The length of time that CDSC Shares
acquired through an exchange have been
held will be calculated from the date that
the shares exchanged were initially
acquired in one of the other Smith Barney
Mutual Funds, and Portfolio shares
being redeemed will be considered to
represent, as applicable, capital
appreciation or dividend and capital gain
distribution reinvestments in such
other funds. For Federal income tax purposes,
the amount of the CDSC will reduce
the gain or increase the loss, as the case
may be, on the amount realized on
redemption. The amount of any CDSC will be
paid to Smith Barney.
To provide an example, assume an
investor purchased 100 Class C shares at
$10 per share for a cost of $1,000.
Subsequently, the investor acquired 5
additional shares through dividend
reinvestment. During the tenth month after
the purchase, the investor decided to redeem
$500 of his or her investment.
Assuming at the time of the redemption the
net asset value had appreciated to
$12 per share, the value of the investor's
shares would be $1,260 (105 shares at
$12 per share). The CDSC would not be applied
to the amount which represents
appreciation ($200) and the value of the
reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be
charged at a rate of 1.00% (the applicable
rate for Class C shares) for a total
deferred sales charge of $2.40.
WAIVERS OF CDSC
The CDSC will be waived on: (a)
exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal
to or less than 1.00% per month of
the value of the shareholder's shares at the
time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan")
(provided, however, that automatic cash
withdrawals in amounts equal to or less than
2.00% per month of the value of the
shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within twelve
months following the death or disability of
the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in
connection with a combination of
the Portfolio with any investment company by
merger, acquisition of assets or
otherwise. In addition, a shareholder who has
redeemed shares from other funds
of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all
or part of the redemption proceeds within 60
days and receive pro rata credit
for any CDSC imposed on the prior redemption.
23
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A and Class C
shares are subject to minimum
investment requirements and all shares are
subject to other requirements of the
fund into which exchanges are made and a
sales charge differential may apply.
Fund Name
- ---------------------------------------------
- -----------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund
Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund
Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
* Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic
Income Fund
Smith Barney Funds, Inc. -- Income
Return Account Portfolio
* Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
24
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc.
Smith Barney California Municipals Fund
Inc.
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Managed Municipals Fund
Inc.
Smith Barney Massachusetts Municipals
Fund
Smith Barney Muni Funds -- Florida
Limited Term Portfolio
Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Georgia
Portfolio
Smith Barney Muni Funds -- National
Portfolio
Smith Barney Muni Funds -- New York
Portfolio
Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney Muni Funds -- Pennsylvania
Portfolio
Smith Barney New Jersey Municipals Fund
Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, Inc. --
Pacific Portfolio
Money Market Funds
** Smith Barney Exchange Reserve Fund
* Smith Barney Money Funds, Inc. -- Cash
Portfolio
* Smith Barney Money Funds, Inc. --
Government Portfolio
*** Smith Barney Money Funds, Inc. --
Retirement Portfolio
* Smith Barney Municipal Money Market
Fund, Inc.
* Smith Barney Muni Funds -- California
Money Market Portfolio
* Smith Barney Muni Funds -- New York
Money Market Portfolio
- ----------
* Available for exchange with Class A and
Class Y shares of the Portfolio.
** Available for exchange with Class C
shares of the Portfolio.
*** Available for exchange with Class A
shares of the Portfolio.
25
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Exchange Privileges (continued)
=============================================
===================================
Class A Exchanges. Class A shares of
Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of
such shares for Class A shares of a
fund sold with a higher sales charge. The
"sales charge differential" is limited
to a percentage rate no greater than the
excess of the sales charge rate
applicable to purchases of shares of the
mutual fund being acquired in the
exchange over the sales charge rate(s)
actually paid on the mutual fund shares
relinquished in the exchange and on any
predecessor of those shares. For
purposes of the exchange privilege, shares
obtained through automatic
reinvestment of dividends and capital gain
distributions, are treated as having
paid the same sales charges applicable to the
shares on which the dividends or
distributions were paid; however, if no sales
charge was imposed upon the
initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales
charge differential upon exchange. Class
A shares held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of the
Smith Barney Mutual Funds will not be
subject to a sales charge differential.
Class C Exchanges. Upon an exchange, the
new Class C shares will be deemed
to have been purchased on the same date as
the Class C shares of the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment manager may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
manager will notify Smith Barney
that the Fund may, at its discretion, decide
to limit additional purchases
and/or exchanges by the shareholder. Upon
such a determination, the Fund will
provide notice in writing or by telephone to
the shareholder at least 15 days
prior to suspending the exchange privilege
and during the 15 day period the
shareholder will be required to (a) redeem
his or her shares in the Portfolio or
(b) remain invested in the Portfolio or
exchange into any of the funds in the
Smith Barney Mutual Funds ordinarily
available, which position the shareholder
would be expected to maintain for a
significant period of time. All relevant
factors will be considered in determining
what constitutes an abusive pattern of
exchanges.
26
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Exchange Privileges (continued)
=============================================
===================================
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed below
are also applicable for exchanging shares,
and exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
=============================================
===================================
Redemption of Shares
=============================================
===================================
The Fund is required to redeem the
shares of the Portfolio tendered to it,
as described below, at a redemption price
equal to their net asset value per
share next determined after receipt of a
written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the
close of regular trading on the NYSE are
priced at the net asset value next
determined.
If a shareholder holds shares in more
than one Class, any request for
redemption must specify the Class being
redeemed. In the event of a failure to
specify which Class, or if the investor owns
fewer shares of the Class than
specified, the redemption request will be
delayed until the Fund's transfer
agent receives further instructions from
Smith Barney, or if the shareholder's
account is not with Smith Barney, from the
shareholder directly. The redemption
proceeds will be remitted on or before the
third business day following receipt
of proper tender, except on a day on which
the NYSE is closed or as permitted
under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney
brokerage account, these funds will not
be invested for the shareholder's benefit
without specific instruction and Smith
Barney will benefit from the use of
temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other
than a certified or official bank
check, will be remitted upon clearance of the
check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian
must be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
27
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
submitting a written request for redemption
to:
Smith Barney Muni Funds/Limited Term
Portfolio
Class A, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an
automatic cash withdrawal plan, under
which shareholders who own shares with a
value of at least $10,000 may elect to
receive cash payments of at least $50 monthly
or quarterly. The withdrawal plan
will be carried over on exchanges between
funds or Classes of the Portfolio. Any
applicable CDSC will not be waived on amounts
withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the
CDSC at the time the withdrawal plan
commences. (With respect to withdrawal
plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00%
per month of the value of the
shareholder's shares subject to the CDSC.)
For further information regarding the
automatic cash withdrawal plan, shareholders
should contact a Smith Barney
Financial Consultant.
28
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Minimum Account Size
=============================================
===================================
The Fund reserves the right to
involuntarily liquidate any shareholder's
account if the aggregate net asset value of
the shares held in the Portfolio
account is less than $500. (If a shareholder
has more than one account in this
Portfolio, each account must satisfy the
minimum account size.) The Fund,
however, will not redeem shares based solely
on market reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring
the account up to the minimum to
avoid involuntary liquidation.
=============================================
===================================
Performance
=============================================
===================================
From time to time the Fund may include
the Portfolio's yield, tax
equivalent yield, total return and average
annual total return in
advertisements. In addition, in other types
of sales literature the Fund may
also include the Portfolio's distribution
rate. These figures are computed
separately for Class A, Class C and Class Y
shares of the Portfolio. These
figures are based on historical earnings and
are not intended to indicate future
performance. The yield of a Portfolio Class
refers to the net income earned by
an investment in the Class over a thirty-day
period ending at month end. This
net income, which does not include any
element of non-tax exempt income if any,
is then annualized, i.e., the amount of
income earned by the investment during
that thirty-day period is assumed to be
earned each 30-day period for twelve
periods and is expressed as a percentage of
the investment. The net income
earned on the investment for six periods is
also assumed to be reinvested at the
end of the sixth 30-day period. The tax
equivalent yield is calculated similarly
to the yield, except that a stated income tax
rate is used to demonstrate the
taxable yield necessary to produce an after-
tax yield equivalent to the
tax-exempt yield of the Class. The yield and
tax equivalent yield quotations are
calculated according to a formula prescribed
by the SEC to facilitate comparison
with yields quoted by other investment
companies. The distribution rate is
calculated by annualizing the latest monthly
distribution and dividing the
result by the maximum offering price per
share as of the end of the period to
which the distribution relates. The
distribution rate is not computed in the
same manner as, and therefore can be
significantly different from, the above
described yield. Total return is computed for
a specified period of time
assuming deduction of the maximum sales
charge, if any, from the initial amount
invested and reinvestment of all income
dividends and capital gains
distributions on the reinvestment dates at
prices calculated as stated in this
Prospectus, then dividing the value of the
investment at the end of the period
so calculated by the initial amount invested
and subtracting 100%. The standard
29
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Performance (continued)
=============================================
===================================
average annual total return, as prescribed by
the SEC, is derived from this
total return, which provides the ending
redeemable value. Such standard total
return information may also be accompanied
with nonstandard total return
information for differing periods computed in
the same manner but without
annualizing the total return or taking sales
charges into account. The Fund may
also include comparative performance
information in advertising or marketing the
Portfolio's shares. Such performance
information may include data from Lipper
Analytical Services, Inc. and other financial
publications.
=============================================
===================================
Management of the Fund
=============================================
===================================
Trustees
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment manager,
custodian and transfer agent. The day-to-day
operations of the Portfolio are
delegated to the Portfolio's investment
manager. The Statement of Additional
Information contains background information
regarding each Trustee and executive
officer of the Fund.
Manager
Prior to December 31, 1994, Mutual
Management Corp. ("MMC") managed the
day-to-day operations of the Portfolio
pursuant to a management agreement
entered into by the Fund on behalf of the
Portfolio. Effective December 31,
1994, the Trustees of the Fund approved the
transfer of all of the management
agreements with MMC to Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the
"Manager"), an affiliate of MMC. Investment
management of the Portfolio under
SBMFM is conducted by the same personnel who
managed the Portfolio under MMC.
The reporting requirements for these
individuals has also remained unchanged. In
addition, because the original management
agreement with MMC was simply
transferred to SBMFM, the terms of the
agreement (including the fee) have
remained the same.
SBMFM, which until November, 1994
operated under the name Smith, Barney
Advisers, Inc., was incorporated in 1968
under the laws of Delaware. SBMFM is a
subsidiary of Holdings, the parent company of
Smith Barney (the "Distributor").
30
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
Holdings is a wholly-owned subsidiary of
Travelers, which is a financial
services holding company engaged, through its
subsidiaries, principally in four
business segments: Investment Services,
Consumer Finance Services, Life
Insurance Services and Property & Casualty
Insurance Services. SBMFM, Holdings
and Smith Barney are each located at 388
Greenwich Street, New York, New York
10013.
SBMFM provides the Portfolio with
investment management services and
executive and other personnel, pays the
remuneration of Fund officers, provides
the Fund with office space and equipment,
furnishes the Fund with bookkeeping,
accounting, administrative services and
services relating to research,
statistical work and supervision of the
Portfolio. For the services provided,
the Management Agreement provides that the
Portfolio will pay SBMFM a daily fee
based on the Portfolio's assets. For the
Fund's last fiscal year the management
fee was 0.45% of the Limited Term Portfolio's
average net assets. For the last
fiscal year total expenses were 0.72% of the
average daily net assets for Class
A shares (Total expenses for Class A shares
are based on actual Portfolio Operating
expenses for the fiscal year ended March 31,
1995. However, 12b-1 fees have been restated
to reflect the anticipated level of 12b-1
fees for the current fiscal period.); and
0.89% of the average daily net assets for
Class C shares. SBMFM
has agreed to waive its fee with respect to a
Class to the extent that it is
necessary if in any fiscal year the aggregate
expenses exclusive of 12b-1 fees,
taxes, brokerage, interest and extraordinary
expenses, such as litigation costs,
exceed 0.65% of such Class' average net
assets for that fiscal year. The expense
limitations shall be in effect until they are
terminated by notice to
shareholders and by supplement to the then
current prospectus.
PORTFOLIO MANAGEMENT
Peter M. Coffey, a Managing Director of
Smith Barney, has served as Vice
President of the Fund and portfolio manager
of the Portfolio since its inception
(November 28, 1988) and manages the day to
day operations of the Fund, including
making all investment decisions. Mr. Coffey
also serves as the portfolio manager
for the Fund's other non-money market
Portfolios.
Management's discussion and analysis,
and additional performance
information regarding the Portfolio during
the fiscal year ended March 31, 1995
is included in the Annual Report dated March
31, 1995. A copy of the Annual
Report may be obtained upon request and
without charge from a Smith Barney
Financial Consultant or by writing or calling
the Fund at the address or phone
number listed on page one of this Prospectus.
31
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
a service fee with respect to Class A and
Class C shares of the Portfolio at the
annual rate of 0.15% of the average daily net
assets attributable to these
Classes. Smith Barney is also paid a
distribution fee with respect to Class C
shares at the annual rate of 0.20% of the
average daily net assets attributable
to these shares. The fees are used by Smith
Barney to pay its Financial
Consultants for servicing shareholder
accounts and, in the case of Class C
shares, to cover expenses primarily intended
to result in the sale of those
shares. These expenses include: advertising
expenses; the cost of printing and
mailing prospectuses to potential investors;
payments to and expenses of Smith
Barney Financial Consultants and other
persons who provide support services in
connection with the distribution of shares;
interest and/or carrying charges;
and indirect and overhead costs of Smith
Barney associated with the sale of
Portfolio shares, including lease, utility,
communications and sales promotion
expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A and
Class C shares, a continuing fee
for servicing shareholder accounts for as
long as a shareholder remains a holder
of that Class. Smith Barney Financial
Consultants may receive different levels
of compensation for selling the different
Classes of shares.
Payments under the Plan with respect to
Class B and Class C shares are not
tied exclusively to the distribution and
shareholder services expenses actually
incurred by Smith Barney and the payments may
exceed distribution expenses
actually incurred. The Fund's Trustees will
evaluate the appropriateness of the
Plan and its payment terms on a continuing
basis and in so doing will consider
all relevant factors, including expenses
borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end non-diversified,
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
32
<PAGE>
Smith Barney Muni Funds - Limited Term
Portfolio
=============================================
===================================
Additional Information (continued)
=============================================
===================================
authorized the issuance of twenty series of
shares, each representing shares in
one of twenty separate Portfolios. The assets
of the Portfolio are segregated
and separately managed. Class A, Class C and
Class Y shares of the Portfolio
represent interests in the assets of the
Portfolio and have identical voting,
dividend, liquidation and other rights on the
same terms and conditions, except
that expenses, distribution/service fees
borne by each Class and such Class of
shares has exclusive voting rights with
respect to provisions of the Portfolio's
Rule 12b-1 distribution plan which pertain to
that Class. (It is the intention
of the Fund not to hold annual meetings of
shareholders. The Trustees may call
meetings of shareholders for action by
shareholder vote as may be required by
the 1940 Act or the Declaration of Trust, and
shareholders are entitled to call
a meeting upon a vote of 10% of the Fund's
outstanding shares for purposes of
voting on removal of a Trustee or Trustees.)
Shares do not have cumulative
voting rights or preemptive rights and have
only such conversion or exchange
rights as the Trustees may grant in their
discretion. When issued for payment as
described in this Prospectus, the Fund's
shares will be fully paid and
transferable (subject to the Portfolio's
minimum account size). Shares are
redeemable as set forth under "Redemption of
Shares" and are subject to
involuntary redemption as set forth under
"Minimum Account Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, serves as
Custodian of the Portfolio's
investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the
Portfolio at the end of the period covered.
In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to
consolidate the mailing of its
semi-annual and annual reports by household.
This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report. In
addition, the Fund also plans to
consolidate the mailing of its Prospectus so
that a shareholder having multiple
accounts will receive a single Prospectus
annually. Shareholders who do not want
this consolidation to apply to their account
should contact their Smith Barney
Financial Consultant or the Fund's transfer
agent.
33
<PAGE>
Smith Barney
- ------------
A Member of Travelers Group [Logo]
Smith Barney
Muni Funds
Limited Term
Portfolio
388 Greenwich Street
New York, New York 10013
FD 2349 7/95
PROSPECTUS
Smith Barney
Muni Funds
National
Portfolio
JULY 31, 1995
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The National Portfolio (the "Portfolio")
is one of thirteen investment
portfolios that currently comprise Smith
Barney Muni Funds (the "Fund"). The
Portfolio seeks to pay its shareholders as
high a level of monthly income exempt
from Federal income taxes as is consistent
with prudent investing. The Portfolio
seeks to achieve its objective by investing
its assets in securities of varying
maturities, without limitation, depending on
market conditions. Typically, the
remaining maturity of municipal bonds will
range between 5 and 30 years. The
Portfolio may invest without limit in
municipal obligations whose interest is a
tax-preference for purposes of the Federal
alternative minimum tax.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including sales charges,
distribution and service fees and
expenses, that prospective investors will
find helpful in making an investment
decision. Investors are encouraged to read
this Prospectus carefully and retain
it for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated JULY 31, 1995,
as amended or supplemented from time
to time, that is available upon request and
without charge by calling or writing
the Fund at the telephone number or address
set forth above or by contacting a
Smith Barney Financial Consultant. The
Statement of Additional Information has
been filed with the Securities and Exchange
Commission (the "SEC") and is
incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Prospectus Summary
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
9
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
11
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
15
- ---------------------------------------------
- -----------------------------------
Dividends, Distributions and Taxes
15
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
17
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
25
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
28
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
30
- ---------------------------------------------
- -----------------------------------
Performance
30
- ---------------------------------------------
- -----------------------------------
Management of the Fund
31
- ---------------------------------------------
- -----------------------------------
Distributor
33
- ---------------------------------------------
- -----------------------------------
Additional Information
34
=============================================
===================================
=============================================
===================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
=============================================
===================================
2
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Prospectus Summary
=============================================
===================================
The following summary is qualified in its
entirety by detailed information
appearing elsewhere in this Prospectus and in
the Statement of Additional
Information. Cross references in this summary
are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio seeks
to pay its shareholders as high a
level of monthly income exempt from Federal
income taxes as is consistent with
prudent investing. The Portfolio seeks to
achieve its objective by investing its
assets in securities of varying maturities,
without limitation, depending on
market conditions. Typically, the remaining
maturity of municipal bonds will
range between 5 and 30 years. The Portfolio
may invest without limit in
municipal obligations whose interest is a tax
preference for purposes of the
Federal alternative minimum tax. See
"Investment Objective and Management
Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The
Portfolio offers several classes of
shares ("Classes") to investors designed to
provide them with the flexibility of
selecting an investment best suited to their
needs. The general public is
offered three Classes of shares: Class A
shares, Class B shares and Class C
shares, which differ principally in terms of
sales charges and rate of expenses
to which they are subject. A fourth Class of
shares, Class Y shares, is offered
only to investors meeting an initial
investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of
Shares."
Class A Shares. Class A shares are sold
at net asset value plus an initial
sales charge of up to 4.00% and are subject
to an annual service fee of 0.15% of
the average daily net assets of the Class.
The initial sales charge may be
reduced or waived for certain purchases.
Purchases of Class A shares, which when
combined with current holdings of Class A
shares offered with a sales charge
equal or exceed $500,000 in the aggregate,
will be made at net asset value with
no initial sales charge, but will be subject
to a contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made
within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial
Sales Charge."
Class B Shares. Class B shares are
offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds,
declining by 0.50% the first year
after purchase and by 1.00% each year
thereafter to zero. This CDSC may be
waived for certain redemptions. Class B
shares are subject to an annual service
fee of 0.15% and an annual distribution fee
of 0.50% of the average daily net
assets of the Class. The Class B shares'
distribution fee may cause that Class
to have higher expenses and pay lower
dividends than Class A shares.
Class B Shares Conversion Feature. Class
B shares will convert
automatically to Class A shares, based on
relative net asset value, eight years
after the date of the
3
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
original purchase. Upon conversion, these
shares will no longer be subject to an
annual distribution fee. In addition, a
certain portion of Class B shares that
have been acquired through the reinvestment
of dividends and distributions
("Class B Dividend Shares") will be converted
at that time. See "Purchase of
Shares -- Deferred Sales Charge
Alternatives."
Class C Shares. Class C shares are sold
at net asset value with no initial
sales charge. They are subject to an annual
service fee of 0.15% and an annual
distribution fee of 0.55% of the average
daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem
Class C shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have
higher expenses and pay lower
dividends than Class A shares. Purchases of
Portfolio shares, which when
combined with current holdings of Class C
shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be
made in Class A shares at net asset
value with no sales charge, and will be
subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase.
Class Y Shares. Class Y shares are
available only to investors meeting an
initial investment minimum of $5,000,000.
Class Y shares are sold at net asset
value with no initial sales charge or CDSC.
They are not subject to any service
or distribution fees.
In deciding which Class of Portfolio
shares to purchase, investors should
consider the following factors, as well as
any other relevant facts and
circumstances:
Intended Holding Period. The decision as
to which Class of shares is more
beneficial to an investor depends on the
amount and intended length of his or
her investment. Shareholders who are planning
to establish a program of regular
investment may wish to consider Class A
shares; as the investment accumulates
shareholders may qualify for reduced sales
charges and the shares are subject to
lower ongoing expenses over the term of the
investment. As an alternative, Class
B and Class C shares are sold without any
initial sales charge so the entire
purchase price is immediately invested in the
Portfolio. Any investment return
on these additional invested amounts may
partially or wholly offset the higher
annual expenses of these Classes. Because the
Portfolio's future return cannot
be predicted, however, there can be no
assurance that this would be the case.
Finally, investors should consider the
effect of the CDSC period and any
conversion rights of the Classes in the
context of their own investment time
frame. For example, while Class C shares have
a shorter CDSC period than Class B
shares, they do not have a conversion
feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B
shares may be more attractive than Class
C shares to investors with longer term
investment outlooks.
4
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Investors investing a minimum of
$5,000,000 must purchase Class Y shares,
which are not subject to an initial sales
charge, CDSC or service or
distribution fees. The maximum purchase
amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares
is $499,999. There is no maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The
initial sales charge on Class A
shares may be waived for certain eligible
purchasers and the entire purchase
price would be immediately invested in the
Portfolio. In addition, Class A share
purchases, which when combined with current
holdings of Class A shares offered
with a sales charge equal or exceed $500,000
in the aggregate,will be made at
net asset value with no initial sales charge,
but will be subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The $500,000 aggregate
investment may be met by adding the purchase
to the net asset value of all Class
A shares offered with a sales charge held in
funds sponsored by Smith Barney
Inc. ("Smith Barney") listed under "Exchange
Privilege." Class A share purchases
may also be eligible for a reduced initial
sales charge. See "Purchase of
Shares." Because the ongoing expenses of
Class A shares may be lower than those
for Class B and Class C shares, purchasers
eligible to purchase Class A shares
at net asset value or at a reduced sales
charge should consider doing so.
Smith Barney Financial Consultants may
receive different compensation for
selling each Class of shares. Investors
should understand that the purpose of
the CDSC on the Class B and Class C shares is
the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management
of the Fund" for a complete
description of the sales charges and service
and distribution fees for each
Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes"
and "Exchange Privilege" for other
differences between the Classes of shares.
PURCHASE OF SHARES Shares may be
purchased through the Portfolio's
distributor, Smith Barney, a broker that
clears securities transactions through
Smith Barney on a fully disclosed basis (an
"Introducing Broker") or an
investment dealer in the selling group. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class
A, Class B and Class C shares may
open an account by making an initial
investment of at least $1,000 for each
account. Investors in Class Y shares may open
an account for an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. The minimum initial investment
requirement for Class A, Class B and
Class C shares and the subsequent investment
requirement for all Classes through
the Systematic Investment Plan described
below is $50. There is no minimum
investment requirement in Class A shares for
unitholders who invest
distributions from a unit
5
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
investment trust ("UIT") sponsored by Smith
Barney. It is not recommended that
the Portfolio be used as a vehicle for Keogh,
IRA or other qualified retirement
plans. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a Systematic
Investment Plan under which they may
authorize the automatic placement of a
purchase order each month or quarter for
Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be
redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney
Mutual Funds Management Inc. ("SBMFM"
or the "Manager") serves as the Portfolio's
investment manager. SBMFM provides
investment advisory and management services
to investment companies affiliated
with Smith Barney. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial
services holding company engaged, through
its subsidiaries, principally in four
business segments:Investment Services,
Consumer Finance Services, Life Insurance
Services and Property & Casualty
Insurance Services. As of March 31, 1995,
SBMFM had aggregate assets under
management in excess of $54 billion. See
"Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may
be exchanged for shares of the
same Class of certain other funds of the
Smith Barney Mutual Funds at the
respective net asset values next determined,
plus any applicable sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of
the Portfolio for the prior day
generally is quoted daily in the financial
section of most newspapers and is
also available from a Smith Barney Financial
Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends
are paid monthly from net investment
income. Distributions of net realized capital
gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of a
Class will be reinvested automatically,
unless otherwise specified by an
investor, in additional shares of the same
Class at current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or CDSC. Class B shares
acquired through dividend and
distribution reinvestments will become
eligible for conversion to Class A shares
on a pro rata basis. See "Dividends,
Distributions and Taxes."
6
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
RISK FACTORS AND SPECIAL CONSIDERATIONS
There can be no assurance that the
Portfolio's investment objective will be
achieved. The value of the Portfolio's
investments, and thus the net asset value of
the Portfolio's shares, will
fluctuate in response to changes in market
and economic conditions, as well as
the financial condition and prospects of
issuers of municipal obligations
purchased by the Portfolio. The market value
of long-term municipal bonds may be
adversely effected during periods of rising
interest rates. Additionally,
changes in Federal income tax laws effecting
the tax exemption for interest on
municipal obligations could effect the
availability of tax exempt obligations
for purchase and the value of the Portfolio's
securities would be affected. See
"Investment Objective and Management
Policies."
THE PORTFOLIO'S EXPENSES The following
expense table lists the costs and
expenses an investor will incur either
directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales
charge or maximum CDSC that may be
incurred at the time of purchase or
redemption and, unless otherwise noted, the
Portfolio's operating expenses for its most
recent fiscal year:
Class A Class B Class C
Class Y
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
......................... 4.00%
None None None
Maximum CDSC
(as a percentage of original cost or
redemption proceeds, whichever is lower)
.................... None*
4.50% 1.00% None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees
.............................................
0.45% 0.45% 0.45%
0.45%
12B-1 FEES***
.............................................
... 0.15 0.65
0.70 --
Other expenses
...........................................
0.08 0.09 0.08
0.07
- ---- ---- ----
- ----
Total Portfolio Operating Expenses
..........................
0.68% 1.19% 1.23%
0.52%
==== ==== ====
====
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
* Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales
charge equal or exceed $500,000 in the
aggregate, will be made at net asset
value with no sales charge, but will
be subject to a CDSC of 1.00% on
redemptions made within 12 months.
** "Management Fees" and "Other Expenses"
for Class A shares are based on actual
amounts for the fiscal year ended March 31,
1995. 12b-1 fees have been restated to
reflect the anticipated level of 12b-1 fees
for the current fiscal period. "Other
Expenses" for Class Y shares have been
estimated because no Class Y shares were
outstanding for the period ended March 31,
1995.
*** Upon conversion of Class B shares to
Class A shares, such shares will no
longer be subject to a distribution
fee. Class C shares do not have a
conversion feature and, therefore, are
subject to an ongoing distribution
fee. As a result, long-term
shareholders of Class C shares may pay more
than the economic equivalent of the
maximum front-end sales charge
permitted by the National Association
of Securities Dealers, Inc.
7
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
The sales charge and CDSC set forth in
the above table are the maximum
charges imposed on purchases or redemptions
of Portfolio shares and investors
may actually pay lower or no charges,
depending on the amount purchased and, in
the case of Class B, Class C and certain
Class A shares, the length of time the
shares are held. See "Purchase of Shares" and
"Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee
of 0.15% of the value of average
daily net assets of Class A shares. Smith
Barney also receives with respect to
Class B shares an annual 12b-1 fee of 0.65%
of the value of average daily net
assets of that Class, consisting of a 0.50%
distribution fee and a 0.15% service
fee. With respect to Class C shares, Smith
Barney also receives an annual 12b-1
fee of 0.70% of the value of average daily
net assets of that Class, consisting
of a 0.55% distribution fee and a 0.15%
service fee. "Other expenses" in the
above table include fees for shareholder
services, custodial fees, legal and
accounting fees, printing costs and
registration fees.
EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares" and "Management of the
Fund."
1 Year 3 Years 5 Years 10 Years*
- ---------------------------------------------
- -----------------------------------
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end
of each time period:
Class A
................................ $47 $61
$76 $121
Class B
................................ 57 68
75 130
Class C
................................ 23 39
68 149
Class Y
................................ 5 17
29 65
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A
................................ $47 $61
$76 $121
Class B
................................ 12 38
65 130
Class C
................................ 13 39
68 149
Class Y
................................ 5 17
29 65
- ---------------------------------------------
- -----------------------------------
* Ten-year figures assume conversion of
Class B shares to Class A shares at
the end of the eighth year following the date
of purchase.
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses and
actual expenses may be greater or
less than those shown.
8
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule of the National
Portfolio of Smith Barney Muni Funds
has been audited in conjunction with the
annual audits of the financial
statements of Smith Barney Muni Funds by KPMG
Peat Marwick LLP, independent
auditors. The 1995 financial statements and
the independent auditors' report
thereon appear in the March 31, 1995 Annual
Report to Shareholders. No
information is presented for Class Y shares,
because no Class Y shares were
outstanding for the periods shown.
For a Portfolio share outstanding throughout
each period:
Period Ended March 31,
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Class A Shares (a): 1995
1994 1993 1992 1991
1990 1989 1988 1987(b)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Asset Value,
Beginning of Period $13.35
$13.81 $12.95 $12.49 $12.24
$12.11 $11.82 $12.95 $12.50
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net investment income(1) 0.82
0.85 0.88 0.90 0.91
0.92 0.95 0.95 0.50
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net realized and unrealized
gain (or loss) on
investments (0.01)
(0.39) 0.87 0.46 0.17
0.19 0.30 (1.12) 0.45
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total from Investment
Operations 0.81
0.46 1.75 1.36 1.08
1.11 1.25 (0.17) 0.95
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Less Dividends from
Net Investment Income (0.84)
(0.86) (0.89) (0.90) (0.83)
(0.98) (0.96) (0.94) (0.50)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Less Distributions from
Net Realized Gains 0.00
(0.06) 0.00 0.00 0.00
0.00 0.00 (0.02) 0.00
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Distributions (0.84)
(0.92) (0.89) (0.90) (0.83)
(0.98) (0.96) (0.96) (0.50)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Asset Value,
End of Period $13.32
$13.35 $13.81 $12.95 $12.49
$12.24 $12.11 $11.82 $12.95
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Return# 6.38%
3.17% 13.96% 11.21% 9.13%
9.60% 10.93% (1.00%) 7.07%++
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Assets,
End of Period (in millions) $401
$413 $383 $261 $200
$160 $109 $83 $69
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Ratios to Average Net Assets:
Expenses (1) 0.60%
0.52% 0.53% 0.50% 0.39%
0.35% 0.30% 0.35% 0.44%+
Net investment income 6.30%
6.05% 6.58% 6.88% 7.40%
7.43% 7.92% 8.06% 6.73%+
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Portfolio Turnover Rate 54.16%
42.33% 52.73% 95.29% 102.96%
56.36% 82.37% 105.87% 60.76%
=============================================
=============================================
==========================================
9
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
=============================================
==========================================
Financial Highlights (continued)
=============================================
=============================================
==========================================
>
Period Ended March 31,
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Class B Shares: Class C
Shares (d):
1995 (c) 1995 1994
1993(e)
Net Asset Value, Beginning of Period
$12.41 $13.33 $13.80
$13.47
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net investment income
0.33 0.74 0.76
0.22
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net realized and unrealized gain (or loss) on
investments 0.91
(0.01) (0.40) 0.31
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total from Investment Operations
1.24 0.73 0.36
0.53
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Less Dividends from Net Investment Income
(0.32) (0.74) (0.77)
(0.20)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Less Distributions from Net Realized Gains
0.00 0.00 (0.06)
0.00
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Distributions
(0.32) (0.74) (0.83)
(0.20)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Asset Value, End of Period
13.33 13.32 13.33
13.80
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Return#
10.11%++ 5.80% 2.40%
3.98%++
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Assets, End of Period (in millions)
$7 $19 $18
$6
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Ratios to Average Net Assets:
Expenses
1.19%+ 1.23% 1.22%
1.20%+
Net investment income
5.75%+ 5.69% 5.29%
5.68%+
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Portfolio Turnover Rate
54.16% 54.16% 42.33%
52.73%
=============================================
=============================================
==========================================
(1) The Manager has waived all or a part of
its fees for each of the years in
the six-year period ended March 31,
1992. If such fees were not waived, the
per share effect on expenses and ratios
of expenses to average net assets
would be as follows:
Increase in Per Share Expenses
1995 1994 1993 1992 1991
1990 1989 1988 1987
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Class A -
- - -- -- $.00 $.013
$.019 $.032 $.028 $.013(b)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Ratio of Expenses to Average Net Assets
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Class A -
- - -- -- .52% .49%
.50% .54% .58% .60%+(b)
- ---------------------------------------------
- ---------------------------------------------
- -----------------------------------------
+ Annualized.
++ Figures are not annualized, as they may
not be representative of the total
return for the year.
# Total returns do not reflect sales loads
or contingent deferred sales
charges.
(a) On October 10, 1994 the former Class C
shares were exchanged into Class A
shares.
(c) For the period from November 7, 1994
(inception date) to March 31, 1995.
(d) On November 7, 1994 the former Class B
shares were renamed Class C shares.
(b) From August 20, 1986 (commencement of
operations) to March 31, 1987.
(e) From January 5, 1993 (inception date) to
March 31, 1993.
10
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The Portfolio seeks as high a level of
income exempt from Federal income
taxes as is consistent with prudent
investing. The Portfolio invests its assets
in a diversified portfolio of municipal
securities of varying maturities,
without limitation, depending on market
conditions. Typically, the remaining
maturity of municipal bonds will range
between 5 and 30 years.
The Portfolio will seek to be fully
invested in obligations that are issued
by or on behalf of states, territories and
possessions of the United States and
their political subdivisions, agencies and
instrumentalities that were, in the
opinion of bond counsel to the issuer, exempt
from Federal income taxes at the
time of their issuance. (For certain
shareholders, a portion of the Portfolio's
income may be subject to the alternative
minimum tax ("AMT") on tax-exempt
income discussed below.) Such obligations are
issued to raise money for a
variety of public projects that enhance the
quality of life including health
facilities, housing, airports, schools,
highways and bridges.
Under the Tax Reform Act of 1986,
interest income from municipal
obligations issued to finance certain
"private activities" ("AMT-Subject Bonds")
becomes an item of "tax preference" which is
subject to the AMT when received by
a person in a tax year during which he or she
is subject to that tax. Such
private activity bonds include bonds issued
to finance such projects as certain
solid waste disposal facilities, student loan
programs, and water and sewage
projects. Because interest income on AMT-
Subject Bonds is taxable to certain
investors, it is expected, although there can
be no guarantee, that such
municipal obligations generally will provide
somewhat higher yields than other
municipal obligations of comparable quality
and maturity. There is no limitation
on the percent or amount of the Portfolio's
assets that may be invested in
AMT-Subject Bonds.
Municipal bonds purchased for the
Portfolio must, at the time of purchase,
be investment grade municipal bonds and at
least two thirds of the Portfolio's
municipal bonds must be rated in the category
of A or better. Investment grade
bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc.
("Moody's") or AAA, AA, A and BBB by Standard
& Poor's Corporation ("S&P") or
have an equivalent rating by any nationally
recognized statistical rating
organization; pre-refunded bonds escrowed by
U.S. Treasury obligations will be
considered AAA rated even though the issuer
does not obtain a new rating. Up to
one third of the assets of the Portfolio may
be invested in municipal bonds
rated Baa or BBB (this grade, while regarded
as having an adequate capacity to
pay interest and repay principal, is
considered to be of medium quality and has
speculative characteristics; in addition,
changes in economic conditions or
other circumstances are more likely to lead
to a weakened capacity to make
principal and interest payments than is the
case with
11
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
higher grade bonds) or in unrated municipal
bonds if, based upon credit analysis
by the Manager, it is believed that such
securities are at least of comparable
quality to those securities in which the
Portfolio may invest. In determining
the suitability of an investment in an
unrated municipal bond, the Manager will
take into consideration debt service
coverage, the purpose of the financing,
history of the issuer, existence of other
rated securities of the issuer and
other general conditions as may be relevant,
including comparability to other
issues. After the Portfolio purchases a
municipal bond, the issue may cease to
be rated or its rating may be reduced below
the minimum required for purchase.
Such an event would not require the
elimination of the issue from the Portfolio
but the Manager will consider such an event
in determining whether the Portfolio
should continue to hold the security.
The Portfolio's short-term municipal
obligations will be limited to high
grade obligations (obligations that are
secured by the full faith and credit of
the United States or are rated MIG I or MIG
2, VMIG I or VMIG 2 or Prime-1 or Aa
or better by Moody's or SP-I +, SP-I, SP-2,
or A-l or AA or better by S&P or
have an equivalent rating by any nationally
recognized statistical rating
organization, or obligations determined by
the Manager to be equivalent). Among
the types of short-term instruments in which
the Portfolio may invest are
floating or variable rate demand instruments,
tax-exempt commercial paper
(generally having a maturity of less than
nine months), and other types of notes
generally having maturities of less than
three years, such as Tax Anticipation
Notes, Revenue Anticipation Notes, Tax and
Revenue Anticipation Notes and Bond
Anticipation Notes. Demand instruments
usually have an indicated maturity of
more than one year, but contain a demand
feature that enables the holder to
redeem the investment on no more than 30
days' notice; variable rate demand
instruments provide for automatic
establishment of a new interest rate on set
dates; floating rate demand instruments
provide for automatic adjustment of
their interest rates whenever some other
specified interest rate changes (e.g.,
the prime rate). The Portfolio may purchase
participation interests in variable
rate tax-exempt securities (such as
Industrial Development Bonds) owned by
banks. Participations are frequently backed
by an irrevocable letter of credit
or guarantee of a bank that the Manager has
determined meets the prescribed
quality standards for the Portfolio.
Participation interests will be purchased
only if management believes interest income
on such interests will be tax-exempt
when distributed as dividends to
shareholders.
The Portfolio will not invest more than
10% of the value of its net assets
in illiquid securities, including those that
are not readily marketable or for
which there is no established market.
The Portfolio may purchase new issues of
municipal obligations on a
when-issued basis, i.e. delivery and payment
normally take place 15 to 45 days
after the
12
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
purchase date. The payment obligation and the
interest rate to be received are
each fixed on the purchase date, although no
interest accrues with respect to a
when-issued security prior to its stated
delivery date. During the period
between purchase and settlement, assets
consisting of cash or liquid high grade
debt securities, marked-to-market daily, of a
dollar amount sufficient to make
payment at settlement will be segregated at
the custodian bank. Interest rates
at settlement may be lower or higher than on
the purchase date, which would
result in appreciation or depreciation,
respectively. Although the Portfolio
will only purchase a municipal obligation on
a when- issued basis with the
intention of actually acquiring the
securities, the Portfolio may sell these
securities before the settlement date if it
is deemed advisable.
Portfolio transactions will be
undertaken principally to accomplish the
Portfolio's objective in relation to
anticipated movements in the general level
of interest rates, but the Portfolio may also
engage in short-term trading
consistent with its objective.
Though it has not done so, the Portfolio
may invest in municipal bond index
futures contracts (currently traded on the
Chicago Board of Trade) or in listed
contracts based on U.S. Government securities
as a hedging policy in pursuit of
its investment objective; provided that
immediately thereafter not more than
331/3% of its net assets would be hedged or
the amount of margin deposits on the
Portfolio's existing futures contracts would
not exceed 5% of the value of its
total assets. Since any income would be
taxable, it is anticipated that such
investments will be made only in those
circumstances when the Manager
anticipates the possibility of an extreme
change in interest rates or market
conditions but does not wish to liquidate the
Portfolio's securities. A further
discussion of futures contracts and their
associated risks is contained in the
Statement of Additional Information.
In each of the Fund's prior fiscal
years, 100% of the Portfolio's dividends
were exempt-interest dividends, excludable
from gross income for Federal income
tax purposes. It is a fundamental policy that
under normal market conditions,
the Portfolio will seek to invest 100% of its
assets -- and the Portfolio will
invest not less than 80% of its assets -- in
municipal obligations the interest
on which is exempt from Federal income taxes
(other than the alternative minimum
tax.) The Portfolio may invest up to 20% of
its assets in taxable fixed-income
securities but only in obligations issued or
guaranteed by the full faith and
credit of the United States and may invest
more than 20% of its assets in U.S.
Government securities during periods when in
the Manager's opinion a temporary
defensive posture is warranted, including any
period when the Fund's monies
available for investment exceed the municipal
obligations available for purchase
that meet the Fund's rating, maturity and
other investment criteria.
13
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve
its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the municipal bond
markets, the size of a particular offering,
the maturity of the obligation and
the rating of the issue. In general, the
longer the maturity of a municipal
obligation, the higher the rate of interest
it pays. However, a longer average
maturity is generally associated with a
higher level of volatility in the market
value of a municipal obligation. During
periods of falling interest rates, the
values of long-term municipal obligations
generally rise. Conversely, during
periods of rising interest rates, the values
of such securities generally
decline. Changes in the value of Portfolio
securities will not affect interest
income derived from those securities but will
affect the Portfolio's net asset
value. Since the Portfolio's objective is to
provide high current income, it
will invest in municipal obligations with an
emphasis on income rather than
stability of net asset values.
From time to time, proposals have been
introduced before Congress for the
purpose of restricting or eliminating the
Federal income tax exemption for
interest on municipal obligations and similar
proposals may be introduced in the
future. If one of these proposals were
enacted, the availability of tax exempt
obligations for investment by the Portfolio
and the value of the portfolio
securities would be affected. The Trustees
would then reevaluate the Portfolio's
investment objective and management policies.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Portfolio's portfolio securities
ordinarily are purchased from and sold
to parties acting as either principal or
agent. Newly issued securities
ordinarily are purchased directly from the
issuer or from an underwriter; other
purchases and sales usually are placed with
those dealers from which it appears
that the best price or execution will be
obtained. Usually no brokerage
commissions, as such, are paid by the
Portfolio for purchases and sales
undertaken through principal transactions,
although the price paid usually
includes an undisclosed compensation to the
dealer acting as agent.
The Portfolio cannot accurately predict
its portfolio turnover rate, but
anticipates that the annual turnover will not
exceed 100%. An annual turnover
rate of 100% would occur when all of the
securities held by the Portfolio are
replaced one time
14
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
during a period of one year. The Manager will
not consider
turnover rate a limiting factor in making
investment decisions consistent with
the investment objective and policies of the
Portfolio.
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on the NYSE, which is
currently 4:00 P.M. New York City time, on
each day that the NYSE is open, by dividing
the value of the Portfolio's net
assets attributable to each Class by the
total number of shares of the Class
outstanding.
When, in the judgment of the pricing
service, quoted bid prices for
investments are readily available and are
representative of the bid side of the
market, these investments are valued at the
mean between the quoted bid and
asked prices. Investments for which, in the
judgment of the pricing service,
there is no readily obtainable market
quotation (which may constitute a majority
of the portfolio securities) are carried at
fair value of securities of similar
type, yield and maturity. Pricing services
generally determine value by
reference to transactions in municipal
obligations, quotations from municipal
bond dealers, market transactions in
comparable securities and various
relationships between securities. Short-term
instruments maturing within 60 days
will be valued at cost plus (minus) amortized
discount (premium), if any, when
the Trustees have determined that amortized
cost equals fair value. Securities
and other assets that are not priced by a
pricing service and for which market
quotations are not available will be valued
in good faith at fair value by or
under the direction of the Trustees.
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of the
Portfolio's net investment income are
declared and paid monthly and any realized
capital gains are declared and
distributed annually.
If a shareholder does not otherwise
instruct, dividends and capital gains
distributions will be reinvested
automatically in additional shares of the
same
Class at net asset value, subject to no sales
charge or CDSC.
Income dividends and capital gains
distributions that are invested are
credited to shareholders' accounts in
additional shares at the net asset value
as of the close
15
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Dividends, Distributions and Taxe (continued)
=============================================
===================================
of business on the payment date. A
shareholder may change the option at any time
by notifying his or her Financial Consultant.
Accounts held directly by the
Fund's transfer agent, The Shareholder
Services Group Inc. ("TSSG"), should
notify TSSG in writing at least five business
days prior to the payment date to
permit the change to be entered in the
shareholder's account.
The Portfolio intends to qualify as a
"regulated investment company" and to
meet the requirements for distributing
"exempt-interest dividends" under the
Internal Revenue Code (the "Code") so that no
Federal income taxes will be
payable by the Portfolio and dividends
representing net interest received on
municipal obligations will not be includable
by shareholders in their gross
income for Federal income tax purposes. To
the extent dividends are derived from
taxable income from temporary investments,
market discounts or from the excess
of net short-term capital gain over net long-
term capital loss, they are treated
as ordinary income whether the shareholder
has elected to receive them in cash
or in additional shares. Capital gains
distributions, if any, whether paid in
cash or invested in shares of the Portfolio,
will be taxable to shareholders.
The per share dividends on Class B and
Class C shares of the Portfolio may
be lower than the per share dividends on
Class A and Class Y shares principally
as a result of the distribution fee
applicable with respect to Class B and Class
C shares. The per share dividends on Class A
shares of the Portfolio may be
lower than the per share dividends on Class Y
shares principally as a result of
the service fee applicable to Class A shares.
Distributions of capital gains, if
any, will be in the same amount for Class A,
Class B, Class C and Class Y
shares.
TAXES
Exempt-interest dividends allocable to
interest received by the Portfolio
from the AMT-Subject Bonds in which the
Portfolio may invest will be treated as
interest paid directly on such obligations
and will give rise to an "item of tax
preference" that will increase a
shareholder's alternative minimum taxable
income. In addition, for corporations,
alternative minimum taxable income will
be increased by a percentage of the amount by
which a special measure of income
(including exempt-interest dividends) exceeds
the amount otherwise determined to
be alternative minimum taxable income.
Accordingly, investment in the Portfolio
may cause shareholders to be subject to (or
result in an increased liability
under) the AMT. The Fund will annually
furnish to its shareholders a report
indicating the ratable portion of exempt-
interest dividends attributable to
AMT-Subject Bonds.
The Portfolio will be treated as a
separate regulated investment company
for Federal tax purposes. Accordingly, the
Portfolio's net investment income is
16
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Dividends, Distributions and Taxe (continued)
=============================================
===================================
determined separately based on the income
earned on its securities less its
costs of operations. The Portfolio's net long-
term and short-term gain (loss)
realized on investments is determined after
offsetting any capital loss
carryover of the Portfolio from prior
periods.
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Fund will not be
deductible to the extent that the Fund's
distributions are exempt from Federal income
tax. In addition, any loss realized
upon the redemption of shares held less than
6 months will be disallowed to the
extent of any exempt-interest dividends
received by the shareholder during such
period. However, this holding period may be
shortened by the Treasury Department
to a period of not less than the greater of
31 days or the period between
regular dividend distributions. Further,
persons who may be "substantial users"
(or "related persons" of substantial users)
of facilities financed by industrial
development bonds should consult their tax
advisors before purchasing Fund
shares.
Distributions that are exempt for
Federal income tax purposes will not
necessarily result in exemption under the
income or other tax laws of any state
or local taxing authority. Generally, only
interest earned on obligations issued
by the state or locality in which the
investor resides will be exempt from state
and local taxes; however, the laws of the
several states and local taxing
authorities vary with respect to the taxation
of exempt-interest income paid by
investment companies, and each shareholder
should consult a tax advisor in that
regard.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional lnformation.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
=============================================
===================================
Purchase of Shares
=============================================
===================================
GENERAL
The Portfolio offers four Classes of
shares. Class A shares are sold to
investors with an initial sales charge and
Class B and Class C shares are sold
without an initial sales charge but are
subject to a CDSC, payable upon certain
redemptions. Class Y shares are sold without
an initial sales charge or CDSC and
are available only to investors investing a
minimum of $5,000,000. See
"Prospectus Summary-Alternative Purchase
Arrangements" for a discussion of
factors to consider in selecting which Class
of shares to purchase.
17
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Purchase Of Shares (continued)
=============================================
===================================
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney, an Introducing
Broker or an investment dealer in
the selling group. When purchasing shares of
the Portfolio, investors must
specify whether the purchase is for Class A,
Class B, Class C or Class Y shares.
No maintenance fee will be charged by the
Portfolio in connection with a
brokerage account through which an investor
purchases or holds shares.
Investors in Class A, Class B and Class
C shares may open an account by
making an initial investment of at least
$1,000 for each account in the
Portfolio. Investors in Class Y shares may
open an account by making an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. For participants in the
Portfolio's Systematic Investment Plan, the
minimum initial investment requirement for
Class A, Class B and Class C shares
and the subsequent investment requirement for
all Classes is $50. There are no
minimum investment requirements for Class A
shares for employees of Travelers
and its subsidiaries, including Smith Barney,
a unitholder who invests
distributions from a UIT sponsored by Smith
Barney, and Trustees of the Fund and
their spouses and children of such persons.
The Fund reserves the right to waive
or change minimums, to decline any order to
purchase its shares and to suspend
the offering of shares from time to time.
Shares purchased will be held in the
shareholder's account by the Fund's transfer
agent, TSSG, a subsidiary of First
Data Corporation. Share certificates are
issued only upon a shareholder's
written request to TSSG. It is not
recommended that the Portfolio be used as a
vehicle for Keogh, IRA or other qualified
retirement plans.
Purchase orders received by the Fund or
Smith Barney prior to the close of
regular trading on the NYSE, on any day the
Portfolio calculates its net asset
value, are priced according to the net asset
value determined on that day (the
"trade date"). Orders received by dealers or
Introducing Brokers prior to the
close of regular trading on the NYSE on any
day the Portfolio calculates its net
asset value, are priced according to the net
asset value determined on that day,
provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. Payment for
Portfolio shares is due on the third
business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
TSSG is authorized through
preauthorized transfers of $50 or more to
charge the regular bank account or
other financial institution indicated by the
shareholder on a monthly or
quarterly basis to
18
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
provide systematic additions to the
shareholder's Portfolio account. A
shareholder who has insufficient funds to
complete the transfer will be charged
a fee of up to $25 by Smith Barney or TSSG.
The Systematic Investment Plan also
authorizes Smith Barney to apply cash held in
the shareholder's Smith Barney
brokerage account or redeem the shareholder's
shares of a Smith Barney money
market fund to make additions to the account.
Additional information is
available from the Fund or a Smith Barney
Financial Consultant.
Initial Sales Charge Alternative - Class
A Shares
The sales charges applicable to
purchases of Class A shares of the
Portfolio are as follows:
=============================================
===================================
Sales Charge Dealer's
% of
% of Amount Reallowance as % of
Amount of Investment Offering
Price Invested Offering Price
- ---------------------------------------------
- -----------------------------------
Less than $25,000 4.00%
4.17% 3.60%
$25,000 - 49,999 3.50
3.63 3.15
50,000 - 99,999 3.00
3.09 2.70
100,000 - 249,999 2.50
2.56 2.25
250,000 - 499,999 1.50
1.52 1.35
500,000 and over* *
* *
=============================================
===================================
* Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
without any initial sales charge, but
will be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The CDSC on Class A shares is
payable to Smith Barney, which
compensates Smith Barney Financial
Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC
is waived in the same circumstances
in which the CDSC applicable to Class B and
Class C shares is waived. See
"Deferred Sales Charge Alternatives" and
"Waivers of CDSC."
Members of the selling group may receive
up to 90% of the sales charge and
may be deemed to be underwriters of the Fund
as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above
apply to the aggregate of purchases
of Class A shares of the Portfolio made at
one time by "any person," which
includes an individual, including his or her
spouse and children, or a trustee
or other fiduciary of a single trust estate
or single fiduciary account. The
reduced sales charge minimums may also be met
by aggregating the purchase with
the net asset value of all Class A shares
offered with a sales charge held in
funds sponsored by Smith Barney listed under
"Exchange Privilege."
19
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made
at net asset value without a sales
charge in the following circumstances: (a)
sales of Class A shares to Trustees
of the Fund, employees of Travelers and its
subsidiaries and employees of
members of the National Association of
Securities Dealers, Inc., or to the
spouses and children of such persons
(including the surviving spouse of a
deceased Trustee or employee, and retired
Trustees or employees); (b) offers of
Class A shares to any other investment
company in connection with the
combination of such company with the
Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares
by any client of a newly employed
Smith Barney Financial Consultant (for a
period up to 90 days from the
commencement of the Financial Consultant's
employment with Smith Barney), on the
condition the purchase of Class A shares is
made with the proceeds of the
redemption of shares of a mutual fund which
(i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to
the client by the Financial
Consultant and (iii) was subject to a sales
charge; (d) shareholders who have
redeemed Class A shares in the Portfolio (or
Class A shares of another fund of
the Smith Barney Mutual Funds that are sold
with a sales charge equal to or
greater than the maximum sales charge of the
Portfolio) and who wish to reinvest
their redemption proceeds in the Portfolio,
provided the reinvestment is made
within 60 calendar days of the redemption;
(e) accounts managed by registered
investment advisory subsidiaries of
Travelers; and (f) investments of
distributions from a UIT sponsored by Smith
Barney. In order to obtain such
discounts, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of a Portfolio may be
purchased by "any person" (as defined
above) at a reduced sales charge or at net
asset value determined by aggregating
the dollar amount of the new purchase and the
total net asset value of all Class
A shares of the Portfolio and of funds
sponsored by Smith Barney, which are
offered with a sales charge, listed under
"Exchange Privilege" then held by such
person and applying the sales charge
applicable to such aggregate. In order to
obtain such discount, the purchaser must
provide sufficient information at the
time of purchase to permit verification that
the purchase qualifies for the
reduced sales charge. The right of
accumulation is subject to modification or
discontinuance at any time with respect to
all shares purchased thereafter.
20
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
GROUP PURCHASES
Upon completion of certain automated
systems, a reduced sales charge or
purchase at net asset value will also be
available to employees (and partners)
of the same employer purchasing as a group,
provided each participant makes the
minimum initial investment required. The
sales charge applicable to purchases by
each member of such a group will be
determined by the table set forth above
under "Initial Sales Charge Alternative --
Class A Shares", and will be based
upon the aggregate sales of Class A shares of
Smith Barney Mutual Funds offered
with a sales charge to, and share holdings
of, all members of the group. To be
eligible for such reduced sales charges or to
purchase at net asset value, all
purchases must be pursuant to an employer- or
partnership-sanctioned plan
meeting certain requirements. One such
requirement is that the plan must be open
to specified partners or employees of the
employer and its subsidiaries, if any.
Such plan may, but is not required to,
provide for payroll deductions. Smith
Barney may also offer a reduced sales charge
or net asset value purchase for
aggregating related fiduciary accounts under
such conditions that Smith Barney
will realize economies of sales efforts and
sales related expenses. An
individual who is a member of a qualified
group may also purchase Class A shares
at the reduced sales charge applicable to the
group as a whole. The sales charge
is based upon the aggregate dollar value of
Class A shares offered with a sales
charge that have been previously purchased
and are still owned by the group,
plus the amount of the current purchase. A
"qualified group" is one which (a)
has been in existence for more than six
months, (b) has a purpose other than
acquiring Portfolio shares at a discount and
(c) satisfies uniform criteria
which enable Smith Barney to realize
economies of scale in its costs of
distributing shares. A qualified group must
have more than 10 members, must be
available to arrange for group meetings
between representatives of the Portfolio
and the members, and must agree to include
sales and other materials related to
the Portfolio in its publications and
mailings to members at no cost to Smith
Barney. In order to obtain such reduced sales
charge or to purchase at net asset
value, the purchaser must provide sufficient
information at the time of purchase
to permit verification that the purchase
qualifies for the reduced sales charge.
Approval of group purchase reduced sales
charge plans is subject to the
discretion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for
amounts of $50,000 or more provides
an opportunity for an investor to obtain a
reduced sales charge by aggregating
investments over a 13 month period, provided
that the investor refers to such
Letter when placing orders. For purposes of a
Letter of Intent, the "Amount of
Investment" as referred to in the preceding
sales charge table includes
purchases of all Class A
21
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
shares of the Portfolio and other funds of
the Smith Barney Mutual Funds offered
with a sales charge over the 13 month period
based on the total amount of
intended purchases plus the value of all
Class A shares previously purchased and
still owned. An alternative is to compute the
13 month period starting up to 90
days before the date of execution of a Letter
of Intent. Each investment made
during the period receives the reduced sales
charge applicable to the total
amount of the investment goal. If the goal is
not achieved within the period,
the investor must pay the difference between
the sales charges applicable to the
purchases made and the charges previously
paid, or an appropriate number of
escrowed shares will be redeemed. Please
contact a Smith Barney Financial
Consultant or TSSG to obtain a Letter of
Intent application.
Class Y Shares. A Letter of Intent may
also be used as a way for investors
to meet the minimum investment requirement
for Class Y shares. Such investors
must make an initial minimum purchase of
$1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of
$5,000,000 of Class Y shares of the
same Portfolio within six months from the
date of the Letter. If a total
investment of $5,000,000 is not made within
the six-month period, all Class Y
shares purchased to date will be transferred
to Class A shares, where they will
be subject to all fees (including a service
fee of 0.15%) and expenses
applicable to the Portfolio's Class A shares,
which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial
Consultant or TSSG for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset
value next determined without an
initial sales charge so that the full amount
of an investor's purchase payment
may be immediately invested in the Portfolio.
A CDSC however, may be imposed on
certain redemptions of these shares. "CDSC
Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which
when combined with Class A shares
offered with a sales charge currently held by
an investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on
an amount equal to the lesser of
the original cost of the shares being
redeemed or their net asset value at the
time of redemption. CDSC Shares that are
redeemed will not be subject to a CDSC
to the extent that the value of such shares
represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of
dividends or capital gain
distributions; (c) with respect to Class B
shares, shares redeemed more than
five years after their purchase; or (d) with
respect to Class C shares and Class
A shares that are CDSC Shares, shares
redeemed more than 12 months after their
purchase.
22
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Class C shares and Class A shares that
are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of
purchase. In circumstances in which
the CDSC is imposed on Class B shares, the
amount of the charge will depend on
the number of years since the shareholder
made the purchase payment from which
the amount is being redeemed. Solely for
purposes of determining the number of
years since a purchase payment, all purchase
payments made during a month will
be aggregated and deemed to have been made on
the last day of the preceding
Smith Barney statement month. The following
table sets forth the rates of the
charge for redemptions of Class B shares by
shareholders:
Year Since Purchase
Payment Was Made
CDSC
- ---------------------------------------------
- -----------------------------------
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth
0.00
Seventh
0.00
Eighth
0.00
- ---------------------------------------------
- -----------------------------------
Class B shares will convert
automatically to Class A shares eight years
after the date on which they were purchased
and thereafter will no longer be
subject to any distribution fees. There will
also be converted at that time such
proportion of Class B Dividend Shares owned
by the shareholder as the ratio of
the total number of his or her Class B shares
converting at the time bears to
the total number of outstanding Class B
shares (other than Class B Dividend
Shares) owned by the shareholder.
Shareholders who held Class B shares of Smith
Barney Shearson Short-Term World Income Fund
(the "Short-Term World Income
Fund") on July 15, 1994 and who subsequently
exchanged those shares for Class B
shares of the Portfolio will be offered the
opportunity to exchange all such
Class B shares for Class A shares of the
Portfolio four years after the date on
which those shares were deemed to have been
purchased. Holders of such Class B
shares will be notified of the pending
exchange in writing approximately 30 days
before the fourth anniversary of the purchase
date and, unless the exchange has
been rejected in writing, the exchange will
occur on or about the fourth
anniversary date. See "Prospectus Summary --
Alternative Purchase Arrangements
- -- Class B Shares Conversion Feature."
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestment of
dividends and capital gain distributions
and finally
23
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
of other shares held by the shareholder for
the longest period of time. The
length of time that CDSC Shares acquired
through an exchange have been held will
be calculated from the date that the Class B
and Class C shares exchanged were
initially acquired in one of the other
applicable Smith Barney Mutual Funds, and
Portfolio shares being redeemed will be
considered to represent, as applicable,
capital appreciation or dividend and capital
gain distribution reinvestments in
such other funds. For Federal income tax
purposes, the amount of the CDSC will
reduce the gain or increase the loss, as the
case may be, on the amount realized
on redemption. The amount of any CDSC will be
paid to Smith Barney.
To provide an example, assume an
investor purchased 100 Class B shares at
$10 per share for a cost of $1,000.
Subsequently, the investor acquired 5
additional shares through dividend
reinvestment. During the fifteenth month
after the purchase, the investor decided to
redeem $500 of his or her
investment. Assuming at the time of the
redemption the net asset value had
appreciated to $12 per share, the value of
the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would
not be applied to the amount which
represents appreciation ($200) and the value
of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable
rate for Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a)
exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal
to or less than 1.00% per month of
the value of the shareholder's shares at the
time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan")
(provided, however, that automatic cash
withdrawals in amounts equal to or less than
2.00% per month of the value of the
shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within twelve
months following the death or disability of
the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in
connection with a combination of
the Portfolio with any investment company by
merger, acquisition of assets or
otherwise. In addition, a shareholder who has
redeemed shares from other funds
of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all
or part of the redemption proceeds within 60
days and receive pro rata credit
for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.
24
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A, Class B and
Class C shares are subject to the
minimum investment requirements and all
shares are subject to other requirements
of the fund into which exchanges are made and
a sales charge differential may
apply.
Fund Name
Growth Funds
Smith Barney Aggressive Growth Fund
Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund
Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic
Income Fund
* Smith Barney Funds, Inc. -- Income
Return Account Portfolio
*** Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc.
Smith Barney California Municipals Fund
Inc.
* Smith Barney Intermediate Maturity
California Municipals Fund
* Smith Barney Intermediate Maturity New
York Municipals Fund
25
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Exchange Privelege (continued)
=============================================
===================================
Smith Barney Managed Municipals Fund
Inc.
Smith Barney Massachusetts Municipals
Fund
* Smith Barney Muni Funds -- Florida
Limited Term Portfolio
Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Georgia
Portfolio
* Smith Barney Muni Funds -- Limited Term
Portfolio
Smith Barney Muni Funds -- New York
Portfolio
Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney New Jersey Municipals Fund
Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, inc. --
Pacific Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
*** Smith Barney Money Funds, Inc. -- Cash
Portfolio
*** Smith Barney Money Funds, Inc. --
Government Portfolio
++ Smith Barney Money Funds, Inc. --
Retirement Portfolio
*** Smith Barney Municipal Money Market
Fund, Inc.
*** Smith Barney Muni Funds -- California
Money Market Portfolio
*** Smith Barney Muni Funds -- New York
Money Market Portfolio
- ------------
* Available for exchange with Class A,
Class C and Class Y shares of the
Portfolio.
** Available for exchange with Class A,
Class B and Class Y shares of the
Portfolio. *** Available for exchange
with Class A and Class Y shares of
the Portfolio.
+ Available for exchange with Class B and
Class C shares of the Portfolio.
++ Available for exchange with Class A
shares of the Portfolio.
Class A Exchanges. Class A shares of
Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of
such shares for Class A shares of a
26
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
fund sold with a higher sales charge. The
"sales charge differential" is limited
to a percentage rate no greater than the
excess of the sales charge rate
applicable to purchases of shares of the
mutual fund being acquired in the
exchange over the sales charge rate(s)
actually paid on the mutual fund shares
relinquished in the exchange and on any
predecessor of those shares. For
purposes of the exchange privilege, shares
obtained through automatic
reinvestment of dividends and capital gain
distributions, are treated as having
paid the same sales charges applicable to the
shares on which the dividends or
distributions were paid; however, if no sales
charge was imposed upon the
initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales
charge differential upon exchange. Class
A shares held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of the
Smith Barney Mutual Funds will not be
subject to a sales charge differential.
Class B Exchanges. In the event a Class
B shareholder (unless such
shareholder was a Class B shareholder of the
Short-Term World Income Fund on
July 15, 1994) wishes to exchange all or a
portion of his or her shares in any
of the funds imposing a higher CDSC than that
imposed by the Portfolio, the
exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an
exchange, the new Class B shares will be
deemed to have been purchased on the
same date as the Class B shares of the
Portfolio that have been exchanged.
Class C Exchanges. Upon an exchange, the
new Class C shares will be deemed
to have been purchased on the same date as
the Class C shares of the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment adviser may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
adviser will notify Smith Barney
that the Fund may, at its discretion, decide
to limit additional purchases
and/or exchanges by the shareholder. Upon
such a determination, the Fund will
provide notice in writing or by telephone to
the shareholder at least 15 days
prior to suspending the exchange privilege
and during the 15 day period the
shareholder will be required to (a) redeem
his or her shares in the Portfolio or
(b) remain invested in the Portfolio or
exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily
available, which position the
27
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
shareholder would be expected to maintain for
a significant period of time. All
relevant factors will be considered in
determining what constitutes an abusive
pattern of exchanges.
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed below
are also applicable for exchanging shares,
and exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
=============================================
===================================
Redemption of Shares
=============================================
===================================
The Fund is required to redeem the
shares of the Portfolio tendered to it,
as described below, at a redemption price
equal to their net asset value per
share next determined after receipt of a
written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the
close of regular trading on the NYSE are
priced at the net asset value next
determined.
If a shareholder holds shares in more
than one Class, any request for
redemption must specify the Class being
redeemed. In the event of a failure to
specify which Class, or if the investor owns
fewer shares of the Class than
specified, the redemption request will be
delayed until the Fund's transfer
agent receives further instructions from
Smith Barney, or if the shareholder's
account is not with Smith Barney, from the
shareholder directly. The redemption
proceeds will be remitted on or before the
third business day following receipt
of proper tender, except on any days on which
the NYSE is closed or as permitted
under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney
brokerage account, these funds will not
be invested for the shareholder's benefit
without specific instruction and Smith
Barney will benefit from the use of
temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other
than a certified or official bank
check, will be remitted upon clearance of the
check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian
must be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
28
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request for redemption
to:
Smith Barney Muni Funds/National
Portfolio
Class A,B,C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an
automatic cash withdrawal plan, under
which shareholders who own shares with a
value of at least $10,000 may elect to
receive cash payments of at least $50 monthly
or quarterly. The withdrawal plan
will be carried over on exchanges between
funds or Classes of the Portfolio. Any
applicable CDSC will not be waived on amounts
withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the
CDSC at the time the withdrawal plan
commences. (With respect to withdrawal
plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00%
per month of the value of the
shareholder's shares subject to the CDSC.)
For further information regarding the
automatic cash withdrawal plan, shareholders
should contact a Smith Barney
Financial Consultant.
29
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Minimum Account Size(continued)
=============================================
===================================
The Fund reserves the right to redeem
involuntarily any shareholder's
account if the aggregate value of the shares
held in the Portfolio account is
less than $500. (If a shareholder has more
than one account in this Portfolio,
each account must satisfy the minimum account
size.) The Fund, however, will not
redeem shares based solely on market
reductions in net asset value. Before the
Fund exercises such right, shareholders will
receive written notice and will be
permitted 60 days to bring the account up to
the minimum to avoid involuntary
liquidation.
=============================================
===================================
Performance
=============================================
===================================
From time to time the Portfolio may
include its yield, tax equivalent
yield, total return and average annual total
return in advertisements. In
addition, in other types of sales literature
the Fund may also include the
Portfolio's distribution rate. These figures
are computed separately for Class
A, Class B, Class C and Class Y shares of the
Portfolio. These figures are based
on historical earnings and are not intended
to indicate future performance. The
yield of a Portfolio Class refers to the net
income earned by an investment in
the Class over a thirty-day period ending at
month end. This net income, which
does not include any element of non-tax
exempt income if any, is then
annualized, i.e., the amount of income earned
by the investment during that
thirty-day period is assumed to be earned
each 30-day period for twelve periods
and is expressed as a percentage of the
investment. The net income earned on the
investment for six periods is also assumed to
be reinvested at the end of the
sixth 30-day period. The tax equivalent yield
is calculated similarly to the
yield, except that a stated income tax rate
is used to demonstrate the taxable
yield necessary to produce an after-tax yield
equivalent to the tax-exempt yield
of the Class. The yield and tax equivalent
yield quotations are calculated
according to a formula prescribed by the SEC
to facilitate comparison with
yields quoted by other investment companies.
The distribution rate is calculated
by annualizing the latest monthly
distribution and dividing the result by the
maximum offering price per share as of the
end of the period to which the
distribution relates. The distribution rate
is not computed in the same manner
as, and therefore can be significantly
different from, the above described
yield. Total return is computed for a
specified period of time assuming
deduction of the maximum sales charge, if
any, from the initial amount invested
and reinvestment of all income dividends and
capital gains distributions on the
reinvestment dates at prices calculated as
stated in this Prospectus, then
dividing the value of the investment at the
end of the period so calculated by
the initial amount invested and subtracting
100%. The standard average annual
total
30
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Performance (continued)
=============================================
===================================
return, as prescribed by the SEC, is derived
from this total return, which
provides the ending redeemable value. Such
standard total return information may
also be accompanied with nonstandard total
return information for differing
periods computed in the same manner but
without annualizing the total return or
taking sales charges into account. The
Portfolio may also include comparative
performance information in advertising or
marketing its shares. Such performance
information may include data from Lipper
Analytical Services, Inc. and other
financial publications.
=============================================
===================================
Management of the Fund
=============================================
===================================
TRUSTEES
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment adviser,
custodian and transfer agent. The day-to-day
operations of the Portfolio are
delegated to the Portfolio's investment
adviser. The Statement of Additional
Information contains background information
regarding each Trustee and executive
officer of the Fund.
MANAGER
Prior to December 31, 1994, Mutual
Management Corp. ("MMC") managed the
day-to-day operations of the Portfolio
pursuant to a management agreement
entered into by the Fund on behalf of the
Portfolio. Effective December 31,
1994, the Trustees of the Fund approved the
transfer of all of the management
agreements with MMC to Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the
"Manager"), an affiliate of MMC. Investment
management of the Portfolio under
SBMFM is conducted by the same personnel who
managed the Portfolio under MMC.
The reporting requirements for these
individuals has also remained unchanged. In
addition, because the original management
agreement with MMC was simply
transferred to SBMFM, the terms of the
agreement (including the fee) have
remained the same.
SBMFM, which until November, 1994
operated under the name Smith, Barney
Advisers, Inc., was incorporated in 1968
under the laws of Delaware. SBMFM is a
subsidiary of Holdings, the parent company of
Smith Barney (the "Distributor").
Holdings is a wholly-owned subsidiary of
Travelers which is a financial services
holding company engaged, through its
subsidiaries, principally in four business
31
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
segments: Investment Services, Consumer
Finance Services, Life Insurance
Services and Property & Casualty Insurance
Services. SBMFM, Holdings and Smith
Barney are each located at 388 Greenwich
Street, New York, New York 10013.
SBMFM provides the Fund with investment
management services and executive
and other personnel, pays the remuneration of
Fund officers, provides the Fund
with office space and equipment, furnishes
the Fund with bookkeeping,
accounting, administrative services and
services relating to research,
statistical work and supervision of the
Portfolio. For the services provided,
the Management Agreement provides that the
Fund will pay SBMFM a daily fee based
on the Portfolio's assets. For the Fund's
last fiscal year the management fee
was 0.45% of the Portfolio's average net
assets. For the last fiscal year total
expenses were 0.68% of the average daily net
assets for Class A shares ( Total expenses
for Class A shares are based on actual
Portfolio Operating expenses for the fiscal
year ended March 31, 1995. However, 12b-1
fees have been restated to reflect the
anticipated level of 12b-l fees for the
current fiscal period.); 1.19% of
the average daily net assets for Class B
shares; and 1.23% of the average daily
net assets for Class C shares. SBMFM has
agreed to waive its fee with respect to
a Class to the extent that it is necessary if
in any fiscal year the aggregate
expenses exclusive of 12b-1 fees, taxes,
brokerage, interest and extraordinary
expenses, such as litigation costs, exceed
0.65% of such Class' average net
assets for that fiscal year. The expense
limitations shall be in effect until
they are terminated by notice to shareholders
and by supplement to the then
current prospectus.
PORTFOLIO MANAGEMENT
Peter M. Coffey, a Managing Director of
Smith Barney, serves as Vice
President of the Fund and portfolio manager
of the Portfolio since its inception
(August 20, 1986) and manages the day to day
operations of the Fund, including
making all investment decisions. Mr. Coffey
also serves as the portfolio manager
for the Fund's other non-money market
Portfolios.
