As filed with the Securities and Exchange Commission on July 26,
2000
Registration Nos. 002-99861
811-04395
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 45
to the
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
and
POST-EFFECTIVE AMENDMENT NO. 46
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)
[X ] on July 28, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) 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.
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
Your Serious Money. Professionally Managed./SM/
P R O S P E C T U S
National
Portfolio
Class A, B, L and Y Shares
----------------------------------------------------
July 28, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities as an investment or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.
<PAGE>
National Portfolio
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
Redeeming shares............................................................ 16
Other things to know about share transactions............................... 18
Dividends, distributions and taxes.......................................... 20
Share price................................................................. 21
Financial highlights........................................................ 22
</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.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks as high a level of income exempt from federal income taxes as is
consistent with prudent investing.
Principal investment strategies
Key investments The fund invests at least 80% of its net assets 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 excluded from gross income for federal income tax purposes.
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 indi-
vidual securities, the manager:
. Uses fundamental credit analysis to estimate the relative value and attrac-
tiveness 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 maturi-
ties 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 reve-
nue 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
National Portfolio
2
<PAGE>
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 distri-
butions 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 generally be subject to state 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
Smith Barney Mutual Funds
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 neces-
sarily 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.
Total Returns for Class A Shares
[BAR GRAPH]
90 7.57%
91 13.01%
92 9.61%
93 13.43%
94 -5.83%
95 18.9%
96 3.68%
97 10.58%
98 5.64%
99 -4.61%
Calendar years ended December 31
Quarterly returns:
Highest: 7.36% in 1st quarter 1995; Lowest: (4.96)% in 1st quarter 1994; Year
to date: 4.48% through 6/30/00
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age 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 unman-
aged index of municipal bonds, and the Lipper General Municipal Debt Funds
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 appli-
cable to the class, redemption of shares at the end of the period, and rein-
vestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A (8.45)% 5.68% 6.50% 6.78% 8/20/86
B (9.18)% 5.84% n/a 6.36% 11/7/94
L (6.95)% 5.70% n/a 4.78% 1/5/93
Lehman Index (2.06)% 6.91% 6.89% 7.12% *
Lipper Average (4.64)% 5.77% 6.18% 6.39% *
</TABLE>
*Index comparison begins on August 31, 1986.
National Portfolio
4
<PAGE>
Fee 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 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
</TABLE>
Annual fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y**
<S> <C> <C> <C> <C>
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 0.08% 0.08% 0.11% 0.08%
----- ----- ----- -----
Total annual fund operating expenses 0.68% 1.18% 1.26% 0.53%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**For Class Y shares, "Other Expenses" have been estimated based on expenses
incurred by Class A shares because prior to March 31, 2000, no Class Y shares
were sold.
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) $467 $609 $764 $1,213
Class B (redemption at end of period) $570 $675 $749 $1,293
Class B (no redemption) $120 $375 $649 $1,293
Class L (redemption at end of period) $327 $496 $785 $1,607
Class L (no redemption) $227 $496 $785 $1,607
Class Y (with or without redemption) $ 54 $170 $296 $ 665
</TABLE>
Smith Barney Mutual Funds
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 securi-
ties 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 secu-
rities 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 contracts 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. Inverse floaters and futures are volatile and involve
leverage which may expose the fund to increased risk of loss. 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 mar-
kets.
Defensive investing The fund may depart from its principal investment strate-
gies 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.
National Portfolio
6
<PAGE>
Management
Manager The fund's investment adviser (the manager) is SSB Citi Fund Management
LLC (successor to 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 manage-
ment, banking and consumer finance, credit and charge cards, insurance, invest-
ments, 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 SSB Citi Fund Management LLC and manag-
ing 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 31 years
of experience with the manager or its predecessors.
Management fees During the fiscal year ended March 31, 2000, 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 Salomon Smith Barney
Inc. to distribute the fund's shares.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the 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.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
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 invest-
ors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
. The fund, but only if you are investing through 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 $250 $15 million $50
</TABLE>
National Portfolio
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 com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
4.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
------------------------------------------------------------------------
Deferred sales charge 1.00% on Up to 4.50% 1.00% if None
purchases charged you redeem
of $500,000 when you within 1
or more if redeem year of
you redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
------------------------------------------------------------------------
Annual distribution and 0.15% of 0.65% of 0.70% of None
service fees average average average
daily net daily net daily net
assets assets assets
------------------------------------------------------------------------
Exchange privilege* Class A Class B Class L Class Y
shares shares shares shares
of most of most of most of most
Smith Smith Smith Smith
Barney Barney Barney 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.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining 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.
National Portfolio
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 cer-
tain 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 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 pur-
chase, 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 date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
(excluding shares
issued as
dividends)
</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 and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge
on Class L shares you buy before June 22, 2001.
Smith Barney Mutual Funds
11
<PAGE>
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.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase 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
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to deferred sales charge and then
the shares in your account that have been held the longest.
If you have 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 representa-
tive.
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.
National Portfolio
12
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make 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
fund's sub- eligible to buy shares directly from the fund.
transfer
agent
. Write the sub-transfer agent at the following address:
Smith Barney National Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check made payable to the fund 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.
Smith Barney Mutual Funds
13
<PAGE>
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the sub-transfer agent to transfer funds automati-
investment cally from a regular bank account, cash held in a Salomon
plan 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 represen-
tative or the sub-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.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the . You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small . Not all Smith Barney funds may be offered in your state of
investors residence. Contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent.
. You must meet the minimum investment amount for each fund
(except for systematic changes).
. If you hold share certificates, the sub-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.
National Portfolio
14
<PAGE>
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured 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 com-
plete 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 4:00 p.m. (Eastern
time).
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 sub-trans-
fer agent at the address on the following page.
Smith Barney Mutual Funds
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 sub-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 redemp-
tion 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 sub-transfer agent at the following address:
Smith Barney National Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02490-9699
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 regis-
tered
National Portfolio
16
<PAGE>
By telephone
If you do not have a brokerage account, you may be 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 4:00 p.m. (Eastern time).
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 docu-
ments.
--------------------------------------------------------------------------------
Automatic
cash You can arrange for the automatic redemption of a portion of
withdrawal your shares on a monthly or quarterly basis. To qualify you
plans must own shares of the fund with a value of 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.
Smith Barney Mutual Funds
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 redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 sub-transfer
agent
. Instruct the sub-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 regis-
tration
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.
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
National Portfolio
18
<PAGE>
. 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 Securi-
ties 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 share-
holders. 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 sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
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, typi-
cally 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 dis-
tributions 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. Alterna-
tively, you can instruct your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent to have your distributions and/or divi-
dends 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 effec-
tive until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<C> <S>
Redemption or Usually capital gain or loss;
exchange of shares long-term only if shares owned
more than one year
Long-term capital Taxable gain
gain distributions
Short-term capital Ordinary income
gain distributions
Dividends Excluded from gross income 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 distribu-
tions 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 dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer 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 circum-
National Portfolio
20
<PAGE>
stances are different and special tax rules may apply, you should consult your
tax adviser about your investment in the fund.
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 liabili-
ties. 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 calcu-
lation 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 repre-
sentative 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.
Smith Barney Mutual Funds
21
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years. Certain information reflects finan-
cial 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 auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon
request). No information is present for Class Y shares because no shares were
outstanding during these fiscal years.
For a Class A share of beneficial interest outstanding throughout each year
ended March 31:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998 1997 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 13.97 $ 14.16 $ 13.60 $ 13.67 $ 13.32
---------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.74 0.74 0.79 0.81 0.81
Net realized and
unrealized gain (loss) (1.03) 0.03 0.73 (0.09) 0.35
---------------------------------------------------------------------------------
Total income (loss) from
operations (0.29) 0.77 1.52 0.72 1.16
---------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.73) (0.75) (0.80) (0.79) (0.81)
Net realized gains (0.01) (0.21) (0.16) -- --
---------------------------------------------------------------------------------
Total distributions (0.74) (0.96) (0.96) (0.79) (0.81)
---------------------------------------------------------------------------------
Net asset value, end of
year $ 12.94 $ 13.97 $ 14.16 $ 13.60 $ 13.67
---------------------------------------------------------------------------------
Total return (2.03)% 5.50% 11.47% 5.41% 8.83%
---------------------------------------------------------------------------------
Net assets, end of year
(000) $363,812 $404,498 $370,891 $351,395 $378,421
---------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 0.68% 0.66% 0.66% 0.70% 0.70%
Net investment income 5.59 5.21 5.61 5.92 5.88
---------------------------------------------------------------------------------
Portfolio turnover rate 68% 61% 87% 31% 27%
---------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
National Portfolio
22
<PAGE>
For a Class B share of beneficial interest outstanding throughout each year
ended March 31:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 13.96 $ 14.16 $ 13.61 $ 13.67 $ 13.33
-------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.67 0.67 0.70 0.74 0.73
Net realized and unrealized
gain (loss) (1.03) 0.02 0.74 (0.08) 0.35
-------------------------------------------------------------------------------
Total income (loss) from
operations (0.36) 0.69 1.44 0.66 1.08
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.66) (0.68) (0.73) (0.72) (0.74)
Net realized gains (0.01) (0.21) (0.16) -- --
-------------------------------------------------------------------------------
Total distributions (0.67) (0.89) (0.89) (0.72) (0.74)
-------------------------------------------------------------------------------
Net asset value, end of year $ 12.93 $ 13.96 $ 14.16 $ 13.61 $ 13.67
-------------------------------------------------------------------------------
Total return (2.56)% 4.92% 10.80% 4.95% 8.26%
-------------------------------------------------------------------------------
Net assets, end of year (000) $42,872 $36,451 $20,313 $12,691 $11,605
-------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.18% 1.16% 1.29% 1.20% 1.19%
Net investment income 5.11 4.71 4.95 5.42 5.37
-------------------------------------------------------------------------------
Portfolio turnover rate 68% 61% 87% 31% 27%
-------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
Smith Barney Mutual Funds
23
<PAGE>
For a Class L share of beneficial interest outstanding throughout each year
ended March 31:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/)(/2/) 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 13.97 $ 14.16 $ 13.59 $ 13.65 $ 13.32
-------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.66 0.65 0.69 0.73 0.73
Net realized and
unrealized gain (loss) (1.02) 0.02 0.74 (0.08) 0.34
-------------------------------------------------------------------------------
Total income (loss) from
operations (0.36) 0.67 1.43 0.65 1.07
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.65) (0.65) (0.70) (0.71) (0.74)
Net realized gains (0.01) (0.21) (0.16) -- --
-------------------------------------------------------------------------------
Total distributions (0.66) (0.86) (0.86) (0.71) (0.74)
-------------------------------------------------------------------------------
Net assets value, end of
year $ 12.95 $ 13.97 $ 14.16 $ 13.59 $ 13.65
-------------------------------------------------------------------------------
Total return (2.57)% 4.79% 10.71% 4.90% 8.13%
-------------------------------------------------------------------------------
Net assets, end of year
(000) $19,434 $18,528 $15,926 $14,901 $16,563
-------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.26% 1.24% 1.35% 1.27% 1.27%
Net investment income 5.03 4.63 4.91 5.35 5.31
-------------------------------------------------------------------------------
Portfolio turnover rate 68% 61% 87% 31% 27%
-------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) On June 12, 1998, the Class C shares were renamed Class L shares.
National Portfolio
24
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
National Portfolio
An investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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 law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-04395)
FD0663 7/00
[S B] Smith Barney
[M F] Mutual Funds
Your Serious Money. Professionally Managed.(SM)
P R O S P E C T U S
Limited Term
Portfolio
Class A, L and Y Shares
---------------------------------
July 28, 2000
The Securities and Exchange Commission has not approved or
disapproved these
securities as an investment or determined whether this prospectus
is accurate or
complete. Any statement to the contrary is a crime.
<PAGE>
Limited Term Portfolio
Contents
<TABLE>
<S>
<C>
Investments, risks and
performance.......................................... 2
More on the fund's
investments.............................................. 6
Management.......................................................
........... 7
Choosing a class of shares to
buy........................................... 8
Comparing the fund's
classes................................................ 9
</TABLE>
<TABLE>
<S>
<C>
Sales
charges..........................................................
..... 10
More about deferred sales
charges........................................... 11
Buying
shares...........................................................
.... 12
Exchanging
shares...........................................................
13
Redeeming
shares...........................................................
. 15
Other things to know about share
transactions............................... 17
Dividends, distributions and
taxes.......................................... 19
Share
price............................................................
..... 20
Financial
highlights.......................................................
. 21
</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.
Smith
Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
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.
Principal investment strategies
Key Investments The fund invests at least 80% of its net assets
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 excluded from gross income for federal income
tax purposes.
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 an average effective 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 indi-
vidual securities, the manager:
.Uses fundamental credit analysis to estimate the relative value
and attrac-
tiveness 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 reve-
nue 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
Limited Term Portfolio
2
<PAGE>
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 distri-
butions 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 generally be subject to state 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 fed-
eral 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
Smith
Barney Mutual Funds
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 neces-
sarily 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 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 Returns for Class A Shares
Calendar years ended December 31
90 91 92 93 94 95 96 97
98 99
---- ---- ---- ---- ---- ---- ---- ----
---- ----
8.02% 9.17% 8.15% 9.43% -1.43% 11.41% 3.68% 8.08%
5.68% -3.05%
Quarterly returns:
Highest: 4.10% in 1st quarter 1995; Lowest: (2.91)% in 1st
quarter 1994; Year
to date: 2.5% through 6/30/00
Risk return table
This table indicates the risks of investing in the fund by
comparing the aver-
age 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 unman-
aged index of municipal bonds, and the Lipper Intermediate
Municipal Debt Funds
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 appli-
cable to the class, redemption of shares at the end of the
period, and rein-
vestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception
Inception date
<S> <C> <C> <C> <C> <C>
A (4.99)% 4.62% 5.60% 5.78%
11/28/88
L (5.16)% 4.61% n/a 4.26%
1/5/93
Y (2.92)% n/a n/a 1.85%
11/12/98
Lehman Index (2.06)% 6.91% 6.89% 7.28% *
Lipper Average (1.68)% 5.59% 5.94% 6.23% *
</TABLE>
* Index comparison begins on November 30, 1988.
Limited Term Portfolio
4
<PAGE>
Fee 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 L Class Y
<S> <C>
<C> <C>
Maximum sales charge (load) imposed on purchases (as a
% of offering price) 2.00%
1.00% None
Maximum deferred sales charge (load) (as a % of the
lower of net asset value at purchase or redemption) None*
1.00% None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A
Class L Class Y
<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 0.10%
0.13% 0.05%
-----
----- -----
Total annual fund operating expenses 0.75%
0.98% 0.55%
=====
===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net
asset value
(without an initial sales 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) $275 $435 $609
$1,112
Class L (redemption at end of period) $299 $409 $636
$1,289
Class L (no redemption) $199 $409 $636
$1,289
Class Y (with or without redemption) $ 56 $176 $307 $
689
</TABLE>
Smith
Barney Mutual Funds
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 secu-
rities 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 contracts 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.
Inverse floaters and futures are volatile and involve leverage
which may expose
the fund to increased risk of loss. Therefore, using futures or
inverse float-
ers 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 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 strate-
gies 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.
Limited Term Portfolio
6
<PAGE>
Management
Manager The fund's investment adviser is SSB Citi Fund Management
LLC (succes-
sor to 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 busi-
nesses produce a broad range of financial services--asset
management, banking
and consumer finance, credit and charge cards, insurance,
investments, invest-
ment 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 SSB Citi Fund Management
LLC and manag-
ing 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 31 years of experience with the manager or
its predeces-
sors.
Management fees During the fiscal year ended March 31, 2000, 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 Salomon
Smith Barney
Inc. to distribute the fund's shares.
Distribution plan The fund has adopted a Rule 12b-1 distribution
plan for its
Class A and L shares. Under the plan, the fund pays distribution
and/or service
fees. These fees are an ongoing expense and, over time, may cost
you more than
other types of sales charges.
Transfer agent and shareholder servicing agent Citi Fiduciary
Trust Company
serves as the fund's transfer agent and shareholder servicing
agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services
agreement
with the transfer agent, PFPC Global Fund Services serves as the
fund's sub-
transfer agent (the "sub-transfer agent") to render certain
shareholder record
keeping and accounting services and functions.
Smith
Barney Mutual Funds
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 Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through 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 $250 $15 million
$50
</TABLE>
Limited Term Portfolio
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 com-
pensation depending upon which class you choose.
Class A Class L Class Y
Key features . Initial . Initial . No ini-
sales sales tial or
charge charge deferred
. You may is lower sales
qualify than charge
for Class A . Must
reduction . Deferred invest
or sales at least
waiver charge $15 mil-
of ini- for only lion
tial 1 year . Lower
sales . Does not annual
charge convert expenses
. Lower to Class than the
annual A other
expenses . Higher classes
than annual
Class L expenses
than
Class A
-----------------------------------------------------------------
---------------
Initial sales charge Up to 1.00% None
2.00%;
reduced
for large
purchases
and waived
for cer-
tain
investors.
No charge
for pur-
chases of
$500,000
or more
-----------------------------------------------------------------
---------------
Deferred sales charge 1.00% if None
1.00% on you redeem
purchases within 1
of year of
$500,000 purchase
or more if
you redeem
within 1
year of
purchase
-----------------------------------------------------------------
---------------
Annual distribution 0.15% of 0.35% of None
and service fees average average
daily net daily net
assets assets
-----------------------------------------------------------------
---------------
Exchange privilege* Class A Class L Class Y
shares of shares of shares of
most Smith most Smith most Smith
Barney Barney Barney
funds funds funds
-----------------------------------------------------------------
---------------
*Ask your Salomon Smith Barney Financial Consultant or dealer
representative or
visit the web site for the Smith Barney funds available for
exchange.
Smith
Barney Mutual Funds
9
<PAGE>
Sales charges
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. Cer-
tain trustees and fiduciaries may be entitled to combine
accounts in deter-
mining 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.
Limited Term Portfolio
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 cer-
tain 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%. If you held Class C shares of the fund and/or
other Smith
Barney mutual funds 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
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.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the
time of pur-
chase 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
Each time you place a request to redeem shares, the fund will
first redeem any
shares in your account that are not subject to a deferred sales
charge and then
the shares in your account that have been held the longest.
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.
Smith
Barney Mutual Funds
11
<PAGE>
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.
Buying shares
Through a You should contact your Salomon Smith Barney
Financial Con-
Salomon Smith sultant or dealer representative to open a
brokerage account
Barney and make 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 other investors who are clients of the
selling group
fund's sub- are eligible to buy shares directly from the
fund.
transfer
agent
.Write the sub-transfer agent at the following
address:
Smith Barney Limited Term Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check made payable to the fund 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.
Limited Term Portfolio
12
<PAGE>
Through a You may authorize Salomon Smith Barney, your
dealer represen-
systematic tative or the sub-transfer agent to transfer
funds automati-
investment cally from a regular bank account, cash held in
a Salomon
plan 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 represen-
tative or the sub-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.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney
Financial Con-
offers a sultant or dealer representative to exchange
into other Smith
distinctive Barney funds. Be sure to read the prospectus of
the Smith
family of Barney fund you are exchanging into. An exchange
is a taxable
funds transaction.
tailored to
help meet the .You may exchange shares only for shares of the
same class of
varying needs another Smith Barney fund. Not all Smith
Barney funds offer
of both large all classes
and small .Not all Smith Barney funds may be offered in
your state of
investors residence. Contact your Salomon Smith Barney
Financial
Consultant, dealer representative or the
transfer agent.
.You must meet the minimum investment amount for
each fund
(except for systematic changes).
.If you hold share certificates, the sub-
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
Smith
Barney Mutual Funds
13
<PAGE>
Waiver of Your shares will not be subject to an initial
sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will
continue to be mea-
sured 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 com-
plete 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 4:00 p.m.
(Eastern
time).
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 sub-trans-
fer agent at the address on the following page.
Limited Term Portfolio
14
<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 sub-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 redemp-
tion 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 sub-transfer agent at the following
address:
Smith Barney Limited Term Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02490-9699
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 regis-
tered
Smith
Barney Mutual Funds
15
<PAGE>
By telephone
If you do not have a brokerage account, you may
be 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 4:00 p.m. (Eastern time).
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 docu-
ments.
-----------------------------------------------------------------
---------------
Automatic
cash You can arrange for the automatic redemption of
a portion of
withdrawal your shares on a monthly or quarterly basis. To
qualify you
plans must own shares of the fund with a value of 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.
Limited Term Portfolio
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 redemp-
tion request is genuine by recording calls, asking the caller to
provide a per-
sonal 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
sub-transfer
agent
.Instruct the sub-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 regis-
tration
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.
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
Smith
Barney Mutual Funds
17
<PAGE>
.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 Securi-
ties 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 share-
holders. 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 sub-
transfer agent. If
you hold share certificates it will take longer to exchange or
redeem shares.
Limited Term Portfolio
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, typi-
cally 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 dis-
tributions 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. Alterna-
tively, you can instruct your Salomon Smith Barney Financial
Consultant, dealer
representative or the transfer agent to have your distributions
and/or divi-
dends 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 effec-
tive until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and
receiving distribu-
tions (whether in cash or additional shares) are all taxable
events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange Usually capital
of shares gain or loss; long-term only
if shares owned
more than one year
Long-term capital Taxable gain
gain distributions
Short-term capital Ordinary income
gain distributions
Dividends Excluded from gross
income 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 distribu-
tions 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
Smith
Barney Mutual Funds
19
<PAGE>
shares during the previous year. If you do not provide the fund
with your cor-
rect 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.
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 liabili-
ties. 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 calcu-
lation 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 repre-
sentative 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.
Limited Term Portfolio
20
<PAGE>
Financial highlights
The financial highlights tables are intended to help you
understand the perfor-
mance 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 audi-
tors, 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>
2000(/1/) 1999(/1/) 1998
1997 1996
-----------------------------------------------------------------
-------------
<S> <C> <C> <C>
<C> <C>
Net asset value, beginning of
year $ 6.78 $ 6.76 $ 6.54 $
6.61 $ 6.54
-----------------------------------------------------------------
-------------
Income (loss) from operations:
Net investment income 0.32 0.32 0.34
0.34 0.36
Net realized and unrealized
gain (loss) (0.42) 0.03 0.22
(0.06) 0.07
-----------------------------------------------------------------
-------------
Total income (loss) from
operations (0.10) 0.35 0.56
0.28 0.43
-----------------------------------------------------------------
-------------
Less distributions from:
Net investment income (0.32) (0.33) (0.34)
(0.35) (0.36)
In excess of net investment
income -- (0.00)* --
-- --
-----------------------------------------------------------------
-------------
Total distributions (0.32) (0.33) (0.34)
(0.35) (0.36)
-----------------------------------------------------------------
-------------
Net asset value, end of year $ 6.36 $ 6.78 $6.76 $
6.54 $ 6.61
-----------------------------------------------------------------
-------------
Total return (1.46)% 5.29% 8.66%
4.30% 6.65%
-----------------------------------------------------------------
-------------
Net assets, end of year
(millions) $ 236 $ 311 $ 257 $
260 $ 278
-----------------------------------------------------------------
-------------
Ratios to average net assets:
Expenses(/2/) 0.75% 0.72% 0.74%
0.75% 0.75%
Net investment income 4.97 4.72 5.14
5.16 5.43
-----------------------------------------------------------------
-------------
Portfolio turnover rate 108% 52% 58%
46% 26%
-----------------------------------------------------------------
-------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly
average shares
method.
(/2/) As a result of voluntary expense limitations, the ratio of
expenses to
average net assets will not exceed \\0\\.\\85\\%.
* Amount represents less than $0.01.
