As filed with the Securities and Exchange Commission on May 28, 1999
Registration Nos. 002-99861
811-04395
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 41
to the
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
and
POST-EFFECTIVE AMENDMENT NO. 42
to the
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
SMITH BARNEY MUNI FUNDS
(Formerly, Smith Barney Muni Bond Funds)
(Exact name of Registrant as specified in the Declaration of Trust)
388 Greenwich Street, New York, New York 10013
(Address of principal executive offices)
(212) 816-6474
(Registrant's telephone number)
Christina T. Sydor
388 Greenwich Street New York, New York 10013 (22nd floor)
(Name and address of agent for service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i)
[X] on July 29, 1999 pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective
amendment.
SMITH BARNEY MUTUAL FUNDS
NATIONAL PORTFOLIO
LIMITED TERM PORTFOLIO
FLORIDA PORTFOLIO
GEORGIA PORTFOLIO
NEW YORK PORTFOLIO
PENNSYLVANIA PORTFOLIO
CALIFORNIA MONEY MARKET PORTFOLIO
NEW YORK MONEY MARKET PORTFOLIO
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
Part A
<PAGE>
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
- ----------------------------------------------------------
Prospectus Smith Barney
Mutual Funds
July 29, 1999 National Portfolio
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Investments, risks and performance.......... 4
More on the fund's investments.............. 8
Management.................................. 9
Choosing a class of shares to buy........... 10
Comparing the fund's classes................ 11
Sales charge................................ 12
More about deferred sales charges........... 15
Buying shares............................... 16
Exchanging shares........................... 17
Redeeming shares............................ 18
Other things to know about
share transactions..................... 20
Dividends, distributions and taxes.......... 22
Share pric.................................. 23
Financial highlights........................ 24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
1
<PAGE>
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Investments, risks and performance
- --------------------------------------------------------------------------------
Principal investment strategies
Investment objective The fund seeks as high a level of income exempt from
federal income taxes as is consistent with prudent investing.
Key investments The fund invests primarily in "municipal securities," which are
debt obligations issued by any of the 50 states and their political
subdivisions, agencies and public authorities. The interest on these
securities is exempt from federal income tax. As a result, the interest rate on
these securities normally is lower than it would be if the securities were
subject to federal taxation. The fund may invest in municipal securities of
varying maturities, but typically focuses on municipal securities that have
remaining maturities at the time of purchase of from five to more than thirty
years. The fund invests exclusively in municipal securities that are rated
investment grade at the time of purchase or are of comparable quality if
unrated. At least two-thirds of the municipal securities must be rated, at the
time of purchase, within the three highest investment grade rating categories.
Selection process The manager selects securities primarily by identifying
undervalued sectors and individual securities, while also selecting securities
it believes will benefit from changes in market conditions. In selecting
individual securities, the manager:
. Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit
opportunities in the municipal bond market
. Considers the potential impact of supply/demand imbalances for
obligations of different states, the yield available for securities
with different maturities and a security's maturity in light of the
outlook for the issuer and its sector and interest rates
. May trade between general obligation and revenue bonds and among
various revenue bond sectors, such as housing, hospital and industrial
development, based on their apparent relative values and their impact
on the level of dividends generated by the overall portfolio
. Identifies individual securities with the most potential for added
value, such as those involving unusual situations, new issuers, the
potential for credit upgrades, unique structural characteristics or
innovative features
2
<PAGE>
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Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Interest rates rise, causing the value of the fund's portfolio to
decline
. The issuer of a security owned by the fund defaults on its obligation
to pay principal and/or interest or the security's credit rating is
downgraded
. Unfavorable legislation affects the tax-exempt status of municipal
bonds
. The manager's judgment about the attractiveness, value or income
potential of a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal
taxation. The fund may realize taxable gains on the sale of its securities or on
transactions in futures contracts. Some of the fund's income may be subject to
the federal alternative minimum tax. In addition, distributions of the fund's
income and gains will be subject to state personal income taxation.
Who may want to invest The fund may be an appropriate investment if you:
. Are in a high federal tax bracket seeking income exempt from federal
taxation
. Currently have exposure to other asset classes and are seeking to broaden
your investment portfolio
. Are willing to accept the risks of municipal securities but are seeking to
diversify your investment among issuers of different states
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of the
past 10 calendar years. Class B, L and Y shares would have different
performance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return.
[BAR GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998
5% 5% 5% 5% 5% 5% 5% 5% 5%
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
Year to date: xx% through 6/30/99
Risk return table
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged
index of municipal bonds, and the Lipper National Municipal Fund Average (the
"Lipper Average"), an average composed of the fund's peer group of mutual funds.
This table assumes imposition of the maximum sales charge applicable to the
class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
- --------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since inception Inception date
- --------------------------------------------------------------------------------
A 8/20/86
- --------------------------------------------------------------------------------
B n/a n/a 11/7/94
- --------------------------------------------------------------------------------
L n/a n/a 1/5/93
- --------------------------------------------------------------------------------
Y n/a n/a [xx/xx/xx]
- --------------------------------------------------------------------------------
Lehman Index *
- --------------------------------------------------------------------------------
Lipper *
Average
*Index comparison begins on April 30, 1998.
4
<PAGE>
Fees table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases (as 4.00% None 1.00% None
a % of offering price)
Maximum deferred sales charge (load) (as a % of the None* 4.50% 1.00% None
lower of net asset value at purchase or redemption)
Annual fund operating expenses
(expenses deducted from fund assets)
Management fee** 0.45% 0.45% 0.45% 0.45%
Distribution and service (12b-1) fees 0.15% 0.65% 0.70% None
Other expenses ----- ----- ----- -----
Total annual fund operating expenses ===== ===== ===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
5
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Municipal securities Municipal securities include debt obligations issued by
certain governmental issuers such as Puerto Rico, the Virgin Islands and Guam.
The municipal securities in which the fund invests include general obligation
bonds, revenue bonds and municipal leases. These securities may pay interest at
fixed, variable or floating rates. The fund may also hold zero coupon
securities which pay no interest during the life of the obligation but trade at
prices below their stated maturity value.
Other debt securities The fund may invest up to 20% of its assets in debt
securities which are issued or guaranteed by the full faith and credit of the
U.S. government. These securities will generally be subject to federal and
state taxation.
Derivative contracts The fund may, but need not, use derivative contracts, such
as financial futures, for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value of
portfolio securities due to changes in interest rates
. As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
The other parties to certain futures present the same types of default risk as
issuers of fixed income securities.
The fund may also invest in inverse floating rate securities. These securities
pay interest at a rate which moves in the opposite direction from movements in
market interest rates. Even a small investment in futures or in certain inverse
floaters can have a big impact on a fund's interest rate exposure. Therefore,
using futures or inverse floaters can disproportionately increase losses and
reduce opportunities for gains when interest rates are changing. The fund may
not fully benefit from or may lose money on futures or inverse floaters used for
hedging purposes if changes in their value do not correspond accurately to
changes in the value of the fund's holdings. Futures and inverse floaters can
also make a fund less liquid and harder to value, especially in declining
markets.
Defensive investing The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
6
<PAGE>
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Management
- --------------------------------------------------------------------------------
Manager The fund's investment adviser (the manager) is SSBC Fund Management
Inc., an affiliate of Salomon Smith Barney Inc. The manager's address is 388
Greenwich Street, New York, New York 10013. The manager selects the fund's
investments and oversees its operations. The manager and Salomon Smith Barney
are subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range
of financial services -- asset management, banking and consumer finance, credit
and charge cards, insurance, investments, investment banking and trading -- and
use diverse channels to make them available to consumer and corporate customers
around the world.
Peter M. Coffey, investment officer of SSBC Fund Management Inc. and managing
director of Salomon Smith Barney, has been responsible for the day-to-day
management of the fund's portfolio since November 1987. Mr. Coffey has 30 years
of experience with the manager or its predecessors.
Management fees During the fiscal year ended March 31, 1999, the manager
received an advisory fee equal to 0.45% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are
addressing the Year 2000 issue for their systems. The fund has been informed by
other service providers that they are taking similar measures. Although the
fund does not expect the Year 2000 issue to adversely affect it, the fund cannot
guarantee that the efforts of the fund, which are limited to requesting and
receiving reports from its service providers, or the efforts of its service
providers to correct the problem will be successful.
7
<PAGE>
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Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Initial Additional
Classes A, B, L Class Y All Classes
------------------------------ -----------
<S> <C> <C> <C>
General $1,000 $15 million $50
- --------------------------------------------------------------------------------------
Monthly Systematic Investment Plans $ 25 n/a $25
- --------------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $ 50 n/a $50
- --------------------------------------------------------------------------------------
Uniform Gift to Minors Accounts $ 50 $15 million $50
- --------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different
compensation depending upon which class you choose.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Key .Initial sales charge . No initial sales . Initial sales . No initial or
features .You may qualify charge charge is lower deferred sales charge
for reduction or . Deferred sales than Class A . Must invest at
waiver of initial charge declines . Deferred sales least
sales charge over time charge for only 1 $15 million
. Lower annual . Converts to year . Lower annual
expenses than Class Class A after 8 . Does not expenses than the
B and Class L years convert to other classes
. Higher annual Class A
expenses than . Higher annual
Class A expenses than
- -----------------------------------------------------------------------------------------------------------------
Initial sales Up to 4.00%; None 1.00% None
charge reduced for large
purchases and
waived for certain
investors. No
charge for
purchases of
$500,000 or more
- -----------------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 4.50% 1% if you redeem None
sales charge $500,000 or more if charged when you within 1 year of
you redeem within redeem shares. purchase
1 year of purchase The charge is
reduced over time
and there is no
deferred sales
charge after 6 years
- -----------------------------------------------------------------------------------------------------------------
Annual 0.15% of average 0.65% of average 0.70% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
- -----------------------------------------------------------------------------------------------------------------
Exchange Class A shares of Class B shares of Class L shares of Class Y shares of
privilege most Smith Barney most Smith Barney most Smith most Smith Barney
funds funds Barney funds funds
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
9
<PAGE>
- --------------------------------------------------------------------------------
Sales charge:
- --------------------------------------------------------------------------------
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
- ----------------------------------------------------------------
Sales Charge as a % of
Offering Net amount
- ----------------------------------------------------------------
Amount of purchase price (%) invested (%)
Less than $25,000 4.00 4.17
- ----------------------------------------------------------------
$25,000 but less than $50,000 3.50 3.63
$50,000 but less than $100,000 3.00 3.09
- ----------------------------------------------------------------
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
- ----------------------------------------------------------------
$500,000 or more -0- -0-
- ----------------------------------------------------------------
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
. Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
10
<PAGE>
. Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if any,
as if all shares had been purchased at once. You may include purchases on which
you paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
11
<PAGE>
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of
purchase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
- -----------------------------------------------------------------
6th
Year after purchase 1st 2nd 3rd 4th 5th through
8th
- -----------------------------------------------------------------
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- --------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
- --------------------------------------------------------------------------------------
</TABLE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
12
<PAGE>
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
13
<PAGE>
<TABLE>
<S> <C>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will be
representa- rejected:
tive
. Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- ---------------------------------------------------------------------------------------
Through the Certain investors who are clients of the selling group are eligible to
fund's buy shares directly from the fund.
transfer
agent . Write the transfer agent at the following address:
Smith Barney National Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
. For more information, call the transfer agent at 1-800-451-2010.
- ---------------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith Barney
plan brokerage account or Smith Barney money market fund to buy
shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a transfer
date, Salomon Smith Barney, your dealer representative or the
transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult the SAI.
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney funds.
offers a Be sure to read the prospectus of the Smith Barney fund you are
distinctive exchanging into. An exchange is a taxable transaction.
family of
funds . You may exchange shares only for shares of the same class of
tailored to another Smith Barney fund. Not all Smith Barney funds offer all
help meet classes.
the varying
needs of . Not all Smith Barney funds may be offered in your state of
both large residence. Contact your Salomon Smith Barney Financial Consultant,
and small dealer representative or the transfer agent.
investors
. You must meet the minimum investment amount for each fund.
. If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers
(documents transferring ownership of certificates) before the
exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- ---------------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the time
additional of the exchange.
sales
charges
Your deferred sales charge (if any) will continue to be measured from
the date of your original purchase. If the fund you exchange into has
a higher deferred sales charge, you will be subject to that charge. If
you exchange at any time into a fund with a lower charge, the sales
charge will not be reduced.
- ---------------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010 between
9:00 a.m. and 5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset
value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- ---------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent at the
address on the opposite page.
- ---------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However, if
you recently purchased your shares by check, your
redemption proceeds will not be sent to you until your
original check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- ---------------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney National Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is
registered
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares in amounts up to $10,000 per day through the
transfer agent. You must complete an authorization form to
authorize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests
received after the close of regular trading on the Exchange are
priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You must submit a
new authorization form to change the bank account
designated to receive wire transfers and you may be asked to
provide certain other documents.
- ---------------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1%
per month of the value of your shares subject to a deferred
sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or
consult the SAI.
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
18
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges
by the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
[Ahold share certificates it will take longer to exchange or redeem shares.
19
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income.
You do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be
effective until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Transaction Federal tax status
- -----------------------------------------------------------------------------------
<S> <C>
Redemption or exchange of shares Usually capital gain or loss; long-term only if
shares owned more than one year
- -----------------------------------------------------------------------------------
Long-term capital gain Taxable gain
distributions
- -----------------------------------------------------------------------------------
Short-term capital gain Ordinary income
distributions
- -----------------------------------------------------------------------------------
Dividends Exempt if from interest on tax-exempt
securities, otherwise ordinary income
- -----------------------------------------------------------------------------------
</TABLE>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a taxable dividend,
because it will be taxable to you even though it may actually be a return of a
portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special
tax rules may apply, you should consult your tax adviser about your investment
in the fund.
20
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. A fund that uses
fair value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities. A security's
valuation may differ depending on the method used for determining value.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
21
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
- --------------------------------------------------------------------------------
For a Class A share of beneficial interest outstanding throughout each year
ended March 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $13.60 $13.67 $13.32 $13.35
- ------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment
income (loss)/(4)/ 0.79 0.81 0.81 0.82
Net realized and
unrealized gain (loss) 0.73 (0.09) 0.35 (0.01)
- ------------------------------------------------------------------------------
Total income (loss) from operations
1.52 0.72 1.16 0.81
- ------------------------------------------------------------------------------
Less distributions from:
Net investment
income (0.80) (0.79) (0.81) (0.84)
Net realized gains (0.16) -- -- --
- ------------------------------------------------------------------------------
Total distributions (0.96) (0.79) (0.81) (0.84)
- ------------------------------------------------------------------------------
Net asset value, end of year $14.16 $13.60 $13.67 $13.32
- ------------------------------------------------------------------------------
Total return 11.47% 5.41% 8.83% 6.38%
- ------------------------------------------------------------------------------
Net assets, end of
year (000)'s $ 371 $ 351 $ 378 $ 401
- ------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses/(1)/ 0.66% 0.70% 0.70% 0.60%
Net investment
income (loss) 5.61 5.92 5.88 6.30
- ------------------------------------------------------------------------------
Portfolio turnover rate 87% 31% 27% 54%
- ------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of beneficial interest outstanding throughout each
year ended March 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995/(1)(2)/
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, $13.61 $13.67 $13.33 $ 12.41
beginning of year
- ----------------------------------------------------------------------
Income (loss) from
operations: 0.70 0.74 0.73 0.33
Net investment
income 0.74 (0.08) 0.35 0.91
(loss)/(4)/
Net realized and
unrealized
gain (loss)
- ----------------------------------------------------------------------
Total income (loss) 1.44 0.66 1.08 1.24
- ----------------------------------------------------------------------
Less distributions
from: (0.73) (0.72) (0.74) (0.32)
Net investment (0.16) -- -- --
income
Net realized gains
- ----------------------------------------------------------------------
Total distributions (0.89) (0.72) (0.74) (0.32)
- ----------------------------------------------------------------------
Net asset value, end $14.16 $13.61 $13.67 $ 13.33
of year(1)
- ----------------------------------------------------------------------
Total return/(P)/ 10.80% 4.95% 8.26% 10.11%/++/
- ----------------------------------------------------------------------
Net assets, end of $ 20 $ 13 $ 12 $ 7
year (000)'s
- ----------------------------------------------------------------------
Ratios to average
net assets:
Expenses 1.29% 1.20% 1.19% 1.19%+
Net investment 4.95 5.42 5.37 5.75+
income
(loss)
- ----------------------------------------------------------------------
Portfolio turnover 87% 31% 27% 54%
- ----------------------------------------------------------------------
</TABLE>
(1) For the period from November 7, 1994 (inception date) to March 31, 1995.
(2) On November 7, 1994, the former Class E shares were renamed Class B shares.
(3) Total returns do not reflect sales loads or contingent deferred sales
charges,
(P)Total returns do not reflect sales loads or contingent deferred sales
charges.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
23
<PAGE>
- --------------------------------------------------------------------------------
For a Class L share/(1)/ of beneficial interest outstanding throughout
each year ended February 28:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.59 $13.65 $13.32 $13.33
- -------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)
Net realized and unrealized gain
(loss)
- -------------------------------------------------------------------------------
Total income (loss) from operations 1.43 0.65 1.07 0.73
- -------------------------------------------------------------------------------
Less distributions from:
Net investment
income
Net realized gains
- -------------------------------------------------------------------------------
Total distributions (0.86) (0.71) (0.74) (0.74)
- -------------------------------------------------------------------------------
Net assets value, end of year $14.16 $13.59 $13.65 $13.32
- -------------------------------------------------------------------------------
Total return/(P)/ 10.71% 4.90% 8.13% 5.80%
- -------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 16 $ 15 $ 17 $ 19
- -------------------------------------------------------------------------------
Ratios to average net assets:
Expenses
Net investment income
(loss)
- -------------------------------------------------------------------------------
Portfolio turnover rate 87% 31% 27% 54%
- -------------------------------------------------------------------------------
</TABLE>
(1) On June 12, 1998, the Class C shares were renamed Class L shares.
(P)Total returns do not reflect sales loads or contingent deferred sales
charges.
24
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of beneficial interest outstanding throughout each
year ended March 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of
year
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income
Net realized and unrealized
gain (loss)
- --------------------------------------------------------------------------------
Total income (loss) from
operations
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income
Net realized gains
- --------------------------------------------------------------------------------
Total distributions
- --------------------------------------------------------------------------------
Net asset value, end of year
- --------------------------------------------------------------------------------
Total return
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses
Net investment income (loss)
- --------------------------------------------------------------------------------
Portfolio turnover rate
- --------------------------------------------------------------------------------
</TABLE>
(1) From the period of [date] (inception date) to March 31, 1999.
(2) Annualized.
25
<PAGE>
National Portfolio
Salomon Smith Barney(SM)
a member of citigroup [Symbol]
National Portfolio
- -- an investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public
reference room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-04395)
[FD00000 7/99]
<PAGE>
[Logo]
-------------------
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
-------------------
Prospectus Smith Barney
Mutual Funds
- --------------------------------------------------------------------------------
July 29, 1999 Limited Term Portfolio
Class A, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Investment, risks and performance........................... 4
More on the fund's investments.............................. 8
Management.................................................. 9
Choosing a class of shares to buy........................... 10
Comparing the fund's classes................................ 11
Sales charge................................................ 12
More about deferred sales charges........................... 14
Buying shares............................................... 15
Exchanging shares........................................... 16
Redeeming shares............................................ 17
Other things to know about
share transactions......................................... 19
Dividends, distributions and taxes.......................... 21
Share price................................................. 22
Financial highlights........................................ 23
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Limited Term Portfolio
-1-
<PAGE>
- --------------------------------------------------------------------------------
Investments, risks and performance
- --------------------------------------------------------------------------------
Principal investment strategies
Investment objective The fund seeks to pay its shareholders as high a level of
income exempt from federal income taxes as is consistent with prudent investing.
Key investments The fund invests primarily in "municipal securities," which are
debt obligations issued by any of the 50 states and their political
subdivisions, agencies and public authorities. The interest on these securities
is exempt from federal income tax. As a result, the interest on these
securities normally is lower than it would be if the securities were subject to
federal taxation. The fund normally invests in securities that have remaining
maturities of 20 years or less and maintains a dollar-weighted average portfolio
maturity of between 3 and 10 years. The fund invests exclusively in municipal
securities that are rated investment grade at the time of purchase or are of
comparable quality if unrated. At least two-thirds of the municipal securities
must be rated, at the time of purchase, within the three highest investment
grade rating categories by a nationally recognized rating organization.
Selection process The manager selects securities primarily by identifying
undervalued sectors and individual securities, while also selecting securities
it believes will benefit from changes in market conditions. In selecting
individual securities, the manager:
. Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit opportunities
in the municipal bond market
. Considers the potential impact of supply/demand imbalances for fixed versus
variable rate securities and for obligations of different states, the yield
available for securities with different maturities and a security's maturity
in light of the outlook for the issuer and its sector and interest rates
. May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial development,
based on their apparent relative values
. Identifies individual securities with the most potential for added value,
such as those involving unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or innovative features
- -2-
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Interest rates rise, causing the value of the fund's portfolio to decline
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or the security's credit rating is downgraded
. Municipal securities fall out of favor with investors.
. Unfavorable legislation affects the tax-exempt status of municipal bonds
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal
taxation. The fund may realize taxable gains on the sale of its securities or
on transactions in futures contracts. Some of the fund's income may be subject
to the federal alternative minimum tax. In addition, distributions of the
fund's income and gains will be subject to state personal income taxation.
Who may want to invest
The fund may be an appropriate investment if you:
. Are a taxpayer in a high federal tax bracket seeking income exempt from
federal taxation
. Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio
. Are willing to accept the risks of municipal securities, but are seeking to
diversify your investment among issuers of different states
Limited Term Portfolio
-3-
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of the
past 10 calendar years. Class B, L and Y shares would have different
performance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return
[BAR GRAPH APPEARS HERE]
--------------------------------------------------------
Total Return: Class A Shares
89 5%
90 5%
91 5%
92 5%
93 5%
94 5%
95 5%
96 5%
97 5%
98 5%
Calendar years ended December 31
--------------------------------------------------------
Quarterly returns: Highest: xx% in ___ quarter 199X;
Lowest: xx% in ___ quarter 199X
Year to date: xx% through 6/30/99
Risk return table
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged
index of municipal bonds, and the Lipper Limited Term Municipal Fund Average
(the "Lipper Average"), an average composed of the fund's peer group of mutual
funds. This table assumes imposition of the maximum sales charge applicable to
the class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A 11/28/88
L n/a 1/5/93
Y n/a n/a 4/4/95
Lehman Index *
Lipper *
Average
*Index comparison begins on April 30, 1998.
</TABLE>
- -4-
<PAGE>
Fees table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------------------------------
(fees paid directly from your investment) Class A Class L* Class Y
<S> <C> <C> <C>
Maximum sales charge (load) imposed on purchases (as a % 2.00% 1.00% None
of offering price)
Maximum deferred sales charge (load) (as a % of the lower None* 1.00% None
of net asset value at purchase or redemption)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Annual fund operating expenses
- --------------------------------------------------------------------------------------------------------
(expenses deducted from fund assets)
<S> <C> <C> <C>
Management fee 0.50% 0.50% 0.50%
Distribution and service (12b-1) fees 0.15% 0.35% None
Other expenses ----- ----- -----
Total annual fund operating expenses ===== ===== =====
*You may buy Class A shares in amounts of $500,000 or more at net asset value (without an initial
charge) but if you redeem those shares within 12 months of their purchase, you will pay a deferred
sales charge of 1.00%.
</TABLE>
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Number of years you own your shares
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Class A (with or without redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
</TABLE>
Limited Term Portfolio
-5-
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
Municipal securities Municipal securities include debt obligations issued by
certain governmental issuers such as Puerto Rico, the Virgin Islands and Guam.
The municipal securities in which the fund invests include general obligation
bonds, revenue bonds and municipal leases. These securities may pay interest at
fixed, variable or floating rates.
Other debt securities The fund may invest up to 20% of its assets in debt
securities which are issued or guaranteed by the full faith and credit of the
U.S. government. These securities will generally be subject to federal and state
taxation. The fund may also invest in inverse floating rate securities.
Derivative contracts The fund may, but need not, use derivative contracts, such
as financial futures, for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market value of
portfolio securities due to changes in interest rates
. As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
The other parties to certain futures present the same types of default risk as
issuers of fixed income securities.
The fund may also hold zero coupon securities which pay no interest during the
life of the obligation but trade at prices below their stated maturity value.
Even a small investment in futures or inverse floaters with leverage features
can have a big impact on a fund's interest rate exposure. Therefore, using
futures or inverse floaters can disproportionately increase losses and reduce
opportunities for gains when interest rates are changing. The fund may not fully
benefit from or may lose money on futures or inverse floaters used for hedging
purposes if changes in their value do not correspond accurately to changes in
the value of the fund's holdings. Futures and inverse floaters can also make a
fund less liquid and harder to value, especially in declining markets.
Defensive investing The fund may depart from its principal investment strategies
in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
- -6-
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment adviser is SSBC Fund Management Inc., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial
services -- asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
Peter M. Coffey, investment officer of SSBC Fund Management Inc. and managing
director of Salomon Smith Barney, has been responsible for the day-to-day
management of the fund's portfolio since the fund commenced operations in April
1994. Mr. Coffey has 30 years of experience with the manager or its
predecessors.
Management fees During the fiscal year ended March 31, 1999, the manager
received an advisory fee equal to 0.50% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
Limited Term Portfolio
-7-
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among three classes of shares: Classes A, L and Y. Classes A and
L have different sales charges and expenses, allowing you to choose the class
that best meets your needs. Which class is more beneficial to an investor
depends on the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class L shares, more of your purchase amount (compared to Class A shares)
will be immediately invested. This may help offset the higher expenses of
Class L shares, but only if the fund performs well. Class L shares do not
convert to Class A shares.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Initial Additional
- -------------------------------------------------------------------------------------------------------------------
Classes A, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
Uniform Gift to Minors Account $ 50 $15 million $50
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- -8-
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class L Class Y
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Key features . Initial sales charge . Initial sales charge is lower . No initial or deferred
. You may qualify for reduction or than Class A sales charge
waiver of initial sales charge . Deferred sales charge for only . Must invest at least $15
. Lower annual expenses than 1 year million
Class L . Does not convert to Class A . Lower annual expenses than
. Higher annual expenses than the other classes
Class A
Initial sales charge Up to 2.00%; reduced for large 1.00% None
purchases and waived for certain
investors. No charge for
purchases of $500,000 or more
Deferred sales charge 1% on purchases of $500,000 or 1% if you redeem within 1 year of None
more if you redeem within 1 year purchase
of purchase
Annual distribution and 0.15% of average daily net assets 0.35% of average daily net assets None
service fees
Exchangeable Class A shares of most Smith Class L shares of most Smith Class Y shares of most Smith
privilege* Barney funds Barney funds Barney funds
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Limited Term Portfolio
-9-
<PAGE>
- --------------------------------------------------------------------------------
Sales charge:
- --------------------------------------------------------------------------------
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You do not pay a sales charge on the fund's distributions or
dividends you reinvest in additional Class A shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $500,000 2.00 2.04
$500,000 or more -0- -0-
- --------------------------------------------------------------------------------
</TABLE>
Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
. Accumulation privilege - lets you combine the current value of Class A
shares owned
. by you, or
. by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
. Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if any,
as if all shares had been purchased at once. You may include purchases on which
you paid a sales charge within 90 days before you sign the letter.
- -10-
<PAGE>
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
Limited Term Portfolio
-11-
<PAGE>
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. On certain distributions from a retirement plan
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
- -12-
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a You should contact your Salomon Smith Barney Financial Consultant or
Salomon Smith dealer representative to open a brokerage account and make
Barney arrangements to buy shares.
Financial
representative If you do not provide the following information, your order will be
rejected:
. Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- -----------------------------------------------------------------------------------------
Through the Certain investors who are clients of the selling group are eligible
fund's to buy shares directly from the fund.
transfer agent
. Write the transfer agent at the following address:
Smith Barney Limited Term Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
. For more information, call the transfer agent at 1-800-451-2010.
- ------------------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer representative or
systematic the transfer agent to transfer funds automatically from a regular
investment plan bank account, cash held in a Salomon Smith Barney brokerage account
or Smith Barney money market fund to buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative or
the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult
the SAI.
- ------------------------------------------------------------------------------------------
</TABLE>
Limited Term Portfolio
-13-
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Smith Barney You should contact your Salomon Smith Barney Financial Consultant or
offers a dealer representative to exchange into other Smith Barney funds. Be
distinctive sure to read the prospectus of the Smith Barney fund you are
family of exchanging into. An exchange is a taxable transaction.
funds
tailored to . You may exchange shares only for shares of the same class of
help meet another Smith Barney fund. Not all Smith Barney funds offer all
the varying classes.
needs of
both large . Not all Smith Barney funds may be offered in your state of
and small residence. Contact your Salomon Smith Barney Financial Consultant,
investors dealer representative or the transfer agent.
. You must meet the minimum investment amount for each fund.
. If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock powers
(documents transferring ownership of certificates) before the exchange
is effective.
. The fund may suspend or terminate your exchange privilege if you
engage in an excessive pattern of exchanges.
- ------------------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the time
additional of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be measured from
the date of your original purchase. If the fund you exchange into has
a higher deferred sales charge, you will be subject to that charge.
If you exchange at any time into a fund with a lower charge, the sales
charge will not be reduced.
- ------------------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible to
exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New York Stock Exchange is
open. Call the transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after the close of
regular trading on the Exchange are priced at the net asset value next
determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- ------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account, contact
your dealer representative or write to the transfer agent at the
address on the opposite page.
</TABLE>
- -14-
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Generally Contact your Salomon Smith Barney Financial Consultant or dealer
representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers before
the redemption is effective.
If the shares are held by a fiduciary or corporation, other documents
may be required.
Your redemption proceeds will be sent within three business days after
your request is received in good order. However, if you recently
purchased your shares by check, your redemption proceeds will not be
sent to you until your original check clears, which may take up to 15
days.
If you have a Salomon Smith Barney brokerage account, your redemption
proceeds will be placed in your account and not reinvested without
your specific instruction. In other cases, unless you direct
otherwise, your redemption proceeds will be paid by check mailed to
your address of record.
- ------------------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to the
transfer agent at the following address:
Smith Barney Limited Term Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of shares to
be redeemed
. Signatures of each owner exactly as the account is registered
</TABLE>
Limited Term Portfolio
-15-
<PAGE>
<TABLE>
<S> <C>
By If you do not have a brokerage account, you may be eligible to redeem
telephone shares in amounts up to $10,000 per day through the transfer agent.
You must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by telephone on
any day the New York Stock Exchange is open. Call the transfer agent
at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
Requests received after the close of regular trading on the Exchange
are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You must submit a new authorization form to
change the bank account designated to receive wire transfers and you
may be asked to provide certain other documents.
Automatic You can arrange for the automatic redemption of a portion of your
cash shares on a monthly or quarterly basis. To qualify you must own
withdrawal shares of the fund with a value of at least $10,000 and each automatic
plans redemption must be at least $50. If your shares are subject to a
deferred sales charge, the sales charge will be waived if your
automatic payments do not exceed 1% per month of the value of your
shares subject to a deferred sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
</TABLE>
- -16-
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
Limited Term Portfolio
-17-
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
- -18-
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or loss; long-term only if shares
owned more than one year
Long-term capital gain Taxable gain
distributions
Short-term capital gain Ordinary income
distributions
Dividends Exempt if from interest on tax-exempt securities,
otherwise ordinary income
- ---------------------------------------------------------------------------------------------
</TABLE>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a taxable dividend,
because it will be taxable to you even though it may actually be a return of a
portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
Limited Term Portfolio
-19-
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. A fund that uses
fair value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities. A security's
valuation may differ depending on the method used for determining value.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- -20-
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request). As of March 31, 1999, no
Class Y shares were outstanding and information is available only for the fiscal
year ending March 31, 1996.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For a Class A share of beneficial interest outstanding throughout each year ended March 31:
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of year $ 6.54 $ 6.61 $ 6.54 $ 6.55
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment
income (loss) 0.34 0.34 0.36 0.36
Net realized and
unrealized gain (loss) 0.22 (0.06) 0.07 --
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations
0.56 0.28 0.43 0.36
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income (0.34) (0.35) (0.36) (0.37)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.34) (0.35) (0.36) (0.37)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 6.76 $ 6.54 $ 6.61 $ 6.54
- ---------------------------------------------------------------------------------------------------------------------------
Total return(P) 8.66% 4.30% 6.65% 5.69%
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of
year (millions) $ 257 $ 260 $ 278 $ 245
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses 0.74% 0.75% 0.75% 0.61%
Net investment
income 5.14 5.16 5.43 5.61
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 58% 46% 26% 22%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On October 10, 1994, the former Class C shares were exchanged into Class A
shares.
(P) Total returns do not reflect sales loads or contingent deferred sales
charges.
Limited Term Portfolio
-21-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For a Class L share(1) of beneficial interest outstanding throughout each year ended March 31:
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996(1) 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 6.54 $ 6.61 $ 6.54 $ 6.54
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)
Net realized and unrealized gain 0.33 0.33 0.35 0.35
(loss) 0.21 (0.06) 0.06 0.00
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.54 0.27 0.41 0.35
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income (0.32) (0.34) (0.34) (0.35)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.32) (0.34) (0.34) (0.35)
- ---------------------------------------------------------------------------------------------------------------------------
Net assets value, end of year $ 6.76 $ 6.54 $ 6.61 $ 6.54
- ---------------------------------------------------------------------------------------------------------------------------
Total return(P) 8.36% 4.10% 6.54% 5.51%
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (millions) $ 31 $ 28 $ 29 $ 27
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.99% 0.97% 0.96% 0.89%
Net investment income
4.89 4.94 5.22 5.34
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 58% 46% 26% 22%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On November 7, 1994, the former Class B shares were renamed Class C
shares. On June 12, 1998, the Class C shares were renamed Class L shares.
(P) Total returns do not reflect sales loads or contingent deferred sales
charges.
- -22-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For a Class Y share of beneficial interest outstanding throughout each year ended March 31:
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1996(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of year $ 6.56
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations: 0.37
Net investment income
Net realized and unrealized 0.06
gain (loss)
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from 0.43
operations
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from: (0.37)
Net investment income
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.37)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 6.62
- ---------------------------------------------------------------------------------------------------------------------------
Total return 6.63%++
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (millions) $ 0.2
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 0.58%+
Net investment income (loss) 5.56%+
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 26%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) From the period of April 4, 1995 (inception date) to March 31, 1996. As
of April 11, 1996, there was complete redemption of Class Y shares. As
of March 31, 1999, no Class Y shares were outstanding and accordingly, no
comparable information is available for periods after April 11, 1996.
(P) Total returns do not reflect sales loads or contingent deferred sales
charges.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized
Limited Term Portfolio
-23-
<PAGE>
Salomon Smith Barney(SM)
a member of citigroup [Symbol]
Limited Term Portfolio
- -- an investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public
reference room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-04395)
[FD00000 7/99]
- ---------------------
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
- ---------------------
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
July 29, 1999 Florida Portfolio
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PG$PCN>
CONTENTS
<TABLE>
<S> <C>
Investments, risks and performance...........4
More on the fund's investments...............8
Management...................................9
Choosing a class of shares to buy...........10
Comparing the fund's classes................11
Sales charge................................12
More about deferred sales charges...........15
Buying shares...............................16
Exchanging shares...........................17
Redeeming shares............................18
Other things to know about
share transactions........................20
Dividends, distributions and taxes..........22
Share price.................................24
Financial highlights........................24
</TABLE>
YOU SHOULD KNOW:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Florida Portfolio -3-
<PG$PCN>
INVESTMENTS, RISKS AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES
Investment objective The fund seeks as high a level of income exempt from
federal income taxes as is consistent with prudent investing.
Key investments The fund invests primarily in Florida municipal securities.
These include securities issued by the State of Florida and certain other
municipal issuers, political subdivisions, agencies and public authorities that
pay interest which is exempt from federal income taxes. The fund generally
favors municipal securities which enable its shares to be exempt from the
Florida intangibles tax. The fund invests exclusively in municipal securities
that are rated investment grade at the time of purchase or are of comparable
quality if unrated. Investment grade bonds are those rated in any of the four
highest long-term rating categories or, if unrated, of comparable quality. At
least two-thirds of the municipal securities must be rated, at the time of
purchase, within the three highest investment grade rating categories by a
nationally recognized rating organization.
Selection process The manager selects securities primarily by identifying
undervalued sectors and individual securities, while also selecting securities
it believes will benefit from changes in market conditions. In selecting
individual securities, the manager:
- - Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit opportunities
in the municipal bond market
- - May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial development,
based on their apparent relative values and their impact on the level of
dividends generated by the overall portfolio
- - Identifies individual securities with the most potential for added value,
such as those involving unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or innovative features
- - Considers the yield available for securities with different maturities and a
security's maturity in light of the outlook for the issuer and its sector and
interest rates
- -4-
<PG$PCN>
RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
- - Interest rates rise, causing the value of the fund's portfolio to decline
- - The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or the security's credit rating is downgraded
- - Florida municipal securities fall out of favor with investors. The fund will
suffer more than a national municipal fund from adverse events affecting
Florida municipal issuers
- - Unfavorable legislation affects the tax-exempt status of municipal bonds
- - The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal
taxation. Depending upon the composition of the fund's portfolio, shares of the
fund may be subject to the Florida intangibles tax. The fund may realize taxable
gains on the sale of its securities or on transactions in futures contracts.
Some of the fund's income may be subject to the federal alternative minimum tax.
In addition, distributions of the fund's income and gains will be taxable to
investors in states other than Florida.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund concentrates its assets in fewer issuers, the fund will be more
susceptible to negative events affecting those issuers.
Who may want to invest The fund may be an appropriate investment if you:
- - Are a Florida resident in a high federal tax bracket seeking income exempt
from federal taxation
- - Currently have exposure to other asset classes and are seeking to broaden
your investment portfolio
- - Are willing to accept the risks of municipal securities, including the risks
of concentrating in a single state
Florida Portfolio -5-
<PG$PCN>
RISK RETURN BAR CHART
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of the
past 7 full calendar years. Class B, L and Y shares would have different
performance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return.
TOTAL RETURN: CLASS A SHARES
[GRAPH]
<TABLE>
<S> <C> <C>
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter 199X
Year to date: xx% through 6/30/99
</TABLE>
RISK RETURN TABLE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged
index of municipal bonds and the Lipper Florida Municipal Fund Average (the
"Lipper Average"), an average composed of the fund's peer group of mutual funds.
This table assumes imposition of the maximum sales charge applicable to the
class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
<TABLE>
<CAPTION>
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A n/a 4/2/91
B n/a n/a 11/16/94
L n/a n/a 1/5/93
Y n/a n/a [xx/xx/xx]
Lehman Index *
Lipper Average *
</TABLE>
*Index comparison begins on April 30, 1998.
- -6-
<PG$PCN>
FEES AND EXPENSES
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases (as
a % of offering price) 4.00% None 1.00% None
Maximum deferred sales charge (load) (as a % of the
lower of net asset value at purchase or redemption) None* 4.50% 1.00% None
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from assets)
Management fee 0.50% 0.50% 0.50% 0.50%
Distribution and service (12b-1) fees 0.15% 0.65% 0.70% None
Other expenses ----- ----- ----- -----
Total annual fund operating expenses ===== ===== ===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the period shown
- - Your investment has a 5% return each year
- - You reinvest all distributions and dividends without a sales charge
- - The fund's operating expenses remain the same
NUMBER OF YEARS YOU OWN YOUR SHARES
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
</TABLE>
Florida Portfolio -7-
<PG$PCN>
MORE ON THE FUND'S INVESTMENTS
Florida municipal securities Florida municipal securities include debt
obligations issued by certain non-Florida governmental issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on these bonds is exempt from
federal income tax. As a result, the interest rate on these bonds normally is
lower than it would be if the bonds were subject to taxation. The Florida
municipal securities in which the fund invests include general obligation bonds,
revenue bonds and municipal leases. These securities may pay interest at fixed,
variable or floating rates. The fund may also hold zero coupon securities which
pay no interest during the life of the obligation but trade at prices below
their stated maturity value.
Other debt securities The fund may invest up to 35% of its assets in municipal
securities of non-Florida issuers. These will generally be exempt from federal
taxation but not from the Florida intangibles tax. The fund may also invest up
to 20% of its assets in debt securities which are issued or guaranteed by the
full faith and credit of the U.S. government. These securities will generally be
subject to federal and state taxation.
Derivative contracts The fund may, but need not, use derivative contracts, such
as financial futures, for any of the following purposes:
- - To hedge against the economic impact of adverse changes in the market value
of portfolio securities due to changes in interest rates
- - As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
The other parties to certain futures present the same types of default risk as
issuers of fixed income securities.
The fund may invest in inverse floating rate securities. These securities pay
interest at a rate which moves in the opposite direction from movements in
market interest rates. Even a small investment in futures or in certain inverse
floaters with leverage features can have a big impact on a fund's interest rate
exposure. Therefore, using futures or inverse floaters can disproportionately
increase losses and reduce opportunities for gains when interest rates are
changing. The fund may not fully benefit from or may lose money on futures or
inverse floaters used for hedging purposes if changes in their value do not
correspond accurately to changes in the value of the fund's holdings. Futures
and inverse floaters can also make a fund less liquid and harder to value,
especially in declining markets.
Defensive investing The fund may depart from its principal investment strategies
in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
- -8-
<PG$PCN>
MANAGEMENT
Manager The fund's investment adviser (the manager) is SSBC Fund Management
Inc., an affiliate of Salomon Smith Barney Inc. The manager's address is 388
Greenwich Street, New York, New York 10013. The manager selects the fund's
investments and oversees its operations. The manager and Salomon Smith Barney
are subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range of
financial services -- asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading -- and use
diverse channels to make them available to consumer and corporate customers
around the world.
Peter M. Coffey, investment officer of SSBC Fund Management Inc. and managing
director of Salomon Smith Barney, has been responsible for the day-to-day
management of the fund's portfolio since the fund commenced operations in April
1991. Mr. Coffey has 30 years of experience with the manager or its
predecessors.
Management fees During the fiscal year ended March 31, 1999, the manager
received an advisory fee equal to 0.50% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund which are limited to requesting and receiving reports
from its service providers or the efforts of its service providers to correct
the problem will be successful.
Florida Portfolio -9-
<PG$PCN>
CHOOSING A CLASS OF SHARES TO BUY
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
- - If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
- - For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
- - Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
- - A Salomon Smith Barney Financial Consultant
- - An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
- - The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
-------------------------------------------------
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
Uniform Gift to Minors Accounts $50 $15 million $50
</TABLE>
- -10-
<PG$PCN>
COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different
compensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features - Initial sales charge - No initial sales - Initial sales - No initial or deferred
- You may qualify for charge charge is lower sales charge
reduction or waiver of - Deferred sales than Class A - Must invest at least
initial sales charge charge declines over - Deferred sales $15 million
- Lower annual time charge for only 1 - Lower annual
expenses than Class - Converts to year expenses than the
B and Class L Class A after 8 years - Does not convert other classes
- Higher annual to Class A
expenses than Class - Higher annual
A expenses than
Class A
Initial sales Up to 4.00%; reduced None 1.00% None
charge for large purchases
and waived for certain
investors. No charge
for purchases of
$500,000 or more
Deferred 1% on purchases of Up to 4.50% charged 1% if you redeem None
sales charge $500,000 or more if when you redeem within 1 year of
you redeem within 1 shares. The charge purchase
year of purchase is reduced over time
and there is no
deferred sales
charge after 6 years
Annual 0.15% of average daily 0.65% of average 0.70% of average None
distribution net assets daily net assets daily net assets
and service
fees
Exchange Class A shares of Class B shares of Class L shares of Class Y shares of most
privilege most Smith Barney most Smith Barney most Smith Barney Smith Barney funds
funds funds funds
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Florida Portfolio -11-
<PG$PCN>
SALES CHARGE:
CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 4.00 4.17
$25,000 but less than $50,000 3.50 3.63
$50,000 but less than $100,000 3.00 3.09
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more -0- -0-
</TABLE>
Investments of $500,000 or more. You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
- - Accumulation privilege - lets you combine the current value of Class A shares
owned
- by you, or
- by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
- -12-
<PG$PCN>
- - Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases
on which you paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
- - Employees of members of the NASD
- - Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
- - Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
Florida Portfolio -13-
<PG$PCN>
CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------------
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
-------------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
-------------------------------------------------------------------------------------------
</TABLE>
CLASS L SHARES
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%.
CLASS Y SHARES
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you must
initially invest $5,000,000.
- -14-
<PG$PCN>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
- - Shares exchanged for shares of another Smith Barney fund
- - Shares representing reinvested distributions and dividends
- - Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
- - On payments made through certain systematic withdrawal plans
- - On certain distributions from a retirement plan
- - For involuntary redemptions of small account balances
- - For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Florida Portfolio -15-
<PG$PCN>
BUYING SHARES
<TABLE>
<S> <C>
Through a You should contact your Salomon Smith Barney Financial
Salomon Consultant or dealer representative to open a brokerage
Smith account and make arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order
represen- will be rejected:
tative
- Class of shares being bought
- Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------------
Through Certain investors who are clients of the selling group are
the fund's eligible to buy shares directly from the fund.
transfer
agent - Write the transfer agent at the following address:
Smith Barney Florida Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
- Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
- For more information, call the transfer agent at 1-800-451-2010.
- --------------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer representative
systematic or the transfer agent to transfer funds automatically from a regular
investment bank account, cash held in a Salomon Smith Barney brokerage account
plan or Smith Barney money market fund to buy shares on a regular basis.
- Amounts transferred should be at least: $25 monthly or $50
quarterly
- If you do not have sufficient funds in your account on a transfer
date, Salomon Smith Barney, your dealer representative or the
transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult
the SAI.
</TABLE>
- -16-
<PG$PCN>
EXCHANGING SHARES
<TABLE>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant or
Barney dealer representative to exchange into other Smith Barney funds. Be
offers a sure to read the prospectus of the Smith Barney fund you are
distinctive exchanging into. An exchange is a taxable transaction.
family of
funds - You may exchange shares only for shares of the same class of
tailored to another Smith Barney fund. Not all Smith Barney funds offer all
help meet classes.
the
varying - Not all Smith Barney funds may be offered in your state of
needs of residence. Contact your Salomon Smith Barney Financial Consultant,
both large dealer representative or the transfer agent.
and small
investors - You must meet the minimum investment amount for each fund.