Management's discussion and analysis,
and additional performance
information regarding the Portfolio during
the fiscal year ended March 31, 1995
is included in the Annual Report dated March
31, 1995. A copy of the Annual
Report may be obtained upon request and
without charge from a Smith Barney
Financial Consultant or by writing or calling
the Fund at the address or phone
number listed on page one of this Prospectus.
32
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Distributor (continued)
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
a service fee with respect to Class A, Class
B and Class C shares of the
Portfolio at the annual rate of 0.15% of the
average daily net assets
attributable to these Classes. Smith Barney
is also paid a distribution fee with
respect to Class B and Class C shares at the
annual rate of 0.50% and 0.55%,
respectively, of the average daily net assets
attributable to these Classes.
Class B shares that automatically convert to
Class A shares eight years after
the date of original purchase, will no longer
be subject to a distribution fee.
The fees are used by Smith Barney to pay its
Financial Consultants for servicing
shareholder accounts and, in the case of
Class B and Class C shares, to cover
expenses primarily intended to result in the
sale of those shares. These
expenses include: advertising expenses; the
cost of printing and mailing
prospectuses to potential investors; payments
to and expenses of Smith Barney
Financial Consultants and other persons who
provide support services in
connection with the distribution of shares;
interest and/or carrying charges;
and indirect and overhead costs of Smith
Barney associated with the sale of
Portfolio shares, including lease, utility,
communications and sales promotion
expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A,
Class B and Class C shares, a
continuing fee for servicing shareholder
accounts for as long as a shareholder
remains a holder of that Class. Smith Barney
Financial Consultants may receive
different levels of compensation for selling
the different Classes of shares.
Payments under the Plan with respect to
Class B and Class C shares are not
tied exclusively to the distribution and
shareholder services expenses actually
incurred by Smith Barney and the payments may
exceed distribution expenses
actually incurred. The Fund's Trustees will
evaluate the appropriateness of the
Plan and its payment terms on a continuing
basis and in so doing will consider
all relevant factors, including expenses
borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
33
<PAGE>
Smith Barney Muni Funds - National Portfolio
=============================================
===================================
Additional Information (continued)
=============================================
===================================
The Fund, an open-end non-diversified,
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
one of twenty separate Portfolios. The assets
of each Portfolio are segregated
and separately managed. Class A, Class B,
Class C and Class Y shares of the
Portfolio represent interests in the assets
of the Portfolio and have identical
voting, dividend, liquidation and other
rights on the same terms and conditions,
except that expenses related to the
shareholder service and distribution of
Class A, Class B and Class C shares are borne
solely by the respective Class and
each such Class of shares has exclusive
voting rights with respect to provisions
of the Fund's Rule 12b-1 distribution plan
which pertain to that Class. (It is
the intention of the Fund not to hold annual
meetings of shareholders. The
Trustees may call meetings of shareholders
for action by shareholder vote as may
be required by the 1940 Act or the
Declaration of Trust, and shareholders are
entitled to call a meeting upon a vote of 10%
of the Fund's outstanding shares
for purposes of voting on removal of a
Trustee or Trustees and the Fund will
assist shareholders in calling such a meeting
as required by the 1940 Act.)
Shares do not have cumulative voting rights
or preemptive rights and have only
such conversion or exchange rights as the
Trustees may grant in their
discretion. When issued for payment as
described in this Prospectus, the Fund's
shares will be fully paid and transferable
(subject to the Portfolio's minimum
account size). Shares are redeemable as set
forth under "Redemption of Shares"
and are subject to involuntary redemption as
set forth under "Minimum Account
Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, PA 19103, serves as custodian
of the Portfolio's investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the Fund at
the end of the period covered. In an effort
to reduce the Fund's printing and
mailing costs, the Fund plans to consolidate
the mailing of its semi-annual and
annual reports by household. This
consolidation means that a household having
multiple accounts with the identical address
of record will receive a single
copy of each report. In addition, the Fund
also plans to consolidate the mailing
of its Prospectus so that a shareholder
having multiple accounts will receive a
single Prospectus annually. Shareholders who
do not want this consolidation to
apply to their account should contact their
Smith Barney Financial Consultant or
the Fund's transfer agent.
34
<PAGE>
SMITH BARNEY
- ------------
A Member of Travelers Group [LOGO]
Smith Barney
Muni Funds
National Portfolio
388 Greenwich Street
New York, New York 10013
FD 0663 7/95
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
New York Portfolio
JULY 31, 1995
Prospectus begins on page one
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The New York Portfolio (the "Portfolio")
is one of thirteen investment
portfolios that currently comprise Smith
Barney Muni Funds (the "Fund").
The New York Portfolio seeks to pay its
shareholders as high a level of
monthly income exempt from Federal income
taxes and from New York State and City
personal income taxes as is consistent with
prudent investing.
The Portfolio may invest without limit
in municipal obligations whose
interest is a tax-preference for purposes of
the Federal alternative minimum
tax.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including sales charges,
distribution and service fees and
expenses, that prospective investors will
find helpful in making an investment
decision. Investors are encouraged to read
this Prospectus carefully and retain
it for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated JULY 31, 1995,
as amended or supplemented from time
to time, that is available upon request and
without charge by calling or writing
the Fund at the telephone number or address
set forth above or by contacting a
Smith Barney Financial Consultant. The
Statement of Additional Information has
been filed with the Securities and Exchange
Commission (the "SEC") and is
incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Prospectus Summary
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
10
- ---------------------------------------------
- -----------------------------------
Investment Objectives and Management Policies
12
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
17
- ---------------------------------------------
- -----------------------------------
Dividends, Distributions and Taxes
18
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
20
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
27
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
31
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
32
- ---------------------------------------------
- -----------------------------------
Performance
33
- ---------------------------------------------
- -----------------------------------
Management of the Fund
34
- ---------------------------------------------
- -----------------------------------
Distributor
35
- ---------------------------------------------
- -----------------------------------
Additional Information
36
- ---------------------------------------------
- -----------------------------------
=============================================
===================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
=============================================
===================================
2
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Prospectus Summary
=============================================
===================================
The following summary is qualified in
its entirety by detailed information
appearing elsewhere in this Prospectus and in
the Statement of Additional
Information. Cross references in this summary
are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The New York
Portfolio seeks to pay its shareholders
as high a level of monthly income exempt from
Federal income taxes and from New
York State and City personal income taxes as
is consistent with prudent
investing. The Portfolio may invest without
limit in municipal obligations whose
interest is a tax preference for purposes of
the Federal alternative minimum
tax. See "Investment Objective and Management
Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The
Portfolio offers several classes of
shares ("Classes") to investors designed to
provide them with the flexibility of
selecting an investment best suited to their
needs. The general public is
offered three Classes of shares: Class A
shares, Class B shares and Class C
shares, which differ principally in terms of
sales charges and rate of expenses
to which they are subject. A fourth Class of
shares, Class Y shares, is offered
only to investors meeting an initial
investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of
Shares."
Class A Shares. Class A shares are sold
at net asset value plus an initial
sales charge of up to 4.00% and are subject
to an annual service fee of 0.15% of
the average daily net assets of the Class.
The initial sales charge may be
reduced or waived for certain purchases.
Purchases of Class A shares, which when
combined with current holdings of Class A
shares offered with a sales charge
equal or exceed $500,000 in the aggregate,
will be made at net asset value with
no initial sales charge, but will be subject
to a contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made
within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial
Sales Charge."
Class B Shares. Class B shares are
offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds,
declining by 0.50% the first year
after purchase and by 1.00% each year
thereafter to zero. This CDSC may be
waived for certain redemptions. Class B
shares are subject to an annual service
fee of 0.15% and an annual distribution fee
of 0.50% of the average daily net
assets of the Class. The Class B shares'
distribution fee may cause that Class
to have higher expenses and pay lower
dividends than Class A shares.
Class B Shares Conversion Feature. Class
B shares will convert
automatically to Class A shares, based on
relative net asset value, eight years
after the date of the original purchase. Upon
conversion, these shares will no
longer be subject to an annual distribution
fee. In addition, a certain portion
3
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
of Class B shares that have been acquired
through the reinvestment of dividends
and distributions ("Class B Dividend Shares")
will be converted at that time.
See "Purchase of Shares -- Deferred Sales
Charge Alternatives."
Class C Shares. Class C shares are sold
at net asset value with no initial
sales charge. They are subject to an annual
service fee of 0.15% and an annual
distribution fee of 0.55% of the average
daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem
Class C shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have
higher expenses and pay lower
dividends than Class A shares. Purchases of
Portfolio shares, which when
combined with current holdings of Class C
shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be
made in Class A shares at net asset
value with no sales charge, and will be
subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase.
Class Y Shares. Class Y shares are
available only to investors meeting an
initial investment minimum of $5,000,000.
Class Y shares are sold at net asset
value with no initial sales charge or CDSC.
They are not subject to any service
or distribution fees.
In deciding which Class of Portfolio
shares to purchase, investors should
consider the following factors, as well as
any other relevant facts and
circumstances:
Intended Holding Period. The decision as
to which Class of shares is more
beneficial to an investor depends on the
amount and intended length of his or
her investment. Shareholders who are planning
to establish a program of regular
investment may wish to consider Class A
shares; as the investment accumulates
shareholders may qualify for reduced sales
charges and the shares are subject to
lower ongoing expenses over the term of the
investment. As an alternative, Class
B and Class C shares are sold without any
initial sales charge so the entire
purchase price is immediately invested in the
Portfolio. Any investment return
on these additional invested amounts may
partially or wholly offset the higher
annual expenses of these Classes. Because the
Portfolio's future return cannot
be predicted, however, there can be no
assurance that this would be the case.
Finally, investors should consider the
effect of the CDSC period and any
conversion rights of the Classes in the
context of their own investment time
frame. For example, while Class C shares have
a shorter CDSC period than Class B
shares, they do not have a conversion
feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B
shares may be more attractive than Class
C shares to investors with longer term
investment outlooks.
4
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Investors investing a minimum of
$5,000,000 must purchase Class Y shares,
which are not subject to an initial sales
charge, CDSC or service or
distribution fees. The maximum purchase
amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares
is $499,999. There is no maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The
initial sales charge on Class A
shares may be waived for certain eligible
purchasers and the entire purchase
price would be immediately invested in each
Portfolio. In addition, Class A
share purchases, which when combined with
current holdings of Class A shares
offered with a sales charge equal or exceed
$500,000 in the aggregate, will be
made at net asset value with no initial sales
charge, but will be subject to a
CDSC of 1.00% on redemptions made within 12
months of purchase. The $500,000
aggregate investment may be met by adding the
purchase to the net asset value of
all Class A shares offered with a sales
charge held in funds sponsored by Smith
Barney Inc. ("Smith Barney") listed under
"Exchange Privilege." Class A share
purchases may also be eligible for a reduced
initial sales charge. See "Purchase
of Shares." Because the ongoing expenses of
Class A shares may be lower than
those for Class B and Class C shares,
purchasers eligible to purchase Class A
shares at net asset value or at a reduced
sales charge should consider doing so.
Smith Barney Financial Consultants may
receive different compensation for
selling each Class of shares. Investors
should understand that the purpose of
the CDSC on the Class B and Class C shares is
the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management
of the Fund" for a complete
description of the sales charges and service
and distribution fees for each
Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes"
and "Exchange Privilege" for other
differences between the Classes of shares.
PURCHASE OF SHARES Shares may be
purchased through the Portfolio's
distributor, Smith Barney, a broker that
clears securities transactions through
Smith Barney on a fully disclosed basis (an
"Introducing Broker") or an
investment dealer in the selling group. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class
A, Class B and Class C shares may
open an account by making an initial
investment of at least $1,000 for each
account. Investors in Class Y shares may open
an account for an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. The minimum initial investment
requirement for Class A, Class B and
Class C shares and the subsequent investment
requirement for all Classes through
the Systematic Investment Plan described
below is $50. There is no minimum
5
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
investment requirement in Class A shares for
unitholders who invest
distributions from a unit investment trust
("UIT") sponsored by Smith Barney. It
is not recommended that the Portfolio be used
as a vehicle for Keogh, IRA or
other qualified retirement plans. See
"Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a Systematic
Investment Plan under which they may
authorize the automatic placement of a
purchase order each month or quarter for
Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be
redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney
Mutual Funds Management Inc. ("SBMFM"
or the "Manager") serves as the Portfolio's
investment manager. SBMFMprovides
investment advisory and management services
to investment companies affiliated
with Smith Barney. SBMFM is a wholly owned
subsidiary of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial
services holding company engaged, through
its subsidiaries, principally in four
business segments: Investment Services,
Consumer Finance Services, Life Insurance
Services and Property & Casualty
Insurance Services. As of March 31, 1995
SBMFM had aggregate assets under
management in excess of $54 billion. See
"Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may
be exchanged for shares of the
same Class of certain other funds of the
Smith Barney Mutual Funds at the
respective net asset values next determined,
plus any applicable sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of
each Portfolio for the prior day
generally is quoted daily in the financial
section of most newspapers and is
also available from a Smith Barney Financial
Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends
are paid monthly from net investment
income. Distributions of net realized capital
gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of a
Class will be reinvested automatically,
unless otherwise specified by an
investor, in additional shares of the same
Class at current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or CDSC. Class B shares
acquired through dividend and
distribution reinvestments will become
eligible for conversion to Class A shares
on a pro rata basis. See "Dividends,
Distributions and Taxes."
6
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
RISK FACTORS AND SPECIAL CONSIDERATIONS
There can be no assurance that the
Portfolio's investment objective will be
achieved. The concentration of New York
Portfolio in municipal obligations involves
certain additional risks that should
be considered carefully by investors.
Additionally, the value of the Portfolio's
investments, and thus the net asset value of
the Portfolio's shares, will
fluctuate in response to changes in market
and economic conditions, as well as
the financial condition and prospects of
issuers of municipal obligations
purchased by the Portfolio. The market value
of long-term municipal bonds may be
adversely effected during periods of rising
interest rates. Additionally,
changes in Federal income tax laws effecting
the tax exemption for interest on
municipal obligations could effect the
availability of tax exempt obligations
for purchase and the value of the Portfolio's
securities would be affected. See
"Investment Objectives and Management
Policies."
THE PORTFOLIO'S EXPENSES The following
expense table lists the costs and
expenses an investor will incur either
directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales
charge or maximum CDSC that may be
incurred at the time of purchase or
redemption and, unless otherwise noted, the
Portfolio's operating expenses for its most
recent fiscal year:
Class A Class B Class C Class Y
- ---------------------------------------------
- ---------------------------------------------
- --
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
............... 4.00% None None
None
Maximum CDSC (as a percentage of original
cost or
redemption proceeds, whichever is lower)
.......... None* 4.50% 1.00%
None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees
.................................. 0.45%
0.45% 0.45% 0.45%
12b-1 fees***
..................................... 0.15
0.65 0.70 ---
Other expenses
................................ 0.13
0.17 0.13 0.12
- ---- ---- ---- ----
Total Portfolio Operating Expenses
.................. 0.73% 1.27%
1.28% 0.57%
- ---- ---- ---- ----
==== ==== ==== ====
- ---------------------------------------------
- ---------------------------------------------
- --
* Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales
charge equal or exceed $500,000 in the
aggregate, will be made at net asset
value with no sales charge, but will
be subject to a CDSC of 1.00% on
redemptions made within 12 months.
** "Management Fees" and "Other Expenses"
for Class A shares are based on actual
amounts for the fiscal year ended March 31,
1995. 12b-1 fees have been restated to
reflect the anticipated level of 12b-1 fees
for the current fiscal period. "Other
Expenses" for Class Y shares have been
estimated because no Class Y shares were
outstanding for the period ended March 31,
1995.
*** Upon conversion of Class B shares to
Class A shares, such shares will no
longer be subject to a distribution
fee. Class C shares do not have a
conversion feature and, therefore, are
subject to an ongoing distribution
fee. As a result, long-term
shareholders of Class C shares may pay more
than the economic equivalent of the
maximum front-end sales charge
permitted by the National Association
of Securities Dealers, Inc.
7
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
The sales charge and CDSC set forth in
the above table are the maximum
charges imposed on purchases or redemptions
of Portfolio shares and investors
may actually pay lower or no charges,
depending on the amount purchased and, in
the case of Class B, Class C and certain
Class A shares, the length of time the
shares are held. See "Purchase of Shares" and
"Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee
of 0.15% of the value of average
daily net assets of Class A shares. Smith
Barney also receives with respect to
Class B shares an annual 12b-1 fee of 0.65%
of the value of average daily net
assets of that Class, consisting of a 0.50%
distribution fee and a 0.15% service
fee. With respect to Class C shares, Smith
Barney also receives an annual 12b-1
fee of 0.70% of the value of average daily
net assets of that Class, consisting
of a 0.55% distribution fee and a 0.15%
service fee. "Other expenses" in the
above table include fees for shareholder
services, custodial fees, legal and
accounting fees, printing costs and
registration fees.
EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares" and "Management of the
Fund."
1 Year 3 Years 5 Years 10 Years*
- ---------------------------------------------
- --------------------------------------
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
New York Portfolio
CLASS A
................................ $47 $62
$79 $127
Class B
................................ 58 70
80 140
Class C
................................ 23 41
70 155
Class Y
................................ 6 18
32 71
- ---------------------------------------------
- --------------------------------------
An investor would pay the following expenses
on the same investment, assuming
the same annual return and no redemption:
1 Year 3 Years 5 Years 10 Years*
- ---------------------------------------------
- --------------------------------------
New York Portfolio
Class A
................................ $47 $62
$79 $127
Class B
................................ 13 40
70 140
Class C
................................ 13 41
70 155
Class Y
................................ 6 18
32 71
- ---------------------------------------------
- --------------------------------------
*Ten-year figures assume conversion of Class
B shares to Class A shares at the
end of the eighth year following the date of
purchase.
8
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, each Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses and
actual expenses may be greater or
less than those shown.
9
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule of the New York
Portfolio of Smith Barney Muni Funds
has been audited in conjunction with the
annual audits of the financial
statements of Smith Barney Muni Funds by KPMG
Peat Marwick LLP, independent
auditors. The 1995 financial statements and
the independent auditors' report
thereon appear in the March 31, 1995 Annual
Report to Shareholders. No
information is presented for Class Y shares,
since no Class Yshares were
outstanding for the periods indicated.
For a Portfolio share outstanding throughout
each period:
=============================================
=============================================
========================================
Period
Ended March 31,
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Class A Shares (a): 1995
1994 1993 1992 1991
1990 1989 1988 1987(b)
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Net Asset Value,
Beginning
of Period $12.83
$13.25 $12.33 $11.80 $11.67
$11.48 $11.25 $12.46 12.50
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Net investment income (1) 0.76
0.78 0.81 0.83 0.85
0.86 0.86 0.83 0.16
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Net realized and
unrealized gain (or loss)
on investments (2) 0.01
(0.41) 0.92 0.51 0.13
0.20 0.23 (1.20) (0.07)
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Total from Investment
Operations 0.77
0.37 1.73 1.34 0.98
1.06 1.09 (0.37) 0.09
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Less Dividends from
Net Investment Income (0.77)
(0.79) (0.81) (0.81) (0.85)
(0.87) (0.86) (0.85) (0.13)
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Less Distributions from
Net Realized Gains 0.00
0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Total Distributions (0.77)
(0.79) (0.81) (0.81) (0.85)
(0.87) (0.86) (0.85) (0.13)
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Net Asset Value,
End of Period $12.83
12.83 13.25 12.33 11.80
11.67 11.48 11.25 12.46
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Total Return# 6.32%
2.66% 14.48% 11.98% 8.74%
9.28% 10.04% (2.63)% 0.52%++
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Net Assets,
End of Period
(in thousands) $82,768
$70,065 $61,532 $40,370 $33,158
$28,091 $12,022 $9,703 $5,682
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Ratios to Average Net Assets:
Expenses (3) 0.63%
0.55% 0.55% 0.48% 0.28%
0.25% 0.24% 0.37% 0.45%+
Net investment income
6.00 5.79 6.32 6.86
7.31 7.10 7.48 7.34
6.49+
- ---------------------------------------------
- ---------------------------------------------
- ----------------------------------------
Portfolio Turnover Rate 30.38%
19.65% 21.91% 23.80% 69.75%
25.36% 56.49% 62.76% 0.00%
=============================================
=============================================
========================================
+ Annualized
++ Figures are not annualized, as they may
not be representative of the total return for
the year.
# Total returns do not reflect sales loads or
contingent deferred sales charges.
(a) On October 10, 1994, the former Class C
shares were exchanged into Class A shares.
(b) For the period from January 16, 1987
(commencement of operations) to March 31,
1987.
See page 11 for full footnote disclosures for
(1) and (2).
10
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Financial Highlights (continued)
=============================================
===================================
Class B Shares Class C
Shares(b)
- -------------- -----------------------
- ------------------------
1995(a)
1995 1994 1993(c)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Asset Value, Beginning of Period
$11.96 $12.82 $13.24
$12.84
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net investment income
0.31 0.68 0.68
0.15
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net realized and unrealized gain (or loss)
on investments (2)
0.86 0.01 (0.40)
0.37
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Income from Investment Operations
1.17 0.69 0.28
0.52
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Less Dividends from Net Investment Income
(0.29) (0.68) (0.70)
(0.12)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Less Distributions from Net Realized Gains
0.00 0.00 0.00
0.00
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Distributions
(0.29) (0.68) (0.70)
(0.12)
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Asset Value, End of Period
$12.84 $12.83 $12.82
$13.24
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Total Return#
9.92%++ 5.66% 1.96%
4.04%++
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Net Assets, End of Period (in thousands)
$3,813 $5.896 $5,461
$1,368
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Ratios to Average Net Assets:
Expenses
1.27%++ 1.28% 1.23%
1.23%+
Net investment income income
5.76+ 5.38 4.98
5.37+
- ---------------------------------------------
- ---------------------------------------------
- ------------------------------------------
Portfolio Turnover Rate
30.38% 30.38% 19.65%
21.91%
=============================================
=============================================
==========================================
+ Annualized.
++ Figures are not annualized, as they may
not be representative of the total return for
the year.
# Total returns do not reflect sales loads
or contingent deferred sales charges.
(a) For the period from November 11, 1994
(inception date) to March 31, 1995.
(b) On November 7, 1994, the former Class B
shares were renamed Class C shares.
(c) From January 8, 1993 (inception date) to
March 31, 1993.
(1) The Manager has waived all or a part of
its fees for each of the years in the four-
year period ended March 31, 1992. If such
fees were not waived, the per share effect on
expenses and the ratios of expenses to
average net assets would be as follows:
- ---------------------------------------------
- ---------------------------------------------
- ---------------
Per
Share Increase Ratios Without
Fee Waivers
Portfolio 1994 1993
1992 1991 1990 1989 1994 1993 1992
1991 1990 1989
- ---------------------------------------------
- ---------------------------------------------
- ---------------
New York Portfolio Class A -- --
.007 .031 .030 .030 -- -- .53
.50* .49 .50*
=============================================
=============================================
===============
As a result of voluntary expense limitations,
the ratio of expenses to average net assets
will not exceed 0.80 %, 1.30% and 1.35% for
Class A, B and C shares respectively
(2) Includes the net per share effect of
shareholder sales and redemptions activity
during the period, most of which occurred at
net asset values less than the beginning of
the period.
11
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The New York Portfolio seeks as high a
level of income exempt from Federal
income taxes and from the personal income
taxes of that state as is consistent
with prudent investing. The New York
Portfolio will seek to be fully invested in
obligations of that state and its political
subdivisions, agencies and
instrumentalities that were, in the opinion
of bond counsel to the issuer,
exempt from such state's as well as Federal
income taxes at the time of their
issuance. (For certain shareholders, a
portion of each Portfolio's income may be
subject to the alternative minimum tax
("AMT") on tax-exempt income discussed
below.) Such obligations are issued to raise
money for a variety of public
projects that enhance the quality of life
including health facilities, housing,
airports, schools, highways and bridges. Each
Portfolio invests its assets in
securities of ranging maturities, without
limitation, depending on market
conditions. Typically, the remaining maturity
of municipal bonds will range
between 5 and 30 years.
Under the Tax Reform Act of 1986,
interest income from municipal
obligations issued to finance certain
"private activities" ("AMT-Subject Bonds")
becomes an item of "tax preference" which is
subject to the AMT when received by
a person in a tax year during which he or she
is subject to that tax. Such
private activity bonds include bonds issued
to finance such projects as certain
solid waste disposal facilities, student loan
programs, and water and sewage
projects. Because interest income on AMT-
Subject Bonds is taxable to certain
investors, it is expected, although there can
be no guarantee, that such
municipal obligations generally will provide
somewhat higher yields than other
municipal obligations of comparable quality
and maturity. There is no limitation
on the percent or amount of each Portfolio's
assets that may be invested in
AMT-Subject Bonds.
Municipal bonds purchased for the
Portfolio must, at the time of purchase,
be investment grade municipal bonds and at
least two thirds of the Portfolio's
municipal bonds must be rated in the category
of A or better. Investment grade
bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc.
("Moody's") or AAA, AA, A and BBB by Standard
& Poor's Corporation ("S&P") or
have an equivalent rating by any nationally
recognized statistical rating
organization; pre-refunded bonds escrowed by
U.S. Treasury obligations will be
considered AAA rated even though the issuer
does not obtain a new rating. Up to
one third of the assets of the Portfolio may
be invested in municipal bonds
rated Baa or BBB (this grade, while regarded
as having an adequate capacity to
pay interest and repay principal, is
considered to be of medium quality and has
speculative characteristics; in addition,
changes in economic conditions or
other circumstances are more likely to lead
to a weakened capacity to make
principal and interest payments than is the
case with higher grade bonds) or in
unrated municipal bonds if, based upon credit
analysis by the Manager, it is
12
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
believed that such securities are at least of
comparable quality to those
securities in which the Portfolio may invest.
In determining the suitability of
an investment in an unrated municipal bond,
the Manager will take into
consideration debt service coverage, the
purpose of the financing, history of
the issuer, existence of other rated
securities of the issuer and other general
conditions as may be relevant, including
comparability to other issues. After
the Portfolio purchases a municipal bond, the
issue may cease to be rated or its
rating may be reduced below the minimum
required for purchase. Such an event
would not require the elimination of the
issue from the Portfolio but the
Manager will consider such an event in
determining whether the Portfolio should
continue to hold the security.
The Portfolio's short-term municipal
obligations will be limited to high
grade obligations (obligations that are
secured by the full faith and credit of
the United States or are rated MIG 1 or MIG
2, VMIG 1 or VMIG 2 or Prime-1 or Aa
or better by Moody's or SP-1+, SP-1, SP-2, or
A-1 or AA or better by S&P or have
an equivalent rating by any nationally
recognized statistical rating
organization or obligations determined by the
Manager to be equivalent). Among
the types of short-term instruments in which
the Portfolio may invest are
floating or variable rate demand instruments,
tax-exempt commercial paper
(generally having a maturity of less than
nine months), and other types of notes
generally having maturities of less than
three years, such as Tax Anticipation
Notes, Revenue Anticipation Notes, Tax and
Revenue Anticipation Notes and Bond
Anticipation Notes. Demand instruments
usually have an indicated maturity of
more than one year, but contain a demand
feature that enables the holder to
redeem the investment on no more than 30
days' notice; variable rate demand
instruments provide for automatic
establishment of a new interest rate on set
dates; floating rate demand instruments
provide for automatic adjustment of
their interest rates whenever some other
specified interest rate changes (e.g.,
the prime rate). The Portfolio may purchase
participation interests in variable
rate tax-exempt securities (such as
Industrial Development Bonds) owned by
banks. Participations are frequently backed
by an irrevocable letter of credit
or guarantee of a bank that the Manager has
determined meets the prescribed
quality standards for the Portfolio.
Participation interests will be purchased
only if management believes interest income
on such interests will be tax-exempt
when distributed as dividends to
shareholders.
The Portfolio will not invest more than
10% of the value of its net assets
in illiquid securities, including those that
are not readily marketable or for
which there is no established market.
The Portfolio may purchase new issues of
municipal obligations on a
when-issued basis, i.e., delivery and payment
normally take place 15 to 45 days
13
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
after the purchase date. The payment
obligation and the interest rate to be
received are each fixed on the purchase date,
although no interest accrues with
respect to a when-issued security prior to
its stated delivery date. During the
period between purchase and settlement,
assets consisting of cash or liquid high
grade debt securities, marked-to-market
daily, of a dollar amount sufficient to
make payment at settlement will be segregated
at the custodian bank. Interest
rates at settlement may be lower or higher
than on the purchase date, which
would result in appreciation or depreciation,
respectively. Although the
Portfolio will only purchase a municipal
obligation on a when-issued basis with
the intention of actually acquiring the
securities, the Portfolio may sell these
securities before the settlement date if it
is deemed advisable.
Portfolio transactions will be
undertaken principally to accomplish each
Portfolio's objective in relation to
anticipated movements in the general level
of interest rates, but a Portfolio may also
engage in short-term trading
consistent with its objective.
Though they have not done so, the
Portfolio may invest in municipal bond
index futures contracts (currently traded on
the Chicago Board of Trade) or in
listed contracts based on U.S. Government
securities as a hedging policy in
pursuit of its investment objective; provided
that immediately thereafter not
more than 33 1/3% of its net assets would be
hedged or the amount of margin
deposits on the Portfolio's existing futures
contracts would not exceed 5% of
the value of its total assets. Since any
income would be taxable, it is
anticipated that such investments will be
made only in those circumstances when
the Manager anticipates the possibility of an
extreme change in interest rates
or market conditions but does not wish to
liquidate the Portfolio's securities.
A further discussion of futures contracts and
their associated risks is
contained in the Statement of Additional
Information.
In each of the Fund's prior fiscal
years, 100% of the Portfolio's dividends
were exempt-interest dividends, excludable
from gross income for Federal income
tax purposes. It is a fundamental policy that
under normal market conditions,
the Portfolio will seek to invest 100% of its
assets -- and the Portfolio will
invest not less than 80% of its assets -- in
municipal obligations the interest
on which is exempt from Federal income taxes
(other than the alternative minimum
tax) and not less than 65% of its assets in
municipal obligations the interest
on which is also exempt from the personal
income taxes of New York State in the
opinion of bond counsel to the issuers. The
Portfolio may invest up to 20% of
its assets in taxable fixed-income
securities, but only in obligations issued or
guaranteed by the full faith and credit of
the United States, and may invest
more than 20% of its assets in U.S.
Government securities during periods when in
the Manager's opinion a temporary defensive
posture is warranted, including any
14
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
period when the Fund's monies available for
investment exceed such state's
municipal obligations available for purchase
that meet the Fund's rating,
maturity and other investment criteria.
FACTORS AFFECTING NEW YORK
The Portfolio's ability to achieve its
investment objective is dependent
upon the ability of the issuers of New York
obligations to meet their continuing
obligations for the payment of principal and
interest. New York State and New
York City face long-term economic problems
that could seriously affect their
ability and that of other issuers of New York
obligations to meet their
financial obligations.
Certain substantial issuers of New York
obligations (including issuers
whose obligations may be acquired by the
Portfolio) have experienced serious
financial difficulties in recent years. These
difficulties have at times
jeopardized the credit standing and impaired
the borrowing abilities of all New
York issuers and have generally contributed
to higher interest costs for their
borrowings and fewer markets for their
outstanding debt obligations. In recent
years, several different issues of municipal
securities of New York State and
its agencies and instrumentalities and of New
York City have been downgraded by
S&P and Moody's. On the other hand, strong
demand for New York obligations has
more recently had the effect of permitting
New York obligations to be issued
with yields relatively lower, and after
issuance, to trade in the market at
prices relatively higher, than comparably
rated municipal obligations issued by
other jurisdictions. A recurrence of the
financial difficulties previously
experienced by certain issuers of New York
obligations could result in defaults
or declines in the market values of those
issuers' existing obligations and,
possibly, in the obligations of other issuers
of New York obligations. Although
as of the date of this Prospectus, no issuers
of New York obligations are in
default with respect to the payment of the
irmunicipal obligations, the
occurrence of any such default could affect
adversely the market values and
marketability of all New York obligations
and, consequently, the net asset value
of the New York Portfolio.
During the most recent economic
downturn, the City has faced recurring
extraordinary budget gaps that have been
addressed by undertaking one-time,
one-shot budgetary initiatives to close then
projected budget gaps in order to
achieve a balanced budget as required by laws
of the State. The City's ability
to maintain balanced budgets in the future is
subject to numerous contingencies;
therefore, even though the City has managed
to close substantial budget gaps in
recent years in order to maintain balanced
operating results, there can be no
assurance that the City will continue to
maintain a balanced budget as required
15
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
by State law without additional tax or other
revenue increases or reduction in
City services, which could adversely affect
the City's economic base. ("Appendix
C" in the Statement of Additional Information
provides additional details.)
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve
its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the municipal bond
markets, the size of a particular offering,
the maturity of the obligations and
the rating of the issue. In general, the
longer the maturity of a municipal
obligation, the higher the rate of interest
it pays. However, a longer average
maturity is generally associated with a
higher level of volatility in the market
value of a municipal obligation. During
periods of falling interest rates, the
values of long-term municipal obligations
generally rise. Conversely, during
periods of rising interest rates, the values
of such securities generally
decline. Changes in the value of portfolio
securities will not affect interest
income derived from those securities but will
affect the Portfolio's net asset
value. Since the Portfolio's objective is to
provide high current income, they
will invest in municipal obligations with an
emphasis on income rather than
stability of net asset values.
The Fund is registered as a "non-
diversified" company under the Investment
Company Act of 1940 (the "1940 Act"), in
order for New York Portfolio to have
the ability to invest more than 5% of its
assets in the securities of any
issuer. Each Portfolio intends to comply with
Subchapter M of the Internal
Revenue Code (the "Code") that limits the
aggregate value of all holdings
(except U.S. Government and cash items, as
defined in the Code) that exceed 5%
of the Portfolio's total assets to an
aggregate amount of 50% of such assets.
Also, holdings of a single issuer (with the
same exceptions) may not exceed 25%
of the Portfolio's total assets. These limits
are measured at the end of each
quarter. Under the Subchapter M limits, "non-
diversification" allows up to 50%
of the Portfolio's total assets to be
invested in as few as two single issuers.
In the event of decline of creditworthiness
or default upon the obligations of
one or more such issuers exceeding 5%, an
investment in either Portfolio will
entail greater risk than in a portfolio
having a policy of "diversification"
because a high percentage of the Portfolio's
assets may be invested in municipal
obligations of one or two issuers.
Furthermore, a high percentage of investments
among few issuers may result in a greater
degree of fluctuation in the market
16
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
value of the assets of the Portfolio, and
consequently a greater degree of
fluctuation of the Portfolio's net asset
value, because the Portfolio will be
more susceptible to economic, political, or
regulatory developments affecting
these securities than would be the case with
a portfolio composed of varied
obligations of more issuers.
PORTFOLIO TRANSACTIONS AND TURNOVER
Portfolio securities ordinarily are
purchased from and sold to parties
acting as either principal or agent. Newly
issued securities ordinarily are
purchased directly from the issuer or from an
underwriter; other purchases and
sales usually are placed with those dealers
from which it appears that the best
price or execution will be obtained. Usually
no brokerage commissions, as such,
are paid by the Portfolio for purchases and
sales undertaken through principal
transactions, although the price paid usually
includes an undisclosed
compensation to the dealer acting as agent.
The Portfolio cannot accurately predict
its portfolio turnover rate, but
anticipates that the annual turnover will not
exceed 100%. An annual turnover
rate of 100% would occur when all of the
securities held by the Portfolio are
replaced one time during a period of one
year. The Manager will not consider
turnover rate a limiting factor in making
investment decisions consistent with
the investment objective and policies of the
Portfolio.
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on the NYSE, which is
currently 4:00 P.M. New York City time on
each day that the NYSE is open, by dividing
the value of the Portfolio's net
assets attributable to each Class by the
total number of shares of the Class
outstanding.
When, in the judgment of the pricing
service, quoted bid prices for
investments are readily available and are
representative of the bid side of the
market, these investments are valued at the
mean between the quoted bid and
asked prices. Investments for which, in the
judgment of the pricing service,
there is no readily obtainable market
quotation (which may constitute a majority
of the portfolio securities) are carried at
fair value of securities of similar
type, yield and maturity.
Pricing services generally determine
value by reference to transactions in
municipal obligations, quotations from
municipal bond dealers, market
transactions in comparable securities and
various relationships between
securities. Short-term instruments maturing
within 60 days will be valued at
17
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Valuation of Shares (continued)
=============================================
===================================
cost plus (minus) amortized discount
(premium), if any, when the Trustees have
determined that amortized cost equals fair
value. Securities and other assets
that are not priced by a pricing service and
for which market quotations are not
available will be valued in good faith at
fair value by or under the direction
of the Trustees.
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of the
Portfolio's net investment income are
declared and paid monthly and any realized
capital gains are declared and
distributed annually.
If a shareholder does not otherwise
instruct, dividends and capital gain
distributions will be reinvested
automatically in additional shares of the
same
Class at net asset value, subject to no sales
charge or CDSC.
Income dividends and capital gain
distributions that are invested are
credited to shareholders' accounts in
additional shares at the net asset value
as of the close of business on the payment
date. A shareholder may change the
option at any time by notifying his or her
Financial Consultant. Accounts held
privately by the Fund's transfer agent, The
Shareholder Services Group Inc.
("TSSG"), should notify TSSG in writing at
least five business days prior to the
payment date to permit the change to be
entered in the shareholder's account.
The per share dividends on Class B and
Class C shares of the Portfolio may
be lower than the per share dividends on
Class A and Class Y shares principally
as a result of the distribution fee
applicable with respect to Class B and Class
C shares. The per share dividends on Class A
shares of the Portfolio may be
lower than the per share dividends on Class Y
shares principally as a result of
the service fee applicable to Class A shares.
Distributions of capital gains, if
any, will be in the same amount for Class A,
Class B, Class C and Class Y
shares.
TAXES
The Portfolio intends to qualify as a
"regulated investment company" and to
meet the requirements for distributing
"exempt-interest dividends" under the
Internal Revenue Code (the "Code") so that no
Federal income taxes will be
payable by each Portfolio and dividends
representing net interest received on
municipal obligations will not be includable
by shareholders in their gross
income for Federal income tax purposes. To
the extent dividends are derived from
18
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
taxable income from temporary investments,
market discounts or from the excess
of net short-term capital gain over net long-
term capital loss, they are treated
as ordinary income whether the shareholder
has elected to receive them in cash
or in additional shares. Capital gains
distributions, if any, whether paid in
cash or invested in shares of the Portfolio,
will be taxable to shareholders.
Exempt-interest dividends allocable to
interest received by the Portfolio
from the AMT-Subject Bonds in which the
Portfolio may invest will be treated as
interest paid directly on such obligations
and will give rise to an "item of tax
preference" that will increase a
shareholder's alternative minimum taxable
income. In addition, for corporations,
alternative minimum taxable income will
be increased by a percentage of the amount by
which a special measure of income
(including exempt-interest dividends) exceeds
the amount otherwise determined to
be alternative minimum taxable income.
Accordingly, investment in the Portfolio
may cause shareholders to be subject to (or
result in an increased liability
under) the AMT. The Fund will annually
furnish to its shareholders a report
indicating the ratable portion of exempt-
interest dividends attributable to
AMT-Subject Bonds.
The Portfolio will be treated as a
separate regulated investment company
for Federal tax purposes. Accordingly, the
Portfolio's net investment income is
determined separately based on the income
earned on its securities less its
costs of operations. The Portfolio's net long-
term and short-term gain (loss)
realized on investments is determined after
offsetting any capital loss
carryover of the Portfolio from prior
periods.
NEW YORK STATE AND CITY TAXES
New York shareholders will not be
subject to New York State and City
personal income tax on New York Portfolio
dividends to the extent that such
distributions qualify as exempt-interest
dividends under the Code and represent
interest income attributable to Federally tax-
exempt obligations of the State of
New York and its political subdivisions (as
well as certain other Federally
tax-exempt obligations the interest on which
is exempt from New York State and
City income tax, such as certain obligations
of U.S. Territories). To the extent
that distributions on the New York Portfolio
are derived from taxable income,
including long or short-term capital gains,
such distributions will not be
exempt from State or City personal income
tax. Dividends on the New York
Portfolio are not excluded in determining New
York State franchise or City
business taxes on corporations and financial
institutions.
19
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Fund will not be
deductible to the extent that the Fund's
distributions are exempt from Federal income
tax. In addition, any loss realized
upon the redemption of shares held less than
6 months will be disallowed to the
extent of any exempt-interest dividends
received by the shareholder during such
period. However, this holding period may be
shortened by the Treasury Department
to a period of not less than the greater of
31 days or the period between
regular dividend distributions. Further,
persons who may be "substantial users"
(or "related persons" of substantial users)
of facilities financed by industrial
development bonds should consult their tax
advisors concerning an investment in
the Fund.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional Information.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation. Purchase of
Shares (continued)
=============================================
===================================
Purchase of Shares
=============================================
===================================
GENERAL
The Portfolio offers four Classes of
shares. Class A shares are sold to
investors with an initial sales charge and
Class B and Class C shares are sold
without an initial sales charge but are
subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without
an initial sales charge or CDSC and
are available only to investors investing a
minimum of $5,000,000. See
"Prospectus Summary -- Alternative Purchase
Arrangements" for a discussion of
factors to consider in selecting which Class
of shares to purchase.
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney, an Introducing
Broker or an investment dealer in
the selling group. When purchasing shares of
the Portfolio, investors must
specify whether the purchase is for Class A,
Class B, Class C or Class Y shares.
No maintenance fee will be charged by the
Fund in connection with a brokerage
account through which an investor purchases
or holds shares.
Investors in Class A, Class B and Class
C shares may open an account by
making an initial investment of at least
$1,000 for each account in the
Portfolio. Investors in Class Y shares may
open an account by making an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. For participants in the
Portfolio's Systematic Investment Plan, the
minimum initial investment requirement for
Class A, Class B and Class C shares
20
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
and the subsequent investment requirement for
all Classes is $50. There are no
minimum investment requirements in Class A
shares for employees of Travelers and
its subsidiaries, including Smith Barney,
unitholders who invest distributions
from a UIT sponsored by Smith Barney, and
Trustees of the Fund, and their
spouses and children. The Fund reserves the
right to waive or change minimums,
to decline any order to purchase its shares
and to suspend the offering of
shares from time to time. Shares purchased
will be held in the shareholder's
account by the Fund's transfer agent, TSSG, a
subsidiary of First Data
Corporation. Share certificates are issued
only upon a shareholder's written
request to TSSG. It is not recommended that
the Portfolio be used as a vehicle
for Keogh, IRA or other qualified retirement
plans.
Purchase orders received by the Fund or
Smith Barney prior to the close of
regular trading on the NYSE, on any day the
Portfolio calculates its net asset
value, are priced according to the net asset
value determined on that day (the
"trade date"). Orders received by dealers or
introducing brokers prior to the
close of regular trading on the NYSE on any
day the Portfolio calculates its net
asset value, are priced according to the net
asset value determined on that day,
provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. Payment for
Portfolio shares is due on the third
business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
TSSG is authorized through
preauthorized transfers of $50 or more to
charge the regular bank account or
other financial institution indicated by the
shareholder on a monthly or
quarterly basis to provide systematic
additions to the shareholder's Portfolio
account. A shareholder who has insufficient
funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney
or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply
cash held in the shareholder's Smith
Barney brokerage account or redeem the
shareholder's shares of a Smith Barney
money market fund to make additions to the
account. Additional information is
available from the Fund or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE - CLASS
A SHARES
The sales charges applicable to
purchases of Class A shares of the
Portfolio are as follows:
21
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
=============================================
===================================
Sales
Charge
-------------
- ------------- Dealer's
% of
% of Amount Reallowance as % of
Amount of Investment Offering
Price Invested Offering Price
- ---------------------------------------------
- -----------------------------------
Less than - $25,000 4.00%
4.17% 3.60%
$ 25,000 - 49,999 3.50
3.63 3.15
50,000 - 99,999 3.00
3.09 2.70
100,000 - 249,999 2.50
2.56 2.25
250,000 - 499,999 1.50
1.52 1.35
500,000 and over *
* *
=============================================
===================================
*Purchases of Class A shares, which when
combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
without any initial sales charge, but
will be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The CDSC on Class A shares is
payable to Smith Barney, which
compensates Smith Barney Financial
Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC
is waived in the same circumstances
in which the CDSC applicable to Class B and
Class C shares is waived. See
"Deferred Sales Charge Alternatives" and
"Waivers of CDSC."
Members of the selling group may receive
up to 90% of the sales charge and
may be deemed to be underwriters of the Fund
as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above
apply to the aggregate of purchases
of Class A shares of the Portfolio made at
one time by "any person," which
includes an individual, his or her spouse and
children, or a trustee or other
fiduciary of a single trust estate or single
fiduciary account. The reduced
sales charge minimums may also be met by
aggregating the purchase with the net
asset value of all Class A shares offered
with a sales charge held in funds
sponsored by Smith Barney listed under
"Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made
at net asset value without a sales
charge in the following circumstances: (a)
sales of Class A shares to Trustees
of the Fund, employees of Travelers and its
subsidiaries and employees of
members of the National Association of
Securities Dealers, Inc., or to the
spouses and children of such persons
(including the surviving spouse of a
deceased Trustee or employee, and retired
Trustees or employees); (b) offers of
Class A shares to any other investment
company in connection with the
combination of such company with the
Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares
by any client of a newly employed
Smith Barney Financial Consultant (for a
period up to 90 days from the
commencement of the Financial Consultant's
employment with Smith Barney), on the
22
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
condition the purchase of Class A shares is
made with the proceeds of the
redemption of shares of a mutual fund which
(i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to
the client by the Financial
Consultant and (iii) was subject to a sales
charge; (d) shareholders who have
redeemed Class A shares in a Portfolio (or
Class A shares of another fund of the
Smith Barney Mutual Funds that are offered
with a sales charge equal to or
greater than the maximum sales charge of the
Portfolio) and who wish to reinvest
their redemption proceeds in the Portfolio,
provided the reinvestment is made
within 60 calendar days of the redemption;
(e) accounts managed by registered
investment advisory subsidiaries of
Travelers; and (f) investments of
distributions from a UIT sponsored by Smith
Barney. In order to obtain such
discounts, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Portfolio may be
purchased by "any person" (as
defined above) at a reduced sales charge or
at net asset value determined by
aggregating the dollar amount of the new
purchase and the total net asset value
of all Class A shares of the Portfolio and of
funds sponsored by Smith Barney
which are offered with a sales charge listed
under "Exchange Privilege" then
held by such person and applying the sales
charge applicable to such aggregate.
In order to obtain such discount, the
purchaser must provide sufficient
information at the time of purchase to permit
verification that the purchase
qualifies for the reduced sales charge. The
right of accumulation is subject to
modification or discontinuance at any time
with respect to all shares purchased
thereafter.
GROUP PURCHASES
Upon completion of certain automated
systems, a reduced sales charge or
purchase at net asset value will also be
available to employees (and partners)
of the same employer purchasing as a group,
provided each participant makes the
minimum initial investment required. The
sales charge applicable to purchases by
each member of such a group will be
determined by the table set forth above
under "Initial Sales Charge Alternative --
Class A Shares," and will be based
upon the aggregate sales of Class A shares of
Smith Barney Mutual Funds offered
with a sales charge to, and share holdings
of, all members of the group. To be
eligible for such reduced sales charges or to
purchase at net asset value, all
purchases must be pursuant to an employer- or
partnership-sanctioned plan
meeting certain requirements. One such
requirement is that the plan must be open
to specified partners or employees of the
employer and its subsidiaries, if any.
23
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Such plan may, but is not required to,
provide for payroll deductions. Smith
Barney may also offer a reduced sales charge
or net asset value purchase for
aggregating related fiduciary accounts under
such conditions that Smith Barney
will realize economies of sales efforts and
sales related expenses. An
individual who is a member of a qualified
group may also purchase Class A shares
at the reduced sales charge applicable to the
group as a whole. The sales charge
is based upon the aggregate dollar value of
Class A shares offered with a sales
charge that have been previously purchased
and are still owned by the group,
plus the amount of the current purchase. A
"qualified group" is one which (a)
has been in existence for more than six
months, (b) has a purpose other than
acquiring Portfolio shares at a discount and
(c) satisfies uniform criteria
which enable Smith Barney to realize
economies of scale in its costs of
distributing shares. A qualified group must
have more than 10 members, must be
available to arrange for group meetings
between representatives of the Portfolio
and the members, and must agree to include
sales and other materials related to
the Portfolio in its publications and
mailings to members at no cost to Smith
Barney. In order to obtain such reduced sales
charge or to purchase at net asset
value, the purchaser must provide sufficient
information at the time of purchase
to permit verification that the purchase
qualifies for the reduced sales charge.
Approval of group purchase reduced sales
charge plans is subject to the
discretion of Smith Barney.
LETTER OF INTENT
Class A Shares. A Letter of Intent for
amounts of $50,000 or more provides
an opportunity for an investor to obtain a
reduced sales charge by aggregating
investments over a 13 month period, provided
that the investor refers to such
Letter when placing orders. For purposes of a
Letter of Intent, the "Amount of
Investment" as referred to in the preceding
sales charge table includes
purchases of all Class A shares of the
Portfolio and other unds of the Smith
Barney Mutual Funds offered with a sales
charge over the 13 month period based
on the total amount of intended purchases
plus the value of all Class A shares
previously purchased and still owned. An
alternative is to compute the 13 month
period starting up to 90 days before the date
of execution of a Letter of
Intent. Each investment made during the
period receives the reduced sales charge
applicable to the total amount of the
investment goal. If the goal is not
achieved within the period, the investor must
pay the difference between the
sales charges applicable to the purchases
made and the charges previously paid,
or an appropriate number of escrowed shares
will be redeemed. Please contact a
Smith Barney Financial Consultant or TSSG to
obtain a Letter of Intent
application.
Class Y shares. A letter of intent may also
be used as a way for investors to
meet the minimum investment requirement for
Class Y shares. Such investors must
24
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
make an initial minimum purchase of
$1,000,000 in Class Y shares of the
portfolio and agree to purchase a total of
$5,000,000 of Class Y shares of the
same portfolio within six months from the
date of the letter. If a total
investment of $5,000,000 is not made within
the six-month period, all Class y
shares purchased to date will be transferred
to Class a shares, where they will
be subject to all fees (including a service
fee of 0.15%) And expenses
applicable to the portfolio's Class a shares,
which may include a CDSC of 1.00%.
Please contact a smith barney financial
consultant or tssg for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset
value next determined without an
initial sales charge so that the full amount
of an investor's purchase payment
may be immediately invested in a Portfolio. A
CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC
Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which
when combined with Class A shares
offered with a sales charge currently held by
an investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on
an amount equal to the lesser of
the original cost of the shares being
redeemed or their net asset value at the
time of redemption. CDSCShares that are
redeemed will not be subject to a CDSC
to the extent that the value of such shares
represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of
dividends or capital gain
distributions; (c) with respect to Class B
shares, shares redeemed more than
five years after their purchase; or (d) with
respect to Class C shares and Class
A shares that are CDSC Shares, shares
redeemed more than 12 months after their
purchase.
Class C shares and Class A shares that
are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of
purchase. In circumstances in which
the CDSC is imposed on Class B shares, the
amount of the charge will depend on
the number of years since the shareholder
made the purchase payment from which
the amount is being redeemed. Solely for
purposes of determining the number of
years since a purchase payment, all purchase
payments made during a month will
be aggregated and deemed to have been made on
the last day of the preceding
Smith Barney statement month. The following
table sets forth the rates of the
charge for redemptions of Class B shares by
shareholders:
25
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Year Since Purchase
Payment Was Made
CDSC
------------------------------
- ---------------------
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth
0.00
Seventh
0.00
Eighth
0.00
Class B shares will convert
automatically to Class A shares eight years
after the date on which they were purchased
and thereafter will no longer be
subject to any distribution fees. There will
also be converted at that time such
proportion of Class B Dividend Shares owned
by the shareholder as the total
number of his or her Class B shares
converting at the time bears to the total
number of outstanding Class B shares (other
than Class B Dividend Shares) owned
by the shareholder. Shareholders who held
Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the
"Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange
those shares for Class B shares of a
Portfolio will be offered the opportunity to
exchange all such Class B shares
for Class A shares of the Portfolio four
years after the date on which those
shares were deemed to have been purchased.
Holders of such Class B shares will
be notified of the pending exchange in
writing approximately 30 days before the
fourth anniversary of the purchase date and,
unless the exchange has been
rejected in writing, the exchange will occur
on or about the fourth anniversary
date. See "Prospectus Summary -- Alternative
Purchase Arrangements -- Class B
Shares Conversion Feature."
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestment of
dividends and capital gain distributions
and finally of other shares held by the
shareholder for the longest period of
time. The length of time that CDSCShares
acquired through an exchange have been
held will be calculated from the date that
the shares exchanged were initially
acquired in one of the other Smith Barney
Mutual Funds, and Portfolio shares
being redeemed will be considered to
represent, as applicable, capital
appreciation or dividend and capital gain
distribution reinvestments in such
other funds. For Federal income tax purposes,
the amount of the CDSC will reduce
the gain or increase the loss, as the case
may be, on the amount realized on
redemption. The amount of any CDSC will be
paid to Smith Barney.
26
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
To provide an example, assume an
investor purchased 100 Class B shares at
$10 per share for a cost of $1,000.
Subsequently, the investor acquired 5
additional shares through dividend
reinvestment. During the fifteenth month
after the purchase, the investor decided to
redeem $500 of his or her
investment. Assuming at the time of the
redemption the net asset value had
appreciated to $12 per share, the value of
the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would
not be applied to the amount which
represents appreciation ($200) and the value
of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable
rate for Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a)
exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal
to or less than 1.00% per month of
the value of the shareholder's shares at the
time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan")
(provided, however, that automatic cash
withdrawals in amounts equal to or less than
2.00% per month of the value of the
shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within twelve
months following the death or disability of
the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in
connection with a combination of
the Portfolio with any investment company by
merger, acquisition of assets or
otherwise. In addition, a shareholder who has
redeemed shares from other funds
of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all
or part of the redemption proceeds within 60
days and receive pro rata credit
for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A, Class B and
Class C shares are subject to
minimum investment requirements and all
shares are subject to the other
requirements of the fund into which exchanges
are made and a sales charge
differential may apply.
27
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Fund Name
- ---------------------------------------------
- -----------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund
Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund
Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic
Income Fund
* Smith Barney Funds, Inc. -- Income
Return Account Portfolio
*** Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc.
Smith Barney California Municipals Fund
Inc.
* Smith Barney Intermediate Maturity
California Municipals Fund
* Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Managed Municipals Fund
Inc.
Smith Barney Massachusetts Municipals
Fund
* Smith Barney Muni Funds -- Florida
Limited Term Portfolio
Smith Barney Muni Funds -- Florida
Portfolio
28
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Smith Barney Muni Funds -- Georgia
Portfolio
* Smith Barney Muni Funds -- Limited Term
Portfolio
Smith Barney Muni Funds -- National
Portfolio
Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney Muni Funds -- Pennsylvania
Portfolio
Smith Barney New Jersey Municipals Fund
Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, Inc. --
Pacific Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
*** Smith Barney Money Funds, Inc. -- Cash
Portfolio
*** Smith Barney Money Funds, Inc. --
Government Portfolio
++ Smith Barney Money Funds, Inc. --
Retirement Portfolio
*** Smith Barney Municipal Money Market
Fund, Inc.
*** Smith Barney Muni Funds -- California
Money Market Portfolio
*** Smith Barney Muni Funds -- New York
Money Market Portfolio
- ----------
* Available for exchange with Class A,
Class C and Class Y shares of the
Portfolio.
** Available for exchange with Class A,
Class B and Class Y shares of the
Portfolio.
*** Available for exchange with Class A and
Class Y shares of the Portfolio.
+ Available for exchange with Class B and
Class C shares of the Portfolio.
++ Available for exchange with Class A
shares of the Portfolio.
Class A Exchanges. Class A shares of
Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of
such shares for Class A shares of a
fund sold with a higher sales charge. The
"sales charge differential" is limited
to a percentage rate no greater than the
excess of the sales charge rate
applicable to purchases of shares of the
mutual fund being acquired in the
exchange over the sales charge rate(s)
actually paid on the mutual fund shares
relinquished in the exchange and on any
predecessor of those shares. For
29
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
purposes of the exchange privilege, shares
obtained through automatic
reinvestment of dividends and capital gain
distributions are treated as having
paid the same sales charges applicable to the
shares on which the dividends or
distributions were paid; however, if no sales
charge was imposed upon the
initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales
charge differential upon exchange. Class
A shares held in a Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of the
Smith Barney Mutual Funds will not be
subject to a sales charge differential.
Class B Exchanges. In the event a Class
B shareholder (unless such
shareholder was a Class B shareholder of the
Short-TermWorld Income Fund on July
15, 1994) wishes to exchange all or a portion
of his or her shares in any of the
funds imposing a higher CDSC than that
imposed by the Portfolio, the exchanged
Class B shares will be subject to the higher
applicable CDSC. Upon an exchange,
the new Class B shares will be deemed to have
been purchased on the same date as
the Class B shares of the Portfolio that have
been exchanged.
Class C Exchanges. Upon an exchange, the
new Class C shares will be deemed
to have been purchased on the same date as
the Class C shares of the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to a Portfolio's performance
and its shareholders. The investment
manager may determine that a pattern of
frequent exchanges is excessive and
contrary to the best interests of the
Portfolio's other shareholders. In this
event, the investment manager will notify
Smith Barney that the Fund may, at its
discretion, decide to limit additional
purchases and/or exchanges by the
shareholder. Upon such a determination, the
Fund will provide notice in writing
or by telephone to the shareholder at least
15 days prior to suspending the
exchange privilege and during the 15 day
period the shareholder will be required
to (a) redeem his or her shares in the
Portfolio or (b) remain invested in the
Portfolio or exchange into any of the funds
of the Smith Barney Mutual Funds
ordinarily available, which position the
shareholder would be expected to
maintain for a significant period of time.
All relevant factors will be
considered in determining what constitutes an
abusive pattern of exchanges.
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed below
30
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
are also applicable for exchanging shares,
and exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
=============================================
===================================
Redemption of Shares
=============================================
===================================
The Fund is required to redeem the
shares of the Portfolio tendered to it,
as described below, at a redemption price
equal to their net asset value per
share next determined after receipt of a
written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the
close of regular trading on the NYSE are
priced at the net asset value next
determined. If a shareholder holds shares in
more than one Class, any request
for redemption must specify the Class being
redeemed. In the event of a failure
to specify which Class, or if the investor
owns fewer shares of the Class than
specified, the redemption request will be
delayed until the Fund's transfer
agent receives further instructions from
Smith Barney, or if the shareholder's
account is not with Smith Barney, from the
shareholder directly. The redemption
proceeds will be remitted on or before the
third business day following receipt
of proper tender, except on any days on which
the NYSE is closed or as permitted
under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney
brokerage account, these funds will not
be invested for the shareholder's benefit
without specific instruction and Smith
Barney will benefit from the use of
temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other
than a certified or official bank
check, will be remitted upon clearance of the
check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian
must be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request for redemption
to:
Smith Barney Muni Funds/New York
Portfolio
Class A,B,C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
31
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an
automatic cash withdrawal plan, under
which shareholders who own shares with a
value of at least $10,000 may elect to
receive cash payments of at least $50 monthly
or quarterly. The withdrawal plan
will be carried over on exchanges between
funds or Classes of the Portfolio. Any
applicable CDSC will not be waived on amounts
withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the
CDSC at the time the withdrawal plan
commences. (With respect to withdrawal
plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00%
per month of the value of the
shareholder's shares subject to the CDSC.)
For further information regarding the
automatic cash withdrawal plan, shareholders
should contact a Smith Barney
Financial Consultant.
=============================================
===================================
Minimum Account Size
=============================================
===================================
The Fund reserves the right to
involuntarily liquidate any shareholder's
account if the aggregate value of the shares
held in a Portfolio account is less
than $500. (If a shareholder has more than
one account in the Portfolio, each
account must satisfy the minimum account
size.) The Fund, however, will not
redeem shares based solely on market
reductions in net asset value. Before the
Fund exercises such right, shareholders will
receive written notice and will be
permitted 60 days to bring the account up to
the minimum to avoid involuntary
liquidation.
32
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Performance (continued)
=============================================
===================================
From time to time the Portfolio may
include its yield, tax equivalent
yield, total return and average annual total
return in advertisements. In
addition, in other types of sales literature
the Portfolio may also include its
distribution rate. These figures are computed
separately for Class A, Class B,
Class C and Class Y shares of the Portfolio.
These figures are based on
historical earnings and are not intended to
indicate future performance. The
yield of a Portfolio Class refers to the net
income earned by an investment in
the Class over a thirty-day period ending at
month end. This net income, which
does not include any element of non-tax
exempt income if any, is then
annualized, i.e., the amount of income earned
by the investment during that
thirty-day period is assumed to be earned
each 30-day period for twelve periods
and is expressed as a percentage of the
investment. The net income earned on the
investment for six periods is also assumed to
be reinvested at the end of the
sixth 30-day period. The tax equivalent yield
is calculated similarly to the
yield, except that a stated income tax rate
is used to demonstrate the taxable
yield necessary to produce an after-tax yield
equivalent to the tax-exempt yield
of the Class. The yield and tax equivalent
yield quotations are calculated
according to a formula prescribed by the SEC
to facilitate comparison with
yields quoted by other investment companies.
The distribution rate is calculated
by annualizing the latest monthly
distribution and dividing the result by the
maximum offering price per share as of the
end of the period to which the
distribution relates. The distribution rate
is not computed in the same manner
as, and therefore can be significantly
different from, the above described
yield. Total return is computed for a
specified period of time assuming
deduction of the maximum sales charge, if
any, from the initial amount invested
and reinvestment of all income dividends and
capital gains distributions on the
reinvestment dates at prices calculated as
stated in this Prospectus, then
dividing the value of the investment at the
end of the period so calculated by
the initial amount invested and subtracting
100%. The standard average annual
total return, as prescribed by the SEC, is
derived from this total return, which
provides the ending redeemable value. Such
standard total return information may
also be accompanied with nonstandard total
return information for differing
periods computed in the same manner but
without annualizing the total return or
taking sales charges into account. The Fund
may also include comparative
performance information in advertising or
marketing a Portfolio's shares. Such
performance information may include data from
Lipper Analytical Services, Inc.
and other financial publications.
33
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
TRUSTEES
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment manager,
custodian and transfer agent. The day-to-day
operations of the Portfolio are
delegated to the Portfolio's investment
manager. The Statement of Additional
Information contains background information
regarding each Trustee and executive
officer of the Fund.
MANAGER
Prior to December 31, 1994, Mutual
Management Corp. ("MMC") managed the
day-to-day operations of each Portfolio
pursuant to a management agreement
entered into by the Fund on behalf of each
Portfolio. Effective December 31,
1994, the Trustees of the Fund approved the
transfer of all of the management
agreements with MMC to Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the
"Manager"), an affiliate of MMC. SBMFM, which
until November, 1994 operated
under the name Smith, Barney Advisers, Inc.,
was incorporated in 1968 under the
laws of Delaware. Investment management of
the Portfolio under SBMFM is
conducted by the same personnel who managed
the Portfolio under MMC. The
reporting requirements for these individuals
has also remained unchanged. In
addition, because the original management
agreement with MMC was simply
transferred to SBMFM, the terms of the
agreement (including the fee) have
remained the same. SBMFM, Smith Barney
Holdings Inc. and Smith Barney are each
located at 388 Greenwich Street, New York,
New York 10013.
SBMFM provides the Fund with investment
management services and executive
and other personnel, pays the remuneration of
Fund officers, provides the Fund
with office space and equipment, furnishes
the Fund with bookkeeping,
accounting, administrative services and
services relating to research,
statistical work and supervision of the
Portfolios. For the Fund's last fiscal
year the management fee was 0.45% of the New
York Portfolio's average net assets
for each Class of the Portfolio's shares.
Total expenses for the New York
Portfolio's average net assets for the last
fiscal year were: 0.73%, 1.27% and
1.28% for Class A, Class B and Class C
shares, respectively. (Total expenses for
Class A shares are based on actual Portfolio
Operating expenses for the fiscal year ended
March 31, 1995. However, 12b-1 fees have
been restated to reflect the anticipated
level of 12b-1 fees tor the current fiscal
period.)
PORTFOLIO MANAGEMENT
Peter M. Coffey, a Managing Director of
Smith Barney has served as Vice
President of the Fund and portfolio manager
of the New York Portfolio since
their inception (January 16, 1987) and
manages the day to day operations of the
34
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
Portfolio, including making all investment
decisions. Mr. Coffey also serves as
the portfolio manager for the Fund's other
non-money market Portfolios.
Management's discussion and analysis,
and additional performance
information regarding the Portfolio during
the fiscal year ended March 31, 1995
is included in the Annual Report dated March
31, 1995. A copy of the Annual
Report may be obtained upon request and
without charge from a Smith Barney
Financial Consultant or by writing or calling
the Fund at the address or phone
number listed on page one of this Prospectus.
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
a service fee with respect to Class A, Class
B and Class C shares of the
Portfolio at the annual rate of 0.15% of the
average daily net assets
attributable to these Classes. Smith Barney
is also paid a distribution fee with
respect to Class B and Class C shares at the
annual rate of 0.50% and 0.55%,
respectively, of the average daily net assets
attributable to these Classes.
Class B shares that automatically convert to
Class A shares eight years after
the date of original purchase, will no longer
be subject to a distribution fee.
The fees are used by Smith Barney to pay its
Financial Consultants for servicing
shareholder accounts and, in the case of
Class B and Class C shares, to cover
expenses primarily intended to result in the
sale of those shares. These
expenses include: advertising expenses; the
cost of printing and mailing
prospectuses to potential investors; payments
to and expenses of Smith Barney
Financial Consultants and other persons who
provide support services in
connection with the distribution of shares;
interest and/or carrying charges;
and indirect and overhead costs of Smith
Barney associated with the sale of
Portfolio shares, including lease, utility,
communications and sales promotion
expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A,
Class B and Class C shares, a
continuing fee for servicing shareholder
accounts for as long as a shareholder
remains a holder of that Class. Smith Barney
Financial Consultants may receive
different levels of compensation for selling
the different Classes of shares.
35
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Distributor (continued)
=============================================
===================================
Payments under the Plan with respect to
Class B and Class C shares are not
tied exclusively to the distribution and
shareholder services expenses actually
incurred by Smith Barney and the payments may
exceed distribution expenses
actually incurred. The Fund's Trustees will
evaluate the appropriateness of the
Plan and its payment terms on a continuing
basis and in so doing will consider
all relevant factors, including expenses
borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end non-diversified,
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
one of twenty separate Portfolios. The assets
of each Portfolio are segregated
and separately managed. Class A, Class B,
Class C and Class Y shares of the
Portfolio represent interests in the assets
of the Portfolio and have identical
voting, dividend, liquidation and other
rights on the same terms and conditions
except that expenses related to the
shareholder service and distribution of
Class A, Class B and Class C shares are borne
solely by the respective Class and
each such Class of shares has exclusive
voting rights with respect to provisions
of the Fund's Rule 12b-1 distribution plan
which pertain to that Class. (It is
the intention of the Fund not to hold annual
meetings of shareholders. The
Trustees may call meetings of shareholders
for action by shareholder vote as may
be required by the 1940 Act or the
Declaration of Trust, and shareholders are
entitled to call a meeting upon a vote of 10%
of the Fund's outstanding shares
for purposes of voting on removal of a
Trustee or Trustee and the Fund will
assist shareholders in calling such a meeting
as required by the 1940 Act.)
Shares do not have cumulative voting rights
or preemptive rights and have only
such conversion or exchange rights as the
Trustees may grant in their
discretion. When issued for payment as
described in this Prospectus, the Fund's
shares will be fully paid and transferable
(subject to the Portfolio's minimum
account size). Shares are redeemable as set
forth under "Redemption of Shares"
and are subject to involuntary redemption as
set forth under "Minimum Account
Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, PA 19103, serves as custodian
of each Portfolio's investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
36
<PAGE>
Smith Barney Muni Funds - New York Portfolio
=============================================
===================================
Additional Information (continued)
=============================================
===================================
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the Fund at
the end of the period covered. In an effort
to reduce the Fund's printing and
mailing costs, the Fund plans to consolidate
the mailing of its semi-annual and
annual reports by household. This
consolidation means that a household having
multiple accounts with the identical address
of record will receive a single
copy of each report. In addition, the Fund
also plans to consolidate the mailing
of its Prospectus so that a shareholder
having multiple accounts will receive a
single Prospectus annually. Shareholders who
do not want this consolidation to
apply to their account should contact their
Smith Barney Financial Consultant or
the Fund's transfer agent.
37
<PAGE>
Smith Barney
- ------------
A Member of Travelers Group[Logo]
Smith Barney
Muni Funds
New York Portfolio
388 Greenwich Street
New York, New York 10013
FD 0604 7/95
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
Ohio
Portfolio
JULY 31, 1995
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Ohio Portfolio (the "Portfolio") is
one of thirteen investment
portfolios that currently comprise Smith
Barney Muni Funds (the "Fund"). The
Portfolio seeks to pay its shareholders as
high a level of income exempt from
Federal and state income taxes as is
consistent with prudent investing. The
Portfolio will invest primarily in
obligations issued by the State of Ohio and
its political subdivisions, agencies and
instrumentalities. The Portfolio may
invest without limit in municipal obligations
whose interest is a tax-preference
item for purposes of the Federal alternative
minimum tax.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including sales charges,
distribution and service fees and
expenses, that prospective investors will
find helpful in making an investment
decision. Investors are encouraged to read
this Prospectus carefully and retain
it for future reference.
Additional information about the
Portfolio is contained in a Statement of
Addi-tional Information dated JULY 31, 1995,
as amended or supplemented from
time to time, that is available upon request
and without charge by calling or
writing the Fund at the telephone number or
address set forth above or by
contacting a Smith Barney Financial
Consultant. The Statement of Additional
Information has been filed with the
Securities and Exchange Commission (the
"SEC") and is incorporated by reference into
this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Prospectus Summary
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
10
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
11
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
16
- ---------------------------------------------
- -----------------------------------
Dividends, Distributions and Taxes
16
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
19
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
26
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
29
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
31
- ---------------------------------------------
- -----------------------------------
Performance
31
- ---------------------------------------------
- -----------------------------------
Management of the Fund
32
- ---------------------------------------------
- -----------------------------------
Distributor
34
- ---------------------------------------------
- -----------------------------------
Additional Information
35
- ---------------------------------------------
- -----------------------------------
=============================================
===================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
=============================================
===================================
2
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Prospectus Summary
=============================================
===================================
The following summary is qualified in
its entirety by detailed information
appearing elsewhere in this Prospectus and in
the Statement of Additional
Information. Cross references in this summary
are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio seeks
to pay its shareholders as high a
level of income exempt from Federal and state
income taxes as is consistent with
prudent investing. The Portfolio will invest
primarily in obligations issued by
the State of Ohio and its political
subdivisions, agencies and
instrumentalities. The Portfolio may invest
without limit in municipal
obligations whose interest is a tax-
preference item for purposes of the Federal
alternative minimum tax. See "Investment
Objectives and Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The
Portfolio offers several classes of
shares ("Classes") to investors designed to
provide them with the flexibility of
selecting an investment best suited to their
needs. The general public is
offered three Classes of shares: Class A
shares, Class B shares and Class C
shares, which differ principally in terms of
sales charges and rate of expenses
to which they are subject. A fourth Class of
shares, Class Y shares, is offered
only to investors meeting an initial
investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of
Shares."
Class A Shares. Class A shares are sold
at net asset value plus an initial
sales charge of up to 4.00% and are subject
to an annual service fee of 0.15% of
the average daily net assets of the Class.
The initial sales charge may be
reduced or waived for certain purchases.
Purchases of Class A shares, which when
combined with current holdings of Class A
shares offered with a sales charge
equal or exceed $500,000 in the aggregate,
will be made at net asset value with
no initial sales charge, but will be subject
to a contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made
within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial
Sales Charge."
Class B Shares. Class B shares are
offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds,
declining by 0.50% the first year
after purchase and by 1.00% each year
thereafter to zero. This CDSC may be
waived for certain redemptions. Class B
shares are subject to an annual service
fee of 0.15% and an annual distribution fee
of 0.50% of the average daily net
assets of the Class. The Class B shares'
distribution fee may cause that Class
to have higher expenses and pay lower
dividends than Class A shares.
Class B Shares Conversion Feature. Class
B shares will convert
automatically to Class A shares, based on
relative net asset value, eight years
after the date of the original purchase. Upon
conversion, these shares will no
longer be subject to an
3
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
annual distribution fee. In addition, a
certain portion of Class B shares that
have been acquired through the reinvestment
of dividends and distributions
("Class B Dividend Shares") will be converted
at that time. See "Purchase of
Shares -- Deferred Sales Charge
Alternatives."
