<PAGE>1
As filed with the Securities and Exchange Commission
on August 22, 1995
Registration No. 33-_____
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.___ [ ] Post-Effective Amendment No.
Smith Barney Muni Funds
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (212) 816-6474
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip code)
Christina T. Sydor, Esq.
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
copies to:
John E. Baumgardner, Jr., Esq. Burton M. Leibert, Esq.
Sullivan & Cromwell Willkie Farr & Gallagher
125 Broad Street One Citicorp Center
New York, New York 10004 153 East 53rd Street
New York, New York 10022
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
<PAGE>2
Registrant has registered an indefinite amount of securities pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended; accordingly, no
fee is payable herewith. Registrant's Rule 24f-2 Notice for the fiscal period
ended March 31, 1995 was electronically filed with the Securities and Exchange
Commission on May 26, 1995.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>3
SMITH BARNEY MUNI FUNDS
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Letter to Shareholders
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>4
SMITH BARNEY MUNI FUNDS
FORM N-14 CROSS REFERENCE SHEET
Pursuant to Rule 481(a) Under the Securities Act of 1933, as amended
Prospectus/Proxy
Part A Item No. and Caption Statement Caption
Item 1. Beginning of Cover Page; Cross Reference
Registration Sheet
Statement and
Outside Front Cover
Page of Prospectus
Item 2. Beginning and Table of Contents
Outside Back Cover
Page of Prospectus
Item 3. Fee Table, Synopsis Fee Table; Summary; Risk
Information, and Factors; Comparison of
Risk Factors Investment Objectives
and Policies
Item 4. Information About Summary; Reasons for the
the Transaction Reorganization; Information
About the Reorganization;
Information on Shareholders'
Rights; Exhibit A (Agreement
and Plan of Reorganization)
Item 5. Information About Cover Page; Summary;
the Registrant Information About the
Reorganization; Comparison of
Investment Objectives and
Policies; Information on
Shareholders' Rights;
Information About the
Acquiring Fund; Additional
Information About Smith Barney
New York Municipals Fund Inc.
and Smith Barney Muni Funds;
Prospectus of Smith Barney
Muni Funds -- New York
Portfolio dated July 31, 1995.
<PAGE>5
Item 6. Information About Summary; Information About the
the Company Being Reorganization; Comparison of
Acquired Investment Objectives and
Policies; Information on
Shareholders' Rights;
Information About the Acquired
Fund; Additional Information
About Smith Barney New York
Municipals Fund Inc. and Smith
Barney Muni Funds
Item 7. Voting Information Summary; Information About the
Reorganization; Information on
Shareholders' Rights; Voting
Information
Item 8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
Item 9. Additional Not Applicable
Information Required
for Reoffering By
Persons Deemed to be
Underwriters
Statement of Additional
Part B Item No. and Caption Information Caption
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. Additional Cover Page; Statement of
Information About Additional Information of
the Registrant Smith Barney Muni Funds dated
July 31, 1995.
Item 13. Additional Not Applicable
Information About
the Company Being
Acquired
<PAGE>6
Item 14. Financial Statements Annual Report of Smith Barney
Muni Funds -- New York
Portfolio; Annual Report of
Smith Barney New York
Municipals Fund Inc.; Pro
Forma Financial Statements
Part C Item No. and Caption Other Information Caption
Item 15. Indemnification Incorporated by reference to
Part A caption "Information on
Shareholders' Rights --
Liability of
Directors/Trustees"
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
<PAGE>7
[Smith Barney Letterhead]
A SPECIAL NOTICE TO SHAREHOLDERS OF
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
Your Vote is Important
Dear Valued Shareholder:
The Board of Directors of Smith Barney New York Municipals Fund Inc. ("New
York Fund") has recently reviewed and unanimously endorsed a proposal for a
reorganization of New York Fund which it judges to be in the best interests of
New York Fund's shareholders.
Under the terms of the proposal, Smith Barney Muni Funds, on behalf of its New
York Portfolio ("New York Portfolio"), would acquire all or substantially all
of the assets and liabilities of New York Fund. After the transaction, New
York Fund would be liquidated and you would become a shareholder of New York
Portfolio, having received shares with an aggregate value equivalent to the
aggregate net asset value of your investment in New York Fund at the time of
the transaction. No sales charge would be imposed in the transaction. The
transaction would, in the opinion of counsel, be free from federal income taxes
to you, New York Fund and New York Portfolio, and it is intended that the
combined fund will be managed by the same portfolio manager who currently
manages New York Portfolio.
The Board of Directors of New York Fund has determined that it is advantageous
to combine New York Fund with New York Portfolio as part of the consolidation
and integration of the two separate and distinct groups of mutual funds
currently distributed by Smith Barney Inc. that resulted from the acquisition
by Travelers Group Inc. (formerly Primerica Corporation) of certain assets of
Lehman Brothers Inc. (formerly Shearson Lehman Brothers Inc.), including its
retail brokerage and domestic asset management business. In particular, the
combination of New York Fund and New York Portfolio is expected to eliminate
investor confusion associated with the offering by Smith Barney Inc. of two
similar New York municipal bond funds that provide differing yields and also
should permit the funds' investment personnel to concentrate their efforts on
the management of one fund rather than having to divide their attention
between two funds with similar investment objectives.
In addition, the Board of Directors of New York Fund has determined that the
proposed reorganization should provide benefits to Class A, Class B and Class
C shareholders of New York Fund due, in part, to savings in expenses borne by
such shareholders. Specifically, it is anticipated that the expense ratio for
Class A, Class B and Class C shares of the combined fund would be lower than
the expense ratio currently applicable to Class A, Class B and Class C shares
of New York Fund.
<PAGE>8
SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT
To consider this transaction, we have called a Special Meeting of Shareholders
to be held on November 14, 1995. We strongly invite your participation by
asking you to review, complete and return your proxy promptly.
Detailed information about the proposed transaction is described in the
enclosed proxy statement. On behalf of the Board of Directors, I thank you
for your participation as a shareholder and urge you to please exercise your
right to vote by completing, dating and signing the enclosed proxy card. A
self-addressed, postage-paid envelope has been enclosed for your convenience.
If you have any questions regarding the proposed transaction, please feel free
to call your Smith Barney Financial Consultant who will be pleased to assist
you.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED PROMPTLY.
Sincerely,
HEATH B. McLENDON
Chairman of the Board
September ___, 1995
<PAGE>9
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on November 14, 1995
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Smith Barney New York Municipals Fund Inc. ("New York Fund")
will be held at 388 Greenwich Street, 22nd Floor, New York, New York on
November 14, 1995, commencing at 2:30 p.m. for the following purposes:
1. To approve or disapprove the Agreement and Plan of Reorganization
dated as of September __, 1995 providing for (i) the acquisition of
all or substantially all of the assets of New York Fund by Smith
Barney Muni Funds on behalf of its New York Portfolio ("New York
Portfolio") in exchange for shares of New York Portfolio and the
assumption by Smith Barney Muni Funds on behalf of New York
Portfolio of certain scheduled liabilities of New York Fund, (ii)
the distribution of such shares of New York Portfolio to
shareholders of New York Fund in liquidation of New York Fund and
(iii) the subsequent dissolution of New York Fund.
2. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The Board of Directors of New York Fund has fixed the close of
business on September 25, 1995 as the record date for the determination of
shareholders of New York Fund entitled to notice of and to vote at the Meeting
and any adjournment or adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE
URGED TO SIGN AND RETURN WITHOUT DELAY THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXY CARDS ARE SET FORTH ON THE FOLLOWING PAGE. PROXIES MAY BE
REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY THE SUBSEQUENT EXECUTION AND
SUBMISSION OF A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO NEW
YORK FUND AT ANY TIME BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT
THE MEETING.
<PAGE>10
By Order of the Board of Directors
CHRISTINA T. SYDOR, ESQ.
Secretary
September __, 1995
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.
<PAGE>11
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and avoid the time and expense involved in validating your
vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to the name shown in the registration
on the proxy card.
3. All Other Accounts: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
registration. For example:
Registration Valid Signatures
Corporate Accounts
(1) ABC Corp........................ ABC Corp.
(2) ABC Corp........................ John Doe, Treasurer
(3) ABC Corp
c/o John Doe, Treasurer....... John Doe
(4) ABC Corp. Profit Sharing Plan... John Doe, Trustee
Trust Accounts
(1) ABC Trust........................ Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78................. Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA.. John B. Smith
(2) John B. Smith.................... John B. Smith, Jr., Executor
<PAGE>12
PROSPECTUS/PROXY STATEMENT DATED SEPTEMBER __, 1995
Acquisition Of The Assets Of
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 224-7523
By And In Exchange For Shares Of
NEW YORK PORTFOLIO
a separate investment portfolio of
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
(800) 224-7523
This Prospectus/Proxy Statement is being furnished to shareholders
of the Smith Barney New York Municipals Fund Inc. (the "Acquired Fund") in
connection with a proposed plan of reorganization to be submitted to
shareholders of the Acquired Fund for consideration at a Special Meeting of
Shareholders to be held on November 14, 1995 at 2:30 p.m. (the "Meeting"), at
the offices of Smith Barney Inc. ("Smith Barney") located at 388 Greenwich
Street, 22nd Floor, New York, New York 10013, or any adjournment or
adjournments thereof.
The plan provides for all or substantially all of the assets of the
Acquired Fund to be acquired by Smith Barney Muni Funds, on behalf of its New
York Portfolio (the "Acquiring Fund") in exchange for shares of the Acquiring
Fund and the assumption by Smith Barney Muni Funds on behalf of the Acquiring
Fund of certain scheduled liabilities of the Acquired Fund (hereinafter
referred to as the "Reorganization"). (The Acquiring Fund and the Acquired
Fund are sometimes referred to hereinafter as the "Funds" and individually as a
"Fund".) Shares of the Acquiring Fund would be distributed to shareholders of
the Acquired Fund in liquidation of the Acquired Fund and thereafter the
Acquired Fund would be dissolved. As a result of the proposed Reorganization,
each shareholder of the Acquired Fund will receive that number of shares of the
Acquiring Fund having an aggregate value equal to the aggregate net asset value
of such shareholder's shares of the Acquired Fund immediately prior to the
Reorganization. Holders of Class A shares of the Acquired Fund will receive
Class A shares of the Acquiring Fund, and no sales charge will be imposed on
the Class A shares of the Acquiring Fund received by the Acquired Fund Class A
shareholders. Holders of Class B or Class C shares of the Acquired Fund will
receive Class B or Class C shares, respectively, of the Acquiring Fund. No
contingent deferred sales
<PAGE>13
charge ("CDSC") will be imposed on Class B or Class C shares of the Acquiring
Fund upon consummation of the Reorganization. However, any CDSC which is
applicable to a shareholder's investment will continue to apply and, in
calculating the applicable CDSC payable upon the subsequent redemption of
Class B or Class C shares of the Acquiring Fund, the period during which an
Acquired Fund shareholder held Class B or Class C shares of the Acquired Fund
will be counted. Holders of Class Y shares of the Acquired Fund will receive
Class Y shares of the Acquiring Fund. This transaction is structured to be
tax-free for federal income tax purposes to shareholders and to both the
Acquiring Fund and the Acquired Fund.
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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Acquired Fund is an open-end, non-diversified management
investment company whose investment objective is to provide New York investors
with as high a level of dividend income exempt from federal income taxes and
New York State and New York City personal income taxes as is consistent with
prudent investment management and the preservation of capital. The Acquiring
Fund is a separate investment portfolio of Smith Barney Muni Funds, an open-
end, non-diversified management investment company, whose investment objective
is to pay its shareholders as high a level of income exempt from federal
income taxes and from New York State and City personal income taxes as is
consistent with prudent investing.
Smith Barney Mutual Funds Management Inc., 388 Greenwich Street, New
York, New York 10013 (the "Manager"), serves as investment manager to both the
Acquiring Fund and the Acquired Fund. The Manager is a wholly owned
subsidiary of Smith Barney Holdings Inc. which, in turn, is a wholly owned
subsidiary of Travelers Group Inc. It is proposed that, in connection with
the Reorganization, Peter M. Coffey, the portfolio manager who has managed the
Acquiring Fund's portfolio, would manage the combined fund. Mr. Coffey, a
Managing Director of Smith Barney, has served as Vice President and Investment
Officer of the Acquiring Fund since its inception on July 16, 1987, and
manages the day-to-day operations of the Acquiring Fund, including making
substantially all investment decisions.
The investment policies of the Acquiring Fund are generally similar
to those of the Acquired Fund. Certain differences in the investment policies
of the Acquiring Fund and
<PAGE>14
the Acquired Fund, however, are described under "Comparison of Investment
Objectives and Policies" in this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective investor should know before investing. Certain relevant
documents listed below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated in whole or in part by reference. A
Statement of Additional Information dated September __, 1995, relating to this
Prospectus/Proxy Statement and the Reorganization, has been filed with the SEC
and is incorporated by reference into this Prospectus/Proxy Statement. A copy
of such Statement of Additional Information is available upon request and
without charge by writing to the Acquired Fund at the address listed on the
cover page of this Prospectus/Proxy Statement or by contacting a Smith Barney
Financial Consultant.
1. The Prospectus of Smith Barney Muni Funds -- New York Portfolio
dated July 31, 1995 is incorporated in its entirety by reference,
and a copy is included herein.
2. The Prospectus of Smith Barney New York Municipals Fund Inc. dated
March 1, 1995, as supplemented by Prospectus Supplements dated July
11, 1995 and July 20, 1995, is incorporated in its entirety by
reference.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a
copy of the Agreement and Plan of Reorganization (the "Plan") for the proposed
transaction.
<PAGE>15
TABLE OF CONTENTS
PAGE
ADDITIONAL MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FEE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
REASONS FOR THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . 16
INFORMATION ABOUT THE REORGANIZATION . . . . . . . . . . . . . . . . . . 18
INFORMATION ABOUT THE ACQUIRING FUND . . . . . . . . . . . . . . . . . . 23
INFORMATION ABOUT THE ACQUIRED FUND . . . . . . . . . . . . . . . . . . . 29
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . 39
INFORMATION ON SHAREHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . 47
ADDITIONAL INFORMATION ABOUT SMITH BARNEY NEW YORK
MUNICIPALS FUND INC. AND SMITH BARNEY MUNI FUNDS . . . . . . . . . . . 50
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
FINANCIAL STATEMENTS AND EXPERTS . . . . . . . . . . . . . . . . . . . . 52
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION . . . . . . . . . . . . A-1
<PAGE>16
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated September __,
1995 relating to this Prospectus/Proxy Statement and the Reorganization, will
be sent to all shareholders requesting a copy of such Statement of Additional
Information.
1. Statement of Additional Information of Smith Barney Muni Funds dated
July 31, 1995.
2. Annual Report of Smith Barney Muni Funds -- New York Portfolio for
the fiscal year ended March 31, 1995.
3. Annual Report of Smith Barney New York Municipals Fund Inc. for the
fiscal year ended December 31, 1994.
4. Pro Forma Financial Statements.
<PAGE>17
FEE TABLES
Following are tables showing current costs and expenses of the
Acquired Fund and the Acquiring Fund and the pro forma costs and expenses
expected to be incurred by the Acquiring Fund after giving effect to the
Reorganization, each based on the maximum sales charge or maximum CDSC that
may be incurred at the time of purchase or redemption.
CLASS A SHARES
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma***
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of
offering price) . . . . . . . . . . . . . . . . . . . . . 4.00% 4.00% 4.00%
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) . . . . . . . . . . . . . . . . . . . None* None* None*
Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . . . 0.538%**** 0.45% 0.50*****
12b-1 fees . . . . . . . . . . . . . . . . . . . . . . . . 0.15 0.15 0.15
Other expenses** . . . . . . . . . . . . . . . . . . . . . 0.09 0.13 0.07
Total Operating Expenses . . . . . . . . . . . . . . . . . . 0.778% 0.73% 0.72%
<FN>
* 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.
** "Other expenses" for Class A shares of the Acquired Fund, the Acquiring
Fund and for the pro forma financial figures are based on annualized
amounts as of April 30, 1995.
*** The pro forma financial figures are intended to provide
shareholders with information about the continuing impact
of the Reorganization as if the Reorganization had taken
place as of April 30, 1995.
**** For investment advisory services, the Acquired Fund pays
the Manager a fee at the following annual rates of average
daily net assets: 0.35% up to $500 million and 0.32% in
excess of $500 million. For administrative services
rendered, the Acquired Fund pays the Manager a fee at the
following annual rates of average daily net assets: 0.20%
to $500 million and 0.18% in excess of $500 million.
Effective on November 17, 1995 (the anticipated date of
the Reorganization), the Manager has agreed to reduce the
Acquired Fund's aggregate management fee to 0.50% of the
Acquired Fund's average daily net assets.
***** Assumes approval by shareholders of the Acquiring Fund of
a proposal to increase the management fees payable by the
Acquiring Fund from 0.45% to 0.50% of the Acquiring Fund's
average daily net assets. See "Reasons for the
Reorganization."
</TABLE>
<PAGE>18
CLASS B SHARES
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma***
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of offering
price) . . . . . . . . . . . . . . . . . . . . . . . None None None
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) . . . . . . . . . . . . . . . . 4.50% 4.50% 4.50%
Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . 0.538%**** 0.45% 0.50%*****
12b-1 fees* . . . . . . . . . . . . . . . . . . . . . 0.65 0.65 0.65
Other expenses** . . . . . . . . . . . . . . . . . . . 0.10 0.13 0.08
Total Operating Expenses . . . . . . . . . . . . . . . . 1.288% 1.23% 1.23%
<FN>
* Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee.
** "Other expenses" for Class B shares of the Acquired Fund, the Acquiring
Fund and for the pro forma financial figures are based on annualized
amounts as of April 30, 1995.
*** The pro forma financial figures are intended to provide
shareholders with information about the continuing impact
of the Reorganization as if the Reorganization had taken
place as of April 30, 1995.
**** For investment advisory services, the Acquired Fund pays
the Manager a fee at the following annual rates of average
daily net assets: 0.35% up to $500 million and 0.32% in
excess of $500 million. For administrative services
rendered, the Acquired Fund pays the Manager a fee at the
following annual rates of average daily net assets: 0.20%
to $500 million and 0.18% in excess of $500 million.
Effective on November 17, 1995 (the anticipated date of
the Reorganization), the Manager has agreed to reduce the
Acquired Fund's aggregate management fee to 0.50% of the
Acquired Fund's average daily net assets.
***** Assumes approval by shareholders of the Acquiring Fund of
a proposal to increase the management fees payable by the
Acquiring Fund from 0.45% to 0.50% of the Acquiring Fund's
average daily net assets. See "Reasons for the
Reorganization."
</TABLE>
<PAGE>19
CLASS C SHARES
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma***
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of
offering price) . . . . . . . . . . . . . . . . . . . None None None
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) . . . . . . . . . . . . . . . . . 1.00% 1.00% 1.00%
Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . . 0.538%**** 0.45% 0.50%*****
12b-1 fees* . . . . . . . . . . . . . . . . . . . . 0.70 0.70 0.70
Other expenses** . . . . . . . . . . . . . . . . . 0.10 0.13 0.08
Total Operating Expenses . . . . . . . . . . . . . . . . . 1.338% 1.28% 1.28%
<FN>
* 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.
** "Other expenses" for Class C shares of the Acquired Fund, the Acquiring
Fund and for the pro forma financial figures are based on annualized
amounts as of April 30, 1995.
***
The pro forma financial figures are intended to provide shareholders with
information about the continuing impact of the Reorganization as if the
Reorganization had taken place as of April 30, 1995.
**** For investment advisory services, the Acquired Fund pays the Manager a fee
at the following annual rates of average daily net assets: 0.35% up to
$500 million and 0.32% in excess of $500 million. For administrative
services rendered, the Acquired Fund pays the Manager a fee at the
following annual rates of average daily net assets: 0.20% to $500 million
and 0.18% in excess of $500 million. Effective on November 17, 1995 (the
anticipated date of the Reorganization), the Manager has agreed to reduce
the Acquired Fund's aggregate management fee to 0.50% of the Acquired
Fund's average daily net assets.
***** Assumes approval by shareholders of the Acquiring Fund of a proposal to
increase the management fees payable by the Acquiring Fund from 0.45% to
0.50% of the Acquiring Fund's average daily net assets. See "Reasons for
the Reorganization."
</TABLE>
<PAGE>20
CLASS Y SHARES
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund Pro Forma**
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of offering price) . . . . . . None None None
Maximum CDSC (as a percentage of
original cost or redemption proceeds,
whichever is lower) . . . . . . . . . . . . . . . . . . . . None None None
Annual Operating Expenses
(as a percentage of average net assets)
Management fees . . . . . . . . . . . . . . . . . . . . . . . 0.538%*** 0.45% 0.50%****
12b-1 fees . . . . . . . . . . . . . . . . . . . . . . . . . 0.00 0.00 0.00
Other expenses* . . . . . . . . . . . . . . . . . . . . . . 0.09 0.13 0.13
Total Operating Expenses . . . . . . . . . . . . . . . . . . . 0.64% 0.58% 0.63%
<FN>
* The expenses for Class Y shares of the Acquired Fund, the Acquiring Fund
and for the pro forma financial figures are based on annualized amounts
incurred by Class A shares of each Fund as of April 30, 1995, because no
Class Y shares of either the Acquired Fund or the Acquiring Fund are
currently outstanding.
** The pro forma financial figures are intended to provide shareholders with
information about the continuing impact of the Reorganization as if the
Reorganization had taken place as of April 30, 1995.
*** For investment advisory services, the Acquired Fund pays the Manager a fee
at the following annual rates of average daily net assets: 0.35% up to
$500 million and 0.32% in excess of $500 million. For administrative
services rendered, the Acquired Fund pays the Manager a fee at the
following annual rates of average daily net assets: 0.20% to $500 million
and 0.18% in excess of $500 million. Effective on November 17, 1995 (the
anticipated date of the Reorganization), the Manager has agreed to reduce
the Acquired Fund's aggregate management fee to 0.50% of the Acquired
Fund's average daily net assets.
**** Assumes approval by shareholders of the Acquiring Fund of a proposal to
increase the management fees payable by the Acquiring Fund from 0.45% to
0.50% of the Acquiring Fund's average daily net assets. See "Reasons for
the Reorganization."
</TABLE>
<PAGE>21
Examples
The following examples are intended to assist an investor in
understanding the various costs that an investor will bear directly or
indirectly. The examples assume payment of operating expenses at the levels
set forth in the tables above.
<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
Acquired Fund . . . . . . . . . . . . . . . . . $___ $___ $___ $___
Acquiring Fund . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Pro Forma . . . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Class B
Acquired Fund . . . . . . . . . . . . . . . . . $___ $___ $___ $___
Acquiring Fund . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Pro Forma . . . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Class C
Acquired Fund . . . . . . . . . . . . . . . . . $___ $___ $___ $___
Acquiring Fund . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Pro Forma . . . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Class Y
Acquired Fund . . . . . . . . . . . . . . . . . $___ $___ $___ $___
Acquiring Fund . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Pro Forma . . . . . . . . . . . . . . . . . . . ___ ___ ___ ___
<FN>
_____
* 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.
</TABLE>
<PAGE>22
An investor would pay the following expenses on the same investment, assuming
the same annual return and no redemption:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years*
<S> <C> <C> <C> <C>
Class A
Acquired Fund . . . . . . . . . . . . . . . $___ $___ $___ $___
Acquiring Fund . . . . . . . . . . . . . . . ___ ___ ___ ___
Pro Forma . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Class B
Acquired Fund . . . . . . . . . . . . . . . $___ $___ $___ $___
Acquiring Fund . . . . . . . . . . . . . . . ___ ___ ___ ___
Pro Forma . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Class C
Acquired Fund . . . . . . . . . . . . . . . $___ $___ $___ $___
Acquiring Fund . . . . . . . . . . . . . . . ___ ___ ___ ___
Pro Forma . . . . . . . . . . . . . . . . . ___ ___ ___ ___
Class Y
Acquired Fund . . . . . . . . . . . . . . . $___ $___ $___ $___
Acquiring Fund . . . . . . . . . . . . . . . ___ ___ ___ ___
Pro Forma . . . . . . . . . . . . . . . . . ___ ___ ___ ___
<FN>
______
* 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.
</TABLE>
The examples also provide 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 Fund's actual return will vary and
may be greater or less than 5.00%. These examples should not be considered
representations of past or future expenses and actual expenses may be greater
or less than those shown.
<PAGE>23
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
ADDITIONAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT,
THE AGREEMENT AND PLAN OF REORGANIZATION, A COPY OF WHICH IS ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS EXHIBIT A, THE ACCOMPANYING PROSPECTUS OF THE
ACQUIRING FUND DATED JULY 31, 1995, AND THE PROSPECTUS OF THE ACQUIRED FUND
DATED MARCH 1, 1995, AS SUPPLEMENTED BY PROSPECTUS SUPPLEMENTS DATED JULY 11,
1995 AND JULY 20, 1995.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all
or substantially all of the assets of the Acquired Fund to Smith Barney Muni
Funds on behalf of the Acquiring Fund in exchange for shares of the Acquiring
Fund and the assumption by Smith Barney Muni Funds on behalf of the Acquiring
Fund of certain scheduled liabilities of the Acquired Fund. The Plan also
calls for the distribution of shares of the Acquiring Fund to the Acquired
Fund's shareholders in liquidation of the Acquired Fund. (The foregoing
proposed transaction is referred to in this Prospectus/Proxy Statement as the
"Reorganization.") As a result of the Reorganization, each shareholder of the
Acquired Fund will become the owner of that number of full and fractional
shares of the Acquiring Fund having an aggregate value equal to the aggregate
net asset value of the shareholder's shares of the Acquired Fund as of the
close of business on the date that the Acquired Fund's assets are exchanged
for shares of the Acquiring Fund. (Shareholders of Class A, Class B, Class C
or Class Y shares of the Acquired Fund will receive Class A, Class B, Class C
or Class Y shares, respectively, of the Acquiring Fund.) See "Information
About the Reorganization -- Plan of Reorganization."
For the reasons set forth below under "Reasons for the
Reorganization," the Board of Directors of the Acquired Fund, including the
Directors of the Acquired Fund who are not "interested persons" (the
"Independent Directors"), as that term is defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), has concluded that the
Reorganization would be in the best interests of the shareholders of the
Acquired Fund and that the interests of the Acquired Fund's existing
shareholders will not be diluted as a result of the transaction contemplated
by the Reorganization and therefore has submitted the Plan for approval by the
Acquired Fund's shareholders. The Board of Trustees of Smith Barney Muni
Funds has reached similar conclusions with respect to the Acquiring Fund and
has also approved the Reorganization in respect of the Acquiring Fund.
Approval of the Reorganization will require the affirmative vote of
a majority of the total number of votes entitled to be cast thereon at the
Meeting, in person or by proxy, if a quorum is present. For purposes of
voting with respect to the Reorganization, the Class
<PAGE>24
A, Class B, Class C and Class Y shares of the Acquired Fund will vote together
as a single class. See "Voting Information."
TAX CONSEQUENCES. Prior to completion of the Reorganization, the
Funds will have received an opinion of counsel that, upon the Reorganization
and the transfer of the assets of the Acquired Fund, no gain or loss will be
recognized by the Acquired Fund or its shareholders for federal income tax
purposes. The holding period and aggregate tax basis of the Acquiring Fund
shares received by an Acquired Fund shareholder will be the same as the
holding period and aggregate tax basis of the shares of the Acquired Fund
previously held by such shareholder. In addition, the holding period and tax
basis of the assets of the Acquired Fund in the hands of the Acquiring Fund as
a result of the Reorganization will be the same as in the hands of the
Acquired Fund immediately prior to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. The Acquiring Fund and the
Acquired Fund have generally similar investment objectives, policies and
restrictions. The Acquired Fund is an open-end, non-diversified management
investment company whose investment objective is to provide New York investors
with as a high a level of dividend income exempt from federal income taxes and
New York State and New York City personal income taxes as is consistent with
prudent investment management and the preservation of capital. The Acquiring
Fund is a separate investment portfolio of Smith Barney Muni Funds, an open-
end, non-diversified management investment company, whose investment objective
is to pay its shareholders as high a level of income exempt from federal
income taxes and from New York State and City personal income taxes as is
consistent with prudent investing. For a discussion of the differences
between the investment policies of the Acquiring Fund and the Acquired Fund,
see "Comparison of Investment Objectives and Policies."
PURCHASE AND REDEMPTION PROCEDURES. Purchase of shares of the
Acquiring Fund and the Acquired Fund may be made through the Funds'
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, at their respective public offering
prices (net asset value next determined plus any applicable sales charge).
Class A shares of both the Acquiring Fund and the Acquired Fund are sold
subject to a maximum initial sales charge of 4.00% of the public offering
price. Class A shares of either Fund may be purchased at a reduced sales
charge or at net asset value, determined by aggregating the dollar amount of a
new purchase and the total asset value of all Class A shares of Funds offered
by Smith Barney held by such person that are exchangeable with Class A shares
of either Fund and applying the (reduced) sales charge applicable to such
aggregate. Purchases of Class A shares of both Funds, 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. Class B and
<PAGE>25
Class C shares of both Funds are sold without an initial sales charge but are
subject to higher ongoing expenses than Class A shares and are subject to a
CDSC payable upon certain redemptions. Class Y shares of both Funds are sold
without an initial sales charge or CDSC, and are available only to investors
meeting an initial investment minimum of $5,000,000. No Class Y shares of
either Fund are currently outstanding. In addition, the Acquired Fund is
authorized to issue a fifth class of shares, Class Z shares, exclusively for
sale to tax-exempt employee benefit and retirement plans of Smith Barney and
to certain unit investment trusts sponsored by Smith Barney or any of its
affiliates. As of the date hereof, the Acquired Fund has not sold any Class Z
shares. The Acquiring Fund does not offer Class Z shares.
Class A shares and Class Y shares of both the Acquiring and the
Acquired Fund may be redeemed at their respective net asset values per share
next determined without charge, except as set forth in the preceding
paragraph. Class B shares of both Funds may be redeemed at their net asset
value per share, subject to a maximum CDSC of 4.50% of the lower of original
cost or redemption proceeds, declining by 0.50% the first year after purchase
and by 1.00% each year thereafter to zero. Class C shares of both Funds may
be redeemed at their net asset value per share, subject to a CDSC of 1.00% if
such shares are redeemed during the first 12 months following their purchase.
Shares of both Funds held by Smith Barney as custodian must be redeemed by
submitting a written request to a Smith Barney Financial Consultant. All
other shares may be redeemed through a Smith Barney Financial Consultant,
Introducing Broker or dealer in the selling group or by forwarding a written
request for redemption to The Shareholder Services Group, Inc. ("TSSG" or the
"transfer agent"), a subsidiary of First Data Corporation. See "Redemption of
Shares" in the accompanying Prospectus of the Acquiring Fund.
EXCHANGE PRIVILEGES. The exchange privileges available to
shareholders of the Acquiring Fund are virtually identical to those available
to shareholders of the Acquired Fund. Shareholders of both the Acquired Fund
and the Acquiring Fund may exchange at net asset value all or a portion of
their shares for shares of the same class in certain other funds of the Smith
Barney Mutual Funds. Any exchange will be a taxable event for which a
shareholder may have to recognize a gain or a loss under federal income tax
provisions. No initial sales charge is imposed on the shares being acquired
in an exchange, and no CDSC is imposed on the shares being disposed of in the
exchange. A sales charge differential, however, may apply to exchanges of
Class A shares with other Smith Barney Mutual Funds. For purposes of
computing the CDSC that may be payable upon a disposition, the Class B and
Class C shares acquired in the exchange will be deemed to have been purchased
on the same date as the Class B and Class C shares that were exchanged
therefor. Class B shares of the Funds that are exchanged for Class B shares
of other Smith Barney Mutual Funds imposing a higher CDSC will be subject to
the higher applicable CDSC. See "Exchange Privilege" in the accompanying
Prospectus of the Acquiring Fund.
<PAGE>26
DIVIDENDS. The Acquired Fund declares dividends from its net
investment income (that is, income other than its net realized long- and
short-term capital gains) on each day the Fund is open for business, and pays
dividends on the last business day of the Smith Barney statement month.
Distributions of net realized long- and short-term capital gains, if any, are
declared and paid annually after the end of the fiscal year in which they have
been earned. Dividends of substantially all of the Acquiring Fund's net
investment income are declared and paid monthly and any realized capital gains
are declared and distributed annually. With respect to both Funds, unless a
shareholder otherwise instructs, 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. The distribution option
currently in effect for a shareholder of the Acquired Fund will remain in
effect after the Reorganization. After the Reorganization, however, the
former Acquired Fund shareholders may change their distribution option at any
time by contacting a Smith Barney Financial Consultant. See "Dividends and
Distributions" in the accompanying Prospectus of the Acquiring Fund.
SHAREHOLDER VOTING RIGHTS. The Acquired Fund and Smith Barney Muni
Funds are both registered with the SEC as open-end, investment companies. The
Acquired Fund is a Maryland corporation having a Board of Directors. The
Acquiring Fund is a separate series of Smith Barney Muni Funds, a
Massachusetts business trust having a Board of Trustees. Shareholders of both
Funds have similar voting rights. Neither Fund holds a meeting of
shareholders annually, and there is normally no meeting of shareholders held
for the purpose of electing Directors/Trustees unless and until such time as
less than two-thirds of the Directors or a majority of the Trustees holding
office, as the case may be, have been elected by shareholders. At that time,
the Directors/Trustees in each Fund then in office will call a shareholders'
meeting for the election of Directors/Trustees.
In addition, under the laws of the State of Maryland, shareholders
of the Acquired Fund do not have appraisal rights in connection with a
combination or acquisition of the assets of the Fund by another entity.
Shareholders of the Acquired Fund may, however, redeem their shares at net
asset value (subject to any applicable CDSC) prior to the date of the
Reorganization.
For purposes of voting with respect to the Reorganization, the Class
A, Class B, Class C and Class Y shares of the Acquired Fund will vote together
as a single class. See "Comparative Information on Shareholders' Rights --
Voting Rights."
<PAGE>27
RISK FACTORS
Due to the similarities of investment objectives and policies of the
Acquiring Fund and the Acquired Fund, the investment risks are substantially
similar. Such risks are generally those typically associated with investing
in a managed portfolio of municipal securities, primarily those of New York
issuers. See "Comparison of Investment Objectives and Policies" herein and
"Investment Objective and Management Policies" in the accompanying Prospectus
of the Acquiring Fund.
REASONS FOR THE REORGANIZATION
The Board of Directors of the Acquired Fund has determined that it
is advantageous to combine the Acquired Fund with the Acquiring Fund. The
Funds have generally similar investment objectives and policies and have the
same investment adviser, distributor and transfer agent. In reaching this
conclusion, the Board considered a number of factors as described below.
Among the factors considered by the Board of Directors of the
Acquired Fund was the 1993 transaction pursuant to which Travelers Group Inc.
(formerly Primerica Corporation) acquired certain assets of Lehman Brothers
Inc. (formerly Shearson Lehman Brothers Inc.), including its retail brokerage
and domestic asset management business. As a result of this transaction,
Smith Barney became the sponsor of two separate and totally distinct families
of mutual funds, each with, among other things, differing pricing structures,
classes of shares, exchange privileges, sweep functions and types of funds.
The Board was advised that, with the completion of the merger of back-office
brokerage operations and the implementation of a uniform pricing and class
structure on November 7, 1994, significant consolidation of the two mutual
fund groups had been made feasible and desirable. The Board was further
informed that the next step in this process would be to eliminate the
duplication of funds within the consolidated Smith Barney fund complex. The
Board of Directors of the Acquired Fund was presented with information that
indicated that investors have been and will continue to be confused in the
face of similar New York municipal bond funds managed by the same investment
adviser (although the Acquired Fund and the Acquiring Fund have different
portfolio managers, the individual primarily responsible for each Fund's day-
to-day investment decisions). In particular, the Board was presented with
information to the effect that, with two different funds, Smith Barney was
confronted with operational and shareholder services issues, including: (i)
dilution of the firm's money management and research expertise due to the
splitting of attention between the two highly similar funds; and (ii) investor
confusion associated with offering similar funds that provide differing
yields.
<PAGE>28
The Board also considered that no sales charges would be imposed in
effecting the Reorganization and the advantages of eliminating duplication
inherent in marketing two funds with similar investment objectives. The Board
was shown pro forma financial information which indicated that, assuming the
same level of assets for the combined fund after the Reorganization as on
April 30, 1995, it is estimated that Class A, Class B and Class C shareholders
of the Acquired Fund should experience a 0.058% decrease in total operating
expenses, resulting from a decrease of 0.038% in management fees paid to the
Manager accompanied by a decrease of 0.02% in certain other operating
expenses. The Board considered, among other things, the impact of the
Reorganization on the Acquired Fund's shareholders, the nature and quality of
services provided to shareholders, including performance, the impact of
economies of scale and comparative fee structures. The Board was presented
with information illustrating that the pro forma management fee to be paid by
the combined fund following the Reorganization would be 0.02% lower than the
average management fee paid by New York municipal funds included in a survey
using data prepared by Lipper Analytical Services, Inc. (the "Lipper New York
Muni Average") as of April 30, 1995 (without giving effect to management fee
waivers), and that the pro forma total operating expenses of the combined fund
following the Reorganization would be lower than the Lipper New York Muni
Average. The Board also considered, among other things, the terms and
conditions of the Reorganization and the comparative investment performance of
the Funds. In addition, the Board was advised that the Reorganization would
be effected as a tax-free reorganization.
In light of the foregoing, the Board of Directors of the Acquired
Fund, including the Independent Directors, has determined that it is in the
best interests of the Acquired Fund and its shareholders to combine with the
Acquiring Fund. The Board of Directors has also determined that a combination
of the Acquired Fund and the Acquiring Fund would not result in a dilution of
the interests of the Acquired Fund's shareholders.