- If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock powers
(documents transferring ownership of certificates) before the
exchange is effective.
- The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- ---------------------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the time of
additional the exchange.
sales
charges Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the fund you exchange
into has a higher deferred sales charge, you will be subject to that
charge. If you exchange at any time into a fund with a lower charge, the
sales charge will not be reduced.
- ---------------------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to exchange
telephone shares through the transfer agent. You must complete an authorization
form to authorize telephone transfers. If eligible, you may make telephone
exchanges on any day the New York Stock Exchange is open. Call the
transfer agent at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
(Eastern time). Requests received after the close of regular trading on
the Exchange are priced at the net asset value next determined.
You can make telephone exchanges only between accounts that have identical
registrations.
- ---------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account, contact
your dealer representative or write to the transfer agent at the
address on the opposite page.
</TABLE>
Florida Portfolio -17-
<PG$PCN>
REDEEMING SHARES
<TABLE>
<S> <C>
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation,
other documents may be required.
Your redemption proceeds will be sent within three
business days after your request is received in good
order. However, if you recently purchased your shares by
check, your redemption proceeds will not be sent to you
until your original check clears, which may take up to 15
days.
If you have a Salomon Smith Barney brokerage account,
your redemption proceeds will be placed in your account
and not reinvested without your specific instruction. In
other cases, unless you direct otherwise, your redemption
proceeds will be paid by check mailed to your address of
record.
- ---------------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written
requests to the transfer agent at the following address:
Smith Barney Florida Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor
Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
- Your account number
- The class of shares and the dollar amount or number of
shares to be redeemed
- Signatures of each owner exactly as the account is
registered
</TABLE>
- -18-
<PG$PCN>
<TABLE>
<S> <C>
By If you do not have a brokerage account, you may be
telephone eligible to redeem shares in amounts up to $10,000 per
day through the transfer agent. You must complete an
authorization form to authorize telephone redemptions. If
eligible, you may request redemptions by telephone on any
day the New York Stock Exchange is open. Call the
transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at
the net asset value next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You must submit a
new authorization form to change the bank account
designated to receive wire transfers and you may be asked
to provide certain other documents.
- -----------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion
cash of your shares on a monthly or quarterly basis. To
withdrawal qualify you must own shares of the fund with a value of
plans at least $10,000 and each automatic redemption must be at
least $50. If your shares are subject to a deferred sales
charge, the sales charge will be waived if your automatic
payments do not exceed 1% per month of the value of your
shares subject to a deferred sales charge.
The following conditions apply:
- Your shares must not be represented by certificates
- All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult
the SAI.
</TABLE>
Florida Portfolio -19-
<PG$PCN>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
- Name of the fund
- Account number
- Class of shares being bought, exchanged or redeemed
- Dollar amount or number of shares being bought, exchanged or
redeemed
- Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include a
signature guarantee if you:
- - Are redeeming over $10,000 of shares
- - Are sending signed share certificates or stock powers to the transfer agent
- - Instruct the transfer agent to mail the check to an address different from the
one on your account
- - Changed your account registration
- - Want the check paid to someone other than the account owner(s)
- - Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
- -20-
<PG$PCN>
The fund has the right to:
- - Suspend the offering of shares
- - Waive or change minimum and additional investment amounts
- - Reject any purchase or exchange order
- - Change, revoke or suspend the exchange privilege
- - Suspend telephone transactions
- - Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
- - Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Florida Portfolio -21-
<PG$PCN>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends The fund pays dividends each month from its net investment income. The
fund generally makes capital gain distributions and pays dividends, if any, once
a year, typically in December. The fund may pay additional distributions and
dividends at other times if necessary for the fund to avoid a federal tax.
Capital gain distributions and dividends are reinvested in additional fund
shares of the same class you hold. The fund expects distributions to be
primarily from income. You do not pay a sales charge on reinvested distributions
or dividends. Alternatively, you can instruct your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer agent to have your
distributions and/or dividends paid in cash. You can change your choice at any
time to be effective as of the next distribution or dividend, except that any
change given to the transfer agent less than five days before the payment date
will not be effective until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
Florida currently does not impose a personal income tax on individuals. Thus,
individual shareholders of the fund will not be subject to any Florida state
income tax on distributions received from the fund.
Florida does currently impose an "intangibles tax" on certain securities and
other intangible assets owned by Florida residents. However, certain types of
municipal obligations of Florida issuers, U.S. Treasury securities and municipal
obligations issued by certain U.S. territories and possessions are exempt from
this intangibles tax. The fund seeks generally to select investments that will
enable its shares to be exempt from the Florida intangibles tax and attempts to
ensure that all of its assets held on the annual assessment date are exempt from
this tax. Certain of the fund's distributions will be taxable to corporate
shareholders that are subject to Florida corporate income tax.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or loss; long-term only if
shares owned more than one year
Long-term capital gain distributions Taxable gain
Short-term capital gain distributions Ordinary income
Dividends Exempt if from interest on tax-exempt securities,
otherwise ordinary income
</TABLE>
- -22-
<PG$PCN>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a taxable dividend,
because it will be taxable to you even though it may actually be a return of a
portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
Florida Portfolio -23-
<PG$PCN>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. A fund that uses
fair value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities. A security's
valuation may differ depending on the method used for determining value.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
- -24-
<PG$PCN>
For a Class A share of beneficial interest outstanding throughout each year
ended March 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1999 1998 1997 1996(1) 1995(2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $13.16 $13.24 $12.89 $12.82
- --------------------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment
income (loss)(4) 0.72 0.73 0.74 0.75
Net realized and
unrealized gain (loss) 0.72 (0.03) 0.35 0.08#
- --------------------------------------------------------------------------------------------------------
Total income (loss) from
operations 1.44 0.70 1.09 0.83
- --------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income (0.73) (0.73) (0.74) (0.76)
Net realized gains (0.13) (0.05) -- --
- --------------------------------------------------------------------------------------------------------
Total distributions (0.86) (0.78) (0.74) (0.76)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of year $13.74 $13.16 $13.24 $12.89
- --------------------------------------------------------------------------------------------------------
Total return(&) 11.15% 5.44% 8.65% 6.77%
- --------------------------------------------------------------------------------------------------------
Net assets, end of
year (000)'s $143 $127 $117 $108
- --------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses(*) 0.76% 0.85% 0.70% 0.61%
Net investment
income (loss) 5.28 5.56 5.62 5.97
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 59% 62% 47% 43%
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method because it
more accurately reflects the per share data for the period.
(2) On October 10, 1994, the former Class C shares were exchanged into Class A
shares.
(3) For the period from April 2, 1991 (inception date) to March 31, 1992.
# Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value less
than the net asset value at the beginning of the period.
* As a result of voluntary expense limitations, expense ratios would not
exceed 0.85% for Class A shares.
& Total returns do not reflect sales loads or contingent deferred sales
charges.
Florida Portfolio -25-
<PG$PCN>
For a Class B share of beneficial interest outstanding throughout each year
ended March 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1999 1998 1997 1996(1) 1995(2)(3)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.14 $13.23 $12.89 $11.91
- -----------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.65 0.65 0.68 0.30
Net realized and unrealized
gain (loss) 0.72 0.01 0.35 0.97#
- -----------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.37 0.64 1.03 1.27
- -----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.65) (0.68) (0.69) (0.29)
Net realized gains (0.13) (0.05) -- --
- -----------------------------------------------------------------------------------------------------
Total distributions (0.78) (0.73) (0.69) (0.29)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of year $13.73 $13.14 $13.23 $12.89
- -----------------------------------------------------------------------------------------------------
Total return(&) 10.59% 4.91% 8.09% 10.77%+
- -----------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $59 $51 $46 $2
- -----------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses* 1.28% 1.35% 1.20% 1.20%++
Net investment income (loss) 4.76 4.93 5.00 5.57++
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 59% 62% 47% 43%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method because it
more accurately reflects the per share data for the period.
(2) On November 7, 1994, the former Class B shares were renamed Class C shares.
(3) For the period from November 16, 1994 (inception date) to March 31, 1995.
# Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value less
than the net asset value at the beginning of the period. * As a result of
voluntary expense limitations, expense ratios would not exceed 1.35% for
Class B shares.
& Total returns do not reflect sales loads or contingent deferred sales
charges.
+ Total return is not annualized, as it may not be representative of the total
return for the year.
++ Annualized.
- -26-
<PG$PCN>
For a Class L share(1) of beneficial interest outstanding throughout each year
ended March 31:
<TABLE>
<CAPTION>
1999 1998(2) 1997 1996(1) 1995(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.14 $13.22 $12.89 $12.81
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.64 0.65 0.66 0.67
Net realized and unrealized gain (loss) 0.72 (0.01) 0.35 0.08#
- -------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.36 0.64 1.01 0.75
- -------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income (0.63) (0.67) (0.68) (0.67)
Net realized gains (0.13) (0.13) -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.76) (0.72) (0.68) (0.67)
- -------------------------------------------------------------------------------------------------------------------
Net assets value, end of year $13.74 $13.14 $13.22 $12.89
- -------------------------------------------------------------------------------------------------------------------
Total return(&) 10.51% 4.94% 7.96% 6.12%
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $9 $7 $3 $3
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses* 1.33% 1.40% 1.28% 1.25%
Net investment income
(loss) 4.71 4.84 5.04 5.40
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 59% 62% 47% 43%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) On June 12, 1998, the Class C shares were renamed Class L shares.
(3) For the period from January 5, 1993 (inception date) to March 31,1993.
# Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value less
than the net asset value at the beginning of the period.
* As a result of voluntary expense limitations, expense ratios would not
exceed 1.35% for Class L shares.
& Total returns do not reflect sales loads or contingent deferred sales
charges.
Florida Portfolio -27-
<PG$PCN>
For a Class Y share of beneficial interest outstanding throughout each year
ended March 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1999(1)
- ----------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of year
- ----------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income
Net realized and unrealized
gain (loss)
- ----------------------------------------------------------------------------------------------------
Total income (loss) from
operations
- ----------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income
Net realized gains
- ----------------------------------------------------------------------------------------------------
Total distributions
- ----------------------------------------------------------------------------------------------------
Net asset value, end of year
- ----------------------------------------------------------------------------------------------------
Total return
- ----------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s
- ----------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses
Net investment income (loss)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) From the period of [date] (inception date) to March 31, 1999.
(2) Annualized.
- -28-
<PG$PCN>
SALOMON SMITH BARNEY(SM)
a member of citigroup [Symbol]
Florida Portfolio
- -- an investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-04395)
[FD00000 7/99]
<PG$PCN>
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
July 29, 1999 Georgia Portfolio
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved
these securities or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
- -2-
<PG$PCN>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Investments, risks and performance.......................................4
More on the fund's investments...........................................8
Management...............................................................9
Choosing a class of shares to buy.......................................10
Comparing the fund's classes............................................11
Sales charge............................................................12
More about deferred sales charges.......................................15
Buying shares...........................................................16
Exchanging shares.......................................................17
Redeeming shares........................................................18
Other things to know about
share transactions....................................................20
Dividends, distributions and taxes......................................22
Share price.............................................................23
Financial highlights....................................................23
</TABLE>
YOU SHOULD KNOW:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Georgia Portfolio -3-
<PG$PCN>
INVESTMENTS, RISKS AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE The fund seeks as high a level of income exempt from
federal income taxes and Georgia personal income taxes as is consistent with
prudent investing.
KEY INVESTMENTS The fund invests primarily in intermediate-term and long- term
Georgia municipal securities. These include securities issued by the State of
Georgia and certain other municipal issuers, political subdivisions, agencies
and public authorities that pay interest which is exempt from Georgia state
personal income taxes. Intermediate-term and long-term municipal securities have
remaining maturities at the time of purchase of from five to more than thirty
years. The fund invests exclusively in municipal securities that are rated
investment grade at the time of purchase or are of comparable quality if
unrated. At least two-thirds of the municipal securities must be rated, at the
time of purchase, within the three highest investment grade rating categories by
a nationally recognized rating organization.
SELECTION PROCESS The manager selects securities primarily by identifying
undervalued sectors and individual securities, while also selecting securities
it believes will benefit from changes in market conditions. In selecting
individual securities, the manager:
- - Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit
opportunities in the municipal bond market
- - May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial
development, based on their apparent relative values and their impact on
the level of dividends generated by the overall portfolio
- - Identifies individual securities with the most potential for added value,
such as those involving unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or innovative features
- - Considers the yield available for securities with different maturities and
a security's maturity in light of the outlook for the issuer and its
sector and interest rates
- -4-
<PG$PCN>
RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may
not perform as well as other investments, if:
- - Interest rates rise, causing the value of the fund's portfolio to decline
- - The issuer of a security owned by the fund defaults on its obligation to
pay principal and/or interest or the security's credit rating is
downgraded
- - Georgia municipal securities fall out of favor with investors. The fund
will suffer more than a national municipal fund from adverse events
affecting Georgia municipal issuers
- - Unfavorable legislation affects the tax-exempt status of municipal bonds
- - The manager's judgment about the attractiveness, value or income potential
of a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal and
Georgia state taxation. The fund may realize taxable gains on the sale of its
securities or on transactions in futures contracts. Some of the fund's income
may be subject to the federal alternative minimum tax. In addition,
distributions of the fund's income and gains will be taxable to investors in
states other than Georgia.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund concentrates its assets in fewer issuers, the fund will be more
susceptible to negative events affecting those issuers.
WHO MAY WANT TO INVEST The fund may be an appropriate investment if you:
- - Are a Georgia taxpayer in a high federal tax bracket seeking income exempt
from Georgia and federal taxation
- - Currently have exposure to other asset classes and are seeking to broaden
your investment portfolio
- - Are willing to accept the risks of municipal securities, including the
risks of concentrating in a single state
Georgia Portfolio -5-
<PG$PCN>
RISK RETURN BAR CHART
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each
of the past 4 full calendar years. Class B, L and Y shares would have different
performance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return.
[TOTAL RETURN CLASS A SHARES GRAPH]
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter
199X Year to date: xx% through 6/30/99
RISK RETURN TABLE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged
index of municipal bonds, and the Lipper Georgia Municipal Fund Average (the
"Lipper Average"), an average composed of the fund's peer group of mutual funds.
This table assumes imposition of the maximum sales charge applicable to the
class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS -- Calendar Years Ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Class 1 year 5 years 10 years Since inception Inception date
A n/a 4/4/94
B n/a n/a 6/15/94
L n/a n/a 4/14/94
Y n/a n/a [xx/xx/xx]
Lehman Index *
Lipper
Average *
*Index comparison begins on April 30, 1998.
</TABLE>
- -6-
<PG$PCN>
FEES TABLE
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C> <C> <C> <C>
(fees paid directly from your investment) Class A Class B Class L Class Y
Maximum sales charge (load) imposed on purchases (as 4.00% None 1.00% None
a % of offering price)
Maximum deferred sales charge (load) (as a % of the None* 4.50% 1.00% None
lower of net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from fund assets)
Management fee** 0.45% 0.45% 0.45% 0.45%
Distribution and service (12b-1) fees 0.15% 0.65% 0.70% None
Other expenses ----- ----- ----- -----
Total annual fund operating expenses
===== ===== ===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
**Because the manager has agreed to limit total annual fund operating expenses
to 0.65% of average net assets exclusive of 12b-1 fees and certain other
expenses, actual expenses were:
<TABLE>
<S> <C> <C> <C> <C>
Class A Class B Class L Class Y
Management fee
Total annual fund operating expenses
</TABLE>
The manager may change or eliminate these expense limits at any time. The
manager may also seek reimbursement of waived management fees at a later date.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the period shown
- - Your investment has a 5% return each year
- - You reinvest all distributions and dividends without a sales charge
- - The fund's operating expenses remain the same
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
</TABLE>
Georgia Portfolio -7-
<PG$PCN>
MORE ON THE FUND'S INVESTMENTS
GEORGIA MUNICIPAL SECURITIES Georgia municipal securities include debt
obligations issued by certain non-Georgia governmental issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on these bonds is exempt from
federal income tax and Georgia personal income tax. As a result, the interest
rate on these bonds normally is lower than it would be if the bonds were subject
to taxation. The Georgia municipal securities in which the fund invests include
general obligation bonds, revenue bonds and municipal leases. These securities
may pay interest at fixed, variable or floating rates. The fund may also hold
zero coupon securities which pay no interest during the life of the obligation
but trade at prices below their stated maturity value.
OTHER DEBT SECURITIES The fund may invest up to 35% of its assets in
municipal securities of non-Georgia issuers. These will generally be exempt
from federal, but not Georgia income taxes. The fund may also invest up to
20% of its assets in debt securities which are issued or guaranteed by the full
faith and credit of the U.S. government. These securities will generally be
subject to federal and state taxation.
DERIVATIVE CONTRACTS The fund may, but need not, use derivative contracts,
such as financial futures, for any of the following purposes:
- - To hedge against the economic impact of adverse changes in the market
value of portfolio securities due to changes in interest rates
- - As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
The other parties to certain futures present the same types of default risk as
issuers of fixed income securities.
The fund may invest in inverse floating rate securities. These securities pay
interest at a rate which moves in the opposite direction from movements in
market interest rates. Even a small investment in futures or in certain inverse
floaters with leverage features can have a big impact on a fund's interest rate
exposure. Therefore, using futures or inverse floaters can disproportionately
increase losses and reduce opportunities for gains when interest rates are
changing. The fund may not fully benefit from or may lose money on futures
or inverse floaters used for hedging purposes if changes in their value do not
correspond accurately to changes in the value of the fund's holdings. Futures
and inverse floaters can also make a fund less liquid and harder to value,
especially in declining markets.
DEFENSIVE INVESTING. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-
term debt securities. If the fund takes a temporary defensive position, it may
be unable to achieve its investment goal.
- -8-
<PG$PCN>
MANAGEMENT
MANAGER The fund's investment adviser (the manager) is SSBC Fund
Management Inc., an affiliate of Salomon Smith Barney Inc. The manager's
address is 388 Greenwich Street, New York, New York 10013. The manager
selects the fund's investments and oversees its operations. The manager and
Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses
produce a broad range of financial services -- asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading -- and use diverse channels to make them available to
consumer and corporate customers around the world.
Peter M. Coffey, investment officer of SSBC Fund Management Inc. and
managing director of Salomon Smith Barney, has been responsible for the day-
to-day management of the fund's portfolio since the fund commenced
operations in April 1994. Mr. Coffey has 30 years of experience with the
manager or its predecessors.
MANAGEMENT FEES During the fiscal year ended March 31, 1999, the manager
received an advisory fee equal to____% of the fund's average daily net assets.
DISTRIBUTOR The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith
Barney and other broker-dealers sells fund shares to the public.
DISTRIBUTION PLANS The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
YEAR 2000 ISSUE Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are
addressing the Year 2000 issue for their systems. The fund has been informed
by other service providers that they are taking similar measures. Although the
fund does not expect the Year 2000 issue to adversely affect it, the fund cannot
guarantee that the efforts of the fund, which are limited to requesting and
receiving reports from its service providers, or the efforts of its service
providers to correct the problem will be successful.
Georgia Portfolio -9-
<PG$PCN>
CHOOSING A CLASS OF SHARES TO BUY
You can choose among four classes of shares: Classes A, B, L and Y. Each
class has different sales charges and expenses, allowing you to choose the class
that best meets your needs. Which class is more beneficial to an investor
depends on the amount and intended length of the investment.
- - If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
- - For Class B shares, all of your purchase amount and, for Class L shares,
more of your purchase amount (compared to Class A shares) will be
immediately invested. This may help offset the higher expenses of Class B
and Class L shares, but only if the fund performs well.
- - Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term investors.
You may buy shares from:
- - A Salomon Smith Barney Financial Consultant
- - An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
- - The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS Minimum initial and additional investment amounts
vary depending on the class of shares you buy and the nature of your
investment account.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------ --------------------------------------------------------
INITIAL ADDITIONAL
-------------------------------------------------------
<S> <C> <C> <C>
CLASSES A, B, L CLASS Y ALL CLASSES
General $1,000 $15 million $50
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
Uniform Gift to Minors Accounts $50 $15 million $50
- ------------------------------------------------------------------ --------------------------------------------------------
</TABLE>
- -10-
<PG$PCN>
COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different
compensation depending upon which class you choose.
<TABLE>
<CAPTION>
- ------------------ -------------------------- ------------------------ ------------------------ ---------------------------
Class A Class B Class L Class Y
- ------------------ -------------------------- ------------------------ ------------------------ ---------------------------
<S> <C> <C> <C> <C>
KEY - Initial sales charge - No initial sales - Initial sales - No initial or
FEATURES - You may qualify charge charge is lower deferred sales charge
for reduction or - Deferred sales than Class A - Must invest at least
waiver of initial charge declines - Deferred sales $15 million
sales charge over time charge for only 1 - Lower annual
- Lower annual - Converts to year expenses than the
expenses than Class Class A after 8 - Does not other classes
B and Class L years convert to
- Higher annual Class A
expenses than - Higher annual
Class A expenses than
Class A
- ------------------ -------------------------- ------------------------ ------------------------ ---------------------------
INITIAL SALES Up to 4.00%; None 1.00% None
CHARGE reduced for large
purchases and
waived for certain
investors. No
charge for
purchases of
$500,000 or more
- ------------------ -------------------------- ------------------------ ------------------------ ---------------------------
DEFERRED 1% on purchases of Up to 4.50% 1% if you redeem None
SALES CHARGE $500,000 or more if charged when you within 1 year of
you redeem within redeem shares. purchase
1 year of purchase The charge is
reduced over time
and there is no
deferred sales
charge after 6 years
- ------------------ -------------------------- ------------------------ ------------------------ ---------------------------
ANNUAL 0.15% of average 0.65% of average 0.70% of average None
DISTRIBUTION daily net assets daily net assets daily net assets
AND SERVICE
FEES
- ------------------ -------------------------- ------------------------ ------------------------ ---------------------------
Class A shares of Class B shares of Class L shares of Class Y shares of
EXCHANGE most Smith Barney most Smith Barney most Smith most Smith Barney
PRIVILEGE funds funds Barney funds funds
- ------------------ -------------------------- ------------------------ ------------------------ ---------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Georgia Portfolio -11-
<PG$PCN>
SALES CHARGE
CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
SALES CHARGE AS A % OF
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 4.00 4.17
$25,000 but less than $50,000 3.50 3.63
$50,000 but less than $100,000 3.00 3.09
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more -0- -0-
- -----------------------------------------------------------------------------------------
</TABLE>
INVESTMENTS OF $500,000 OR MORE. You do not pay an initial sales charge
when you buy $500,000 or more of Class A shares. However, if you redeem
these Class A shares within one year of purchase, you will pay a deferred
sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE There are several ways you
can combine multiple purchases of Class A shares of Smith Barney funds to
take advantage of the breakpoints in the sales charge schedule.
- - Accumulation privilege - lets you combine the current value of Class A shares
owned
- by you, or
- by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
- -12-
<PG$PCN>
- - Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if
any, as if all shares had been purchased at once. You may include purchases
on which you paid a sales charge within 90 days before you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS Class A initial sales charges are waived
for certain types of investors, including:
- - Employees of members of the NASD
- - Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
- - Investors who redeemed Class A shares of a Smith Barney fund in the past
60 days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about the additional waivers of Class A initial sales
charges, contact your Salomon Smith Barney Financial Consultant or dealer
representative or consult the Statement of Additional Information ("SAI").
Georgia Portfolio -13-
<PG$PCN>
CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of
purchase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
6th
Year after purchase 1st 2nd 3rd 4th 5th through
8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
</TABLE>
CLASS B CONVERSION After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
SHARES ISSUED: SHARES ISSUED: SHARES ISSUED:
AT INITIAL ON REINVESTMENT OF UPON EXCHANGE FROM
PURCHASE DIVIDENDS AND ANOTHER SMITH BARNEY
DISTRIBUTIONS FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
In same proportion as the On the date the shares
number of Class B shares originally acquired would
Eight years after the converting is to total Class B have converted into Class A
date of purchase shares you own shares
</TABLE>
CLASS L SHARES
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%.
CLASS Y SHARES
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you must
initially invest $5,000,000.
- -14-
<PG$PCN>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
- - Shares exchanged for shares of another Smith Barney fund
- - Shares representing reinvested distributions and dividends
- - Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
- - On payments made through certain systematic withdrawal plans
- - On certain distributions from a retirement plan
- - For involuntary redemptions of small account balances
- - For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Georgia Portfolio -15-
<PG$PCN>
<TABLE>
<CAPTION>
BUYING SHARES
<S> <C>
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will be
represen- rejected:
tative
- Class of shares being bought
- Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- -----------------------------------------------------------------------------------------------
Through the Certain investors who are clients of the selling group are eligible to
fund's buy shares directly from the fund.
transfer
agent - Write the transfer agent at the following address:
Smith Barney Georgia Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
- Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
- For more information, call the transfer agent at 1-800-451-2010.
- -----------------------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith Barney
plan brokerage account or Smith Barney money market fund to buy
shares on a regular basis.
- Amounts transferred should be at least: $25 monthly or $50
quarterly
- If you do not have sufficient funds in your account on a transfer
date, Salomon Smith Barney, your dealer representative or the
transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult the SAI.
</TABLE>
- -16-
<PG$PCN>
<TABLE>
<CAPTION>
EXCHANGING SHARES
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney funds.
offers a Be sure to read the prospectus of the Smith Barney fund you are
distinctive exchanging into. An exchange is a taxable transaction.
family of
funds - You may exchange shares only for shares of the same class of
tailored to another Smith Barney fund. Not all Smith Barney funds offer all
help meet classes.
the varying
needs of - Not all Smith Barney funds may be offered in your state of
both large residence. Contact your Salomon Smith Barney Financial Consultant,
and small dealer representative or the transfer agent.
investors
- You must meet the minimum investment amount for each fund.
- If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers
(documents transferring ownership of certificates) before the
exchange is effective.
- The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- -----------------------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the time of
additional the exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured from
the date of your original purchase. If the fund you exchange into has
a higher deferred sales charge, you will be subject to that charge. If
you exchange at any time into a fund with a lower charge, the sales
charge will not be reduced.
- -----------------------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010 between
9:00 a.m. and 5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset
value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- -----------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent at the
address on the opposite page.
</TABLE>
Georgia Portfolio -17-
<PG$PCN>
<TABLE>
<CAPTION>
REDEEMING SHARES
<S> <C>
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However, if
you recently purchased your shares by check, your
redemption proceeds will not be sent to you until your
original check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- ----------------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney Georgia Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
- Your account number
- The class of shares and the dollar amount or number of
shares to be redeemed
- Signatures of each owner exactly as the account is
registered
</TABLE>
- -18-
<PG$PCN>
<TABLE>
<S> <C>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares in amounts up to $10,000 per day through the
transfer agent. You must complete an authorization form to
authorize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests
received after the close of regular trading on the Exchange are
priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You must submit a
new authorization form to change the bank account
designated to receive wire transfers and you may be asked to
provide certain other documents.
- ----------------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1%
per month of the value of your shares subject to a deferred
sales charge.
The following conditions apply:
- Your shares must not be represented by certificates
- All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
</TABLE>
Georgia Portfolio -19-
<PG$PCN>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good
order. This means you have provided the following information, without
which your request will not be processed:
- Name of the fund
- Account number
- Class of shares being bought, exchanged or redeemed
- Dollar amount or number of shares being bought, exchanged or
redeemed
- Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or
redemption request is genuine by recording calls, asking the caller to provide a
personal identification number for the account, sending you a written
confirmation or requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES To be in good order, your redemption request must
include a signature guarantee if you:
- - Are redeeming over $10,000 of shares
- - Are sending signed share certificates or stock powers to the transfer agent
- - Instruct the transfer agent to mail the check to an address different from
the one on your account
- - Changed your account registration
- - Want the check paid to someone other than the account owner(s)
- - Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
- -20-
<PG$PCN>
The fund has the right to:
- - Suspend the offering of shares
- - Waive or change minimum and additional investment amounts
- - Reject any purchase or exchange order
- - Change, revoke or suspend the exchange privilege
- - Suspend telephone transactions
- - Suspend or postpone redemptions of shares on any day when trading on
the New York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
- - Pay redemption proceeds by giving you securities. You may pay
transaction costs to dispose of the securities
SMALL ACCOUNT BALANCES If your account falls below $500 because of a
redemption of fund shares, the fund may ask you to bring your account up to
$500. If your account is still below $500 after 60 days, the fund may close
your account and send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS The manager may determine that a pattern
of frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges
by the shareholder.
SHARE CERTIFICATES The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Georgia Portfolio -21-
<PG$PCN>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS The fund pays dividends each month from its net investment income. The
fund generally makes capital gain distributions, if any, once a year, typically
in December. The fund may pay additional distributions and dividends at other
times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
TAXES In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
TRANSACTION FEDERAL TAX STATUS GEORGIA TAX STATUS
<S> <C> <C>
Redemption or exchange Usually capital gain or loss; long- Usually capital gain or loss
of shares term only if shares owned more
than one year
Long-term capital gain Taxable gain Taxable gain
distributions
Short-term capital gain Ordinary income Ordinary income
distributions
Dividends Exempt if from interest on tax- Exempt if from interest on
exempt securities, otherwise Georgia municipal securities,
ordinary income otherwise ordinary income
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a taxable dividend,
because it will be taxable to you even though it may actually be a return of a
portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
- -22-
<PG$PCN>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. A fund that uses
fair value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities. A security's
valuation may differ depending on the method used for determining value.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
Georgia Portfolio -23-
<PG$PCN>
FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR
ENDED MARCH 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $12.48 $12.50 $12.10 $12.00
- ----------------------------------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment
income(4) 0.67 0.69 0.70 0.62
Net realized and
unrealized gain (loss) 1.03 0.04 0.45 0.10#
- ----------------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.70 0.73 1.15 0.72
- ----------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income (0.67) (0.67) (0.70) (0.62)
Net realized gains (0.08) (0.08) (0.05) --
- ----------------------------------------------------------------------------------------------------------
Total distributions (0.75) (0.75) (0.75) (0.62)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of year $13.43 $12.48 $12.50 $12.10
- ----------------------------------------------------------------------------------------------------------
Total return(1) 13.85% 5.95% 9.67% 6.29%++
- ----------------------------------------------------------------------------------------------------------
Net assets, end of
year (millions) $21 $14 $10 $9
- ----------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses(2)(3) 0.50% 0.48% 0.38% 0.28%+
Net investment
income (loss) 5.10 5.49 5.57 5.43+
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 36% 81% 63% 34%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from April 4, 1994 (inception date) to March 31, 1995.
(2) The manager has waived all or a portion of its fees for the years ended
march 31, 1998, 1997 and 1996 and the period ended March 31, 1995. In
addition, the manager reimbursed expenses of $56,755 and $42,317 for the
year ended March 31, 1996 and the period ended March 31, 1995,
respectively. If such fees were not waived and expenses not reimbursed,
the effect on net investment income and expense ratios would have been as
follows:
- -24-
<PG$PCN>
<TABLE>
<CAPTION>
- ------------- ---------------------------------------------- -----------------------------------------------
Expense Ratios Without Fee Waivers and/or
Net Investment Income Per Share Decreases Expense Reimbursements#
- ------------- ---------------------------------------------- -----------------------------------------------
1998 1997 1996 1995 1998 1997 1996 1995
- ------------- --------- ---------- ---------- -------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.04 $0.04 $0.11 $0.12 0.83% 0.90% 1.23% 1.20%++
- ------------- --------- ---------- ---------- -------------- ------------ ---------- ---------- ------------
</TABLE>
(3) As a result of voluntary expense limitations, expense ratios would not
exceed 0.80% for Class A shares.
* Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value
less than the net asset value at the beginning of the period.
& Total returns do not reflect sales loads or contingent deferred sales
charges.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ Annualized.
Georgia Portfolio -25-
<PG$PCN>
<TABLE>
<CAPTION>
FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR
ENDED MARCH 31:
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
1999 1998 1997 1996 1995(1)(2)
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning $12.47 $12.50 $12.11 $12.27
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
Income (loss) from operations:
Net investment income
(loss)(4) 0.61 0.62 0.64 0.49
Net realized and
unrealized gain (loss) 1.03 0.04 0.45 (0.16)#
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
Total income (loss) from
operations 1.64 0.66 1.09 0.33
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
Less distributions from:
Net investment income (0.60) (0.61) (0.65) (0.49)
Net realized gains (0.08) (0.08) (0.05) --
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
Total distributions (0.68) (0.69) (0.70) (0.49)
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
Net asset value, end of $13.43 $12.47 $12.50 $12.11
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
Total return 13.39% 5.33% 9.08% 2.88%+
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
Net assets, end of year $11 $7 $5 $3
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
Ratios to average
net assets:
Expenses(4)#
Net investment income 1.02% 1.00% 0.92% 0.85%++
(loss) 4.58 4.97 5.20 5.37++
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
Portfolio turnover rate 36% 81% 63% 34%
- ------------------------------- --------------- --------------- --------------- ------------- -------------------
</TABLE>
(1) On November 7, 1994, the former Class E shares were renamed Class B
shares.
(2) For the period from June 15, 1994 (inception date) to March 31, 1995.
(3) The manager has waived all or a portion of its fees for the years ended
march 31, 1998, 1997 and 1996 and the period ended March 31, 1995. In
addition, the manager reimbursed expenses of $56,755 and $42,317 for the
year ended March 31, 1996 and the period ended March 31, 1995,
respectively. If such fees were not waived and expenses not reimbursed,
the effect on net investment income and expense ratios would have been as
follows:
- -26-
<PG$PCN>
<TABLE>
<CAPTION>
- ------------- ----------------------------------------------- ----------------------------------------------
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
- ------------- ----------------------------------------------- ----------------------------------------------
1998 1997 1996 1995 1998 1997 1996 1995
- ------------- ----------- --------- ----------- ------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class B 0.04 0.05 0.10 0.11 1.35 1.42 1.77 1.82++
- ------------- ----------- --------- ----------- ------------- ----------- ---------- ---------- ------------
</TABLE>
(4) As a result of voluntary expense limitations, expense ratios would not
exceed 1.30% for Class B shares.
* Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value
less than the net asset value at the beginning of the period.
& Total returns do not reflect sales loads or contingent deferred sales
charges.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ Annualized.
Georgia Portfolio -27-
<PG$PCN>
FOR A CLASS L SHARE(1) OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR
ENDED MARCH 31:
<TABLE>
<CAPTION>
- ----------------------------------------- -------- --------- ------- --------- ------------
1999 1998 1997 1996(1) 1995(2)
- ----------------------------------------- -------- --------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $12.46 $12.49 $12.09 $12.06
- ----------------------------------------- -------- --------- ------- --------- ------------
Income (loss) from operations:
Net investment income (loss)(4)
Net realized and unrealized gain 0.60 0.62 0.63 0.55
(loss) 1.02 0.03 0.46 0.04#
- ----------------------------------------- -------- --------- ------- --------- ------------
Total income (loss) from operations 1.62 0.65 1.09 0.59
- ----------------------------------------- -------- --------- ------- --------- ------------
Less distributions from:
Net investment (0.59) (0.60) (0.64) (0.56)
income
Net realized gains (0.08) (0.08) (0.05) --
- ----------------------------------------- -------- --------- ------- --------- ------------
Total distributions (0.67) (0.68) (0.69) (0.56)
- ----------------------------------------- -------- --------- ------- --------- ------------
Net assets value, end of year $13.41 $12.46 $12.49 $12.09
- ----------------------------------------- -------- --------- ------- --------- ------------
Total return(3) 13.23% 5.28% 9.12% 5.11%+
- ----------------------------------------- -------- --------- ------- --------- ------------
Net assets, end of year (millions) $5 $3 $3 $1
- ----------------------------------------- -------- --------- ------- --------- ------------
Ratios to average net assets:
Expenses(4)(#) 1.06% 1.04% 0.97% 0.90%++
Net investment income
(loss) 4.54 4.93 5.18 5.22++
- ----------------------------------------- -------- --------- ------- --------- ------------
Portfolio turnover rate 36% 81% 63% 34%
- ----------------------------------------- -------- --------- ------- --------- ------------
</TABLE>
(1) On November 7, 1994, the former Class B shares were renamed Class C
shares. On June 12, 1998, the Class C shares were renamed Class L shares.
(2) For the period from April 14, 1994 (inception date) to March 31,1995.
(3) The manager has waived all or a portion of its fees for the years ended
March 31, 1998, 1997 and 1996 and the period ended March 31, 1995. In
addition, the manager reimbursed expenses of $56,755 and $42,317 for the
year ended March 31,1996 and the period ended March 31, 1995,
respectively. If such fees were not waived and expenses not reimbursed,
the effect on net investment income and expense ratios would have been as
follows:
<TABLE>
<CAPTION>
- -------------- ----------------------------------------------- ---------------------------------------------
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
- -------------- ----------------------------------------------- ---------------------------------------------
1998 1997 1996 1995 1998 1997 1996 1995
- -------------- ---------- ---------- ---------- -------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class L $0.04 $0.05 $0.10 $0.12 1.39% 1.46% 1.82% 1.85%++
- -------------- ---------- ---------- ---------- -------------- ----------- ---------- ----------- ----------
</TABLE>
(4) As a result of voluntary expense limitations, expense ratios would not
exceed 1.35% for Class C shares.
* Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value
less than the net asset value at the beginning of the period.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ Annualized.
- -28-
<PG$PCN>
FOR A CLASS Y SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR
ENDED MARCH 31:
<TABLE>
<CAPTION>
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
1999
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
NET ASSET VALUE, BEGINNING OF YEAR
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
<S> <C>
Income (loss) from operations:
Net investment income
Net realized and unrealized
gain (loss)
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
Total income (loss) from
operations
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
Less distributions from:
Net investment income
Net realized gains
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
Total distributions
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
Net asset value, end of year
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
Total return
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
Net assets, end of year (000)'s
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
Ratio to average net assets:
Expenses
Net investment income (loss)
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
Portfolio turnover rate
- ------------------------------------------ ----------- ------------ -------------- ------------ ---------------
</TABLE>
(1) From the period of [date] (inception date) to March 31, 1999.
(2) Annualized.
Georgia Portfolio -29-
<PG$PCN>
SALOMON SMITH BARNEY(SM)
A MEMBER OF CITIGROUP [SYMBOL]
GEORGIA PORTFOLIO
- -- an investment portfolio of Smith Barney Muni Funds
SHAREHOLDER REPORTS Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has
the same address. Contact your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent if you do not want this policy to
apply to you.
STATEMENT OF ADDITIONAL INFORMATION The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your
Salomon Smith Barney Financial Consultant or dealer representative, by calling
the fund at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual
Funds, 388 Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You can get copies
of these materials for a duplicating fee by writing to the Public Reference
Section of the Commission, Washington, D.C. 20549-6009. Information about
the public reference room may be obtained by calling 1-800-SEC-0330. You
can get the same information free from the Commission's Internet web site at
http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus,
you should not rely upon that information. Neither the fund nor the
distributor is offering to sell shares of the fund to any person to whom the
fund may not lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-04395)
[FD00000 7/99]
<PG$PCN>
<PAGE>
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
Prospectus Smith Barney
Mutual Funds
- ----------------------------------------------------------
July 29, 1999 New York Portfolio
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Investment, risks and performance....... 4
More on the fund's investments.......... 9
Management.............................. 10
Choosing a class of shares to buy....... 11
Comparing the fund's classes............ 12
Sales charge............................ 13
More about deferred sales charges....... 16
Buying shares........................... 17
Exchanging shares....................... 18
Redeeming shares........................ 19
Other things to know about
share transactions.................. 21
Dividends, distributions and taxes...... 23
Share price............................. 24
Financial highlights.................... 24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
1
<PAGE>
- --------------------------------------------------------------------------------
Investment, risks and performance
- --------------------------------------------------------------------------------
Principal investment strategies
Investment objective The fund seeks as high a level of income exempt from
federal income taxes and New York state and New York City personal income taxes
as is consistent with prudent investing.
Key investments The fund invests primarily in intermediate-term and long-term
New York municipal securities. These include securities issued by the State of
New York and certain other municipal issuers, political subdivisions, agencies
and public authorities that pay interest which is exempt from New York State and
New York City personal income taxes. Intermediate-term and long-term municipal
securities have remaining maturities at the time of purchase from three to more
than thirty years. The fund invests exclusively in municipal securities that
are rated investment grade at the time of purchase or are of equivalent quality
if unrated. At least two-thirds of the municipal securities must be rated, at
the time of purchase, within the three highest investment grade rating
categories by a nationally recognized rating organization.
Selection process The manager selects securities primarily by identifying
undervalued sectors and individual securities, while also selecting securities
it believes will benefit from changes in market conditions. In selecting
individual securities, the manager:
. Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit opportunities
in the municipal bond market
. May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial development,
based on their apparent relative values
. Identifies individual securities with the most potential for added value,
such as those involving unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or innovative features
. Considers the yield available for securities with different maturities and a
security's maturity in light of the outlook for the issuer and its sector and
interest rates
2
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Interest rates rise, causing the value of the fund's portfolio to decline
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or the security's credit rating is downgraded
. New York municipal securities fall out of favor with investors. The fund will
suffer more than a national municipal fund from adverse events affecting New
York municipal issuers
. Unfavorable legislation affects the tax-exempt status of municipal bonds
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal, New
York State and New York City taxation. The fund may realize taxable gains on
the sale of its securities or on transactions in futures contracts. Some of the
fund's income may be subject to the federal alternative minimum tax. In
addition, distributions of the fund's income and gains will be taxable to
investors in states other than New York.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund concentrates its assets in fewer issuers, the fund will be more
susceptible to negative events affecting those issuers.
Who may want to invest The fund may be an appropriate investment if you:
. Are a New York taxpayer in a high federal tax bracket seeking income exempt
from New York and federal taxation
. Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio
. Are willing to accept the risks of municipal securities, including the risks
of concentrating in a single state
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of the
past 10 calendar years. Class B, L and Y shares would have different
performance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return.
[BAR GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998
5% 5% 5% 5% 5% 5% 5% 5% 5%
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
Year to date: xx% through 6/30/99
Risk return table
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged
index of municipal bonds and the Lipper New York Municipal Fund Average (the
"Lipper Average"), an average composed of the fund's peer group of mutual funds.
This table assumes imposition of the maximum sales charge applicable to the
class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
- ------------------------------------------------
Average Annual Total Returns -- Calendar Years
- ------------------------------------------------
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception date
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A 1/16/87
- ---------------------------------------------------------------------------------
B n/a 11/11/94
- ---------------------------------------------------------------------------------
L n/a n/a 1/8/93
- ---------------------------------------------------------------------------------
Y n/a [xx/xx/xx]
- ---------------------------------------------------------------------------------
Lehman Index *
- ---------------------------------------------------------------------------------
Lipper *
Average
</TABLE>
*Index comparison begins on April 30, 1998.
4
<PAGE>
Fees table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------------------
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) (as a % of offering price) 4.00% None 1.00% None
Maximum deferred sales charge (load) (as a % of the None* 4.50% 1.00% None
lower of net asset value at purchase or redemption)
Annual fund operating expenses
(expenses deducted from fund assets)
Management fee 0.50% 0.50% 0.50% 0.50%
Distribution and service (12b-1) fees 0.15% 0.65% 0.70% None
Other expenses ----- ----- ----- -----
Total annual fund operating expenses ===== ===== ===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
- --------------------------------------------------------------------------------
Number of years you own your shares
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
5
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
New York municipal securities New York municipal securities include debt
obligations issued by certain non-New York governmental issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on these bonds is exempt from
federal income tax and New York personal income tax. As a result, the interest
rate on these bonds normally is lower than it would be if the bonds were subject
to taxation. The New York municipal securities in which the fund invests
include general obligation bonds, revenue bonds and municipal leases. These
securities may pay interest at fixed, variable or floating rates. The fund may
also hold zero coupon securities which pay no interest during the life of the
obligation but trade at prices below their stated maturity value.
Other debt securities The fund may invest up to 35% of its assets in municipal
securities of non-New York issuers. These will generally be exempt from
federal, but not New York, income taxes. The fund may also invest up to 20% of
its assets in debt securities which are issued or guaranteed by the full faith
and credit of the U.S. government. These securities will generally be subject
to federal and state taxation.
Derivative contracts The fund may, but need not, use derivative contracts, such
as financial futures and options on financial futures, for any of the following
purposes:
. To hedge against the economic impact of adverse changes in the market value of
portfolio securities due to changes in interest rates
. As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in futures can have a big impact on a fund's interest
rate exposure. Therefore, using futures can disproportionately increase losses
and reduce opportunities for gains when interest rates are changing. The fund
may not fully benefit from or may lose money on futures if changes in their
value do not correspond accurately to changes in the value of the fund's
holdings. The other parties to certain futures present the same types of
default risk as issuers of fixed income securities. Futures can also make a
fund less liquid and harder to value, especially in declining markets.
Defensive investing The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
6
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment adviser is SSBC Fund Management Inc., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial services
- -- asset management, banking and consumer finance, credit and charge cards,
insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
Joseph P. Deane, investment officer of SSBC Fund Management Inc. and managing
director of Salomon Smith Barney, has been responsible for the day-to-day
management of the fund's portfolio since February 1999. Mr. Deane has 29 years
of investment management experience.