Smith
Barney Mutual Funds
21
<PAGE>
For a Class L share of beneficial interest outstanding
throughout each year
ended March 31:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/)(/2/) 1998
1997 1996
-----------------------------------------------------------------
-----------------
<S> <C> <C> <C>
<C> <C>
Net asset value,
beginning of year $ 6.79 $ 6.76 $ 6.54 $
6.61 $ 6.54
-----------------------------------------------------------------
-----------------
Income (loss) from
operations:
Net investment income 0.31 0.31 0.33
0.33 0.35
Net realized and
unrealized gain (loss) (0.43) 0.03 0.21
(0.06) 0.06
-----------------------------------------------------------------
-----------------
Total income (loss) from
operations (0.12) 0.34 0.54
0.27 0.41
-----------------------------------------------------------------
-----------------
Less distributions from:
Net investment income (0.30) (0.31) (0.32)
(0.34) (0.34)
In excess of net
investment income -- (0.00)* --
-- --
-----------------------------------------------------------------
-----------------
Total distributions (0.30) (0.31) (0.32)
(0.34) (0.34)
-----------------------------------------------------------------
-----------------
Net asset value, end of
year $ 6.37 $ 6.79 $ 6.76 $
6.54 $ 6.61
-----------------------------------------------------------------
-----------------
Total return (1.69)% 5.04% 8.36%
4.10% 6.45%
-----------------------------------------------------------------
-----------------
Net assets, end of year
(000) $33,113 $41,844 $ 31,133 $
28,325 $ 28,824
-----------------------------------------------------------------
-----------------
Ratios to average net
assets:
Expenses(/3/) 0.98% 0.94% 0.99%
0.97% 0.96%
Net investment income 4.74 4.50 4.89
4.94 5.22
-----------------------------------------------------------------
-----------------
Portfolio turnover rate 108% 52% 58%
46% 26%
-----------------------------------------------------------------
-----------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly
average shares
method.
(/2/) On June 12, 1998, Class C shares were renamed Class L
shares.
(/3/) As a result of a voluntary expense limitation, the ratio of
expenses to
average net assets will not exceed 1.05%.
* Amount represents less than $0.01.
Limited Term Portfolio
22
<PAGE>
For a Class Y share of beneficial interest outstanding
throughout the period
ended March 31:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/)(/2/)
----------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 6.78 $ 6.82
----------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.33 0.12
Net realized and unrealized loss (0.42) (0.02)
----------------------------------------------------------------
Total income (loss) from operations (0.09) 0.10
----------------------------------------------------------------
Less distributions from:
Net investment income (0.33) (0.14)
In excess of net investment income -- (0.00)*
----------------------------------------------------------------
Total distributions (0.33) (0.14)
----------------------------------------------------------------
Net asset value, end of period $ 6.36 $ 6.78
----------------------------------------------------------------
Total return (1.31)% 1.46%++
----------------------------------------------------------------
Net assets, end of period (000) $12,843 $ 45,408
----------------------------------------------------------------
Ratios to average net assets:
Expenses(/3/) 0.55% 0.53%+
Net investment income 5.09 4.65+
----------------------------------------------------------------
Portfolio turnover rate 108% 52%
----------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly
average shares
method.
(/2/) For the period November 12, 1998 (inception date) to March
31, 1999.
(/3/) As a result of voluntary expense limitations, the ratio of
expenses to
average net assets will not exceed 0.70%.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be
representative of the total
return for the year.
+ Annualized.
Smith
Barney Mutual Funds
23
<PAGE>
SalomonSmithBarney
-------------
---------------
A member of
citigroup [LOGO]
Limited Term Portfolio
An investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders
provide addi-
tional information about the fund's investments. These reports
discuss the mar-
ket 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 refer-
ence 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
Information about the fund (including the SAI) can be reviewed
and copied at
the Securities and Exchange Commission's (the "Commission")
Public Reference
Room in Washington, D.C. In addition, information on the
operation of the Pub-
lic Reference Room may be obtained by calling the Commission at
1-202-942-8090.
Re-ports and other information about the fund are available on
the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov.
Copies of this
information may be obtained for a duplicating fee by electronic
request at the
following E-mail address: [email protected], or by writing the
Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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 law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney
Inc.
(Investment Company Act file
no. 811-04395)
FD0664 7/00
<PAGE>
[SMITH BARNEY MUTUAL FUNDS LOGO]
Your Serious Money. Professionally Managed.(SM)
P R O S P E C T U S
Georgia Portfolio
Class A, B, L and Y Shares
--------------------------
July 28, 2000
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>
<PAGE>
(This page intentionally left blank)
<PAGE>
GEORGIA PORTFOLIO
CONTENTS
<TABLE>
<S> <C>
Investments, risks and performance......................... 2
More on the fund's investments............................. 8
Management................................................. 10
Choosing a class of shares to buy.......................... 11
Comparing the fund's classes............................... 12
Sales charges.............................................. 13
More about deferred sales charges.......................... 16
Buying shares.............................................. 17
Exchanging shares.......................................... 18
Redeeming shares........................................... 20
Other things to know about share transactions.............. 22
Dividends, distributions and taxes......................... 24
Share price................................................ 25
Financial highlights....................................... 26
</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.
Smith Barney Mutual Funds 1
<PAGE>
INVESTMENTS, RISKS AND PERFORMANCE
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.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests at least 80% of its net assets in municipal
securities and at least 65% of its net assets in Georgia municipal securities.
Georgia municipal securities 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. The fund focuses primarily on intermediate-term and long-term municipal
securities which 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
2 Georgia Portfolio
<PAGE>
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 invests 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 federal income taxes and Georgia personal income taxes
- 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
Smith Barney Mutual Funds 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 5 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
[RISK RETURN BAR CHART IN PRINTABLE GRAPHIC]
<TABLE>
<CAPTION>
95 96 97 98 99
-- -- -- -- --
<S> <C> <C> <C> <C>
21.99 3.98 12.67 5.66 -5.78
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Highest: 8.52% in 1st quarter 1995; Lowest: (2.95)% in 2nd quarter 1999; Year
to date: (1.48)% through 6/30/00
4 Georgia Portfolio
<PAGE>
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 Debt 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, 1999
<TABLE>
<CAPTION>
CLASS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C> <C>
A (9.52)% 6.43% n/a 5.19% 4/4/94
B (10.27)% 6.61% n/a 5.06% 6/15/94
L (8.21)% 6.50% n/a 5.09% 4/14/94
Lehman Index (2.06)% 6.91% n/a 5.98% *
Lipper Average (4.51)% 5.77% n/a 4.93% *
</TABLE>
*Index comparison begins on April 30, 1994.
Smith Barney Mutual Funds 5
<PAGE>
FEE 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 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
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(EXPENSES DEDUCTED FROM ASSETS) CLASS A CLASS B CLASS L CLASS Y**
<S> <C> <C> <C> <C>
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 0.08% 0.20% 0.18% 0.18%
===== ===== ===== =====
Total annual fund operating
expenses 0.68% 1.30% 1.33% 0.63%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**For Class Y shares, "Other Expenses" have been estimated based on expenses
incurred by Class A shares because prior to March 31, 2000, no Class Y shares
were sold.
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.
6 Georgia Portfolio
<PAGE>
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) $467 $609 $764 $1,213
Class B (redemption at end of
period) $582 $712 $813 $1,397
Class B (no redemption) $132 $412 $713 $1,397
Class L (redemption at end of
period) $334 $517 $821 $1,685
Class L (no redemption) $234 $517 $821 $1,685
Class Y (with or without
redemption) $ 64 $202 $351 $ 786
</TABLE>
Smith Barney Mutual Funds 7
<PAGE>
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 securities 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 be subject to
federal taxation and may be subject to 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 contracts present the same types of default
risk as issuers of fixed income securities.
8 Georgia Portfolio
<PAGE>
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. Inverse floaters and futures are volatile and involve
leverage which may expose the fund to increased risk of loss. 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.
Smith Barney Mutual Funds 9
<PAGE>
MANAGEMENT
MANAGER The fund's investment adviser (the manager) is SSB Citi Fund Management
LLC (successor to 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 SSB Citi Fund Management LLC 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 31 years of experience with the manager or its
predecessors.
MANAGEMENT FEES During the fiscal year ended March 31, 2000, 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 Salomon Smith Barney
Inc. to distribute the fund's shares.
DISTRIBUTION PLAN The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer
agent (the "sub-transfer agent") to render certain shareholder record keeping
and accounting services and functions.
10 Georgia Portfolio
<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 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 $250 $15 million $50
</TABLE>
Smith Barney Mutual Funds 11
<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 FEATURES - Initial sales - No initial - Initial sales - No initial or
charge sales charge charge is deferred
- You may - Deferred lower than sales charge
qualify for sales charge Class A - Must invest
reduction or declines over - Deferred at least $15
waiver of time sales charge million
initial sales - Converts to for only 1 - Lower annual
charge Class A after year expenses than
- Lower annual 8 years - Does not the other
expenses than - Higher annual convert to classes
Class B and expenses than Class A
Class L Class A - Higher annual
expenses than
Class A
---------------------------------------------------------------------------------------------
INITIAL SALES CHARGE Up to 4.00%; None 1.00% None
reduced for
large purchases
and waived for
certain
investors. No
charge for
purchases of
$500,000 or
more
---------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE 1.00% on Up to 4.50% 1.00% if you None
purchases of charged when redeem within 1
$500,000 or you redeem year of
more if you shares. The purchase
redeem within 1 charge is
year of reduced over
purchase time and there
is no deferred
sales charge
after 6 years
---------------------------------------------------------------------------------------------
ANNUAL DISTRIBUTION 0.15% of 0.65% of 0.70% of None
AND SERVICE FEES average daily average daily average daily
net assets net assets net assets
---------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE* Class A shares Class B shares Class L shares Class Y shares
of most Smith of most Smith of most Smith of most Smith
Barney funds 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.
12 Georgia Portfolio
<PAGE>
SALES CHARGES
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 0.00 0.00
</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.
Smith Barney Mutual Funds 13
<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 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").
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>
<S> <C> <C>
Shares issued: On Shares issued: Upon
reinvestment exchange from another
Shares issued: At of dividends and Smith Barney fund
initial purchase distributions
Eight years after the In same proportion On the date the
date of purchase as the number of shares originally
Class B shares acquired would have
converting is to converted into Class
total Class B A shares
shares you own
(excluding shares
issued as dividends)
</TABLE>
14 Georgia Portfolio
<PAGE>
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 and/or other Smith
Barney mutual funds 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
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.
Smith Barney Mutual Funds 15
<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
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
16 Georgia Portfolio
<PAGE>
BUYING SHARES
<TABLE>
<C> <S>
Through a You should contact your Salomon Smith Barney
Salomon Smith Financial Consultant or dealer representative to
Barney Financial open a brokerage account and make arrangements
representative to buy shares.
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
fund's sub-transfer group are eligible to buy shares directly from
agent the fund.
- Write the sub-transfer agent at the following
address:
SMITH BARNEY GEORGIA PORTFOLIO
SMITH BARNEY MUNI FUNDS
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RI 02940-9699
- Enclose a check made payable to the fund 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
systematic dealer representative or the sub-transfer agent
investment plan to transfer funds automatically from a regular
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
sub-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>
Smith Barney Mutual Funds 17
<PAGE>
EXCHANGING SHARES
<TABLE>
<C> <S>
Smith Barney offers You should contact your Salomon Smith Barney
a distinctive Financial Consultant or dealer representative
family of funds to exchange into other Smith Barney funds. Be
tailored to help sure to read the prospectus of the Smith
meet the varying Barney fund you are exchanging into. An
needs of both exchange is a taxable transaction.
large and small
investors - You may exchange shares only for shares of
the same class of another Smith Barney fund.
Not all Smith Barney funds offer all
classes.
- Not all Smith Barney funds may be offered
in your state of residence. Contact your
Salomon Smith Barney Financial Consultant,
dealer representative or the transfer
agent.
- You must meet the minimum investment amount
for each fund (except for systematic
changes).
- If you hold share certificates, the
sub-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
additional sales charge at the time 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.
--------------------------------------------------------------------
</TABLE>
18 Georgia Portfolio
<PAGE>
<TABLE>
<C> <S>
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
4:00 p.m. (Eastern time).
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 sub-transfer
agent at the address on the following page.
</TABLE>
Smith Barney Mutual Funds 19
<PAGE>
REDEEMING SHARES
<TABLE>
<C> <S>
Generally Contact your Salomon Smith Barney Financial
Consultant or dealer representative to redeem
shares of the fund.
If you hold share certificates, the
sub-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 sub-transfer agent at
the following address:
SMITH BARNEY GEORGIA PORTFOLIO
SMITH BARNEY MUNI FUNDS
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RI 02490-9699
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>
20 Georgia Portfolio
<PAGE>
<TABLE>
<C> <S>
By telephone If you do not have a brokerage account, you
may be 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 4:00
p.m. (Eastern time).
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
cash of a portion of your shares on a monthly or
withdrawal quarterly basis. To qualify you must own
plans shares of the fund with a value of 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>
Smith Barney Mutual Funds 21
<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 sub-transfer
agent
- Instruct the sub-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.
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
22 Georgia Portfolio
<PAGE>
- 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 sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds 23
<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 GEORGIA TAX STATUS
<S> <C> <C>
Redemption or exchange Usually capital gain or Usually capital gain or
of shares loss; long-term only if loss
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 Excluded from gross Exempt from personal
income if from interest income taxes if from
on tax-exempt interest on Georgia
securities, otherwise 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.
24 Georgia Portfolio
<PAGE>
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.
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.
Smith Barney Mutual Funds 25
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 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 auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon request).
No information is present for Class Y shares because no shares were outstanding
during these fiscal years.
FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
2000(1) 1999(1) 1998 1997 1996
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
Net asset value,
beginning of year $ 13.43 $ 13.43 $ 12.48 $ 12.50 $12.10
-------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(2) 0.65 0.62 0.67 0.69 0.70
Net realized and unrealized gain
(loss) (1.06) 0.12 1.03 0.04 0.45
-------------------------------------------------------------------------------------
Total income (loss) from operations (0.41) 0.74 1.70 0.73 1.15
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.62) (0.62) (0.67) (0.67) (0.70)
In excess of net investment income -- (0.03) -- -- --
Net realized gains -- (0.09) (0.08) (0.08) (0.05)
-------------------------------------------------------------------------------------
Total distributions (0.62) (0.74) (0.75) (0.75) (0.75)
-------------------------------------------------------------------------------------
Net asset value, end of year $ 12.40 $ 13.43 $ 13.43 $ 12.48 $12.50
-------------------------------------------------------------------------------------
Total return (2.97)% 5.61% 13.85% 5.95% 9.67%
-------------------------------------------------------------------------------------
Net assets, end of year (000) $43,100 $34,680 $20,502 $14,495 $9,744
-------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2)(3) 0.68% 0.64% 0.50% 0.48% 0.38%
Net investment income 4.74 4.63 5.10 5.49 5.57
-------------------------------------------------------------------------------------
Portfolio turnover rate 98% 48% 36% 81% 63%
-------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using monthly average
shares method.
(2) The manager has waived all or a portion of its fees for the
years ended March 31, 1999, 1998, 1997 and 1996. In
addition, the manager reimbursed expenses of $56,755 for the
year ended March 31, 1996. 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>
<TABLE>
<CAPTION>
EXPENSE RATIOS
NET INVESTMENT INCOME PER WITHOUT FEE WAIVERS AND/OR
SHARE DECREASES EXPENSE REIMBURSEMENTS(4)
1999 1998 1997 1996 1999 1998 1997 1996
------------------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.01 $0.04 $0.04 $0.11 0.74% 0.83% 0.90% 1.23%
------------------------------------------------------ -------------------------
</TABLE>
<TABLE>
<C> <S>
(3) As a result of voluntary expense limitations, expense ratios
will not exceed 0.80% for Class A shares.
</TABLE>
26 Georgia Portfolio
<PAGE>
FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
2000(1) 1999(1) 1998 1997 1996
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
Net asset value, beginning of year $13.42 $13.43 $ 12.47 $12.50 $12.11
------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(2) 0.56 0.56 0.61 0.62 0.64
Net realized and unrealized
gain (loss) (1.03) 0.10 1.03 0.04 0.45
------------------------------------------------------------------------------------
Total income (loss) from operations (0.47) 0.66 1.64 0.66 1.09
------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.55) (0.55) (0.60) (0.61) (0.65)
In excess of net investment income -- (0.03) -- -- --
Net realized gains -- (0.09) (0.08) (0.08) (0.05)
------------------------------------------------------------------------------------
Total distributions (0.55) (0.67) (0.68) (0.69) (0.70)
------------------------------------------------------------------------------------
Net asset value, end of year $12.40 $13.42 $ 13.43 $12.47 $12.50
------------------------------------------------------------------------------------
Total return (3.45)% 4.99% 13.39% 5.33% 9.08%
------------------------------------------------------------------------------------
Net assets, end of year (000) $11,503 $13,633 $10,712 $7,354 $5,461
------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2)(3) 1.30% 1.15% 1.02% 1.00% 0.92%
Net investment income 4.47 4.12 4.58 4.97 5.20
------------------------------------------------------------------------------------
Portfolio turnover rate 98% 48% 36% 81% 63%
------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) The manager has waived all or a portion of its fees for the
years ended March 31, 1999, 1998, 1997 and 1996. In
addition, the manager reimbursed expenses of $56,755 for the
year ended March 31, 1996. 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>
<TABLE>
<CAPTION>
EXPENSE RATIOS
NET INVESTMENT INCOME PER SHARE WITHOUT FEE WAIVERS AND/OR
DECREASES EXPENSE REIMBURSEMENTS
1999 1998 1997 1996 1999 1998 1997 1996
--------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class B $0.02 $0.04 $0.05 $0.10 1.26% 1.35% 1.42% 1.77%
--------------------------------------------------------- ----------------------------
</TABLE>
<TABLE>
<C> <S>
(3) As a result of voluntary expense limitations, expense ratios will not exceed 1.30% for Class B shares.
</TABLE>
Smith Barney Mutual Funds 27
<PAGE>
FOR A CLASS L SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
2000(1) 1999(1)(2) 1998 1997 1996
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
Net asset value,
beginning of year $13.41 $13.41 $12.46 $12.49 $12.09
-----------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.56 0.55 0.60 0.62 0.63
Net realized and unrealized
gain (loss) (1.04) 0.12 1.02 0.03 0.46
-----------------------------------------------------------------------------------
Total income (loss) from
operations (0.48) 0.67 1.62 0.65 1.09
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.54) (0.55) (0.59) (0.60) (0.64)
In excess of net investment
income -- (0.03) -- -- --
Net realized gains -- (0.09) (0.08) (0.08) (0.05)
-----------------------------------------------------------------------------------
Total distributions (0.54) (0.67) (0.67) (0.68) (0.69)
-----------------------------------------------------------------------------------
Net assets value, end of year $12.39 $13.41 $13.41 $12.46 $12.49
-----------------------------------------------------------------------------------
Total return (3.51)% 5.01% 13.23% 5.28% 9.12%
-----------------------------------------------------------------------------------
Net assets, end of year (000) $5,893 $7,304 $4,641 $3,221 $2,914
Ratios to average net assets:
Expenses(3)(4) 1.33% 1.20% 1.06% 1.04% 0.97%
Net investment income 4.44 4.07 4.54 4.93 5.18
-----------------------------------------------------------------------------------
Portfolio turnover rate 98% 48% 36% 81% 63%
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) On June 12, 1998, the Class C shares were renamed Class L
shares.
(3) The manager has waived all or a portion of its fees for the
years ended March 31, 1999, 1998, 1997 and 1996. In
addition, the manager reimbursed expenses of $56,755 for the
year ended March 31,1996. 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>
<TABLE>
<CAPTION>
EXPENSE RATIOS
NET INVESTMENT INCOME PER SHARE WITHOUT FEE WAIVERS AND/OR
DECREASES EXPENSE REIMBURSEMENTS
1999 1998 1997 1996 1999 1998 1997 1996
--------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class L $0.02 $0.04 $0.05 $0.10 1.31% 1.39% 1.46% 1.82%
--------------------------------------------------------- ----------------------------
</TABLE>
<TABLE>
<C> <S>
(4) As a result of voluntary expense limitations, expense ratios will not exceed 1.35% for Class L shares.
</TABLE>
28 Georgia Portfolio
<PAGE>
[SALOMON SMITH BARNEY LOGO]
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
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-04395)
FD0771 7/00
<PAGE>
[SMITH BARNEY MUTUAL FUNDS LOGO]
Your Serious Money. Professionally Managed.(SM)
PROSPECTUS
FLORIDA PORTFOLIO
CLASS A, B, L AND Y SHARES
----------------------------------
JULY 28, 2000
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>
<PAGE>
(This page intentionally left blank)
<PAGE>
FLORIDA PORTFOLIO
CONTENTS
<TABLE>
<S> <C>
Investments, risks and performance......................... 2
More on the fund's investments............................. 7
Management................................................. 9
Choosing a class of shares to buy.......................... 10
Comparing the fund's classes............................... 11
Sales charges.............................................. 12
More about deferred sales charges.......................... 15
Buying shares.............................................. 16
Exchanging shares.......................................... 17
Redeeming shares........................................... 19
Other things to know about share transactions.............. 21
Dividends, distributions and taxes......................... 23
Share price................................................ 25
Financial highlights....................................... 26
</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.
1 Smith Barney Mutual Funds
<PAGE>
INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The fund seeks as high a level of income exempt from federal income taxes as is
consistent with prudent investing.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests at least 80% of its net assets in municipal
securities and at least 65% of its net assets in Florida municipal securities.
Florida municipal securities include securities issued by the State of Florida
and certain other municipal issuers, political subdivisions, agencies and public
authorities that pay interest which is excluded from gross income for federal
income purposes. The fund generally favors municipal securities which enable its
shares to be exempt from the Florida intangibles tax. The fund focuses primarily
on intermediate-term and long-term municipal securities which have remaining
maturities at the time of purchase of 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 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
Florida Portfolio 2
<PAGE>
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 invests 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 income taxes
- 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 Smith Barney Mutual Funds
<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 8 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
[RISK RETURN BAR CHART IN PRINTABLE GRAPHIC]
<TABLE>
<S> <C>
92 8.90
93 13.14
94 -5.11
95 17.45
96 4.51
97 10.15
98 5.70
99 -4.54
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Highest: 6.86% in 1st quarter 1995; Lowest: (5.02)% in 1st quarter 1994;
Year to date: 1.65% through 6/30/00
Florida Portfolio 4
<PAGE>
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 Debt 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, 1999
<TABLE>
<CAPTION>
CLASS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C> <C>
A (8.39)% 5.54% n/a 6.03% 4/2/91
B (9.12)% 5.72% n/a 6.48% 11/16/94
L (6.89)% 5.60% n/a 4.78% 1/5/93
Lehman Index (2.06)% 6.91% n/a 6.68% *
Lipper Average (4.35)% 5.89% n/a 6.00% *
</TABLE>
*Index comparison begins on April 30, 1991.
5 Smith Barney Mutual Funds
<PAGE>
FEE 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 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
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(EXPENSES DEDUCTED FROM ASSETS) CLASS A CLASS B CLASS L CLASS Y**
<S> <C> <C> <C> <C>
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 0.09% 0.11% 0.12% 0.09%
Total annual fund operating
expenses 0.74% 1.26% 1.32% 0.59%
===== ===== ===== =====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**For Class Y shares, "Other Expenses" have been estimated based on expenses
incurred by Class A shares because prior to March 31, 2000, no Class Y shares
were sold.
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) $473 $627 $795 $1,282
Class B (redemption at end of
period) $578 $700 $792 $1,379
Class B (no redemption) $128 $400 $692 $1,379
Class L (redemption at end of
period) $333 $514 $816 $1,674
Class L (no redemption) $233 $514 $816 $1,674
Class Y (with or without
redemption) $60 $189 $329 $738
</TABLE>
Florida Portfolio 6
<PAGE>
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 securities 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 contracts present the same types of default
risk as issuers of fixed income securities.
7 Smith Barney Mutual Funds
<PAGE>
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. Inverse floaters and futures are volatile and involve
leverage which may expose the fund to increased risk of loss. 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.
Florida Portfolio 8
<PAGE>
MANAGEMENT
MANAGER The fund's investment adviser (the manager) is SSB Citi Fund Management
LLC (successor to 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 SSB Citi Fund Management LLC 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 31 years of experience with the manager or its
predecessors.
MANAGEMENT FEES During the fiscal year ended March 31, 2000, 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 Salomon Smith Barney
Inc. to distribute the fund's shares.
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.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer
agent (the "sub-transfer agent") to render certain shareholder record keeping
and accounting services and functions.