Class C Shares. Class C shares are sold
at net asset value with no initial
sales charge. They are subject to an annual
service fee of 0.15% and an annual
distribution fee of 0.55% of the average
daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem
Class C shares within 12 months of
purchase. This CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have
higher expenses and pay lower
dividends than Class A shares. Purchases of
Portfolio shares, which when
combined with current holdings of Class C
shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be
made in Class A shares at net asset
value with no sales charge, and will be
subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase.
Class Y Shares. Class Y shares are
available only to investors meeting an
initial investment minimum of $5,000,000.
Class Y shares are sold at net asset
value with no initial sales charge or CDSC.
They are not subject to any service
or distribution fees.
In deciding which Class of Portfolio
shares to purchase, investors should
consider the following factors, as well as
any other relevant facts and
circumstances:
Intended Holding Period. The decision as
to which Class of shares is more
beneficial to an investor depends on the
amount and intended length of his or
her investment. Shareholders who are planning
to establish a program of regular
investment may wish to consider Class A
shares; as the investment accumulates
shareholders may qualify for reduced sales
charges and the shares are subject to
lower ongoing expenses over the term of the
investment. As an alternative, Class
B and Class C shares are sold without any
initial sales charge so the entire
purchase price is immediately invested in the
Portfolio. Any investment return
on these additional invested amounts may
partially or wholly offset the higher
annual expenses of these Classes. Because the
Portfolio's future return cannot
be predicted, however, there can be no
assurance that this would be the case.
Finally, investors should consider the
effect of the CDSC period and any
conversion rights of the Classes in the
context of their own investment time
frame. For example, while Class C shares have
a shorter CDSC period than Class B
shares, they do not have a conversion
feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B
shares may be more attractive than Class
C shares to investors with longer term
investment outlooks.
4
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Investors investing a minimum of
$5,000,000 must purchase Class Y shares,
which are not subject to an initial sales
charge, CDSC or service or
distribution fees. The maximum purchase
amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares
is $499,999. There is no maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The
initial sales charge on Class A
shares may be waived for certain eligible
purchasers and the entire purchase
price would be immediately invested in the
Portfolio. In addition, Class A share
purchases, which when combined with current
holdings of Class A shares offered
with a sales charge equal or exceed $500,000
in the aggregate, will be made at
net asset value with no initial sales charge,
but will be subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The $500,000 aggregate
investment may be met by adding the purchase
to the net asset value of all Class
A shares offered with a sales charge held in
funds sponsored by Smith Barney
Inc. ("Smith Barney") listed under "Exchange
Privilege." Class A share purchases
may also be eligible for a reduced initial
sales charge. See "Purchase of
Shares." Because the ongoing expenses of
Class A shares may be lower than those
for Class B and Class C shares, purchasers
eligible to purchase Class A shares
at net asset value or at a reduced sales
charge should consider doing so.
Smith Barney Financial Consultants may
receive different compensation for
selling each Class of shares. Investors
should understand that the purpose of
the CDSC on the Class B and Class C shares is
the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management
of the Fund" for a complete
description of the sales charges and service
and distribution fees for each
Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes"
and "Exchange Privilege" for other
differences between the Classes of shares.
PURCHASE OF SHARES Shares may be
purchased through the Portfolio's
distributor, Smith Barney, a broker that
clears securities transactions through
Smith Barney on a fully disclosed basis (an
"Introducing Broker") or an
investment dealer in the selling group. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class
A, Class B and Class C shares may
open an account by making an initial
investment of at least $1,000 for each
account. Investors in Class Y shares may open
an account for an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. The minimum initial investment
requirement for Class A, Class B and
Class C shares and the subsequent investment
requirement for all Classes through
the Systematic Investment Plan described
below is $50. It is not recommended
that the
5
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Portfolio be used as a vehicle for Keogh, IRA
or other qualified retirement
plans. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a Systematic
Investment Plan under which they may
authorize the automatic placement of a
purchase order each month or quarter for
Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be
redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO Smith Barney
Mutual Funds Management Inc.
("SBMFM" or the "Manager") serves as the
Portfolio's investment manager.
SBMFMprovides investment advisory and
management services to investment
companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of
Smith Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary
of Travelers Group Inc. ("Travelers"), a
diversified financial services holding
company engaged, through its subsidiaries,
principally in four business
segments:Investment Services, Consumer
Finance Services, Life Insurance Services
and Property & Casualty Insurance Services.
As of March 31, 1995 SBMFM had
aggregate assets under management in excess
of $54 billion.
EXCHANGE PRIVILEGE Shares of a Class may
be exchanged for shares of the
same Class of certain other funds of the
Smith Barney Mutual Funds at the
respective net asset values next determined,
plus any applicable sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of
the Portfolio for the prior day
generally is quoted daily in the financial
section of most newspapers and is
also available from a Smith Barney Financial
Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends
are paid monthly from net investment
income. Distributions of net realized capital
gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of a
Class will be reinvested automatically,
unless otherwise specified by an
investor, in additional shares of the same
Class at current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or CDSC. Class B shares
acquired through dividend and
distribution reinvestments will become
eligible for conversion to Class A shares
on a pro rata basis. See "Dividends,
Distributions and Taxes."
6
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
RISK FACTORS AND SPECIAL CONSIDERATIONS
There can be no assurance that the
Portfolio's investment objective will be
achieved. The concentration of the
Portfolio in Ohio obligations involves
certain additional risks that should be
considered carefully by investors.
Additionally, the value of the Portfolio's
investments, and thus the net asset value of
the Portfolio's shares, will
fluctuate in response to changes in market
and economic conditions, as well as
the financial condition and prospects of
issuers of municipal obligations
purchased by the Portfolio. The market value
of long-term municipal bonds may be
adversely effected during periods of rising
interest rates. Additionally,
changes in Federal income tax laws effecting
the tax exemption for interest on
municipal obligations could effect the
availability of tax exempt obligations
for purchase and the value of the Portfolio's
securities would be affected. See
"Investment Objective and Management Policies
- -- Risk and Investment
Considerations."
7
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
THE PORTFOLIO'S EXPENSES The following
expense table lists the costs and
expenses an investor will incur either
directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales
charge or maximum CDSC that may be
incurred at the time of purchase or
redemption:
Class A Class B Class C Class Y
- ---------------------------------------------
- -----------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price)
4.00% None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever
is lower)
None* 4.50% 1.00% None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees (after the fee waiver)
0.05% 0.05% 0.05% 0.05%
12b-1 fees***
0.15 0.65 0.70 --
Other expenses (after reimbursement)
0.10 0.07 0.07 0.09
Total Portfolio Operating Expenses
0.30% 0.77% 0.82% 0.14%
==== ==== ==== ====
- ---------------------------------------------
- -----------------------------------
*Purchases of Class A shares, which when
combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions
made within 12 months.
**"Management fees" and "12b-1 fees"
have been restated to reflect current
expenses of the Portfolio. These expenses
reflect the management fee waiver
currently in effect for the Portfolio. Absent
the fee waiver, the management fee
would be incurred at the rate of 0.45% of
each Class' average daily net assets
for the current fiscal period. Absent the fee
waiver, total expenses are anticipated to be
incurred at the rate of 1.96%, 2.43%, 2.48%
and 1.80% for Class A, Class B,
Class C and Class Y shares, respectively. For
Class Y shares, "Other expenses"
have been estimated because no Class Y shares
were outstanding for the period
ended March 31, 1995.
***Upon conversion of Class B shares to
Class A shares, such shares will no
longer be subject to a distribution fee.
Class C shares do not have a conversion
feature and, therefore, are subject to an
ongoing distribution fee. As a result,
long-term shareholders of Class C shares may
pay more than the economic
equivalent of the maximum front-end sales
charge permitted by the National
Association of Securities Dealers, Inc.
The sales charge and CDSC set forth in
the above table are the maximum
charges imposed on purchases or redemptions
of Portfolio shares and investors
may actually pay lower or no charges,
depending on the amount purchased and, in
the case of Class B, Class C and certain
Class A shares, the length of time the
shares are held. See "Purchase of Shares" and
"Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee
of 0.15% of the value of average
daily net assets of Class A shares. Smith
Barney also receives with respect to
Class B shares an annual 12b-1 fee of 0.65%
of the value of average daily net
assets of that Class,
8
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
consisting of a 0.50% distribution fee and a
0.15% service fee. With respect to
Class C shares, Smith Barney also receives an
annual 12b-1 fee of 0.70% of the
value of average daily net assets of that
Class, consisting of a 0.55%
distribution fee and a 0.15% service fee.
"Other Expenses" in the above table
include fees for shareholder services,
custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares" and "Management of the
Fund."
1 Year
3 Years 5 Years 10 Years*
- ---------------------------------------------
- -----------------------------------
An investor would pay the following
expenses on a $1,000 investment
assuming (1) 5.00% annual return and
(2) redemption at the end of each
time period:
Class A $43
$49 $56 $ 77
Class B 53
55 53 81
Class C 18
26 46 101
Class Y 1
5 8 18
An investor would pay the following
expenses on the same investment assuming
the same annual return and no redemption:
Class A $43
$49 $56 $ 77
Class B 8
25 43 81
Class C 8
26 46 101
Class Y 1
5 8 18
- ---------------------------------------------
- -----------------------------------
* Ten-year figures assume conversion of
Class B shares to Class A shares at
the end of the eighth year following the date
of purchase.
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses.
Actual expenses may be greater or
less than those shown.
9
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule of the Ohio
Portfolio of Smith Barney Muni Funds has
been audited in conjunction with the annual
audits of the financial statements
of Smith Barney Muni Funds by KPMG Peat
Marwick LLP, independent auditors. The
1995 financial statements and the independent
auditors' report thereon appear in
the March 31, 1995 Annual Report to
Shareholders. No information presented for
Class Y shares, which were not outstanding
for the periods presented below.
For a Portfolio share oustanding throughout
each period:
1995
Class A(a) Class B(b) Class C(b)
- ---------------------------------------------
- -----------------------------------
Net Asset Value, Beginning of Period
$12.00 $12.02 $12.02
- ---------------------------------------------
- -----------------------------------
Income From Investment Operations:
Net investment income(1)
0.52 0.47 0.46
Net realized and unrealized loss
on investments(2)
(0.07) (0.10) (0.09)
- ---------------------------------------------
- -----------------------------------
Total Income from Investment Operations
0.45 0.37 0.37
- ---------------------------------------------
- -----------------------------------
Less Distributions:
Dividends from net investment income
(0.48) (0.43) (0.43)
Distributions from net realized gains
on security transactions
- -- -- --
- ---------------------------------------------
- -----------------------------------
Total Distributions
(0.48) (0.43) (0.43)
- ---------------------------------------------
- -----------------------------------
Net Asset Value, End of Period
$11.97 $11.96 $11.96
- ---------------------------------------------
- -----------------------------------
Total Return*
4.04%++ 3.31%++ 3.28%++
- ---------------------------------------------
- -----------------------------------
Net Assets, End of Period (000s)
$2,766 $2,041 $582
- ---------------------------------------------
- -----------------------------------
Ratios to Average Net Assets:
Expenses(1)
0.20%+ 0.72%+ 0.77%+
Net investment income
5.75+ 5.10+ 5.09+
- ---------------------------------------------
- -----------------------------------
Portfolio Turnover Rate
43.84% 43.84% 43.84%
=============================================
===================================
(a) From June 13, 1994 (commencement of
operations) to March 31, 1995.
(b) From June 14, 1994 (inception date) to
March 31, 1995.
+ Annualized.
++ Not annualized as the result may not be
representative of the total return
for the year.
* Total returns do not reflect sales loads or
contingent deferred sales charges.
(1) The manager has waived all of its fees
and reimbursed expenses of $41,401
for the year ended March 31, 1995. If
such fees were not waived and
expenses not reimbursed, the per share
decrease of net investment income
and the ratios of expenses to average
net assets would have been:
Expense Ratios
Per Share
Decreases Without Fee Waivers*
----------------
- --- --------------------
Class A $0.21
1.91%+
Class B 0.25
2.43+
Class C 0.25
2.48+
* As a result of voluntary expense
limitations, expense ratios would not
exceed 0.80%, 1.30% and 1.35% for Class
A, B and C shares, respectively.
(2) Includes the net per share effect of
shareholder sales and redemptions
activity during the period, most of
which occurred at net asset values less
than the beginning of the period.
10
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The Portfolio seeks as high a level of
income exempt from Federal income
taxes and from the personal income taxes of
the State of Ohio as is consistent
with prudent investing. The Portfolio will
invest primarily in obligations of
the State of Ohio and its political
subdivisions, agencies and
instrumentalities, the interest from which
is, in the opinion of bond counsel
for the various issuers, exempt from the
state's as well as Federal income taxes
at the time of their issuance. (For certain
shareholders, a portion of the
Portfolio's income may be subject to the
alternative minimum tax ("AMT") on
tax-exempt income discussed below.) Such
obligations are issued to raise money
for a variety of public projects that enhance
the quality of life including
health facilities, housing, airports,
schools, highways and bridges. The
Portfolio invests its assets in securities of
ranging maturities, without
limitation, depending on market conditions.
Typically, the remaining maturity of
municipal bonds will range between 5 and 30
years.
Under the Tax Reform Act of 1986,
interest income from municipal
obligations issued to finance certain
"private activities" ("AMT-Subject Bonds")
becomes an item of "tax preference" which is
subject to the AMT when received by
a person in a tax year during which he is
subject to that tax. Such private
activity bonds include bonds issued to
finance such projects as certain solid
waste disposal facilities, student loan
programs, and water and sewage projects.
Because interest income on AMT-Subject Bonds
is taxable to certain investors, it
is expected, although there can be no
guarantee, that such municipal obligations
generally will provide somewhat higher yields
than other municipal obligations
of comparable quality and maturity. There is
no limitation on the percent or
amount of the Portfolio's assets that may be
invested in AMT-Subject Bonds.
Municipal bonds purchased for the
Portfolio must, at the time of purchase,
be investment grade municipal bonds and at
least two-thirds of the Portfolio's
municipal bonds must be rated in the category
of A or better. Investment grade
bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc.
("Moody's") and AAA, AA, A and BBB by
Standard & Poor's Corporation ("S&P") or
have an equivalent rating by any nationally
recognized statistical rating
organization; pre-refunded bonds escrowed by
U.S. Treasury obligations will be
considered AAA rated even though the issuer
does not obtain a new rating. Up to
one-third of the assets of the Portfolio may
be invested in municipal bonds
rated Baa or BBB (this grade, while regarded
as having an adequate capacity to
pay interest and repay principal, is
considered to be of medium quality and has
speculative characteristics) or in unrated
municipal bonds if, based upon credit
analysis by the Manager, it is believed that
such securities are at least of
comparable quality to those securities in
which the Portfolio may invest. In
determining the suitability of an investment
in an unrated municipal bond, the
Manager will take into consideration debt
service
11
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
coverage, the purpose of the financing,
history of the issuer, existence of
other rated securities of the issuer and
other general conditions as may be
relevant, including comparability to other
issues. After the Portfolio purchases
a municipal bond, the issue may cease to be
rated or its rating may be reduced
below the minimum required for purchase. Such
an event would not require the
elimination of the issue from the Portfolio
but the Manager will consider such
an event in determining whether the Portfolio
should continue to hold the
security.
The Portfolio's short-term municipal
obligations will be limited to high
grade obligations(obligations that are
secured by the full faith and credit of
the United States or are rated MIG 1 or MIG
2, VMIG 1 or VMIG 2 or Prime-1 or Aa
or better by Moody's or SP-1+, SP-1, SP-2, or
A-1 or AA or better by S&P or have
an equivalent rating by any nationally
recognized statistical rating
organization or obligations determined by the
Manager to be equivalent). Among
the types of short-term instruments in which
the Portfolio may invest are
floating or variable rate demand instruments,
tax-exempt commercial paper
(generally having a maturity of less than
nine months), and other types of notes
generally having maturities of less than
three years, such as Tax Anticipation
Notes, Revenue Anticipation Notes, Tax and
Revenue Anticipation Notes and Bond
Anticipation Notes. Demand instruments
usually have an indicated maturity of
over one year, but contain a demand feature
that enables the holder to redeem
the investment on no more than 30 days'
notice; variable rate demand instruments
provide for automatic establishment of a new
interest rate on set dates;
floating rate demand instruments provide for
automatic adjustment of their
interest rates whenever some other specified
interest rate changes (e.g., the
prime rate). The Portfolio may purchase
participation interests in variable rate
tax-exempt securities (such as Industrial
Development Bonds) owned by banks.
Participations are frequently backed by an
irrevocable letter of credit or
guarantee of a bank that the Manager has
determined meets the prescribed quality
standards for the Portfolio. Participation
interests will be purchased only if
management believes interest income on such
interests will be tax-exempt when
distributed as dividends to shareholders.
The Portfolio will not invest more than
15% of the value of its net assets
in illiquid securities, including those that
are not readily marketable or for
which there is no established market.
The Portfolio may purchase new issues of
municipal obligations on a
when-issued basis, i.e. delivery and payment
normally take place 15 to 45 days
after the purchase date. The payment
obligation and the interest rate to be
received are each fixed on the purchase date,
although no interest accrues with
respect to a when-issued security prior to
its stated delivery date. During the
period between purchase
12
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
and settlement, assets consisting of cash or
liquid high grade debt securities,
marked-to-market daily, of a dollar amount
sufficient to make payment at
settlement will be segregated at the
custodian bank. Interest rates at
settlement may be lower or higher than on the
purchase date, which would result
in appreciation or depreciation,
respectively. Although the Portfolio will
only
purchase a municipal obligation on a when-
issued basis with the intention of
actually acquiring the securities, the
Portfolio may sell these securities
before the settlement date if it is deemed
advisable.
Portfolio transactions will be
undertaken primarily to accomplish the
Portfolio's objective in relation to
anticipated movements in the general level
of interest rates, but the Portfolio may also
engage in short-term trading
consistent with its objective.
The Portfolio may invest in municipal
bond index futures contracts
(currently traded on the Chicago Board of
Trade) or in listed contracts based on
U.S. Government securities as a hedging
policy in pursuit of its investment
objective; provided that immediately
thereafter not more than 33 1/3% of its net
assets would be hedged or the amount of
margin deposits on the Portfolio's
existing futures contracts would not exceed
5% of the value of its total assets.
Since any income would be taxable, it is
anticipated that such investments will
be made only in those circumstances when the
Manager anticipates the possibility
of an extreme change in interest rates or
market conditions but does not wish to
liquidate the Portfolio's securities. A
further discussion of futures contracts
and their associated risks is contained in
the Statement of Additional
Information.
It is a fundamental policy that under
normal market conditions, the
Portfolio will seek to invest 100% of its
assets - and the Portfolio will invest
not less than 80% of its assets - in
municipal obligations the interest on which
is exempt from Federal income taxes (other
than the alternative minimum tax). It
is also a fundamental policy that under
normal market conditions, the Portfolio
will invest at least 65% of its assets in
municipal obligations the interest on
which is also exempt from the personal income
taxes of the State of Ohio in the
opinion of bond counsel to the issuers. The
Portfolio may invest up to 20% of
its assets in taxable fixed-income
securities, but only in obligations issued or
guaranteed by the full faith and credit of
the United States, and may invest
more than 20% of its assets in U.S.
Government securities during periods when in
the Manager's opinion a temporary defensive
posture is warranted, including any
period when the Portfolio's monies available
for investment exceed the municipal
obligations available for purchase that meet
the Portfolio's rating, maturity
and other investment criteria. To the extent
the Portfolio is so invested, the
investment objective may not be achieved.
13
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve
its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the municipal bond
markets, the size of a particular offering,
the maturity of the obligation and
the rating of the issue. In general, the
longer the maturity of a municipal
obligation, the higher the rate of interest
it pays. However, a longer average
maturity is generally associated with a
higher level of volatility in the market
value of a municipal obligation. During
periods of falling interest rates, the
values of long-term, municipal obligations
generally rise. Conversely, during
periods of rising interest rates, the values
of such securities generally
decline. Changes in the value of portfolio
securities will not affect interest
income derived from those securities but will
affect the Portfolio's net asset
value. Since the Portfolio's objective is to
provide high current income, it
will invest in municipal obligations with an
emphasis on income rather than
stability of net asset values.
The Fund is registered as a "non-
diversified" company under the Investment
Company Act of 1940 (the "1940 Act"), in
order for the Portfolio to have the
ability to invest more than 5% of its assets
in the securities of any issuer.
The Portfolio intends to comply with
Subchapter M of the Internal Revenue Code
(the "Code") that limits the aggregate value
of all holdings (except U.S.
Government and cash items, as defined in the
Code) that exceed 5% of the
Portfolio's total assets to an aggregate
amount of 50% of such assets. Also,
holdings of a single issuer (with the same
exceptions) may not exceed 25% of a
Portfolio's total assets. These limits are
measured at the end of the quarter.
Under the Subchapter M limits, "non-
diversification" allows up to 50% of the
Portfolio's total assets to be invested in as
few as two single issuers. In the
event of decline of creditworthiness or
default upon the obligations of one or
more such issuers exceeding 5%, an investment
in the Portfolio will entail
greater risk than in a portfolio having a
policy of "diversification" because a
high percentage of the Portfolio's assets may
be invested in municipal
obligations of one or two issuers.
Furthermore, a high percentage of investments
among few issuers may result in a greater
degree of fluctuation in the market
value of the assets of the Portfolio, and
consequently a greater degree of
fluctuation of the Portfolio's net asset
value, because the Portfolio will be
more susceptible to economic, political, or
regulatory developments affecting
these securities than would be the case with
a portfolio composed of varied
obligations of more issuers.
14
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
RISK FACTORS AFFECTING OHIO
Non-manufacturing industries now employ
more than three-fourths of all
payroll employees in Ohio. However, due to
the continued importance of
manufacturing industries (including auto-
related and household appliance
manufacturing), economic activity in Ohio
tends to be more cyclical than in some
other states and in the nation as a whole.
Although Ohio's economy has improved
since the 1980-82 national recession, the
state's economic problems and the
1990-91 national recession produced some
significant changes in certain revenue
and expenditure levels for the 1992 fiscal
year and have had varying effects on
the different geographic areas of the state
and the political subdivisions
located within such geographic areas.
Although revenue obligations of the State
or its political subdivisions may be payable
from a specific project or source,
including lease rentals, there can be no
assurance that future economic
difficulties, and the resulting impact on
state and local government finances,
will not adversely affect the market value of
Ohio obligations held in the
Portfolio or the ability of the respective
obligors to make timely payments of
principal and interest on such obligations.
Additional information regarding the
state is included in the Statement of
Additional Information.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Portfolio's securities ordinarily
are purchased from and sold to
parties acting as either principal or agent.
Newly issued securities ordinarily
are purchased directly from the issuer or
from an underwriter; other purchases
and sales usually are placed with those
dealers from which it appears that the
best price or execution will be obtained.
Usually no brokerage commissions, as
such, are paid by the Portfolio for purchases
and sales undertaken through
principal transactions, although the price
paid usually includes an undisclosed
compensation to the dealer acting as agent.
The Portfolio cannot accurately predict
its portfolio turnover rate, but
anticipates that the annual turnover will not
exceed 100%. An annual turnover
rate of 100% would occur when all of the
securities held by the Portfolio are
replaced one time during a period of one
year. The Manager will not consider
turnover rate a limiting factor in making
investment decisions consistent with
the investment objective and policies of the
Portfolio.
15
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on the NYSE, which is
currently 4:00 P.M. New York City time on
each day that the NYSE is open, by dividing
the Portfolio's net assets
attributable to each Class by the total
number of shares of the Class
outstanding.
When, in the judgement of the pricing
service, quoted bid prices for
investments are readily available and are
representative of the bid side of the
market, these investments are valued at the
mean between the quoted bid and
asked prices. Investments for which, in the
judgement of the pricing service,
there is no readily obtainable market
quotation (which may constitute a majority
of the portfolio securities) are carried at
fair value of securities of similar
type, yield and maturity. Pricing services
generally determine value by
reference to transactions in municipal
obligations, quotations from municipal
bond dealers, market transactions in
comparable securities and various
relationships between securities. Short-term
instruments maturing within 60 days
will be valued at cost plus (minus) amortized
discount (premium), if any, when
the Trustees have determined that amortized
cost equals fair value. Securities
and other assets that are not priced by a
pricing service and for which market
quotations are not available will be valued
in good faith at fair value by or
under the direction of the Trustees.
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of a
Portfolio's net investment income are
declared and paid monthly and any realized
capital gains are declared and
distributed annually.
If a shareholder does not otherwise
instruct, dividends and capital gain
distributions will be reinvested
automatically in additional shares of the
same
Class at net asset value, subject to no sales
charge or CDSC.
Income dividends and capital gain
distributions that are invested are
credited to shareholders' accounts in
additional shares at the net asset value
as of the close of business on the payment
date. A shareholder may change the
option at any time by notifying his or her
Financial Consultant. Accounts held
directly by the Fund's transfer agent, The
Shareholder Services Group Inc.
("TSSG") should notify TSSG in writing at
least five business days prior to the
payment date to permit the change to be
entered into the shareholder's account.
The per share dividends on Class B and
Class C shares of the Portfolio may
be lower than the per share dividends on
Class A and Class Y shares principally
16
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
as a result of the distribution fees
applicable with respect to Class B and
Class C shares. The per share dividends on
Class A shares of the Portfolio may
be lower than the per share dividends on
Class Y shares principally as a result
of the service fee applicable to Class A
shares. Distributions of capital gains,
if any, will be in the same amount for Class
A, Class B, Class C and Class Y
shares.
TAXES
The Portfolio intends to qualify as a
"regulated investment company" and to
meet the requirements for distributing
"exempt-interest dividends" under the
Internal Revenue Code (the "Code") so that no
Federal income taxes will be
payable by the Portfolio and dividends
representing net interest received on
municipal obligations will not be includable
by shareholders in their gross
income for Federal income tax purposes. To
the extent dividends are derived from
taxable income from temporary investments,
market discounts or from the excess
of net short-term capital gain over net long-
term capital loss, they are treated
as ordinary income whether the shareholder
has elected to receive them in cash
or in additional shares. Capital gains
distributions, if any, whether paid in
cash or invested in shares of the Portfolio,
will be taxable to shareholders.
Exempt-interest dividends allocable to
interest received by the Portfolio
from the AMT-Subject Bonds in which the
Portfolio may invest will be treated as
interest paid directly on such obligations
and will give rise to an "item of tax
preference" that will increase a
shareholder's alternative minimum taxable
income. In addition, for corporations,
alternative minimum taxable income will
be increased by a percentage of the amount by
which a special measure of income
(including exempt-interest dividends) exceeds
the amount otherwise determined to
be alternative minimum taxable income.
Accordingly, investment in the Portfolio
may cause shareholders to be subject to (or
result in an increased liability
under) the AMT. The Fund will annually
furnish to its shareholders a report
indicating the ratable portion of exempt-
interest dividends attributable to
AMT-Subject Bonds.
The Portfolio will be treated as a
separate regulated investment company
for Federal tax purposes. Accordingly, the
Portfolio's net investment income is
determined separately based on the income
earned on its securities less its
costs of operations. The Portfolio's net long-
term and short-term gain (loss)
realized on investments is determined after
offsetting any capital loss
carryover of the Portfolio from prior
periods.
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Portfolio will not be
deductible to the extent that the
Portfolio's
17
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
(continued)
=============================================
===================================
distributions are exempt from Federal income
tax. In addition, any loss realized
upon the redemption of shares held less than
6 months will be disallowed to the
extent of any exempt-interest dividends
received by the shareholder during such
period. Further, persons who may be
"substantial users" (or "related persons" of
substantial users) of facilities financed by
industrial development bonds should
consult their tax advisors concerning an
investment in the Portfolio.
OHIO TAXES
Dividends by the Ohio Portfolio to an
Ohio resident, or to a corporation
subject to the Ohio Corporation Franchise
Tax, will not be subject to the Ohio
personal income tax or the net income basis
of the Ohio Corporation Franchise
Tax to the extent that such dividends are
attributable to income received by the
Portfolio as interest from Ohio municipal
obligations as well as direct
obligations of the United States. Dividends
or distributions paid by the
Portfolio to an Ohio resident, or to a
corporation subject to the Ohio
Corporation Franchise Tax, that are
attributable to most other sources are
subject to the Ohio personal income tax and
are includable in the net income
basis of the Ohio Corporation Franchise Tax.
The shares of the Portfolio will
not be subject to property taxation by the
State of Ohio or its political
subdivisions, except when held by a "dealer
in intangibles" (generally, a person
in the lending or brokerage business), a
decedent's estate, an Ohio insurance
company, or a corporation taxed on the net
worth basis of the Ohio Corporation
Franchise Tax.
Investors purchasing municipal
obligations of their state of residence, or
a fund comprised of such obligations, should
recognize that the benefits of the
exemption from local taxes, in addition to
the exemption from Federal taxes,
necessarily limits the fund's ability to
diversify geographically. The Portfolio
will make available annually to its
shareholders information concerning the tax
status of its distributions, including the
amount of its dividends designated as
exempt-interest dividends and as capital gain
dividends.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional Information.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
18
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Purchase of Shares
=============================================
===================================
GENERAL
The Portfolio offers four Classes of
shares. Class A shares are sold to
investors with an initial sales charge and
Class B and Class C shares are sold
without an initial sales charge but are
subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without
an initial sales charge or CDSC and
are available only to investors investing a
minimum of $5,000,000. See
"Prospectus Summary -- Alternative Purchase
Arrangements" for a discussion of
factors to consider in selecting which Class
of shares to purchase.
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney, an Introducing
Broker or an investment dealer in
the selling group. When purchasing shares of
the Portfolio, investors must
specify whether the purchase is for Class A,
Class B, Class C or Class Y shares.
No maintenance fee will be charged by the
Portfolio in connection with a
brokerage account through which an investor
purchases or holds shares.
Investors in Class A, Class B and Class
C shares may open an account by
making an initial investment of at least
$1,000 for each account in the
Portfolio. Investors in Class Y shares may
open an account by making an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. For participants in the
Portfolio's Systematic Investment Plan, the
minimum initial investment requirement for
Class A, Class B and Class C shares
and the subsequent investment requirement for
all Classes is $50. There are no
minimum investment requirements in Class A
for employees of Travelers and its
subsidiaries, including Smith Barney, and
Trustees of the Fund, and their
spouses and children. The Fund reserves the
right to waive or change minimums,
to decline any order to purchase its shares
and to suspend the offering of
shares from time to time. Shares purchased
will be held in the shareholder's
account by the Fund's transfer agent, TSSG, a
subsidiary of First Data
Corporation. Share certificates are issued
only upon a shareholder's written
request to TSSG. It is not recommended that
the Portfolio be used as a vehicle
for Keogh, IRA or other qualified retirement
plans.
Purchase orders received by the Fund or
Smith Barney prior to the close of
regular trading on the NYSE, on any day the
Portfolio calculates its net asset
value, are priced according to the net asset
value determined on that day (the
"trade date"). Orders received by dealers or
introducing brokers prior to the
close of regular trading on the NYSE on any
day the Portfolio calculates its net
asset value, are priced according to the net
asset value determined on that day,
provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. Payment for
Portfolio shares is due on the third
business day after the trade date.
19
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
TSSG is authorized through
preauthorized transfers of $50 or more to
charge the regular bank account or
other financial institution indicated by the
shareholder on a monthly or
quarterly basis to provide systematic
additions to the shareholder's Portfolio
account. A shareholder who has insufficient
funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney
or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply
cash held in the shareholder's Smith
Barney brokerage account or redeem the
shareholder's shares of a Smith Barney
money market fund to make additions to the
account. Additional information is
available from the Fund or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE - CLASS
A SHARES
The sales charges applicable to
purchases of Class A shares of the
Portfolio are as follows:
=============================================
===================================
Sales Charge
---
- --------- Dealer's
% of
% of Amount Reallowance as %
Amount of Investment Offering
Price Invested of Offering Price
- ---------------------------------------------
- -----------------------------------
Less than $25,000 4.00%
4.17% 3.60%
$25,000 - 49,999 3.50
3.63 3.15
50,000 - 99,999 3.00
3.09 2.70
100,000 - 249,999 2.50
2.56 2.25
250,000 - 499,999 1.50
1.52 1.35
500,000 and over *
* *
=============================================
===================================
*Purchases of Class A shares, which when
combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
without any initial sales charge, but
will be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The CDSC on Class A shares is
payable to Smith Barney, which
compensates Smith Barney Financial
Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC
is waived in the same circumstances
in which the CDSC applicable to Class B and
Class C shares is waived. See
"Deferred Sales Charge Alternatives" and
"Waivers of CDSC."
Members of the selling group may receive
up to 90% of the sales charge and
may be deemed to be underwriters of the Fund
as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above
apply to the aggregate of purchases
of
20
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Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Class A shares of the Portfolio made at one
time by "any person," which
includes an individual, his or her spouse and
children, or a trustee or other
fiduciary of a single trust estate or single
fiduciary account. The reduced
sales charge minimums may also be met by
aggregating the purchase with the net
asset value of all Class A shares offered
with a sales charge, held in funds
sponsored by Smith Barney listed under
"Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made
at net asset value without a sales
charge in the following circumstances: (a)
sales of Class A shares to Trustees
of the Fund, employees of Travelers and its
subsidiaries and employees of
members of the National Association of
Securities Dealers, Inc., or to the
spouses and children of such persons
(including the surviving spouse of a
deceased Trustee or employee, and retired
Trustees or employees); (b) offers of
Class A shares to any other investment
company in connection with the
combination of such company with the
Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares
by any client of a newly employed
Smith Barney Financial Consultant (for a
period up to 90 days from the
commencement of the Financial Consultant's
employment with Smith Barney), on the
condition the purchase of Class A shares is
made with the proceeds of the
redemption of shares of a mutual fund which
(i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to
the client by the Financial
Consultant and (iii) was subject to a sales
charge; (d) shareholders who have
redeemed Class A shares in the Portfolio (or
Class A shares of another fund of
the Smith Barney Mutual Funds that are sold
with a sales charge equal to or
greater than the maximum sales charge of the
Portfolio) and who wish to reinvest
their redemption proceeds in the Portfolio,
provided the reinvestment is made
within 60 calendar days of the redemption;
and (e) accounts managed by
registered investment advisory subsidiaries
of Travelers. In order to obtain
such discounts, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of a Portfolio may be
purchased by "any person" (as defined
above) at a reduced sales charge or at net
asset value determined by aggregating
the dollar amount of the new purchase and the
total net asset value of all Class
A shares of the Portfolio and of funds
sponsored by Smith Barney which are
offered with a sales charge listed under
"Exchange Privilege" then held by such
person and applying
21
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
the sales charge applicable to such
aggregate. In order to obtain such discount,
the purchaser must provide sufficient
information at the time of purchase to
permit verification that the purchase
qualifies for the reduced sales charge.
The right of accumulation is subject to
modification or discontinuance at any
time with respect to all shares purchased
thereafter.
GROUP PURCHASES
Upon completion of certain automated
systems, a reduced sales charge or
purchase at net asset value will also be
available to employees (and partners)
of the same employer purchasing as a group,
provided each participant makes the
minimum initial investment required. The
sales charge applicable to purchases by
each member of such a group will be
determined by the table set forth above
under "Initial Sales Charge Alternative --
Class A Shares," and will be based
upon the aggregate sales of Class A shares of
Smith Barney Mutual Funds offered
with a sales charge to, and share holdings
of, all members of the group. To be
eligible for such reduced sales charges or to
purchase at net asset value, all
purchases must be pursuant to an employer- or
partnership-sanctioned plan
meeting certain requirements. One such
requirement is that the plan must be open
to specified partners or employees of the
employer and its subsidiaries, if any.
Such plan may, but is not required to,
provide for payroll deductions. Smith
Barney may also offer a reduced sales charge
or net asset value purchase for
aggregating related fiduciary accounts under
such conditions that Smith Barney
will realize economies of sales efforts and
sales related expenses. An
individual who is a member of a qualified
group may also purchase Class A shares
at the reduced sales charge applicable to the
group as a whole. The sales charge
is based upon the aggregate dollar value of
Class A shares offered with a sales
charge that have been previously purchased
and are still owned by the group,
plus the amount of the current purchase. A
"qualified group" is one which (a)
has been in existence for more than six
months, (b) has a purpose other than
acquiring Portfolio shares at a discount and
(c) satisfies uniform criteria
which enable Smith Barney to realize
economies of scale in its costs of
distributing shares. A qualified group must
have more than 10 members, must be
available to arrange for group meetings
between representatives of the Portfolio
and the members, and must agree to include
sales and other materials related to
the Portfolio in its publications and
mailings to members at no cost to Smith
Barney. In order to obtain such reduced sales
charge or to purchase at net asset
value, the purchaser must provide sufficient
information at the time of purchase
to permit verification that the purchase
qualifies for the reduced sales charge.
Approval of group purchase reduced sales
charge plans is subject to the
discretion of Smith Barney.
22
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
LETTER OF INTENT
Class A Shares. A Letter of Intent for
amounts of $50,000 or more provides
an opportunity for an investor to obtain a
reduced sales charge by aggregating
investments over a 13 month period, provided
that the investor refers to such
Letter when placing orders. For purposes of a
Letter of Intent, the "Amount of
Investment" as referred to in the preceding
sales charge table includes
purchases of all Class A shares of the
Portfolio and other funds of the Smith
Barney Mutual Funds offered with a sales
charge over the 13 month period based
on the total amount of intended purchases
plus the value of all Class A shares
previously purchased and still owned. An
alternative is to compute the 13 month
period starting up to 90 days before the date
of execution of a Letter of
Intent. Each investment made during the
period receives the reduced sales charge
applicable to the total amount of the
investment goal. If the goal is not
achieved within the period, the investor must
pay the difference between the
sales charges applicable to the purchases
made and the charges previously paid,
or an appropriate number of escrowed shares
will be redeemed. Please contact a
Smith Barney Financial Consultant or TSSG to
obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may
also be used as a way for investors
to meet the minimum investment requirement
for Class Y shares. Such investors
must make an initial minimum purchase of
$1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of
$5,000,00 of Class Y shares of the
same Portfolio within six months from the
date of the Letter. If a total
investment of $5,000,000 is not made within
the six-month period, all Class Y
shares purchased to date will be transferred
to Class A shares, where they will
be subject to all fees (including a service
fee of 0.15%) and expenses
applicable to the Portfolio's Class A shares,
which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial
Consultant or TSSG for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset
value next determined without an
initial sales charge so that the full amount
of an investor's purchase payment
may be immediately invested in the Portfolio.
A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC
Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which
when combined with Class A shares
offered with a sales charge currently held by
an investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on
an amount equal to the lesser of
23
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
the original cost of the shares being
redeemed or their net asset value at the
time of redemption. CDSC Shares that are
redeemed will not be subject to a CDSC
to the extent that the value of such shares
represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of
dividends or capital gain
distributions; (c) with respect to Class B
shares, shares redeemed more than
five years after their purchase; or (d) with
respect to Class C shares and Class
A shares that are CDSC Shares, shares
redeemed more than 12 months after their
purchase.
Class C shares and Class A shares that
are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of
purchase. In circumstances in which
the CDSC is imposed on Class B shares, the
amount of the charge will depend on
the number of years since the shareholder
made the purchase payment from which
the amount is being redeemed. Solely for
purposes of determining the number of
years since a purchase payment, all purchase
payments made during a month will
be aggregated and deemed to have been made on
the last day of the preceding
Smith Barney statement month. The following
table sets forth the rates of the
charge for redemptions of Class B shares by
shareholders:
Year Since Purchase
Payment Was Made
CDSC
- ---------------------------------------------
- -----------------------------------
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth
0.00
Seventh
0.00
Eighth
0.00
- ---------------------------------------------
- -----------------------------------
Class B shares will convert
automatically to Class A shares eight years
after the date on which they were purchased
and thereafter will no longer be
subject to any distribution fees. There will
also be converted at that time such
proportion of Class B Dividend Shares owned
by the shareholder as the total
number of his or her Class B shares
converting at the time bears to the total
number of outstanding Class B shares (other
than Class B Dividend Shares) owned
by the shareholder. Shareholders who held
Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the
"Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange
those shares for Class B shares of
the Portfolio will be offered the opportunity
to exchange all such Class B
shares for Class A shares of the Portfolio
four years after the date on which
those shares were deemed to have been
purchased. Holders of such Class B shares
will be notified of the pending exchange in
writing approximately 30 days before
the fourth anniversary of the
24
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
purchase date and, unless the exchange has
been rejected in writing, the
exchange will occur on or about the fourth
anniversary date. See "Prospectus
Summary -- Alternative Purchase Arrangements
- -- Class B Shares Conversion
Feature."
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestment of
dividends and capital gain distributions
and finally of other shares held by the
shareholder for the longest period of
time. The length of time that CDSCShares
acquired through an exchange have been
held will be calculated from the date that
the shares exchanged were initially
acquired in one of the other Smith Barney
Mutual Funds, and Portfolio shares
being redeemed will be considered to
represent, as applicable, capital
appreciation or dividend and capital gain
distribution reinvestments in such
other funds. For Federal income tax purposes,
the amount of the CDSC will reduce
the gain or increase the loss, as the case
may be, on the amount realized on
redemption. The amount of any CDSC will be
paid to Smith Barney.
To provide an example, assume an
investor purchased 100 Class B shares at
$10 per share for a cost of $1,000.
Subsequently, the investor acquired 5
additional shares through dividend
reinvestment. During the fifteenth month
after the purchase, the investor decided to
redeem $500 of his or her
investment. Assuming at the time of the
redemption the net asset value had
appreciated to $12 per share, the value of
the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would
not be applied to the amount which
represents appreciation ($200) and the value
of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable
rate for Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a)
exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal
to or less than 1.00% per month of
the value of the shareholder's shares at the
time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan")
(provided, however, that automatic cash
withdrawals in amounts equal to or less than
2.00% per month of the value of the
shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within twelve
months following the death or disability of
the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in
connection with a combination of
the Portfolio with any investment company by
merger, acquisition of assets or
otherwise. In addition, a shareholder who has
redeemed shares from other funds
of the Smith
25
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
Barney Mutual Funds may, under certain
circumstances, reinvest all or part of
the redemption proceeds within 60 days and
receive pro rata credit for any CDSC
imposed on the prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A, Class B and
Class C shares are subject to
minimum investment requirement and all shares
are subject to the other
requirements of the fund into which exchanges
are made and a sales charge
differential may apply.
FUND NAME
- ---------------------------------------------
- -----------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund
Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund
Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
** Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic
Income Fund
26
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
* Smith Barney Funds, Inc. -- Income
Return Account Portfolio
*** Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc.
Smith Barney California Municipals Fund
Inc.
* Smith Barney Intermediate Maturity
California Municipals Fund
* Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Managed Municipals Fund
Inc.
Smith Barney Massachusetts Municipals
Fund
* Smith Barney Muni Funds -- Florida
Limited Term Portfolio
Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Georgia
Portfolio
* Smith Barney Muni Funds -- Limited Term
Portfolio
Smith Barney Muni Funds -- National
Portfolio
Smith Barney Muni Funds -- New York
Portfolio
Smith Barney Muni Funds -- Pennsylvania
Portfolio
Smith Barney New Jersey Municipals Fund
Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, Inc. --
Pacific Portfolio
Money Market Funds
+ Smith Barney Exchange Reserve Fund
*** Smith Barney Money Funds, Inc. -- Cash
Portfolio
*** Smith Barney Money Funds, Inc. --
Government Portfolio
++ Smith Barney Money Funds, Inc. --
Retirement Portfolio
*** Smith Barney Municipal Money Market
Fund, Inc.
*** Smith Barney Muni Funds -- California
Money Market Portfolio
27
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
*** Smith Barney Muni Funds -- New York
Money Market Portfolio
- ------------
* Available for exchange with Class A,
Class C and Class Y shares of the
Portfolio.
** Available for exchange with Class A,
Class B and Class Y shares of the
Portfolio.
*** Available for exchange with Class A and
Class Y shares of the Portfolio.
+ Available for exchange with Class B and
Class C shares of the Portfolio.
++ Available for exchange with Class A
shares of the Portfolio.
Class A Exchanges. Class A shares of
Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of
such shares for Class A shares of a
fund sold with a higher sales charge. The
"sales charge differential" is limited
to a percentage rate no greater than the
excess of the sales charge rate
applicable to purchases of shares of the
mutual fund being acquired in the
exchange over the sales charge rate(s)
actually paid on the mutual fund shares
relinquished in the exchange and on any
predecessor of those shares. For
purposes of the exchange privilege, shares
obtained through automatic
reinvestment of dividends and capital gain
distributions are treated as having
paid the same sales charges applicable to the
shares on which the dividends or
distributions were paid; however, if no sales
charge was imposed upon the
initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales
charge differential upon exchange. Class
A shares held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of the
Smith Barney Mutual Funds will not be
subject to a sales charge differential.
Class B Exchanges. In the event a Class
B shareholder (unless such
shareholder was a Class B shareholder of the
Short-Term World Income Fund on
July 15, 1994) wishes to exchange all or a
portion of his or her shares in any
of the funds imposing a higher CDSC than that
imposed by the Portfolio, the
exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an
exchange, the new Class B shares will be
deemed to have been purchased on the
same date as the Class B shares of the
Portfolio that have been exchanged.
Class C Exchanges. Upon an exchange, the
new Class C shares will be deemed
to have been purchased on the same date as
the Class C shares of the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
28
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment adviser may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
adviser will notify Smith Barney
that the Fund may, at its discretion, decide
to limit additional purchases
and/or exchanges by the shareholder. Upon
such a determination, the Fund will
provide notice in writing or by telephone to
the shareholder at least 15 days
prior to suspending the exchange privilege
and during the 15 day period the
shareholder will be required to (a) redeem
his or her shares in the Portfolio or
(b) remain invested in the Portfolio or
exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily
available, which position the shareholder
would be expected to maintain for a
significant period of time. All relevant
factors will be considered in determining
what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed below
are also applicable for exchanging shares,
and exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
=============================================
===================================
Redemption of Shares
=============================================
===================================
The Fund is required to redeem the
shares of the Portfolio tendered to it,
as described below, at a redemption price
equal to their net asset value per
share next determined after receipt of a
written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the
close of regular trading on the NYSE are
priced at the net asset value next
determined. If a shareholder holds shares in
more than one Class, any request
for redemption must specify the Class being
redeemed. In the event of a failure
to specify which Class, or if the investor
owns fewer shares of the Class than
specified, the redemption request will be
delayed until the Fund's transfer
agent receives further instructions from
Smith Barney, or if the shareholder's
account is not with Smith Barney, from
29
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
the shareholder directly. The redemption
proceeds will be remitted on or before
the third business day following receipt of
proper tender, except on any days on
which the NYSE is closed or as permitted
under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Smith
Barney brokerage account, these funds will
not be invested for the shareholder's
benefit without specific instruction and
Smith Barney will benefit from the use
of temporarily uninvested funds. Redemption
proceeds for shares purchased by
check, other than a certified or official
bank check, will be remitted upon
clearance of the check, which may take up to
ten days or more.
Shares held by Smith Barney as custodian
must be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request for redemption
to:
Smith Barney Muni Funds/Ohio Portfoli
Class A,B,C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an
automatic cash withdrawal plan, under
which shareholders who own shares with a
value of at least $10,000 may elect to
receive cash payments of at least $50 monthly
or quarterly. The withdrawal plan
will be carried over on exchanges between
funds or Classes of the Portfolio. Any
30
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
applicable CDSC will not be waived on amounts
withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the
CDSC at the time the withdrawal plan
commences. (With respect to withdrawal
plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00%
per month of the value of the
shareholder's shares subject to CDSC.) For
further information regarding the
automatic cash withdrawal plan, shareholders
should contact a Smith Barney
Financial Consultant.
=============================================
===================================
Minimum Account Size
=============================================
===================================
The Fund reserves the right to
involuntarily liquidate any shareholder's
account if the aggregate value of the shares
held in a Portfolio account is less
than $500. (If a shareholder has more than
one account in this Portfolio, each
account must satisfy the minimum account
size.) The Fund, however, will not
redeem shares based solely on market
reductions in net asset value. Before the
Fund exercises such right, shareholders will
receive written notice and will be
permitted 60 days to bring the account up to
the minimum to avoid involuntary
liquidation.
=============================================
===================================
Performance
=============================================
===================================
From time to time the Fund may include
the Portfolio's yield, tax
equivalent yield, total return and average
annual total return in
advertisements. In other types of sales
literature the Fund may also include the
Portfolio's distribution rate. These figures
are computed separately for Class
A, Class B, Class C and Class Y shares of the
Portfolio. These figures are based
on historical earnings and are not intended
to indicate future performance. The
yield of a Portfolio Class refers to the net
income earned by an investment in
the Class over a thirty-day period ending at
month end. This net income is then
annualized, i.e., the amount of income earned
by the investment during that
thirty-day period is assumed to be earned
each 30-day period for twelve periods
and is expressed as a percentage of the
investment. The net income earned on the
investment for six periods is also assumed to
be reinvested at the end of the
sixth 30-day period. The tax equivalent yield
is calculated similarly to the
yield, except that a stated income tax rate
is used to demonstrate the taxable
yield necessary to produce an after-tax yield
equivalent to the tax-exempt yield
of the Class. The yield and tax equivalent
yield quotations are calculated
according to a formula prescribed by the
Securities and Exchange Commission
("SEC") to facilitate comparison with
31
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Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Performance (continued)
=============================================
===================================
yields quoted by other investment companies.
The distribution rate is calculated
by analyzing the latest daily dividend rate
and dividing the result by the
maximum offering price per share as of the
end of the period to which the
distribution relates. The distribution rate
is not computed in the same manner
as, and therefore can be significantly
different from, the above described
yield. Total return is computed for a
specified period of time assuming
deduction of the maximum sales charge, if
any, from the initial amount invested
and reinvestment of all income dividends and
capital gains distributions on the
reinvestment dates at prices calculated as
stated in this Prospectus, then
dividing the value of the investment at the
end of the period so calculated by
the initial amount invested and subtracting
100%. The standard average annual
total return, as prescribed by the SEC, is
derived from this total return, which
provides the ending redeemable value. Such
standard total return information may
also be accompanied with nonstandard total
return information for differing
periods computed in the same manner but
without analyzing the total return or
taking sales charges into account. The Fund
may also include comparative
performance information in advertising or
marketing its shares. Such performance
information may include data from Lipper
Analytical Services, Inc. and other
financial publications.
=============================================
===================================
Management of the Fund
=============================================
===================================
TRUSTEES
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment manager,
custodian and transfer agent. The day to day
operations of the Portfolio are
delegated to the Portfolio's investment
adviser. The Statement of Additional
Information contains background information
regarding each Trustee and executive
officer of the Fund.
MANAGER
Prior to December 31, 1994, Mutual
Management Corp. ("MMC") managed the
day-to-day operations of the Portfolio
pursuant to a management agreement
entered into by the Fund on behalf of the
Portfolio. Effective December 31,
1994, the Trustees of the Fund approved the
transfer of all of the management
agreements with MMC to Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the
"Manager"), an affiliate of MMC. Investment
management of the Portfolio under
SBMFM is conducted by the same personnel who
managed the Portfolio under MMC.
The reporting requirements for these
individuals has also remained
32
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Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
unchanged. In addition, because the original
management agreement with MMC was
simply transferred to SBMFM, the terms of the
agreement (including the fee) have
remained the same.
SBMFM, which until November, 1994
operated under the name Smith, Barney
Advisers, Inc., was incorporated in 1968
under the laws of Delaware. SBMFM is a
subsidiary of Holdings, the parent company of
Smith Barney (the "Distributor").
Holdings is a wholly owned subsidiary of
Travelers, which is a financial
services holding company engaged, through its
subsidiaries, principally in four
business segments:Investment Services,
Consumer Finance Services, Life Insurance
Services and Property & Casualty Insurance
Services. SBMFM Holdings and Smith
Barney are each located at 388 Greenwich
Street New York, New York 10013.
SBMFM provides the Fund with investment
management services and executive
and other personnel, pays the remuneration of
Fund officers, provides the Fund
with office space and equipment, furnishes
the Fund with bookkeeping,
accounting, administrative services and
services relating to research,
statistical work and supervision of the
Portfolio. For the services provided,
the management agreement provides that the
Fund will pay SBMFM an annual fee
calculated at the rate of 0.45% of the
Portfolio's average daily net assets,
paid monthly. SBMFM waived its management fee
for the Portfolio for the period
ended March 31, 1995. For the current fiscal
period, total expenses are
anticipated to be 0.30% of the average daily
net assets for Class A shares;
0.77% of the average daily net assets for
Class B shares; and 0.82% of the
average daily net assets for Class C shares.
"Management fees" and "12b-1 fees"
have been restated to reflect current
expenses of the Portfolio. These expenses
reflect the management fee waiver currently
in effect and the anticipated level
of 12b-1 fees for the current fiscal period.
PORTFOLIO MANAGEMENT
Lawrence T. McDermott, Managing Director
of the Greenwich Street Advisors
division of SBMFM, is primarily responsible
for the management of the Portfolio,
and has been since it commenced operations
(June 13, 1994) and making all
investment decisions. Mr. McDermott presently
serves as the portfolio manager
for other tax-exempt bond funds sponsored by
Smith Barney.
Management's discussion and analysis,
and additional performance
information regarding the Portfolio during
the fiscal year ended March 31, 1995
is included in the Annual Report dated March
31, 1995. A copy of the Annual
Report may be obtained upon request and
without charge from a Smith Barney
Financial Consultant or by writing or calling
the Fund at the address or phone
number listed on page one of this Prospectus.
33
<PAGE>
Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
a service fee with respect to Class A, Class
B and Class C shares of the
Portfolio at the annual rate of 0.15% of the
average daily net assets
attributable to these Classes. Smith Barney
is also paid a distribution fee with
respect to Class B and Class C shares at the
annual rate of 0.50% and 0.55%,
respectively, of the average daily net assets
attributable to these Classes.
Class B shares that automatically convert to
Class A shares eight years after
the date of original purchase, will no longer
be subject to a distribution fee.
The fees are used by Smith Barney to pay its
Financial Consultants for servicing
shareholder accounts and, in the case of
Class B and Class C shares, to cover
expenses primarily intended to result in the
sale of those shares. These
expenses include: advertising expenses; the
cost of printing and mailing
prospectuses to potential investors; payments
to and expenses of Smith Barney
Financial Consultants and other persons who
provide support services in
connection with the distribution of shares;
interest and/or carrying charges;
and indirect and overhead costs of Smith
Barney associated with the sale of
Portfolio shares, including lease, utility,
communications and sales promotion
expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A,
Class B and Class C shares, a
continuing fee for servicing shareholder
accounts for as long as a shareholder
remains a holder of that Class. Smith Barney
Financial Consultants may receive
different levels of compensation for selling
the different Classes of shares.
Payments under the Plan with respect to
Class B and Class C shares are not
tied exclusively to the distribution and
shareholder services expenses actually
incurred by Smith Barney and the payments may
exceed distribution expenses
actually incurred. The Fund's Trustees will
evaluate the appropriateness of the
Plan and its payment terms on a continuing
basis and in so doing will consider
all relevant factors, including expenses
borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
34
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Smith Barney Muni Funds - Ohio Portfolio
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end non-diversified,
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
one of twenty separate Portfolios. The assets
of each Portfolio are segregated
and separately managed. Class A, Class B,
Class C and Class Y shares of each
Portfolio represent interests in the assets
of that Portfolio and have identical
voting, dividend, liquidation and other
rights on the same terms and conditions,
except that expenses related to the
shareholder service and distribution of
Class A, Class B and Class C shares are borne
solely by the respective Class and
each such Class of shares has exclusive
voting rights with respect to provisions
of the Fund's Rule 12b-1 distribution plan
which pertain to that Class. It is
the intention of the Fund not to hold annual
meetings of shareholders. The
Trustees may call meetings of shareholders
for action by shareholder vote as may
be required by the 1940 Act or the
Declaration of Trust, and shareholders are
entitled to call a meeting of shareholders
upon a vote of 10% of the Fund's
outstanding shares for purposes of voting on
removal of a Trustee or Trustees.
Shareholders will receive assistance in
communicating with other shareholders in
connection with the removal of Trustees as
required by Section 16(c) of the 1940
Act. Shares do not have cumulative voting
rights or preemptive rights and have
only such conversion or exchange rights as
the Trustees may grant in their
discretion. When issued for payment as
described in this Prospectus, the Fund's
shares will be fully paid and transferrable
(subject to the Portfolio's minimum
account size). Shares are redeemable as set
forth under "Redemption of Shares"
and are subject to involuntary redemption as
set forth under "Minimum Account
Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, PA 19103, serves as custodian
of the Portfolio's investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends to each of its
shareholders a semi-annual report and an
audited annual report, which include listings
of the investment securities held
by the Portfolio at the end of the period
covered. In an effort to reduce the
Fund's printing and mailing costs, the Fund
plans to consolidate the mailing of
its semi-annual and annual reports by
household. This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report. In
addition, the Fund also plans to
consolidate the mailing of its Prospectus so
that a shareholder having multiple
accounts will receive a single Prospectus
annually. Shareholders who do not want
this consolidation to apply to their account
should contact their Smith Barney
Financial Consultant or the Fund's transfer
agent.
35
<PAGE>
SMITH BARNEY
- ------------
A Member of Travelers Group [LOGO]
Smith Barney
Muni Funds
Ohio Portfolio
388 Greenwich Street
New York, New York 10013
FD 0561 7/95
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
Pennsylvania
Portfolio
JULY 31, 1995
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The Pennsylvania Portfolio (the
"Portfolio") is one of thirteen investment
portfolios that currently comprise Smith
Barney Muni Funds (the "Fund"). The
Portfolio seeks to pay its shareholders as
high a level of income exempt from
Federal income taxes and Pennsylvania
personal income taxes as is consistent
with prudent investing. The Portfolio will
invest primarily in obligations
issued by the Commonwealth of Pennsylvania
and its political subdivisions,
agencies and instrumentalities. The Portfolio
may invest without limit in
municipal obligations whose interest is a tax-
preference item for purposes of
the Federal alternative minimum tax.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including sales charges,
distribution and service fees and
expenses, that prospective investors will
find helpful in making an investment
decision. Investors are encouraged to read
this Prospectus carefully and retain
it for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated JULY 31, 1995,
as amended or supplemented from time
to time, that is available upon request and
without charge by calling or writing
the Fund at the telephone number or address
set forth above or by contacting a
Smith Barney Financial Consultant. The
Statement of Additional Information has
been filed with the Securities and Exchange
Commission (the "SEC") and is
incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Prospectus Summary
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
10
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
11
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
16
- ---------------------------------------------
- -----------------------------------
Dividends, Distributions and Taxes
16
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
19
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
26
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
30
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
31
- ---------------------------------------------
- -----------------------------------
Performance
31
- ---------------------------------------------
- -----------------------------------
Management of the Fund
32
- ---------------------------------------------
- -----------------------------------
Distributor
34
- ---------------------------------------------
- -----------------------------------
Additional Information
35
=============================================
===================================
=============================================
===================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
=============================================
===================================
2
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Prospectus Summary
=============================================
===================================
The following summary is qualified in
its entirety by detailed information
appearing elsewhere in this Prospectus and in
the Statement of Additional
Information. Cross references in this summary
are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Portfolio seeks
to pay its shareholders as high a
level of income exempt from Federal income
taxes and Pennsylvania personal
income taxes as is consistent with prudent
investing. The Portfolio will invest
primarily in obligations issued by the
Commonwealth of Pennsylvania and its
political subdivisions, agencies and
instrumentalities. The Portfolio may invest
without limit in municipal obligations whose
interest is a tax-preference item
for purposes of the Federal alternative
minimum tax. The Portfolio may invest
without limit in municipal obligations whose
interest is a tax preference for
purposes of the Federal alternative minimum
tax. See "Investment Objective and
Management Policies."
ALTERNATIVE PURCHASE ARRANGEMENTS The
Portfolio offers several classes of
shares ("Classes") to investors designed to
provide them with the flexibility of
selecting an investment best suited to their
needs. The general public is
offered three Classes of shares: Class A
shares, Class B shares and Class C
shares, which differ principally in terms of
sales charges and rate of expenses
to which they are subject. A fourth Class of
shares, Class Y shares, is offered
only to investors meeting an initial
investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of
Shares."
Class A Shares. Class A shares are sold
at net asset value plus an initial
sales charge of up to 4.00% and are subject
to an annual service fee of 0.15% of
the average daily net assets of the Class.
The initial sales charge may be
reduced or waived for certain purchases.
Purchases of Class A shares, which when
combined with current holdings of Class A
shares offered with a sales charge
equal or exceed $500,000 in the aggregate,
will be made at net asset value with
no initial sales charge, but will be subject
to a contingent deferred sales
charge ("CDSC") of 1.00% on redemptions made
within 12 months of purchase. See
"Prospectus Summary - Reduced or No Initial
Sales Charge."
Class B Shares. Class B shares are
offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds,
declining by 0.50% the first year
after purchase and by 1.00% each year
thereafter to zero. This CDSC may be
waived for certain redemptions. Class B
shares are subject to an annual service
fee of 0.15% and an annual distribution fee
of 0.50% of the average daily net
assets of the Class. The Class B
shares'distribution fee may cause that Class
to
have higher expenses and pay lower dividends
than Class A shares.
3
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Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Class B Shares Conversion Feature. Class
B shares will convert
automatically to Class A shares, based on
relative net asset value, eight years
after the date of the original purchase. Upon
conversion, these shares will no
longer be subject to an annual distribution
fee. In addition, a certain portion
of Class B shares that have been acquired
through the reinvestment of dividends
and distributions ("Class B Dividend Shares")
will be converted at that time.
See "Purchase of Shares -- Deferred Sales
Charge Alternatives."
Class C Shares. Class C shares are sold
at net asset value with no initial
sales charge. They are subject to an annual
service fee of 0.15% and an annual
distribution fee of 0.55% of the average
daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem
Class C shares within 12 months of
purchase. The CDSC may be waived for certain
redemptions. The Class C shares'
distribution fee may cause that Class to have
higher expenses and pay lower
dividends than Class A shares. Purchases of
Portfolio shares, which when
combined with current holdings of Class C
shares of the Portfolio equal or
exceed $500,000 in the aggregate, should be
made in Class A shares at net asset
value with no sales charge, and will be
subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase.
Class Y Shares. Class Y shares are
available only to investors meeting an
initial investment minimum of $5,000,000.
Class Y shares are sold at net asset
value with no initial sales charge or CDSC.
They are not subject to any service
or distribution fees.
In deciding which Class of Portfolio
shares to purchase, investors should
consider the following factors, as well as
any other relevant facts and
circumstances:
Intended Holding Period. The decision as
to which Class of shares is more
beneficial to an investor depends on the
amount and intended length of his or
her investment. Shareholders who are planning
to establish a program of regular
investment may wish to consider Class A
shares; as the investment accumulates
shareholders may qualify for reduced sales
charges and the shares are subject to
lower ongoing expenses over the term of the
investment. As an alternative, Class
B and Class C shares are sold without any
initial sales charge so the entire
purchase price is immediately invested in the
Portfolio. Any investment return
on these additional invested amounts may
partially or wholly offset the higher
annual expenses of these Classes. Because the
Portfolio's future return cannot
be predicted, however, there can be no
assurance that this would be the case.
Finally, investors should consider the
effect of the CDSC period and any
conversion rights of the Classes in the
context of their own investment time
frame. For example, while Class C shares have
a shorter CDSC period than Class B
shares, they do not have a conversion
feature, and therefore, are subject to an
4
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
ongoing distribution fee. Thus, Class B
shares may be more attractive than Class
C shares to investors with longer term
investment outlooks.
Investors investing a minimum of
$5,000,000 must purchase Class Y shares,
which are not subject to an initial sales
charge, CDSC or service or
distribution fees. The maximum purchase
amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares
is $499,999. There is no maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The
initial sales charge on Class A
shares may be waived for certain eligible
purchasers and the entire purchase
price would be immediately invested in the
Portfolio. In addition, Class A share
purchases, which when combined with current
holdings of Class A shares offered
with a sales charge equal or exceed $500,000
in the aggregate, will be made at
net asset value with no initial sales charge,
but will be subject to a CDSC of
1.00% on redemptions made within 12 months of
purchase. The $500,000 aggregate
investment may be met by adding the purchase
to the net asset value of all Class
A shares offered with a sales charge held in
funds sponsored by Smith Barney
Inc. ("Smith Barney") listed under "Exchange
Privilege." Class A share purchases
may also be eligible for a reduced initial
sales charge. See "Purchase of
Shares." Because the ongoing expenses of
Class A shares may be lower than those
for Class B and Class C shares, purchasers
eligible to purchase Class A shares
at net asset value or at a reduced sales
charge should consider doing so.
Smith Barney Financial Consultants may
receive different compensation for
selling each Class of shares. Investors
should understand that the purpose of
the CDSC on the Class B and Class C shares is
the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management
of the Fund" for a complete
description of the sales charges and service
and distribution fees for each
Class of shares and "Valuation of Shares,"
"Dividends, Distributions and Taxes"
and "Exchange Privilege" for other
differences between the Classes of shares.
PURCHASE OF SHARES Shares may be
purchased through the Portfolio's
distributor, Smith Barney, a broker that
clears securities transactions through
Smith Barney on a fully disclosed basis (an
"Introducing Broker") or an
investment dealer in the selling group. See
"Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class
A, Class B and Class C shares may
open an account by making an initial
investment of at least $1,000 for each
account. Investors in Class Y shares may open
an account for an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
5
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
all Classes. The minimum initial investment
requirement for Class A, Class B and
Class C shares and the subsequent investment
requirement for all Classes through
the Systematic Investment Plan described
below is $50. It is not recommended
that the Portfolio be used as a vehicle for
Keogh, IRA or other qualified
retirement plans. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Portfolio
offers shareholders a Systematic
Investment Plan under which they may
authorize the automatic placement of a
purchase order each month or quarter for
Portfolio shares in an amount of at
least $50. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be
redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE PORTFOLIO ("SBMFM" or
the "Manager") serves as the
Portfolio's investment manager. MMC provides
investment advisory and management
services to investment companies affiliated
with Smith Barney. MMC is a wholly
owned subsidiary of Smith Barney Holdings
Inc. ("Holdings"). Holdings is a
wholly owned subsidiary of Travelers Group
Inc. ("Travelers"), a diversified
financial services holding company engaged,
through its subsidiaries,
principally in four business segments:
Investment Services, Consumer Finance
Services, Life Insurance Services and
Property & Casualty Insurance Services. As
of March 31, 1995, SBMFM had aggregate assets
under management in excess of $54
billion. See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may
be exchanged for shares of the
same Class of certain other funds of the
Smith Barney Mutual Funds at the
respective net asset values next determined,
plus any applicable sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES Net asset value of
the Portfolio for the prior day
generally is quoted daily in the financial
section of most newspapers and is
also available from a Smith Barney Financial
Consultant. See "Valuation of
Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends
are paid monthly from net investment
income. Distributions of net realized capital
gains, if any, are paid annually.
See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and
distributions paid on shares of a
Class will be reinvested automatically,
unless otherwise specified by an
investor, in additional shares of the same
Class at current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
6
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
to any sales charge or CDSC. Class B shares
acquired through dividend and
distribution reinvestments will become
eligible for conversion to Class A shares
on a pro rata basis. See "Dividends,
Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS
There can be no assurance that the
Portfolio's investment objective will be
achieved. The Portfolio's concentration
in Pennsylvania obligations involves certain
additional risks that should be
considered carefully by an investor.
Additionally, the value of the Portfolio's
investments, and thus the net asset value of
the Portfolio's shares, will
fluctuate in response to changes in market
and economic conditions, as well as
the financial condition and prospects of
issuers of municipal obligations
purchased by the Portfolio. The market value
of long-term municipal bonds may be
adversely effected during periods of rising
interest rates. Additionally,
changes in Federal income tax laws effecting
the tax exemption for interest on
municipal obligations could effectthe
availability of tax exempt obligations for
purchase and the value of the Portfolio's
securities would be affected. See
"Investment Objective and Management
Policies."
7
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
THE PORTFOLIO'S EXPENSES The following
expense table lists the costs and
expenses an investor will incur either
directly or indirectly as a shareholder
of the Portfolio, based on the maximum sales
charge or maximum CDSC that may be
incurred at the time of purchase or
redemption:
Class A Class B Class C Class Y
- ---------------------------------------------
- -----------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed
on purchases
(as a percentage of
offering price) .................
4.00% None None None
Maximum CDSC
(as a percentage of original
cost or redemption proceeds,
whichever is lower) ..............
None* 4.50% 1.00% None
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees (after fee waiver)
0.05% 0.05% 0.05% 0.05%
12b-1 fees*** .....................
0.15 0.65 0.70 --
Other expenses ....................
0.17 0.17 0.17 0.16
Total Portfolio Operating Expenses
0.37% 0.87% 0.91% 0.21%
==== ==== ==== ====
- ---------------------------------------------
- -----------------------------------
*Purchases of Class A shares, which
when combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions
made within 12 months.
**"Management fees" and "12b-1 fees"
have been restated to reflect current
expenses of the Portfolio. These expenses
reflect the management fee waiver
currently in effect for the Portfolio. Absent
the fee waiver, the management fee
would be incurred at the rate of 0.45% of
each Class' average daily net assets
for the current fiscal period. Total expenses
would be incurred at the rate of
1.06%, 1.58%, 1.81% and 0.90% for Class A,
Class B, Class C and Class Y shares,
respectively.
***Upon conversion of Class B shares to
Class A shares, such shares will no
longer be subject to a distribution fee.
Class C shares do not have a conversion
feature and, therefore, are subject to an
ongoing distribution fee. As a result,
long-term shareholders of Class C shares may
pay more than the economic
equivalent of the maximum front-end sales
charge permitted by the National
Association of Securities Dealers, Inc.
The sales charge and CDSC set forth in
the above table are the maximum
charges imposed on purchases or redemptions
of Portfolio shares and investors
may actually pay lower or no charges,
depending on the amount purchased and, in
the case of Class B, Class C and certain
Class A shares, the length of time the
shares are held. See "Purchase of Shares" and
"Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee
of 0.15% of the value of average
daily net assets of Class A shares. Smith
Barney also receives with respect to
8
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Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Prospectus Summary (continued)
=============================================
===================================
Class B shares an annual 12b-1 fee of 0.65%
of the value of average daily net
assets of that Class, consisting of a 0.50%
distribution fee and a 0.15% service
fee. With respect to Class C shares, Smith
Barney also receives an annual 12b-1
fee of 0.70% of the value of average daily
net assets of that Class, consisting
of a 0.55% distribution fee and a 0.15%
service fee. "Other expenses" in the
above table include fees for shareholder
services, custodial fees, legal and
accounting fees, printing costs and
registration fees.
EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares" and "Management of the
Fund."
1
Year 3 Years 5 Years 10 Years*
- ---------------------------------------------
- -----------------------------------
An investor would pay the following expenses
on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemption
at the end of each time period:
Class A................................
$44 $51 $60 $ 85
Class B................................
54 58 58 93
Class C................................
19 29 50 112
Class Y................................
2 7 12 27
An investor would pay the following expenses
on the same investment, assuming
the same annual return and no redemption:
Class A................................
$44 $51 $60 $ 85
Class B................................
9 28 48 93
Class C...............................
9 29 50 112
Class Y...............................
2 7 12 27
- ---------------------------------------------
- -----------------------------------
*Ten-year figures assume conversion of
Class B shares to Class A shares at
the end of the eighth year following the date
of purchase.
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses.
Actual expenses may be greater or
less than those shown.
9
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Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule of the
Pennsylvania Portfolio of Smith Barney Muni
Funds has been audited in conjunction with
the annual audits of the financial
statements of Smith Barney Muni Funds by KPMG
Peat Marwick LLP, independent
auditors. The 1995 financial statements and
the independent auditors' report
thereon appear in the March 31, 1995 Annual
Report to Shareholders. No
information is presented for Class Y shares,
which were not outstanding for the
periods presented below.
For a Portfolio share outstanding throughout
each period:
1995
Class A(a) Class B(b) Class C(c)
- ---------------------------------------------
- -----------------------------------
Net Asset Value, Beginning of Period
$12.00 $12.35 $12.02
Income From Investment Operations
Net investment income (1)
0.67 0.51 0.59
Net realized and unrealized gains
on investments (2)
0.35 0.01 0.36
- ---------------------------------------------
- -----------------------------------
Total Income from Investment Operations
1.02 0.52 0.95
- ---------------------------------------------
- -----------------------------------
Less Distributions:
Dividends from net investment income
(0.62) (0.48) (0.56)
Distributions from net realized gains
on security transactions
- -- -- --
- ---------------------------------------------
- -----------------------------------
Total Distributions
(0.62) (0.48) (0.56)
- ---------------------------------------------
- -----------------------------------
Net Asset Value, End of Period
$12.40 $12.39 $12.39
- ---------------------------------------------
- -----------------------------------
Total Return*
8.82%++ 4.43%++ 8.14%++
- ---------------------------------------------
- -----------------------------------
Net Assets, End of Period (000s)
$7,974 $4,850 $3,337
- ---------------------------------------------
- -----------------------------------
Ratios to Average Net Assets:
Expenses (1)
0.29%+ 0.82%+ 0.86%+
Net investment income
5.76+ 5.31+ 5.04+
- ---------------------------------------------
- -----------------------------------
Portfolio Turnover Rate
37.60% 37.60% 37.60%
=============================================
===================================
(a) From April 4, 1994 (commencement of
operations) to March 31, 1995.