The Board of Trustees of Smith Barney Muni Funds has also determined
that it is advantageous to the Acquiring Fund to acquire the assets of the
Acquired Fund. The Board of Trustees was presented with information
indicating that investors will continue to be confused in the face of similar
New York municipal bond funds managed by the same adviser. The Board also was
presented with information to the effect that, with two different funds, Smith
Barney experienced: (i) dilution of the firm's money management and research
expertise due to the splitting of attention between the two highly similar
funds; and (ii) client confusion associated with offering similar funds that
provide differing yields. In addition, among other factors, the Board of
Trustees considered the proposed increase in management fee rates described
below as well as pro forma financial information provided by Smith Barney
which indicated that the Reorganization should result in a decrease in the
expense ratio on Class A shares of the Acquiring Fund, and should not cause an
increase in the expense ratio on Class B and Class C shares of the Acquiring
Fund. The Board of Trustees also considered the terms and conditions of the
Reorganization and representations that the
<PAGE>29
Reorganization would be effected as a tax-free reorganization. Accordingly,
the Board of Trustees, including a majority of the independent Trustees, has
determined that the Reorganization is in the best interests of the Acquiring
Fund's shareholders and that the interests of the Acquiring Fund's
shareholders would not be diluted as a result of the Reorganization.
The Board of Trustees of Smith Barney Muni Funds has approved, and
has submitted to shareholders of the Acquiring Fund, a proposal to adopt a new
management agreement which, if approved by shareholders, would increase the
management fees payable by the Acquiring Fund from 0.45% to 0.50% of the
Acquiring Fund's average daily net assets. All pro forma information relating
to the Acquiring Fund after the Reorganization assumes that this new
management agreement has been approved by the shareholders of the Acquiring
Fund. In the event that the proposed new management agreement is not approved
by shareholders of the Acquiring Fund, Smith Barney Muni Funds, on behalf of
the Acquiring Fund, will consider the various alternatives available to it,
including postponing the consummation of the Reorganization until such time as
it determines that a satisfactory new management agreement has been approved
or such time as it determines not to seek approval of a new management
agreement.
INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The following summary of the Plan is
qualified in its entirety by reference to the Plan (Exhibit A hereto). The
Plan provides that Smith Barney Muni Funds on behalf of the Acquiring Fund
will acquire all or substantially all of the assets of the Acquired Fund in
exchange for shares of the Acquiring Fund and the assumption by Smith Barney
Muni Funds on behalf of the Acquiring Fund of certain scheduled liabilities of
the Acquired Fund on November 17, 1995 or such later date as may be agreed
upon by the parties (the "Closing Date").
Prior to the Closing Date, the Acquired Fund will endeavor to
discharge all of its known liabilities and obligations. The Acquiring Fund
will not assume any liabilities or obligations other than those reflected on
an unaudited statement of assets and liabilities of the Acquired Fund prepared
as of the close of regular trading on the New York Stock Exchange, currently
4:00 p.m. New York City time, on the Closing Date. The number of full and
fractional Class A, Class B, Class C and Class Y shares of the Acquiring Fund
to be issued to the Acquired Fund shareholders will be determined on the basis
of the Acquiring Fund's and the Acquired Fund's relative net asset value per
Class A, Class B, Class C and Class Y shares, respectively. The net asset
value per share of each class will be determined by dividing assets, less
liabilities, by the total number of outstanding shares of the relevant class.
<PAGE>30
The Acquired Fund and the Acquiring Fund will utilize the procedures
set forth in the Prospectus of the Acquiring Fund to determine the value of
their respective portfolio securities and to determine the aggregate value of
each Fund's portfolio. The method of valuation employed will be consistent
with the requirements set forth in the Prospectus of the Acquiring Fund, Rule
22c-1 under the 1940 Act and the interpretation of such rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, the Acquired Fund will, and the
Acquiring Fund may, declare a dividend or dividends which, together with all
previous such dividends, will have the effect of distributing to their
respective shareholders all taxable income for the taxable period ending on or
prior to the Closing Date (computed without regard to any deduction for
dividends paid). In addition, the Acquired Fund's dividend will include its
net capital gains realized in the taxable year ending on or prior to the
Closing Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to shareholders of record
as of the close of business on the Closing Date the full and fractional shares
of the Acquiring Fund received by the Acquired Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the
names of the Acquired Fund's shareholders on the share records of the
Acquiring Fund's transfer agent. Each account will represent the respective
pro rata number of full and fractional shares of the Acquiring Fund due to
each of the Acquired Fund's shareholders. After such distribution and the
winding up of its affairs, the Acquired Fund will be dissolved.
The consummation of the Reorganization is subject to the conditions
set forth in the Plan. Notwithstanding approval of the Acquired Fund's
shareholders, the Plan may be terminated at any time at or prior to the
Closing Date (i) by mutual agreement of Smith Barney Muni Funds on behalf of
the Acquiring Fund, and the Acquired Fund, (ii) by Smith Barney Muni Funds on
behalf of the Acquiring Fund, in the event that the Acquired Fund shall, or
the Acquired Fund, in the event that Smith Barney Muni Funds shall, materially
breach any representation, warranty or agreement contained in the Plan to be
performed at or prior to the Closing Date, or (iii) by Smith Barney Muni Funds
on behalf of the Acquired Fund, or by the Acquiring Fund, if a condition to
the Plan expressed to be precedent to the obligations of the terminating party
has not been met and it reasonably appears that it will not or cannot be met.
Approval of the Plan will require the affirmative vote of a majority
of the total number of votes entitled to be cast thereon at the Meeting, in
person or by proxy, if a quorum is present. If the Reorganization is not
approved by shareholders of the Acquired Fund, the Board of Directors of the
Acquired Fund will consider other possible courses of action available to it.
<PAGE>31
DESCRIPTION OF THE ACQUIRING FUND'S SHARES. Full and fractional
shares of beneficial interest of the Acquiring Fund will be issued to the
Acquired Fund in accordance with the procedures detailed in the Plan and as
described in the Acquiring Fund's Prospectus. Generally, the Acquiring Fund
does not issue share certificates to shareholders unless a specific request is
submitted to the Acquiring Fund's transfer agent. See "Information on
Shareholders' Rights" and the Prospectus of the Acquiring Fund for additional
information with respect to the shares of the Acquiring Fund.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of assets for shares
of the Acquiring Fund is intended to qualify for federal income tax purposes
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). As a condition to the closing of the
Reorganization, the Acquiring Fund and the Acquired Fund will receive an
opinion from Willkie Farr & Gallagher, counsel to the Acquired Fund, to the
effect that, on the basis of the existing provisions of the Code, U.S.
Treasury regulations issued thereunder, current administrative rules,
pronouncements and court decisions, for federal income tax purposes, upon
consummation of the Reorganization:
(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund's shares and the assumption by
the Acquiring Fund of certain scheduled liabilities of the Acquired Fund
will constitute a "reorganization" within the meaning of Section
368(a)(1)(D) of the Code, and the Acquiring Fund and the Acquired Fund
are each a "party to a reorganization" within the meaning of Section
368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund's shares and the assumption of certain scheduled
liabilities of the Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon
the transfer of the Acquired Fund's assets to the Acquiring Fund in
exchange for the Acquiring Fund's shares and the assumption of certain
scheduled liabilities of the Acquired Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund's shares to the
Acquired Fund's shareholders;
(4) no gain or loss will be recognized by shareholders of the
Acquired Fund upon the exchange of their shares of the Acquired Fund for
shares of the Acquiring Fund;
(5) the aggregate tax basis for shares of the Acquiring Fund
received by each shareholder of the Acquired Fund pursuant to the
Reorganization will be the same as the aggregate tax basis of shares of
the Acquired Fund surrendered therefor, and the holding period of shares
of the Acquiring Fund to be received by each
<PAGE>32
shareholder of the Acquired Fund will include the period during which shares
of the Acquired Fund exchanged therefor were held by such shareholder
(provided shares of the Acquired Fund were held as capital assets on the date
of the Reorganization); and
(6) the tax basis to the Acquiring Fund of the Acquired Fund's
assets acquired by the Acquiring Fund will be the same as the tax basis
of such assets to the Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets of the Acquired Fund
in the hands of the Acquiring Fund will include the period during which
those assets were held by the Acquired Fund.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should also consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
CAPITALIZATION. The following table shows the capitalization of the
Acquiring Fund and the Acquired Fund as of September __, 1995, and on a pro
forma basis as of that date, giving effect to the proposed acquisition of
assets at net asset value.
<TABLE>
<CAPTION>
Pro Forma for
Reorganization
Acquired Fund Acquiring Fund (Unaudited)
<S> <C> <C> <C>
(In thousands, except per share values)
Class A Shares
Net assets . . . . . . . . . . . . . . . . .
Net asset value per share . . . . . . . . . .
Shares outstanding . . . . . . . . . . . . .
Class B Shares
Net assets . . . . . . . . . . . . . . . . .
Net asset value per share . . . . . . . . . .
Shares outstanding . . . . . . . . . . . . .
Class C Shares
Net assets . . . . . . . . . . . . . . . . .
Net asset value per share . . . . . . . . . .
Shares outstanding . . . . . . . . . . . . .
Class Y Shares
Net assets . . . . . . . . . . . . . . . . . 0 0 0
Net asset value per share . . . . . . . . . . 0 0 0
Shares outstanding . . . . . . . . . . . . . 0 0 0
<PAGE>33
Class Z Shares
Net assets . . . . . . . . . . . . . . . . . 0 N/A N/A
Net asset value per share . . . . . . . . . . 0 N/A N/A
Shares outstanding . . . . . . . . . . . . . 0 N/A N/A
</TABLE>
As of September 25, 1995 (the "Record Date"), there were _____
outstanding Class A shares, ______ outstanding Class B shares, ______
outstanding Class C shares and no outstanding Class Y shares of the Acquiring
Fund, and ______ outstanding Class A shares, ___ outstanding Class B shares,
____ outstanding Class C shares and no outstanding Class Y shares or Class Z
shares of the Acquired Fund. As of the Record Date, the officers and Trustees
of Smith Barney Muni Funds beneficially owned as a group less than 1% of the
outstanding shares of each class of the Acquiring Fund. To the best knowledge
of the Trustees of Smith Barney Muni Funds, as of the Record Date, no
shareholder or "group" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), except as set forth in
the table below, owned beneficially or of record more than 5% of the
outstanding shares of a class of the Acquiring Fund. As of the Record Date,
the officers and Directors of the Acquired Fund beneficially owned as a group
less than 1% of the outstanding shares of each class of the Acquired Fund.
Except as set forth in the table below, to the best knowledge of the Directors
of the Acquired Fund, as of the Record Date, no shareholder or "group" (as
that term is used in Section 13(d) of the Exchange Act) owned beneficially or
of record more than 5% of the outstanding shares of a class of the Acquiring
Fund.
<TABLE>
<CAPTION>
Percentage of
Class Owned
of Record
or Beneficially
<S> <C> <C> <C>
Name and Fund Upon Consummation of the
Address and Class As of the Record Date Reorganization
</TABLE>
<PAGE>34
INFORMATION ABOUT THE ACQUIRING FUND
Management's Discussion and Analysis of Market Conditions and
Portfolio Review (through March 31, 1995).
Market and Economic Overview
Since management's last report to shareholders in November 1994, the
fixed-income markets, and municipal bonds in particular, have enjoyed a
powerful rally. Municipal bond yields have declined more than a full
percentage point, as evidenced by the drop in the average yield on The Bond
Buyer's weekly 25-Bond Revenue Index of 30-year municipal bonds from a high of
7.37% on November 17, 1994 to 6.29% on March 31, 1995. This was substantially
better than the performance of the benchmark 30-year Treasury bond, which
experienced a decline in yield of 70 basis points from 8.13% to 7.43% during
the same time frame.
The vastly improved bond markets reflect a growing consensus that
inflation will remain under control, and the Federal Reserve Board will be
successful in engineering a "soft landing" by slowing the economy down to a
more sustainable, non-inflationary rate of growth. The seven increases in the
federal funds rate (the rate banks charge each other for overnight loans),
orchestrated by the Federal Reserve Board since February 1994, appear to be
slowing the pace of economic growth. Recent economic reports show a slower
rate of increase in employment, producer prices, and retail prices, and retail
sales. Industrial production and capacity utilization were also lower than
expected, signalling a possible slowdown in the country's strong manufacturing
sector. These generally favorable economic fundamentals are more than
offsetting concerns about the substantial decline in the value of the dollar
relative to the Japanese yen and German mark on the foreign exchange markets.
Late in April, several tax-reform proposals which recommend a flat
federal income tax rate began to receive increased attention in the national
financial press and from municipal bond market participants. Adoption of a
flat tax would diminish the advantages of tax exemption for municipal bonds.
Although the various plans being circulated are only proposals, the publicity
surrounding them has recently caused some investors to back away from the
municipal bond market. In management's opinion it is much too early in the
process to predict what changes in the tax laws, if any, will actually take
place, but tax reform will certainly be a major topic of political debate over
the next few years. Many observers believe that the more radical proposals
for changes in the way taxes are collected have little chance for enactment.
Absent these tax-reform concerns, municipals would probably continue
to be strong performers relative to Treasuries and other taxable investments
due to the low supply of new issues. Not only did last year's spike in
interest rates sharply reduce refinancing
<PAGE>35
activity in the municipal market, but voter pressure on states and
municipalities to rein in spending and cut taxes, or at least avoid tax
increases, has also resulted in roughly 30% decline in new-money financing.
In addition, the universe of existing municipal bonds is shrinking. In 1995,
an estimated $230 billion of older, high-coupon issues will mature or be
called as they reach their first optional call dates. With estimates of new-
issues volume at less than $150 billion, the net reduction in municipal debt
outstanding could approach $100 billion this year, contracting the market by
about eight percent. Ordinarily, a reduction in supply of this magnitude would
be expected to provide a powerful boost for municipal bond values as it did
earlier this year. Uncertainties about various tax proposals, however, will
probably keep municipals from trading any better than their normal
relationship to taxable investment alternatives.
The New York State Economy
Economic conditions in New York remain below average, although financial
performance has shown recent signs of improvement. In 1994, for the second
consecutive year, the state closed the fiscal year with a budget surplus.
Governor Pataki has proposed a cut in personal income taxes as well as cuts in
the current budget's spending plan for transportation, education, health and
social services. The rating agencies will be scrutinizing his tax-cut plans
for offsetting reductions in expenditures. As of the date of this report to
shareholders, New York is rated A by Moody's and A- (with a positive outlook)
by Standard & Poor's.
New York Portfolio
The New York Portfolio had a total return of 6.32% (Class A shares)
for the fiscal year ended March 31, 1995. That was well above the 5.20%
average total return for all New York municipal bond funds over the same
period, as reported by Lipper Analytical Services.
Long-term performance of the Portfolio is also excellent relative to
its peers. The Portfolio's five-year cumulative total return (excluding sales
charge) of 52.14% (Class A shares) substantially outperformed the average
cumulative total return of 46.48% for all New York municipal bond funds in the
Lipper survey for the period ended March 31, 1995. It is also noteworthy that
this strong performance over the last five years has been achieved without the
necessity for any capital gains distributions, an important consideration for
investors interested in after-tax income.
While management has a generally positive outlook for the fixed-
income markets, the size of the rally experienced so far would seem to leave
little room for disappointment, and any sign of a rebound in economic activity
is likely to result in a return to higher interest rates. Management also
believes that the unique supply and demand
<PAGE>36
characteristics of the municipal market and tax-reform uncertainties will tend
to exaggerate price swings relative to taxable investments.
In light of this viewpoint, management is maintaining a balanced
approach to structuring the interest-rate sensitivity of the Portfolio by
investing in a combination of both long and short effective maturities. Most
long-term municipal bonds are callable prior to their stated maturity date.
When a bond has a coupon higher than prevailing market yields, its maturity is
effectively shortened to the call date for trading purposes because of the
possibility that the issuer will exercise its option to replace the bond with
lower-cost debt. Management is retaining high-coupon bonds that trade well
above their face value for the defensiveness of their shorter effective
maturities and the above-market level of income they provide. However,
management is also focusing on eliminating bonds with shorter call dates when
they are trading near face value. Such bonds have unfavorable performance
characteristics because they retain the downside risk of their longer maturity
if rates should rise, but their appreciation potential is limited by the
shorter call date if interest rates decline. Management is replacing such
issues with bonds that have similar stated maturities but greater call
protection.
Although this strategy sacrifices some of the current income being
generated by the Portfolio, it enhances long-term performance potential if
interest rates continue to decline without adding to downside risk if interest
rates rise. Management believes that positioning the Portfolio in this manner
is the best way to achieve its objective of the highest tax-free income
consistent with prudent investment risk.
<PAGE>37
Smith Barney Muni Funds -- New York Portfolio
<TABLE>
<CAPTION>
Historical Performance Class A Shares
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)
3/31/95 $12.83 $12.83 $0.77 $0.00 6.32%
3/31/94 13.25 12.83 0.79 0.00 2.26
3/31/93 12.33 13.25 0.81 0.00 14.48
3/31/92 11.80 12.33 0.81 0.00 11.98
3/31/91 11.67 11.80 0.85 0.00 8.74
3/31/90 11.48 11.67 0.87 0.00 9.28
3/31/89 11.25 11.48 0.86 0.00 10.03
3/3/88 12.46 11.25 0.85 0.00 (2.63)
Inception* - 3/31/87 12.50 12.46 0.13 0.00 (0.52)
Total $6.74 $0.00
</TABLE>
<TABLE>
<CAPTION>
Historical Performance Class B Shares
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)
Inception* - 3/31/95 $11.96 $12.84 $0.29 $0.00 9.92%
</TABLE>
<TABLE>
<CAPTION>
Historical Performance Class C Shares
<S> <C> <C> <C> <C> <C>
Net Asset Value
Beginning End Income Capital Gains Total
Year Ended of Year of Year Dividends Distributions Returns(1)
3/31/95 $12.82 $12.83 $0.68 $0.00 5.66%
3/31/94 13.24 12.82 0.70 0.00 1.96
Inception* - 3/31/93 12.84 13.24 0.12 0.00 4.04
Total $1.50 $0.00
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital
gains, if any, annually.
<PAGE>38
Smith Barney Muni Funds -- New York Portfolio
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C> <C> <C>
Without Sales Charge(1)
Class A Class B Class C
Year Ended 3/31/95 6.32% N/A 5.66%
Five Years Ended 3/31/95 8.75 N/A N/A
Inception* through 3/31/95 7.36 9.92% 5.25
With Sales Charge(2)
Class A Class B Class C
Year Ended 3/31/95 2.10% N/A 4.66%
Five Years Ended 3/31/95 7.86 N/A N/A
Inception* through 3/31/95 6.82 5.42% 5.25
</TABLE>
<TABLE>
<CAPTION>
Cumulative Total Return
<S> <C>
Without Sales Charge(1)
Class A (Inception* through 3/31/95) 79.06%
Class B (Inception* through 3/31/95) 9.92
Class C (Inception* through 3/31/95) 12.06
<FN>
(1) Assumes reinvestment of all dividends and capital gain distributions at
net asset value and does not reflect deduction of the applicable sales
charge with respect to Class A shares or the applicable CDSC with
respect to Class B and Class C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions at
net asset value. In addition, Class A shares reflect the deduction of
the maximum initial sales charge of 4.00%; Class B shares reflect the
deduction of a 4.50% CDSC, which applies if shares are redeemed less
than one year from initial purchase. This CDSC declines by 0.50% the
first year after purchase and by 1.00% per year thereafter until no CDSC
is incurred. Class C shares reflect the deduction of a 1.00% CDSC which
applies if shares are redeemed within the first year of purchase.
* Inception dates for Class A, Class B and Class C shares are January 16,
1987, November 11, 1994 and January 8, 1993, respectively.
</TABLE>
<PAGE>39
Growth of $10,000 Invested in
Class A Shares of New York Portfolio vs.
Lehman Long Bond Index*
(unaudited)
January 1987 - March 1995
Description of Mountain Chart - Class A
A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
January 16, 1987 in Class A shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman Long Bond Index. The plot points
used to draw the line graphs were as follows:
<TABLE>
<CAPTION>
Growth of $10,000 Investment in Growth of $10,000 Investment in
Month Ended Class A Shares Lehman Long Bond Index
<S> <C> <C>
01/16/87 $9,600.61 $10,000.00
03/87 9,595.60 10,212.00
03/88 9,315.30 10,381.11
03/89 10,218.70 11,362.32
03/90 11,134.80 12,599.33
03/91 12,072.70 13,580.13
03/92 13,481.20 15,119.56
03/93 15,394.10 17,327.37
03/94 15,767.20 17,520.61
03/95 16,739.50 19,102.61
</TABLE>
* Hypothetical illustration of $10,000 invested in Class A shares at
inception on January 16, 1987, assuming deduction of the maximum 4.00%
sales charge at the time of investment and reinvestment of dividends
(after deduction of applicable sales charges, if any) and capital gains
(at net asset value) through March 31, 1995. The index is unmanaged and
is not subject to the same management and trading expenses of a mutual
fund. The performance of the Portfolio's other classes may be greater or
less than the Class A shares' performance indicated on this chart,
depending on whether greater or lesser sales charges and fees were
incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
Management's Update (through ______, 1995). [To be provided.]
Performance information is not available for Class Y shares of the
Acquiring Fund because, as of the date hereof, no Class Y shares of the
cquiring Fund have been sold.
<PAGE>40
INFORMATION ABOUT THE ACQUIRED FUND
Management's Discussion and Analysis of Market Conditions and
Portfolio Review (through December 31, 1994).
The year ended December 31, 1994 was one of great disappointments
and difficulties for investors in the tax-exempt market. 1994 began with
great expectations: both interest rates and bond issuance were low, which
should have portended another good performance year for the municipal market.
The first blow to these expectations was dealt in February by the Federal
Reserve's first interest increase in five years. The goal of this and the
five following increases in the Federal Fund's rate was to slow the pace of
economic growth and forestall a feared increase in the rate of inflation.
Each increase in short-term interest rates resulted in an increase in long-
term rates and downward pressure on the price of municipal bonds. As the year
progressed and prices for bonds continued to decline, selling pressures
increased and in turn put additional downward pressure on the tax-exempt
market. The Fund was not immune to this difficult market environment and
ended the year with a negative total return.
The year 1994 was also noteworthy because the Republican party
regained control of both houses of Congress as well as 30 state legislatures.
New York, of course, contributed to this trend in the gubernatorial election
of Republican George Pataki. He, like most victors this past November, ran on
a campaign platform that stressed less government spending and a reduction in
the state's high personal income tax rate. It is still too early to tell if
and when Governor Pataki will be able to achieve this mandate since state tax
receipts have been weak and the state has a potentially high budget deficit.
Management believes that the investment climate in 1995 is likely to
be more positive than it was in 1994. Management believes that the Federal
Reserve has been successful in controlling inflation and will therefore no
longer need to raise interest rates, which should help stabilize the fixed
income markets. The supply/demand balance of the municipal market will be a
very import contributor to its stability and stronger performance in 1995.
Estimates call for a substantial reduction in the amount of new issuance in
1995, while at the same time a large amount of older, higher-coupon debt will
be either called or matured from the market. Demand for tax-free bonds should
continue to be strong, especially in high-tax states such as New York, which
should lead to strong bond prices.
On the budget front, both New York State and New York City have
recently announced that they are facing large budget deficits because of an
acute slowdown in tax receipts. Mayor Giuliani recently announced extensive
reductions in employment and social service spending programs that should
enable him to balance the City's budget. Governor Pataki, in his recent State
of the State budget message, called for the elimination of 11,000
<PAGE>41
state jobs and significant reductions in spending to reflect the state's
financial situation. Governor Pataki also indicated that the state and its
agencies will be reducing its bond issuance in 1995 in order to avert a
downgrade in the state's debt rating. This along will be a positive for the
New York municipal market since it will not have to absorb large, deficit-
financing bond issuance. Management's outlook for New York is quite positive
as the governor and the legislature work together between now and the April 1,
1995 budget deadline to curtail spending and increase tax receipts which will
improve the overall financial health of the Empire State.
Portfolio Summary
In response to the Federal Reserve's policy of higher short-term
interest rates and declining prices in the New York tax-exempt market,
management's investment strategy has been to keep the Fund's average maturity
at approximately 22 years, which enabled the Fund to maximize its tax-exempt
income. At the end of this reporting period, nearly 95% of the Fund's assets
were invested in municipal bonds rated as investment grade by Standard &
Poor's Corporation or Moody's Investors Service, Inc. These high quality
investments provide the portfolio with greater protection against credit risk
and are also more liquid. The majority of the Fund's holdings were in general
obligation, hospital, housing and education.
<PAGE>42
<TABLE>
<CAPTION>
Smith Barney New York Municipals Fund Inc.
<S>
Historical Performance Class A Shares
<S> <C> <C> <C> <C> <C> <C>
Year Ended Net Asset Value Capital Dividends Return of Total
December 31 Beginning Ending Gains Paid Paid Capital Returns*
1985 $13.90 $15.48 -- $1.24 -- 21.03%
1986 15.48 16.71 $0.29 1.20 -- 18.13
1987 16.71 15.37 0.01 1.14 -- (1.09)
1988 15.37 15.97 -- 1.16 -- 11.82
1989 15.97 16.26 -- 1.13 -- 9.18
1990 16.26 15.94 -- 1.16 -- 5.41
1991 15.94 16.77 -- 1.16 -- 12.98
1992 16.77 17.12 0.03 1.12 $0.01 9.36
1993 17.12 17.68 0.23 1.03 -- 10.93
1994 17.68 15.44 0.10 0.99 -- (6.62)
Total $0.66 $11.33 $0.01
Cumulative Total Return - (1/1/85 through 12/31/94) 132.91%
<FN>
* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value and do not assume deduction of the front-
end sales charge (maximum 4.00%).
</TABLE>
The Fund's policy is to distribute dividends monthly and capital gains, if
any, annually.
<PAGE>43
<TABLE>
<CAPTION>
Average Annual Total Return** Class A Shares
<S> <C> <C>
Without Sales Charge With Sales Charge***
Year Ended 12/31/94 (6.62)% (10.36)%
Five Years Ended
12/31/94 6.17% 5.31%
Ten Years Ended
12/31/94 8.82% 8.38%
<FN>
** All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value.
*** Average annual total return figures shown assume the deduction of the
maximum 4.00% sales charge.
Note: On November 6, 1992, existing shares of the Fund were designated
Class A shares and were subject to a maximum 4.50% front-end sales charge
and service fee of 0.15% of the value of the average daily net assets
attributable to that class. Effective November 7, 1994, the front-end
sales charge for Class A shares was reduced to 4.00%. The figures in the
above table have been recalculated on the basis of this new sales charge.
The Fund's average annual rates of return would have been lower had
service fees been in effect prior to November 6, 1992.
</TABLE>
<PAGE>44
Growth of $10,000 Invested in Class A Shares of Smith Barney New York
Municipals Fund Inc. vs. Lehman Brothers Municipal Bond Index and Lipper New
York Municipal Fund Average*
December 31, 1984 - December 31, 1994
Description of Mountain Chart -- Class A
A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
December 31, 1984 in Class A shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman Brothers Municipal Bond Index and
the Lipper New York Municipal Fund Average. The plot points used to draw the
line graphs were as follows:
<TABLE>
<CAPTION>
Growth of $10,000 Growth of $10,000 Investment in
Growth of $10,000 Investment in the the
Month Invested in Class A Lehman Brothers Lipper New York
Ended Shares of the Fund Municipal Bond Index Municipal Fund Average
<S> <C> <C> <C>
11/84 $10,000 -- --
12/84 $9,600 $10,000 $10,000
03/85 $10,016 $10,403 $10,408
06/85 $10,830 $11,275 $11,216
09/85 $10,744 $11,107 $11,149
12/85 $11,619 $12,005 $11,976
03/86 $12,698 $13,221 $12,939
06/86 $12,516 $13,139 $12,870
09/86 $13,146 $13,845 $13,446
12/86 $13,726 $14,323 $14,022
03/87 $14,059 $14,669 $14,373
06/87 $13,395 $14,271 $13,547
09/87 $13,011 $13,916 $13,096
12/87 $13,576 $14,538 $13,798
03/88 $13,966 $15,038 $14,170
06/88 $14,308 $15,329 $14,471
09/88 $14,745 $15,720 $14,890
12/88 $15,181 $16,013 $15,271
03/89 $15,224 $16,119 $15,334
06/89 $16,133 $17,073 $16,233
09/89 $16,118 $17,085 $16,171
12/89 $16,574 $17,742 $16,688
03/90 $16,591 $17,821 $16,613
06/90 $16,958 $18,237 $17,025
09/90 $16,912 $18,248 $16,918
12/90 $17,470 $19,035 $17,528
03/91 $17,901 $19,464 $17,941
06/91 $18,347 $19,880 $18,359
<PAGE>45
09/91 $19,130 $20,654 $19,241
12/91 $19,737 $21,347 $19,858
03/92 $19,866 $21,411 $19,879
06/92 $20,625 $22,224 $20,833
09/92 $21,179 $22,816 $21,337
12/92 $21,585 $23,231 $21,768
03/93 $22,342 $24,093 $22,677
06/93 $22,994 $24,882 $23,479
09/93 $23,676 $25,722 $24,257
12/93 $23,945 $26,083 $24,534
03/94 $22,610 $24,651 $23,081
06/94 $22,746 $24,924 $23,167
09/94 $22,830 $25,095 $23,201
12/94 $22,359 $24,734 $22,694
<FN>
* Illustration of $10,000 invested in Class A shares on December 31, 1984
assuming deduction of the maximum 4.00% front-end sales charge at the time
of investment and reinvestment of dividends and capital gains at net asset
value through December 31, 1994.
The Lehman Brothers Municipal Bond Index is comprised of approximately
21,000 bonds. The bonds are all investment grade, fixed rate, long term
(greater than two years) and are selected from issues larger than $50
million.
The Lipper New York Municipal Fund Average is composed of an average of the
Fund's peer group of mutual funds of 83 mutual funds.
Index information is available at month-end only; therefore the closest
month-end to inception date of the class has been used.
Note: All figures cited here and on the previous page represent past
performance of Class A shares and do not guarantee future results.
</TABLE>
<PAGE>46
<TABLE>
<CAPTION>
Smith Barney New York Municipals Fund Inc.
<S> <C> <C> <C> <C>
Historical Performance Class B Shares
Year Ended Net Asset Value Capital Dividends Total
December 31 Beginning Ending Gains Paid Paid Return*
11/6/92-2/28/92 $16.93 $17.12 $0.03 $0.15 2.23%
1993 17.12 17.68 0.23 0.95 10.33
1994 17.68 15.44 0.10 0.90 (7.17)
Total $0.36 $2.00
Cumulative Total Return (11/6/92 through 12/31/94) 4.70%
<FN>
* Figures assume reinvestment of all dividends and capital gains distributions
at net asset value and do not assume deduction of the CDSC.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return** Class B Shares
<S> <C> <C>
Without CDSC With CDSC***
Year Ended 12/31/94 (7.17)% (11.10)%
Inception 11/6/92 through 12/31/94 2.16% 0.91%
<FN>
** All average annual total return figures shown reflect reinvestment of
dividends and capital
gains at net asset value.
*** Average annual total return figures assume the deduction of the maximum
applicable CDSC
which is described in the Acquired Fund's prospectus.
Note: The Fund began offering Class B shares on November 6, 1992. Class
B shares are subject to a maximum 4.50% CDSC and service and distribution
fees of 0.15% and 0.50%, respectively, of the value of the average daily
net assets attributable to that class.
</TABLE>
<PAGE>47
Growth of $10,000 Invested in Class B Shares of
Smith Barney New York Municipals Fund Inc. vs.
Lehman Brothers Municipal Bond Index and
Lipper New York Municipal Fund Average*
November 6, 1992 - February 10, 1995
Description of Mountain Chart -- Class B
A line graph depicting the total growth (including reinvestment of
dividends and capital gains) of a hypothetical investment of $10,000 on
November 6, 1992 in Class B shares of the Acquired Fund as compared with the
growth of a $10,000 investment in the Lehman Brothers Municipal Bond Index and
the Lipper New York Municipal Fund Average. The plot points used to draw the
line graphs were as follows:
<TABLE>
<CAPTION>
Growth of $10,000 Growth of $10,000 Investment in
Growth of $10,000 Investment in the the
Month Invested in Class B Lehman Brothers Lipper New York
Ended Shares of the Fund Municipal Bond Index Municipal Fund Average
<S> <C> <C> <C>
10/31/92 -- $10,000 $10,000
11/06/92 $10,000 -- --
11/92 $10,108 $10,179 $10,245
12/92 $10,223 $10,283 $10,374
03/93 $10,569 $10,664 $10,807
06/93 $10,858 $11,013 $11,190
09/93 $11,169 $11,385 $11,560
12/93 $11,279 $11,545 $11,692
03/94 $10,633 $10,911 $11,000
06/94 $10,681 $11,032 $11,041
09/94 $10,706 $11,108 $11,057
12/94 $10,470 $10,948 $10,815
<FN>
* Illustration of $10,000 invested in Class B shares on November 6, 1992
assuming deduction of the maximum CDSC at the time of investment and
reinvestment of dividends and capital gains at net asset value through
December 31, 1994.
** Value does not assume deduction of applicable CDSC.
*** Value assumes deduction of applicable CDSC (assuming deduction on
December 31, 1994).
The Lehman Brothers Municipal Bond Index is comprised of approximately
21,000 bonds. The bonds are all investment grade, fixed rate, long term
(greater than two years) and are selected from issues larger than $50
million.
The Lipper New York Municipal Fund Average is composed of an average of
the Fund's peer group of mutual funds of 83 mutual funds.
<PAGE>48
Index information is available at month-end only; therefore, the closest
month-end to inception date of the Fund has been used.
Note: All figures cited here and on the following pages represent past
performance of Class B shares and do not guarantee future results.
</TABLE>
<PAGE>49
Smith Barney New York Municipals Fund Inc.
<TABLE>
<CAPTION>
Historical Performance Class C Shares
<S> <C> <C> <C> <C> <C>
Year Ended Net Asset Value Capital Dividends Total
December 31 Beginning Ending Gains Paid Paid Return*
11/10/94-12/31/94 $15.19 $15.44 $0.10 $0.12 3.08%
Total $0.10 $0.12
Cumulative Total Return (11/10/94 through 12/31/94) 3.08%
<FN>
* Figures assume reinvestment of all dividends and capital gains distributions
at net asset value and do not assume deduction of the CDSC.
</TABLE>
<TABLE>
<CAPTION>
Aggregate Total Return** -- Class C Shares
<S> <C> <C>
Without CDSC With CDSC***
Inception 11/10/94 through 2/28/95 3.08% 2.08%
<FN>
**All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value.
***Average annual total return figures assume the deduction of the maximum
applicable CDSC.
Note: The Fund began offering Class C shares on November 7,
1994. Class C shares are subject to a maximum 1.00%
CDSC and annual service and distribution fees of 0.15%
and 0.55%, respectively, of the value of the average
daily net assets attributable to that class.
</TABLE>
Management's Update (through __________, 1995). [To be provided.]
Performance information is not available for Class Y shares of the
Acquired Fund because, as of the date hereof, no Class Y shares of the
Acquired Fund have been sold.
<PAGE>50
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion comparing investment objectives, policies
and restrictions of the Acquiring Fund and the Acquired Fund is based upon and
qualified in its entirety by the disclosure in the prospectuses of the
Acquiring Fund and the Acquired Fund with respect to the Funds' respective
investment objective, policies and restrictions. For a full discussion of
these issues as they relate to the Acquiring Fund, refer to the Prospectus of
the Acquiring Fund, which accompanies this Prospectus/Proxy Statement, under
the caption "Investment Objective and Management Policies," and for a
discussion of these issues as they relate to the Acquired Fund, refer to the
Prospectus of the Acquired Fund under the caption "Investment Objective and
Management Policies."
INVESTMENT OBJECTIVE. The Acquiring Fund and the Acquired Fund have
generally similar investment objectives. The Acquired Fund seeks to provide
New York investors with as high a level of dividend income exempt from federal
income taxes and New York State and New York City personal income taxes as is
consistent with prudent investment management and the preservation of capital.
The Acquiring Fund seeks to provide as high a level of income exempt from
federal income taxes and from New York State and City personal income taxes as
is consistent with prudent investing. There can be no assurance that either
Fund will be able to achieve its investment objective. Both the Acquiring
Fund's and the Acquired Fund's investment objectives are considered
fundamental policies which cannot be changed without the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the respective Fund, which is the lesser of: (i) 67% of the voting securities
of the Fund present at a meeting of shareholders, if the holders of more than
50% of the outstanding voting securities of such Fund are present or
represented by proxy; or (ii) more than 50% of the outstanding voting
securities of such Fund.
PRIMARY INVESTMENTS. The Acquired Fund operates subject to an
investment policy providing that, under normal market conditions, it will
invest at least 80% of its net assets in New York municipal securities which
pay interest which is excluded from gross income for federal income tax
purposes and which is exempt from New York State and New York City personal
income tax. Municipal obligations are issued to raise money for a variety of
public projects, including health facilities, housing, airports, schools,
highways and bridges. The Acquired Fund may invest up to 20% of its net
assets in municipal securities of non-New York municipal issuers, the interest
on which is excluded from gross income for federal income tax purposes (not
including the possible applicability of the federal alternative minimum tax),
but which is subject to New York State and New York City personal income tax.
When the Manager believes that market conditions warrant adoption of a
temporary defensive investment posture, the Acquiring Fund may invest without
limit in non-New York municipal issuers and in temporary investments as
described below. The Acquiring Fund operates subject to a fundamental policy
that under normal market conditions
<PAGE>51
it will seek to invest 100% of its assets, and 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 New York State personal income taxes in the opinion of bond
counsel to the issuers. The Acquiring Fund 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 ("U.S. government
securities"), 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 Acquiring Fund's monies
available for investment exceed New York's municipal obligations available for
purchase that meet the Acquiring Fund's rating, maturity and other investment
criteria.