9 Smith Barney Mutual Funds
<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 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 $250 $15 million $50
</TABLE>
Florida Portfolio 10
<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 FEATURES - Initial sales - No initial - Initial sales - No initial or
charge sales charge charge is deferred
- You may - Deferred lower than sales charge
qualify for sales charge Class A - Must invest
reduction or declines over - Deferred at least $15
waiver of time sales charge million
initial sales - Converts to for only 1 - Lower annual
charge Class A after year expenses than
- Lower annual 8 years - Does not the other
expenses than - Higher annual convert to classes
Class B and expenses than Class A
Class L Class A - Higher annual
expenses than
Class A
---------------------------------------------------------------------------------------------
INITIAL SALES CHARGE Up to 4.00%; None 1.00% None
reduced for
large purchases
and waived for
certain
investors. No
charge for
purchases of
$500,000 or
more
---------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE 1.00% on Up to 4.50% 1.00% if you None
purchases of charged when redeem within 1
$500,000 or you redeem year of
more if you shares. The purchase
redeem within 1 charge is
year of reduced over
purchase time and there
is no deferred
sales charge
after 6 years
---------------------------------------------------------------------------------------------
ANNUAL DISTRIBUTION 0.15% of 0.65% of 0.70% of None
AND SERVICE FEES average daily average daily average daily
net assets net assets net assets
---------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE* Class A shares Class B shares Class L shares Class Y shares
of most Smith of most Smith of most Smith of most Smith
Barney funds 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.
11 Smith Barney Mutual Funds
<PAGE>
SALES CHARGES
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 0.00 0.00
</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.
Florida Portfolio 12
<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 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>
<S> <C> <C>
Shares issued: On Shares issued: Upon
reinvestment of exchange from another
Shares issued: At dividends and Smith Barney fund
initial purchase distributions
Eight years after the In same proportion On the date the
date of purchase as the number of shares originally
Class B shares acquired would have
converting is to converted into Class
total Class B A shares
shares you own
(excluding shares
issued as dividends)
</TABLE>
13 Smith Barney Mutual Funds
<PAGE>
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 and/or other Smith
Barney mutual funds 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
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.
Florida Portfolio 14
<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
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
15 Smith Barney Mutual Funds
<PAGE>
BUYING SHARES
<TABLE>
<C> <S>
Through a You should contact your Salomon Smith Barney
Salomon Smith Financial Consultant or dealer representative to
Barney Financial open a brokerage account and make arrangements
representative to buy shares.
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
fund's sub-transfer group are eligible to buy shares directly from
agent the fund.
- Write the sub-transfer agent at the following
address:
SMITH BARNEY FLORIDA PORTFOLIO
SMITH BARNEY MUNI FUNDS
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RI 02940-9699
- Enclose a check made payable to the fund 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
systematic dealer representative or the sub-transfer agent
investment plan to transfer funds automatically from a regular
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
sub-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>
Florida Portfolio 16
<PAGE>
EXCHANGING SHARES
<TABLE>
<C> <S>
Smith Barney offers You should contact your Salomon Smith Barney
a distinctive Financial Consultant or dealer representative
family of funds to exchange into other Smith Barney funds. Be
tailored to help sure to read the prospectus of the Smith
meet the varying Barney fund you are exchanging into. An
needs of both exchange is a taxable transaction.
large and small
investors - You may exchange shares only for shares of
the same class of another Smith Barney fund.
Not all Smith Barney funds offer all
classes.
- Not all Smith Barney funds may be offered
in your state of residence. Contact your
Salomon Smith Barney Financial Consultant,
dealer representative or the transfer
agent.
- You must meet the minimum investment amount
for each fund (except for systematic
changes).
- If you hold share certificates, the
sub-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
additional sales charge at the time 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.
--------------------------------------------------------------------
</TABLE>
17 Smith Barney Mutual Funds
<PAGE>
<TABLE>
<C> <S>
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
4:00 p.m. (Eastern time).
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 sub-transfer
agent at the address on the following page.
</TABLE>
Florida Portfolio 18
<PAGE>
REDEEMING SHARES
<TABLE>
<C> <S>
Generally Contact your Salomon Smith Barney Financial
Consultant or dealer representative to redeem
shares of the fund.
If you hold share certificates, the
sub-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 sub-transfer agent at
the following address:
SMITH BARNEY FLORIDA PORTFOLIO
SMITH BARNEY MUNI FUNDS
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RI 02490-9699
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>
19 Smith Barney Mutual Funds
<PAGE>
<TABLE>
<C> <S>
By telephone If you do not have a brokerage account, you
may be 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 4:00
p.m. (Eastern time).
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
cash of a portion of your shares on a monthly or
withdrawal quarterly basis. To qualify you must own
plans shares of the fund with a value of 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 20
<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 sub-transfer
agent
- Instruct the sub-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.
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
21 Smith Barney Mutual Funds
<PAGE>
- 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 sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Florida Portfolio 22
<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.
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.
23 Smith Barney Mutual Funds
<PAGE>
<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 Excluded from gross income 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.
Florida Portfolio 24
<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.
25 Smith Barney Mutual Funds
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 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 auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon request).
No information is present for Class Y shares because no shares were outstanding
during these fiscal years.
FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
2000(1) 1999(1) 1998 1997 1996(1)
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Net asset value, beginning of
year $13.70 $13.74 $13.16 $13.24 $12.89
--------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.69 0.69 0.72 0.73 0.74
Net realized and unrealized
gain (loss) (1.01) 0.06 0.72 (0.03) 0.35
--------------------------------------------------------------------------------
Total income (loss) from
operations (0.32) 0.75 1.44 0.70 1.09
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.68) (0.69) (0.73) (0.73) (0.74)
In excess of net
investment income -- (0.01) -- -- --
Net realized gains -- (0.09) (0.13) (0.05) --
--------------------------------------------------------------------------------
Total distributions (0.68) (0.79) (0.86) (0.78) (0.74)
--------------------------------------------------------------------------------
Net asset value, end of year $12.70 $13.70 $13.74 $13.16 $13.24
--------------------------------------------------------------------------------
Total return (2.25)% 5.56% 11.15% 5.44% 8.65%
--------------------------------------------------------------------------------
Net assets, end of year
(millions) $ 151 $160 $143 $127 $117
--------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2) 0.74% 0.73% 0.76% 0.85% 0.70%
Net investment income 5.32 4.99 5.28 5.56 5.62
--------------------------------------------------------------------------------
Portfolio turnover rate 56% 43% 59% 62% 47%
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) As a result of voluntary expense limitations, expense ratios
will not exceed 0.85% for Class A shares.
</TABLE>
Florida Portfolio 26
<PAGE>
FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
2000(1) 1999(1) 1998 1997 1996(1)
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------
Net asset value, beginning of
year $13.69 $13.73 $13.14 $13.23 $12.89
---------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.62 0.62 0.65 0.65 0.68
Net realized and unrealized
gain (loss) (1.00) 0.06 0.72 (0.01) 0.35
---------------------------------------------------------------------------------
Total income (loss) from
operations (0.38) 0.68 1.37 0.64 1.03
---------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.61) (0.62) (0.65) (0.68) (0.69)
In excess of net
investment income -- (0.01) -- -- --
Net realized gains -- (0.09) (0.13) (0.05) --
---------------------------------------------------------------------------------
Total distributions (0.61) (0.72) (0.78) (0.73) (0.69)
---------------------------------------------------------------------------------
Net asset value, end of year $12.70 $13.69 $13.73 $13.14 $13.23
---------------------------------------------------------------------------------
Total return (2.70)% 5.01% 10.59% 4.91% 8.09%
---------------------------------------------------------------------------------
Net assets, end of year
(millions) $59 $66 $59 $51 $46
---------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2) 1.26% 1.24% 1.28% 1.35% 1.20%
Net investment income 4.80 4.48 4.76 4.93 5.00
---------------------------------------------------------------------------------
Portfolio turnover rate 56% 43% 59% 62% 47%
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) As a result of voluntary expense limitations, expense ratios
will not exceed 1.35%.
</TABLE>
27 Smith Barney Mutual Funds
<PAGE>
FOR A CLASS L SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
2000(1) 1999(1)(2) 1998 1997 1996(1)
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Net asset value, beginning of
year $13.69 $13.74 $13.14 $13.22 $12.89
--------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.61 0.61 0.64 0.65 0.66
Net realized and unrealized
gain (loss) (1.00) 0.05 0.72 (0.01) 0.35
--------------------------------------------------------------------------------
Total income (loss) from
operations (0.39) 0.66 1.36 0.64 1.01
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.60) (0.61) (0.63) (0.67) (0.68)
In excess of net
investment income -- (0.01) -- -- --
Net realized gains -- (0.09) (0.13) (0.05) --
--------------------------------------------------------------------------------
Total distributions (0.60) (0.71) (0.76) (0.72) (0.68)
--------------------------------------------------------------------------------
Net assets value, end of year $12.70 $13.69 $13.74 $13.14 $13.22
--------------------------------------------------------------------------------
Total return (2.78)% 4.87% 10.51% 4.94% 7.96%
--------------------------------------------------------------------------------
Net assets, end of year
(millions) $13 $12 $9 $7 $3
--------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(3) 1.32% 1.31% 1.33% 1.40% 1.28%
Net investment income 4.74 4.41 4.71 4.84 5.04
--------------------------------------------------------------------------------
Portfolio turnover rate 56% 43% 59% 62% 47%
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) On June 12, 1998, the Class C shares were renamed Class L
shares.
(3) As a result of voluntary expense limitations, expense ratios
will not exceed 1.40%.
</TABLE>
Florida Portfolio 28
<PAGE>
[SALOMON SMITH BARNEY LOGO]
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
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-04395)
FD0605 7/00
<PAGE>
[SB]Smith Barney
[MF]Mutual Funds
Your Serious Money.Professionally Managed./SM/
P R O S P E C T U S
New York
Portfolio
Class A, B, L and Y Shares
-------------------------------------------
July 28, 2000
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>
New York Portfolio
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about deferred sales charges........................................... 12
Buying shares............................................................... 13
Exchanging shares........................................................... 14
Redeeming shares............................................................ 16
Other things to know about share transactions............................... 18
Dividends, distributions and taxes.......................................... 20
Share price................................................................. 21
Financial highlights........................................................ 22
</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.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
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.
Principal investment strategies
Key investments The fund invests at least 80% of its net assets in municipal
securities, and at least 65% of its net assets in New York municipal securi-
ties. New York municipal securities 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. The fund focuses primarily on interme-
diate-term and long-term municipal securities which 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 indi-
vidual securities, the manager:
.Uses fundamental credit analysis to estimate the relative value and attrac-
tiveness 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 reve-
nue 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
New York Portfolio
2
<PAGE>
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 distri-
butions of the fund's gains generally will be, subject to federal income taxa-
tion and New York State and New York City personal income 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 invests 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 federal income taxes and New York personal income taxes
.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
Smith Barney Mutual Funds
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 neces-
sarily 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.
Total Return for Class A Shares
[BAR CHART]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.42% 14.77% 9.92% 12.93% -5.95% 18.26% 4.19% 10.34% 5.89% -4.36%
Calendar years ended December 31
Quarterly returns:
Highest: 7.17% in 1st quarter 1995; Lowest: (5.20)% in 1st quarter 1994
Year to date: 4.84% through 6/30/00.
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age 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 unman-
aged index of municipal bonds and the Lipper New York Municipal Debt Funds
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 appli-
cable to the class, redemption of shares at the end of the period, and rein-
vestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A (8.17)% 5.73% 6.44% 6.30% 1/16/87
B (8.91)% 5.91% n/a 6.42% 11/11/94
L (6.73)% 5.80% n/a 4.81% 1/8/93
Lehman Index (2.06)% 6.91% 6.89% 6.81% *
Lipper Average (4.86)% 5.68% 6.09% 5.82% *
</TABLE>
* Index comparison begins on January 31, 1987.
New York Portfolio
4
<PAGE>
Fee 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 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
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y**
<S> <C> <C> <C> <C>
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 0.06% 0.08% 0.07% 0.06%
----- ----- ----- -----
Total annual fund operating expenses 0.71% 1.23% 1.27% 0.56%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**For Class Y shares "Other Expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares were outstanding for the
fiscal year ended March 31, 2000.
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) $470 $618 $779 $1,247
Class B (redemption at end of period) $575 $690 $776 $1,344
Class B (no redemption) $125 $390 $676 $1,344
Class L (redemption at end of period) $328 $499 $790 $1,619
Class L (no redemption) $228 $499 $790 $1,619
Class Y (with or without redemption) $ 57 $179 $313 $ 701
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
New York municipal securities New York municipal securities include debt obli-
gations 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 sub-
ject 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 securities 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 because of 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 hold-
ings. 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 strate-
gies 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.
New York Portfolio
6
<PAGE>
Management
Manager The fund's investment adviser is SSB Citi Fund Management LLC (succes-
sor to 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 busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment 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 the manager 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 30 years of securities
business experience.
Management fees During the fiscal year ended March 31, 2000, 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 Salomon Smith Barney
Inc. and PFS Distributors, Inc. to distribute the fund's shares.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
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 invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through 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 $ 250 $15 million $50
</TABLE>
New York Portfolio
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 com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
4.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
------------------------------------------------------------------------
Deferred sales charge 1.00% on Up to 4.50% 1.00% if None
purchases charged you redeem
of $500,000 when you within 1
or more if redeem year of
you redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
------------------------------------------------------------------------
Annual distribution and 0.15% of 0.65% of 0.70% of None
service fees average average average
daily net daily net daily net
assets assets assets
------------------------------------------------------------------------
Exchange privilege Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney 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.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining 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.
New York Portfolio
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 cer-
tain 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 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 pur-
chase, 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: At initial purchase Shares issued: On Shares issued:
reinvestment of Upon exchange from
dividends and another Smith
distributions Barney fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
(excluding shares
issued as divi-
dends)
</TABLE>
Smith Barney Mutual Funds
11
<PAGE>
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 and/or other Smith
Barney mutual funds 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 13-month period. To qualify, you must ini-
tially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase 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
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
New York Portfolio
12
<PAGE>
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.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make 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.
--------------------------------------------------------------------------------
Certain investors who are clients of the selling group are
Through the eligible to buy shares directly from the fund.
fund's sub-
transfer
agent
.Write the sub-transfer agent at the following address:
Smith Barney New York Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check made payable to the fund 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.
Smith Barney Mutual Funds
13
<PAGE>
Through a
systematic You may authorize Salomon Smith Barney, your dealer represen-
investment tative or the sub-transfer agent to transfer funds automati-
plan cally from a regular 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 represen-
tative or the sub-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.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the .You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small .Not all Smith Barney funds may be offered in your state of
investors residence. Contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund
(except for systematic exchanges).
.If you hold share certificates, the sub-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.
New York Portfolio
14
<PAGE>
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured 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 com-
plete 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 4:00 p.m. (Eastern
time).
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 sub-trans-
fer agent at the address on the following page.
Smith Barney Mutual Funds
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 sub-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 redemp-
tion 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 sub-transfer agent at the following address:
Smith Barney New York Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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 regis-
tered
New York Portfolio
16
<PAGE>
By telephone
If you do not have a brokerage account, you may be 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 4:00 p.m. (Eastern time).
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 docu-
ments.
--------------------------------------------------------------------------------
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.
Smith Barney Mutual Funds
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 redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal 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 sub-transfer
agent
.Instruct the sub-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 regis-
tration
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.
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
New York Portfolio
18
<PAGE>
.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 Securi-
ties 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 share-
holders. 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 sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
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 primar-
ily 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 distribu-
tions 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 distribu-
tions (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 Usually capital Usually capital gain
exchange of shares gain or loss; long-term only or loss
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 Excluded from gross Exempt from personal
income if from interest income taxes if from
on tax- exempt interest on New York
securities, otherwise 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 distribu-
tions 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
New York Portfolio
20
<PAGE>
shares during the previous year. If you do not provide the fund with your cor-
rect 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.
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 liabili-
ties. 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 calcu-
lation 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 repre-
sentative 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.
Smith Barney Mutual Funds
21
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years. Certain information reflects finan-
cial 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 auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon
request). No information is presented for Class Y shares because no shares were
outstanding during these fiscal years.
For a Class A share of capital stock outstanding throughout each year ended
March 31:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $13.69 $13.91 $13.16 $13.19 $12.83
-------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.68 0.68 0.72 0.74 0.75
Net realized and unrealized gain
(loss) (0.91) 0.07 0.81 (0.03) 0.35
-------------------------------------------------------------------------------
Total income (loss) from
operations (0.23) 0.75 1.53 0.71 1.10
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.67) (0.70) (0.73) (0.74) (0.74)
Net realized gains (0.01) (0.27) (0.05) -- --
-------------------------------------------------------------------------------
Total distributions (0.68) (0.97) (0.78) (0.74) (0.74)
-------------------------------------------------------------------------------
Net asset value, end of year $12.78 $13.69 $13.91 $13.16 $13.19
-------------------------------------------------------------------------------
Total return (1.61)% 5.50% 11.83% 5.48% 8.71%
-------------------------------------------------------------------------------
Net assets, end of year
(millions) $482 $556 $554 $531 $558
-------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(/2/) 0.71% 0.70% 0.71% 0.75% 0.72%
Net investment income 5.20 4.94 5.28 5.58 5.84
-------------------------------------------------------------------------------
Portfolio turnover rate 33% 60% 71% 53% 36%
-------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) As a result of voluntary expense limitations, the expense ratio will not
exceed 0.85% for Class A shares.
New York Portfolio
22
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
March 31:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $13.68 $13.89 $13.15 $13.18 $12.84
--------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.61 0.61 0.65 0.67 0.67
Net realized and unrealized gain
(loss) (0.90) 0.07 0.80 (0.03) 0.35
--------------------------------------------------------------------------------
Total income (loss) from
operations (0.29) 0.68 1.45 0.64 1.02
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.60) (0.62) (0.66) (0.67) (0.68)
Net realized gains (0.01) (0.27) (0.05) -- --
--------------------------------------------------------------------------------
Total distributions (0.61) (0.89) (0.71) (0.67) (0.68)
--------------------------------------------------------------------------------
Net asset value, end of year $12.78 $13.68 $13.89 $13.15 $13.18
--------------------------------------------------------------------------------
Total return (2.09)% 5.02% 11.19% 4.96% 8.05%
--------------------------------------------------------------------------------
Net assets, end of year
(millions) $156 $192 $195 $185 $181
--------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(/2/) 1.23% 1.23% 1.23% 1.27% 1.25%
Net investment income 4.67 4.42 4.76 5.06 5.45
--------------------------------------------------------------------------------
Portfolio turnover rate 33% 60% 71% 53% 36%
--------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method.
(/2/) As a result of voluntary expense limitations, the expense ratio will not
exceed 1.35% for Class B shares.
Smith Barney Mutual Funds
23
<PAGE>
For a Class L share of capital stock outstanding throughout each year ended
March 31:
<TABLE>
<CAPTION>
2000(/2/) 1999(/1/)(/2/) 1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 13.67 $ 13.88 $ 13.14 $ 13.17 $12.83
------------------------------------------------------------------------------
Income (loss) from
operations:
Net investment income 0.60 0.60 0.64 0.66 0.66
Net realized and
unrealized gain (loss) (0.90) 0.07 0.80 (0.02) 0.36
------------------------------------------------------------------------------
Total income (loss) from
operations (0.30) 0.67 1.44 0.64 1.02
------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.59) (0.61) (0.65) (0.67) (0.68)
Net realized gains (0.01) (0.27) (0.05) -- --
------------------------------------------------------------------------------
Total distributions (0.60) (0.88) (0.70) (0.67) (0.68)
------------------------------------------------------------------------------
Net assets value, end of
year $ 12.77 $ 13.67 $ 13.88 $ 13.14 $13.17
------------------------------------------------------------------------------
Total return (2.14)% 4.95% 11.13% 4.91% 8.07%
------------------------------------------------------------------------------
Net assets, end of year
(000s) $17,633 $18,221 $10,611 $10,055 $8,931
------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/3/) 1.27% 1.27% 1.28% 1.32% 1.28%
Net investment income 4.64 4.37 4.71 5.01 5.02
------------------------------------------------------------------------------
Portfolio turnover rate 33% 60% 71% 53% 36%
------------------------------------------------------------------------------
</TABLE>
(/1/) On June 12, 1998, Class C shares were renamed Class L shares.
(/2/) Per share amounts have been calculated using the monthly average shares
method.
(/3/) As a result of voluntary expense limitations, the expense ratio will not
exceed 1.40% for Class L shares.
New York Portfolio
24
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
New York Portfolio
An investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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 law-
fully sell its shares.
/SM/Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-04395)
FD0604 7/00
<PAGE>
[SB] Smith Barney
[MF] Mutual Funds
Your Serious Money. Professional Managed./SM/
P R O S P E C T U S
[GRAPHIC]
New York
Portfolio
Class A and B Shares
--------------------------------------------------------------------------------
July 28, 2000
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>
New York Portfolio
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Comparing the fund's classes................................................ 9
Sales charges............................................................... 10
More about 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.......................................... 18
Share price................................................................. 19
Financial highlights........................................................ 21
</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.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
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.
Principal investment strategies
Key investments The fund invests at least 80% of its net assets in municipal
securities, and at least 65% of its net assets in New York municipal securi-
ties. New York municipal securities 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. The fund focuses primarily on interme-
diate-term and long-term municipal securities which 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 indi-
vidual securities, the manager:
. Uses fundamental credit analysis to estimate the relative value and attrac-
tiveness 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 reve-
nue 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
New York Portfolio
2
<PAGE>
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 distri-
butions 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 addi-
tion, 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 invests 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 federal income taxes and New York personal income taxes
. 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
Smith Barney Mutual Funds
3
<PAGE>
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 neces-
sarily 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 shares would have different performance because of their differ-
ent expenses. The performance information in the chart does not reflect sales
charges, which would reduce your return.
Total Return for Class A Shares
[BAR CHART]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
5.42% 14.77% 9.92% 12.93% (5.95%) 18.26% 4.19% 10.34% 5.89% (4.36%)
Calendar years ended December 31
Quarterly returns:
Highest: 7.17% in 1st quarter 1995; Lowest: (5.20)% in 1st quarter 1994
Year to date: 4.84% through 6/30/00.
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age 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 unman-
aged index of municipal bonds and the Lipper New York Municipal Debt Funds
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 appli-
cable to the class, redemption of shares at the end of the period, and rein-
vestment of distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A (8.17)% 5.73% 6.44% 6.30% 1/16/87
B (8.91)% 5.91% n/a 6.42% 11/11/94
Lehman Index (2.06)% 6.91% 6.89% 6.81% *
Lipper Average (4.86)% 5.68% 6.09% 5.82% *
</TABLE>
* Index comparison begins on January 31, 1987.
New York Portfolio
4
<PAGE>
Fee 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
<S> <C> <C>
Maximum sales charge (load) imposed on purchases (as a % of
offering price) 4.00% None
Maximum deferred sales charge (load) (as a % of the lower of
net asset value at purchase or redemption) None* 4.50%
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class B
<S> <C> <C>
Management fee 0.50% 0.50%
Distribution and service (12b-1) fees 0.15% 0.65%
Other expenses 0.06% 0.08%
----- -----
Total annual fund operating expenses 0.71% 1.23%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales 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) $470 $618 $779 $1,247
Class B (redemption at end of period) $575 $690 $776 $1,344
Class B (no redemption) $125 $390 $676 $1,344
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
New York municipal securities New York municipal securities include debt obli-
gations 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 sub-
ject 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 securities 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 because of 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 hold-
ings. 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 strate-
gies 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.
New York Portfolio
6
<PAGE>
Management
Manager The fund's investment adviser is SSB Citi Fund Management LLC (succes-
sor to 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 busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment 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 the manager 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 30 years of securities
business experience.
Management fees During the fiscal year ended March 31, 2000, 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 Salomon Smith Barney
Inc. and PFS Distributors, Inc. to distribute the fund's shares.
Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its
Class A and B shares. Under the plan, the fund pays distribution and/or service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You can choose between two classes of shares: Classes A and B. 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 will be immediately invested.
This may help offset the higher expenses of Class B shares, but only if the
fund performs well.