Management fees During the fiscal year ended March 31, 1999, the manager
received an advisory fee equal to 0.50% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
7
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase amount and, for Class L shares,
more of your purchase amount (compared to Class A shares) will be
immediately invested. This may help offset the higher expenses of Class B
and Class L shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Initial Additional
Classes A, B, L Class Y All Classes
------------------------------ -----------
<S> <C> <C> <C> <C>
General $1,000 $15 million $50
- ----------------------------------------------------------------------------------------
Monthly Systematic Investment Plans $ 25 n/a $25
- ----------------------------------------------------------------------------------------
Quarterly Systematic Investment Plans $ 50 n/a $50
- ----------------------------------------------------------------------------------------
Uniform Gift to Minors Accounts $ 50 $15 million $50
- ----------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
Comparing the fund's classes
- --------------------------------------------------------------------------------
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
Key .Initial sales charge . No initial sales . Initial sales . No initial or
features .You may qualify charge charge is lower deferred sales charge
for reduction or . Deferred sales than Class A . Must invest at
waiver of initial charge declines . Deferred sales least
sales charge over time charge for only 1 $15 million
. Lower annual . Converts to year . Lower annual
expenses than Class Class A after 8 . Does not expenses than the
B and Class L years convert to other classes
. Higher annual Class A
expenses than . Higher annual
Class A expenses than
Class A
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial sales Up to 4.00%; None 1.00% None
charge reduced for large
purchases and
waived for certain
investors. No
charge for
purchases of
$500,000 or more
- -------------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 4.50% 1% if you redeem None
sales charge $500,000 or more if charged when you within 1 year of
you redeem within redeem shares. purchase
1 year of purchase The charge is
reduced over time
and there is no
deferred sales
charge after 6 years
- --------------------------------------------------------------------------------------------------------------
Annual 0.15% of average 0.65% of average 0.70% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
- ---------------------------------------------------------------------------------------------------------------
Exchange Class A shares of Class B shares of Class L shares of Class Y shares of
privilege most Smith Barney most Smith Barney most Smith most Smith Barney
funds funds Barney funds funds
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
9
<PAGE>
- --------------------------------------------------------------------------------
Sales charge:
- --------------------------------------------------------------------------------
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
- -----------------------------------------------------------
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
- -----------------------------------------------------------
Less than $25,000 4.00 4.17
- -----------------------------------------------------------
$25,000 but less than $50,000 3.50 3.63
$50,000 but less than $100,000 3.00 3.09
- -----------------------------------------------------------
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
- -----------------------------------------------------------
$500,000 or more -0- -0-
- -----------------------------------------------------------
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
. Accumulation privilege - lets you combine the current value of Class A
shares owned
. by you, or
. by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
10
<PAGE>
. Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if any,
as if all shares had been purchased at once. You may include purchases on which
you paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about the additional waivers of Class A initial sales
charges, contact your Salomon Smith Barney Financial Consultant or dealer
representative or consult the Statement of Additional Information ("SAI").
11
<PAGE>
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
- -----------------------------------------------------------------
6th
Year after purchase 1st 2nd 3rd 4th 5th through
8th
- -----------------------------------------------------------------
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- --------------------------------------------------------------------------------------
<S> <C> <C>
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
- --------------------------------------------------------------------------------------
</TABLE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you
must initially invest $5,000,000.
12
<PAGE>
- --------------------------------------------------------------------------------
More about deferred sales charges
- --------------------------------------------------------------------------------
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
13
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
<S> <C>
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will be
representa- rejected:
tive
. Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- ---------------------------------------------------------------------------------------------
Through the Certain investors who are clients of the selling group are eligible to
fund's buy shares directly from the fund.
transfer
agent . Write the transfer agent at the following address:
Smith Barney New York Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
. For more information, call the transfer agent at
1-800-451-2010.
- ---------------------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith Barney
plan brokerage account or Smith Barney money market fund to buy
shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer
representative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
</TABLE>
14
<PAGE>
Exchanging shares
<TABLE>
<CAPTION>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney funds.
offers a Be sure to read the prospectus of the Smith Barney fund you are
distinctive exchanging into. An exchange is a taxable transaction.
family of
funds . You may exchange shares only for shares of the same class of
tailored to another Smith Barney fund. Not all Smith Barney funds offer all
help meet classes.
the varying
needs of . Not all Smith Barney funds may be offered in your state of
both large residence. Contact your Salomon Smith Barney Financial Consultant,
and small dealer representative or the transfer agent.
investors
. You must meet the minimum investment amount for each fund.
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers (documents transferring ownership of certificates)
before the exchange is effective.
. The fund may suspend or terminate your exchange privilege
if you engage in an excessive pattern of exchanges.
- -------------------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the time
additional of the exchange.
sales
charges
Your deferred sales charge (if any) will continue to be measured from
the date of your original purchase. If the fund you exchange into has
a higher deferred sales charge, you will be subject to that charge. If
you exchange at any time into a fund with a lower charge, the sales
charge will not be reduced.
- -------------------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010 between
9:00 a.m. and 5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset
value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- -------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent at the
address on the opposite page.
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However, if
you recently purchased your shares by check, your
redemption proceeds will not be sent to you until your
original check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- -------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney New York Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is
registered
16
<PAGE>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares in amounts up to $10,000 per day through the
transfer agent. You must complete an authorization form to
authorize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests
received after the close of regular trading on the Exchange are
priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You must submit a
new authorization form to change the bank account
designated to receive wire transfers and you may be asked to
provide certain other documents.
- -------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1%
per month of the value of your shares subject to a deferred
sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the SAI.
17
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include a
signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
18
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges
by the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
19
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund pays dividends each month from its net investment income. The
fund generally makes capital gain distributions and pays dividends, if any, once
a year, typically in December. The fund may pay additional distributions and
dividends at other times if necessary for the fund to avoid a federal tax.
Capital gain distributions and dividends are reinvested in additional fund
shares of the same class you hold. The fund expects distributions to be
primarily from income. You do not pay a sales charge on reinvested distributions
or dividends. Alternatively, you can instruct your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer agent to have your
distributions and/or dividends paid in cash. You can change your choice at any
time to be effective as of the next distribution or dividend, except that any
change given to the transfer agent less than five days before the payment date
will not be effective until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status New York tax status
<S> <C> <C>
Redemption or exchange Usually capital gain or loss; Usually capital gain or loss
of shares long-term only if shares
owned more than one year
- ----------------------------------------------------------------------------------------------
Long-term capital gain Taxable gain Taxable gain
distributions
- ----------------------------------------------------------------------------------------------
Short-term capital gain Ordinary income Ordinary income
distributions
- ----------------------------------------------------------------------------------------------
Dividends Exempt if from interest on tax- Exempt if from interest on
exempt securities, otherwise New York municipal securities,
ordinary income otherwise
ordinary income
- ----------------------------------------------------------------------------------------------
</TABLE>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a dividend, because it
will be taxable to you even though it may actually be a return of a portion of
your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
20
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. A fund that uses
fair value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities. A security's
valuation may differ depending on the method used for determining value.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
21
<PAGE>
- --------------------------------------------------------------------------------
For a Class A share of capital stock outstanding throughout each year
ended March 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $13.16 $13.19 $12.83 $ 12.83
- ---------------------------------------------------------------------------
Income (loss) from
operations:
Net investment
income (loss) 0.72 0.74 0.75 0.76
Net realized and
unrealized gain (loss) 0.81 (0.03) 0.35 0.01/(2)/
- ---------------------------------------------------------------------------
Total income (loss) from
operations 1.53 0.71 1.10 0.77
- ---------------------------------------------------------------------------
Less distributions from:
Net investment
income (0.73) (0.74) (0.74) (0.77)
Net realized gains (0.05) -- -- --
- ---------------------------------------------------------------------------
Total distributions (0.78) (0.74) (0.74) (0.77)
- ---------------------------------------------------------------------------
Net asset value, end of year $13.91 $13.16 $13.19 $ 12.83
- ---------------------------------------------------------------------------
Total return/(3)/ 11.83% 5.48% 8.71% 6.32%
- ---------------------------------------------------------------------------
Net assets, end of
year (000)'s $ 554 $ 531 $ 558 $ 83
- ---------------------------------------------------------------------------
Ratios to average
net assets:
Expenses/(1)/ 0.71% 0.75% 0.72% 0.63%
Net investment
income (loss) 5.28 5.58 5.84 6.00
- ---------------------------------------------------------------------------
Portfolio turnover rate 71% 53% 36% 30%
- ---------------------------------------------------------------------------
</TABLE>
(1) As a result of voluntary expense limitations, the expense ratio will not
exceed 0.85% for Class A shares.
(2) Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value
less than the net asset value at the beginning of the period.
(3) Total returns do not reflect any sales loads or contingent deferred sales
charges.
22
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of capital stock outstanding throughout each year
ended March 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995/(2)/
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.15 $13.18 $12.84 $ 11.96
- -----------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.65 0.67 0.67 0.31
Net realized and unrealized
gain (loss) 0.80 (0.03) 0.35 0.86/(3)/
- -----------------------------------------------------------------------------------
Total income (loss) from operations 1.45 0.64 1.02 1.17
- -----------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.66) (0.67) (0.68) (0.29)
Net realized gains (0.05) -- -- --
- -----------------------------------------------------------------------------------
Total distributions (0.71) (0.67) (0.68) (0.29)
- -----------------------------------------------------------------------------------
Net asset value, end of year $13.89 $13.15 $13.18 $ 12.84
- -----------------------------------------------------------------------------------
Total return/(4)/ 11.19% 4.96% 8.05% 9.92%/(6)/
- -----------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 195 $ 185 $ 181 $ 4
- -----------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses/(1)/ 1.23% 1.27% 1.25% 1.27%/(5)/
Net investment income (loss) 4.76 5.06 5.45 5.76/(5)/
- -----------------------------------------------------------------------------------
Portfolio turnover rate 71% 53% 36% 30%
- -----------------------------------------------------------------------------------
</TABLE>
(1) As a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.35% for Class B shares.
(2) For the period November 11, 1994 (inception date) to March 31, 1995.
(3) Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value
less than the net asset value at the beginning of the period.
(4) Total returns do not reflect any sales loads or contingent deferred sales
charges.
(5) Annualized.
(6) Total return is not annualized, as it may not be representative of the
total return for the year.
23
<PAGE>
- --------------------------------------------------------------------------------
For a Class L share/(1)/ of capital stock outstanding throughout each year
ended February 28:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $13.14 $13.17 $12.83 $ 12.82
- ------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.64 0.66 0.66 0.68
Net realized and unrealized gain (loss) 0.80 (0.02) 0.36 0.01/(2)/
- ------------------------------------------------------------------------------------------
Total income (loss) from operations 1.44 0.64 1.02 0.69
- ------------------------------------------------------------------------------------------
Less distributions from:
Net investment (0.65) (0.67) (0.68) (0.68)
income
Net realized gains (0.05) -- -- --
- ------------------------------------------------------------------------------------------
Total distributions (0.70) (0.67) (0.68) (0.68)
- ------------------------------------------------------------------------------------------
Net assets value, end of year $13.88 $13.14 $13.17 $ 12.83
- ------------------------------------------------------------------------------------------
Total return/(3)/ 11.13% 4.91% 8.07% 5.66%
- ------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 11 $ 10 $ 9 $ 6
- ------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses/(1)/ 1.28% 1.32% 1.28% 1.28/%/
Net investment income
(loss) 4.71 5.01 5.02 5.38
- ------------------------------------------------------------------------------------------
Portfolio turnover rate 71% 53% 36% 30%
- ------------------------------------------------------------------------------------------
</TABLE>
(1) As a result of voluntary expense limitations, the expense ratio will not
exceed 1.40% for Class C shares.
(2) Includes the per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at net asset value less
than the net asset value at the beginning of the period.
(3) Total returns do not reflect any sales loads or contingent deferred sales
charges.
24
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of capital stock outstanding throughout each year
ended March 31:
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Net asset value, beginning of year
- --------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income
Net realized and unrealized
gain (loss)
- --------------------------------------------------------------------------------
Total income (loss) from
operations
- --------------------------------------------------------------------------------
Less distributions from:
Net investment income
Net realized gains
- --------------------------------------------------------------------------------
Total distributions
- --------------------------------------------------------------------------------
Net asset value, end of year
- --------------------------------------------------------------------------------
Total return
- --------------------------------------------------------------------------------
Net assets, end of year (000)'s
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses
Net investment income (loss)
- --------------------------------------------------------------------------------
Portfolio turnover rate
- --------------------------------------------------------------------------------
(1) From the period of [date] (inception date) to March 31, 1999.
(2) Annualized.
25
<PAGE>
Salomon Smith Barney(SM)
a member of citigroup [Symbol]
New York Portfolio
- -- an investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public
reference room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-04395)
[FD00000 7/99]
[Logo]
Smith Barney Mutual
Funds
Investing for your
future.
Every day.
PROSPECTUS SMITH BARNEY
MUTUAL FUNDS
- --------------------------------------------------------------------------------
July 29, 1999 Pennsylvania Portfolio
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PG$PCN>
CONTENTS
<TABLE>
<S> <C>
Investments, risks and performance.......................................4
More on the fund's investments...........................................8
Management...............................................................9
Choosing a class of shares to buy.......................................10
Comparing the fund's classes............................................11
Sales charge............................................................12
More about deferred sales charges.......................................15
Buying shares...........................................................16
Exchanging shares.......................................................17
Redeeming shares........................................................18
Other things to know about
share transactions....................................................20
Dividends, distributions and taxes......................................22
Share price.............................................................23
Financial highlights....................................................23
</TABLE>
YOU SHOULD KNOW:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
PENNSYLVANIA PORTFOLIO -3-
<PG$PCN>
FUND GOAL AND MAIN STRATEGIES
PRINCIPAL INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE The fund seeks as high a level of income exempt from
federal income taxes and from personal income taxes of the Commonwealth of
Pennsylvania as is consistent with prudent investing.
KEY INVESTMENTS The fund invests primarily in intermediate-term and long-term
Pennsylvania municipal securities. These include securities issued by the
Commonwealth of Pennsylvania and certain other municipal issuers, political
subdivisions, agencies and public authorities that pay interest which is exempt
from Pennsylvania state personal income taxes. Intermediate-term and long-term
municipal securities have remaining maturities at the time of purchase from five
to more than thirty years. The fund invests exclusively in municipal securities
that are rated investment grade at the time of purchase or are of comparable
quality if unrated. At least two-thirds of the municipal securities must be
rated, at the time of purchase, within the three highest investment grade rating
categories by a nationally recognized rating organization.
SELECTION PROCESS The manager selects securities primarily by identifying
undervalued sectors and individual securities, while also selecting securities
it believes will benefit from changes in market conditions. In selecting
individual securities, the manager:
- - Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit
opportunities in the municipal bond market
- - May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial
development, based on their apparent relative values and their impact on
the level of dividends generated by the overall portfolio
- - Identifies individual securities with the most potential for added value,
such as those involving unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or innovative features
- - Considers the yield available for securities with different maturities and
a security's maturity in light of the outlook for the issuer and its
sector and interest rates
- -4-
<PG$PCN>
RISKS, PERFORMANCE AND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
- - Interest rates rise, causing the value of the fund's portfolio to decline
- - The issuer of a security owned by the fund defaults on its obligation to
pay principal and/or interest or the security's credit rating is
downgraded
- - Pennsylvania municipal securities fall out of favor with investors. The
fund will suffer more than a national municipal fund from adverse events
affecting Pennsylvania municipal issuers
- - Unfavorable legislation affects the tax-exempt status of municipal bonds
- - The manager's judgment about the attractiveness, value or income
potential of a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal and
Pennsylvania state taxation. The fund may realize taxable gains on the sale of
its securities or on transactions in futures contracts. Some of the fund's
income may be subject to the federal alternative minimum tax. In addition,
distributions of the fund's income and gains will be taxable to investors in
states other than Pennsylvania.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund concentrates its assets in fewer issuers, the fund will be more
susceptible to negative events affecting those issuers.
WHO MAY WANT TO INVEST The fund may be an appropriate investment if you:
- - Are a Pennsylvania taxpayer in a high federal tax bracket seeking income
exempt from Pennsylvania and federal taxation
- - Currently have exposure to other asset classes and are seeking to broaden
your investment portfolio
- - Are willing to accept the risks of municipal securities, including the
risks of concentrating in a single state
PENNSYLVANIA PORTFOLIO -5-
<PG$PCN>
RISK RETURN BAR CHART
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of the
past 4 full calendar years. Class B, L and Y shares would have different
performance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return.
Total Return Class A Shares
[GRAPH]
<TABLE>
<S> <C> <C>
QUARTERLY RETURNS: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___ quarter 199X
Year to date: xx% through 6/30/99
</TABLE>
RISK RETURN TABLE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged
index of municipal bonds, and the Lipper Pennsylvania Municipal Fund Average
(the "Lipper Average"), an average composed of the fund's peer group of mutual
funds. This table assumes imposition of the maximum sales charge applicable to
the class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
AVERAGE ANNUAL TOTAL RETURNS -- Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A n/a 4/4/94
B n/a n/a 6/20/94
L n/a n/a 4/5/94
Y n/a n/a [xx/xx/xx]
Lehman Index *
Lipper
Average *
</TABLE>
*Index comparison begins on April 30, 1998.
- -6-
<PG$PCN>
FEES TABLE
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases (as 4.00% None 1.00% None
a % of offering price)
Maximum deferred sales charge (load) (as a % of the None* 4.50% 1.00% None
lower of net asset value at purchase or redemption)
ANNUAL FUND OPERATING EXPENSES
(expensed deducted from fund assets)
Management fee** 0.45% 0.45% 0.45% 0.45%
Distribution and service (12b-1) fees 0.15% 0.65% 0.70% None
Other expenses
---- ---- ---- ----
Total annual fund operating expenses
==== ==== ==== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
**Because the manager has agreed to limit total annual fund operating expenses
to 0.65% of the fund's average net assets, actual expenses were:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee
Total annual fund operating expenses
</TABLE>
The manager may change or eliminate these expense limits at any time. The
manager may also seek reimbursement of waived management fees at a later date.
EXAMPLE
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
- - You invest $10,000 in the fund for the period shown
- - Your investment has a 5% return each year
- - You reinvest all distributions and dividends without a sales charge
- - The fund's operating expenses remain the same
<TABLE>
<CAPTION>
NUMBER OF YEARS YOU OWN YOUR SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
</TABLE>
PENNSYLVANIA PORTFOLIO -7-
<PG$PCN>
MORE ON THE FUND'S INVESTMENTS
PENNSYLVANIA MUNICIPAL SECURITIES Pennsylvania municipal securities include debt
obligations issued by certain non-Pennsylvania governmental issuers such as
Puerto Rico, the Virgin Islands and Guam. The interest on these bonds is exempt
from federal income tax and Pennsylvania personal income tax. As a result, the
interest rate on these bonds normally is lower than it would be if the bonds
were subject to taxation. The Pennsylvania municipal securities in which the
fund invests include general obligation bonds, revenue bonds and municipal
leases. These securities may pay interest at fixed, variable or floating rates.
The fund may also hold zero coupon securities which pay no interest during the
life of the obligation but trade at prices below their stated maturity value.
OTHER DEBT SECURITIES The fund may invest up to 35% of its assets in municipal
securities of non-Pennsylvania issuers. These will generally be exempt from
federal, but not Pennsylvania income taxes. The fund may also invest up to 20%
of its assets in debt securities which are issued or guaranteed by the full
faith and credit of the U.S. government. These securities will generally be
subject to federal and state taxation.
DERIVATIVE CONTRACTS The fund may, but need not, use derivative contracts, such
as financial futures, for any of the following purposes:
- - To hedge against the economic impact of adverse changes in the market
value of portfolio securities due to changes in interest rates
- - As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
The other parties to certain futures present the same types of default risk as
issuers of fixed income securities.
The fund may invest in inverse floating rate securities. These securities pay
interest at a rate which moves in the opposite direction from movements in
market interest rates. Even a small investment in futures or in certain inverse
floaters with leverage features can have a big impact on a fund's interest rate
exposure. Therefore, using futures or inverse floaters can disproportionately
increase losses and reduce opportunities for gains when interest rates are
changing. The fund may not fully benefit from or may lose money on futures of
inverse floaters used for hedging purposes if changes in their value do not
correspond accurately to changes in the value of the fund's holdings. Futures
and inverse floaters can also make a fund less liquid and harder to value,
especially in declining markets.
DEFENSIVE INVESTING The fund may depart from its principal investment strategies
in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
- -8-
<PG$PCN>
MANAGEMENT
MANAGER The fund's investment adviser (the manager) is SSBC Fund Management
Inc., an affiliate of Salomon Smith Barney Inc. The manager's address is 388
Greenwich Street, New York, New York 10013. The manager selects the fund's
investments and oversees its operations. The manager and Salomon Smith Barney
are subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range of
financial services -- asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading -- and use
diverse channels to make them available to consumer and corporate customers
around the world.
Peter M. Coffey, investment officer of SSBC Fund Management Inc. and
managing director of Salomon Smith Barney, has been responsible for the day-
to-day management of the fund's portfolio since the fund commenced
operations in April 1994. Mr. Coffey has 30 years of experience with the
manager or its predecessor.
MANAGEMENT FEES During the fiscal year ended March 31, 1999, the manager
received an advisory fee equal to____% of the fund's average daily net assets.
DISTRIBUTOR The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
DISTRIBUTION PLANS The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
YEAR 2000 ISSUE Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
PENNSYLVANIA PORTFOLIO -9-
<PG$PCN>
CHOOSING A CLASS OF SHARES TO BUY
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
- - If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
- - For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
- - Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.
You may buy shares from:
- - A Salomon Smith Barney Financial Consultant
- - An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
- - The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
INVESTMENT MINIMUMS Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
-------------------------------------- ----------------
CLASSES A, B, L CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 million $50
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
Uniform Gift to Minors Accounts $50 $15 million $50
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -10-
<PG$PCN>
COMPARING THE FUND'S CLASSES
Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
KEY -Initial sales charge - No initial sales - Initial sales - No initial or
FEATURES -You may qualify charge charge is lower deferred sales charge
for reduction or - Deferred sales than Class A - Must invest at least
waiver of initial charge declines - Deferred sales $15 million
sales charge over time charge for only 1 - Lower annual
- Lower annual - Converts to year expenses than the
expenses than Class Class A after 8 - Does not other classes
B and Class L years convert to
- Higher annual Class A
expenses than - Higher annual
Class A expenses than
Class A
INITIAL SALES Up to 4.00%; None 1.00% None
CHARGE reduced for large
purchases and
waived for certain
investors. No
charge for
purchases of
$500,000 or more
DEFERRED 1% on purchases of Up to 4.50% 1% if you redeem None
SALES CHARGE $500,000 or more if charged when you within 1 year of
you redeem within redeem shares. purchase
1 year of purchase The charge is
reduced over time
and there is no
deferred sales
charge after 6 years
ANNUAL 0.15% of average 0.65% of average 0.70% of average None
DISTRIBUTION daily net assets daily net assets daily net assets
AND SERVICE
FEES
EXCHANGE Class A shares of Class B shares of Class L shares of Class Y shares of
PRIVILEGE most Smith Barney most Smith Barney most Smith most Smith Barney
funds funds Barney funds funds
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
PENNSYLVANIA PORTFOLIO -11-
<PG$PCN>
SALES CHARGE:
CLASS A SHARES
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
<TABLE>
<CAPTION>
SALES CHARGE AS A % OF
OFFERING NET AMOUNT
AMOUNT OF PURCHASE PRICE (%) INVESTED (%)
<S> <C> <C>
Less than $25,000 4.00 4.17
$25,000 but less than $50,000 3.50 3.63
$50,000 but less than $100,000 3.00 3.09
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more -0- -0-
</TABLE>
INVESTMENTS OF $500,000 OR MORE You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
QUALIFYING FOR A REDUCED CLASS A SALES CHARGE There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
- - Accumulation privilege - lets you combine the current value of Class A shares
owned
- by you, or
- by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
- - Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if any,
as if all shares had
- -12-
<PG$PCN>
been purchased at once. You may include purchases on which you paid a sales
charge within 90 days before you sign the letter.
WAIVERS FOR CERTAIN CLASS A INVESTORS Class A initial sales charges are waived
for certain types of investors, including:
- - Employees of members of the NASD
- - Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
- - Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
PENNSYLVANIA PORTFOLIO -13-
<PG$PCN>
CLASS B SHARES
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
<TABLE>
<CAPTION>
6th
Year after purchase 1st 2nd 3rd 4th 5th through
8th
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
</TABLE>
CLASS B CONVERSION After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
SHARES ISSUED: SHARES ISSUED: SHARES ISSUED:
AT INITIAL ON REINVESTMENT OF UPON EXCHANGE FROM
PURCHASE DIVIDENDS AND ANOTHER SMITH BARNEY
DISTRIBUTIONS FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
In same proportion as the On the date the shares
number of Class B shares originally acquired would
Eight years after the converting is to total Class B have converted into Class A
date of purchase shares you own shares
</TABLE>
CLASS L SHARES
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%.
CLASS Y SHARES
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you must
initially invest $5,000,000.
- -14-
<PG$PCN>
MORE ABOUT DEFERRED SALES CHARGES
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
- - Shares exchanged for shares of another Smith Barney fund
- - Shares representing reinvested distributions and dividends
- - Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for each share class will generally be waived:
- - On payments made through certain systematic withdrawal plans
- - On certain distributions from a retirement plan
- - For involuntary redemptions of small account balances
- - For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
PENNSYLVANIA PORTFOLIO -15-
<PG$PCN>
BUYING SHARES
<TABLE>
<S> <C>
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will be
represen- rejected:
tative
- Class of shares being bought
- Dollar amount or number of shares being bought
You should pay for your shares through your brokerage
account no later than the third business day after you
place your order. Salomon Smith Barney or your dealer
representative may charge an annual account maintenance
fee.
- -----------------------------------------------------------------------------------------------------------
Through the Certain investors who are clients of the selling group are eligible to
fund's buy shares directly from the fund.
transfer
agent - Write the transfer agent at the following address:
Smith Barney Pennsylvania Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
- Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
- For more information, call the transfer agent at 1-800-451-2010.
- -----------------------------------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to
investment transfer funds automatically from a regular bank
plan account, cash held in a Salomon Smith Barney brokerage
account or Smith Barney money market fund to buy shares
on a regular basis.
- Amounts transferred should be at least: $25 monthly or $50
quarterly
- If you do not have sufficient funds in your account
on a transfer date, Salomon Smith Barney, your dealer
representative or the transfer agent may charge you a fee
</TABLE>
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult the SAI.
- -16-
<PG$PCN>
EXCHANGING SHARES
<TABLE>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney funds.
offers a Be sure to read the prospectus of the Smith Barney fund you are
distinctive exchanging into. An exchange is a taxable transaction.
family of
funds - You may exchange shares only for shares of the same class of
tailored to another Smith Barney fund. Not all Smith Barney funds offer all
help meet classes.
the varying
needs of - Not all Smith Barney funds may be offered in your state of
both large residence. Contact your Salomon Smith Barney Financial Consultant,
and small dealer representative or the transfer agent.
investors
- You must meet the minimum investment amount for each fund.
- If you hold share certificates, the transfer agent
must receive the certificates endorsed for transfer or
with signed stock powers (documents transferring
ownership of certificates) before the exchange is
effective.
- The fund may suspend or terminate your exchange
privilege if you engage in an excessive pattern of
exchanges.
- -----------------------------------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at the time of
additional the exchange.
sales
charges Your deferred sales charge (if any) will continue to be measured from
the date of your original purchase. If the fund you exchange into has
a higher deferred sales charge, you will be subject to that charge. If
you exchange at any time into a fund with a lower charge, the sales charge
will not be reduced.
- -----------------------------------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If
eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent
at 1-800-451-2010 between 9:00 a.m. and 5:00 p.m.
(Eastern time). Requests received after the close of
regular trading on the Exchange are priced at the net
asset value next determined.
You can make telephone exchanges only between accounts
that have identical registrations.
- -----------------------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage
account, contact your dealer representative or write
to the transfer agent at the address on the opposite page.
</TABLE>
PENNSYLVANIA PORTFOLIO -17-
<PG$PCN>
REDEEMING SHARES
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation,
other documents may be required.
Your redemption proceeds will be sent within three
business days after your request is received in good
order. However, if you recently purchased your shares by
check, your redemption proceeds will not be sent to you
until your original check clears, which may take up to 15
days.
If you have a Salomon Smith Barney brokerage account,
your redemption proceeds will be placed in your account
and not reinvested without your specific instruction. In
other cases, unless you direct otherwise, your redemption
proceeds will be paid by check mailed to your address of
record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written
requests to the transfer agent at the following address:
Smith Barney Pennsylvania Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
- Your account number
- The class of shares and the dollar amount or number
of shares to be redeemed
- Signatures of each owner exactly as the account is
registered
- -18-
<PG$PCN>
<TABLE>
<S> <C>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares in amounts up to $10,000 per day through the
transfer agent. You must complete an authorization form
to authorize telephone redemptions. If eligible, you may
request redemptions by telephone on any day the New York
Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time). Requests received after the close of regular
trading on the Exchange are priced at the net asset value
next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You must submit a
new authorization form to change the bank account
designated to receive wire transfers and you may be asked
to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion
cash of your shares on a monthly or quarterly basis. To
withdrawal qualify you must own shares of the fund with a value of
plans at least $10,000 and each automatic redemption must be at
least $50. If your shares are subject to a deferred sales
charge, the sales charge will be waived if your automatic
payments do not exceed 1% per month of the value of your
shares subject to a deferred sales charge.
The following conditions apply:
- Your shares must not be represented by certificates
- All dividends and distributions must be reinvested
</TABLE>
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult
the SAI.
PENNSYLVANIA PORTFOLIO -19-
<PG$PCN>
OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
- Name of the fund
- Account number
- Class of shares being bought, exchanged or redeemed
- Dollar amount or number of shares being bought, exchanged or
redeemed
- Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
SIGNATURE GUARANTEES To be in good order, your redemption request must include a
signature guarantee if you:
- - Are redeeming over $10,000 of shares
- - Are sending signed share certificates or stock powers to the transfer agent
- - Instruct the transfer agent to mail the check to an address different from
the one on your account
- - Changed your account registration
- - Want the check paid to someone other than the account owner(s)
- - Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
- -20-
<PG$PCN>
The fund has the right to:
- - Suspend the offering of shares
- - Waive or change minimum and additional investment amounts
- - Reject any purchase or exchange order
- - Change, revoke or suspend the exchange privilege
- - Suspend telephone transactions
- - Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
- - Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
SMALL ACCOUNT BALANCES If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
SHARE CERTIFICATES The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
PENNSYLVANIA PORTFOLIO -21-
<PG$PCN>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS The fund pays dividends each month from its net investment income. The
fund generally makes capital gain distributions, if any, once a year, typically
in December. The fund may pay additional distributions and dividends at other
times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
TAXES In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
TRANSACTION FEDERAL TAX STATUS PENNSYLVANIA TAX STATUS
<S> <C> <C>
Redemption or exchange Usually capital gain or loss; long- Usually capital gain or loss
of shares term only if shares owned more
than one year
Long-term capital gain Taxable gain Taxable gain
distributions
Short-term capital gain Ordinary income Ordinary income
distributions
Exempt if from interest on
Dividends Exempt if from interest on tax- Pennsylvania municipal
exempt securities, otherwise securities, otherwise ordinary
ordinary income income
</TABLE>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a taxable dividend,
because it will be taxable to you even though it may actually be a return of a
portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
- -22-
<PG$PCN>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. A fund that uses
fair value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities. A security's
valuation may differ depending on the method used for determining value.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
PENNSYLVANIA PORTFOLIO -23-
<PG$PCN>
FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH YEAR
ENDED MARCH 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996(1) 1995(2)(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $12.66 $12.62 $12.40 $12.00
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment
income (loss)(4) 0.73 0.71 0.70 0.67
Net realized and
unrealized gain (loss) 0.95 0.04 0.29 0.35*
- -------------------------------------------------------------------------------------------------------------------
Total income (loss) from
operations 1.68 0.75 0.99 1.02
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment
income (0.69) (0.71) (0.72) (0.62)
Net realized gains (0.11) -- (0.05) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.80) (0.71) (0.77) (0.62)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $13.54 $12.66 $12.62 $12.40
- -------------------------------------------------------------------------------------------------------------------
Total return 13.52% 6.11% 8.08% 8.82%++
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF
YEAR (000)'S $16 $15 $12 $8
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS:
Expenses(1) 0.37% 0.37% 0.38% 0.29%+
Net investment
income (loss) 5.46 5.66 5.57 5.76+
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 81% 122% 88% 38%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method because
it more accurately reflects the per share data for the period.
(2) On October 10, 1994, the former Class C shares were exchanged into Class
A shares.
(3) For the period from April 4, 1994 (inception date) to March 31, 1995.
(4) The manager has waived all or a portion of its fees for the years ended
March 31, 1998, 1997 and 1996 and the period ended March 31, 1995. In
addition, the Manager reimbursed expenses of $23,433 and $32,063 for the
year ended March 31, 1996 and the period ended March 31, 1995,
respectively. If such fees were not waived and expenses not reimbursed,
the effect on net investment income and expense ratios would have been as
follows:
- -24-
<PG$PCN>
<TABLE>
<CAPTION>
Net Investment Income Per Expense Ratios Without Fee
Share Decreases Waivers and/or Expense
Reimbursements#
-------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.05 $0.06 $0.07 $0.09 0.79% 0.82% 0.93% 1.03%+
</TABLE>
* Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value
less than the net asset value at the beginning of the period.
# As a result of voluntary expense limitations, expense ratios would not
exceed 0.80% for Class A shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
PENNSYLVANIA PORTFOLIO -25-
<PG$PCN>
FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995(2)(3)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning $12.64 $12.61 $12.39 $12.35
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from
operations: 0.65 0.65 0.64 0.51
Net investment income
(loss)(4) 0.96 0.03 0.29 0.01*
Net realized and
unrealized gain (loss)
- -------------------------------------------------------------------------------------------------------------------------
Total income (loss) from 1.61 0.68 0.93 0.52
- -------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.62) (0.65) (0.66) (0.48)
Net realized gains (0.11) -- (0.05) --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (0.73) (0.65) (0.71) (0.48)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of $13.52 $12.64 $12.61 $12.39
- -------------------------------------------------------------------------------------------------------------------------
Total return 12.97% 5.56% 7.61% 4.48%++
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year $19 $16 $13 $5
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses(4)#
Net investment income 0.89% 0.88% 0.88% 0.82+
(loss) 4.94 5.15 5.07 5.31
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 81% 122% 88% 38%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method because
it more accurately reflects the per share data for the period.
(2) On November 7, 1994, the former Class E shares were renamed Class B
shares.
(3) For the period from June 20, 1994 (inception date) to March 31, 1995.
(4) The manager has waived all or a portion of its fees for the years ended
march 31, 1998, 1997 and 1996 and the period ended March 31, 1995. In
addition, the Manager reimbursed expenses of $23,433 and $32,063 for the
year ended March 31, 1996 and the period ended March 31, 1995,
respectively. If such fees were not waived and expenses not reimbursed,
the effect on net investment income and expense ratios would have been as
follows:
- -26-
<PG$PCN>
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
--------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class B 0.05 0.06 0.07 0.08 1.31 1.33 1.44 1.58+
</TABLE>
* Includes the net per share effect of shareholder sales and
redemptions activity during the period, most of which occurred at
a net asset value less than the net asset value at the beginning
of the period.
# As a result of voluntary expense limitations, expense ratios would
not exceed 1.30% for Class B shares.
++ Total return is not annualized, as it may not be representative of
the total return for the year.
+ Annualized.
PENNSYLVANIA PORTFOLIO -27-
<PG$PCN>
FOR A CLASS L SHARE(1) OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT
EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996(1) 1995(3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.64 $12.61 $12.39 $12.00
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss)(4)
Net realized and unrealized gain 0.64 0.64 0.64 0.59
(loss) 0.96 0.04 0.29 0.36*
- -----------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.60 0.68 0.93 0.95
- -----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment (0.62) (0.65) (0.66) (0.56)
income
Net realized gains (0.11) -- (0.05) --
- -----------------------------------------------------------------------------------------------------------------
Total distributions (0.73) (0.65) (0.71) (0.56)
- -----------------------------------------------------------------------------------------------------------------
Net assets value, end of year $13.51 $12.64 $12.61 $12.39
- -----------------------------------------------------------------------------------------------------------------
Total return(3) 12.84% 5.51% 7.56% 8.14%++
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $8 $6 $5 $3
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(4)# 0.94% 0.94% 0.94% 0.86%+
Net investment income
(loss) 4.89 5.09 5.00 5.04+
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 81% 122% 88% 38%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(2) On November 7, 1994, the former Class B shares were renamed Class C
shares. On June 12, 1998, the Class C shares were renamed Class L shares.
(3) For the period from April 6, 1994 (inception date) to March 31,1995.
(4) The manager has waived all or a portion of its fees for the years ended
March 31, 1998, 1997 and 1996 and the period ended March 31, 1995. In
addition, the manager reimbursed expenses of $23,433 and $32,063 for the
year ended March 31,1996 and the period ended March 31, 1995,
respectively. If such fees were not waived and expenses not reimbursed,
the effect on net investment income and expense ratios would have been as
follows:
- -28-
<PG$PCN>
<TABLE>
<CAPTION>
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements#
------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class L $0.05 $0.06 $0.07 $0.09 1.36% 1.39% 1.49% 1.56%+
</TABLE>
* Includes the net per share effect of shareholder sales and redemptions
activity during the period, most of which occurred at a net asset value
less than the net asset value at the beginning of the period.
# As a result of voluntary expense limitations, expense ratios would not
exceed 1.35% for Class C shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
PENNSYLVANIA PORTFOLIO -29-
<PG$PCN>
FOR A CLASS Y SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF
YEAR
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income
Net realized and unrealized
gain (loss)
- -------------------------------------------------------------------------------------------------------------------------
Total income (loss) from
operations
- -------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income
Net realized gains
- -------------------------------------------------------------------------------------------------------------------------
Total distributions
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year
- -------------------------------------------------------------------------------------------------------------------------
Total return
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s
- -------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses
Net investment income (loss)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) From the period of [date] (inception date) to March 31, 1999.
(2) Annualized.
- -30-
<PG$PCN>
SALOMON SMITH BARNEY(SM)
A MEMBER OF CITIGROUP [SYMBOL]
PENNSYLVANIA PORTFOLIO
- -- an investment portfolio of Smith Barney Muni Funds
SHAREHOLDER REPORTS Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
VISIT OUR WEB SITE. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM) Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-04395)
[FD00000 7/99]
<PG$PCN>
<PAGE>
--------------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
--------------------------------
Prospectus Smith Barney
Mutual Funds
- --------------------------------------------------------------------------------
July 29, 1999 California Money Market Portfolio
Class A and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Investments, risks and performance.........4
More on the fund's investments.............8
Management.................................9
Choosing a class of shares to buy.........10
Salomon Smith Barney Brokerage
Accounts.................................11
Letter of Intent: Class Y shares..........11
Deferred sales charges....................12
Buying shares.............................13
Exchanging shares.........................14
Redeeming shares..........................15
Other things to know about
share transactions.......................17
Dividends, distributions and taxes........19
Share price...............................20
Financial highlights......................21
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency. There is no assurance that the fund
will be able to maintain a stable net asset value of $1.00 per share.
-1-
<PAGE>
- --------------------------------------------------------------------------------
Investments, risks and performances
- --------------------------------------------------------------------------------
Principal investment strategies
Investment objective The fund seeks to provide income exempt from both federal
income taxes and California personal income taxes from a portfolio of high
quality short-term municipal obligations selected for liquidity and stability of
principal.
Key investments The fund invests primarily in short-term high quality
California municipal securities. These include securities issued by the State
of California and certain other municipal issuers, political subdivisions,
agencies and public authorities that pay interest which is exempt from
California state personal income taxes. All of the securities in which the fund
invests are rated in one of the top two highest short-term rating categories, or
if unrated, of equivalent quality. All of these securities have remaining
maturities of 397 days or less. The fund maintains a dollar-weighted average
portfolio maturity of 90 days or less.
Selection process The manager selects securities primarily by identifying
undervalued sectors and individual securities. The manager only selects
securities of issuers which it believes present minimal credit risk. In
selecting individual securities, the manager:
. Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors
. May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial development,
based on their apparent relative values
. Measures the potential impact of supply/demand imbalances for fixed versus
variable rate securities
. Considers the yields available for securities with different maturities and a
security's maturity in light of the outlook for interest rates to identify
individual securities that offer return advantages at similar risk levels
- -2-
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Although the fund seeks to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the fund, or the fund could
underperform other short-term municipal debt instruments or money market funds,
if:
. Interest rates rise, causing the value of the fund's portfolio to decline
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or the security's credit rating is downgraded
. California municipal securities fall out of favor with investors. The fund
will suffer more than a national municipal fund from adverse events affecting
California municipal issuers
. Unfavorable legislation affects the tax-exempt status of municipal securities
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal and
California state personal taxation. The fund may realize taxable gains on the
sale of its securities or on transactions in futures contracts. Some of the
fund's income may be subject to the federal alternative minimum tax. In
addition, distributions of the fund's income and gains will be taxable to
investors in states other than California.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund concentrates its assets in fewer issuers, the fund will be more
susceptible to negative events affecting those issuers.
Who may want to invest The fund may be an appropriate investment if you:
. Are a California taxpayer in a high federal tax bracket seeking current income
exempt from California and federal taxation
. Seeking exposure to short-term municipal securities at a minimum level of
additional risk
. Are looking to allocate a portion of your assets to money market securities
-3-
<PAGE>
Risk returns bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of the
past 8 full calendar years. Class Y shares would have different performance
because of their different expenses.
[BAR GRAPH APPEARS HERE]
Total Return for Class A Shares
91 5%
92 5%
93 5%
94 5%
95 5%
96 5%
97 5%
98 5%
Calendar years ended December 31
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
Year to date: xx% through 6/30/99.
7 day yield: As of December 31, 1998: Class A - ___%; Class Y - ___%.
Risk return table
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the 90-day
Treasury bill. This table assumes redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
- --------------------------------------------------------------------------------
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
Class 1 year 5 years 10 years Since inception Inception date
A n/a 5/10/90
Y n/a n/a 7/9/96
[90 day T-bill * n/a]
* Comparison begins on April 30, 1998.
- -4-
<PAGE>
Fees table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- ----------------------------------------------------------------------
Shareholder fees
- ----------------------------------------------------------------------
(fees paid directly from your investment) Class A Class Y
Maximum sales charge (load) imposed on purchases None None
Maximum deferred sales charge (load) None* None
Annual fund operating expenses
(expenses deducted from fund assets)
Management fees .50% .50%
Distribution and service (12b-1) fees .10% None
Other expenses
-- --
Total annual fund operating expenses
== ==
* Class A Shares acquired through an exchange for shares of another Smith Barney
Mutual Fund which were originally acquired at net asset value subject to a
contingent deferred sales charge ("CDSC") remain subject to the original fund's
CDSC.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
. Redemption at the end of the period
- --------------------------------------------------------------------------------
Number of years you own your shares
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
Class A $ $ $ $
Class Y $ $ $ $
-5-
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
California municipal securities California municipal securities include debt
obligations issued by certain non-California governmental issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on California municipal
securities is exempt from federal income tax and California personal income tax.
As a result, the interest rate on these securities normally is lower than it
would be if the securities were subject to taxation. The municipal securities in
which the fund invests include general obligation and revenue bonds and notes
and tax-exempt commercial paper. The fund may invest in floating or variable
rate municipal securities. Some of these securities may have stated final
maturities of more than 397 days but have demand features that entitle the fund
to receive the principal amount of the securities either at any time or at
specified intervals.
Structured securities The fund may invest up to 20% of its assets in three
types of structured securities: tender option bonds, partnership interests and
swap-based securities. These securities represent participation interests in a
special purpose trust or partnership holding one or more municipal bonds and/or
municipal bond interest rate swaps. A typical swap enables the trust or
partnership to exchange a municipal bond interest rate for a floating or
variable, short-term municipal interest rate.
These structured securities are a type of derivative instrument. Unlike some
derivatives, these securities are not designed to leverage the fund's portfolio
or increase its exposure to interest rate risk.
Investments in structured securities raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in other municipal
bonds. These issues could be resolved in a manner that could hurt the
performance of the fund.
Defensive investing The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of taxable money market and
short-term debt securities. If the fund takes a temporary defensive position, it
may be unable to achieve its investment goal.
- -6-
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSBC Fund Management Inc., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial
services--asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
Management fees During the fiscal year ended March 31, 1999, the manager
received an advisory fee equal to 0.50% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A shares. Under the plan, Class A shares pay a service fee. The fee in
Class A shares is an ongoing expense and, over time, it increases the cost of
your investment and may cost you more than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
-7-
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You may purchase Class A shares which are sold at net asset value with no
initial or deferred sales charge. Class A shares are subject to ongoing
distribution and service fees.
You may purchase Class Y shares only if you are making an initial investment of
at least $15,000,000. Class Y shares are sold at net asset value
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
Initial Additional
---------------------- -----------
Class A Class Y All Classes
General $1,000 $15 million $50
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
Uniform Gift to Minors Accounts $ 50 $15 million $50
- -8-
<PAGE>
- --------------------------------------------------------------------------------
Salomon Smith Barney Brokerage Accounts
- --------------------------------------------------------------------------------
If you maintain certain types of securities brokerage accounts with Salomon
Smith Barney, you may request that your free credit balances (i.e., immediately
available funds) be invested automatically in Class A shares of a designated
money market fund either daily or weekly. A complete record of fund dividends,
purchases and redemptions will be included on your regular Salomon Smith Barney
brokerage statement. In addition to this sweep service, shareholders of Salomon
Smith Barney FMA PLUS/SM/ accounts may also take advantage of: a free IRA, free
dividend reinvestment, unlimited checking, 100 free ATM withdrawals each year,
gain/loss analysis and online computer access to account information. Contact
your Salomon Smith Barney Financial Consultant for more complete information.
- --------------------------------------------------------------------------------
Letter of Intent: Class Y shares
- --------------------------------------------------------------------------------
You may buy Class Y shares of the fund at net asset value with no initial sales
charge. To purchase Class Y shares, you must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of a fund over a 13-month period. To qualify, you must
initially invest $5,000,000.
-9-
<PAGE>
- --------------------------------------------------------------------------------
Deferred sales charges
- --------------------------------------------------------------------------------
If Class A shares of the fund are acquired by exchange from another Smith Barney
fund subject to a deferred sales charge the original deferred sales charge will
apply to these shares. If you redeem these shares within 12 months of the date
you purchased shares of the original fund, the fund's shares may be subject to a
deferred sales charge of 1.00%.
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
You do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares that represent reinvested distributions and dividends
. Shares that are no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for Class A shares will generally be waived:
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn about additional waivers of deferred sales charges, contact
your Salomon Smith Barney Financial Consultant or dealer representative or
consult the Statement of Additional Information ("SAI").