The Acquired Fund generally will invest at least 75% of its total
assets in investment grade debt obligations rated no lower than Baa, MIG 3 or
Prime-1 by Moody's Investors Services, Inc. ("Moody's") or BBB, SP-2 or A-1 by
Standard & Poor's Corporation ("S&P"), or in unrated obligations of comparable
quality. Unrated obligations will be considered to be of investment grade if
deemed by the Manager to be comparable in quality to instruments so rated, or
if other outstanding obligations of the issuers thereof are rated Baa or
better by Moody's or BBB or better by S&P. The balance of the Acquiring
Fund's assets may be invested in securities rated as low as C by Moody's or D
by S&P, or comparable unrated securities which are often referred to as
"junk bonds." Securities in the fourth highest rating category, though
considered to be investment grade, have speculative characteristics.
Securities rated as low as D are extremely speculative and are in actual
default of interest and/or principal payments.
Municipal bonds purchased by the Acquiring Fund must, at the time of
purchase, be investment grade municipal bonds and at least two-thirds of the
Acquiring Fund's municipal bonds must be rated in the category of A or better.
Investment grade bonds are those rated Aaa, Aa, A or Baa by Moody's or AAA,
AA, A or BBB by 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 Acquiring Fund 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 Acquiring Fund
may invest. After the Acquiring Fund purchases a municipal bond, the issuer
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 Acquiring Fund's portfolio but
<PAGE>52
the Manager will consider such an event in determining whether the Acquiring
Fund should continue to hold the security. The Acquiring Fund'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 rated
MIG1 or MIG2, VMIG1 or VMIG2 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 Acquiring Fund may invest are floating or variable
rate term 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 Acquiring Fund may purchase participation interests
("Participations") 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 Acquiring Fund.
Participations will be purchased only if management believes interest income
on such Participations will be tax-exempt when distributed as dividends to
shareholders.
The Acquired Fund's average weighted maturity will vary from time to
time based on the judgment of the Manager. The Acquired Fund intends to focus
on intermediate- and long-term obligations, that is, obligations with
remaining maturities at the time of purchase of between three and twenty
years. The Acquiring Fund invests its assets in securities of ranging
maturities, without limitation, depending on market conditions. Typically,
the average maturity of the Acquiring Fund's bonds will range between five and
thirty years.
Each Fund may invest without limits 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 that a Fund's dividends are derived from
interest on those bonds. Dividends derived from interest income on New York
municipal securities are a component of the "current earnings" adjustment item
for purposes of the federal corporate alternative minimum tax.
<PAGE>53
Each of the Acquired Fund and Smith Barney Muni Funds is classified
as a non-diversified investment company under the 1940 Act, which means that
each Fund is not limited by the 1940 Act in the proportion of its assets that
it may invest in the obligations of a single issuer. Each Fund intends to
conduct its operations, however, so as to qualify as a "regulated investment
company" for purposes of the Code, which will relieve the Fund of any
liability for federal income tax to the extent its earnings are distributed to
shareholders. To so qualify, among other requirements, each Fund will limit
its investments so that, at the close of each quarter of the taxable year, (a)
not more than 25% of the market value of such Fund's total assets will be
invested in the securities of a single issuer and (b) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer.
New York Municipal Securities. The two principal classifications of
New York municipal securities are "general obligation bonds" and "revenue
bonds." General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source, but not from the general taxing
power. Sizeable investments in such obligations could involve an increased
risk to the Fund should any of such related facilities experience financial
difficulties. In addition, certain types of private activity bonds issued by
or on behalf of public authorities to obtain funds for privately operated
facilities are included in the term New York municipal securities, provided
the interest paid thereon qualifies as excluded from gross income for federal
income tax purposes and as exempt from New York State and New York City
personal income tax. Private activity bonds are in most cases revenue bonds
and generally do not carry the pledge of the credit of the issuing
municipality.
In attempting to achieve its investment objective, the Funds may
employ, among others, the following portfolio strategies:.
When-Issued Securities. New issues of New York municipal securities
(and other tax-exempt obligations) frequently are offered on a when-issued
basis, which means that delivery and payment for such securities normally take
place within 45 days after the date of the commitment to purchase. Each Fund
will not accrue income with respect to a when-issued security prior to its
stated delivery date. Each Fund will establish a segregated account with the
Fund's custodian consisting of cash, U.S. government securities or other high
grade debt obligations in an amount equal to the purchase price of the Fund's
when-issued commitments. A Fund generally will make commitments to purchase
New York municipal securities (and other tax-exempt obligations) on a when-
issued basis only with the intention of actually acquiring the securities, but
the Fund may sell such securities before the delivery date if it is deemed
advisable.
<PAGE>54
Temporary Investments. Under normal market conditions, the Acquired
Fund may hold up to 20% of its total assets in cash or money market
instruments, including taxable money market instruments ("Temporary
Investments"). In addition, when the Manager believes that market conditions
warrant, including when acceptable New York municipal securities are
unavailable, the Acquired Fund may take a temporary defensive posture and
invest without limitation in Temporary Investments. Securities eligible for
short-term investment by the Acquired Fund under such circumstances are tax-
exempt notes of municipal issuers having, at the time of purchase, a rating
within the three highest grades of Moody's or S&P or, if not rated, having an
issue of outstanding debt securities rated within the three highest grades of
Moody's or S&P, and certain taxable short-term instruments having quality
characteristics comparable to those for tax-exempt investments. Similarly,
the Acquiring Fund may invest up to 20% of its assets in taxable fixed income
securities, but only in U.S. government securities, 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 Acquiring Fund's monies available for investments exceed New
York's municipal obligations available for purchase that meet the Acquiring
Fund's rating, maturity and other investment criteria.
Municipal Bond Index Futures Contracts and Options on Interest Rates
Futures Contracts. The Acquired Fund may enter into municipal bond index
futures contracts and purchase and sell options on interest rate financial
futures contracts that are traded on a United States securities exchange or
board of trade. Such investments, if any, by the Acquired Fund will be made
solely for the purpose of hedging against the changes in the value of its
portfolio securities due to anticipated changes in interest rates and market
conditions and where the transactions are economically appropriate to the
reduction of risks inherent in the management of the Acquired Fund. The
Acquired Fund may not purchase or sell municipal bond index futures contracts
if, immediately thereafter, more than 33-1/3 of its net assets would be
hedged. When the Acquired Fund enters into futures contracts to purchase an
index or debt securities or purchases call options, an amount of cash, U.S.
Government securities or other high grade debt securities equal to the market
value of the contract will be maintained in a segregated account with the
Acquired Fund's custodian to collateralize the positions, thereby insuring
that the use of the contract is unleveraged. The Acquiring Fund may also
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 deposit on the Acquired Fund's net
assets would not exceed 5% of the value of its total assets. Since any income
would be taxable, it is anticipated that such investments would be made only
in those circumstances when the Manager anticipates the possibility of an
extreme change in interest rates or in market conditions but does not wish to
liquidate the Acquiring Fund's securities.
<PAGE>55
Lending of Portfolio Securities. The Acquired Fund has the ability
to lend securities from its portfolio to brokers, dealers and other financial
organizations. Such loans, if and when made, may not exceed 20% of the
Acquiring Fund's total assets, taken at value. Loans of portfolio securities
by the Fund will be collateralized by cash, letters of credit or U.S.
government securities which are maintained at all times in an amount equal to
at least 100% of the current market value (determined by marking to market
daily) of the loaned securities. The Acquiring Fund does not have an
expressed policy regarding the lending of portfolio securities.
Illiquid Securities. The Acquired Fund will not invest more than
15% of its net assets in illiquid securities, including those that are not
readily marketable or for which there is no established market. The Acquiring
Fund adheres to an operating policy of not investing more than 10% of its net
assets in illiquid securities.
INVESTMENT RESTRICTIONS. Each Fund has adopted the following
investment restrictions for the protection of shareholders. These
restrictions may not be changed without the approval of the holders of a
majority, as defined in the 1940 Act, of the voting securities of the Fund.
1. The Acquired Fund may not issue senior securities, as defined in
the 1940 Act and the rules and orders thereunder, except insofar as the
Acquiring Fund may be deemed to have issued senior securities by reason
of borrowing money or purchasing securities on a when-issued or delayed-
delivery basis, purchasing or selling futures contracts and options on futures
contracts and other similar instruments, and issuing separate classes of
shares. The Acquiring Fund does not have a similar investment restriction.
2. The Acquired Fund may not invest more than 25% of its total
assets in securities of issuers in the same industry. For purposes of this
limitation, U.S. government securities and securities of state or municipal
governments and their political subdivisions are not considered to be issued
by members of any industry. Similarly, the Acquiring Fund may not invest more
than 25% of its 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 New York municipal obligations are not considered
an industry for purposes of this limitation.
3. Neither Fund may borrow money, except that a Fund may borrow
from banks for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests which might otherwise require the untimely
disposition of securities, in an amount not exceeding 10% of the value of the
respective Fund's total assets (including, in the case of the Acquired Fund,
the amount borrowed) valued at market less liabilities (not including the
amount borrowed) at the time the borrowing is made. Whenever borrowings
exceed 5% of the value of a Fund's total assets, such Fund will not make any
additional
<PAGE>56
investments. The Acquiring Fund is further prohibited from mortgaging or
pledging is assets, except to secure borrowing permitted by the previous
sentence.
4. Neither Fund may make loans. For the Acquired Fund, this
restriction does not apply to the purchase of the debt obligations in which
the Fund may investment consistent with its investment objective and policies,
repurchase agreements, and loans of its portfolio securities. For the
Acquiring Fund, this restriction does not apply except to the extent the
purchase of bond or other evidences of indebtedness, the entry into repurchase
agreements or deposits with banks, including the Acquiring Fund's custodian,
may be considered loans.
5. The Acquired Fund may not engage in the business of underwriting
securities issued by other persons, except to the extent that the Acquired
Fund may technically be deemed to be an underwriter under the Securities Act
of 1933, as amended (the "1933 Act"), in disposing of portfolio securities.
Similarly, the Acquiring Fund may not underwrite the securities of other
issuers.
6. The Acquired Fund may not purchase or sell real estate, real
estate mortgages, real estate investment trust ("REIT") securities,
commodities or commodity contracts, but this shall not prevent the Acquired
Fund from investing in securities of issuers engaged in the real estate
business and securities which are secured by real estate or interests therein,
holding or selling real estate received in connection with securities it
holds, or trading in futures contracts and options on futures contracts. The
Acquiring Fund may not purchase or hold any real estate, except that it may
invest in securities secured by real estate or interests therein or issued by
persons (other than REITs) which deal in real estate or interests therein, and
may not purchase or sell commodities and commodity contracts, except that it
may invest in or sell municipal bond futures index contracts, provided
immediately thereafter not more than 33-1/3% of its net assets would be hedged
or the amount of margin deposits on the Acquired Fund's existing futures
contracts would not exceed 5% of the value of its total assets.
7. Neither Fund may purchase any securities on margin (except, in
the case of the Acquired Fund, for such short-term credits as are necessary
for the clearance of purchases and sales of portfolio securities) or sell any
securities short (except, in the case of the Acquired Fund, against the box).
For purposes of this restriction, the deposit or payment by the Acquired Fund
of initial maintenance margin in connection with futures contracts and related
options and options on securities is not considered to be the purchase of a
security on margin.
8. The Acquiring Fund will not invest more than 10% of its net
assets in illiquid securities, including those that are not readily marketable
or for which there is no established market. The Acquired Fund may not
purchase or otherwise acquire any security
<PAGE>57
if, as a result, more than 15% of its net assets would be invested in
securities that are illiquid. This is not a fundamental investment
restriction and may be changed by the Acquired Fund's Board of Directors at
any time.
9. The Acquiring Fund, as a matter of operating policy, will not
purchase oil, gas, or other mineral leases, rights or royalty contracts or
exploration or development programs, except that the Acquiring Fund may invest
in the securities of issuers which operate, invest in, or sponsor such
programs. The Acquired Fund may not purchase or sell oil and gas interests.
This is not a fundamental investment restriction and may be changed by the
Acquired Fund's Board of Directors at any time.
10. The Acquiring Fund may not write or purchase put, call,
straddle or spread options. The Acquired Fund may not engage in the purchase
or sale of put, call, straddle or spread options or in the writing of such
options, except that the Fund may purchase and sell options on interest rate
futures contracts. This is not a fundamental investment restriction and may
be changed by the Acquired Fund's Board of Directors at any time.
Other Non-Fundamental Investment Restrictions
1. The Acquired Fund may not invest more than 5% of the value of
its total assets in the securities of issuers having a record, including
predecessors, of less than three years of continuous operation, except U.S.
government securities. This is not a fundamental investment restriction and
may be changed by the Acquired Fund's Board of Directors at any time. For
purposes of this restriction, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and originators of
underlying assets. Similarly, as a matter of operating policy, the Acquiring
Fund will not invest more than 5% of its assets in unseasoned issuers,
including their predecessors, which have been in operation for less than three
years.
2. The Acquired Fund may not invest in companies for the purpose of
exercising control. This is not a fundamental investment restriction and may
be changed by the Acquired Fund's Board of Directors at any time. The
Acquiring Fund does not have a similar investment restriction.
3. The Acquired Fund may not invest in securities of other
investment companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and to the extent permitted by Section
12 of the 1940 Act. This is not a fundamental investment restriction and may
be changed by the Acquired Fund's Board of Directors at any time. The
Acquiring Fund does not have a similar investment restriction but must comply
with the provisions of Section 12 of the 1940 Act.
<PAGE>58
INFORMATION ON SHAREHOLDERS' RIGHTS
General. The Acquired Fund and Smith Barney Muni Funds are open-
end, management investment companies registered under the 1940 Act, which
continuously offer to sell shares at their current net asset value. The
Acquired Fund is a Maryland corporation which was incorporated on October 6,
1983 and is governed by its Articles of Incorporation, By-Laws and Board of
Directors. The Acquiring Fund is a series of Smith Barney Muni Funds, which
was organized on August 14, 1985 under the laws of Massachusetts and is a
business entity commonly known as a "Massachusetts business trust." Smith
Barney Muni Funds is governed by its Declaration of Trust, By-Laws and
Trustees. Each Fund is also governed by applicable state and federal law.
The Acquired Fund has an authorized capital of 500,000,000 shares with a par
value of $.01 per share. The beneficial interest in the Acquiring Fund is
divided into shares, all with a par value of $.001 per share. The number of
authorized shares of the Acquiring Fund that may be issued is unlimited. The
Trustees of Smith Barney Muni Funds have authorized the issuance of twenty
series of shares, each representing shares in one of twenty separate
portfolios, and may authorize the issuance of additional series of shares in
the future. In both the Acquiring Fund and the Acquired Fund, Class A shares,
Class B shares, Class C shares and Class Y shares represent interests in the
assets of the Fund and have identical voting, dividend, liquidation and other
rights on the same terms and conditions except that expenses related to the
distribution of each class of shares are borne solely by each class and each
class of shares has exclusive voting rights with respect to provisions of each
Fund's Rule 12b-1 distribution plan which pertains to a particular class.
Notwithstanding the foregoing, Class B shares of either Fund will convert
automatically to Class A shares of such Fund, based on relative net asset
value, eight years after the date of the original purchase of such shares.
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 will be
converted to Class A shares of the respective Fund at that time.
Directors/Trustees. The By-Laws of the Acquired Fund provide that
Directors shall be elected by written ballot at any meeting of shareholders
held for that purpose, and the term of office of each director shall be from
the time of his election and qualification until his or her successor shall
have been elected and shall have qualified or until his death, resignation or
removal, or as otherwise provided by law. The Declaration of Trust of Smith
Barney Muni Funds provides that the term of office of each Trustee shall be
from the time of his or her election until the termination of the Trust or
until such Trustee sooner dies, resigns or is removed. Any Director of the
Acquired Fund may be removed by the vote of at least a majority of the votes
then entitled to be cast for the election of Directors. A Trustee of Smith
Barney Muni Funds may be removed with cause by written instrument, signed by
at least two-thirds of the remaining Trustees. Vacancies on the Boards of
either the Acquired Fund or Smith Barney Muni Funds may be filled by the
Directors or Trustees, as the case
<PAGE>59
may be, remaining in office. A meeting of shareholders will be required for
the purpose of electing additional Directors or Trustees whenever fewer than
two-thirds of the Directors or a majority of the Trustees then in office were
elected by shareholders.
Voting Rights. Neither the Acquired Fund nor the Acquiring Fund
holds a meeting of shareholders annually, and there normally is no meeting of
shareholders for the purpose of electing Directors/Trustees unless and until
such time as less than two-thirds of the Directors or a majority of the
Trustees holding office have been elected by shareholders. A meeting of
shareholders of the Acquired Fund or the Acquiring Fund, for any purpose, must
be called upon the written request of shareholders holding at least 25% of
such Fund's outstanding shares. On each matter submitted to a vote of the
shareholders of the Acquired Fund or the Acquiring Fund, each shareholder is
entitled to one vote for each whole share owned and a proportionate,
fractional vote for each fractional share outstanding in the shareholder's
name on the Fund's books. With respect to the Acquired Fund, a majority of
the votes cast on an action at a shareholder meeting at which a quorum is
present shall decide any questions except when a different vote is required or
permitted by any provision of the 1940 Act or other applicable law or as may
otherwise be set forth in the Acquired Fund's organizational documents, or in
cases where the vote is submitted to the holders of one or more but not all
classes, a majority of the votes cast of the particular class affected by the
matter shall decide such matter. With respect to matters relating to Smith
Barney Muni Funds requiring a majority shareholder vote as described in the
Declaration of Trust, a majority of shares represented in person or by proxy
and entitled to vote at a meeting of shareholders at which a quorum is present
shall decide such matter. In cases where the vote is submitted to the holders
of one or more but not all series or classes, a majority of the outstanding
shares of the particular series or class affected by the matter shall decide
such matter.
Liquidation or Dissolution. In the event of the liquidation or
termination of any of the portfolios of Smith Barney Muni Funds or the
liquidation or dissolution of the Acquired Fund, the shareholders of the
respective Fund are entitled to receive, when, and as declared by the Trustees
or Directors, as the case may be, the excess of the assets over the
liabilities belonging to the liquidated or terminated portfolio of Smith
Barney Muni Funds or of the liquidated or dissolved Acquired Fund, as the case
may be. The assets so distributed to shareholders of Smith Barney Muni Funds
will be distributed among the shareholders in proportion to the number of
shares of the particular class held by them and recorded on the books of the
liquidated or terminated portfolio of the Fund. The assets so distributed to
shareholders of the Acquired Fund will be distributed among the shareholders
in proportion to the number of shares of the particular class held by them and
recorded on the books of the Acquired Fund.
Liability of Directors/Trustees. The Articles of Incorporation of
the Acquired Fund provide that Directors and officers shall not be liable for
monetary damages as a
<PAGE>60
Director or officer, except as to the extent such exemption from liability is
not permitted by law. The By-Laws of the Acquired Fund provide that Directors
and officers shall be indemnified to the fullest extent permitted by Maryland
General Corporation Law, the 1933 Act and the 1940 Act, except that a Director
or officer will be personally liable only for his or her own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. The By-Laws further provide
that Directors and officers will be indemnified for the expenses of litigation
against them to the fullest extent permitted by Maryland General Corporation
Law, the 1933 Act and the 1940 Act. Under the Declaration of Trust and By-
Laws of the Smith Barney Muni Funds, a Trustee will be personally liable only
for his or her own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee. The Declaration of Trust of Smith Barney Muni Funds further provides
that Trustees and officers will be indemnified for the expenses of litigation
against them unless it is determined that the person did not act in good faith
in the reasonable belief that the person's actions were in or not opposed to
the best interest of the Smith Barney Muni Funds or the person's conduct is
determined to constitute willful misfeasance, bad faith, gross negligence or
reckless disregard of the person's duties.
Rights of Inspection. Maryland law permits any shareholder of the
Acquired Fund or any agent of such shareholder to inspect and copy during the
Acquired Fund's usual business hours the Acquired Fund's By-Laws, minutes of
shareholder proceedings, annual statements of the Acquired Fund's affairs and
voting trust agreements on file at its principal office. Shareholders of
Smith Barney Muni Funds have the same inspection rights as are permitted
shareholders of a Massachusetts corporation under Massachusetts corporate law.
Currently, each shareholder of a Massachusetts corporation is permitted to
inspect the records, accounts and books of a corporation for any legitimate
business purpose.
Shareholder Liability. Under Maryland law, the Acquired Fund's
shareholders do not have personal liability for the Acquired Fund's corporate
acts and obligations. Under Massachusetts law, shareholders of the Acquiring
Fund may, under certain circumstances, be held personally liable for the
obligations of the Acquiring Fund. Smith Barney Muni Funds' Declaration of
Trust, however, disclaims shareholder liability for acts or obligations of the
Acquiring Fund and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Fund. The
Declaration of Trust also provides for indemnification out of the property of
the Acquired Fund for all losses and expenses of any shareholder held
personally liable for the obligations of the Acquired Fund. Shares of the
Acquiring Fund issued to the shareholders of the Acquired Fund in the
Reorganization will be fully paid and nonassessable when issued, transferable
without restrictions and will have no preemptive rights.
The foregoing is only a summary of certain characteristics of the
operations of the Acquiring Fund and the Acquired Fund. The foregoing is not
a complete description of
<PAGE>61
the documents cited. Shareholders should refer to the provisions of the
corporate documents or trust documents and state laws governing each Fund for
a more thorough description.
ADDITIONAL INFORMATION ABOUT
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
AND
SMITH BARNEY MUNI FUNDS
SMITH BARNEY NEW YORK MUNICIPALS FUND INC. Information about the
Acquired Fund is included in its current Prospectus dated March 1, 1995, as
supplemented by Prospectus Supplements dated July 11, 1995 and July 20, 1995
and in its Statement of Additional Information dated March 1, 1995, as
supplemented on July 11, 1995, that have been filed with the SEC, both of which
are incorporated herein by reference. A copy of the Prospectus and the
Statement of Additional Information are available upon request and without
charge by writing to the Acquired Fund at the address listed on the cover page
of this Prospectus/Proxy Statement or by calling (800) 224-7523.
SMITH BARNEY MUNI FUNDS. Information about the operation and
management of the Acquiring Fund is incorporated herein by reference from its
current prospectus of dated July 31, 1995, and its Statement of Additional
Information dated July 31, 1995. A copy of such Statement of Additional
Information is available upon request and without charge by writing to the
Acquired Fund at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling (800) 224-7523.
Both the Acquiring Fund and Smith Barney Muni Funds are subject to
the informational requirements of the Exchange Act and in accordance therewith
file reports and other information including proxy material, reports and
charter documents with the SEC. These materials can be inspected and copies
obtained at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the New York Regional Office of
the SEC at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
of such material can also be obtained from the Public Reference Branch, Office
of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549 at
prescribed rates.
OTHER BUSINESS
The Directors of the Acquired Fund do not intend to present any
other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of
proxy will vote thereon in accordance with their judgment.
<PAGE>62
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of the Acquired Fund to be
used at the Special Meeting of Shareholders to be held at 2:30 p.m. on
November 14, 1995, at 388 Greenwich Street, New York, New York 10013 and at
any adjournment or adjournments thereof. This Prospectus/Proxy Statement,
along with a Notice of the Meeting and a proxy card, is first being mailed to
shareholders of the Acquired Fund on or about September __, 1995. Only
shareholders of record as of the close of business on the Record Date will be
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
The holders of a majority of the shares of the Acquired Fund outstanding at
the close of business on the Record Date present in person or represented by
proxy will constitute a quorum for the Meeting. For purposes of determining a
quorum for transacting business at the Meeting, abstentions and broker "non-
votes" (that is, proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owner or other persons
entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will be treated as shares
that are present but which have not been voted. For this reason, abstentions
and broker non-votes will have the effect of a "no" vote for purposes of
obtaining the requisite approval of the Plan. If the enclosed form of proxy
is properly executed and returned in time to be voted at the Meeting, the
proxies named therein will vote the shares represented by the proxy in
accordance with the instructions marked thereon. Unmarked proxies will be
voted FOR approval of the proposed Reorganization and FOR approval of any
other matters deemed appropriate. A proxy may be revoked at any time on or
before the Meeting by written notice to the Secretary of the Acquired Fund,
Christina T. Sydor, Esq., 388 Greenwich Street, New York, New York 10013.
Unless revoked, all valid proxies will be voted in accordance with the
specifications thereon or, in the absence of such specifications, FOR approval
of the Plan and the Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of a majority
of the total number of votes entitled to be cast thereon at the Meeting, in
person or by proxy, if a quorum is present. Shareholders of Class A, Class B,
Class C and Class Y shares of the Acquired Fund will vote together as a single
class. Shareholders of the Acquired Fund are entitled to one vote for each
share. Fractional shares are entitled to proportional voting rights.
Proxy solicitations will be made primarily by mail, but proxy
solicitations also may be made by telephone, telegraph or personal interviews
conducted by officers and employees of Smith Barney and its affiliates and/or
by TSSG. In addition, Applied Mailing Systems, Inc., an affiliate of TSSG,
may call shareholders to ask if they would be willing to have their votes
recorded by telephone. The telephone voting procedure is designed to
authenticate the shareholder's identity by asking the shareholder to provide
his or her social
<PAGE>63
security number (in the case of an individual) or taxpayer identification
number (in the case of an entity). The shareholder's telephone vote will be
recorded and a confirmation will be sent to the shareholder to ensure that the
vote has been taken in accordance with the shareholder's instructions.
Although a shareholder's vote may be taken by telephone, each shareholder will
receive a copy of this Prospectus/Proxy Statement and may vote by mail using
the enclosed proxy card. The Acquired Fund believes that this telephonic
voting system will comply with Maryland law and will obtain an opinion of
counsel to that effect prior to implementing such procedures. The aggregate
cost of solicitation of the shareholders of the Acquired Fund is expected to
be approximately $_______. Expenses of the Reorganization, including the
costs of the proxy solicitation and the preparation of enclosures to the
Prospectus/Proxy Statement, reimbursement of expenses of forwarding
solicitation material to beneficial owners of shares of the Acquired Fund and
expenses incurred in connection with the preparation of this Prospectus/Proxy
Statement will be borne by the Acquiring Fund and the Acquired Fund in
proportion to their assets.
In the event that a quorum necessary for a meeting of shareholders
is not present or sufficient votes to approve the Reorganization are not
received by November 14, 1995, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies.
In determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon a
decision to adjourn the Meeting.
The votes of the shareholders of the Acquiring Fund are not being
solicited by this Prospectus/Proxy Statement.
FINANCIAL STATEMENTS AND EXPERTS
The statement of assets and liabilities of the Acquiring Fund,
including the schedule of investments, as of March 31, 1995, the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the years in the two-year period then ended and the
financial highlights for each of the years in the eight-year period then
ended, and for the period January 16, 1987 (commencement of operations)
through March 31, 1987, have been incorporated by reference into this
Prospectus/Proxy Statement in reliance upon the reports of KPMG Peat Marwick
LLP, independent accountants, given on the authority of such firm as experts
in accounting and auditing. The statement of assets and liabilities of the
Acquired Fund, including the schedule of investments, as of December 31, 1994,
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended
and the financial
<PAGE>64
highlights for each of the years in the ten-year period then ended have been
incorporated by reference into this Prospectus/Proxy Statement in reliance
upon the report of Coopers & Lybrand L.L.P., independent accountants, and upon
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the
Acquiring Fund will be passed upon by Sullivan & Cromwell, 125 Broad Street,
New York, New York 10004. In rendering such opinion, Sullivan & Cromwell may
rely on an opinion of Ropes & Gray as to certain matters under Massachusetts
law.
THE BOARD OF DIRECTORS OF THE ACQUIRED FUND, INCLUDING THE
INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN, AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR
OF APPROVAL OF THE PLAN.
<PAGE>65
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
as of this day of September, 1995, by and between Smith Barney New York
Municipals Fund Inc., a Maryland corporation with its principal place of
business at 388 Greenwich Street, New York, New York 10013 (the "Acquired
Fund"), and Smith Barney Muni Funds, a Massachusetts business trust, with its
principal place of business at 388 Greenwich Street, New York, New York 10013,
on behalf of its New York Portfolio (the "Acquiring Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(D) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund in exchange for Class A,
Class B, Class C and Class Y shares of beneficial interest of the Acquiring
Fund (collectively, the "Acquiring Fund Shares" and each, an "Acquiring Fund
Share") and the assumption by the Acquiring Fund of certain scheduled
liabilities of the Acquired Fund and the distribution, after the Closing Date
herein referred to, of Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation of the Acquired Fund and the subsequent
dissolution of the Acquired Fund, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and Smith Barney Muni Funds are
registered investment companies of the management type and the Acquired Fund
owns securities that generally are assets of the character in which the
Acquiring Fund is permitted to invest;
WHEREAS, Smith Barney Muni Funds is authorized to issue shares of
beneficial interest in respect of its sub-trusts and the Acquired Fund is
authorized to issue shares of common stock;
WHEREAS, the Board of Directors of the Acquired Fund has determined
that the exchange of all or substantially all of the assets and certain
scheduled liabilities of the Acquired Fund for Acquiring Fund Shares and the
assumption of such liabilities by the Acquiring Fund is in the best interests
of the Acquired Fund's shareholders and that the interests of the existing
shareholders of the Acquired Fund would not be diluted as a result of this
transaction;
WHEREAS, the Board of Trustees of Smith Barney Muni Funds has
determined that the exchange of all or substantially all the assets and
certain scheduled liabilities of the Acquiring Fund for Acquiring Fund Shares
and the assumption of such
<PAGE>66
liabilities by the Acquiring Fund is in the best interests of the Acquiring
Fund's shareholders and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of this transaction.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties hereto covenant
and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND ASSUMPTION OF CERTAIN SCHEDULED LIABILITIES OF THE ACQUIRED
FUND AND LIQUIDATION AND DISSOLUTION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, the Acquired
Fund agrees to transfer the Acquired Fund's assets as set forth in paragraph
1.2 to Smith Barney Muni Funds on behalf of the Acquiring Fund, and the
Acquiring Fund agrees in exchange therefor: (i) to deliver to the Acquired
Fund the number of Class A Acquiring Fund Shares, including fractional Class A
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class A shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class A Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; (ii) to deliver to the Acquired Fund the
number of Class B Acquiring Fund Shares, including fractional Class B
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class B shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class B Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; (iii) to deliver to the Acquired Fund the
number of Class C Acquiring Fund Shares, including fractional Class C
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class C shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class C Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; (iv) to deliver to the Acquired Fund the
number of Class Y Acquiring Fund Shares, including fractional Class Y
Acquiring Fund Shares, determined by dividing the value of the Acquired Fund's
net assets attributable to its Class Y shares, computed in the manner and as
of the time and date set forth in paragraph 2.1, by the net asset value of one
Class Y Acquiring Fund Share, computed in the manner and as of the time and
date set forth in paragraph 2.2; and (v) to assume certain scheduled
liabilities of the Acquired Fund, as set forth in paragraph 1.3. Such
transactions shall take place at the closing provided for in paragraph 3.1
(the "Closing"). The Acquired Fund and Smith Barney Muni Funds will file
Articles of Transfer as required by Maryland law.
<PAGE>67
1.2. (a) The assets of the Acquired Fund to be acquired by Smith
Barney Muni Funds on behalf of the Acquiring Fund shall consist of all or
substantially all property, including, without limitation, all cash,
securities and dividends or interest receivables which are owned by the
Acquired Fund and any deferred or prepaid expenses shown as an asset on the
books of the Acquired Fund on the closing date provided in paragraph 3.1 (the
"Closing Date").
(b) The Acquired Fund has provided the Acquiring Fund with a
list of all of the Acquired Fund's assets as of the date of execution of this
Agreement. The Acquired Fund reserves the right to sell any of these
securities but will not, without the prior approval of the Acquiring Fund,
acquire any additional securities other than securities of the type in which
the Acquiring Fund is permitted to invest. The Acquiring Fund will, within a
reasonable time prior to the Closing Date, furnish the Acquired Fund with a
statement of the Acquiring Fund's investment objectives, policies and
restrictions and a list of the securities, if any, on the Acquired Fund's list
referred to in the first sentence of this paragraph which do not conform to
the Acquiring Fund's investment objectives, policies and restrictions. In the
event that the Acquired Fund holds any investments which the Acquiring Fund
may not hold, the Acquired Fund will dispose of such securities prior to the
Closing Date. In addition, if it is determined that the portfolios of the
Acquired Fund and the Acquiring Fund, when aggregated, would contain
investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Acquired Fund, if
requested by the Acquiring Fund, will dispose of and/or reinvest a sufficient
amount of such investments as may be necessary to avoid violating such
limitations as of the Closing Date.
1.3. The Acquired Fund will endeavor to discharge all the Acquired
Fund's known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume all liabilities, expenses, costs, charges and
reserves reflected on an unaudited Statement of Assets and Liabilities of the
Acquired Fund prepared by Smith Barney Mutual Fund Management Inc. (the
"Manager"), as adviser of the Acquired Fund, as of the Valuation Date (as
defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. Smith Barney
Muni Funds on behalf of the Acquiring Fund shall assume only those liabilities
of the Acquired Fund reflected in that unaudited Statement of Assets and
Liabilities and shall not assume any other liabilities, whether absolute or
contingent, not reflected thereon.
1.4. As provided in paragraph 3.3, as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), the Acquired Fund
will liquidate and distribute pro rata to the Acquired Fund's shareholders of
record determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares it receives pursuant
to paragraph 1.1. Shareholders of Class A, Class B, Class C and Class Y of
the Acquired Fund shall receive Class A, Class B, Class C and Class Y shares,
respectively, of the Acquiring Fund. Such liquidation and distribution will
be accomplished
<PAGE>68
by the transfer of the Acquiring Fund Shares then credited to the account of
the Acquired Fund on the books of the Acquiring Fund to open accounts on the
share records of the Acquiring Fund in the name of the Acquired Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of the Acquired
Fund, although any outstanding share certificates representing interests in
the Acquired Fund will represent a number of Acquiring Fund Shares after the
Closing Date as determined in accordance with paragraph 1.1. The Acquiring
Fund shall not issue certificates representing the Acquiring Fund Shares in
connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books
of the Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued
in the manner described in the Acquiring Fund's current prospectus and
statement of additional information.
1.6. Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund Shares
on the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7. Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Acquired Fund up to and including the Closing
Date and such later dates on which the Acquired Fund is terminated.
1.8. The Acquired Fund shall, following the Closing Date and the
making of all distributions pursuant to paragraph 1.4, be dissolved under the
laws of the State of Maryland and in accordance with its governing documents
and shall apply for an order of the Securities and Exchange Commission (the
"Commission") under Section 8(f) of the Investment Company Act of 1940, as
amended (the "1940 Act"), declaring that it has ceased to be an investment
company.
2. VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of regular trading on the New York Stock Exchange, Inc. (the "NYSE") on
the Closing Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's then
current prospectus or statement of additional information.
2.2. The net asset value of Acquiring Fund Shares shall be the net
asset value per share computed as of the close of regular trading on the NYSE
on the Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then current prospectus or statement of additional
information.
<PAGE>69
2.3. All computations of value shall be made by the Manager in
accordance with its regular practice as pricing agent for the Acquired Fund
and the Acquiring Fund, respectively.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be November 17, 1995, or such later
date as the parties may agree to in writing. All acts taking place at the
Closing shall be deemed to take place simultaneously as of the close of
business on the Closing Date unless otherwise provided. The Closing shall be
held as of 5:00 p.m. at the offices of Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, or at such other time and/or place as the
parties may agree.
3.2. In the event that on the Valuation Date (a) the NYSE or
another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on the NYSE or elsewhere
shall be disrupted so that accurate appraisal of the value of the net assets
of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3. The Acquired Fund shall deliver at the Closing a list of the
names and addresses of the Acquired Fund's Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing, certified on behalf of the Acquired Fund by
the Chairman of the Board or President of the Acquired Fund. The Acquiring
Fund shall issue and deliver a confirmation evidencing the Acquiring Fund
Shares to be credited to the Acquired Fund's account on the Closing Date to
the Secretary of the Acquired Fund, or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Fund represents and warrants to Smith Barney Muni
Funds and the Acquiring Fund as follows:
(a) The Acquired Fund is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Maryland;
<PAGE>70
(b) The Acquired Fund is a registered investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect;
(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of its
Articles of Incorporation or By-laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquired Fund is
a party or by which it is bound;
(d) The Acquired Fund has no material contracts or other
commitments (other than this Agreement) which will be terminated with
liability to the Acquired Fund prior to the Closing Date;
(e) No litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or to the
Acquired Fund's knowledge threatened against the Acquired Fund or any of the
Acquired Fund's properties or assets (other than that previously disclosed to
the other party to the Agreement) which, if adversely determined, would
materially and adversely affect its financial condition or the conduct of its
business. The Acquired Fund knows of no facts which might form the basis for
the institution of such proceedings and is not party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities of the Acquired Fund
for each of the ten fiscal years ended March 31, 1995 have been audited by
Coopers & Lybrand L.L.P., independent accountants, and are in accordance with
generally accepted accounting principles consistently applied, and such
statements (copies of which have been furnished to the Acquiring Fund) fairly
reflect the financial condition of the Acquired Fund as of such dates, and
there are no known contingent liabilities of the Acquired Fund as of such
dates not disclosed therein;
(g) The Acquired Fund will file its final federal and other tax
returns for the period ending on the Closing Date in accordance with the Code.