(b) From June 20, 1994 (inception date) to
March 31, 1995.
(c) From April 5, 1994 (inception date) to
March 31, 1995.
+ Annualized.
++ Not annualized as the result may not be
representative of the total return
for the year.
* Total returns do not reflect sales loads
or contigent deferred sales
charges.
(1) The manager has waived all of its fees
and reimbursed expenses of $32,063
for the year ended March 31, 1995. If
such fees were not waived and
expenses not reimbursed, the per share
decrease of net investment income
and the ratios of expenses to average
net assets would have been:
Expense Ratios
Per Share
Decreases Without Fee Waivers*
---------------
- ---- --------------------
Class A $0.09
1.03%+
Class B 0.08
1.58+
Class C 0.09
1.56+
* As a result of voluntary expense
limitations, expense ratios would not
exceed 0.80%, 1.30% and 1.35% for Class
A, B and C shares, respectively.
(2) Includes the net per share effect of
shareholder sales and redemptions
activity during the period, most of
which occurred at net asset values less
than the beginning of the period.
10
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Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The Portfolio seeks as high a level of
income exempt from Federal income
taxes and from the personal income taxes of
the Commonwealth of Pennsylvania, as
is consistent with prudent investing. The
Portfolio will invest primarily in
obligations of the Commonwealth of
Pennsylvania and its political subdivisions,
agencies and instrumentalities, the interest
from which is, in the opinion of
bond counsel for the various issuers, exempt
from the state's as well as Federal
income taxes at the time of their issuance.
(For certain shareholders, a portion
of the Portfolio's income may be subject to
the alternative minimum tax ("AMT")
on tax-exempt income discussed below.) Such
obligations are issued to raise
money for a variety of public projects that
enhance the quality of life
including health facilities, housing,
airports, schools, highways and bridges.
The Portfolio invests its assets in
securities of ranging maturities, without
limitation, depending on market conditions.
Typically, the remaining maturity of
municipal bonds will range between 5 and 30
years.
Under the Tax Reform Act of 1986,
interest income from municipal
obligations issued to finance certain
"private activities" ("AMT-Subject Bonds")
becomes an item of "tax preference" which is
subject to the AMT when received by
a person in a tax year during which he is
subject to that tax. Such private
activity bonds include bonds issued to
finance such projects as certain solid
waste disposal facilities, student loan
programs, and water and sewage projects.
Because interest income on AMT-Subject Bonds
is taxable to certain investors, it
is expected, although there can be no
guarantee, that such municipal obligations
generally will provide somewhat higher yields
than other municipal obligations
of comparable quality and maturity. There is
no limitation on the percent or
amount of the Portfolio's assets that may be
invested in AMT-Subject Bonds.
Municipal bonds purchased for the
Portfolio must, at the time of purchase,
be investment grade municipal bonds and at
least two-thirds of the Portfolio's
municipal bonds must be rated in the category
of A or better. Investment grade
bonds are those rated Aaa, Aa, A and Baa by
Moody's Investors Service, Inc.
("Moody's") and AAA, AA, A and BBB by
Standard & Poor's Corporation ("S&P") or
have an equivalent rating by any nationally
recognized statistical rating
organization; pre-refunded bonds escrowed by
U.S. Treasury obligations will be
considered AAA rated even though the issuer
does not obtain a new rating. Up to
one-third of the assets of the Portfolio may
be invested in municipal bonds
rated Baa or BBB (this grade, while regarded
as having an adequate capacity to
pay interest and repay principal, is
considered to be of medium quality and has
speculative characteristics) or in unrated
municipal bonds if, based upon credit
analysis by the Manager, it is believed that
such securities are at least of
comparable quality to those securities in
which the Portfolio may invest. In
11
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
determining the suitability of an investment
in an unrated municipal bond, the
Manager will take into consideration debt
service coverage, the purpose of the
financing, history of the issuer, existence
of other rated securities of the
issuer and other general conditions as may be
relevant, including comparability
to other issues. After the Portfolio
purchases a municipal bond, the issue may
cease to be rated or its rating may be
reduced below the minimum required for
purchase. Such an event would not require the
elimination of the issue from the
Portfolio but the Manager will consider such
an event in determining whether the
Portfolio should continue to hold the
security.
The Portfolio's short-term municipal
obligations will be limited to high
grade obligations (obligations that are
secured by U.S. Government Securities or
are rated MIG 1 or MIG 2, VMIG 1 or VMIG 2 or
Prime-1 or Aa or better by Moody's
or SP-1+, SP-1, SP-2, or A-1 or AA or better
by S&P or have an equivalent rating
by any nationally recognized statistical
rating organization or obligations
determined by the Manager to be equivalent).
Among the types of short-term
instruments in which the Portfolio may invest
are floating or variable rate
demand instruments, tax-exempt commercial
paper (generally having a maturity of
less than nine months), and other types of
notes generally having maturities of
less than three years, such as Tax
Anticipation Notes, Revenue Anticipation
Notes, Tax and Revenue Anticipation Notes and
Bond Anticipation Notes. Demand
instruments usually have an indicated
maturity of over one year, but contain a
demand feature that enables the holder to
redeem the investment on no more than
30 days' notice; variable rate demand
instruments provide for automatic
establishment of a new interest rate on set
dates; floating rate demand
instruments provide for automatic adjustment
of their interest rates whenever
some other specified interest rate changes
(e.g., the prime rate). The Portfolio
may purchase participation interests in
variable rate tax-exempt securities
(such as Industrial Development Bonds) owned
by banks. Participations are
frequently backed by an irrevocable letter of
credit or guarantee of a bank that
the Manager has determined meets the
prescribed quality standards for the
Portfolio. Participation interests will be
purchased only if management believes
interest income on such interests will be tax-
exempt when distributed as
dividends to shareholders.
The Portfolio will not invest more than
15% of the value of its net assets
in illiquid securities, including those that
are not readily marketable or for
which there is no established market.
The Portfolio may purchase new issues of
municipal obligations on a
when-issued basis, i.e. delivery and payment
normally take place 15 to 45 days
after the purchase date. The payment
obligation and the interest rate to be
12
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Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
received are each fixed on the purchase date,
although no interest accrues with
respect to a when-issued security prior to
its stated delivery date. During the
period between purchase and settlement,
assets consisting of cash or liquid high
grade debt securities, marked-to-market
daily, of a dollar amount sufficient to
make payment at settlement will be segregated
at the custodian bank. Interest
rates at settlement may be lower or higher
than on the purchase date, which
would result in appreciation or depreciation,
respectively. Although a Portfolio
will only purchase a municipal obligation on
a when-issued basis with the
intention of actually acquiring the
securities, the Portfolio may sell these
securities before the settlement date if it
is deemed advisable.
Portfolio transactions will be
undertaken primarily to accomplish the
Portfolio's objective in relation to
anticipated movements in the general level
of interest rates, but the Portfolio may also
engage in short-term trading
consistent with its objective.
The Portfolio may invest in municipal
bond index futures contracts
(currently traded on the Chicago Board of
Trade) or in listed contracts based on
U.S. Government securities as a hedging
policy in pursuit of its investment
objective; provided that immediately
thereafter not more than 33 1/3% of its net
assets would be hedged or the amount of
margin deposits on the Portfolio's
existing futures contracts would not exceed
5% of the value of its total assets.
Since any income would be taxable, it is
anticipated that such investments will
be made only in those circumstances when the
Manager anticipates the possibility
of an extreme change in interest rates or
market conditions but does not wish to
liquidate the Portfolio's securities. A
further discussion of futures contracts
and their associated risks is contained in
the Statement of Additional
Information.
It is a fundamental policy that under
normal market conditions, the
Portfolio will seek to invest 100% of its
assets - and the Portfolio will invest
not less than 80% of its assets - in
municipal obligations the interest on which
is exempt from Federal income taxes (other
than the alternative minimum tax). It
is also a fundamental policy that under
normal market conditions, the Portfolio
will invest at least 65% of its assets in
municipal obligations the interest on
which is also exempt from the personal income
taxes of the Commonwealth of
Pennsylvania in the opinion of bond counsel
to the issuers. The Portfolio may
invest up to 20% of its assets in taxable
fixed-income securities, but only in
obligations issued or guaranteed by the full
faith and credit of the United
States, and may invest more than 20% of its
assets in U.S. Government securities
during periods when in the Manager's opinion
a temporary defensive posture is
warranted, including any period when the
Portfolio's monies available for
investment exceed the municipal obligations
available for purchase that meet the
Portfolio's rating, maturity and other
investment criteria. To the extent the
Portfolio is so invested, the investment
objective may not be achieved.
13
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Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
RISK AND INVESTMENT CONSIDERATIONS
The ability of the Portfolio to achieve
its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the municipal bond
markets, the size of a particular offering,
the maturity of the obligation and
the rating of the issue. In general, the
longer the maturity of a municipal
obligation, the higher the rate of interest
it pays. However, a longer average
maturity is generally associated with a
higher level of volatility in the market
value of a municipal obligation. During
periods of falling interest rates, the
values of long-term, municipal obligations
generally rise. Conversely, during
periods of rising interest rates, the values
of such securities generally
decline. Changes in the value of portfolio
securities will not affect interest
income derived from those securities but will
affect the Portfolio's net asset
value. Since the Portfolio's objective is to
provide high current income, it
will invest in municipal obligations with an
emphasis on income rather than
stability of net asset value.
The Fund is registered as a "non-
diversified" company under the Investment
Company Act of 1940 ( the "1940 Act"), in
order for the Portfolio to have the
ability to invest more than 5% of its assets
in the securities of any issuer.
The Portfolio intends to comply with
Subchapter M of the Internal Revenue Code
(the "Code") that limits the aggregate value
of all holdings (except U.S.
Government and cash items, as defined in the
Code) that exceed 5% of the
Portfolio's total assets to an aggregate
amount of 50% of such assets. Also,
holdings of a single issuer (with the same
exceptions) may not exceed 25% of the
Portfolio's total assets. These limits are
measured at the end of each quarter.
Under the Subchapter M limits, "non-
diversification" allows up to 50% of the
Portfolio's total assets to be invested in as
few as two single issuers. In the
event of decline of creditworthiness or
default upon the obligations of one or
more such issuers exceeding 5%, an investment
in the Portfolio will entail
greater risk than in a portfolio having a
policy of "diversification" because a
high percentage of the Portfolio's assets may
be invested in municipal
obligations of one or two issuers.
Furthermore, a high percentage of investments
among few issuers may result in a greater
degree of fluctuation in the market
value of the assets of the Portfolio, and
consequently a greater degree of
fluctuation of the Portfolio's net asset
value, because the Portfolio will be
more susceptible to economic, political, or
regulatory developments affecting
these securities than would be the case with
a portfolio composed of varied
obligations of more issuers.
14
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Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
RISK FACTORS AFFECTING PENNSYLVANIA
Potential purchasers of shares of the
Portfolio should consider the fact
that the Portfolio consists primarily of
securities issued by the Commonwealth
of Pennsylvania (the "Commonwealth"), its
municipalities and authorities and
should realize the substantial risks
associated with an investment in such
securities. Although the General Fund of the
Commonwealth (the principal
operating fund of the Commonwealth)
experienced deficits in fiscal 1990 and
1991, tax increases and spending decreases
helped return the General Fund
balance to a surplus at June 30, 1992 of
$87.5 million and at June 30, 1993 of
$698.9. The deficit in the Commonwealth's
unreserved/undesignated funds of prior
years also was reversed to a surplus of $64.4
million as of June 30, 1993.
Pennsylvania's economy historically has
been dependent upon heavy industry,
but has diversified recently into various
services, particularly into medical
and health services, education and financial
services. Agricultural industries
continue to be an important part of the
economy, including not only the
production of diversified food and livestock
products, but substantial economic
activity in agribusiness and food-related
industries. Service industries
currently employ the greatest share of non-
agricultural workers, followed by the
categories of trade and manufacturing. Future
economic difficulties in any of
these industries could have an adverse impact
on the finances of the
Commonwealth or its municipalities, and could
adversely affect the market value
of the municipal obligations in the Portfolio
or the ability of the respective
obligors to make payments of interest and
principal due on such municipal
obligations.
Additional information regarding the
state is included in the Statement of
Additional Information.
PORTFOLIO TRANSACTIONS AND TURNOVER
The Portfolio securities ordinarily are
purchased from and sold to parties
acting as either principal or agent. Newly
issued securities ordinarily are
purchased directly from the issuer or from an
underwritter; other purchases and
sales usually are placed with those dealers
from which it appears that the best
price or execution will be obtained. Usually
no brokerage commissions, as such,
are paid by the Portfolio for purchases and
sales undertaken through principal
transactions, although the price paid usually
includes an undisclosed
compensation to the dealer as agent.
The Portfolio cannot accurately predict
its portfolio turnover rate, but
anticipates that the annual turnover will not
exceed 100%. An annual turnover
rate of 100% would occur when all of the
securities held by the Portfolio are
15
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
replaced one time during a period of one
year. The Manager will not consider
turnover rate a limiting factor in making
investment decisions consistent with
the investment objective and policies of the
Portfolio.
=============================================
==================================
Valuation of Shares
=============================================
==================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on the NYSE, which is
currently 4:00 P.M. New York City time on
each day that the NYSE is open, by dividing
the Portfolio's net assets
attributable to each Class by the total
number of shares of the Class
outstanding.
When, in the judgment of the pricing
service, quoted bid prices for
investments are readily available and are
representative of the bid side of the
market, these investments are valued at the
mean between the quoted bid and
asked prices. Investments for which, in the
judgment of the pricing service,
there is no readily obtainable market
quotation (which may constitute a majority
of the portfolio securities) are carried at
fair value of securities of similar
type, yield and maturity. Pricing services
generally determine value by
reference to transactions in municipal
obligations, quotations from municipal
bond dealers, market transactions in
comparable securities and various
relationships between securities. Short-term
instruments maturing within 60 days
will be valued at cost plus (minus) amortized
discount (premium), if any, when
the Trustees have determined that amortized
cost equals fair value. Securities
and other assets that are not priced by a
pricing service and for which market
quotations are not available will be valued
in good faith at fair value by or
under the direction of the Trustees.
=============================================
==================================
Dividends, Distributions and Taxes
=============================================
==================================
DIVIDENDS AND DISTRIBUTIONS
Dividends of substantially all of the
Portfolio's net investment income are
declared and paid monthly and any realized
capital gain are declared and
distributed annually.
If a shareholder does not otherwise
instruct, dividends and capital gain
distributions will be reinvested
automatically in additional shares of the
same
Class at net asset value, subject to no sales
charge or CDSC.
Income dividends and capital gains
distributions that are invested are
credited to shareholders' accounts in
additional shares at the net asset value
as of the close of business on the payment
date. A shareholder may change the
16
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Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
option at any time by notifying his or her
Financial Consultant. Accounts held
directly by the Fund's transfer agent, The
Shareholder Services Group Inc.
("TSSG") should notify TSSG in writing at
least five business days prior to the
payment date to permit the change to be
entered in the shareholder's account.
The per share dividends on Class B and
Class C shares of the Portfolio may
be lower than the per share dividends on
Class A and Class Y shares principally
as a result of the distribution fee
applicable with respect to Class B and Class
C shares. The per share dividends on Class A
shares of the Portfolio may be
lower than the per share dividends on Class Y
shares principally as a result of
the service fee applicable to Class A shares.
Distributions of capital gains, if
any, will be in the same amount for Class A,
Class B, Class C and Class Y
shares.
The Portfolio intends to qualify as a
"regulated investment company" and to
meet the requirements for distributing
"exempt-interest dividends" under the
Internal Revenue Code (the "Code") so that no
Federal income taxes will be
payable by the Portfolio and dividends
representing net interest received on
municipal obligations will not be includable
by shareholders in their gross
income for Federal income tax purposes. To
the extent dividends are derived from
taxable income from temporary investments,
market discounts or from the excess
of net short-term capital gain over net long-
term capital loss, they are treated
as ordinary income whether the shareholder
has elected to receive them in cash
or in additional shares. Capital gains
distributions, if any, whether paid in
cash or invested in shares of the Portfolio,
will be taxable to shareholders.
Exempt-interest dividends allocable to
interest received by the Portfolio
from the AMT-Subject Bonds in which the
Portfolio may invest will be treated as
interest paid directly on such obligations
and will give rise to an "item of tax
preference" that will increase a
shareholder's alternative minimum taxable
income. In addition, for corporations,
alternative minimum taxable income will
be increased by a percentage of the amount by
which a special measure of income
(including exempt-interest dividends) exceeds
the amount otherwise determined to
be alternative minimum taxable income.
Accordingly, investment in the Portfolio
may cause shareholders to be subject to (or
result in an increased liability
under) the AMT. The Fund will annually
furnish to its shareholders a report
indicating the ratable portion of exempt-
interest dividends attributable to
AMT-Subject Bonds.
The Portfolio will be treated as a
separate regulated investment company
for Federal tax purposes. Accordingly, the
Portfolio's net investment income is
determined separately based on the income
earned on its securities less its
costs of operations. The Portfolio's net long-
term and short-term gain (loss)
realized on investments is determined after
offsetting any capital loss
carryover of the Portfolio from prior
periods.
17
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Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Dividends, Distributions and Taxes
=============================================
===================================
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Portfolio will not be
deductible to the extent that the
Portfolio's distributions are exempt from
Federal income tax. In addition, any
loss realized upon the redemption of shares
held less than 6 months will be
disallowed to the extent of any exempt-
interest dividends received by the
shareholder during such period. Further,
persons who may be "substantial users"
(or "related persons" of substantial users)
of facilities financed by industrial
development bonds should consult their tax
advisors concerning an investment in
the Portfolio.
PENNSYLVANIA TAXES
Dividends distributed by the
Pennsylvania Portfolio will not be subject to
the Pennsylvania personal income tax, the
corporate net income tax or to the
Philadelphia school district investment
income tax to the extent that the
dividends are attributable to interest
received by the Portfolio from its
investments in Pennsylvania municipal
obligations and U.S. Government
obligations, including obligations issued by
U.S. possessions. Dividends or
distributions by the Portfolio to a
Pennsylvania resident that are attributable
to most other sources may be subject to the
Pennsylvania personal income tax,
the corporate net income tax and (for
residents of Philadelphia) to the
Philadelphia school district investment
income tax. Shares of the Portfolio will
be exempt from Pennsylvania county personal
property taxes and (as to residents
of Pittsburgh) from personal property taxes
imposed by the City of Pittsburgh
and the School District of Pittsburgh to the
extent that the Portfolio consists
of Pennsylvania municipal obligations and
U.S. Government obligations, including
obligations issued by U.S. possessions.
Investors purchasing municipal
obligations of their state of residence, or
a fund comprised of such obligations, should
recognize that the benefits of the
exemption from local taxes, in addition to
the exemption from Federal taxes,
necessarily limits the fund's ability to
diversify geographically. Each
Portfolio will make available annually to its
shareholders information
concerning the tax status of its
distributions, including the amount of its
dividends designated as exempt-interest
dividends and as capital gain dividends.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting each
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional Information.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
18
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Purchase of Shares
=============================================
===================================
GENERAL
The Portfolio offers four Classes of
shares. Class A shares are sold to
investors with an initial sales charge and
Class B and Class C shares are sold
without an initial sales charge but are
subject to a CDSC payable upon certain
redemptions. ClassY shares are sold without
an initial sales charge or CDSC and
are available only to investors investing a
minimum of $5,000,000. See
"Prospectus Summary -- Alternative Purchase
Arrangements" for a discussion of
factors to consider in selecting which Class
of shares to purchase.
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney, an Introducing
Broker or an investment dealer in
the selling group. When purchasing shares of
the Portfolio, investors must
specify whether the purchase is for Class A,
Class B, Class C or Class Y shares.
No maintenance fee will be charged by the
Portfolios in connection with a
brokerage account through which an investor
purchases or holds shares.
Investors in Class A, Class B and Class
C shares may open an account by
making an initial investment of at least
$1,000 for each account in the
Portfolio. Investors in Class Y shares may
open an account by making an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made for
all Classes. For participants in the
Portfolio's Systematic Investment Plan, the
minimum initial investment requirement for
Class A, Class B and Class C shares
and the subsequent investment requirement for
all Classes is $50. There are no
minimum investment requirements in Class A
for employees of Travelers and its
subsidiaries, including Smith Barney, and
Trustees of the Fund and their spouses
and children. The Fund reserves the right to
waive or change minimums, to
decline any order to purchase its shares and
to suspend the offering of shares
from time to time. Shares purchased will be
held in the shareholder's account by
the Fund's transfer agent, TSSG, a subsidiary
of First Data Corporation. Share
certificates are issued only upon a
shareholder's written request to TSSG. It is
not recommended that the Portfolio be used as
a vehicle for Keogh, IRA or other
qualified retirement plans.
Purchase orders received by the Fund or
Smith Barney prior to the close of
regular trading on the NYSE, on any day the
Portfolio calculates its net asset
value, are priced according to the net asset
value determined on that day (the
"trade date"). Orders received by dealers or
introducing brokers prior to the
close of regular trading on the NYSE on any
day the Portfolio calculates its net
asset value, are priced according to the net
asset value determined on that day,
provided the order is received by the Fund or
Smith Barney prior to Smith
Barney's close of business. Payment for
Portfolio shares is due on the third
business day after the trade date.
19
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
TSSG is authorized through
preauthorized transfers of $50 or more to
charge the regular bank account or
other financial institution indicated by the
shareholder on a monthly or
quarterly basis to provide systematic
additions to the shareholder's Portfolio
account. A shareholder who has insufficient
funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney
or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply
cash held in the shareholder's Smith
Barney brokerage account or redeem the
shareholder's shares of a Smith Barney
money market fund to make additions to the
account. Additional information is
available from the Fund or a Smith Barney
Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE - CLASS
A SHARES
The sales charges applicable to
purchases of Class A shares of the
Portfolio are as follows:
=============================================
===================================
Sales Charge Dealers'
---
- --------- Reallowance
% of
% of as % of
Amount of Investment Offering
Price Amount Invested Offering Price
- ---------------------------------------------
- -----------------------------------
Less than $25,000 4.00%
4.17% 3.60%
$ 25,000 - 49,999 3.50
3.63 3.15
50,000 - 99,999 3.00
3.09 2.70
100,000 - 249,999 2.50
2.56 2.25
250,000 - 499,999 1.50
1.52 1.35
500,000 and over *
* *
=============================================
===================================
*Purchases of Class A shares, which when
combined with current holdings of
Class A shares offered with a sales charge
equal or exceed $500,000 in the
aggregate, will be made at net asset value
without any initial sales charge, but
will be subject to a CDSC of 1.00% on
redemptions made within 12 months of
purchase. The CDSC on Class A shares is
payable to Smith Barney, which
compensates Smith Barney Financial
Consultants and other dealers whose clients
make purchases of $500,000 or more. The CDSC
is waived in the same circumstances
in which the CDSC applicable to Class B and
Class C shares is waived. See
"Deferred Sales Charge Alternatives" and
"Waivers of CDSC."
Members of the selling group may receive
up to 90% of the sales charge and
may be deemed to be underwriters of the Fund
as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above
apply to the aggregate of purchases
of Class A shares of the Portfolio made at
one time by "any person," which
20
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
includes an individual, his or her spouse and
children, or a trustee or other
fiduciary of a single trust estate or single
fiduciary account. The reduced
sales charge minimums may also be met by
aggregating the purchase with the net
asset value of all Class A shares offered
with a sales charge held in funds
sponsored by Smith Barney listed under
"Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made
at net asset value without a sales
charge in the following circumstances: (a)
sales of Class A shares to Trustees
of the Fund, employees of Travelers and its
subsidiaries, and employees of
members of the National Association of
Securities Dealers, Inc., or to the
spouses and children of such persons
(including the surviving spouse of a
deceased Trustee or employee, and retired
Trustees or employees); (b) offers of
Class A shares to any other investment
company in connection with the
combination of such company with the
Portfolio by merger, acquisition of assets
or otherwise; (c) purchases of Class A shares
by any client of a newly employed
Smith Barney Financial Consultant (for a
period up to 90 days from the
commencement of the Financial Consultant's
employment with Smith Barney), on the
condition the purchase of Class A shares is
made with the proceeds of the
redemption of shares of a mutual fund which
(i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to
the client by the Financial
Consultant and (iii) was subject to a sales
charge; (d) shareholders who have
redeemed Class A shares in the Portfolio (or
Class A shares of another fund of
the Smith Barney Mutual Funds that are sold
with a sales charge equal to or
greater than the maximum sales charge of the
Portfolio) and who wish to reinvest
their redemption proceeds in the Portfolio,
provided the reinvestment is made
within 60 calendar days of the redemption;
and (e) accounts managed by
registered investment advisory subsidiaries
of Travelers. In order to obtain
such discounts, the purchaser must provide
sufficient information at the time of
purchase to permit verification that the
purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of a Portfolio may be
purchased by "any person" (as defined
above) at a reduced sales charge or at net
asset value determined by aggregating
the dollar amount of the new purchase and the
total net asset value of all Class
A shares of the Portfolio and of funds
sponsored by Smith Barney which are
offered with a sales charge, listed under
"Exchange Privilege" then held by such
person and applying the sales charge
applicable to such aggregate. In order to
obtain such discount, the purchaser must
provide sufficient information at the
21
<PAGE>
tiSmith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
me of purchase to permit verification that
the purchase qualifies for the
reduced sales charge. The right of
accumulation is subject to modification or
discontinuance at any time with respect to
all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated
systems, a reduced sales charge or
purchase at net asset value will also be
available to employees (and partners)
of the same employer purchasing as a group,
provided each participant makes the
minimum initial investment required. The
sales charge applicable to purchases by
each member of such a group will be
determined by the table set forth above
under "Initial Sales Charge Alternative --
Class A Shares," and will be based
upon the aggregate sales of Class A shares of
Smith Barney Mutual Funds offered
with a sales charge to, and share holdings
of, all members of the group. To be
eligible for such reduced sales charges or to
purchase at net asset value, all
purchases must be pursuant to an employer- or
partnership-sanctioned plan
meeting certain requirements. One such
requirement is that the plan must be open
to specified partners or employees of the
employer and its subsidiaries, if any.
Such plan may, but is not required to,
provide for payroll deductions. Smith
Barney may also offer a reduced sales charge
or net asset value purchase for
aggregating related fiduciary accounts under
such conditions that Smith Barney
will realize economies of sales efforts and
sales related expenses. An
individual who is a member of a qualified
group may also purchase Class A shares
at the reduced sales charge applicable to the
group as a whole. The sales charge
is based upon the aggregate dollar value of
Class A shares offered with a sales
charge that have been previously purchased
and are still owned by the group,
plus the amount of the current purchase. A
"qualified group" is one which (a)
has been in existence for more than six
months, (b) has a purpose other than
acquiring Portfolio shares at a discount and
(c) satisfies uniform criteria
which enable Smith Barney to realize
economies of scale in its costs of
distributing shares. A qualified group must
have more than 10 members, must be
available to arrange for group meetings
between representatives of the Portfolio
and the members, and must agree to include
sales and other materials related to
the Portfolio in its publications and
mailings to members at no cost to Smith
Barney. In order to obtain such reduced sales
charge or to purchase at net asset
value, the purchaser must provide sufficient
information at the time of purchase
to permit verification that the purchase
qualifies for the reduced sales charge.
Approval of group purchase reduced sales
charge plans is subject to the
discretion of Smith Barney.
22
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
LETTER OF INTENT
Class A Shares. A Letter of Intent for
amounts of $50,000 or more provides
an opportunity for an investor to obtain a
reduced sales charge by aggregating
investments over a 13 month period, provided
that the investor refers to such
Letter when placing orders. For purposes of a
Letter of Intent, the "Amount of
Investment" as referred to in the preceding
sales charge table includes
purchases of all Class A shares of the
Portfolio and other funds of the Smith
Barney Mutual Funds offered with a sales
charge over the 13 month period based
on the total amount of intended purchases
plus the value of all Class A shares
previously purchased and still owned. An
alternative is to compute the 13 month
period starting up to 90 days before the date
of execution of a Letter of
Intent. Each investment made during the
period receives the reduced sales charge
applicable to the total amount of the
investment goal. If the goal is not
achieved within the period, the investor must
pay the difference between the
sales charges applicable to the purchases
made and the charges previously paid,
or an appropriate number of escrowed shares
will be redeemed. Please contact a
Smith Barney Financial Consultant or TSSG to
obtain a Letter of Intent
application.
Class Y Shares. A Letter of Intent may
also be used as a way for investors
to meet the minimum investment requirement
for Class Y shares. Such investors
must make an initial minimum purchase of
$1,000,000 in Class Y shares of the
Portfolio and agree to purchase a total of
$5,000,000 of Class Y shares of the
same Portfolio within six months from the
date of the Letter. If a total
investment of $5,000,000 is not made within
the six-month period, all Class Y
shares purchased to date will be transferred
to Class A shares, where they will
be subject to all fees (including a service
fee of 0.15%) and expenses
applicable to the Portfolio's Class A shares,
which may include a CDSC of 1.00%.
Please contact a Smith Barney Financial
Consultant or TSSG for further
information.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset
value next determined without an
initial sales charge so that the full amount
of an investor's purchase payment
may be immediately invested in the Portfolio.
A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC
Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares which
when combined with Class A shares
offered with a sales charge currently held by
an investor equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on
an amount equal to the lesser of
23
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
the original cost of the shares being
redeemed or their net asset value at the
time of redemption. CDSC Shares that are
redeemed will not be subject to a CDSC
to the extent that the value of such shares
represents: (a) capital appreciation
of Portfolio assets; (b) reinvestment of
dividends or capital gain
distributions; (c) with respect to Class B
shares, shares redeemed more than
five years after their purchase; or (d) with
respect to Class C shares and Class
A shares that are CDSC Shares, shares
redeemed more than 12 months after their
purchase.
Class C shares and Class A shares that
are CDSC Shares are subject to a
1.00% CDSC if redeemed within 12 months of
purchase. In circumstances in which
the CDSC is imposed on Class B shares, the
amount of the charge will depend on
the number of years since the shareholder
made the purchase payment from which
the amount is being redeemed. Solely for
purposes of determining the number of
years since a purchase payment, all purchase
payments made during a month will
be aggregated and deemed to have been made on
the last day of the preceding
Smith Barney statement month. The following
table sets forth the rates of the
charge for redemptions of Class B shares by
shareholders:
Year Since Purchase
Payment Was Made
CDSC
------------------------------------
- ------------------------
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth
0.00
Seventh
0.00
Eighth
0.00
------------------------------------
- ------------------------
Class B shares will convert
automatically to Class A shares eight years
after the date on which they were purchased
and thereafter will no longer be
subject to any distribution fees. There will
be converted at that time such
proportion of his or her Class B Dividend
Shares owned by the shareholder as the
total number of his or her Class B shares
converting at the time bears to the
total number of outstanding Class B shares
(other than Class B Dividend Shares)
owned by the shareholder. Shareholders who
held Class B shares of Smith Barney
Shearson Short-Term World Income Fund (the
"Short-Term World Income Fund") on
July 15, 1994 and who subsequently exchange
those shares for Class B shares of
the Portfolio will be offered the opportunity
to exchange all such Class B
24
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
ares for Class A shares of the Portfolio four
years after the date on which
those shares were deemed to have been
purchased. Holders of such Class B shares
will be notified of the pending exchange in
writing approximately 30 days before
the fourth anniversary of the purchase date
and, unless the exchange has been
rejected in writing, the exchange will occur
on or about the fourth anniversary
date. See "Prospectus Summary -- Alternative
Purchase Arrangements -- Class B
Shares Conversion Feature."
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestment of
dividends and capital gain distributions
and finally of other shares held by the
shareholder for the longest period of
time. The length of time that CDSC Shares
acquired through an exchange have been
held will be calculated from the date that
the shares exchanged were initially
acquired in one of the other Smith Barney
Mutual Funds, and Portfolio shares
being redeemed will be considered to
represent, as applicable, capital
appreciation or dividend and capital gain
distribution reinvestments in such
other funds. For Federal income tax purposes,
the amount of the CDSC will reduce
the gain or increase the loss, as the case
may be, on the amount realized on
redemption. The amount of any CDSC will be
paid to Smith Barney.
To provide an example, assume an
investor purchased 100 Class B shares at
$10 per share for a cost of $1,000.
Subsequently, the investor acquired 5
additional shares through dividend
reinvestment. During the fifteenth month
after the purchase, the investor decided to
redeem $500 of his or her
investment. Assuming at the time of the
redemption the net asset value had
appreciated to $12 per share, the value of
the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would
not be applied to the amount which
represents appreciation ($200) and the value
of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable
rate for Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a)
exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal
to or less than 1.00% per month of
the value of the shareholder's shares at the
time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan")
(provided, however, that automatic cash
withdrawals in amounts equal to or less than
2.00% per month of the value of the
shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within twelve
months following the death or disability of
the shareholder; (d) involuntary
redemptions; and (e) redemptions of shares in
connection with a combination of
25
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
e Portfolio with any investment company by
merger, acquisition of assets or
otherwise. In addition, a shareholder who has
redeemed shares from other funds
of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all
or part of the redemption proceeds within 60
days and receive pro rata credit
for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A, Class B and
Class C shares are subject to
minimum investment requirements and all
shares are subject to the other
requirements of the fund into which exchanges
are made and a sales charge
differential may apply.
Fund Name
- ---------------------------------------------
- -----------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund
Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund
Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
26
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Taxable Fixed-Income Funds (continued)
** Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic
Income Fund
* Smith Barney Funds, Inc. -- Income
Return Account Portfolio
*** Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund
Inc.
Smith Barney California Municipals Fund
Inc.
* Smith Barney Intermediate Maturity
California Municipals Fund
* Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Managed Municipals Fund
Inc.
Smith Barney Massachusetts Municipals
Fund
* Smith Barney Muni Funds -- Florida
Limited Term Portfolio
Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Georgia
Portfolio
* Smith Barney Muni Funds -- Limited Term
Portfolio
Smith Barney Muni Funds -- National
Portfolio
Smith Barney Muni Funds -- New York
Portfolio
Smith Barney Muni Funds -- Ohio
Portfolio
Smith Barney New Jersey Municipals Fund
Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, inc. --
Pacific Portfolio
27
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Money Market Funds
+ Smith Barney Exchange Reserve Fund
*** Smith Barney Money Funds, Inc. -- Cash
Portfolio
*** Smith Barney Money Funds, Inc. --
Government Portfolio
++ Smith Barney Money Funds, Inc. --
Retirement Portfolio
*** Smith Barney Municipal Money Market
Fund, Inc.
*** Smith Barney Muni Funds -- California
Money Market Portfolio
*** Smith Barney Muni Funds -- New York
Money Market Portfolio
- ------------
* Available for exchange with Class A,
Class C and Class Y shares of the
Portfolio. ** Available for exchange
with Class A, Class B and Class Y
shares of the Portfolio.
*** Available for exchange with Class A and
Class Y shares of the Portfolio. +
Available for exchange with Class B and
Class C shares of the Portfolio.
++ Available for exchange with Class A
shares of the Portfolio.
Class A Exchanges. Class A shares of
Smith Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of
such shares for Class A shares of a
fund sold with a higher sales charge. The
"sales charge differential" is limited
to a percentage rate no greater than the
excess of the sales charge rate
applicable to purchases of shares of the
mutual fund being acquired in the
exchange over the sales charge rate(s)
actually paid on the mutual fund shares
relinquished in the exchange and on any
predecessor of those shares. For
purposes of the exchange privilege, shares
obtained through automatic
reinvestment of dividends and capital gain
distributions are treated as having
paid the same sales charges applicable to the
shares on which the dividends or
distributions were paid; however, if no sales
charge was imposed upon the
initial purchase of the shares, any shares
obtained through automatic
reinvestment will be subject to a sales
charge differential upon exchange. Class
A shares held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of the
Smith Barney Mutual Funds will not be
subject to a sales charge differential.
Class B Exchanges. In the event a Class
B shareholder (unless such
shareholder was a Class B shareholder of the
Short-Term World Income Fund on
July 15, 1994) wishes to exchange all or a
portion of his or her shares in any
of the funds imposing a higher CDSC than that
imposed by the Portfolio, the
exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an
exchange, the new Class B shares will be
deemed to have been purchased on the
same date as the Class B shares of the
Portfolio that have been exchanged.
28
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Class C Exchanges. Upon an exchange, the
new Class C shares will be deemed
to have been purchased on the same date as
the Class C shares of the Portfolio
that have been exchanged.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment manager may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
manager will notify Smith Barney
that the Fund may, at its discretion, decide
to limit additional purchases
and/or exchanges by the shareholder. Upon
such a determination, the Fund will
provide notice in writing or by telephone to
the shareholder at least 15 days
prior to suspending the exchange privilege
and during the 15 day period the
shareholder will be required to (a) redeem
his or her shares in the Portfolio or
(b) remain invested in the Portfolio or
exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily
available, which position the shareholder
would be expected to maintain for a
significant period of time. All relevant
factors will be considered in determining
what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed below
are also applicable for exchanging shares,
and exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
29
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Redemption of Shares
=============================================
===================================
The Fund is required to redeem the
shares of the Portfolio tendered to it,
as described below, at a redemption price
equal to their net asset value per
share next determined after receipt of a
written request in proper form at no
charge other than any applicable CDSC.
Redemption requests received after the
close of regular trading on the NYSE are
priced at the net asset value next
determined. If a shareholder holds shares in
more than one Class, any request
for redemption must specify the Class being
redeemed. In the event of a failure
to specify which Class, or if the investor
owns fewer shares of the Class than
specified, the redemption request will be
delayed until the Fund's transfer
agent receives further instructions from
Smith Barney, or if the shareholder's
account is not with Smith Barney, from the
shareholder directly. The redemption
proceeds will be remitted on or before the
third business day following receipt
of proper tender, except on any days on which
the NYSE is closed or as permitted
under the 1940 Act in extraordinary
circumstances. Generally, if the redemption
proceeds are remitted to a Smith Barney
brokerage account, these funds will not
be invested for the shareholder's benefit
without specific instruction and Smith
Barney will benefit from the use of
temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other
than a certified or official bank
check, will be remitted upon clearance of the
check, which may take up to ten
days or more.
Shares held by Smith Barney as custodian
must be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than those
held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request for redemption
to:
Smith Barney Muni Funds/Pennsylvania
Portfolio Class A,B,C or Y (please
specify) c/o The Shareholder Services
Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
30
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Portfolio offers shareholders an
automatic cash withdrawal plan, under
which shareholders who own shares with a
value of at least $10,000 may elect to
receive cash payments of at least $50 monthly
or quarterly. The withdrawal plan
will be carried over on exchanges between
funds or Classes of the Portfolio. Any
applicable CDSC will not be waived on amounts
withdrawn by a shareholder that
exceed 1.00% per month of the value of the
shareholder's shares subject to the
CDSC at the time the withdrawal plan
commences. (With respect to withdrawal
plans in effect prior to November 7, 1994,
any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00%
per month of the value of the
shareholder's shares subject to the CDSC).
For further information regarding the
automatic cash withdrawal plan, shareholders
should contact a Smith Barney
Financial Consultant.
=============================================
===================================
Minimum Account Size
=============================================
===================================
The Fund reserves the right to
involuntarily liquidate any shareholder's
account if the aggregate value of the shares
held in a Portfolio account is less
than $500. (If a shareholder has more than
one account in this Portfolio, each
account must satisfy the minimum account
size.) The Fund, however, will not
redeem shares based solely on market
reductions in net asset value. Before the
Fund exercises such right, shareholders will
receive written notice and will be
permitted 60 days to bring the account up to
the minimum to avoid involuntary
liquidation.
=============================================
===================================
Performance
=============================================
===================================
From time to time the Fund may include a
Portfolio's yield, tax equivalent
yield, total return and average annual total
return in advertisements. In other
types of sales literature the Fund may also
include the Portfolio's distribution
rate. These figures are computed separately
for Class A, Class B, Class C and
Class Y shares of the Portfolio. These
figures are based on historical earnings
and are not intended to indicate future
performance. The yield of a Portfolio
31
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Performance (continued)
=============================================
===================================
Class refers to the net income earned by an
investment in the Class over a
thirty-day period ending at month end. This
net income is then annualized, i.e.,
the amount of income earned by the investment
during that thirty-day period is
assumed to be earned each 30-day period for
twelve periods and is expressed as a
percentage of the investment. The net income
earned on the investment for six
periods is also assumed to be reinvested at
the end of the sixth 30-day period.
The tax equivalent yield is calculated
similarly to the yield, except that a
stated income tax rate is used to demonstrate
the taxable yield necessary to
produce an after-tax yield equivalent to the
tax-exempt yield of the Class. The
yield and tax equivalent yield quotations are
calculated according to a formula
prescribed by the SEC to facilitate
comparison with yields quoted by other
investment companies. The distribution rate
is calculated by analyzing the
latest daily dividend rate and dividing the
result by the maximum offering price
per share as of the end of the period to
which the distribution relates. The
distribution rate is not computed in the same
manner as, and therefore can be
significantly different from, the above
described yield. Total return is
computed for a specified period of time
assuming deduction of the maximum sales
charge, if any, from the initial amount
invested and reinvestment of all income
dividends and capital gains distributions on
the reinvestment dates at prices
calculated as stated in this Prospectus, then
dividing the value of the
investment at the end of the period so
calculated by the initial amount invested
and subtracting 100%. The standard average
annual total return, as prescribed by
the SEC, is derived from this total return,
which provides the ending redeemable
value. Such standard total return information
may also be accompanied with
nonstandard total return information for
differing periods computed in the same
manner but without analyzing the total return
or taking sales charges into
account. The Fund may also include
comparative performance information in
advertising or marketing its shares. Such
performance information may include
data from Lipper Analytical Services, Inc.
and other financial publications.
=============================================
===================================
Management of the Fund
=============================================
===================================
TRUSTEES
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment manager,
custodian and transfer agent. The day-to-day
operations of the Portfolio are
delegated to the Portfolio's investment
manager. The Statement of Additional
Information contains background information
regarding each Trustee and executive
officer of the Fund.
32
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
MANAGER
Prior to December 31, 1994, Mutual
Management Corp. ("MMC") managed the
day-to-day operations of the Portfolio
pursuant to a management agreement
entered into by the Fund on behalf of the
Portfolio. Effective December 31,
1994, the Trustees of the Fund approved the
transfer of all of the management
agreements with MMC to Smith Barney Mutual
Funds Management Inc. ("SBMFM" or the
"Manager"), an affiliate of MMC. Investment
management of the Portfolio under
SBMFM is conducted by the same personnel who
managed the Portfolio under MMC.
The reporting requirements for these
individuals has also remained unchanged. In
addition, because the original management
agreement with MMC was simply
transferred to SBMFM, the terms of the
agreement (including the fee) have
remained the same.
SBMFM, which until November, 1994
operated under the name Smith, Barney
Advisers, Inc., was incorporated in 1968
under the laws of Delaware. SBMFM is a
subsidiary of Holdings, the parent company of
Smith Barney (the "Distributor").
Holdings is a wholly-owned subsidiary of
Travelers, which is a financial
services holding company engaged, through its
subsidiaries, principally in four
business segments: Investment Services,
Consumer Finance Services, Life
Insurance Services and Property & Casualty
Insurance Services. SBMFM, Holdings
and Smith Barney are each located at 388
Greenwich Street, New York, New York
10013.
SBMFM provides the Fund with investment
management services and executive
and other personnel, pays the remuneration of
Fund officers, provides the Fund
with office space and equipment, furnishes
the Fund with bookkeeping,
accounting, administrative services and
services relating to research,
statistical work and supervision of the
Portfolio. For the services provided,
the management agreement provides that the
Fund will pay SBMFM an annual fee
calculated at the rate of 0.45% of the
Portfolio's average daily net assets,
paid monthly. SBMFM waived its management fee
for the Portfolio for the period
ended March 31, 1995. For the current fiscal
period, total expenses are
anticipated to be 0.37% of the average daily
net assets for Class A shares;
0.87% of the average daily net assets for
Class B shares; and 0.91% of the
average daily net assets for Class C shares.
"Management fees" and "12b-1 fees"
have been restated to reflect current
expenses of the Portfolio. These expenses
reflect the management fee waiver currently
in effect and the anticipated level
of 12b-1 fees for the current fiscal period.
PORTFOLIO MANAGEMENT
Peter M. Coffey, a Managing Director of
Smith Barney, has served as Vice
33
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
President of the Fund and portfolio manager
of the Portfolio since it commenced
operation (April 4, 1994) and manages the day-
to-day operations of the Portfolio
including making all investment decisions.
Mr. Coffey also serves as the
portfolio manager for many of the Fund's
other non-money market Portfolios.
Management's discussion and analysis,
and additional performance
information regarding the Portfolio during
the fiscal year ended March 31, 1995
is included in the Annual Report dated March
31, 1995. A copy of the Annual
Report may be obtained upon request and
without charge from a Smith Barney
Financial Consultant or by writing or calling
the Fund at the address or phone
number listed on page one of this Prospectus.
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
a service fee with respect to Class A, Class
B and Class C shares of the
Portfolio at the annual rate of 0.15% of the
average daily net assets
attributable to these Classes. Smith Barney
is also paid a distribution fee with
respect to Class B and Class C shares at the
annual rate of 0.50% and 0.55%,
respectively, of the average daily net assets
attributable to these Classes.
Class B shares that automatically convert to
Class A shares eight years after
the date of original purchase, will no longer
be subject to a distribution fee.
The fees are used by Smith Barney to pay its
Financial Consultants for servicing
shareholder accounts and, in the case of
Class B and Class C shares, to cover
expenses primarily intended to result in the
sale of those shares. These
expenses include: advertising expenses; the
cost of printing and mailing
prospectuses to potential investors; payments
to and expenses of Smith Barney
Financial Consultants and other persons who
provide support services in
connection with the distribution of shares;
interest and/or carrying charges;
and indirect and overhead costs of Smith
Barney associated with the sale of
Portfolio shares, including lease, utility,
communications and sales promotion
expenses.
The payments to Smith Barney Financial
Consultants for selling shares of a
Class include a commission or fee paid by the
investor or Smith Barney at the
time of sale and, with respect to Class A,
Class B and Class C shares, a
continuing fee for servicing shareholder
accounts for as long as a shareholder
34
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Distributor (continued)
=============================================
===================================
remains a holder of that Class. Smith Barney
Financial Consultants may receive
different levels of compensation for selling
the different Classes of Shares.
Payments under the Plan with respect to
Class B and Class C shares are not
tied exclusively to the distribution and
shareholder services expenses actually
incurred by Smith Barney and the payments may
exceed distribution expenses
actually incurred. The Fund's Trustees will
evaulate the appropriateness of the
Plan and its payment terms on a continuing
basis and in so doing will consider
all relevant factors, including expenses
borne by Smith Barney, amounts received
under the Plan and proceeds of the CDSC.
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end, non-diversified
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
one of twenty separate Portfolios. The assets
of each Portfolio are segregated
and separately managed. Class A, Class B,
Class C and Class Y shares of each
Portfolio represent interests in the assets
of that Portfolio and have identical
voting, dividend, liquidation and other
rights on the same terms and conditions,
except that expenses related to the
shareholder service and distribution of
Class A, Class B and Class C shares are borne
solely by the respective Class and
each such Class of shares has exclusive
voting rights with respect to provisions
of the Fund's Rule 12b-1 distribution plan
which pertains to that Class. It is
the intention of the Fund not to hold annual
meetings of shareholders. The
Trustees may call meetings of shareholders
for action by shareholder vote as may
be required by the 1940 Act or the
Declaration of Trust, and shareholders are
entitled to call a meeting of shareholders
upon a vote of 10% of the Fund's
outstanding shares for purposes of voting on
removal of a Trustee or Trustees.
Shareholders will receive assistance in
communicating with other shareholders in
connection with the removal of Trustees as
required by Section 16(c) of the 1940
Act. Shares do not have cumulative voting
rights or preemptive rights and have
only such conversion or exchange rights as
the Trustees may grant in their
discretion. When issued for payment as
described in this Prospectus, the Fund's
shares will be fully paid and transferrable
(subject to the Portfolio's minimum
account size). Shares are redeemable as set
forth under "Redemption of Shares"
and are subject to involuntary redemption as
set forth under "Minimum Account
Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
35
<PAGE>
Smith Barney Muni Funds - Pennsylvania
Portfolio
=============================================
===================================
Distributor (continued)
=============================================
===================================
Philadelphia, PA 19103 serves as custodian of
the Portfolio's investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the
Portfolio at the end of the period covered.
In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to
consolidate the mailing of its
semi-annual and annual reports by household.
This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report. In
addition, the Fund also plans to
consolidate the mailing of its Prospectus so
that a shareholder having multiple
accounts will receive a single Prospectus
annually. Shareholders who do not want
this consolidation to apply to their account
should contact their Smith Barney
Financial Consultant or the Fund's transfer
agent.
36
<PAGE>
SMITH BARNEY
- ------------
A Member of Travelers Group [LOGO]
Smith Barney
Muni Funds
Pennsylvania
Portfolio
388 Greenwich Street
New York, New York 10013
FD 0772 7/95
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
California
Money
Market
Portfolio
JULY 31, 1995
Prospectus begins on page one
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The California Money Market Portfolio
(the "Portfolio") is one of thirteen
investment portfolios that currently comprise
Smith Barney Muni Funds (the
"Fund"). The Portfolio seeks to provide its
shareholders with income exempt from
both Federal income taxes (other than the
alternative minimum tax) and
California personal income taxes from a
portfolio of high quality short-term
California municipal obligations selected for
liquidity and stability of
principal.
Shares of the Portfolio are not insured
or guaranteed by the U.S.
Government. There is no assurance that the
Portfolio will be able to maintain a
stable net asset value of $1.00 per share.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including service fees and
expenses, that prospective investors
will find helpful in making an investment
decision. Investors are encouraged to
read this Prospectus carefully and retain it
for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated JULY 31, 1995,
as amended or supplemented from time
to time, that is available upon request and
without charge by calling or writing
the Fund at the telephone number or address
set forth above or by contacting a
Smith Barney Financial Consultant. The
Statement of Additional Information has
been filed with the Securities and Exchange
Commission (the "SEC") and is
incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Fee Table
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
4
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
5
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
10
- ---------------------------------------------
- -----------------------------------
Dividends, Automatic Reinvestment and Taxes
10
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
12
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
13
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
15
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
18
- ---------------------------------------------
- -----------------------------------
Yield Information
18
- ---------------------------------------------
- -----------------------------------
Management of the Fund
19
- ---------------------------------------------
- -----------------------------------
Distributor
20
- ---------------------------------------------
- -----------------------------------
Additional Information
20
- ---------------------------------------------
- -----------------------------------
=============================================
===================================
No person has been authorized to give any
information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
=============================================
===================================
2
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Fee Table
=============================================
===================================
The following expense table lists the
costs and expenses an investor will
incur either directly or indirectly as a
shareholder of the Portfolio based,
unless otherwise noted, on its operating
expenses for its most recent fiscal
year:
Class A Class Y**
- ---------------------------------------------
- -----------------------------------
Shareholder Transaction Expenses
Sales Charge Imposed on Purchases
None None
Contingent Deferred Sales Charge
None* None
- ---------------------------------------------
- -----------------------------------
Annual Portfolio Operating Expenses
(as a percentage of average net assets)+
Management fees
0.47% 0.47%
12b-1 fees
0.10% --
Other expenses
0.04% 0.04%
- ---------------------------------------------
- -----------------------------------
Total Portfolio Operating Expenses
0.61% 0.51%
=============================================
===================================
* Class A shares acquired as part of an
exchange privilege transaction, which
were originally acquired in one of the
other Smith Barney Mutual Funds at
net asset value subject to a Contingent
Deferred Sales Charge ("CDSC"),
remain subject to the original fund's
CDSC while held in the Portfolio.
** The expenses of Class Y are estimated
based on expenses incurred by Class A
shares because there were no Class Y
shares outstanding during the fiscal
year ended March 31, 1995. "Other
expenses" in the above table include fees
for shareholder services, custodial fees,
legal and accounting fees,
printing costs and registration fees.
+ The Manager has waived a part of its
management fees for the period ended
March 31, 1995. If the Manager had not
waived its fees, the ratio of
expenses to average net assets would have
been .63%.
EXAMPLE
The following example is intended to
assist an investor in understanding the
various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares," "Management of the
Fund," and "Distributor."
- ---------------------------------------------
- -----------------------------------
An investor would pay the following
1 Year 3 Years 5 Years 10 Years
expenses on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemption at
the end of each time period:
Class A
$6 $20 $34 $76
Class Y
$5 $16 $29 $64
The example also provides a means for the
investor to compare expense levels
of funds with different fee structures over
varying investment periods. To
facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses.
Actual expenses may be greater or
less than those shown.
3
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule has been audited
in conjunction with the annual
audits of the financial statements of Smith
Barney Muni Funds by KPMG Peat
Marwick LLP, independent auditors. The 1995
financial statements and the
independent auditors' report thereon appear
in the March 31, 1995 Annual Report
to Shareholders.
For a Class A share outstanding throughout
each period:
1995
1994 1993 1992 1991(a)(1)
=============================================
=============================================
=====
Net Asset Value, Beginning of Period $
1.00 $ 1.00 $ 1.00 $ 1.00 $
1.00
- ---------------------------------------------
- ---------------------------------------------
- -----
Income from Investment Operations:
Net investment income
0.026 0.018 0.021 0.035
0.044
- ---------------------------------------------
- ---------------------------------------------
- -----
Total Income from Investment Operations
0.026 0.018 0.021 0.035
0.044
- ---------------------------------------------
- ---------------------------------------------
- -----
Less Distributions:
Dividends from net investment income
(0.026) (0.018) (0.021) (0.035)
(0.044)
Total Distributions
(0.026) (0.018) (0.021) (0.035)
(0.044)
- ---------------------------------------------
- ---------------------------------------------
- -----
Net Asset Value, End of Period $
1.00 $ 1.00 $ 1.00 $ 1.00 $
1.00
- ---------------------------------------------
- ---------------------------------------------
- -----
Total Return
2.66% 1.84% 2.05% 3.51%
4.49%++
- ---------------------------------------------
- ---------------------------------------------
- -----
Net Assets, End of Period (000s)
$953,320 $189,783 $159,681 $167,172
$135,608
- ---------------------------------------------
- ---------------------------------------------
- -----
Ratios to Average Net Assets:
Expenses (1)
0.61% 0.64% 0.67% 0.60%
0.46%+
Net Investment Income
3.02% 1.82% 2.05% 3.46%
4.73%+
=============================================
=============================================
=====
(a) From May 10, 1990 (commencement of
operations) to March 31, 1991.
+ Annualized.
++ Not annualized, as the result may not be
representative of the total return
for the year.
(1) The manager has waived all or part of its
fees for the period ended March
31, 1991 and the year ended March 31,
1995. If such fees were not waived,
the per share decrease of net investment
income and the ratios of expenses
to average net assets would be as
follows:
Expense Ratios
Class A Per Share Decreases
Without Fee Waivers
-------------------
- ---------------------------
1995 1991
1995 1991
----- -----
- ----- -----
$.002 $.001
0.63% 0.60%+
As of March 31, 1995, no Class Y shares
had been sold and, accordingly, no
comparable financial information is available
at this time for that Class.
4
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The California Money Market Portfolio
seeks to provide income exempt from
both Federal income taxes and California
personal income taxes from a portfolio
of high quality short-term municipal
obligations selected for liquidity and
stability of principal. The Portfolio seeks
to be fully invested in obligations
that are issued by the State of California
and its political subdivisions,
agencies and instrumentalities, the interest
from which in the opinion of
counsel for the various issuers, is exempt
from California as well as Federal
income taxes. (For certain shareholders, a
portion of the Portfolio's income may
be subject to the alternative minimum tax.)
Opinions relating to the validity of
municipal obligations and to the
exemption of interest thereon from Federal
income taxes and from California
personal income taxes are rendered by bond
counsel to the respective issuers at
the time of issuance. Neither the Portfolio
nor its investment adviser will
review the proceedings relating to the
issuance of municipal obligations or the
basis for such opinions.
All of the Portfolio's investments will
be in securities that at the time of
investment have or are deemed by the Manager
to have remaining maturities of 13
months or less and the dollar-weighted
average maturity of the Portfolio will be
90 days or less. The Portfolio will seek to
maintain a constant net asset value
of $1.00 per share, although no assurance can
be given that this goal will be
achieved. Except for temporary defensive
purposes, it is a fundamental policy
that at least 80% of the Portfolio's assets
will be invested in securities that
produce income that is exempt from Federal
income taxes (other than the
alternative minimum tax) and from California
personal income taxes in the
opinion of bond counsel for the various
issuers.
The Portfolio's investments will be
limited to obligations that the Fund's
Trustees delegates present minimal credit
risks and that (i) are secured by the
full faith and credit of the United States or
(ii) are "Eligible Securities," as
defined by the Investment Company Act of 1940
(the "Act"), at the time of
acquisition by the Portfolio. The term
"Eligible Securities" includes securities
rated by the "Requisite NRSROs" in one of the
two highest short-term rating
categories, securities of issuers that have
received such ratings with respect
to other short-term debt securities and
comparable unrated securities.
"Requisite NRSROs" means any nationally
recognized statistical rating
organizations ("NRSROs") that have issued
ratings with respect to a security or
class of debt obligations of an issuer.
Currently, there are six NRSROs:Standard
& Poor's Corporation, Moody's Investors
Service, Inc., Fitch Investors Services,
Inc., Duff and Phelps Inc., IBCA Limited and
its affiliate, IBCA, Inc. and
Thomson BankWatch. The Portfolio may also
invest in unrated securities if they
are of comparable quality as determined by
the Manager in accordance with
criteria established by the Fund's Trustees.
5
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
Municipal obligations, which are issued
by states, municipalities and their
agencies, fall into two major categories --
bonds and notes. Among the types of
obligations in which the Portfolio invests
are "puts," such as floating or
variable rate instruments subject to demand
features ("demand instruments");
tax-exempt commercial paper; and notes such
as Tax Anticipation Notes, Revenue
Anticipation Notes, Tax and Revenue
Anticipation Notes and Bond Anticipation
Notes. Demand instruments usually have an
indicated maturity of more than 13
months but contain a demand feature (a "put")
that entitles the holder to
receive the principal amount of the
underlying security and may be exercised
either (a) at any time on no more than 30
days' notice; or (b) at specified
intervals not exceeding one year and upon no
more than 30 days' notice. Demand
instruments are generally supported by
letters of credit which are issued by
both domestic and foreign banks. A variable
rate instrument provides for
adjustment of its interest rate on set dates
and upon such adjustment can
reasonably be expected to have a market value
that approximates its par value; a
floating rate instrument provides for
adjustment of its interest rate whenever a
specific interest rate (e.g., the prime rate)
changes and at any time can
reasonably be expected to have a market value
that approximates its par value.
The Portfolio may invest up to 10% of its
assets in participation interests
in floating or variable rate municipal
obligations (such as private activity
bonds) owned by banks. Participation
interests carry a demand feature permitting
the Portfolio to tender them back to the
bank. Each participation is backed by
an irrevocable letter of credit or guarantee
of a bank that the investment
manager, acting under the supervision of the
Trustees, has determined meets the
prescribed quality standards for the Fund.
The Portfolio may invest without limit in
private activity bonds. Interest
income on certain types of private activity
bonds issued after August 7, 1986,
to finance non-governmental activities is a
specific tax preference item for
purposes of the Federal individual and
corporate alternative minimum taxes.
Individual and corporate shareholders may be
subject to a Federal alternative
minimum tax to the extent the Portfolio's
dividends are derived from interest on
these bonds. These private activity bonds are
included in the term "municipal
obligations" for purposes of determining
compliance with the 80% test described
above. Dividends derived from interest income
on all municipal obligations are a
component of the "current earnings"
adjustment item for purposes of the Federal
corporate alternative minimum tax.
The Portfolio may invest up to 20% of the
value of its assets in tender
option bonds. A tender option bond is a
municipal obligation (generally held
pursuant to a custodial arrangement) having a
relatively long maturity and
bearing interest at a fixed rate
substantially higher than prevailing short-
term
tax exempt rates, that has been coupled with
the agreement of a third party,
6
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
such as a bank, broker-dealer or other
financial institution, pursuant to which
such institution grants the security holders
the option, at periodic intervals,
to tender their securities to the institution
and receive the face value
thereof. As consideration for providing the
option, the financial institution
receives periodic fees equal to the
difference between the municipal
obligation's fixed coupon rate and the rate,
as determined by a remarketing or
similar agent at or near the commencement of
such period, that would cause the
securities, coupled with the tender option,
to trade at par on the date of such
determination. Thus, after payment of this
fee, the security holder effectively
holds a demand obligation that bears interest
at the prevailing short-term
tax-exempt rate. The investment manager, on
behalf of the Portfolio, will
consider on an ongoing basis the
creditworthiness of the issuers of the
underlying municipal obligation, of any
custodian and the third-party provider
of the tender option. In certain instances
and for certain tender option bonds,
the option may be terminable in the event of
a default in payment of principal
or interest on the underlying municipal
obligations and for other reasons. The
Portfolio will not invest more than 10% of
the value of its net assets in
illiquid securities, which would include
tender option bonds for which the
required notice to exercise the tender
feature is more than seven days if there
is no secondary market available for these
obligations.
The Portfolio will not invest more than
10% of the value of its total assets
in floating or variable rate demand
instruments as to which the Portfolio cannot
exercise the demand feature on not more than
seven days' notice if there is no
secondary market available for these
instruments, in other securities that are
not readily marketable and in any repurchase
transactions that do not mature
within seven days.
RISK AND PORTFOLIO MANAGEMENT
There can be no assurance that the
Portfolio will achieve its investment
objective. The ability of the Portfolio to
achieve its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the money market, of
the municipal bond and municipal note
markets, the size of a particular
offering, the maturity of the obligation and
the rating of the issue. Municipal
obligations with longer maturities tend to
produce higher yields and are
generally subject to potentially greater
price fluctuations than obligations
with shorter maturities.
7
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
The Portfolio's concentration in
California obligations involves certain
additional risks that should be considered
carefully by investors. Certain
California constitutional amendments,
legislative measures, executive orders,
administrative regulations, court decisions
and voter initiatives could result
in certain adverse consequences affecting
California obligations. In particular,
there are risks resulting from certain recent
amendments to the California
Constitution and other statutes that limit
the taxing and spending authority of
California governmental entities, and these
may have the effect of impairing the
ability of certain issuers of California
obligations to pay principal and
interest on their obligations. See the
Statement of Additional Information for a
more detailed description of these and other
risks relating to the Portfolio's
investments in California obligations.
When-Issued Purchase Commitments. New
issues of municipal obligations are
often offered on a "when- issued" basis,
i.e., delivery and payment normally
take place 15 to 45 days after the purchase
date. The payment obligation and the
interest rate to be received on the
securities are fixed at the time the buyer
enters into the commitment, although no
interest accrues with respect to a
when-issued security prior to its stated
delivery date. The Portfolio will only
make commitments to purchase such securities
with the intention of actually
acquiring the securities, but the Portfolio
may sell these securities before the
settlement date if it is deemed advisable as
a matter of investment strategy. A
segregated account of the Portfolio
consisting of cash or liquid debt securities
with a market value at least equal to the
amount of the Portfolio's
"when-issued" commitments will be maintained
with PNC Bank, National Association
(the "Custodian") and monitored on a daily
basis so that the market value of the
account will equal or exceed the amount of
such commitments by the Portfolio.
Securities purchased on a "when-issued"
basis are subject to changes in
market value prior to delivery based not only
upon the public's perception of
the creditworthiness of the issuer but also
changes in the level of interest
rates, i.e., appreciating when interest rates
decline and depreciating when
interest rates rise. Therefore, if in order
to achieve higher interest income
the Portfolio remains substantially fully
invested at the same time that it has
purchased securities on a "when-issued"
basis, there will be a greater
possibility that the market value of the
Portfolio's assets will vary from $1.00
per share. (See "Determination of Net Asset
Value.") And there will be a greater
potential for the realization of capital
gains, which are not exempt from
Federal or state income taxes.
Stand-By Commitments. The Portfolio may
acquire "stand-by commitments" with
respect to municipal obligations held in its
portfolio. Under a stand-by
commitment a dealer agrees to purchase, at
the Portfolio's option, specified
municipal obligations at a specified price.
The Portfolio intends to enter into
stand-by commitments only with dealers, banks
and broker-dealers which, in the
8
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
opinion of the investment manager, present
minimal credit risks. In evaluating
the creditworthiness of the issuer of a stand-
by commitment, the investment
manager will review periodically the issuer's
assets, liabilities, contingent
claims and other relevant financial
information. The Portfolio will acquire
stand-by commitments solely to facilitate
portfolio liquidity and does not
intend to exercise its rights thereunder for
trading purposes.
Other Factors to be Considered. Investors
purchasing municipal obligations
of their state of residence, or a fund
comprised of such obligations, should
recognize that the benefits of the exemption
from state and local taxes, in
addition to the exemption from Federal taxes,
necessarily limits the fund's
ability to diversify geographically.
The Portfolio anticipates being as fully
invested as practicable in
California municipal obligations and
generally expects to invest the proceeds
received from the sale of shares in
California municipal obligations as soon as
reasonably possible, which is generally
within one day. At no time will more
than 20% of the Portfolio's net assets be
invested in taxable investments except
when the Portfolio has adopted a temporary
defensive investment policy.
The Portfolio may engage in short-term
trading to attempt to take advantage
of short-term market variations or may
dispose of a portfolio security prior to
its maturity if it believes such disposition
advisable or it needs to generate
cash to satisfy redemptions. In such cases,
the Portfolio may realize a gain or
loss.
The Fund is registered as a "non-
diversified" company under the "1940 Act",
in order for the Portfolio to have the
ability to invest more than 5% of its
assets in the securities of any issuer. The
Portfolio intends to comply with
Subchapter M of the Internal Revenue Code
that limits the aggregate value of all
holdings (except U.S. Government and cash
items, as defined in the Code) that
exceed 5% of the Portfolio's total assets to
an aggregate amount of 50% of such
assets. Also, holdings of a single issuer
(with the same exceptions) may not
exceed 25% of the Portfolio's total assets.
These limits are measured at the end
of each quarter. Under the Subchapter M
limits, "non- diversification" allows up
to 50% of the Portfolio's total assets to be
invested in as few as two single
issuers. In the event of decline of
creditworthiness or default upon the
obligations of one or more such issuers
exceeding 5%, an investment in the
Portfolio will entail greater risk than in a
portfolio having a policy of
"diversification" because a high percentage
of the Portfolio's assets may be
invested in municipal obligations of one or
two issuers. Furthermore, a high
percentage of investments among few issuers
may result in a greater degree of
9
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
fluctuation in the market value of the assets
of the Portfolio, and consequently
a greater degree of fluctuation of the
Portfolio's net asset value, because the
Portfolio will be more susceptible to
economic, political, or regulatory
developments affecting these securities than
would be the case with a portfolio
composed of varied obligations of more
issuers.
From time to time, proposals have been
introduced before Congress for the
purpose of restricting or eliminating the
Federal income tax exemption for
interest on municipal obligations and similar
proposals may be introduced in the
future. If one of these proposals were
enacted, the availability of tax exempt
obligations for investment by the Portfolio
and the value of the Portfolio
securities would be affected. The Trustees
would then reevaluate the Portfolio's
investment objective and policies.
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per share
is determined as of the close of
regular trading on each day that the New York
Stock Exchange ("NYSE") is open.
The net asset value per share is computed by
dividing the Portfolio's net assets
attributable to each Class (i.e., the value
of its assets less liabilities) by
the total number of its shares of the Class
outstanding. The Portfolio may also
determine net asset value per share on days
when the NYSE is not open, but when
the settlement of securities may otherwise
occur. The Portfolio employs the
"amortized cost method" of valuing portfolio
securities and intends to use its
best efforts to continue to maintain a
constant net asset value of $1.00 per
share.
=============================================
===================================
Dividends, Automatic Reinvestment and Taxes
=============================================
===================================
DIVIDENDS AND AUTOMATIC REINVESTMENT
The Portfolio declares dividends daily
from its net investment income on
each day the NYSE is open. Net investment
income consists of interest accrued
and discount earned and is less premium
amortized and expenses accrued (the
amount of discount or premium on portfolio
investments is fixed at the time of
purchase). Unless the shareholder has elected
to receive monthly distributions
of income, such dividends will automatically
be reinvested in Portfolio shares
of the same Class at net asset value. If a
shareholder redeems an account in
full between payment dates, all dividends
declared up to and including the date
of liquidation will be paid with the proceeds
from the redemption of shares. The
per share dividends of Class A shares of the
Portfolio may be less than the per
share dividends of the Class Y shares
principally as a result of the service fee
applicable to Class A shares.
10
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Dividends, Automatic Reinvestment and Taxes
(continued)
=============================================
===================================
TAXES
Federal Income Taxes. Under Subchapter M
of the Internal Revenue Code (the
"Code"), with which the Portfolio intends to
comply, no Federal income taxes
will ordinarily be payable by the Portfolio.
Distributions by the Portfolio of
interest income from tax exempt obligations
are not taxable to shareholders and
will not be includable in their gross income
for Federal income tax purposes
(see discussion of alternative minimum tax
above). Realized gains and losses are
reflected in the Portfolio's net assets and
are not included in net investment
income. Capital gain distributions, if any,
whether paid in cash or invested in
shares of the Portfolio, will be taxable to
shareholders.
California State Taxes. California
shareholders will not be subject to
California state personal income tax on
Portfolio dividends to the extent that
such distributions qualify as exempt-interest
dividends under the Code and
California law and provided that, at the
close of each quarter of the
Portfolio's taxable year, at least 50% of the
Portfolio's total assets are
invested in municipal obligations of
California issuers. To the extent that
distributions are derived from taxable
income, including long or short-term
capital gains, such distributions will not be
exempt from California state
personal income tax. Dividends on the
Portfolio are not excluded in determining
California state franchise taxes on
corporations and financial institutions.
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Portfolio will not be
deductible to the extent that the
Portfolio's distributions are exempt from
Federal income tax. In addition, any
loss realized upon the redemption of shares
held less than six months will be
disallowed to the extent of any exempt-
interest dividends received by the
shareholder during such period. However, this
holding period may be shortened by
the Treasury Department to a period of not
less than the greater of 31 days or
the period between regular dividend
distributions. Further, persons who may be
"substantial users" (or "related persons" of
substantial users) of facilities
financed by industrial development bonds
should consult their tax advisors
before purchasing Portfolio shares.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional Information.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
11
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Purchase of Shares
=============================================
===================================
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney Inc. ("Smith
Barney"), with a broker that clears
securities transactions through Smith Barney
on a fully disclosed basis (an
"Introducing Broker") or an Investment Dealer
in the Selling Group. No
maintenance fee will be charged by the
Portfolio in connection with a brokerage
account through which an investor purchases
or holds shares.
Investors in Class A may open an account
by making an initial investment of
at least $1,000 for each Portfolio account.
Investors in Class Y may open an
account by making an initial investment of at
least $5,000,000. Subsequent
investments of at least $50 may be made for
either Class. There are no minimum
investment requirements in Class A for
employees of Travelers Group Inc.
("Travelers") and its subsidiaries, including
Smith Barney, and Trustees of the
Fund, and their spouses and children. The
Portfolio reserves the right to waive
or change minimums, to decline any order to
purchase its shares and to suspend
the offering of shares from time to time.
Share certificates are issued only
upon a shareholder's written request to The
Shareholder Services Group, Inc.
("TSSG"), a subsidiary of First Data
Corporation.
The Portfolio's shares are sold
continuously at their net asset value next
determined after a purchase order is received
and becomes effective. A purchase
order becomes effective when the Fund, Smith
Barney, an Introducing Broker or an
Investment Dealer in the Selling Group
receives, or converts the purchase amount
into, Federal funds (i.e., monies of member
banks within the Federal Reserve
System held on deposit at a Federal Reserve
Bank). When orders for the purchase
of Portfolio shares are paid for in Federal
funds, or are placed by an investor
with sufficient Federal funds or cash balance
in the investor's brokerage
account with Smith Barney or the Introducing
Broker, the order becomes effective
on the day of receipt if received prior to
the close of regular trading on the
NYSE, on any day the Portfolio calculates its
net asset value. See "Valuation of
Shares." Purchase orders received after the
close of regular trading on the NYSE
on any business day are effective as of the
time the net asset value is next
determined. When orders for the purchase of
Portfolio shares are paid for other
than in Federal funds, Smith Barney, the
Introducing Broker or an Investment
Dealer in the Selling Group, acting on behalf
of the investor, will complete the
conversion into, or itself advance, Federal
funds, and the order will become
effective on the day following its receipt by
Smith Barney, the Introducing
Broker or an Investment Dealer in the Selling
Group. Shares purchased begin to
accrue income dividends on the next business
day following the day that the
purchase order becomes effective.