- -10-
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon Smith or dealer representative to open a brokerage account and make
Barney arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order will be
dealer represen- rejected:
tative
. Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- ------------------------------------------------------------------------------------------------
Through the Certain investors who are clients of the selling group are eligible to
fund's buy shares directly from the fund.
transfer
agent . Write the transfer agent at the following address:
Smith Barney California Money Market Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
. For more information, call the transfer agent at 1-800-451-2010.
- ------------------------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds automatically
investment from a regular bank account to buy shares on a regular basis.
plan
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a transfer
date, Salomon Smith Barney, your dealer representative or the
transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult the SAI.
</TABLE>
-11-
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney funds.
offers a Be sure to read the prospectus of the Smith Barney fund you are
distinctive exchanging into.
family of
funds . You may exchange shares only for shares of the same class of
tailored to another Smith Barney fund. Not all Smith Barney funds offer all
help meet classes.
the varying
needs of . Not all Smith Barney funds may be offered in your state of
both large residence. Contact your Salomon Smith Barney Financial Consultant,
and small dealer representative or the transfer agent.
investors
. You must meet the minimum investment amount for each fund
. If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers
(documents transferring ownership of certificates) before the
exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- ------------------------------------------------------------------------------------------------
Sales Your shares may be subject to an initial sales charge at the time of the
charges exchange. For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer agent.
Your deferred sales charge (if any) will continue to be measured from
the date of your original purchase of another fund's shares subject to
a deferred sales charge.
- ------------------------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010 between
9:00 a.m. and 5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset
value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- ------------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent at the
address on the opposite page.
</TABLE>
- -12-
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However, if
you recently purchased your shares by check, your
redemption proceeds will not be sent to you until your
original check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- ----------------------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney California Money Market Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is
registered
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares in amounts up to $10,000 per day through the
transfer agent. You must complete an authorization form to
authorize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests
received after the close of regular trading on the Exchange are
priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You must submit a
new authorization form to change the bank account
designated to receive wire transfers and you may be asked to
provide certain other documents.
- -----------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1%
per month of the value of your shares subject to a deferred
sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
</TABLE>
- -14-
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
-15-
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities.
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
- -16-
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund declares a dividend of substantially all of its net
investment income on each day the New York Stock Exchange (NYSE) is open. Income
dividends are paid monthly. The fund generally makes capital gain distributions,
if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in
additional fund shares of the same class you hold. The fund expects
distributions to be primarily from income. You do not pay a sales charge on
reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Transaction Federal tax status California tax status
<S> <C> <C>
Redemption or exchange of Usually no gain or loss; Usually no gain or
shares loss may result to extent of loss; loss may result
any deferred sales charge to extent of any
deferred sales charge
Long-term capital gain Taxable gain Taxable gain
distributions
Short-term capital gain Ordinary income Ordinary income
distributions
Dividends Exempt if from interest on Exempt if from
tax-exempt securities, interest on California
otherwise ordinary income municipal securities,
otherwise ordinary
income
- -----------------------------------------------------------------------------------
</TABLE>
The fund anticipates that it will normally not earn or distribute any long-term
capital gains.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
-17-
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund uses the amortized cost method to value its portfolio securities. Using
this method, the fund constantly amortizes over the remaining life of a security
the difference between the principal amount due at maturity and the cost of the
security to the fund.
- ------------------------------------------------------------------------------
Purchase is Effective
Form of Purchase Payment and Dividends Begin
- ------------------------------------------------------------------------------
. Payment in federal funds If received At the close of regular
. Having a sufficient cash before trading on the
balance in your account with the close of Exchange on that day
Salomon Smith Barney or a regular trading
selling group member on the Exchange:
If received after At the close of regular
the close of trading on the
regular trading Exchange on the next
on the Exchange: business day
- ------------------------------------------------------------------------------
. Other forms of payment,
with conversion into, or
advance of, federal funds by At the close of regular trading on the
Salomon Smith Barney or a Exchange on the next business day
selling group member
. Other forms of payment
received by the transfer agent
- ------------------------------------------------------------------------------
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- -18-
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
-19-
<PAGE>
- --------------------------------------------------------------------------------
For a Class A share of beneficial interest outstanding throughout each year
ended March 31:
- --------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value,
beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
Income from
operations:
Net investment income 0.029 0.028 0.032 0.026
- --------------------------------------------------------------------------------
Total income from investment 0.029 0.028 0.032 0.026
operations
- --------------------------------------------------------------------------------
Less:
Dividends from net
investment income (0.029) (0.028) (0.032) (0.026)
- --------------------------------------------------------------------------------
Total distributions (0.029) (0.028) (0.032) (0.026)
- --------------------------------------------------------------------------------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
Total return 2.98% 2.79% 3.22% 2.66%
- --------------------------------------------------------------------------------
Net assets, end of
year (000)'s $ 1,178 $ 1,400 $ 1,346 $ 953
- --------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses/(1)/ 0.63% 0.67% 0.64% 0.61%
Net investment
income (loss) 2.92 2.75 3.15 3.02
- --------------------------------------------------------------------------------
(1) The manager has waived all or part of its fees for the two-year period
ended March 31,1996. If such fees were not waived, the per share decreases
in net investment income and the ratios of expenses to average net assets
would be as follows:
Net Investment Income Per Expense Ratios Without Fee
Share Decreases Waivers
-----------------------------------------------------
1996 1995 1996 1995
-----------------------------------------------------
Class A $.000* $.002 0.65% 0.63%
- -20-
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of beneficial interest outstanding throughout each year
ended March 31:
- --------------------------------------------------------------------------------
1999 1998 1997/(1)/
-----------------------------
Net asset value, beginning of year $ 1.00 $ 1.00
- ----------------------------------------------------------------------
Income from
operations:
Net investment income 0.031 0.020
- ----------------------------------------------------------------------
Total income from investment operations 0.031 0.020
- ----------------------------------------------------------------------
Less:
Dividends from net investment (0.031) (0.020)
income
- ----------------------------------------------------------------------
Total distributions (0.031) (0.020)
- ----------------------------------------------------------------------
Net asset value, end of year $ 1.00 $ 1.00
- ----------------------------------------------------------------------
Total return 3.09% 2.04%/(2)/
- ----------------------------------------------------------------------
Net assets, end of year (000)'s $ 3 $ 8
- ----------------------------------------------------------------------
Ratio to average net assets:
Expenses/(1)/ 0.54% 0.56%/(3)/
Net investment income (loss) 3.01 2.77/(3)/
- ----------------------------------------------------------------------
(1) For the period from July 9, 1996 (inception date) to March 31, 1997.
(2) Total return is not annualized, as it may not be representative of the total
return for the year.
(3) Annualized.
-21-
<PAGE>
Salomon Smith Barney(SM)
a member of citigroup [Symbol]
California Money Market Portfolio
- -- an investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-04395)
[FD00000 7/99]
<PAGE>
---------------------------
[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
---------------------------
Prospectus Smith Barney
Mutual Funds
- --------------------------------------------------------------------------------
July 29, 1999 New York Money Market Portfolio
Class A and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Investments, risks and performance..........4
More on the fund's investments..............8
Management..................................9
Choosing a class of shares to buy..........10
Salomon Smith Barney Brokerage
Accounts..................................11
Letter of Intent: Class Y shares...........11
Deferred sales charges.....................12
Buying shares..............................13
Exchanging shares..........................14
Redeeming shares...........................15
Other things to know about
share transactions........................17
Dividends, distributions and taxes.........19
Share price................................20
Financial highlights.......................21
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency. There is no assurance that the fund
will be able to maintain a stable net asset value of $1.00 per share.
-1-
<PAGE>
- --------------------------------------------------------------------------------
Investments, risks and performance
- --------------------------------------------------------------------------------
Principal investment strategies
Investment objective The fund seeks to provide 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 municipal obligations selected for
liquidity and stability of principal.
Key investments The fund invests primarily in short-term high quality New York
municipal securities. These include securities issued by the State of New York
and certain other municipal issuers, political subdivisions, agencies and public
authorities that pay interest which is exempt from New York state and New York
City personal income taxes. All of the securities in which the fund invests are
rated in one of the top two highest short-term rating categories, or if unrated,
of equivalent quality. All of these securities have remaining maturities of 397
days or less. The fund maintains a dollar-weighted average portfolio maturity
of 90 days or less.
Selection process The manager selects securities primarily by identifying
undervalued sectors and individual securities. The manager only selects
securities of issuers which it believes present minimal credit risk. In
selecting individual securities, the manager:
. Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors
. May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial development,
based on their apparent relative values
. Measures the potential impact of supply/demand imbalances for fixed versus
variable rate securities
. Considers the yields available for securities with different maturities and a
security's maturity in light of the outlook for interest rates to identify
individual securities that offer return advantages at similar risk levels
- -2-
<PAGE>
- --------------------------------------------------------------------------------
Risks, performance and expenses
- --------------------------------------------------------------------------------
Principal risks of investing in the fund
Although the fund seeks to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the fund, or the fund could
underperform other short-term municipal debt instruments or money market funds,
if:
. Interest rates rise, causing the value of the fund's portfolio to decline
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or the security's credit rating is downgraded
. New York municipal securities fall out of favor with investors. The fund will
suffer more than a national municipal fund from adverse events affecting New
York municipal issuers
. Unfavorable legislation affects the tax-exempt status of municipal securities
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal, New
York state and New York City taxation. The fund may realize taxable gains on
the sale of its securities or on transactions in futures contracts. Some of the
fund's income may be subject to the federal alternative minimum tax. In
addition, distributions of the fund's income and gains will be taxable to
investors in states other than New York.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the
extent the fund concentrates its assets in fewer issuers, the fund will be
more susceptible to negative events affecting those issuers.
Who may want to invest The fund may be an appropriate investment if you:
. Are a New York taxpayer in a high federal tax bracket seeking current income
exempt from New York and federal taxation
. Seeking exposure to short-term municipal securities at a minimum level of
additional risk
. Are looking to allocate a portion of your assets to money market securities
-3-
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of the
past 6 full calendar years. Class Y shares would have different performance
because of their different expenses.
[BAR GRAPH APPEARS HERE]
Total Return for Class A Shares
93 5%
94 5%
95 5%
96 5%
97 5%
98 5%
Calendar years ended December 31
Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
Year to date: xx% through 6/30/99.
7 day yield: As of December 31, 1998: Class A - ___%; Class Y - ___%.
Risk return table
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the 90-day
Treasury bill. This table assumes redemption of shares at the end of the
period, and reinvestment of distributions and dividends.
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
Class 1 year 5 years 10 years Since inception Inception date
A n/a 9/12/92
Y n/a n/a xx/xx/xx
[90 day T-bill * n/a]
*Comparison begins on April 30, 1998.
- -4-
<PAGE>
Fees table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
- --------------------------------------------------------------------
Shareholder fees
- --------------------------------------------------------------------
(Fees paid directly from your investment) Class A Class Y
Maximum sales charge (load) imposed on purchases None None
Maximum deferred sales charge (load) None* None
- -----------------------------------------------
Annual fund operating expenses
- -----------------------------------------------
(expenses deducted from fund assets)
Management fees .50% .50%
Distribution and service (12b-1) fees .10% None
Other expenses
-- --
Total annual fund operating expenses
== ==
* Class A Shares acquired through an exchange for shares of another Smith Barney
Mutual Fund which were originally acquired at net asset value subject to a
contingent deferred sales charge ("CDSC") remain subject to the original fund's
CDSC.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
. Redemption at the end of the period
- -----------------------------------------------------------------------------
Number of years you own your shares
- -----------------------------------------------------------------------------
1 year 3 years 5 years 10 years
Class A $ $ $ $
Class Y $ $ $ $
-5-
<PAGE>
- --------------------------------------------------------------------------------
More on the fund's investments
- --------------------------------------------------------------------------------
New York municipal securities New York municipal securities include debt
obligations issued by certain non-New York governmental issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on New York municipal securities
is exempt from federal income tax and New York personal income tax. As a result,
the interest rate on these securities normally is lower than it would be if the
securities were subject to taxation. The municipal securities in which the fund
invests include general obligation and revenue bonds and notes and tax-exempt
commercial paper. The fund may invest in floating or variable rate municipal
securities. Some of these securities may have stated final maturities of more
than 397 days but have demand features that entitle the fund to receive the
principal amount of the securities either at any time or at specified intervals.
Structured securities The fund may invest up to 20% of its assets in three
types of structured securities: tender option bonds, partnership interests and
swap-based securities. These securities represent participation interests in a
special purpose trust or partnership holding one or more municipal bonds and/or
municipal bond interest rate swaps. A typical swap enables the trust or
partnership to exchange a municipal bond interest rate for a floating or
variable, short-term municipal interest rate.
These structured securities are a type of derivative instrument. Unlike some
derivatives, these securities are not designed to leverage the fund's portfolio
or increase its exposure to interest rate risk.
Investments in structured securities raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in other municipal
bonds. These issues could be resolved in a manner that could hurt the
performance of the fund.
Defensive investing The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of taxable money market and
short-term debt securities. If the fund takes a temporary defensive position, it
may be unable to achieve its investment goal.
- -6-
<PAGE>
- --------------------------------------------------------------------------------
Management
- --------------------------------------------------------------------------------
Manager The fund's investment manager is SSBC Fund Management Inc., an affiliate
of Salomon Smith Barney Inc. The manager's address is 388 Greenwich Street, New
York, New York 10013. The manager selects the fund's investments and oversees
its operations. The manager and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial
services--asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading -- and use diverse
channels to make them available to consumer and corporate customers around the
world.
Management fees During the fiscal year ended March 31, 1999, the manager
received an advisory fee equal to 0.50% of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A shares. Under the plan, Class A shares pay a service fee. The fee in
Class A shares is an ongoing expense and, over time, it increases the cost of
your investment and may cost you more than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
that the efforts of the fund, which are limited to requesting and receiving
reports from its service providers, or the efforts of its service providers to
correct the problem will be successful.
-7-
<PAGE>
- --------------------------------------------------------------------------------
Choosing a class of shares to buy
- --------------------------------------------------------------------------------
You may purchase Class A shares which are sold at net asset value with no
initial or deferred sales charge. Class A shares are subject to ongoing
distribution and service fees.
You may purchase Class Y shares only if you are making an initial investment of
at least $15,000,000. Class Y shares are sold at net asset value
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
Initial Additional
---------------------- -----------
Class A Class Y All Classes
General $1,000 $15 million $50
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
Uniform Gift to Minors $ 250 $15 million $50
- -8-
<PAGE>
- --------------------------------------------------------------------------------
Salomon Smith Barney Brokerage Accounts
- --------------------------------------------------------------------------------
If you maintain certain types of securities brokerage accounts with Salomon
Smith Barney, you may request that your free credit balances (i.e., immediately
available funds) be invested automatically in Class A shares of a designated
money market fund either daily or weekly. A complete record of fund dividends,
purchases and redemptions will be included on your regular Salomon Smith Barney
brokerage statement. In addition to this sweep service, shareholders of Salomon
Smith Barney FMA PLUS/SM/ accounts may also take advantage of: a free IRA, free
dividend reinvestment, unlimited checking, 100 free ATM withdrawals each year,
gain/loss analysis and online computer access to account information. Contact
your Salomon Smith Barney Financial Consultant for more complete information.
- --------------------------------------------------------------------------------
Letter of Intent: Class Y shares
- --------------------------------------------------------------------------------
You may buy Class Y shares of the fund at net asset value with no initial sales
charge. To purchase Class Y shares, you must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of a fund over a 13-month period. To qualify, you must
initially invest $5,000,000.
-9-
<PAGE>
- --------------------------------------------------------------------------------
Deferred sales charges
- --------------------------------------------------------------------------------
If Class A shares of the fund are acquired by exchange from another Smith Barney
fund subject to a deferred sales charge the original deferred sales charge will
apply to these shares. If you redeem these shares within 12 months of the date
you purchased shares of the original fund, the fund's shares may be subject to a
deferred sales charge of 1.00%.
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
You do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares that represent reinvested distributions and dividends
. Shares that are no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for Class A shares will generally be waived:
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
- -10-
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will be
Consultant rejected:
represen-
tative . Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- ----------------------------------------------------------------------------------------------
Through the Certain investors who are clients of the selling group are eligible to
fund's buy shares directly from the fund.
transfer
agent . Write the transfer agent at the following address:
Smith Barney New York Money Market Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
. For more information, call the transfer agent at 1-800-451-2010.
- ----------------------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds automatically
investment from a regular bank account to buy shares on a regular basis.
plan
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a transfer
date, Salomon Smith Barney, your dealer representative or the
transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or consult the SAI.
</TABLE>
-11-
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Smith You should contact your Salomon Smith Barney Financial Consultant
Barney or dealer representative to exchange into other Smith Barney funds.
offers a Be sure to read the prospectus of the Smith Barney fund you are
distinctive exchanging into.
family of
funds . You may exchange shares only for shares of the same class of
tailored to another Smith Barney fund. Not all Smith Barney funds offer all
help meet classes.
the varying
needs of . Not all Smith Barney funds may be offered in your state of
both large residence. Contact your Salomon Smith Barney Financial Consultant,
and small dealer representative or the transfer agent.
investors
. You must meet the minimum investment amount for each fund
. If you hold share certificates, the transfer agent must receive the
certificates endorsed for transfer or with signed stock powers
(documents transferring ownership of certificates) before the
exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- ----------------------------------------------------------------------------------------------
Sales Your shares may be subject to an initial sales charge at the time of the
charges exchange. For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer agent.
Your deferred sales charge (if any) will continue to be measured from
the date of your original purchase of another fund's shares subject to
a deferred sales charge.
- ----------------------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If eligible, you
may make telephone exchanges on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010 between
9:00 a.m. and 5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net asset
value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- ----------------------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer agent at the
address on the opposite page.
</TABLE>
- -12-
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However, if
you recently purchased your shares by check, your
redemption proceeds will not be sent to you until your
original check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- ----------------------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
transfer agent at the following address:
Smith Barney New York Money Market Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly as the account is
registered
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares in amounts up to $10,000 per day through the
transfer agent. You must complete an authorization form to
authorize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests
received after the close of regular trading on the Exchange are
priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your
address of record or by wire transfer to a bank account
designated on your authorization form. You must submit a
new authorization form to change the bank account
designated to receive wire transfers and you may be asked to
provide certain other documents.
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1%
per month of the value of your shares subject to a deferred
sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the SAI.
</TABLE>
- -14-
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or
redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
-15-
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities.
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
- -16-
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends The fund declares a dividend of substantially all of its net
investment income on each day the New York Stock Exchange (NYSE) is open. Income
dividends are paid monthly. The fund generally makes capital gain distributions,
if any, once a year, typically in December. The fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Capital gain distributions and dividends are reinvested in
additional fund shares of the same class you hold. The fund expects
distributions to be primarily from income. You do not pay a sales charge on
reinvested distributions or dividends. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the transfer
agent to have your distributions and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution or dividend,
except that any change given to the transfer agent less than five days before
the payment date will not be effective until the next distribution or dividend
is paid.
Taxes In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Transaction Federal tax status New York tax status
<S> <C> <C>
Redemption or exchange of Usually no gain or loss; Usually no gain or
shares loss may result to extent of loss; loss may result
any deferred sales charge to extent of any
deferred sales charge
Long-term capital gain Taxable gain Taxable gain
distributions
Short-term capital gain Ordinary income Ordinary income
distributions
Dividends Exempt if from interest on Exempt if from
tax-exempt securities, interest on New York
otherwise ordinary income municipal securities,
otherwise ordinary
income
- ----------------------------------------------------------------------------------
</TABLE>
The fund anticipates that it will normally not earn or distribute any long-term
capital gains.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
-17-
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund uses the amortized cost method to value its portfolio securities. Using
this method, the fund constantly amortizes over the remaining life of a security
the difference between the principal amount due at maturity and the cost of the
security to the fund.
- ------------------------------------------------------------------------------
Purchase is Effective
Form of Purchase Payment and Dividends Begin
- ------------------------------------------------------------------------------
. Payment in federal funds If received At the close of regular
. Having a sufficient cash before trading on the
balance in your account with the close of Exchange on that day
Salomon Smith Barney or a regular trading
selling group member on the Exchange:
If received after At the close of regular
the close of trading on the
regular trading Exchange on the next
on the Exchange: business day
- -----------------------------------------------------------------------------
. Other forms of payment,
with conversion into, or
advance of, federal funds by At the close of regular trading on the
Salomon Smith Barney or a Exchange on the next business day
selling group member
. Other forms of payment
received by the transfer agent
- ------------------------------------------------------------------------------
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
- -18-
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
- --------------------------------------------------------------------------------
For a Class A share of beneficial interest outstanding throughout each year
ended March 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------
Income from
operations:
Net investment 0.030 0.028 0.038 0.025
- ---------------------------------------------------------------------------------
Total income from investment 0.030 0.028 0.038 0.025
operations
- ---------------------------------------------------------------------------------
Less:
Dividends from net
investment income (0.030) (0.28) (0.038) (0.025)
- ---------------------------------------------------------------------------------
Total distributions (0.030) (0.028) (0.038) (0.025)
- ---------------------------------------------------------------------------------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------
Total return 3.04% 2.85% 3.17% 2.49%
- ---------------------------------------------------------------------------------
Net assets, end of
year (000)'s $1,161,000 $937,115 $882,492 $708,391
- ---------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses/(1)/ 0.65% 0.67% 0.67% 0.68%
Net investment
income (loss) 2.99 2.80 3.11 2.94
- ---------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of beneficial interest outstanding throughout each year
ended March 31:
- --------------------------------------------------------------------------------
1999
------
Net asset value, beginning of year
- -----------------------------------------------
Income from operations:
Net investment
- -----------------------------------------------
Total income from investment operations
- -----------------------------------------------
Less:
Dividends from net
investment income
- -----------------------------------------------
Total distributions
- -----------------------------------------------
Net asset value, end of year
- -----------------------------------------------
Total return
- -----------------------------------------------
Net assets, end of year (000)'s
- -----------------------------------------------
Ratio to average net assets:
Expenses
Net investment income (loss)
- -----------------------------------------------
(1) For the period from [date] (inception date) to March 31, 1999.
(2) Total return is not annualized, as it may not be representative of the
total return for the year.
(3) Annualized.
- -20-
<PAGE>
Salomon Smith Barney(SM)
a member of citigroup [Symbol]
New York Money Market Portfolio
- -- an investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no. 811-04395)
[FD00000 7/99]
Part B
Smith Barney Muni Funds
388 Greenwich Street
New York, NY 10013
Statement of Additional
Information
July 29, 1999
This Statement of Additional Information (the "SAI") expands upon
and supplements the information contained in the current prospectuses
of the Smith Barney Muni Funds dated July 29, 1999, each as amended or
supplemented from time to time, and should be read in conjunction with
the prospectuses. Shares of Smith Barney Muni Funds are offered
currently with a choice of eight portfolios: the National Portfolio,
the Limited Term Portfolio, the Florida Portfolio, the Georgia
Portfolio, the New York Portfolio, the Pennsylvania Portfolio, the
California Money Market Portfolio and the New York Money Market
Portfolio (collectively referred to as "funds" and individually as a
"fund"). Additional information about a fund's investments is available
in the fund's annual and semi-annual reports to shareholders. Each
fund's prospectus may be obtained free of charge from your Salomon
Smith Barney Financial Consultant or by writing or calling the fund at
the address or telephone number set forth above. This SAI, although
not in itself a prospectus, is incorporated by reference into the
prospectus in its entirety.
TABLE OF CONTENTS
Page
Investment Objective and Management Policies
2
Trustees and Officers
14
Distribution
18
Purchase of Shares
20
Redemption of Shares
22
Valuation of Shares
23
Exchange Privilege
24
Fund Name
26
Performance Data
28
The Funds
31
Voting Rights
32
Taxes
33
Additional Information
35
Financial Statements
36
Appendix A - Ratings Definitions
A-1
Appendix B - Special Considerations Relating to California Municipal
Obligations B-1
Appendix C - Special Considerations Relating to Florida Municipal
Obligations C-1
Appendix D - Special Considerations Relating to Georgia Municipal
Obligations D-1
Appendix E - Special Considerations Relating to New York Municipal
Obligations E-1
Appendix F - Special Considerations Relating to Pennsylvania Municipal
Obligations F-1
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
Each prospectus discusses a specific fund's investment objective
and policies. The following discussion supplements the description of
each fund's investment policies in its prospectus. SSBC Fund
Management, Inc. ("SSBC" or the "Manager") serves as investment manager
and administrator to each fund.
National Portfolio. The National Portfolio seeks as high a level
of income exempt from federal income taxes as is consistent with
prudent investing. The National Portfolio has a fundamental policy
that, under normal market conditions, it will seek to invest 100% of
its total assets - and the fund will invest not less than 80% of its
total assets - in municipal obligations the interest on which is exempt
from federal income taxes (other than the alternative minimum tax
("AMT")). The fund may also invest up to 20% of its assets in taxable
fixed income securities issued or guaranteed by the full faith and
credit of the United States.
The Limited Term Portfolio seeks as high a level of income exempt
from federal income taxes as is consistent with prudent investing. The
Limited Term Portfolio has a fundamental policy that, under normal
market conditions, it will seek to invest 100% of its total assets -
and the fund will invest not less than 80% of its total assets - in
municipal obligations the interest on which is exempt from federal
income taxes (other than the AMT). The fund may invest up to 20% of
its assets in taxable fixed income securities issued or guaranteed by
the full fait and credit of the United States.
Florida Portfolio seeks to pay its shareholders as high a level
of income exempt from federal income taxes as is consistent with
prudent investing, and generally selects investments that will enable
its shares to be exempt from the Florida intangibles tax. The Florida
Portfolio has a fundamental policy that, under normal market
conditions, it will seek to invest 100% of its total assets - and the
fund will invest not less than 80% of its total assets - in municipal
obligations the interest on which is exempt from federal income taxes
(other than the AMT). It is also a fundamental policy that under
normal market conditions the fund will invest at least 65% of its net
assets in municipal obligations issued by the State of Florida, it's
political subdivisions and their agencies and instrumentalities and in
other municipal obligations which are exempt from Florida intangibles
tax. The 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.
Georgia Portfolio seeks to provide as high a level of income
exempt from federal income taxes and from Georgia personal income taxes
as is consistent with prudent investing. The Georgia Portfolio has a
fundamental policy that, under normal market conditions, it will seek
to invest 100% of its total assets - and the fund will invest not less
than 80% of its total assets - in municipal obligations the interest on
which is exempt from federal income taxes (other than the AMT). It is
also a fundamental policy that, under normal market conditions, the
fund will invest at least 65% of its total assets in municipal
obligations, the interest on which is also exempt from the personal
income taxes of the State of Georgia in the opinion of bond counsel to
issuers. The 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.
New York Portfolio seeks to provide 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 York Portfolio has a fundamental policy that, under normal
market conditions, it will seek to invest 100% of its total assets -
the fund will invest not less than 80% of its total assets - in
municipal obligations the interest on which is exempt from federal
income taxes (other than the AMT) and not less than 65% of its total
assets in municipal obligations the interest on which is also exempt
from personal income taxes of New York State in the opinion of bond
counsel to issuers. The fund may invest up to 20% of its total assets
in taxable fixed income securities, but only in obligations issued or
guaranteed by the full faith and credit of the United States.
Pennsylvania Portfolio seeks to pay its shareholders as high a
level of income exempt from both federal income taxes and Pennsylvania
personal income taxes as is consistent with prudent investing. The
Pennsylvania Portfolio has a fundamental policy that, under normal
market conditions, it will seek to invest 100% of its total assets -
and the fund will invest not less than 80% of its total assets - in
municipal obligations the interest on which is exempt from federal
income taxes (other than the AMT). It is also a fundamental policy
that under normal market conditions, the fund will invest at least 65%
of its assets in municipal obligations the interest on which is also
exempt from personal income taxes of the Commonwealth of Pennsylvania
in the opinion of bond counsel to the issuers. The 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.
California Money Market Portfolio seeks to provide income exempt
from federal income taxes and from California personal income taxes
from a fund of high quality short-term municipal obligations selected
for liquidity and stability. The California Money Market Portfolio has
a fundamental policy that, under normal market conditions, at least 80%
of its total assets will be invested in securities that produce income
that is exempt from federal income taxes (other than the AMT) and from
California personal income taxes in the opinion of bond counsel for the
various issuers.
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 fund of high quality short-term New York
municipal obligations selected for liquidity and stability. The New
York Money Market Portfolio has a fundamental policy that, under normal
market conditions, at least 80% of its total assets will be invested in
securities that produce income that is exempt from federal income taxes
(other than the AMT) and from New York State and City personal income
taxes in the opinion of bond counsel for the various issuers.
Municipal Obligations. 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, many of which may 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, 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 ("IDBs") issued by public
authorities to obtain funds to provide various privately-operated
facilities for business and manufacturing, housing, sports, convention
or trade show facilities, airport, mass transit, port and parking
facilities, air or water pollution control facilities, and certain
facilities for water supply, gas, electricity or sewerage or solid
waste disposal.
The two principal classifications of municipal obligations are
"general obligation" and "revenue." General obligations are secured by
a municipal issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Revenue obligations are
payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source. Although 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 fund's
municipal obligations are revenue bonds.
For purposes of diversification and concentration under the
Investment Company Act of 1940, as amended (the "1940 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 IDB or a pollution control revenue bond,
if the bond is backed only by the assets and revenues of the non-
governmental user, the non-governmental 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. Similar criteria
apply for purposes of the diversification requirements under Subchapter
M of the Internal Revenue Code (the "Code").
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 ratings of Nationally Recognized Statistical Ratings Organizations
("NRSROs") such as Moody's Investment Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P") represent their opinions 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.
Each fund 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
may 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 fund 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.
Municipal obligations also are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies
of creditors, such as the federal Bankruptcy Code, and laws, if any,
that may be enacted by Congress or state legislatures extending the
time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. There is also the possibility that, as a
result of litigation or other conditions, the power or ability of any
one or more issuers to pay, when due, the principal of and interest on
its or their Municipal Bonds may be materially affected.
Ratings. Municipal bonds purchased for the fund (except
California Money Market and New York Money Market Portfolios ) must, at
the time of purchase, be investment-grade municipal bonds, and at least
two-thirds of a fund's municipal bonds must be rated within the three
highest ratings categories by NRSRO. Investment-grade bonds are rated
within the four highest categories by an NRSRO, such as those rated
Aaa, Aa, A and Baa by Moody's or AAA, AA, A and BBB by S&P or, if
unrated, determined to be of comparable quality by the manager; pre-
refunded bonds escrowed by U.S. Treasury obligations are considered AAA
rated (the highest rating) even though the issuer does not obtain a new
rating. Up to one-third of assets of a fund may be invested in
municipal bonds rated in the fourth highest category (this grade, while
regarded as having an adequate capacity to pay interest and repay
principal, is considered to be of medium quality and has speculative
characteristics) or is 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 fund 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 a fund 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 fund but the manager will consider such an event in
determining whether the fund should continue to hold the security.
Each fund's (except California Money Market and New York Money
Market Portfolios) 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 a rating within comparable
categories by any other NRSRO, or obligations that are unrated but
determined by the manager to be comparable).
Short-Term Instruments. Among the types of short-term
instruments in which each fund 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 fund 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 fund.
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 fund participation interest bears to the total
principal amount of the tax-exempt security with a demand repurchase
feature. Participation interests 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 fund. A fund 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
fund's participation interest in the tax-exempt security, plus accrued
interest. Each fund
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 fund. Banks will retain a
service and letter of credit fee and a fee for issuing repurchase
commitments 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 fund. The manager will monitor the
pricing, quality and liquidity of the variable-rate demand instruments
held by each fund, including the IDBs supported by bank letters of
credit or guarantees, on the basis of published financial information,
reports of rating agencies and other bank analytical services to which
the manager may subscribe.
Money Market Instruments. The California Money Market Portfolio
and New York Money Market Portfolio each operate as a money market
fund, and utilize certain investment policies so that, to the extent
reasonably possible, its price per share will not change from $1.00,
although no assurance can be given that this goal will be achieved on a
continuous basis. For example, neither fund will not purchase a
security which, after giving effect to any demand features, has a
remaining maturity of greater than 13 months, or maintain a dollar-
weighted average fund maturity in excess of 90 days.
The California Money Market and New York Money Market Portfolios'
investments are limited to United States dollar-denominated instruments
that, at the time of acquisition (including any related credit
enhancement features) have received a rating in one of the two highest
categories for short-term debt obligations from the "Requisite NRSROs,"
securities of issuers that have received such a rating with respect to
other comparable securities, and comparable unrated securities.
"Requisite NRSROs" means (a) any two nationally recognized statistical
rating organizations NRSROs) that have issued a rating with respect to
a security or class of debt obligations of an issuer, or (b) one NRSRO,
if only one NRSRO has issued such rating at the time that the fund
acquires the security. The NRSROs currently designated as such by the
SEC are S&P, Moody's, Duff and Phelps Inc., Fitch IBCA, Inc. ("Fitch")
and Thomson BankWatch.
The California Money Market and New York Money Market funds may
each invest up to 20% of the value of their assets in one or more of
the three principal types of derivative product structures described
below. Derivative products are typically structured by a bank, broker-
dealer or other financial institution. A derivative product generally
consists of a trust or partnership through which the fund holds an
interest in one or more underlying bonds coupled with a conditional
right to sell ("put") the fund's interest in the underlying bonds at
par plus accrued interest to a financial institution (a "Liquidity
Provider"). Typically, a derivative product is structured as a trust
or partnership which provides for pass-through tax-exempt income.
There a are currently three principal types of derivative structures:
(1) "Tender Option Bonds", which are instruments which grant the holder
thereof the right to put an underlying bond at par plus accrued
interest at specified intervals to a Liquidity Provider; (2) "Swap
Products", in which the trust or partnership swaps the payments due on
an underlying bond with a swap counterpart who agrees to pay a floating
municipal money market interest rate:; and (3) "Partnerships", which
allocate to the partners income, expenses, capital gains and losses in
accordance with a governing partnership agreement.
Investments in derivative products raise certain tax, legal,
regulatory and accounting issues which may not be presented by
investments in other municipal bonds. There is some risk that certain
issues could be resolved in a manner that could adversely impact the
performance of a fund. For example, the tax-exempt treatment of the
interest paid to holders of derivative products is premised on the
legal conclusion that the holders of such derivative products have an
ownership interest in the underlying bonds. While the fund receives an
opinion of legal counsel to the effect that the income from each
derivative product is tax-exempt to the same extent as the underlying
bond, the Internal Revenue Service (the "IRS") has not issued a ruling
on this subject. Were the IRS to issue an adverse ruling, there is a
risk that the interest paid on such derivative products would be deemed
taxable.
The fund's intend to limit the risk of derivative products by
purchasing only those derivative products that are consistent with the
fund's investment objective and policies. The funds will not use such
instruments to leverage securities. Hence, derivative products'
contributions to the overall market risk characteristics of a fund will
not materially alter its risk profile and will be fully representative
of the fund's maturity guidelines.
Stand-By Commitments. The California Money Market and New York
Money Market Portfolio's may acquire "stand-by commitments" with
respect to municipal obligations held in their respective funds.
Under a stand-by commitment a dealer agrees to purchase, at the fund's
option, specified municipal obligations at a specified price. The
funds intend to enter into stand-by commitments only with dealers,
banks and broker-dealers that, in the opinion of the manager, present
minimal credit risks. In evaluating the creditworthiness of the issuer
of a stand-by commitment, the manager will review periodically the
issuer's assets, liabilities, contingent claims and other relevant
financial information. Because a fund invests in securities backed by
banks and other financial institutions, change in the credit quality of
these institutions could cause losses to the fund and effect its share
price. The funds will acquire stand-by commitments solely to
facilitate fund liquidity and do not intend to exercise their rights
thereunder for trading purposes.
Other Factors to be Considered. The California Money Market and
New York Money Market Portfolios anticipate being as fully invested as
practicable in tax-exempt securities. The funds may invest in taxable
investments due to market conditions or pending investment of proceeds
from sales of shares or proceeds from the sale of fund securities or in
anticipation of redemptions. However, the funds generally expect to
invest the proceeds received from the sale of shares in municipal
obligations as soon as reasonably possible, which is generally within
one day. At no time will more than 20% of the funds' net assets be
invested in taxable investments except when the manager has determined
that market conditions warrant a fund adopting a temporary defensive
investment posture. To the extent a fund's assets are invested for
temporary defensive purposes, such assets will not be invested in a
manner designed to achieve a fund's investment objective.
From time to time, proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income tax
exemption for interest on municipal obligations, and similar proposals
may be introduced in the future. If one of these proposals were
enacted, the availability of tax exempt obligations for investment by
the funds and the value of a fund's would be affected. The fund's
Board of Directors would then reevaluate the portfolio's investment
objective and policies.
Municipal Bond Index Futures Contracts. The portfolios may each
invest in municipal bond futures contracts (currently trade on the
Chicago Board of Trade) are enlisted contracts based U.S. government
securities as a hedging policy in pursuant of its investment objective;
provided that immediately thereafter not more than 33 1/3% of the
portfolio's net assets (except California Money Market and New York
Money Market Funds) would be hedged or the amount of margin deposits on
the portfolio's existing futures contracts would not exceed 5% (except
California Money Market and New York Money Market Funds) on the value
of its total assets. A municipal bond index futures contract is an
agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a fund specific dollar amount multiplied
by the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index
contract was originally written. No physical delivery of the underlying
municipal bonds in the index is made. Municipal bond index futures
contracts based on an index of 40 tax-exempt, long-term municipal bonds
with an original issue size of at least $50 million and a rating of A-
or higher by S&P or A or higher by Moody's began trading in mid-1985.
The purpose of the acquisition or sale of a municipal bond index
futures contract by the fund, as the holder of long-term municipal
securities, is to protect a fund from fluctuations in interest rates on
tax-exempt securities without actually buying or selling long-term
municipal securities.
There are several risks in connection with the use of futures
contracts as a hedging device. Successful use of futures contracts by a
fund is subject to the manager's ability to predict correctly movements
in the direction of interest rates. Such predictions involve skills and
techniques which may be different from those involved in the management
of a long-term municipal bond fund. In addition, there can be no
assurance that there will be a correlation between movements in the
price of the municipal bond index and movements in the price of the
Municipal Bonds which are the subject of the hedge. The degree of
imperfection of correlation depends upon various circumstances, such as
variations in speculative market demand for futures contracts and
municipal securities, technical influences on futures trading, and
differences between the municipal securities being hedged and the
municipal securities underlying the futures contracts, in such respects
as interest rate levels, maturities and creditworthiness of issuers. A
decision of whether, when and how to hedge involves the exercise of
skill and judgment and even a well-conceived hedge may be unsuccessful
to some degree because of market behavior or unexpected trends in
interest rates.
Although a fund intends to purchase or sell futures contracts
only if there is an active market for such contracts, there is no
assurance that a liquid market will exist for the contracts at any
particular time. Most domestic futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices
during a single trading day. The daily limit establishes the maximum
amount the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular contract, no
trades may be made that day at a price beyond that limit. The daily
limit governs only price movement during a particular trading day and,
therefore, does not limit potential losses because the limit may
prevent the liquidation of unfavorable positions. It is possible that
futures contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting some futures
traders to substantial losses. In such event, it will not be possible
to close a futures position and, in the event of adverse price
movements, the fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of
the portion of the fund being hedged, if any, may partially or
completely offset losses on the futures contract. As described above,
however, there is no guarantee that the price of Municipal Bonds will,
in fact, correlate with the price movements in the municipal bond index
futures contract and thus provide an offset to losses on a futures
contract.
If a fund has hedged against the possibility of an increase in
interest rates adversely affecting the value of the Municipal Bonds
held in its fund and rates decrease instead, the fund will lose part or
all of the benefit of the increased value of the Municipal Bonds it has
hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if the fund has insufficient cash, it
may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily,
be at increased prices which reflect the decline in interest rates. The
fund may have to sell securities at a time when it may be
disadvantageous to do so.
When a fund purchases municipal bond index futures contracts, an
amount of cash and U.S. government securities or other high grade debt
securities equal to the market value of the futures contracts will be
deposited in a segregated account with the fund's custodian or in the
fund's records
to collateralize the positions and thereby insure that the use of such
futures contracts is not leveraged. In addition, the
ability of a fund to trade in municipal bond index futures contracts
and options on interest rate futures contracts may be materially
limited by the requirements of the Code applicable to a regulated
investment company. See "Taxes."
Municipal Leases. Each fund (except California Money Market and
New York Money Market Portfolios) may invest without limit in
"municipal leases," which generally are participations in intermediate-
and short-term debt obligations issued by municipalities consisting of
leases or installment purchase contracts for property or equipment.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a
lease obligation is ordinarily backed by the municipality's covenant to
budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future
years unless money is appropriated for such purpose on a yearly basis.
In addition to the "non-appropriation" risk, these securities represent
a relatively new type of financing that has not yet developed the depth
of marketability associated with more conventional bonds. Although
"non-appropriation" lease obligations are often secured by the
underlying property, disposition of the property in the event of
foreclosure might prove difficult. There is no limitation on the
percentage of the fund's assets that may be invested in municipal lease
obligations. In evaluating municipal lease obligations, the manager
will consider such factors as it deems appropriate, which may include:
(a) whether the lease can be canceled; (b) the ability of the lease
obligee to direct the sale of the underlying assets; (c) the general
creditworthiness of the lease obligor; (d) the likelihood that the
municipality will discontinue appropriating funding for the leased
property in the event such property is no longer considered essential
by the municipality; (e) the legal recourse of the lease obligee in the
event of such a failure to appropriate funding; (f) whether the
security is backed by a credit enhancement such as insurance; and (g)
any limitations which are imposed on the lease obligor's ability to
utilize substitute property or services rather than those covered by
the lease obligation.
Special Considerations Relating to California Municipal
Securities. See Appendix B for a discussion of the considerations
relating to California Municipal Securities.
Special Considerations Relating to Florida Municipal Securities.
See Appendix C for a discussion of the considerations relating to
Florida Municipal Securities.
Special Considerations Relating to Georgia Municipal Securities.
See Appendix D for a discussion of the considerations relating to
Georgia Municipal Securities.
Special Considerations Relating to New York Municipal Securities.
See Appendix E for a discussion of the considerations relating to New
York Municipal Securities.
Special Considerations Relating to Pennsylvania Municipal
Securities. See Appendix F for a discussion of the considerations
relating to Pennsylvania Municipal Securities.
Private Activity Bonds. 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 the fund's dividends are derived from
interest on those bonds.
Zero Coupon Securities. Each fund (except California Money
Market and New York Money Market Portfolios) may invest in zero coupon
bonds. Zero coupon securities are debt obligations which do not
entitle the holder to any periodic payments of interest prior to
maturity of a specified cash payment date when the securities begin
paying current interest (the "cash payment date") and therefore are
issued and traded at a discount from their face amounts or par values.
The discount varies depending on the time remaining until maturity or
cash payment date, prevailing interest rates, liquidity of the security
and the perceived credit quality of the issuer. The discount, in the
absence of financial difficulties of the issuer, decreases as the final
maturity or cash payment date of the security approaches. The market
prices of zero coupon securities generally are more volatile than the
market prices of other debt securities that pay interest periodically
and are likely to respond to changes in interest rates to a greater
degree than do debt securities having similar maturities and credit
quality. The credit risk factors pertaining to low-rated securities
also apply to low-rated zero coupon bonds. Such zero coupon bonds
carry an additional risk in that, unlike bonds which pay interest
throughout the period to maturity, the fund will realize no cash until
the cash payment date unless a portion of such securities is sold and,
if the issuer defaults, the fund may obtain no return at all on its
investment.
Current federal income tax laws may require the holder of a zero
coupon security to accrue income with respect to that security prior to
the receipt of cash payments. To maintain its qualification as a
registered investment company and avoid liability for federal income
taxes, a fund may be required to distribute income accrued with respect
to zero coupon securities and may have to dispose of fund securities
under disadvantageous circumstances in order to generate cash to
satisfy these distribution requirements.
When-Issued Securities. Each fund may purchase municipal bonds
on a "when-issued" basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). The payment obligation
and the interest rate that will be received on the municipal bonds
purchased on a when-issued basis are each fixed at the time the buyer
enters into the commitment. Although a fund will purchase municipal
bonds on a when-issued basis only with the intention of actually
acquiring the securities, the fund may sell these securities before the
settlement date if it is deemed advisable as a matter of investment
strategy.
Municipal bonds are subject to changes in value based upon the
public's perception of the creditworthiness of the issuers and changes,
real or anticipated, in the level of interest rates. In general,
municipal bonds tend to appreciate when interest rates decline and
depreciate when interest rates rise. Purchasing municipal bonds on a
when-issued basis, therefore, can involve the risk that the yields
available in the market when the delivery takes place may actually be
higher than those obtained in the transaction itself. To account for
this risk, a separate account of the fund consisting of cash or liquid
debt securities equal to the amount of the when-issued commitments will
be established at the fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the
market or fair value of such securities declines, additional cash or
securities will be placed in the account on a daily basis so the value
of the account will equal the amount of such commitments by the fund.
Placing securities rather than cash in the segregated account may have
a leveraging effect on the fund's net assets. That is, to the extent
the fund remains substantially fully invested in securities at the same
time it has committed to purchase securities on a when-issued basis,
there will be greater fluctuations in its net assets than if it had set
aside cash to satisfy its purchase commitments. Upon the settlement
date of the when-issued securities, the fund will meet obligations from
then-available cash flow, sale of securities held in the segregated
account, sale of other securities or, although it normally would not
expect to do so, from the sale of the when-issued securities themselves
(which may have a value greater or less than the fund's payment
obligations). Sales of securities to meet such obligations may involve
the realization of capital gains, which are not exempt from federal
income taxes or individual state personal income tax.
When a fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may
result in the fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
Short-Term Trading. Fund transactions will be undertaken
principally to accomplish each fund's objective in relation to
anticipated movements in the general level of interest rates, but each
fund may also engage in short-term trading consistent with its
objective.
Short-term Borrowing. The funds may borrow on a short-term basis
in amounts of up to 5% of its assets in order to facilitate the
settlement of fund securities transactions.