At the Closing Date, all federal and other tax returns and reports of the
Acquired Fund required by law then to have been filed prior to the Closing
Date shall have been filed, and all federal and other taxes shown as due on
such returns shall have been paid so far as due, or provision shall have been
made for the payment thereof and, to the best of the Acquired Fund's
knowledge, no such return is currently under audit and no assessment has been
asserted with respect to such returns;
<PAGE>71
(h) For the most recent fiscal year of its operation, the Acquired
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company;
(i) All issued and outstanding shares of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable. All of the issued and outstanding shares of the
Acquired Fund will, at the time of Closing, be held by the persons and in the
amounts set forth in the records of the transfer agent as provided in
paragraph 3.3. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any shares of the
Acquired Fund, nor is there outstanding any security convertible into any
shares of the Acquired Fund (other than Class B shares of the Acquired Fund
which, under certain circumstances, are convertible into Class A shares of the
Acquired Fund);
(j) At the Closing Date, the Acquired Fund will have good and
marketable title to its assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.2 and full right, power and authority to sell, assign,
transfer and deliver such assets hereunder and, upon delivery and payment for
such assets and the filing of Articles of Transfer with the Maryland State
Department of Assessments and Taxation, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the Securities Act
of 1933, as amended (the "1933 Act"), other than as disclosed to the Acquiring
Fund;
(k) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action on the part of the Acquired
Fund's Board of Directors, and subject to the approval of the Acquired Fund's
shareholders, this Agreement, assuming due authorization, execution and
delivery by Smith Barney Muni Funds on behalf of the Acquiring Fund, will
constitute a valid and binding obligation of the Acquired Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(l) The information to be furnished by the Acquired Fund for use in
no-action letters, applications for exemptive orders, registration statements,
proxy materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto; and
(m) The proxy statement of the Acquired Fund (the "Proxy
Statement") to be included in the Registration Statement referred to in
paragraph 5.7 (other than information therein that relates to Smith Barney
Muni Funds or the Acquiring Fund) will, on the effective
<PAGE>72
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading.
4.2. Smith Barney Muni Funds and the Acquiring Fund represent and
warrant to the Acquired Fund as follows:
(a) The Acquiring Fund is a portfolio of Smith Barney Muni Funds,
which is a business trust, duly organized and validly existing under the laws
of the Commonwealth of Massachusetts;
(b) Smith Barney Muni Funds is a registered investment company
classified as a management company of the open-end type and its registration
with the Commission as an investment company under the 1940 Act is in full
force and effect;
(c) The current prospectus of the Acquiring Fund and statement of
additional information of Smith Barney Muni Funds conform in all material
respects to the applicable requirements of the 1933 Act and the 1940 Act and
the rules and regulations of the Commission thereunder and do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not materially
misleading;
(d) At the Closing Date, Smith Barney Muni Funds will have good and
marketable title to the Acquiring Fund's assets;
(e) Smith Barney Muni Funds is not, and the execution, delivery and
performance of this Agreement on behalf of the Acquiring Fund will not result,
in a material violation of Smith Barney Muni Funds' Declaration of Trust or
By-laws or of any agreement, indenture, instrument, contract, lease or other
undertaking with respect to the Acquiring Fund to which Smith Barney Muni
Funds or the Acquiring Fund is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of
or before any court or governmental body is presently pending or threatened
against the Acquiring Fund or Smith Barney Muni Funds with respect to the
Acquiring Fund or any of the Acquiring Fund's properties or assets. Smith
Barney Muni Funds and the Acquiring Fund know of no facts which might form the
basis for the institution of such proceedings and neither Smith Barney Muni
Funds nor the Acquiring Fund is a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially
and adversely affects the Acquiring Fund's business or Smith Barney Muni
Funds' ability on behalf of the Acquiring Fund to consummate the transactions
contemplated herein;
<PAGE>73
(g) The Statement of Assets and Liabilities of the Acquiring Fund
for the eight fiscal years ended March 31, 1995 and for the period January 16,
1987 (commencement of operations) to March 31, 1987 have been audited by KPMG
Peat Marwick LLP, independent accountants, and are in accordance with
generally accepted accounting principles consistently applied, and such
statements (copies of which have been furnished to the Acquired Fund) fairly
reflect the financial condition of the Acquiring Fund as of such dates, and
there are no known contingent liabilities of the Acquiring Fund as of such
dates not disclosed therein;
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to have been filed by such
date shall have been filed, and all federal and other taxes shown as due on
said returns and reports shall have been paid so far as due, or provision
shall have been made for the payment thereof and, to the best of the Acquiring
Fund's knowledge, no such return is currently under audit and no assessment
has been asserted with respect to such returns;
(i) For the most recent fiscal year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company and the Acquiring Fund intends
to do so in the future;
(j) At the date hereof, all issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly issued
and outstanding, fully paid and non-assessable. The Acquiring Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any shares of the Acquiring Fund, nor is there outstanding any
security convertible into shares of the Acquiring Fund (other than Class B
shares of the Acquiring Fund which, under certain circumstances, are
convertible into Class A shares of the Acquiring Fund);
(k) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action, if any, on the part of Smith
Barney Muni Funds' Board of Trustees, and this Agreement, assuming due
authorization, execution and delivery by the Acquired Fund, constitutes a
valid and binding obligation of Smith Barney Muni Funds on behalf of the
Acquiring Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles;
(l) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable;
<PAGE>74
(m) The information to be furnished by the Acquiring Fund for use
in no-action letters, applications for exemptive orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
(n) The Proxy Statement to be included in the Registration
Statement (only insofar as it relates to Smith Barney Muni Funds and the
Acquiring Fund) will, on the effective date of the Registration Statement and
on the Closing Date, not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which such
statements were made, not misleading; and
(o) Smith Barney Muni Funds, on behalf of the Acquiring Fund,
agrees to use all reasonable efforts to obtain the approvals and
authorizations required by the 1933 Act, the 1940 Act and such of the state
Blue Sky or securities laws as it may deem appropriate in order to continue
the Acquiring Fund's operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND, SMITH BARNEY MUNI FUNDS AND THE ACQUIRED
FUND
5.1. The Acquired Fund and Smith Barney Muni Funds on behalf of the
Acquiring Fund each will operate its business in the ordinary course between
the date hereof and the Closing Date. It is understood that such ordinary
course of business will include the declaration and payment of customary
dividends and distributions and any other dividends and distributions deemed
advisable, in each case payable either in cash or in additional shares.
5.2. The Acquired Fund will call a meeting of its shareholders to
consider and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3. The Acquired Fund covenants that the Acquiring Fund Shares to
be issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this
Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining
such information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund's shares.
<PAGE>75
5.5. Subject to the provisions of this Agreement, the Acquired Fund
and Smith Barney Muni Funds on behalf of the Acquiring Fund, each will take,
or cause to be taken, all action, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.6. As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in
such form as is reasonably satisfactory to the Acquiring Fund, a statement of
the earnings and profits of the Acquired Fund for federal income tax purposes
which will be carried over to the Acquiring Fund as a result of Section 381 of
the Code and which will be certified by the Chairman of the Board or President
and the Treasurer of the Acquired Fund.
5.7. The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus (the
"Prospectus") which will include the Proxy Statement, referred to in paragraph
4.1(m), all to be included in a Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933
Act, the Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act in
connection with the meeting of the Acquired Fund's shareholders to consider
approval of this Agreement and the transactions contemplated herein.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Smith Barney Muni Funds and the Acquiring Fund of all of the obligations to be
performed by them hereunder on or before the Closing Date and, in addition
thereto, the following further conditions:
6.1. All representations and warranties of Smith Barney Muni Funds
and the Acquiring Fund contained in this Agreement shall be true and correct
in all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing
Date with the same force and effect as if made on and as of the Closing Date;
6.2. Smith Barney Muni Funds on behalf of the Acquiring Fund shall
have delivered to the Acquired Fund a certificate executed in its name by its
Chairman of the Board, President or Vice President and its Treasurer or
Assistant Treasurer, in a form reasonably satisfactory to the Acquired Fund
and dated as of the Closing Date, to the effect that the representations and
warranties of Smith Barney Muni Funds and the Acquiring Fund made in this
Agreement are true and correct in all material respects at and as of the
Closing Date, except as they may be affected by the transactions contemplated
by this Agreement; and
<PAGE>76
6.3. The Acquired Fund shall have received on the Closing Date a
favorable opinion from Sullivan & Cromwell, counsel to the Acquiring Fund,
dated as of the Closing Date, in a form reasonably satisfactory to Christina
T. Sydor, Esq., Secretary of the Acquired Fund, covering the following points:
That (a) Smith Barney Muni Funds is a business trust duly organized and
validly existing under the laws of the Commonwealth of Massachusetts; (b)
Smith Barney Muni Funds is an open-end management investment company
registered under the 1940 Act; (c) this Agreement, the Reorganization
provided for hereunder and the execution of this Agreement have been duly
authorized and approved by all requisite action of Smith Barney Muni
Funds, and this Agreement has been duly executed and delivered by Smith
Barney Muni Funds and, assuming due authorization by the Acquired Fund,
is a valid and binding obligation of Smith Barney Muni Funds with respect
to the Acquiring Fund, enforceable in accordance with its terms against
the assets of the Acquiring Fund, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; and (d) the Acquiring Fund Shares to be issued
to the Acquired Fund for distribution to its shareholders pursuant to
this Agreement have been duly authorized and, when issued in accordance
with this Agreement, will be validly issued and fully paid and
non-assessable.
Such opinion may state that it is solely for the benefit of the
Acquired Fund, its Directors and its officers. Such counsel may rely, as to
matters governed by the laws of the Commonwealth of Massachusetts, on an
opinion of Massachusetts counsel.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SMITH BARNEY MUNI FUNDS IN RESPECT
OF THE ACQUIRING FUND
The obligations of Smith Barney Muni Funds on behalf of the
Acquiring Fund to complete the transactions provided for herein shall be
subject, at its election, to the performance by the Acquired Fund of all the
obligations to be performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:
7.1. All representations and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
7.2. The Acquired Fund shall have delivered to Smith Barney Muni
Funds on behalf of the Acquiring Fund a statement of the Acquired Fund's
assets and liabilities, together with a list of the Acquired Fund's portfolio
securities showing the tax basis of such
<PAGE>77
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer or Assistant Treasurer of the
Acquired Fund;
7.3. The Acquired Fund shall have delivered to Smith Barney Muni
Funds on behalf of the Acquiring Fund on the Closing Date a certificate
executed in its name by its Chairman of the Board, President or Vice President
and its Treasurer or Assistant Treasurer, in form and substance satisfactory
to the Acquiring Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquired Fund made in this Agreement are
true and correct in all material respects at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement; and
7.4. The Acquiring Fund shall have received on the Closing Date a
favorable opinion of Willkie Farr & Gallagher, counsel to the Acquired Fund,
in a form satisfactory to Christina T. Sydor, Esq., Secretary of the Acquiring
Fund, covering the following points:
That (a) the Acquired Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland; (b) the Acquired Fund
is an open-end management investment company registered under the 1940
Act; and (c) this Agreement, the Reorganization provided for hereunder
and the execution of this Agreement have been duly authorized and
approved by all requisite action of the Acquired Fund, and this Agreement
has been duly executed and delivered by the Acquired Fund and, assuming
due authorization, execution and delivery by Smith Barney Muni Funds with
respect to the Acquiring Fund, is a valid and binding obligation of the
Acquired Fund enforceable in accordance with its terms against the assets
of the Acquired Fund, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
Such opinion may state that it is solely for the benefit of Smith
Barney Muni Funds, its Trustees and its officers. Such counsel may rely, as
to matters governed by the laws of the State of Maryland, on an opinion of
Maryland counsel.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND, SMITH
BARNEY MUNI FUNDS AND THE ACQUIRING FUND
If any of the conditions set forth below do not exist on or before
the Closing Date with respect to Smith Barney Muni Funds on behalf of the
Acquiring Fund, or the Acquired Fund, the other party to this Agreement shall,
at its option, not be required to consummate the transactions contemplated by
this Agreement:
<PAGE>78
8.1. This Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of its Articles
of Incorporation and By-laws and certified copies of the votes evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquired Fund nor Smith Barney
Muni Funds on behalf of the Acquiring Fund may waive the conditions set forth
in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders
and permits of federal, state and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no-action" positions of and exemptive orders from such federal and
state authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the assets or properties of the Acquiring Fund or the
Acquired Fund, provided that either party hereto may for itself waive any of
such conditions;
8.4. The Registration Statement shall have become effective under
the 1933 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act;
8.5. The Acquired Fund shall have declared and paid a dividend or
dividends on the outstanding shares of the Acquired Fund which, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Acquired Fund all of the investment company taxable income
of the Acquired Fund for all taxable years ending on or prior to the Closing
Date. The dividend declared and paid by the Acquired Fund shall also include
all of such fund's net capital gain realized in all taxable years ending on or
prior to the Closing Date (after reduction for any capital loss carryforward);
8.6. The parties shall have received a favorable opinion of Willkie
Farr & Gallagher, addressed to the Acquired Fund and Smith Barney Muni Funds
in respect of the Acquiring Fund and satisfactory to Christina T. Sydor, Esq.,
as Secretary of each of the Funds, substantially to the effect that for
federal income tax purposes:
<PAGE>79
(a) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(D)
of the Code, and the Acquiring Fund and the Acquired Fund are each a
"party to a reorganization" within the meaning of Section 368(b) of the
Code; (b) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain
scheduled liabilities of the Acquired Fund; (c) no gain or loss will be
recognized by the Acquired Fund upon the transfer of the Acquired Fund's
assets to the Acquiring Fund in exchange for Acquiring Fund Shares and
the assumption by the Acquiring Fund of certain scheduled liabilities of
the Acquired Fund or upon the distribution (whether actual or
constructive) of Acquiring Fund Shares to Acquired Fund's shareholders;
(d) no gain or loss will be recognized by shareholders of the Acquired
Fund upon the exchange of their Acquired Fund shares for the Acquiring
Fund Shares; (e) the aggregate tax basis for Acquiring Fund Shares
received by each of the Acquired Fund's shareholders pursuant to the
Reorganization will be the same as the aggregate tax basis of the
Acquired Fund shares held by such shareholder immediately prior to the
Reorganization, and the holding period of Acquiring Fund Shares to be
received by each Acquired Fund shareholder will include the period during
which the Acquired Fund shares exchanged therefor were held by such
shareholder (provided that the Acquired Fund shares were held as capital
assets on the date of the Reorganization); and (f) the tax basis to the
Acquiring Fund of the Acquired Fund's assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Acquired
Fund immediately prior to the Reorganization, and the holding period of
the assets of the Acquired Fund in the hands of the Acquiring Fund will
include the period during which those assets were held by the Acquired
Fund.
Notwithstanding anything herein to the contrary, neither the
Acquired Fund nor Smith Barney Muni Funds on behalf of the Acquiring Fund may
waive the conditions set forth in this paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1. The Acquired Fund represents and warrants to Smith Barney Muni
Funds on behalf of the Acquiring Fund, and Smith Barney Muni Funds on behalf
of the Acquiring Fund represents and warrants to the Acquired Fund, that there
are no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
9.2. (a) Except as may be otherwise provided herein, the Acquiring
Fund and the Acquired Fund shall each be liable, in proportion to their
assets, for the expenses incurred in connection with entering into and
carrying out the provisions of this Agreement,
<PAGE>80
including the expenses of: (i) counsel and independent accountants associated
with the Reorganization; (ii) printing and mailing the Prospectus/Proxy
Statement and soliciting proxies in connection with the meeting of
shareholders of the Acquired Fund referred to in paragraph 5.2 hereof; (iii)
any special pricing fees associated with the valuation of the Acquired Fund's
or the Acquiring Fund's portfolio on the Closing Date; (iv) expenses
associated with preparing this Agreement and preparing and filing the
Registration Statement under the 1933 Act covering the Acquiring Fund Shares
to be issued in the Reorganization; (v) registration or qualification fees and
expenses of preparing and filing such forms, if any, necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection with the Reorganization. The Acquired Fund shall be
liable for: (x) all fees and expenses related to the liquidation and
dissolution of the Acquired Fund; and (y) fees and expenses of the Acquired
Fund's custodian and transfer agent incurred in connection with the
Reorganization. The Acquiring Fund shall be liable for any fees and expenses
of the Acquiring Fund's custodian and transfer agent incurred in connection
with the Reorganization.
(b) Consistent with the provisions of paragraph 1.3, the Acquired
Fund, prior to the Closing, shall pay for or include in the unaudited
Statement of Assets and Liabilities prepared pursuant to paragraph 1.3 all of
its known and reasonably estimated expenses associated with the transactions
contemplated by this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The parties hereto agree that no party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in
this Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
11. TERMINATION
11.1. This Agreement may be terminated at any time prior to the
Closing Date by: (i) the mutual agreement of Smith Barney Muni Funds on
behalf of the Acquiring Fund and the Acquired Fund; (ii) Smith Barney Muni
Funds on behalf of the Acquiring Fund in the event that the Acquired Fund
shall, or the Acquired Fund in the event that Smith Barney Muni Funds or the
Acquiring Fund shall, materially breach any representation, warranty or
agreement contained herein to be performed at or prior to the Closing Date; or
(iii) Smith Barney Muni Funds on behalf of the Acquiring Fund, or by the
Acquired Fund, if a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably
appears that it will not or cannot be met.
<PAGE>81
11.2. In the event of any such termination, there shall be no
liability for damages on the part of either Smith Barney Muni Funds on behalf
of the Acquiring Fund or the Acquired Fund or their respective Trustees,
Directors or officers to the other party, but each shall bear the expenses
incurred by it incidental to the preparation and carrying out of this
Agreement as provided in paragraph 9.
12. AMENDMENTS; WAIVERS
12.1. This Agreement may be amended, modified or supplemented in
such manner as may be mutually agreed upon in writing by the authorized
officers of Smith Barney Muni Funds and the Acquired Fund; provided, however,
that following the meeting of the Acquired Fund shareholders called by the
Acquired Fund pursuant to paragraph 5.2 of this Agreement, no such amendment
may have the effect of changing the provisions for determining the number of
Acquiring Fund Shares to be issued to the Acquired Fund's shareholders under
this Agreement to the detriment of such shareholders without their further
approval.
12.2. At any time prior to the Closing Date either party hereto
may by written instrument signed by it (i) waive any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions made for its benefit
contained herein.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to Smith Barney Muni Funds,
388 Greenwich Street, 22nd Floor, New York, New York 10013, Attention: Heath
B. McLendon; or to Smith Barney New York Municipals Fund Inc., 388 Greenwich
Street, 22nd Floor, New York, New York 10013, Attention: Jessica Bibliowicz.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1. The article and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14.2. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
<PAGE>82
14.3. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
14.4. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm, corporation or other entity, other than the parties hereto
and their respective successors and assigns, any rights or remedies under or
by reason of this Agreement.
14.5. It is expressly agreed that the obligations of Smith
Barney Muni Funds in respect of the Acquiring Fund shall not be binding upon
any Trustees, shareholders, nominees, officers, agents or employees
personally, but bind only the trust property of Smith Barney Muni Funds as
provided in the Declaration of Trust of Smith Barney Muni Funds. The
execution and delivery of this Agreement have been authorized by the Trustees
of Smith Barney Muni Funds and this Agreement has been executed by authorized
officers of Smith Barney Muni Funds, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of Smith Barney Muni Funds as provided in Smith Barney Muni Funds'
Declaration of Trust.
<PAGE>83
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its Chairman of the Board, President or Vice
President and attested by its Secretary or Assistant Secretary.
Attest: SMITH BARNEY MUNI FUNDS
on behalf of NEW YORK PORTFOLIO
By:
Name: Christina T. Sydor Name: Heath B. McLendon
Title: Secretary Title: Chairman of the Board
Attest: SMITH BARNEY NEW YORK MUNICIPALS
FUND INC.
By:
Name: Christina T. Sydor Name: Jessica Bibliowicz
Title: Secretary Title: President
<PAGE>84
PROSPECTUS
OF
SMITH BARNEY MUNI FUNDS -- NEW YORK PORTFOLIO
DATED JULY 31, 1995
<PAGE>85
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>86
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>87
Smith Barney Muni Funds - New York Portfolio
==============================================================================
Table of Contents
==============================================================================
Prospectus Summary 3
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Financial Highlights 10
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Investment Objectives and Management Policies 12
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Valuation of Shares 17
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Dividends, Distributions and Taxes 18
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Purchase of Shares 20
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Exchange Privilege 27
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Redemption of Shares 31
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Minimum Account Size 32
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Performance 33
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Management of the Fund 34
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Distributor 35
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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>88
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>89
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>90
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>91
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>92
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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%
==== ==== ==== ====
-------------------------------------------------------------------------------------------------------------
<FN>
* 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.
</TABLE>
7
<PAGE>93
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."
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
-----------------------------------------------------------------------------------
</TABLE>
An investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
-----------------------------------------------------------------------------------
<FN>
*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.
</TABLE>
8
<PAGE>94
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>95
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:
==============================================================================
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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.
(c) See page 11 for full footnote disclosures for (1) and (2).
10
<PAGE>96
Smith Barney Muni Funds - New York Portfolio
==============================================================================
Financial Highlights (continued)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 5.76+ 5.38 4.98 5.37+
------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 30.38% 30.38% 19.65% 21.91%
====================================================================================================================================
<FN>
+ 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 decrease of net
investment income and the ratios of expenses to average
net assets would be as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Decrease Ratios Without Fee Waivers
Portfolio 1992 1991 1990 1989 1992 1991 1990 1989
---------------------------------------------------------------------------------------------------------
Class A .007 .031 .030 .030 .53 .50* .49 .50*
=========================================================================================================
<FN>
*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.
</TABLE>
11
<PAGE>97
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>98
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>99
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>100
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>101
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>102
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>103
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>104
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>105
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>106
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>107
Smith Barney Muni Funds - New York Portfolio
==============================================================================
Purchase of Shares (continued)
==============================================================================
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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 * * *
=====================================================================================================
<FN>
*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."
</TABLE>
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>108
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>109
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>110
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>111
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>112
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>113
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>114
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>116
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>117
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>118
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>119
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>120
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 for 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>121
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>122
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>123
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>124
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
<PAGE>125
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER __, 1995
Acquisition Of The Assets Of
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 224-7523
By And In Exchange For Shares Of
NEW YORK PORTFOLIO
a separate investment portfolio of
SMITH BARNEY MUNI FUNDS
388 Greenwich Street
New York, New York 10013
(800) 224-7523
This Statement of Additional Information, relating specifically to
the proposed transfer of all or substantially all of the assets of Smith
Barney New York Municipals Funds Inc. (the "Acquired Fund") to the New York
Portfolio (the "Acquiring Fund") of Smith Barney Muni Funds in exchange for
shares of the Acquiring Fund and the assumption by Smith Barney Muni Funds on
behalf of the Acquiring Fund of certain scheduled liabilities of the Acquired
Fund, consists of this cover page and the following described documents, each
of which accompanies this Statement of Additional Information and is
incorporated herein by reference.
1. Statement of Additional Information of Smith Barney Muni Funds,
dated July 31, 1995.
2. Annual Report of Smith Barney Muni Funds -- New York Portfolio for
the fiscal year ended March 31, 1995.
3. Annual Report of Smith Barney New York Municipals Fund Inc. for the
fiscal year ended December 31, 1994.
4. Pro Forma Financial Statements.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated September __, 1995, relating to the above-
referenced matter may be obtained without charge by calling or writing either
the Acquiring Fund or the Acquired Fund at the telephone numbers or addresses
set forth above or by contacting any
<PAGE>126
Smith Barney Financial Consultant or by calling toll-free (800) 224-7523.
This Statement of Additional Information should be read in conjunction with
the Prospectus/Proxy Statement dated September __, 1995.
The date of this Statement of Additional Information is September
__, 1995.
<PAGE>127
STATEMENT OF ADDITIONAL INFORMATION
OF
SMITH BARNEY MUNI FUNDS -- NEW YORK PORTFOLIO
DATED JULY 31, 1995
<PAGE>128
STATEMENT OF ADDITIONAL INFORMATION
OF
SMITH BARNEY MUNI FUNDS -- NEW YORK PORTFOLIO
DATED JULY 31, 1995
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.
<PAGE>129
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.
<PAGE>130
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
<PAGE>131
TRUSTEES AND OFFICERS
*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.
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.
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.
PAUL HARDIN, Trustee
Retired, 60134 Davie Street, Chapel Hill, N. C. 27514. Trustee of
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.
FRANCIS P.. MARTIN, Trustee
Practicing physician, 2000 North Village Avenue, Rockville Centre, New
York 11570. Trustee of 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 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 investment companies associated with Smith Barney.
Formerly, Vice President of Dresdner and Company Inc. (investment counselors);
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.
<PAGE>132
JOHN P. TOOLAN, Trustee
Retired, 13 Chadwell Place, Morristown, New Jersey, 07960. Trustee of 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.
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.
*LEWIS E. DAIDONE, Senior Vice President and Treasurer
Managing Trustee of Smith Barney; Senior Vice President and Treasurer of
forty-one investment companies associated with Smith Barney,
and Trustee and Senior Vice President of the Manager; 37.
*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.
*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 investment companies associated with Smith
Barney; 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.
<PAGE>133
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
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
<FN>
(*) 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.
</TABLE>
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
<PAGE>134
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
<PAGE>135
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.
<PAGE>136
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.
<PAGE>137
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:
<TABLE>
<CAPTION>
March 31,
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>138
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).
<PAGE>139
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
<PAGE>140
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.
<PAGE>141
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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/ 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
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>142
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>143
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.
<PAGE>144
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.
<PAGE>145
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.
<PAGE>146
For the fiscal years ended March 31, 1993, 1994 and 1995, the management
fee for each Portfolio was as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
<FN>
(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.
<PAGE>147
(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.
</TABLE>
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.
<PAGE>148
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.
<PAGE>149
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
<PAGE>150
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
<PAGE>151
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.
<PAGE>152
FINANCIAL STATEMENTS
The following information is hereby incorporated by reference to the
Fund's March 31, 1995 Annual Reports to Shareholders:
Page(s) in:
<TABLE>
<CAPTION>
<S> <C> <C>
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 Statements 29-32 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 Statements 24 - 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 Statements 17 - 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 Statements 24 - 28
Financial Highlights (for a share
of each series of beneficial
interest outstanding throughout
each year) 29 - 31
Independent Auditor's Report 32
</TABLE>
<PAGE>153
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.
<PAGE>154
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.
<PAGE>155
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.
<PAGE>156
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
<PAGE>157
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
<PAGE>158
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.
<PAGE>159
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.
<PAGE>160
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.
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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
<PAGE>162
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
<PAGE>163
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.
<PAGE>164
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.
<PAGE>165
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
<PAGE>166
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.
<PAGE>167
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,
<PAGE>168
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.
<PAGE>169
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
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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
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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
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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
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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
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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.
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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.
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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.
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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).
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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.
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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
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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.
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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.
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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
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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.
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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
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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.
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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.
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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
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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.
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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.
<PAGE>190
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
<PAGE>191
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
<PAGE>192
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
<PAGE>193
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.
<PAGE>194
ANNUAL REPORT
OF
SMITH BARNEY MUNI FUNDS -- NEW YORK PORTFOLIO
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
<PAGE>195
--------------------------------------------------------------------------------
ANNUAL REPORT
--------------------------------------------------------------------------------
1995
1995
1995 [ARTWORK APPEARS HERE]
1995
1995
Smith Barney
Muni Funds
New York Money
Market Portfolio
New York Portfolio
--------------------------------------------------------
March 31, 1995
[LOGO APPEARS HERE] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>196
---------------------------------------------
New York Money Market and New York Portfolios
---------------------------------------------
Dear Shareholder:
We are pleased to present the annual report and audited financial statements for
Smith Barney Muni Funds New York Portfolio and New York Money Market Portfolio
for the fiscal year ended March 31, 1995.
Market and Economic Overview
Since our last report to you in November, the fixed-income markets, and
municipal bonds in particular, have enjoyed a powerful rally. Municipal bond
yields have declined more than a full percentage point, as evidenced by the drop
in the average yield on The Bond Buyer's weekly 25-Bond Revenue Index of 30-year
municipal bonds from a high of 7.37% on November 17, 1994 to 6.29% on March 31,
1995. This was substantially better than the performance of the benchmark 30-
year Treasury bond, which experienced a decline in yield of 70 basis points from
8.13% to 7.43% during the same time frame.
The vastly improved bond markets reflect a growing consensus that inflation will
remain under control, and the Federal Reserve Board will be successful in
engineering a "soft landing" by slowing the economy down to a more sustainable,
non-inflationary rate of growth. The seven increases in the federal funds rate
(the rate banks charge each other for overnight loans), orchestrated by the Fed
since February 1994, appear to be slowing the pace of economic growth. Recent
economic reports show a slower rate of increase in employment, producer prices,
and retail sales. Industrial production and capacity utilization were also lower
than expected, signalling a possible slowdown in the country's strong
manufacturing sector. These generally favorable economic fundamentals are more
than offsetting concerns about the substantial decline in the value of the
dollar relative to the Japanese yen and German mark on the foreign exchange
markets.
Late in April, several tax-reform proposals which recommend a flat Federal
income tax rate began to receive increased attention in the national financial
press and from municipal bond market participants. Adoption of a flat tax would
diminish the advantages of tax exemption for municipal bonds. Although the
various plans being circulated are only proposals, the publicity surrounding
them has recently caused some investors to back away from the municipal bond
market. In our opinion it is much too early in the process to predict what
changes in the tax laws, if any, will actually take place, but tax reform will
certainly be a major topic of political debate over the next few
1
<PAGE>197
years. Many observers believe that the more radical proposals for changes in the
way taxes are collected have little chance for enactment.
Absent these tax-reform concerns, municipals would probably continue to be
strong performers relative to Treasuries and other taxable investments due to
the low supply of new issues. Not only did last year's spike in interest rates
sharply reduce refinancing activity in the municipal market, but voter pressure
on states and municipalities to rein in spending and cut taxes, or at least
avoid tax increases, has also resulted in a roughly 30% decline in new-money
financing. In addition, the universe of existing municipal bonds is shrinking.
In 1995, an estimated $230 billion in older, high-coupon issues will mature or
be called as they reach their first optional call dates. With estimates of new-
issue volume at less than $150 billion, the net reduction in municipal debt
outstanding could approach $100 billion this year, contracting the market by
about eight percent. Ordinarily, a reduction in supply of this magnitude would
be expected to provide a powerful boost for municipal bond values as it did
earlier this year. Uncertainties about various tax proposals, however, will
probably keep municipals from trading any better than their normal relationship
to taxable investment alternatives.
The New York State Economy
Economic conditions in New York remain below average, although financial
performance has shown recent signs of improvement. In 1994, for the second
consecutive year, the state closed the fiscal year with a budget surplus.
Governor Pataki has proposed a cut in personal income taxes as well as cuts in
the current budget's spending plan for transportation, education, health and
social services. The rating agencies will be scrutinizing his tax-cut plans for
offsetting reductions in expenditures. New York is currently rated A by Moody's
and A- (with a positive outlook) by Standard & Poor's.
New York Portfolio
The New York Portfolio had a total return of 6.32% (Class A shares) for the
fiscal year. That was significantly above the 5.20% average total return for all
New York municipal bond funds over the same period, as reported by Lipper
Analytical Services.
Long-term performance of the Portfolio is also excellent relative to its peers.
The Portfolio's five-year cumulative total return (excluding sales charge) of
52.14% (Class A shares) substantially outperformed the 46.48% average cumulative
total return for all New York municipal bond funds in the Lipper survey for the
period ended March 31, 1995. (Please see Average Annual Total Return chart on
page 6 of this report for additional information.) It is also noteworthy that
this outstanding performance over the last five years has been
2
<PAGE>198
achieved without the necessity for any capital gains distributions, an important
consideration for investors interested in after-tax income.
While we generally have a positive outlook for the fixed-income markets, the
size of the rally we have experienced so far would seem to leave little room for
disappointment, and any sign of a rebound in economic activity is likely to
result in a return to higher interest rates. We also believe that the unique
supply and demand characteristics of the municipal market and tax-reform
uncertainties will tend to exaggerate price swings relative to taxable
investments.
In light of this viewpoint, we are maintaining a balanced approach to
structuring the interest-rate sensitivity of the Portfolio by investing in a
combination of both long and short effective maturities. Most long-term
municipal bonds are callable prior to their stated maturity date. When a bond
has a coupon higher than prevailing market yields, its maturity is effectively
shortened to the call date for trading purposes because of the possibility that
the issuer will exercise its option to replace the bond with lower-cost debt. We
are retaining high-coupon bonds that trade well above their face value for the
defensiveness of their shorter effective maturities and the above-market level
of income they provide. However, we are also focusing on eliminating bonds with
shorter call dates when they are trading near their face value. Such bonds have
unfavorable performance characteristics because they retain the downside risk of
their longer maturity if rates should rise, but their appreciation potential is
limited by the shorter call date if interest rates decline. We are replacing
such issues with bonds that have similar stated maturities but greater call
protection.
Although this strategy sacrifices some of the current income being generated by
the Portfolio, it enhances long-term performance potential if interest rates
continue to decline without adding to downside risk if interest rates rise. We
believe that positioning the Portfolio in this manner is the best way to achieve
our objective of the highest tax-free income consistent with prudent investment
risk.
New York Money Market Portfolio
As of March 31, 1995, the New York Money Market Portfolio's 7-day current yield
was 3.32%, and its 7-day effective yield, which reflects compounding, was 3.38%.
The Portfolio's tax-equivalent yield, or the yield you would have to earn on a
similar taxable investment to match the tax-free yield, was 5.60% assuming you
are in the 39.6% tax bracket. During the 12 months ended March 31, 1995, the
Portfolio's monthly tax-exempt dividend distributions resulted in a tax-exempt
annualized yield of 2.49%.
3
<PAGE>199
The New York Money Market Portfolio invests only in short-term securities which
carry minimal credit risk. All of the Portfolio's holdings are rated within the
top two short-term rating categories or are of comparable quality. The
Portfolio's average maturity, which has not changed during the past year, is in
the 30- to 50-day range. This relatively short maturity range allows us to
readjust the Portfolio's holdings sooner should interest rates rise, as we
believe they might sometime later this year.
An investment in the New York Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government and there can be no assurance that the
Portfolio will be able to maintain a stable net asset value of $1.00 per share.
We thank you for your investment and your continued confidence in our investment
management.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman and Chief Executive Officer Vice President and Investment Officer
/s/ Karen L. Mahoney-Malcomson
Karen L. Mahoney-Malcomson
Vice President and Investment Officer
April 28, 1995
4
<PAGE>200
Smith Barney Muni Funds
New York Portfolio
--------------------------------------------------------------------------------
Historical Performance - Class A Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
----------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns/(1)/
===============================================================================================
<S> <C> <C> <C> <C> <C>
3/31/95 $12.83 $12.83 $0.77 $0.00 6.32%
-----------------------------------------------------------------------------------------------
3/31/94 13.25 12.83 0.79 0.00 2.66
-----------------------------------------------------------------------------------------------
3/31/93 12.33 13.25 0.81 0.00 14.48
-----------------------------------------------------------------------------------------------
3/31/92 11.80 12.33 0.81 0.00 11.98
-----------------------------------------------------------------------------------------------
3/31/91 11.67 11.80 0.85 0.00 8.74
-----------------------------------------------------------------------------------------------
3/31/90 11.48 11.67 0.87 0.00 9.28
-----------------------------------------------------------------------------------------------
3/31/89 11.25 11.48 0.86 0.00 10.03
-----------------------------------------------------------------------------------------------
3/31/88 12.46 11.25 0.85 0.00 (2.63)
-----------------------------------------------------------------------------------------------
Inception* - 3/31/87 12.50 12.46 0.13 0.00 0.52
===============================================================================================
Total $6.74 $0.00
===============================================================================================
</TABLE>
--------------------------------------------------------------------------------
Historical Performance - Class B Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
----------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns/(1)/
===============================================================================================
<S> <C> <C> <C> <C> <C>
Inception* - 3/31/95 $11.96 $12.84 $0.29 $0.00 9.92%
===============================================================================================
</TABLE>
--------------------------------------------------------------------------------
Historical Performance - Class C Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
----------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns/(1)/
===============================================================================================
<S> <C> <C> <C> <C> <C>
3/31/95 $12.82 $12.83 $0.68 $0.00 5.66%
-----------------------------------------------------------------------------------------------
3/31/94 13.24 12.82 0.70 0.00 1.96
-----------------------------------------------------------------------------------------------
Inception* - 3/31/93 12.84 13.24 0.12 0.00 4.04
===============================================================================================
Total $1.50 $0.00
===============================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
5
<PAGE>201
Smith Barney Muni Funds
New York Portfolio
--------------------------------------------------------------------------------
Average Annual Total Return
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge/(1)/
-------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Year Ended 3/31/95 6.32% N/A 5.66%
--------------------------------------------------------------------------------
Five Years Ended 3/31/95 8.75 N/A N/A
--------------------------------------------------------------------------------
Inception* through 3/31/95 7.36 9.92% 5.25
--------------------------------------------------------------------------------
<CAPTION>
With Sales Charge/(2)/
-------------------------------------
Class A Class B Class C
================================================================================
<S> <C> <C> <C>
Year Ended 3/31/95 2.10% N/A 4.66%
--------------------------------------------------------------------------------
Five Years Ended 3/31/95 7.86 N/A N/A
--------------------------------------------------------------------------------
Inception* through 3/31/95 6.82 5.42% 5.25
--------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
Cumulative Total Return
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge/(1)/
================================================================================
<S> <C>
Class A (Inception* through 3/31/95) 79.06%
--------------------------------------------------------------------------------
Class B (Inception* through 3/31/95) 9.92
--------------------------------------------------------------------------------
Class C (Inception* through 3/31/95) 12.06
--------------------------------------------------------------------------------
<FN>
(1) Assumes reinvestment of all dividends and capital gain distributions at net
asset value and does not reflect deduction of the applicable sales charge
with respect to Class A shares or the applicable contingent deferred sales
charges ("CDSC") with respect to Class B and Class C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions at net
asset value. In addition, Class A shares reflect the deduction of the
maximum initial sales charge of 4.00%; Class B shares reflect the deduction
of a 4.50% CDSC, which applies if shares are redeemed less than one year
from initital purchase. This CDSC declines by 0.50% the first year after
purchase and by 1.00% per year thereafter until no CDSC is incurred. Class C
shares reflect the deduction of a 1.00% CDSC which applies if shares are
redeemed within the first year of purchase.
* Inception dates for Class A, B and C shares are January 16, 1987,
November 11, 1994 and January 8, 1993, respectively.