Initial purchases of shares of the fund must be made through a PFS Investments
Registered Representative.
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 and B Both Classes
<S> <C> <C>
General $1,000 $50
Systematic Investment Plans $25 $25
Uniform Gift to Minors Accounts $250 $50
</TABLE>
New York Portfolio
8
<PAGE>
Comparing the fund's classes
Your PFS Investments Registered 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
<S> <C> <C>
Key features .Initial .No initial
sales sales
charge charge
.You may .Deferred
qualify sales
for reduc- charge
tion or declines
waiver of over time
initial .Converts
sales to Class A
charge after 8
.Lower years
annual .Higher
expenses annual
than Class expenses
B than Class
A
-------------------------------------------------------------
Initial sales charge Up to None
4.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
-------------------------------------------------------------
Deferred sales charge 1.00% on Up to 4.50%
purchases charged
of $500,000 when you
or more if redeem
you redeem shares. The
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
-------------------------------------------------------------
Annual distribution and service fees 0.15% of 0.65% of
average average
daily net daily net
assets assets
-------------------------------------------------------------
Exchange privilege Class A Class B
shares of shares of
most Smith most Smith
Barney Barney
funds funds
-------------------------------------------------------------
</TABLE>
*Ask your PFS Investments Registered Representative for the Smith Barney funds
available for exchange.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
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. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
. Letter of intent - lets you purchase Class A shares of the fund and certain
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.
New York Portfolio
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
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if your PFS Investments Registered Representative is notified
.Investors who purchase through a PFS Investments Registered Representative
with proceeds from a prior mutual fund redemption, if certain conditions are
met.
If you want to learn about additional waivers of Class A initial sales charges,
contact your PFS Investments Registered Representative or consult the Statement
of Additional Information ("SAI").
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 pur-
chase, 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: At initial purchase Shares issued: On Shares issued:
reinvestment of Upon exchange from
dividends and another Smith
distributions Barney fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
(excluding shares
issued as a divi-
dend)
</TABLE>
Smith Barney Mutual Funds
11
<PAGE>
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase 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
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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 PFS Investments Registered Representative.
PFS Distributors Inc., an affiliate of PFS Investments Inc., receives deferred
sales charges as partial compensation for its expenses in connection with the
sale of shares, including the payment of compensation to your PFS Investments
Registered 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 PFS Investments Registered Representative or consult the SAI.
New York Portfolio
12
<PAGE>
Buying shares
Buying shares
by mail . Initial purchases of shares of each fund must be made
through a PFS Investments Registered Representative by
completing the appropriate appli-cation. The completed
application should be forwarded to the Fund's sub-transfer
agent, PFS Shareholder Services.
. Subsequent investments may be sent by mail directly to PFS
Shareholder Services.
. The address and telephone number of PFS Shareholder Serv-
ices is: 3100 Breckinridge Blvd., Bldg. 200, Duluth, Geor-
gia 30099-0062; (800) 544-5445.
. You may also reach PFS Shareholder Services by calling
(800) 544-7278 for Spanish speaking representatives or
(800) 824-1721 for the TDD Line for the hearing impaired.
. Checks drawn on foreign banks must be payable in U.S. dol-
lars and have the routing number of the U.S. bank encoded
on the check.
--------------------------------------------------------------------------------
Buying shares
by wire Initial purchases of shares for $10,000 may be made by wire
order from your bank account. Contact PFS Shareholder Serv-
ices for details. In addition, once an account is open, you
may make additional wire orders through your PFS Investments
Registered Representative.
--------------------------------------------------------------------------------
Through a You may authorize PFS Shareholder Services to transfer funds
systematic automatically from a regular bank account, or other financial
investment institutions to buy shares of a fund.
plan
. Amounts transferred should be at least $25 monthly
. If you do not have sufficient funds in your account on a
transfer date, PFS Shareholder Services may charge you a
fee
For more information, contact your PFS Investments Registered
Representative or consult the SAI.
Smith Barney Mutual Funds
13
<PAGE>
Exchanging shares
Smith Barney You should contact your PFS Investments Registered Represen-
offers a tative to exchange into other eligible 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
help meet the of certain Smith Barney funds. Not all Smith Barney funds
varying needs offer all classes.
of both large
and small . Not all Smith Barney funds may be offered in your state of
investors residence. Contact your PFS Investments Registered Repre-
sentative.
. You must meet the minimum investment amount for each fund
(except for systematic exchanges).
. If you hold share certificates, PFS Shareholder Services
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
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured 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 You may exchange shares by telephone up to a maximum of
$500,000 if you elect telephone transactions on your account
application.
To learn more about the exchange privileges and Smith Barney
mutual funds you may be eligible to exchange into, contact
your PFS Investments Registered Representative or consult the
SAI.
New York Portfolio
14
<PAGE>
Redeeming shares
Redemptions Generally, a properly completed Redemption Form with any
by mail required signature guarantee is all that is required for a
redemption. In some cases, however, other documents may be
necessary.
You may redeem some or all of your shares by sending a Redemp-
tion Form or other written request in proper form to PFS
Shareholder Services, 3100 Breckinridge Blvd., Bldg. 200,
Duluth, Georgia 30099-0062. You may also reach PFS Shareholder
Services by calling (800) 544-5445 or (800) 544-7278 for Span-
ish speaking representatives or (800) 824-1721 for the TDD
Line for the hearing impaired. The written request for redemp-
tion must be in good order. This means that you have provided
the following information. Your request will not be processed
without this information.
. Name of the fund
. Account number
. Dollar amount or number of shares to be redeemed
. Signature of each owner exactly as account is registered
. Other documentation required by PFS Shareholder Services
To be in good order, your request must include a signature
guarantee if:
. The proceeds of the redemption exceed $50,000
. The proceeds are not paid to the record owner(s) at the
record address
. The shareholder(s) has had an address change in the past 45
days
. The shareholder(s) is a corporation, sole proprietor, part-
nership, trust or fiduciary
You can obtain a signature guarantee from most banks, dealers,
brokers, credit unions and federal savings and loan institu-
tions, but not from a notary public.
In all cases, your redemption price is the net asset value
next determined after your request is received in good order.
Redemption proceeds normally will be
Smith Barney Mutual Funds
15
<PAGE>
sent within three days. 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. Any request that your redemption proceeds be
sent to a destination other than your bank account or address
of record must be in writing and must include signature
guarantees.
--------------------------------------------------------------------------------
Redemptions
by telephone You may redeem shares by telephone unless you elect not to
accept the telephone transactions option on your account
application. This is available only for redemptions of $50,000
or less, and the proceeds must be mailed to your address of
record. In addition, you must be able to provide proper iden-
tification information. You may not redeem by telephone if
your address has changed within the past 45 days or if your
shares are in certificate form. Telephone redemption requests
may be made by calling PFS Shareholder Services at (800) 544-
5445 between 8:00 a.m. and 8:00 p.m. Eastern time on any day
the New York Stock Exchange is open. Requests received after
the close of regular trading on the New York Stock Exchange
are priced at the net asset value next computed. Orders
received after the close of the New York Stock Exchange are
priced the following day. If telephone redemptions are not
available for any reason, you may use the Fund's regular
redemption procedure described above.
--------------------------------------------------------------------------------
Payment of You may elect to have your redemption proceeds sent by check
redemption to your address of record or deposited into your bank account
proceeds by the Automated Clearinghouse (ACH). Wire transfers are not
available on phone redemptions. You will be charged a service
fee for transfers made directly to your bank by ACH.
--------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash with- your shares on a monthly or quarterly basis. To qualify you
drawal plans must own shares of the fund with a value of 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 are equal to
or less than 1% per month of the value of your shares subject
to a deferred sales charge.
New York Portfolio
16
<PAGE>
The following conditions apply:
. Shares may not be represented by certificates
. All dividends and distributions must be reinvested
For more information contact your PFS Investments Registered
Representative or consult the SAI.
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
Signature guarantees To be in good order, your redemption request must include
a signature guarantee:
.if proceeds of the redemption exceed $50,000
.if proceeds are not paid to the record owner at the record address
.if shareholder has had an address change in the past 45 days
.if shareholder is a corporation, sole proprietor, partnership, trust or fidu-
ciary.
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.
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 Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Smith Barney Mutual Funds
17
<PAGE>
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 share-
holders. 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 PFS Shareholder Services. If
you hold share certificates it will take longer to exchange or redeem shares.
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 primar-
ily from income. You do not pay a sales charge on reinvested distributions or
dividends. Alternatively, you can instruct your PFS Investments Registered Rep-
resentative 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 PFS Shareholder Services less than
five days before the payment date will not be effective until the next distri-
bution or dividend is paid.
New York Portfolio
18
<PAGE>
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (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 Usually capital Usually capital gain
exchange of shares gain or loss; long-term only or loss
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 Exempt from personal
interest on tax- exempt income taxes if from
securities, otherwise interest on New York
ordinary income municipal 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 distribu-
tions 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 dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer 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.
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 liabili-
ties. 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 calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
Smith Barney Mutual Funds
19
<PAGE>
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 PFS Shareholder Services 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.
PFS Shareholder Services must transmit all orders to buy, exchange or redeem
shares to the fund's agent before the agent's close of business.
New York Portfolio
20
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years. Certain information reflects finan-
cial 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 auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon
request).
For a Class A share of capital stock outstanding throughout each year ended
March 31:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 13.69 $13.91 $13.16 $13.19 $12.83
-------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.68 0.68 0.72 0.74 0.75
Net realized and unrealized gain
(loss) (0.91) 0.07 0.81 (0.03) 0.35
-------------------------------------------------------------------------------
Total income (loss) from
operations (0.23) 0.75 1.53 0.71 1.10
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.67) (0.70) (0.73) (0.74) (0.74)
Net realized gains (0.01) (0.27) (0.05) -- --
-------------------------------------------------------------------------------
Total distributions (0.68) (0.97) (0.78) (0.74) (0.74)
-------------------------------------------------------------------------------
Net asset value, end of year $ 12.78 $13.69 $13.91 $13.16 $13.19
-------------------------------------------------------------------------------
Total return (1.61)% 5.50% 11.83% 5.48% 8.71%
-------------------------------------------------------------------------------
Net assets, end of year
(millions) $482 $556 $554 $531 $558
-------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(/2/) 0.71% 0.70% 0.71% 0.75% 0.72%
Net investment income 5.20 4.94 5.28 5.58 5.84
-------------------------------------------------------------------------------
Portfolio turnover rate 33% 60% 71% 53% 36%
-------------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts have been calculated using the monthly average shares
method.
(/2/As)a result of voluntary expense limitations, the expense ratio will not
exceed 0.85% for Class A shares.
Smith Barney Mutual Funds
21
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
March 31:
<TABLE>
<CAPTION>
2000(/1/) 1999(/1/) 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year $ 13.68 $13.89 $13.15 $13.18 $12.84
--------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.61 0.61 0.65 0.67 0.67
Net realized and unrealized gain
(loss) (0.90) 0.07 0.80 (0.03) 0.35
--------------------------------------------------------------------------------
Total income (loss) from
operations (0.29) 0.68 1.45 0.64 1.02
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.60) (0.62) (0.66) (0.67) (0.68)
Net realized gains (0.01) (0.27) (0.05) -- --
--------------------------------------------------------------------------------
Total distributions (0.61) (0.89) (0.71) (0.67) (0.68)
--------------------------------------------------------------------------------
Net asset value, end of year $ 12.78 $13.68 $13.89 $13.15 $13.18
--------------------------------------------------------------------------------
Total return (2.09)% 5.02% 11.19% 4.96% 8.05%
--------------------------------------------------------------------------------
Net assets, end of year
(millions) $156 $ 192 $ 195 $ 185 $ 181
--------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(/2/) 1.23% 1.23% 1.23% 1.27% 1.25%
Net investment income 4.67 4.42 4.76 5.06 5.45
--------------------------------------------------------------------------------
Portfolio turnover rate 33% 60% 71% 53% 36%
--------------------------------------------------------------------------------
</TABLE>
(/1/Per)share amounts have been calculated using the monthly average shares
method.
(/2/As)a result of voluntary expense limitations, the ratio of expenses to
average net assets will not exceed 1.35% for Class B shares.
New York Portfolio
22
<PAGE>
Securities offered through
PFS Investments Inc.
-------------------------------------------
MEMBER NASD A member of citigroup [LOGO]
New York Portfolio
An investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence 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 PFS
Investments Registered Representative, by calling PFS Shareholder Services at
1-800-544-5445, or by writing to the fund at 3100 Breckinridge Boulevard,
Building 200, Duluth, Georgia, 30099-0062.
SB-1M
7.00
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Ex-change Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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 law-
fully sell its shares.
(Investment Company Act file
no. 811-04395)
<PAGE>
[SB]Smith Barney
[MF]Mutual Funds
Your Serious Money. Professionally Managed./SM/
P R O S P E C T U S
New York
Money Market
Portfolio
Class A and Y Shares
-------------------------------------------
July 28, 2000
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>
New York Money Market Portfolio
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Salomon Smith Barney brokerage accounts..................................... 9
Letter of intent: Class Y shares............................................ 9
Deferred sales charges...................................................... 10
Buying shares............................................................... 11
Exchanging shares........................................................... 12
Redeeming shares............................................................ 14
Other things to know about share transactions............................... 16
Dividends, distributions and taxes.......................................... 18
Share price................................................................. 19
Financial highlights........................................................ 20
</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. There is no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
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.
Principal Investment strategies
Key investments The fund invests at least 80% of its assets 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 two highest short-term rating catego-
ries, 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 securi-
ties 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 attrac-
tiveness of various securities and sectors
.May trade between general obligation and revenue bonds, and among various rev-
enue 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
New York Money Market Portfolio
2
<PAGE>
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 distri-
butions of the fund's gains generally will be, subject to federal income taxa-
tion and New York State and New York City personal income 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.
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 federal income taxes and New York personal income taxes
.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
Smith Barney Mutual Funds
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 neces-
sarily 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 calen-
dar years. Class Y shares would have different performance because of its dif-
ferent expenses.
Total Return for Class A Shares
[BAR GRAPH APPEARS HERE]
Total Return for Class A Shares
93 1.77%
94 2.13%
95 3.25%
96 2.85%
97 3.03%
98 2.84%
99 2.59%
Calendar years ended December 31
Quarterly returns:
Highest: 0.84% in 2nd quarter 1995; Lowest: 0.40% in 1st quarter 1994; Year to
date: 1.62% through 6/30/00.
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age 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, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A 2.59% 2.91% n/a 2.62% 9/17/92
90 day T-bill 4.74% 5.11% n/a 4.64% *
</TABLE>
* Comparison begins on September 30, 1992.
7 day yield as of December 31, 1999:
Class A: 3.83%.
New York Money Market Portfolio
4
<PAGE>
Fee 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 Y
<S> <C> <C>
Maximum sales charge (load) imposed
on purchases (as a % of offering price) None None
Maximum deferred sales charge (load) (as a % of the lower of
net asset value at purchase or redemption) None* None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class Y**
<S> <C> <C>
Management fee 0.50% 0.50%
Distribution and service (12b-1) fees 0.10% None
Other expenses 0.07% 0.07%
----- -----
Total annual fund operating expenses 0.67% 0.57%
</TABLE>
*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 con-
tingent deferred sales charge ("CDSC") remain subject to the original fund's
CDSC.
**For Class Y shares "Other Expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares were outstanding for the
fiscal year ended March 31, 2000.
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 of your shares at the end of the period
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A $68 $214 $373 $835
Class Y $58 $183 $318 $714
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
New York municipal securities New York municipal securities include debt obli-
gations issued by certain non-New York governmental issuers such as Puerto
Rico, the Virgin Islands and Guam. The interest on New York municipal securi-
ties 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 matu-
rities 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 speci-
fied 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 part-
nership 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 perfor-
mance of the fund.
Defensive investing The fund may depart from its principal investment strate-
gies 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.
New York Money Market Portfolio
6
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC (succes-
sor to 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 busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment 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, 2000, 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 Salomon Smith Barney
Inc. to distribute the fund's shares.
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.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You may purchase Class A shares which are sold at net asset value with no ini-
tial or deferred sales charge. Class A shares are subject to ongoing distribu-
tion 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 Sal-
omon Smith Barney--a dealer representative
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
Class A Class Y All Classes
<S> <C> <C> <C>
General $ 1,000 $15 million $50
Salomon Smith Barney Sweep Features variable n/a variable
Uniform Gift to Minors $250 $15 million $50
</TABLE>
New York Money Market Portfolio
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, shareholder of Salomon
Smith Barney FMA PLUS/SM/ accounts may also take advantage of: free dividend
reinvestment, unlimited checking, 100 free ATM withdrawals each year, gain/loss
analysis and online computer access to account information. Contact your Salo-
mon 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.
Smith Barney Mutual Funds
9
<PAGE>
Deferred sales charges
Class A shares
If Class A shares of the fund are acquired by exchange from another Smith Bar-
ney 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 sub-
ject to a deferred sales charge of 1.00%.
The deferred sales charge is based on the net asset value at the time of pur-
chase 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
Each time you place a request to redeem shares that were acquired by exchange
from another Smith Barney fund subject to a deferred sales charge, the fund
will first redeem any shares in your account that are not subject to a deferred
sales charge and then the shares in your account that have been held the long-
est.
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").
New York Money Market Portfolio
10
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant If you do not provide the following information, your order
representative 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.
--------------------------------------------------------------------------------
Certain other investors who are clients of the selling group
Through the are eligible to buy shares directly from the fund.
fund's sub-
transfer
agent
.Write the sub-transfer agent at the following address:
Smith Barney New York Money Market Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check made payable to the fund 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.
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Smith Barney Mutual Funds
11
<PAGE>
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into.
funds
tailored to .You may exchange shares only for shares of the same class of
help meet the another Smith Barney fund. Not all Smith Barney funds offer
varying needs all classes.
of both large .Not all Smith Barney funds may be offered in your state of
and small residence. Contact your Salomon Smith Barney Financial
investors Consultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the sub-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 charges Your shares may be subject to an initial sales charge at the
time of the exchange. For more information, contact your Sal-
omon Smith Barney Financial Consultant, dealer representative
or the transfer agent.
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase of another
fund's shares subject to a deferred sales charge.
New York Money Market Portfolio
12
<PAGE>
By telephone
If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete 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 4:00 p.m. (Eastern
time).
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 sub-trans-
fer agent at the address on the following page.
Smith Barney Mutual Funds
13
<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 sub-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 redemp-
tion 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 sub-transfer agent at the following address:
Smith Barney New York Money Market Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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 regis-
tered
New York Money Market Portfolio
14
<PAGE>
By telephone
If you do not have a brokerage account, you may be 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 4:00 p.m. (Eastern time).
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 docu-
ments.
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
15
<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
A request to purchase becomes effective only when Salomon Smith Barney, a sell-
ing group member of the transfer agent receives, or converts the purchase
amount into federal funds. The transfer agent will try to confirm that any tel-
ephone 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 sub-transfer
agent
.Instruct the sub-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 regis-
tration
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.
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
New York Money Market Portfolio
16
<PAGE>
.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 Securi-
ties 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 share-
holders. 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 sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
17
<PAGE>
Dividends, distributions and taxes
Dividends The fund declares a dividend of substantially all of its net invest-
ment income on each day the New York Stock Exchange (NYSE) is open. Income div-
idends are paid monthly. The fund generally makes capital gain distributions,
if any, once a year, typically in December. The fund may pay additional distri-
butions and dividends at other times if necessary for the fund to avoid a fed-
eral 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 distribu-
tions 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 distribu-
tions (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 no Usually no gain or
of shares gain or loss; loss loss; loss may result to
may result to extent of any deferred
extent of any sales charge
deferred sales charge
Long-term capital gain Taxable gain Taxable gain
distributions
Short-term capital gain Ordinary income Ordinary income
distributions
Dividends Excluded from gross Exempt from personal
income if from interest income taxes if from
on 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.
New York Money Market Portfolio
18
<PAGE>
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 dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions and dividends. 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.
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 liabili-
ties. 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 calcu-
lation 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. The fund intends to use its best effort to
continue to maintain a constant net asset value of $1.00.
<TABLE>
<CAPTION>
Form of Purchase Payment Purchase is Effective and Dividends Begin
<S> <C> <C>
.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
</TABLE>
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.
Smith Barney Mutual Funds
19
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the perfor-
mance of each class for the past 5 years. Certain information reflects finan-
cial 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 auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon
request). No information is presented for Class Y shares because no shares were
outstanding during these fiscal years.
For a Class A share of beneficial interest outstanding throughout each year
ended March 31:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------------
Net investment income 0.027 0.027 0.030 0.028 0.038
Dividends from
net investment income (0.027) (0.027) (0.030) (0.028) (0.038)
----------------------------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------------
Total return 2.76% 2.72% 3.04% 2.85% 3.17%
----------------------------------------------------------------------------
Net assets, end of year (millions) $1,573 $1,380 $1,161 $937 $882
----------------------------------------------------------------------------
Ratios to average net assets:
Expenses(/1/) 0.67% 0.65% 0.65% 0.67% 0.67%
Net investment income 2.73 2.65 2.99 2.80 3.11
----------------------------------------------------------------------------
</TABLE>
(/1/) As a result of voluntary expense limitations, the expense ratio will not
exceed 0.80% for Class A shares.
New York Money Market Portfolio
20
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
New York Money Market Portfolio
An investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http:www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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 law-
fully sell its shares.
/SM/Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-04395)
FD0774 7/00
<PAGE>
[LOGO] Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed./SM/
P R O S P E C T U S
Massachusetts
Money Market
Portfolio
Class A and Y Shares
------------------------------------------------------------
July 28, 2000
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>
Massachusetts Money Market Portfolio
Contents
<TABLE>
<S> <C>
Investments, risks and expenses............................................. 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Salomon Smith Barney brokerage accounts..................................... 9
Letter of intent: Class Y shares............................................ 9
Deferred sales charges...................................................... 10
Buying shares............................................................... 11
Exchanging shares........................................................... 12
Redeeming shares............................................................ 14
Other things to know about share transactions............................... 16
Dividends, distributions and taxes.......................................... 18
Share price................................................................. 19
Financial highlights........................................................ 20
</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. There is no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and expenses
Investment objective
The fund seeks to provide income exempt from both federal income taxes and Mas-
sachusetts personal income taxes.
Principal investment strategies
Key investments The fund invests at least 80% of its assets in short-term high
quality Massachusetts municipal securities. These include securities issued by
the Commonwealth of Massachusetts and certain other municipal issuers, politi-
cal subdivisions, agencies and public authorities that pay interest which is
exempt from Massachusetts state personal income taxes. All of the securities in
which the fund invests are rated in one of the 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 securi-
ties 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 attrac-
tiveness of various securities and sectors
. May trade between general obligation and revenue bonds and among various reve-
nue 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
Massachusetts Money Market Portfolio
2
<PAGE>
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 municipal short-term 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
. Massachusetts municipal securities fall out of favor with investors. The fund
will suffer more than a national municipal fund from adverse events affecting
Massachusetts municipal issuers
. Unfavorable legislation affects the tax-exempt status of municipal securities
. The manager's judgment about the attractiveness, value, income potential or
credit quality of a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and distri-
butions of the fund's gains generally will be, subject to federal income taxa-
tion and Massachusetts state personal income taxation. The fund may realize
taxable gains on the sale of its securities. 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
Massachusetts.
Who may want to invest The fund may be an appropriate investment if you:
. Are a Massachusetts taxpayer in a high federal tax bracket seeking current
income exempt from federal income taxes and Massachusetts personal income
taxes
. 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
Because this fund commenced operations on September 14, 1999, the fund does not
yet have a sufficient operating history to generate the performance information
in bar chart and table form which appears in this location in the other Smith
Barney Muni Funds prospectuses.
Smith Barney Mutual Funds
3
<PAGE>
Fee table
This table sets forth the estimated 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 Y
<S> <C> <C>
Maximum sales charge (load) imposed None None
on purchases (as a % of offering price)
Maximum deferred sales charge (load) None* None
(as a % of the lower of net asset value at
purchase or redemption)
</TABLE>
Annual fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets) Class A Class Y**
<S> <C> <C>
Management fees 0.50% 0.50%
Distribution and service (12b-1) fees 0.10% None
Other expenses 0.16% 0.16%
----- -----
Total annual fund operating expenses*** 0.76% 0.66%
</TABLE>
*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 con-
tingent deferred sales charge ("CDSC") remain subject to the original fund's
CDSC.