12
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Redemption of Shares
=============================================
===================================
Shareholders may redeem their shares
without charge on any day the Portfolio
calculates its net asset value. See
"Valuation of Shares." Redemption requests
received in proper form before the close of
regular trading, are priced at the
net asset value as next determined on that
day. Redemption requests received
after the close of regular trading, are
priced at the net asset value as next
determined.
The Portfolio normally transmits
redemption proceeds for credit to the
shareholder's account at Smith Barney or the
Introducing Broker at no charge on
the business day following receipt of a
redemption request but, in any event,
payment will be made no later than the third
business day after a redemption is
made. Generally, if the redemption proceeds
are remitted to a Smith Barney
brokerage account, these funds will not be
invested for the shareholder's
benefit without specific instruction and
Smith Barney will benefit from the use
of temporarily uninvested funds. A
shareholder who pays for Portfolio shares by
personal check will be credited with the
proceeds of a redemption of those
shares only after the purchase check has been
collected, which may take up to
ten days or more. A shareholder who
anticipates the need for more immediate
access to his or her investment should
purchase shares with Federal funds, by
bank wire or with a certified or cashier's
check.
Shareholders who purchase securities
through Smith Barney, an Introducing
Broker or an Investment Dealer in the Selling
Group may take advantage of
special redemption procedures under which
Class A shares of the Portfolio will
be redeemed automatically to the extent
necessary to satisfy debit balances
arising in the shareholder's account with
Smith Barney, the Introducing Broker
or an Investment Dealer in the Selling Group.
One example of how an automatic
redemption may occur involves the purchase of
securities. If a shareholder
purchases securities but does not pay for
them by settlement date, the number of
Portfolio shares necessary to cover the debit
will be redeemed automatically as
of the settlement date, which usually occurs
three business days after the trade
date. Class A shares that are subject to a
CDSC (see "Redemption of Shares --
Contingent Deferred Sales Charge") are not
eligible for such automatic
redemption and will only be redeemed upon
specific request. If the shareholder
does not request redemption of such shares,
the shareholder's account with Smith
Barney, the Introducing Broker or an
Investment Dealer in the Selling Group may
be margined to satisfy debit balances if
sufficient Portfolio shares that are
not subject to any applicable CDSC are
unavailable. No fee is currently charged
with respect to these automatic transactions.
Shareholders not wishing to
participate in these arrangements should
notify a Smith Barney Financial
Consultant.
Redemption requests must be made through
Smith Barney, an Introducing Broker
13
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
or an Investment Dealer in the Selling Group.
A shareholder desiring to redeem
shares represented by certificates also must
present the certificates to Smith
Barney, the Introducing Broker or an
Investment Dealer in the Selling Group
endorsed for transfer (or accompanied by an
endorsed stock power), signed
exactly as the shares are registered.
Redemption requests involving shares
represented by certificates will not be
deemed received until the certificates
are received by TSSG in proper form.
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
CONTINGENT DEFERRED SALES CHARGE
Class A shares of the Portfolio acquired
as part of an exchange privilege
transaction, which were originally acquired
in one of the other Smith Barney
Mutual Funds at net asset value subject to a
CDSC, continue to be subject to any
applicable CDSC of the original fund.
Therefore, such Class A shares that are
redeemed within 12 months of the date of
purchase of the original fund may be
subject to a CDSC of 1.00%. The amount of any
CDSC will be paid to and retained
by Smith Barney. The CDSC will be assessed
based on an amount equal to the net
asset value at the time of redemption.
Accordingly, no CDSC will be imposed on
increases in net asset value above the
initial purchase price in the original
fund. In addition, no charge will be assessed
on shares derived from
reinvestment of dividends or capital gain
distributions.
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestments of
dividends and capital gain
distributions and finally of other shares
held by the shareholder for the
longest period of time. The length of time
that Class A shares have been held
will be calculated from the date the shares
were initially acquired in one of
the other Smith Barney Mutual Funds and such
shares being redeemed will be
14
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
considered to represent, as applicable,
capital appreciation or dividend and
capital gain distribution reinvestments in
such other funds. For Federal income
tax purposes, the amount of the CDSC will
reduce the gain or increase the loss,
as the case may be, on the amount realized on
redemption.
The CDSC on Class A shares will be waived
on (a) exchanges (see "Exchange
Privilege"); (b) redemptions of shares within
twelve months following the death
or disability of the shareholder; (c)
involuntary redemptions; and (d)
redemptions of shares in connection with a
combination of the Portfolio with any
investment company by merger, acquisition of
assets or otherwise. In addition, a
shareholder who has redeemed shares from
other funds of the Smith Barney Mutual
Funds may, under certain circumstances,
reinvest all or part of the redemption
proceeds within 60 days and receive pro rata
credit for any CDSC imposed on the
prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in the
case of shareholders who are also Smith
Barney clients or by TSSG in the case of
all other shareholders) of the shareholder's
status or holdings, as the case may
be.
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A shares are
subject to minimum investment
requirements and all shares are subject to
the other requirements of the fund
into which exchanges are made and a sales
charge differential may apply.
Fund Name
- ---------------------------------------------
- -----------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Trust
Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
15
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic Income
Fund
Smith Barney Funds, Inc. -- Income Return
Account Portfolio
Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Inc.
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Limited Maturity Municipals
Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals
Fund
Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Florida
Limited Term Portfolio Smith Barney Muni
Funds -- Georgia Portfolio Smith Barney
Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National
Portfolio Smith Barney Muni Funds -- New
York Portfolio Smith Barney Muni Funds --
Ohio Portfolio Smith Barney Muni
Funds -- Pennsylvania Portfolio Smith
Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund Smith
Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and Minerals
Fund Inc.
16
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. -- Global
Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific
Portfolio
Money Market Funds
Smith Barney Money Funds, Inc. -- Cash
Portfolio
Smith Barney Money Funds, Inc. --
Government Portfolio
* Smith Barney Money Funds, Inc. --
Retirement Portfolio
Smith Barney Muni Funds -- New York Money
Market Portfolio
Smith Barney Municipal Money Market Fund,
Inc.
- ----------
*Available for exchange with Class A shares
of the Portfolio.
Class A Exchanges. Class A shares of the
Portfolio will be subject to the
appropriate "sales charge differential" upon
the exchange of such shares for
Class A shares of another fund of the Smith
Barney Mutual Funds sold with a
sales charge. The "sales charge differential"
is limited to a percentage rate no
greater than the excess of the sales charge
rate applicable to purchases of
shares of the mutual fund being acquired in
the exchange over the sales charge
rate(s) actually paid on the mutual fund
shares relinquished in the exchange and
on any predecessor of those shares. For
purposes of the exchange privilege,
shares obtained through automatic
reinvestment of dividends and capital gains
distributions are treated as having paid the
same sales charges applicable to
the shares on which the dividends or
distributions were paid; however, if no
sales charge was imposed upon the initial
purchase of the shares, any shares
obtained through automatic reinvestment will
be subject to a sales charge
differential upon exchange. Class A shares
held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of
the Smith Barney Mutual Funds will not be
subject to a sales change
differential.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privilege. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment adviser may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
adviser will notify Smith Barney
that the Fund may, at its discretion, decide
to limit additional purchases
17
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
and/or exchanges by the shareholder. Upon
such a determination, the Fund will
provide notice in writing or by telephone to
the shareholder at least 15 days
prior to suspending the exchange privilege
and during the 15 day period the
shareholder will be required to (a) redeem
his or her shares in the Portfolio or
(b) remain invested in the Portfolio or
exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily
available, which position the shareholder
would be expected to maintain for a
significant period of time. All relevant
factors will be considered in determining
what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net
asset value next determined, plus any
applicable sales charge differential.
Redemption procedures discussed above are
also applicable for exchanging shares, and
exchanges will be made upon receipt
of all supporting documents in proper form.
If the account registration of the
shares of the fund being acquired is
identical to the registration of the shares
of the fund exchanged, no signature guarantee
is required. A capital gain or
loss for tax purposes will be realized upon
the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
=============================================
===================================
Minimum Account Size
=============================================
===================================
The Fund reserves the right to
involuntarily liquidate any shareholder's
account if the aggregate net asset value of
the shares held in the account is
less than $500. (If a shareholder has more
than one account in the Portfolio,
each account must satisfy the minimum account
size.) Before the Fund exercises
such right, shareholders will receive written
notice and will be permitted 60
days to bring the account up to the minimum
to avoid involuntary liquidation.
=============================================
===================================
Yield Information
=============================================
===================================
From time to time the Portfolio may
advertise its yield, effective yield and
tax equivalent yield. These figures are
computed separately for Class A and
Class Y shares of the Portfolio. These yield
figures will be based on historical
earnings and are not intended to indicate
future performance. The yield of the
Portfolio refers to the net investment income
generated by an investment in the
Portfolio over a specific seven-day period
(which will be stated in the
advertisement). This net investment income is
then annualized. The effective
18
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Yield Information (continued)
=============================================
===================================
yield is calculated similarly but, when
annualized, the income earned by an
investment in the Portfolio is assumed to be
reinvested. The effective yield
will be slightly higher than the yield
because of the compounding effect of the
assumed reinvestment. The tax equivalent
yield also is calculated similarly to
the yield, except that a stated income tax
rate is used to demonstrate the
taxable yield necessary to produce an after-
tax yield equivalent to the
tax-exempt yield of the Portfolio.
=============================================
===================================
Management of the Fund
=============================================
===================================
Trustees
Overall responsibility for management and
supervision of the Fund rests with
the Fund's Trustees. The Trustees approve all
significant agreements between the
Fund and the companies that furnish services
to the Fund and the Portfolio,
including agreements with the Fund's
distributor, investment manager, custodian
and transfer agent. The day-to-day operations
of the Fund are delegated to the
Fund's investment manager. The Statement of
Additional Information contains
background information regarding each Trustee
and executive officer of the Fund.
Manager
Smith Barney Mutual Funds Management Inc.
("SBMFM" or "Manager") manages the
day to day operations of the Portfolio
pursuant to a Management Agreement
entered into on behalf of the Portfolio.
SBMFM is a subsidiary of Smith Barney
Holdings Inc., the parent company of Smith
Barney (the "Distributor"). Smith
Barney Holdings Inc. is a wholly-owned
subsidiary of Travelers, which is a
financial services holding company engaged,
through its subsidiaries,
principally in four business segments:
Investment Services, Consumer Finance
Services, Life Insurance Services and
Property & Casualty Insurance Services.
SBMFM, Smith Barney Holdings Inc. and Smith
Barney are each located at 388
Greenwich Street, New York, New York 10013.
SBMFM renders investment advice to
investment companies that had aggregate
assets under management as of June 30,
1995 of approximately $54 billion.
SBMFM provides the Fund with investment
management services, executive and
other personnel, pays the remuneration of
Fund officers, provides the Fund with
office space and equipment, furnishes the
Fund with bookkeeping, accounting,
administrative services and services relating
to research, statistical work and
supervision of the Portfolio. For the
services provided, the Portfolio pays
SBMFM a daily fee calculated at the annual
rate of 0.50% of the Portfolio's net
assets. For the last fiscal year, the actual
management fee was 0.47% of the
19
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Management of the Fund (continued)
=============================================
===================================
Portfolio's net assets due to a fee waiver
and the total expenses were 0.61%.
SBMFM has agreed to waive its fee with
respect to a Class to the extent that it
is necessary if in any fiscal year the
aggregate expenses of such Class
exclusive of 12b-1 fees, taxes, brokerage,
interest and extraordinary expenses,
such as litigation costs, exceed 0.70% of its
average daily net assets for that
fiscal year. The 0.70% expense limitation
shall be in effect until it is
terminated by notice to shareholders and by
supplement to the then current
prospectus.
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
an annual service fee with respect to Class A
shares of the Portfolio at the
annual rate of 0.10% of the average daily net
assets of Class A shares. The fee
is used by Smith Barney to pay its Financial
Consultants for servicing Class A
shareholder accounts for as long as a
shareholder remains a holder of the Class.
The service fee is also spent by Smith Barney
on the following types of
expenses: (1) the pro rata share of other
employment costs of such financial
consultants (e.g., FICA, employee benefits,
etc.); (2) employment expenses of
home office personnel primarily responsible
for providing service to Class A
shareholders and (3) the pro rata share of
branch office fixed expenses
(including branch overhead allocations).
Shareholder servicing expenses incurred
by Smith Barney but not reimbursed by Class A
in any year will not be a
continuing liability of the Class in
subsequent years.
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end non-diversified,
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
one of twenty separate Portfolios. The assets
of each Portfolio are segregated
and separately managed. Each share of a
Portfolio represents an equal
proportionate interest in the net assets of
that Portfolio with each other share
of the same Portfolio and is entitled to such
dividends and distributions out of
20
<PAGE>
Smith Barney Muni Funds -
California Money Market Portfolio
=============================================
===================================
Additional Information (continued)
=============================================
===================================
the net income of that Portfolio as are
declared in the discretion of the
Trustees. Shareholders are entitled to one
vote for each share held and will
vote by individual Portfolio except as
otherwise permitted by the 1940 Act. It
is the intention of the Fund not to hold
annual meetings of shareholders. The
Trustees may call meetings of shareholders
for action by shareholder vote as may
be required by the 1940 Act or the
Declaration of Trust, and shareholders are
entitled to call a meeting upon a vote of 10%
of the Fund's outstanding shares
for purposes of voting on removal of a
Trustee or Trustees. The Fund will assist
shareholders in calling such a meeting as
required by the 1940 Act. Shares do
not have cumulative voting rights or
preemptive rights and have only such
conversion or exchange rights as the Trustees
may grant in their discretion.
When issued for payment as described in this
Prospectus, the Fund's shares will
be fully paid and transferrable (subject to
the Portfolio's minimum account
size). Shares are redeemable as set forth
under "Redemption of Shares" and are
subject to involuntary liquidation as set
forth under "Minimum Account Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, PA 19103, serves as custodian
of the Portfolio's investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves as the
Fund's transfer agent.
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the
Portfolio at the end of the period covered.
In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to
consolidate the mailing of its
semi-annual and annual reports by household.
This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report. In
addition, the Fund also plans to
consolidate the mailing of its Prospectus so
that a shareholder having multiple
accounts will receive a single Prospectus
annually. Shareholders who do not want
this consolidation to apply to their account
should contact their Smith Barney
Financial Consultants or the Fund's transfer
agent.
21
<PAGE>
SMITH BARNEY
- ------------
A Member of Travelers Group [LOGO]
Smith Barney
Muni Funds
California
Money Market
Portfolio
388 Greenwich Street
New York, New York 10013
FD 0773 7/95
PROSPECTUS
SMITH BARNEY
MUNI FUNDS
New York
Money
Market
Portfolio
JULY 31, 1995
Prospectus begins on page one
[LOGO} Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Prospectus
JULY 31, 1995
=============================================
===================================
388 Greenwich Street
New York, New York 10013
(212) 723-9218
The New York Money Market Portfolio (the
"Portfolio") is one of thirteen
investment portfolios that currently comprise
Smith Barney Muni Funds (the
"Fund"). The Portfolio seeks to provide its
shareholders with income exempt from
both Federal income taxes (other than the
alternative minimum tax) and New York
State and City personal income taxes from a
portfolio of high quality short-term
New York municipal obligations selected for
liquidity and stability of
principal.
Shares of the Portfolio are not insured
or guaranteed by the U.S.
Government. There is no assurance that the
Portfolio will be able to maintain a
stable net asset value of $1.00 per share.
This Prospectus sets forth concisely
certain information about the Fund and
the Portfolio, including service fees and
expenses, that prospective investors
will find helpful in making an investment
decision. Investors are encouraged to
read this Prospectus carefully and retain it
for future reference.
Additional information about the
Portfolio is contained in a Statement of
Additional Information dated JULY 31, 1995 ,
as amended or supplemented from
time to time, that is available upon request
and without charge by calling or
writing the Fund at the telephone number or
address set forth above or by
contacting a Smith Barney Financial
Consultant. The Statement of Additional
Information has been filed with the
Securities and Exchange Commission (the
"SEC") and is incorporated by reference into
this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Table of Contents
=============================================
===================================
Fee Table
3
- ---------------------------------------------
- -----------------------------------
Financial Highlights
4
- ---------------------------------------------
- -----------------------------------
Investment Objective and Management Policies
5
- ---------------------------------------------
- -----------------------------------
Valuation of Shares
11
- ---------------------------------------------
- -----------------------------------
Dividends, Automatic Reinvestment and Taxes
11
- ---------------------------------------------
- -----------------------------------
Purchase of Shares
12
- ---------------------------------------------
- -----------------------------------
Redemption of Shares
13
- ---------------------------------------------
- -----------------------------------
Exchange Privilege
16
- ---------------------------------------------
- -----------------------------------
Minimum Account Size
19
- ---------------------------------------------
- -----------------------------------
Yield Information
19
- ---------------------------------------------
- -----------------------------------
Management of the Fund
20
- ---------------------------------------------
- -----------------------------------
Distributor
20
- ---------------------------------------------
- -----------------------------------
Additional Information
21
- ---------------------------------------------
- -----------------------------------
=============================================
==================================
No person has been authorized to give
any information or to make any
representations in connection with this
offering other than those contained in
this Prospectus and, if given or made, such
other information and
representations must not be relied upon as
having been authorized by the Fund or
the Distributor. This Prospectus does not
constitute an offer by the Fund or the
Distributor to sell or a solicitation of an
offer to buy any of the securities
offered hereby in any jurisdiction to any
person to whom it is unlawful to make
such offer or solicitation in such
jurisdiction.
=============================================
===================================
2
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Fee Table
=============================================
===================================
The following expense table lists the
costs and expenses an investor will
incur either directly or indirectly as a
shareholder of the Portfolio based,
unless otherwise noted, on its operating
expenses for its most recent fiscal
year:
Class A Class Y
Shareholder Tansaction Expenses
Sales Charge Imposed on Purchases
None None
Contingent Deferred Sales Charge
None* None
- ---------------------------------------------
- -----------------------------------
Annual Portfolio Operating Expenses**
(as a percentage of average net assets)
Management fees
0.50% 0.50%
12b-1 fees
0.10% None
Other expenses
0.08% 0.08%
- ---------------------------------------------
- -----------------------------------
Total Portfolio Operating Expenses
0.68% 0.58%
=============================================
===================================
* Class A shares acquired as part of an
exchange privilege transaction, which
were originally acquired in one of the
other Smith Barney Mutual Funds at
net asset value subject to a contingent
deferred sales charge ("CDSC"),
remain subject to the original fund's
CDSC while held in the Portfolio.
** The expenses of Class Y are estimated
based on expenses incurred by Class A
shares because there were no Class Y
shares outstanding during the fiscal
year ended March 31, 1995. "Other
expenses" in the above table include fees
for shareholder services, custodial fees,
legal and accounting fees,
printing costs and registration fees.
EXAMPLE
The following example is intended to
assist an investor in understanding
the various costs that an investor in the
Portfolio will bear directly or
indirectly. The example assumes payment by
the Portfolio of operating expenses
at the levels set forth in the table above.
See "Purchase of Shares,"
"Redemption of Shares," "Management of the
Fund" and "Distributor."
=============================================
===================================
An investor would pay the following
1 Year 3 Years 5 Years 10 Years
expenses on a $1,000 investment, assuming
(1) 5.00% annual return and (2) redemption
at the end of each time period:
Class A
$7 $22 $38 $85
Class Y
$6 $19 $32 $73
The example also provides a means for
the investor to compare expense
levels of funds with different fee structures
over varying investment periods.
To facilitate such comparison, all funds are
required to utilize a 5.00% annual
return assumption. However, the Portfolio's
actual return will vary and may be
greater or less than 5.00%. This example
should not be considered a
representation of past or future expenses.
Actual expenses may be greater or
less than those shown.
3
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Financial Highlights
=============================================
===================================
The following schedule has been audited
in conjunction with the annual
audits of the financial statements of Smith
Barney Muni Funds by KPMG Peat
Marwick LLP, independent auditors. The 1995
financial statements and the
independent auditors' report thereon appear
in the March 31, 1995 Annual Report
to Shareholders.
For a Class A share outstanding throughout
each period:
1995 1994 1993(a)
=============================================
===================================
Net Asset Value, Beginning of Period
$ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------
- -----------------------------------
Income from Investment Operations:
Net investment income (1)
0.025 0.018 0.010
- ---------------------------------------------
- -----------------------------------
Total Income from Investment Operations
0.025 0.018 0.010
- ---------------------------------------------
- -----------------------------------
Less Distributions:
Dividends from net investment income
(0.025) (0.018) (0.010)
- ---------------------------------------------
- -----------------------------------
Total Distributions
(0.025) (0.018) (0.010)
- ---------------------------------------------
- -----------------------------------
Net Asset Value, End of Period
$ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------
- -----------------------------------
Total Return
2.49% 1.77% 1.01%++
- ---------------------------------------------
- -----------------------------------
Net Assets, End of Period (000s)
$708,391 $82,459 $59,510
- ---------------------------------------------
- -----------------------------------
Ratios to Average Net Assets:
Expenses (1)
0.68% 0.60% 0.56%+
Net Investment Income
2.94% 1.73% 1.84%+
=============================================
===================================
(a) From September 17, 1992 (commencement of
operations) to March 31, 1993.
(1) The manager has waived all or part of its
fees for each of the years in the
two-year period ended March 31, 1994. If
such fees were not waived, the per
share decrease of net investment income
would have been $0.001 and $0.001
for 1994 and 1993, respectively, and the
ratio of expenses to average net
assets would have been 0.67% and 0.69%
for 1994 and 1993, respectively.
+ Annualized.
++ Not annualized, as the result may not be
representative of
the total return for the year. As of
March 31, 1995, no Class Y Shares had
been sold and, accordingly, no comparable
financial information is available
at this time for that Class.
4
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
=============================================
===================================
The New York Money Market Portfolio
seeks to provide income exempt from
both Federal income taxes and New York State
and City personal income taxes from
a portfolio of high quality short-term
municipal obligations selected for
liquidity and stability of principal. The
Portfolio will seek to be fully
invested in obligations that are issued by
the State of New York and its
political subdivisions, agencies and
instrumentalities, the interest from which,
in the opinion of counsel for the various
issuers, is exempt from New York State
and City as well as Federal income taxes.
(For certain shareholders, a portion
of the Portfolio's income may be subject to
the alternative minimum tax.)
Opinions relating to the validity of
municipal obligations and to the
exemption of interest thereon from Federal
income taxes and from New York State
and City personal income taxes are rendered
by bond counsel to the respective
issuers at the time of issuance. Neither the
Portfolio nor its investment
adviser will review the proceedings relating
to the issuance of municipal
obligations or the basis for such opinions.
All of the Portfolio's investments will
be in securities that at the time
of investment have or are deemed by the
Manager to have remaining maturities of
13 months or less and the dollar-weighted
average maturity of the Portfolio will
be 90 days or less. The Portfolio will seek
to maintain a constant net asset
value of $1.00 per share, although no
assurance can be given that this goal will
be achieved. Except for temporary defensive
purposes, it is a fundamental policy
that at least 80% of the Portfolio's assets
will be invested in securities that
produce income that is exempt from Federal
income taxes (other than the
alternative minimum tax) and from New York
State and City personal income taxes
in the opinion of bond counsel for the
various issuers.
The Portfolio's investments will be
limited to obligations that the Fund's
Trustees delegates present minimal credit
risks and that (i) are secured by the
full faith and credit of the United States or
(ii) are "Eligible Securities," as
defined by the Investment Company Act of 1940
(the "Act"), at the time of
acquisition by the Portfolio. The term
"Eligible Securities" includes securities
rated by the "Requisite NRSROs" in one of the
two highest short-term rating
categories, securities of issuers that have
received such ratings with respect
to other short-term debt securities and
comparable unrated securities.
"Requisite NRSROs" means any nationally
recognized statistical rating
organizations ("NRSROs") that have issued
ratings with respect to a security or
class of debt obligations of an issuer.
Currently, there are six NRSROs:Standard
& Poor's Corporation, Moody's Investors
Service, Inc., Fitch Investors Services,
Inc., Duff and Phelps Inc., IBCA Limited and
its affiliate, IBCA, Inc. and
Thomson BankWatch. The Portfolio may also
invest in unrated securities if they
5
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
are of comparable quality as determined by
the Manager in accordance with
criteria established by the Fund's Trustees.
Municipal obligations, which are issued
by states, municipalities and their
agencies, fall into two major categories -
bonds and notes. Among the types of
obligations in which the Portfolio invests
are "puts," such as floating or
variable rate instruments subject to demand
features ("demand instruments");
tax-exempt commercial paper; and notes such
as Tax Anticipation Notes, Revenue
Anticipation Notes, Tax and Revenue
Anticipation Notes and Bond Anticipation
Notes. Demand instruments usually have an
indicated maturity of more than 13
months but contain a demand feature (a "put")
that entitles the holder to
receive the principal amount of the
underlying security and may be exercised
either (a) at any time on no more than 30
days' notice; or (b) at specified
intervals not exceeding one year and upon no
more than 30 days' notice. Demand
instruments are generally supported by
letters of credit which are issued by
both domestic and foreign banks. A variable
rate instrument provides for
adjustment of its interest rate on set dates
and upon such adjustment can
reasonably be expected to have a market value
that approximates its par value; a
floating rate instrument provides for
adjustment of its interest rate whenever a
specific interest rate (e.g., the prime rate)
changes and at any time can
reasonably be expected to have a market value
that approximates its par value.
The Portfolio may invest up to 10% of
its assets in participation interests
in floating or variable rate municipal
obligations (such as private activity
bonds) owned by banks. Participation
interests carry a demand feature permitting
the Portfolio to tender them back to the
bank. Each participation is backed by
an irrevocable letter of credit or guarantee
of a bank that the investment
manager, acting under the supervision of the
Trustees, has determined meets the
prescribed quality standards for the
Portfolio.
The Portfolio may invest without limit
in private activity bonds. Interest
income on certain types of private activity
bonds issued after August 7, 1986,
to finance non-governmental activities is a
specific tax preference item for
purposes of the Federal individual and
corporate alternative minimum taxes.
Individual and corporate shareholders may be
subject to a Federal alternative
minimum tax to the extent the Portfolio's
dividends are derived from interest on
these bonds. These private activity bonds are
included in the term "municipal
obligations" for purposes of determining
compliance with the 80% test described
above. Dividends derived from interest income
on all municipal obligations are a
component of the "current earnings"
adjustment item for purposes of the Federal
corporate alternative minimum tax.
6
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
The Portfolio may invest up to 10% of
the value of its assets in tender
option bonds. A tender option bond is a
municipal obligation (generally held
pursuant to a custodial arrangement) having a
relatively long maturity and
bearing interest at a fixed rate
substantially higher than prevailing short-
term
tax exempt rates, that has been coupled with
the agreement of a third party,
such as a bank, broker-dealer or other
financial institution, pursuant to which
such institution grants the security holders
the option, at periodic intervals,
to tender their securities to the institution
and receive the face value
thereof. As consideration for providing the
option, the financial institution
receives periodic fees equal to the
difference between the municipal
obligation's fixed coupon rate and the rate,
as determined by a remarketing or
similar agent at or near the commencement of
such period, that would cause the
securities, coupled with the tender option,
to trade at par on the date of such
determination. Thus, after payment of this
fee, the security holder effectively
holds a demand obligation that bears interest
at the prevailing short-term
tax-exempt rate. The investment manager, on
behalf of the Portfolio, will
consider on an ongoing basis the
creditworthiness of the issuers of the
underlying municipal obligation, of any
custodian and the third-party provider
of the tender option. In certain instances
and for certain tender option bonds,
the option may be terminable in the event of
a default in payment of principal
or interest on the underlying municipal
obligations and for other reasons. The
Portfolio will not invest more than 10% of
the value of its net assets in
illiquid securities, which would include
tender option bonds for which the
required notice to exercise the tender
feature is more than seven days if there
is no secondary market available for these
obligations.
The Portfolio will not invest more than
10% of the value of its total
assets in floating or variable rate demand
instruments as to which the Portfolio
cannot exercise the demand feature on not
more than seven days' notice if there
is no secondary market available for these
instruments, in other securities that
are not readily marketable and in any
repurchase transactions that do not mature
within seven days.
RISK AND PORTFOLIO MANAGEMENT
There can be no assurance that the
Portfolio will achieve its investment
objective. The ability of the Portfolio to
achieve its investment objective is
dependent on a number of factors, including
the skills of the Manager in
purchasing municipal obligations whose
issuers have the continuing ability to
meet their obligations for the payment of
interest and principal when due. The
ability to achieve a high level of income is
dependent on the yields of the
securities in the portfolio. Yields on
municipal obligations are the product of
a variety of factors, including the general
conditions of the money market, of
the municipal bond and municipal note
markets, the size of a particular
7
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
offering, the maturity of the obligation and
the rating of the issue. Municipal
obligations with longer maturities tend to
produce higher yields and are
generally subject to potentially greater
price fluctuations than obligations
with shorter maturities.
The Portfolio's concentration in New
York obligations involves certain
additional risks that should be considered
carefully by investors. In certain
prior fiscal years, the State has failed to
enact a budget prior to the
beginning of the State's fiscal year. A delay
in the adoption of the State's
budget beyond the statutory April 1 deadline
and the resultant delay in the
State's Spring borrowing has in certain prior
years delayed the projected
receipt by the City of State aid, and there
can be no assurance that State
budgets in the future fiscal years will be
adopted by the April 1 statutory
deadline.
The State has noted that its forecasts
of tax receipts have been subject to
variance in recent fiscal years. As a result
of these uncertainties and other
factors, actual results could differ
materially and adversely from the State's
current projections and the State's
projections could be materially and
adversely changed from time to time. There
can be no assurance that the State
will not face substantial potential budget
gaps in future years resulting from a
significant disparity between tax revenues
projected from a lower recurring
receipts base and the spending required to
maintain State programs at current
levels. To address any potential budgetary
imbalance, the State may need to take
significant actions to align recurring
receipts and disbursements in future
fiscal years. Because the State, the City,
the State's other political
subdivisions and the State Authorities, all
of which borrow money, are or are
perceived in the marketplace to be
financially interdependent, any financial
difficulty experienced by one can adversely
affect the market value and
marketability of obligations issued by
others. The State's credit is presently
involved with the indebtedness of the
Authorities because of the State's
guarantee or other support. This indebtedness
is a substantial amount. The
Authorities are likely to require further
financial assistance from the State.
After nearly five years of decline, the City
appears to be on the verge of a
broad-based recovery which will lift many
sectors of the local economy. Most of
the nascent local recovery can be attributed
to the continued improvement in the
U.S. economy, but a great deal of the
strength expected in the City economy will
be due to local factors, such as the heavy
concentration of the securities and
banking industries in the City.
During the most recent economic
downturn, the City has faced recurring
extraordinary budget gaps that have been
addressed by undertaking one-time,
one-shot budgetary initiatives to close then
projected budget gaps in order to
achieve a balanced budget as required by the
laws of the State. See the
8
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
Statement of Additional Information for a
more detailed description of these and
other risks relating to the Portfolio's
investments in New York obligations.
Investors purchasing municipal
obligations of their state of residence, or
a fund comprised of such obligations, should
recognize that the benefits of the
exemption from state and local taxes, in
addition to the exemption from Federal
taxes, necessarily limits the fund's ability
to diversify geographically.
When-Issued Purchase Commitments. New
issues of municipal obligations are
often offered on a "when-issued" basis, i.e.,
delivery and payment normally take
place 15 to 45 days after the purchase date.
The payment obligation and the
interest rate to be received on the
securities are fixed at the time the buyer
enters into the commitment, although no
interest accrues with respect to a
when-issued security prior to its stated
delivery date. The Portfolio will only
make commitments to purchase such securities
with the intention of actually
acquiring the securities, but the Portfolio
may sell these securities before the
settlement date if it is deemed advisable as
a matter of investment strategy. A
segregated account of the Portfolio
consisting of cash or liquid debt securities
with a market value at least equal to the
amount of the Portfolio's
"when-issued" commitments will be maintained
with PNC Bank (the "Custodian") and
monitored on a daily basis so that the market
value of the account will equal or
exceed the amount of such commitments by the
Portfolio.
Securities purchased on a "when-issued"
basis are subject to changes in
market value prior to delivery based not only
upon the public's perception of
the creditworthiness of the issuer but also
changes in the level of interest
rates, i.e., appreciating when interest rates
decline and depreciating when
interest rates rise. Therefore, if in order
to achieve higher interest income
the Portfolio remains substantially fully
invested at the same time that it has
purchased securities on a "when-issued"
basis, there will be a greater
possibility that the market value of the
Portfolio's assets will vary from $1.00
per share. (See "Determination of Net Asset
Value.") And there will be a greater
potential for the realization of capital
gains, which are not exempt from
Federal or state income taxes.
Stand-By Commitments. The Portfolio may
acquire "stand-by commitments" with
respect to municipal obligations held in its
portfolio. Under a stand-by
commitment a dealer agrees to purchase, at
the Portfolio's option, specified
municipal obligations at a specified price.
The Portfolio intends to enter into
stand-by commitments only with dealers, banks
and broker-dealers which, in the
opinion of the investment manager, present
minimal credit risks. In evaluating
the creditworthiness of the issuer of a stand-
by commitment, the investment
manager will review periodically the issuer's
assets, liabilities, contingent
claims and other relevant financial
information. The Portfolio will acquire
9
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Investment Objective and Management Policies
(continued)
=============================================
===================================
stand-by commitments solely to facilitate
portfolio liquidity and does not
intend to exercise its rights thereunder for
trading purposes.
Other Factors to be Considered. The
Portfolio anticipates being as fully
invested as practicable in New York municipal
obligations and generally expects
to invest the proceeds received from the sale
of shares in New York municipal
obligations as soon as reasonably possible,
which is generally within one day.
At no time will more than 20% of the
Portfolio's net assets be invested in
taxable investments except when the Portfolio
has adopted a temporary defensive
investment policy.
The Portfolio may engage in short-term
trading to attempt to take advantage
of short-term market variations or may
dispose of a portfolio security prior to
its maturity if it believes such disposition
advisable or it needs to generate
cash to satisfy redemptions. In such cases,
the Portfolio may realize a gain or
loss.
The Fund is registered as a "non-
diversified" company under the "1940 Act"
in order for the Portfolio to have the
ability to invest more than 5% of its
assets in the securities of any issuer. The
Portfolio intends to comply with
Subchapter M of the Internal Revenue Code
that limits the aggregate value of all
holdings (except U.S. Government and cash
items, as defined in the Code) that
exceed 5% of the Portfolio's total assets to
an aggregate amount of 50% of such
assets. Also, holdings of a single issuer
(with the same exceptions) may not
exceed 25% of the Portfolio's total assets.
These limits are measured at the end
of each quarter. Under the Subchapter M
limits, "non- diversification" allows up
to 50% of the Portfolio's total assets to be
invested in as few as two single
issuers. In the event of decline of
creditworthiness or default upon the
obligations of one or more such issuers
exceeding 5%, an investment in the
Portfolio will entail greater risk than in a
portfolio having a policy of
"diversification" because a high percentage
of the Portfolio's assets may be
invested in municipal obligations of one or
two issuers. Furthermore, a high
percentage of investments among few issuers
may result in a greater degree of
fluctuation in the market value of the assets
of the Portfolio, and consequently
a greater degree of fluctuation of the
Portfolio's net asset value, because the
Portfolio will be more susceptible to
economic, political, or regulatory
developments affecting these securities than
would be the case with a portfolio
composed of varied obligations of more
issuers.
From time to time, proposals have been
introduced before Congress for the
purpose of restricting or eliminating the
Federal income tax exemption for
interest on municipal obligations and similar
proposals may be introduced in the
future. If one of these proposals were
enacted, the availability of tax exempt
obligations for investment by the Portfolio
and the value of the Portfolio
securities would be affected. The Trustees
would then reevaluate the Portfolio's
investment objective and policies.
10
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Valuation of Shares
=============================================
===================================
The Portfolio's net asset value per
share is determined as of the close of
regular trading on each day that the New York
Stock Exchange ("NYSE") is open.
The net asset value per share is computed by
dividing the Portfolio's net assets
attributable to each Class (i.e., the value
of its assets less liabilities) by
the total number of its shares of the Class
outstanding. The Portfolio may also
determine net asset value per share on days
when the NYSE is not open, but when
the settlement of securities may otherwise
occur. The Portfolio employs the
"amortized cost method" of valuing portfolio
securities and intends to use its
best efforts to continue to maintain a
constant net asset value of $1.00 per
share.
=============================================
===================================
Dividends, Automatic Reinvestment and Taxes
=============================================
===================================
DIVIDENDS AND AUTOMATIC REINVESTMENT
The Portfolio declares dividends daily
from its net investment income on
each day the NYSE is open. Net investment
income consists of interest accrued
and discount earned and is less premium
amortized and expenses accrued (the
amount of discount or premium on portfolio
investments is fixed at the time of
purchase). Unless the shareholder has elected
to receive monthly distributions
of income, such dividends will automatically
be reinvested in Portfolio shares
of the same Class at net asset value. If a
shareholder redeems an account in
full between payment dates, all dividends
declared up to and including the date
of liquidation will be paid with the proceeds
from the redemption of shares. The
per share dividends on Class A shares of the
Portfolio may be lower than the per
share dividends on Class Y shares principally
as a result of the service fee
applicable to Class A shares.
TAXES
Federal Income Taxes. Under Subchapter M
of the Internal Revenue Code (the
"Code"), with which the Portfolio intends to
comply, no Federal income taxes
will ordinarily be payable by the Portfolio.
Distributions by the Portfolio of
interest income from tax exempt obligations
are not taxable to shareholders and
will not be includable in their gross income
for Federal income tax purposes
(see discussion of alternative minimum tax
above). Realized gains and losses are
reflected in the Portfolio's net assets and
are not included in net investment
income. Capital gain distributions, if any,
whether paid in cash or invested in
shares of the Portfolio, will be taxable to
shareholders.
New York State and City Taxes. New York
shareholders will not be subject to
New York State and City personal income tax
on Portfolio dividends to the extent
that such distributions qualify as exempt-
interest dividends under the Code and
11
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Dividends, Automatic Reinvestment and Taxes
(continued)
=============================================
===================================
represent interest income attributable to
Federally tax-exempt obligations of
the State of New York and its political
subdivisions (as well as certain other
Federally tax-exempt obligations the interest
on which is exempt from New York
State and City income tax, such as certain
obligations of U.S. Territories). To
the extent that distributions on the
Portfolio are derived from taxable income,
including long or short-term capital gains,
such distributions will not be
exempt from New York State or City personal
income tax. Dividends on the
Portfolio are not excluded in determining New
York State franchise or City
business taxes on corporations and financial
institutions.
Under the Code, interest on indebtedness
incurred or continued to purchase
or carry shares of the Portfolio will not be
deductible to the extent that the
Portfolio's distributions are exempt from
Federal income tax. In addition, any
loss realized upon the redemption of shares
held less than six months will be
disallowed to the extent of any exempt-
interest dividends received by the
shareholder during such period. However, this
holding period may be shortened by
the Treasury Department to a period of not
less than the greater of 31 days or
the period between regular dividend
distributions. Further, persons who may be
"substantial users" (or "related persons" of
substantial users) of facilities
financed by industrial development bonds
should consult their tax advisors
before purchasing Portfolio shares.
The foregoing is only a brief summary of
some of the important tax
considerations generally affecting the
Portfolio and its shareholders.
Additional tax information of relevance to
particular investors is contained in
the Statement of Additional Information.
Investors are urged to consult their
tax advisors with specific reference to their
own tax situation.
=============================================
===================================
Purchase of Shares
=============================================
===================================
Purchases of Portfolio shares must be
made through a brokerage account
maintained with Smith Barney Inc. ("Smith
Barney"), with a broker that clears
securities transactions through Smith Barney
on a fully disclosed basis (an
"Introducing Broker") or an Investment Dealer
in the Selling Group. No
maintenance fee will be charged by the
Portfolio in connection with a brokerage
account through which an investor purchases
or holds shares.
Investors in Class A may open an account
by making an initial investment of
at least $1,000 for each Portfolio account.
Investors in Class Y may open an
account by making an initial investment of at
least $5,000,000. Subsequent
investments of at least $50 may be made for
either Class. There are no minimum
investment requirements in Class A for
employees of Travelers Group Inc.
12
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Purchase of Shares (continued)
=============================================
===================================
("Travelers") and its subsidiaries, including
Smith Barney, and Trustees of the
Portfolio, and their spouses and children.
The Portfolio reserves the right to
waive or change minimums, to decline any
order to purchase its shares and to
suspend the offering of shares from time to
time. Share certificates are issued
only upon a shareholder's written request to
The Shareholder Services Group,
Inc. ("TSSG"), a subsidiary of First Data
Corporation.
The Portfolio's shares are sold
continuously at their net asset value next
determined after a purchase order is received
and becomes effective. A purchase
order becomes effective when the Fund, Smith
Barney, an Introducing Broker or an
Investment Dealer in the Selling Group
receives, or converts the purchase amount
into, Federal funds (i.e., monies of member
banks within the Federal Reserve
System held on deposit at a Federal Reserve
Bank). When orders for the purchase
of Portfolio shares are paid for in Federal
funds, or are placed by an investor
with sufficient Federal funds or cash balance
in the investor's brokerage
account with Smith Barney, the Introducing
Broker or an Investment Dealer in the
Selling Group, the order becomes effective on
the day of receipt if received
prior to the close of regular trading on the
NYSE, on any day the Portfolio
calculates its net asset value. See
"Valuation of Shares." Purchase orders
received after the close of regular trading
on the NYSE on any business day are
effective as of the time the net asset value
is next determined. When orders for
the purchase of Portfolio shares are paid for
other than in Federal funds, Smith
Barney, the Introducing Broker or an
Investment Dealer in the Selling Group,
acting on behalf of the investor, will
complete the conversion into, or itself
advance, Federal funds, and the order will
become effective on the day following
its receipt by Smith Barney or the
Introducing Broker or an Investment Dealer in
the Selling Group. Shares purchased begin to
accrue income dividends on the next
business day following the day that the
purchase order becomes effective.
=============================================
===================================
Redemption of Shares
=============================================
===================================
Shareholders may redeem their shares
without charge on any day the
Portfolio calculates its net asset value. See
"Valuation of Shares." Redemption
requests received in proper form before the
close of regular trading on the
NYSE, are priced at the net asset value as
next determined on that day.
Redemption requests received after the close
of regular trading on the NYSE, are
priced at the net asset value as next
determined.
The Portfolio normally transmits
redemption proceeds for credit to the
shareholder's account at Smith Barney or the
Introducing Broker at no charge on
13
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
the business day following receipt of a
redemption request but, in any event,
payment will be made no later than the third
business day after a redemption
request is made. Generally, if the redemption
proceeds are remitted to a Smith
Barney brokerage account, these funds will
not be invested for the shareholder's
benefit without specific instruction and
Smith Barney will benefit from the use
of temporarily uninvested funds. A
shareholder who pays for Portfolio shares by
personal check will be credited with the
proceeds of a redemption of those
shares only after the purchase check has been
collected, which may take up to
ten days or more. A shareholder who
anticipates the need for more immediate
access to his or her investment should
purchase shares with Federal funds, by
bank wire or with a certified or cashier's
check.
Shareholders who purchase securities
through Smith Barney, an Introducing
Broker or an Investment Dealer in the Selling
Group may take advantage of
special redemption procedures under which
Class A shares of the Portfolio will
be redeemed automatically to the extent
necessary to satisfy debit balances
arising in the shareholder's account with
Smith Barney, the Introducing Broker
or an Investment Dealer in the Selling Group.
One example of how an automatic
redemption may occur involves the purchase of
securities. If a shareholder
purchases securities but does not pay for
them by settlement date, the number of
Portfolio shares necessary to cover the debit
will be redeemed automatically as
of the settlement date, which usually occurs
three business days after the trade
date. Class A shares that are subject to a
CDSC(see "Redemption of Shares --
Contingent Deferred Sales Charge") are not
eligible for such automatic
redemption and will only be redeemed upon
specific request. If the shareholder
does not request redemption of such shares,
the shareholder's account with Smith
Barney, the Introducing Broker or an
Investment Dealer in the Selling Group may
be margined to satisfy debit balances if
sufficient Portfolio shares that are
not subject to any applicable CDSC are
unavailable. No fee is currently charged
with respect to these automatic transactions.
Shareholders not wishing to
participate in these arrangements should
notify a Smith Barney Financial
Consultant.
Redemption requests must be made through
Smith Barney, an Introducing
Broker or an Investment Dealer in the Selling
Group. A shareholder desiring to
redeem shares represented by certificates
also must present the certificates to
Smith Barney, the Introducing Broker or an
Investment Dealer in the Selling
Group endorsed for transfer (or accompanied
by an endorsed stock power), signed
exactly as the shares are registered.
Redemption requests involving shares
represented by certificates will not be
deemed received until the certificates
are received by TSSG in proper form.
14
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
A written redemption request must (a)
state the Class and number or dollar
amount of shares to be redeemed, (b) identify
the shareholder's account number
and (c) be signed by each registered owner
exactly as the shares are registered.
If the shares to be redeemed were issued in
certificate form, the certificates
must be endorsed for transfer (or be
accompanied by an endorsed stock power) and
must be submitted to TSSG together with the
redemption request. Any signature
appearing on a redemption request, share
certificate or stock power must be
guaranteed by an eligible guarantor
institution such as a domestic bank, savings
and loan institution, domestic credit union,
member bank of the Federal Reserve
System or member firm of a national
securities exchange. TSSG may require
additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A
redemption request will not be deemed
properly received until TSSG receives all
required documents in proper form.
CONTINGENT DEFERRED SALES CHARGE
Class A shares of the Portfolio acquired
as part of an exchange privilege
transaction, which were originally acquired
in one of the other Smith Barney
Mutual Funds at net asset value subject to a
CDSC, continue to be subject to any
applicable CDSC of the original fund.
Therefore, such Class A shares that are
redeemed within 12 months of the date of
purchase of the original fund may be
subject to a CDSC of 1.00%. The amount of any
CDSC will be paid to and retained
by Smith Barney. The CDSC will be assessed
based on an amount equal to the net
asset value at the time of redemption.
Accordingly, no CDSC will be imposed on
increases in net asset value above the
initial purchase price in the original
fund. In addition, no charge will be assessed
on shares derived from
reinvestment of dividends or capital gain
distributions.
In determining the applicability of any
CDSC, it will be assumed that a
redemption is made first of shares
representing capital appreciation, next of
shares representing the reinvestments of
dividends and capital gain
distributions and finally of other shares
held by the shareholder for the
longest period of time. The length of time
that Class A shares have been held
will be calculated from the date the shares
were initially acquired in one of
the other Smith Barney Mutual Funds and such
shares being redeemed will be
considered to represent, as applicable,
capital appreciation or dividend and
capital gain distribution reinvestments in
such other funds. For Federal income
tax purposes, the amount of the CDSC will
reduce the gain or increase the loss,
as the case may be, on the amount realized on
redemption.
The CDSC on Class A shares will be
waived on (a) exchanges (see "Exchange
Privilege"); (b) redemptions of shares within
twelve months following the death
15
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Redemption of Shares (continued)
=============================================
===================================
or disability of the shareholder; (c)
involuntary redemptions; and (d)
redemptions of shares in connection with a
combination of the Portfolio with any
investment company by merger, acquisition of
assets or otherwise. In addition, a
shareholder who has redeemed shares from
other funds of the Smith Barney Mutual
Funds may, under certain circumstances,
reinvest all or part of the redemption
proceeds within 60 days and receive pro rata
credit for any CDSC imposed on the
prior redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in
the case of shareholders who are also Smith
Barney clients or by TSSG in the
case of all other shareholders) of the
shareholder's status or holdings, as the
case may be.
=============================================
===================================
Exchange Privilege
=============================================
===================================
Except as otherwise noted below, shares
of each Class may be exchanged for
shares of the same Class in the following
funds of the Smith Barney Mutual
Funds, to the extent shares are offered for
sale in the shareholder's state of
residence. Exchanges of Class A shares are
subject to minimum investment
requirements and all shares are subject to
the other requirements of the fund
into which exchanges are made and a sales
charge differential may apply.
Fund Name
- ---------------------------------------------
- -----------------------------------
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth
Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and
Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
Smith Barney Adjustable Rate Government
Income Fund
16
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Smith Barney Diversified Strategic Income
Fund
Smith Barney Funds, Inc. -- Income Return
Account Portfolio
Smith Barney Funds, Inc. -- Short-Term
U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S.
Government Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund
Inc.
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Inc.
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity New
York Municipals Fund
Smith Barney Limited Maturity Municipals
Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals
Fund
Smith Barney Muni Funds -- Florida
Portfolio
Smith Barney Muni Funds -- Florida
Limited Term Portfolio
Smith Barney Muni Funds -- Georgia
Portfolio
Smith Barney Muni Funds -- Limited Term
Portfolio
Smith Barney Muni Funds -- National
Portfolio
Smith Barney Muni Funds -- New York
Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania
Portfolio
Smith Barney New Jersey Municipals Fund
Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Precious Metals and
Minerals Fund Inc.
Smith Barney World Funds, Inc. --
Emerging Markets Portfolio
Smith Barney World Funds, Inc. --
European Portfolio
Smith Barney World Funds, Inc. --
Global Government Bond Portfolio
Smith Barney World Funds, Inc. --
International Balanced Portfolio
Smith Barney World Funds, Inc. --
International Equity Portfolio
Smith Barney World Funds, Inc. --
Pacific Portfolio
Money Market Funds
Smith Barney Money Funds, Inc. -- Cash
Portfolio
Smith Barney Money Funds, Inc. --
Government Portfolio
17
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
* Smith Barney Money Funds, Inc. --
Retirement Portfolio
Smith Barney Municipal Money Market Fund,
Inc.
Smith Barney Muni Funds -- California
Money Market Portfolio
- ----------
*Available for exchange with Class A shares
of the Portfolio.
Class A Exchanges. Class A shares of the
Portfolio will be subject to the
appropriate "sales charge differential" upon
the exchange of such shares for
Class A shares of another fund of the Smith
Barney Mutual Funds sold with a
sales charge. The "sales charge differential"
is limited to a percentage rate no
greater than the excess of the sales charge
rate applicable to purchases of
shares of the mutual fund being acquired in
the exchange over the sales charge
rate(s) actually paid on the mutual fund
shares relinquished in the exchange and
on any predecessor of those shares. For
purposes of the exchange privilege,
shares obtained through automatic
reinvestment of dividends and capital gains
distributions are treated as having paid the
same sales charges applicable to
the shares on which the dividends or
distributions were paid; however, if no
sales charge was imposed upon the initial
purchase of the shares, any shares
obtained through automatic reinvestment will
be subject to a sales charge
differential upon exchange. Class A shares
held in the Portfolio prior to
November 7, 1994 that are subsequently
exchanged for shares of other funds of
the Smith Barney Mutual Funds will not be
subject to a sales charge
differential.
Class Y Exchanges. Class Y shareholders
of the Portfolio who wish to
exchange all or a portion of their Class Y
shares for Class Y shares in any of
the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the
Exchange Privileges. Although the
exchange privilege is an important benefit,
excessive exchange transactions can
be detrimental to the Portfolio's performance
and its shareholders. The
investment adviser may determine that a
pattern of frequent exchanges is
excessive and contrary to the best interests
of the Portfolio's other
shareholders. In this event, the investment
adviser will notify Smith Barney and
that the Fund may, at its discretion, decide
to limit additional purchases
and/or exchanges by the shareholder. Upon
such a determination, the Fund will
provide notice in writing or by telephone to
the shareholder at least 15 days
prior to suspending the exchange privilege
and during the 15 day period the
shareholder will be required to (a) redeem
his or her shares in the Portfolio or
(b) remain invested in the Portfolio or
exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily
available, which position the shareholder
would be expected to maintain for a
significant period of time. All relevant
factors will be considered in determining
what constitutes an abusive pattern of
exchanges.
18
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Exchange Privilege (continued)
=============================================
===================================
Exchanges will be processed at the net
asset value next determined, plus
any applicable sales charge differential.
Redemption procedures discussed above
are also applicable for exchanging shares,
and exchanges will be made upon
receipt of all supporting documents in proper
form. If the account registration
of the shares of the fund being acquired is
identical to the registration of the
shares of the fund exchanged, no signature
guarantee is required. A capital gain
or loss for tax purposes will be realized
upon the exchange, depending upon the
cost or other basis of shares redeemed.
Before exchanging shares, investors
should read the current prospectus describing
the shares to be acquired. The
Portfolio reserves the right to modify or
discontinue exchange privileges upon
60 days' prior notice to shareholders.
=============================================
===================================
Minimum Account Size
=============================================
===================================
The Fund reserves the right to
involuntarily liquidate any shareholder's
account if the aggregate net asset value of
the shares held in the account is
less than $500. (If a shareholder has more
than one account in this Portfolio,
each account must satisfy the minimum account
size.) Before the Fund exercises
such right, shareholders will receive written
notice and will be permitted 60
days to bring the account up to the minimum
to avoid involuntary liquidation.
=============================================
===================================
Yield Information
=============================================
===================================
From time to time the Portfolio may
advertise its yield, effective yield
and tax equivalent yield. These figures are
computed separately for Class A and
Class Y shares of the Portfolio. These yield
figures will be based on historical
earnings and are not intended to indicate
future performance. The yield of the
Portfolio refers to the net investment income
generated by an investment in the
Portfolio over a specific seven-day period
(which will be stated in the
advertisement). This net investment income is
then annualized. The effective
yield is calculated similarly but, when
annualized, the income earned by an
investment in the Portfolio is assumed to be
reinvested. The effective yield
will be slightly higher than the yield
because of the compounding effect of the
assumed reinvestment. The tax equivalent
yield also is calculated similarly to
the yield, except that a stated income tax
rate is used to demonstrate the
taxable yield necessary to produce an after-
tax yield equivalent to the
tax-exempt yield of the Portfolio.
19
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Management of the Fund
=============================================
===================================
TRUSTEES
Overall responsibility for management
and supervision of the Fund rests
with the Fund's Trustees. The Trustees
approve all significant agreements
between the Fund and the companies that
furnish services to the Fund and the
Portfolio, including agreements with the
Fund's distributor, investment manager,
custodian and transfer agent. The day-to-day
operations of the Fund are
delegated to the Fund's investment manager.
The Statement of Additional
Information contains background information
regarding each Trustee and executive
officer of the Fund.
MANAGER
Smith Barney Mutual Funds Management
Inc. ("SBMFM" or "Manager") manages
the day to day operations of the Portfolio
pursuant to a Management Agreement
entered into on behalf of the Portfolio.
SBMFM is a subsidiary of Smith Barney
Holdings Inc., the parent company of Smith
Barney (the "Distributor"). Smith
Barney Holdings Inc. is a wholly-owned
subsidiary of Travelers, which is a
financial services holding company engaged,
through its subsidiaries,
principally in four business segments:
Investment Services, Consumer Finance
Services, Life Insurance Services and
Property & Casualty Insurance Services.
SBMFM, Smith Barney Holdings Inc. and Smith
Barney are each located at 388
Greenwich Street, New York, New York 10013.
SBMFM renders investment advice to
investment companies that had aggregate
assets under management as of June 30,
1995 of approximately $54 billion.
SBMFM provides the Fund with investment
management services, executive and
other personnel, pays the remuneration of
Fund officers, provides the Fund with
office space and equipment, furnishes the
Fund with bookkeeping, accounting,
administrative services and services relating
to research, statistical work and
supervision of the Portfolio. For the
services provided, the Portfolio pays
SBMFM a daily fee calculated at the annual
rate of 0.50% of the Portfolio's net
assets. For the last fiscal year the total
expenses of the Portfolio were 0.68%.
SBMFM has agreed to waive its fee with
respect to a Class to the extent that it
is necessary if in any fiscal year the
aggregate expenses of such Class
exclusive of 12b-1 fees, taxes, brokerage,
interest and extraordinary expenses,
such as litigation costs, exceed 0.70% of its
average daily net assets for that
fiscal year. The 0.70% expense limitation
shall be in effect until it is
terminated by notice to shareholders and by
supplement to the then current
prospectus.
=============================================
===================================
Distributor
=============================================
===================================
Smith Barney distributes shares of the
Portfolio as principal underwriter
and as such conducts a continuous offering
pursuant to a "best efforts"
20
<PAGE>
Smith Barney Muni Funds -
New York Money Market Portfolio
=============================================
===================================
Distributor (continued)
=============================================
===================================
arrangement requiring Smith Barney to take
and pay for only such securities as
may be sold to the public. Pursuant to a plan
of distribution adopted by the
Portfolio under Rule 12b-1 under the 1940 Act
(the "Plan"), Smith Barney is paid
an annual service fee with respect to Class A
shares of the Portfolio at the
annual rate of 0.10% of the average daily net
assets of Class A shares. The fee
is used by Smith Barney to pay its Financial
Consultants for servicing Class A
shareholder accounts for as long as a
shareholder remains a holder of the Class.
The service fee is also spent by Smith Barney
on the following types of
expenses: (1) the pro rata share of other
employment costs of such financial
consultants (e.g., FICA, employee benefits,
etc.); (2) employment expenses of
home office personnel primarily responsible
for providing service to Class A
shareholders and (3) the pro rata share of
branch office fixed expenses
(including branch overhead allocations).
Shareholder servicing expenses incurred
by Smith Barney but not reimbursed by Class A
in any year will not be a
continuing liability of the Class in
subsequent years.
=============================================
===================================
Additional Information
=============================================
===================================
The Fund, an open-end non-diversified,
management investment company, is
organized as a "Massachusetts business trust"
pursuant to a Declaration of Trust
dated August 14, 1985. Pursuant to the
Declaration of Trust, the Trustees have
authorized the issuance of twenty series of
shares, each representing shares in
one of twenty separate Portfolios. The assets
of each Portfolio are segregated
and separately managed. Each share of a
Portfolio represents an equal
proportionate interest in the net assets of
that Portfolio with each other share
of the same Portfolio and is entitled to such
dividends and distributions out of
the net income of that Portfolio as are
declared in the discretion of the
Trustees. Shareholders are entitled to one
vote for each share held and will
vote by individual Portfolio except as
otherwise permitted by the 1940 Act. It
is the intention of the Fund not to hold
annual meetings of shareholders. The
Trustees may call meetings of shareholders
for action by shareholder vote as may
be required by the 1940 Act or the
Declaration of Trust, and shareholders are
entitled to call a meeting upon a vote of 10%
of the Fund's outstanding shares
for purposes of voting on removal of a
Trustee or Trustees. The Fund will assist
shareholders in calling such a meeting as
required by the 1940 Act. Shares do
not have cumulative voting rights or
preemptive rights and have only such
conversion or exchange rights as the Trustees
may grant in their discretion.
When issued for payment as described in this
Prospectus, the Fund's shares will
be fully paid and transferrable (subject to
the Portfolio's minimum account
21
<PAGE>
Smith Barney Muni Funds - New York
Money Market Portfolio
=============================================
===================================
Additional Information (continued)
=============================================
===================================
size). Shares are redeemable as set forth
under "Redemption of Shares" and are
subject to involuntary liquidation as set
forth under "Minimum Account Size."
PNC Bank, National Association, located
at 17th and Chestnut Streets,
Philadelphia, PA 19103, serves as custodian
of the Portfolio's investments.
TSSG, located at Exchange Place, Boston,
Massachusetts 02109, serves
as the Fund's transfer agent.
The Fund sends its shareholders a semi-
annual report and an audited annual
report, which include listings of the
investment securities held by the
Portfolio at the end of the period covered.
In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to
consolidate the mailing of its
semi-annual and annual reports by household.
This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report. In
addition, the Fund also plans to
consolidate the mailing of its Prospectus so
that a shareholder having multiple
accounts will receive a single Prospectus
annually. Shareholders who do not want
this consolidation to apply to their account
should contact their Smith Barney
Financial Consultant or the Fund's transfer
agent.
22
<PAGE>
Smith Barney
- ------------
A Member of Travelers Group [LOGO]
Smith Barney
Muni Funds
New York
Money Market
Portfolio
388 Greenwich Street
New York, New York 10013
FD 0774 7/95
PART B
JULY 31, 1995
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
STATEMENT OF ADDITIONAL INFORMATION
Shares of Smith Barney Muni Funds (the
"Fund") are offered currently with a choice
of thirteen Portfolios, the National
Portfolio, the Limited Term Portfolio, the
California Portfolio, the California Limited
Term Portfolio, the Florida Portfolio, the
Florida Limited Term Portfolio, the Georgia
Portfolio, the New York Portfolio, the New
Jersey Portfolio, the Ohio Portfolio, the
Pennsylvania Portfolio, the California Money
Market Portfolio and the New York Money
Market Portfolio (collectively referred to as
"Portfolios" and individually as
"Portfolio"):
The National Portfolio and the
Limited Term Portfolio each seeks
as high a level of income exempt
from Federal income taxes as is
consistent with prudent investing.
The California Portfolio and the
California Limited Term Portfolio
each seek as high a level of
income exempt from Federal income
taxes and from California personal
income taxes as is consistent with
prudent investing.
The Florida Portfolio and the
Florida Limited Term Portfolio
each seek to pay its shareholders
as high a level of income exempt
from Federal income taxes as is
consistent with prudent investing.
The Georgia Portfolio seeks as
high a level of income exempt from
Federal income taxes and from
Georgia personal income taxes as
is consistent with prudent
investing.
The New York Portfolio seeks as
high a level of income exempt from
Federal income taxes and from New
York State and New York City
personal income taxes as is
consistent with prudent investing.
The New Jersey Portfolio seeks to
pay its shareholders as high a
level of income exempt from both
Federal income taxes and New
Jersey personal income taxes as is
consistent with prudent investing.
The Ohio Portfolio seeks to pay
its shareholders as high a level
of income exempt from both Federal
income taxes and Ohio personal
income taxes as is consistent with
prudent investing.
The Pennsylvania Portfolio seeks
to pay its shareholders as high a
level of income exempt from both
Federal income taxes and
Pennsylvania personal income taxes
as is consistent with prudent
investing.
The California Money Market
Portfolio seeks to provide income
exempt from Federal income taxes
and from California personal
income taxes from a portfolio of
high quality short-term municipal
obligations selected for liquidity
and stability.
The New York Money Market
Portfolio seeks to provide its
shareholders with income exempt
from both Federal income taxes and
New York State and New York City
personal income taxes from a
portfolio of high quality short-
term New York municipal
obligations selected for liquidity
and stability.
The National Portfolio, California Portfolio,
Florida Portfolio, Georgia Portfolio, New
York Portfolio, New Jersey Portfolio, Ohio
Portfolio and Pennsylvania Portfolio each
offer four classes of shares: Class A, Class
B, Class C and Class Y. The Limited Term
Portfolio, California Limited Term Portfolio
and Florida Limited Term Portfolio each offer
three classes of shares: Class A, Class C
and Class Y. Class A shares are sold to
investors with an initial sales charge and
Class B and Class C shares are sold without
an initial sales charge but with higher
ongoing expenses and a Contingent Deferred
Sales Charge ("CDSC") payable upon certain
redemptions. Class Y shares are sold without
an initial sales charge and are available
only to investors investing a minimum of
$5,000,000. The California Money Market
Portfolio and the New York Money Market
Portfolio each offer two classes of shares:
Class A and Class Y. Class A shares of each
of the California Money Market and New York
Money Market Portfolios are sold without an
initial sales charge. These alternatives are
designed to provide investors with the
flexibility of selecting an investment best
suited to his or her needs based on the
amount of purchase, the length of time the
investor expects to hold the shares and other
circumstances.
This Statement of Additional Information
("SAI") is not a prospectus. It is intended
to provide more detailed information about
the Fund as well as matters already discussed
in each Prospectus and therefore should be
read in conjunction with the appropriate
Prospectus which may be obtained from the
Fund or a Smith Barney Financial Consultant.
TABLE OF CONTENTS
Page
Trustees and Officers
4
Additional Information Regarding Investment Policies
6
Additional Tax Information
10
Investment Restrictions
11
Performance Information
13
Valuation of Shares
16
The Management Agreement
17
Distribution
20
Custodian
20
Independent Auditors
20
The Fund
21
Voting Rights
22
Financial Statements
25
Appendix A
26
Appendix B
29
Appendix C
38
Appendix D
49
Appendix E
54
Appendix F
59
Appendix G
61
Appendix H
63
TRUSTEES AND OFFICERS
*JESSICA BIBLIOWICZ, Director and President
Executive Vice President of Smith Barney,
President and Director of eleven investment
companies associated with Smith Barney; prior
to January, 1994, Director of Sales and
Marketing of Prudential Mutual Funds; Prior
to September, 1991, Assistant Portfolio
Manager to Shearson Lehman Brothers; 35.
*JESSICA BIBLIOWICZ, Trustee and President
Executive Vice President of Smith Barney Inc.
("Smith Barney"), President of forty
investment companies associated with Smith
Barney and Trustee of twelve investment
companies associated with Smith Barney; prior
to January, 1994, Trustee of Sales and
Marketing of Prudential Mutual Funds; Prior
to September, 1991, Assistant Portfolio
Manager for Shearson Lehman Brothers; 35.
RALPH D. CREASMAN, Trustee
Retired, 4 Moss Hammock Lane, The Landings,
Skidaway Island, Savannah, Georgia 31411.
Trustee of ten ten investment companies
associated with Smith Barney. Inc.("Smith
Barney" )(see below). Formerly, Chairman,
President and Chief Executive Officer of
Lionel D. Edie & Co., Inc. (investment
counselors), Chairman of Edie International
S.A. and President and Trustee of Edie Ready
Assets Trust, Fundamerica of Japan, Edie
Special Growth Fund and Edie Capital Fund; 73
73.
JOSEPH H. FLEISS, Trustee
Retired, 3849 Torrey Pines Blvd., Sarasota,
Florida 34238. Trustee of ten ten
investment companies associated with Smith
Barney. Formerly, Senior Vice President of
Citibank, Manager of Citibank's Bond
Investment Portfolio and Money Management
Desk and a Trustee of Citicorp Securities
Co., Inc.Inc; 77 77.
DONALD R. FOLEY, Trustee
Retired, 3668 Freshwater Drive, Jupiter,
Florida 33477. Trustee of ten ten
investment companies associated with Smith
Barney. Formerly, Vice President of Edwin
Bird Wilson, Incorporated (advertising); 72
72.
PAUL HARDIN, Trustee
Retired, 60134 Davie Street, Chapel Hill, N.
C. 27514. Trustee of twelve twelve
investment companies associated with Smith
Barney; and a Trustee of The Summit
Bancorporation. Formerly, Chancellor of the
University of North Carolina at Chapel Hill;
63 63.
FRANCIS P.. MARTIN, Trustee
Practicing physician, 2000 North Village
Avenue, Rockville Centre, New York 11570.
Trustee of ten ten investment companies
associated with Smith Barney. Formerly,
President of the Nassau Physicians' Fund,
Inc.; 70 70.
*HEATH B. MCLENDON, Chairman of the Board and
Chief Executive Officer
Managing Director of Smith Barney; Director
of thirty-nine investment companies
associated with Smith Barney; President of
Smith Barney Mutual Fund Management Inc.
("SBMFM" or the "Manager"); 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; 61.
*HEATH B. MCLENDON, Chairman of the Board and
Chief Executive Officer
Managing Trustee of Smith Barney; Trustee of
forty-one investment companies associated
with Smith Barney; President of Smith Barney
Mutual Fund Management Inc. ("SBMFM" or the
"Manager"); 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; 61.
RODERICK C. RASMUSSEN, Trustee
Investment Counselor, 81 Mountain Road,
Verona, New Jersey 07044. Trustee of ten ten
investment companies associated with Smith
Barney. Formerly, Vice President of Dresdner
and Company Inc. (investment counselors); 68
68.
*Designates an "interested person" as defined
in the Investment Company Act of 1940 whose
business address is 388 Greenwich Street,
New York, NY 10013388 Greenwich Street, New
York, NY 10013. Such person is not
separately compensated as a Fund officer or
Trustee.
JOHN P. TOOLAN, Trustee
Retired, 13 Chadwell Place, Morristown, New
Jersey, 07960. Trustee of ten ten investment
companies associated with Smith Barney.
Formerly, Trustee and Chairman of Smith
Barney Trust Company, Trustee of Smith Barney
Holdings Inc. and the Manager and Senior
Executive Vice President, Trustee and Member
of the Executive Committee of Smith Barney;
64 64.
C. RICHARD YOUNGDAHL, Trustee
Retired, 339 River Drive, Tequesta, Florida
33469. Trustee of ten ten investment
companies associated with Smith Barney.
Formerly Chairman of the Board of Pensions of
the Lutheran Church in America and Chairman
of the Board and Chief Executive Officer of
Aubrey G. Lanston & Co. (dealers in U.S.
Government securities) and President of the
Association of Primary Dealers in U.S.
Government Securities;79 79.
*LEWIS E. DAIDONE, Senior Vice President and
Treasurer
Managing Trustee of Smith Barney; Senior Vice
President and Treasurer of forty-one forty-
one investment companies associated with
Smith Barney, and Trustee and Senior Vice
President of the Manager; 37 Manager; 37.
*PHYLLIS M. ZAHORODNY, Vice President and
Investment Officer
*PETER M. COFFEY, Vice President and
Investment Officer
Managing Director of Smith Barney and
Portfolio Manager. Prior to August, 1993,
Managing Director and Portfolio Manager of
Shearson Lehman Brothers Inc.
Managing Trustee of Smith Barney and Vice
President of the Manager and three investment
companies associated with Smith Barney;
51.*EVELYN ROBERTSON, Vice President and
Investment Offic
*IRVING DAVID, Controller and Assistant
Secretary
Vice President of Smith Barney and the
Manager. Prior to March, 1994, Assistant
Treasurer of First Investment Management
Company; 34.
*LAWRENCE MCDERMOTT, Vice President and
Investment Officer
Managing Trustee of Smith Barney and Vice
President of the Fund and eleven investment
companies associated with Smith Barney; 47.
*KAREN LIN MAHONEY-MALCOMSON, Vice President
and Investment Officer
Vice President of Smith Barney and the Fund
and ten investment companies associated with
Smith Barney; 37.
*THOMAS M. REYNOLDS, Controller
Trustee of Smith Barney and Controller of the
Fund and eleven investment companies
associated with Smith Barney; 34.
*IRVING P. DAVID, Controller
Vice President of Smith Barney and Controller
of the Fund and thirty-five investment
companies associated with Smith Barney.
Formerly Assistant Treasurer of First
Investment Management Company; 34.
*CHRISTINA T. SYDOR, Secretary
Managing Trustee of Smith Barney and
Secretary of forty-one forty-one investment
companies associated with Smith Barney;
Secretary and General Counsel of the Manager;
44 Secretary and General Counsel of the
Manager; 44.
__________________
* Designates an "interested person" as
defined in the Investment Company Act of 1940
whose business address is 388 Greenwich
Street, New York, NY 10013 is 388 Greenwich
Street, New York, NY 10013. Such person is
not separately compensated as a Fund officer
or Trustee.
The following table shows the
compensation paid by the Fund to each
director during the Fund's last fiscal year.
None of the officers of the Fund recieved any
compensation from the Fund for such period.
Officers and interested directors of the Fund
are compensated by Smith Barney.
COMPENSATION TABLE
Total
Pension
or Compensation Number
of
Retirement from Fund
Funds for
Aggregate
Benefits Accrued and Fund
Which Director
Compensation
as part of Complex
Served Within
Name of Person from Fund
Fund Expenses Paid to Directors
Fund Complex
Ralph D. Creasman $ 5696.00
$0 $ 51,500.00
10
Joseph H. Fleiss 5,396.00
0 50,900.00
10
Donald R. Foley 5,696.00
0 51,500.00
10
Paul Hardin 2,998.00
0 96,400.00
25
Francis P. Martin 5,696.00
0 51,500.00
10
Roderick C. Rasmussen 5,696.00
0 51,500.00
10
John P. Toolan 5,696.00
0 51,500.00
10
Stephen J. Treadway 0
0 0
12
C. Richard Youngdahl 5,696.00
0 51,500.00
10 The following table shows the compensation
paid by the Fund to each Trustee during the
Fund's last fiscal year. None of the
officers of the Fund received any
compensation from the Fund for such period.
Officers and interested Trustees of the Fund
are compensated by Smith Barney.