Non-diversified status. The Georgia Portfolio, Pennsylvania
Portfolio, the California Money Market and New York Money Market
Portfolios are each classified as a non-diversified investment company
under the Investment Company Act of 1940 (the "1940 Act"), which means
that the funds are 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 Internal
Revenue Code of 1986, as amended (the "Code", which will relieve each
fund of any liability for federal income tax and California and New
York state, respectively, franchise tax to the extent its earnings are
distributed to shareholders. To so qualify, among other requirements,
the funds will limit their investments so that, at the close of each
quarter of the taxable year, (a) not more than 25% of the market value
of the fund's total assets will be invested in the securities of a
single issuer and (b) with respect to 50% of the market value of its
total assets, not more than 5% of the market value of its total assets
will be invested in the securities of a single issuer and the fund will
not own more than 10% of the outstanding voting securities of a single
issuer. The funds' assumption of large positions in the obligations of
a small number of issuers may cause a fund's share price to fluctuate
to a greater extent than that of a diversified company as a result of
changes in the financial condition or in the market's assessment of the
issuers.
Illiquid Securities. Each fund (except California Money Market
and New York Money Market Portfolios) will not invest more than 15% of
the value of its net assets in illiquid securities, including those for
which there is no established market. The New York Money Market and
California Money Market Portfolios will not invest more than 10% of the
value of their total assets in illiquid securities, which may include
certain derivative products and will include any repurchase
transactions that do not mature within seven days.
Portfolio Turnover. Each fund's portfolio turnover rate (the
lesser of purchases or sales of fund securities during the year,
excluding purchases or sales of short-term securities, divided by the
monthly average value of fund securities) generally is not expected to
exceed 100%, but the fund turnover rate will not be a limiting factor
whenever the fund deems it desirable to sell or purchase securities.
Securities may be sold in anticipation of a rise in interest rates
(market decline) or purchased in anticipation of a decline in interest
rates (market rise) and later sold. In addition, a security may be sold
and another security of comparable quality may be purchased at
approximately the same time in order to take advantage of what the fund
believes to be a temporary disparity in the normal yield relationship
between the two securities. These yield disparities may occur for
reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes in
the overall demand for or supply of various types of tax-exempt
securities.
Investment Restrictions
Each of the funds is subject to certain restrictions and policies
that are "fundamental," which means that they may not be changed
without a "vote of a majority of the outstanding voting securities" of
the fund, as defined under the 1940 Act and Rule 18f-2 thereunder (see
"Voting"). The funds are subject to other restrictions and policies
that are "non-fundamental" and which may be changed by the fund's Board
of Trustees without shareholder approval, subject to any applicable
disclosure requirements.
Fundamental Policies - All funds. Without the approval of a majority
of its outstanding voting securities, no fund may:
1. Issue "senior securities" as defined in the 1940 Act and the
rules, regulations and orders thereunder, except as permitted under the
1940 Act and the rules, regulations and orders thereunder.
2. Invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities in the
same industry. For purposes of this limitation, securities of the U.S.
government (including its agencies and instrumentalities) and
securities of state or municipal governments and their political
subdivisions are not considered to be issued by members of any
industry.
3. Borrow money, except that (a) the fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting
of redemption requests which might otherwise require the untimely
disposition of securities, and (b) the fund may, to the extent
consistent with its investment policies, enter into reverse repurchase
agreements, forward roll transactions and similar investment strategies
and techniques. To the extent that it engages in transactions described
in (a) and (b), the fund will be limited so that no more than 33 -1/3%
of the value of its total assets (including the amount borrowed),
valued at the lesser of cost or market, less liabilities (not including
the amount borrowed) valued at the time the borrowing is made, is
derived from such transactions.
4. Make loans. This restriction does not apply to: (a) the purchase
of debt obligations in which the fund may invest consistent with its
investment objectives and policies; (b) repurchase agreements; and (c)
loans of its fund securities, to the fullest extent permitted under the
1940 Act.
5. Engage in the business of underwriting securities issued by other
persons, except to the extent that the fund may technically be deemed
to be an underwriter under the Securities Act of 1933, as amended, in
disposing of fund securities.
6. Purchase or sell real estate, real estate mortgages, real estate
investment trust securities, commodities or commodity contracts, but
this restriction shall not prevent the fund from (a) investing in
securities of issuers engaged in the real estate business or the
business of investing in real estate (including interests in limited
partnerships owning or otherwise engaging in the real estate business
or the business of investing in real estate) and securities which are
secured by real estate or interests therein; (b) holding or selling
real estate received in connection with securities it holds or held;
or (c) trading in futures contracts and options on futures contracts
(including options on currencies to the extent consistent with the
fund's investment objective and policies).
Additional fundamental Policies. Without the approval of a majority of
its outstanding voting securities, neither the National Portfolio nor
the Limited Term Portfolio may:
1. Invest in a manner that would cause the fund to fail to be a
"diversified company" under the Act and the rules, regulations and
orders thereunder.
Nonfundamental Policies. As a nonfundamental policy, no fund may:
1. Purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of
fund securities) or sell any securities short (except "against the
box"). For purposes of this restriction, the deposit or payment by the
fund of underlying securities and other assets in escrow and collateral
agreements with respect to initial or maintenance margin in connection
with futures contracts and related options and options on securities,
indexes or similar items is not considered to be the purchase of a
security on margin.
2. Purchase or otherwise acquire any security if, as a result, more
than 15% of its net assets would be invested in securities that are
illiquid.
3. Write or purchase put, call, straddle or spread options.
4. Invest more than 5% of its assets in unseasoned issuers with less
than three years of continuous operation (including that of
predecessors).
5. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that each fund
may invest in the securities of issuers which operate, invest in, or
sponsor such programs.
Additional Nonfundamental Policies. As a nonfundamental policy,
1. Neither the National Portfolio nor the New York Portfolio may
invest in securities of another investment company except as permitted
by Section 12(d)(1) of the 1940 Act or as part of a merger,
consolidation, or acquisition.
All of the foregoing restrictions stated in terms of percentages
will apply at the time an investment is made; a subsequent increase or
decrease in the percentage that may result from changes in values or
net assets will not result in a violation of the restriction.
TRUSTEES AND OFFICERS
Set forth below is a list of each Trustee and executive officer
of the fund, including a description of principal occupation during the
last 5 years, age and address of each such person. All officers of the
fund have their business address at 388 Greenwich Street, New York, NY
10013.
LEE ABRAHAM, Trustee (Age 71).
Retired; formerly Chairman and Chief Executive Officer of Associated
Merchandising Corporation, a major retail merchandising and sourcing
organization; His address is 106 Barnes Road, Stamford, Connecticut
06902.
ALLAN J. BLOOSTEIN, Trustee (Age 69).
President of Allan J. Bloostein Associates, a consulting firm; Director
of CVS Corporation, a drug store chain, and Taubman Centers Inc., a
real estate development company; Retired Vice Chairman and Director of
The May Department Stores Company; His address is 27 West 67th Street,
New York, New York 10023.
JANE DASHER, Trustee (Age 49).
Investment Officer of Korsant Partners, a family investment company;
Prior to 1997, an Independent Financial Consultant; From 1975 to 1987
held various positions with Philip Morris Companies, Inc. including
Director of Financial Services, Treasurers Department.
DONALD R. FOLEY, Trustee (Age 76).
Retired, 3668 Freshwater Drive, Jupiter, Florida 33477. Formerly Vice
President of Edwin Bird Wilson, Incorporated (advertising).
RICHARD E. HANSON, Jr., Trustee (Age 57).
Head of School, New Atlanta Jewish Community High School, Atlanta,
Georgia, since September 1996; formerly Headmaster, The Peck School,
Morristown, New Jersey; prior to July 1, 1994, Headmaster, Lawrence
County Day School-Woodmere Academy, Woodmere, New York; His address is
58 Ivy Chase, Atlanta, GA 30342.
PAUL HARDIN, Trustee (Age 68).
Professor of Law at University of North Carolina at Chapel Hill, 12083
Morehead, Chapel Hill, North Carolina 27514. Director of The Summit
Bancorporation. Formerly, Chancellor of the University of North
Carolina at Chapel Hill.
*HEATH B. MCLENDON, Chairman of the Board, President and Chief
Executive Officer (Age 66).
Managing Director of Salomon Smith Barney; Trustee or Director of 64
investment companies affiliated with Salomon Smith Barney; President of
SSBC and Travelers Investment Advisors ("TIA"); former Chairman of
Smith Barney Strategy Advisors Inc.
RODERICK C. RASMUSSEN, Trustee (Age 73).
Investment Counselor, 9 Cadence Court, Morristown, NJ 07960. Formerly,
Vice President of Dresdner and Company Inc. (investment counselors).
JOHN P. TOOLAN, Trustee (Age 68).
Retired, 13 Chadwell Place, Morristown, New Jersey, 07960. Trustee or
director of ten investment companies associated with Smith Barney.
Formerly, Director and Chairman of Smith Barney Trust Company, Director
of Smith Barney Holdings Inc. and the Manager and Senior Executive Vice
President, Director and Member of the Executive Committee of Smith
Barney.
LEWIS E. DAIDONE, Senior Vice President and Treasurer (Age 41).
Managing Director of Salomon Smith Barney; Senior Vice President and
Treasurer of 59 investment companies affiliated with Citigroup, and
Director and Senior Vice President of the manager and TIA.
PETER M. COFFEY, Vice President and Investment Officer (Age 55).
Managing Director of Salomon Smith Barney; Vice President of the
Manager and of five investment companies associated with Salomon Smith
Barney.
JOSEPH DEANE, Vice President and Investment Officer (Age 50).
Managing Director of Salomon Smith Barney and Investment Officer of
SSBC; prior to July 1993, Senior Vice President and Managing Director
of Shearson Lehman Advisors.
JOSEPH BENEVENTO, Vice President and Investment Officer (Age 30).
Vice President of Smith Barney and Vice President of the fund and four
investment companies associated with Salomon Smith Barney.
PAUL A. BROOK, Controller (Age 45).
Director of Salomon Smith Barney; Controller or Assistant Treasurer of
43 investment companies affiliated with Citigroup since 1998; Prior to
1998 Managing Director of AMT Capital Services Inc.; Prior to 1997,
Partner with Ernst & Young LLP.
IRVING DAVID, Controller (California and New York Money Market
portfolios) (Age 37).
Director of Salomon Smith Barney. Controller or Assistant Treasurer of
43 investment companies affiliated with Citigroup. Prior to March,
1994, Assistant Treasurer of First Investment Management Company.
CHRISTINA T. SYDOR, Secretary (Age 48).
Managing Director of Salomon Smith Barney and Secretary of 59
investment companies affiliated with Salomon Smith Barney; Secretary
and General Counsel of the Manager and TIA.
*Designates a Trustee that is an "interested person" as defined in the
Investment Company Act of 1940, as amended (the "Act"). Such persons
compensated by Smith Barney and are not separately compensated by the
fund for serving as a fund officer or Trustee.
The following table shows the compensation paid by the fund to
each person who was a Trustee during the fund's last fiscal year. None
of the officers of the fund received any compensation from the fund for
such period. Officers and interested Trustees of the fund are
compensated by Saloman Smith Barney.
COMPENSATION TABLE
Name of Person
Aggregate
Compensation
from Fund
For Fiscal
Year
Ended
03/31/99
Pension or
Retirement
Benefits
Accrued as
part of
Fund
Expenses
Total
Compensation
from Fund
Complex for
Calendar Year
Ended 12/31/98
Number of
Funds for
Which Person
Serves within
Fund Complex
as of
03/31/98
Lee Abraham++
Allan J.
Bloostein++
Jane F. Dasher++
Joseph H. Fleiss@
Donald R. Foley+
Richard E.
Hanson++
Paul Hardin
Heath B. McLendon*
Roderick C.
Rasmussen
John P. Toolan+
_________________________
* Designates a person that is an "interested Trustee" of the fund.
+ Pursuant to a deferred compensation plan, the indicated persons
elected to defer payment of the following amounts of their
compensation from the fund: Donald R. Foley - $______, and John
P. Toolan - $_____, and the following amounts of their
compensation from the fund Complex: Donald R. Foley: $______,
and John P. Toolan: $______.
++ Elected as of April 19, 1999, therefore no compensation was paid
by the Trust through December 31, 1999.
@ Effective January 1, 1998, Mr. Fleiss became a Trustee Emeritus.
Upon attainment of age 72 the fund's current Trustees may elect
to change to emeritus status. Any Trustees elected or appointed
to the Board in the future will be required to change to emeritus
status upon attainment of age 80. Trustees Emeritus are entitled
to serve in emeritus status for a maximum of 10 years during
which time they are paid 50% of the annual retainer fee and
meeting fees otherwise applicable to the fund's Trustees,
together with reasonable out-of-pocket expenses for each meeting
attended. For the last Fiscal year, the total paid to Emeritus
Trustees by the fund was $_________.
On _________ 1999, the Trustees and officers owned in the
aggregate less than 1% of the outstanding shares of each fund of the
fund.
Investment Manager and Administrator
SSBC Fund Management, Inc. serves as investment manager to each
of the funds pursuant to a written agreement (the "Advisory
Agreement"). The services provided by the manager under the Advisory
Agreement are described in the prospectus under "Management." The
manager pays the salary of any officer and employee who is employed by
both it and the fund. The manager bears all expenses in connection with
the performance of its services. The manager is a wholly owned
subsidiary of Citigroup Inc. ("Citigroup").
The Management Agreement for the National Portfolio, the Georgia
Portfolio and Pennsylvania Portfolio provides for a management fee at
the annual rate of 0.45% of the fund's average net assets. The
management fee for the Limited Term Portfolio, the Florida Portfolio
and the New York Portfolio is an annual rate of 0.50% of the fund's
average net assets.
At a Meeting of Shareholders of the Limited Term Portfolio, the
Florida Portfolio and the New York Portfolio held on December 15, 1995,
the shareholders of each of these funds approved a new Management
Agreement that increases the effective management fee paid by Smith
Barney Muni funds on behalf of each of these funds from 0.45% to 0.50%
of each of these funds' average daily net assets.
The Management Agreements for the California Money Market
Portfolio and the New York Money Market Portfolio provide for the
payment of a management fee at an annual rate based on each Money
Market fund'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 rate of the management fee for each of the money market
funds is _______.
For the fiscal years ended March 31, 1999, 1998 and 1997, the
management fee paid by each fund was as follows:
PORTFOLIO
1999
1998
1997
National
$1,754,116
$1,780,788
Limited Term
1,416,637
1,495,020
New York
3,734,185
3,682,923
Florida
974,400
876,101
California Money
7,817,640
6,706,574
New York Money
5,154,859
4,554,023
Georgia (a)
35,458
6,917
Pennsylvania (b)
13,969
- --
(a) The manager waived its management fee in excess of 0.42% of the
portfolio's average daily net assets for the fiscal year ended
March 31, 1997 and in excess of 0.33% of the portfolio's average
daily net assets for the fiscal year ended March 31, 1998.
(b) The manager waived its entire management fee with respect to the
Pennsylvania Portfolio for the fiscal year March 31, 1997 and its
management fee in excess of 0.33% of the portfolio's average
daily net assets for the fiscal year ended March 31, 1998.
The Management Agreements further provide that all other expenses
not specifically assumed by the manager under the Management Agreement
on behalf of each fund 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' meetings, 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 fund valuations, out-of-pocket expenses of Trustees and fees
of Trustees who are not "interested persons" as defined in the 1940
Act, interest, taxes and governmental fees, 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 fund, and general trust expenses are allocated
among the funds on the basis of relative net assets.
The manager has voluntarily agreed to waive its fees if in any
fiscal year the aggregate expenses of any Class of the following funds,
exclusive of 12b-1 fees, taxes, brokerage, interest and extraordinary
expenses, such as litigation costs, exceed the indicated percentage of
such fund's average net assets for that fiscal year:
National
0.65%
Limited Term
0.70%
New York
0.70%
Florida
0.70%
California Money Market
0.70%
New York Money Market
0.70%
Georgia
0.65%
Pennsylvania
0.65%
The foregoing expense limitations may be terminated at any time
by the manager by notification to existing shareholders and by
supplementing the relevant fund's then-current prospectus and/or SAI.
DISTRIBUTION
Distributor. CFBDS, Inc., located at 20 Milk Street, Boston, MA
02109-5408, serves as the fund's distributor on a best efforts basis
pursuant to a distribution agreement dated October 8, 1998 (the
"Distribution Agreement"), which was approved by the fund's board of
directors. Prior to the merger of Travelers Group, Inc. and Citicorp
on October 8, 1998, Salomon Smith Barney served as the fund's
distributor.
The fund, on behalf of each fund, 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 fund to Salomon 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 California and New York Money Market funds is
0.10%). In addition, each fund pays Salomon Smith Barney a
distribution fee with respect to Class B and Class L shares (except
California Money Market Fund and New York Money Market Fund which do
not offer Class B or L shares and Limited Term Portfolio which does not
offer Class B shares), calculated at the annual rates of 0.50% and
0.55%, respectively, of the value of the fund's average daily net
assets attributable to those classes primarily intended to compensate
Salomon Smith Barney for its initial expense of paying Financial
Consultants a commission upon sales of those shares. 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.
For the year ended March 31, 1999, the table below represents the
fees which have been accrued and/or paid to Salomon Smith Barney
pursuant to Rule 12b-1 each for each of the fund's portfolios:
PORTFOLIO
Class A
Class B
Class L
Class Y
Total
California Money
Market
N/A
N/A
National
Limited Term
N/A
Florida
Georgia
New York
NY Money Market
Pennsylvania
Commissions on Class A Shares. For the 1996 and 1997 fiscal years, the
aggregate dollar amount of commissions on Class A shares, all of which
was paid to Salomon Smith Barney, is as follows:
Class A
Name of Fund
Fiscal Year
Ended
12/31/96
Fiscal Year
Ended 12/31/97
California Money Market
$
$
National
$
$
Limited Term
$
$
Florida
$
$
Georgia
$
$
New York
$
$
New York Money Market
$
$
Pennsylvania
$
$
For the period January 1, 1998 through October 7, 1998 and for the
period October 8, 1998 through December 31, 1998, the aggregate dollar
amounts of commissions on Class A shares, are as follows:
Class A
Name of Fund
01/01/98
through
10/07/98*
10/08/98
through
12/31/98**
California Money Market
$
$
National
$
$
Limited Term
$
$
Florida
$
$
Georgia
$
$
New York
$
$
New York Money Market
$
$
Pennsylvania
$
$
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney: $______,
$______, and $___respectively.
Commissions on Class L Shares. For the period June 12, 1998 through
October 7, 1998 and for the period October 8, 1998 through October 31,
1998, the aggregate dollar amounts of commission on Class L shares are
as follows:
Class L
(On June 12, 1998, Class C
shares were renamed Class L
shares)*
Name of Fund
06/12/98
through
10/07/98*
10/08/98
through
12/31/98**
California Money Market
$
$
National
$
$
Limited Term
$
$
Florida
$
$
Georgia
$
$
New York
$
$
New York Money Market
$
$
Pennsylvania
$
$
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney: $_____,
$_____, and $____, respectively.
As set forth in the prospectuses, a contingent deferred sales charge
("CDSC") may be imposed on certain redemptions of Class A, Class B and
Class L shares. The amount of the CDSC will depend on the number of
years since the shareholder made the purchase payment from which the
amount is being redeemed. See "Deferred Sales Charge Provisions" below.
Custodian
All fund 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.
Auditors
KPMG LLP, 345 Park Avenue, New York, New York 10154, has been
selected as independent auditors to examine and report on the fund's
financial statements for the fiscal year ending March 31, 2000.
PURCHASE OF SHARES
The National Portfolio, Georgia Portfolio, New York Portfolio and
Pennsylvania Portfolio each offer four classes ("Classes") of shares:
Class A, Class B, Class L and Class Y. The Limited Term Portfolio
offers three classes of shares: Class A, Class L and Class Y. Class A
shares are sold to investors with an initial sales charge and Class B
shares are sold without an initial sales charge but with higher ongoing
expenses and a Contingent Deferred Sales Charge ("CDSC") payable upon
certain redemption's. Class L shares are sold with a lower initial
sales charge than Class A shares but with higher ongoing expenses and a
CDSC. Class Y shares are sold without an initial sales charge and are
available only to investors investing a minimum of $15,000,000. 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.
The following classes of shares are available for purchase. See
the prospectus for a discussion of factors to consider in selecting
which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the public
offering price, which is the net asset value plus an initial sales
charge as follows:
Amount of
Investment
Sales Charge as
a %
Of Transaction
Sales Charge as
a %
of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
4.00%
4.17%
3.60%
$ 25,000 - 49,999
3.50
3.63
3.15
50,000 - 99,999
3.00
3.09
2.70
100,000 - 249,999
2.50
2.56
2.25
250,000 - 499,999
1.50
1.52
1.35
500,000 and over
*
*
*
* Purchases of Class A shares of $500,000 or more will be made at net
asset value without any initial sales charge, but will be subject to a
deferred sales charge of 1.00% on redemptions made within 12 months of
purchase. The deferred sales charge on Class A shares is payable to
Salomon Smith Barney, which compensates Salomon Smith Barney Financial
Consultants and other dealers whose clients make purchases of $500,000
or more. The deferred sales charge is waived in the same circumstances
in which the deferred sales charge applicable to Class B and Class L
shares is waived. See "Purchase of Shares-Deferred Sales Charge
Alternatives" and "Purchase of Shares-Waivers of Deferred Sales
Charge."
Members of a selling group may receive up to 90% of the sales charge
and may be deemed to be underwriters of a fund as defined in the
Securities Act of 1933. The reduced sales charges shown above apply to
the aggregate of purchases of Class A shares of a fund made at one time
by "any person," which includes an individual and his or her immediate
family, or a trustee or other fiduciary of a single trust estate or
single fiduciary account.
Class B Shares. Class B shares are sold without an initial sales
charge but are subject to a deferred sales charge payable upon certain
redemptions. See "Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial sales charge
of 1.00% (which is equal to 1.01% of the amount invested) and are
subject to a deferred sales charge payable upon certain redemptions.
See "Deferred Sales Charge Provisions" below. Until June 22, 2001
purchases of Class L shares by investors who were holders of Class C
shares of the fund on June 12, 1998 will not be subject to the 1%
initial sales charge.
Class Y Shares. Class Y shares are sold without an initial sales
charge or deferred sales charge and are available only to investors
investing a minimum of $15,000,000 (except purchases of Class Y shares
by Smith Barney Concert Allocation Series Inc., for which there is no
minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith Barney Financial
Consultant or a Dealer Representative. In addition, certain investors,
including qualified retirement plans purchasing through certain Dealer
Representatives, may purchase shares directly from a fund. When
purchasing shares of a fund, investors must specify which class is
being purchased. Salomon Smith Barney and Dealer Representatives may
charge their customers an annual account maintenance fee in connection
with a brokerage account through which an investor purchases or holds
shares. Accounts held directly at First Data Investor Services Group,
Inc. ("First Data" or "transfer agent") are not subject to a
maintenance fee.
Investors in Class A, Class B and Class L shares may open an account in
a fund by making an initial investment of at least $1,000 for each
account, in the fund. Investors in Class Y shares may open an account
by making an initial investment of $15,000,000. Subsequent investments
of at least $50 may be made for all Classes. For shareholders
purchasing shares of a fund through the Systematic Investment Plan on a
monthly basis, the minimum initial investment requirement for Class A,
Class B and Class L shares and subsequent investment requirement for
all Classes is $25. For shareholders purchasing shares of a fund
through the Systematic Investment Plan on a quarterly basis, the
minimum initial investment required for Class A, Class B and Class L
shares and the subsequent investment requirement for all Classes is
$50. There are no minimum investment requirements for Class A shares
for employees of Citigroup and its subsidiaries, including Salomon
Smith Barney, unitholders who invest distributions from a Unit
Investment Trust ("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual Funds, and their
spouses and children. A 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 First Data. Share certificates are
issued only upon a shareholder's written request to First Data.
Purchase orders received by a fund or a Salomon Smith Barney Financial
Consultant prior to the close of regular trading on the NYSE, on any
day the fund calculates its net asset value, are priced according to
the net asset value determined on that day (the ''trade date'').
Orders received by a Dealer Representative prior to the close of
regular trading on the NYSE on any day a fund calculates its net asset
value, are priced according to the net asset value determined on that
day, provided the order is received by a fund or the fund's agent prior
to its close of business. For shares purchased through Salomon Smith
Barney or a Dealer Representative purchasing through Salomon Smith
Barney, payment for shares of the fund is due on the third business day
after the trade date. In all other cases, payment must be made with the
purchase order.
Systematic Investment Plan. Shareholders may make additions to their
accounts at any time by purchasing shares through a service known as
the Systematic Investment Plan. Under the Systematic Investment Plan,
Salomon Smith Barney or First Data is authorized through preauthorized
transfers of at least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the shareholder's account held
with a bank or other financial institution on a monthly or quarterly
basis as indicated by the shareholder, to provide for systematic
additions to the shareholder's fund account. A shareholder who has
insufficient funds to complete the transfer will be charged a fee of up
to $25 by Salomon Smith Barney or First Data. The Systematic
Investment Plan also authorizes Salomon Smith Barney to apply cash held
in the shareholder's Salomon 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 Salomon Smith Barney Financial Consultant or a Dealer
Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares may be made
at net asset value without a sales charge in the following
circumstances: (a) sales to (i) Board Members and employees of
Citigroup and its subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including retired Board
Members and employees); the immediate families of such persons
(including the surviving spouse of a deceased Board Member or
employee); and to a pension, profit-sharing or other benefit plan for
such persons and (ii) employees of members of the National Association
of Securities Dealers, Inc., provided such sales are made upon the
assurance of the purchaser that the purchase is made for investment
purposes and that the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares to any other
investment company to effect the combination of such company with the
fund by merger, acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Salomon Smith Barney
Financial Consultant (for a period up to 90 days from the commencement
of the Financial Consultant's employment with Salomon Smith Barney), on
the condition the purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i) was sponsored by
the Financial Consultant's prior employer, (ii) was sold to the client
by the Financial Consultant and (iii) was subject to a sales charge;
(d) purchases by shareholders who have redeemed Class A shares in the
fund (or Class A shares of another Smith Barney Mutual Fund that is
offered with a sales charge) and who wish to reinvest their redemption
proceeds in the fund, provided the reinvestment is made within 60
calendar days of the redemption; (e) purchases by accounts managed by
registered investment advisory subsidiaries of Citigroup; (f) purchases
by a separate account used to fund certain unregistered variable
annuity contracts; (g) investments of distributions from a UIT
sponsored by Salomon Smith Barney; and (h) purchases by investors
participating in a Salomon Smith Barney fee-based arrangement. In order
to obtain such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification that the
purchase would qualify for the elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may be purchased by
''any person'' (as defined above) at a reduced sales charge or at net
asset value determined by aggregating the dollar amount of the new
purchase and the total net asset value of all Class A shares of the
fund and of other Smith Barney Mutual Funds that are offered with a
sales charge as currently 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.
Letter of Intent - Class A Shares. A Letter of Intent for an amount of
$50,000 or more provides an opportunity for an investor to obtain a
reduced sales charge by aggregating investments over a 13 month period,
provided that the investor refers to such Letter when placing orders.
For purposes of a Letter of Intent, the ''Amount of Investment'' as
referred to in the preceding sales charge table includes (i) all Class
A shares of the fund and other Smith Barney Mutual Funds offered with a
sales charge acquired during the term of the letter plus (ii) the value
of all Class A shares previously purchased and still owned. Each
investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay the difference
between the sales charges applicable to the purchases made and the
charges previously paid, or an appropriate number of escrowed shares
will be redeemed. The term of the Letter will commence upon the date
the Letter is signed, or at the options of the investor, up to 90 days
before such date. Please contact a Salomon Smith Barney Financial
Consultant or First Data to obtain a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent may also be used
as a way for investors to meet the minimum investment requirement for
Class Y shares (except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no minimum purchase
amount). Such investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the fund and agree to purchase a total
of $15,000,000 of Class Y shares of the fund within six months from the
date of the Letter for the Georgia, Pennsylvania, Florida and New York
Portfolios, or 13 months for the National, Limited Term, California
Money Market and New York Money Market Portfolios. If a total
investment of $15,000,000 is not made within the 13- or six-month
period, as applicable, 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 0.25%) and expenses applicable to the
fund's Class A shares, which may include a deferred sales charge of
1.00%. Please contact a Salomon Smith Barney Financial Consultant or
First Data for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares; (b) Class L
shares; and (c) Class A shares that were purchased without an initial
sales charge but are subject to a deferred sales charge. A deferred
sales charge may be imposed on certain redemptions of these shares.
Any applicable deferred sales charge 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. Deferred Sales
Charge Shares that are redeemed will not be subject to a deferred sales
charge to the extent the value of such shares represents: (a) capital
appreciation of fund assets; (b) reinvestment of dividends or capital
gain distributions; (c) with respect to Class B shares, shares redeemed
more than five years after their purchase; or (d) with respect to Class
L shares and Class A shares that are Deferred Sales Charge Shares,
shares redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales Charge Shares
are subject to a 1.00% deferred sales charge if redeemed within 12
months of purchase. In circumstances in which the deferred sales charge
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 Salomon Smith Barney statement
month. The following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders.
Year Since Purchase Payment Was
Made
Deferred sales charge
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no
longer be subject to any distribution fees. There will also be
converted at that time such proportion of Class B Dividend Shares owned
by the shareholders as the total number of his or her Class B shares
converting at the time bears to the total number of outstanding Class B
shares (other than Class B Dividend Shares) owned by the shareholder.
The length of time that Deferred Sales Charge Shares acquired through
an exchange have been held will be calculated from the date the shares
exchanged were initially acquired in one of the other Smith Barney
Mutual Funds, and fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital
gain distribution reinvestments in such other funds. For Federal income
tax purposes, the amount of the deferred sales charge will reduce the
gain or increase the loss, as the case may be, on the amount realized
on redemption. The amount of any deferred sales charge will be paid to
Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares
of the fund at $10 per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional shares of the fund 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 deferred sales charge 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 Deferred Sales Charge
The deferred sales charge 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'') (however, 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 established prior to
November 7, 1994); (c) redemptions of shares within 12 months following
the death or disability of the shareholder; (d) redemptions of shares
made in connection with qualified distributions from retirement plans
or IRAs upon the attainment of age 591/2; (e) involuntary redemptions;
and (f) redemptions of shares to effect a combination of the fund with
any investment company by merger, acquisition of assets or otherwise.
In addition, a shareholder who has redeemed shares from other Smith
Barney Mutual Funds may, under certain circumstances, reinvest all or
part of the redemption proceeds within 60 days and receive pro rata
credit for any deferred sales charge imposed on the prior redemption.
Deferred sales charge waivers will be granted subject to confirmation
(by Salomon Smith Barney in the case of shareholders who are also
Salomon Smith Barney clients or by First Data in the case of all other
shareholders) of the shareholder's status or holdings, as the case may
be.
Volume Discounts
The schedule of sales charges on Class A shares described in the
prospectus applies to purchases made by any "purchaser," which is
defined to include the following: (a) an individual; (b) an
individual's spouse and his or her children purchasing shares for their
own account; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or single fiduciary account; and (d) a trustee or
other professional fiduciary (including a bank, or an investment
adviser registered with the SEC under the Investment Advisers Act of
1940, as amended) purchasing shares of the fund for one or more trust
estates or fiduciary accounts. Purchasers who wish to combine purchase
orders to take advantage of volume discounts on Class A shares should
contact a Salomon Smith Barney Financial Consultant.
Determination of Public Offering Price
Each fund offers its shares to the public on a continuous basis. The
public offering price for a Class A, Class L (effective June 12, 1998
the former Class C shares were renamed Class L shares) and Class Y
share of a fund is equal to the net asset value per share at the time
of purchase, plus for Class A and Class L shares an initial sales
charge based on the aggregate amount of the investment. The public
offering price for a Class B share (and Class A share purchases,
including applicable rights of accumulation, equaling or exceeding
$500,000) is equal to the net asset value per share at the time of
purchase and no sales charge is imposed at the time of purchase. A
contingent deferred sales charge ("CDSC"), however, is imposed on
certain redemptions of Class B and Class L shares, and Class A shares
when purchased in amounts equaling or exceeding $500,000. The method of
computation of the public offering price is shown in the fund's
financial statements, incorporated by reference in their entirety into
this SAI.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment
postponed (a) for any period during which the New York Stock Exchange,
Inc. ("NYSE") is closed (other than for customary weekend and holiday
closings), (b) when trading in the markets the fund normally utilizes
is restricted, or an emergency exists, as determined by the SEC, so
that disposal of the fund's investments or determination of net asset
value is not reasonably practicable or (c) for such other periods as
the SEC by order may permit for protection of the fund's shareholders.
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 First Data together with
the redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in excess of
$10,000 must be guaranteed by an eligible guarantor institution such as
a domestic bank, savings and loan institution, domestic credit union,
member bank of the federal Reserve System or member firm of a national
securities exchange. Written redemption requests of $10,000 or less do
not require a signature guarantee unless more than one such redemption
request is made in any 10-day period or the redemption proceeds are to
be sent to an address other than the address of record. Unless
otherwise directed, redemption proceeds will be mailed to an investor's
address of record. First Data 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 First Data receives all required
documents in proper form.
If a shareholder holds shares in more than one Class, any request
for redemption must specify the Class being redeemed. In the event of
a failure to specify which Class, or if the investor owns fewer shares
of the Class than specified, the redemption request will be delayed
until the Transfer Agent receives further instructions from Salomon
Smith Barney, or if the shareholder's account is not with Salomon Smith
Barney, form 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 Salomon Smith
Barney brokerage account, these funds will not be invested for the
shareholder's benefit without specific instruction and Salomon 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.
Distributions in Kind
If the Board of Directors of the fund determines that it would be
detrimental to the best interests of the remaining shareholders to make
a redemption payment wholly in cash, each fund may pay, in accordance
with SEC rules, any portion of a redemption in excess of the lesser of
$250,000 or 1.00% of the fund's net assets by a distribution in kind of
fund securities in lieu of cash. Securities issued as a distribution in
kind may incur brokerage commissions when shareholders subsequently
sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders who own shares with a value of at least
$10,000 and who wish to receive specific amounts of cash monthly or
quarterly. Withdrawals of at least $50 may be made under the Withdrawal
Plan by redeeming as many shares of the fund as may be necessary to
cover the stipulated withdrawal payment. Any applicable CDSC will not
be waived on amounts withdrawn by shareholders that exceed 1.00% per
month of the value of a shareholder's shares at the time the Withdrawal
Plan commences. (With respect to Withdrawal Plans in effect prior to
November 7, 1994, any applicable CDSC will be waived on amounts
withdrawn that do not exceed 2.00% per month of the value of the
shareholder's shares that are subject to a CDSC). To the extent
withdrawals exceed dividends, distributions and appreciation of a
shareholder's investment in the fund, there will be a reduction in the
value of the shareholder's investment, and continued withdrawal
payments may reduce the shareholder's investment and ultimately exhaust
it. Withdrawal payments should not be considered as income from
investment in the fund. Furthermore, as it generally would not be
advantageous to a shareholder to make additional investments in the
fund at the same time he or she is participating in the Withdrawal
Plan, purchases by such shareholder in amounts of less than $5,000
ordinarily will not be permitted. All dividends and distributions on
shares in the Withdrawal Plan are reinvested automatically at net asset
value in additional shares of the fund.
Shareholders who wish to participate in the Withdrawal Plan and
who hold their shares in certificate form must deposit their share
certificates with the Transfer Agent as agent for Withdrawal Plan
members. For additional information, shareholders should contact a
Salomon Smith Barney Financial Consultant or their Financial
Consultant, the Introducing Broker or dealer in the selling group. A
shareholder who purchases shares directly through the Transfer Agent
may continue to do so and applications for participation in the
Withdrawal Plan must be received by the Transfer Agent no later than
the eighth day of the month to be eligible for participation beginning
with that month's withdrawal.
VALUATION OF SHARES
The prospectus states that the net asset value of each fund'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, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
The California Money Market Portfolio and the New York Money
Market Portfolio use the "amortized cost method" for valuing fund
securities pursuant to Rule 2a-7 under the 1940 Act (the "Rule"). The
amortized cost method of valuation of a fund's securities (including
any securities held in the separate account maintained for when-issued
securities) 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 fund'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 the fund would receive if it sold the
instrument. During such periods the yield to investors in a fund may
differ somewhat from that obtained in a similar company that uses mark-
to-market values for all its fund securities. For example, if the use
of amortized cost resulted in a lower (higher) aggregate fund value on
a particular day, a prospective investor in a fund 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 such fund's shares
will remain at $1.00; however, shareholders should be aware that
despite procedures that will be followed to have a stable price,
including maintaining a maximum dollar-weighted average fund 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
Board of 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 one of these fund'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, is rated in the
three highest long-term rating categories by the requisite NRSROs, and
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 to be of comparable quality to any such rated security.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of certain Smith Barney
Mutual Funds may exchange all or part of their shares for shares of the
same class of other Smith Barney Mutual Funds, to the extent such
shares are offered for sale in the shareholder's state of residence, on
the basis of relative net asset value per share at the time of exchange
as follows:
California, Florida, Georgia, New York, Pennsylvania and National
Portfolios.
A. Class A and Class Y shareholders of the fund who wish to
exchange all or a portion of their shares for shares of the respective
Class in any of the funds of the Smith Barney Mutual Fund Complex may
do so without imposition of any charge.
B. Class B shares of the fund exchanged for Class B shares of
another fund will be subject to the higher applicable CDSC of the two
funds. Upon an exchange, the new Class B shares will be deemed to have
been purchased on the same date as the Class B shares of the fund that
have been exchanged.
C. Upon exchange, the new Class L shares will be deemed to
have been purchased on the same date as the Class L shares of the fund
that have been exchanged.
Limited Term Portfolio.
A. Class A and Class Y shareholders of the fund who wish to
exchange all or a portion of their shares for shares of the respective
Class in any of the funds of the Smith Barney Mutual Fund Complex may
do so without imposition of any charge.
B. Upon exchange, the new Class L shares will be deemed to
have been purchased on the same date as the Class L shares of the fund
that have been exchanged.
California Money Market and New York Money Market Portfolios.
A. Class A shares of the fund will be subject to the
appropriate sales charge upon the exchange of such shares for Class A
shares of another fund of the Smith Barney Mutual Funds sold with a
sales charge.
B. Class Y shareholders of the fund 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.
The exchange privilege enables shareholders to acquire shares of
the same Class in a fund with different investment objectives when they
believe that a shift between funds is an appropriate investment
decision. This privilege is available to shareholders residing in any
state in which the fund shares being acquired may legally be sold.
Prior to any exchange, the shareholder should obtain and review a copy
of the current prospectus of each fund into which an exchange is being
considered. prospectuses may be obtained from a Smith Barney Financial
Consultant.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-
current net asset value and, subject to any applicable CDSC, the
proceeds immediately invested, at a price as described above, in shares
of the fund being acquired. Smith Barney reserves the right to reject
any exchange request. The exchange privilege may be modified or
terminated at any time after written notice to shareholders.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to either fund's performance and its
shareholders. The manager may determine that a pattern of frequent
exchanges is excessive and contrary to the best interests of the fund's
other shareholders. In this event, each fund may, at its discretion,
decide to limit additional purchases and/or exchanges by a shareholder.
Upon such a determination, the fund will provide notice in writing or by
telephone to the shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the shareholder will be
required to (a) redeem his or her shares in the fund or (b) remain
invested in the fund 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.
Additional Information Regarding Telephone Redemption and Exchange
Program.
Neither the fund nor its agents will be liable for following
instructions communicated by telephone that are reasonably believed to
be genuine. The fund and its agents will employ procedures designed to
verify the identity of the caller and legitimacy of instructions (for
example, a shareholder's name and account
number will be required and phone calls may be recorded). The fund
reserves the right to suspend, modify or discontinue the telephone
redemption and exchange program or to impose a charge for this service
at any time following at least sever (7) days prior notice to
shareholders.
PERFORMANCE DATA
From time to time, in advertisements and other types of sales
literature, each fund 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 fund, other than the California Money Market Portfolio and New
York Money Market Portfolio, computes the average annual total return
during specified periods that would equate the initial amount invested
to the ending redeemable value of such investment by adding one to the
computed average annual total return, raising the sum to a power equal
to the number of years covered by the computation and multiplying the
result by one thousand dollars which represents the hypothetical initial
investment. The calculation assumes deduction of the maximum sales
charge from the initial amount invested and reinvestment of all income
dividends and capital gains distributions on the reinvestment dates at
prices calculated as stated in the prospectus. The ending redeemable
value is determined by assuming a complete redemption at the end of the
period(s) covered by the average annual total return computation. Such
standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in
the same manner but without annualizing the total return or taking sales
charges into account.
Each fund's average annual total return with respect to its Class A
shares for the one-year period, five- and ten-year periods, if any, and
for the life of the fund ended March 31, 1999 is as follows:
Average Annual Total Return
PORTFOLIO
1-Year
5-Years
10-Years
Life of
Fund
Inception
Date
National
8/20/86
Limited
Term
11/28/88
New York
1/16/87
Florida
4/2/91
Georgia
4/4/94
Pennsylvani
a
4/4/94
Each fund'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 fund ended March 31, 1999 is as follows:
PORTFOLIO
1-Year
5-Years
Life
of
Fund
Inception
Date
National
11/7/94
New York
11/11/94
Florida
11/16/94
Georgia
6/15/94
Pennsylvani
a
6/20/94
Each fund's average annual total return with respect to its Class L
shares for a one-year period, five-year period, if any, and for the life
of the fund's Class L shares through March 31, 1999 is as follows:
PORTFOLIO
1-Year
5-Years
Life of
Fund
Inception
Date
National
1/5/93
Limited
Term
1/5/93
New York
1/8/93
Florida
1/5/93
Georgia
4/14/94
Pennsylvani
a
4/5/94
Each fund's average annual total return with respect to its Class Y
shares for a one-year period, five-year period, if any, and for the life
of the fund's Class Y shares through March 31, 1999 is as follows:
PORTFOLIO
1-Year
5-Years
Life of
Fund
Inception
Date
National
1/5/93
Limited
Term
1/5/93
New York
1/8/93
Florida
1/5/93
Georgia
4/14/94
Pennsylvani
a
4/5/94
Each fund'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 30-day period
ending at month end by the maximum offering price per share on the last
day of such period and annualizing 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 fund; income or
short-term obligations are 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 fund's distribution rate, other than those of 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 fund 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, 1999 was ___% (the
effective yield was ___%) with an average dollar-weighted fund maturity
of 41 days; the New York Money Market Portfolio's yield with respect to
its Class A shares for the seven-day period ended March 31, 1999 was
___% (the effective yield was ___%) with an average dollar-weighted fund
maturity of 45 days. From time to time the California Money Market
Portfolio and New York Money Market Portfolio may advertise their
yields, effective yields and taxable equivalent yields. These yield
figures are based on historical earnings and are not intended to
indicate future performance. The yield of each fund refers to the net
investment income generated by an investment in each fund 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 fund 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 fund.
Performance information may be useful in evaluating a fund and for
providing a basis for comparison with other financial alternatives.
Since the performance of each fund changes in response to fluctuations
in market conditions, interest rates and fund expenses, no performance
quotation should be considered a representation as to the fund's
performance for any future period.
THE FUNDS
The interest of a shareholder is in the assets and earnings of the fund
in which he or she holds shares. The Board of Trustees has authorized
the issuance of shares in separate series, each representing shares in
one of the separate funds. Pursuant to such authority, the Board may
also authorize the creation of additional series of shares and
additional classes of shares within any series. The investment
objectives, policies and restrictions applicable to additional funds
would be established by the Board of Trustees at the time such funds
were established and may differ from those set forth in the prospectuses
and this SAI. In the event of liquidation or dissolution of a portfolio
or of the fund, shares of a fund are entitled to receive the assets
belonging to that fund and a proportionate distribution, based on the
relative net assets of the respective funds, of any general assets not
belonging to any particular fund 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 Board of Trustees. The Declaration of Trust and the By-Laws of
the fund are designed to make the fund similar in certain respects to an
entity organized as a corporation. The principal distinction between
the two forms of business organization 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 is 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 (a) all
types of claims in the latter jurisdictions; (b) tort claims; (c)
contract claims where the provision referred to is omitted from the
undertaking; (c) claims for taxes; and (d) 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 Board of
Trustees intends 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 her 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.
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 Board of Trustees has the power to alter the number and the terms
of office of the Trustees, and may at any time lengthen their own terms
or make their terms of unlimited duration (subject to certain removal
procedures) and fill vacancies, provided that in accordance with the
1940 Act, (i) a shareholder meeting to elect Trustees must promptly be
called if at any time at least a majority of the Trustees have not been
elected by the shareholders of the fund, and (ii) at least 2/3 of the
Trustees must have been so elected upon the filing of any vacancy by the
board without a shareholder vote. 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 L and Class Y
shares of a portfolio of the fund, if any, represent interests in the
assets of that fund 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 fund would be voted
upon only by shareholders of the fund involved. Additionally, approval
of each fund's Management Agreement is a matter to be determined
separately by that fund. Approval of a proposal by the shareholders of
one fund is effective as to that fund whether or not enough votes are
received from the shareholders of the other funds to approve the
proposal as to those funds. As of _________, 1999 the following
shareholders beneficially owned 5% or more of a class of shares of a
portfolio of the fund:
Limited Term Portfolio Class
[5% Shareholder names]
National Portfolio Class
[5% Shareholders names]
Florida Portfolio Class
[5% Shareholders names]
Georgia Portfolio Class
[5% Shareholders names]
New York Portfolio Class
[5% Shareholders names]
Pennsylvania Portfolio Class
[5% Shareholders names]
California Money Market Portfolio Class
[5% Shareholders names]
New York Money market Portfolio
[5% Shareholders names]
TAXES
Capital gain distributions, if any, are taxable to shareholders, and
are declared and paid at least annually. On March 31, 1999, the unused
capital loss carryovers, by fund, were approximately as follows:
Limited Term portfolio, $______; California Money Market portfolio,
$_____, New York Money Market portfolio, $______. For Federal income
tax purposes, these amounts are available to be applied against future
securities gains, if any, that are realized. The carryovers expire as
follows:
PORTFOLIO
March 31,
(in thousands)
1999
2000
2001
2002
2003
2004
Limited Term
- -
- -
- -
- -
1,888
1,740
CA Money
$23
$9
83
1
1
38
NY Money
- -
206
- -
- -
- -
- -
As described above and in the Prospectuses, each fund is designed to
provide investors with current income which is excluded from gross
income for Federal income tax purposes, and the California Fund and the
New York Fund are designed to provide investors with current income
exempt from otherwise applicable state and/or local personal income
taxes. The trust is not intended to be a balanced investment program
and is not designed for investors seeking capital gains or maximum tax-
exempt income irrespective of fluctuations in principal. Investment in
the trust would not be suitable for tax-exempt institutions, qualified
retirement plans, H.R. 10 plans and individual retirement accounts
because those investors would not gain any additional tax benefit from
the receipt of tax-exempt income.