**For Class Y shares "Other Expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares were outstanding for the
fiscal year ended March 31, 2000.
***Because the manager has voluntarily agreed to limit total annual fund oper-
ating expenses to 0.65% of the fund's average net assets exclusive of 12b-1
fees and certain other expenses, actual expenses were:
<TABLE>
<CAPTION>
Class A Class Y
<S> <C> <C>
Management fee 0.39% 0.39%
Total annual fund operating expenses 0.65% 0.55%
</TABLE>
Massachusetts Money Market Portfolio
4
<PAGE>
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 of your shares at the end of the period
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A $78 $243 $422 $942
Class Y $67 $211 $368 $822
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Massachusetts municipal securities Massachusetts municipal securities include
debt obligations issued by certain non-Massachusetts governmental issuers such
as Puerto Rico, the Virgin Islands and Guam. The interest on Massachusetts
municipal securities is exempt from federal income tax and Massachusetts per-
sonal 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 part-
nership 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 perfor-
mance of the fund.
Defensive investing The fund may depart from its principal investment strate-
gies 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.
Master/feeder option The fund may in the future seek to achieve its investment
objective by investing all of its net assets in another investment company hav-
ing the same investment objective and substantially the same investment poli-
cies and restrictions as those applicable to the fund. Shareholders of the fund
will be given at least 30 days prior notice of any such investment.
Massachusetts Money Market Portfolio
6
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC (succes-
sor to 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 busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment banking and trading--and use diverse channels to make them available to
consumer and corporate customers around the world.
Management fees The manager will receive an advisory fee equal to 0.50% of the
fund's average daily net assets.
Distributor The fund has entered into an agreement with Salomon Smith Barney
Inc. to distribute the fund's shares.
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.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You may purchase Class A shares which are sold at net asset value with no ini-
tial or deferred sales charge. Class A shares are subject to ongoing distribu-
tion 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 Sal-
omon Smith Barney--a dealer representative
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
Class A Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Salomon Smith Barney Sweep Features variable n/a variable
Uniform Gift to Minors Accounts $250 $15 million $50
</TABLE>
Massachusetts Money Market Portfolio
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 PLUSSM accounts may also take advantage of: free dividend
reinvestment, unlimited checking, 100 free ATM withdrawals each year, gain/loss
analysis and online computer access to account information. Contact your Salo-
mon 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.
Smith Barney Mutual Funds
9
<PAGE>
Deferred sales charges
If Class A shares of the fund are acquired by exchange from another Smith Bar-
ney 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 sub-
ject to a deferred sales charge of 1.00%.
The deferred sales charge is based on the net asset value at the time of pur-
chase 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
Each time you place a request to redeem shares that were acquired by exchange
from another Smith Barney fund subject to a deferred sales charge, the fund
will first redeem any shares in your account that are not subject to a deferred
sales charge and then the shares in your account that have been held the long-
est.
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, con-
tact your Salomon Smith Barney Financial Consultant or dealer representative or
consult the Statement of Additional Information ("SAI").
Massachusetts Money Market Portfolio
10
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or
dealer
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
fund's sub- eligible to buy shares directly from the fund.
transfer
agent
.Write the sub-transfer agent at the following address:
Smith Barney Massachusetts Money Market Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check made payable to the fund 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.
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Smith Barney Mutual Funds
11
<PAGE>
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into.
funds
tailored to
help meet the
varying needs
of both large
and small
investors
.You may exchange shares only for shares of the same class of
another Smith Barney fund. Not all Smith Barney funds offer
all classes.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the sub-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 charges Your shares may be subject to an initial sales charge at the
time of the exchange. For more information, contact your Sal-
omon Smith Barney Financial Consultant, dealer representative
or the transfer agent.
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase of another
fund's shares subject to a deferred sales charge.
Massachusetts Money Market Portfolio
12
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete 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 4:00 p.m. (Eastern
time).
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 sub-trans-
fer agent at the address on the following page.
Smith Barney Mutual Funds
13
<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 sub-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 redemp-
tion 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 sub-transfer agent at the following address:
Smith Barney Massachusetts Money Market Portfolio
Smith Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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 regis-
tered
Massachusetts Money Market Portfolio
14
<PAGE>
By telephone If you do not have a brokerage account, you may be 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 4:00 p.m. (Eastern time).
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 docu-
ments.
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
15
<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
A request to purchase becomes effective only when Salomon Smith Barney, a sell-
ing group member of the transfer agent receives, or converts the purchase
amount into federal funds. The transfer agent will try to confirm that any tel-
ephone 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 sub-transfer
agent
.Instruct the sub-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 regis-
tration
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.
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
Massachusetts Money Market Portfolio
16
<PAGE>
.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 Securi-
ties 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 share-
holders. 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 sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
17
<PAGE>
Dividends, distributions and taxes
Dividends The fund declares a dividend of substantially all of its net invest-
ment income on each day the New York Stock Exchange (NYSE) is open. Income div-
idends are paid monthly. The fund generally makes capital gain distributions,
if any, once a year, typically in December. The fund may pay additional distri-
butions and dividends at other times if necessary for the fund to avoid a fed-
eral 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 distribu-
tions 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 distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status Massachusetts tax status
<S> <C> <C>
Redemption or exchange of Usually no gain or Usually no gain or
shares loss; loss may result loss; loss may
to extent of any result to extent of
deferred sales charge any deferred sales
charge
Long-term capital gain Taxable gain Taxable gain
distributions
Short-term capital gain Ordinary income Ordinary income
distributions
Dividends Excluded from gross Exempt from personal
income if from income taxes if from
interest on tax-exempt interest on
securities, otherwise Massachusetts
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
Massachusetts Money Market Portfolio
18
<PAGE>
shares during the previous year. If you do not provide the fund with your cor-
rect taxpayer identification number and any required certifications, you may be
subject to back-up withholding of 31% of your distributions and dividends.
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.
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 liabili-
ties. 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 calcu-
lation 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. The fund intends to use its best effort to
continue to maintain a constant net asset value of $1.00.
<TABLE>
<CAPTION>
Purchase is Effective and Dividends
Form of Purchase Payment Begin
<S> <C> <C>
.Payment in federal funds If received before At the close of
.Having a sufficient cash balance in the close of regular trading on
your account with Salomon Smith Barney regular trading on the Exchange on
or a selling group member the Exchange: that day
If received after At the close of
the close of regular trading on
regular trading on the Exchange on
the Exchange: the next business
day
.Other forms of payment, with conversion At the close of regular trading on
into, or advance of, federal funds by the Exchange on the next business day
Salomon Smith Barney or a selling group
member
.Other forms of payment received by the
transfer agent
</TABLE>
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.
Smith Barney Mutual Funds
19
<PAGE>
Financial highlights
The financial highlights table is intended to help you understand the perfor-
mance 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 audi-
tors, whose report, along with the fund's financial statements, is included in
the annual report (available upon request). No information is presented for
Class Y shares because no shares were outstanding during the fiscal period.
For a Class A share of beneficial interest outstanding throughout the period
ended March 31:
<TABLE>
<CAPTION>
2000(/1/)
-------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $1.00
-------------------------------------------------------------
Net investment income(/2/) 0.016
Dividends from net investment income (0.016)
-------------------------------------------------------------
Net asset value, end of period $1.00
-------------------------------------------------------------
Total return++ 1.66%
-------------------------------------------------------------
Net assets, end of period (millions) $260
-------------------------------------------------------------
Ratios to average net assets+:
Expenses(/2/)(/3/) 0.65%
Net investment income 3.05
-------------------------------------------------------------
(/1/For)the period from September 14, 1999 to March 31, 2000.
</TABLE>
(/2/The)manager waived a portion of its fees for the period ended March 31,
2000. If such fees were not waived, the per share decrease on net invest-
ment income and the actual expense ratio would have been as follows:
<TABLE>
<CAPTION>
Per Share Decreases to Expense Ratios
Net Investment Income Without Waivers
<S> <C> <C>
2000 (/1/) $0.001 0.76%
--------------------------------------------------
</TABLE>
(/3/As)a result of voluntary expense limitations, the expense ratio will not
exceed 0.65%.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
Massachusetts Money Market Portfolio
20
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Massachusetts
Money Market Portfolio
An investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Ex-change Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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 law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-04395)
FD01673 7/00
<PAGE>
[LOGO] Smith Barney
Mutual Funds
Your Serious Money Professionally Managed.(SM)
P R O S P E C T U S
California
Money Market
Portfolio
Class A and Y Shares
------------------------------
July 28, 2000
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>
California Money Market Portfolio
Contents
<TABLE>
<S> <C>
Investments, risks and performance.......................................... 2
More on the fund's investments.............................................. 6
Management.................................................................. 7
Choosing a class of shares to buy........................................... 8
Salomon Smith Barney brokerage accounts..................................... 9
Letter of intent: Class Y shares............................................ 9
Deferred sales charges...................................................... 9
Buying shares............................................................... 11
Exchanging shares........................................................... 12
Redeeming shares............................................................ 14
Other things to know about share transactions............................... 16
Dividends, distributions and taxes.......................................... 18
Share price................................................................. 19
Financial highlights........................................................ 20
</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. There is no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks to provide income exempt from both federal income taxes and Cal-
ifornia personal income taxes from a portfolio of high quality short-term
municipal obligations selected for liquidity and stability of principal.
Principal investment strategies
Key investments The fund invests at least 80% of its assets in short-term high
quality California municipal securities. These include securities issued by the
State of California and certain other municipal issuers, political subdivi-
sions, 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 two highest short-term rating categories, or if
unrated, of equivalent quality. All of these securities have remaining maturi-
ties of 397 days or less. The fund maintains a dollar-weighted average portfo-
lio maturity of 90 days or less.
Selection process The manager selects securities primarily by identifying
undervalued sectors and individual securities. The manager only selects securi-
ties 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 attrac-
tiveness of various securities and sectors
.May trade between general obligation and revenue bonds and among various reve-
nue 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
California Money Market Portfolio
2
<PAGE>
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 distri-
butions of the fund's gains generally will be, subject to federal income taxa-
tion and California state personal income taxation. The fund may realize
taxable gains on the sale of its securities or on transactions in futures con-
tracts. 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.
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 federal income taxes and California personal income taxes
.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
Smith Barney Mutual Funds
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 neces-
sarily 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 9 full calen-
dar years. Class Y shares would have different performance because of its dif-
ferent expenses.
Total Return for Class A Shares
[BAR GRAPH APPEARS HERE]
1991 1992 1993 1994 1995 1996 1997 1998 1999
----- ----- ----- ----- ----- ----- ----- ----- -----
3.88% 2.29% 1.81% 2.30% 3.32% 2.97% 2.98% 2.72% 2.45%
Calendar years ended December 31
Quarterly returns:
Highest: 0.99% in 1st quarter 1991; Lowest: 0.42% in 1st quarter 1993
Year to date: 1.40% through 6/30/00.
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age 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, 1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A 2.45% 2.89% n/a 2.90% 05/10/90
Y 2.55% n/a n/a 2.89% 07/19/96
90 day T-bill 4.74% 5.11% n/a 4.82% *
</TABLE>
* Comparison begins on May 31, 1990.
7 day yield as of December 31, 1999:
Class A: 3.37%; Class Y: 3.46%.
California Money Market Portfolio
4
<PAGE>
Fee 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 Y
<S> <C> <C>
Maximum sales charge (load) imposed on purchases
(as a % of offering price) None None
Maximum deferred sales charge (load) (as a % of the lower of
net asset value at purchase or redemption) None* None
</TABLE>
Annual fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets)
<S> <C> <C>
Management fees 0.50% 0.50%
Distribution and service (12b-1) fees 0.10% None
Other expenses 0.06% 0.05%
----- -----
Total annual fund operating expenses 0.66% 0.55%
===== =====
</TABLE>
*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 con-
tingent 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 of your shares at the end of the period
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A $67 $211 $368 $822
Class Y $56 $176 $307 $689
</TABLE>
Smith Barney Mutual Funds
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 securi-
ties 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 vari-
able 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 part-
nership 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 perfor-
mance of the fund.
Defensive investing The fund may depart from its principal investment strate-
gies 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.
California Money Market Portfolio
6
<PAGE>
Management
Manager The fund's investment manager is SSB Citi Fund Management LLC (succes-
sor to 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 busi-
nesses produce a broad range of financial services--asset management, banking
and consumer finance, credit and charge cards, insurance, investments, invest-
ment 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, 2000, 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 Salomon Smith Barney
Inc. to distribute the fund's shares.
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.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render certain shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You may purchase Class A shares which are sold at net asset value with no ini-
tial or deferred sales charge. Class A shares are subject to ongoing distribu-
tion 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 Sal-
omon Smith Barney--a dealer representative
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
Class A Class Y All Classes
<S> <C> <C> <C>
General $ 1,000 $15 million $50
Salomon Smith Barney Sweep Features variable n/a variable
Uniform Gift to Minors Accounts $250 $15 million $50
</TABLE>
California Money Market Portfolio
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: free dividend
reinvestment, unlimited checking, 100 free ATM withdrawals each year, gain/loss
analysis and online computer access to account information. Contact your Salo-
mon 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.
Deferred sales charges
Class A shares
If Class A shares of the fund are acquired by exchange from another Smith Bar-
ney 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 sub-
ject to a deferred sales charge of 1.00%.
The deferred sales charge is based on the net asset value at the time of pur-
chase 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
Each time you place a request to redeem shares that were acquired by exchange
from another Smith Barney fund subject to a deferred sales charge, the fund
will first redeem any shares in your account that are not subject to a deferred
sales charge and then the shares in your account that have been held the long-
est.
Smith Barney Mutual Funds
9
<PAGE>
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, con-
tact your Salomon Smith Barney Financial Consultant or dealer representative or
consult the Statement of Additional Information ("SAI").
California Money Market Portfolio
10
<PAGE>
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant or If you do not provide the following information, your order
dealer will be rejected:
representative
.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.
--------------------------------------------------------------------------------
Certain investors who are clients of the selling group are
Through the eligible to buy shares directly from the fund.
fund's sub-
transfer
agent
.Write the sub-transfer agent at the following address:
Smith Barney California Money Market Portfolio Smith
Barney Muni Funds (Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
.Enclose a check made payable to the fund 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.
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Smith Barney Mutual Funds
11
<PAGE>
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into.
funds
tailored to .You may exchange shares only for shares of the same class of
help meet the another Smith Barney fund. Not all Smith Barney funds offer
varying needs all classes.
of both large .Not all Smith Barney funds may be offered in your state of
and small residence. Contact your Salomon Smith Barney Financial
investors Consultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund
.If you hold share certificates, the sub-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 charges Your shares may be subject to an initial sales charge at the
time of the exchange. For more information, contact your Sal-
omon Smith Barney Financial Consultant, dealer representative
or the transfer agent.
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase of another
fund's shares subject to a deferred sales charge.
California Money Market Portfolio
12
<PAGE>
By telephone
If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete 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 4:00 p.m. (Eastern
time).
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 sub-trans-
fer agent at the address on the following page.
Smith Barney Mutual Funds
13
<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 sub-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 redemp-
tion 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 sub-transfer agent at the following address:
Smith Barney California Money Market Portfolio Smith
Barney Muni Funds
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
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 regis-
tered
California Money Market Portfolio
14
<PAGE>
By telephone
If you do not have a brokerage account, you may be 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 4:00 p.m. (Eastern time).
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 docu-
ments.
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
15
<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
A request to purchase becomes effective only when Salomon Smith Barney, a sell-
ing group member of the transfer agent receives, or converts the purchase
amount into, federal funds. 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 sub-transfer
agent
.Instruct the sub-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 regis-
tration
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.
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
California Money Market Portfolio
16
<PAGE>
.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 Securi-
ties 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 share-
holders. 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 sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
17
<PAGE>
Dividends, distributions and taxes
Dividends The fund declares a dividend of substantially all of its net invest-
ment income on each day the New York Stock Exchange (NYSE) is open. Income div-
idends are paid monthly. The fund generally makes capital gain distributions,
if any, once a year, typically in December. The fund may pay additional distri-
butions and dividends at other times if necessary for the fund to avoid a fed-
eral 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 distribu-
tions 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 distribu-
tions (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 Usually no gain or loss; Usually no gain or
of shares loss may result to loss; loss may result
extent of any deferred to extent of any
sales charge deferred sales charge
Long-term capital gain Taxable gain Taxable gain
distributions
Short-term capital gain Ordinary income Ordinary income
distributions
Dividends Excluded from gross Exempt from
income if from personal income
interest on tax-exempt taxes if from interest
securities, otherwise on California
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 dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you may be subject
to back-up withholding of 31% of your distributions and
California Money Market Portfolio
18
<PAGE>
dividends. 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.
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 liabili-
ties. 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 calcu-
lation 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. The fund intends to use its best effort to
continue to maintain a constant net asset value of $1.00.
<TABLE>
<CAPTION>
Form of Purchase
Payment Purchase is Effective and Dividends Begin
<S> <C> <C>
.Payment in federal If received before At the close of
funds the close of regular regular trading
trading on the on the Exchange
Exchange: on that day
.Having a sufficient If received after the At the close of
cash balance in close of regular regular trading on
your trading on the the Exchange on the
account with Exchange: next business day
Salomon Smith
Barney or a selling
group member
.Other forms of At the close of regular trading on the Exchange
payment, with on the next business day
conversion into, or
advance of, federal
funds by Salomon
Smith Barney or a
selling group
member
. Other forms of
payment received by
the transfer agent
</TABLE>
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.
Smith Barney Mutual Funds
19
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance 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 audi-
tors, 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>
2000 1999 1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Net investment
income(/1/) 0.025 0.026 0.029 0.028 0.032
Dividends from net
investment income (0.025) (0.026) (0.029) (0.028) (0.032)
------------------------------------------------------------------------------
Net asset value, end of
year $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------
Total return 2.49% 2.61% 2.98% 2.79% 3.22%
------------------------------------------------------------------------------
Net assets, end of year
(millions) $3,095 $2,136 $1,789 $1,400 $1,346
------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses(/1/)(/2/) 0.66% 0.64% 0.63% 0.67% 0.64%
Net investment income 2.46 2.55 2.92 2.75 3.15
------------------------------------------------------------------------------
(/1/) The manager has waived part of its fees for the year 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:
</TABLE>
<TABLE>
<CAPTION>
Net Investment Income Per Expense Ratios
Share Decreases Without Fee Waivers
1996 1996
------------------------------------------------------
<S> <C> <C>
Class A $0.000* 0.65%
------------------------------------------------------
</TABLE>
(/2/) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.80% for Class A shares.
* Amount represents less than $0.01.
California Money Market Portfolio
20
<PAGE>
For a Class Y share of beneficial interest outstanding throughout each year
ended March 31, except where noted:
<TABLE>
<CAPTION>
2000 1999 1998 1997(/1/)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------
Net investment income 0.025 0.026 0.031 0.020
Dividends from net investment income (0.025) (0.026) (0.031) (0.020)
--------------------------------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------------------------------
Total return 2.57% 2.60% 3.09% 2.04%(/2/)
--------------------------------------------------------------------------------
Net assets, end of year (000's) $2 $2 $3,413 $7,405
--------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(/3/) 0.55% 0.51% 0.54% 0.56%(/4/)
Net investment income 2.58 2.68 3.01 2.77(/4/)
--------------------------------------------------------------------------------
</TABLE>
(/1/) For the period from July 19, 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/) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.70% for Class Y shares.
(/4/) Annualized.
Smith Barney Mutual Funds
21
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
California Money Market Portfolio
An investment portfolio of Smith Barney Muni Funds
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket 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 refer-
ence 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
Information about the fund (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's (the "Commission") Public Reference
Room in Washington, D.C. In addition, information on the operation of the Pub-
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Data-
base on the Commission's Internet site at http://www.sec.gov. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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 law-
fully sell its shares.
/SM/Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file
no. 811-04395)
FD0773 7/00
<PAGE>
[SMITH BARNEY MUTUAL FUNDS LOGO] SMITH BARNEY MUTUAL FUNDS
YOURS SERIOUS MONEY. PROFESSIONALLY MANAGED. (TM)
PROSPECTUS
PENNSYLVANIA
PORTFOLIO
CLASS A, B, L AND Y SHARES
-----------------------------------------------
JULY 28, 2000
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>
PENNSYLVANIA PORTFOLIO
CONTENTS
<TABLE>
<S> <C>
Investments, risks and performance......................... 2
More on the fund's investments............................. 7
Management................................................. 9
Choosing a class of shares to buy.......................... 10
Comparing the fund's classes............................... 11
Sales charges.............................................. 12
More about deferred sales charges.......................... 15
Buying shares.............................................. 16
Exchanging shares.......................................... 17
Redeeming shares........................................... 19
Other things to know about share transactions.............. 21
Dividends, distributions and taxes......................... 23
Share price................................................ 25
Financial highlights....................................... 25
</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.
1 Pennsylvania Portfolio
<PAGE>
INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The fund seeks as high a level of income exempt from federal income taxes and
Pennsylvania personal income taxes as is consistent with prudent investing.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests at least 80% of its net assets in municipal
securities, and at least 65% of its net assets in Pennsylvania municipal
securities. Pennsylvania municipal securities 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. The fund focuses primarily on
intermediate-term and long-term municipal securities which 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
2 Pennsylvania Portfolio
<PAGE>
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 income
taxation and Pennsylvania state personal income 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 invests 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 federal income taxes and Pennsylvania personal income taxes
- 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
Smith Barney Mutual Funds 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 5 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
[Bar Chart]
<TABLE>
<CAPTION>
95 96 97 98 99
-- -- -- -- --
<S> <C> <C> <C> <C>
19.52 4.06 12 5.76 -6.24
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Highest: 8.04% in 1st quarter 1995; Lowest: (2.69)% in 4th quarter 1999
Year to date: 4.53% through 6/30/00.
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 Debt Funds
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, 1999
<TABLE>
<CAPTION>
CLASS 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C> <C>
A (9.97)% 5.80% n/a 5.17% 4/4/94
B (10.17)% 5.96% n/a 4.92% 6/20/94
L (8.59)% 5.84% n/a 5.12% 4/5/94
Lehman Index (2.06)% 6.91% 6.89% 5.98% *
Lipper Average (4.70)% 5.71% 6.20% 4.86% *
</TABLE>
*Index comparison begins on April 30, 1994.
4 Pennslyvania Portfolio
<PAGE>
FEE 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 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
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(EXPENSES DEDUCTED FROM ASSETS) CLASS A CLASS B CLASS L CLASS Y**
<S> <C> <C> <C> <C>
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 0.15% 0.16% 0.17% 0.15%
----- ----- ----- -----
Total annual fund operating
expenses 0.75% 1.26% 1.32% 0.60%
Management fee 0.33% 0.33% 0.33% 0.33%
Total annual fund operating
expenses 0.63% 1.15% 1.20% 0.48%
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12
months of their purchase, you will pay a deferred sales charge of 1.00%.
**For Class Y shares, "Other Expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares were outstanding for the
fiscal year ended March 31, 2000.
***Because the manager has voluntarily agreed to limit total annual fund
operating expenses to 0.65% of the fund's average net assets exclusive of 12b-1
fees and certain other expenses, actual expenses were:
The manager may change or eliminate these expense limits at any time.
Smith Barney Mutual Funds 5
<PAGE>
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) $474 $630 $800 $1,293
Class B (redemption at end of
period) $578 $700 $792 $1,382
Class B (no redemption) $128 $400 $692 $1,382
Class L (redemption at end of
period) $333 $514 $816 $1,674
Class L (no redemption) $233 $514 $816 $1,674
Class Y (with or without
redemption) $ 61 $192 $335 $ 750
</TABLE>
6 Pennslyvania Portfolio
<PAGE>
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 securities 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 because of 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 contracts present the same types of default
risk as issuers of fixed income securities.