</TABLE>
6
<PAGE>202
Smith Barney Muni Funds
New York Portfolio
--------------------------------------------------------------------------------
Historical Performance
--------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of
the New York Portfolio vs.
Lehman Long Bond Index/+/
(unaudited)
--------------------------------------------------------------------------------
January 1987 - March 1995
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
54950 S/B NY Money Mkt/N.Y Portfolio
New York Lehman Long Bond Index
<S> <C> <C>
1/16/87 9600.61 10000
Mar-87 9595.6 10212
Mar-88 9315.3 10381.11
Mar-89 10218.7 11362.32
Mar-90 11134.8 12599.33
Mar-91 12072.7 13580.13
Mar-92 13481.2 15119.56
Mar-93 15394.1 17327.37
Mar-94 15767.2 17520.61
Mar-95 16739.5 19102.61
<FN>
+ Hypothetical illustration of $10,000 invested in Class A shares at inception
on January 16, 1987, assuming deduction of the maximum 4.00% sales charge at
the time of investment and reinvestment of dividends (after deduction of sales
charges, if any) and capital gains (at net asset value) through March 31,
1995. The Index is unmanaged and is not subject to the same management and
trading expenses of a mutual fund. The performance of the Portfolio's other
classes may be greater or less than the Class A shares' performance indicated
on this chart, depending on whether greater or lesser sales charges and fees
were incurred by shareholders investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.
</TABLE>
7
<PAGE>203
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Schedules of Investments March 31, 1995
--------------------------------------------------------------------------------
NEW YORK MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Albany IDA IDR:
$ 1,365,000 NR+ PBS Development Co. Project 5.00% due
12/1/95(a)(f) $ 1,365,000
1,440,000 A-1 540 Project Series B-2 5.00% due 12/1/95(a)(f) 1,440,000
1,430,000 A-1 540 Project Series B-3 5.00% due 12/1/95(a)(f) 1,430,000
Town of Babylon IDA IDR:
1,000,000 VMIG 1 J. D'Addario & Co. Inc. Project 4.00%(a)(b) 1,000,000
500,000 Aa3 Napco Security System Inc. 3.85%(b) 500,000
2,500,000 NR+ Board Cooperative Educational Services Monroe County
First Supervisory District RAN Series A 3.72%
due 6/23/95 2,500,108
6,500,000 NR+ Board Cooperative Educational Services Onodaga, Cortland
and Madison County First Supervisory District RAN
Series A 3.72% due 6/21/95 6,500,274
15,000,000 MIG 1 Buffalo RAN Series A 5.00% due 7/12/95 15,032,846
13,000,000 NR+ East Islip Union Free School District TAN 4.05%
due 6/29/95 13,001,519
8,200,000 A-1 Franklin County IDA IDR (Kes Chateaugay Project)
Series A 3.80%(a)(b) 8,200,000
6,000,000 NR+ Freeport Union Free School District TAN 3.86%
due 6/29/95 6,000,129
4,045,000 A-1 Geneva IDA Civic Facilities Revenue (Colleges of the
Seneca) Series A 4.00%(b) 4,045,000
550,000 A-1 Glenn Falls IDA IDR (Broad Street Plaza Project)
3.85%(b) 550,000
11,800,000 VMIG 1 Great Neck North Water Authority Water System
Revenue Series A 4.00%(b) 11,800,000
600,000 A-1 Jefferson County IDA IDR (The Climax Manufacturing
Co. Project) 4.10%(a)(b) 600,000
4,000,000 P-1 Lewis County IDA IDR (The Climax Manufacturing
Co. Project) 4.10%(a)(b) 4,000,000
13,030,000 NR+ Lindenhurst Union Free School District TAN 4.00%
and 4.50% due 6/29/95 13,033,263
5,000,000 NR+ Long Beach City School District 4.23% due 6/29/95 4,997,607
2,400,000 NR+ Manhasset Union Free School District TAN 4.25%
due 6/29/95 2,403,106
43,700,000 VMIG 1 Metropolitan Transit Authority Commuter Facilities
Revenue 3.90%(b) 43,700,000
6,730,000 NR+ Miller Place Union Free School District TAN 4.00%
due 6/28/95 6,733,894
5,800,000 A-1 Monroe County IDA (Granite Building) Series
1992 3.85%(b) 5,800,000
</TABLE>
See Notes to Financial Statements.
8
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--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
$ 100,000 A-1 Montgomery IDA IDR (Service Merchandise Co.)
3.90%(b) $ 100,000
1,000,000 AAA Nassau County General Improvement Series O 5.625%
due 8/1/95 1,005,236
17,075,000 SP-1 Nassau County TAN Series C 5.40% due 9/28/95 17,102,494
15,500,000 MIG 1 Nassau County BAN Series 1995B 5.25% due 11/15/95 15,585,906
7,131,000 NR+ New Rochelle Urban Development Notes 4.50%
due 8/21/95(a) 7,139,074
3,500,000 MIG 1 New York City RAN Series A 4.50% due 4/12/95 3,500,884
25,500,000 MIG 1 New York City RAN Series B 4.75% due 6/30/95 25,537,917
New York City Variable Muni Trust Receipts:
14,700,000 VMIG 1 Series B 4.35%(b) 14,700,000
9,800,000 VMIG 1 Series C 4.35%(b) 9,800,000
24,500,000 VMIG 1 New York City Subseries H-6 4.20% due 6/9/95(f) 24,500,000
New York City GO:
15,000,000 VMIG 1 Subseries B-8 3.70%(b) 15,000,000
28,800,000 VMIG 1 Subseries B-10 3.65%(b) 28,800,000
New York City Housing Development Corp. Mortgage
Revenue Multi-Family:
7,770,000 A-1+ Columbus Apartments Project 4.10%(b) 7,770,000
2,600,000 A-1 Columbus Gardens Project 4.10%(b) 2,600,000
7,100,000 VMIG 1 Parkgate Towers 3.95%(b) 7,100,000
2,000,000 VMIG 1 Queenswood Apartments 4.10%(b) 2,000,000
1,400,000 A-1+ New York City IDA Civic Facilities Revenue
(Childrens Oncology Society) 3.55%(b) 1,400,000
New York City IDA IDR:
3,400,000 VMIG 1 Andin International Inc. Series 87A 3.75%(a)(b) 3,400,000
1,820,000 VMIG 1 Monarch Construction Corp. Project
Series 89G 4.10%(a)(b) 1,820,000
850,000 VMIG 1 Series 88D 4.10%(a)(b) 850,000
785,000 VMIG 1 Sleep Products Inc. Project Series 88E 4.10%(a)(b) 785,000
5,000,000 A-1+ New York City Muni Water Finance 4.00% due 6/7/95(f) 5,000,000
New York City Trust for Cultural Resources Revenue:
2,800,000 VMIG 1 Museum of Broadcasting 4.10%(b) 2,800,000
700,000 VMIG 1 The Jewish Museum 4.10%(b) 700,000
13,300,000 VMIG 1 New York City Water & Sewer Certificate Series 1992A
3.75%(b) 13,300,000
10,500,000 VMIG 1 New York State Energy Research & Development
Electricity Facilities Revenue (Long Island Lighting
Co.) 4.10%(a)(b) 10,500,000
</TABLE>
See Notes to Financial Statements.
9
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--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
=====================================================================================================
<C> <C> <S> <C>
New York State Energy Research &
Development Authority:
$ 6,000,000 A-1+ Central Hudson Gas & Electricity Series 85B
4.10%(b) $ 6,000,000
1,000,000 P-1 Rochester Gas & Electricity 3.75%(b) 1,000,000
17,222,500 NR+ New York State Environmental Facilities Corp.
PCR 4.35%(b) 17,222,500
New York State Housing Finance Agency Revenue
Multi-Family Housing:
35,100,000 VMIG 1 Normandie Court I Project 4.05%(b) 35,100,000
1,900,000 VMIG 1 Series 1988A 3.90%(b) 1,900,000
51,700,000 VMIG 1 New York State Local Government Assistance Corp.
Series A 3.85%(b) 51,700,000
New York State Mortgage Agency Revenue:
4,380,000 VMIG 1 P-Floats (PT - 26) 4.35%(a)(b) 4,380,000
11,410,000 VMIG 1 P-Floats (PT - 11) 4.40%(b) 11,410,000
New York State Medical Care Facilities Finance
Agency Revenue:
2,700,000 VMIG 1 Lenox Hill Hospital Series A 3.70%(b) 2,700,000
8,140,000 VMIG 1 P-Floats PA - 82 4.35%(b) 8,140,000
4,530,000 A-1+ P-Floats (PT - 17) 4.35%(b) 4,530,000
20,100,000 VMIG 1 Pooled Equipment Loan Program II-A 4.10%(b) 20,100,000
16,335,000 A-1+ New York State Urban Development Corp. Revenue
Certificates Correctional Facilities Series A 4.15%(b) 16,335,000
16,000,000 VMIG 1 Niagara County IDA (American Re-Fuel)
4.25% due by 5/2/95(f) 16,000,000
20,400,000 VMIG 1 Niagara County IDA (American Re-Fuel)
4.25% due by 5/18/95(f) 20,400,000
1,500,000 VMIG 1 North Hempstead Solid Waste Management Authority
Solid Waste Management Revenue Refunding
Series A 3.80%(b) 1,500,000
400,000 A-1+ Onondaga County IDA IDR (Pass & Seymour Project)
3.50%(b) 400,000
3,180,000 NR++ Oswego County IDA IDR (Regal Textile Corp.) 4.95%(b) 3,180,000
6,600,000 VMIG 1 Port Authority of New York & New Jersey Special
Obligation Revenue 3rd Installment Series
4.10%(a)(b) 6,600,000
2,600,000 VMIG 1 Puerto Rico Commonwealth Government Development
Bank Refunding 4.10%(b) 2,600,000
6,000,000 NR+ Puerto Rico Industrial Medical PCR (Abbot Laboratory)
Series 1983A 5.10% due 3/1/96(f) 6,000,000
</TABLE>
See Notes to Financial Statements.
10
<PAGE>206
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--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
$ 1,430,000 NR+ Rensselear County IDA IDR (Millers Supermarket Inc.
Project) 5.10% due 3/1/96(f) $ 1,430,000
5,690,000 NR++ Rochester TOB Short (BTP - 72) 4.375%(b) 5,690,000
13,050,000 MIG 1 Sachem Central School District TAN
4.50% due 6/29/95 13,070,684
2,300,000 P1 Schenectady County IDA IDR Refunding (Scotia
Industrial Parking Project) Series A 3.95%(b) 2,300,000
5,355,000 NR# Sullivan County BAN 4.12% due 5/12/95 5,355,111
Triborough Bridge & Tunnel Authority Revenue:
19,800,000 A-1+ Certificates General Purpose Series A 4.40%(b) 19,800,000
2,000,000 AAA Convention Center Project Series D
9.00% Pre-Refunded 7/1/95 @ 102 2,059,145
15,100,000 A-1+ Special Obligation 3.80%(b) 15,100,000
4,540,000 NR+ Uniondale Union Free School District TAN 4.00%
due 6/28/95 4,541,043
5,835,000 MIG 1 West Islip Union Free School District TAN 4.20%
and 4.25% due 6/29/95 5,840,174
14,700,000 VMIG 1 Yonkers IDA Civic Facility Revenue Consumers
Union 4.05%(b) 14,700,000
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100%
(Cost - $704,512,914)(g) $704,512,914
======================================================================================================
</TABLE>
See page 18 for full footnote disclosures.
See Notes to Financial Statements.
11
<PAGE>207
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Education -- 7.6%
$ 500,000 A Brookhaven Industrial Development Agency Civic
Facilities Revenue for St. Joseph College, LOC Norstar
Bank, 8.10% due 4/1/08 $ 532,500
New York State Dormitory Authority Revenue:
2,500,000 Baa1* City University, 7.50% due 7/1/10 (d) 2,800,000
1,600,000 AA Niagara Frontier Home, FHA-Insured, 6.20%
due 2/1/15 1,618,000
1,000,000 BBB+ State University Educational Facilities, 7.50%
due 5/15/11 1,131,250
1,000,000 BBB+ State University Educational Facilities, Series A,
5.875% due 5/15/17 932,500
------------------------------------------------------------------------------------------------------
7,014,250
------------------------------------------------------------------------------------------------------
Escrowed to Maturity (e) -- 3.7%
3,042,000 AAA New York State Power Authority Revenue and General
Purpose, (Escrowed to Maturity with U.S.
Government Securities), 9.50% due 1/1/01 3,422,250
------------------------------------------------------------------------------------------------------
Finance -- 2.6%
500,000 Aa* Municipal Assistance Corporation, New York, Series 64,
7.625% due 7/1/08 550,000
2,000,000 A New York State Local Government Assistance Corporation,
Series 1993 B Refunding, 5.50% due 4/1/17 1,840,000
------------------------------------------------------------------------------------------------------
2,390,000
------------------------------------------------------------------------------------------------------
Government Facilities -- 1.5%
1,500,000 Baa1* New York State Urban Development Refunding,
Correctional Capital Facilities - A, 5.50% due 1/1/09 1,370,625
------------------------------------------------------------------------------------------------------
General Obligation -- 1.6%
1,565,000 A- New York City GO Bonds, Fiscal 1993 Series E,
6.00% due 5/15/20 1,424,150
------------------------------------------------------------------------------------------------------
Hospital -- 16.0%
New York State Medical Care Facilities Finance Agency:
1,380,000 AAA Albany Medical Center-Alice Hyde Association,
FHA-Insured, 8.00% due 2/15/28 1,542,150
1,200,000 BBB Central Suffolk Hospital Mortgage, Series A Refunding,
5.875% due 11/1/05 1,158,000
1,000,000 AAA Hospital and Nursing Home, FHA-Insured, Series B,
8.00% due 2/15/28 1,082,500
</TABLE>
See Notes to Financial Statements.
12
<PAGE>208
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Hospital -- 16.0% (continued)
$ 1,500,000 AA Hospital and Nursing Home, (Methodist Hospital
Brooklyn), FHA-Insured, 6.70% due 8/15/23 $ 1,554,375
2,000,000 AAA Hospital and Nursing Home, FHA-Insured, 6.40%
due 8/15/14 2,075,000
1,845,000 AAA Hospital and Nursing Home, Series B, FHA-Insured,
5.50% due 2/15/22 1,672,030
485,000 AAA Mental Health Services Facilities Improvement,
MBIA-Insured, 7.75% due 2/15/20 531,075
1,000,000 AAA Mental Health Services Facilities, Series A,
MBIA-Insured, 6.00% due 2/15/25 980,000
2,000,000 AAA Mental Health Services Facilities, Series D,
FGIC-Insured, 5.25% due 8/15/23 1,752,500
500,000 AA Nursing Home Insured Mortgage
(St. Vincent's Medical Center), FHA-Insured,
8.00% due 2/15/27 545,625
1,500,000 AAA St. Luke's - Roosevelt Hospital, Series A, Refunding,
FHA-Insured, 5.625% due 8/15/18 1,383,750
550,000 BBB Onondaga County Industrial Development Agency
Civic Facility Revenue Bonds, 1993 Series B,
6.625% due 1/1/18 528,685
------------------------------------------------------------------------------------------------------
14,805,690
------------------------------------------------------------------------------------------------------
Housing: Multi-Family -- 4.8%
New York State Housing Financing Agency, Multi-Family:
1,000,000 AAA Series 1993 A, FSA-Insured, zero coupon
due 11/1/08 (a) 440,000
500,000 AA Second Mortgage, PG-A, 7.00% due 8/15/12 (a) 521,875
500,000 AA Second Mortgage, PG-A, 7.05% due 8/15/24 (a) 513,125
1,000,000 A* Rensselear Multi-Family Housing Mortgage Revenue,
Rensselear Elderly Housing Apartments, 7.75%
due 1/1/11 1,055,000
2,000,000 Aa* UFA Development Corp., New York Mortgage Revenue,
Loretto Utica Project, Series 1993, FSA-Insured,
5.75% due 7/1/13 1,890,000
------------------------------------------------------------------------------------------------------
4,420,000
------------------------------------------------------------------------------------------------------
Housing: Single-Family -- 1.6%
State of New York Mortgage Agency:
320,000 Aa* Eighth Series E, 8.10% due 10/1/17 338,000
</TABLE>
See Notes to Financial Statements.
13
<PAGE>209
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Housing: Single-Family -- 1.6% (continued)
$ 165,000 Aa* Homeowner Mortgage Revenue, Series HH-1, 8.25%
due 4/1/22 (a) $ 176,345
860,000 Aa* Homeowner Mortgage Revenue, Series SS, 7.95%
due 10/1/22 (a) 923,425
------------------------------------------------------------------------------------------------------
1,437,770
------------------------------------------------------------------------------------------------------
Industrial Development -- 11.8%
355,000 NR Albany County IDA (Historic Hudson River Heritage
Office Building), 9.50% due 12/1/95 365,650
1,300,000 A1* Grand Central, District Management Association
Refunding-Business Import District-Capital, 5.125%
due 1/1/14 1,142,375
500,000 BBB+ Monroe County, IDA Public Improvement
(Canal Ponds Park) Series A, 7.00% due 6/15/13 532,500
New York City IDA:
1,000,000 AA Civic Facility Revenue (The Lighthouse Project),
LOC Barclays Bank, 6.375% due 7/1/10 1,006,250
955,000 Aa1* Prime Laboratories Inc. Industrial Development
Revenue, LOC Algamene Bank Nederland, NV,
7.70% mandatory tender 11/1/00 (a) 981,260
1,450,000 Baa3* Special Facility Revenue (American Airlines Inc.
Project), 8.00% due 7/1/20 (a) 1,520,690
2,000,000 A Special Facilities Revenue, Terminal One Group
Association Project, 6.00% due 1/1/24 1,912,500
1,000,000 AAA Onondaga County IDA Sewer Facilities Revenue,
(Bristol-Myers Squibb Co. Project), 5.75%
due 3/1/24 (a) 947,500
1,410,000 A- Rensselear County, IDA (Albany International Corp.),
7.55% due 6/1/07 (a) 1,508,700
1,000,000 AA Town of Hempstead IDA Industrial Development
Revenue Bonds (1990 Nassau District Energy
Corp. Project), LOC Toronto Dominion Bank,
7.75% due 9/15/15 (a) 1,040,000
------------------------------------------------------------------------------------------------------
10,957,425
------------------------------------------------------------------------------------------------------
Miscellaneous -- 1.0%
1,000,000 Baa1* New York State HFA Service Contract, Series C, Refunding,
5.875% due 9/15/14 941,250
------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>210
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Nursing Home -- 4.0%
$ 990,000 Aa* State Medical Care Facilities Finance Agency Hospital
& Nursing Home Insured Mortgage Series B,
FHA-Insured, 7.00% due 8/15/32 $ 1,033,310
750,000 AAA Syracuse Industrial Development Authority Mortgage
Revenue Refunding, Series 1991 (James Square
Association Nursing Home Facilities), FHA-Insured,
7.00% due 8/1/25 780,940
2,000,000 AA New York State Dormority Authority Revenue
(James G. Johnston Nursing Home Facilities),
FHA-Insured, 5.75% due 8/1/23 1,860,000
------------------------------------------------------------------------------------------------------
3,674,250
------------------------------------------------------------------------------------------------------
Pollution Control -- 2.2%
1,100,000 AAA State Energy and Research PCR (Central Hudson
Gas & Electric Corp. Project), Series B, FGIC-Insured,
7.375% due 10/1/14 (d) 1,190,750
1,000,000 AAA New York State Environmental Facilities Corporation,
Pollution Control Revenue, State Water-Revolution,
5.20% due 5/15/14 911,250
------------------------------------------------------------------------------------------------------
2,102,000
------------------------------------------------------------------------------------------------------
Power -- 2.0%
New York State Energy Research and Development Authority:
1,000,000 BB+ Electric Facilities Revenue (LILCO) 1992 Series A,
7.15% due 2/1/22 (a) 931,250
1,000,000 Aa2* Consolidated Edison Co. Project, 6.00% due 3/15/28 (a) 925,000
------------------------------------------------------------------------------------------------------
1,856,250
------------------------------------------------------------------------------------------------------
Pre-Refunded (e) -- 9.1%
200,000 AAA New York City GO (Escrowed with U.S. Government Securities
to 11/1/97 Call @ 101.5), 8.75% due 11/1/17 222,500
750,000 AAA New York City Municipal Water Finance Authority Water &
Sewer System (Escrowed with U.S. Government Securities
to 6/15/97 Call @ 102), 9.00% due 6/15/17 (d) 831,560
580,000 AAA New York State Housing Finance Agency, State University
Construction, Series A (Escrowed with U.S. Government
Securities to 11/1/96 Call @ 102), 8.00% due 11/1/16 613,350
800,000 AAA New York State Local Government Assistance Corp.,
Series D (Escrowed with U.S. Government Securities
to 4/1/02 Call @ 102), 7.00% due 4/1/18 902,000
</TABLE>
See Notes to Financial Statements.
15
<PAGE>211
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Pre-Refunded (e) -- 9.1% (continued)
$ 500,000 AAA New York State Urban Development Corporation
Revenue, Correctional Facilities (Escrowed with
U.S. Government Securities to 1/1/00 Call @ 100),
7.00% due 1/1/17, $ 550,625
500,000 AAA Hospital Insured Mortgage (Brooklyn, Caledonia and
Long Island College Hospitals), FHA-Insured (Escrowed
with U.S. Government Securities to 1/15/02 Call @ 102),
8.375% due 1/15/06 525,000
1,025,000 AAA Hospital Insured Mortgage Refunding Revenue
(Columbia Presbyterian Hospital) FHA-Insured
(Escrowed with U.S. Government Securities to 2/15/97
Call @ 102), 8.00% due 2/15/25 1,121,100
1,700,000 AAA St. Luke's Hospital-B, FHA-Insured (Escrowed with U.S.
Government Securities to 2/15/02 Call @ 102),
7.45% due 2/15/29 1,908,250
480,000 AAA Mental Health Services Facilities Improvement,
MBIA-Insured (Escrowed with U.S. Government Securities
to 2/15/00 Call @ 102), 7.75% due 2/15/20 544,800
1,000,000 AAA Orangetown Housing Authority, Rockland, (Senior Housing
Center), 1990 Series (Escrowed with U.S. Government
Securities to 4/1/00 Call @ 102), 7.60% due 4/1/30 1,136,250
100,000 AAA Puerto Rico Electric Power Authority (Escrowed with U.S.
Government Securities to 7/1/95 Call @ 103), 9.00%
due 7/1/05 104,180
------------------------------------------------------------------------------------------------------
8,459,615
------------------------------------------------------------------------------------------------------
Public Facilities -- 5.1%
1,000,000 A Albany Parking Authority New York Revenue Refunding
(Green and Hudson Street Garage) LOC Key Bank,
7.15% due 9/15/16 1,033,750
2,260,000 BBB+ New York State Dormitory Authority Court Facilities Lease
Revenue A, 5.50% due 5/15/23 1,980,325
1,500,000 Baa1* Triborough Bridge and Tunnel Authority, Convention
Center, 7.25% due 1/1/10 1,642,500
------------------------------------------------------------------------------------------------------
4,656,575
------------------------------------------------------------------------------------------------------
Retirement Communities (Continuing Care) -- 2.1%
New York State Dormitory Authority Revenue:
800,000 AA- Ideal Senior Living Center Housing Corporation,
FHA-Insured, 7.625% due 8/1/28 876,000
</TABLE>
See Notes to Financial Statements.
16
<PAGE>212
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Retirement Communities (Continuing Care) -- 2.1% (continued)
$ 990,000 AAA United Health Services Inc., 7.35% due 8/1/29 $ 1,053,113
------------------------------------------------------------------------------------------------------
1,929,113
------------------------------------------------------------------------------------------------------
Short-Term (b) -- 1.4%
700,000 A-1+ New York Energy Research and Development, Niagara
Mohawk, Series A, 4.05% due 7/1/15 700,000
600,000 VMIG1 New York City Municipal Water Finance Authority,
Series G, FGIC-Insured, 4.00% due 6/15/24 600,000
------------------------------------------------------------------------------------------------------
1,300,000
------------------------------------------------------------------------------------------------------
Solid Waste -- 2.5%
495,000 BBB+ Babylon IDA Resource Recovery (Ogden Martin Systems),
8.50% due 1/1/19 538,310
1,000,000 AAA Dutchess County Resource Recovery Agency, Solid Waste
Management System Revenue, Series 1990 A,
FGIC-Insured, 7.50% due 1/1/09 1,087,500
650,000 A- Town of Hempstead IDA Resource Recovery Revenue,
7.40% due 12/1/10 677,625
------------------------------------------------------------------------------------------------------
2,303,435
------------------------------------------------------------------------------------------------------
Transportation -- 10.5%
1,000,000 AAA Monroe County Airport Authority for Greater Rochester
Int'l, MBIA-Insured, 7.25% due 1/1/19 (a) 1,065,000
1,600,000 AAA Niagara Falls Bridge Authority Toll Revenue Series B,
FGIC-Insured, 5.25% due 10/1/15 1,448,000
1,000,000 A Puerto Rico Commonwealth Highway & Transportation
Authority Highway Revenue, Series W, Refunding,
5.50% due 7/1/13 927,500
500,000 Aa* Triborough Bridge and Tunnel Authority General Purpose
Revenue, 8.125% due 1/1/12 (d) 546,250
1,000,000 Baa1* Metropolitan Transit Authority New York, Commuter
Facilities, Series O, 5.75% due 7/1/13 941,250
2,000,000 Baa1* Metropolitan Transit Authority New York, Service
Contract Transportation Facilities, Series O, 5.75%
due 7/1/13 1,882,500
1,500,000 AAA New York State Thruway Authority, Series C,
FGIC-Insured, 6.00% due 1/1/25 1,479,375
1,650,000 Baa1* New York State Thruway Authority, Service Contract
Revenue, Local Highway & Bridges, 5.25% due 4/1/13 1,458,190
------------------------------------------------------------------------------------------------------
9,748,065
------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>213
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Schedule of Investments (continued) March 31, 1995
--------------------------------------------------------------------------------
NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY VALUE
======================================================================================================
<C> <C> <S> <C>
Utilities -- 2.9%
$ 1,500,000 A1* New York State Energy Reasearch and Development
Authority Facilities Revenue Bonds (The Brooklyn
Union Gas Co. Project), Series B RIBS, 9.413%
due 7/15/26 (a)(c) $ 1,651,875
1,000,000 Aa3* New York State Energy Reasearch and Development
Authority Facilities Revenue Bonds (The Con Edison
Co. Project), 7.125% due 12/1/29 (a) 1,063,750
------------------------------------------------------------------------------------------------------
2,715,625
------------------------------------------------------------------------------------------------------
Water & Sewer -- 6.0%
1,000,000 AAA Nassau County Sewer Districts, Series E, Refunding,
MBIA-Insured, 5.40% due 5/1/10 975,000
2,000,000 AAA New York City Municipal Water Finance Authority
Systems Revenue Series B, AMBAC-Insured,
5.375% due 6/15/19 1,817,500
2,000,000 AAA New York City Muni Water Finance Authority, Water &
Sewage System Revenue, Capital Appreciation,
Series A, zero coupon due 6/15/11 760,000
1,240,000 AAA Clifton Park, New York Water Authority Water Systems
Revenue, FGIC-Insured, 5.00% due 10/1/14 1,098,950
1,000,000 AAA Suffolk County Water Authority Water Works Revenue,
SR Lien, Refunding, MBIA-Insured, 5.10% due 6/1/09 927,500
------------------------------------------------------------------------------------------------------
5,578,950
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100% (Cost - $89,336,377)(g) $92,507,288
======================================================================================================
<FN>
(a) Income from these issues is considered a preference item for purposes of
calculating the alternative minimum tax.
(b) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
(c) Residual interest bonds -- coupon varies inversely with level of
short-term tax-exempt interest rates.
(d) Securities segregated by Custodian for open purchase commitment.
(e) Pre-refunded bonds escrowed by U.S. Government Securities and bonds escrowed
to maturity by U.S. Government Securities are considered by manager to be
triple-A rated even if issuer has not applied for new ratings.
(f) Variable rate obligations payable at par on demand on the date indicated.
(g) The cost for Federal income tax purposes is substantially the same.
+ Security has not been rated by either Moody's Investors Services or
Standard & Poors, however, the portfolio manager has determined the
equivalent rating to be MIG 1.
++ Security has not been rated by either Moody's Investors Services or
Standard & Poors, however, the portfolio manager has determined the
equivalent rating to be VMIG 1.
# Security has not been rated by either Moody's Investors Services or
Standard & Poors, however, the portfolio manager has determined the
equivalent rating to be MIG 2.
See pages 19 and 20 for definitions of ratings and certain security
descriptions.
</TABLE>
See Notes to Financial Statements.
18
<PAGE>214
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Bond Ratings
--------------------------------------------------------------------------------
All ratings are by Standard & Poor's Corporation, except those identified by an
asterisk (*) that are by Moody's Investors Services. The definitions of the
applicable rating symbols are set forth below:
Standard & Poor's -- Rating from "AA" to "BB" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standings within the major rating
categories.
AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. 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 highest rated issue only in a 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 an 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.
BB -- Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to meet
timely interest and principal payments.
Moody's -- Numerical modifiers 1, 2 and 3 may be applied to each generic rating
from "Aa" to "Baa", where 1 is the highest and 3 the lowest ranking
within its generic category.
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.
NR -- Indicates that the bond is not rated by Standard & Poor's
Corporation or Moody's Investors Services.
19
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Smith Barney Muni Funds
--------------------------------------------------------------------------------
Short-Term Security Ratings
--------------------------------------------------------------------------------
SP-1 -- Standard & Poor's highest rate rating indicating very strong or
strong capacity to pay principal and interest; those issues
determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable rate demand
obligation (VRDO) rating indicating 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.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior
to the advent of the VMIG 1 rating.
MIG 1 -- Moody's highest rating for short-term municipal obligations.
MIG 2 -- Moody's second highest rating for short-term municipal obligations.
--------------------------------------------------------------------------------
Security Descriptions
--------------------------------------------------------------------------------
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
COP -- Certificate of Participation
ETM -- Escrowed to Maturity
FAIRS -- Floating Adjustable Interest Rate Securities
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
IRB -- Industrial Revenue Bonds
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCFA -- Pollution Control Financing Authority
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bond
TRAN -- Tax and Revenue Anticipation Notes
VRDD -- Variable Rate Demand Note
VRWE -- Variable Rate Wednesday Demand
20
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Smith Barney Muni Funds
--------------------------------------------------------------------------------
Statements of Assets and Liabilities March 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New York Money New York
Market Portfolio Portfolio
=============================================================================================================
<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $704,512,914
and $89,336,377) $704,512,914 $92,507,288
Cash 15,227 35,807
Receivable for securities sold 12,500,815 110,000
Receivable for Fund shares sold -- 65,147
Interest receivable 6,648,531 1,503,845
Other assets -- 4,269
-------------------------------------------------------------------------------------------------------------
Total Assets 723,677,487 94,226,356
-------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 13,576,333 1,608,818
Payable for Fund shares purchased -- 53,102
Management fees payable 288,153 35,167
Distribution costs payable 22,634 52,282
Dividends payable 1,199,789 --
Accrued expenses and other liabilities 199,789 --
-------------------------------------------------------------------------------------------------------------
Total Liabilities 15,286,698 1,749,369
-------------------------------------------------------------------------------------------------------------
Total Net Assets $708,390,789 $92,476,987
=============================================================================================================
NET ASSETS:
Par value of capital shares $ 708,690 $ 7,206
Capital paid in excess of par value 707,981,892 90,605,201
Undistributed net investment income -- 3,788
Accumulated net realized loss on security
transactions (299,793) (1,310,119)
Net unrealized appreciation of investments -- 3,170,911
-------------------------------------------------------------------------------------------------------------
Total Net Assets $708,390,789 $92,476,987
=============================================================================================================
Shares Outstanding:
Class A 708,690,582 6,449,188
-------------------------------------------------------------------------------------------------------------
Class B -- 296,936
-------------------------------------------------------------------------------------------------------------
Class C -- 459,653
-------------------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $1.00 $12.83
-------------------------------------------------------------------------------------------------------------
Class B * -- $12.84
-------------------------------------------------------------------------------------------------------------
Class C ** -- $12.83
-------------------------------------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.17% of net asset value per share) $13.36
=============================================================================================================
<FN>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed less than one year from initial purchase. This CDSC declines by
0.50% the first year after purchase and then by 1.00% per year thereafter
until no CDSC is incurred.
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC which
applies if shares are redeemed within the first year of purchase.
</TABLE>
See Notes to Financial Statements.
21
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Smith Barney Muni Funds
--------------------------------------------------------------------------------
Statements of Operations For the Year Ended March 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New York Money New York
Market Portfolio Portfolio
===================================================================================================
<S> <C> <C>
INVESTMENT INCOME:
Interest $11,072,590 $ 5,532,297
---------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 4) 1,525,102 373,385
Distribution costs (Note 4) 305,688 108,252
Shareholder communications fees 80,854 18,002
Shareholder servicing agent fees 75,155 22,513
Insurance 20,000 401
Registration fees 12,844 8,001
Custodian fees 10,000 8,001
Pricing service fees 10,000 12,001
Trustees' fees 9,582 3,953
Audit and legal fees 5,528 9,201
Other 14,706 3,425
---------------------------------------------------------------------------------------------------
Total Expenses 2,069,459 567,135
---------------------------------------------------------------------------------------------------
Net Investment Income 9,003,131 4,965,162
---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized Gain (Loss) From Security Transactions
(excluding short-term securities*):
Proceeds from sales 41,067,764 24,732,296
Cost of securities sold 41,060,813 25,536,566
---------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) 6,951 (804,270)
---------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year -- 1,984,609
End of year -- 3,170,911
---------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation -- 1,186,302
---------------------------------------------------------------------------------------------------
Net Gain on Investments 6,951 382,032
---------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 9,010,082 $ 5,347,194
===================================================================================================
<FN>
* Represents only short-term securities for the New York Money Market Portfolio.
----
</TABLE>
See Notes to Financial Statements.
22
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Smith Barney Muni Funds
--------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended March 31,
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New York New York
Money Market Portfolio Portfolio
------------------------ -----------------------
1995 1994 1995 1994
=========================================================================================================================
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 9,003,131 $ 1,195,788 $ 4,965,162 $ 4,272,540
Net realized gain (loss) from
security transactions 6,951 (1,844) (804,270) 280,945
Increase (decrease) in net unrealized
appreciation of investments -- -- 1,186,302 (3,198,744)
-------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets
From Operations 9,010,082 1,193,944 5,347,194 1,354,741
-------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM (NOTE 3):
Net investment income (8,962,020) (1,195,788) (5,027,432) (4,309,218)
-------------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (8,962,020) (1,195,788) (5,027,432) (4,309,218)
-------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares 1,427,039,238 291,171,028 34,196,422 26,634,117
Net asset value of shares issued
in connection with the transfer
of the Smith Barney Shearson
New York Municipal Money
Market Fund net assets 605,236,129 -- -- --
Net asset value of shares issued
for reinvestment of dividends 8,014,448 1,147,229 2,496,848 2,169,990
Cost of shares reacquired (1,414,406,279) (269,367,048) (22,088,943) (11,196,380)
-------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 625,883,536 22,951,209 14,604,327 17,607,727
-------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets 625,931,598 22,949,365 14,924,089 14,653,250
NET ASSETS:
Beginning of year 82,459,191 59,509,826 77,552,898 62,899,648
-------------------------------------------------------------------------------------------------------------------------
End of year * $ 708,390,789 $ 82,459,191 $ 92,476,987 $ 77,552,898
=========================================================================================================================
* Includes undistributed
net investment income of: -- -- $3,788 $66,058
=========================================================================================================================
</TABLE>
See Notes to Financial Statements.
23
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Smith Barney Muni Funds
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The New York Money Market and New York Portfolios ("Portfolios") are
separate investment portfolios of the Smith Barney Muni Funds ("Fund"). The
Fund, a Massachusetts business trust, is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, open-end management investment
company and consists of these Portfolios and eleven other separate investment
portfolios: California, Florida, Georgia, New Jersey, Ohio, Pennsylvania,
Limited Term, National, California Limited Term, Florida Limited Term and
California Money Market Portfolios. The financial statements and financial
highlights for the other portfolios are presented in separate annual reports.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on the trade date; (b)
securities are valued at bid prices provided by an independent pricing service
that are based on transactions in municipal obligations, quotations from
municipal bond dealers, market transactions in comparable securities and various
relationships between securities; short-term securities and securities maturing
within 60 days are valued at cost plus (minus) accreted discount (amortized
premium), which approximates value; (c) gains or losses on the sale of
securities are calculated by using the specific identification method; (d)
interest income, adjusted for amortization of premiums and accretion of original
issue discount, is recorded on the accrual basis; market discount is recognized
upon the disposition of the security; (e) direct expenses are charged to each
Portfolio and each class; management fees and general fund expenses are
allocated on the basis of relative net assets; and (f) the Portfolios intend to
comply with the requirements of the Internal Revenue Code pertaining to
regulated investment companies and to make the required distributions to
shareholders; therefore, no provision for Federal income taxes has been made.
2. Portfolio Concentration
Since each Portfolio invests primarily in obligations of issuers within New
York, it is subject to possible concentration risks associated with economic,
political, or legal developments or industrial or regional matters specifically
affecting New York.
3. Exempt-Interest Dividends and Other Distributions
The New York Money Market Portfolio declares and records a dividend of
substantially all its net investment income on each business day. Such dividends
are paid or reinvested monthly in Portfolio shares on the payable date.
Furthermore, the Portfolios intend to satisfy conditions that will enable
interest from municipal securities, which is exempt from
24
<PAGE>220
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Federal income tax and from designated state income taxes, to retain such tax-
exempt status when distributed to the shareholders of the Portfolio.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually. At March 31, 1995, the New York Money
Market and New York Portfolios had net capital loss carryovers of $299,793 and
$1,310,119, respectively, available to offset future capital gains. To the
extent that these carryover losses are used to offset capital gains it is
probable that any gains so offset will not be distributed. The amount and
expiration of the carryovers are indicated below. Expiration occurs on March 31
of the year indicated.