Each fund has qualified and intends to continue to qualify each year as
a "regulated investment company" under the Code. Provided that a fund
(a) is a regulated investment company and (b) distributes to its
shareholders at least 90% of its taxable net investment income
(including, for this purpose, its net realized short-term capital gains)
and 90% of its tax-exempt interest income (reduced by certain expenses),
the fund will not be liable for Federal income taxes to the extent its
taxable net investment income and its net realized long-term and short-
term capital gains, if any, are distributed to its shareholders. Any
such taxes paid by a fund would reduce the amount of income and gains
available for distribution to shareholders.
Because each fund may distribute exempt-interest dividends, interest on
indebtedness incurred by a shareholder to purchase or carry shares of a
fund is not deductible for Federal income tax purposes. In addition,
the indebtedness is not deductible by a shareholder of a state specific
fund for purposes of that state's (or city in the case of New York
Portfolio). If a shareholder receives exempt-interest dividends with
respect to any share of a fund and if the share is held by the
shareholder for six months or less, then any loss on the sale or
exchange of the share may, to the extent of the exempt-interest
dividends, be disallowed. In addition, the Code may require a
shareholder that receives exempt-interest dividends to treat as taxable
income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, the portion of any
exempt-interest dividend paid by a fund that represents income derived
from private activity bonds held by the fund may not retain its tax-
exempt status in the hands of a shareholder who is a "substantial user"
of a facility financed by the bonds, or a "related person" of the
substantial user. Moreover, as noted in the Prospectuses (a) some or
all of a fund's exempt-interest dividends may be a specific preference
item, or a component of an adjustment item, for purposes of the Federal
individual and corporate alternative minimum taxes and (b) the receipt
of a fund's dividends and distributions may affect a corporate
shareholder's Federal "environmental" tax liability if the environment
tax is reinstated as proposed by President Clinton. In addition, the
receipt of a fund's dividends and distributions may affect a foreign
corporate shareholder's Federal "branch profits" tax liability and the
Federal and California "excess net passive income" tax liability of a
Subchapter S corporation. Shareholders should consult their own tax
advisors to determine whether they are (a) "substantial users" with
respect to a facility or "related" to those users within the meaning of
the Code or (b) subject to a Federal alternative minimum tax, the
Federal "environmental" tax, the Federal "branch profits" tax, or the
Federal or California "excess net passive income" tax. As a general
rule, a fund's gain or loss on a sale or exchange of an investment will
be a long-term capital gain or loss if the fund has held the investment
for more than one year and will be a short-term capital gain or loss if
it has held the investment for one year or less. Furthermore, as a
general rule, a shareholder's gain or loss on a sale or redemption of
shares of a fund will be a long-term capital gain or loss if the
shareholder has held his or her fund shares for more than one year and
will be a short-term capital gain or loss if he or she has held the fund
shares for one year or less. Shareholders of each fund will receive, as
more fully described in the Prospectuses, an annual statement as to the
income tax status of his or her dividends and distributions for the
prior calendar year. Each shareholder will also receive, if
appropriate, various written notices after the close of a fund's prior
taxable year as to the Federal income tax status of certain dividends or
distributions which were received from the fund during the fund's prior
taxable year.
Generally, interest on municipal obligations is exempt from regular
Federal income tax. However, interest on municipal obligations that are
considered to be "private activity bonds," as defined in the Internal
Revenue Code of 1986, as amended (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. 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 funds, will be subject to regular
Federal income tax for most investors.
The Tax Reform Act of 1986 (the "Tax Reform Act") provided 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 fund'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 fund from the specified private activity bonds. In
addition, the Tax Reform Act provided generally that tax preference
items for corporations 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 shareholder's gain or loss on the disposition of fund shares whether
by redemption, sale or exchange (except in the case of the California
and New York Portfolios), generally will be a long-term or short-term
gain or loss depending whether the shares had been owned for more than
12 months or not for more than 12 months at disposition. Losses
realized by a shareholder on the disposition of fund shares owned for
six months or less will be treated as a long-term capital loss to the
extent a capital gain dividend had been distributed on such shares.
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.
ADDITIONAL INFORMATION
The fund, an open-end 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 Board of
Trustees has authorized the issuance of different series of shares, each
representing shares in separate funds. The assets of each fund are
segregated and separately managed. Each share of a fund represents an
equal proportionate interest in the net assets of that fund with each
other share of the same fund and is entitled to such dividends and
distributions out of the net income of that fund as are declared in the
discretion of the Board of Trustees. Shareholders are entitled to one
vote for each share held and will vote by individual fund except as
otherwise permitted by the 1940 Act. It is the intention of the fund
not to hold annual meetings of shareholders. The Board of Trustees may
call meetings of shareholders for action by shareholder vote as may be
required by the 1940 Act or the Declaration of Trust, and shareholders
are entitled to call a meeting upon a vote of 10% of the fund's
outstanding shares for purposes of voting on removal of a Trustee or
Trustees. The fund will assist shareholders in calling such a meeting
as required by the 1940 Act. Shares do not have cumulative voting
rights or preemptive rights and have only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. Shares are
redeemable as set forth under "Redemption of Shares."
The fund sends to each of its fund's shareholders a semi-annual report
and an audited annual report, which include listings of the investment
securities held by the funds at the end of the reporting period. In an
effort to reduce the fund's printing and mailing costs, the fund plans
to consolidate the mailing of its semi-annual and annual reports by
household. This consolidation means that a household having multiple
accounts with the identical address of record will receive a single copy
of each report. Shareholders who do not want this consolidation to
apply to their account should contact their Financial Consultants or the
Transfer Agent.
PNC Bank, National Association, located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, serves as the custodian of the fund.
Under the custody agreement with the fund, PNC holds each fund's
portfolio securities and keeps all necessary accounts and records. For
its services, PNC receives a monthly fee based upon the month-end market
value of securities held in custody and also receives certain securities
transaction charges. The assets of the fund are held under bank
custodianship in compliance with the 1940 Act.
First Data, located at Exchange Place, Boston, Massachusetts 02109,
serves as the Transfer Agent of the fund. Under the transfer agency
agreement, the Transfer Agent maintains the shareholder account records
for the fund, handles certain communications between shareholders and
the fund and distributes dividends and distributions payable by the
fund. For these services, the Transfer Agent receives a monthly fee
computed on the basis of the number of shareholder accounts it maintains
for the fund during the month, and is reimbursed for certain out-of-
pocket expenses.
FINANCIAL STATEMENTS
The Fund's financial information will be incorporated by reference to
the funds' Annual Reports to Shareholders for the fiscal year ended
March 31, 1999 which will be subsequently filed in a post-effective
amendment to this registration.
APPENDIX A
Ratings of Municipal Bonds, Notes and Commercial Paper
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 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 Ratings Group ("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
Fitch/IBCA, Inc.:
AAA - Bonds rated AAA by Fitch have the lowest expectation of credit
risk. The obligor has an exceptionally strong capacity for timely
payment of financial commitments, which is highly unlikely to be
adversely affected by foreseeable events.
AA - Bonds rated AA by Fitch have a very low expectation of credit
risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
A - Bonds rated A by Fitch are considered to have a low expectation of
credit risk. The capacity for timely payment of financial commitments
is considered to be strong, but may be more vulnerable to changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds rated BBB by Fitch currently have a low expectation of
credit risk. The capacity for timely payment of financial commitments
is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to impair this capacity.
This is the lowest investment grade category assigned by Fitch.
Plus and minus signs are used by Fitch to indicate the relative
position of a credit within a rating category. Plus and minus signs,
however, are not used in the AAA category.
Description of State and Local Government Note Ratings
Notes are assigned distinct rating symbols in recognition of the
differences between short-term and long-term credit 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 Ratings Group:
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.
Fitch/IBCA, Inc.:
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years,
including commercial paper, certificates of deposit, medium-term notes,
and municipal and investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet financial commitments
in a timely manner.
Fitch's short-term ratings are as follows:
F1+ - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments. The "+" denotes
an exceptionally strong credit feature.
F1 - Issues assigned this rating are regarded as having the strongest
capacity for timely payment of financial commitments.
F2 - Issues assigned this rating have a satisfactory capacity for
timely payment of financial commitments, but the margin of safety is
not as great as in the case of the higher ratings.
F3 - The capacity for the timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
DESCRIPTION OF HIGHEST COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.:
Prime-1 - Issuers (or related supporting institutions) rated Prime-1
have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics: leading market positions in well-
established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-
established access to a range of financial markets and assured sources
of alternate liquidity.
Standard & Poor's Ratings Group:
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.
Appendices B-F - Special Note:
The following information (set forth in Appendices B-F) is a summary of
special factors available at the time of the preparation of this SAI
affecting municipal obligations for state-specific portfolios
(California and New York Money Markets, Florida, Georgia, New York and
Pennsylvania Portfolios). For any such state, the summary does not
purport to be a complete description and is based on information from
official statements and other public information relating to securities
offerings, finances and bond ratings of issuers within the state. The
manager has not independently verified any such information. The
respective states typically indicate that budgetary information is based
on estimates and projections of revenues and expenditures for a fiscal
year and must not be construed as statements of fact; 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. Generally, NRSROs base their ratings on information and
materials furnished to the agencies and on investigations, studies and
assumptions by the rating agencies at a particular point in time. There
is no assurance that any such rating remains in effect for a given
period of time or that it will not be lowered or withdrawn entirely if,
in the judgment of the NRSRO originally establishing the rating,
circumstances so warrant. Any such change or withdrawal of the rating
could have an adverse effect on the market price of the bonds.
APPENDIX B
Special Consideration Relating to California Municipal Obligations.
See Special Note prior to Appendix B.
Risk Factors
General Economic Conditions
The economy of the State of California (sometimes referred to herein as
the "State") is the largest among the 50 states and one of the largest
in the world. This diversified economy has major components in
agriculture, manufacturing, high technology, trade, entertainment,
tourism, construction and services.
California's July 1, 1998 population of over 33.2 million represented
over 13% of the total United States population. As of July 1, 1990 the
population of 29,944,000 represented an increase of over 6 million
persons, or 26%,during the decade of the 1980s.
California's population is concentrated in metropolitan areas. As of
the April 1, 1990 census, 96% resided in the 23 Metropolitan
Statistical Areas in the State. As of July 1, 1997, the five-county Los
Angeles area accounted for 49%, with 16.0 million residents. The 10-
county San Francisco Bay Area represented 21%, with a population of 6.9
million.
From 1990-1993, the State suffered through a severe recession, the
worst since the 1930s, heavily influenced by large cutbacks in
defense/aerospace industries and military base closures and by a major
drop in real estate construction. California's economy has been
recovering and growing steadily since the start of 1994. The current
economic expansion is marked by strong growth in high technology
manufacturing and services, including computer
software, electronic manufacturing and motion picture/television
production; growth is also strong in other business services, both
nonresidential and residential construction and local education.
In May 1998, the State Department of Finance projected that the
California economy would continue to show robust growth through 1998,
although at a slightly slower pace than in 1997. The Asian economic
crisis which began in late 1997 was expected to have some dampening
effects on the State's economy. However, during the summer of 1998,
the soaring trade deficit, continuing weakness in Asia, initial signs
of economic weakness in Canada and Latin America, which have been
California's largest trading partners, and the fall in stock prices
worldwide all suggests that the May forecasts were too optimistic,
particularly for 1999. Other impacts of the international situation may
help California, such as the reduction in long-term interest rates.
The State: Fiscal Years Prior to 1998-99
The State's budget problems in the early 1990s were caused by a
combination of external economic conditions and a structural imbalance
in that the largest general fund programs (K-14 education, health,
welfare and corrections) were increasing faster than the revenue base,
driven by the State's rapid population growth. The pressures are
expected to continue as population trends maintain strong demand for
health and welfare services, as the school age population continues to
grow, and as the State's corrections program responds to a "Three
Strikes" law enacted in 1994, which requires mandatory life prison
terms for certain third-time felony offenders. In addition, the State's
health and welfare programs are in a transition period as a result of
recent federal and state welfare reform initiatives.
As a result of these factors and others, and especially because a
severe recession between 1990-1994 reduced revenues and increased
expenditures for social welfare programs, from the late 1980s until
1992-93, the State had a period of budget imbalance. During this
period, expenditures exceeded revenues in four out of six years, and
the State accumulated and sustained a budget deficit in its budget
reserve, the Special Fund for Economic Uncertainties ("SFEU")
approaching $2.8 billion at its peak at June 30, 1993. Starting in the
1990-91 Fiscal Year and for each fiscal year thereafter, each budget
required multibillion dollar actions to bring projected revenues and
expenditures into balance.
Despite various remedial actions taken by the State, the effects of the
recession led to large, unanticipated deficits in the budget reserve,
the SFEU, as compared to projected positive balances. By the 1993-94
Fiscal Year, the accumulated deficit was so large that it was
impractical to budget to retire it in one year, so a two-year program
was implemented, using the issuance of revenue anticipation warrants to
carry a portion of the deficit over the end of the fiscal year. When
the economy failed to recover sufficiently in 1993-94, a second two-
year plan was implemented in 1994-95, again using cross-fiscal year
revenue anticipation warrants to partly finance the deficit into the
1995-96 fiscal year. For several years during the secession, the State
was forced to rely increasingly on external debt markets to meet its
cash needs, as a succession of notes and revenue anticipation warrants
were issued in the period from June 1992 to July 1994, often needed to
pay previously maturing notes or warrants. These borrowings were used
also in part to spread out the repayment of the accumulated budget
deficit over the end of a fiscal year.
1995-96 through 1997-98 Fiscal Years. The State's financial
conditionimproved markedly during the 1995-96, 1996-97 and 1997-98
fiscal years, with a combination of better than expected revenues,
slowdown in growth of social welfare programs, and continued spending
restraint based on the actions taken in earlier years. The State's cash
position also improved, and no external deficit borrowing has occurred
over the end of these three fiscal years.
The economy grew strongly during these fiscal years, and as a result,
the General Fund took in substantially greater tax revenues (around
$2.2 billion in 1995-96, $1.6 billion in 1996-97 and $2.2 billion in
1997-98) than were initially planned when the budgets were enacted.
These additional funds were largely directed to school spending as
mandated by Proposition 98, and to make up shortfalls from reduced
federal health and welfare aid in 1995-96 and 1996- 97. The accumulated
budget deficit from the recession years was finally eliminated. The
Department of Finance estimates that the State's budget reserve (SFEU)
totaled $639.8 million as of June 30, 1997 and $1.782 billion at June
30, 1998.
On August 18, 1997, the Governor signed the 1997-98 Budget Act, but
vetoed about $314 million of specific spending items, primarily in
health and welfare and education areas from both the General Fund and
Special Funds. The Governor announced that he was prepared to restore
about $200 million of education spending upon satisfactory completion
of legislation on an education testing program.
The 1997-98 Budget Act anticipated General Fund revenues and transfers
of $52.5 billion (a 6.8% increase over the final 1996-97 amount), and
expenditures of $52.8 billion (an 8.0% increase from the 1996-97
levels). On a budgetary basis, the budget reserve (SFEU) was projected
to decrease from $408 million at June 30, 1997 to $112 million at June
30, 1998. As of January 9, 1998, the State Director of Finance
estimated a reserve of $329 million at June 30, 1998. (The expenditure
figure assumes restoration of $200 million in vetoed funding.) The
Budget Act also included Special Fund expenditures of $14.4 billion (as
against estimated Special Fund revenues of $14.0 billion), and $2.1
billion of expenditures from various Bond Funds. The State implemented
its normal annual cash flow borrowing program, issuing $3 billion of
notes which matured on June 30, 1998.
Federal Welfare Reform
Congress passed and the President signed (on August 22, 1996) the
Personal Responsibility and Work Opportunity Act of 1996 (the "Law")
making a fundamental reform of the current welfare system. Among many
provisions, the Law includes: (i) conversion of Aid to Families with
Dependent Children from an entitlement program to a block grant titled
Temporary Assistance for Needy Families (TANF), with lifetime time
limits on TANF recipients, work requirements and other changes; (ii)
provisions denying certain federal welfare and public benefits to legal
noncitizens, allowing states to elect to deny additional benefits
(including TANF) to legal noncitizens, and generally denying almost all
benefits to illegal immigrants; and (iii) changes in the Food Stamp
program, including reducing maximum benefits and imposing work
requirements.
As part of the 1997-98 Budget Act legislative package, the State
Legislature and Governor agreed on a comprehensive reform of the
State's public assistance programs to implement the new federal Law.
The new basic State welfare program is called California Work
Opportunity and Responsibility to Kids Act ("CalWORKs"), which
replaces the former Aid to Families with Dependent Children (AFDC) and
Greater Avenues to Independence (GAIN) programs effective January 1,
1998. Consistent with the federal Law, CalWORKs contains new time
limits on receipt of welfare aid, both lifetime as well as for any
current time on aid. Administration of the new Welfare-to-Work programs
will be largely at the county level, and counties are given financial
incentives for success in this program.
Although the longer-term impact of the new federal Law and CalWORKs
cannot be determined until there has been some experience, the State
does not presently anticipate that these new programs will have any
adverse financial impact on the General Fund. Overall TANF grants from
the federal government are expected to equal or exceed the amounts the
State would have received under the old AFDC program.
1998-99 Fiscal Year
When the governor released his proposed 1998-99 Fiscal Year Budget on
January 9, 1998, he projected General Fund revenues for the 1998-99
Fiscal Year of $55.4 billion, and proposed expenditures in the same
amount. By the time the Governor released the May Revision to the 1998-
99 Budget ("May Revision") on May 14, 1998, the Administration
projected that revenues for the 1997-98 and 1998-99 Fiscal Years
combined would be more than $4.2 billion higher than was projected in
January. The Governor proposed that most of this increased revenue be
dedicated to fund a 75% cut in the Vehicle License Fee ("VLF").
Pursuant to Article IV, Section 13(c) of the Constitution of the State
of California, the State Legislature is required to adopt its budget
for the upcoming fiscal year (July 1-June 30) by midnight of June 15th,
and in the absence of which, the Legislature may not send to the
Governor for consideration any bill appropriating funds for expenditure
during the fiscal year for which the budget bill is to be enacted,
except emergency bills or appropriations for the salaries and expenses
of the Legislature. For the current fiscal year, as has been true since
the late 1980s, the State legislature did not adhere to this deadline.
Due to the Legislature's failure to comply with this constitutional
requirement, the Howard Jarvis Taxpayers Association sought an
injunction in a Los Angeles Superior Court to prohibit the State from
making certain types of payments in the absence of an adopted budget.
On July 21, 1998, a preliminary injunction was issued. Under the terms
of the injunction order, until such time as the budget was adopted, the
State was precluded from making any payments from the State treasury
for Fiscal Year 1998-99 except for certain enumerated expenditures.
On July 22, 1998, the Legislature unanimously passed an $18.9 billion
emergency-spending bill to cover the costs of, among others, bond
payments, paychecks for state workers, retirement pensions, prisons,
school and welfare programs from July 1st through August 5th. However,
before a final resolution of the legal issues raised by the plaintiff,
a budget for Fiscal Year 1998-99 was passed by the Legislature on
August 11, 1998, and the Governor signed it on August 21, 1998.
In signing the 1998-99 Budget Bill, the Governor used his line-item
veto power to reduce expenditures by $1.360 billion from the General
Fund, and $160 million from Special Funds. Of this total, the Governor
indicated that about $250 million of vetoed funds were "set aside" to
fund programs for education. Vetoed items included education funds,
salary increases and many individual resources and capital projects.
The 1998-99 Budget Act is based on projected general fund revenues and
transfers of $57.0 billion (after giving effect to various tax
reductions enacted in 1997 and 1998), a 4.2% increase from the revised
1997-98 figures. Special Fund revenues were estimated at $14.3
billion. The revenue projections were based on the May Revision.
Economic problems overseas since that time may affect the May Revision
projections.
After giving effect to the Governor's vetoes, the Budget Act provides
authority for expenditures of $57.3 billion from the General Fund (a
7.3% increase from 1997-98), $14.7 billion from Special Funds, and $3.4
billion from bond funds. The Budget Act projects a balance in the SFEU
at June 30, 1999 (but without including the "set aside" veto amount) of
$1.255 billion, a little more than 2% of general fund revenues. The
Budget Act assumes the State will carry out its normal intra-year cash
flow borrowing in the amount of $1.7 billion of revenue anticipation
notes, which were issued on October 1, 1998.
The most significant feature of the 1998-99 Budget was agreement on a
total of $1.4 billion of tax cuts. The central element is a bill which
provides for a phased-in reduction of the VLF. Since the VLF is
currently transferred to cities and countries, the bill provides for
the general fund to replace the lost revenues. Starting on January 1,
1999, the VLF will be reduced by 25%, at a cost to the general fund of
approximately $500 million in the 1998-99 Fiscal year and about $1
billion annually thereafter.
In addition to the cut in VLF, the 1998-99 Budget includes both
temporary and permanent increases, in the personal income tax dependent
credit ($612 million General Fund cost in 1998-99, but less in future
years), a nonrefundable renters tax credit ($133 million), and various
targeted business tax credits ($106 million).
Other significant elements of the 1998-99 Budget Act are as follows:
1. Proposition 98 funding for K-12 schools is increased by $1.7 billion
in General Fund moneys over revised 1997-98 levels, about $300 million
higher than the minimum Proposition 98 guaranty. An additional $600
million was appropriated to "settle up" prior years' Proposition 98
entitlements, and was primarily devoted to one-time uses such as block
grants, deferred maintenance, and computer and laboratory equipment. Of
the 1998-99 funds, major new programs include money for instructional
and library materials, deferred maintenance, support for increasing the
school year to 180 days and reduction of class sizes in Grade 9. The
Governor held $250 million of education funds which were vetoed as
set-aside for enactment of additional reforms. Overall, per-pupil
spending for K-12 schools under Proposition 98 is increased to $5,695,
more than one-third higher than the level in the last recession year of
1993-94. The 1998-99 Budget also includes $250 million as repayment of
prior years' loans to schools, as part of the settlement of the CTA v.
Gould lawsuit.
2. Funding for higher education increased substantially above the level
called for in the Governor's four-year compact. General Fund support
was increased by $340 million (15.6%) for the University of California
and $267 million (14.1%) for the California State University system. In
addition, Community Colleges received a $300 million (6.6%) increase
under Proposition 98.
3. The 1998-99 Budget includes increased funding for health, welfare
and social services programs. A 4.9% grant increase was included in the
basic welfare grants, the first increase in those grants in nine years.
Future increases will depend on sufficient general fund revenue to
trigger the phased cuts in VLF described above.
4. Funding for the judiciary and criminal justice programs increased by
about 11% over 1997-98, primarily to reflect increased State support
for local trial courts and rising prison population.
5. Various other highlights of the Budget included new funding for
resources projects, dedication of $376 million of general fund moneys
for capital outlay projects, funding of a three percent State employee
salary increase, funding of 2,000 new Department of Transportation
positions to accelerate transportation construction projects, and
funding of the Infrastructure and Economic Development Bank ($50
million).
6. The State of California received approximately $167 million of
federal reimbursements to offset costs related to the incarceration of
undocumented alien felons for federal fiscal year 1997. The State
anticipates receiving approximately $195 million in federal
reimbursements for federal fiscal year 1998.
After the 1998-99 Budget Act was signed, and prior to the close of the
Legislative session on August 31, 1998, the Legislature passed a
variety of fiscal bills. The Governor had until September 30, 1998 to
sign or veto these bills. The bills with the most significant fiscal
impact which the Governor signed include $235 million for certain water
system improvements in Southern California, $243 million for the
State's share of the purchase of environmentally sensitive forest
lands, $178 million for state prisons, $160 million for housing
assistance, and $125 million for juvenile facilities. The Governor also
signed bills totaling $223 million for education programs which were
part of the Governor's $250 million veto "set aside," and $32 million
for local governments' fiscal relief. In addition, he signed a bill
reducing by $577 million the State's obligation to contribute to the
State Teachers' Retirement System in the 1998-99 Fiscal Year.
Based solely on the legislation enacted, on a net basis, the reserve
for June 30, 1999 was reduced by $256 million. On the other hand, 1997-
98 revenues have been increased by $160 million. The revised June 30,
1999 reserve is projected to be $1,159 million or $96 million below the
level originally projected by the 1998-99 Budget Act. The reserve
projected in the 1998-99 Budget Act was $1,255 million.
Subsequent Events
In November 1998, the State Legislature Analysts Office (the "LAO")
issued a report that projected both a decrease in revenues and an
increase in expenditures from the assumptions on which the 1998-99
Fiscal Year Budget is based, reducing the estimated year-end reserves
to $331 million. The LAO further estimated a budget shortfall of $1
billion in Fiscal Year 1999- 2000 absent corrective actions.
On January 8, 1999, newly-elected Governor Davis released his proposed
budget for the 1999-2000 Fiscal Year (the "Proposed Budget"). The
Proposed Budget estimates general fund revenues and transfers in 1999-
2000 of $60.3 billion, a 7.1% increase from revised 1998-99 figures.
The Governor proposes expenditures of $60.5 billion, a 3.8% increase
from 1998-99. The Proposed Budget projects a balance in the SFEU of
$414.5 million on June 30, 2000.
Significant features of the Proposed Budget are as follows:
Proposition 98 funding for K-12 is proposed to be expanded to $42.8
billion, an increase of $2.8 billion over 1998-99. Proposition 98 per-
pupil spending has increased to $5,944, which is $478 over the 1997-98
level. $444 million of the Proposition 98 funding will support a
package of initiatives to significantly improve student academic
achievement to be focused in three major areas: improving reading
skills ($186 million), enhancing professional quality ($51.3 million)
and increasing school accountability ($206.7 million).
Funding for higher education increased by an average of 3.7 percent,
with General Fund support increased by an average of $3.6 percent. The
Proposed Budget provides the University of California with 119.2
million in new funding and the California State University system with
$110.9 million. The Proposed Budget also includes an additional $10
million over the current $100 million allocation to community college
districts, to improve higher education accountability for improvement
of student outcomes.
The Proposed Budget incorporates a proposal to obtain federal waiver
and federal funding for the current state-funded family planning
program, titled Family Planning, Access, Care and Treatment (Family
PACT). The federal funding of approximately $122 million will reduce
General Fund expenditures for Medi-Cal by a similar amount, $62 million
of which savings will be used to assist in balancing the 1999-2000
budget.
The Proposed Budget recommends an increase in the State's buyout of
county trial court costs in 1999-2000 by $48 million (still less than
the $96 million originally authorized). This increase is due to the
increase in the State's share of local court costs from approximately
30% a decade ago to 67% in 1998-99 and to an estimated 72% or $1.27
billion in the Proposed Budget for 1999-2000.
The Proposed Budget includes the following augmentations to address
critical housing issues: $2.5 million of redevelopment funds for low-
income housing preservation and creation; $2 million to provide farm
worker housing grants; an increase of $1 million to expand (to a total
of $2 million) the Self-Help Housing Program for families who build
their own homes; $1 million for temporary housing for the homeless; $5
million to implement legislation to create housing for CalWORKs
families transitioning from welfare to self-sufficiency; and $1 million
to the Department of Mental Health to create a new program for
supportive housing, specifically focused on CalWORKs special needs'
populations. In addition, the Proposed Budget provides $14.6 million to
open and operate the Veterans Home of California.
A total of $6.8 billion (a 3.3% increase over the revised 1998-99
budget amount) is proposed for various programs within the Youth and
Adult Correctional Agency, the Department of Justice, Citizens' Option
for Public Safety, Office of Criminal Justice Planning, Commission on
Peace Officer Standards and Training, Office of the Inspector General
and the California Highway Patrol. In addition, $8.6 million General
Fund for 1998-99 and $5.7 million General Fund for 1999-2000 are
included to reimburse local governments for costs related to the
transport of inmates, the return of fugitives, and court costs and
county charges primarily related to inmate hearings and trials.
Local Government
The primary units of local government in California are the counties,
ranging in population from 1,300 (Alpine) to over 9,000,000 (Los
Angeles). Counties are responsible for the provision of many basic
services, including indigent healthcare, welfare, courts, jails and
public safety in unincorporated areas. There are also about 480
incorporated cities and thousands of other special districts formed for
education, utility and other services. The fiscal condition of local
governments has been constrained since the enactment of "Proposition
13" in 1978, which reduced and limited the future growth of property
taxes and limited the ability of local governments to impose "special
taxes" (those devoted to a specific purpose) without two- thirds voter
approval. Counties, in particular, have had fewer options to raise
revenues than many other local government entities, and have been
required to maintain many services.
The entire statewide welfare system has been changed in response to the
change in federal welfare law enacted in 1996 (see "Federal Welfare
Reform" above). Under the CalWORKs program, counties are given
flexibility to develop their own plans, consistent with State law, to
implement Welfare-to-Work and to administer many of its elements and
their costs for administrative and support services are capped at 1996-
97 levels. Counties are also given financial incentives if, at the
individual county level or statewide, the CalWORKs program produces
savings associated with specified Welfare-to-Work outcomes; counties
may also suffer penalties for failing to meet federal standards. Under
CalWORKs, counties will still be required to provide "general
assistance" aid to certain persons who cannot obtain welfare from other
programs.
Historically, funding for the State's trial court system was divided
between the State and the counties. However, Chapter 850, Statutes of
1997, implements a restructuring of the State's trial court funding
system. In 1997-98, funding for the courts, with the exception of costs
for facilities, local judicial benefits, and revenue collection, was
consolidated at the State level. The county contribution for both their
general fund and fine and penalty amounts is capped at the 1994-95
level and becomes part of the Trial Court Trust Fund, which supports
all trial court operations. The State assumes responsibility for future
growth in trial court funding. This consolidation is intended to
streamline the operation of the courts, provide a dedicated revenue
source, and relieve fiscal pressure on the counties. Beginning in
1998-99, county general fund contribution for court operations is
reduced by $300 million, including $10.7 million to buy out the
contribution of the 20 smallest counties, and cities will retain $62
million in fine and penalty revenue previously remitted to the State;
the State's general fund backfilled the $362 million revenue loss to
the Trial Court Trust Fund. In addition to this general fund backfill,
a $50 million augmentation is included in the 1998 Budget Act for the
trial courts to fund workload increase and high priority issues such as
court security. In 1999-2000, county general fund contributions will be
further reduced by an additional $92 million to buy out the next 17
smallest counties and reduce by ten percent the general fund
contribution of the remaining 21 counties.
In the aftermath of Proposition 13, the State provided aid from the
General Fund to make up some of the loss of property tax moneys,
including taking over the principal responsibility for funding local K-
12 schools and community colleges. Under the pressure of the recent
recession, the Legislature has eliminated the remnants of this post-
Proposition 13 aid to entities other than K-14 education districts,
although it has also provided additional funding sources (such as sales
taxes) and reduced mandates for local services. Many counties continue
to be under severe fiscal stress. While such stress has in recent years
most often been experienced by smaller, rural counties, larger urban
counties, such as Los Angeles, have also been affected. Orange County
implemented significant reductions in services and personnel, and
continues to face fiscal constraints in the aftermath of its
bankruptcy, which had been caused by large investment losses in its
pooled investment funds.
On November 5, 1996, voters approved Proposition 218, entitled the
"Right to Vote on Taxes Act," which incorporates new Articles XIIIC and
XIIID into the California Constitution. These new provisions enact
limitations on the ability of local government agencies to impose or
raise various taxes, fees, charges and assessments without voter
approval. Certain "general taxes" imposed after January 1, 1995 must be
approved by voters in order to remain in effect. In addition, Article
XIIIC clarifies the right of local voters to reduce taxes, fees,
assessments or charges through local initiatives. There are a number of
ambiguities concerning the Proposition and its impact on local
overnments and their bonded debt which will require interpretation by
the courts or the State Legislature. The State Legislative Analyst
estimated that enactment of Proposition 218 would reduce local
government revenues statewide by over $100 million a year, and that
over time, annual revenue to local government would be reduced by
several hundred million dollars. Proposition 218 does not affect the
State or its ability to levy or collect taxes.
On December 23, 1997, a consortium of California counties filed a test
claim with the Commission on State Mandates (the "Commission") asking
the Commission to determine whether the property tax shift from
counties to the Educational Revenue Augmentation Fund, which is a
funding source for schools, is a reimbursable state mandated cost. On
August 11, 1998, the State Department of Justice, on behalf of the
State Department of Finance, filed a rebuttal in opposition to the
counties' claims. The issue is currently scheduled to be heard by the
Commission on October 22, 1998. The fiscal impact to the State general
fund if the Commission determines that the property tax shifts created
a reimbursable state mandate could total approximately $8 billion for
the 1996-97 ($2.5 billion), 1997-98 ($2.6 billion) and 1998-99 ($2.7
billion) property tax shifts. Ongoing costs to the State general fund
would be approximately $2.7 billion annually.
Constitutional and Statutory Limitations; Recent Initiatives; Pending
Legislation
Article XIIIA of the California Constitution (which resulted from the
voter-approved Proposition 13 in 1978) limits the taxing powers of
California public agencies. Article XIIIA provides that the maximum ad
valorem tax on real property cannot exceed 1% of the "full cash value"
of the property and effectively prohibits the levying of any other ad
valorem tax on real property for general purposes. However, on May 3,
1986, Proposition 46, an amendment to Article XIIIA, was approved by
the voters of the State of California, creating a new exemption under
Article XIIIA permitting an increase in ad valorem taxes on real
property in excess of 1% for bonded indebtedness approved by two-thirds
of the voters voting on the proposed indebtedness. "Full cash value" is
defined as "the County Assessor's valuation of real property as shown
on the 1975-76 tax bill under "full cash value" or, thereafter, the
appraised value of real property when purchased, newly constructed, or
a change in ownership has occurred after the 1975 assessment." The
"full cash value" is subject to annual adjustment to reflect increases
(not to exceed 2%) or decreases in the consumer price index or
comparable local data, or to reflect reductions in property value
caused by damage, destruction or other factors.
Article XIIIB of the California Constitution limits the amount of
appropriations of the State and of the local governments to the amount
of appropriations of the entity for the prior year, adjusted for
changes in the cost of living, population and the services that local
government has financial responsibility for providing. To the extent
that the revenues of the State and/or local government exceed its
appropriations, the excess revenues must be rebated to the public
either directly or through a tax decrease. Expenditures for voter-
approved debt services are not included in the appropriations limit.
At the November 9, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amends Article
XIIIB to require that (i) the California Legislature establish a
prudent state reserve fund in an amount it shall deem reasonable and
necessary and (ii) revenues in excess of amounts permitted to be spent
and which would otherwise be returned pursuant to Article XIIIB by
revision of tax rates or fee schedules be transferred and allocated (up
to a maximum of 40%) to the State School Fund and be expended solely
for purposes of instructional improvement and accountability.
Proposition 98 also amends Article XVI to require that the State of
California provide a minimum level of funding for public schools and
community colleges. Commencing with the 1988-89 Fiscal Year, money to
be applied by the State for the support of school districts and
community college districts shall not be less than the greater of: (i)
the amount which, as a percentage of the State general fund revenues
which may be appropriated pursuant to Article XIIIB, equals the
percentage of such State general fund revenues appropriated for school
districts and community college districts, respectively, in Fiscal Year
1986-87 or (ii) the amount required to ensure that the total
allocations to school districts and community college districts from
the State general fund proceeds of taxes appropriated pursuant to
Article XIIIB and allocated local proceeds of taxes shall not be less
than the total amount from these sources in the prior year, adjusted
for increases in enrollment and adjusted for changes in the cost of
living pursuant to the provisions of Article XIIIB. The initiative
permits the enactment of legislation, by a two-thirds vote, to suspend
the minimum funding requirements for one year. As a result of
Proposition 98, funds that the State might otherwise make available to
its political subdivisions may be allocated instead to satisfy such
minimum funding level.
During the recent recession, general fund revenues for several years
were less than originally projected, so that the original Proposition
98 appropriations turned out to be higher than the minimum percentage
provided in the law. The Legislature responded to these developments by
designating the "extra" Proposition 98 payments in one year as a "loan"
from future years' Proposition 98 entitlements and also intended that
the "extra" payments would not be included in the Proposition 98 "base"
for calculating future years' entitlement. By implementing these
actions, per-pupil funding from Proposition 98 sources stayed almost
constant at approximately $4,220 from Fiscal Year
1991-92 to Fiscal Year 1993-94.
In 1992, a lawsuit was filed, call California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. The
settlement of this case, finalized in July 1996, provides, among other
things, that both the State and K-14 schools share in the repayment of
prior years' emergency loans to schools. Of the total $1.76 billion in
loans, the State will repay $935 million by forgiveness of the amount
owed, while schools will repay $825 million. The State's share of the
repayment will be reflected as an appropriation above the current
Proposition 98 base calculation. The schools' share of the repayment
will count as appropriations that count toward satisfying the
Proposition 98 guarantee, or from "below" the current base. Repayments
are spread over the eight-year period of 1994-95 through 2001-02 to
mitigate any adverse fiscal impact. Substantially increased general
fund revenues, above initial budget projections, in the 1994-95, 1995-
96 and 1996-97 Fiscal Years have resulted or will result in retroactive
increases in Proposition 98 appropriations from subsequent fiscal
years' budgets.
On November 8, 1994, the voters approved Proposition 187, an initiative
statute ("Proposition 187"). Proposition 187 specifically prohibits
funding by the State of social services, health care services and
public school education for the benefit of any person not verified as
either a United States citizen or a person legally admitted to the
United States. Among the provisions in Proposition 187 pertaining to
public school education, the measure requires, commencing January 1,
1995, that every school district in the State verify the legal status
of every child enrolling in the district for the first time. By January
1, 1996, each school district must verify the legal status of children
already enrolled in the district and of all parents or guardians of all
students. If the district "reasonably suspects" that a student, parent
or guardian is not legally in the United States, that district must
report the student to the United States Immigration and Naturalization
Service and certain other parties. The measure also prohibits a school
district from providing education to a student it does not verify as
either a United States citizen or a person legally admitted to the
United States. The State Legislative Analyst estimates that
verification costs could be in the tens of millions of dollars on a
statewide level (including verification costs incurred by other local
governments), with first-year costs potentially in excess of $100
million.
The reporting requirements may violate the Family Educational Rights
and Privacy Act ("FERPA"), which generally prohibits schools that
receive Federal funds from disclosing information in student records
without parental consent. Compliance with FERPA is a condition of
receiving Federal education funds, which total $2.3 billion annually to
California school districts. The Secretary of the United States
Department of Education has indicated that the reporting requirements
in Proposition 187 could jeopardize the ability of school districts to
receive these funds.
Opponents of Proposition 187 filed at least eight lawsuits (which were
subsequently consolidated) challenging the constitutionality and
validity of the measure. On March 18, 1998, a United States District
Court judge entered a final judgment in the case, holding key portions
of the measure unconstitutional and permanently enjoining the State
from implementing those sections which would have required law
enforcement, teachers and social services and health care workers to
verify a person's immigration status and subsequently report illegal
immigrants to authorities and deny them social services, health care
and education benefits. An appeal by the State Attorney General was
filed with the Ninth Circuit Court of Appeals on March 25, 1998 and is
pending.
Litigation
The State is a party to numerous legal proceedings. 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 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 challenges of
payments of wages under the Fair Labor Standards Act, the method of
determining gross insurance premiums involving health insurance,
property tax challenges, challenges of transfer of monies from State
Treasury Special fund accounts to the State's General fund pursuant to
1991, 1992, 1993 and 1994 Budget Acts. 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.
Ratings
During 1996, the ratings of California's general obligation bonds was
upgraded by the following ratings agencies. Recently Standard & Poor's
Ratings Group upgraded its rating of such debt to A+; the same rating
has been assigned to such debt by Fitch Investors Service. Moody's
Investors Service has assigned such debt an A1 rating. Any explanation
of the significance of such ratings may be obtained only from the
rating agency furnishing such ratings. There is no assurance that such
ratings will continue of any given period of time or that they will not
be revised downward or withdrawn entirely if, in the judgment of the
particular rating agency, circumstances so warrant.
The Manager believes the information summarized above describes some of
the more significant aspects relating to the California Money Market
portfolio. The sources of such information are Preliminary Official
Statements and Official Statements relating to the State's general
obligation bonds and the State's revenue anticipation notes, or
obligations of other issuers located in the State of California, or
other publicly available documents. Although the Manager has not
independently verified this information, it has no reason to believe
that such information is not correct in all material aspects.
APPENDIX C
Special Considerations Relating to Florida Municipal Obligations.
See Special Note prior to Appendix B.
Risk Factors
General
Population. In 1980, Florida was the seventh most populous state in the
U.S. The State has grown dramatically since then and as of April 1,
1997, ranks fourth with an estimated population of 14.7 million.
Florida's attraction, as both a growth and retirement state, has kept
net migration at an average of 224,240 new residents a year from 1987
through 1996 with a low of 138,000 in 1992. Net migration in 1996 was
255,000. The U.S. average population increase since 1984 is about 1%
annually, while Florida's average annual rate of increase is about
1.8%. Florida continues to be the fastest growing of the eleven 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 1987, the prime working age population (18-44)
has grown at an average annual rate of more than 2.0%. The share of
Florida's total working age population (18-64) to total State
population is approximately 60%. 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
because 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 a broader economic base. As a result, Florida's real per capita
personal income has tracked closely with the national average and has
tracked above the southeast. From 1992 to 1997, Florida's total nominal
personal income grew by 36.6% and per capita income expanded
approximately 25.9%. For the nation, total and per capita personal
income increased by 30.2% and 24.1%, respectively.
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.
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 1997 of $25,255 was slightly
below national average of $25,598 and significantly ahead of that for
the southeast United States, which was $23,014. Real personal income in
the State is forecasted to increase 5.2% in 1997-98 and 3.7% in 1998-
99. Real personal income per capita in the State is projected to grow
at 3.2% in 1997-98 and 1.8% in 1998-99. The Florida economy appears to
be growing in line with, but stronger than, the U.S. economy and is
expected to experience steady if unspectacular growth over the next
couple of years.
Since 1991, the State's population has increased an estimated 11.5%. In
that same period, Florida's total non-farm employment has grown
approximately 27.5%. Since 1991, the job creation rate in the State is
more than twice that of the nation as a whole. Contributing to this is
the State's rapid rate of growth in employment and income in
international trade. Changes to its economy have also contributed to
the State's strong performance. The State is now less dependent on
employment from construction, construction related manufacturing, and
resource based manufacturing, which have declined as a proportion of
total State employment, and more dependent on employment related to
trade and services. The State's service sector employment is nearly 87%
of total non-farm employment service jobs tend to be less sensitive to
swings in the business cycle. The State has a concentration of
manufacturing jobs in high-tech and high value- added sectors, such as
electrical and electronic equipment, as well as printing and
publishing. These type of manufacturing jobs tend to be less cyclical.
The State's unemployment rate throughout the 1980's tracked below the
nation's. In the 1990's, the trend was reversed, until 1995 and 1996,
when the State's unemployment rate again tracked below the nation's.
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 4.8% during 1997 while the national average was
4.9%. As of October 1997, the Organization estimates that the
unemployment rate will be 4.8% in 1998-99.
The State's economy is expected to grow at a moderate rate along with
the nation, but is expected to outperform the nation as a whole. Total
non-farm employment in Florida is expected to grow at an increase of
3.9% in 1997-98 and 2.6% in 1998-99. 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 4.8%
in 1997-98, while growing 4.1% in 1998- 99. Trade is expected to expand
3.7% in 1998 and 2.3% in 1999. 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. For
example, in 1980, total contract construction employment as a share of
total non-farm employment was just about 7.5%, and in 1997, the share
had edged downward to 5.7%. 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 about 9.2% of total U.S. housing starts in 1997
while the State's population is 5.5% of the U.S. total population.
Florida's housing starts in 1997 were 132,813.
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 slow somewhat as the number of people moving into the
State is expected to average 257,000 a year throughout the 1990's. This
population trend should provide fuel for business and home builders to
keep construction activity lively in Florida in the next few years.
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 deduction 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 and buildings also
contribute to the level of construction in the State.
Single and multi-family housing starts in 1998-99 are projected to
reach a combined level of 127,400 decreasing slightly to 125,800 next
year. Total construction expenditures are forecasted to increase 0.8%
this year and increase 1.8% next year.
Tourism
Tourism is one of the State's most important industries. Approximately
47 million tourists visited the State in 1997, as reported by the
Florida Department of Commerce. In terms of business activities and
State tax revenues, tourists in Florida in 1996 represented an
estimated 4.8 million additional residents. Visitors to the State tend
to arrive slightly more by air than by car. The State's tourist
industry over the years has become more sophisticated, attracting
visitors year-round and, to a degree, reducing its seasonality. Tourist
arrivals are expected to increase by 2.6% this fiscal year and 1.7%
next fiscal year. Tourist arrivals to Florida by air are expected to
increase by 4.1% this year and increase by 3.9% next year, while
arrivals by car are expected to increase by 0.8% this year and decrease
1.0% next year. By the end of the State's current fiscal year, 49.7
million domestic and international tourists are expected to have
visited the State. In 1999-00, tourist arrivals should approximate 50.6
million.
Revenues and Expenses
Estimated fiscal year 1997-98 General Reserve plus Working Capital and
Budget Stabilization funds available to the State total $18,621.8
million, an 11.2% increase over 1996-97. Of the total General Revenue
plus Working Capital and Budget Stabilization funds available to the
State, $16,877.6 million of that is Estimated Revenues which represents
an increase of 7.2% over the previous year's Estimated Revenues. With
effective General Revenues plus Working Capital Fund and Budget
Stabilization appropriations at $17,207.0 million, unencumbered
reserves at the end of 1997- 98 are estimated at $1,414.8 million.