Smith and Barney Mutual Funds 7
<PAGE>
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. Inverse floaters and futures are volatile and involve
leverage which may expose the fund to increased risk of loss. 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 Pennslyvania Portfolio
<PAGE>
MANAGEMENT
MANAGER The fund's investment adviser (the manager) is SSB Citi Fund Management
LLC (successor to 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 the manager 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 31 years of securities business experience with the manager or its
predecessor.
MANAGEMENT FEES During the fiscal year ended March 31, 2000, 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 Salomon Smith Barney
Inc. to distribute the fund's shares.
DISTRIBUTION PLAN The fund has adopted a Rule 12b-1 distribution plan for its
Class A, B and L shares. Under the plan, the fund pays distribution and/or
service fees. These fees are an ongoing expense and, over time, may cost you
more than other types of sales charges.
TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT Citi Fiduciary Trust Company
serves as the fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a subtransfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer
agent (the "sub-transfer agent") to render certain shareholder record keeping
and accounting services and functions.
Smith Barney Mutual Funds 9
<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 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 $250 $15 million $50
</TABLE>
10 Pennsylvania Portfolio
<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 FEATURES - Initial sales - No initial - Initial sales - No initial or
charge sales charge charge is deferred
- You may - Deferred lower than sales charge
qualify for sales charge Class A - Must invest
reduction or declines over - Deferred at least $15
waiver of time sales charge million
initial sales - Converts to for only 1 - Lower annual
charge Class A after year expenses than
- Lower annual 8 years - Does not the other
expenses than - Higher annual convert to classes
Class B and expenses than Class A
Class L Class A - Higher annual
expenses than
Class A
---------------------------------------------------------------------------------------------
INITIAL SALES CHARGE Up to 4.00%; None 1.00% None
reduced for
large purchases
and waived for
certain
investors. No
charge for
purchases of
$500,000 or
more
---------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE 1.00% on Up to 4.50% 1.00% if you None
purchases of charged when redeem within 1
$500,000 or you redeem year of
more if you shares. The purchase
redeem within 1 charge is
year of reduced over
purchase time and there
is no deferred
sales charge
after 6 years
---------------------------------------------------------------------------------------------
ANNUAL DISTRIBUTION 0.15% of 0.65% of 0.70% of None
AND SERVICE FEES average daily average daily average daily
net assets net assets net assets
---------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE* Class A shares Class B shares Class L shares Class Y shares
of most Smith of most Smith of most Smith of most Smith
Barney funds 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.
Smith Barney Mutual Funds 11
<PAGE>
SALES CHARGES
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 0.00 0.00
</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.
12 Pennsylvania Portfolio
<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 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>
<S> <C> <C>
Shares issued: On Shares issued: Upon
reinvestment of exchange from another
Shares issued: At dividends and Smith Barney fund
initial purchase distributions
Eight years after the In same proportion On the date the
date of purchase as the number of shares originally
Class B shares acquired would have
convert-ing is to converted into Class
total Class B shares A shares
you own (excluding
shares issued as
dividends)
</TABLE>
Smith Barney Mutual Funds 13
<PAGE>
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 and/or other Smith
Barney mutual funds 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
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.
14 Pennsylvania Portfolio
<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
Each time you place a request to redeem shares, the fund will first redeem any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
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.
Smith Barney Mutual Funds 15
<PAGE>
BUYING SHARES
<TABLE>
<C> <S>
Through a You should contact your Salomon Smith Barney
Salomon Smith Financial Consultant or dealer representative to
Barney Financial open a brokerage account and make arrangements
representative to buy shares.
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
fund's sub-transfer group are eligible to buy shares directly from
agent the fund.
- Write the sub-transfer agent at the following
address:
SMITH BARNEY PENNSYLVANIA PORTFOLIO
SMITH BARNEY MUNI FUNDS
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RI 02940-9699
- Enclose a check made payable to the fund 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
systematic dealer representative or the sub-transfer agent
investment plan to transfer funds automatically from a regular
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
sub-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 Pennsylvania Portfolio
<PAGE>
EXCHANGING SHARES
<TABLE>
<C> <S>
Smith Barney offers You should contact your Salomon Smith Barney
a distinctive Financial Consultant or dealer representative
family of funds to exchange into other Smith Barney funds. Be
tailored to help sure to read the prospectus of the Smith
meet the varying Barney fund you are exchanging into. An
needs of both exchange is a taxable transaction.
large and small
investors - You may exchange shares only for shares of
the same class of another Smith Barney fund.
Not all Smith Barney funds offer all
classes.
- Not all Smith Barney funds may be offered
in your state of residence. Contact your
Salomon Smith Barney Financial Consultant,
dealer representative or the transfer
agent.
- You must meet the minimum investment amount
for each fund (except for systematic
exchanges).
- If you hold share certificates, the
sub-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
additional sales charge at the time 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.
--------------------------------------------------------------------
</TABLE>
Smith Barney Mutual Funds 17
<PAGE>
<TABLE>
<C> <S>
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
4:00 p.m. (Eastern time).
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 sub-transfer
agent at the address on the following page.
</TABLE>
18 Pennsylvania Portfolio
<PAGE>
REDEEMING SHARES
<TABLE>
<C> <S>
Generally Contact your Salomon Smith Barney Financial
Consultant or dealer representative to redeem
shares of the fund.
If you hold share certificates, the
sub-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 sub-transfer agent at
the following address:
SMITH BARNEY PENNSYLVANIA PORTFOLIO
SMITH BARNEY MUNI FUNDS
(SPECIFY CLASS OF SHARES)
C/O PFPC GLOBAL FUND SERVICES
P.O. BOX 9699
PROVIDENCE, RI 02940-9699
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>
Smith Barney Mutual Funds 19
<PAGE>
<TABLE>
<C> <S>
By telephone If you do not have a brokerage account, you
may be 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 4:00
p.m. (Eastern time).
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
cash of a portion of your shares on a monthly or
withdrawal quarterly basis. To qualify you must own
plans shares of the fund with a value of 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>
20 Pennsylvania Portfolio
<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 sub-transfer
agent
- Instruct the sub-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.
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
Smith Barney Mutual Funds 21
<PAGE>
- 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 sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
22 Pennsylvania Portfolio
<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>
PENNSYLVANIA
TRANSACTION FEDERAL TAX STATUS TAX STATUS
<S> <C> <C>
Redemption or Usually capital gain Usually capital gain
exchange of shares or loss; long-term or loss
only if shares owned
more than one year
Long-term capital Taxable gain Taxable gain
gain distributions
Short-term capital Ordinary income Ordinary income
gain distributions
Dividends Excluded from gross Exempt from personal
income if from income taxes if from
interest on interest on
tax-exempt Pennsylvania
securities, otherwise municipal securities,
ordinary income otherwise ordinary
income
</TABLE>
Smith Barney Mutual Funds 23
<PAGE>
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.
24 Pennsylvania Portfolio
<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. 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 auditors, whose report, along with the fund's
financial statements, is included in the annual report (available upon request).
No information is presented for Class Y shares because no shares were
outstanding during these fiscal years.
Smith Barney Mutual Funds 25
<PAGE>
FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
2000(1) 1999(1) 1998 1997 1996(1)
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
Net asset value, beginning of
year $13.44 $13.54 $12.66 $12.62 $12.40
----------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(2) 0.67 0.66 0.73 0.71 0.70
Net realized and unrealized
gain (loss) (1.25) 0.08 0.95 0.04 0.29
----------------------------------------------------------------------------------
Total income (loss) from
operations (0.58) 0.74 1.68 0.75 0.99
----------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.66) (0.69) (0.69) (0.71) (0.72)
Net realized gains (0.02) (0.15) (0.11) -- (0.05)
----------------------------------------------------------------------------------
Total distributions (0.68) (0.84) (0.80) (0.71) (0.77)
----------------------------------------------------------------------------------
Net asset value, end of year $12.18 $13.44 $13.54 $12.66 $12.62
----------------------------------------------------------------------------------
Total return (4.31)% 5.61% 13.52% 6.11% 8.08%
----------------------------------------------------------------------------------
Net assets, end of year (000s) $27,978 $31,718 $15,955 $15,152 $11,847
----------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2)(3) 0.63% 0.50% 0.37% 0.37% 0.38%
Net investment income 5.29 4.94 5.46 5.66 5.57
----------------------------------------------------------------------------------
Portfolio turnover rate 54% 49% 81% 122% 88%
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) The manager has waived all or a portion of its fees for the
years ended March 31, 2000, 1999, 1998, 1997 and 1996. In
addition, the manager reimbursed expenses of $23,433 for the
year ended March 31, 1996. 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>
<TABLE>
<CAPTION>
EXPENSE RATIOS
NET INVESTMENT INCOME PER WITHOUT FEE WAIVERS AND/OR
SHARE DECREASES EXPENSE REIMBURSEMENTS
2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $0.01 $0.03 $0.05 $0.06 $0.07 0.75% 0.75% 0.79% 0.82% 0.93%
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(3) As a result of voluntary expense limitations, expense ratios
will not exceed 0.80% for Class A shares.
</TABLE>
26 Pennsylvania Portfolio
<PAGE>
FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
2000(1) 1999(1) 1998 1997 1996(1)
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
Net asset value, beginning of
year $13.42 $13.52 $12.64 $12.61 $12.39
----------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(2) 0.60 0.60 0.65 0.65 0.64
Net realized and unrealized
gain (loss) (1.24) 0.07 0.96 0.03 0.29
----------------------------------------------------------------------------------
Total income (loss) from
operations (0.64) 0.67 1.61 0.68 0.93
----------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.59) (0.62) (0.62) (0.65) (0.66)
Net realized gains (0.02) (0.15) (0.11) -- (0.05)
----------------------------------------------------------------------------------
Total distributions (0.61) (0.77) (0.73) (0.65) (0.71)
----------------------------------------------------------------------------------
Net asset value, end of year $12.17 $13.42 $13.52 $12.64 $12.61
----------------------------------------------------------------------------------
Total return (4.78)% 5.07% 12.97% 5.56% 7.61%
----------------------------------------------------------------------------------
Net assets, end of year (000s) $26,296 $25,234 $19,268 $15,559 $13,131
----------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(2)(3) 1.15% 1.01% 0.89% 0.88% 0.88%
Net investment income 4.79 4.45 4.94 5.15 5.07
----------------------------------------------------------------------------------
Portfolio turnover rate 54% 49% 81% 122% 88%
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) Per share amounts have been calculated using the monthly
average shares method.
(2) The manager has waived all or a portion of its fees for the
years ended March 31, 2000, 1999, 1998, 1997 and 1996. In
addition, the manager reimbursed expenses of $23,433 for the
year ended March 31, 1996. 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>
<TABLE>
<CAPTION>
EXPENSE RATIOS
NET INVESTMENT INCOME PER WITHOUT FEE WAIVERS AND/OR
SHARE DECREASES EXPENSE REIMBURSEMENTS
2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B $0.01 $0.03 0.05 0.06 0.07 1.26% 1.26% 1.31% 1.33% 1.44%
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(3) As a result of voluntary expense limitations, expense ratios
will not exceed 1.30% for Class B shares.
</TABLE>
Smith Barney Mutual Funds 27
<PAGE>
FOR A CLASS L SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
2000(2) 1999(1)(2) 1998 1997 1996(2)
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
Net asset value, beginning of
year $13.41 $13.51 $12.64 $12.61 $12.39
-----------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income(3) 0.59 0.60 0.64 0.64 0.64
Net realized and unrealized
gain (loss) (1.24) 0.06 0.96 0.04 0.29
-----------------------------------------------------------------------------------
Total income (loss) from
operations (0.65) 0.66 1.60 0.68 0.93
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.58) (0.61) (0.62) (0.65) (0.66)
Net realized gains (0.02) (0.15) (0.11) -- (0.05)
-----------------------------------------------------------------------------------
Total distributions (0.60) (0.76) (0.73) (0.65) (0.71)
-----------------------------------------------------------------------------------
Net assets value, end of year $12.16 $13.41 $13.51 $12.64 $12.61
-----------------------------------------------------------------------------------
Total return (4.83)% 5.02% 12.84% 5.51% 7.56%
-----------------------------------------------------------------------------------
Net assets, end of year (000s) $8,635 $10,490 $7,729 $5,731 $4,682
-----------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(3)(4) 1.20% 1.07% 0.94% 0.94% 0.94%
Net investment income 4.70 4.40 4.89 5.09 5.00
-----------------------------------------------------------------------------------
Portfolio turnover rate 54% 49% 81% 122% 88%
-----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) On June 12, 1998, Class C shares were renamed Class L
shares.
(2) Per share amounts have been calculated using the monthly
average shares method.
(3) The manager has waived all or a portion of its fees for the
years ended March 31, 2000, 1999, 1998, 1997 and 1996. In
addition, the manager reimbursed expenses of $23,433 for the
year ended March 31,1996. 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>
<TABLE>
<CAPTION>
EXPENSE RATIOS
NET INVESTMENT INCOME PER WITHOUT FEE WAIVERS AND/OR
SHARE DECREASES EXPENSE REIMBURSEMENTS
2000 1999 1998 1997 1996 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class L $0.01 $0.03 $0.05 $0.06 $0.07 1.32% 1.32% 1.36% 1.39% 1.49%
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(4) As a result of voluntary expense limitations, expense ratios
will not exceed 1.35% for Class L shares.
</TABLE>
28 Pennsylvania Portfolio
<PAGE>
(This page intentionally left blank)
<PAGE>
[SALOMON SMITH BARNEY LOGO]
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
Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this
information may be obtained for a duplicating fee by electronic request at the
following E-mail address: [email protected], or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
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.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-04395)
FD0772 7/00
PART B
Smith Barney Muni Funds
388 Greenwich Street
New York, NY 10013
(800) 451-2010
Statement of Additional
Information
July 28, 2000
This Statement of Additional Information (the "SAI") expands upon
and supplements the information contained in the current prospectuses
of the Smith Barney Muni Funds (the "Trust") dated July 28, 2000, 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 nine 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, the New York Money Market
Portfolio and the Massachusetts 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. The New York Portfolio's prospectus may also be obtained
free of charge from a registered representative of PFS Investments Inc.
("PFSI"), or by writing or calling the Trust 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 22
PFSI Accounts 27
Redemption of Shares 29
Valuation of Shares 30
Exchange Privilege 31
Performance Data 33
The Funds 35
Voting Rights 37
Taxes 38
Additional Information 43
Financial Statements 45
Other Information.............................................................
........................................45
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
Appendix G - Special Considerations Relating to Massachusetts Municipal
Obligations G-1
Appendix H - Special Considerations Relating to Municipal Obligations
of the
U.S. Virgin Islands and Guam H-1
Appendix H - Special Considerations Relating to Municipal Obligations
of Puerto Rico I-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. SSB Citi Fund
Management LLC, successor to SSBC Fund Management Inc. ("SSB Citi" 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.
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 normally invests in
securities that have remaining maturities of 20 years or less and
maintains an average effective maturity of between three and 10 years.
The fund may 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.
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, its
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.
Massachusetts Money Market Portfolio seeks to provide income
exempt from federal income taxes and from Massachusetts personal income
taxes from a portfolio of high quality short-term municipal obligations
selected for liquidity and stability. The Massachusetts 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 alternative minimum tax) and from Massachusetts
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 of 1986, as amended (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 of 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 funds (except
California Money Market, New York Money Market and Massachusetts 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 in unrated municipal bonds if,
based upon credit analysis by the manager, it is believed that such
securities are at least of comparable quality to those securities in
which the 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, New York Money
Market and Massachusetts 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.
Limited Term Portfolio. The Limited Term Portfolio tries to
reduce the volatility of its share prices by seeking to maintain an
average effective portfolio maturity of between 3 and 10 years. It
measures the "average" maturity of all of its securities on a "dollar-
weighted" basis, meaning that larger securities holdings have a greater
effect on overall portfolio maturity than smaller holdings.
The "effective" maturity of a security is not always the same as
the stated maturity date. A number of factors may cause the
"effective" maturity to be shorter than the stated maturity. For
example, a bond's effective maturity might be deemed to be shorter (for
pricing and trading purposes) than its stated maturity if its coupon
interest rate or rate of accretion of discount on the bond, is higher
than current market interest rates when the bond is callable (that
means the issuer can pay off the bond prior to its stated maturity) in
addition to other factors such as mandatory put provisions and
scheduled sinking fund payments. When interest rates change,
securities that have an effective maturity that is shorter than their
stated maturity tend to behave like securities having those shorter
maturity dates.
Money Market Instruments. The California Money Market Portfolio,
New York Money Market Portfolio and Massachusetts 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, none of these funds will purchase a security which, after
giving effect to any demand features, has a remaining maturity of
greater than 397 days, or maintain a dollar-weighted average fund
maturity in excess of 90 days.
The California Money Market, New York Money Market and
Massachusetts 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
Securities and Exchange Commission ("SEC") are Standard & Poor's
("S&P"), Moody's, Duff and Phelps Inc., Fitch IBCA, Inc. ("Fitch") and
Thomson BankWatch.
The California Money Market, New York Money Market and
Massachusetts Money Market Portfolios' 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 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 Internal Revenue Service (the "IRS") to take
a contrary position, there is a risk that the interest paid on such
derivative products would be deemed taxable.
The funds intend to limit the risk of derivative products by
purchasing only those derivative products that are consistent with the
funds' 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, New York
Money Market and Massachusetts Money Market Portfolios 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 affect 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, New
York Money Market and Massachusetts 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 investments would be affected. The
fund's Board of Directors would then reevaluate the fund's investment
objective and policies.
Municipal Bond Index Futures Contracts. The funds (except
California Money Market, New York Money Market and Massachusetts Money
Market Portfolios) may each invest in municipal bond futures contracts
(currently traded on the Chicago Board of Trade). Municipal bond
futures contracts are listed contracts based on U.S. government
securities and are used by each fund as a hedging policy in pursuit of
its investment objective; provided that immediately thereafter not more
than 33 1/3% of the fund's net assets would be hedged or the amount of
margin deposits on the fund's existing futures contracts would not
exceed 5% 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 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."
Interest Rate Futures Contracts. A fund may purchase and sell
interest rate futures contracts as a hedge against changes in interest
rates. An interest rate futures contract is an agreement between two
parties to buy and sell a security for a set price on a future date.
Interest rate futures contracts are traded on designated "contracts
markets" which, through their clearing corporations, guarantee
performance of the contracts. Currently, there are interest rate
futures contracts based on securities such as long-term Treasury bonds,
Treasury notes, GNMA certificates and three-month Treasury bills.
Generally, if market interest rates increase, the value of
outstanding debt securities declines (and vice versa). Entering into
an interest rate futures contract for the sale of securities has an
effect similar to the actual sale of securities, although sale of the
interest rate futures contract might be accomplished more easily and
quickly. For example, if a fund holds long-term U.S. government
securities and SSB Citi anticipates a rise in long-term interest rates,
the fund could, in lieu of disposing of its portfolio securities, enter
into interest rate futures contracts for the sale of similar long-term
securities. If interest rates increased and the value of the fund's
securities declined, the value of the fund's interest rate futures
contracts would increase, thereby protecting the fund by preventing the
net asset value from declining as much as it otherwise would have
declined. Similarly, entering into interest rate futures contracts for
the purchase of securities has an effect similar to the actual purchase
of the underlying securities, but permits the continued holding of
securities other than the underlying securities. For example, if SSB
Citi expects long-term interest rates to decline, the fund might enter
into interest rate futures contracts for the purchase of long-term
securities, so that it could gain rapid market exposure that may offset
anticipated increases in the cost of securities that it intends to
purchase, while continuing to hold higher-yielding short-term
securities or waiting for the long-term market to stabilize.
Municipal Leases. Each fund (except California Money Market, New
York Money Market and Massachusetts 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.
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. Dividends derived from interest income on
tax-exempt municipal obligations are a component of the "current
earnings" adjustment item for purposes of the federal corporate
alternative minimum tax.
Zero Coupon or Deferred Interest Securities. Each fund (except
California Money Market, New York Money Market and Massachusetts Money
Market Portfolios) may invest in zero coupon or deferred interest
bonds. Zero coupon or deferred interest securities are debt
obligations which do not entitle the holder to any periodic payments of
interest prior to maturity or 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 or deferred
interest 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 or deferred interest bonds. Such zero coupon or
deferred interest 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 or deferred interest security to accrue income with respect to
that security prior to the receipt of cash payments. To maintain its
qualification as a regulated investment company and avoid liability for
federal income taxes, a fund may be required to distribute income
accrued with respect to zero coupon or deferred interest 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.
Diversified Status. The Florida Portfolio, Georgia Portfolio,
New York Portfolio and Pennsylvania Portfolio and the Massachusetts
Money Market, New York Money Market and California Money Market
Portfolios are each registered as a non-diversified investment company
under 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. However, the California, New York and
Massachusetts Money Market Portfolios intend to comply with the
diversification requirements under Rule 2a-7 of the 1940 Act. Each
fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the 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,
New York Money Market and Massachusetts 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, California Money Market and Massachusetts
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.
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.
Special Considerations Relating to Massachusetts Municipal
Securities. See Appendix G for a discussion of the considerations
relating to Massachusetts Municipal 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) 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,
("the 1933 Act") 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 1940 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 operations (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.
LEE ABRAHAM, Trustee (Age 72).
Retired; Director/Trustee of 12 investment companies associated with
Citigroup Inc. ("Citigroup"); Director of R.G. Barry Corp., a footwear
manufacturer, Signet Group plc, a specialty retailer, and eNote.com,
Inc., a computer hardware company; 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 70).
President of Allan J. Bloostein Associates, a consulting firm;
Director/Trustee of 19 investment companies associated with Citigroup;
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 50).
Investment Officer of Korsant Partners, a family investment company.
Director/Trustee of 12 investment companies associated with Citigroup.
Prior to 1997, an Independent Financial Consultant; Her address is 283
Greenwich Avenue, Greenwich, Conntecticut 06830.
DONALD R. FOLEY, Trustee (Age 77).
Retired; Director/Trustee of 12 investment companies associated with
Citigroup; Formerly Vice President of Edwin Bird Wilson, Incorporated
(an advertising agency); His address is 3668 Freshwater Drive, Jupiter,
Florida 33477.
RICHARD E. HANSON, Jr., Trustee (Age 58).
Retired; Formerly Head of School, New Atlanta Jewish Community High
School, Atlanta, Georgia; Director/Trustee of 14 investment companies
associated with Citigroup; Formerly Headmaster, The Peck School,
Morristown, New Jersey; His address is 58 Ivy Chase, Atlanta, GA 30342.
PAUL HARDIN, Trustee (Age 69).
Professor of Law at University of North Carolina at Chapel Hill;
Director/Trustee of 14 investment companies associated with Citigroup;
Director of The Summit Bancorporation. Formerly, Chancellor of the
University of North Carolina at Chapel Hill; His address is 12083
Morehead, Chapel Hill, North Carolina 27514.
*HEATH B. MCLENDON, Chairman of the Board, President and Chief
Executive Officer (Age 67).
Managing Director of Salomon Smith Barney; Chairman, Co-Chairman or
Trustee of 78 investment companies affiliated with Citigroup.;
President of SSB Citi and Travelers Investment Advisors ("TIA"); former
Chairman of Smith Barney Strategy Advisors Inc. His address is 7 World
Trade Center, New York, New York, 10048.
RODERICK C. RASMUSSEN, Trustee (Age 73).
Investment Counselor; Director/Trustee of 12 investment companies
associated with Citigroup. Formerly, Vice President of Dresdner and
Company Inc. (investment counselors); His address is 9 Cadence Court,
Morristown, NJ 07960.
JOHN P. TOOLAN, Trustee (Age 69).
Retired; Director/Trustee of 12 investment companies associated with
Smith Barney. Trustee of John Hancock Funds; 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. His
address is 13 Chadwell Place, Morristown, New Jersey, 07960.
LEWIS E. DAIDONE, Senior Vice President and Treasurer (Age 42).
Managing Director of Salomon Smith Barney; Senior Vice President or
Executive Vice President and Treasurer of 61 investment companies
affiliated with Citigroup, and Director and Senior Vice President of
the manager and TIA. His address is 125 Broad Street, New York, New
York 10004.
PETER M. COFFEY, Vice President and Investment Officer (Age 56).
Managing Director of Salomon Smith Barney; Vice President of the
Manager and of five investment companies associated with Salomon Smith
Barney. His address is 388 Greenwich Street, New York, NY 10013.