<TABLE>
1997 1998 2002 2003
==========================================================================================
<S> <C> <C> <C> <C>
New York Money Market Portfolio -- -- $2,166 $297,627
New York Portfolio $427,106 $78,743 -- 804,270
==========================================================================================
</TABLE>
4. Management Agreements and Transactions with Affiliated Persons
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment manager to the Fund. The New
York Money Market and New York Portfolios pay SBMFM a management fee calculated
at the annual rate of 0.50% and 0.45%, respectively, of their average daily net
assets. Such fees are calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares. SB received sales charges of approximately $176,000 (paid by
purchasers of the New York Portfolio's Class A shares) for the year ended March
31, 1995. All officers and two trustees of the Fund are employees of SB.
Effective November 7, 1994, the Fund adopted a new class structure,
renaming Class B shares as Class C shares and exchanging the former Class C
shares into Class A shares. Under this new class structure, a contingent
deferred sales charge ("CDSC") of 4.50% is imposed on Class B shares if
redemption occurs less than one year from initial purchase. This CDSC declines
by 0.50% the first year after purchase and by 1.00% per year thereafter until no
CDSC is incurred. A CDSC of 1.00% is also imposed on Class C shares if
redemption occurs less than one year from initial purchase. Any CDSC imposed on
redemptions is paid to SB. For the year ended March 31, 1995, there were
approximately $8,000 in such charges.
On September 16, 1994, a new Distribution Plan was approved by the
shareholders. Pursuant to this Distribution Plan, the New York Portfolio
25
<PAGE>221
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
pays a service fee of 0.15% of average net assets on an annual basis with
respect to its Class A, B and C shares. In addition, the New York Portfolio pays
a distribution fee of 0.50% and 0.55% of average net assets on an annual basis
with respect to its Class B and C shares, respectively. The New York Money
Market Portfolio pays for distribution related services at the annual rate of
0.10% of average net assets.
5. Investments
During the year ended March 31, 1995, the aggregate cost of purchases and
proceeds from sales (including maturities, but excluding short-term securities)
of investments were as follows:
<TABLE>
<CAPTION>
New York Money New York
Market Portfolio Portfolio
===============================================================================
<S> <C> <C>
Purchases -- $39,675,740
-------------------------------------------------------------------------------
Sales -- 24,732,296
===============================================================================
</TABLE>
At March 31, 1995, the gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were as follows:
<TABLE>
<CAPTION>
New York Money New York
Market Portfolio Portfolio
==============================================================================
<S> <C> <C>
Gross unrealized appreciation -- $4,149,642
Gross unrealized depreciation -- (978,731)
------------------------------------------------------------------------------
Net unrealized appreciation -- $3,170,911
==============================================================================
</TABLE>
6. Transfer of Assets
On November 18, 1994 the net assets of the Smith Barney Shearson New York
Municipal Money Market Fund were merged into the New York Money Market Portfolio
pursuant to an Agreement and Plan of Reorganization dated August 2, 1994.
The transaction was structured for tax purposes to qualify as a tax-free
reorganization under the Internal Revenue Code. The Smith Barney Shearson New
York Municipal Money Market Fund net assets at that date were $605,236,129.
Directly after the merger the combined net assets were $690,110,795 for the New
York Money Market Portfolio.
7. Capital Shares
At March 31, 1995, there were an unlimited amount of shares of $.001 par
value capital stock authorized. The Fund has multiple classes of shares within
each Portfolio of the Fund. Each share of a class represents an identical
interest in its respective Portfolio and has the same rights, except
26
<PAGE>222
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
that each class bears certain expenses specifically related to the distribution
of its shares. At March 31, 1995, total paid-in capital amounted to the
following for each class and respective Portfolio:
<TABLE>
<CAPTION>
Portfolio Class A Class B Class C
====================================================================================
<S> <C> <C> <C>
New York Money Market $708,690,582 -- --
New York 80,788,614 $3,634,969 $6,188,824
====================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1995 March 31, 1994
New York ------------------------ ------------------------
Money Market Portfolio Shares Amount Shares Amount
============================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 1,427,039,238 $1,427,039,238 291,171,028 $291,171,028
Transfer from Smith Barney
Shearson New York Municipal
Money Market Fund 605,581,400 605,581,400 -- --
Shares issued on reinvestment 8,014,448 8,014,448 1,147,229 1,147,229
Shares redeemed (1,414,406,279) (1,414,406,279) (269,367,048) (269,367,048)
--------------------------------------------------------------------------------------------
Net Increase 626,228,807 $ 626,228,807 22,951,209 $ 22,951,209
============================================================================================
New York Portfolio
============================================================================================
Class A*
Shares sold 2,286,499 $ 28,645,014 1,441,586 $ 19,534,054
Shares issued on reinvestment 177,827 2,228,332 149,103 2,014,647
Shares redeemed (1,632,862) (20,362,510) (775,166) (10,434,944)
--------------------------------------------------------------------------------------------
Net Increase 831,464 $ 10,510,836 815,523 $ 11,113,757
============================================================================================
Class B+
Shares sold 300,125 $ 3,675,800 -- --
Shares issued on reinvestment 2,867 35,862 -- --
Shares redeemed (6,056) (76,693) -- --
--------------------------------------------------------------------------------------------
Net Increase 296,936 $ 3,634,969 -- --
============================================================================================
Class C++
Shares sold 148,675 $ 1,875,608 361,749 $ 4,900,052
Shares issued on reinvestment 18,547 232,654 9,425 127,261
Shares redeemed (133,522) (1,649,740) (48,452) (656,328)
--------------------------------------------------------------------------------------------
Net Increase 33,700 $ 458,522 322,722 $ 4,370,985
============================================================================================
<FN>
* On October 10, 1994 the former Class C shares were exchanged into Class A
shares; therefore the Class C share activity for the period April 1, 1994 to
October 9, 1994 is included with the Class A share activity. The year ended
March 31, 1994 includes only Class A share activity.
+ For the period from November 11, 1994 (inception date) to March 31, 1995.
++ On November 7, 1994 the former Class B shares were renamed Class C shares.
</TABLE>
27
<PAGE>223
Smith Barney Muni Funds
New York Money Market Portfolio
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Shares: 1995 1994 1993(a)
=================================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $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 Year $1.00 $1.00 $1.00
-------------------------------------------------------------------------------------------------
Total Return 2.49% 1.77% 1.01%++
-------------------------------------------------------------------------------------------------
Net Assets, End of Year (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 +
=================================================================================================
<FN>
(a) For the period from September 17, 1992 (inception date) 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.
++ Not annualized, as the result may not be representative of the total
return for the year.
+ Annualized.
</TABLE>
28
<PAGE>224
Smith Barney Muni Funds
New York Portfolio
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class A Shares (a) 1995 1994 1993 1992 1991
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.83 $13.25 $12.33 $11.80 $11.67
------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (1) 0.76 0.78 0.81 0.83 0.85
Net realized and unrealized gain (loss)
on investments (2) 0.01 (0.41) 0.92 0.51 0.13
------------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations 0.77 0.37 1.73 1.34 0.98
------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income (0.77) (0.79) (0.81) (0.81) (0.85)
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.77) (0.79) (0.81) (0.81) (0.85)
------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.83 $12.83 $13.25 $12.33 $11.80
------------------------------------------------------------------------------------------------------------------
Total Return 6.32% 2.66% 14.48% 11.98% 8.74%
------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $82,768 $70,065 $61,532 $40,370 $33,158
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses (1) 0.63% 0.55% 0.55% 0.48% 0.28%
Net investment income 6.00 5.79 6.32 6.86 7.31
------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 30.38% 19.65% 21.91% 23.80% 69.75%
==================================================================================================================
Class B Shares 1995(b)
==================================================================================================================
Net Asset Value, Beginning of Year $11.96
------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.31
Net realized and unrealized gain
on investments (2) 0.86
------------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations 1.17
------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income (0.29)
------------------------------------------------------------------------------------------------------------------
Total Distributions (0.29)
------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.84
------------------------------------------------------------------------------------------------------------------
Total Return 9.92%++
------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $3,813
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.27%+
Net investment income 5.76+
------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 30.38%
==================================================================================================================
<FN>
(a) On October 10, 1994, the former Class C shares were exchanged into Class
A shares.
(b) For the period from November 11, 1994 (inception date) to March 31, 1995.
(1) The manager has waived all or part of its fees for each of the years in the
two-year period ended March 31, 1992. If such fees were not waived, the per
share decrease of net investment income would have been $0.007 and $0.031
for 1992 and 1991, respectively, and the ratio of expenses to average net
assets would have been 0.53% and 0.50% for 1992 and 1991, respectively. 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.
++ Not annualized, as the result may not be representative of the total
return for the year.
+ Annualized.
</TABLE>
29
<PAGE>225
Smith Barney Muni Funds
New York Portfolio
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Class C Shares (a) 1995 1994 1993(b)
================================================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $12.82 $13.24 $12.84
----------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.68 0.68 0.15
Net realized and unrealized gain (loss) on investments (2) 0.01 (0.40) 0.37
----------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations 0.69 0.28 0.52
----------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income (0.68) (0.70) (0.12)
----------------------------------------------------------------------------------------------------------------
Total Distributions (0.68) (0.70) (0.12)
----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.83 $12.82 $13.24
----------------------------------------------------------------------------------------------------------------
Total Return 5.66% 1.96% 4.04%++
----------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $5,896 $5,461 $1,368
----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.28% 1.23% 1.23%+
Net investment income 5.38 4.98 5.37 +
----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 30.38% 19.65% 21.91%
================================================================================================================
<FN>
(a) On November 7, 1994 the former Class B shares were renamed Class C
shares.
(b) For the period from January 8, 1993 (inception date) to March 31, 1993.
(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.
++ Not annualized, as the result may not be representative of the total
return for the year.
+ Annualized.
</TABLE>
30
<PAGE>226
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Independent Auditors' Report
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of the New York Money Market and
New York Portfolios of Smith Barney Muni Funds:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the New York Money Market and New
York Portfolios of Smith Barney Muni Funds as of March 31, 1995, the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended and the
financial highlights for each of the years in the two-year period then ended and
the period from September 17, 1992 (commencement of operations) to March 31,
1993 with respect to the New York Money Market Portfolio and each of the years
in the five-year period then ended with respect to the New York Portfolio. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1995, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
31
<PAGE>227
Smith Barney Muni Funds
--------------------------------------------------------------------------------
Independent Auditors' Report (continued)
--------------------------------------------------------------------------------
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the New York Money Market
and New York Portfolios of Smith Barney Muni Funds as of March 31, 1995, the
results of their operations for the year then ended, the changes in net assets
for each of the years in the two-year period then ended and the financial
highlights for each of the years in the two-year period then ended and the
period from September 17, 1992 (commencement of operations) to March 31, 1993
with respect to the New York Money Market Portfolio and for each of the years in
the five-year period then ended with respect to the New York Portfolio, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
May 15, 1995
32
<PAGE>228
SMITH BARNEY
------------
A Member of Travelers Group [LOGO APPEARS HERE]
Smith Barney
Muni Funds
Trustees
Jessica M. Bibliowicz
Ralph D. Creasman
Joseph H. Fleiss
Donald R. Foley
Paul Hardin
Francis P. Martin, M.D.
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
C. Richard Youngdahl
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Peter M. Coffey
Vice President
Karen L. Mahoney-Malcomson
Vice President
Daniel Malone
Vice President
Irving P. David
Controller
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Manager
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of the shareholders of
Smith Barney Muni Funds New York Money Market and New York Portfolios. It is not
authorized for distribution to prospective investors unless accompanied or
preceded by a current Prospectus for the Portfolios, which contains information
concerning the Portfolios' investment policies and expenses as well as other
pertinent information.
Smith Barney Muni Funds
388 Greenwich Street
New York, New York 10013
FD2306 E5 82107
<PAGE>229
ANNUAL REPORT
OF
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
<PAGE>230
[Small box above fund name showing
the Empire State building.]
SMITH BARNEY
NEW YORK
1994 MUNICIPALS
Annual FUND INC.
Report
......................................
December 31, 1994
[LOGO OF SMITH BARNEY Smith Barney Mutual Funds
MUTUAL FUNDS APPEARS Investing for your future.
HERE] Every day.
<PAGE>231
-----------------------------
New York Municipals Fund Inc.
-----------------------------
Dear Shareholder:
This past year was one of great disappointments and difficulties for
investors in the tax-exempt market. 1994 began with great expectations: both
interest rates and bond issuance were low, which should have portended
another good performance year for the municipal market. The first blow to
these expectations was dealt in February by the Federal Reserve's first
interest rate increase in five years. The goal of this and the five following
increases in the Federal Fund's rate was to slow the pace of economic growth
and forestall a feared increase in the rate of inflation. Each increase in
short-term interest rates resulted in an increase in long-term rates and
downward pressure on the price of municipal bonds. As the year progressed and
prices for bonds continued to decline, selling pressures increased and in
turn put additional downward pressure on the tax-exempt market. The Fund was
not immune to this difficult market environment and ended the year with a
negative total return.
The year 1994 was also noteworthy because the Republican party regained
control of both houses of Congress as well as 30 state legislatures. New
York, of course, contributed to this trend in the gubernatorial election of
Republican George Pataki. He, like most victors this past November, ran on a
campaign platform that stressed less government spending and a reduction in
the state's high personal income tax rate. It is still too early to tell if
and when Governor Pataki will be able to achieve this mandate since state tax
receipts have been weak and the state has a potentially high budget deficit.
It is our belief that the investment climate in 1995 is likely to be more
positive than it was in 1994. We think that the Federal Reserve has been
successful in controlling inflation and will therefore no longer need to
raise interest rates, which should help stabilize the fixed income markets.
The supply/demand balance of the municipal market will be a very important
contributor to its stability and stronger performance in 1995. Estimates call
for a substantial reduction in the amount of new issuance in 1995, while at
the same time a large amount of older, higher-coupon debt will be either
called or matured from the market. Demand for tax-free bonds should continue
to be strong, especially in high-tax states such as New York, which should
lead to strong bond prices.
On the budget front, both New York State and New York City have recently
announced that they are facing large budget deficits because of an acute
slowdown in tax receipts. Mayor Giuliani recently announced extensive
reductions in employment and social service spending programs that should
enable him to balance the City's budget. Governor Pataki, in his recent State
of the State budget message, called for the elimination of 11,000 state jobs
and significant reductions in spending to reflect the state's financial
situation. Governor Pataki also indicated that the state and its agencies
will be reducing
1
<PAGE>232
its bond issuance in 1995 in order to avert a downgrade in the state's debt
rating. This alone will be a positive for the New York municipal market since it
will not have to absorb large, deficit-financing bond issuance. Our outlook for
New York is quite positive as the governor and the legislature work together
between now and the April 1 budget deadline to curtail spending and increase tax
receipts which will improve the overall financial health of the Empire State.
Portfolio Summary
In response to the Federal Reserve's policy of higher short-term interest
rates and declining prices in the New York tax-exempt market, our investment
strategy has been to keep the Fund's average maturity at approximately 22
years, which enabled the Fund to maximize its tax-exempt income. At the end
of this reporting period, nearly 95% of the Fund's assets were invested in
municipal bonds rated as investment grade by Standard & Poor's Corporation or
Moody's Investors Service, Inc. These high quality investments provide the
portfolio with greater protection against credit risk and are also more
liquid. The majority of the Fund's holdings were in general obligation,
hospital, housing and education.
We appreciate your confidence during the difficult investment environment of
1994, and join you in looking forward to a more benign 1995. Should you have
any questions about your investment in the Fund or how other Smith Barney
mutual funds may help you reach your financial goals, please speak with your
Smith Barney Financial Consultant.
Sincerely,
/s/ Heath B. McLendon /s/ Lawrence T. McDermott
Heath B. McLendon Lawrence T. McDermott
Chairman of the Board Vice President and
Investment Officer
February 20, 1995
--------------------------------------------------------------------------------
DIVIDEND POLICY
--------------------------------------------------------------------------------
Although not explicitly stated in the prospectus, the Fund's policy is to pay a
level monthly dividend based on our projections for the municipal bond market
and the general direction of interest rates. This policy has no appreciable
affect on the Fund's investment strategies or net asset value per share since
it is guided by market conditions. It means that we do not invest in more
speculative securities that may undermine the Fund's net asset value per share
in order to maintain an unrealistically high dividend policy. We continually
monitor both the market and the Fund's income stream to see that our dividend
projections are realistic.
--------------------------------------------------------------------------------
2
<PAGE>233
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Portfolio Highlights (unaudited) December 31, 1994
--------------------------------------------------------------------------------
Industry Breakdown
[PIE CHART APPEARS HERE]
Pie chart depicting the allocation of the New York Municipals Fund investment
securities held at December 31, 1994 by industry classification. The pie is
broken in pieces representing industries in the following percentages:
<TABLE>
<CAPTION>
Industry Percentage
<S> <C>
Net Other Assets and Liabilities 0.6%
Other 4.1%
Education 11.7%
Housing 17.2%
Hospital 20.7%
Transportation 7.5%
Pollution Control 3.9%
Industrial Control 3.8%
Utility Revenue 9.7%
General Obligations 20.8%
</TABLE>
Summary of Municipal Bonds and Notes
by Combined Ratings
<TABLE>
<CAPTION>
Standard & Percent
Moody's Poor's of Value
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA 28.0
Aa AA 16.3
A A 24.0
Baa or BBB 26.5
Ba BB 2.6
B B 0.4
NR NR 2.2
-----
100.0%
</TABLE>
Average Maturity: 22.91 years
3
<PAGE>234
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Historical Performance -- Class A Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Net Asset Value Dividends Return of Total
December 31, Beginning Ending Capital Gain Paid Capital Return*
========================================================================================
<S> <C> <C> <C> <C> <C> <C>
1985 $13.90 $15.48 $ -- $ 1.24 -- 21.03%
----------------------------------------------------------------------------------------
1986 15.48 16.71 0.29 1.20 -- 18.13
----------------------------------------------------------------------------------------
1987 16.71 15.37 0.01 1.14 -- (1.09)
----------------------------------------------------------------------------------------
1988 15.37 15.97 -- 1.16 -- 11.82
----------------------------------------------------------------------------------------
1989 15.97 16.26 -- 1.13 -- 9.18
----------------------------------------------------------------------------------------
1990 16.26 15.94 -- 1.16 -- 5.41
----------------------------------------------------------------------------------------
1991 15.94 16.77 -- 1.16 -- 12.98
----------------------------------------------------------------------------------------
1992 16.77 17.12 0.03 1.12 $ 0.01 9.36
----------------------------------------------------------------------------------------
1993 17.12 17.68 0.23 1.03 -- 10.93
----------------------------------------------------------------------------------------
1994 17.68 15.44 0.10 0.99 -- (6.62)
========================================================================================
Total $0.66 $11.33 $ 0.01
========================================================================================
Cumulative Total Return - (1/1/85 through 12/31/94) 132.91%
========================================================================================
<FN>
* Figures assume reinvestment of all dividends and capital gains distributions
at net asset value and do not assume deduction of the sales charge
(maximum 4.00%).
</TABLE>
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS MONTHLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
--------------------------------------------------------------------------------
Average Annual Total Return** -- Class A Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge With Sales Charge***
================================================================================
<S> <C> <C>
Year Ended 12/31/94 (6.62)% (10.36)%
--------------------------------------------------------------------------------
Five Years Ended 12/31/94 6.17 5.31
--------------------------------------------------------------------------------
Ten Years Ended 12/31/94 8.82% 8.38%
================================================================================
<FN>
** All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value.
*** Average annual total return figures shown assume the deduction of the
maximum 4.00% sales charge.
NOTE: On November 6, 1992, existing shares of the Fund were designated
Class A and were subject to a maximum 4.50% front-end sales charge and an
annual service fee of 0.15% of the value of the average daily net assets
attributable to that class. Effective November 7, 1994, the front-end sales
charge for Class A shares was reduced to 4.00%. The figures in the above
table have been recalculated on the basis of this new sales charge. The
Fund's average annual rates of return would have been lower had service
fees been in effect prior to November 6, 1992.
</TABLE>
4
<PAGE>235
Growth of $10,000 invested in Class A Shares
of Smith Barney New York Municipals Fund Inc. vs. Lehman Brothers
Municipal Bond Index and Lipper New York Municipal Fund Average/+/
--------------------------------------------------------------------------------
December 31, 1984 -- December 31, 1994
[CHART APPEARS HERE]
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in New York Municipals
Fund Class A shares on December 31, 1984 through December 31, 1994 as compared
with the growth of a $10,000 investment in the Lehman Brothers Municipal Bond
Index and Lipper New York Municipal Fund Average. The plot points used to draw
the line graph were as follows:
<TABLE>
<CAPTION>
Growth of $10,000 Growth of $10,000
Investment in the Investment in the
Growth of $10,000 Lehman Brothers Lipper New York
Invested in Class A shares Municipal Bond Municipal Bond
Month Ended of the Fund Index Average
<S> <C> <C> <C>
11/84 $10,000 - -
12/84 $9,600 $10,000 $10,000
03/85 $10,016 $10,403 $10,408
06/85 $10,830 $11,275 $11,216
09/85 $10,744 $11,107 $11,149
12/85 $11,619 $12,005 $11,976
03/86 $12,698 $13,221 $12,939
06/86 $12,516 $13,139 $12,870
09/86 $13,146 $13,845 $13,446
12/86 $13,726 $14,323 $14,022
03/87 $14,059 $14,669 $14,373
06/87 $13,395 $14,271 $13,547
09/87 $13,011 $13,916 $13,096
12/87 $13,576 $14,538 $13,798
03/88 $13,966 $15,038 $14,170
06/88 $14,308 $15,329 $14,471
09/88 $14,745 $15,720 $14,890
12/88 $15,181 $16,013 $15,271
03/89 $15,224 $16,119 $15,334
06/89 $16,133 $17,073 $16,233
09/89 $16,118 $17,085 $16,171
12/89 $16,574 $17,742 $16,688
03/90 $16,591 $17,821 $16,613
06/90 $16,958 $18,237 $17,025
09/90 $16,912 $18,248 $16,918
12/90 $17,470 $19,035 $17,528
03/91 $17,901 $19,464 $17,941
06/91 $18,347 $19,880 $18,359
09/91 $19,130 $20,654 $19,241
12/91 $19,737 $21,347 $19,858
03/92 $19,866 $21,411 $19,879
06/92 $20,625 $22,224 $20,833
09/92 $21,179 $22,816 $21,337
12/92 $21,585 $23,231 $21,768
03/93 $22,342 $24,093 $22,677
06/93 $22,994 $24,882 $23,479
09/93 $23,676 $25,722 $24,257
12/93 $23,945 $26,083 $24,534
3/94 $22,610 $24,651 $23,081
6/94 $22,746 $24,924 $23,167
9/94 $22,830 $25,095 $23,201
12/94 $22,359 $24,734 $22,694
<FN>
+ Illustration of $10,000 invested in Class A shares on December 31, 1984
assuming deduction of the maximum 4.00% sales charge at the time of
investment and reinvestment of dividends and capital gains at net asset
value through December 31, 1994.
The Lehman Brothers Municipal Bond Index is comprised of approximately
21,000 bonds. The bonds are all investment grade, fixed rate, long term
(greater than two years) and are selected from issues larger than $50
million.
The Lipper New York Municipal Fund Average is composed of the Fund's
peer group of 83 mutual funds.
Index information is available at month-end only; therefore, the
closest month-end to inception date of the Fund has been used.
Note: All figures cited here represent past performance and do not
guarantee future results.
For a glossary of terms, please turn to the end of this report.
</TABLE>
5
<PAGE>236
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Historical Performance -- Class B Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Net Asset Value Capital Gains Dividends Total
December 31, Beginning Ending Distributed Paid Return*
=====================================================================================
<S> <C> <C> <C> <C> <C>
11/6/92 - 12/31/92 $16.93 $17.12 $0.03 $0.15 2.23%
-------------------------------------------------------------------------------------
1993 17.12 17.68 0.23 0.95 10.33
-------------------------------------------------------------------------------------
1994 17.68 15.44 0.10 0.90 (7.17)
-------------------------------------------------------------------------------------
Total $0.36 $2.00
=====================================================================================
Cumulative Total Return from 11/06/92 through 12/31/94 4.70%
=====================================================================================
<FN>
* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value and do not assume deduction of the
contingent deferred sales charge ("CDSC").
</TABLE>
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS MONTHLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
--------------------------------------------------------------------------------
Average Annual Total Return** -- Class B Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without CDSC With CDSC***
================================================================================
<S> <C> <C>
Year Ended 12/31/94 (7.17)% (11.10)%
--------------------------------------------------------------------------------
Inception 11/06/92 through 12/31/94 2.16% 0.91%
================================================================================
<FN>
** All average annual total return figures shown reflect the reinvestment of
dividends and capital gains at net asset value.
*** Average annual total return figures shown assume the deduction of the
maximum applicable CDSC which is described in the prospectus.
NOTE: The Fund began offering Class B shares on November 6, 1992.
Class B shares are subject to a maximum 4.50% CDSC and annual service and
distribution fees of 0.15% and 0.50%, respectively, of the value of the
average daily net assets attributable to that class.
</TABLE>
6
<PAGE>237
Growth of $10,000 invested in Class B Shares
of Smith Barney New York Municipals Fund Inc. vs Lehman Brothers
Municipal Bond Index and Lipper New York Municipal Fund Average/+/
--------------------------------------------------------------------------------
November 6, 1992 -- December 31, 1994
[CHART APPEARS HERE]
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in New York Municipals
Fund Class B shares on November 6, 1992 through December 31, 1994 as compared
with the growth of a $10,000 investment in the Lehman Brothers Municiapl Bond
Index and Lipper New York Municipal Fund Average. The plot points used to draw
the line graph were as follows:
<TABLE>
<CAPTION>
Growth of $10,000 Growth of $10,000
Investment in the Investment in the
Growth of $10,000 Lehman Brothers Lipper New York
Invested in Class B shares Municipal Bond Municipal Bond
Month Ended of the Fund Index Average
<S> <C> <C> <C>
10/31/92 - $10,000 $10,000
11/06/92 $10,000 - -
11/92 $10,108 $10,179 $10,245
12/92 $10,223 $10,283 $10,374
03/93 $10,569 $10,664 $10,807
06/93 $10,858 $11,013 $11,190
09/93 $11,169 $11,385 $11,560
12/93 $11,279 $11,545 $11,692
3/94 $10,633 $10,911 $11,000
6/94 $10,681 $11,032 $11,041
9/94 $10,706 $11,108 $11,057
12/94 $10,470 $10,948 $10,815
<FN>
+ Illustration of $10,000 invested in Class B shares on November 6, 1992
assuming deduction of the maximum applicable CDSC at the time of redemption
and reinvestment of dividends and capital gains at net asset value through
December 31, 1994.
* Value does not assume deduction of applicable CDSC.
**Value assumes deduction of applicable CDSC (assuming redemption on December
31, 1994).
The Lehman Brothers Municipal Bond Index is comprised of approximately
21,000 bonds. The bonds are all investment grade, fixed rate, long term
(greater than two years) and are selected from issues larger than $50
million.
The Lipper New York Municipal Fund Average is composed of the Fund's
peer group of 83 mutual funds.
Index information is available at month-end only; therefore, the
closest month-end to inception date of the Fund has been used.
NOTE: All figures cited here represent past performance and do not
guarantee future results.
For a glossary of terms, please turn to the end of this report.
</TABLE>
7
<PAGE>238
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Historical Performance -- Class C Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Net Asset Value Capital Gains Dividends Total
December 31, Beginning Ending Distributed Paid Return*
==================================================================================
<S> <C> <C> <C> <C>
<C> 11/10/94 - 12/31/94 $15.19 $15.44 $0.10 $0.12
3.08%
==================================================================================
Total $0.10 $0.12
==================================================================================
Cumulative Total Return -- (11/10/94 through 12/31/94) 3.08%
==================================================================================
<FN>
* Figures assume reinvestment of all dividends and capital gains distributions
at net asset value and do not assume deduction of the CDSC.
</TABLE>
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS MONTHLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
--------------------------------------------------------------------------------
Cumulative Total Return -- Class C Shares**
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without CDSC With CDSC***
================================================================================
<S> <C> <C>
Inception 11/10/94 through 12/31/94 3.08% 2.08%
================================================================================
<FN>
** All average annual total return figures shown reflect the reinvestment of
dividends and capital gains distributions at net asset value.
*** Average annual total return figures shown assume the deduction of the
maximum applicable CDSC which is described in the prospectus.
NOTE: The Fund began offering Class C shares on November 7, 1994.
Class C shares are subject to a maximum 1.00% CDSC and annual service and
distribution fees of 0.15% and 0.55%, respectively, of the value of the
average daily net assets attributable to that class.
</TABLE>
8
<PAGE>239
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Portfolio of Investments December 31, 1994
--------------------------------------------------------------------------------
Key to Insurance Abbreviations
--------------------------------------------------------------------------------
AMBAC -- American Municipal Bond Assurance Corporation
CAPGTY -- Capital Guaranty
FGIC -- Federal Guaranty Insurance Corporation
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES -- 99.4%
New York -- 96.8%
$3,795,000 Babylon, New York, Industrial Development Agency,
Recycling Facilities Revenue,
(Babylon Recycling Center, Inc.),
Series A, (in default),+
8.875% due 3/1/2011 NR NR $1,518,000
Babylon, New York, Industrial Development Agency,
Resource Recovery Revenue, (Odgen Martin Systems,
Babylon, Inc.):
2,995,000 Series B,
8.500% due 1/1/2019 Baa1 NR 3,204,650
2,950,000 Series C,
8.500% due 1/1/2019 Baa1 NR 3,156,500
2,000,000 Babylon, New York, Industrial Development Agency,
Waste Facilities Revenue, (Babylon Community Waste
Management), Series A,
7.875% due 7/1/2006 (Prerefunded 7/1/1999) Baa1 NR 2,210,000
Battery Park City Authority, New York, Housing Revenue:
5,000,000 Mortgage Loan, Series A, (FHA Insured),
5.750% due 6/1/2023 (Prerefunded 6/1/2005) NR AAA 4,262,500
Refunding, Series A:
4,850,000 Junior Note,
5.800% due 11/01/2022 A A 4,055,813
5,000,000 Senior Note,
5.700% due 11/01/2020 A1 AA 4,312,500
35,000 Battery Park City Authority, New York,
POD Housing Revenue, (FHA Insured),
8.625% due 06/01/2023 (Prerefunded 06/01/2005) NR NR 41,125
1,300,000 Buffalo, New York, Municipal Water Finance
Authority, Water Systems
Revenue, (FSA Insured),
5.750% due 7/1/2019 Aaa AAA 1,129,375
500,000 Buffalo, New York, Refunding Bonds, (FGIC Insured),
6.250% due 2/1/2016 Aaa AAA 479,375
</TABLE>
See Notes to Financial Statements.
9
<PAGE>240
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
$ 700,000 Central Square, New York, Central School District,
(FGIC Insured),
6.500% due 6/15/2000 Aaa AAA $ 734,125
250,000 Chautauqua County, New York, Industrial
Development Agency, Industrial Development
Revenue Bonds, (Ralston Purina Company Project),
9.800% due 2/1/2001 Baa1 NR 259,063
3,500,000 Dutchess County, New York, Resource Recovery Agency,
Revenue Bonds, (Solid Waste Management), Series A,
(FGIC Insured),
7.500% due 1/1/2009 Aaa AAA 3,723,125
Green Island, New York, General Obligation Bonds:
100,000 9.375% due 11/1/2001 Baa NR 115,500
125,000 9.375% due 11/1/2002 Baa NR 145,781
4,000,000 Hempstead Town, New York, Industrial Development
Agency, Resource Recovery Revenue Bonds,
(American Fuel Company),
7.400% due 12/1/2010 Baa1 A- 4,135,000
1,875,000 Lincoln Towers, New York, Housing Corporation,
Mortgage Revenue Bonds, (Lincoln Towers Project),
11.250% due 1/1/2015 NR NR 1,994,531
Lockport Town, New York, Refunding Bonds, (MBIA Insured):
435,000 5.400% due 3/1/2012 Aaa AAA 381,713
430,000 5.400% due 3/1/2013 Aaa AAA 373,563
425,000 5.400% due 3/1/2014 Aaa AAA 365,500
415,000 5.400% due 3/1/2015 Aaa AAA 355,344
Metropolitan Transportation Authority, New York,
Transit Facilities Revenue:
3,555,000 Commuter Facilities Revenue, Series A,
6.500% due 7/1/2024 Baa1 BBB+ 3,257,269
8,500,000 Series K, (AMBAC Insured),
6.000% due 7/1/2016 Aaa AAA 7,851,875
3,630,000 Series M,
6.000% due 7/1/2014 Baa BBB+ 3,217,088
5,000,000 Series O, (MBIA Insured),
6.375% due 7/1/2020 Aaa AAA 4,800,000
5,440,000 Service Contract, Series N,
7.125% due 7/1/2009 Baa1 BBB 5,562,400
4,800,000 Service Contract, Series 5,
6.500% due 7/1/2016 Baa1 BBB 4,488,000
</TABLE>
See Notes to Financial Statements.
10
<PAGE>241
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
$ 1,250,000 Monroe County, New York, Airport Authority,
Airport Revenue, (Greater Rochester International Airport),
(MBIA Insured),
7.250% due 1/1/2019 Aaa AAA $ 1,292,188
Monroe County, New York, Industrial Development
Agency, Revenue Bonds:
2,700,000 Civic Facility, (Al Sigl Center), Series A,
8.000% due 12/15/2003 NR A 2,851,875
990,000 Civic Facility, (Genesee Hospital), Series A,
6.500% due 11/1/1999 A NR 988,763
2,150,000 Monroe County, New York, Water Authority Revenue,
(AMBAC Insured),
7.000% due 8/1/2019 Aaa AAA 2,193,000
3,405,000 Nassau County, New York, Combined Sewer Districts,
General Obligation Bonds, Refunding Bonds,
Series G, (MBIA Insured),
5.400% due 1/15/2010 Aaa AAA 3,009,169
New Rochelle, New York, General Obligation Bonds,
(MBIA Insured):
1,250,000 Series B,
6.200% due 8/15/2020 Aaa AAA 1,170,313
450,000 Series C,
6.250% due 3/15/2020 Aaa AAA 420,750
New York City, New York, General Obligation Bonds:
5,000,000 6.600% due 8/1/2009 Baa1 A- 4,706,250
Series A:
5,000,000 6.250% due 8/1/2010 Baa1 A- 4,562,500
3,000,000 6.250% due 8/1/2018 Baa1 A- 2,681,250
Series B:
3,000,000 5.850% due 10/1/2007 Baa1 A- 2,970,000
4,000,000 (MBIA Insured),
6.950% due 8/15/2012 Aaa AAA 4,055,000
Series C:
1,000,000 7.750% due 9/1/2006 Baa1 A- 1,030,000
4,000,000 6.500% due 8/1/2007 Baa1 A- 3,875,000
255,000 Series D, (Unrefunded balance),
8.000% due 8/1/2004 Aaa AAA 273,488
5,500,000 Series H,
7.000% due 2/1/2021 Baa1 A- 5,424,375
Series I, (Unrefunded balance), (AMBAC Insured):
1,850,000 7.250% due 8/15/2014 Aaa AAA 1,930,938
555,000 7.250% due 8/15/2015 Aaa AAA 577,894
</TABLE>
See Notes to Financial Statements.
11
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--------------------------------------------------------------------------------
Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
New York City, New York, General Obligation Bonds (continued):
$ 4,000,000 Series H, Subseries H-1,
6.125% due 08/01/2011 Baa1 A- $ 3,580,000
Series I, (Escrowed to Maturity), (AMBAC Insured):
3,150,000 7.250% due 8/15/2014 Aaa AAA 3,374,438
945,000 7.250% due 8/15/2015 Aaa AAA 1,017,056
6,115,000 New York City, New York, Health & Hospital Corporation,
Series A,
6.300% due 2/15/2020 Baa BBB 5,411,775
New York City, New York, Housing Development Corporation,
Multifamily Housing, Pass-Through Certificates:
1,654,572 (Cadman Project),
6.500% due 11/15/2018 NR NR 1,563,571
1,050,130 (Heywood Project),
6.500% due 10/15/2017 NR NR 988,435
1,330,797 (Kelly Project),
6.500% due 2/15/2018 NR NR 1,259,267
1,711,787 (Riverbend Project),
6.500% due 11/15/2018 NR NR 1,641,176
Series A:
2,197,724 (AMBAC Insured),
6.500% due 12/20/2001 Aaa AAA 2,216,955
(FHA Insured):
5,000,000 7.350% due 6/1/2019 NR AAA 5,125,000
4,000,000 6.600% due 4/1/2030 NR AAA 3,790,000
7,650,000 Series B,
5.850% due 5/1/2026 Aa AA 6,473,813
New York City, New York, Industrial Development Agency:
2,250,000 Civil Facility Refunding Bond, (The Lighthouse Inc. Project),
6.500% due 7/1/2022 Aa2 AA 2,140,313
1,000,000 Civil Facilities Revenue, (New School for Social
Research Project),
Series A, (MBIA Insured),
6.200% due 9/1/2014 Aaa AAA 952,500
1,965,000 Civil Facility Revenue, International Center,
(Integrated Student Dormitory Project), (in default),+
9.000% due 3/1/2009 NR NR 393,000
New York City, New York, Municipal Water Finance Authority,
Water & Sewer System Revenue:
6,100,000 Series A,
6.000% due 6/15/2017 A A- 5,520,500
3,270,000 Series A, (FSA Insured),
7.000% due 6/15/2015 Aaa AAA 3,343,575
</TABLE>
See Notes to Financial Statements.