Estimated, fiscal year 1998-99 General Reserve plus Working Capital and
Budget Stabilization funds available total $19,113.2 million, a 2.6%
increase over 1997-98. The $17,481.7 million in Estimated Revenues
represents an increase of 3.6% over the previous year's Estimated
Revenues.
In fiscal year 1996-97, approximately 67% of the State's total direct
revenue to its three operating funds were derived from State taxes and
fees, with Federal grants and other special revenue accounting for the
balance. State sales and tax, corporate income tax, intangible
personal property tax, beverage tax and estate tax amounted to 68%,
8%, 4%, 3% and 3%, respectively, of total General Revenue Funds
available during fiscal 1996-97. In that same year, expenditures for
education, health and welfare, and public safety amounted to
approximately 53%, 26% and 14%, respectively, of total expenditures
from the General Revenue Fund.
The State's sales and use tax (6%) currently accounts for the State's
single largest source of tax receipts. Slightly less than 10% of the
State's sales and use tax is designated for local governments and is
distributed to the respective counties in which collected for use by
the counties, and the municipalities therein. In addition to this
distribution, local governments may (by referendum) assess a 0.5% or a
1.0% discretionary sales surtax within their county. Proceeds from this
local option sales tax are earmarked for funding local infrastructure
programs and acquiring land for public recreation or conservation or
protection of natural resources as provided under applicable Florida
law. Certain charter counties have other taxing powers in addition, and
non-consolidated counties with a population in excess of 800,000 may
levy a local option sales tax to fund indigent health care. It alone
cannot exceed 0.5% and when combined with the infrastructure surtax
cannot exceed 1.0%. For the fiscal year ended June 30, 1997, sales and
use tax recipients (exclusive of the tax on gasoline and special fuels)
totalled $12,089 million, an increase of 5.5% over fiscal year 1995-96.
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 $447.2 million in the fiscal year
ending June 30, 1997. Ninety-eight percent of 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, 1997, receipts from this source were $1,362.3
million, an increase of 17.2% from fiscal year 1995-96.
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 $844.2 million
during fiscal year 1996-97, an 8.9% increase from the previous fiscal
year. For fiscal year 1996-97, 62.63% of these taxes were deposited to
the General Revenue Fund.
The State imposes a gross receipts tax on electric, natural gas, and
telecommunications services. All gross receipts utilities tax
collections are credited to the State's Public Education Capital Outlay
and Debt Service Trust Fund. In fiscal year 1996-97, this amounted to
$575.7 million, an increase of 6.0% over the previous fiscal year.
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 a
lien on Florida real property. The annual rate of tax is 2 mils (a mil
is $1,000 of tax per $1,000,000 of property value). 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 1996-97,
total intangible personal property tax collections were $952.4 million,
a 6.3% increase from the prior year. Of the net tax proceeds, 66.5% are
distributed to the General Revenue Fund.
The State imposes an estate tax on the estate of a decedent for the
privilege of transferring property at death. All receipts of the estate
tax are credited to the General Revenue Fund. For the fiscal year ended
June 30, 1997, receipts from this source were $546.9 million, an
increase of 30% from
fiscal year 1995-96.
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 the costs of
administering the lottery. Fiscal year 1996-97 lottery ticket sales
totaled $2.09 billion, providing education with approximately $792.3
million.
Debt-Balanced Budget Requirement
At the end of fiscal 1997, approximately $7.89 billion in principal
amount of debt secured by the full faith and credit of the State was
outstanding. In addition, since July 1, 1997, the State issued about
$799.9 million 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 from 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 a portion of General Revenue Fund
monies. There is no assurance that any of such matters, individually or
in the aggregate, will not have a material adverse affect on the
State's financial position.
The State maintains a bond rating of Aa, AA, and AA from Moody's
Investors Service, Standard & Poors Corporation, and Fitch,
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 revenue 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 Florida Municipal
Obligations purchased by the Florida Portfolio will not be adversely
affected by any such changes.
The sources for the information presented above include official
statements and financial statements of the State of Florida. While the
Manager has not independently verified this information, the Manager
has no reason to believe that the information is not correct in all
material respects.
APPENDIX D
See special note prior to Appendix B.
Special Considerations Relating to Georgia Municipal Obligations.
Appropriations and Debt Limitations
Article III, Section IX, Paragraph IV(b) of the Constitution of
the State of Georgia (the "Constitution") provides:
The General Assembly shall not appropriate funds for any
given fiscal year which, in aggregate, exceed a sum equal to
the amount of unappropriated surplus expected to have
accrued in the state treasury at the beginning of the fiscal
year together with an amount not greater than the total
treasury receipts from existing revenue sources anticipated
to be collected in the fiscal year, less refunds, as
estimated in the budget report and amendments thereto.
Supplement appropriations, if any, shall be made in the
manner provided in Paragraph V of this section of the
Constitution; but in no event shall a supplementary
appropriations Act continue in force and effect beyond the
expiration of the general appropriations Act in effect when
such supplementary appropriations Act was adopted and
approved.
Article VII, Section W, Paragraph f(c), (d), (e) and (f) of the
Constitution provides that the State may incur public debt of two types
for public purposes: (1) general obligation debt and (2) guaranteed
revenue debt. General obligation debt may be incurred to acquire,
construct, develop, extend, enlarge or improve land, waters, property,
highways, buildings, structures, equipment or facilities of the State,
its agencies, departments, institutions and certain State Authorities,
to provide educational facilities for county and independent school
systems, to provide public library facilities for county and
independent school systems, counties, municipalities, and boards of
trustees of public libraries or boards of trustees of public library
systems, to make loans to counties, municipal corporations, political
subdivisions, local authorities and other local government entities for
water or sewerage facilities or systems, and to make loans to local
government entities for regional or multi-jurisdictional solid waste
recycling or solid waste facilities or systems. Guaranteed revenue
debt may be incurred by guaranteeing the payment of certain revenue
obligations issued by an instrumentality of the State as set forth in
said subparagraph (f) of Paragraph 1, Section IV, Article VII of the
Constitution. Article VII, Section IV, Paragraph II(b)-(e) of the
Constitution further provides that:
"(b) No debt may be incurred under subparagraphs (c), (d),
and (e) of Paragraph I of this section or Paragraph V of
this section at any time when the highest aggregate annual
debt service requirements for the then current year or any
subsequent year for outstanding general obligation debt and
guaranteed revenue debt, including the proposed debt, and
the highest aggregate annual payments for the then current
year or any subsequent fiscal year of the state under all
contracts then in force to which the provisions of the
second paragraph of Article IX, Section VI, Paragraph l(a)
of the Constitution of 1976 are applicable, exceed 10
percent of the total revenue receipts, less refunds, of the
state treasury in the fiscal year immediately preceding the
year in which any such debt is to be incurred.
(c) No debt may be incurred under subparagraphs (c) and
(d) of Paragraph I of this section at any time when the term
of the debt is in excess of 25 years.
(d) No guaranteed revenue debt may be incurred to finance
water or sewage treatment facilities or systems when the
highest aggregate annual debt service requirements for the
then current year or any subsequent fiscal year of the state
for outstanding or proposed guaranteed revenue debt for
water facilities or systems or sewage facilities or systems
exceed 1 percent of the total revenue receipts less refunds,
of the state treasury in the fiscal year immediately
preceding the year in which any debt is to be incurred.
(e) The aggregate amount of guaranteed revenue debt
incurred to make loans for educational purposes that may be
outstanding at any time shall not exceed $18 million, and
the aggregate amount of guaranteed revenue debt incurred to
purchase, or to lend or deposit against the security of,
loans for educational purposes that may be outstanding at
any time shall not exceed $72 million."
In addition, Article VII, Section IV, Paragraph IV of the
Constitution provides:
"The state, and all state institutions, departments and
agencies of the state are prohibited from entering into any
contract except contracts pertaining to guaranteed revenue
debt with any public agency, public corporation, authority,
or similar entity if such contract is intended to constitute
security for bonds or other obligations issued by any such
public agency, public corporation, or authority and, in the
event any contract between the state, or any state
institution, department or agency of the state and any
public agency, public corporation, authority or similar
entity, or any revenues from any such contract, is pledged
or assigned as security for the repayment of bonds or other
obligations, then and in either such event, the
appropriation or expenditure of any funds of the state for
the payment of obligations under any such contract shall
likewise be prohibited."
Article VII, Section IV, Paragraph l(b) of the Constitution
provides that the State may incur: "Public debt to supply a temporary
deficit in the state treasury in any fiscal year created by a delay in
collecting the taxes of that year. Such debt shall not exceed, in the
aggregate, 5 percent of the total revenue receipts, less refunds, of
the state treasury in the fiscal year immediately preceding the year in
which such debt is incurred. The debt incurred shall be repaid on or
before the last day of the fiscal year in which it is incurred out of
taxes levied for that fiscal year. No such debt may be incurred in any
fiscal year under the provisions of this subparagraph (b) if there is
then outstanding unpaid debt from any previous fiscal year which was
incurred to supply a temporary deficit in the state treasury." No such
debt has been incurred under this provision since its inception.
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.
Revenue
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.
Tax revenue growth for fiscal 1998 was 5.4% inclusive of a planned
reduction in the sales tax on food. The 4% tax on food was reduced to
2% in October 1996, 1% in October 1997, and was eliminated in October
1998. The full annual cost of the tax cut is estimated at about $500
million.
Personal income tax law changes enacted by the Legislature increased
exemptions and deductions that can be claimed on 1998 (and future) tax
returns. These changes will result in a loss of $205 million in income
tax revenue for the State in FY 1999, but will not necessitate the
draw-down of any of the State's fully funded reserve funds. The
Revenue Shortfall Reserve, funded at $351.5 million, has been steadily
rebuilt since the recession of the early 1990's when it was drawn down
to zero.
Fiscal 1999 revenues are budgeted to grow by 6.8%, based on budgeted
fiscal 1998 revenues. However, since actual fiscal 1998 revenues
exceeded estimates, the growth rate needed to achieve the fiscal 1999
target is more modest than when the budget was enacted. Based on
current estimates, revenue growth in the 4.5% range should be
sufficient to meet the budgeted levels for fiscal 1999, a very
conservative and achievable level given recent trends of revenue
growth.
The state's strong revenue performance reflects underlying economic
strength. Job growth, sixth in the nation 1992-97, has been mainly
centered in business and health services. Of the jobs created in the
State since 1990, approximately 80% are attributable to employment in
services and wholesale and retail trade. While the State's employment
growth in manufacturing was minimal, it nonetheless outperformed the
U.S. which experienced declines in this sector.
Total non-farm employment grew 5.6% over the two-year period for fiscal
1996 and 1997, with growth moderating in fiscal 1997 to 1.7% after the
Olympics build-up. Most of the state's employment growth is centered
in the metro-Atlanta area which accounted for about 70% of the job
growth. As of July 1998, the state's unemployment rate was 4.4%.
Strong population growth and in-migration continue to fuel employment
growth and are expected to continue to provide a source of low-cost,
skilled labor for state economic growth. In 1997, Georgia ranked third
in the U.S.in net in-migration. The state's economy is expected to
continue to be a strong performer based on the state's low cost of
doing business, availability of land and water, and its central
location.
No longer agriculturally dependent, Georgia's economy is based on
manufacturing (textiles, food products, paper products, electronic
equipment, and aircraft), trade, and a growing service sector.
Atlanta, with an increasingly service-oriented economy, is a trade,
service, and transportation center for the southeast region and the
focus of economic growth in the state. In most other Georgia cities,
manufacturing predominates.
The state is well within the constitutional debt limit which restricts
general obligation debt service from exceeding 10% of treasury
receipts. The state calculates that maximum annual debt service would
be about 5.08% of fiscal 1998 treasury receipts.
The state Debt Management Advisory Committee appointed by the governor
recently updated is recommendations for additional debt issuance
through fiscal 2001. The Committee's recommendations are based on
maintaining "affordable" debt rations of outstanding debt not to exceed
2.7% of personal income or maximum annual debt service to be less than
5.0% of prior year's general fund revenues. Based upon reasonable
projections of revenue and economic growth, the Committee estimates
that debt issuance of $700 million in fiscal 2000 and $500 million in
fiscal 2001, would be enable the state to remain within the targeted
ratio amounts. State debt issuance has been below these levels in
recent years and is expected remain within "affordable" amounts.
Net proceeds of the state lottery, approved by the voters in November
1992, have continued to surpass expectations. Net lottery proceeds
grew by 8.5% in 1996, to $558 million. In 1997, the State enjoyed
continued growth as net proceeds totaled $594 million. The State has
set aside reserves of 10% of lottery proceeds as a revenue reserve and
an additional amount as a scholarship shortfall reserve.
The State moved to GAAP reporting beginning in fiscal 1991, but its
transition to GAAP based accounting continues to be very slow. As was
the case in previous comprehensive annual financial reports (CAFR) was
issued with several qualifications. The State lags among Aaa credits
in establishing independent GAAP-based accounting and auditing systems.
Audited results for fiscal 1997 show a continuation of the State's
strong financial condition, recording a GAAP surplus of $776.0 million
in additional $333.9 million Revenue Shortfall Reserve, $111.3 million
Midyear Adjustment Reserve, and $226.1 million in the Lottery Reserve.
Legal Matters
The State from time to time is named as a party in certain lawsuits,
which may or may not have a material adverse impact on the financial
position of the State if decided in a manner adverse to the State's
interests. Certain of such lawsuits could have a significant impact on
the State's financial position.
Ratings
The 1998C and 1998D series of Georgia general obligations bonds are
rated Aaa, AAA, and AAA by Moody's, S&P, and Fitch IBCA, Inc.,
respectively. While these ratings and some of the information
presented above indicate that the State has been in satisfactory
economic health there can be no assurance that there will not be a
decline in economic conditions or that particular Georgia municipal
obligations will not be adversely affected by any such changes.
APPENDIX E
See Special Note prior to Appendix B.
Special Considerations Relating to New York Municipal Obligations.
Economic Trends
Over the long term, the State of New York (the "State") and the City of
New York (the "City") face serious economic problems. The City accounts
for approximately 41% of the State's population and personal income,
and the City's financial health affects the State in numerous ways. The
State historically has been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation
as a whole, gradually eroding its relative economic affluence.
Statewide, urban centers have experienced significant changes involving
migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast
cities have suffered because of the relative success that the South and
the West have had in attracting people and business. The City has also
had to face greater competition as other major cities have developed
financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in
the City.
The State has for many years had a very high State and local tax
burden relative to other states. The State and its localities have used
these taxes to develop and maintain their transportation networks,
public schools and colleges, public health systems, other social
services and recreational facilities. Despite these benefits, the
burden of State and local taxation, in combination with the many other
causes of regional economic dislocation, has contributed to the
decisions of some businesses and individuals to relocate outside, or
not locate within, the State.
Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced
budgets, reductions in Federal spending could materially and adversely
affect the financial condition and budget projections of the State and
its localities.
New York State and its Authorities
The State Financial Plan for the 1998-1999 fiscal year projects balance
on a cash basis for the 1998-1999 fiscal year, as modified on July 30,
1998, with a closing balance in the General Fund of $1.67 billion. The
State Financial Plan contains projections of a potential imbalance in
the 1999-2000 fiscal year of $1.3 billion, assuming implementation of
unspecified efficiency actions, the receipt of funds from the tobacco
settlement and the application of certain reserves established in the
1998-1999 State Financial Plan. The Executive Budget submitted in
February 1998 contained projections at that time of a potential
imbalance in the 2000- 2001 fiscal year of $3.72 billion, assuming
implementation of unspecified efficiency initiatives and other actions
in the 2000-2001 fiscal year.
The 1999-2002 Financial Plan is based on numerous assumptions,
including the condition of the City's and the region's economy and a
modest employment recovery and the concomitant receipt of economically
sensitive tax revenues in the amounts projected. The 1999-2002
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 wage costs
assumed for the 1999 through 2002 fiscal years; continuation of
projected 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 to provide the aid contemplated by the Financial
Plan and to take various other actions to assist the City; the ability
of State agencies to maintain balanced budgets; the willingness of the
Federal government to provide the amount of Federal aid contemplated in
the Financial Plan; the impact on City revenues and expenditures of
Federal and State welfare reform and any future legislation affecting
Medicare or other entitlement programs; 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 cost reduction initiatives, and
the success with which the City controls expenditures; the impact of
conditions in the real estate market on real estate tax revenues; the
City's ability to market its securities successfully in the public
credit markets; and unanticipated expenditures that may be incurred as
a result of the need to maintain the City's infrastructure. Certain of
these assumptions have been questioned by the City Comptroller and
other public officials.
The Legislature passed a State budget for the 1998-1999 fiscal year on
April 18, 1998, and on April 26, 1998 the Governor vetoed certain of
the increased spending in the State budget passed by the Legislature.
The Legislature did not override any of the Governor's vetoes. The
State Financial Plan for the 1998-1999 fiscal year, as modified on July
30, 1998, projects balance on a cash basis for the 1998-1999 fiscal
year, with a closing balance in the General Fund of $1.67 billion. The
State Financial Plan contains projections of a potential imbalance in
the 1999-2000 fiscal year of $1.3 billion, assuming implementation of
$600 million of unspecified efficiency actions, the receipt of $250
million in funds from the tobacco settlement and the application of
certain reserves established in the 1998-1999 State Financial Plan. The
Executive Budget submitted in February 1998 contained projections at
that time of a potential imbalance in the 2000-2001 fiscal year of
$3.72 billion, assuming implementation of $800 million of unspecified
efficiency initiatives in the 2000-2001 fiscal year and $250 million in
funds from the tobacco settlement. The State Financial Plan for the
1998-1999 fiscal year includes multi-year tax reductions and
significant increases in spending which will affect the 2000-2001
fiscal year. The various elements of the State and local tax and
assessment reductions enacted during the last several fiscal years will
reduce projected revenues by more than $4 billion in the 2002-2003
fiscal year as measured from the current 1998-1999 base.
On July 23, 1998, the New York State Comptroller issued a report which
noted, that a significant cause for concern is the budget gaps in the
1999-2000 and 2000-2001 fiscal years, which the State Comptroller
projected at $1.8 billion and $5.5 billion, respectively, after
excluding the uncertain receipt by the State of $250 million of funds
from the tobacco settlement assumed for each of such fiscal years, as
well as the unspecified actions assumed in the State's projections. The
State Comptroller also stated that if the securities industry or
economy slows, the size of the gaps would increase.
Standard & Poor's rates the State's general obligation bonds A2. On
August 28, 1997, Standard & Poor's revised its rating on the State's
general obligation bonds from A- to A.
New York City
The City, with a population of approximately 7.4 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
constructionindustries 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 printing.
For each of the 1981 through 1998 fiscal years, the City had an
operating surplus, before discretionary transfers, and achieved
balanced operating results as reported in accordance with then
applicable generally accepted accounting principles ("GAAP"), after
discretionary transfers. The City has been required to close
substantial gaps between forecast revenues and forecast expenditures in
order to maintain balanced operating results. There can be no assurance
that the City will continue to maintain balanced operating results as
required by State law without tax or other revenue increases or
reductions in City services or entitlement programs, which could
adversely affect the City's economic base.
As required by law, the City prepares a four-year annual financial
plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and
outlines proposed gap- closing programs for years with projected budget
gaps. The City's current financial plan projects a surplus in the 1999
fiscal year, before discretionary transfers, and budget gaps for each
of the 2000, 2001 and 2002 fiscal years. This pattern of current year
surplus operating results and projected subsequent year budget gaps has
been consistent through the entire period since 1982, during which the
City has achieved surplus operating results, before discretionary
transfers, for each fiscal year.
The City depends on aid from the State both to enable the City to
balance its budget and to meet its cash requirements. There can be no
assurance that there will not be reductions in State aid to the City
from amounts currently projected; that State budgets will be adopted by
the April 1 statutory deadline, or interim appropriations enacted; or
that any such reductions or delays will not have adverse effects on the
City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the
receipt of Federal grants which could have additional adverse effects
on the City's cash flow or revenues.
The Mayor is responsible for preparing the City's financial plan,
including the City's current financial plan for the 1999 through 2002
fiscal years (the "1999-2002 Financial Plan" or "Financial Plan"). The
City's projections set forth in the Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not
materialize. Such assumptions and contingencies include the condition
of the regional and local economies, the provision of State and Federal
aid and the impact on City revenues and expenditures of any future
Federal or State policies affecting the City.
Implementation of the Financial Plan is dependent upon the City's
ability to market its securities successfully. The City's financing
program for fiscal years 1999 through 2002 contemplates the issuance of
$5.2 billion of general obligation bonds and $5.4 billion of bonds to
be issued by the New York City Transitional Finance Authority (the
"Finance Authority") to finance City capital projects. The Finance
Authority was created as part of the City's effort to assist in keeping
the City's indebtedness within the forecast level of the constitutional
restrictions on the amount of debt the City is authorized to incur. In
addition, the City issues revenue and tax anticipation notes to finance
its seasonal working capital requirements. The success of projected
public sales of City bonds and notes, New York City Municipal Water
Finance Authority ("Water Authority") bonds and Finance Authority bonds
will be subject to prevailing market conditions. The City's planned
capital and operating expenditures are dependent upon the sale of its
general obligation bonds and notes, and the Water Authority and Finance
Authority bonds. Future developments concerning the City and public
discussion of such developments, as well as prevailing market
conditions, may affect the market for outstanding City general
obligation bonds and notes.
For the 1998 fiscal year, the City had an operating surplus, before
discretionary and other transfers, and achieved balanced operating
results, after discretionary and other transfers, in accordance with
GAAP. The 1998 fiscal year is the eighteenth year that the City has
achieved an operating surplus, before discretionary and other
transfers, and balanced operating results, after discretionary and
other transfers.
On November 18, 1998, the City released the Financial Plan for the
1999 through 2002 fiscal years, which relates to the City and certain
entities which receive funds from the City. The Financial Plan is a
modification to the financial plan submitted to the Control Board on
June 26, 1998 (the "June Financial Plan"). The Financial Plan projects
revenues and expenditures for the 1999 fiscal year balanced in
accordance with GAAP, and projects gaps of $2.2 billion, $2.9 billion
and $2.4 billion for the 2000 through 2002 fiscal years, respectively,
after implementation of a gap closing program to reduce agency
expenditures by $200 million in the 1999 fiscal year and approximately
$80 million in each of fiscal years 2000 through 2002.
Changes since the June Financial Plan include: (i) an increase in
projected tax revenues of $288 million and $8 million in fiscal years
1999 and 2000, respectively, and a decrease in projected tax revenues
of $23 million and $66 million in fiscal years 2001 and 2002,
respectively; (ii) an increase in planned expenditures for health
insurance of approximately $60 million in each of fiscal years 1999
through 2002; (iii) a decrease in projected pension expenditures due to
higher than planned increases in the value of the assets of the
retirement systems of $67 million, $171 million, $264 million and $372
million in the fiscal years 1999 through 2002, respectively; (iv) other
agency spending increases of $76 million, $101 million, $78 million,
and $70 million in fiscal years 1999 through 2002, respectively; and
(v) an increase in agency expenditures of $227 million, $295 million,
$295 million and $294 million in fiscal years 1999 through 2002,
respectively, due to a reduction in the agency gap closing program.
The 1999-2002 Financial Plan includes a proposed discretionary transfer
in the 1999 fiscal year of $465 million to pay debt service due in
fiscal year 2000. In addition, the Financial Plan reflects enacted and
proposed tax reduction programs totaling $429 million, $604 million and
$606 million in fiscal years 2000 through 2002, respectively, including
the elimination of the City sales tax on all clothing as of December 1,
1999, the extension of current tax reductions for owners of cooperative
and condominium apartments starting in fiscal year 2000 and a personal
income tax credit for child care and for resident holders of Subchapter
S corporations starting in fiscal year 2000, which are subject to State
legislative approval, and reduction of the commercial rent tax
commencing in fiscal year 2000.
The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge,
which is scheduled to expire on December 31, 1999, and which is
projected to provide revenue of $183 million, $524 million and $544
million in the 2000, 2001 and 2002 fiscal years, respectively; and (ii)
collection of the projected rent payments for the City's airports,
totaling $6 million, $365 million, $155 million and $185 million in the
1999 through 2002 fiscal years, respectively, a substantial portion of
which may depend on the successful completion of negotiations with The
Port Authority of New York and New Jersey (the "Port Authority") or the
enforcement of the City's rights under the existing leases through
pending legal actions. The Financial Plan provides no additional wage
increases for City employees after their contracts expire in fiscal
years 2000 and 2001. In addition, the economic and financial condition
of the City may be affected by various financial, social, economic and
political factors which could have a material effect on the City.
In January, the Mayor is expected to publish a Modification (the
"January Modification") to the Financial Plan for the City's 1999
through 2003 fiscal years and a preliminary budget for the City's
fiscal year 2000. The January Modification will include changes since
the Financial Plan and the City's program to address the currently
forecast $2.2 billion gap in fiscal year 2000. As in prior years, the
City's gap-closing program could include a program to substantially
reduce projected agency spending and City proposals for increased
Federal and State aid and other non-tax revenues.
The 1998 modification of the City's financial plan and the 1999-2002
Financial Plan include a proposed discretionary transfer in the 1998
fiscal year of approximately $2.0 billion to pay debt service due in
the 1999 fiscal year, and a proposed discretionary transfer in the 1999
fiscal year of $416 million to pay debt service due in fiscal year
2000, included in the Budget Stabilization Accounts for the 1998 and
1999 fiscal years, respectively, In addition, the Financial Plan
reflects proposed tax reduction programs totaling $237 million, $537
million, $657 million and $666 million in fiscal years 1999 through
2002, respectively, including the elimination of the City sales tax on
all clothing as of December 1, 1999, a City-funded acceleration of the
State funded personal income tax reduction for the 1999 through 2001
fiscal years, the extension of current tax reductions for owners of
cooperative and condominium apartments starting in fiscal year 2000 and
a personal income tax credit for child care and for resident holders of
Subchapter S corporations, which are subject to State legislative
approval, and reduction of the commercial rent tax commencing in fiscal
year 2000.
On June 5, 1998, the City Council adopted a budget which re-allocated
expenditures from those provided in the Executive Budget in the amount
of $409 million. The re-allocated expenditures, which include $116
million from the Budget Stabilization Account, $82 million from debt
service, $45 million from pension contributions, $54 million from
social services spending and $112 million from other spending, were re-
allocated to uses set forth in the City Council's adopted budget. Such
uses include a revised tax reduction program at a revenue cost in the
1999 fiscal year of $45 million, additional expenditures for various
programs of $199 million and provision of $165 million to retire high
interest debt. The revised tax reduction program in the City Council's
adopted budget assumes the expiration of the 12.5% personal income tax
surcharge, rather than the implementation of the personal income tax
reduction program proposed in the Executive budget. The changes
reflected in the City Council's adopted budget would increase the gaps
forecast between revenues and expenditures in the future years of the
Financial Plan.
On June 5, 1998, in accordance with the City Charter, the Mayor
certified to the City Council revised estimates of the City's revenues
(other than property tax) for fiscal year 1999. Consistent with this
certification, the property tax levy was estimated by the Mayor to
require an increase to realize sufficient revenue from this source to
produce a balanced budget within generally accepted accounting
principles. On June 8, 1998, the City Council adopted a property tax
levy that was $237.7 million lower than the levy estimated to be
required by the Mayor. The City Council, however, maintained that the
revenue to be derived from the levy it adopted would be sufficient to
achieve a balanced budget because the property tax reserve for
uncollectibles could be reduced. Property tax bills for fiscal year
1999 are expected to be mailed in the near future by the City's
Department of Finance at the rates adopted by the City Council for
fiscal year 1998, subject to later adjustment.
On July 16, 1998, Standard & Poor's revised its rating of City bonds
upward from BBB+ to A-. Moody's rating of City bonds was revised in
February 1998 to A3 from Baa1. Moody's, Standard & Poor's and Fitch
currently rate the City's outstanding general obligations bonds A3, A-
and A-, respectively.
Litigation
A number of court actions have been brought involving State finances.
The court actions in which the State is a defendant generally involve
State programs and miscellaneous tort, real property, and contract
claims. While the ultimate outcome and fiscal impact, if any, on the
State of those proceedings and claims are not currently predictable,
adverse determinations in certain of them might have a material adverse
effect upon the State's ability to carry out the 1998-1999 Financial
Plan.
The City has estimated that its potential future liability on account
of outstanding claims against it as of June 30, 1998 amounted to
approximately $3.5 billion.
APPENDIX F
See special note prior to Appendix B.
Special Considerations Relating to Pennsylvania Municipal Obligations.
General
Pennsylvania had been historically identified as a heavy industry state.
That reputation has changed over the last thirty years as the coal, steel and
railroad industries declined and the Commonwealth's business environment
readjusted to reflect a more diversified industrial base. This economic
readjustment was a direct result of a long-term shift in jobs, investment and
workers away from the Northeast part of the nation. Currently, the major
sources of growth in Pennsylvania are in the service sector, including trade,
medical and health services, education and financial institutions.
Pennsylvania's agricultural industries remain an important component of the
Commonwealth's economic structure, accounting for more than $2.6 billion in
crop and lives stock products annually. Agribusiness and food-related
industries support $9 billion in economic activity annually, Over 51,000
farms form the backbone of the State's agricultural economy. Farmland in
Pennsylvania includes over four million acres of harvested cropland and four
million acres of pasture and farm woodlands--nearly one-third of the
Commonwealth's total land area. Agricultural diversity in the Commonwealth
is demonstrated by the fact that Pennsylvania ranks among the top ten states
in the production of a number of agricultural products.
Pennsylvania's natural resources include major deposits of coal, petroleum,
natural gas and cement. Extensive public and private forests provide a vast
source of material for the lumber/wood products industry and the related
furniture industry. Additionally, the Commonwealth derives a good water
supply from underground sources, abundant rainfall, and a large number of
rivers, streams and man-made and natural lakes.
Human resources are plentiful in Pennsylvania. The work force is estimated
at 5.9 million people, ranking as the sixth largest labor pool in the nation.
The high level of education embodied in the Commonwealth's work force fosters
a wide variety of employment capabilities. Pennsylvania's basic and higher
education statistics compare favorably with other states in the nation.
The Commonwealth is highly urbanized. Of the Commonwealth's 1990 census
population, 79 percent residing the 15 Metropolitan Statistical Areas
("MSAs") of the Commonwealth. The largest MSAs in the Commonwealth are those
which include the cities of Philadelphia and Pittsburgh, which together
contain almost 44 percent of the State's total population. The population of
Pennsylvania, 12.06 million people in 1996, according to the U.S. Bureau of
the Census, represents a slight increase from the 1987 population of 11.81
million. A high proportion (15.9 percent) of Pennsylvania's population is
comprised of persons 65 and over.
Manufacturing employment constitutes a diminished share of total employment
within the Commonwealth. Manufacturing, contributing 17.9 percent of 1995
non-agricultural employment and 17.5 percent as of December 1996, has fallen
behind both the services sector and the trade sector as the largest single
source of employment within the Commonwealth. In 1991, the services sector
accounted for 28.6 percent of all non-agricultural employment while the trade
sector accounted for 22.8 percent.
In 1994 and 1995, Pennsylvania's annual average unemployment rate was below
the Middle Atlantic region's average, but slightly higher than that of the
nation. As of January, 1997 the seasonally adjusted unemployment rate for
the Commonwealth was 4.7 percent, compared to 5.4 percent for the United
States.
The Commonwealth of Pennsylvania and certain of its municipal subdivisions,
including the City of Philadelphia, have undergone the financial difficulties
and pressures that accompany a decline in economic conditions. As the heavy
industries historically associated with Pennsylvania - e.g., coal, steel and
railroad - have declined with increasing competition for foreign producers,
the services sector, including trade, medical and health services, education
and financial institutions, has provided major new sources of growth.
Agriculture and related industries continue to be an important part of
Pennsylvania/s economy.
Budgetary Process
All funds received by the Commonwealth are subject by statute to
appropriation in specific amounts by the General Assembly or by executive
authorizations by the Governor. The Governor's budget encompasses both
annual appropriations and executive authorizations.
The Constitution mandates that total operating budget appropriations made by
the General Assembly may not exceed the sum of (a) the actual and estimated
revenues in a given year, and (b) the surplus of the preceding year. The
Constitution further specifies that a surplus of operating funds at the end
of the fiscal year shall be appropriated. That is, if funds remain from the
end of a fiscal year they must be appropriated for the ensuing year. Also,
if a deficit occurs at year-end, funds must be provided for such a deficit.
Pursuant to the Administrative Code, the revenue estimates used in the budget
are determined by the executive branch. In practice, the revenue estimates
used to balance the operating budget consist of the appropriate fund's
available surplus and its estimated cash receipts for the fiscal year as well
as net accruals. Lapses estimated to occur during the year or at year-end
are not included; lapses are not available for appropriation until they
occur.
Under Pennsylvania's budgetary process, a deficit can occur if revenues are
less than those estimated in the budget and the shortfall is not offset by
any unappropriated surplus or by lapses during or at the end of the year or
by legislative action to increase revenues or reduce appropriation.
Both the Commonwealth of Pennsylvania and the City of Philadelphia have
historically experienced significant revenue shortfalls. On the other hand,
rising demands on state programs, particularly for medical assistance and
cash assistance programs, and the increased cost of special education
programs and correction facilities and programs, have contributed to
increased expenditures. In response, the Commonwealth and the City of
Philadelphia have, in recent years, sought to balanced budgets with a
combination of tax increases and expenditure restraints.
To deal with its budget deficits, Philadelphia has considered significant
service cuts and a plan to privatize certain city-provided services. In
addition, in 1991 the Commonwealth created the Pennsylvania Inter-
Governmental cooperation Authority ("PICA"), with authority to issue notes
and bonds on behalf of Philadelphia to cover budget shortfalls , to eliminate
projected deficits and to fund capital spending. PICA has issued
approximately $1.76 billion of Special Revenue Bonds on behalf of the city.
However, its power to issue bonds for most purposes expired on December 31,
1994 and its power to issue bonds to finance cash flow deficits expired on
December 31, 1996. PICA's authority to refund existing debt will not expire.
PICA had approximately $1.1 billion in special revenue bonds outstanding as
of June 30, 1997.
Bond Ratings
The average rating among American states for full faith and credit state debt
is "Aa" and "AA" by Moody's Investors Service, Inc. and Standard & Poor's
Corporation, respectively. Against this measure and the criteria listed
above, the credit risk associated with direct obligations of Pennsylvania and
state agencies, including general obligation and revenue bonds, lease debt,
and notes, compares slightly unfavorably. During most of the last two
decades, Pennsylvania's general obligation bonds have been rated just below
this average by both rating agencies. Nonetheless, during this period
Pennsylvania's obligations could still be characterized as providing upper
medium grade security, with a strong capacity for timely repayment of debt.
Recently, the State's ratings were upgraded by both Moody's Investors Service
and by Standard & Poor's. The State now has ratings of "Aa3"/"AA".
Factors contributing positively to credit quality in Pennsylvania include a
favorable debt structure, a diversifying economic base, and conservatively
managed financial operations on the part of state government. Tax-supported
debt is only slightly above average state levels on a per capita basis and as
a percent of state personal income. Over the past two decades, this debt
burden has improved considerably in Pennsylvania, and debt continues to be
rapidly retired, while state borrowing plans are modest.
Revenues and Expenses
The period from fiscal year 1993 through fiscal 1997 was a time of steady,
modest economic growth and low rates of inflation. These economic conditions,
together with tax reductions in the several years following the tax rate
increases and tax base expansions enacted in fiscal 1991 for the General
Fund, produced tax revenue gains averaging 4.1% per year during the period.
Total revenues during the same period increased at a 4.7% average rate.
Intergovernmental revenue recorded the largest percentage gain during this
period, averaging 8.1% (due, in part, to an accounting change). Expenditures
and otheruses during the fiscal 1993 through fiscal 1997 period rose at a
3.8% rate, led by and average 13.8% annual increase for protection of persons
and property program costs. This high rate of increase reflects the costs to
acquire, staff, and operate expanded prison facilities to house a larger
prison population. Public health and welfare program costs expanded an
average 5.4% annually during this period, the second largest rate of increase
for program categories.
Operations during the 1998 fiscal year increased the unappropriated balance
of Commonwealth revenues during that period by $86.4 million to $488.7
million at June 30, 1998 (prior to reserves for transfer to the Tax
Stabilization Reserve Fund). Higher than estimated revenues, offset in part
by increased reserves for tax refunds, and slightly lower expenditures than
budgeted were responsible for the increase. Transfers to the Tax
Stabilization Reserve Fund for fiscal 1998 operations will total $223.3
million consisting of $73.3 million representing the required transfer of
fifteen percent of the ending unappropriated surplus balance, plus an
additional $150 million authorized by the General Assembly when it enacted
the fiscal 1999 budget. With these transfers, the balance in the Tax
Stabilization Reserve Fund will exceed $664 million and represent 3.7% of
fiscal 1998 revenues.
Commonwealth revenues (prior to tax refunds) during the fiscal year totaled
$18,123.2 million, $676.1 million (3.9%) above the estimate made at the time
the budget was enacted. Tax revenue received in fiscal 1998 grew 4.8% over
tax revenues received during fiscal 1997. This rate of increase includes the
effect of legislated tax reductions that affected receipts during both fiscal
years and therefore understates the actual underlying rate of growth of tax
revenue during fiscal 1998. Receipts from the personal income tax produced
the largest single component of higher revenues during fiscal 1998.
Expenditures from all fiscal 1998 appropriations of Commonwealth revenues
totaled $17,229.8 million (excluding pooled financing expenditures and net of
current year lapses). This amount represents an increase of 4.5% over fiscal
1997 appropriation expenditures. Lapses of appropriation authority during the
fiscal year totaled $161.8 million including $58.8 million from fiscal 1998
appropriations. These appropriation lapses were used to fund $120.5 million
of supplemental fiscal 1998 appropriations.
Finances are now stable and healthy, and the State has a comfortable
accumulated surplus. Due to this improvement, cash flow borrowing has been
substantially reduced. Tax revenue is coming in above forecasted levels.
The budget for fiscal 1999 was enacted in April 1998 at which time the
official revenue estimate for the 1999 fiscal year was established at
$18,456.6 million. The estimate was reduced by 1.1 million in November 1998
due to passage of tax legislation. Only Commonwealth funds are included in
the official revenue estimate. The official revenue estimate is based on an
economic forecast for national gross domestic product, on a year-over-year
basis, to slow from an estimated annualized 3.9% rate in the fourth quarter
of 1997 to a projected 1.8% annualized growth rate by the second quarter of
1999. The forecast of slowing economic activity is based on the expectation
that consumers will reduce their pace of spending, particularly on motor
vehicles, housing, and other durable goods. Business is also expected to trim
its spending on fixed investments. Foreign demand for domestic goods is
expected to decline in reaction to economic difficulties in Asia and Latin
America, while an economic recovery in Europe is expected to proceed slowly.
The underlying growth rate, excluding any effect of scheduled or proposed tax
changes, for the General Fund fiscal 1999 official revenue estimate is 3.0%
over actual fiscal 1998 revenues. When adjusted to include the estimated
effect of enacted tax changes, fiscal 1999 Commonwealth revenues are
projected to increase by 1.66% over actual Commonwealth revenues for fiscal
1998.
On February 2, 1999, Pennsylvania Governor Ridge presented a proposed $18.6
billion General Fund budget which includes, among other things, proposed tax
reductions (relating principally to business taxes) totalling an estimated
$273 million.
Pennsylvania has historically been identified as a heavy industry state
although that reputation has changed over the last thirty years as the coal,
steel, and railroad industries declined and the Commonwealth's business
environment readjusted to reflect a more diversified industrial base. This
economic readjustment was a direct result of a long-term shift in jobs,
investment, and workers away from the northeast part of the nation.
Currently, the major sources of growth in Pennsylvania are in the service
sector, including trade, medical and the health services, education, and
financial institutions.
Nonagricultural employment in Pennsylvania over the ten year period that
ended in 1997 increased at an annual rate of 0.76%. This compares to a 0.17%
rate for the Middle Atlantic region and a 1.69% rate for the United States as
a whole during the period 1988 through 1997. For the five years ended with
1997, employment in the Commonwealth has increased 5.4%. The growth in
employment during this period is higher than the 4.8% growth in the Middle
Atlantic region. The unemployment rate in Pennsylvania for October 1998 stood
at a seasonably adjusted rate of 4.7%. The seasonably adjusted national
unemployment rate for October 1998 was 4.6%.
There is various litigation pending against the Commonwealth, its officers,
and employees. In 1978, the Pennsylvania General Assembly approved a limited
waiver of sovereign immunity. Damages for any loss are limited to $250,000
for each person and $1 million for each accident. The Supreme Court held that
this limitation is constitutional. Approximately 3,500 suits against the
Commonwealth are pending.
The risk factors in Pennsylvania's credit quality may be summarized as slow
growth, an aging population, average income, and a continuing challenge to
maintain balanced budgets. In addition, a number of local governments in the
Commonwealth, most notably Philadelphia, face continuing fiscal stress, and
were unable to address serious economic, social and healthcare problems
within revenue constraints. Philadelphia's credit prospects have recently
significantly improved but remain a challenge to the credit quality of
Pennsylvania, longer term.
14
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Part C. Other Information
Item 23. Exhibits
a.1 Restated Declaration of Trust dated as of April 23, 1986 is
incorporated herein by reference to Exhibit 1 to Pre-Effective
Amendment No. 1 to the Registration Statement No. 2-99861.
a.2 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.
a.3 Instrument of the Trustees, dated June 12, 1998,
establishing and designating classes of certain
series of the Trust is incorporated by reference to Exhibit 1(a)
to Post-Effective Amendment No. 40.
b. Bylaws of the Trust are incorporated by reference to Exhibit 2 to
Pre-Effective Amendment No. 2.
c. Not applicable.
d.1 Management Agreement between the National Portfolio & Mutual
Management Corp. is incorporated by reference to Exhibit 5(b) to
Post-Effective Amendment No. 18.
d.2 Management Agreement between the Limited Term Portfolio and
Mutual Management Corp. is incorporated by reference to Exhibit
5(c) to Post-Effective Amendment No. 18.
d.3 Management Agreement between the New York Portfolio and
Mutual Management Corp. is incorporated by reference to Exhibit
5(e) to Post-Effective Amendment No. 18.
d.4 Management Agreement between the Florida Portfolio and
Mutual Management Corp. is incorporated by reference to Exhibit
(5)(h) to Post-Effective Amendment No. 16.
d.5 Management Agreement between the Georgia Portfolio and
Mutual Management Corp. is incorporated by reference to Exhibit
5(m) to Post-Effective Amendment No. 27.
d.6 Management Agreement between the Pennsylvania Portfolio and
Mutual Management Corp. is incorporated by reference to Exhibit
5(q) to Post-Effective Amendment No. 27.
d.7 Form of Management Agreement between California Money Market
Portfolio (and New York Money Market Portfolio) and Mutual
Management Corp. is incorporated by reference to Exhibit 5(s) to
Post-Effective Amendment No. 34.
e.1 Distribution Agreement between Registrant and Smith Barney,
Harris Upham & Co. Incorporated is incorporated by reference to
Exhibit 6 to Post-Effective Amendment No. 7.
e.2 Distribution Agreement between Registrant and CFBDS, Inc. is
filed herewith.
e.3 Broker Dealer Contract between the Mutual Management Corp.
and CFBDS, Inc. is filed herewith.
f. Not applicable.
g. Custodian Agreement between Registrant and Provident National Bank
is incorporated by reference to Exhibit 8 to Pre-Effective
Amendment No. 1.
h. Transfer Agency Agreement between Registrant and Provident
Financial Processing Corp. is incorporated by reference to Exhibit
9 to Post-Effective Amendment No. 12.
i. Opinion of Gaston & Snow is incorporated by reference to Exhibit
10 to Pre-Effective Amendment No. 1.
j. Auditors' Consent (to be filed by further amendment).
k. Schedule of Computation of Performance Quotations is incorporated
by reference to Exhibit 16 to Post-Effective Amendment No. 5.
l. Subscription Agreement between Registrant and Mutual Management
Corp. is incorporated by reference to Exhibit 13 to Pre-Effective
Amendment No. 1.
m.1 Plan of Distribution pursuant to Rule 12b-1 on behalf of the
California Money Market Portfolio is incorporated by reference to
Exhibit 15 to Post-Effective Amendment No. 21.
m.2 Plan of Distribution pursuant to Rule 12b-1 on behalf of the
Georgia Portfolio is incorporated by reference to Exhibit 15(f) to
Post-Effective Amendment No. 27.
m.3 Plan of Distribution pursuant to Rule 12b-1 on behalf of the
Pennsylvania Portfolio is incorporated by reference to Exhibit
15(j) to Post-Effective Amendment No. 27.
m.4 Form of Plan of Distribution pursuant to Rule 12b-1 on
behalf of Class A shares of each Portfolio, except the California
Money Market and the New York Money Market Portfolios is
incorporated by reference to Exhibit 15(n) to Post-Effective
Amendment No. 34.
m.5 Form of Amended and Restated Shareholder Services and
Distribution Plan pursuant to Rule 12b-1 is filed herewith.
n. Financial Data Schedule (to be filed by further amendement)
o.1 Amended and Restated Plan pursuant to Rule 18f-3 is
incorporated by reference to Exhibit 18 to Post-Effective
Amendment No. 40.
Item 24. Persons Controlled by or under Common Control with
Registrant
The Registrant is not controlled directly or indirectly by any
person. Information with respect to the Registrant's investment
manager is set forth under the caption "Management" in the
prospectus included in Part A of this Post-Effective Amendment on
Form N-1A.
Item 25. Indemnification
Reference is made to ARTICLE V of Registrant's Declaration of
Trust for a complete statement of its terms. Section 5.2 of
ARTICLE V provides: "No Trustee, officer, employee or agent of
the Trust shall be liable to the Trust, its Shareholders, or to
any Shareholder, Trustee, officer, employee or agent thereof for
any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to
redress any breach of trust) except for his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or its
duties."