JOSEPH DEANE, Vice President and Investment Officer (Age 51).
Managing Director of Salomon Smith Barney and Investment Officer of SSB
Citi. His address is 388 Greenwich Street, New York, NY 10013.
JOSEPH BENEVENTO, Vice President and Investment Officer (Age 31).
Vice President of Smith Barney and Vice President of the fund and four
investment companies associated with Salomon Smith Barney. His address
is 388 Greenwich Street, New York, NY 10013.
ANTHONY PACE, Controller (Florida, Georgia, Limited Term, National, New
York, Pennsylvania Portfolios (Age 35).
Director of Salomon Smith Barney; Controller or Assistant Treasurer of
various investment companies affiliated with Citigroup since 1999. His
address is 125 Broad Street, New York, New York 10004.
IRVING DAVID, Controller (California Money Market, New York Money
Market and Massachusetts Money Market Portfolios) (Age 38).
Director of Salomon Smith Barney. Controller or Assistant Treasurer of
43 investment companies affiliated with Citigroup. His address is 125
Broad Street, New York, New York 10004.
CHRISTINA T. SYDOR, Secretary (Age 49).
Managing Director of Salomon Smith Barney and Secretary of 61
investment companies affiliated with Salomon Smith Barney; Secretary
and General Counsel of the Manager and TIA. Her address is 388
Greenwich Street, New York, NY 10013.
*Designates a Trustee that is an "interested person" as defined in the
1940 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 Salomon Smith Barney.
COMPENSATION TABLE
Name of Person
Aggregate
Compensation
from Fund
For Fiscal
Year
Ended
03/31/00
Pension or
Retirement
Benefits
Accrued as
part of
Fund
Expenses
Total
Compensation
from Fund
Complex for
Calendar Year
Ended 12/31/99
Number of
Funds for
Which Person
Serves within
Fund Complex
Lee Abraham
$3,395
$0
$71,133
12
Allan J. Bloostein
3,395
0
112,483
19
Jane F. Dasher
4,584
0
65,733
12
Donald R. Foley+
4,584
0
71,300
12
Richard E. Hanson
3,414
0
68,233
14
Paul Hardin
4,584
0
90,450
14
Heath B. McLendon*
0
0
0
78
Roderick C.
Rasmussen
4,584
0
71,200
12
John P. Toolan+
4,448
0
69,100
12
_________________________
* Designates a person that is an "interested Trustee" of the Trust.
+ Pursuant to a deferred compensation plan, the indicated persons
elected to defer payment of the following amounts of their
compensation from the Trust: Donald R. Foley - $1,274, Roderick
C. Rasmussen - $398 and John P. Toolan - $4,448, and the
following amounts of their compensation from the fund Complex:
Donald R. Foley: $21,600, and John P. Toolan: $69,100.
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 Trust was $2621.
On July 10, 2000, the Trustees and officers owned in the
aggregate less than 1% of the outstanding shares of each fund of the
Trust.
Investment Manager and Administrator
SSB Citi is investment manager to each of the funds pursuant to a
written agreement (the "Advisory Agreement"). The services provided by
the manager under each Advisory Agreement are described in the
prospectuses under "Management." The manager pays the salary of any
officer and employee who is employed by both it and the funds. The
manager bears all expenses in connection with the performance of its
services. The Manager is a wholly owned subsidiary of Citigroup.
The Advisory Agreements 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 Advisory
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 Advisory Agreements for the California Money Market
Portfolio, the New York Money Market Portfolio and the Massachusetts
Money Market Portfolio provide for the payment of a management fee at
an annual rate based on each Money Market Portfolio's average daily net
assets in accordance with the following schedule:
0.500% on the first $2.5 billion of net assets;
0.475% on the next $2.5 billion; and
0.450% on net assets in excess of $5 billion.
0.400 on net assets in excess of $7.5 billion
Based on the current asset levels of each Money Market Portfolio,
except California Money Market, the effective rate of the management
fee for each of the money market funds is 0.50%. The effective rate of
the management fee for California Money Market Portfolio is 49.7%.
For the fiscal years or period ended March 31, 2000, 1999 and
1998, the management fee paid by each fund was as follows:
PORTFOLIO
2000
1999
1998
National
$1,990,02
4
$1,976,56
2
$1,754,11
6
Limited Term
1,755,970
1,625,157
1,416,637
New York
3,530,004
3,811,463
3,734,185
Florida
1,132,816
1,109,500
974,400
California Money
11,636,11
1
9,619,316
7,817,640
New York Money
7,182,349
6,110,859
5,154,859
Georgia (a)
249,390
200,616
35,458
Pennsylvania (b)
310,437
235,522
13,969
Massachusetts Money
(c)
457,792
--
--
(a) The manager waived its management fee in excess of 0.33% of the
portfolio's average daily net assets for the fiscal year ended
March 31, 1998 and in excess of 0.35% of the portfolio's average
daily net assets for the fiscal year ended March 31, 1999.
(b) The manager waived its management fee in excess of 0.33% of the
portfolio's average daily net assets for the fiscal year ended
March 31, 1998, in excess of 0.25% of the portfolio's average
daily net assets for the fiscal year ended March 31, 1999 and in
excess of 0.25% of the portfolio's average daily net assets for
the fiscal year ended March 31, 2000.
(c) Massachusetts Money Market Portfolio commenced operations on
September 14, 1999.The manager waived a portion of its fees for
the period ended March 31, 2000.
The Advisory Agreements further provide that all other expenses
not specifically assumed by the manager under the Advisory 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%
Massachusetts Money Market
0.70%
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. Effective June 5, 2000, Salomon Smith Barney, Inc.,
located at 388 Greenwich Street, New York, New York 10013 and PFS
Distributors, Inc. ("PFS Distributors") serve as the fund's co-
distributors pursuant to a written agreements dated June 5, 2000 (the
"Distribution Agreements") which was approved by the fund's Board of
Directors, including a majority of the independent directors, on March
15, 2000. Prior to and up to June 5, 2000, CFBDS, Inc. served as each
Fund's Distributor.
The Distributor may be deemed to be an underwriter for purposes
of the 1933 Act. From time to time, the Distributor, or PFS
Distributors or its affiliates may also pay for certain non-cash sales
incentives provided to PFSI Registered Representatives. Such incentives
do not have any effect on the net amount invested. In addition to the
reallowances from the applicable public offering price described above,
PFS Distributors may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation to PFSI Registered Representatives that sell shares of
each portfolio.
The Distributor has entered into a selling agreement with PFS
Distributors and PFS Distributors has entered into an agreement with
PFSI giving PFSI the right to sell shares of each portfolio of the fund
on behalf of the Distributor. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is
required to take and pay only for such shares of each portfolio as may
be sold to the public. The Distributor is not obligated to sell any
stated number of shares. The Distribution Agreements are renewable
from year to year if approved (a) by the directors or by a vote of a
majority of the fund's outstanding voting securities, and (b) by the
affirmative vote of a majority of directors who are not parties to the
Distribution Agreements or interested persons of any party by votes
cast in person at a meeting called for such purpose. The Distribution
Agreements provide that they will terminate if assigned, and that they
may be terminated without penalty by either party on 60 days' written
notice.
The Trust, 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 and PFSI in
connection with shareholder service expenses. The only Classes of
shares being offered for sale through PFSI are Classes A and B shares.
Under the Plan, Salomon Smith Barney is paid a fee with respect to
shares of each portfolio sold through Salomon Smith Barney and PFSI is
paid a fee with respect to shares or each portfolio sold through PFS
Distributors. Under the Plan, the fund pays Salomon Smith Barney, or
PFSI (who pays its Registered Representative), as the case may be, a
service fee 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
Money Market, New York Money Market and Massachusetts Money Market
Portfolios is 0.10%). The service fee, is primarily used to pay
Salomon Smith Barney Financial Consultants (and PFSI Registered
Representatives) for servicing shareholder accounts. In addition, each
fund pays Salomon Smith Barney a distribution fee with respect to Class
B and Class L shares (except California Money Market Portfolio, New
York Money Market Portfolio and Massachusetts Money Market Portfolio
which do not offer Class B or L shares and Limited Term Portfolio which
does not offer Class B shares and has a different rate for its Class L
shares), calculated at the annual rates of 0.50% and 0.55%,
respectively, and 0.20% for Limited Term Portfolio Class L shares, of
the value of the fund's average daily net assets attributable to those
classes (and pays PFSI with respect to Class A and B ) to cover
expenses primarily intended to result in the sale of those shares.
These expenses include: advertising expenses; the cost of printing and
mailing prospectuses to potential investors; payment to and expenses of
Salomon Smith Barney Financial Consultants, PFSI Registered
Representatives, and other persons who provide support services in
connection with the distribution of shares; interest and/or carrying
charges; and indirect and overhead costs of Salomon Smith Barney and
PFSI associated with the sale of portfolio shares, including lease,
utility, communications and sales promotion expenses. 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, 2000, the table below represents the
fees which have been accrued and/or paid to Salomon Smith Barney
pursuant to Rule 12b-1 for each of the fund's portfolios:
PORTFOLIO
Class A
Class B
Class L
Class Y
Total
California Money Market
$2,326,2
76
N/A
N/A
--
$2,326,2
76
National
$575,400
$257,153
$133,459
--
$966,012
Limited Term
$422,895
N/A
$137,063
--
$559,958
Florida
$227,824
$404,396
$87,262
--
$719,482
Georgia
$53,885
$81,307
$48,914
--
$184,106
New York
$773,742
$1,116,3
37
$129,002
--
$2,019,0
81
New York Money Market
$1,436,4
70
N/A
N/A
--
$1,436,4
70
Pennsylvania
$48,736
$172,681
$69,503
--
$290,920
Massachusetts Money
Market*
$91,214
N/A
N/A
--
$91,214
*Massachusetts Money Market Portfolio commenced operations on September
14, 1999.
+
Commissions on Class A Shares. For the 1998 fiscal year, the aggregate
dollar amount of commissions on Class A shares, all of which were paid
to Salomon Smith Barney, is as follows:
Name of Fund
Fiscal Year
Ended 03/31/98
California Money Market
n/a
National
$345,000
Limited Term
$315,000
Florida
$319,000
Georgia
$75,000
New York
$489,000
New York Money Market
n/a
Pennsylvania
$40,000
Massachusetts Money Market
n/a
For the periods April 1, 1998 through October 7, 1998 and October 8,
1998 through March 31, 1999, and for the 2000 fiscal year the aggregate
dollar amounts of commissions on Class A shares, are as follows:
Class A
Name of Fund
04/01/98
through
10/07/98*
10/08/98
through
03/31/99**
Fiscal Year
Ended
03/31/00***
California Money Market
n/a
n/a
n/a
National
$336,000
$355,000
$343,000
Limited Term
$294,000
$573,000
$259,000
Florida
$201,000
$268,000
$235,000
Georgia
$77,000
$91,000
$61,000
New York
$268,000
$350,000
$358,000
New York Money Market
n/a
n/a
n/a
Pennsylvania
$75,000
$132,000
$93,000
Massachusetts Money Market
n/a
n/a
n/a
*The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney: $319,500,
$515,700, $241,200, $81,900, $315,000, and $118,800, for the National,
Limited Term, Florida, Georgia, New York, and Pennsylvania Portfolios.
*** The following amounts were paid to Salomon Smith Barney: $308,700,
$233,100, $211,500, $54,900, $322,200, and $83,700, for the National,
Limited Term, Florida, Georgia, New York, and Pennsylvania Portfolios.
Commissions on Class L Shares. For the periods June 12, 1998 through
October 7, 1998 and October 8, 1998 through March 31, 1999, and for the
2000 fiscal year the aggregate dollar amounts of commissions 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
03/31/99**
Fiscal Year
Ended
03/31/00***
California Money Market
n/a
n/a
n/a
National
$18,000
$6,000
$19,000
Limited Term
$26,000
$91,000
$45,000
Florida
$9,000
$14,000
$13,000
Georgia
$7,000
$13,000
$9,000
New York
$17,000
$48,000
$44,000
New York Money Market
n/a
n/a
n/a
Pennsylvania
$6,000
$9,000
$18,000
Massachusetts Money Market
n/a
n/a
n/a
* The entire amount was paid to Salomon Smith Barney.
** The following amounts were paid to Salomon Smith Barney: $5,400,
$81,900, $12,600, $11,700, $43,200 and $8,100 for the National, Limited
Term, Florida, Georgia, New York, and Pennsylvania Portfolios,
respectively.
***The following amounts were paid to Salomon Smith Barney: $17,100,
$40,500, $11,700, $8,100, $39,600 and $16,200 for the National, Limited
Term, Florida, Georgia, New York, and Pennsylvania Portfolios,
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.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the fund, its investment
advisers and principal underwriter have adopted codes of ethics that
permit personnel to invest in securities for their own accounts,
including securities that may be purchased or held by the fund. All
personnel must place the interests of clients first and avoid
activities, interests and relationships that might interfere with the
duty to make decisions in the best interests of the clients. All
personal securities transactions by employees must adhere to the
requirements of the codes and must be conducted in such a manner as to
avoid any actual or potential conflict of interest, the appearance of
such a conflict, or the abuse of an employee's position of trust and
responsibility.
A copy of the fund's code of ethics is on file with the SEC.
Custodian
All fund securities and cash owned by the funds will be held in
the custody of PNC Bank, National Association, 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103.
Counsel
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York
10019, serves as counsel to the funds.
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004,
serves as counsel to the directors who are not "interested persons" of
the funds.
Auditors
KPMG LLP, 757 Third Avenue, New York, New York 10017, has been
selected to serve as independent auditors of the funds and to render an
opinion on the funds' financial statements for the fiscal year ending
March 31, 2001.
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, the New York Money Market Portfolio,
and the Massachusetts Money Market Portfolio each offer two classes of
shares: Class A and Class Y. Class A shares of each of the California
Money Market, New York Money Market and Massachusetts 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 of California Money Market, New York
Money Market and Massachusetts Money Market Portfolios are sold without
sales charges. Class A shares of Limited Term Portfolio have an
initial sales charge of 2.00% of the transaction (2.04% of amount
invested) of the first $499,999 invested; and no initial sales charge
for investments of $500,000 and over.*
Class A shares of each fund except California Money Market, New York
Money Market, Massachusetts Money Market and Limited Term Portfolios
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 1933
Act. 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 broker that clears through Salomon Smith Barney
("Dealer Representative"). In addition, certain investors 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 PFPC
Global Fund Services, Inc ("PFPC" or "sub-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 the sub-transfer agent. Share
certificates are issued only upon a shareholder's written request to
the sub-transfer agent.
Purchase orders received by a fund or a Salomon Smith Barney Financial
Consultant prior to the close of regular trading on the New York Stock
Exchange (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 the sub-transfer agent is authorized through
preauthorized transfers of at least $25 on a monthly basis or at least
$50 on a quarterly basis to charge the shareholder's account held with
a bank or other financial institution on a monthly or quarterly basis
as indicated by the shareholder, to provide for systematic additions to
the shareholder's fund account. A shareholder who has insufficient
funds to complete the transfer will be charged a fee of up to $25 by
Salomon Smith Barney or the sub-transfer agent.. 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) direct
rollovers by plan participants of distributions from a 401(k) plan
offered to employees of Citigroup or its subsidiaries or a 401(k) plan
enrolled in the Smith Barney 401(k) Program (Note: subsequent
investments will be subject to the applicable sales charge); (g)
purchases by a separate account used to fund certain unregistered
variable annuity contracts; (h) investments of distributions from or
proceeds from a sale of a UIT sponsored by Salomon Smith Barney; (i)
purchases by investors participating in a Salomon Smith Barney fee-
based arrangement; and (j) accounts associated with "k" Choice and
Collective Choice. 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 option of the investor, up to 90 days
before such date. Please contact a Salomon Smith Barney Financial
Consultant or the Transfer Agent 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 13 months from the
date of the Letter. If a total investment of $15,000,000 is not made
within the 13-month period, all Class Y shares purchased to date will
be transferred to Class A shares, where they will be subject to all
fees (including a service fee of 0.25%) 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
the Transfer Agent 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
(Class B shares that were acquired through the reinvestment of
dividends and distributions) 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.
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation,
next of shares representing the reinvestment of dividends and capital
gains distributions and finally of other shares held by the shareholder
for the longest period of time. 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 the Transfer Agent 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.
PFSI Accounts
Initial purchase of shares of the fund must be made through a PFSI
Registered Representative by completing the appropriate application.
The completed application should be forwarded to PFS Shareholder
Services, P.O. Box 105033, Atlanta, GA 30348. Checks drawn on foreign
banks must be payable in U.S. dollars and have the routing number of
the U.S. bank encoded on the check. Subsequent investments may be sent
directly to PFS Shareholder Services. In processing applications and
investments, PFS Shareholder Services acts as agent for the investor
and for PFSI and also as agent for the distributor, in accordance with
the terms of the prospectus. If the transfer agent ceases to act as
such, a successor company named by the fund will act in the same
capacity so long as the account remains open.
Shares purchased will be held in the shareholder's account by PFS
Shareholder Services. Share certificates are issued only upon a
shareholder's written request to the sub-transfer agent. A shareholder
that has insufficient funds to complete any purchase will be charged a
fee of up to $30 per returned purchase by PFS Shareholder Services.
Investors in Class A and Class B shares may open an account by making
an initial investment of at least $1,000 for each account in each Class
(except for Systematic Investment Plan accounts). Subsequent
investments of at least $50 may be made for each Class. For the fund's
Systematic Investment Plan, the minimum initial investment requirement
for Class A and Class B shares and the subsequent investment
requirement for each Class is $25. There are no minimum investment
requirements in Class A shares for employees of Citigroup and its
subsidiaries, including Salomon Smith Barney, Directors or Trustees of
any of the Smith Barney Mutual Funds, and their spouses and children.
The fund reserves the right to waive or change minimums, to decline any
order to purchase its shares and to suspend the offering of shares from
time to time. Purchase orders received by the transfer agent or sub-
transfer agent 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.
Initial purchases of fund shares may be made by wire. The minimum
investment that can be made by wire is $10,000. Before sending the
wire, the PFS Investments Registered Representative must contact the
PFS Shareholder Services at (800) 665-8677 to obtain proper wire
instructions. Once an account is open, a shareholder may make
additional investments by wire. The shareholder should contact PFS
Shareholder Services at (800) 544-5445 to obtain proper wire
instructions.
Shareholders who establish telephone transaction authority on their
account and supply bank account information may make additions to their
accounts at any time. Shareholders should contact PFS Shareholder
Services at (800) 544-5445 between 8:00 a.m. and 8:00 p.m. eastern time
any day that the NYSE is open. If a shareholder does not wish to allow
telephone subsequent investments by any person in his account, he
should decline the telephone transaction option on the account
application. The minimum telephone subsequent investment is $250 and
can be up to a maximum of $10,000. By requesting a subsequent purchase
by telephone, you authorize PFS Shareholder Services to transfer funds
from the bank account provided for the amount of the purchase. A
shareholder that has insufficient funds to complete the transfer will
be charged a fee of up to $30 by PFS Shareholder Services. A
shareholder who places a stop payment on a transfer or the transfer is
returned because the account has been closed, will also be charged a
fee of up to $30 by PFS Shareholder Services. Subsequent investments
by telephone may not be available if the shareholder cannot reach PFS
Shareholder Services whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the
fund's regular subsequent investment procedure described above.
Redemption proceeds can be sent by check to the address of record, or
deposited into your bank account designated on the application via the
Automated Clearinghouse (ACH). A shareholder will be charged a $25
service fee for wire transfers and a nominal service fee for transfers
made directly to the shareholder's bank by the ACH. Wire transfers are
not available on phone redemptions. PFS Shareholder Services will
process and mail a shareholder's redemption check usually within two to
three business days after receiving the redemption request in good
order. The shareholder may request the proceeds to be mailed by two-
day air express for an $8 fee that will be deducted from the
shareholder's account or by one-day air express for a $15 fee that will
be deducted from the shareholder's account.
An Account Transcript is available at a shareholder's request, which
identifies every financial transaction in an account since it has
opened. To defray administrative expenses involved with providing
multiple years worth of information, there is a $15 charge for each
Account Transcript requested. Additional copies of tax forms are
available at the shareholder's request. A $10 fee for each tax form
will be assessed.
Additional information regarding PFS Shareholder Services may be
obtained by contacting the Client Services Department at (800)
544-5445.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment
postponed (a) for any period during which the 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 the sub-transfer agent
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. The Transfer Agent may require
additional supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A redemption request
will not be deemed properly received until PFPC receives all required
documents in proper form. Redemption proceeds will be mailed to the
shareholder's address of record.
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, from the shareholder directly. The redemption proceeds will be
remitted on or before the third business day following receipt of
proper tender, except on any days on which the NYSE is closed or as
permitted under the 1940 Act, in extraordinary circumstances.
Generally, if the redemption proceeds are remitted to a Salomon Smith
Barney brokerage account, these funds will not be invested for the
shareholder's benefit without specific instructions 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 fifteen days or more.
Distributions in Kind
If the Board of Trustees 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 sub-transfer
agent may continue to do so and applications for participation in the
Withdrawal Plan must be received by the sub-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 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, the New York Money Market
Portfolio and the Massachusetts 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 397 days 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 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:
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, New York Money Market and Massachusetts 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.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit, excessive
exchange transactions can be detrimental to a 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.
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.
As stated in the prospectus for shares distributed through PFS
Distributors, the exchange privilege is limited.
Additional Information Regarding Telephone Redemption and Exchange
Program.
Neither the Trust nor its agents will be liable for following
instructions communicated by telephone that are reasonably believed to
be genuine. The Trust 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). Each fund reserves the right to
suspend, modify or discontinue the telephone redemption and exchange
program or to impose a charge for this service at any time following at
least seven (7) days prior notice to shareholders.
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 Salomon Smith Barney
Financial Consultant or a PFS Investments Registered Representative.
Upon receipt of proper instructions and all necessary supporting
documents, shares submitted for exchange are redeemed at the then-
current net asset value and the proceeds are immediately invested at a
price as described above in shares of the portfolio being acquired.
Salomon Smith Barney and PFS Distributors reserve the right to reject
any exchange request. The exchange privilege may be modified or
terminated at any time after written notice to shareholders.
PERFORMANCE DATA
From time to time, 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, New
York Money Market Portfolio and Massachusetts 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, 2000 is as follows:
Average Annual Total Return
PORTFOLIO
1-Year
5-Years
10-Years
Life of
Fund
Inception
Date
National
(5.94)%
4.87%
6.77%
6.91%
8/20/86
Limited
Term
(3.45)%
4.22%
5.62%
5.84%
11/28/88
New York
(5.54)%
5.03%
6.87%
6.46%
1/16/87
Florida
(6.16)%
4.75%
N/A
6.19%
4/2/91
Georgia
(7.60)%
5.42%
N/A
5.56%
4/4/94
Pennsylvani
a
(8.87)%
4.78%
N/A
5.45%
4/4/94
Each fund's average annual total return with respect to its Class
B shares for the one-year period and for the life of the fund ended
March 31, 2000 is as follows:
PORTFOLIO
1-Year
5-Year
Life of
Fund
Inceptio
n Date
National
(6.73)%
5.02%
6.67%
11/7/94
New York
(6.29)%
5.17%
6.78%
11/11/94
Florida
(6.88)%
4.92%
6.73%
11/16/94
Georgia
(5.43)%
5.56%
5.43%
6/15/94
Pennsylvani
a
(6.71)%
4.96%
5.21%
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, 2000 is as follows:
PORTFOLIO
1-Year
5-Years
Life of
Fund
Inceptio
n
Date
National
(4.46)%
4.89%
5.06%
1/5/93
Limited
Term
(3.62)%
4.17%
4.40%
1/5/93
New York
(4.06)%
5.08%
5.13%
1/8/93
Florida
(4.68)%
4.79%
5.01%
1/5/93
Georgia
(7.60)%
5.47%
5.44%
4/14/94
Pennsylvani
a
(8.87)%
4.84%
5.40%
4/5/94
The fund's average annual total return with respect to its Class
Y shares for the life of the fund's Class Y shares through March 31,
2000 is as follows:
PORTFOLIO
1-Year
Life of
Fund
Inception
Date
Limited
Term
(1.31)%
0.09%
11/12/98
Each fund's yield, other than for the California Money Market
Portfolio, the New York Money Market Portfolio and the Massachusetts
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 from
short-term obligations is based on the 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 any of the
funds.