12
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Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue (continued):
$ 2,390,000 Series B, (Unrefunded),
6.375% due 6/15/2022 A A- $ 2,240,625
New York State Dormitory Authority, Revenue Bonds:
4,250,000 (City University), (AMBAC Insured),
6.300% due 7/1/2024 Aaa AAA 4,000,313
(City University), Series A:
2,500,000 7.500% due 7/1/2006 Baa1 BBB 2,631,250
2,000,000 5.750% due 7/1/2018 Baa1 BBB 1,685,000
7,000,000 (City University), Series B,
6.000% due 7/1/2014 Baa1 BBB 6,168,750
(City University), Series C:
3,000,000 7.625% due 7/1/2014 Baa1 BBB 3,165,000
2,000,000 8.200% due 7/1/2014 Baa1 BBB 2,202,500
2,200,000 (City University),Series T,
10.250% due 7/1/2012 Baa1 BBB 2,293,500
1,250,000 (City University), Series U,
6.250% due 7/1/2002 Baa1 BBB 1,254,688
3,000,000 (City University, Third Generation), Series 2, (MBIA Insured),
6.875% due 7/1/2014 Aaa AAA 3,052,500
3,000,000 (Cooper Union), (FSA Insured),
7.200% due 7/1/2020 Aaa AAA 3,112,500
(Cornell University), Series A:
2,000,000 7.375% due 7/1/2020 Aa AA 2,105,000
1,000,000 7.375% due 7/1/2030 Aa AA 1,048,750
1,230,000 (Crouse Community Center), (FHA Insured),
7.500% due 8/1/2029 NR AAA 1,316,100
1,600,000 (Crouse Irving Memorial Hospital),
10.500% due 7/1/2017 NR A 1,646,000
2,000,000 (Culinary Institute of America),
6.000% due 7/1/2022 NR AAA 1,787,500
Department of Education:
6,000,000 Series A,
6.250% due 7/1/2024 Baa1 BBB 5,310,000
5,000,000 State of New York Issue,
7.750% due 7/1/2021 Baa1 BBB 5,243,750
Department of Health, State of New York Issue:
200,000 7.250% due 7/1/2002 Baa1 BBB 213,000
3,150,000 5.500% due 7/1/2020 Baa1 BBB 2,516,063
3,500,000 (Episcopal Health), (FHA Insured),
5.900% due 8/1/2020 NR AA 3,093,125
3,400,000 (Fordham University), (FGIC Insured),
5.750% due 7/1/2015 Aaa AAA 3,055,750
</TABLE>
See Notes to Financial Statements.
13
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Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
New York State Dormitory Authority, Revenue
Bonds (continued):
Genessee Valley, (FHA Insured):
$ 1,000,000 Series A,
6.900% due 8/1/2032 NR AA $ 1,013,750
685,000 Series B,
6.850% due 8/1/2016 NR AA 694,419
1,230,000 Group 1 Optional - Supplemental Higher Education,
7.250% due 10/1/2003 NR AAA 1,296,113
1,360,000 (Heritage House Nursing Center), (FHA Insured),
7.000% due 8/1/2031 NR AAA 1,368,500
2,450,000 (Iroquois Nursing), (FHA Insured),
7.050% due 2/1/2031 NR AA- 2,471,438
2,500,000 (Jewish Geriatric Center), (FHA Insured),
7.150% due 8/1/2014 NR AAA 2,550,000
3,000,000 (Leake & Watts Services Inc.),(MBIA Insured),
6.000% due 7/1/2014 Aaa AAA 2,786,250
2,000,000 (Long Island Medical Center), Series A, (FHA Insured),
7.750% due 8/15/2027 Aa AAA 2,137,500
2,700,000 (Manhattan College),
6.500% due 7/1/2019 NR AA 2,554,875
480,000 (Manhattan Eye, Ear & Throat Hospital),
11.500% due 7/1/2009 Baa BBB+ 489,000
1,500,000 (New Hope Community),
5.700% due 7/1/2017 Aa NR 1,276,875
220,000 (New York Medical College),
6.700% due 7/1/2001 NR AA 231,275
4,800,000 (NY Catholic), (FHA Insured),
5.875% due 2/1/2033 NR AAA 4,050,000
1,000,000 (Society of New York Hospital),
9.750% due 7/1/2015 Baa1 BBB+ 1,033,750
2,450,000 (St. Vincent's Hospital and Medical Center), (FHA Insured),
7.400% due 8/1/2030 Aa AAA 2,535,750
(State University Educational Facility):
Series A:
1,500,000 6.625% due 5/15/1999 Baa1 BBB+ 1,546,875
6,000,000 6.375% due 5/15/2014 Baa1 BBB+ 5,580,000
7,500,000 5.875% due 5/15/2017 Baa1 BBB+ 6,543,750
4,500,000 Series B,
6.250% due 5/15/2014 Baa1 BBB+ 4,123,125
(University of Rochester):
Series A:
1,125,000 5.625% due 7/1/2012 A1 A+ 990,000
7,370,000 6.500% due 7/1/2019 A1 A+ 7,084,413
</TABLE>
See Notes to Financial Statements.
14
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--------------------------------------------------------------------------------
Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
New York State Dormitory Authority, Revenue
Bonds (continued):
$ 5,260,000 (Strong Memorial Hospital),
5.750% due 7/1/2014 A1 A+ $ 4,609,075
3,150,000 (Wartburg Home Project), (FHA Insured),
5.800% due 2/1/2028 NR AA 2,646,000
(Upstate Community College), Series A:
2,000,000 7.250% due 7/1/2010 A BBB 2,052,500
8,550,000 5.700% due 7/1/2021 Baa1 BBB- 7,053,750
2,000,000 5.750% due 7/1/2022 NR AAA 1,735,000
285,000 (Upstate Community College), Series B,
7.100% due 7/1/2001 Baa1 BBB- 301,031
New York State Energy, Research & Development
Authority, Electric Facilities Revenue Bonds:
(Consolidated Edison Company Project), Series A:
2,250,000 7.125% due 3/15/2022 Aa3 A+ 2,238,750
4,750,000 7.125% due 12/1/2029 Aa3 A+ 4,779,688
(Long Island Lighting Company Project):
4,900,000 Series A,
7.150% due 12/1/2020 Ba1 BB+ 4,434,500
3,000,000 Series B,
7.150% due 2/1/2022 Ba1 BB+ 2,711,250
1,000,000 Series D,
6.900% due 8/1/2022 Ba1 BB+ 876,250
New York State Energy, Research & Development
Authority, Pollution Control Revenue Bonds:
(Brooklyn Union Gas Company):
3,000,000 6.952% due 7/1/2026 A1 A- 3,011,250
3,000,000 5.950% due 12/1/2027 Baa2 BBB 2,448,750
5,000,000 Series 1,
7.125% due 12/1/2020 A1 A 5,018,750
1,500,000 (Corning National Gas Corporation), Series A,
8.250% due 12/1/2018 Baa2 NR 1,631,250
1,000,000 (Central Hudson Gas and Electric Company), Series C,
8.375% due 12/1/2028 A3 A- 1,091,250
2,500,000 (Orange & Rockland Utilities Project),
9.000% due 8/1/2015 Baa1 A- 2,590,625
2,660,000 (Rochester Gas & Electric Company), (FSA Insured),
8.375% due 12/1/2028 Aaa AAA 2,889,425
</TABLE>
See Notes to Financial Statements.
15
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--------------------------------------------------------------------------------
Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
New York State Environmental Facilities Corporation,
Pollution Control Revenue, State Water Revolving Fund:
Series A:
$ 8,250,000 7.250% due 6/15/2010 Aa A $ 8,600,625
1,950,000 7.500% due 6/15/2012 Aa A 2,064,563
1,000,000 Series E,
6.200% due 6/15/2001 Aa A 1,021,250
Environmental Elements New York Inc, Special Obligation
Revenue Bonds:
665,000 8.400% due 12/1/2006 NR BBB+ 694,925
690,000 8.400% due 12/1/2007 NR BBB+ 721,050
3,000,000 Occidental Petroleum Corporation, Solid Waste Disposal Revenue,
Series A,
5.700% due 9/1/2028 Baa3 BBB 2,347,500
5,765,000 New York State Environmental Facilities Corporation,
Resource Recovery Revenue, (Huntington Project), Series A,
7.375 due 10/1/1999 Baa NR 5,851,475
New York State Housing Finance Agency:
MultiFamily Housing:
2,905,000 Series A, (FSA Insured),
10.000% due 11/15/2025 Aa AA- 2,995,781
1,500,000 Series C, (FHA Insured),
6.500% due 8/15/2024 Aa AAA 1,419,375
Second Mortgage Project:
1,750,000 Series C,
6.600% due 8/15/2027 Aa NR 1,675,625
1,250,000 Series D,
6.250% due 8/15/2023 Aa NR 1,145,313
Service Contract Obligations Revenue Bonds:
10,500,000 Series C,
6.125% due 3/15/2020 Baa1 BBB 9,200,625
5,555,000 Series D,
5.625% due 9/15/2013 Baa1 BBB 4,693,975
4,230,000 New York State Highway Authority, Emergency Highway
Construction and Reconstruction, Series A, (FSA Insured),
6.600% due 3/1/2001 Aaa AAA 4,446,788
2,450,000 New York State Highway Authority, Service Contract
Revenue, (Local Highway and Bridge),
5.875 due 4/1/2014 Baa BBB 2,149,875
New York State Local Government Assistance Corporation:
14,345,000 Series A,
6.875% due 4/1/2019 A A 14,488,450
</TABLE>
See Notes to Financial Statements.
16
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New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
New York State Local Government Assistance
Corporation (continued):
$ 2,050,000 Series B,
6.000% due 4/1/2012 A A $ 1,909,063
3,400,000 Series C,
6.000% due 4/1/2012 A A 3,183,250
3,285,000 Series E,
6.000% due 4/1/2014 A A 3,063,263
10,200,000 New York State Housing Corporation Revenue Bonds,
Refunding-Senior Note,
5.500% due 11/01/2020 A1 AA 8,542,500
New York State Medical Care Facilities Finance
Agency Revenue Bonds:
3,000,000 (Beth Israel Medical Center), Series A, (MBIA Insured),
7.500% due 11/1/2010 Aaa AAA 3,168,750
2,500,000 (Central Suffolk Hospital Project), Series A,
6.125% due 11/1/2016 NR BBB 2,115,625
Hospital and Nursing Home, (FHA Insured):
Series A:
215,000 6.100% due 2/15/2002 Aa AA 211,775
830,000 8.750% due 2/15/2015 Aa AA- 848,675
11,805,000 6.200% due 2/15/2021 NR AAA 10,963,894
6,000,000 8.000% due 2/15/2027 Aa AA 6,337,500
7,965,000 8.000% due 2/15/2028 Aa AAA 8,492,681
4,100,000 7.450% due 8/15/2031 Aa AA 4,243,500
3,000,000 6.375% due 8/15/2033 Aa AA 2,748,750
5,000,000 Series B,
6.125 due 8/15/2024 NR AAA 4,537,500
Series C:
565,000 5.950% due 8/15/2009 NR AAA 565,706
2,500,000 5.750% due 8/15/2019 NR AAA 2,165,625
6,300,000 6.375% due 8/15/2029 NR AAA 5,843,250
2,500,000 6.650% due 8/15/2032 Aa AA 2,375,000
Series D:
5,000,000 6.450% due 2/15/2032 Aa AA 4,618,750
10,370,000 5.400% due 8/15/2033 Aa AAA 8,166,375
5,300,000 (Methodist Hospital), Series A, (FHA Insured),
6.700% due 8/15/2023 NR AA 5,160,875
370,000 Insured Hospital Mortgage, (FHA Insured), Series B,
10.125% due 1/15/2024 Aa AA 374,163
Long Term Healthcare, (CAPGTY Insured):
2,000,000 Series B,
6.450% due 11/1/2014 Aaa AAA 1,942,500
</TABLE>
See Notes to Financial Statements.
17
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Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
New York Medical Facilities Finance Agency Revenue Bonds (continued):
Long Term Healthcare, (CAPGTY Insured)
(continued):
$ 150,000 Series C,
6.400% due 11/1/2014 Aaa AAA $ 144,938
Mental Health Service Facilities:
Series A, (Unrefunded Balance):
5,075,000 8.875% due 8/15/2007 Baa1 BBB+ 5,525,406
1,185,000 7.700% due 2/15/2018 Baa1 BBB+ 1,223,513
1,840,000 7.750% due 2/15/2020 Baa1 BBB+ 1,911,300
1,860,000 Series D, (AMBAC Insured),
5.900% due 8/15/2022 Aaa AAA 1,660,050
Series F:
1,500,000 5.375% due 2/15/2014 Baa1 BBB+ 1,218,750
4,615,000 6.500% due 2/15/2019 Baa1 BBB+ 4,274,624
4,000,000 Mortgage Project, Series A, (FHA Insured),
6.375 due 8/15/2024 Aa AA 3,730,000
Nursing Home Insured Mortgage, (FHA Insured):
500,000 10.500% due 1/15/2024 Aa A- 503,125
1,225,000 Series A,
9.500% due 1/15/2024 NR NR 1,237,250
1,640,000 (St. Mary's Hospital Project), Series A, (AMBAC Insured),
6.200% due 11/1/2014 Aaa AAA 1,566,200
6,000,000 Second Mortgage Healthcare Project, Series A,
5.850% due 2/15/2033 Aa NR 5,107,500
5,000,000 Secured Hospital Revenue Bonds, Series 91-A,
7.400% due 8/15/2021 Baa BBB 4,987,500
New York State Mortgage Agency Revenue:
2,625,000 Series 37-A,
6.375% due 10/1/2014 Aa NR 2,493,750
1,000,000 Series 41-A,
6.450% due 10/1/2014 Aa NR 945,000
4,000,000 Series 42,
6.650% due 4/1/2026 Aa NR 3,780,000
1,345,000 9th Series A,
7.300% due 4/1/2017 Aa NR 1,346,682
1,580,000 Series GG, Homeowner Mortgage,
8.125% due 4/1/2020 Aa NR 1,633,325
New York State Municipal Bond Bank Agency:
Special Revenue Program:
1,000,000 Buffalo, Series A,
6.875% due 3/15/2006 NR BBB+ 1,033,750
1,500,000 Rochester, Series A,
6.750% due 3/15/2011 NR A+ 1,496,250
</TABLE>
See Notes to Financial Statements.
18
<PAGE>249
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New York Municipals Fund Inc.
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Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
$ 2,000,000 New York State Power Authority, Revenue & General
Purpose Bonds,
Series V, (MBIA Insured),
7.875% due 1/1/2013 Aaa AAA $ 2,132,500
New York State, Refunding Bonds:
6,485,000 7.000% due 11/15/2002 A A- 6,930,844
1,000,000 12.000% due 11/15/2003 A A- 1,413,750
2,750,000 9.875% due 11/15/2005 A A- 3,550,938
New York State, Urban Development:
Correctional Facilities Revenue Bonds:
2,900,000 5.750% due 1/1/2007 Baa1 BBB 2,591,875
1,100,000 5.500% due 1/1/2015 Baa1 BBB 925,375
1,650,000 Higher Education Applied Technology Project, (MBIA Insured),
5.625% due 4/1/2014 Aaa AAA 1,458,188
(Newark - Wayne Community Hospital),
New York Hospital Revenue Bonds:
2,935,000 Series A,
7.600% due 9/1/2015 NR NR 2,736,888
2,400,000 Series B, (FHA Insured),
5.875% due 1/15/2033 NR AAA 2,013,000
850,000 Series 1, (FSA Insured),
7.500% due 1/1/2020 Aaa AAA 931,813
6,100,000 Youth Facilities, (MBIA Insured),
5.70% due 4/1/2014 Aaa AAA 5,436,625
2,160,000 Oneida, New York, Health Care Corporation,
Mortgage Revenue Bonds,
(FHA Insured), (Oneida Healthcare), Series A,
7.200% due 8/1/2031 NR A 2,068,200
2,200,000 Oneida-Herkimer, New York, Solid Waste Management
Authority, Solid Waste System Revenue Bonds,
6.750% due 4/1/2014 Baa BBB 2,035,000
Port Authority of New York & New Jersey:
3,000,000 53rd Series,
8.700% due 7/15/2020 A1 AA- 3,135,000
2,000,000 61st Series,
8.125% due 8/15/2023 A1 AA- 2,060,000
8,000,000 Delta Airlines, Series 1R,
6.950% due 6/1/2008 Ba1 BB 7,680,000
State of New York, Certificates of Participation:
6,000,000 City University of New York, (John Jay College),
7.250% due 8/15/2007 Baa1 BBB 6,232,500
</TABLE>
See Notes to Financial Statements.
19
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--------------------------------------------------------------------------------
Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
===========================================================================================================
<S> <C> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (Continued)
New York (continued)
State of New York, Certificates of Participation
(continued):
$ 915,000 (Hanson Redevelopment Project),
8.375% due 5/1/2008 NR BBB $ 969,900
1,000,000 State of New York, General Obligation Bonds,
Suffolk County, New York, Series F, (FGIC Insured),
5.400% due 7/15/2014 Aaa AAA 840,000
500,000 Syracuse, New York, General Obligation Bonds,
Industrial Development Agency, (James Square
Association), (FHA Insured),
7.000% due 8/1/2025 NR AAA 495,625
3,000,000 Triborough Bridge & Tunnel Authority, New York,
Revenue Bonds, General Purpose Revenue, Series Z,
6.000% due 1/1/2018 Aa A+ 2,733,750
United Nations Development Corporation, New York,
Revenue Bonds, Senior Lien, Series A:
1,490,000 6.000% due 7/1/2007 A NR 1,385,700
1,170,000 6.000% due 7/1/2012 A NR 1,088,100
9,500,000 6.000% due 7/1/2026 A NR 8,538,125
725,000 Valley Health Development Corporation, New York,
Revenue Bonds, (FHA Insured), Mortgage Loan,
11.300% due 2/1/2023 NR A 866,375
2,500,000 Warren & Washington Counties, New York, Industrial
Development Agency, Resource Recovery, Revenue Bonds,
Series A,
7.900% due 12/15/2007 B NR 2,434,375
285,000 White Plains, New York, Battle Hill Housing
Development Corporation,
Housing Revenue Bonds, Section 8, (FHA Insured),
9.875% due 4/1/2025 NR A 292,838
2,000,000 Yonkers, New York, General Obligation Bonds,
Series C, (FGIC Insured),
5.500% due 9/1/2009 Aaa AAA 1,827,500
Puerto Rico -- 2.3%
1,495,000 Commonwealth of Puerto Rico, Aquaduct and
Sewer Authority Revenue Bonds, (Escrow to Maturity),
10.250% due 7/1/2009 Aaa AAA 1,958,450
1,350,000 Commonwealth of Puerto Rico, General Obligation Bonds,
8.000% due 7/1/2008 Baa1 A 1,452,938
6,470,000 Commonwealth of Puerto Rico, Urban Renewal and Housing
Corporation Revenue Bonds,
7.875% due 10/1/2004 Baa BBB 7,019,950
</TABLE>
See Notes to Financial Statements.
20
<PAGE>251
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Portfolio of Investments (continued) December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings Market
(unaudited) Value
Face Value Moody's S&P (Note 1)
========================================================================================
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS AND NOTES (continued)
Puerto Rico (contiuned)
Puerto Rico, Industrial, Medical &
Environmental Revenue Bonds:
$ 2,085,000 (American Airlines), Series A,
8.750% due 12/1/2025 Baa1 A+ $ 2,178,825
535,000 (St. Luke's Hospital Project), Series A,
6.100% due 6/1/2001 NR A- 518,950
860,000 Puerto Rico Municipal Finance Agency,
Series A, 8.250% due 7/1/2008 Baa1 A- 930,950
Guam -- 0.2%
750,000 Guam Government Limited Obligation Highway
Bonds, Series A, (CAPGTY Insured),
5.900% due 5/1/2002 Aaa AAA 762,188
500,000 Guam Power Authority Revenue, Series A,
6.300% due 10/1/2022 NR BBB 451,250
Virgin Islands -- 0.1%
500,000 Virgin Islands Public Finance Authority Revenue,
Matching Fund Loan Note, Series B,
7.250% due 10/1/2007 (Prerefunded 10/1/2000) Aaa AAA 546,250
========================================================================================
TOTAL INVESTMENTS (Cost $641,395,917*) 99.4% $614,091,871
OTHER ASSETS AND LIABILITIES (Net) 0.6 3,841,327
----------------------------------------------------------------------------------------
NET ASSETS 100.0% $617,933,198
========================================================================================
<FN>
*Aggregate cost for Federal tax purposes.
+Security valued in good faith by Board of Directors.
</TABLE>
See Notes to Financial Statements.
21
<PAGE>252
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $641,395,917) (Note 1)
See accompanying schedule $614,091,871
Interest receivable 13,914,954
Receivable for investment securities sold 2,502,705
Receivable for Fund shares sold 671,666
-----------------------------------------------------------------------------------------
Total Assets $631,181,196
=========================================================================================
LIABILITIES:
Notes payable (Note 8) $8,806,967
Dividends payable 2,357,258
Payable for Fund shares redeemed 1,476,796
Investment advisory fee payable (Note 2) 181,143
Administration fee payable (Note 2) 103,220
Service fee payable (Note 3) 78,939
Distribution fee payable (Note 3) 64,023
Due to custodian 52,633
Custodian fees payable (Note 2) 25,500
Transfer agent fees payable (Note 2) 17,614
Accrued expenses and other payables 83,905
-----------------------------------------------------------------------------------------
Total Liabilities 13,247,998
=========================================================================================
NET ASSETS $617,933,198
=========================================================================================
NET ASSETS consist of:
Distributions in excess of net investment income $ (850,030)
Accumulated net realized loss on investments sold (4,724,173)
Unrealized depreciation of investments (27,304,046)
Par value 400,159
Paid-in capital in excess of par value 650,411,288
-----------------------------------------------------------------------------------------
TOTAL NET ASSETS $617,933,198
=========================================================================================
NET ASSETS:
-----------------------------------------------------------------------------------------
CLASS A SHARES:
Net Asset Value and redemption price per share
($466,883,788 / 30,236,011 shares of common stock outstanding) $15.44
-----------------------------------------------------------------------------------------
Maximum offering price per share ($15.44 / .960)
(Based on sales charge of 4% of the offering price on December 31, 1994) $16.08
=========================================================================================
CLASS B SHARES:
Net Asset Value and offering price per share+
($150,764,584 / 9,761,460 shares of common stock outstanding) $15.44
=========================================================================================
CLASS C SHARES:
Net Asset Value and offering price per share+
($284,826 / 18,445 shares of common stock outstanding) $15.44
=========================================================================================
<FN>
+ Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements.
22
<PAGE>253
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Statement of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31, 1994
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 44,908,736
----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $2,300,014
Administration fee (Note 3) 1,309,383
Service fee (Note 3) 1,007,818
Distribution fee (Note 3) 754,529
Transfer agent fees (Notes 2 and 4) 221,343
Custodian fees (Note 2) 100,412
Legal and audit fees 85,467
Directors' fees and expenses (Note 2) 44,217
Other 168,625
----------------------------------------------------------------------------------------
Total Expenses 5,991,808
----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 38,916,928
========================================================================================
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (Notes 1 and 5):
Net realized loss on investments sold during the year (4,724,173)
Net unrealized depreciation of investments during the year (82,527,978)
----------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (87,252,151)
========================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(48,335,223)
========================================================================================
</TABLE>
See Notes to Financial Statements.
23
<PAGE>254
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/94 12/31/93
<S> <C> <C>
Net investment income $ 38,916,928 $ 37,182,733
Net realized gain/(loss) on investments sold
during the year (4,724,173) 11,090,806
Net unrealized appreciation/(depreciation) on
investments during the year (82,527,978) 16,938,786
------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting
from operations (48,335,223) 65,212,325
Distributions to shareholders from net investment
income:
Class A (30,891,616) (33,113,806)
Class B (8,023,640) (4,116,599)
Class C (1,672) --
Distributions to shareholders in excess of net investment
income:
Class A (674,671) --
Class B (175,322) --
Class C (37) --
Distributions to shareholders from net realized gain on
investments:
Class A (2,982,583) (7,531,725)
Class B (957,623) (1,641,245)
Class C (1,790) --
Net increase/(decrease) in net assets from
Fund share transactions (Note 6):
Class A (36,576,643) 21,895,581
Class B 33,984,655 117,947,400
Class C 277,688 --
------------------------------------------------------------------------------------
Net increase/(decrease) in net assets (94,358,477) 158,651,931
NET ASSETS:
Beginning of year 712,291,675 553,639,744
------------------------------------------------------------------------------------
End of year
(including distributions in excess of net investment
income of $850,030 at December 31, 1994) $617,933,198 $712,291,675
====================================================================================
</TABLE>
See Notes to Financial Statements.
24
<PAGE>255
[This page intentionally left blank]
25
<PAGE>256
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For Class A share outstanding throughout each year.
Year Year Year Year
Ended Ended Ended Ended
12/30/94 12/31/93# 12/31/92* 12/31/91
<S> <C> <C> <C> <C>
Net asset value, beginning
of year $17.68 $17.12 $16.77 $15.94
------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 0.97 1.02 1.12 1.15
Net realized and unrealized
gain/(loss) on investments (2.12) 0.80 0.39 0.84
------------------------------------------------------------------------
Total from investment
operations (1.15) 1.82 1.51 1.99
------------------------------------------------------------------------
Less distributions:
Distributions from net
investment income (0.97) (1.03) (1.12) (1.16)
Distributions in excess
of net investment Income (0.02) -- -- --
Distributions from net
capital gains (0.10) (0.23) (0.03) --
Distributions from capital -- -- (0.01) --
------------------------------------------------------------------------
Total Distributions: (1.09) (1.26) (1.16) (1.16)
------------------------------------------------------------------------
Net asset value, end of year $15.44 $17.68 $17.12 $16.77
========================================================================
Total return/+/ (6.62)% 10.93% 9.36% 12.98%
========================================================================
Ratios to average net assets/
supplemental data:
Net assets, end of year
(in 000's) $466,884 $575,166 $535,514 $469,139
Ratio of operating expenses to
average net assets 0.77% 0.78% 0.67% 0.64%
Ratio of net investment income
to average net assets 5.91% 5.83% 6.56% 7.04%
Portfolio turnover rate 36% 20% 30% 31%
========================================================================
</TABLE>
26
<PAGE>257
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For Class A share outstanding throughout each year.
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
12/31/90 12/31/89 12/31/88 12/31/87 12/31/86 12/31/85
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $16.26 $15.97 $15.37 $16.71 $15.48 $13.90
-------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 1.16 1.16 1.15 1.14 1.20 1.24
Net realized and unrealized
gain/(loss) on investments (0.32) 0.26 0.61 (1.33) 1.52 1.58
-------------------------------------------------------------------------------------------
Total from investment
operations 0.84 1.42 1.76 (0.19) 2.72 2.82
-------------------------------------------------------------------------------------------
Less distributions:
Distributions from net
investment income (1.16) (1.13) (1.16) (1.14) (1.20) (1.24)
Distributions in excess
of net investment Income -- -- -- -- -- --
Distributions from net
capital gains -- -- -- (0.01) (0.29) --
Distributions from capital -- -- -- -- -- --
-------------------------------------------------------------------------------------------
Total Distributions: (1.16) (1.13) (1.16) (1.15) (1.49) (1.24)
-------------------------------------------------------------------------------------------
Net asset value, end of year $15.94 $16.26 $15.97 $15.37 $16.71 $15.48
===========================================================================================
Total return/+/ 5.41% 9.18% 11.82% (1.09%) 18.13% 21.03%
===========================================================================================
Ratios to average net assets/
supplemental data:
Net assets, end of year
(in 000's) $428,304 $442,563 $429,703 $202,265 $218,980 $125,365
Ratio of operating expenses to
average net assets 0.64% 0.66% 0.64% 0.68% 0.68% 0.81%
Ratio of net investment income
to average net assets 7.31% 7.17% 7.50% 7.22% 7.25% 8.20%
Portfolio turnover rate 18% 7% 27% 22% 11% 20%
===========================================================================================
<FN>
* Any shares outstanding prior to November 6, 1992 were designated as Class A
shares.
+ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charge.
# Per share amounts have been calculated using the monthly average share method,
which more appropriately presents the per share data for this year since the
use of the undistributed method did not accord with results of operations.
</TABLE>
See Notes to Financial Statements.
27
<PAGE>258
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For a Class B share outstanding throughout each year:
Year Year Period
Ended Ended Ended
12/30/94 12/31/93# 12/31/92*
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year $ 17.68 $ 17.12 $ 16.93
Income from investment operations:
Net investment income 0.89 0.94 0.17
Net realized and unrealized gain/(loss) on investments (2.13) 0.80 0.20
------------------------------------------------------------------------------------------
Total from investment operations (1.24) 1.74 0.37
------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.88) (0.95) (0.15)
Distributions in excess of net investment income (0.02) -- --
Distributions from net capital gains (0.10) (0.23) (0.03)
Distributions from capital -- -- (0.00)++
------------------------------------------------------------------------------------------
Total Distributions: (1.00) (1.18) (0.18)
------------------------------------------------------------------------------------------
Net asset value, end of year $ 15.44 $ 17.68 $ 17.12
------------------------------------------------------------------------------------------
Total return+ (7.17)% 10.33% 2.23%
==========================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $150,765 $137,126 $18,125
Ratio of operating expenses to average net assets 1.30% 1.31% 1.30%**
Ratio of net investment income to average net assets 5.39% 5.31% 5.94%**
Portfolio turnover rate 36% 20% 30%
==========================================================================================
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Annualized.
+ Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charge.
++ Amount represents less than $0.01 per Class B share.
# Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for this year
since the use of the undistributed method did not accord with results of
operations.
</TABLE>
See Notes to Financial Statements.
28
<PAGE>259
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
Period
Ended
12/31/94*
--------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $15.19
Income from investment operations:
Net investment income 0.12
Net realized and unrealized gain on investments 0.35+++
--------------------------------------------------------------------------------
Total from investment operations 0.47
-------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.12)
Distributions in excess of net investment income (0.00)++
Distributions from net capital gains (0.10)
-------------------------------------------------------------------------------
Total Distributions: (0.22)
-------------------------------------------------------------------------------
Net asset value, end of period $15.44
-------------------------------------------------------------------------------
Total return + 3.08%
===============================================================================
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $285
Ratio of operating expenses to average net assets 1.34%**
Ratio of net investment income to average net assets 5.35%**
Portfolio turnover rate. 36%
===============================================================================
<FN>
* The Fund commenced selling Class C shares on November 10, 1994.
** Annualized.
+ Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charge.
++ Amount represents less than $0.01 per Class C share.
+++ The amount shown at this caption for each share outstanding throughout
the period may not accord with the change in the aggregate gains and losses
in the Fund for the period because of the timing of purchases and
withdrawals of shares in relation to fluctuating market value of the
portfolio.
</TABLE>
See Notes to Financial Statements.
29
<PAGE>260
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
1. Significant Accounting Policies
Smith Barney New York Municipals Fund Inc. (formerly known as Smith Barney
Shearson New York Municipals Fund Inc.) (the "Fund") was incorporated under the
laws of the State of Maryland on October 6, 1983. The Fund is a non-diversified,
open-end management investment company registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended (the
"1940 Act"). Effective November 7, 1994, the Fund began offering Class C and
Class Y shares and continued to offer Class A and Class B shares. Class A shares
are sold with a front-end sales charge. Class B and Class C shares may be
subject to a contingent deferred sales charge ("CDSC"). Class Y shares are
available to investors making an initial investment of at least $5 million and
are not subject to any sales charges, distribution or service fees. As of
December 31, 1994, no Class Y shares had been sold. All classes of shares have
identical rights and privileges except with respect to the effect of the
respective sales charges, the distribution and/or service fees borne by each
class, expenses allocable exclusively to each class, voting rights on matters
affecting a single class, the exchange privilege of each class and the
conversion feature of Class B shares. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
Portfolio valuation: Securities are valued by The Boston Company Advisors,
Inc. ("Boston Advisors") after consultation with an independent pricing
service (the "Service") approved by the Fund's Board of Directors. When, in
the judgment of the Service, quoted bid prices for securities are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices and asked
prices (as obtained by the Service from dealers in such securities).
Securities for which, in the judgment of the Service, there are no readily
obtainable market quotations (which may constitute a majority of the Fund's
portfolio securities) are carried at fair value as determined by the Service,
based on methods which include consideration of: yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions.
Securities for which representative prices are not available from the Fund's
pricing service are valued at fair value as determined in good faith by the
Fund's Board of Directors. Short-term investments that mature in 60 days or
less are valued at amortized cost.
30
<PAGE>261
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Interest income is recorded on the accrual basis.
Realized gains and losses from securities sold are recorded on the identified
cost basis. Investment income and realized and unrealized gains and losses are
allocated based upon relative net assets of each class.
Dividends and distributions to shareholders: Dividends from net investment
income are determined on a class level. It is the policy of the Fund to
declare dividends from net investment income daily and to pay such dividends
on the last business day of the Smith Barney Inc. ("Smith Barney") statement
month. Distributions from net realized capital gains, on a Fund level, are
declared and paid annually, after the end of the fiscal year in which earned.
Additional dividends may be paid and additional distributions of capital
gains may be made at the discretion of the Board of Directors to avoid the
application of the 4.00% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains. Income distributions and
capital gain distributions on a Fund level are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Fund, timing
differences and differing characterization of distributions made by the Fund
as a whole.
Federal income taxes: It is policy of the Fund to qualify as a regulated
investment company, which distributes exempt-interest dividends, by complying
with the requirements of the Internal Revenue Code, applicable to regulated
investment companies and by distributing substantially all of its earnings to
its shareholders. Therefore, no Federal income tax provision is required.
2. Investment Advisory Fee, Administration Fee and Other Transactions
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual Management
Corp., which has been transferred effective November 7, 1994 to Smith Barney
Mutual Funds Management Inc. ("SBMFM"). Mutual Management Corp. and SBMFM are
both wholly owned subsidiaries of Smith Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. Under the
Advisory Agreement, the Fund pays a monthly fee at the annual rates of 0.35%
of the value of the Fund's average daily net assets up to $500 million and
0.32% of the value of its average daily net assets in excess of $500 million.
31
<PAGE>262
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
Prior to April 20, 1994, the Fund was party to an administration agreement
with Boston Advisors, an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). Under this agreement, the Fund paid a monthly fee at
the annual rates of 0.20% of the value of the Fund's average daily net assets
up to $500 million and 0.18% of the value of its average daily net assets in
excess of $500 million.
As of the close of business on April 20, 1994, SBMFM (formerly Smith Barney
Advisers, Inc.), which is controlled by Holdings, succeeded Boston Advisors
as the Fund's administrator. The new administration agreement contains
substantially the same terms and conditions, including the same level of fees
as the predecessor agreement.
As of the close of business on April 20, 1994 the Fund and SBMFM entered into
a sub-administration agreement (the "Sub-Administration Agreement") with
Boston Advisors. Under the Sub-Administration Agreement, Boston Advisors is
paid a portion of the fee paid by the Fund to SBMFM at a rate agreed upon
from time to time between SBMFM and Boston Advisors.
No officer, director or employee of Smith Barney or any of its affiliates
receives any compensation from the Fund for serving as a Director or officer
of the Fund. The Fund pays each Director who is not an officer, director, or
employee of Smith Barney or any of its affiliates $2,000 per annum plus $500
per meeting attended and reimburses each such Director for travel and
out-of-pocket-expenses.
Smith Barney acts as the exclusive distributor of the Fund's shares. For the
year ended December 31, 1994, Smith Barney received $623,121 from investors
representing commissions (sales charges) on sales of Class A shares.
A CDSC is generally payable by a shareholder in connection with the
redemption of Class B shares within five years after the date of purchase. In
circumstances in which the CDSC is imposed, the amount of the charge ranges
between 4.50% and 1% of net asset value depending on the number of years
since the date of purchase. A CDSC may be payable by a shareholder in
connection with the redemption of Class C shares within one year after the
date of purchase. In circumstances in which the charge is imposed on Class C
shares, the amount of the charge is 1.00%. For the year ended December 31,
1994, Smith Barney received $358,231 from investors in CDSCs on the
redemption
32
<PAGE>263
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
of Class B shares. No CDSCs were incurred by investors with respect to Class
C shares.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Fund's custodian. The Shareholder Services Group, Inc.,
a subsidiary of First Data Corporation, serves as the Fund's transfer agent.
3. Distribution Plan
Smith Barney acts as distributor of the Fund's shares pursuant to a
distribution agreement with the Fund, and sells shares of the Fund through
Smith Barney or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a services
and distribution plan (the "Plan"). Under this Plan, the Fund compensates
Smith Barney for servicing shareholder accounts for Class A, Class B and
Class C shareholders, and covers expenses incurred in distributing Class B
and Class C shares. Smith Barney is paid an annual service fee with respect
to Class A, Class B and Class C shares of the Fund at the rate of 0.15% of
the value of the average daily net assets of each respective class of shares.
Smith Barney is also paid an annual distribution fee with respect to Class B
and Class C shares at the rate of 0.50% and 0.55% of the value of the average
daily net assets attributable to those shares. During the year ended December
31, 1994, the Fund incurred $781,465, $226,302 and $51 in service fees for Class
A, Class B and Class C shares, respectively. During the year ended December 31,
1994, the Fund incurred $754,341 and $188 in distribution fees for Class B and
Class C shares, respectively.
4. Expense Allocation
Expenses of the Fund not directly attributable to the operations of any class
of shares are prorated between the classes based upon the relative net assets
of each class. Operating expenses directly attributable to a class of shares
are charged to that class' operations. In addition to the above servicing and
distribution fees, class specific operating expenses include transfer agent
fees of $146,940, $74,389 and $14 for Class A, Class B and Class C shares,
respectively.
5. Securities Transactions
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, during the year ended December 31, 1994, amounted to
$237,775,733 and $247,323,629, respectively.
33
<PAGE>264
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
At December 31, 1994, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost amounted to
$12,010,779, and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value amounted to
$39,314,825.