COMPENSATION TABLE
Total
Pension or
Compensation Number of
Retirement
from Fund Funds for
Aggregate Benefits
Accrued and Fund Which Trustee
Compensation as
part of Complex Serves Within
Name of Person from Fund
Fund Expenses Paid to Trustees
Fund Complex
Jessica Bibliowicz() $ 0
$0 $ 0
12
Ralph D. Creasman 11,396.00 0
51,500.00 10
Joseph H. Fleiss 11,196.00
0 50,900.00
10
Donald R. Foley 11,396.00
0 51,500.00
10
Paul Hardin 6,698.00
0 27,800.00()
12()
Francis P. Martin 11,396.00
0 51,500.00
10
Heath B. McLendon() 0 0
0 41
41
Roderick C. Rasmussen 11,396.00
0 51,500.00
10
John P. Toolan 11,396.00
0 51,500.00
10
C. Richard Youngdahl 11,396.00
0 51,500.00
10
Designates an "interested Trustee."
Reflects the compensation paid to Dr. Hardin
and the number of funds within the Fund
Complex for which Dr. Hardin serves as a
Trustee as of the date of this Statement of
Additional Information. For the fiscal year
ended December 31, 1994, Mr. Hardin served as
a Trustee of 25 funds within the Fund Complex
and was paid $96, 400.
On July 1, 1995 Trustees and officers owned
in the aggregate less than 1% of the
outstanding shares of the Fund.
ADDITIONAL INFORMATION REGARDING
INVESTMENT POLICIES
In general, municipal obligations are debt
obligations (bonds or notes) issued by or on
behalf of states, territories and possessions
of the United States and their political
subdivisions, agencies and instrumentalities
the interest on which is exempt from Federal
income tax in the opinion of bond counsel to
the issuer. Municipal obligations are issued
to obtain funds for various public purposes
that enhance the quality of life, including
the construction of a wide range of public
facilities, such as airports, bridges,
highways, housing hospitals, mass
transportation, schools, streets, water and
sewer works and gas and electric utilities.
They may also be issued to refund outstanding
obligations, to obtain funds for general
operating expenses, or to obtain funds to
loan to other public institutions and
facilities and in anticipation of the receipt
of revenue or the issuance of other
obligations. In addition, the term
"municipal obligations" includes certain
types of industrial development bonds issued
by public authorities to obtain funds to
provide various privately-operated facilities
for business and manufacturing, housing,
sports, convention or trade show facilities,
airport, mass transit, port and parking
facilities, air or water pollution control
facilities, and certain facilities for water
supply, gas, electricity or sewerage or solid
waste disposal.
The two principal classifications of
municipal obligations are "general
obligation" and "revenue." General
obligations are secured by a municipal
issuer's pledge of its full faith, credit,
and taxing power for the payment of principal
and interest. Revenue obligations 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 other specific revenue
source. Although industrial development
bonds ("IDBs") are issued by municipal
authorities, they are generally secured by
the revenues derived from payments of the
industrial user. The payment of the
principal and interest on IDBs is dependent
solely on the ability of the user of the
facilities financed by the bonds to meet its
financial obligations and the pledge, if any,
of real and personal property so financed as
security for such payment. Currently, the
majority of each Portfolio's municipal
obligations are revenue bonds.
For purposes of diversification and
concentration under the Investment Company
Act of 1940 (the "Act"), the identification
of the issuer of municipal obligations
depends on the terms and conditions of the
obligation. If the assets and revenues of an
agency, authority, instrumentality or other
political subdivision are separate from those
of the government creating the subdivision
and the obligation is backed only by the
assets and revenues of the subdivision, such
subdivision is regarded as the sole issuer.
Similarly, in the case of an industrial
development revenue bond or a pollution
control revenue bond, if the bond is backed
only by the assets and revenues of the
nongovernmental user, the nongovernmental
user is regarded as the sole issuer. If in
either case the creating government or
another entity guarantees an obligation, the
guaranty is regarded as a separate security
and treated as an issue of such guarantor.
Among the types of short-term instruments in
which each Portfolio may invest are floating
or variable rate demand instruments, tax-
exempt commercial paper (generally having a
maturity of less than nine months), and other
types of notes generally having maturities of
less than three years, such as Tax
Anticipation Notes, Revenue Anticipation
Notes, Tax and Revenue Anticipation Notes and
Bond Anticipation Notes. Demand instruments
usually have an indicated maturity of more
than one year, but contain a demand feature
that enables the holder to redeem the
investment on no more than 30 days' notice;
variable rate demand instruments provide for
automatic establishment of a new interest
rate on set dates; floating rate demand
instruments provide for automatic adjustment
of their interest rates whenever some other
specified interest rate changes (e.g., the
prime rate). Each Portfolio may purchase
participation interest in variable rate tax-
exempt securities (such as Industrial
Development Bonds) owned by banks.
Participations are frequently backed by an
irrevocable letter of credit or guarantee of
a bank that the Manager has determined meets
the prescribed quality standards for the
Portfolio. Participation interests will be
purchased only, if management believes
interest income on such interests will be tax-
exempt when distributed as dividends to
shareholders.
Investments in participation interests in
variable rate tax-exempt securities (such as
IDBs) purchased from banks give the purchaser
an undivided interest in the tax-exempt
security in the proportion that the Portfolio
participation interest bears to the total
principal amount of the tax-exempt security
with a demand repurchase feature.
Participation interest are frequently backed
by an irrevocable letter of credit or
guarantee of a bank that the Manager, under
the supervision of the Trustees, has
determined meets the prescribed quality
standards for the Portfolio . A Portfolio
has the right to sell the instrument back to
the bank and draw on the letter of credit on
demand on seven days' notice or less, for all
or any part of the Portfolio's participation
interest in the tax-exempt security, plus
accrued interest. Each Portfolio intends to
exercise the demand under the letter of
credit only (1) upon a default under the
terms of the documents of the tax-exempt
security, (2) as needed to provide liquidity
in order to meet redemptions, or (3) to
maintain a high quality investment portfolio.
Banks will retain a service and letter of
credit fee and a fee for issuing repurchase
comments in an amount equal to the excess of
the interest paid on the tax-exempt
securities over the negotiated yield at which
the instruments were purchased by a
Portfolio. The Manager will monitor the
pricing, quality and liquidity of the
variable rate demand instruments held by each
Portfolio, including the IDBs supported by
bank letters of credit or guarantees, on the
basis of published financial information,
reports of rating agencies and other bank
analytical services to which the Manager may
subscribe.
The yields on municipal obligations are
dependent on a variety of factors, including
general market conditions, supply and demand,
general conditions of the municipal market,
size of a particular offering, the maturity
of the obligation and the rating of the
issue. The rating of Moody's Investment
Service, Inc. and Standard & Poor's
Corporation represent their opinion as to the
quality to the municipal obligations that
they undertake to rate. It should be
emphasized, however, that such ratings are
general and are not absolute standards of
quality. Consequently, municipal obligations
with the same maturity, coupon and rating may
have different yields when purchased in the
open market, while municipal obligations of
the same maturity and coupon with different
ratings may have the same yield.
Municipal obligations purchased on a when-
issued basis as well as the securities held
in each Portfolio are generally subject to
similar changes in market value based upon
the public's perception of the
creditworthiness of the issuer and changes in
the level of interest rates (i.e., both
experiencing appreciation when interest rates
decline and depreciation when interest rates
rise). Therefore, to the extent a Portfolio
remains substantially fully invested at the
same time that it has purchased securities on
a when-issued basis, there will be a greater
possibility that the market value of a
Portfolio's assets will fluctuate.
Purchasing a tax-exempt security on a when-
issued basis involves the risk that the
yields available in the market when the
delivery takes place may be higher than those
obtained on the security so purchased. A
separate account of each Portfolio consisting
of cash or liquid high-grade debt securities
equal to the amount of the when-issued
commitments will be established with the
Custodian and marked-to-market daily, with
additional cash or liquid high-grade debt
securities added when necessary. When the
time comes to pay for when-issued securities,
the Portfolios will meet their respective
obligations from then available cash flow,
sale of securities held in the separate
account, sale of other securities or,
although they would not normally expect to do
so, from the sale of the when-issued
securities themselves (which may have a value
greater or lesser than the Portfolios'
payment obligations). Sale of securities to
meet such obligations carries with it a
greater potential for the realization of
capital gain, which is not exempt from
Federal income tax (see "Dividends,
Distributions and Taxes" in the Prospectus).
Each Portfolio, other than the California
Money Market Portfolio and the New York Money
Market Portfolio, may invest in municipal
bond index futures contracts or in listed
contracts based on U.S. Government
securities. Such investments will be made
solely for the purpose of hedging against
changes in the value of portfolio securities
due to anticipated changes in interest rates
and market conditions, and not for purposes
of speculation. The acquisition or sale of a
futures contract could enable the Fund to
protect a Portfolio's assets from
fluctuations in rates on tax-exempt
securities without actually buying or selling
securities. The municipal bond index futures
contract is based on an index of long-term,
tax-exempt municipal bonds. The "contract"
obligates the buyer or seller to take or make
delivery, respectively, of an amount of cash
equal to the difference between the value of
the index upon liquidation of the "contract"
and the price at which the index contract was
originally purchased or sold. In connection
with the use of futures contracts as a
hedging device, there can be no assurance
that there will be a precise or even a
positive correlation between price movement
in the futures contracts with that of the
municipal bonds that are the subject of the
hedge, consequently, a Portfolio may realize
a profit on a futures contract that is less
than the loss in the price of the municipal
bonds being hedged or may even incur a loss.
A Portfolio also may not be able to close a
futures position in the event of adverse
price movements or in the event an active
market does not exist for the hedging
contract on the exchange or board of trade on
which the contract is traded. The successful
use of these investments is dependent on the
ability of the Manager to predict price or
interest rate movements or the correlation of
futures and cash markets, or both.
Each Portfolio may invest in securities the
disposition of which is subject to legal or
contractual restrictions. The sale of
restricted securities often requires more
time and results in higher dealer discounts
or other selling expenses than does the sale
of securities that are not subject to
restrictions on resale. Restricted
securities often sell at a price lower than
similar securities that are not subject to
restrictions on resale.
Securities may be sold in anticipation of a
market decline (a rise in interest rates) or
purchased in anticipation of a market rise (a
decline in interest rates). In addition, a
security may be sold and another purchased at
approximately the same time to take advantage
of what the Manager believes to be a
temporary disparity in the normal yield
relationship between the two securities. The
Fund believes that, in general, the secondary
market for tax-exempt securities in each of
the Fund's Portfolios may be less liquid than
that for taxable fixed-income securities.
Accordingly, the ability of a Portfolio to
make purchases and sales of securities in the
foregoing manner may be limited. Yield
disparities may occur for reasons not
directly related to the investment quality of
particular issues or the general movement of
interest rates, but instead due to such
factors as changes in the overall demand for
or supply of various types of tax-exempt
securities or changes in the investment
objectives of investors.
Portfolio turnover rate for a fiscal year is
the ratio of the lesser of purchases or sales
(including maturities and calls) of portfolio
securities to the monthly average of the
value of portfolio securities including long-
term U.S. Government securities but excluding
securities with maturities at acquisition of
one year or less. The Fund effects portfolio
transactions with a view towards attaining
the investment objective of each Portfolio
and is not limited to a predetermined rate of
portfolio turnover. A high portfolio
turnover results in correspondingly greater
transaction costs. The Fund anticipates that
each Portfolio's annual turnover rate
generally will not exceed 100%.
Though not obligated to do so, the Fund will
normally provide upon request a listing of
portfolio holdings as of a recent date.
ADDITIONAL TAX INFORMATION
Capital gain distributions, if any, are
taxable to shareholders, and are declared and
paid at least annually. At March 31, 1995
the unused capital loss carryovers of the
Fund by Portfolio were approximately as
follows: National Portfolio, $5,911,171; New
York Portfolio, $1,310,119, Florida
Portfolio, $313,998, New Jersey, $999,309,
Limited Term Portfolio, $5,131,067, Georgia
Portfolio, $36,179, Ohio Portfolio $28,813,
Pennsylvania Portfolio, $114,695, California
Limited Term Portfolio, $188,158 and Florida
Limited Term Portfolio, $514,327. For
Federal income tax purposes theses amounts
are available to be applied against future
securities gains, if any, realized. The
carryovers expire as follows:
March
31,
PORTFOLIO 1997 1998
1999 2000 2001 2002 2003
(in
thousands)
National -- -- -- -- -- --$ 5911
California -- -- -- -- -- -- --
Florida -- -- -- -- -- -- 314
New Jersey -- -- -- -- -- -- 999
New York $427 $ 79 -- -- -- -- 804
Georgia -- -- -- -- -- -- 36
Ohio -- -- -- -- -- -- 29
Pennsylvania -- -- -- -- -- -- 115
Limited Term -- -- -- $ 450 $ 196 -- 4,485
California Limited Term-- -- -- -- -- -- 188
Florida Limited Term -- -- -- -- -- $ 2 512
Generally, interest on municipal obligations
is exempt from Federal income tax. However,
interest on municipal obligations that are
considered to be industrial development bonds
(as defined in the Internal Revenue Code (the
"Code"), will not be exempt from Federal
income tax to any shareholder who is
considered to be a "substantial user" of any
facility financed by the proceeds of such
obligations (or a "related person" to such
"substantial user" as defined in the Code).
In addition, interest on municipal
obligations may subject certain investors'
Social Security benefits to Federal income
taxation. Section 86 of the Internal Revenue
Code provides that the amount of Social
Security benefits includable in gross income
for a taxable year is the lesser of (a) one-
half of the Social Security benefits or (b)
one-half of the amount by which the sum of
"modified adjusted gross income" plus one-
half of the Social Security benefits exceeds
a "base amount." The base amount is $25,000
for unmarried taxpayers, $32,000 for married
taxpayers filling a joint return and zero for
married taxpayers not living apart who file
separate returns. Modified adjusted gross
income is adjusted gross income determined
without regard to certain otherwise allowable
deductions and exclusions from gross income,
plus tax-exempt interest on municipal
obligations. To the extent that Social
Security benefits are included in gross
income they will be treated as any other item
of gross income and therefore may be taxable.
Tax-exempt interest is included in modified
adjusted gross income solely for the purpose
of determining what portion, if any, of
Social Security benefits will be included in
gross income; no tax-exempt interest,
including that received from the Fund, will
be subject to Federal income tax for most
investors.
Additionally, the Tax Reform Act of 1986 (the
"Tax Reform Act") provides that interest on
certain municipal obligations (i.e. certain
private activity bonds) issued after August
7, 1986 will be treated as a preference item
for purposes of both the corporate and
individual alternative minimum tax. Under
Treasury regulations, that portion of the
Portfolio's exempt-interest dividend which is
to be treated as a preference item for
shareholders will be based on the
proportionate share of the interest received
by the Portfolio from the specified private
activity bonds. In addition, the Tax Reform
Act provides generally that tax preference
items for corporations for 1987-1989 will
include one-half the amount by which adjusted
net book income (which would include tax-
exempt interest) of the taxpayer exceeds the
alternative minimum taxable income of the
taxpayer before any amount is added to
alternative minimum taxable income because of
this preference.
A similar provision based on adjusted
earnings and profits would apply after 1989.
Investors should consult their tax advisors
before investing in shares of the Fund.
From time to time, proceedings have been
introduced before Congress for the purpose of
restricting or eliminating the Federal income
tax exemption for interest on municipal
obligations. It may be expected that similar
proposals may be introduced in the future.
If such proposals were to be enacted, the
ability of the Fund to pay "exempt interest"
dividends could be adversely affected and the
Fund would then need to reevaluate its
investment objectives and policies and
consider changes in its structure.
INVESTMENT RESTRICTIONS
The Fund has adopted the following
restrictions as fundamental policies that
cannot be changed without approval by the
holders of a majority of the outstanding
voting securities of each Portfolio affected
by the matters as defined in the Investment
Company Act of 1940 (see "Voting Rights").
Without the approval of a majority of their
outstanding voting securities, the National
Portfolio and the New York Portfolio each may
not:
(1) Borrow money, except from banks for
temporary purposes (such as facilitating
redemptions or for extraordinary or emergency
purposes) in an amount not to exceed 10% of
the value of its total assets at the time the
borrowing is made (not including the amount
borrowed) and no investment will be made
while borrowing exceeds 5% of total assets;
(2) Mortgage or pledge any of its assets,
except to secure borrowings permitted under
(1) above; (3) Invest more than 25% of total
assets taken at market value in any one
industry, except that Municipal Obligations
and securities of the U.S. Government, its
agencies and instrumentalities and Municipal
Obligations of New York State with respect to
the New York Portfolio are not considered an
industry for purposes of this limitation; (4)
The National Portfolio may not with respect
to 75% of the value of its total assets,
purchase securities of any issuer if
immediately thereafter more than 5% of total
assets at market value would be invested in
the securities of any issuer (except that
this limitation does not apply to obligations
issued or guaranteed as to principal and
interest either by the U.S. Government or its
agencies or instrumentalities or by New York
State or its political subdivisions with
respect to the New York Portfolio); (5)
Invest in securities issued by other
investment companies, except as permitted by
Section 12(d)(1) of the Investment Company
Act of 1940 or in connection with a merger,
consolidation, acquisition or reorganization;
(6) Purchase or hold any real estate, except
that a Portfolio may invest in securities
secured by real estate or interest therein or
issued by persons (other than real estate
investment trusts) who deal in real estate or
interests therein; (7) Purchase or hold the
securities of any issuer, if to its
knowledge, Trustees or officers of the Fund
individually owning beneficially more than
.5% of the securities of that issuer own in
the aggregate more than 5% of such
securities; (8) write or purchase put, call
straddle or spread options; purchase
securities on margin or sell "short"; (9)
Underwrite the securities of other issuers;
(10) Purchase or sell commodities and
commodity contracts, except that each
Portfolio may invest in or sell municipal
bond index future contracts; provided that
immediately thereafter not more than 33 1/3%
of its net assets would be hedged or the
amount of margin deposits on the Portfolio's
existing futures contracts would not exceed
5% of the value of its total assets; or (ii)
Make loans, except to the extent the purchase
of bonds or other evidences of indebtedness
or the entry into repurchase agreements or
deposits with banks, including the Fund's
Custodian, may be considered loans (and the
Fund has no present intention of entering
into repurchase agreements).
Without the approval of a majority of its
outstanding voting securities, the Limited
Term Portfolio, the California Portfolio, the
New Jersey Portfolio, the Florida Portfolio,
the California Limited Term Portfolio, the
Florida Limited Term Portfolio, the Georgia
Portfolio, the Pennsylvania Portfolio and the
Ohio Portfolio each may not:
(1) Borrow money, except from banks for
temporary purposes (such as facilitating
redemptions or for extraordinary or emergency
purposes) in an amount not to exceed 10% of
the value of its total assets at the time the
borrowing is made (not including the amount
borrowed) and no investments will be made
while borrowing exceed 5% of total assets;
(2) Mortgage or pledge any of its assets,
except to secure borrowings permitted under
(1) above; (3) Invest more than 25% of total
assets taken at market value in any one
industry; except that Municipal Obligations
and securities of the U.S. Government, its
agencies and instrumentalities and Municipal
Obligations of California with respect to the
California Portfolio and the California
Limited Term Portfolio, Municipal Obligations
of New Jersey with respect to the New Jersey
Portfolio, Municipal Obligations of Georgia
with respect to the Georgia Portfolio,
Municipal Obligations of Pennsylvania with
respect to the Pennsylvania Portfolio and
Municipal Obligations of Florida with respect
to the Florida Portfolio and the Florida
Limited Term Portfolio are not considered an
industry for purposes of this limitation; (4)
Purchase or hold any real estate, except that
the Portfolio may invest in securities
secured by real estate or interests therein
or issued by persons (other than real estate
investment trusts) which deal in real estate
or interests therein; (5) Write or purchase
put, call, straddle or spread options;
purchase securities on margin or sell
"short"; (6) Underwrite the securities of
other issuers: (7) Purchase or sell
commodities and commodity contracts, except
that the Portfolio may invest in or sell
municipal bond index futures contracts,
provided that immediately thereafter not more
than 33 1/3% of its net assets would be
hedged or the amount of margin deposits on
the Portfolio's existing futures contracts
would not exceed 5% of the value of its total
assets; or (8) Make loans, except to the
extent the purchase of bonds or other
evidences of indebtedness or the entry into
repurchase agreements or deposits with banks,
including the Funds' Custodian, may be
considered loans.
Without the approval of a majority of its
outstanding voting securities, the California
Money Market Portfolio and the New York Money
Market Portfolio each may not:
(1) Borrow money, except from banks for
temporary purposes (such as facilitating
redemptions or for extraordinary or emergency
purposes) in an amount not to exceed 10% of
the value of its total assets at the time the
borrowing is made (not including the amount
borrowed) and no investments will be made
while borrowings exceed 5% of total assets;
(2) Mortgage or pledge any of its assets,
except to secure borrowings permitted under
(1) above; (3) Invest more than 25% of total
assets taken at market value in any one
industry; except that Municipal Obligations
and securities of the U.S. Government, its
agencies and instrumentalities and Municipal
Obligations of California with respect to the
California Money Market Portfolio and
Municipal Obligations of New York with
respect to the New York Money Market
Portfolio are not considered an industry for
purposes of this limitation; (4) Purchase or
hold any real estate, except that the
Portfolio may invest in securities secured by
real estate or interests therein or issued by
persons (other than real estate investment
trusts) which deal in real estate or
interests therein; (5) Write or purchase
put, call, straddle or spread options;
purchase securities on margin or sell
"short"; (6) Underwrite the securities of
other issuers; (7) Purchase or sell
commodities and commodity contracts; or (8)
Make loans, except to the extent the purchase
of bonds or other evidences of indebtedness
or the entry into repurchase agreements or
deposits with banks, including the Fund's
Custodian, may be considered loans.
In order to comply with certain state
statutes and policies, none of the Portfolios
will, as a matter of operating policy:
(1) Purchase oil, gas or other mineral
leases, rights or royalty contracts or
exploration or development programs, except
that each Portfolio may invest in the
securities of issuers which operate, invest
in, or sponsor such programs; (2) invest more
than 5% of their assets in unseasoned
issuers, including their predecessors, which
have been in operation for less than three
years.
The foregoing percentage restrictions apply
at the time an investment is made; a
subsequent increase or decrease in percentage
may result from changes in values or net
assets.
PERFORMANCE INFORMATION
From time to time, in advertisements and
other types of sales literature, each
Portfolio may compare its performance to that
of other mutual funds with similar investment
objectives, to appropriate indices or
rankings such as those compiled by Lipper
Analytical Services, Inc. or to other
financial alternatives.
Each Portfolio, other than the California
Money Market Portfolio and the New York Money
Market Portfolio, computes the average annual
total return during specified periods that
would equate the initial amount invested to
the ending redeemable value of such
investment by adding one to the computed
average annual total return, raising the sum
to a power equal to the number of years
covered by the computation and multiplying
the result by one thousand dollars which
represents the hypothetical initial
investment. The calculation assumes
deduction of the maximum sales charge from
the initial amount invested and reinvestment
of all income dividends and capital gains
distributions on the reinvestment dates at
prices calculated as stated in the
Prospectus. The ending redeemable value is
determined by assuming a complete redemption
at the end of the period(s) covered by the
average annual total return computation.
Such standard total return information may
also be accompanied with nonstandard total
return information for differing periods
computed in the same manner but without
annualizing the total return or taking sales
charges into account.
Each Portfolio's average annual total return
with respect to its Class A Shares for the
one-year period, five-year period, if any,
and for the life of the Portfolio ended March
31, 1995 is as follows:
PORTFOLIO One Year Five Years Life
Inception Date
National 2.10% 7.82% 7.60%
8/20/86
Limited Term 3.64% 6.62% 6.82%
11/28/88
New York 2.10% 7.86% 6.82%
1/16/87
California 2.22% 7.36% 6.33%
4/3/87
New Jersey 2.38% N/A 7.97%
10/11/90
Florida 2.53% N/A 6.93%
4/2/91
Georgia N/A N/A 2.04%
4/4/94
Ohio N/A N/A (0.13%)
6/13/94
Pennsylvania N/A N/A 4.47%
4/4/94
Florida Ltd. Term 5.05 N/A
4.05% 4/27/93
Cal. Ltd. Term 3.79 N/A 3.17% 4/27/93
Each Portfolio's average annual total return
with respect to its Class B Shares for the
one-year period, five-year period, if any,
and for the life of the Portfolio ended March
31, 1995 is as follows:
PORTFOLIO One Year Five Years Life
Inception Date
National N/A N/A 5.61%
11/7/94
New York N/A N/A 5.42%
11/11/94
California N/A N/A 4.68%
11/11/94
New Jersey N/A N/A 6.36%
11/16/94
Florida N/A N/A 6.27%
11/16/94
Georgia N/A N/A (1.56%)
6/15/94
Ohio N/A N/A (1.17%)
6/14/94
Pennsylvania N/A N/A (0.07%)
6/20/94
Each Portfolio's average annual total return
with respect to its Class C Shares for a one-
year period and the life of the Portfolio's
Class C shares through March 31, 1995 is as
follows:
PORTFOLIO One Year Five Years Life
Inception Date
National 4.80% N/A 5.48%
1/5/93
Limited Term 4.51% N/A 4.92%
1/5/93
New York 4.66% N/A 5.25%
1/8/93
California 4.80% N/A 5.02%
1/5/93
New Jersey 4.91% N/A 5.10%
1/5/93
Florida 5.12% N/A 5.50%
1/5/93
Georgia N/A N/A 4.11%
4/14/94
Ohio N/A N/A 2.28%
6/14/94
Pennsylvania N/A N/A 7.14%
4/5/94
Florida Ltd. Term 5.84% N/A
4.70% 5/4/93
Cal. Ltd. Term 4.56% N/A 3.97%
5/18/93
Each Portfolio's average annual total return
with respect to its Class Y Shares for the
one-year period, five-year period, if any,
and for the life of the Portfolio ended March
31, 1995 is as follows:
PORTFOLIO One Year Five Years Life
Inception Date
National N/A N/A N/A
Limited Term N/A N/A N/A
New York N/A N/A N/A
California N/A N/A N/A
New Jersey N/A N/A N/A
Florida N/A N/A N/A
Georgia N/A N/A N/A
Ohio N/A N/A N/A
Pennsylvania N/A N/A N/A
Florida Ltd. Term N/A N/A
N/A
Cal. Ltd. Term 5.87% N/A 3.22%
6/23/93
Each Portfolio's yield, other than for the
California Money Market Portfolio and the New
York Money Market Portfolio, is computed by
dividing the net investment income per share
earned during a specified thirty day period
ending at month end by the maximum offering
price per share on the last day of such
period and analyzing the result. For
purposes of yield calculation, interest
income is determined based on a yield to
maturity percentage for each long-term debt
obligation in the Portfolio; income or short-
term obligations is based on current payment
rate. Yield information may be accompanied
with information on tax equivalent yield
computed in the same manner, with adjustment
for assumed federal income tax rates. No
taxable instruments are presently held by the
Fund.
Each Portfolio's distribution rate, other
than for the California Money Market
Portfolio and the New York Money Market
Portfolio, is calculated by analyzing the
latest income distribution and dividing the
result by the maximum offering price per
share as of the end of the period to which
the distribution relates. The distribution
rate is not computed in the same manner as,
and therefore can be significantly different
from, the above described yield which will be
computed in accordance with applicable
regulations. A Portfolio may quote its
distribution rate together with the above
described standard total return and yield
information in its supplemental sales
literature. The use of such distribution
rates would be subject to an appropriate
explanation of, among other matters, how the
components of the distribution rate differ
from the above described yield.
California Money Market Portfolio's yield
with respect to its Class A shares for the
seven-day period ended March 31, 1995 was
3.39% (the effective yield was 3.45%) with an
average dollar-weighted portfolio maturity of
16.9 days; the New York Money Market
Portfolio's yield with respect to its Class A
shares for the seven-day period ended March
31, 1995 was 3.32% (the effective yield was
3.38%) with an average dollar-weighted
portfolio maturity of 40.2 days. From time
to time the California Money Market Portfolio
and, the New York Money Market Portfolio may
advertise their yield, effective yield and
tax equivalent yield. These yield figures
are based on historical earnings and are not
intended to indicate future performance. The
yield of each Portfolio refers to the net
investment income generated by an investment
in each Portfolio over a specific seven-day
period (which will be stated in the
advertisement). This net investment income
is then annualized. The effective yield is
calculated similarly but, when annualized,
the income earned by an investment in each
Portfolio is assumed to be reinvested. The
effective yield will be slightly higher than
the yield because of the compounding effect
of the assumed reinvestment. The tax
equivalent yield also is calculated similarly
to the yield, except that a stated income tax
rate is used to demonstrate the taxable yield
necessary to produce an after-tax yield
equivalent to the tax-exempt yield of each
Portfolio.
Performance information may be useful in
evaluating a Portfolio and for providing a
basis for comparison with other financial
alternatives. Since the performance of each
Portfolio changes in response to fluctuations
in market conditions, interest rates and
Portfolio expenses, no performance quotation
should be considered a representation as to
the Portfolio's performance for any future
period.
VALUATION OF SHARES
The Prospectus states that the net asset
value of each Portfolio's Classes of shares
will be determined on any date that the New
York Stock Exchange ("NYSE") is open. The
NYSE is closed on the following holidays: New
Year's Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The California Money Market Portfolio and the
New York Money Market Portfolio use the
"amortized cost method" for valuing portfolio
securities pursuant to Rule 2a-7 under the
Act (the "Rule"). The amortized cost method
of valuation of a Portfolio's securities
(including any securities held in the
separate account maintained for "when-issued"
securities -- See "Investment Objective and
Management Policies" and "Portfolio
Management" in the Prospectus) involves
valuing a security at its cost at the time of
purchase and thereafter assuming a constant
amortization to maturity of any discount or
premium, regardless of the impact of
fluctuating interest rates on the market
value of the instrument. The market value of
each Portfolio's securities will fluctuate on
the basis of the creditworthiness of the
issuers of such securities and with changes
in interest rates generally. While the
amortized cost method provides certainty in
valuation, it may result in periods during
which value, as determined by amortized cost,
is higher or lower than the price each
Portfolio would receive if it sold the
instrument. During such periods the yield to
investors in each Portfolio may differ
somewhat from that obtained in a similar
company that uses mark-to-market values for
all its portfolio securities. For example,
if the use of amortized cost resulted in a
lower (higher) aggregate portfolio value on a
particular day, a prospective investor in
each Portfolio would be able to obtain a
somewhat higher (lower) yield than would
result from investment in such similar
company, and existing investors would receive
less (more) investment income. The purpose
of this method of valuation is to attempt to
maintain a constant net asset value per
share, and it is expected that the price of
each Portfolio's shares will remain at $1.00;
however, shareholders should be aware that
despite procedures that will be followed to
have a stabilized price, including
maintaining a maximum dollar-weighted average
portfolio maturity of 90 days, investing in
securities that have or are deemed to have
remaining maturities of only 13 months or
less and investing in only United States
dollar-denominated instruments determined by
the Fund's Trustees to be of high quality
with minimal credit risks and which are
Eligible Securities (as defined below), there
is no assurance that at some future date
there will not be a rapid change in
prevailing interest rates, a default by an
issuer or some other event that could cause
each Portfolio's price per share to change
from $1.00.
An Eligible Security is defined in the Rule
to mean a security which: (a) has a
remaining maturity of 397 days or less;
(b)(i) is rated in the two highest short-term
rating categories by any two "nationally-
recognized statistical rating organizations"
("NRSROs") that have issued a short-term
rating with respect to the security or class
of debt obligations of the issuer, or (ii) if
only one NRSRO has issued a short-term rating
with respect to the security, then by that
NRSRO; (c) was a long-term security at the
time of issuance whose issuer has outstanding
a short-term debt obligation which is
comparable in priority and security and has a
rating as specified in clause (b) above; or
(d) if no rating is assigned by any NRSRO as
provided in clauses (b) and (c) above, the
unrated security is determined by the
Trustees to be of comparable quality to any
such rated security.
THE MANAGEMENT AGREEMENT
Manager
The Management Agreement for each of the
Fund's Portfolios, other than the California
Money Market Portfolio and the New York Money
Market Portfolio, provides for a daily
management fee at the annual rate of 0.45% of
the Portfolio's average net assets.
On April 27, 1994, the Trustees approved new
management agreements between the Fund, on
behalf of each of the California Money Market
Portfolio and the New York Money Market
Portfolio (collectively the "Money Market
Portfolios"). The new management agreements
were subsequently approved by shareholders at
a meeting of held on September 2, 1994. The
new management agreements provide for the
payment of an effective management fee at an
annual rate based on each Money Market
Portfolio's average daily net assets in
accordance with the following schedule:
0.50% on the first
$2.5 billion of net
assets;
0.475% on the next
$2.5 billion; and
0.45% on net assets in
excess of $5 billion.
Based on the current asset levels of
each Money Market Portfolio, the effective
management fee is 0.50%.
The new management agreements were proposed
and approved in conjunction with the proposed
acquisition (the "Acquisition") by each of
the Money Market Portfolios of the assets of
Smith Barney Shearson California Money Market
Fund and Smith Barney Shearson New York Money
Market Fund, respectively. As a result of the
Acquisitions, it is expected that the level
of assets of each Money Market Portfolio will
substantially increase. The new management
fee would result in the same effective
management fee on each Portfolio's current
net assets and on the assets expected
immediately after the Acquisitions. However,
the management fee payable would be reduced
as higher levels of assets are attained.
For the fiscal years ended March 31, 1993,
1994 and 1995, the management fee for each
Portfolio was as follows:
Portfolio 1995 1994 1993
National $ 1,918,961 $ 1,985,609 $ 1,493,308
Limited Term 1,351,567 1,339,152 944,993
California 773,229 823,356 638,950
New York 373,385 334,878 233,445
New Jersey (a) 301,338 240,296 129,326
Florida (b) 484,744 505,761 311,509
California Money (c)2,239,712 897,858 772,368
New York Money (d)1,525,102 293,600 110,008
CA Ltd. Term (e) -- -- N/A
FL Ltd. Term (f) (g)12,445 -- N/A
Georgia (h) -- N/A N/A
Ohio (i) -- N/A N/A
Pennsylvania (j) -- N/A N/A
(a) The Manager waived its management fee
with respect to the New Jersey Portfolio's
average daily net assets in excess of 0.30%
of such Portfolio's average daily net assets
for 1993.
(b) The Manager waived its management fee in
excess of 0.035% of the Florida Portfolio's
average daily net assets for the period April
1, 1992 through January 1, 1993.
(c) The Manager waived its management fee in
excess of 0.03% of the California Money
Market Portfolio's average daily net assets
for the period from April 1, 1994 through
March 31, 1995.
(d) The Manager waived its management fee in
excess of 0.36% of the New York Money Market
Portfolio's average daily net assets for the
period from September 17,1992 through March
31, 1993.
(e) The Manager waived its entire management
fee with respect to the California Limited
Term Portfolio's average daily net assets for
the period from April 27, 1993 through March
31, 1994.
(f) The Manager waived its entire management
fee with respect to the Florida Limited Term
Portfolio's average daily net assets for the
period from April 27, 1993 through March 31,
1994.
(g) The Manager waived its management fee in
excess of .069% of the Florida Limited Term
Portfolio's average daily net assets for the
period from April 1, 1994 through March 31,
1995.
(h) The Manager waived its entire management
fee with respect to the Georgia Portfolio's
average daily net assets for the period from
April 4, 1994 through March 31, 1995.
(i) The Manager waived its entire management
fee with respect to the Ohio Portfolio's
average daily net assets for the period from
June 13, 1994 through March 31, 1995.
(j) The Manager waived its entire management
fee with respect to the Pennsylvania
Portfolio's average daily net assets for the
period from April 4, 1994 through March 31,
1995.
The Management Agreements further provide
that all other expenses not specifically
assumed by the Manager under the Management
Agreement on behalf of each portfolio are
borne by the Fund. Expenses payable by the
Fund include, but are not limited to, all
charges of custodians (including sums as
custodian and sums for keeping books and for
rendering other services to the Fund) and
shareholder servicing agents, expenses of
preparing, printing and distributing all
prospectuses, proxy material, reports and
notices to shareholders, all expenses of
shareholders' and Trustees' meeting, filing
fees and expenses relating to the
registration and qualification of the Fund's
shares and the Fund under Federal or state
securities laws and maintaining such
registrations and qualifications (including
the printing of the Fund's registration
statements), fees of auditors and legal
counsel, costs of performing portfolio
valuations, out-of-pocket expenses of
Trustees and fees of Trustees who are not
"interested persons" as defined in the Act,
interest, taxes and governmental fees, a fees
and commissions of every kind, expenses, of
issue, repurchase or redemption of shares,
insurance expense, association membership
dues, all other costs incident to the Fund's
existence and extraordinary expenses such as
litigation and indemnification expenses.
Direct expenses of each Portfolio of the
Fund, including but not limited to the
management fee are charged to that Portfolio,
and general trust expenses are allocated
among the Portfolios on the basis of relative
net assets. The Manager has voluntarily
agreed to waive its fee with respect to each
Portfolio to the extent it is necessary if in
any fiscal year the aggregate expenses of the
Portfolio, exclusive of taxes, brokerage,
interest, payments of distribution fees and
extraordinary expenses such as litigation
costs, exceed the most restrictive expense
limitation imposed by any state in which a
Portfolio sells shares, if any.
DISTRIBUTOR
The Fund, on behalf of each Portfolio, has
adopted a plan of distribution pursuant to
Rule 12b-1 (the "Plan") under the 1940 Act
under which a service fee is paid by each
class of shares (other than Class Y shares )
of each Portfolio to Smith Barney in
connection with shareholder service expenses.
The service fee is equal to 0.15% of the
average daily net assets of each class (the
service fee payable by the Class A shares of
the Money Market Portfolios is 0.10%). With
respect to Class B and Class C shares of each
Portfolio, Smith Barney is also paid a
distribution fee, pursuant to a plan of
distribution adopted by each Portfolio. See
"Distributor" in each applicable Prospectus.
CUSTODIAN
All portfolio securities and cash owned by
the Fund will be held in the custody of PNC
Bank, National Association, 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New
York, New York 10154, have been selected as
independent auditors for the Fund for its
fiscal year ending March 31, 1996 to report
annually on their audit of the financial
statements of the Fund and to perform
required reviews of certain filings with the
Commission.
THE FUND
The interest of a shareholder is in the
assets and earnings of the Portfolio in which
he or she holds shares. The Trustees have
authorized the issuance of twenty series of
shares, each representing shares in one of
twenty separate Portfolios. Pursuant to such
authority, the Trustees may also authorize
the creation of additional series of shares
and additional classes of share within any
series. The investment objectives, policies
and restrictions applicable to additional
Portfolios would be established by the
Trustees at the time such Portfolios were
established and may differ from those set
forth in the Prospectuses and this the
Statement of Additional Information. In the
event of liquidation or dissolution of a
Portfolio or of the Fund, shares of a
Portfolio are entitled to receive the assets
belonging to that Portfolio and a
proportionate distribution, based on the
relative net assets of the respective
Portfolios, of any general assets not
belonging to any particular Portfolio that
are available for distribution.
The Declaration of Trust may be amended only
by a "majority shareholder vote" as defined
therein, except for certain amendments that
may be made by the Trustees. The Declaration
of Trust and the By-Laws of the Fund are
designed to make the Fund similar in most
respects to a Massachusetts business
corporation. The principal distinction
between the two forms relates to shareholder
liability described below. Under
Massachusetts law, shareholders of a business
trust may, under certain circumstances, be
held personally liable as partners for the
obligations of the trust, which is not the
case with a corporation. The Declaration of
Trust of the Fund provides that shareholders
shall not be subject to any personal
liability for the acts or obligations of the
Fund and that every written obligation,
contract, instrument or undertaking made by
the Fund shall contain a provision to the
effect that the shareholders are not
personally liable thereunder.
Special counsel for the Fund are of the
opinion that no personal liability will
attach to the shareholders under any
undertaking containing such provision when
adequate notice of such provision is given,
except possibly in a few jurisdictions. With
respect to all types of claims in the latter
jurisdictions and with respect to tort
claims, contract claims where the provision
referred to is omitted from the undertaking,
claims for taxes and certain statutory
liabilities in other jurisdictions, a
shareholder may be held personally liable to
the extent that claims are not satisfied by
the Fund; however, upon payment of any such
liability the shareholder will be entitled to
reimbursement from the general assets of the
Fund. The Trustees intend to conduct the
operations of the Fund, with the advice of
counsel, in such a way so as to avoid, as far
as possible, ultimate liability of the
shareholders for liabilities of the Fund.
The Declaration of Trust further provides
that no Trustee, officer or employee of the
Fund is liable to the Fund or to a
shareholder, except as such liability may
arise from his or its own bad faith, willful
misfeasance, gross negligence, or reckless
disregard of his or its duties, nor is any
Trustee, officer or employee personally
liable to any third persons in connection
with the affairs of the Fund. It also
provides that all third persons shall look
solely to the Fund property or the property
of the appropriate Portfolio of the Fund for
satisfaction of claims arising in connection
with the affairs of the Fund or a particular
Portfolio, respectively. With the exceptions
stated, the Declaration of Trust provides
that a Trustee, officer or employee is
entitled to be indemnified against all
liability in connection with the affairs of
the Fund.
Other distinctions between a corporation and
a Massachusetts business trust include the
fact that business trusts are not required to
issue share certificates or hold annual
meetings of shareholders.
The Fund shall continue without limitation of
time subject to the provisions in the
Declaration of Trust concerning termination
of the trust or any of the series of the
trust by action of the shareholders or by
action of the Trustees upon notice to the
shareholders.
VOTING RIGHTS
The Trustees themself have the power to alter
the number and the terms of office of the
Trustees, and they may at any time lengthen
their own terms or make their terms of
unlimited duration (subject to certain
removal procedures) and appoint their own
successors, provided that in accordance with
the Act always at least a majority, but in
most instances, at least two-thirds of the
Trustees have been elected by the
shareholders of the Fund. Shares do not have
cumulative voting rights and therefore the
holders of more than 50% of the outstanding
shares of the Fund may elect all of the
Trustees irrespective of the votes of other
shareholders. Class A, Class B, Class C and
Class Y shares of a Portfolio of the Fund, if
any, represent interests in the assets of
that Portfolio and have identical voting,
dividend, liquidation and other rights on the
same terms and conditions, except that each
class of shares has exclusive voting rights
with respect to provisions of the Fund's Rule
12b-1 distribution plan which pertain to a
particular class . For example, a change in
investment policy for a Portfolio would be
voted upon only by shareholders of the
Portfolio involved. Additionally, approval
of each Portfolio's management agreement is a
matter to be determined separately by that
Portfolio. Approval of a proposal by the
shareholders of one Portfolio is effective as
to that Portfolio whether or not enough votes
are received from the shareholders of the
other Portfolios to approve the proposal as
to those Portfolios. As of June 30, 1995:
William C. Lochmoeller TTEE, FBO The
Lochmoeller Family Trust U/A/D 07/29/80, 1270
Mesa Rd., San Marino, CA 91108, owned
11,576.461 (17.269%) of the outstanding Class
B shares of the California Portfolio; Joan
Barnett, 3917 Alta Mesa Drive, Studio City,
CA 91604, owned 9,537.048 (14.22%) of the
outstanding Class B shares of the California
Portfolio; Patricia S. Gonzalez, 204 Upland
Court, Redwood City , CA 94062, owned
8,337.641 (12.43%) of the outstanding Class B
shares of the California Portfolio; Janet C.
Higgins, Successor TTEE, FBO Donald R.
Higgins & Janet C. Higgins Revocable Trust A,
U/A/D 6/10/85, 3119 Claridge Way, Sacramento,
CA 95821, owned 8245.169 (12.30%) of the
outstanding Class B shares of the California
Portfolio; Steven H. Pettit TTEE, FBO The
Tina & Tom Pettit Irrevocable Trust DTD 04-13-
95, 4839 Meadow Ridge Road, Santa Ysabel, CA
92070, owned 6,162.150 (9.19%) of the
outstanding Class B shares of the California
Portfolio; Vivian Gilbert Strell Laurie
Gilbert and Samuel Gilbert JTWROS, 7008
Lipmann Street, San Diego, CA 92212, owned
3,849.714 (5.74%) of the outstanding Class B
shares of the California Portfolio; Mutual
Management Corp., C/O Smith Barney, Inc.,
Attn: Thomas Reynolds, 388 Greenwich Street,
New York, NY 10013, owned 149,766.909
(20.47%) of the outstanding Class A shares of
the California Limited Portfolio; Alan D.
Levy Abby Jane Levy JTWROS, 910 N. Roxbury,
Beverly Hills, CA 90210, owned 74,963.00
(3.33%) of the outstanding Class A shares of
the California Limited Portfolio; Jeff Herman
& Kara Ann Herman JTWROS, 12021 Doral Street,
Northridge, CA 91326, owned 16,875.514
(6.83%) of the outstanding Class C shares of
the California Limited Portfolio; Robert L.
Smith & Lucille L. Smith TRS, UA DTD 2/18/76,
FBO Smith Family Trust, 420 Pebble Beach
Place, Fullerton, CA 92635, owned 16,849.115
(6.82%) of the outstanding Class C shares of
the California Limited Portfolio; Aloke Bosu,
12070 Telegraph Road, Suite #340, Santa Fe
Springs, CA 90670, owned 15,934.412 (6.45%)
of the outstanding Class C shares of the
California Limited Portfolio; Camilla Schoch
Gerald Schoch TTEE, U/A/D 07/06/90, FBO
Melbourne J Schoch, 41B Niniko Pl, Honolulu,
HI 96817, owned 15,815.459 (6.40%) of the
outstanding Class C shares of the California
Limited Portfolio; Anthony S. Wong & Mandy
Tang Wong TTEEs for the AMP Wong Family
Trust, U/A/D 12/08/89, 1071 Piedmont,
Sacramento, CA 95822; The E.G. Rosenblatt
Living TR, E.G. Rosenblatt TTEE, 2295 South
Ocean Blvd., Palm Beach, FL 33480, owned
624,871.770 (7.61%) of the outstanding Class
A shares of the Florida Portfolio; Norman S
Jaffe & Ann L Jaffe TTEES, Norman S Jaffe &
Ann L Jaffe Revocable Trust, U/A/D 6/10/90,
5700 North Bay Road, Miami Beach, FL 33140,
owned 16,455.156 (7.72%) of the outstanding
Class B shares of the Florida Portfolio;
Blanche Kaplan, 6039 Collins Avenue, Apt.
1056, Miami Beach, FL 33140, David S. Light
TTEE, FBO David S. Light U/A/D 11/12/90, The
David S. Light REV TR, 9406 W Broadview
Drive, Bay Harbor Isle, FL 33154, owned
13,233.408 (6.21%) of the outstanding Class B
shares of the Florida Portfolio; Samuel R.
Gardner and Sharon E. Gardner as Trustees
Under a Joint Revocable Trust Agreement DTD
12/03/92, 235 Ocean Way, Vero Beach, FL
32963, owned 11,140.903 (5.23%) of the
outstanding Class B shares of the Florida
Portfolio; Benjamin S. Loewenstein and
Eleanor S. Loewenstein TTEES UDT DTD 2/3/84,
198 Northwest 67th Street #306, Boca Raton,
FL 33487, owned 10,043.103 (6.14%) of the
outstanding Class C shares of the Florida
Portfolio; Sari Galan, 49-14 Skyline Blvd.,
Cape Coral, FL 33432, owned 9,960.516
(6.10%) of the outstanding Class C shares of
the Florida Portfolio; Phyllis L O9Neill, 341
Alexander Palm Road, Boca Raton, FL 33432,
9,604.000 (5.87%) of the outstanding Class C
shares of the Florida Portfolio; Susan H.
Dupuis Trustee, Susan H. Dupuis LIV. REV. TR.
DTD 9/26/89, 4100 Bay Point Road, Miami, FL
33137, owned 151,343.096 (7.64%) of the
outstanding Class A shares of the Florida
Limited Term Portfolio; Alico Inc., ATTN:
Craig Simmons, P.O. Box 338, Labelle, FL
33935, owned 46,013.436 (10.11%) of the
outstanding Class C shares of the Florida
Limited Term Portfolio; Rita Green, Person
Rep Estate of Samuel Auerbach, 11 Islan
Avenue, Apartment #1112. Miami Beach, FL
33139, owned 34,243.051 (7.53%) of the
outstanding Class C shares of the Florida
Limited Term Portfolio; Slyvia Pawliger TTEE
FBO, Sylvia Pawliger Living TR DTD 11/14/94,
5440 SW 85th Street, Miami, FL 33143, owned
32,237.785 (7.09%), of the outstanding Class
C shares of the Florida Limited Term
Portfolio; Dominick Amatulli TTEE, FBO
Dominick Amatulli U/A/D 01/25/93, 120 Shore
Drive, Rivera Beach, FL 33404, owned
32,194.048 (7.08%) of the outstanding Class C
shares of the Florida Limited Term Portfolio;
Gabriel H. Pou and Guillermina F. Pou, owned
1265 Mariola Ct., Coral Gables, FL 33134,
owned 23,249.793 (5.11%) of the outstanding
Class C shares of the Florida Limited Term
Portfolio; Mutual Management Corp., C/O Smith
Barney, Inc., ATTN: Thomas Reynolds, 388
Greenwich Street, New York, NY 10013, owned
62,599.636 (10.62%) of the outstanding Class
A shares of the Georgia Portfolio; Jeanne A.
Sellers, 1 Peachtree Battle #7, Atlanta, GA
30305, owned 43,272.325 (7.34%) of the
outstanding Class A shares of the Georgia
Portfolio; John H. Bennett Sr., 4846 Salaccoa
Road, Waleska, GA 30183, owned 17,449.361
(7.08%) of the outstanding Class B shares of
the Georgia Portfolio; Anna M. Fowlkes, 3750
Peachtree Road N.E. Apt. #712, Atlanta, GA
30319, owned 12,763.285 (5.18%) of the
outstanding Class B shares of the Georgia
Portfolio; Robert B. Quattlebaum, 2201 Azalea
Drive, Valdosta, GA 31602, owned 12,727.017
(5.17%) of the outstanding Class B shares of
the Georgia Portfolio; Jeanette L Griffis,
Rt.1 Box 266, Fargo, GA 31631, owned
12,514.371 (9.12%) of the outstanding Class C
shares of the Georgia Portfolio; Larry S.
Leake, 4084 Admiral Drive, Atlanta, GA
31631, owned 12,277.731 (8.95%) of the
outstanding Class C shares of the Georgia
Portfolio; Thomas A. Collentine MD and Judith
W. Collentine JTWROS, 1841 Lakehurst Court,
Smyrna, GA 30080, owned 9,035.359 shares of
the outstanding Class C shares of the Georgia
Portfolio; Ben W. Andrew Hope P. Andrew
JTWROS, 3110 Nottaway Ct. NE, Atlanta, GA
30341, owned 7,692.617 (5.61%) of the
outstanding Class C shares of the Georgia
Portfolio; Kurt F. Wilkening, 243 Robin
Drive, Sarasota, FL 34236, owned 30,965.592
(100%) of the outstanding Class Y shares of
the Limited Term Portfolio; James R. Scheele
P.O. Box 2477, Williston, ND 58802, owned
181,280.770 (32.67%) of the outstanding Class
B shares of the National Portfolio; Joseph
Mayson, 6615 Glenridge Drive, Atlanta, GA
30328, owned 29,995.027 (5.41%) of the
outstanding Class B shares of the National
Portfolio; Raymond P. Kane, 1 North Court,
Port Washington, NY 11050, owned 28,835.323
(5.20%) shares of the outstanding Class B
shares of the National Portfolio; Mr. Abe
Simon, 191 Cokesbury Road, PO Box 404,
Lebanon, NJ 08833, owned 7,539.079 (5.93%)
of the outstanding Class B shares of the New
Jersey Portfolio; Carleton N. Rowe Margaret
T. Rowe JTWROS, 206 Lenape Trail, Wenonah, NJ
08090, owned 19,339.416 (7.53%) of the
outstanding Class C shares of the New Jersey
Portfolio; Merel Julia and Martin Leaf, TTEES
UAD 2/3/89 Raul Julia Insurance Trust, C/O
Faden & Co., 605 3rd Ave. 11th flr., New
York, NY 10158, owned 20,599.007 (5.54%) of
the outstanding Class B shares of the New
York Portfolio; SBS Ohio Muni C/O Dahlia
McQueen, Treasury Admin, 388 Greenwich Street
39th Flr., New York, NY 10013, owned
62,761.584 (26.04%) of the outstanding Class
A shares of the Ohio Portfolio; John B.
Roderer, 7540 Peters Pk, Dayton, OH 45414,
owned 10,669.983 (5.11%) of the outstanding
Class B shares of the Ohio Portfolio; Plaford
E. Meredith, 5063 Waterloo Rd., Atwater, OH
44201, owned 8,318.847 (14.33%) of the
outstanding Class C shares of the Ohio
Portfolio; James A Wilkirson and Carolyn G.
Wilkirson JTWROS, 2400 Wimbledon Park Blvd.,
Toledo, OH 43617, owned 5,185.043 (8.93%) of
the outstanding Class C shares of the Ohio
Portfolio; Sandhya R. Nuthakki, Municipal
Bond Account, 4625 Schrubb Dr., Kettering, OH
45429, owned 4,425.086 (7.62%) of the
outstanding Class C shares of the Ohio
Portfolio; Nancy L. Schardt, 1648 West Alex-
Bell Rd, Dayton, OH 45459, owned 3,582.396
(6.17%) of the outstanding Class C shares of
the Ohio Portfolio; James J. Broussard, 530
Derwyn Rd., Drexel Hill, PA 19026, owned
102,939.291 (14.69%) of the outstanding Class
A shares of the Pennsylvania Portfolio;
Murray L. Katz and Harriet L. Katz JTWROS,
1130 Countryside Drive, Harrisburg, PA
17110, owned 86,904.114 (12.41%) of the
outstanding Class A shares of the
Pennsylvania Portfolio; Carol L Shields,
Idlewild Farm, 617 Williamson Road, Bryn
Mawr, PA 19010, owned 50,793.026 (7.25%) of
the outstanding Class A shares of the
Pennsylvania Portfolio; Nand Todi and Shashi
Todi TTEES Todi Living Trust U/A/D 12/10/93,
FBO Nand K. Todi & Shashi P. Todi, 424
Gwynedd Valley Drive, Gwynedd Valley, PA
19437, owned 43,463.633 (6.20%) of the
outstanding Class A shares of the
Pennsylvania Portfolio.
FINANCIAL STATEMENTS
The following information is hereby
incorporated by reference to the Fund's March
31, 1995 Annual Reports to Shareholders:
Page(s) in:
Annual Report
Annual Report of Limited
of National Term
Portfolio Portfolio
Schedules of Investments 7 - 23 7 - 20
Statements of Assets and Liabilities 26 22
Statements of Operations 27 23
Statements of Changes in Net Assets 28 24
Notes to Financial Statements29-32 25 - 27
Financial Highlights (for a share
of each series of beneficial interest
outstanding throughout each year) 33-34 28 - 29
Independent Auditors' Report 35 30
Page(s) in:
Annual Report
Annual Report of California,
of Florida & CA Limited Term,
Florida Limited Term CA Money Market
Portfolios Portfolios
Schedules of Investments 10 - 19 12 - 30
Statements of Assets and Liabilities 21 33
Statements of Operations 22 34
Statements of Changes in Net Assets 23 35 - 36
Notes to Financial Statements24 - 27 37 - 42
Financial Highlights (for a share
of each series of beneficial interest
outstanding throughout each year) 28-31 43 - 46
Independent Auditor's Report 32 47 - 48
Page(s) in:
Annual Report
of NY &
Annual Report New York
of New Jersey Money Market
Portfolio Portfolios
Schedules of Investments 7 - 11 8 - 18
Statements of Assets and Liabilities 14 21
Statements of Operations 15 22
Statements of Changes in Net Assets 16 23
Notes to Financial Statements17 - 20 24 - 27
Financial Highlights (for a share
of each series of beneficial interest
outstanding throughout each year) 21 - 22 28 - 30
Independent Auditors' Report 23 31
Page(s) in:
Annual Report
of Ohio, Georgia &
Pennsylvania
Portfolios
Schedules of Investments 11 - 18
Statements of Assets and Liabilities 21
Statements of Operations 22
Statements of Changes in Net Assets 23
Notes to Financial Statements24 - 28
Financial Highlights (for a share
of each series of beneficial interest
outstanding throughout each year) 29 - 31
Independent Auditor's Report 32
APPENDIX A
RATINGS OF MUNICIPAL BONDS, NOTES AND
COMMERCIAL PAPER
Description of Four Highest Municipal Bond
Ratings
Moody's Investors Service, Inc. ("Moody's"):
Aaa - Bonds that are rated Aaa are judged to
be of the best quality. They carry the
smallest degree of investment risk and are
generally referred to as "gilt edge."
Interest payments are protected by a large or
by an exceptionally stable margin and
principal is secure. While the various
protective elements are likely to change,
such changes as can be visualized are most
unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be
of high quality by all standards. Together
with the Aaa group, they comprise what are
generally known as high grade bonds. They
are rated lower than the best bonds because
margins of protection may not be as large as
in Aaa securities or fluctuation of
protective elements may be of greater
amplitude or there may be other elements
present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many
favorable investment attributes and are to be
considered as upper medium grade obligations.
Factors giving security to principal and
interest are considered adequate but elements
may be present which suggest a susceptibility
to impairment some time in the future.
Baa - Bonds that are rated Baa are considered
as medium grade obligations; i.e., they are
neither highly protected nor poorly secured.
Interest payments and principal security
appear adequate for the present but certain
protective elements may be lacking or may be
characteristically unreliable over any great
length of time. Such bonds lack outstanding
investment characteristics and in fact have
speculative characteristics as well.
Standard & Poor's Corporation ("S&P"):
AAA - Debt rated AAA has the highest rating
assigned by S&P. Capacity to pay interest
and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity
to pay interest and repay principal and
differs from the higher rated issues only in
small degree.
A - Debt rated A has a strong capacity to pay
interest and repay principal although it is
somewhat more susceptible to the adverse
effects of changes in circumstances and
economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having
adequate capacity to pay interest and repay
principal. Whereas it normally exhibits
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.
Description of State and Local Government
Municipal Note Ratings
Notes are assigned distinct rating symbols in
recognition of the differences between short-
term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and
short-term cyclical elements are critical in
short-term ratings, while other factors of
major importance in bond risk, long-term
secular trends for example, may be less
important over the short run.
Moody's Investors Service, Inc.:
Moody's ratings for state and municipal notes
and other short-term loans are designated
Moody's Investment Grade (MIG). A short-term
rating may also be assigned on an issue
having a demand feature -- a variable rate
demand obligation. Such ratings will be
designated as VMIG. Short-term ratings on
issues with demand features are
differentiated by the use of the VMIG symbol
to reflect such characteristics as payment
upon periodic demand rather than fixed
maturity dates and payment relying on
external liquidity. Additionally, investors
should be alert to the fact that the source
of payment may be limited to the external
liquidity with no or limited legal recourse
to the issuer in the event the demand is not
met. Symbols used are as follows:
MIG/VMIG 1 - Loans bearing this designation
are of the best quality, enjoying strong
protection from established cash flows of
funds, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG 2/VMIG 2 - Loans bearing this designation
are of high quality, with margins of
protection ample although not so large as in
the preceding group.
Standard & Poor's Corporation:
SP-1 - Very strong or strong capacity to pay
principal interest. Those issues determined
to possess overwhelming safety
characteristics will be given a plus (+)
designation.
SP-2 - Satisfactory capacity to pay principal
and interest.
Description of Highest Commercial Paper
Ratings
Moody's Investors Service, Inc.:
Prime-1 - Issuers (or related supporting
institutions) rated Prime-1 have a superior
capacity for repayment of short-term
promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the
following characteristics: leading market
positions in well-established industries;
high rates of return on funds employed;
conservative capitalization structures with
moderate reliance on debt and ample asset
protection; broad margins in earnings
coverage of fixed financial charges and high
internal cash generation; and well-
established access to a range of financial
markets and assured sources of alternate
liquidity.
Standard & Poor's Corporation:
A-1 - This designation 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 with a
plus (+) sign designation.
APPENDIX B
The following information is a summary of
special factors affecting California
Municipal Obligations. It does not purport
to be a complete description and is based on
information from statements relating to
securities offerings of California issuers.
Additional Discussion of Special Factors
Relating to California Municipal Obligations
California's economy is the largest
among the 50 states. The State's January 1,
1992 population of 31 million represented
approximately 12.0% of the total United
States population. Total employment was
about 14 million, the majority of which was
in the service, trade and manufacturing
sectors.
Since the start of the 1990-91 fiscal
year, the State has faced the worst economic,
fiscal and budget conditions since the 1930s.
Construction, manufacturing (especially
aerospace), and financial services, among
others, have all been severely affected. Job
losses have been the worst of any post-war
recession and have continued through the end
of 1993. Employment levels are expected to
stabilize before net employment starts to
increase and pre-recession job levels are not
expected to be reached for several more
years. Unemployment is expected to remain
above 9% through 1994.
The recession has seriously affected
State tax revenues, which basically mirror
economic conditions. It has also caused
increased expenditures for health and welfare
programs. The State is also facing a
structural imbalance in its budget with the
largest programs supported by the General
Fund--K-14 education (kindergarten through
community college), health, welfare and
corrections--growing at rates significantly
higher than the growth rates for the
principal revenue sources of the General
Fund. As a result, the State entered a
period of chronic budget imbalance, with
expenditures exceeding revenues for four of
the last five fiscal years. Revenues
declined in 1990-91 over 1989-90, the first
time since the 1930s. By June 30, 1993, the
State's General Fund had an accumulated
deficit, on a budget basis, of approximately
$2.8 billion. (Special Funds account for
revenues obtained from specific revenue
sources, and which are legally restricted to
expenditures for specific purposes.) The
1993-94 Budget Act incorporated a Deficit
Reduction Plan to repay this deficit over two
years. The original budget for 1993-94
reflected revenues which exceeded
expenditures by a approximately $2.8 billion.
As a result of continuing recession, the
excess of revenues over expenditures for the
fiscal year is now expected to be only about
$500 million. Thus, the accumulated budget
deficit at June 30, 1994 is now estimated by
the Department of Finance to be approximately
$2 billion, and the deficit will not be
retired by June 30, 1995 as planned. The
accumulated budget deficits over the past
several years, together with expenditures for
school funding which have not been reflected
in the budget, and the reduction of available
internal borrowable funds, have combined to
significantly depleted the State's cash
resources to pay as ongoing expenses. In
order to meet its cash needs, the State has
had to rely for several years on a series of
external borrowings, including borrowings
past the end of a fiscal year.
The State's tax revenue clearly reflects
sharp declines in employment, income and
retail sales on a scale not seen in over 50
years. The May 1994 revision to the 1994-95
Governor's Budget (the "May Revision"),
released May 20, 1994, assumes that the State
will start recovery from recessionary
conditions in 1994, with a modest upturn
beginning in 1994 and continuing into 1995, a
year later than predicted in the May 1993
Department of Finance economic projection.
Pre-recession job levels are not expected to
be reached until 1997.
However, there is growing evidence that
California is showing signs of an economic
turnaround, and the May Revision is revised
upward from the Governor's January Budget
forecast. Since the Governor's January Budget
forecast, 1993 non-farm employment has been
revised upward by 31,000 jobs. Employment in
the early months of 1994 has shown
encouraging signs of growth, several months
sooner than was contemplated in the January
Budget forecast. Between December 1993 and
April 1994, payrolls are up by 50,000 jobs.
On January 17, 1994 the Northridge
earthquake, measuring an estimated 6.8 on the
Richter Scale, struck Los Angeles.
Significant property damage to private and
public facilities occurred in a four-county
area including northern Los Angeles County,
Ventura County, and parts of Orange and San
Bernadino Counties, which were declared as
State and federal disaster areas by January
18. Current estimates of total property
damage (private and public) are in the range
of $20 billion or more, but these estimates
are still subject to change.
Despite such damage, on the whole, the
vast majority of structures in the areas,
including large manufacturing and commercial
buildings and all modern high-rise offices,
survived the earthquake with minimal or no
damage, validating the cumulative effect of
strict building codes and thorough
preparation for such emergency by the State
and local agencies.
Damage to State-owned facilities
included transportation corridors and
facilities such as Interstate Highways 5 and
10 and State Highways 14, 118 and 210. Most
of the major highways (Interstates 5 and 10)
have now been reopened. The campus at
California State University Northridge (very
near the epicenter) suffered an estimated
$350 million damage, resulting in the
temporary closure of the campus. lt reopened
using borrowed facilities elsewhere and many
temporary structures. There was also some
damage to the University of California at Los
Angeles and to the Van Nuys State Office
Building (now open after a temporary
closure). Overall, except for the temporary
road and bridge closures, and CSU-Northridge,
the earthquake did not and is not expected to
significantly affect State government
operations.
The State in conjunction with the
federal government is committed to providing
assistance to local governments, individuals
and businesses suffering damage as a result
of the earthquake, as well as to provide for
the repair and replacement of State owned
facilities. The federal government has
provided substantial earthquake assistance.
The President immediately allocated some
available disaster funds, and Congress has
approved additional funds for a total of $9.5
billion of federal funds for earthquake
relief, including assistance to homeowners
and small businesses, and costs for repair of
damaged public facilities. lt is now
estimated that the overall effect of the
earthquake on the regional and State economy
will not be serious. The earthquake may have
dampened economic activity briefly during
late January and February, but the rebuilding
efforts are now adding a small measure of
stimulus.
Sectors which are now contributing to
California's recovery include construction
and related manufacturing, wholesale and
retail trade, transportation and several
service industries such as amusements and
recreation, business services and management
consulting. Electronics is showing modest
growth and the rate of decline in aerospace
manufacturing is slowly diminishing. These
trends are expected to continue, and by next
year, most of the restructuring in the
finance and utilities industries should be
nearly completed. As a result of these
factors, average 1994 non-farm employment is
now forecast to maintain 1993 levels compared
to a projected 0.6% decline in the Governor's
January Budget forecast. 1995 employment is
expected to be up 1.6% compared to 0.7% in
the January Budget forecast.
The Northridge earthquake resulted in a
downward revision of this year's personal
income growth from 4% in the Governor's
January Budget forecast to 3.6%. However,
this decline is more than explained by the
$5.5 billion charge against rental and
proprietor's income---equal to 0.8% of total
income reflecting uninsured damage from the
quake. Next year, without the quake's
effects, income is projected to grow 6.1%
compared to 5% projected in the January
Budget forecast. Without the quake's effects,
income was little changed in the May Revision
compared to the January Budget forecast.
The housing forecast remains essentially
unchanged from the January Budget forecast.
Although existing sales have strengthened and
subdivision surveys indicated increased new
home sales, building permits are up only
slightly from recession lows. Gains are
expected in the months ahead, but higher
mortgage interest rates will dampen the
upturn. Essentially, the Northridge
earthquake adds a few thousand housing units
to the forecast, but this effect is offset by
higher interest rates.
Interest rates represent one of several
downside risks to the forecast. The rise in
interest rates has occurred more rapidly than
contemplated in the Governor's January Budget
forecast. In addition to affecting housing,
higher rates may also dampen consumer
spending, given the high percentage of
California homeowners with adjustable-rate
mortgages. The May Revision forecast includes
a further rise in the Federal Funds rate to
nearly 5% by the beginning of 1995. Should
rates rise more steeply, housing and consumer
spending would be adversely affected.
The unemployment upturn is still
tenuous. The Employment Development
Department revised down February's employment
gain and March was revised to a small
decline. Unemployment rates in California
have been volatile since January, ranging
from 10.1% to a low of 8.6%, with July's
figure at 9%. The small sample size coupled
with changes made to the survey instrument in
January contributed to this volatility.
1993-94 Budget
The Governor's Budget, introduced on
January 8, 1993, proposed General Fund
expenditures of $37.3 billion, with projected
revenues of $39.9 billion. To balance the
budget in the face of declining revenues, the
Governor proposed a series of revenue shifts
from local government, reliance on increased
federal aid, and reductions in State
spending.
The May Revision of the Governor's
budget, released on May 20,1993, projected
the State would have an accumulated deficit
of about $2.75 billion by June 30,1993,
essentially unchanged from the prior year.
The Governor proposed to eliminate this
deficit over an 18-month period. Unlike
previous years, the Governor's Budget and May
Revision did not calculate a "gap" to be
closed, but rather set forth revenue and
expenditure forecasts and proposals designed
to produce a balanced budget.
The 1993-94 Budget Act was signed by the
Governor on June 30, 1993, along with
implementing legislation. The Governor vetoed
about $71 million in spending. With enactment
of the Budget Act, the State carried out its
regular cash flow borrowing program for the
fiscal year with the issuance of $ billion of
revenue anticipation notes maturing June 28,
1994.
The 1993-94 Budget Act was predicated on
revenue and transfer estimates of $40.6
billion, $400 million below 1992-93 (and the
second consecutive year of actual decline).
The principal reasons for declining revenue
were the continued weak economy and the
expiration (or repeal) of three fiscal steps
taken in 1991 a half cent temporary sales
tax, a deferral -of operating loss
carryforwards, and repeal by initiative of a
sales tax on candy and snack foods.
The 1993-94 Budget Act also assumed
Special Fund revenues of $11.9 billion, an
increase of 2.9% over 1992-93. The 1993-94
Budget Act included General Fund expenditures
of $38.5 billion (a 6.3% reduction from
projected 1992-93 expenditures of $41.1
billion), in order to keep a balanced budget
within the available revenues. The Budget
also included Special Fund expenditures of
$12.1 billion, a 4.2% increase. The Budget
Act reflected the following major
adjustments:
1. Changes in local government
financing to shift about $2.6 billion in
property taxes from cities, counties, special
districts and redevelopment agencies to
school and community college districts. The
property tax losses for cities and counties
were offset in part by additional sales tax
revenues and relief from some state mandated
programs. Litigation by local governments
challenging this shift has so far been
unsuccessful. In November 1993 the voters
approved the permanent extension of the 0.5%
sales tax for local public safety purposes.
2. The Budget projected K-12
Proposition 98 funding on a cash basis at the
same per-pupil level as 1992-93 by-providing
schools a $609 million loan payable from
future years' Proposition 98 funds.
3. The Budget assumed receipt of
$692 million in aid to the State from the
federal government to offset health and
welfare costs associated with foreign
immigrants living in the State. About $411
million of this amount was one-time funding.
Congress ultimately appropriated only $450
million.
4. Reductions of $600 million in
health and welfare programs.
5. A 2-year suspension of the
renters' tax credit ($390 million expenditure
reduction in 1993-94).
6. Miscellaneous one-time items,
including deferral of payment to the Public
Employees Retirement Fund ($339 million) and
a change in accounting for debt service from
accrual to cash basis, saving $107 million.
Administration reports during the course
of the 1993-94 fiscal year have indicated
that, although economic recovery appears to
have started in the second half of the fiscal
year, recessionary conditions continued
longer than had been anticipated when the
1993-94 Budget Act was adopted. Overall,
revenues for the 1993-94 fiscal year were
about $800 million lower than original
projections, and expenditures were about $780
million higher, primarily because of higher
health and welfare caseloads, lower property
taxes, which require greater State support
for K-14 education to make up the shortfall,
and lower than anticipated federal government
payments for immigration-related costs. The
most recent reports, however, in May and June
1994, indicated that revenues in the second
half of the 1993-94 fiscal year have been
very close to the projections made in the
Governor's Budget of January 10, 1994, which
is consistent with a slow turnaround in the
economy.
During the 1993-94 fiscal year, the
State implemented the Deficit Reduction Plan,
which was a part of the 1993-94 Budget Act,
by issuing $1.2 billion of revenue
anticipation warrants in February 1994,
maturing December 21, 1994. This borrowing
reduced the cash deficit at the end of the
1993-94 fiscal year. Nevertheless, because of
the $1.5 billion variance from the original
Budget Act assumption, the General Fund ended
the fiscal year at June 30, 1994 carrying
forward an accumulated deficit of
approximately $2 billion. Because of the
revenue shortfall and the State's reduced
internal borrowing cash resources, in
addition to the $1-2 billion of revenue
anticipation warrants issued as part of the
Deficit Reduction Plan, the State issued an
additional $2 billion of revenue anticipation
warrants, maturing July 26,1994. which were
needed to fund the State's obligations and
expenses through the end of the 1993-94
fiscal year.
1994-95 Budget
The 1994-95 fiscal year represents the
fourth consecutive year the Governor and
Legislature were faced with a very difficult
budget environment to produce a balanced
budget. Many program cuts and budgetary
adjustments have already been made in the
last three years. The Governor's May Revision
to his Budget proposal recognized that the
accumulated deficit could not be repaid in
one year, and proposed a two-year solution.
The May Revision sets forth revenue and
expenditure forecasts and revenue and
expenditure proposals which result in
operating surpluses for the budget for both
1994-95 and 1995-96, and lead to the
elimination of the accumulated deficit,
estimated at about $2 billion at June 30,
1994 by June 30, 1996.