Item 26. Business and other Connections of Investment Adviser
See the material under the caption "Management" included in Part A
(Prospectus) of this Registration Statement and the material
appearing under the caption "Investment Objective and Management
Policies" included in Part B (Statement of Additional Information)
of this Registration Statement.
Information as to the Directors and Officers of SSBC Fund
Management Inc., (formerly known as Mutual Management Corp.) is
included in its Form ADV (File No. 801-8314), filed with the
Commission, which is incorporated herein by reference thereto.
Item 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is also
the distributor for the following Smith Barney funds: Concert
Investment Series, Consulting Group Capital Markets Funds,
Greenwich Street Series Fund, Smith Barney Adjustable Rate
Government Income Fund, Smith Barney Aggressive Growth Fund Inc.,
Smith Barney Appreciation Fund Inc., Smith Barney Arizona
Municipals Fund Inc., Smith Barney California Municipals Fund
Inc., Smith Barney Concert Allocation Series Inc., Smith Barney
Equity Funds, Smith Barney Fundamental Value Fund Inc., Smith
Barney Funds, Inc., Smith Barney Income Funds, Smith Barney
Institutional Cash Management Fund, Inc., Smith Barney Investment
Funds Inc., Smith Barney Investment Trust, Smith Barney Managed
Governments Fund Inc., Smith Barney Managed Municipals Fund Inc.,
Smith Barney Massachusetts Municipals Fund, Smith Barney Money
Funds, Inc., Smith Barney Muni Funds, Smith Barney Municipal Money
Market Fund, Inc., Smith Barney New Jersey Municipals Fund Inc.,
Smith Barney Oregon Municipals Fund Inc., Smith Barney Principal
Return Fund, Smith Barney Small Cap Blend Fund, Inc., Smith Barney
Telecommunications Trust, Smith Barney Variable Account Funds,
Smith Barney World Funds, Inc., Travelers Series Fund Inc., and
various series of unit investment trusts.
CFBDS also serves as the distributor for the following funds: The
Travelers Fund UL for Variable Annuities, The Travelers Fund VA
for Variable Annuities, The Travelers Fund BD for Variable
Annuities, The Travelers Fund BD II for Variable Annuities, The
Travelers Fund BD III for Variable Annuities, The Travelers Fund
BD IV for Variable Annuities, The Travelers Fund ABD for Variable
Annuities, The Travelers Fund ABD II for Variable Annuities, The
Travelers Separate Account PF for Variable Annuities, The
Travelers Separate Account PF II for Variable Annuities, The
Travelers Separate Account QP for Variable Annuities, The
Travelers Separate Account TM for Variable Annuities, The
Travelers Separate Account TM II for Variable Annuities, The
Travelers Separate Account Five for Variable Annuities, The
Travelers Separate Account Six for Variable Annuities, The
Travelers Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable Annuities, The
Travelers Fund UL for Variable Annuities, The Travelers Fund UL II
for Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life Insurance
Separate Account Two, The Travelers Variable Life Insurance
Separate Account Three, The Travelers Variable Life Insurance
Separate Account Four, The Travelers Separate Account MGA, The
Travelers Separate Account MGA II, The Travelers Growth and Income
Stock Account for Variable Annuities, The Travelers Quality Bond
Account for Variable Annuities, The Travelers Money Market Account
for Variable Annuities, The Travelers Timed Growth and Income
Stock Account for Variable Annuities, The Travelers Timed Short-
Term Bond Account for Variable Annuities, The Travelers Timed
Aggressive Stock Account for Variable Annuities, The Travelers
Timed Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust, CitiFunds
Premium Trust, CitiFunds Institutional Trust, CitiFunds Tax Free
Reserves, CitiFunds Trust I, CitiFunds Trust II, CitiFunds Trust
III, CitiFunds International Trust, CitiFunds Fixed Income Trust,
CitiSelect VIP Folio 200, CitiSelect VIP Folio 300, CitiSelect VIP
Folio 400, CitiSelect VIP Folio 500, CitiFunds Small Cap Growth
VIP Portfolio. CFBDS is also the placement agent for Large Cap
Value Portfolio, Small Cap Value Portfolio, International
Portfolio, Foreign Bond Portfolio, Intermediate Income Portfolio,
Short-Term Portfolio, Growth & Income Portfolio, U.S. Fixed Income
Portfolio, Large Cap Growth Portfolio, Small Cap Growth Portfolio,
International Equity Portfolio, Balanced Portfolio, Government
Income Portfolio, Tax Free Reserves Portfolio, Cash Reserves
Portfolio and U.S. Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following
Salomon Brothers funds: Salomon Brothers Opportunity Fund Inc.,
Salomon Brothers Investors Fund Inc., Salomon Brothers Capital
Fund Inc., Salomon Brothers Series Funds Inc., Salomon Brothers
Institutional Series Funds Inc., Salomon Brothers Variable Series
Funds Inc.
In addition, CFBDS is also the distributor for the Centurion
Funds, Inc.
(b) The information required by this Item 27 with respect to
each director and officer of CFBDS is incorporated by reference to
Schedule A of Form BD filed by CFBDS pursuant to the Securities
and Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accounts and Records
PNC Bank, National Association, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, and First Data Investor Services
Group Inc., One Exchange Place, Boston, Massachusetts 02109, will
maintain the custodian and the shareholders servicing agent records,
respectively required by Section 31(a).
All other records required by Section 31(a) are maintained at the
offices of the Registrant at 388 Greenwich Street, New York, New York
10013 (and preserved for the periods specified by Rule 31a-2).
Item 29. Management Services
Not applicable.
Item 30. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest report
to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned and where applicable, the true and lawful
attorney-in-fact, thereto duly authorized, in the City of New York, and
State of New York on the 28th day of May, 1999.
SMITH BARNEY MUNI FUNDS
By: /s/ Heath B. McLendon
Heath B. McLendon, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the date indicated.
Signature Title Date
/s/ Heath B. McLendon President, Chief Executive Officer and Trustee
5/28/99
(Heath B. McLendon)
* Trustee
5/28/99
(Lee Abraham)
* Trustee
5/28/99
(Allan J. Bloostein)
* Trustee
5/28/99
(Jane F. Dasher)
* Trustee
5/28/99
(Donald R. Foley)
* Trustee
5/28/99
(Paul Hardin III)
* Trustee
5/28/99
(Richard E. Hanson)
* Trustee
5/28/99
(Roderick C. Rasmussen)
* Trustee
5/28/99
(John P. Toolan)
/s/ Lewis E. Daidone Senior Vice
President and Treasurer 5/28/99
(Lewis E. Daidone)
*By: /s/ Christina T. Sydor Secretary
5/28/99
Christina T. Sydor
Pursuant to Power of Attorney
EXHIBIT INDEX
Exhibit No. Exhibit
e.2 Distribution Agreement
e.3 Broker Dealer Contract
m.5 Form of Amended and Restated Shareholders Services and
Distribution Plan
SMITH BARNEY MUNI FUNDS
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the "Fund")
has agreed that you shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of shares of the Fund
and each Series of the Fund set forth on Exhibit A hereto, as such
Exhibit may be revised from time to time (each, including any shares of
the Fund not designated by series, a "Series"). For purposes of this
Agreement, the term "Shares" shall mean shares of the each Series, or
one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement,
prospectus and statement of additional information then in effect under
the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"), and will
transmit or cause to be transmitted promptly any orders received by you
or those with whom you have sales or servicing agreements for purchase
or redemption of Shares to the Transfer and Dividend Disbursing Agent
for the Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders
for the sale of Shares. It is contemplated that you will enter into
sales or servicing agreements with registered securities dealers and
banks and into servicing agreements with financial institutions and
other industry professionals, such as investment advisers, accountants
and estate planning firms. In entering into such agreements, you will
act only on your own behalf as principal underwriter and distributor.
You will not be responsible for making any distribution plan or service
fee payments pursuant to any plans the Fund may adopt or agreements it
may enter into.
1.3 You shall act as principal underwriter and distributor
of Shares in compliance with all applicable laws, rules, and
regulations, including, without limitation, all rules and regulations
made or adopted from time to time by the Securities and Exchange
Commission (the "SEC") pursuant to the 1933 Act or the 1940 Act or by
any securities association registered under the Securities Exchange Act
of 1934, as amended.
1.4 Whenever in their judgment such action is warranted for
any reason, including, without limitation, market, economic or political
conditions, the Fund's officers may decline to accept any orders for, or
make any sales of, any Shares until such time as those officers deem it
advisable to accept such orders and to make such sales and the Fund
shall advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data
to be furnished by the Fund hereunder, and all expenses in connection
with the preparation and printing of the Fund's prospectuses and
statements of additional information for regulatory purposes and for
distribution to shareholders; provided however, that nothing contained
herein shall be deemed to require the Fund to pay any of the costs of
advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and to
furnish any and all information and otherwise to take any other actions
that may be reasonably necessary in the discretion of the Fund's
officers in connection with the qualification of Shares for sale in such
states and other U.S. jurisdictions as the Fund may approve and
designate to you from time to time, and the Fund agrees to pay all
expenses that may be incurred in connection with such qualification.
You shall pay all expenses connected with your own qualification as a
securities broker or dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses
incurred by you in connection with the sale of Shares as contemplated in
this Agreement.
2.3 The Fund shall furnish you from time to time, for use
in connection with the sale of Shares, such information reports with
respect to the Fund or any relevant Series and the Shares as you may
reasonably request, all of which shall be signed by one or more of the
Fund's duly authorized officers; and the Fund warrants that the
statements contained in any such reports, when so signed by the Fund's
officers, shall be true and correct. The Fund also shall furnish you
upon request with (a) the reports of annual audits of the financial
statements of the Fund for each Series made by independent certified
public accountants retained by the Fund for such purpose; (b) semi-
annual unaudited financial statements pertaining to each Series; (c)
quarterly earnings statements prepared by the Fund; (d) a monthly
itemized list of the securities in each Series' portfolio; (e) monthly
balance sheets as soon as practicable after the end of each month; (f)
the current net asset value and offering price per share for each
Series on each day such net asset value is computed and (g) from time to
time such additional information regarding the financial condition of
each Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund
with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares have been prepared in conformity with the requirements of said
Acts and the rules and regulations of the SEC thereunder. As used in
this Agreement, the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration
statement, prospectus and statement of additional information filed by
the Fund with the SEC and any amendments and supplements thereto filed
by the Fund with the SEC. The Fund represents and warrants to you that
any registration statement, prospectus and statement of additional
information, when such registration statement becomes effective and as
such prospectus and statement of additional information are amended or
supplemented, will include at the time of such effectiveness, amendment
or supplement all statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of material fact contained
in any registration statement, prospectus or statement of additional
information will be true and correct when such registration statement
becomes effective; and that neither any registration statement nor any
prospectus or statement of additional information when such registration
statement becomes effective will include an 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 not misleading to a
purchaser of the Fund's Shares. The Fund may, but shall not be
obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any
prospectus or statement of additional information as, in the light of
future developments, may, in the opinion of the Fund, be necessary or
advisable. If the Fund shall not propose such amendment or amendments
and/or supplement or supplements within fifteen days after receipt by
the Fund of a written request from you to do so, you may, at your
option, terminate this Agreement or decline to make offers of the Fund's
Shares until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus
or statement of additional information without giving you reasonable
notice thereof in advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Fund's right to file at any
time such amendments to any registration statement and/or supplements to
any prospectus or statement of additional information, of whatever
character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or
statement of additional information furnished by the Fund from time to
time, in connection with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers and directors, and
any person who controls you within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any such counsel fees
incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act
or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact
contained in any registration statement, any prospectus or any statement
of additional information or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in
any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any of
them not misleading; provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or
expenses arising out of any statements or representations made by you or
your representatives or agents other than such statements and
representations as are contained in any prospectus or statement of
additional information and in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this Agreement; and
further provided that the Fund's agreement to indemnify you and the
Fund's representations and warranties herein before set forth in
paragraph 3 of this Agreement shall not be deemed to cover any liability
to the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of
your obligations and duties under this Agreement. The Fund's agreement
to indemnify you, your officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors,
or any such controlling person, such notification to be given by letter
or by telegram addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any liability that
the Fund may have to the person against whom such action is brought by
reason of any such untrue, or alleged untrue, statement or omission, or
alleged omission, otherwise than on account of the Fund's indemnity
agreement contained in this paragraph 4.1. The Fund will be entitled to
assume the defense of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Fund. In the event the Fund
elects to assume the defense of any such suit and retains counsel of
good standing, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
if the Fund does not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors, or the controlling
person or persons named as defendant or defendants in such suit, for the
fees and expenses of any counsel retained by you or them. The Fund's
indemnification agreement contained in this paragraph 4.1 and the Fund's
representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or
on behalf of you, your officers and directors, or any controlling
person, and shall survive the delivery of any of the Fund's Shares.
This agreement of indemnity will inure exclusively to your benefit, to
the benefit of your several officers and directors, and their respective
estates, and to the benefit of the controlling persons and their
successors. The Fund agrees to notify you promptly of the commencement
of any litigation or proceedings against the Fund or any of its officers
or Board members in connection with the issuance and sale of any of the
Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
that the Fund, its officers or Board members or any such controlling
person may incur under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the
Fund, its officers or Board members, or such controlling person
resulting from such claims or demands shall arise out of or be based
upon (a) any unauthorized sales literature, advertisements, information,
statements or representations or (b) any untrue, or alleged untrue,
statement of a material fact contained in information furnished in
writing by you to the Fund and used in the answers to any of the items
of the registration statement or in the corresponding statements made in
the prospectus or statement of additional information, or shall arise
out of or be based upon any omission, or alleged omission, to state a
material fact in connection with such information furnished in writing
by you to the Fund and required to be stated in such answers or
necessary to make such information not misleading. Your agreement to
indemnify the Fund, its officers or Board members, and any such
controlling person, as aforesaid, is expressly conditioned upon your
being notified of any action brought against the Fund, its officers or
Board members, or any such controlling person, such notification to be
given by letter or telegram addressed to you at your principal office in
Boston, Massachusetts and sent to you by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. You shall have the right to
control the defense of such action, with counsel of your own choosing,
satisfactory to the Fund, if such action is based solely upon such
alleged misstatement or omission on your part or with the Fund's
consent, and in any event the Fund, its officers or Board members or
such controlling person shall each have the right to participate in the
defense or preparation of the defense of any such action with counsel of
its own choosing reasonably acceptable to you but shall not have the
right to settle any such action without your consent, which will not be
unreasonably withheld. The failure to so notify you of any such action
shall not relieve you from any liability that you may have to the Fund,
its officers or Board members, or to such controlling person by reason
of any such untrue, or alleged untrue, statement or omission, or alleged
omission, otherwise than on account of your indemnity agreement
contained in this paragraph 4.2. You agree to notify the Fund promptly
of the commencement of any litigation or proceedings against you or any
of your officers or directors in connection with the issuance and sale
of any of the Fund's Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of
the provisions of this Agreement and no orders for the purchase or sale
of such Shares under this Agreement shall be accepted by the Fund if and
so long as the effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b) (2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
paragraph 5 shall in any way restrict or have an application to or
bearing upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information or charter documents, as amended
from time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by
you shall be offered for sale at a price per share (the "offering
price") equal to (a) their net asset value (determined in the manner set
forth in the Fund's charter documents and the then-current prospectus
and statement of additional information) plus (b) a sales charge, if
applicable, which shall be the percentage of the offering price of such
Shares as set forth in the Fund's then-current prospectus relating to
such Series. In addition to or in lieu of any sales charge applicable
at the time of sale, Shares of any class of any Series of the Fund
offered for sale by you may be subject to a contingent deferred sales
charge as set forth in the Fund's then-current prospectus and statement
of additional information. You shall be entitled to receive any sales
charge levied at the time of sale in respect of the Shares without
remitting any portion to the Fund. Any payments to a broker or dealer
through whom you sell Shares shall be governed by a separate agreement
between you and such broker or dealer and the Fund's then-current
prospectus and statement of additional information
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for
amendments to the registration statement,
prospectus or statement of additional
information then in effect or for additional
information;
(b) in the event of the issuance by
the SEC of any stop order suspending the
effectiveness of the registration statement,
prospectus or statement of additional
information then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that
makes untrue any statement of a material fact
made in the registration statement,
prospectus or statement of additional
information then in effect or that requires
the making of a change in such registration
statement, prospectus or statement of
additional
information in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with
respect to any amendment to the registration
statement, or any supplement to the
prospectus or statement of additional
information which may from time to time be
filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall
have an initial term of one year from the date hereof, and shall
continue for successive annual periods thereafter so long as such
continuance is specifically approved at least annually by (a) the Fund's
Board or (b) by a vote of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board members of the
Fund who are not interested persons (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable,
without penalty, on 30 days' notice by the Fund's Board or by vote of
holders of a majority of the relevant Series outstanding voting
securities, or on 90 days' notice by you. This Agreement will also
terminate automatically, as to the relevant Series, in the event of its
assignment (as defined in the 1940 Act and the rules and regulations
thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under
this Agreement (collectively, a "Dispute") shall be settled by
arbitration administered under the rules of the American Arbitration
Association ("AAA") in New York, New York. Any arbitration and award of
the arbitrators, or a majority of them, shall be final and the judgment
upon the award rendered may be entered in any state or federal court
having jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of
Shares, you shall not perform any services for any entity other than
investment companies advised or administered by Citigroup Inc. or its
subsidiaries. The Fund recognizes that the persons employed by you to
assist in the performance of your duties under this Agreement may not
devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict your or any of your
affiliates right to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature. This
Agreement and the terms and conditions set forth herein shall be
governed by, and construed in accordance with, the laws of the State of
New York.
11. Limitation of Liability (Massachusetts business trusts
only)
The Fund and you agree that the obligations of the Fund under this
Agreement shall not be binding upon any of the Trustees, shareholders,
nominees, officers, employees or agents, whether past, present or
future, of the Fund, individually, but are binding only upon the assets
and property of the Fund, as provided in the Master Trust Agreement.
The execution and delivery of this Agreement have been authorized by the
Trustees and signed by an authorized officer of the Fund, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer 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 the Fund as provided in its
Master Trust Agreement.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning to
us the enclosed copy, whereupon this Agreement will become binding on
you.
Very truly yours,
SMITH BARNEY MUNI FUNDS
By: _____________________
Authorized Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
g:\legal\general\forms\agreemts\dist12b1\SBMuniFunds
EXHIBIT A
Smith Barney Muni Funds
California Money Market Portfolio
Florida Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New York Money Market Portfolio
New York Portfolio
Pennsylvania Portfolio
Page: 3
8
G:\Fund Accounting\Legal\FUNDS\SBMU\AGREEMTS\DistribAgmte.doc
SMITH BARNEY MUTUAL FUNDS
BROKER DEALER CONTRACT
CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We, CFBDS, Inc. ("CFBDS"), have agreements
with certain investment companies for which Mutual
Management Corp. serves as investment adviser and/or
administrator (each a "Fund") pursuant to which we act
as nonexclusive principal underwriter and distributor
for the sale of shares of capital stock ("shares") of
the various series of such Funds, and as such have the
right to distribute shares for resale. Each Fund is
an open-end investment company registered under the
Investment Company Act of 1940, as amended (the "1940
Act") and the shares being offered to the public are
registered under the Securities Act of 1933, as
amended (the "1933 Act"). Each series of each Fund
covered by a Distribution Agreement from time to time
is referred to in this agreement as a "Series" and
collectively as the "Series." The term "Prospectus",
as used herein, refers to the prospectus and related
statement of additional information (the "Statement of
Additional Information") incorporated therein by
reference (as amended or supplemented) on file with
the Securities and Exchange Commission at the time in
question. As a broker in the capacity of principal
underwriter and distributor for the Trust, we offer to
sell to you, as a broker or dealer, shares of each
Fund upon the following terms and conditions:
1. PRIVATE In all sales to the public
you shall act as broker for your customers or as
dealer for your own account, and in no transaction
shall you have any authority to act as agent for the
Trust, for us or for any other dealer. tc " In all
sales to the public you shall act as dealer for your
own account, and in no transaction shall you have any
authority to act as agent for the Fund, for us or for
any other dealer."
2. PRIVATE Orders received from you
will be accepted through us only at the public
offering price per share (i.e. the net asset value per
share plus the applicable front-end sales charge, if
any) applicable to each order, and all orders for
redemption of any shares shall be executed at the net
asset value per share less any contingent deferred
sales charge, if any, in each case as set forth in the
Prospectus. You will be entitled to receive and
retain any contingent deferred sales charge amounts in
partial consideration of your payment to financial
consultants of commission amounts at the time of sale
and we will obligate any other brokers with whom we
enter into similar agreements to pay such amounts
directly to you. The procedure relating to the
handling of orders shall be subject to paragraph 4
hereof and instructions which we or the Fund shall
forward from time to time to you. All orders are
subject to acceptance or rejection by the applicable
Fund or us in the sole discretion of either. The
minimum initial purchase and the minimum subsequent
purchase of any shares shall be as set forth in the
Prospectus pertaining to the relevant Series. tc "
Orders received from you will be accepted through us
only at the public offering price per share (i.e. the
net asset value per share plus the applicable sales
charge, if any) applicable to each order, and all
orders for redemption of any Fund shares shall be
executed at the net asset value per share less any
contingent deferred sales charge, if any, in each case
as set forth in the Prospectus. The procedure
relating to the handling of orders shall be subject to
paragraph 4 hereof and instructions which we or the
Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by
Salomon or the Fund in the sole discretion of either.
The minimum initial purchase and the minimum
subsequent purchase shall be as set forth in the
Prospectus of the Fund."
3. PRIVATE You shall not place orders
for any shares unless you have already received
purchase orders for those shares at the applicable
public offering price and subject to the terms hereof.
You agree that you will not offer or sell any shares
except under circumstances that will result in
compliance with the applicable Federal and state
securities laws, the applicable rules and regulations
thereunder and the rules and regulations of applicable
regulatory agencies or authorities and that in
connection with sales and offers to sell shares you
will furnish to each person to whom any such sale or
offer is made, a copy of the Prospectus and, upon
request, the Statement of Additional Information, and
will not furnish to any person any information
relating to shares which is inconsistent in any
respect with the information contained in the
Prospectus or Statement of Additional Information (as
then amended or supplemented). You shall not furnish
or cause to be furnished to any person or display or
publish any information or materials relating to the
shares (including, without limitation, promotional
materials and sales literature, advertisements, press
releases, announcements, statements, posters, signs or
other similar material), except such information and
materials as may be furnished to you by or on behalf
of us or the Funds, and such other information and
materials as may be approved in writing by or on
behalf of us or the Funds. tc " You shall not place
orders for any shares unless you have already received
purchase orders for those shares at the applicable
public offering price and subject to the terms hereof
and of the Distribution Contract. You agree that you
will not"
4. PRIVATE As a broker dealer, you are
hereby authorized (i) to place orders directly with
the applicable Fund or Series for shares subject to
the applicable terms and conditions governing the
placement of orders by us set forth in the Prospectus
and (ii) to tender shares directly to each Fund or its
agent for redemption subject to the applicable terms
and conditions governing the redemption of shares
applicable to us set forth in the Prospectus. tc " As
a dealer, you are hereby authorized (i) to place
orders directly with the Fund for shares to be resold
by us to you subject to the applicable terms and
conditions governing the placement of orders by us set
forth in the Prospectus and the Distribution Contract
and (ii) to tender shares directly to the Fund or its
agent for redemption subject to the applicable terms
and conditions governing the redemption of shares
applicable to us set forth in the Prospectus and the
Distribution Agreement."
5. PRIVATE You shall not withhold
placing orders received from your customers so as to
profit yourself as a result of such withholding, e.g.,
by a change in the "net asset value" from that used in
determining the offering price to your customers. tc "
You shall not withhold placing orders received from
your customers so as to profit yourself as a result of
such withholding, e.g., by a change in the \"net asset
value\" from that used in determining the offering
price to your customers."
6. PRIVATE In determining the amount
of any sales concession payable to you hereunder, we
reserve the right to exclude any sales which we
reasonably determine are not made in accordance with
the terms of the Prospectus and the provisions of this
Agreement. Unless at the time of transmitting an
order we advise you or the transfer agent to the
contrary, the shares ordered will be deemed to be the
total holdings of the specified investor. tc " In
determining the amount of any sales concession payable
to you hereunder, we reserve the right to exclude any
sales which we reasonably determine are not made in
accordance with the terms of the Prospectus and the
provisions of this Agreement. Unless at the time of
transmitting an order we advise you or the transfer
agent to the contrary, the shares ordered will be
deemed to be the total holdings of the specified
investor."
7. PRIVATE (a) You agree that payment
for orders from you for the purchase of shares will be
made in accordance with the terms of the Prospectus.
On or before the business day following the settlement
date of each purchase order for shares, you shall
transfer same day funds to an account designated by us
with the transfer agent in an amount equal to the
public offering price on the date of purchase of the
shares being purchased less your sales concession, if
any, with respect to such purchase order determined in
accordance with the Prospectus. If payment for any
purchase order is not received in accordance with the
terms of the Prospectus, we reserve the right, without
notice, to cancel the sale and to hold you responsible
for any loss sustained as a result thereof. tc " (a)
You agree that payment for orders from you for the
purchase of shares will be made in accordance with the
terms of the Prospectus. On or before the business
day following the settlement date of each purchase
order for shares, you shall transfer same day funds to
an account designated by us with the transfer agent an
amount equal to the public offering price on the date
of purchase of the shares being purchased less your
sales concession, if any, with respect to such
purchase order determined in accordance with the
Prospectus. If payment for any purchase order is not
received in accordance with the terms of the
Prospectus, we reserve the right, without notice, to
cancel the sale and to hold you responsible for any
loss sustained as a result thereof."
(b) PRIVATE If any shares sold under the
terms of this Agreement are sold with a sales charge
and are redeemed or are tendered for redemption within
seven (7) business days after confirmation of your
purchase order for such shares: (i) you shall
forthwith refund to us the full sales concession
received by you on the sale; and (ii) we shall
forthwith pay to the applicable Series our portion of
the sales charge on the sale which has been retained
by us, if any, and shall also pay to the applicable
Series the amount refunded by you. tc " If any shares
sold under the terms of this Agreement are sold with a
sales charge and are redeemed or are tendered for
redemption within seven (7) business days after
confirmation of your purchase order for such shares\:
(i) you shall forthwith refund to us the full sales
concession received by you on the sale; and (ii) we
shall forthwith pay to the applicable Series our
portion of the sales charge on the sale which has been
retained by us, if any, and shall also pay to the
Series the amount refunded by you."
(c) PRIVATE We will not be obligated to
pay or cause to be paid to you any ongoing trail
commission or shareholder service fees with respect to
shares of the Series purchased through you and held by
or for your customers, which you shall collect
directly from the Funds. tc " We will pay you an
ongoing trail commission with respect to holdings by
you of shares of the Funds at such rates and in such
manner as may be described in the Prospectus."
(d) PRIVATE Certificates evidencing
shares shall be available only upon request. Upon
payment for shares in accordance with paragraph 7(a)
above, the transfer agent will issue and transmit to
you or your customer a confirmation statement
evidencing the purchase of such shares. Any
transaction in uncertificated shares, including
purchases, transfers, redemptions and repurchases,
shall be effected and evidenced by book-entry on the
records of the transfer agent. tc " Certificates
evidencing shares shall be available only upon
request. Upon payment for shares in accordance with
paragraph 7(a) above, the transfer agent will issue
and transmit to you a confirmation statement
evidencing the purchase of such shares. Any
transaction in uncertificated shares, including
purchases, transfers, redemptions and repurchases,
shall be effected and evidenced by book-entry on the
records of the transfer agent."
8. PRIVATE No person is authorized to
make any representations concerning shares except
those contained in the current Prospectus and
Statement of Additional Information and in printed
information subsequently issued by us or the Funds as
information supplemental to the Prospectus and the
Statement of Additional Information. In purchasing or
offering shares pursuant to this Agreement you shall
rely solely on the representations contained in the
Prospectus, the Statement of Additional Information
and the supplemental information above mentioned. tc "
No person is authorized to make any representations
concerning shares except those contained in the
current Prospectus and Statement of Additional
Information and in printed information subsequently
issued by us or the Fund as information supplemental
to the Prospectus and the Statement of Additional
Information. In purchasing sor offering shares
pursuant to this Agreement you shall rely solely on
the representations contained in the Prospectus, the
Statement of Additional Information and the
supplemental information above mentioned."
9. PRIVATE You agree to deliver to
each purchaser making a purchase of shares from or
through you a copy of the Prospectus at or prior to
the time of offering or sale, and, upon request, the
Statement of Additional Information. You may instruct
the transfer agent to register shares purchased in
your name and account as nominee for your customers.
You agree thereafter to deliver to any purchaser whose
shares you or your nominee are holding as record
holder copies of the annual and interim reports and
proxy solicitation materials and any other information
and materials relating to the Trust and prepared by or
on behalf of us, the Funds or the investment adviser,
custodian, transfer agent or dividend disbursing agent
for distribution to beneficial holders of shares. The
Funds shall be responsible for the costs associated
with forwarding such reports, materials and other
information and shall reimburse you in full for such
costs. You further agree to make reasonable efforts
to endeavor to obtain proxies from such purchasers
whose shares you or your nominee are holding as record
holder. You further agree to obtain from each
customer to whom you sell shares any taxpayer
identification number certification required under
Section 3406 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated
thereunder, and to provide us or our designee with
timely written notice of any failure to obtain such
taxpayer identification number certification in order
to enable the implementation of any required backup
withholding in accordance with Section 3406 of the
Code and the regulations thereunder. Additional
copies of the Prospectus, Statement of Additional
Information, annual or interim reports, proxy
solicitation materials and any such other information
and materials relating to the Trust will be supplied
to you in reasonable quantities upon request. tc "
You agree to deliver to each purchaser making a
purchase of shares from you a copy of the Prospectus
at or prior to the time of offering or sale, and, upon
request, the Statement of Additional Information. You
may instruct the transfer agent to register shares
purchased in your name and account as nominee for your
customers. You agree thereafter to deliver to any
purchaser whose shares you are holding as record
holder copies of the annual and interim reports and
proxy solicitation materials and any other information
and materials relating to the Fund and prepared by or
on behalf of us, the Fund or its investment adviser,
custodian, transfer agent or dividend disbursing agent
for distribution to such customer. The Fund shall be
responsible for the costs associated with forwarding
such reports, materials and other information and
shall reimburse you in full for such costs. You
further agree to make reasonable efforts to endeavor
to obtain proxies from such purchasers whose shares
you are holding as record holder. You further agree
to obtain from each customer to whom you sell shares
any taxpayer identification number certification
required under Section 3406 of the Internal Revenue
Code of 1986, as amended (the \"Code\"), and the
regulations promulgated thereunder, and to provide us
or our designee with timely written notice of any
failure to obtain such taxpayer identification number
certification in order to enable the implementation of
any required backup withholding in accordance with
Section 3406 of the Code and the regulations
thereunder. Additional copies of the Prospectus,
Statement of Additional Information, annual or interim
reports, proxy solicitation materials and any such
other information and materials relating to the Fund
will be supplied to you in reasonable quantities upon
request."
10. PRIVATE (a) In accordance with the
terms of the Prospectus, a reduced sales charge may be
available to customers, depending on the amount of the
investment or proposed investment. In each case where
a reduced sales charge is applicable, you agree to
furnish to the transfer agent sufficient information
to permit confirmation of qualification for a reduced
sales charge, and acceptance of the purchase order is
subject to such confirmation. Reduced sales charges
may be modified or terminated at any time in the sole
discretion of each Fund. tc " (a) In accordance
with the terms of the Prospectus, a reduced sales
charge may be available to customers, depending on the
amount of the investment. In each case where a
reduced sales charge is applicable, you agree to
furnish to the transfer agent sufficient information
to permit confirmation of qualification for a reduced
sales charge, and acceptance of the purchase order is
subject to such confirmation. Reduced sales charges
may be modified or terminated at any time in the sole
discretion of the Fund."
(b) PRIVATE You acknowledge that
certain classes of investors may be entitled to
purchase shares at net asset value without a sales
charge as provided in the Prospectus and Statement of
Additional Information. tc " You acknowledge that
certain classes of investors may be entitled to
purchase shares at net asset value without a sales
charge as provided in the Prospectus and Statement of
Additional Information."
(c) PRIVATE You agree to advise us
promptly as to the amount of any and all sales by you
qualifying for a reduced sales charge or no sales
charge. tc " You agree to advise us promptly as to
the amount of any and all sales by you qualifying for
a reduced sales charge or no sales charge."
(d) PRIVATE Exchanges (i.e., the
investment of the proceeds from the liquidation of
shares of one Series in the shares of another Series,
each of which is managed by the same or an affiliated
investment adviser) shall, where available, be made in
accordance with the terms of each Prospectus. tc "
Exchanges (i.e., the investment of the proceeds from
the liquidation of shares of one fund in the shares of
another fund, each of which is managed by the Fund's
investment adviser) shall, where available, be made in
accordance with the terms of each Prospectus."
11. PRIVATE We and each Fund reserve
the right in our discretion, without notice, to
suspend sales or withdraw the offering of any shares
entirely. Each party hereto has the right to cancel
the portions of this Agreement to which it is party
upon notice to the other parties; provided, however,
that no cancellation shall affect any party's
obligations hereunder with respect to any transactions
or activities occurring prior to the effective time of
cancellation. We reserve the right to amend this
Agreement in any respect effective on notice to
you. tc " We reserve the right in our discretion,
without notice, to suspend sales or withdraw the
offering of shares entirely. Each party hereto has
the right to cancel this agreement upon notice to the
other part parties; provided; however, that no
cancellation shall affect any party's obligations
hereunder with respect to any transactions or
activities occurring prior to the effective time of
cancellation. We reserve the right to amend this
Agreement in any respect effective on notice to you."
12. PRIVATE We shall have full authority
to take such action as we may deem advisable in respect
of all matters pertaining to the continuous offering of
shares. We shall be under no liability to you except for
lack of good faith and for obligations expressly assumed
by us herein. Nothing contained in this paragraph 12 is
intended to operate as, and the provisions of this
paragraph 12 shall not in any way whatsoever constitute a
waiver by you of compliance with, any provisions of the
1933 Act or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
tc " We shall have full authority to take such action
as we may deem advisable in respect of all matters
pertaining to the continuous offering of shares. We
shall be under no liability to you except for lack of
good faith and for obligations expressly assumed by us
herein. Nothing contained in this paragraph 12 is
intended to operate as, and the provisions of this
paragraph 12 shall not in any way whatsoever constitute a
waiver by you of compliance with, any provisions of the
1933 Act or of the rules and regulations of the
Securities and Exchange Commission issued thereunder."
13. PRIVATE You agree that: (a) you
shall not effect any transactions (including, without
limitation, any purchases and tc " You agree that\:
(a) you shall not effect any transactions (including,
without limitation, any purchases and" redemptions)
in any shares registered in the name of, or
beneficially owned by, any customer unless such
customer has granted you full right, power and
authority to effect such transactions on his behalf,
(b) we shall have full authority to act upon your
express instructions to sell, repurchase or exchange
shares through us on behalf of your customers under
the terms and conditions provided in the Prospectus
and (c) we, the Funds, the investment adviser, the
administrator, the transfer agent and our and their
respective officers, directors or trustees, agents,
employees and affiliates shall not be liable for, and
shall be fully indemnified and held harmless by you
from and against, any and all claims, demands,
liabilities and expenses (including, without
limitation, reasonable attorneys' fees) which may be
incurred by us or any of the foregoing persons
entitled to indemnification from you hereunder arising
out of or in connection with (i) the execution of any
transactions in shares registered in the name of, or
beneficially owned by, any customer in reliance upon
any oral or written instructions believed to be
genuine and to have been given by or on behalf of you,
(ii) any statements or representations that you or
your employees or representatives make concerning the
Funds that are inconsistent with the applicable Fund's
Prospectus, (iii) any written materials used by you or
your employees or representatives in connection with
making offers or sales of shares that were not
furnished by us, the Funds or the investment adviser
or an affiliate thereof and (iv) any sale of shares of
a Fund where the Fund or its shares were not properly
registered or qualified for sale in any state, any
U.S. territory or the District of Columbia, when we
have indicated to you that the Fund or its shares were
not properly registered or qualified. The
indemnification agreement contained in this Paragraph
13 shall survive the termination of this Agreement.
14. PRIVATE You represent that: (a) you
are a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"),
or, if a foreign dealer who is not eligible for
membership in the NASD, that (i) you will not make any
sales of shares in, or to nationals of, the United
States of America, its territories or its possessions,
and (ii) in making any sales of shares you will comply
with the NASD's Conduct Rules and (b) you are a member
in good standing of the Securities Investor Protection
Corporation ("SIPC"). You agree that you will provide
us with timely written notice of any change in your
NASD or SIPC status. tc " You represent that you are
a member in good standing of the National Association
of Securities Dealers, Inc. (the \"NASD\"), or, if a
foreign dealer who is not eligible for membership in
the NASD, that (a) you will not make any sales of
shares in, or to nationals of, the United States of
America, its territories or its possessions, and (b)
in making any sales of shares you will comply with the
NASD's Rules of Fair Practice."
15. PRIVATE We shall inform you as to
the states or other jurisdictions in which the Fund has
advised us that shares have been qualified for sale
under, or are exempt from the requirements of, the
respective securities laws of such states, but we
assume no responsibility or obligation as to your
qualification to sell shares in any jurisdiction.
16. Any claim, controversy, dispute or
deadlock arising under this Agreement (collectively, a
"Dispute") shall be settled by arbitration administered
under the rules of the American Arbitration Association
("AAA") in New York, New York. Any arbitration and
award of the arbitrators, or a majority of them, shall
be final and the judgment upon the award rendered may
be entered in any state or federal court having
jurisdiction. No punitive damages are to be awarded.
17. PRIVATE All communications to us
should be sent, postage prepaid, to 21 Milk Street,
Boston, Massachusetts 02109 Attention: Philip
Coolidge. Any notice to you shall be duly given if
mailed, telegraphed or telecopied to you at the
address specified by you below. Communications
regarding placement of orders for shares should be
sent, postage prepaid, to First Data Investor Services
Group, Inc., P.O. Box 5128, Westborough, Massachusetts
01581-5128. tc " All communications to us should be
sent, postage prepaid, to 7 World Trade Center, New
York, New York 10048. Attention\: Robert J. Leonard.
Any notice to you shall be duly given if mailed,
telegraphed or telecopied to you at the address
specified by you below. Communications regarding
placement of orders for shares should be sent, postage
prepaid, to The Shareholder Services Group, Inc., P.O.
Box 9109, Boston, Massachusetts 02205-9109."
18. PRIVATE This Agreement shall be
binding upon both parties hereto when signed by us and
accepted by you in the space provided below tc " This
Agreement shall be binding upon both parties hereto
when signed by us and accepted by you in the space
provided below until July 14, 1995 or such earlier
date upon negotiation of section 3 and 12 of this
agreement. " .
19. PRIVATE This Agreement and the
terms and conditions set forth herein shall be
governed by, and construed in accordance with, the
laws of the State of New York. tc " This Agreement and
the terms and conditions set forth herein shall be
governed by, and construed in accordance with, the
laws of the State of New York."
CFBDS, INC.
By:/s/
(Authorized
Signature)
Accepted:
Firm Name:
Address:
Accepted By (signature):
Name (print):
Title: Date:
u:\legal\funds\slep\1999\secdocs\dealagr
FORM OF
AMENDED AND RESTATED
SHAREHOLDER SERVICES AND DISTRIBUTION PLAN
This Amended and Restated Shareholder Services and Distribution
Plan (the "Plan") is adopted in accordance with Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as amended (the
"1940 Act"), by Smith Barney Muni Funds, a business trust organized
under the laws of the Commonwealth of Massachusetts (the "Trust"),
subject to the following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The Trust will pay to
Salomon Smith Barney Inc., a corporation organized under the
laws of the State of Delaware ("Salomon Smith Barney"), a
service fee under the Plan at an annual rate of [ %] of
the average daily net assets of the Fund attributable to the
Class A shares sold and not redeemed (the "Class A Service
Fee").
(b) Service Fee for Class B shares. The Trust will pay to
Salomon Smith Barney a service fee under the Plan at the
annual rate of [ %] of the average daily net assets of
the Fund attributable to the Class B shares sold and not
redeemed (the "Class B Service Fee").
(c) Distribution Fee for Class B shares. In addition to the
Class B Service Fee, the Trust will pay Salomon Smith Barney
a distribution fee under the Plan at the annual rate of [
%] of the average daily net assets of the Fund attributable
to the Class B shares sold and not redeemed (the "Class B
Distribution Fee").
(d) Service Fee for Class L shares. The Trust will pay to
Salomon Smith Barney a service fee under the plan at the
annual rate of [ %] of the average daily net assets of
the Fund attributable to the Class L shares sold and not
redeemed (the "Class L Service Fee").
(e) Distribution Fee for Class L shares. In addition to the
Class L Service Fee, the Trust will pay Salomon Smith Barney
a distribution fee under the Plan at the annual rate of [
%] of the average daily net assets of the Fund attributable
to the Class L shares sold and not redeemed (the "Class L
Distribution Fee").
(f) Payment of Fees. The Service Fees and Distribution Fees will
be calculated daily and paid monthly by the Trust with
respect to the foregoing classes of the Fund's shares (each
a "Class" and together, the "Classes") at the annual rates
indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its respective
Service Fee and/or Distribution Fee may be used by Salomon Smith
Barney for: (a) costs of printing and distributing the
[Trust's/Fund's] prospectuses, statements of additional information
and reports to prospective investors in the Trust; (b) costs involved
in preparing, printing and distributing sales literature pertaining
to the Trust; (c) an allocation of overhead and other branch office
distribution-related expenses of Salomon Smith Barney; (d) payments
made to, and expenses of, Salomon Smith Barney's financial
consultants and other persons who provide support services to Trust
shareholders in connection with the distribution of the
[Trust's/Fund's] shares, including but not limited to, office space
and equipment, telephone facilities, answering routine inquires
regarding the Trust and its operation, processing shareholder
transactions, forwarding and collecting proxy material, changing
dividend payment elections and providing any other shareholder
services not otherwise provided by the [Trust's/Fund's] transfer
agent; and (e) accruals for interest on the amount of the foregoing
expenses that exceed the Distribution Fee for that Class and, in the
case of Class B and Class L shares, any contingent deferred sales
charges received by Salomon Smith Barney; provided, however, that (i)
the Distribution Fee for a particular Class may be used by Salomon
Smith Barney only to cover expenses primarily intended to result in
the sale of shares of that Class, including, without limitation,
payments to the financial consultants of Salomon Smith Barney and
other persons as compensation for the sale of the shares, and (ii)
the Service Fees are intended to be used by Salomon Smith Barney
primarily to pay its financial consultants for servicing shareholder
accounts, including a continuing fee to each such financial
consultant, which fee shall begin to accrue immediately after the
sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of
the Plan, with respect to a Class until the Plan has been approved by
a vote of at least a majority
of the outstanding voting securities of the Class. The Plan will be
deemed to have been approved
with respect to a Class so long as a majority of the outstanding
voting securities of the Class votes
for the approval of the Plan, notwithstanding that: (a) the Plan has
not been approved by a majority of the outstanding voting securities
of any other Class, or (b) the Plan has not been
approved by a majority of the outstanding voting securities of the
Trust.
Section 4. Approval by [Trustees/Directors.]
Neither the Plan nor any related agreements will take effect until
approved by a majority vote of both (a) the Board of
[Trustees/Directors] and (b) those [Trustees/Directors] who are not
interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements
related to it (the "Qualified [Trustees/Directors]"), cast in person
at a meeting called for the purpose of voting on the Plan and the
related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each Class until
[ , 1999] and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the [Trustees/Directors]
of the Trust and by a majority of the Qualified [Trustees/Directors].
Section 6. Termination.
The Plan may be terminated at any time with respect to a Class (i)
by the Trust without the payment of any penalty, by the vote of a
majority of the outstanding voting securities of such Class or (ii)
by a majority vote of the Qualified [Trustees/Directors]. The Plan
may remain in effect with respect to a particular Class even if the
Plan has been terminated in accordance with this Section 6 with
respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class so as to
increase materially the amounts of the fees described in Section 1
above, unless the amendment is approved by a vote of holders of at
least a majority of the outstanding voting securities of that Class.
No material amendment to the Plan may be made unless approved by the
[Trust's/Fund's] Board of [Trustees/Directors] in the manner
described in Section 4 above.
Section 8. Selection of Certain [Trustees/Directors].
While the Plan is in effect, the selection and nomination of the
[Trust's/Fund's] [Trustees/Directors] who are not interested persons
of the Trust will be committed to the discretion of the
[Trustees/Directors] then in office who are not interested persons of
the Trust.
Section 9. Written Reports
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by the
Fund pursuant to the Plan or any related agreement will prepare and
furnish to the [Trust's/Fund's] Board of [Trustees/Directors] and the
Board will review, at least quarterly, written reports complying with
the requirements of the Rule, which set out the amounts expended
under the Plan and the purposes for which those expenditures were
made.
Section 10. Preservation of Materials.
The Trust will preserve copies of the Plan, any agreement relating
to the Plan and any report made pursuant to Section 9 above, for a
period of not less than six years (the first two years in an easily
accessible place) from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority
of the outstanding voting securities" will be deemed to have the same
meaning that those terms have under the rules and regulations under
the 1940 Act, subject to any exemption that may be granted to the
Trust under the 1940 Act, by the Securities and Exchange Commission.
Section 12. Limitation of Liability. (Massachusetts business
trusts only)
The obligations of the Trust under this Agreement shall not be
binding upon any of the Trustees, shareholders, nominees, officers,
employees or agents, whether past, present or future, of the Trust,
individually, but are binding only upon the assets and property of
the Trust, as provided in the Master Trust Agreement. The execution
of this Plan has been authorized by the Trustees and signed by an
authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution by such officer
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 the Trust as provided in its Master Trust
Agreement.
IN WITNESS WHEREOF, the Fund has executed the Plan as of July
_____, 1998.
[NAME OF TRUST/FUND] On behalf of
By:
____________________________________
Heath B. McLendon
Chairman of the Board
G:\Fund Accounting\Legal\FUNDS\SBMU\AGREEMTS\12b1(new)e.doc