6. Common Stock
At December 31, 1994, 500 million shares of $.01 par value common stock
divided into four classes (Class A, Class B, Class C and Class Y) were
authorized. Changes in the common stock for the Fund were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993
Class A shares: Shares Amount Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Sold 3,478,703 $ 57,671,706 3,707,118 $ 65,187,847
Issued as reinvestment of dividends 1,402,444 22,818,151 1,542,419 27,192,839
Redeemed (7,180,131) (117,066,500) (3,991,942) (70,485,105)
---------------------------------------------------------------------------------------------------
Net increase/(decrease) (2,298,984) $ (36,576,643) 1,257,595 $ 21,895,581
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993
Class B shares: Shares Amount Shares Amount
===================================================================================================
<S> <C> <C> <C> <C>
Sold 3,026,863 $ 50,329,261 6,705,247 $118,061,679
Issued as reinvestment of dividends 364,474 5,904,778 232,704 4,113,260
Redeemed (1,388,070) (22,249,384) (238,451) (4,227,539)
---------------------------------------------------------------------------------------------------
Net increase 2,003,267 $ 33,984,655 6,699,500 $117,947,400
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Period Ended*
December 31, 1994
Class C shares: Shares Amount
===================================================================================================
<S> <C> <C>
Sold 18,218 $274,188
Issued as reinvestment of dividends 227 3,500
---------------------------------------------------------------------------------------------------
Net increase 18,445 $277,688
===================================================================================================
<FN>
*The Fund commenced selling Class C shares on November 10, 1994.
</TABLE>
As of December 31, 1994, no Class Y shares had been sold.
34
<PAGE>265
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
7. Concentration of Credit
The Fund primarily invests in debt obligations issued by the State of New York
and its political subdivisions, agencies and
public authorities to obtain funds for various public purposes. The Fund is
more susceptible to factors adversely affecting issuers of New York municipal
securities than is a municipal bond fund that is not concentrated in these
issuers to the same extent.
8. Notes Payable
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Bank of America (formerly Continental Bank N.A.) under an
Amended and Restated Line of Credit Agreement (the "Agreement") dated April
30, 1992, and renewed effective May 31, 1994, primarily for temporary or
emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. The Fund may
borrow up to the lesser of $25 million or 25% of its net assets, adjusted for
purposes of the Agreement. However, pursuant to the Fund's prospectus, the
Fund may only borrow up to 10% of its net assets. Interest is payable either
at the bank's Money Market Rate or the London Interbank Offered Rate plus
0.375% on an annualized basis. The Fund and the other affiliated entities are
charged an aggregate commitment fee of $100,000 which is allocated equally
among each of the participants. The Agreement requires, among other
provisions, each participating fund to maintain a ratio of net assets (not
including funds borrowed pursuant to the Agreement) to aggregate amount of
indebtedness pursuant to the Agreement of no less than 5 to 1. During the
year ended December 31, 1994, the Fund had an average outstanding daily
balance of $623,288 with interest rates ranging from 3.69% to 7.13%. Interest
expense totalled $38,784 for the year ended December 31, 1994. At December
31, 1994 the Fund had $8,806,967 outstanding.
9. Capital Loss Carryforward
At December 31, 1994, the Fund had available for Federal income tax purposes
an unused capital loss carryforward of $1,541,718 expiring in 2002.
35
<PAGE>266
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Report of Independent Accountants
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
We have audited the accompanying statement of assets and liabilities of Smith
Barney New York Municipals Fund Inc. (formerly Smith Barney Shearson New York
Municipals Fund Inc.), including the schedule of portfolio investments, as of
December 31, 1994, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the ten years
in the period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Smith Barney New York Municipals Fund Inc., as of December 31, 1994, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the ten years in the period then ended, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 8, 1995
36
<PAGE>267
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Tax Information (unaudited)
--------------------------------------------------------------------------------
Year Ended December 31, 1994
The amount of long term capital gains paid for the fiscal year ended December
31, 1994 was $3,941,996.
Of the total distributions paid by the Fund out of ordinary income, 97.87%
qualify as tax-exempt income.
37
<PAGE>268
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Participants
--------------------------------------------------------------------------------
DISTRIBUTOR
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER AND
ADMINISTRATOR
Smith Barney
Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
SUB-ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
COUNSEL
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services
Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
38
<PAGE>269
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Glossary of Commonly Used Mutual Fund Terms
--------------------------------------------------------------------------------
Capital Gain (or Loss): This is the increase (or decrease) in the market value
(price) of a security in your portfolio. If a stock or bond appreciates in
price, there is a capital gain; if it depreciates there is a capital loss. A
capital gain or loss is "realized" upon the sale of a security; if net capital
gains exceed net capital losses, there may be a capital gain distribution to
shareholders.
CDSC(Contingent Deferred Sales Charge): One kind of back-end load, a CDSC
may be imposed if shares are redeemed during the first few years of
ownership. The CDSC may be expressed as a percentage of either the original
purchase price or the redemption proceeds. Most CDSCs decline over time, and
some will not be charged if shares are redeemed after a certain period of
time.
Distribution Rate: This is the rate at which a mutual fund pays out (or
distributes) interest, dividends and realized capital gains to shareholders.
A fund's distribution rate is usually expressed as an annualized percent of
the fund's offering price.
Dividend: This is income generated by securities in a portfolio and
distributed after expenses to shareholders.
Front-End Sales Charge: This is the sales charge applied to an investment
at the time of initial purchase.
Net Asset Value (NAV): Net asset value is the total market value of all
securities held by a fund, minus any liabilities, divided by the number of
shares outstanding. It is the value of a single share of a mutual fund on a
given day. The total value of your investment would be the NAV multiplied by
the number of shares you own.
SEC Yield: This standardized calculation of a mutual fund's yield is based
on a formula developed by the Securities and Exchange Commission (SEC) to
allow funds to be compared on an equal basis. It is an annualized yield based
on the portfolio's potential earnings from dividends, interest and yield to
maturity of its holdings, and it reflects the payments of all portfolio
expenses for the most recent 30-day period. Mutual funds are required to use
this figure when stating yield.
Total Return: Total return measures a fund's performance, taking into
account the combination of dividends paid and the gain or loss in the value
of the securities held in the portfolio. It may be expressed on an average
annual basis or cumulative basis (total change over a given period). In
addition, total return may be expressed with or without the effects of sales
charges or the reinvestment of dividends and capital gains.
Whenever a fund reports any type of performance, it must also report the
average annual total return according to the standardized calculation
developed by the SEC. This standardized calculation was introduced to insure
that investors can compare different funds on an equal basis. The SEC average
annual total return calculation includes the effects of all fees and sales
charges and assumes the reinvestment of all dividends and capital gains.
39
<PAGE>270
Smith Barney
New York Municipals Fund Inc.
--------------------------------------------------------------------------------
Investor Benefits
--------------------------------------------------------------------------------
MONTHLY DISTRIBUTIONS
It's your fund's policy to distribute dividend income monthly.
AUTOMATIC REINVESTMENT
You may reinvest your dividends and/or capital gains automatically in
additional shares of your fund at the current net asset value.
UNLIMITED EXCHANGES
If your investment goals change, you may exchange into another Smith Barney
mutual fund with the same sales charge structure without incurring a sales
charge.*
SYSTEMATIC INVESTMENT PLAN
This program allows you to invest equal dollar amounts automatically on a
regular basis, monthly or quarterly.
AUTOMATIC CASH
WITHDRAWAL PLAN
With this plan, you may withdraw money on a regular basis while maintaining
your investment.
MUTUAL FUND
EVALUATION SERVICE
Through your Financial Consultant, you may obtain a free personalized
analysis of how your fund has performed for you, taking into account the
effect of every transaction. The analysis is based upon month-end data from
CDA Investment Technologies, Inc., a widely recognized mutual fund
information service. An evaluation also gives you other important facts and
figures about your investment.
For more information about these benefits, or if you have any other
questions, please call your Financial Consultant or write:
MUTUAL FUND POLICY GROUP
SMITH BARNEY INC.
388 GREENWICH STREET 37TH FLOOR
NEW YORK, NY 10013
* After written notification, exchange privilege may be modified or terminated
at any time.
<PAGE>271
NEW YORK SMITH BARNEY
MUNICIPALS ------------
FUND INC. A Member of TravelersGroup [LOGO APPEARS HERE]
DIRECTORS
Herbert Barg
Alfred J. Bianchetti
Martin Brody
James J. Crisona*
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
Cornelius C. Rose
* Director Emeritus
OFFICERS
Heath B. McLendon
Chairman of the Board
Jessica Bibliowicz This report is submitted for the general
President information of the shareholders of Smith
Barney New York Municipals Fund Inc. It is
Lawrence T. McDermott not authorized for distribution to
Vice President and prospective investors unless accompanied or
Investment Officer preceded by an effective Prospectus for the
Fund, which contains information concerning
Karen L. Mahoney-Malcomson the Fund's investment policies, fees and
Investment Officer expenses as well as other pertinent
information.
Lewis E. Daidone
Senior Vice President and
Treasurer
Christina T. Sydor SMITH BARNEY
Secretary MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
Fund 13, 194, 486, 468
FD 0319 B5
<PAGE>271
PRO FORMA FINANCIAL STATEMENTS
[To be filed by amendment]
<PAGE>272
SMITH BARNEY MUNI FUNDS
PART C
OTHER INFORMATION
Item 15. Indemnification
The response to this item is incorporated by reference to
"Liability of Directors/Trustees" under the caption
"Information on Shareholder's Rights" in Part A of this
Registration Statement.
Item 16. Exhibits -- References are to Registrant's Registration
Statement on Form N-1A as filed with the
Securities and Exchange Commission (File Nos. 2-
99861 and 811-4395) (the "Registration
Statement")
(1) (a) Registrant's Restated Declaration of Trust dated as of
April 23, 1986 is incorporated by reference to Exhibit 1
to Pre-Effective Amendment No. 1 to the Registration
Statement.
(1) (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
to the Registration Statement.
(1) (c) Instruments of the Trustees Establishing and Designating
Classes of Shares and Certain Series of the Trust dated
March 26, 1993, June 4, 1993, March 4, 1994 and October 3,
1994, and Amendment to Declaration of Trust of the
Registrant dated May 20, 1994.*
(2) By-Laws are incorporated by reference to Exhibit 2 to
Pre-Effective Amendment No. 2 to the Registration Statement.
(3) Not Applicable.
(4) Agreement and Plan of Reorganization (included as Exhibit A to
Registrant's Prospectus/Proxy Statement contained in Part A of
this Registration Statement).*
(5) Not Applicable.
<PAGE>273
(6) Management Agreement between the New York Portfolio, a
portfolio of the Registrant, and Mutual Management Corp. is
incorporated by reference to Exhibit 5(d) to Post-Effective
Amendment No. 18 to the Registration Statement.
(7) Distribution Agreement between Registrant and Smith Barney Inc.
is incorporated by reference to Exhibit 6 to Post-Effective
Amendment No. 7 to the Registration Statement.
(8) Not Applicable.
(9) (a) Custodian Agreement between Registrant and PNC Bank is
incorporated by reference to Exhibit 8 to Pre-Effective
Amendment No. 1 to the Registration Statement.
(9) (b) Transfer Agency Agreement between Registrant and PFPC Inc. is
incorporated by reference to Exhibit 9 to Post-Effective
Amendment No. 12 to the Registration Statement.
(10) (a) Form of Plan of Distribution pursuant to Rule 12b-1 of Smith
Barney Muni Funds, on behalf of the New York Portfolio.*
(10) (b) Form of Plan of Distribution pursuant to Rule 12b-1 with
respect to Class A shares of the Registrant is incorporated by
reference to Exhibit 15(n) to Post-Effective Amendment No. 34
to the Registration Statement.
(11) (a) Opinion and Consent of Sullivan & Cromwell with respect to
legality.**
(11) (b) Opinion and Consent of Ropes & Gray with respect to certain
matters under Massachusetts law.**
(12) Opinion and Consent of Willkie Farr & Gallagher with respect to
tax matters.**
(13) Not Applicable.
(14) (a) Consent of Coopers & Lybrand L.L.P.*
(14) (b) Consent of KPMG Peat Marwick LLP*
<PAGE>274
(15) Not Applicable.
(16) Powers of Attorney (included on signature page).
(17) (a) Form of Proxy Card.*
(17) (b) Registrant's Declaration pursuant to Rule 24f-2 is incorporated
by reference to its initial Registration Statement.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona
fide offering of them.
[FN]
__________
* Filed herewith.
** To be filed by amendment.
<PAGE>275
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed on behalf of the registrant, in the City of New York
and State of New York on the 21st day of August, 1995.
SMITH BARNEY MUNI FUNDS
on behalf of the NEW YORK
PORTFOLIO
By: /s/ Heath B. McLendon
Heath B. McLendon
Chairman of The Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Heath B. McLendon, Jessica M.
Bibliowicz, Christina T. Sydor and Caren A. Cunningham, and each and any one
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
/s/ Heath B. McLendon Chairman of the August 21, 1995
Heath B. McLendon Board and Chief
Executive Officer
<PAGE>276
/s/ Lewis E. Daidone Treasurer (Chief Financial August 21, 1995
Lewis E. Daidone and Accounting Officer)
/s/ Ralph D. Creasman Trustee August 21, 1995
Ralph D. Creasman
/s/ Joseph H. Fleiss Trustee August 17, 1995
Joseph H. Fleiss
/s/ Donald R. Foley Trustee August 17, 1995
Donald R. Foley
/s/ Francis P. Martin Trustee August 18, 1995
Francis P. Martin
/s/ Roderick C. Rasmussen Trustee August 17, 1995
Roderick C. Rasmussen
/s/ John P. Toolan Trustee August 21, 1995
John P. Toolan
/s/ C. Richard Youngdahl Trustee August 17, 1995
C. Richard Youngdahl
<PAGE>277
EXHIBIT INDEX
Exhibit Number Description Page
(1) (c) Instruments of the Trustees Establishing *
and Designating Classes of Shares and
Certain Series of the Trust dated
March 26, 1993, June 4, 1993, March 4, 1994
and October 3, 1994, and Amendment to
Declaration of Trust of the Registrant
dated May 20, 1994.
(4) Agreement and Plan of Reorganization *
(included as Exhibit A to Registrant's
Prospectus/Proxy Statement contained in Part A
of this Registration Statement).
(10) (a) Plan of Distribution pursuant to Rule 12b-1 *
of Smith Barney Muni Funds on behalf of the
New York Portfolio.
(11) (a) Opinion and Consent of Sullivan & Cromwell **
with respect to legality.
(11) (b) Opinion and Consent of Ropes & Gray **
with respect to certain matters under
Massachusetts law.
(12) Opinion and Consent of Willkie Farr & **
with respect to tax matters.
(14) (a) Consent of Coopers & Lybrand L.L.P. *
(14) (b) Consent of KPMG Peat Marwick LLP *
(16) Powers of Attorney (included on signature page) *
(17) (a) Form of Proxy Card. *
[FN]
________________
* Filed herewith.
** To be filed by amendment.
<PAGE>278
<PAGE>279
SMITH BARNEY MUNI BOND FUNDS
Instrument of the Trustees Designating
Shares of the California Limited Term Portfolio
and the Florida Limited Term Portfolio
WHEREAS, pursuant to Section 6.1 of the Restated Declaration of
Trust (the "Declaration") of Smith Barney Muni Bond Funds (the "Trust") the
undersigned Trustees of the Trust may authorize the creation of additional
series of shares of beneficial interest with a $.001 par value of the Trust
(the proceeds of which may be invested in separate, independently managed
portfolios).
NOW THEREFORE, the Trustees hereby designate an unlimited number of
authorized shares of beneficial interest with a $.001 par value of the Trust
as the "Shares of the California Limited Term Portfolio" (California Limited
Term Portfolio") and an unlimited number of authorized shares of beneficial
interest with a $.001 par value of the Trust as the "Shares of the Florida
Limited Term Portfolio" ("Florida Limited Term Portfolio") as follows:
1. The Trustees shall have the power to invest and reinvest assets
applicable to the California Limited Term Portfolio and the Florida Limited
Term Portfolio to the fullest extent permitted by Section 3.2 of the
Declaration.
2. The Shares of the California Limited Term Portfolio and the
Florida Limited Term Portfolio shall each be entitled to vote as a series only
to the extent required by the provisions of the Investment Company Act of 1940
or as otherwise permitted by the Trustees in their sole discretion.
3. Except as otherwise provided in the Declaration or herein, the
preferences, privileges, limitations and rights of the Shares of the
California Limited Term Portfolio and the Florida Limited Term Portfolio shall
be identical to each other and to those pertaining to the Shares of the
National Portfolio, the Shares of the New York Portfolio, the Shares of the
California Portfolio, the Shares of the Limited Term Portfolio, the Shares of
the California Money Market Portfolio, the Shares of the New Jersey Portfolio,
the Shares of the New York Money Market Portfolio and the Shares of the
Florida Portfolio.
This instrument is dated is effective March 26, 1993.
/s/ Roderick C. Rasmussen
Ralph D. Creasman Roderick C. Rasmussen
<PAGE>280
/s/ Joseph H. Fleiss /s/ John P. Toolan
Joseph H. Fleiss John P. Toolan
/s/ Donald R. Foley /s/ Stephen J. Treadway
Donald R. Foley Stephen J. Treadway
/s/ Francis P. Martin /s/ C. Richard Youndahl
Francis P. Martin C. Richard Youngdahl
<PAGE>281
SMITH BARNEY MUNI BOND FUNDS
Instrument of the Trustees Establishing and Designating
Classes of Shares of Certain Series of the Trust
WHEREAS, pursuant to Section 6.9(g) of the Declaration of Trust of
Smith Barney Muni Bond Funds (the "Trust"), the Trustees of the Trust may
establish and designate classes of shares within any series of shares of
beneficial interest of the Trust by an instrument signed by a majority of such
Trustees;
NOW, THEREFORE, the Trustees hereby establish three classes of
shares of beneficial interest, $.001 par value per share, of each of the
California Limited Term Portfolio and the Florida Limited Term Portfolio of
the Trust to be designated in the case of each such Portfolio Class A, Class B
and Class C, respectively, the number of authorized shares of each such class
to be unlimited.
The preferences, privileges, limitations and rights, including
voting and dividend rights, of each such Class shall be as set forth in the
Declaration of Trust.
The undersigned, constituting a majority of the Trustees of the
Trust, hereby execute this instrument as of the 26th day of March 1993.
__________________ /s/ Roderick C. Rasmussen
Ralph D. Creasman Roderick C. Rasmussen
/s/ Joseph H. Fleiss /s/ John P. Toolan
Joseph H. Fleiss John P. Toolan
/s/ Donald R. Foley /s/ Stephen J. Treadway
Donald R. Foley Stephen J. Treadway
/s/ Francis P. Martin /s/ C. Richard Youndahl
Francis P. Martin C. Richard Youngdahl
<PAGE>282
SMITH BARNEY MUNI BOND FUNDS
Instrument of the Trustees Designating
Shares of the Arizona Portfolio, the Connecticut
Portfolio, the Georgia Portfolio, the Massachusetts
Portfolio, the Michigan Portfolio, the Ohio Portfolio
the Pennsylvania Portfolio, the Washington Portfolio and
the New Jersey Money Market Portfolio
WHEREAS, pursuant to Section 6.1 of the Declaration of Trust (the
"Declaration") of Smith Barney Muni Bond Funds (the "Trust") the undersigned
Trustees of the Trust may authorize the creation of additional series of
shares of beneficial interest with a $.001 par value of the Trust (the
proceeds of which may be invested in separate, independently managed
portfolios).
NOW THEREFORE, the Trustees hereby designate an unlimited number of
authorized shares of beneficial interest with a $.001 par value of the Trust
as the "Shares of the Arizona Portfolio" ("Arizona Portfolio"), the "Shares of
the Connecticut Portfolio" ("Connecticut Portfolio"), the Shares of the
Georgia Portfolio ("Georgia Portfolio"), the "Shares of the Massachusetts
Portfolio" ("Massachusetts Portfolio"), the Shares of the Michigan Portfolio"
("Michigan Portfolio"), the "Shares of the Ohio Portfolio" ("Ohio Portfolio"),
the "Shares of the Pennsylvania Portfolio" ("Pennsylvania Portfolio"), the
"Shares of the Washington Portfolio" ("Washington Portfolio") and the "Shares
of the New Jersey Money Market Portfolio" ("New Jersey Money Market
Portfolio") as follows:
1. The Trustees shall have the power to invest and reinvest assets
applicable to each such Portfolio to the fullest extent permitted by Section
3.2 of the Declaration.
2. The Shares of each such Portfolio shall be entitled to vote as
a series only to the extent required by the provisions of the Investment
Company Act of 1940 or as otherwise permitted by the Trustees in their sole
discretion.
3. Except as otherwise provided in the Declaration or herein, the
preferences, privileges, limitations and rights of the Shares of each such
Portfolio shall be identical to each other and to those pertaining to the
Shares of the National Portfolio, the Shares of the New York Portfolio, the
Shares of the California Portfolio, the Shares of the Limited Term Portfolio,
the Shares of the California Money Market Portfolio, the Shares of the New
Jersey Portfolio, the Shares of the New York Money Market Portfolio, the
Shares of the Florida Portfolio, the Shares of the Texas Portfolio, the Shares
of the California
<PAGE>283
Limited Term Portfolio and the Shares of the Florida Limited Term Portfolio.
This instrument is dated and is effective June 4, 1993.
/s/ Ralph D. Creasman /s/ Roderick C. Rasmussen
Ralph D. Creasman Roderick C. Rasmussen
/s/ Joseph H. Fleiss /s/ John P. Toolan
Joseph H. Fleiss John P. Toolan
/s/ Donald R. Foley /s/ Stephen J. Treadway
Donald R. Foley Stephen J. Treadway
/s/ Francis P. Martin /s/ C. Richard Youndahl
Francis P. Martin C. Richard Youngdahl
<PAGE>284
SMITH BARNEY MUNI BOND FUNDS
Instrument of the Trustees Establishing and Designating
Classes of Shares of Certain Series of the Trust
WHEREAS, pursuant to Section 6.9(g) of the Declaration of Trust of
Smith Barney Muni Bond Funds (the "Trust"), the Trustees of the Trust may
establish and designate classes of shares within any series of shares of
beneficial interest of the Trust by an instrument signed by a majority of such
Trustees;
NOW, THEREFORE, the Trustees hereby establish three classes of
shares of beneficial interest, $.001 par value per share, of each of the
Arizona Portfolio, the Connecticut Portfolio, the Georgia Portfolio, the
Massachusetts Portfolio, the Michigan Portfolio, the Ohio Portfolio, the
Pennsylvania Portfolio, the Texas Portfolio, the Washington Portfolio and the
New Jersey Money Market Portfolio of the Trust to be designated in the case of
each such Portfolio Class A, Class B and Class C, respectively, the number of
authorized shares of each such class to be unlimited.
The preferences, privileges, limitations and rights, including
voting and dividend rights, of each such Class shall be as set forth in the
Declaration of Trust.
The undersigned, constituting a majority of the Trustees of the
Trust, hereby execute this instrument as of the 4th day of June 1993.
/s/ Ralph D. Creasman /s/ Roderick C. Rasmussen
Ralph D. Creasman Roderick C. Rasmussen
/s/ Joseph H. Fleiss /s/ John P. Toolan
Joseph H. Fleiss John P. Toolan
/s/ Donald R. Foley /s/ Stephen J. Treadway
Donald R. Foley Stephen J. Treadway
/s/ Francis P. Martin /s/ C. Richard Youndahl
Francis P. Martin C. Richard Youngdahl
<PAGE>285
SMITH BARNEY MUNI BOND FUNDS
Certificate of Secretary
The undersigned, CHRISTINA T. SYDOR, Secretary of SMITH BARNEY MUNI
BOND FUNDS, an unincoporated business trust organized under the laws of the
Commonwelath of Massachusetts (the "Trust") does hereby CERTIFY that the
following is a true copy of resolutions adopted by a majority of the Trustees
of the Trust and recorded in the minutes of a meeting of said Trustees duly
held on July 22, 1993 pursuant to Section 9.3(a) of the Declaration of Trust:
RESOLVED, that the Declaration of Trust dated April 23,
1986 be amended by striking out Article I, Section 1.1 and
inserting in lieu thereof the following:
"Section 1.1 Name. The name of the trust created
hereby is `Smith Barney Muni Funds.'"
FURTHER RESOLVED, that the officers of the Trust be, and
each, acting alone, hereby is, authorized, empowered and
directed to do all acts which they, or any of them acting
alone, deem necessary, appropriate or convenient to carry
out the intent and purposes of the foregoing resolution,
including, without limitation, amending any documents,
agreements and certificates to which the Trust is a party
or relating to the Trust's business.
This certificate is being executed by the undersigned and lodged
with the records of the Trust in accordance with Section 9.3(c) of the
Declaration of Trust as conclusive evidence of the amendment of Article I,
Section 1.1 of the Declaration of Trust.
Dated: May 20, 1994
/s/ Christina T. Sydor
Christina T. Sydor
<PAGE>286
SMITH BARNEY MUNI FUNDS
Instrument of the Trustees Establishing and Designating
an Additional Class of Shares of Certain Series of the Trust
WHEREAS, pursuant to Section 6.9(g) of the Declaration of Trust of
Smith Barney Muni Funds (the "Trust"), the Trustees of the Trust may establish
and designate classes of shares within any series of shares of beneficial
interest of the Trust by an instrument signed by a majority of such Trustees;
NOW, THEREFORE, the Trustees hereby establish an additional class of
shares of beneficial interest, $.001 par value per share, of each of the
Georgia Portfolio, the Ohio Portfolio and the Pennsylvania Portfolio of the
Trust to be designated in the case of each such Portfolio Class E, the number
of authorized shares of such class to be unlimited.
The preferences, privileges, limitations and rights, including
voting and dividend rights, of such Class shall be as set forth in the
Declaration of Trust.
The undersigned, constituting a majority of the Trustees of the
Trust, hereby execute this instrument as of the 4th day of March 1994.
____________________ /s/ Roderick C. Rasmussen
Ralph D. Creasman Roderick C. Rasmussen
___________________ /s/ John P. Toolan
Joseph H. Fleiss John P. Toolan
/s/ Donald R. Foley /s/ Stephen J. Treadway
Donald R. Foley Stephen J. Treadway
___________________ /s/ C. Richard Youndahl
Francis P. Martin C. Richard Youngdahl
<PAGE>287
SMITH BARNEY MUNI FUNDS
Instrument of the Trustees Establishing and Designating
Classes of Shares of the Trust
WHEREAS, pursuant to Section 6.9(g) of the Declaration of Trust of
Smith Barney Muni Funds (the "Trust"), the Trustees of the Trust may establish
and designate classes of shares within any series of shares of beneficial
interest of the Trust by an instrument signed by a majority of such Trustees;
NOW, THEREFORE, the Trustees hereby establish an additional class of
shares of beneficial interest, $.001 par value per share, of each of the
National Portfolio, the Limited Term Portfolio, the California Portfolio, the
California Limited Term Portfolio, the Florida Portfolio, the Florida Limited
Term Portfolio, the New York Portfolio, the New Jersey Portfolio, the Ohio
Portfolio, the Pennsylvania Portfolio and the Georgia Portfolio of the Trust
(each a "Portfolio") to be designated in each case as Class Y shares of such
Portfolio, the number of authorized shares of such class to be unlimited; and
FURTHER, the Trustees hereby (i) redesignate all Class C shares of
each Portfolio outstanding as of the date hereof and all Class C shares of
each Portfolio authorized but unissued as of the date hereof as Class A shares
from and after the date hereof; and (ii) redesignate all Class B shares of
each Portfolio outstanding as of November 7, 1994 and all Class B shares of
each Portfolio authorized but unissued as of November 7, 1994 as Class C
shares of such Portfolio from and after November 7, 1994; and
FURTHER, the Trustees hereby (i) establish, effective November 7,
1994, an additional class of shares of beneficial interest, $.001 par value
per share, of each of the National Portfolio, the California Portfolio, the
Florida Portfolio, the New York Portfolio, the New Jersey Portfolio, the Ohio
Portfolio, the Pennsylvania Portfolio and the Georgia Portfolio of the Trust
to be designated in each case as Class B shares, the number of authorized
shares of such class to be unlimited; and (ii) redesignate all Class E shares
of each of the Ohio Portfolio, the Pennsylvania Portfolio and the Georgia
Portfolio outstanding as of November 7, 1994 and all Class E shares authorized
but unissued as of November 7, 1994 as Class B shares of such Portfolio from
and after November 7, 1994; and
FURTHER, the Trustees hereby establish two classes of shares of
beneficial interest, $.001 par value per share, of each of the California
Money Market Portfolio and the New York Money Market Portfolio of the Trust to
be designated in the case of
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each such Portfolio Class A and Class Y, respectively, the number of
authorized shares of each such class to be unlimited. The shares of each such
Portfolio outstanding as of November 7, 1994 shall be and be deemed to be from
and after such date Class A shares of such Portfolio; and
FURTHER, the preferences, privileges, limitations and rights,
including voting and dividend rights, of such classes of shares shall be as
set forth in the Trust's Declaration of Trust.
The undersigned, constituting a majority of the Trustees of the
Trust, hereby execute this instrument as of the 3rd day of October, 1994.
/s/ Ralph D. Creasman /s/ Roderick C. Rasmussen
Ralph D. Creasman Roderick C. Rasmussen
/s/ Joseph H. Fleiss /s/ John P. Toolan
Joseph H. Fleiss John P. Toolan
/s/ Donald R. Foley /s/ Stephen J. Treadway
Donald R. Foley Stephen J. Treadway
/s/ Francis P. Martin /s/ C. Richard Youndahl
Francis P. Martin C. Richard Youngdahl
/s/ Paul Hardin
Paul Hardin
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PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
SMITH BARNEY MUNI BOND FUNDS
WHEREAS, Smith Barney Muni Bond Funds (the "Fund"), an open-end
management investment company registered as such under the Investment Company
Act of 1940, as amended (the "Act"), desires to adopt a Plan of Distribution
pursuant to Rule 12b-1 under the Act on behalf of the New York Portfolio (the
"Portfolio"), and the Trustees have determined that there is a reasonable
likelihood that adoption of this Plan of Distribution (the "Plan") will
benefit the Portfolio and its shareholders and accordingly has approved the
adoption of the Plan; and
WHEREAS, Smith Barney, Harris Upham & Inc. ("Smith Barney") is the
Underwriter of the shares of which the Fund is the issuer pursuant to a
Distribution Agreement dated December 15, 1988.
NOW, THEREFORE, the Fund hereby adopts, and Smith Barney hereby agrees to
the terms of this Plan with respect to each of the Class B and Class C shares
of the Portfolio in accordance with Rule 12b-1 under the Act on the following
terms and conditions:
1. With respect to Class B and Class C shares, the Portfolio shall pay
to Smith Barney an annual distribution fee of 0.70% of the average net assets
of Class B and an annual distribution fee of 0.15% of the average net assets
of Class C. Distribution expenses incurred in respect of Class B and Class C
shares not reimbursed in any given year will be carried forward and paid by
the respective class in future years so long as the Plan is in effect.
Interest will be accrued on such carry forward amounts at a rate equivalent to
Smith Barney's "base rate," which reflects short-term market rates of interest
and Smith Barney 's blended borrowing costs. Amounts payable by each class
shall be calculated and accrued daily and paid monthly or at such other
intervals as the Trustees shall determine.
2. The amount payable by a particular class as set forth in paragraph 1
of the Plan shall be paid for Smith Barney's services as Underwriter of the
shares of the class and may be spent by Smith Barney on any activities or
expenses primarily intended to result in the sale of the class' shares,
including, but not limited to (1) compensation to financial consultantss whose
clients are shareholders of the class; (2) the pro rata share of other
employment costs of such Account Executives based on their gross production
credits (e.g. FICA, employee benefits, etc.);
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(3) employment expenses of home office personnel primarily responsible for
distribution of the class' shares; (4) branch office fixed expenses (including
the costs of sales support personnel) based on the ratio of total sales of
class shares to that office's total propriety fund sales; (5) media
advertising or promotion; (6) printing costs of the class' marketing
materials, including prospectuses, sales literature, communications to
shareholders and advertisements (including the creative costs associated
therewith); (7) payments to other Broker/Dealers; and (8) interest and/or
carrying charges (Class B and Class C only).
3. Each of the Plan and any related agreements shall become effective
upon its execution by an authorized officer of the respective parties to the
Plan following its approval by votes of a majority of both (a) the Trustees of
the Fund and (b) those Trustees of the Fund who are not "interested persons"
of the Fund (as defined in the Act) and have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the
"Independent Trusteees"), cast in person at a meeting (or meetings) called for
the purpose of voting on the Plan or any related agreements (the "Effective
Date").
4. Each of the Plan and any related agreements shall remain in effect
for one year from its Effective Date and may be continued thereafter if it is
approved each year by the votes set forth in the preceding paragraph.
5. Smith Barney shall provide to the Trustees of the Fund and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended for each class and the purposes for which such expenditures were
made.
6. The Plan may be terminated with respect to a class at any time by
vote of a majority of the Independent Trustees or by a vote of a majority of
the outstanding voting securities of the class.
7. The Plan may not be amended to increase materially the amount payable
by a class in accordance with paragraph 1 hereof unless such amendment is
approved by a "vote of a majority of the outstanding voting securities" of the
class, which is defined as the vote of the lesser of (1) 67% or more of the
shares present at the meeting, if the holders of more than 50% of the
outstanding shares of the class are present or represented by proxy; or (2)
more than 50% of the outstanding shares of the class. No material amendment
to the Plan shall be made unless approved in the manner described in paragraph
3 hereof.
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8. While the Fund has any distribution plan in effect, the selection and
nomination of directors who are not interested persons (as defined in the Act)
of the Fund shall be committed to the discretion of the directors who are not
interested persons.
9. The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to paragraph 5 hereof, for a period of not less
than six years from the date of the Plan, or such agreement or such report, as
the case may be, the first two years in an easily accessible place.
IN WITNESS THEREOF, the Fund and Smith Barney have executed this Plan of
Distribution on the day and year set forth below in New York, New York.
DATED: ____________, 1992
SMITH BARNEY MUNI BOND FUNDS
By
Attest:
SMITH BARNEY, HARRIS UPHAM & INC.
By
Attest:
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CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Smith Barney Muni Funds:
We hereby consent to the following with respect to the Registration Statement
on Form N-14 under the Securities Act of 1933, as amended, of Smith Barney Muni
Funds:
1. The incorporation by reference of our report dated February 8,
1995, accompanying the Annual Report of the Smith Barney New York Municipals
Fund Inc. (formerly the Smith Barney Shearson New York Municipals Fund Inc.) as
of December 31, 1994, in the Prospectus/Proxy Statement.
2. The reference to our firm under the heading "Financial
Statements and Experts" in the Prospectus/Proxy Statement.
3. The reference to our firm under the heading "Financial
Highlights" in the Prospectus dated March 1, 1995 of the Smith Barney New York
Municipals Fund Inc..
Coopers & Lybrand L.L.P.
Boston, Massachusetts
August 16, 1995
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Independent Auditors' Consent
The Board of Trustees
Smith Barney Muni Funds:
We consent to the use of our report dated May 15, 1995 with respect to the New
York Portfolio incorporated herein by reference in the Prospectus/Proxy
Statement and included in this Registration Statement on Form N-14 for Smith
Barney Muni Funds and to the references to our firm under the headings
"Financial Statements and Experts" and "Representations and Warranties" in the
Prospectus/Proxy Statement and Financial Highlights in the Prospectus and
Independent Auditors in the Statement of Additional Information incorporated
herein by reference.
KPMG PEAT MARWICK LLP
August 18, 1995
New York, New York
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VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
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SMITH BARNEY NEW YORK MUNICIPALS FUND INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned holder of shares of Smith Barney New York Municipals Fund Inc.
("New York Fund"), hereby appoints Heath B. McLendon, Jessica M. Bibliowicz,
Christina T. Sydor and Caren A. Cunningham attorneys and proxies for the
undersigned with full powers of substitution and revocation, to represent the
undersigned and to vote on behalf of the undersigned all shares of the New
York Fund that the undersigned is entitled to vote at the Special Meeting of
Shareholders of New York Fund to be held at the offices of New York Fund, 388
Greenwich Street, 22nd Floor, New York, New York on November 14, 1995 at 2:30
p.m., and any adjournment or adjournments thereof. The undersigned hereby
acknowledges receipt of the Notice of Special Meeting and Prospectus/Proxy
Statement dated September __, 1995 and hereby instructs said attorneys and
proxies to vote said shares as indicated herein. In their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the Special Meeting. A majority of the proxies present and acting at
the Special Meeting in person or by substitute (or, if only one shall be so
present, then that one) shall have and may exercise all of the power and
authority of said proxies hereunder. The undersigned hereby revokes any proxy
previously given.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
Note: Please sign exactly as your name appears on this
Proxy. If joint owners, EITHER may sign this Proxy. When
signing as attorney, executor, administrator, trustee,
guardian or corporate officer, please give your full
title.
Date: ________________________________________________
________________________________________________
Signature(s) (Title(s), if applicable)
<PAGE>2
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
..............................................................................
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Please indicate your vote by an "X" in the appropriate box below. This proxy,
if properly executed, will be voted in the manner directed by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR APPROVAL
OF THE PROPOSAL.
[ ] [ ] [ ]
1. To approve or disapprove the FOR AGAINST ABSTAIN
Agreement and Plan of Reorganization
dated as of September __, 1995 providing for (i) the acquisition of all or
substantially all of the assets of Smith Barney New York Municipals Fund
Inc. ("New York Fund") by Smith Barney Muni Funds on behalf of its New York
Portfolio ("New York Portfolio") in exchange for shares of New York
Portfolio and the assumption by Smith Barney Muni Funds on behalf of New
York Portfolio of certain scheduled liabilities of New York Fund, (ii) the
distribution to shareholders of New York Fund of such shares of New York
Portfolio in liquidation of New York Fund and (iii) the subsequent
dissolution of New York Fund.