The 1994-95 Budget Act, signed by the
Governor on July 8, 1994, projects revenues
and transfers of $41.9 billion, about $2.1
billion higher than revenues in 1993-94. This
reflects the Administration's forecast of an
improved economy. Also included in this
figure is the projected receipt of about $360
million from the Federal Government to
reimburse the State for the cost of
incarcerating undocumented immigrants. The
State will not know how much the Federal
Government will actually provide until the
Federal fiscal year 1995 Budget is completed,
which is expected to be by October 1994. The
Legislature took no action on a proposal in
the Governor s January Budget to undertake
expansion of the transfer of certain programs
to counties, which would also have
transferred to counties 0.5% of the State
current sales tax. The Budget Act projects
Special Fund revenues of $12.1 billion, a
decrease of 2.4% from 1993-94 estimated
levels.
The 1994-95 Budget Act projects General
Fund expenditures of $40.9 billion, an
increase of $1.6 billion over 1993-94. The
Budget Act also projects Special Fund
expenditures of $13.7 billion, a 5.4%
increase over 1993-94 estimated expenditures.
The principal features of the Budget Act were
the following:
1. Receipt of additional federal
aid in 1994-95 of about $400 million for
costs of refugee assistance and medical care
for undocumented aliens, thereby offsetting a
similar General Fund cost. The State will not
know how much of these funds it will receive
until the Federal fiscal year 1994 Budget is
passed.
2. Reductions of approximately
$l.l billion in health and welfare programs.
3. A General Fund increase of
approximately $38 million in support for the
University of California and $65 million for
the California State University. It is
anticipated that student fees for the U.C.
and the C.S.U will increase up to 10%.
4. Proposition 98 funding for
K-14 schools is increased by $526 million
from the 1993-94 levels, representing an
increase for enrollment growth and inflation.
Consistent with previous budget agreements,
Proposition 98 funding provides approximately
$4,217 per student for K-12 schools, equal to
the level in the past three years.
5. Legislation enacted with the
Budget Act clarifies laws passed in 1992 and
1993 requiring counties and other local
agencies to transfer funds to local school
districts, thereby reducing State aid. Some
counties had implemented programs providing
less moneys to schools if there were
redevelopment agencies projects. The
legislation bans this method of transfers.
6. The Budget Act provides
funding for anticipated growth in the State's
prison inmate population, including
provisions for implementing recent
legislation (the so-called "Three Strikes"
law) which requires mandatory life sentences
for certain third-time felony offenders.
7. Additional miscellaneous cuts
($500 million) and fund transfers ($255
million) totaling in the aggregate
approximately $755 million.
The 1994-95 Budget Act contains no tax
increases. Under legislation enacted for the
1993-94 Budget, the renters' tax credit was
suspended for 1993 and 1994. A ballot
proposition to permanently restore the
renters' credit after this year failed at the
June 1994 election. The Legislature enacted a
further one-year suspension of the renters'
tax credit, saving about $390 million in the
1995-96 fiscal year. The 1994-95 Budget
assumes that the State will use a cash flow
borrowing program in 1994-95 which combines
one-year notes and warrants. Issuance of the
warrants allows the State to defer repayment
of approximately $1 billion of its
accumulated budget deficit into the 1995-96
fiscal year.
THE FOREGOING DISCUSSION OF THE 1993-94
AND 1994-1995 FISCAL YEAR BUDGETS IS BASED IN
LARGE PART ON STATEMENTS MADE IN A RECENT
"PRELIMINARY OFFICIAL STATEMENT" DISTRIBUTED
BY THE STATE OF CALIFORNIA. IN THAT
DOCUMENT, THE STATE INDICATED THAT ITS
DISCUSSION OF THE 1994-95 FISCAL YEAR BUDGET
WAS BASED ON ESTIMATES AND PROJECTIONS OF
REVENUES AND EXPENDITURES FOR THE CURRENT
FISCAL YEAR AND MUST NOT BE CONSTRUED AS
STATEMENTS OF FACT. THE STATE NOTED FURTHER
THAT THE ESTIMATES AND PROJECTIONS ARE BASED
UPON VARIOUS ASSUMPTIONS WHICH MAY BE
AFFECTED BY NUMEROUS FACTORS, INCLUDING
FUTURE ECONOMIC CONDITIONS IN THE STATE AND
THE NATION, AND THAT THERE CAN BE NO
ASSURANCE THAT THE ESTIMATES WILL BE
ACHIEVED.
The State is subject to an annual
appropriations limit imposed by Article XIII
B of the State Constitution (the
"Appropriations Limit"), and is prohibited
from spending "appropriations subject to
limitation" in excess of the Appropriations
Limit. Article XIIIB, originally adopted in
1979, was modified substantially by
Propositions 98 and 111 in 1988 and 1990,
respectively. "Appropriations subject to
limitation" are authorizations to spend
"proceeds of taxes", which consist of tax
revenues and certain other funds, including
proceeds from regulatory licenses, user
charges or other fees to the extent that such
proceeds exceed the reasonable cost of
providing the regulation, product or service.
The Appropriations Limit is based on the
limit for the prior year, adjusted annually
for certain changes, and is tested over
consecutive two-year periods. Any excess of
the aggregate proceeds of taxes received over
such two-year period above the combined
Appropriation Limits for those two years is
divided equally between transfers to K-14
districts and refunds to taxpayers.
Exempted from the Appropriations Limit
are debt service costs of certain bonds,
court or federally mandated costs, and,
pursuant to Proposition 111, qualified
capital outlay projects and appropriations or
revenues derived from any increase in
gasoline taxes and motor vehicle weight fees
above January 1, 1990 levels. Some recent
initiatives were structured to create new tax
revenues dedicated to specific uses and
expressly exempted from the Article XIIIB
limits. The Appropriations Limit may also
be exceeded in cases of emergency arising
from civil disturbance or natural disaster
declared by the Governor and approved by two-
thirds of the Legislature. If not so
declared and approved, the Appropriations
Limit for the next three years must be
reduced by the amount of the excess.
Article XIIIB, as amended by Proposition
98 on November 8, 1988, also establishes a
minimum level of state funding for school and
community college districts and requires that
excess revenues up to a certain limit be
transferred to schools and community college
districts instead of returned to the
taxpayers. Determination of the minimum
level of funding is based on several tests
set forth in Proposition 98. During fiscal
year 1991-92 revenues were smaller than
expected, thus reducing the payment owed to
schools in 1991-92 under alternate "test"
provisions. In response to the changing
revenue situation, and to fully fund the
Proposition 98 guarantee in the 1991-92 and
1992-93 fiscal years without exceeding it,
the Legislature enacted legislation to reduce
1991-92 appropriations. The amount budgeted
to schools but which exceeded the reduced
appropriation was treated as a non-
Proposition 98 short-term loan in 1991-92.
As part of the 1992-93 Budget, $1.1 billion
of the amount budgeted to K-14 schools was
designated to "repay" the prior year loan,
thereby reducing cash outlays in 1992-93 by
that amount. To maintain per-average daily
attendance ("ADA") funding, the 1992-93
Budget included loans of $732 million to K-12
schools and $241 million to community
colleges, to be repaid from future
Proposition 98 entitlements. The 1993-94
Budget also provided new loans of $609
million to K-12 schools and $178 million to
community colleges to maintain ADA funding.
These loans have been combined with the 1992-
93 fiscal year loans into one loan of $1.760
billion, to be repaid from future years'
Proposition 98 entitlements, and conditioned
upon maintaining current funding levels per
pupil at K-12 schools. A Sacramento County
Superior Court in California Teachers'
Association, et al. v. Gould, et al., has
ruled that the 1992-93 loans to K-12 schools
and community colleges violate Proposition
98. The impact of the court's ruling on the
State budget and funding for schools is
unclear and will remain unclear until the
Court's written ruling, which is currently
being prepared, is issued.
The 1994-95 Budget Act has appropriated
$14.4 billion of Proposition 98 funds for K-
14 schools, exceeding the minimum Proposition
98 guaranty by $8 million to maintain K-12
funds per pupil at $4,217. Based upon State
revenues, growth rates and inflation factors,
the 1994-95 Budget Act appropriations an
additional $286 million within Proposition
908 for the 1993-94 fiscal year to reflect a
need in appropriations for school district
and county officers of education, as well as
an anticipated deficiency in special
education funding.
Because of the complexities of Article
XIIIB, the ambiguities and possible
inconsistencies in its terms, the
applicability of its exceptions and
exemptions and the impossibility of
predicting future appropriations, the Sponsor
cannot predict the impact of this or related
legislation on the Bonds in the California
Trust Portfolio. Other Constitutional
amendments affecting state and local taxes
and appropriations have been proposed from
time to time. If any such initiatives are
adopted, the State could be pressured to
provide additional financial assistance to
local governments or appropriate revenues as
mandated by such initiatives. Propositions
such as Proposition 98 and others that may be
adopted in the future, may place increasing
pressure on the State's budget over future
years, potentially reducing resources
available for other State programs,
especially to the extent the Article XIIIB
spending limit would restrain the State's
ability to fund such other programs by
raising taxes.
As of July 1, 1994, the State had over
$18.34 billion aggregate amount of its
general obligation bonds outstanding.
General obligation bond authorizations in the
aggregate amount of approximately $5.16
billion remained unissued as of July 1, 1994.
The State also builds and acquires capital
facilities through the use of lease purchase
borrowing. As of June 30, 1994, the State
had approximately $5.09 billion of
outstanding Lease-Purchase Debt.
In addition to the general obligation
bonds, State agencies and authorities had
approximately $21.87 billion aggregate
principal amount of revenue bonds and notes
outstanding as of March 31, 1993. Revenue
bonds represent both obligations payable from
State revenue-producing enterprises and
projects, which are not payable from the
General Fund, and conduit obligations payable
only from revenues paid by private users of
facilities financed by such revenue bonds.
Such enterprises and projects include
transportation projects, various public works
and exposition projects, education facilities
(including the California State University
and University of California systems),
housing health facilities and pollution
control facilities.
The State is a party to numerous legal
proceedings, many of which normally occur in
governmental operations. In addition, the
State is involved in certain other legal
proceedings that, if decided against the
State, might require the State to make
significant future expenditures or impair
future revenue sources. Examples of such
cases include challenges to the State's
method of taxation of certain businesses,
challenges to certain vehicle license fees,
and challenges to the State's use of Public
Employee Retirement System funds to offset
future State and local pension contributions.
Other cases which could significantly impact
revenue or expenditures involve reimbursement
to school districts for voluntary school
desegregation and state mandated costs,
challenges to Medi-Cal eligibility, recovery
for flood damages, and liability for toxic
waste cleanup. Because of the prospective
nature of these proceedings, it is not
presently possible to predict the outcome of
such litigation or estimate the potential
impact on the ability of the State to pay
debt service on its obligations.
On June 20, 1994, the United States
Supreme Court, in two companion cases,
upheld the validity of California's prior
method of taxing multinational corporations
under a "unitary" method of accounting for
their worldwide earnings, thus avoiding tax
refunds of approximately $1.55 billion by the
State, and enabling the State to collect
$620 million in previous assessments.
Barclays Bank PLC v. Franchise Tax Board
concerning foreign corporations, and Colgate-
Palmolive v. Franchise Tax Board concerned
domestic corporations.
Ratings
On July 15, 1994, Standard Poor's
Corporation ("Standard & Poor's"), Moody's
Investors Service, Inc. ("Moody's"),and Fitch
Investors Service, Inc. ("Fitch") all
downgraded their ratings of California's
general obligation bonds. These bonds are
usually sold in 20- to 30-year increments
and used to finance the construction of
schools, prisons, water systems and other
projects. The ratings were reduced by
Standard & Poor's from "A+" to "A", by
Moody's from "Aa" to "A1", and by Fitch from
"AA" to "A". Since 1991, when it had a
"AAA" rating, the State's rating has been
downgraded three times by all three ratings
agencies. All three agencies cite the 1994-
95 Budget Act's dependence on a
"questionable" federal bailout to pay for the
cost of illegal immigrants, the Propositions
98 guaranty of a minimum portion of State
revenues for kindergarten through community
college, and the persistent deficit
requiring more borrowing as reasons for the
reduced rating. Another concern was the
State's reliance on a standby mechanism which
could trigger across-the-board reductions in
all State programs, and which could disrupt
State operations, particularly in fiscal year
1995-96. However, a Standard & Poor's
spokesman stated that, although the lowered
ratings means California is a riskier
borrower, Standard & Poor's anticipates that
the State will pay off its debts and not
default. There can be no assurance that
such ratings will continue for any given
period of time or that they will not in the
future be further revised.
As a result of Orange County's Chapter 9
bankruptcy filing on December 6, 1994,
Moody's has suspended the County's bond
ratings, and Standard & Poor's has cut its
rating of all Orange County debt from "AA-"
to "CCC", a level below investment grade and
an indication of high risk and uncertainty.
Fitch does not rate Orange County bonds. It
is anticipated that as Orange County's credit
and bond ratings fall, it will have
difficulty in getting loans or selling its
bonds to raise money. Additionally, the
County's bankruptcy filing could affect about
180 municipalities, school districts and
other municipal entities which entrusted
billions of dollars to Orange County to
invest. Standard & Poor's has informed such
entities that they have been placed on
negative credit watch, the usual step prior
to a downgrade of credit rating.
APPENDIX C
The following information is a summary of
special factors affecting New York Municipal
Obligations. It does not purport to be a
complete description and is based on
information from statements relating to
securities offerings of New York issuers.
Additional Discussion of Special Factors
Relating to New York Municipal Obligations
The State's current fiscal year
commenced on April 1, 1994, and ends in March
31, 1995, and is referred to herein as the
State's 1994-95 fiscal year. The State's
budget for the 1994-95 fiscal year was
enacted by the Legislature on June 7, 1994,
more than two months after the start of the
fiscal year. Prior to adoption of the
budget, the Legislature enacted
appropriations for disbursements considered
to be necessary for State operations and
other purposes, including all necessary
appropriations for debt service. The State
Financial Plan for the 1994-95 fiscal year
was formulated on June 16, 1994 and is based
on the State's budget as enacted by the
Legislature and signed into law by the
Governor.
The economic and financial condition of
the State may be affected by various
financial, social, economic and political
factors. Those factors can be very complex,
may vary from fiscal year to fiscal year, and
are frequently the result of actions taken
not only by the State and its agencies and
instrumentalities, but also by entities, such
as the Federal government, that are not under
the control of the State.
The State Financial Plan is based upon
forecasts of national and State economic
activity. Economic forecasts have frequently
failed to predict accurately the timing and
magnitude of changes in the national and the
State economies. Many uncertainties exist in
forecasts of both the national and State
economies, including consumer attitudes
toward spending, Federal financial and
monetary policies, the availability of
credit, and the condition of the world
economy, which could have an adverse effect
on the State. There can be no assurance that
the State economy will not experience results
in the current fiscal year that are worse
than predicted, with corresponding material
and adverse effects on the State's
projections of receipts and disbursements.
The State Division of the Budget ("DOB")
believes that its projections of receipts and
disbursements relating to the current State
Financial Plan, and the assumptions on which
they are based, are reasonable. Actual
results, however, could differ materially and
adversely from the projections set forth
below, and those projections may be changed
materially and adversely from time to time.
As noted above, the financial condition
of the State is affected by several factors,
including the strength of the State and
regional economy and actions of the Federal
government, as well as State actions
affecting the level of receipts and
disbursements. Owing to these and other
factors, the State may, in future years, face
substantial potential budget gaps resulting
from a significant disparity between tax
revenues projected from a lower recurring
receipts base and the future costs of
maintaining State programs at current levels.
Any such recurring imbalance would be
exacerbated if the State were to use a
significant amount of nonrecurring resources
to balance the budget in a particular fiscal
year. To address a potential imbalance for a
given fiscal year, the State would be
required to take actions to increase receipts
and/or reduce disbursements as it enacts the
budget for that year, and under the State
Constitution the Governor is required to
propose a balanced budget each year. To
correct recurring budgetary imbalances, the
State would need to take significant actions
to align recurring receipts and disbursements
in future fiscal years. There can be no
assurance, however, that the State's actions
will be sufficient to preserve budgetary
balance in a given fiscal year or to align
recurring receipts and disbursements in
future fiscal years.
The 1994-95 State Financial Plan
contains actions that provide nonrecurring
resources or savings, as well as actions that
impose nonrecurring losses of receipts or
costs. It is believed that the net positive
effect of nonrecurring actions represents
considerably less than one-half of one
percent of the State's General Fund, an
amount significantly lower than the amount
included in the State Financial Plans in
recent years; it is believed that those
actions do not materially affect the
financial condition of the State. In
addition to those nonrecurring actions, the
1994-95 State Financial Plan reflects the use
of $1.026 billion in the positive cash margin
carried over from the prior fiscal year,
resources that are not expected to be
available in the State's 1995-96 fiscal year.
The General Fund is the general
operating fund of the State and is used to
account for all financial transactions,
except those required to be accounted for in
another fund. It is the State's largest fund
and receives almost all State taxes and other
resources not dedicated to particular
purposes. In the State's 1994-95 fiscal
year, the General Fund is expected to account
for approximately 52 percent of total
governmental-fund receipts and 51 percent of
total governmental-fund disbursements.
General Fund moneys are also transferred to
other funds, primarily to support certain
capital projects and debt service payments in
other fund types.
New York State's financial operations
have improved during recent fiscal years.
During the period 1989-90 through 1991-92,
the State incurred General Fund operating
deficits that were closed with receipts from
the issuance of tax and revenue anticipation
notes ("TRANs"). First, the national
recession, and then the lingering economic
slowdown in the New York and regional
economy, resulted in repeated shortfalls in
receipts and three budget deficits. For its
1992-93 and 1993-94 fiscal years, the State
recorded balanced budgets on a cash basis,
with substantial fund balances in each year
as described below.
The State ended its 1993-94 fiscal year
with a balance of $1.140 billion in the tax
refund reserve account, $265 million in its
Contingency Reserve Fund ("CRF") and $134
million in its Tax Stabilization Reserve
Fund. These fund balances were primarily the
result of an improving national economy,
State employment growth, tax collections that
exceeded earlier projections and
disbursements that were below expectations.
Deposits to the personal income tax refund
reserve have the effect of reducing reported
personal income tax receipts in the fiscal
year when made and withdrawals from such
reserve increase receipts in the fiscal year
when made. The balance in the tax refund
service account will be used to pay taxpayer
refunds, rather than drawing from 1994-95
receipts.
Of the $1.140 billion deposited in the
tax refund reserve account, $1.026 billion
was available for budgetary planning purposes
in the 1994-95 fiscal year. The remaining
$114 million will be redeposited in the tax
refund reserve account at the end of the
State's 1994-95 fiscal year to continue the
process of restructuring the State's cash
flow as part of the Local Government
Assistance Corporation ("LGAC") program. The
balance in the CRF will be used to meet the
cost of litigation facing the State. The Tax
Stabilization Reserve Fund may be used only
in the event of an unanticipated General Fund
cash-basis deficit during the 1994-95 fiscal
year.
Before the deposit of $1.140 billion in
the tax refund service account, General Fund
receipts in 1993-94 exceeded those originally
projected when the State Financial Plan for
that year was formulated on April 16, 1993 by
$1.002 billion. Greater-than-expected
receipts in the personal income tax, the bank
tax, the corporation franchise tax and the
estate tax accounted for most of this
variance, and more than offset weaker-than-
projected collections from the sales and use
tax and miscellaneous receipts. Collections
from individual taxes were affected by
various factors including changes in Federal
business laws, sustained profitability of
banks, strong performance of securities
firms, and higher-than-expected consumption
of tobacco products following price cuts.
Disbursements and transfers from the
General Fund were $303 million below the
level projected in April 1993, an amount that
would have been $423 million had the State
not accelerated the payment of Medicaid
billings, which in the April 1993 State
Financial Plan were planned to be deferred
into the 1994-95 fiscal year. Compared to the
estimates included in the State Financial
Plan formulated in April 1993, lower
disbursements resulted from lower spending
for Medicaid, capital projects, and debt
service (due to refundings) and $114 million
used to restructure the State's cash flow as
part of the LGAC program. Disbursements were
higher-than-expected for general support for
public schools, the State share of income
maintenance, overtime for prison guards, and
highway snow and ice removal.
In certain prior fiscal years, the State
has failed to enact a budget prior to the
beginning of the State's fiscal year. A
delay in the adoption of the State's budget
beyond the statutory April 1 deadline and the
resultant delay in the State's Spring
borrowing has in certain prior years delayed
the projected receipt by the City of State
aid, and there can be no assurance that State
budgets in the future fiscal years will be
adopted by the April 1 statutory deadline.
The State has noted that its forecasts
of tax receipts have been subject to variance
in recent fiscal years. As a result of these
uncertainties and other factors, actual
results could differ materially and adversely
from the State's current projections and the
State's projections could be materially and
adversely changed from time to time. There
can be no assurance that the State will not
face substantial potential budget gaps in
future years resulting from a significant
disparity between tax revenues projected from
a lower recurring receipts base and the
spending required to maintain State programs
at current levels. To address any potential
budgetary imbalance, the State may need to
take significant actions to align recurring
receipts and disbursements in future fiscal
years.
Ratings on general obligation bonds of
the State of New York were lowered by
Standard & Poor's Corporation and Moody's
Investors Service during 1990 from AA- to A
and Aa to A, respectively. On January 6,
1992, Moody's Investors Service lowered its
rating on certain appropriations-backed debt
of New York State to Baa1 from A. The agency
cited the failure of Governor Mario M. Cuomo
and New York State lawmakers to close New
York's current year budget gap. Moody's
Investors Services also placed the general
obligation, State guaranteed and New York
local Municipal Assistance Corporation Bonds
under review for possible downgrade in coming
months. In addition, on January 13, 1992,
Standard & Poor's Corporation lowered its
rating on general obligation debt and
guaranteed debt to A- from A. Standard &
Poor's Corporation also downgraded its rating
on variously rated debt, State moral
obligations, contractual obligations, lease
purchase obligations and other State
guarantees. Additional reductions in ratings
could result in a loss to Unit holders.
As of March 31, 1994, the State had
approximately $5.370 billion in general
obligation bonds, excluding refunding bonds
and $294 million in bond anticipation notes
outstanding. On May 24, 1993, the State
issued $850 million in tax and revenue
anticipation notes, all of which matured on
December 31, 1993. Principal and interest
due on general obligation bonds and interest
due on bond anticipation notes and on tax and
revenue anticipation notes were $782.5
million for the 1993-94 fiscal year, and are
estimated to be $786.3 million for the 1994-
95 fiscal year. These figures do not include
interest on refunding bonds issued in July
1992, to the extent that such interest is to
be paid from escrowed funds.
State Authorities
The fiscal stability of the State is
related to the fiscal stability of its
authorities, which generally have
responsibility for financing, constructing,
and operating revenue-producing benefit
facilities. Certain authorities of the
State, including the State Housing Finance
Agency ("HFA"), the Urban Development
Corporation ("UDC") and the Metropolitan
Transportation Authority ("MTA") have faced
and continue to experience substantial
financial difficulties which could adversely
affect the ability of such authorities to
make payments of interest on, and principal
amounts of, their respective bonds. Should
any of its authorities default on their
respective obligations, the State's access to
public credit markets could be impaired. The
difficulties have in certain instances caused
the State (under its so-called "moral
obligation") to appropriate funds on behalf
of the authorities. Moreover, it is expected
that the problems faced by these authorities
will continue and will require increasing
amounts of State assistance in future years.
Failure of the State to appropriate necessary
amounts or to take other action to permit
those authorities having financial
difficulties to meet their obligations
(including HFA, UDC and MTA) could result in
a default by one or more of the authorities.
Such default, if it were to occur, would be
likely to have a significant adverse effect
on investor confidence in, and therefore the
market price of, obligations of the
defaulting authority. In addition, any
default in payment of any general obligation
of any authority whose bonds contain a moral
obligation provision could constitute a
failure of certain conditions that must be
satisfied in connection with Federal
guarantees of City and MAC obligations and
could thus jeopardize the City's long-term
financing plans.
The fiscal stability of the State is
related to the fiscal stability of its
authorities, which generally have
responsibility for financing, constructing
and operating revenue-producing public
benefit facilities. The authorities are not
subject to the constitutional restrictions on
the incurrence of debt which apply to the
State itself and may issue bonds and notes
within the amounts of, and as otherwise
restricted by, their legislative
authorization. As of September 30, 1992,
there were 18 authorities that had
outstanding debt of $100 million or more. The
aggregate outstanding debt, including bonds,
of these 18 authorities was 63.5 billion as
of September 30, 1993. As of March 31, 1994,
aggregate public authority debt outstanding
as State supported debt was $21.1 billion as
State-related debt was $29.4 billion.
The authorities are generally supported
by revenues generated by the projects
financed or operated, such as fares, user
fees on bridges, highway tolls and rentals
for dormitory rooms and housing. In recent
years, however, the State has provided
financial assistance through appropriations,
in some cases of a recurring nature, to
certain of the 18 authorities for operating
and other expenses and, in fulfillment of its
commitments on moral obligation indebtedness
or otherwise for debt service. This
assistance is expected to continue to be
required in future years.
The MTA oversees the operation of New
York City's subway and bus lines by its
affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface
Transit operating (collectively, the "Transit
Authority" or the "TA"). Through MTA's
subsidiaries, the Long Island Railroad
Company, the Metro-North Commuter Railroad
Company and the Metropolitan Suburban Bus
Authority, the MTA operates certain commuter
rail and bus lines in the New York
metropolitan area. In addition, the Staten
Island Rapid Transit Operating Authority, an
MTA subsidiary, operates a rapid transit line
on Staten Island. Through its affiliated
agency, the Triborough Bridge and Tunnel
Authority (the "TBTA"), the MTA operates
certain intrastate toll bridges and tunnels.
Because fare revenues are not sufficient to
finance the mass transit portion of these
operations, the MTA has depended and will
continue to depend for operating support upon
a system of Federal, State, local government
and TBTA support, including loans, grants and
operating subsidies. Over the past several
years, the State has enacted several taxes,
including a surcharge on the profits of
banks, insurance corporations and general
business corporations doing business in the
12-county region served by the MTA (the
"Metropolitan Transportation Region") and a
special one-quarter of 1% regional sales and
use tax, that provide additional revenues for
mass transit purposes including assistance to
the MTA, the surcharge, which expires in
November 1995, yielded $507 million in
calendar year 1992, of which the MTA was
entitled to receive approximately 90 percent,
or approximately $456 million. For the 1994-
95 State fiscal year, total State assistance
to the MTA is estimated at approximately $1.3
billion.
In 1993, State legislation authorized
the refunding of a five-year $9.56 billion
MTA capital plan for the five-year period,
1992 through 1996 (the "1992-96 Capital
Program"). The MTA has received approval of
the 1992-96 Capital Program based on this
legislation from the 1992-96 Capital Program
Review Board, as State law requires. This is
the third five-year plan since the
Legislature authorized procedures for the
adoption, approval and amendment of a five-
year plan in 1981 for a capital program
designed to upgrade the performance of the
MTA's transportation systems and to
supplement, replace and rehabilitate
facilities and equipment. The MTA, the TBTA
and the TA are collectively authorized to
issue an aggregate of $3.1 billion of bonds
(net of certain statutory exclusions) to
finance a portion of the 1992-96 Capital
Program. The 1992-96 Capital Program is
expected to be financed in significant part
through the dedication of State petroleum
business taxes.
There can be no assurance that all the
necessary governmental actions for the
Capital Program will be taken, that funding
sources currently identified will not be
decreased or eliminated, or that the 1992-96
Capital Program, or parts thereof, will not
be delayed or reduced. Furthermore, the
power of the MTA to issue certain bonds
expected to be supported by the appropriation
of State petroleum business taxes is
currently the subject of a court challenge.
If the Capital Program is delayed or reduced,
ridership and fare revenues may decline,
which could, among other things, impair the
MTA's ability to meet its operating expenses
without additional State assistance.
The State's experience has been that if
an Authority suffers serious financial
difficulties, both the ability of the State
and the Authorities to obtain financing in
the public credit markets and the market
price of the State's outstanding bonds and
notes may be adversely affected. The Housing
Finance Agency ("HFA") and the Urban
Development Corporation ("UDC") have in the
past required substantial amounts of
assistance from the State to meet debt
service costs or to pay operating expenses.
Further assistance, possibly in increasing
amounts, may be required for these, or other,
Authorities in the future. In addition,
certain statutory arrangements provide for
State local assistance payments otherwise
payable to localities whose local assistance
payments otherwise payable to localities to
be made under certain circumstances to
certain Authorities. The State has no
obligation to provide additional assistance
to localities whose local assistance payments
have been paid to Authorities under these
arrangements. However, in the event that
such local assistance payments are so
diverted, the affected localities could seek
additional State funds.
New York City and Other Localities
The City, with a population of
approximately 7.3 million, is an
international center of business and culture.
Its non-manufacturing economy is broadly
based, with the banking and securities, life
insurance, communications, publishing,
fashion design, retailing and construction
industries accounting for a significant
portion of the City's total employment
earnings. Additionally, the City is the
nation's leading tourist destination. The
City's manufacturing activity is conducted
primarily in apparel and publishing.
The national economic recession which
began in July 1990 has adversely impacted the
City harder than almost any other political
jurisdiction in the nation. As a result, the
City, with approximately 3 percent of
national employment, has lost approximately
20 percent of all U.S. jobs during the recent
economic downturn and, consequently, has
suffered erosion of its local tax base. In
total, the City private sector employment has
plummeted by approximately 360,000 jobs since
1987. But, after nearly five years of
decline, the City appears to be on the verge
of a broad-based recovery which will lift
many sectors of the local economy. Most of
the nascent local recovery can be attributed
to the continued improvement in the U.S.
economy, but a great deal of the strength
expected in the City economy will be due to
local factors, such as the heavy
concentration of the securities and banking
industries in the City. The current forecast
calls for modest employment growth of about
20,000 a year (0.6 percent) on average
through 1998 with some slowing but still
positive growth in employment in 1995-96 as
U.S. growth slows (local job gains slow from
25,000 to around 10,000 per year).
During the most recent economic
downturn, the City has faced recurring
extraordinary budget gaps that have been
addressed by undertaking one-time, one-shot
budgetary initiatives to close then projected
gaps in order to achieve a balanced budget as
required by the laws of the State. For
example, in order to achieve a balanced
budget for the 1992 fiscal year, the City
increased taxes and reduced services during
the 1991 fiscal year to close a then
projected gap of $3.3 billion in the 1992
fiscal year which resulted from, among other
things, lower than expected tax revenue of
approximately $1.4 billion, reduced State aid
for the City of approximately $564 million
and greater than projected increases in
legally mandated expenditures of
approximately $400 million, including public
assistance and Medicare expenditures. The
gap-closing measures for fiscal year 1992
included receipt of $605 million from tax
increases, approximately $1.5 billion of
proposed service reductions and proposed
productivity savings of $545 million.
Notwithstanding its recurring projected
budget gaps, for fiscal years 1981 through
1993 the City achieved balanced operating
results (the City's General Fund revenues and
transfers reduced by expenditures and
transfers), as reported in accordance with
Generally Accepted Accounting Principles
("GAAP"), and the City's 1994 fiscal year
results are projected to be balanced in
accordance with GAAP.
The City's ability to maintain balanced
budgets in the future is subject to numerous
contingencies; therefore, even though the
City has managed to close substantial budget
gaps in recent years in order to maintain
balanced operating results, there can be no
assurance that the City will continue to
maintain a balanced budget as required by
State law without additional tax or other
revenue increases or reduction in City
services, which could adversely affect the
City's economic base.
Pursuant to the laws of the State, the
City prepares an annual four-year financial
plan, which is reviewed and revised on a
quarterly basis and which includes the City's
capital, revenue and expense projections.
The City is required to submit its financial
plans to review bodies, including the New
York State Financial Control Board ("Control
Board"). If the City were to experience
certain adverse financial circumstances,
including the occurrence or the substantial
likelihood and imminence of the occurrence of
an annual operating deficit of more than $100
million or the loss of access to the public
credit markets to satisfy the City's capital
and seasonal financing requirements, the
Control Board would be required by State law
to exercise powers, among others, of prior
approval of City financial plans, proposed
borrowings and certain contracts.
1995-1998 Financial Plan. On July 8,
1994, the City submitted to the Control Board
the Financial Plan for the 1995-1998 fiscal
years (the "1995-1998 Financial Plan or
"Financial Plan"), which relates to the City,
the Board of Education ("BOE") and the City
University of New York ("CUNY"). The
Financial Plan is based on the City's expense
and capital budgets for the City's 1995
fiscal year, which were adopted on June 23,
1994.
The 1995-1998 Financial Plan projects
revenues and expenditures for the 1995 fiscal
year balanced in accordance with GAAP. The
projections for the 1995 fiscal year reflect
proposed actions to close a previously
projected gap of approximately $2.3 billion
for the 1995 fiscal year, which include City
actions aggregating $1.9 billion, a $288
million increase in State actions over the
1994 and 1995 fiscal years, and a $200
million increase in Federal assistance. The
City actions include proposed agency actions
aggregating $1.1 billion, including
productivity savings; tax and fee enforcement
initiatives; service reductions; and savings
from the restructuring of City services. City
actions also include savings of $45 million
resulting from proposed tort reform, the
projected transfer to the 1995 fiscal year
of $171 million of the projected 1994 fiscal
year surplus, savings of $200 million for
employee health care costs, $51 million in
reduced pension costs, savings of $225
million from refinancing City bonds and $65
million from the proposed sale of certain
City assets. The proposed savings for
employee health care costs are subject to
collective bargaining negotiation with the
City's unions; the proposed savings from tort
reform will require the approval of the State
Legislature; and the $200 million increase in
Federal assistance is subject to approval by
Congress and the President.
The Financial Plan also set forth
projections for the 1996 through 1998 fiscal
years and outlines a proposed gap-closing
program to close projected gaps of $1.5
billion, $2.0 billion and a $2.4 billion for
the 1996 through 1998 fiscal years,
respectively, after successful implementation
of the $2.3 billion gap-closing program for
the 1995 fiscal year.
The projections for the 1996 through
1998 fiscal years assume the extension by the
State Legislature of the 14% personal income
tax surcharge beyond calendar year 1995 and
extension of the 12.5% personal income tax
surcharge beyond calendar year 1996,
resulting in combined revenues of $159
million, $633 million and $920 million in the
1996, 1997 and 1998 fiscal years,
respectively. However, as part of the tax
reduction program reflected in the Financial
Plan, the City is proposing the elimination
of the 12.5% personal income tax surcharge
when it expires at a cost of $184 million in
fiscal year 1997 and $455 million in fiscal
year 1998. The proposed gap-closing actions
include City actions aggregating $1.2
billion, $1.5 billion and $1.7 billion in the
1996 through 1998 fiscal years, respectively;
$275 million, $375 million and $525 million
in proposed additional State actions in the
1996 through 1998 fiscal years, respectively,
primarily from the proposed State assumption
of certain Medicaid costs; and $100 million
and $200 million in proposed additional
Federal assistance in the 1997 and 1998
fiscal years, respectively. The proposed
additional City actions, a substantial number
of which are unspecified, include additional
spending reductions, the reduction of City
personnel through attrition, government
efficiency initiatives, procurement
initiatives, labor productivity initiatives,
and the proposed privatization of City sewage
treatment plants. Certain of these
initiatives may be subject to negotiation
with the City's municipal unions. Various
actions proposed in the Financial Plan for
the 1996-1998 fiscal years, including the
proposed state actions, are subject to
approval by Congress and the President. The
State Legislature has in previous legislative
sessions failed to approve certain of the
City's proposals for the State assumption of
certain Medicaid costs and mandate relief,
thereby increasing the uncertainty as to the
receipt of the State assistance included in
the Financial Plan. In addition, the
Financial Plan assumes the continuation of
the current assumption with respect to wages
for City employees and the assumed 9%
earnings on pension fund assets for the 1994
fiscal year are expected to be substantially
below the 9% assumed rate, which will
increase the City's future pension
contributions. In addition, a review of the
pension fund earnings assumptions is
currently being conducted which could further
increase the City's future pension
contributions. In addition, a review of the
pension fund earnings assumptions is
currently being conducted which could further
increase the City's future pension
contributions by a substantial amount.
The City expects that tax revenue for
the 1994 fiscal year will be approximately
$65 million less than forecast in the 1994
Modification, primarily due to shortfalls in
the personal income tax and sales tax, and
that expenditures will be approximately $25
million greater than forecast. Accordingly,
the $171 million of the projected surplus for
the 1994 fiscal year, which is currently
projected in the 1994 Modification and the
Financial Plan to be transferred to the 1995
fiscal year will decrease to 81 million. As a
result, the City will reduce expenditures for
the 1995 fiscal year to offset this decrease,
which is expected to be reflected in the
first quarter modification to the Financial
Plan. In addition, the Financial Plan assumes
that a special session of the State
Legislature, which may take place in the near
future, will enact, and the Governor will
sign, State legislation relating to the
proposed tort reform, which would save the
City $45 million in payments for tort
liability in fiscal year 1995, and certain
anticipated improvements in fine and fee
collections forecast to earn $25 million in
City revenue in fiscal year 1995, and that
the State Legislature will not enact proposed
legislation mandating additional pension
benefits for City retirees costing the City
approximately $200 million annually. To
address these and other possible
contingencies, on July 11, 1994, the Mayor
stated that he will reserve $100 million from
authorized spending by City agencies in
fiscal year 1995 in addition to the existing
general reserves of $150 million. In
addition, the City has identified a $360
million contingency program for the 1995
fiscal year, primarily consisting of layoffs
and service reductions.
Actions to Close the Gaps. The 1995-1998
Financial Plan reflects a program of proposed
actions by the City, State and Federal
governments to close the gaps between
projected revenues and expenditures of $1.5
billion, $2.0 billion and $2.4 billion for
the 1996, 1997 and 1998 fiscal years,
respectively.
City gap-closing actions total $1.2
billion in the 1996 fiscal year, $1.5 billion
in the 1997 fiscal year and $1.7 billion in
the 1998 fiscal year. These actions, a
substantial number of which are unspecified,
include additional spending reductions,
aggregate $501 million, $598 million and $532
million in the 1996 through 1998 fiscal
years, respectively; government efficiency
initiatives aggregating $50 million, $100
million and $150 million in the 1996 through
1998 fiscal years, respectively; labor
productivity initiatives, aggregating $250
million in each of the 1996 through 1998
fiscal years; and a proposed privatization of
City sewage treatment plants which would
result in revenues of $200 million in each of
the 1996 through 1998 fiscal years. Certain
of these initiatives may be subject to
negotiation with the City's municipal unions.
State actions proposed in the gap-
closing program total $275 million, $375
million and $525 million in each of the 1996,
1997 and 1998 fiscal years, respectively.
These actions include savings primarily from
the proposed State assumption of certain
Medicaid costs.
The Federal actions proposed in the gap-
closing program are $100 million and $200
million in increased Federal assistance in
fiscal years 1997 and 1998, respectively.
Various actions proposed in the
Financial Plan, including the proposed
increase in State aid, are subject to
approval by the Governor and the State
Legislature, and the proposed increase in
Federal aid is subject to approval by
Congress and the President. State and Federal
actions are uncertain and no assurance can be
given that such actions will in fact be taken
or that the savings that the City projects
will result from these actions will be
realized. The State Legislature failed to
approve a substantial portion of the proposed
State assumption of Medicaid costs in the
last session. The Financial Plan assumes that
these proposals will be approved by the State
Legislature during the 1995 fiscal year and
that the Federal government will increase its
share of funding for the Medicaid program. If
these measures cannot be implemented, the
City will be required to take other actions
to decrease expenditures or increase revenues
to maintain a balanced financial plan.
Although the City has maintained
balanced budgets in each of its last thirteen
years, and is projected to achieve balanced
operating results for the 1993 fiscal year,
there can be no assurance that the gap-
closing actions proposed in the Financial
Plan can be successfully implemented or that
the City will maintain a balanced budget in
future years without additional State aid,
revenue increases or expenditure reductions.
Additional tax increases and reductions in
essential City services could adversely
affect the City's economic base.
Assumptions. The 1995-1998 Financial
Plan is based on numerous assumptions,
including the continuing improvement in the
City's and the region's economy and a modest
employment recovery during calendar year 1994
and the concomitant receipt of economically
sensitive tax revenues in the amounts
projected. The 1995-1998 Financial Plan is
subject to various other uncertainties and
contingencies relating to, among other
factors, the extent, if any, to which wage
increases for City employees exceed the
annual increases assumed for the 1995 through
1998 fiscal years; continuation of the 9%
interest earnings assumptions for pension
fund assets and current assumptions with
respect to wages for City employees affecting
the City's required pension fund
contributions; the willingness and ability of
the State, in the context, of the State's
current financial condition, to provide the
aid contemplated by the Financial Plan and to
take various other actions to assist the
City, including the proposed State takeover
of certain Medicaid costs and State mandate
relief; the ability of HHC, BOE and other
such agencies to maintain balanced budgets;
the willingness of the Federal government to
provide Federal aid; approval of the proposed
continuation of the personal income tax
surcharge; adoption of the City's budgets by
the City Council in substantially the forms
submitted by the Mayor; the ability of the
City to implement proposed reductions in City
personnel and other cost reduction
initiatives, which may require in certain
cases the cooperation of the City's municipal
unions, and the success with which the City
controls expenditures; savings for health
care costs for City employees in the amounts
projected in the Financial Plan; additional
expenditures that may be incurred due to the
requirements of certain legislation requiring
minimum levels of funding for education; the
impact on real estate tax revenues of the
current weakness in the real estate market;
the City's ability to market its securities
successfully in the public credit markets;
the level of funding required to comply with
the Americans with Disabilities Act of 1990;
and additional expenditures that may be
incurred as a result of deterioration in the
condition of the City's infrastructure.
The projections and assumptions
contained in the 1995-1998 Financial Plan are
subject to revision which may involve
substantial change, and no assurance can be
given that these estimates and projections,
which include actions which the City expects
will be taken but which are not within the
City's control, will be realized.
Certain Reports. From time to time, the
Control Board staff, the City Comptroller and
others issue reports and make public
statements regarding the City's financial
condition, commenting on, among other
matters, the City's financial plans,
projected revenues and expenditures and
actions by the City to eliminate projected
operating deficits. Some of these reports and
statements have warned that the City may have
underestimated certain expenditures and
overestimated certain revenues and have
suggested that the City may not have
adequately provided for future contingencies.
Certain of these reports have analyzed the
City's Future economic and social conditions
and have questioned whether the City has the
capacity to generate sufficient revenues in
the future to meet the costs of its
expenditure increases and to provide
necessary services.
On March 1, 1994, the City Comptroller
issued a report on the state of the City's
economy. The report concluded that, while the
City's long recession is over, moderate
growth is the best the City can expect, with
the local economy being held back by
continuing weakness in important
international economies.
On July 11, 1994, the City Comptroller
issued a report on the City's adopted budget
for the 1995 fiscal year. The City
Comptroller stated that if none of the
uncertain proposals are implemented, the
total risk could be as much as $763 million
to $1.02 billion. risks which were identified
as substantial risks include a possible $208
million to $268 million increase in overtime
costs; approval by the State Legislature of a
tort reform program to limit damage claims
against the City, which would result in
savings of $45 million; the $65 million
proceeds from a proposed asset sale;
additional expenditures at Health and
Hospitals Corporation totaling $60 million;
and $60 million of increased pension
contributions resulting from lower than
assumed pension fund earnings. Additional
possible risks include obtaining the
agreement of municipal unions to the proposed
reduction in City expenditures for health
care costs by $200 million; uncertainties
concerning the assumed improvement in the
collection of taxes, fines and fees totaling
$75 million; and uncertainty concerning the
receipt of the $200 million of increased
Federal aid projected for the 1995 fiscal
year. The City Comptroller noted that there
are a number of additional issues, including
possible larger than projected expenditures
for foster care and public assistance and the
receipt of $100 million from assumed FICA
refunds. The City Comptroller has also stated
in a report issued on June 8, 1994 that
certain of the reductions in personnel and
services proposed in the City's financial
plan submitted to the Control Board on May
10, 1994 (the "May Financial Plan") will have
long-term and, in some cases, severe
consequences for City residents.
In addition, on July 11, 1994, the
private members of the Control Board, Robert
R. Kiley, Heather L. Ruth and Stanley S.
Shuman, issued a statement which concluded
that the 1995 fiscal year is not reasonably
balanced and that further budget cuts are
unavoidable in the next six months. In
addition, the private members stated that the
Financial Plan does not set forth a path to
structural balance. The private members
stated that, in order to achieve this goal,
City managers must be given fiscal targets
they can be expected to meet; solid new
proposals must be developed that back up the
savings the City has committed to achieve to
balance future budgets; and the deferral of
expenses to future years, through actions
such as the sale of property tax receivables,
stretching out pension contributions and
delaying debt service payments through
refundings, must stop. On July 11, 1994, the
Control Board staff stated that the City
faces risks of greater than $1 billion and $2
billion for the 1995 and 1996 fiscal years,
respectively, and risks of approximately $3
billion for each of the 1997 and 1998 fiscal
years.
Substantially all of the City's full-
time employees are members of labor unions.
The Financial Emergency Act requires that all
collective bargaining agreements entered into
by the City and the Covered Organizations be
consistent with the City's current financial
plan, except under certain circumstances,
such as awards arrived at through impasse
procedures.
On January 11, 1993, the City announced
a settlement with a coalition of municipal
unions, including Local 237 of the
International Brotherhood of Teamsters
("Local 237"), District 37 of the American
Federation of State, County and Municipal
Employees ("District Council 37") and other
unions covering approximately 44% of the
City's workforce. The settlement, which has
been ratified by the unions, includes a total
net expenditure increase of 8.25% over a 39-
month period, ending March 31, 1995 for most
of these employees. On April 9, 1993 the City
announced an agreement with the Uniformed
Fire Officers Association (the "UFOA") which
is consistent with the coalition agreement.
The agreement has been ratified. The
Financial Plan reflects the costs associated
with these settlements and provides for
similar increases for all other City-funded
employees.
The Financial Plan provides no
additional wage increases for City employees
after their contracts expire in the 1995 and
1996 fiscal years. Each 1% wage increase for
all employees commencing in the 1995 and 1996
fiscal years would cost the City an
additional $130 million for the 1995 fiscal
year and $140 million for the 1996 fiscal
year and $150 million each year thereafter
above the amounts provided for in the
Financial Plan.
The terms of eventual wage settlements
could be determined through the impasse
procedure in the New York City Collective
Bargaining Law, which can impose a binding
settlement.
New York City Indebtedness. Outstanding
indebtedness having an initial maturity
greater than one year from the date of
issuance of the City as of March 31, 1994 was
$21,290,000 compared to $19,624,000 as of
March 31, 1993.
A substantial portion of the capital
improvement in the City are financed by
indebtedness issued by the Municipal
Assistance Corporation of the City of New
York ("MAC"). MAC was organized in 1975 to
provide financing assistance for the City and
also to exercise certain review functions
with respect to the City's finances. MAC
bonds are payable out of certain State sales
and compensating use taxes imposed within the
City, State stock transfer taxes and per
capita State aid to the City. Any balance
from these sources after meeting MAC debt
service and reserve fund requirements and
paying MAC's operating expenses is remitted
to the City or, in the case of stock transfer
taxes, rebated to the taxpayers. The State
is not, however, obligated to continue the
imposition of such taxes or to continue
appropriation of the revenues therefrom to
MAC, nor is the State obligated to continue
to appropriate the State per capita aid to
the City which would be required to pay the
debt service on certain MAC obligations. MAC
has not taxing power and MAC bonds do not
create an enforceable obligation of either
the State or the City. As of March 31, 1994,
MAC had outstanding an aggregate of
approximately $4.071 billion of its bonds
compared to $4.470 billion as of March 31,
1993.
On February 11, 1991, Moody's Investors
Service lowered its rating on the City's
general obligation bonds from A to Baa1. On
July 2, 1993, Standard & Poor's reconfirmed
its A- rating of City bonds, continued its
negative rating outlook assessment and stated
that maintenance of such ratings depended
upon the City's making further progress
towards reducing budget gaps in the outlying
years. In January 1995, Standard & Poor's
reconfirmed its negative outlook and placed
it on CreditWatch because of the City's
accounting methods.
On July 10, 1995, Standard & Poor's
Ratings Group ("Standard & Poor's")
downgraded its rating on New York City's $23
billion of outstanding general obligation
bonds to "BBB+" from "A-", citing to the
City's chronic structural budget problems and
weak economic outlook. Standard & Poor's
stated that New York City's reliance on one-
time revenue measures to close annual budget
gaps, a dependence on unrealized labor
savings, overly optimistic estimates of
revenues and state and federal aid and the
City's continued high debt levels also
contributed to its decision to lower the
rating.
Litigation
The State is the subject of numerous
legal proceedings relating to State finances,
State programs and miscellaneous tort, real
property and contract claims in which the
State is a defendant and where monetary
damages sought are substantial. These
proceedings could adversely affect the
financial condition of the State in the 1994-
95 fiscal years or thereafter.
In addition to the proceedings noted below,
the State is party to other claims and
litigation which its legal counsel has
advised are not probable of adverse court
decisions. Although the amounts of potential
losses, if any are not presently
determinable, it is the State's opinion that
its ultimate liability in these cases is not
expected to have a material adverse effect on
the State's financial position in the 1994-95
fiscal year or thereafter.
APPENDIX D
The following information is a summary of
special factors affecting New Jersey
municipal obligations. It does not purport
to be a complete description and is based on
information from statements relating to
securities offerings of New Jersey issuers.
Additional Discussion of Special Factors
Relating to New Jersey Municipal Obligations
Risk Factors: Prospective investors
should consider the recent financial
difficulties and pressures which the State of
New Jersey (the "State") and certain of its
public authorities have undergone.
The State's 1995 fiscal year budget
became law on June 30, 1994.
Reflecting the downturn, the rate of
unemployment in the State rose from a low of
3.6% during the first quarter of 1989 to a
recessionary peak of 9.3% during 1992. Since
then, the unemployment rate fell to 6.7%
during the fourth quarter of 1993. The
jobless rate averaged 7.1% during the first
nine months of 1994, but this estimate is not
comparable to those prior to January because
of major changes in the federal survey from
which these statistics are obtained.
In the first nine months of 1994,
relative to the same period a year ago, job
growth took place in services (3.5%) and
construction (5.7%), more moderate growth
took place in trade (1.9%), transportation
and utilities (1.2%) and
finance/insurance/real estate (1.4%), while
manufacturing and government declined by 1.5%
and 0.1%, respectively. The net result was a
1.6% increase in average employment during
the first nine months of 1994 compared to the
first nine months of 1993.
The economic recovery is likely to be
slow and uneven in both New Jersey and the
nation. Some sectors, like commercial and
industrial construction, will undoubtedly lag
because of continued excess capacity. Also,
employers in rebounding sectors can be
expected to remain cautious about hiring
until they become convinced that improved
business will be sustained. Other firms will
continue to merge or downsize to increase
profitability. As a result, job gains will
probably come grudgingly and unemployment
will recede at a corresponding slow pace.
Pursuant to the State Constitution, no
money may be drawn from the State Treasury
except for appropriations made by law. In
addition, all monies for the support of State
purposes must be provided for in one general
appropriation law covering one and the same
fiscal year.
In addition to the Constitutional
provisions, the New Jersey statutes contain
provisions concerning the budget and
appropriation system. Under these
provisions, each unit of the State requests
an appropriation from the Trustee of Division
of Budget and Accounting, who reviews the
budget requests and forwards them with his
recommendation to the Governor. The Governor
then transmits his recommended expenditures
and sources of anticipated revenue to the
legislature, which reviews the Governor's
Budget Message and submits an appropriations
bill to the Governor for his signing by July
1 of each year. At the time of signing the
bill, the Governor may revise appropriations
or anticipated revenues. That action can be
reversed by a two-thirds vote of each House.
No supplemental appropriation may be enacted
after adoption of the act, except where there
are sufficient revenues on hand or
anticipated, as certified by the Governor, to
meet the appropriation. Finally, the
Governor may, during the course of the year,
prevent the expenditure of various
appropriations when revenues are below those
anticipated or when he determines that such
expenditure is not in the best interest of
the State.
One of the major reasons for cautious
optimism is found in the construction
industry. Total construction contracts
awarded in New Jersey have turned around,
rising by 8.6% in 1993 compared with 1992. By
far, the largest boost came from residential
construction awards which increased by 37.7%
in 1993 compared with 1992. In addition, non
residential building construction awards have
turned around, posting a 6.9% gain.
Nonbuilding construction awards
increased approximately 4% in the first eight
months of 1994 compared with the same period
in 1993.
Finally, even in the labor market there
are signs of recovery. Thanks to a reduced
layoff rate and the reappearance of job
opportunities in some parts of the economy,
unemployment in the State has been receding
since July 1992, when it peaked at 9.6%
according to U.S. Bureau of Labor Statistics
estimates based on the federal government's
monthly household survey. The same survey
showed joblessness dropped to an average of
6.7% in the fourth quarter of 1993. The
unemployment rate registered an average of
7.8% in the first quarter of 1994, but this
rate cannot be compared with prior data due
to the changes in the U.S. Department of
Labor procedures fir determining the
unemployment rate that went into effect in
January 1994.
State Aid to Local Governments is the
largest portion of fiscal year 1995
appropriations. In fiscal year 1995,
$5,782.2 million of the State's
appropriations consisted of funds which are
distributed to municipalities, counties and
school districts. The largest State Aid
appropriation, in the amount of $3,900.1
million, was provided for local elementary
and secondary education programs. Of this
amount, $2,431.6 million is provided as
foundation aid to school districts by formula
based upon the number of students and the
ability of a school district to raise taxes
from its own base. In addition, the State
provided $582.5 million for special education
programs for children with disabilities. A
$293 million program was also funded for
pupils at risk of educational failure,
including basic skills improvement. The
State appropriated $474.8 million on behalf
of school districts as the employer share of
the teachers' pension and benefits programs,
$263.8 million to pay for the cost of pupil
transportation and $57.4 million for
transition aid, which guaranteed school
districts a 6.5% increase over the aid
received in fiscal year 1991 and is being
phased out over six years.
Appropriations to the Department of
Community Affairs total $635.1 million in
State Aid monies for fiscal year 1995. The
principal programs funded were the
Supplemental Municipal Property Tax Act
($314.1 million); the Municipal
Revitalization Program ($165.0 million);
municipal aid to urban communities to
maintain and upgrade municipal services
($40.7 million); and the Safe and Clean
Neighborhoods Program ($58.9 million).
Appropriations to the State Department of the
Treasury total $321.3 million in State Aid
monies for fiscal year 1995. The principal
programs funded by these appropriations were
payments under the Business Personal Property
Tax Replacement Programs ($158.7 million);
the cost of senior citizens, disabled and
veterans property tax deductions and
exemptions ($41.7 million); aid to densely
populated municipalities ($25.0 million);
Municipal Purposes Tax Assistance ($30.0
million); and payments to municipalities for
services to state owned property ($34.9
million).
Other appropriations of State aid in
fiscal year 1995 include: welfare programs
($499.1 million); aid to county colleges
($123.6 million); and aid to county mental
hospitals ($79.4 million).
The second largest portion of
appropriations in fiscal 1995 is applied to
Direct State Services: the operation of
State government's 17 departments, the
Executive Office, several commissions, the
State Legislature and the Judiciary. In
fiscal 1995, appropriations for Direct State
Services aggregate $5,203.1 million. Some of
the major appropriations for Direct State
Services during fiscal 1995 are detailed
below.
$595.3 million was appropriated for
programs administered by the Department of
Human Services. The Department of Labor is
appropriated $51.4 million for the
administration of programs for workers'
compensation, unemployment and disability
insurance, manpower development, and health
safety inspection.
$27.7 million is appropriated for
administration of the Medicaid and
pharmaceutical assistance to the aged and
disabled programs; $14.9 million for
administration of the various income
maintenance programs, including Aid to
Families with Dependent Children(AFDC); $69.3
million for the Division of Youth and Family
Services, which protects the children of the
State from abuse and neglect and $15.0
million for juvenile community programs which
serves juveniles who have violated the laws
of the State and have been committed to the
Juvenile Services Division.
The Department of Health was
appropriated $32.3 million for the prevention
and treatment of diseases, alcohol and drug
abuse programs, regulation of health care
facilities, and the uncompensated care
program.
$689.3 million was appropriated to the
Department of Higher Education for the
support of eight State colleges, Rutgers
University, the New Jersey Institute of
Technology, and the University of Medicine
and Dentistry of New Jersey.
$932.6 million was appropriated to the
Department of Law and Public Safety and the
Department of Corrections.
$92.3 million was appropriated to the
Department of Transportation for the various
programs it administers, such as the
maintenance and improvement of the State
highway systems and subsidies for railroads
and bus companies.
$176.6 million was appropriated to the
Department of Environmental Protection for
the protection of air, land, water, forest,
wildlife and shellfish resources and for the
provision of outdoor recreational facilities.
The primary method for State financing
of capital projects is through the sale of
the general obligation bonds of the State.
These bonds are backed by the full faith and
credit of the State. State tax revenues and
certain other fees are pledged to meet the
principal and interest payments required to
pay the debt fully. No general obligation
debt can be issued by the State without prior
voter approval, except that no voter approval
is required for any law authorizing the
creation of a debt for the purpose of
refinancing all or a portion of outstanding
debt of the State, so long as such law
requires that the refinancing provide a debt
service savings.
All appropriations for capital projects
and all proposals for State bond
authorizations are subject to the review and
recommendation of the New Jersey Commission
on Capital Budgeting and Planning. This
permanent commission was established in
November, 1975, and is charged with the
preparation of the State Capital Improvement
Plan, which contains proposals for State
spending for capital projects.
The aggregate outstanding general
obligation bonded indebtedness of the State
as of June 30, 1993 was $3.549.7 billion.
The debt service obligation for outstanding
indebtedness is $119.9 million for fiscal
year 1994.
Aside from its general obligation bonds,
the State's "moral obligation" backs certain
obligations issued by the New Jersey Housing
and Mortgage Finance Agency, the South Jersey
Port Corporation (the "Corporation") and the
Higher Education Assistance Authority. As of
June 30, 1992, there was outstanding in
excess of $1 billion of moral obligation
bonded indebtedness issued by such entities,
for which the maximum annual debt service was
over $101 million as of such date. The State
provides the Corporation with funds to cover
debt service and property tax requirements
when earned revenues are anticipated to be
insufficient to cover these obligations. For
the calendar years 1986 through 1992, the
State has appropriated $12,237,565.00 to
cover property tax shortfalls of the
Corporation.
At any given time, there are various
numbers of claims and cases pending against
the State, State Agencies and employees,
seeking recovery of monetary damages that are
primarily paid out of the fund created
pursuant to the Tort Claims Act, N.J.S.A.
59:1-1 et seq. In addition, at any given
time there are various contract claims
against the State and State agencies seeking
recovery of monetary damages. The State is
unable to estimate its exposure for these
claims and cases. An independent study
estimated an aggregate potential exposure of
$50 million for claims pending, as of January
1, 1982. It is estimated that were a similar
study made of claims currently pending, the
amount of such estimated exposure would be
somewhat higher. New Jersey is involved in a
number of lawsuits in which adverse decisions
could materially affect revenues or
expenditures. Such cases include challenges
to its system of educational funding, the
methods by which the State Department of
Human Services shares with county governments
the maintenance recoveries and costs for
residents in State psychiatric hospitals and
residential facilities for the
developmentally disabled.
Other lawsuits that could materially
affect revenue or expenditures include a suit
by a number of taxpayers seeking refunds of
taxes paid to the Spill Compensation Fund
pursuant to N.J.S.A. 58:10-23.11; a suit
alleging that unreasonably low Medicaid
payment rates have been implemented for long-
term care facilities in New Jersey; a suit
alleging unfair taxation on interstate
commerce; a suit by Essex County seeking to
invalidate the State's method of funding the
medical system and a suit seeking return of
moneys paid by various counties for
maintenance of Medicaid or Medicare eligible
residents of institutions and facilities for
the developmentally disabled, and a suit
challenging the imposition of premium tax
surcharges on insurers doing business in New
Jersey, and assessments upon property and
casualty liability insurers pursuant to the
Fair Automobile Insurance Reform Act.
Legislation approved June 30, 1992,
effective immediately, called for revaluation
of several public employee pension funds,
authorized an adjustment to the assumed rate
of return on investment and refunds $773
million in public employer contributions to
the State from various pension funds, to be
reflected as a revenue source for Fiscal Year
1992 and $226 million in Fiscal Year 1993 and
each fiscal year thereafter. Several labor
unions filed suit seeking a judgment
directing the State Treasurer to refund all
monies transferred from the pension funds and
paid into the General Fund. An adverse
determination would have a significant impact
on Fiscal Years 1992 and 1993 revenue
estimates.
Bond Ratings: Citing a developing
pattern of reliance on non-recurring measures
to achieve budgetary balance, four years of
financial operations marked by revenue
shortfalls and operating deficits, and the
likelihood that financial pressures will
persist, on August 24, 1992 Moody's lowered
from Aaa to Aa1 the rating assigned to New
Jersey general obligation bonds. Currently,
Standard & Poor's rates New Jersey general
obligation bonds AA+. On July 6, 1992,
Standard & Poor's affirmed its AA+ ratings on
New Jersey's general obligation and various
lease and appropriation backed debt, but its
ratings outlook was revised to negative for
the longer term horizon (beyond four months)
for resolution of two items: (i) the Federal
Health Care Facilities Administration ruling
concerning retroactive Medicaid hospital
reimbursements and (ii) the State's
uncompensated health care funding system,
which is under review in the U.S. Supreme
Court.
APPENDIX E
The following information is a summary of
special factors affecting Florida municipal
obligations. It does not purport to be a
complete description and is based on
information from statements relating to
securities offerings of Florida issuers.
Additional Discussion of Special Factors
Relating to Florida Municipal Obligations
In 1980, Florida was the seventh most
populous state in the U.S. The State has
grown dramatically since then an as of April
1, 1993, ranks fourth with an estimated
population of 13.5 million. Florida's
attraction, as both a growth and retirement
state, has kept net migration fairly steady
with an average of 292,988 new residents a
year from 1983 through 1993. The U.S. average
population increase since 1982 is about 1%
annually, while Florida's average annual rate
of increase is about 2.5%. Florida continues
to be the fastest growing of the ten largest
states. This strong population growth is one
reason the State's economy is performing
better than the nation as a whole. In
addition to attracting senior citizens to
Florida as a place for retirement, the State
is also recognized as attracting a
significant number of working age
individuals. Since 1983, the prime working
age population (18-44) has grown at an
average annual rate of 2.6%. The share of
Florida's total working age population (18-
59) to total State population is
approximately 54%. This share is not expected
to change appreciably into the twenty-first
century.
The State's personal income has been
growing strongly the last several years and
has generally out performed both the U.S. as
a whole and the southeast in particular,
according to the U.S. Department of Commerce
and the Florida Consensus Economic Estimating
Conference. This is due to the fact that
Florida's population has been growing at a
very strong pace and, since the early 70's
the State's economy has diversified so as to
provide greater insulation from national
economic downturns. As a result, Florida's
real per capita personal income has tracked
closely with the national average and has
tracked above the southeast. From 1984
through 1993, the State's real per capita
income rose an average 5.4% a year, while the
national real per capita income increased at
an average 5.5%.
Because Florida has a proportionately
greater retirement age population, property
income (dividends, interest and rent) and
transfer payments (Social Security and
pension benefits among other sources of
income) are relatively more important sources
of income. For example, Florida's total wages
and salaries and other labor income in 1993
was 62% of total personal income, while a
similar figure for the nation for 1990 was
72%. Transfer payments are typically less
sensitive to the business cycle than
employment income and, therefore, act as
stabilizing forces in weak economic periods.
The State's per capita personal income
in 1993 of $20,857 was slightly above the
national average of $20,817 and significantly
ahead of that for the southeast United
States, which was $18,753. Real personal
income in the State is estimated to increase
4.5% in 1994-95 and 4.2% in 1995-96. By the
end of 1995-96, real personal income per
capita in the State is projected to average
4.5% higher than its 1993-94 level.
Since 1980, the State's job creation
rate is well over twice the rate for the
nation as a whole, and its growth rate in new
non-agricultural jobs is the fastest of the
11 most populous states and second only to
California in the absolute number of new jobs
created. Contributing to the State's rapid
rate of growth in employment and income is
international trade. In addition, since
1980, the State's unemployment rate has
generally tracked below that of the Nation's
unemployment rate. However, as the State's
economic growth has slowed from its previous
highs, the State's unemployment rate has
tracked above the national average. The
average rate in Florida since 1980 has been
6.5% while the national average is 7.1%.
According to the U.S. Department of Commerce,
the Florida Department of Labor and
Employment Security, and the Florida
Consensus Economic Estimating Conference
(together the "Organization") the State's
unemployment rate was 8.2% during 1992. As
of January 1994, the Organization estimates
that the unemployment rate will be 6.7% for
1993-94 and 6.1% in 1994-95.
The rate of job creation in Florida's
manufacturing sector has exceeded that of the
U.S. From the beginning of 1980 through 1993,
the state added over 50,100 new manufacturing
jobs, an 11.7% increase. During the same
period, national manufacturing employment
declined ten out of the fourteen years, for a
loss of 2,977,000 jobs.
Total non-farm employment in Florida is
expected to increase 2.7% in 1993-94 and rise
3.8% in 1994-95. Trade and services, the two
largest, account for more than half of the
total non-farm employment. Employment in the
service sectors should experience an increase
of 5.4% in 1994-95, while growing 4.7% in
1995-96. Trade is expected to expand 3.1% in
1995 and 3.2% in 1996. The service sector is
now the State's largest employment category.
Construction
The State's economy has in the past been
highly dependent on the construction industry
and construction related manufacturing. This
dependency has declined in recent years and
continues to do so as a result of continued
diversification of the State's economy. The
State is still somewhat at the mercy of the
construction and construction related
manufacturing industries. For example, in
1980, total contract construction employment
as a share of total non-farm employment was
just over 7%, and in 1993, the share had
edged downward to 5%. This trend is expected
to continue as the State's economy continues
to diversify. Florida, nevertheless, has a
dynamic construction industry, with single
and multi-family housing starts accounting
for 8.5% of total U.S. housing starts in 1993
while the State's population is 5.3% of the
U.S. total population. Florida's housing
starts since 1980 have represented an average
of 11.0% of the U.S.'s total annual starts,
and since 1980, total housing starts have
averaged 156,450 a year.
A driving force behind the State's
construction industry has been the State's
rapid rate of population growth. Although the
State currently is the fourth most populous
state, its annual population growth is now
projected to decline as the number of people
moving into the State is expected to hover
near the mid 250,000 range annually
throughout the 1990s. This population trend
should provide fuel for business and home
builders to keep construction activity lively
in Florida for some time to come. However,
other factors do influence the level of
construction in the State. For example,
federal tax reform in 1986 and other changes
to the federal income tax code have
eliminated tax deductions for owners of more
than two residential real estate properties
and have lengthened depreciation schedules on
investment and commercial properties.
Economic growth and existing supplies of
homes also contribute to the level of
construction in the State. Also, while
interest rates remain low currently, an
increase in interest rates could
significantly adversely impact the financing
of new construction with the State, thereby
adversely impacting unemployment and other
economic factors within the State. In
addition, available commercial office space
has tended to remain high over the past few
years. So long as this glut of commercial
rental space continues, construction of this
be of space will likely continue to remain
slow.
Single and multi-family housing starts
in 1994-95 are projected to reach a combined
level of 118,000, increasing to 124,100 next
year. Lingering recessionary effects on
consumers and tight credit are some of the
reasons for relatively slow core construction
activity, as well as lingering effects from
the 1986 tax reform legislation discussed
above. However, construction is one of the
sectors most severely affected by Andrew.
Total construction expenditures are
forecasted to increase 6.6% this year and
increase 7.5% next year.
The State has continuously been
dependent on the highly cyclical construction
and construction related manufacturing
industries. While that dependency has
decreased, the State is still somewhat at the
mercy of the construction related
manufacturing industries. The construction
industry is driven to a great extent by the
State's rapid growth in population. There can
be no assurance that population growth will
continue throughout the 1990's in which case
there could be an adverse impact on the
State's economy through the loss of
construction and construction related
manufacturing jobs. Also, while interest
rates remain low currently, an increase in
interest rates could significantly adversely
impact the financing of new construction
within the State, thereby adversely impacting
unemployment and other economic factors
within the State. In addition, available
commercial office space has tended to remain
high over the past few years. So long as this
glut of commercial rental space continues,
construction of this type of space will
likely continue to remain slow.
Tourism
Tourism is one of State's most important
industries. Approximately 41.1 million
tourists visited the State in 1993, as
reported by the Florida Department of
Commerce. In terms of business activities and
state tax revenues, tourists in Florida in
1993 represented an estimated 4.5 million
additional residents. Visitors to the State
tend to arrive equally by air and car. The
State's tourist industry over the years has
become more sophisticated, attracting
visitors year-round and, to a degree,
reducing its seasonality. The dollar's
depreciation has enhanced the State's tourism
industry. Tourist arrivals are expected to
increase by almost 5.0% percent this year and
3.4% next year. Tourist arrivals to Florida
by air and car are expected to diverge from
each other, air decreasing 9.2% and 2.95
next year and auto increasing 0.7% this year
and 4.0% next year. By the end of the State's
current fiscal year, 42.1 million domestic
and international tourists are expected to
have visited the State. In 1995-96, tourist
arrivals should approximate 43.6 million.
Revenues and Expenses
Estimated fiscal year 1994-95 General
Revenue plus Working Capital funds available
to the State total $14,624.4 million, a 5.7%
increase over 1993-94. This reflects a
transfer of $159 million in non-recurring
revenue due to Andrew, to a hurricane relief
trust fund. Of the total General Revenue plus
Working Capital funds available to the State,
$13,858.4 million of that is Estimated
Revenues (excluding the Andrew impact) which
represents an increase of 7.9% over the
previous year's Estimated Revenues. With
effective General Revenues plus Working
Capital Fund appropriations at $14.311.1
million, unencumbered reserves at the end of
1994-95 are estimated at $313.3 million.
Estimated, fiscal year 1995-96 General
Revenue plus Working Capital and Budget
Stabilization funds available total $15,145.9
million. a 3.6% increase over 1994-95. The
$14,647.2 million in Estimated Revenues
represents an increase of 5.7% over the
previous year's Estimated Revenues.
In fiscal year 1993-94, approximately
66% of the State's total direct revenue to
its three operating funds were derived from
State taxes, with Federal grants and other
special revenue accounting for the balance.
State sales and use tax, corporate income
tax, intangible personal property tax, and
beverage tax amounted to 66%, 8%, 4% and
4%, respectively, of total General Revenue
Funds available during fiscal 1993-94. In
that same year, expenditures for education,
health and welfare, and public safety
amounted to approximately 49%, 32%, and 12%,
respectively, of total expenditures from the
General Revenue Fund.
The State's sales and use tax (6%)
currently accounts for the State's single
largest source of tax receipts. Slightly
less than 10% of the State's sales and use
tax is designated for local governments and
is distributed to the respective counties in
which collected for use by the counties, and
the municipalities therein. In addition to
this distribution, local governments may (by
referendum) assess a 0.5% or a 1.0%
discretionary sales surtax within their
county. Proceeds from this local option
sales tax are earmarked for funding local
infrastructure programs and acquiring land
for public recreation or conservation or
protection of natural resources as provided
under applicable Florida law. Certain
charter counties have other taxing powers.
In addition, and non-consolidated counties
with a population in excess of 800,000 may
levy a local option sales tax to fund
indigent health care. It alone cannot
exceed 0.5% and when combined with the
infrastructure surtax cannot exceed 1.0%.
For the fiscal year ended June 30, 1994,
sales and use tax receipts (exclusive of the
tax on gasoline and special fuels) totaled
$10,012.5 million, an increase of 6.9% over
fiscal year 1992-1993.
The second largest source of State tax
receipts is the tax on motor fuels.
However, these revenues are almost entirely
dedicated trust funds for specific purposes
and are not included in the State's General
Revenue Fund.
The State imposes an alcoholic beverage,
wholesale tax (excise tax) on beer, wine, and
liquor. This tax is one of the State's major
tax sources, with revenues totaling $439.8
million in fiscal year ending June 30, 1994.
Alcoholic beverage tax receipts decreased
1.0% from the previous year's total. The
revenues collected from this tax are
deposited into the State's General Revenue
Fund.
The State imposes a corporate income
tax. All receipts of the corporate income
tax are credited to the General Revenue Fund.
For the fiscal year ended June 30, 1994,
receipts from this source were $1,047.4
million, and increase of 23.7% from fiscal
year 1992-93.
The State imposes a documentary stamp
tax on deeds and other documents relating to
realty, corporate shares, bonds,
certificates of indebtedness, promissory
notes, wage assignments, and retail charge
accounts. The documentary stamp tax
collections totaled $775.0 million during
fiscal year 1993-94, a 21.3% increase from
the previous fiscal year. Beginning in
fiscal year 1992-93, 71.29% of these taxes
are to be deposited to the General Revenue
Fund.
The State imposes an intangible
personal property tax on stocks, bonds,
including bonds secured by liens in Florida
real property, notes, governmental
leaseholds, and certain other intangibles,
not secured by alien on Florida real
property. The annual rate of tax is 2 mils.
Second, the State imposes a non-recurring 2
mil tax on mortgages and other obligations
secured by liens on Florida real property.
In fiscal year 1993-94, total intangible
personal property tax collections were $836.0
million, a 6.7% increase over the prior year.
Of the tax proceeds, 66.5% are distributed to
the General Revenue Fund.
The State's severance tax taxes, oil,
gas and sulfur production, as well as the
severance of phosphate rock and other solid
minerals. Total collections from severance
taxes total $54.8 million during fiscal year
1993-94, down 15.0% from the previous year.
Currently, 60% of this amount is transferred
to the General Revenue Fund.
The State began its own lottery in 1988.
State law requires that lottery revenues be
distributed 50% to the public in prizes,
38.0% for use in enhancing education, and the
balance, 12.0% for costs of administering the
lottery. Fiscal year 1993-94 lottery ticket
sales totaled $2.15 billion, providing
education with approximately $816.2 million.
Debt-Balanced Budget Requirement
At the end of fiscal 1993, approximately
$5.61 billion in principal amount of debt
secured by the full faith and credit of the
State was outstanding. In addition, since
July 1, 1993, the State issued about $1.13
billion in principal amount of full faith and
credit bonds.
The State Constitution and statutes
mandate that the State budget, as a whole,
and each separate fund within the State
budget, be kept in balance form currently
available revenues each fiscal year. If the
Governor or Comptroller believes a deficit
will occur in any State fund, by statute, he
must certify his opinion to the
Administrative Commission, which then is
authorized to reduce all State agency budgets
and releases by a sufficient amount to
prevent a deficit in any fund. Additionally,
the State Constitution prohibits issuance of
State obligations to fund State operations.
Litigation
Currently under litigation are several
issues relating to State actions or State
taxes that put at risk substantial amounts
of General Revenue Fund monies.
Accordingly, there is no assurance that any
of such matters, individually or in the
aggregate, will not have a immaterial adverse
affect on the State's financial position.
Florida law provides preferential tax
treatment to insurers who maintain a home
office in the State. Certain insurers
challenged the constitutionality of this tax
preference and sought a refund of taxes paid.
Recently, the Florida Supreme Court ruled in
favor of the State. This case and others,
along with pending refund claims, total
about $150 million.
The State imposes a $295 fee on the
issuance of certificates of title for a motor
vehicles previously titled outside the State.
The State has been sued by plaintiffs
alleging that this fee violates the Commerce
Clause of the U.S. Constitution. The Circuit
Court in which the case was filed has granted
summary judgment for the plaintiffs and has
enjoined further collection of the impact
fee and has ordered refunds to all those who
have paid the fee since the collection of
the fee went into effect. The State has
appealed the lower Court's decision and an
automatic stay has been granted to the State
allowing it to continue to collect the fee.
The potential refund exposure to the State if
it should lose the case may be in excess off
$100 million.
The State maintains a rating of Aa and
AA from Moody's Investors Service and
Standard & Poors Corporation, respectively,
on the majority of its general obligation
bonds, although the rating of a particular
series of revenue bonds relates primarily to
the project, facility, or other revenues
source from which such series derives funds
for repayment. While these ratings and some
of the information presented above indicate
that the State is in satisfactory economic
health, there can be no assurance that there
will not be a decline in economic conditions
or that particular conditions or that
particular Bonds purchased by the Trust will
not be adversely affected by any such
changes.
APPENDIX F
The following information is a summary of
special factors affecting Georgia Municipal
Obligations. It does not purport to be a
complete description and is based on
information from statements relating to
securities offerings of Georgia issuers.
Additional Discussion of Special Factors
Relating to Georgia Municipal Obligations
On December 31, 1992, the state government of
Georgia had the 46th lowest debt level per
capita of all states in the United States,
which is reflective of a very conservative
fiscal approach taken by elected state
officials, tempered during a three to four
year economic slow-down. Typically, general
obligation bonds of the state are issued
pursuant to the powers granted under Article
VII, Section IV of the Constitution of the
State of Georgia ( the "Georgia
Constitution"), which provides that the bonds
are the direct and general obligations of the
state.
The Georgia Constitution further mandates
that the General Assembly "shall raise by
taxation and appropriate each fiscal year ...
such amounts as are necessary to pay debt
service requirements in such fiscal year on
all general obligation debt". The Georgia
Constitution further provides for the
establishment of a special trust fund which
is designated the "State of Georgia General
Obligation Debt Sinking Fund" which is used
for the payment of annual debt service
requirements on all general obligation debt.
Virtually all debt obligations represented by
bonds issued by the State of Georgia,
counties, or municipalities or other public
authorities require validation by a judicial
proceeding prior to the issuance of such
obligation. The judicial validation makes
these obligations incontestable and
conclusive, as provided under the Georgia
Constitution.
The State of Georgia operates on a fiscal
year beginning on July 1 and ending on June
30. Each year the State Economist, the
Governor, and the State Revenue Commissioner
jointly prepare a revenue forecast upon which
is based the state budget which is
considered, amended, and approved by the
Georgia General Assembly. Since 1975, the
Governor and the General Assembly have
attempted to maintain a $100 million reserve
fund, which in 1992 was eroded because of a
revenue shortfall. For the first ten months
of the fiscal year ending June 30, 1995, the
State of Georgia enjoyed an 8.0% growth in
revenues and had an $565,3111,040.50 increase
in revenues above the same ten month period
ending fiscal 1994. However, this is
decrease compared to fiscal year 1994 which
had a 9.5% growth in revenues over fiscal
year 1993. The surplus for fiscal year 1993
far exceeded the Governor's budget allocation
of $124 million.
In the past two years, the Governor has
successfully eliminated more than 5,000 state
jobs, which has contributed dramatically to
his efforts to balance the state budget.
For the next several years, Georgia has a
very bright economic future highlighted by a
$2 billion stimulus to the economy which is
expected from Atlanta's hosting of the 1996
Summer Olympic Games. Manufacturing activity,
particularly in the textile, apparel and
carpet sectors, has increased dramatically as
a result of increased home building. However,
the real estate/construction industry remains
in a recession caused by over-building of
commercial office space and industrial parks
in the late 1980s. Military base closings in
other states are expected to mildly impact
the Georgia economy with the consolidation of
military installations so that Georgia will
have a net gain in service personnel. In
recent years, Georgia has enjoyed the
economic stimulus caused by a number of major
corporate relocations led by United Parcel
Service of America, Inc., which moved its
World Headquarters from Greenwich,
Connecticut to Atlanta. This move was
followed by Holiday Inn Worldwide, which
moved its headquarters to Atlanta from
Memphis.
APPENDIX G
The following information is a summary of
special factors affecting Pennsylvania
Municipal Obligations. It does not purport
to be a complete description and is based on
information from statements relating to
securities offerings of Pennsylvania issuers.
Additional Discussion of Special Factors
Relating to Pennsylvania Municipal
Obligations
Potential purchasers of Units of the
Trust should consider the fact that the
Trust's portfolio consists primarily of
securities issued by the Commonwealth of
Pennsylvania (the "Commonwealth"), its
municipalities and authorities and should
realize the substantial risks associated with
an investment in such securities. Although
the General Fund of the Commonwealth (the
principal operating fund of the Commonwealth)
experienced deficits in fiscal 1990 and 1991,
tax increases and spending decreases helped
return the General Fund balance to a surplus
at June 30, 1992 of $87.5 million and at June
30, 1993 of $698.9. The deficit in the
Commonwealth's unreserved/undesignated funds
of prior years also was reversed to a surplus
of $64.4 million as of June 30, 1993.
Pennsylvania's economy historically has
been dependent upon heavy industry, but has
diversified recently into various services,
particularly into medical and health
services, education and financial services.
Agricultural industries continue to be an
important part of the economy, including not
only the production of diversified food and
livestock products, but substantial economic
activity in agribusiness and food-related
industries. Service industries currently
employ the greatest share of non-agricultural
workers, followed by the categories of trade
and manufacturing. Future economic
difficulties in any of these industries could
have an adverse impact on the finances of the
Commonwealth or its municipalities, and could
adversely affect the market value of the
Bonds in the Pennsylvania Trust or the
ability of the respective obligors to make
payments of interest and principal due on
such Bonds.
Certain litigation is pending against
the Commonwealth that could adversely affect
the ability of the Commonwealth to pay debt
service on its obligations, including suits
relating to the following matters: (i) the
ACLU has filed suit in federal court
demanding additional funding for child
welfare services; the Commonwealth settled a
similar suit in the Commonwealth Court of
Pennsylvania and is seeking the dismissal of
the federal suit, inter alia, because of that
settlement. The district court has denied
class certification to the ACLU, and the
parties have stipulated to a judgment against
the plaintiffs to allow plaintiffs to appeal
the denial of a class certification to the
Third Circuit; (ii) in 1987, the Supreme
Court of Pennsylvania held that the statutory
scheme for county funding of the judicial
system to be in conflict with the
Constitution of the Commonwealth but stayed
judgment pending enactment by the legislature
of funding consistent with the opinion and
the legislature has yet to consider
legislation implementing the judgment; (iii)
several banks have filed suit against the
Commonwealth contesting the constitutionality
of a law enacted in 1989 imposing a bank
shares tax; in July 1994, the Commonwealth
Court en banc upheld the constitutionality of
the 1989 bank shares tax law but struck down
a companion law to provide credits against
the bank shares tax for new banks; cross
appeals from that decision to the
Pennsylvania Supreme Court have been filed;
(iv) litigation has been filed in both state
and federal court by an association of rural
and small schools and several individual
school districts and parents challenging the
constitutionality of the Commonwealth's
system for funding local school districts--
the federal case has been stayed pending
resolution of the state case and the state
case is in the pre-trial state (no available
estimate of potential liability); (v) the
ACLU has brought a class action on behalf of
inmates challenging the conditions of
confinement in thirteen of the Commonwealth's
correctional institutions; a proposed
settlement agreement has been submitted to
the court and members of the class, but the
court has not yet set a date for hearing on
the terms of the agreement (no available
estimate of potential cost of complying with
the injunction sought but capital and
personnel costs might cost millions of
dollars) and (vi) a consortium of public
interest law firms has filed a class action
suit alleging that the Commonwealth has not
complied with a federal mandate to provide
screening, diagnostic and treatment services
for all Medicaid-eligible children under 21;
the district court denied class certification
and has scheduled the case for trial
(potentially liability estimated at between
$9 million and $55 million); and (vii)
litigation has been filed in federal court by
the Pennsylvania Medical Society seeking
payment of the full co-pay and deductible in
excess of the maximum fees set under the
Commonwealth's medical assistance program for
outpatient services provided to medical
assistance patients who were also eligible
for Medicare; the Commonwealth received a
favorable decision in the federal district
court, but the Pennsylvania Medical Society
won a reversal in the federal circuit court
(potential liability estimated at $50 million
per year).
The Commonwealth's general obligation
bonds have been rated AA- by Standard &
Poor's and A1 by Moody's for more than the
last five years.
The City of Philadelphia (the "City")
has been experiencing severe financial
difficulties which has impaired its access to
public credit markets and a long-term
solution to the City's financial crisis is
still being sought. The City experienced a
series of General Fund deficits for fiscal
years 1988 through 1992.
The City has no legal authority to issue
deficit reduction bonds on its own behalf,
but state legislation has been enacted to
create an Intergovernmental Cooperation
Authority to provide fiscal oversight for
Pennsylvania cities (primarily Philadelphia)
suffering recurring financial difficulties.
The Authority is broadly empowered to assist
cities in avoiding defaults and eliminating
deficits by encouraging the adoption of sound
budgetary practices and issuing bonds. In
order for the Authority to issue bonds on
behalf of the City, the City and the
Authority entered into an intergovernmental
cooperative agreement providing the Authority
with certain oversight powers with respect to
the fiscal affairs of the City, and the
Authority approved a five-year financial plan
prepared by the City. On June 16, 1992, the
Authority issued a $474,555,000 bond issue on
behalf of the City. The Authority approved
the latest update of the five-year financial
plan on May 2, 1994. The City has reported a
surplus of approximately $15 million for
fiscal year ending June 30, 1994. In July
1993, the Authority issued $643,430,000 of
bonds to refund certain general obligation
bonds of the City and to fund additional
capital projects. In September 1993, the
Authority issued $178,675,000 of bonds to
advance refund certain of the bonds of the
City and to fund additional capital projects.
APPENDIX H
The following information is a summary of
special factors affecting Ohio Municipal
Obligations. It does not purport to be a
complete description and is based on
information from statements relating to
securities offerings of Ohio issuers.
Additional Discussion of Special Factors
Relating to Ohio Municipal Obligations
The Ohio Trust will invest substantially
all of its net assets in Ohio Obligations.
The Ohio Trust is therefore susceptible to
political, economic and regulatory factors
that may affect issuers of Ohio Obligations.
The following information constitutes only a
brief summary of some of the complex factors
that may affect the financial situation of
issuers in Ohio, and is not applicable to
"conduit" obligations on which the public
issue itself has no financial responsibility.
The creditworthiness of obligations
issued by local Ohio issuers may be unrelated
to the creditworthiness of obligations issued
by the State, and generally there is no
responsibility on the part of the State to
make payments on those local obligations.
There may be specific factors that are
applicable in connection with investment in
particular Ohio Obligations or in the
obligations of particular Ohio issuers, and
it is possible the investment will be in Ohio
Obligations or in obligations of particular
issuers as to which such specific factors are
applicable. However, the information set
forth below is intended only as a general
summary and not a discussion of any such
specific factors that may affect any
particular issuer or issue of Ohio
Obligations.
Ohio is the seventh most populous state,
with a 1990 Census Count of 10,847,000
indicating a 0.5% population increase from
1980.
The economy of Ohio, while diversifying
more into the service and other non-
manufacturing areas, continues to rely in
part on durable goods manufacturing, which is
largely concentrated in motor vehicles and
equipment, steel, rubber products and
household appliances. As a result, general
economic activity in Ohio, as in many other
industrially-developed states, tends to be
more cyclical than in some other states and
in the nation as a whole. Agriculture also
is an important segment of the economy in the
State, and the State has instituted several
programs to provide financial assistance to
farmers. The State's economy, has had
varying effects on different geographic areas
of the State and the political subdivisions
located within those geographic areas.
In prior years, the State's overall
unemployment rate is commonly somewhat higher
than the national average. In January 1993
and February 1993, the unemployment rate was
8.2 and 7.8, respectively, compared to the
national rates 7.9 and 7.7 respectively.
However, for both 1991 and 1992 the State
rate was below the national rate; the State
rates were 6.4% and 7.2%, and the national
rates 6.7% and 7.4% respectively. The
unemployment rate, and its effects, vary
among particular geographic areas of the
State.
There can be no assurance that future
state-wide or regional economic difficulties,
and the resulting impact on State or local
government finances generally, will not
adversely affect the market value of Ohio
Obligations held in the portfolio of the Ohio
Trust or the ability of the particular
obligors to make timely payments of debt
service on (or lease payments relating to)
those obligations.
The State operates on the basis of a
fiscal biennium for its appropriations and
expenditures, and is precluded by law from
ending a fiscal year or biennium in a deficit
position. Most operations are financed
through the General Reserve Fund (GRF), with
personal income and sales-use taxes being the
major GRF sources.
Growth and depletion of GRF ending fund
balances show a consistent pattern related to
national economic conditions, with the June
30 (end of fiscal year) balance reduced
during less favorable national economic
periods and increased during more favorable
economic times.
Key end of biennium fund balances at
June 30, 1991 were $135,365,000 (unaudited)
(GRF) and approximately $300,000,000 (Budget
Stabilization Fund (BSF), a cash and
budgetary management fund). Necessary
corrective steps were taken in fiscal year
1991 to respond to lower than estimated
receipts and higher expenditures in certain
categories. Those steps included the
transfer of $64,000,000 from the BSF to the
GRF. The State reported biennium ending fund
balances of $135.3 million (GRF) and $300
million (BSF).
The State has established procedures
for, and has timely taken, necessary actions
to ensure a resource/expenditures balance
during less favorable economic periods.
These include general and selected reductions
in appropriations spending; none have been
applied to appropriations needed for debt
service or lease rentals on any State
obligations.
To allow time to complete the resolution
of certain Senate and House differences in
the budget and appropriations for the current
biennium (beginning July 1, 1991), an interim
appropriations act was enacted, effective
July 1; it included debt service and lease
rental appropriations for the entire 1992-93
biennium, while continuing most other
appropriations for 31 days at 97% of fiscal
year 1991 monthly levels. The general
appropriations act for the entire biennium
was passed on July 11, 1991 and signed by the
Governor. It authorized the transfer, which
has been made, of $200 million from the BSF
to the GRF and provided for transfers in
fiscal year 1993 back to the BSF if revenues
are sufficient for the purpose (which the
State Office of Budget and Management, OBM,
at present thinks unlikely).
Based on updated fiscal year financial
results and economic forecast for the State,
in light of the continuing uncertain
nationwide economic situation, OBM projected,
and was timely addressed, a fiscal year 1992
imbalance in GRF resources and expenditures.
GRF receipts were significantly below
original forecasts, a shortfall resulting
primarily from lower collections of certain
taxes, particularly sales and use taxes.
Higher than earlier projected expenditure
levels totaling approximately $143,000,000
resulted from higher spending in certain
areas, particularly human services, including
Medicaid. As an initial action, the Governor
ordered most State agencies to reduce GRF
appropriations spending in the final six
months of fiscal year 1992 by a total of
approximately $184 million (debt service and
lease rental obligations were not affected).
The General Assembly authorized, and OBM made
in June 1992, the transfer to the GRF of the
$100.4 million BSF balance and additional
amounts from certain other funds. Other
administrative revenue and spending actions
resolved the remaining GRF imbalance,
resulting in positive GRF fiscal year 1992
ending fund and cash balances.
A significant GRF shortfall,
approximately $520 million, was then
projected for fiscal year 1993. It had been
addressed by appropriate legislative and
administrative actions. As a first step the
Governor ordered, effectively July 1, 1992,
$300 million in selected GRF spending
reductions. Executive and legislative action
in December 1992 (a combination of tax
revisions and additional appropriations
spending reductions) is projected by OBM to
balance GRF resources and expenditures in
this biennium and provide a better base for
the appropriations for the next biennium.
Those actions included tax revisions
estimated to produce an additional
$194,500,000 this fiscal year, and additional
appropriations spending reductions totaling
approximately $50,000,000 are provided for in
that legislation and subsequent action by the
Governor.
Litigation filed on February 1, 1993
seeks to have a new tax on soft drinks,
included in those tax revisions, declared
invalid and its collection enjoined. The
trial court's preliminary injunction has been
stayed by the Ohio Supreme Court on
procedural grounds, and that tax is for now
being collected. OBM had estimated
approximately $18,500,000 being collected
from that tax this fiscal year, representing
less than 10% of the projected additional tax
revenues. Several bases for invalidity were
asserted, including a claim that the bill in
which this and other elements of the tax
package ( as well as certain capital
appropriations and financing authorizations )
were included did not comply with a
constitutional "one-subject" procedural
requirement.
Supplementing the general authorization
for the Governor's spending reduction orders
described above and exercised several times
in this biennium, the biennial appropriations
act authorizes the OBM Trustee to implement
up to 1% fiscal year reduction in GRF amounts
appropriated if on March 1 of either fiscal
year of the biennium receipts for that fiscal
year are for any reason more than
$150,000,000 under estimates and the then
estimated GRF ending fund balance is less
than $50,000,000. Expressly, excerpted from
this cutback authorization are debt service
and lease rental appropriations. In light
of the other corrective actions described
above, this supplemental spending reduction
authorization was not implemented in fiscal
year 1992 and is not expected to be
implemented in fiscal year 1993.
The general appropriations process for the
next biennium (beginning July 1, 1993) has
commenced with the Governor's presentation of
a proposed GRF budget to the General
Assembly. That budget document and the
related appropriations bill as introduced and
passed by the House include all necessary GRF
appropriations for biennial State debt
service and lease rental payments.
The incurrence or assumption of debt by
the State without a popular vote is, with
limited exceptions, prohibited by current
provisions of the State Constitution. The
State may incur debt to cover casual deficits
or failures in revenues or to meet expenses
not otherwise provided for, but limited in
amount to $750,000. The State is expressly
precluded from assuming the debts of any
local government or corporation. (An
exception in both cases is made for any debt
incurred to repel invasion, suppress
insurrection, or defend the State in war.)
By thirteen constitutional amendments
(the last adopted in 1993), Ohio voters have
authorized the incurrence of State debt to
which taxes or excesses were pledged for
payment. At January 31, 1994, $712.6 million
(excluding certain highway bonds payable
primarily from highway use charges) of this
debt was outstanding or awaiting delivery.
The only such State debt then still
authorized to be incurred are portions of the
highway bonds and the following: (a) up to
$100 million of obligations for coal research
and development may be outstanding at any one
time ($43.1 million outstanding); (b) $1.2
billion of obligations authorized for local
infrastructure improvements, no more than
$120 million may be issued in any calendar
year ($645.2 million outstanding or awaiting
delivery, $480 million remaining to be
issued); and (c) up to $200 million in
general obligation bonds for parks and
recreation purposes may be outstanding at any
one time ( no more than $50 million to be
issued in any one year, and none have yet
been issued).
The Constitution also authorized the
issuance, for certain purposes, of State
obligations, the owners of which are not
given the right to have excises or taxes
levied to pay debt service. Those special
obligations include bonds and notes issued
by, among others, the Ohio Public Facilities
Commission and the Ohio Building Authority.
A total of $4.28 billion of those obligations
were outstanding at January 31, 1994.
A 1990 constitutional amendment
authorized greater State and political
subdivision participation in the provision of
individual and family housing, including
borrowing for this purpose. The General
Assembly may authorize the issuance of State
obligations secured by a pledge of all or
such portion as it authorizes of State
revenues or receipts, although the
obligations may not be supported by the
State's full faith and credit.
State and local agencies issue revenue
obligations that are payable from revenues of
revenue-producing facilities or categories of
facilities, which obligations are not "debt"
within constitutional provisions or payable
from taxes. In general, lease payment
obligations under lease-purchase agreements
of Ohio issuers (in connection with which
certificates of participation may be issued)
are limited in duration to the issuer's
fiscal period, and are renewable only upon
appropriations being made available for the
subsequent fiscal periods.
Local school districts in Ohio receive a
major portion (on a statewide basis,
historically approximately 46%) of their
operating moneys from State subsidies ( known
as the Foundation Program ), but are
dependent on local ad valorem property taxes
and in, 88 districts, income taxes for
significant portions of their budgets.
Litigation has recently been filed, similar
to that in other states, questioning the
constitutionality of Ohio's system of school
funding. A small number of the State's 612
local school districts have in any year
required special assistance to avoid year-end
deficits. A current program ( Emergency
School Advancement Fund ) provides for school
district cash-need borrowing directly from
commercial lenders, with State diversion of
subsidy distributions to repayment if needed;
26 districts borrowed a total of $41.8
million in fiscal year 1991 under this
program, in fiscal year 1992, borrowings
totaled $68.6 million (including over $46.6
million by one district);in fiscal year 1993,
43 districts borrowed approximately $94.5
million (including $75 million for one
district) and in fiscal year 1994 loan
approvals totaled at January 31, 1994, $9.90
million for 16 districts.
Ohio's 943 incorporated cities and
villages rely primarily on property and
municipal income taxes for their operations,
and, with other local governments, receive
local government support and property tax
relief monies distributed by the State.
Procedures have been established for those
few municipalities that have on occasion
faced significant financial problems, which
include establishment of a joint State/local
commission to monitor the municipality's
fiscal affairs, with a financial plan
developed to eliminate deficits and cure any
defaults. Since inception in 1979, these
procedures have been applied to 23 cities and
villages, in 18 of which the fiscal situation
has been resolved and the procedures
terminated.
At present the State itself does not
levy any ad valorem taxes on real or tangible
personal property. Those taxes are levied by
political subdivisions and other local taxing
districts. The Constitution has since 1934
limited the amount of the aggregate levy of
ad valorem property taxes, without a vote of
the electors or municipal charter provision,
to 1% of true value in money, and statutes
limit the amount of the aggregate levy
without a vote or charter provision to 10
mills per $1 of assessed valuation (commonly
referred to as the "ten-mill limitation").
Voted general obligations of subdivisions are
payable from property taxes unlimited as to
amount or rate.
Although revenue obligations of the State or
its political subdivisions may be payable
from a specific project or source, including
lease rentals, there can be no assurance that
future economic difficulties and the
resulting impact on State and local
government finances will not adversely affect
the market value of Ohio obligations held in
the portfolio of the Trust or the ability of
the respective obligors to make timely
payments of principal and interest on such
obligations.
The outstanding Bonds issued by the Sinking
Fund are rated Aa by Moody's Investors
Service ("Moody's") and AAA by Standard &
Poor's Corporation ("S&P"). In January 1982,
S&P adjusted its rating on certain of the
State's general obligation bonds from AA+ to
AA. Previously, in November 1979, the
ratings on general obligation debt of the
State were changed by Moody's and S&P from
Aaa and AAA to Aa and AA+, respectively. S&P
did not at either time change its AAA ratings
on the Bonds. The outstanding State Bonds
issued by the Ohio Public Facilities
Commission and the Ohio Building Authority
are rated A+ by S&P and A by Moody's.
PART C Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Location In:
Part A PartB
Annual
Report
Investment Portfolios -- *
Statement of Assets and Liabilities
- -- *
Statements of Operations --
*
Statements of Changes in Net Assets--
*
Notes to Financial Statements --
*
Supplementary Information --
*
* The Registrant's Annual Reports for the
fiscal year ended March 31, 1995 and the
Reports of Independent Accountants dated May
8, 1995 and May 15, 1995 are incorporated by
reference to the N-30D filed on June 16, 1995
as Accession # 0000950109-95-2345.
All other statements and schedules are
omitted because they are not applicable or
the required information will be shown in the
financial statements or notes thereto.
(b) Exhibits
(1) (a)
Restated Declaration of Trust
dated as of April 23, 1986 is
incorporated herein by
reference to Exhibit 1 to Pre-
Effective Amendment No. 1 to
the Registration Statement
No. 2-99861.
(b)
Instrument of the Trustees
Establishing and Designating
Classes of Shares of Certain
Series of the Trust is
incorporated herein by
reference to Exhibit 1(b) to
Post-Effective Amendment No.
24.
(2)Bylaws of the Trust are
incorporated by reference to
Exhibit 2 to Pre-Effective
Amendment No. 2.
(3) Not applicable.
(4) Not applicable.
(5) (a)
Management Agreement between
the National Portfolio &
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(b) to Post-
Effective Amendment No. 18.
(b)
Management Agreement between
the Limited Term Portfolio
and Mutual Management Corp.
is incorporated by reference
to Exhibit 5(c) to Post-
Effective Amendment No. 18.
(c)
Management Agreement between
the California Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(d) to Post-
Effective Amendment No. 18.
(d)
Management Agreement between
the New York Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(e) to Post-
Effective Amendment No. 18.
(e)
Management Agreement between
the New Jersey Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(g) to Post-
Effective Amendment No. 18.
(f)
Management Agreement between
the Florida Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit (5)(h) to Post-
Effective Amendment No. 16.
(g)
Management Agreement between
the California Limited Term
Portfolio and Mutual
Management Corp. is
incorporated by reference to
Exhibit 5(i) to Post-
Effective Amendment No. 25.
(h)
Management Agreement between
the Florida Limited Term
Portfolio and Mutual
Management Corp. is
incorporated by reference to
Exhibit 5(j) to Post-
Effective Amendment No. 25.
(i)
Management Agreement between
the Arizona Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(k) to Post-
Effective Amendment No. 27.
(j)
Management Agreement between
the Connecticut Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(l) to Post-
Effective Amendment No. 27.
(k)
Management Agreement between
the Georgia Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(m) to Post-
Effective Amendment No. 27.
(l)
Management Agreement between
the Massachusetts Portfolio
and Mutual Management Corp.
is incorporated by reference
to Exhibit 5(n) to Post-
Effective Amendment No. 27.
(m)
Management Agreement between
the Michigan Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(o) to Post-
Effective Amendment No. 27.
(n)
Management Agreement between
the Ohio Portfolio and Mutual
Management Corp. is
incorporated by reference to
Exhibit 5(p) to Post-
Effective Amendment No. 27.
(o)
Management Agreement between
the Pennsylvania Portfolio
and Mutual Management Corp.
is incoporated by reference
to Exhibit 5(q) to Post-
Effective Amendment No. 27.
(p)
Management Agreement between
the Texas Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(r) to Post-
Effective Amendment No. 27.
(q)
Management Agreement between
the Washington Portfolio and
Mutual Management Corp. is
incorporated by reference to
Exhibit 5(s) to Post-
Effective Amendment No. 27.
(r)
Management Agreement between
the New Jersey Money Market
Portfolio and Mutual
Management Corp. is
incorporated by reference to
Exhibit 5(t) to Post-
Effective Amendment No. 27.
(s) Form
of Management Agreement
between California Money
Market Portfolio (or New York
Money Market Portfolio, as
the case may be) and &
Mutual Management Corp. filed
herewith.
(6)Distribution Agreement between
Registrant and Smith Barney,
Harris Upham & Co. Incorporated
is incorporated by reference to
Exhibit 6 to Post-Effective
Amendment No. 7.
(7) Not applicable.
(8)Custodian Agreement between
Registrant and Provident National
Bank is incorporated by reference
to Exhibit 8 to Pre-Effective
Amendment No. 1.
(9)Transfer Agency Agreement
between Registrant and Provident
Financial Processing Corp. is
incorporated by reference to
Exhibit 9 to Post-Effective
Amendment No. 12.
(10) Opinion of
Gaston & Snow is incorporated by
reference to Exhibit 10 to Pre-
Effective Amendment No. 1.
(11) (i)
Auditors' Report (See the
Annual Report to Shareholders
which is incorporated by
reference in the Statement of
Additional Information).
(ii)
Auditors' Consent
(iii)
Power of Attorney is
incorporated by reference to
Exhibit 11(iii) to Post-
Effective Amendment No. 23
(12) Not applicable.
(13) Subscription
Agreement between Registrant and
Mutual Management Corp. is
incorporated by reference to
Exhibit 13 to Pre-Effective
Amendment No. 1.
(14) Not applicable.
(15) (a) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
California Money Market
Portfolio is incorporated by
reference to Exhibit 15 to
Post-Effective Amendment No.
21.
(b) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
California Limited Term
Portfolio is incorporated by
reference to Exhibit 15(b) to
Post-Effective Amendment No.
25.
(c) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Florida Limited Term
Portfolio is incorporated by
reference to Exhibit 15(c) to
Post-Effective Amendment No.
25.
(d) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Arizona Portfolio is
incorporated by reference to
Exhibit 15(d) to Post-
Effective Amendment No.27.
(e) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Connecticut Portfolio is
incoporated by reference to
Exhibit 15(e) to Post-
Effective Amendment No. 27.
(f) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Georgia Portfolio is
incorporated by reference to
Exhibit 15(f) to Post-
Effective Amendment No.27.
(g) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Massachusetts Portfolio is
incorporated by reference to
Exhibit 15(g) to Post-
Effective Amendment No. 27.
(h) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Michigan Portfolio is
incorporated by reference to
Exhibit 15(h) to Post-
Effective Amendment No. 27.
(i) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Ohio Portfolio is
incorporated by reference to
Exhibit 15(i) to Post-
Effective Amendment No. 27.
(j) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Pennsylvania Portfolio is
incorporated by reference to
Exhibit 15(j) to Post-
Effective Amendment No. 27.
(k) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Texas Portfolio is
incorporated by reference to
Exhibit 15(k) to Post-
Effective Amendment No. 27.
(l) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
Washington Portfolio is
incorporated by reference to
Exhibit 15(l) to Post-
Effective Amendment No. 27.
(m) Plan
of Distribution pursuant to
Rule 12b-1 on behalf of the
New Jersey Money Market
Portfolio is incorporated by
reference to Exhibit 15(m) to
Post-Effective Amendment No.
27.
(n) Form of Plan of Distribution
pursuant to Rule 12b-1 on behalf of Class A
shares of each Portfolio, except the
California Money Market and the New York
Money Market Portfolio, filed herewith.
(16) Schedule of
Computation of Performance
Quotations is incorporated by
reference to Exhibit 16 to Post-
Effective Amendment No. 5.
Item 25. Persons Controlled by or under
Common Control with Registrant
The Registrant is not controlled
directly or indirectly by any person.
Information with respect to the
Registrant's investment manager is
set forth under the caption
"Management of the Fund" in the
prospectus included in Part A of this
Post-Effective Amendment on Form N-1A.
Item 26. Number of Holders of Securities
Number of Recordholders on
Title of Class June 30, 1995
National Portfolio 8,899
New Jersey Portfolio io 1,651
New York Portfolio 2,605
California Portfolio 2,681
Limited Term Portfolio 5,032
California Money Market Portfolio
28,387
Florida Portfolio 2,123
New York Money Market Portfolio
26,084
California Limited Term Portfolio
170
Florida Limited Term Portfolio 292
Arizona Portfolio 0
Connecticut Portfolio 0
Georgia Portfolio 357
Massachusetts Portfolio 0
Michigan Portfolio 0
Ohio Portfolio 235
Pennsylvania Portfolio 544
Texas Portfolio 0
Washington Portfolio 0
New Jersey Money Market Portfolio
0
Item 27. Indemnification
Reference is made to ARTICLE V of
Registrant's Declaration of Trust for
a complete statement of its terms.
Section 5.2 of ARTICLE V provides:
"No Trustee, officer, employee or
agent of the Trust shall be liable to
the Trust, its Shareholders, or to any
Shareholder, Trustee, officer,
employee or agent thereof for any
action or failure to act (including
without limitation the failure to
compel in any way any former or acting
Trustee to redress any breach of
trust) except for his own bad faith,
willful misfeasance, gross negligence
or reckless disregard of his or its
duties." Emphasis added.
Item 28. Business and other Connections of
Investment Adviser
See the material under the
caption "Management of the
Fund" included in Part A
(Prospectus) of this
Registration Statement and the
material appearing under the
caption "Management Agreement"
included in Part B (Statement
of Additional Information) of
this Registration Statement.
Information as to the Directors
and Officers of Smith Barney
Mutual Funds Management Inc. is
included in its Form ADV (File
No. 801-8314), filed with the
Commission, which is
incorporated herein by
reference thereto.
Item 29. Principal Underwriters
(a) Smith Barney
Inc., currently acts
as
underwriter for
Smith Barney Money Funds,
Inc.; Smith Barney
Municipal
Money
Market Fund, Inc.; Smith
Barney Muni Funds;
Smith
Barney
Funds, Inc.; Smith Barney
Variable Account
Funds;
Smith
Barney/Travelers Series Fund
Inc.; Smith Barney
World
Funds,
Inc.; Smith Barney
Institutional Cash
Management Fund,
Inc.;
Smith Barney Investment
Funds, Inc.; Smith
Barney
Adjustable
Rate Government Income
Fund; Smith Barney
Equity
Funds;
Smith Barney Income
Funds; Smith Barney
Massachusetts
Municipals Fund; Smith
Barney Arizona
Municipals Fund
Inc.;
Smith Barney Principal
Return Fund; Municipal
High
Income
Fund Inc.; Consulting Group
Capital Markets
Funds;
Smith
Barney Series Fund; Smith
Barney Income Trust;
Smith
Barney
Aggressive Growth Fund Inc.;
Smith Barney
Appreciation
Fund
Inc.; Smith Barney
California Municipals
Fund Inc.;
Smith
Barney Fundamental Value
Fund Inc.; Smith
Barney
Managed
Governments Fund Inc.; Smith
Barney Managed
Municipals
Fund
Inc.; Smith Barney New
York Municipals Fund
Inc.;
Smith
Barney New Jersey Municipals
Fund Inc; Smith Barney
Precious
Metals and Minerals
Fund Inc.; Smith
Barney
Telecommunications Trust;
Smith Barney Florida
Municipal
Fund; USA High Yield Fund
N.V.; Smith Barney
International
Funds (Luxemburg); Smith
Barney Worldwide
Securities
Limited
(Bermuda); Smith Barney
Worldwide Special
Fund
N.V.
(Netherlands, Antilles);
Smith Barney
Investment Funds
Ltd.
(Cayman Islands).
Smith Barney, the
distributor of
Registrant's shares,
is a wholly owned
subsidiary of
TravelersGroup.
(b) The
information required
by this Item 29 with
respect to each
director and officer
of Smith Barney is
incorporated by
reference to Schedule
A of Form BD filed by
Smith Barney pursuant
to the Securities
Exchange Act of 1934
(SEC File No. 8-8177).
(c) Not
applicable
Item 30. Location of Accounts and Records
PNC Bank, National Association, 17th
and Chestnut Streets, Philadelphia,
Pennsylvania 19103, and The
Shareholder Services Group Inc., One
Exchange Place, Boston, Massachusetts
02109, will maintain the custodian and
the shareholders servicing agent
records, respectively required by
Section 31(a).
All other records required by Section
31(a) are maintained at the offices of
the Registrant at 388 Greenwich
Street, New York, New York 10013 (and
preserved for the periods specified by
Rule 31a-2).
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Registrant undertakes, if
requested to do so by the holders of
at least 10% of Registrant's
outstanding shares, to call a meeting
of shareholders for the purpose of
voting upon the question of removal of
a Trustee or Trustees and to assist in
communications with other shareholders
as required by Section 16(c).
(c) Registrant undertakes to furnish
each person to whom a prospectus is
delivered with a copy of Registrant's
latest report to shareholders, upon
request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the
Investment Company Act of 1940, the Registrant certifies that it
meets
all of the requirements for effectiveness of this
Post-Effective
Amendment to the Registration Statement pursuant to Rule 485 (b)
under
the Securities Act of 1933 and has duly caused this
Post-Effective
Amendment to its Registration Statement to be signed on its behalf
by
the undersigned and where applicable, the true and lawful
attorney-in-
fact, thereto duly authorized, in the City of New York, and State
of
New York on the 27th day of July, 1995.
SMITH BARNEY MUNI FUNDS
By/s/ Heath B. McLendon
Heath B. McLendon,
Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-
Effective Amendment to the Registration Statement has been
signed
below by the following persons in the capacities and on the
date
indicated.
Signature Title Date
/s/ Heath B. McLendon Chief Executive Officer July 27,
1995
(Heath B. McLendon)
(Principal
Executive Officer)
and Trustee
/s/ Jessica M. Bibliowicz
President and
Trustee July 27, 1995
(Jessica M. Bibliowicz)
Ralph D. Creasman* Trustee
(Ralph D. Creasman)
Joseph H. Fleiss* Trustee
(Joseph H. Fleiss)
Donald R. Foley* Trustee
(Donald R. Foley)
Trustee
(Paul Hardin III)
Francis P. Martin* Trustee
(Francis P. Martin)
Roderick C. Rasmussen* Trustee
(Roderick C. Rasmussen)
John P. Toolan* Trustee
(John P. Toolan)
Signature Title Date
C. Richard Youngdahl* Trustee
(C. Richard Youngdahl)
/s/ Lewis E. Daidone Senior
Vice
President July 27, 1995
(Lewis E. Daidone) and Treasurer (Principal Financial
and Accounting Officer)
*By: /s/ Christina T. Sydor
Christina T. Sydor
Pursuant to Power of Attorney
July 27,
1995
Independent Auditors' Consent
To the Shareholders and Trustees of the
Smith Barney Muni Funds:
We consent to the use of our reports dated as summarized
below, with respect to the Portfolios listed below of Smith
Barney Muni Funds incorporated herein by reference and to
the references to our Firm under the headings "Financial
Highlights" in the Prospectuses of the Portfolios listed
below and "Independent Auditors" in the Statement of
Additional Information.
Date of
Portfolio Auditors'
Report
National Portfolio May 8, 1995
Limited Portfolio May 8, 1995
California Money Market Portfolio May 15, 1995
New York Money Market Portfolio May 15, 1995
California Portfolio May 15, 1995
New York Portfolio May 15, 1995
New Jersey Portfolio May 15, 1995
Florida Portfolio May 15, 1995
California Limited Term Portfolio May 15, 1995
Florida Limited Term Portfolio May 15, 1995
Georgia Portfolio May 15, 1995
Ohio Portfolio May 15, 1995
Pennsylvania Portfolio May 15, 1995
KPMG PEAT MARWICK
LLP
New York, New York
July 26, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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103,630,514
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8,354,564
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8,167,816
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112,464,040
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[INTEREST-INCOME]
7,108,820
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[EXPENSES-NET] 680,332
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6,428,488
[REALIZED-GAINS-CURRENT]
(270,642)
[APPREC-INCREASE-CURRENT]
1,196,626
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7,354,472
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6,270,283
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2,038,171
[NUMBER-OF-SHARES-REDEEMED]
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2,051,230
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102,961,883
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<ARTICLE>
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103,630,514
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[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 114,089
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[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(313,998)
[ACCUM-APPREC-OR-DEPREC]
4,266,319
[NET-ASSETS]
112,464,040
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
7,108,820
[OTHER-INCOME] 0
[EXPENSES-NET] 680,332
[NET-INVESTMENT-INCOME]
6,428,488
[REALIZED-GAINS-CURRENT]
(270,642)
[APPREC-INCREASE-CURRENT]
1,196,626
[NET-CHANGE-FROM-OPS]
7,354,472
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 23,478
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[NUMBER-OF-SHARES-SOLD] 177,570
[NUMBER-OF-SHARES-REDEEMED] (24,244)
[SHARES-REINVESTED] 1,046
[NET-CHANGE-IN-ASSETS]
2,051,230
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (43,356)
[GROSS-ADVISORY-FEES] 484,744
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 680,332
[AVERAGE-NET-ASSETS]
102,961,883
[PER-SHARE-NAV-BEGIN] 11.91
[PER-SHARE-NII] 0.30
[PER-SHARE-GAIN-APPREC] 0.97
[PER-SHARE-DIVIDEND] 0
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110,671,580
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[TOTAL-ASSETS]
113,479,219
[PAYABLE-FOR-SECURITIES] 884,367
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 130,812
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1,015,179
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
2,876,749
[SHARES-COMMON-STOCK] 213,351
[SHARES-COMMON-PRIOR] 194,169
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[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (313,998)
[ACCUM-APPREC-OR-DEPREC]
4,266,319
[NET-ASSETS]
112,464,040
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
7,108,820
[OTHER-INCOME] 0
[EXPENSES-NET] 680,332
[NET-INVESTMENT-INCOME]
6,428,488
[REALIZED-GAINS-CURRENT]
(270,642)
[APPREC-INCREASE-CURRENT]
1,196,626
[NET-CHANGE-FROM-OPS]
7,354,472
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 155,971
[DISTRIBUTIONS-OF-GAINS] 168
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 92,926
[NUMBER-OF-SHARES-REDEEMED] (80,891)
[SHARES-REINVESTED] 7,147
[NET-CHANGE-IN-ASSETS]
2,051,230
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (43,356)
[GROSS-ADVISORY-FEES] 484,744
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 680,332
[AVERAGE-NET-ASSETS]
102,968,883
[PER-SHARE-NAV-BEGIN] 12.81
[PER-SHARE-NII] 0.67
[PER-SHARE-GAIN-APPREC] 0.08
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.67)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.89
[EXPENSE-RATIO] 1.25
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
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[NUMBER] 041
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MAR-31-1995
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APR-01-1994
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18,822,690
<INVESTMENTS-AT VALUE>
18,871,475
[RECEIVABLES] 430,473
[ASSETS-OTHER] 35,400
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
19,337,348
[PAYABLE-FOR-SECURITIES] 767,304
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 47,125
[TOTAL-LIABILITIES] 814,429
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
15,564,775
[SHARES-COMMON-STOCK]
2,329,693
[SHARES-COMMON-PRIOR]
1,015,776
[ACCUMULATED-NII-CURRENT]
1,091,585
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(514,327)
[ACCUM-APPREC-OR-DEPREC] 48,785
[NET-ASSETS]
18,522,919
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
1,193,395
[OTHER-INCOME] 0
[EXPENSES-NET] 101,810
[NET-INVESTMENT-INCOME]
1,091,585
[REALIZED-GAINS-CURRENT]
(511,066)
[APPREC-INCREASE-CURRENT] 748,302
[NET-CHANGE-FROM-OPS]
1,328,821
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(884,764)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD]
1,317,436
[NUMBER-OF-SHARES-REDEEMED]
(2,113,417)
[SHARES-REINVESTED] 68,245
[NET-CHANGE-IN-ASSETS]
(4,974,519)
[ACCUMULATED-NII-PRIOR] 722,869
[ACCUMULATED-GAINS-PRIOR] (3,261)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 80,664
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 170,029
[AVERAGE-NET-ASSETS]
17,925,360
[PER-SHARE-NAV-BEGIN] 6.44
[PER-SHARE-NII] 0.34
[PER-SHARE-GAIN-APPREC] 0.11
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.33)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 6.56
[EXPENSE-RATIO] 0.44
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 043
<NAME> FLORIDA LIMITED
TERM PORTFOLIO CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END>
MAR-31-1995
<PERIOD-START>
APR-01-1994
<PERIOD-END>
MAR-31-1995
<INVESTMENTS-AT COST>
18,822,690
<INVESTMENTS-AT VALUE>
18,871,475
[RECEIVABLES] 430,473
[ASSETS-OTHER] 35,400
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
19,337,348
[PAYABLE-FOR-SECURITIES] 767,304
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 47,125
[TOTAL-LIABILITIES] 814,429
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
3,316,646
[SHARES-COMMON-STOCK] 495,367
[SHARES-COMMON-PRIOR]
2,041,653
[ACCUMULATED-NII-CURRENT]
1,091,585
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(514,327)
[ACCUM-APPREC-OR-DEPREC] 48,785
[NET-ASSETS]
18,522,919
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
1,193,395
[OTHER-INCOME] 0
[EXPENSES-NET] 101,810
[NET-INVESTMENT-INCOME]
1,091,585
[REALIZED-GAINS-CURRENT]
(511,066)
[APPREC-INCREASE-CURRENT] 748,302
[NET-CHANGE-FROM-OPS]
1,328,821
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(174,608)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 46,614
[NUMBER-OF-SHARES-REDEEMED]
(155,645)
[SHARES-REINVESTED] 11,437
[NET-CHANGE-IN-ASSETS]
(4,974,519)
[ACCUMULATED-NII-PRIOR] 722,869
[ACCUMULATED-GAINS-PRIOR] (3,261)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 80,664
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 170,029
[AVERAGE-NET-ASSETS]
17,925,360
[PER-SHARE-NAV-BEGIN] 6.43
[PER-SHARE-NII] 0.32
[PER-SHARE-GAIN-APPREC] 0.11
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.31)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 6.55
[EXPENSE-RATIO] 0.70
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 051
<NAME> GEORGIA
PORTFOLIO - CLASS A
<MULTIPLIER>
<S>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 4,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
12,054,439
<INVESTMENTS-AT VALUE>
12,329,181
[RECEIVABLES] 568,110
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
12,897,291
[PAYABLE-FOR-SECURITIES] 503,025
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 28,158
[TOTAL-LIABILITIES] 531,183
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
8,371,509
[SHARES-COMMON-STOCK] 704,003
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (36,179)
[ACCUM-APPREC-OR-DEPREC] 274,742
[NET-ASSETS]
12,366,108
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 512,192
[OTHER-INCOME] 0
[EXPENSES-NET] 36,417
[NET-INVESTMENT-INCOME] 475,775
[REALIZED-GAINS-CURRENT] (36,179)
[APPREC-INCREASE-CURRENT] 274,742
[NET-CHANGE-FROM-OPS] 714,338
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(368,381)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 845,310
[NUMBER-OF-SHARES-REDEEMED]
(166,466)
[SHARES-REINVESTED] 25,159
[NET-CHANGE-IN-ASSETS]
12,366,108
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 39,664
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 118,398
[AVERAGE-NET-ASSETS]
9,048,059
[PER-SHARE-NAV-BEGIN] 12.00
[PER-SHARE-NII] 0.62
[PER-SHARE-GAIN-APPREC] 0.10
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.62)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.10
[EXPENSE-RATIO] .28
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 052
<NAME> GEORGIA
PORTFOLIO - CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> JUNE 15,
1995
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
12,054,439
<INVESTMENTS-AT VALUE>
12,329,181
[RECEIVABLES] 568,110
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
12,897,291
[PAYABLE-FOR-SECURITIES] 503,025
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 28,158
[TOTAL-LIABILITIES] 531,183
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
2,479,208
[SHARES-COMMON-STOCK] 210,720
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (36,179)
[ACCUM-APPREC-OR-DEPREC] 274,742
[NET-ASSETS]
12,366,108
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 512,192
[OTHER-INCOME] 0
[EXPENSES-NET] 36,417
[NET-INVESTMENT-INCOME] 475,775
[REALIZED-GAINS-CURRENT] (36,179)
[APPREC-INCREASE-CURRENT] 274,742
[NET-CHANGE-FROM-OPS] 714,338
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (62,061)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 225,294
[NUMBER-OF-SHARES-REDEEMED] (18,075)
[SHARES-REINVESTED] 3,501
[NET-CHANGE-IN-ASSETS]
12,366,108
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 39,664
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 118,398
[AVERAGE-NET-ASSETS]
9,048,059
[PER-SHARE-NAV-BEGIN] 12.27
[PER-SHARE-NII] 0.49
[PER-SHARE-GAIN-APPREC] (0.16)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.49)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.11
[EXPENSE-RATIO] 0.85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 053
<NAME> GEORGIA
PORTFOLIO - CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL
14, 1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
12,054,439
<INVESTMENTS-AT VALUE>
12,329,181
[RECEIVABLES] 568,110
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
12,897,291
[PAYABLE-FOR-SECURITIES] 503,025
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 28,158
[TOTAL-LIABILITIES] 531,183
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
1,276,828
[SHARES-COMMON-STOCK] 107,104
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (36,179)
[ACCUM-APPREC-OR-DEPREC] 274,742
[NET-ASSETS]
12,366,108
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 512,192
[OTHER-INCOME] 0
[EXPENSES-NET] 36,417
[NET-INVESTMENT-INCOME] 475,775
[REALIZED-GAINS-CURRENT] (36,179)
[APPREC-INCREASE-CURRENT] 274,742
[NET-CHANGE-FROM-OPS] 714,338
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (46,510)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 106,527
[NUMBER-OF-SHARES-REDEEMED] (2,574)
[SHARES-REINVESTED] 3,151
[NET-CHANGE-IN-ASSETS] 12,366,108
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 39,664
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 118,398
[AVERAGE-NET-ASSETS]
9,048,059
[PER-SHARE-NAV-BEGIN] 12.06
[PER-SHARE-NII] 0.55
[PER-SHARE-GAIN-APPREC] 0.04
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.56)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.09
[EXPENSE-RATIO] 0.90
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 061
<NAME> LIMITED
TERM PORTFOLIO-CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 1,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
261,735,129
<INVESTMENTS-AT VALUE>
266,439,034
[RECEIVABLES]
7,053,735
[ASSETS-OTHER] 80,348
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
273,573,117
[PAYABLE-FOR-SECURITIES]
1,687,584
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 444,874
[TOTAL-LIABILITIES]
2,132,458
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
244,283,284
[SHARES-COMMON-STOCK]
37,443,382
[SHARES-COMMON-PRIOR]
45,992,890
[ACCUMULATED-NII-CURRENT] 37,862
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(5,131,067)
[ACCUM-APPREC-OR-DEPREC]
4,703,905
[NET-ASSETS]
271,440,659
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
18,693,059
[OTHER-INCOME] 0
[EXPENSES-NET]
1,924,779
[NET-INVESTMENT-INCOME]
16,768,280
[REALIZED-GAINS-CURRENT]
(3,741,476)
[APPREC-INCREASE-CURRENT]
2,606,136
[NET-CHANGE-FROM-OPS]
15,632,940
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(15,617,838)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD]
6,753,825
[NUMBER-OF-SHARES-REDEEMED]
(16,560,560)
[SHARES-REINVESTED]
1,257,227
[NET-CHANGE-IN-ASSETS]
(56,551,822)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES]
1,351,567
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE]
1,924,779
[AVERAGE-NET-ASSETS]
262,805,549
[PER-SHARE-NAV-BEGIN] 6.55
[PER-SHARE-NII] 0.36
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] <0.37>
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 6.54
[EXPENSE-RATIO] 0.61
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 063
<NAME> LIMITED
TERM PORTFOLIO-CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 1,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
261,735,129
<INVESTMENTS-AT VALUE>
266,439,034
[RECEIVABLES]
7,053,735
[ASSETS-OTHER] 80,348
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
273,573,117
[PAYABLE-FOR-SECURITIES]
1,687,584
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 444,874
[TOTAL-LIABILITIES]
2,132,458
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
27,546,675
[SHARES-COMMON-STOCK]
4,072,805
[SHARES-COMMON-PRIOR]
4,107,267
[ACCUMULATED-NII-CURRENT] 37,862
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(5,131,067)
[ACCUM-APPREC-OR-DEPREC]
4,703,905
[NET-ASSETS]
271,440,659
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
18,693,059
[OTHER-INCOME] 0
[EXPENSES-NET]
1,924,779
[NET-INVESTMENT-INCOME]
16,768,280
[REALIZED-GAINS-CURRENT]
(3,741,476)
[APPREC-INCREASE-CURRENT]
2,606,136
[NET-CHANGE-FROM-OPS]
15,632,940
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(1,473,393)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 763,796
[NUMBER-OF-SHARES-REDEEMED]
(958,968)
[SHARES-REINVESTED] 160,710
[NET-CHANGE-IN-ASSETS]
(56,551,822)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES]
1,351,567
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE]
1,924,779
[AVERAGE-NET-ASSETS]
262,805,549
[PER-SHARE-NAV-BEGIN] 6.54
[PER-SHARE-NII] 0.35
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.35)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 6.54
[EXPENSE-RATIO] 0.89
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 071
<NAME> NATIONAL
PORTFOLIO - CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 1,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
411,736,803
<INVESTMENTS-AT VALUE>
429,375,356
[RECEIVABLES]
8,705,712
[ASSETS-OTHER] 28,160
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
438,109,228
[PAYABLE-FOR-SECURITIES]
10,358,192
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 883,427
[TOTAL-LIABILITIES]
11,241,619
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
389,024,117
[SHARES-COMMON-STOCK]
30,129,720
[SHARES-COMMON-PRIOR]
31,595,579
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(5,911,171)
[ACCUM-APPREC-OR-DEPREC]
17,638,553
[NET-ASSETS]
426,867,609
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
29,547,921
[OTHER-INCOME] 0
[EXPENSES-NET]
2,715,762
[NET-INVESTMENT-INCOME]
26,832,159
[REALIZED-GAINS-CURRENT]
(5,093,818)
[APPREC-INCREASE-CURRENT]
4,640,521
[NET-CHANGE-FROM-OPS]
26,378,862
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(26,022,594)
[DISTRIBUTIONS-OF-GAINS] (49,700)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD]
7,504,759
[NUMBER-OF-SHARES-REDEEMED]
(9,937,436)
[SHARES-REINVESTED] 966,818
[NET-CHANGE-IN-ASSETS]
(12,962,349)
[ACCUMULATED-NII-PRIOR] 370,374
[ACCUMULATED-GAINS-PRIOR]
(689,570)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES]
1,918,961
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE]
2,715,762
[AVERAGE-NET-ASSETS]
430,488,794
[PER-SHARE-NAV-BEGIN] 13.35
[PER-SHARE-NII] 0.82
[PER-SHARE-GAIN-APPREC] (0.01)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.84)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.32
[EXPENSE-RATIO] 0.60
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 072
<NAME> NATIONAL
PORTFOLIO - CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH 31,
1995
<PERIOD-START> APRIL 1,
1994
<PERIOD-END> MARCH 31,
1995
<INVESTMENTS-AT COST> 411,736,803
<INVESTMENTS-AT VALUE> 429,375,356
[RECEIVABLES] 8,705,712
[ASSETS-OTHER] 28,160
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 438,109,228
[PAYABLE-FOR-SECURITIES] 10,358,192
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES]
883,427
[TOTAL-LIABILITIES] 11,241,619
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 6,461,713
[SHARES-COMMON-STOCK] 517,830
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (5,911,171)
[ACCUM-APPREC-OR-DEPREC] 17,638,553
[NET-ASSETS] 426,867,609
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 29,547,921
[OTHER-INCOME] 0
[EXPENSES-NET] 2,715,762
[NET-INVESTMENT-INCOME] 26,832,159
[REALIZED-GAINS-CURRENT] (5,093,818)
[APPREC-INCREASE-CURRENT] 4,640,521
[NET-CHANGE-FROM-OPS] 26,378,862
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(108,083)
[DISTRIBUTIONS-OF-GAINS] (406)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 529,056
[NUMBER-OF-SHARES-REDEEMED] (18,448)
[SHARES-REINVESTED] 7,222
[NET-CHANGE-IN-ASSETS]
(12,962,349)
[ACCUMULATED-NII-PRIOR] 370,974
[ACCUMULATED-GAINS-PRIOR] (689,570)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,918,961
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2,715,762
[AVERAGE-NET-ASSETS] 430,488,794
[PER-SHARE-NAV-BEGIN] 12.41
[PER-SHARE-NII] 0.33
[PER-SHARE-GAIN-APPREC] 0.91
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.32)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.33
[EXPENSE-RATIO] 1.19
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE>
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 073
<NAME> NATIONAL
PORTFOLIO - CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 1,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
411,736,803
<INVESTMENTS-AT VALUE>
429,375,356
[RECEIVABLES]
8,705,712
[ASSETS-OTHER] 28,160
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
438,109,228
[PAYABLE-FOR-SECURITIES]
10,358,192
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 883,427
[TOTAL-LIABILITIES]
11,241,619
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
19,654,397
[SHARES-COMMON-STOCK] 1,396,521
[SHARES-COMMON-PRIOR]
1,363,945
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(5,911,171)
[ACCUM-APPREC-OR-DEPREC]
17,638,553
[NET-ASSETS]
426,867,609
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
29,547,921
[OTHER-INCOME] 0
[EXPENSES-NET]
2,715,762
[NET-INVESTMENT-INCOME]
26,832,159
[REALIZED-GAINS-CURRENT]
(5,093,818)
[APPREC-INCREASE-CURRENT]
4,640,521
[NET-CHANGE-FROM-OPS]
26,378,862
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(1,084,405)
[DISTRIBUTIONS-OF-GAINS] (2,382)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 497,598
[NUMBER-OF-SHARES-REDEEMED]
(522,970)
[SHARES-REINVESTED] 57,948
[NET-CHANGE-IN-ASSETS]
(12,962,349)
[ACCUMULATED-NII-PRIOR] 370,374
[ACCUMULATED-GAINS-PRIOR]
(689,570)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES]
1,918,961
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE]
2,715,762
[AVERAGE-NET-ASSETS]
430,488,794
[PER-SHARE-NAV-BEGIN] 13.33
[PER-SHARE-NII] 0.74
[PER-SHARE-GAIN-APPREC] (0.01)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.74)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.32
[EXPENSE-RATIO] 1.23
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 091
<NAME> NEW YORK
PORTFOLIO-CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 1,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
89,336,377
<INVESTMENTS-AT VALUE>
92,507,288
[RECEIVABLES]
1,678,992
[ASSETS-OTHER] 40,076
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
94,226,356
[PAYABLE-FOR-SECURITIES]
1,608,818
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 140,551
[TOTAL-LIABILITIES]
1,749,369
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
80,788,614
[SHARES-COMMON-STOCK]
6,449,188
[SHARES-COMMON-PRIOR]
5,459,822
[ACCUMULATED-NII-CURRENT] 3,788
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(1,310,119)
[ACCUM-APPREC-OR-DEPREC]
3,170,911
[NET-ASSETS]
92,476,987
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
5,532,297
[OTHER-INCOME] 0
[EXPENSES-NET] 567,135
[NET-INVESTMENT-INCOME]
4,965,162
[REALIZED-GAINS-CURRENT]
(804,270)
[APPREC-INCREASE-CURRENT]
1,186,302
[NET-CHANGE-FROM-OPS]
5,347,194
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(4,602,508)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD]
2,286,499
[NUMBER-OF-SHARES-REDEEMED]
(1,632,862)
[SHARES-REINVESTED] 177,827
[NET-CHANGE-IN-ASSETS]
14,924,089
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 373,385
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 567,135
[AVERAGE-NET-ASSETS]
83,567,673
[PER-SHARE-NAV-BEGIN] 12.83
[PER-SHARE-NII] 0.76
[PER-SHARE-GAIN-APPREC] 0.01
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.77)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.83
[EXPENSE-RATIO] 0.63
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI
FUNDS
<SERIES> 092
[NUMBER]
<NAME> NEW YORK
PORTFOLIO-CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 1,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
89,336,377
<INVESTMENTS-AT VALUE>
92,507,288
[RECEIVABLES]
1,678,992
[ASSETS-OTHER] 40,076
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
94,226,356
[PAYABLE-FOR-SECURITIES] 1,608,818
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 140,551
[TOTAL-LIABILITIES]
1,749,369
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
3,634,969
[SHARES-COMMON-STOCK] 296,936
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 3,788
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(1,310,119)
[ACCUM-APPREC-OR-DEPREC]
3,170,911
[NET-ASSETS]
92,476,987
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
5,532,297
[OTHER-INCOME] 0
[EXPENSES-NET] 567,135
[NET-INVESTMENT-INCOME]
4,965,162
[REALIZED-GAINS-CURRENT]
(804,270)
[APPREC-INCREASE-CURRENT]
1,186,302
[NET-CHANGE-FROM-OPS]
5,347,194
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(228,092)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 300,125
[NUMBER-OF-SHARES-REDEEMED] (6,056)
[SHARES-REINVESTED] 2,867
[NET-CHANGE-IN-ASSETS]
14,924,089
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 373,385
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 567,135
[AVERAGE-NET-ASSETS]
83,567,673
[PER-SHARE-NAV-BEGIN] 11.96
[PER-SHARE-NII] 0.31
[PER-SHARE-GAIN-APPREC] 0.86
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.29)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.84
[EXPENSE-RATIO] 1.27
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 093
<NAME> NEW YORK
PORTFOLIO CLASS-C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 1,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
89,336,377
<INVESTMENTS-AT VALUE>
92,507,288
[RECEIVABLES]
1,678,992
[ASSETS-OTHER] 40,076
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
94,226,356
[PAYABLE-FOR-SECURITIES]
1,608,818
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 140,551
[TOTAL-LIABILITIES]
1,749,369
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
6,188,824
[SHARES-COMMON-STOCK] 459,653
[SHARES-COMMON-PRIOR] 425,953
[ACCUMULATED-NII-CURRENT] 3,788
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(1,310,119)
[ACCUM-APPREC-OR-DEPREC]
3,170,911
[NET-ASSETS]
92,476,987
[DIVIDEND-INCOME] 0
[INTEREST-INCOME]
5,532,297
[OTHER-INCOME] 0
[EXPENSES-NET] 567,135
[NET-INVESTMENT-INCOME]
4,965,162
[REALIZED-GAINS-CURRENT]
(804,270)
[APPREC-INCREASE-CURRENT]
1,186,302
[NET-CHANGE-FROM-OPS]
5,347,194
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(196,832)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 148,675
[NUMBER-OF-SHARES-REDEEMED]
(133,522)
[SHARES-REINVESTED] 18,547
[NET-CHANGE-IN-ASSETS]
14,924,089
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 373,385
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 567,135
[AVERAGE-NET-ASSETS]
83,567,673
[PER-SHARE-NAV-BEGIN] 12.82
[PER-SHARE-NII] 0.68
[PER-SHARE-GAIN-APPREC] 0.01
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.68)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.83
[EXPENSE-RATIO] 1.28
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 131
<NAME> NEW YORK
MONEY MARKET PORTFOLIO
CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 1,
1995
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
704,512,914
<INVESTMENTS-AT VALUE>
704,512,914
[RECEIVABLES]
19,149,346
[ASSETS-OTHER] 15,227
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
723,677,487
[PAYABLE-FOR-SECURITIES]
13,576,333
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES]
1,710,365
[TOTAL-LIABILITIES]
15,286,698
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
708,690,582
[SHARES-COMMON-STOCK]
708,690,582
[SHARES-COMMON-PRIOR]
82,461,775
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(299,793)
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS]
708,390,789
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 11,072,590
[OTHER-INCOME] 0
[EXPENSES-NET]
(2,069,459)
[NET-INVESTMENT-INCOME]
9,003,131
[REALIZED-GAINS-CURRENT] 6,951
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS]
9,010,082
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(8,962,020)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD]
2,032,275,367
[NUMBER-OF-SHARES-REDEEMED]
(1,414,406,279)
[SHARES-REINVESTED]
8,014,448
[NET-CHANGE-IN-ASSETS]
625,931,598
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (1,844)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES]
1,525,102
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE]
2,069,459
[AVERAGE-NET-ASSETS]
305,743,425
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.025
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.025)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.68
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 111
<NAME> OHIO
PORTFOLIO-CLASS A
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> JUNE 13,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
5,078,021
<INVESTMENTS-AT VALUE>
5,236,606
[RECEIVABLES] 249,181
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
5,485,787
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 97,191
[TOTAL-LIABILITIES] 97,191
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
2,678,837
[SHARES-COMMON-STOCK] 231,140
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 12,493
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (28,813)
[ACCUM-APPREC-OR-DEPREC] 158,585
[NET-ASSETS]
5,388,596
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 193,803
[OTHER-INCOME] 0
[EXPENSES-NET] 14,496
[NET-INVESTMENT-INCOME] 179,307
[REALIZED-GAINS-CURRENT] (28,813)
[APPREC-INCREASE-CURRENT] 158,585
[NET-CHANGE-FROM-OPS] 309,079
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (96,722)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 258,461
[NUMBER-OF-SHARES-REDEEMED] (33,653)
[SHARES-REINVESTED] 6,332
[NET-CHANGE-IN-ASSETS]
5,388,596
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 14,820
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 70,717
[AVERAGE-NET-ASSETS]
4,123,072
[PER-SHARE-NAV-BEGIN] 12.00
[PER-SHARE-NII] 0.52
[PER-SHARE-GAIN-APPREC] (0.07)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.48)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.97
[EXPENSE-RATIO] .20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 112
<NAME> OHIO
PORTFOLIO-CLASS B
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> JUNE 14,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
5,078,021
<INVESTMENTS-AT VALUE>
5,236,606
[RECEIVABLES] 249,181
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
5,485,787
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 0
[TOTAL-LIABILITIES] 97,191
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
1,993,147
[SHARES-COMMON-STOCK] 170,690
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 12,493
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (28,813)
[ACCUM-APPREC-OR-DEPREC] 158,585
[NET-ASSETS]
5,388,596
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 193,803
[OTHER-INCOME] 0
[EXPENSES-NET] 14,496
[NET-INVESTMENT-INCOME] 179,307
[REALIZED-GAINS-CURRENT] (28,813)
[APPREC-INCREASE-CURRENT] 158,585
[NET-CHANGE-FROM-OPS] 309,079
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (52,951)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 199,988
[NUMBER-OF-SHARES-REDEEMED] (32,572)
[SHARES-REINVESTED] 3,274
[NET-CHANGE-IN-ASSETS]
5,388,596
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 14,820
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 70,717
[AVERAGE-NET-ASSETS]
4,123,072
[PER-SHARE-NAV-BEGIN] 12.02
[PER-SHARE-NII] 0.47
[PER-SHARE-GAIN-APPREC] (0.10)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.43)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.96
[EXPENSE-RATIO] .72
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 113
<NAME> OHIO
PORTFOLIO-CLASS C
<MULTIPLIER> 1
<S>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> JUNE 14,
1994
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
5,078,021
<INVESTMENTS-AT VALUE>
5,236,606
[RECEIVABLES] 249,181
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
5,485,787
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 97,191
[TOTAL-LIABILITIES] 97,191
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 574,347
[SHARES-COMMON-STOCK] 48,607
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 12,493
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (28,813)
[ACCUM-APPREC-OR-DEPREC] 158,585
[NET-ASSETS]
5,388,596
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 193,803
[OTHER-INCOME] 0
[EXPENSES-NET] 14,496
[NET-INVESTMENT-INCOME] 179,307
[REALIZED-GAINS-CURRENT] (28,813)
[APPREC-INCREASE-CURRENT] 158,585
[NET-CHANGE-FROM-OPS] 309,079
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (17,141)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 47,644
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 963
[NET-CHANGE-IN-ASSETS]
5,388,596
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 14,820
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 70,717
[AVERAGE-NET-ASSETS]
4,123,072
[PER-SHARE-NAV-BEGIN] 12.02
[PER-SHARE-NII] 0.46
[PER-SHARE-GAIN-APPREC] (0.09)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.43)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.96
[EXPENSE-RATIO] .77
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 121
<NAME>
PENNSYLVANIA PORTFOLIO - CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 4,
1995
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
15,304,464
<INVESTMENTS-AT VALUE>
15,730,150
[RECEIVABLES] 393,991
[ASSETS-OTHER] 79,492
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
16,203,633
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 42,714
[TOTAL-LIABILITIES] 42,714
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
7,859,426
[SHARES-COMMON-STOCK] 643,167
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 39,711
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(114,695)
[ACCUM-APPREC-OR-DEPREC] 425,686
[NET-ASSETS]
16,160,919
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 742,542
[OTHER-INCOME] 0
[EXPENSES-NET] 61,076
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT]
(114,695)
[APPREC-INCREASE-CURRENT] 425,686
[NET-CHANGE-FROM-OPS] 992,457
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(420,062)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD]
1,367,202
[NUMBER-OF-SHARES-REDEEMED]
(751,946)
[SHARES-REINVESTED] 27,911
[NET-CHANGE-IN-ASSETS]
16,160,919
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 50,793
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 143,932
[AVERAGE-NET-ASSETS]
12,719,716
[PER-SHARE-NAV-BEGIN] 12.00
[PER-SHARE-NII] 0.67
[PER-SHARE-GAIN-APPREC] 0.35
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.62)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.40
[EXPENSE-RATIO] .29
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 122
<NAME>
PENNSYLVANIA PORTFOLIO - CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> JUNE 20,
1995
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
15,304,464
<INVESTMENTS-AT VALUE>
15,730,150
[RECEIVABLES] 393,991
[ASSETS-OTHER] 79,492
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
16,203,633
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 42,714
[TOTAL-LIABILITIES] 42,714
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
4,699,265
[SHARES-COMMON-STOCK] 391,304
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 39,711
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(114,695)
[ACCUM-APPREC-OR-DEPREC] 425,686
[NET-ASSETS]
16,160,919
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 742,542
[OTHER-INCOME] 0
[EXPENSES-NET] 61,076
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT]
(114,695)
[APPREC-INCREASE-CURRENT] 425,686
[NET-CHANGE-FROM-OPS] 992,457
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(106,667)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 399,935
[NUMBER-OF-SHARES-REDEEMED] (13,656)
[SHARES-REINVESTED] 5,025
[NET-CHANGE-IN-ASSETS]
16,160,919
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 50,793
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 143,932
[AVERAGE-NET-ASSETS]
12,719,716
<PER-SHARE-NAV - BEGIN> 12.35
[PER-SHARE-NII] 0.51
[PER-SHARE-GAIN-APPREC] 0.01
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.48)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.39
[EXPENSE-RATIO] .82
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000775370
<NAME> SMITH BARNEY MUNI FUNDS
<SERIES>
[NUMBER] 123
<NAME>
PENNSYLVANIA PORTFOLIO - CLASS C
<MULTIPLIER>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MARCH
31, 1995
<PERIOD-START> APRIL 5,
1995
<PERIOD-END> MARCH
31, 1995
<INVESTMENTS-AT COST>
15,304,464
<INVESTMENTS-AT VALUE>
15,730,150
[RECEIVABLES] 393,991
[ASSETS-OTHER] 79,492
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS]
16,203,633
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 42,714
[TOTAL-LIABILITIES] 42,714
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON]
3,251,526
[SHARES-COMMON-STOCK] 269,276
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 39,711
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS]
(114,695)
[ACCUM-APPREC-OR-DEPREC] 425,686
[NET-ASSETS]
16,160,919
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 742,542
[OTHER-INCOME] 0
[EXPENSES-NET] 61,076
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT]
(114,695)
[APPREC-INCREASE-CURRENT] 425,686
[NET-CHANGE-FROM-OPS] 992,457
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME]
(115,026)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 265,002
[NUMBER-OF-SHARES-REDEEMED] (2,592)
[SHARES-REINVESTED] 6,866
[NET-CHANGE-IN-ASSETS]
16,160,919
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 50,793
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 143,932
[AVERAGE-NET-ASSETS]
12,719,716
[PER-SHARE-NAV-BEGIN] 12.00
[PER-SHARE-NII] 0.59
[PER-SHARE-GAIN-APPREC] 0.36
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.56)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.39
[EXPENSE-RATIO] .86
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