Each fund's distribution rate, other than those of the California
Money Market Portfolio, the New York Money Market Portfolio and the
Massachusetts 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, 2000 was 2.62%
(the effective yield was 2.65%) with an average dollar-weighted fund
maturity of 31 days; the New York Money Market Portfolio's yield with
respect to its Class A shares for the seven-day period ended March 31,
2000 was 3.05% (the effective yield was 3.09%) with an average dollar-
weighted fund maturity of 38 days; the Massachusetts Money Market
Portfolio yield with respect to its Class A shares for the seven-day
period ended March 31, 2000 was 3.16% (the effective yield was 3.21%)
with an average dollar-weighted fund maturity of 34 days. From time to
time the California Money Market Portfolio, the New York Money Market
Portfolio and the Massachusetts 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 fund or of the Trust, 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 Trust are designed to make the Trust 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 Trust provides that shareholders shall not be subject to any
personal liability for the acts or obligations of the Trust and that
every written obligation, contract, instrument or undertaking made by
the Trust shall contain a provision to the effect that the shareholders
are not personally liable thereunder.
Special counsel for the Trust 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
Trust; however, upon payment of any such liability the shareholder will
be entitled to reimbursement from the general assets of the Trust. The
Board of Trustees intends to conduct the operations of the Trust, 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
Trust.
The Declaration of Trust further provides that no Trustee,
officer or employee of the Trust is liable to the Trust 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 Trust. It also provides that all third persons shall look
solely to the Trust property or the property of the appropriate
portfolio of the Trust for satisfaction of claims arising in connection
with the affairs of the Trust 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 Trust.
The Trust 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 Trust, 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 Trust 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 Trust, 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 Advisory
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 July 17, 1999 the following shareholders beneficially
owned 5% or more of a class of shares of a portfolio of the Trust:
Georgia Portfolio Class A % of shares
MLPF&S for the Sole Benefit of its Customers 9.471%
Attn.: Fund Administration
4800 Deer Lake Drive, East 3rd Floor
Jacksonsville, FL 32246
Gwyn H. Gordon 7.5486%
Helaine Sugarman, TTEES
Rosalie H. Alterman Rev Trust
DTD 5/7/1997
774 W. Sussex Road
Altanta, GA 30306
Georgia Portfolio Class L
E.K. Gandy 6.3237%
164 Country Club Road
Macon, GA 31210-4747
Pennsylvania Portfolio Class A
Abraham L. Morris 7.6534%
906 Frog Hollow Terrace
Rydal, PA 19046-2403
SB Private Trust Co. of N.J. 6.8231%
#138018738151 D. D'Arienzo
Trustee of CE Minerals Exec.
Deferral/Retention Plan
153 East 53rd Street, 23rd Floor
New York, NY 10043-0001
Murray L. Katz and 5.1475%
Harriet L. Katz JTWROS
186 Commadore Drive
Jupiter, FL 33477-4004
Massachusetts Money Market Portfolio Class A
Mr. Michael J. Zak 5.5496%
74 Musterfield Road
Concord, MA 01742-1613
TAXES
The following is a summary of certain material tax considerations
affecting each fund and its shareholders. Please refer to the
applicable prospectus for further discussion. In addition to the
considerations described below and in the applicable prospectus, there
may be other federal, state, local or foreign tax implications to
consider. Because taxes are a complex matter, shareholders and
prospective shareholders are urged to consult their tax advisors for
more detailed information with respect to the tax consequences of an
investment.
Capital gain distributions, if any, are taxable to shareholders,
and are declared and paid at least annually. On March 31, 2000, the
unused capital loss carryovers, by fund, were approximately as follows:
Limited Term portfolio, $11,508,000; California Money Market portfolio,
$50,600, New York Money Market portfolio, $29,300; New York portfolio,
$9,400,000; Georgia portfolio, $1,015,300; Pennsylvania portfolio,
$668,000; Florida portfolio, $2,430,000; National portfolio,
$4,176,000. For Federal income tax purposes, these amounts are
available to be applied against future capital gains of the fund that
has the carryovers, if any, that are realized prior to the expiration
of the applicable carryover. The carryovers expire as follows:
PORTFOLIO
March
31,
(in thousands)
2003
2004
2005
2006
2007
2008
Limited Term
$273
$1,740
-
-
-
$9,495
CA Money
-
$1
-
-
-
$49.6
NY Money
-
-
-
-
-
$29.3
New York
-
-
-
-
-
$9,400
Georgia
-
-
-
-
$32
$983.3
Pennsylvania
-
-
-
-
-
$668
Florida
-
-
-
-
-
$2,430
National
-
-
-
-
-
$4,176
Mass Money
-
-
-
-
-
-
As described above and in the Prospectuses, each fund is designed
to provide investors with current income, in the form of "exempt-
interest dividends," which is excluded from gross income for Federal
income tax purposes and, except for the Limited Term Portfolio and the
National Portfolio, exempt from otherwise applicable state and/or
local personal income taxes in a particular state. No fund is intended
to be a balanced investment program, and the funds are not designed for
investors seeking capital gains or maximum tax-exempt income
irrespective of fluctuations in principal. Investment in any fund
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 will 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. 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 such bonds, or a "related person" of the substantial user.
Moreover, 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. 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 "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. Shareholders of each fund will receive 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.
Dividends paid by any fund from interest income on taxable
investments, net realized short-term capital gains and all or a portion
of any gains realized from the sale or other disposition of certain
market discount bonds are subject to federal income tax as ordinary
income. Distributions, if any, from net realized long-term capital
gains ("capital gain dividends") are taxable as long-term capital gains
regardless of the length of time a shareholder has owned fund shares.
If, in any taxable year, a fund fails to qualify as a regulated
investment company under the Code or fails to meet the distribution
requirement, it would be taxed in the same manner as an ordinary
corporation and distributions to its shareholders would not be
deductible by the fund in computing its taxable income. In addition,
in the event of a failure to qualify, the fund's distributions, to the
extent derived from the fund's current or accumulated earnings and
profits would constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to shareholders as
ordinary income, even though those distributions might otherwise (at
least in part) have been treated in the shareholders' hands as tax-
exempt interest. If such fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify again as a
regulated investment company. In addition, if a fund failed to qualify
as a regulated investment company for a period greater than one taxable
year, such fund may be required to recognize any net built-in gains
with respect to certain o fits assets (the excess of the aggregate
gains, including items of income, over aggregate losses that would have
been realized if the fund had been liquidated) in order to qualify as a
regulated investment company in a subsequent year.
Shareholders are required to pay tax on all taxable distributions
even if those distributions are automatically reinvested in additional
shares. None of the dividends paid by any fund will qualify for the
corporate dividends-received deduction. Certain distributions paid in
January may be treated as if received on December 31 for federal income
tax purposes. Each fund will inform shareholders of the source and tax
status of all distributions promptly after the close of each calendar
year.
Some of the funds may invest in exchange-traded municipal bond
index futures contracts. As a general rule, these investment activities
will increase or decrease the amount of long-term and short-term capital
gains or losses realized by a fund and, accordingly, will affect the
amount of capital gains distributed to the fund's shareholders. For
federal income tax purposes, gain or loss on these futures contracts
(referred to herein as "section 1256 contracts") is taxed pursuant to a
special "mark-to-market" system. Under the mark-to-market system, these
instruments are treated as if sold at a fund's fiscal year end for their
fair market value. As a result, the fund may be recognizing gains or
losses before they are actually realized. As a general rule, gain or
loss on section 1256 contracts is treated as 60% long-term capital gain
or loss and 40% short-term capital gain or loss. Marking-to-market and
the application of this 60/40 rule to unrealized gains and losses on
section 1256 contracts generally will affect the amount and timing of
capital gains or losses of a fund and of distributions taxable to a
shareholder. Moreover, if a fund invests in both section 1256 contracts
and offsetting positions to such contracts, which together constitute a
straddle, then the fund may be required to defer certain realized
losses.
A shareholder's gain or loss, if any, on the disposition of
shares of a fund that are held as capital assets (whether by redemption,
sale or exchange) generally will be a long-term or short-term capital
gain or loss depending on whether the shares had been held for tax
purposes for more than one year, or one year or less, respectively. If
a shareholder receives a capital gain dividend with respect to any share
and redeems or otherwise sells the share before it has been held by the
shareholder for more than six months, then any loss (to the extent not
disallowed pursuant to the other six-month rule described above relating
to exempt-interest dividends) on the sale or other disposition of such
share will be treated as long-term capital loss to the extent of the
capital gain dividend.
If a shareholder incurs a sales charge when acquiring shares of a
fund, disposes of those shares within 90 days and then acquires shares
in a mutual fund for which the otherwise applicable sales charge is
reduced by reason of a reinvestment right (e.g., an exchange privilege),
the original sales charge will not be taken into account when computing
gain or loss on the original shares to the extent the subsequent sales
charge is reduced. The portion of the original sales charge that does
not increase the shareholder's tax basis in the original shares will be
treated as incurred with respect to the second acquisition and, as a
general rule, will increase the shareholder's tax basis in the newly
acquired shares. Furthermore, the same rule also applies to a
disposition of the newly acquired shares made within 90 days of the
second acquisition. This provision prevents a shareholder from
immediately deducting the sales charge by shifting his or her investment
in a family of mutual funds.
Investors considering buying shares of a fund just prior to a
record date for a capital gain distribution should be aware that,
regardless of whether the price of the fund shares to be purchased
reflects the amount of the forthcoming distribution payment, any such
payment will be a taxable distribution payment.
Each fund may be required to withhold (as "backup withholding")
31% of all taxable dividends, capital gain distributions, and (except
for California Money Market Portfolio, New York Money Market Portfolio
and Massachusetts Money Market Portfolio) the proceeds of any
redemption, regardless of whether gain or loss is realized upon the
redemption, for shareholders who do not provide the fund with their
correct taxpayer identification number (social security or employer
identification number) and any required certifications. Withhholding
from taxable dividends and capital gain distributions also is required
for shareholders who otherwise are subject to backup withholding. Any
tax withheld as a result of backup withholding does not constitute an
additional tax, and may be claimed as a credit on the shareholders'
federal income tax returns.
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 a 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.
State Tax Information
California State Taxes California shareholders will not be subject to
California state personal income tax on dividends they receive from the
California Money Market Portfolio to the extent that such distributions
qualify as exempt-interest dividends under the Code and California law
and provided that, at the close of each quarter of the Portfolio's
taxable year, at least 50% of the Portfolio's total assets are invested
in municipal obligations of California issuers. To the extent that
distributions are derived from taxable income, including long or short-
term capital gains, such distributions will not be exempt from
California state personal income tax. Dividends on the California
Portfolio are not excluded in determining California state franchise
taxes on corporations and financial institutions.
Florida Taxes Florida currently does not impose a personal income tax
on individuals. Thus, individual shareholders of the Florida Portfolio
will not be subject to any Florida state income tax on distributions
received from the Florida Portfolio. However, certain distributions
will be taxable to corporate shareholders that are subject to Florida
corporate income tax.
Florida currently imposes an "intangibles tax" on certain
securities and other intangible assets owned by Florida residents.
Certain types of municipal obligations of Florida issuers, U.S.
Treasury securities and municipal obligations issued by certain U.S.
territories and possessions are exempt from this intangibles tax. The
Florida Portfolio 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. Additionally, the Florida Department of
Revenue has ruled that, if on the annual assessment date of any year
the Florida Portfolio consists solely of such exempt assets, then the
Florida Portfolio's shares will be exempt from the Florida intangibles
tax. The Florida Portfolio intends to provide shareholders annually
with information relating to its assets necessary to permit
shareholders to determine whether the value of Florida Portfolio shares
held is exempt from the Florida intangibles tax.
Investors purchasing municipal obligations of their state of
residence, or a fund comprised of such obligations, should recognize
that the benefits of the exemption from local taxes, in addition to the
exemption from federal taxes, necessarily limits the fund's ability to
diversify geographically. The Florida Portfolio will make available
annually to its shareholders information concerning the tax status of
its distributions, including the amount of its dividends designated as
exempt-interest dividends and as capital gain dividends.
The foregoing is only a brief summary of the tax considerations
generally affecting the Florida Portfolio and its shareholders who are
Florida residents. Investors are urged to consult their tax advisers
with specific reference to their own tax situation.
Georgia Taxes Exempt-interest dividends and distributions by the
Georgia Portfolio to a Georgia resident that are attributable to
interest on Georgia municipal obligations or direct obligations of the
United States and its territories and possessions will not be subject
to the State of Georgia personal income tax. Dividends or other
distributions by the Georgia Portfolio which are attributable to other
sources, including all distributions that qualify as capital gains
dividends for federal income tax purposes, will be subject to the State
of Georgia personal income tax at the applicable rate.
Investors purchasing municipal obligations of their state of
residence, or a fund comprised of such obligations, should recognize
that the benefits of the exemption from local taxes, in addition to the
exemption from federal taxes, necessarily limits the fund's ability to
diversify geographically. The Georgia Portfolio will make available
annually to its shareholders information concerning the tax status of
its distributions, including the amount of its dividends designated as
exempt-interest dividends and as capital gain dividends.
The foregoing is only a brief summary of the tax considerations
generally affecting the Georgia Portfolio and its shareholders who are
Georgia residents. Investors are urged to consult their tax advisers
with specific reference to their own tax situation.
Massachusetts Taxes Individual shareholders who are otherwise subject
to Massachusetts personal income tax will not be subject to
Massachusetts personal income tax on exempt-interest dividends received
from the fund to the extent the dividends are attributable to interest
on obligations of the Commonwealth of Massachusetts and its political
subdivisions, agencies and public authorities (or on obligations of
certain other governmental issuers such as Puerto Rico, the Virgin
Islands and Guam) that pay interest which is excluded from gross income
for federal income tax purposes and exempt from Massachusetts personal
income taxes. Other distributions from Massachusetts Money Market
Portfolio, including those related to long-and short-term capital
gains, other than certain gains from certain Massachusetts Municipal
Securities identified by the Massachusetts Department of revenue,
generally will not be exempt from Massachusetts personal income tax.
Businesses should note that Massachusetts Money Market Portfolio's
distributions derived from Massachusetts Municipal Securities are not
exempt from Massachusetts corporate excise tax.
The foregoing is only a brief summary of the tax considerations
generally affecting the Massachusetts Money Market Portfolio and its
shareholders who are Massachusetts residents. Shareholders are urged
to consult their own tax advisers with specific reference to their own
tax situation.
New York State and City Taxes New York resident shareholders of the New
York Portfolio or the New York Money Market Portfolio will not be
subject to New York State and New York City personal income taxes on
exempt-interest dividends attributable to interest on tax-exempt
obligations of the State of New York and its political subdivisions, as
well as certain other obligations the interest on which is considered
exempt for New York State and New York City purposes. The New York
Money Market Portfolio is required to report annually the source, tax
status and recipient information related to its exempt-interest
dividends distributed within the State of New York. Exempt-interest
dividends are not excluded in determining New York State franchise or
New York City business taxes on corporations and financial
institutions.
The foregoing is only a brief summary of some of the tax
considerations generally affecting the New York Portfolio, the New York
Money Market Portfolio and their shareholders who are New York
residents. Investors are urged to consult their tax advisors with
specific reference to their own tax situation.
Pennsylvania Taxes Exempt-interest dividends distributed by the
Pennsylvania Portfolio will not be subject to the Pennsylvania personal
income tax, the corporate net income tax or to the Philadelphia school
district investment income tax to the extent that the dividends are
attributable to interest received by the Portfolio from its investments
in Pennsylvania municipal obligations and U.S. Government obligations,
including obligations issued by U.S. possessions. For Pennsylvania
personal income tax purposes, capital gain distributions are treated as
ordinary dividends and are taxed at ordinary income tax rates.
Investors purchasing municipal obligations of their state of
residence, or a fund comprised of such obligations, should recognize
that the benefits of the exemption from local taxes, in addition to the
exemption from federal taxes, necessarily limits the fund's ability to
diversify geographically. The Pennsylvania Portfolio will make
available annually to its shareholders information concerning the tax
status of its distributions, including the amount of its dividends
designated as exempt-interest dividends and as capital gain dividends.
The foregoing is only a brief summary of some of the tax
considerations generally affecting the Pennsylvania Portfolio and its
shareholders who are Pennsylvania residents. Investors are urged to
consult their tax advisors with specific reference to their own tax
situation.
ADDITIONAL INFORMATION
The Trust, 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 Trust 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 Trust 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 Trust 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 each fund's printing and mailing costs,
each 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
each fund. Under the custody agreement with the trust, 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 each fund are
held under bank custodianship in compliance with the 1940 Act.
Citi Fiduciary Trust Company, located at 125 Broad Street, New York,
New York 10004, serves as the fund's transfer and dividend-paying
agent. Under the transfer agency agreement, the transfer agent
maintains the shareholder account records for the fund, handles certain
communications between shareholders and the fund, distributes dividends
and distributions payable by the fund and produces statements with
respect to account activity for the fund and its shareholders. For
these services, the transfer agent receives fees from the fund computed
on the basis of the number of shareholder accounts that the transfer
agent maintains for the fund during the month and is reimbursed for
out-of-pocket expenses.
PFPC Global Fund Services, located at P.O. Box 9699, Providence, RI
02940-9699, serves as the fund's sub-transfer agent. Under the
transfer agency agreement, PFPC 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, PFPC receives a monthly fee
computed on the basis of the number of shareholder accounts it
maintains for the fund during the month, and is reimbursed for out-of-
pocket expenses.
FINANCIAL STATEMENTS
The funds' financial information is incorporated by reference to the
funds' Annual Reports to Shareholders for the fiscal year ended March
31, 2000 which were filed with the SEC on June 8, 2000, accession
number 950130-00-003314.
OTHER INFORMATION
In an industry where the average portfolio manager has seven years of
experience (source: ICI, 1998), the portfolio managers of Smith Barney
Mutual Funds average 21 years in the industry and 15 years with the
firm.
Smith Barney Mutual Funds offers more than 60 mutual funds. We
understand that many investors prefer an active role in allocating the
mix of funds in their portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund management that can be
tailored to suit each investor's unique financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested within their
asset class and investment style, enabling investors to make
asset allocation decisions in conjunction with their Salomon
Smith Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range of equity and
fixed income strategies that seek to capture opportunities across
asset classes and investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a fund of funds, investors can select a Concert Portfolio that
may help their investment needs. As needs change, investors can
easily choose another long-term, diversified investment from our
Concert family.
Special Discipline Series
Our Special Discipline Series funds are designed for
investors who are looking beyond more traditional market categories:
from natural resources to a roster of state-specific municipal funds.
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-I - Special Note:
The following information (set forth in Appendices B-G) is a summary of
special factors available at the time of the preparation of this SAI
affecting municipal obligations for state-specific portfolios
(California, New York and Massachusetts 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.
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations, and voter initiatives, as
discussed below, could adversely affect the market values and
marketability of, or result in default of, existing obligations,
including obligations that may be held by a fund. Obligations of the
state or local governments may also be affected by budgetary pressures
affecting the State of California (the State) and economic conditions
in the State. Interest income to a fund could also be adversely
affected. The following discussion highlights only some of the more
significant financial trends and problems, and is based on information
drawn from official statements and prospectuses relating to securities
offerings of the State, its agencies, or instrumentalities, as
available as of the date of this SAI. The Manager has not independently
verified any of the information contained in such official statements
and other publicly available documents, but is not aware of any fact,
which would render such information inaccurate.
Alternative Minimum Tax
As long as a fund continues to qualify as a regulated investment
company under the federal Internal Revenue Code, it will incur no
California income or franchise tax liability on income and capital
gains distributed to shareholders. California personal income tax law
provides that exempt-interest dividends paid by a regulated investment
company, or series thereof, from interest on obligations that are
exempt from California personal income tax are excludable from gross
income. For a fund to qualify to pay exempt-interest dividends under
California law, at least 50% of the value of its assets must consist of
such obligations at the close of each quarter of its fiscal year. For
purposes of California personal income taxation, distributions to
individual shareholders derived from interest on other types of
obligations and short-term capital gains will be taxed as dividends,
and long-term capital gain distributions will be taxed as long-term
capital gains. California has an alternative minimum tax similar to the
federal AMT described above. However, the California AMT does not
include interest from private activity municipal obligations as an item
of tax preference. Interest on indebtedness incurred or continued by a
shareholder in connection with the purchase of shares of a fund will
not be deductible for California personal income tax purposes.
Corporate taxpayers should note that dividends will not be exempt from
California corporate income or franchise tax.
General
During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's
finances have improved significantly since 1994, with ratings increases
since 1996. The ratings of certain related debt of other issuers for
which California has an outstanding lease purchase, guarantee or other
contractual obligation (such as for state-insured hospital bonds) are
generally linked directly to California's rating. Should the financial
condition of California deteriorate again, its credit ratings could be
reduced, and the market value and marketability of all outstanding
notes and bonds issued by California, its public authorities or local
governments could be adversely affected.
Economic Factors
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 34 million
represents about 12-1/2% of the total United States population and grew
by 26% in the 1980s, more than double the national rate. Population
growth slowed to less than 1% annually in 1994 and 1995, but rose to
almost 2% in the final years of the 1990's. During the early 1990's,
net population growth in the State was due to births and foreign
immigration, but in recent years, in-migration from the other states
has increased and once more represents net positive growth.
Total personal income in the State, at an estimated $964 billion in
1999, accounts for almost 13% of all personal income in the nation.
Total employment is over 15 million, the majority of which is in the
service, trade and manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with the
worst economic, fiscal and budget conditions since the 1930s.
Construction, manufacturing (especially aerospace), and financial
services, among others, were all severely affected, particularly in
Southern California. Recovery did not begin in California until 1994,
later than the rest of the nation, but since that time California's
economy has outpaced the national average. By the end of 1999,
unemployment in the State was at its lowest level in three decades.
Economic indicators show a steady and strong recovery underway in
California since the start of 1994 particularly in high technology
manufacturing and services, including computer software, electronic
manufacturing and motion picture/television production, and other
services, entertainment and tourism, and both residential and
commercial construction. International economic problems starting in
1997 had some moderating impact on California's economy, but negative
impacts, such as a sharp drop in exports to Asia which hurt the
manufacturing and agricultural sectors, were offset by increased
exports to Latin American and other nations, and a greater strength in
services, computer software and construction. With economic conditions
in many Asian countries recovering in 1999, that year had the strongest
economic growth in the State for the entire decade. Current forecasts
predict continued strong growth of the State's economy in 2000, with
slower growth predicted in 2001 and beyond. Any delay or reversal of
the recovery may create new shortfalls in State revenues.
Constitutional Limitations On Taxes, Other Charges and Appropriations
Certain California municipal obligations may be obligations of issuers
which rely in whole or in part, directly or indirectly, on AD VALOREM
property taxes as a source of revenue. The taxing powers of California
local governments and districts are limited by Article XIIIA of the
California Constitution, enacted by the voters in 1978 and commonly
known as "Proposition 13." Briefly, Article XIIIA limits to 1% of full
cash value of the rate of AD VALOREM property taxes on real property
and generally restricts the reassessment of property to 2% per year,
except under new construction or change of ownership (subject to a
number of exemptions). Taxing entities may, however, raise AD VALOREM
taxes above the 1% limit to pay debt service on voter-approved bonded
indebtedness. Under Article XIIIA, the basic 1% AD VALOREM tax levy
is applied against the assessed value of property as of the owner's
date of acquisition (or as of March 1, 1975, if acquired earlier),
subject to certain adjustments. This system has resulted in widely
varying amounts of tax on similarly situated properties. Several
lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13, but the U.S. Supreme Court upheld it in 1992.
Article XIIIA prohibits local governments from raising revenues through
AD VALOREM taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special
tax." Court decisions, however, allowed a non-voter approved levy of
"general taxes" which were not dedicated to a specific use.
On November 5, 1996, the voters of the State approved Proposition 218,
called the "Right to Vote on Taxes Act." Proposition 218 added Articles
XIIIC and XIIID to the State Constitution, which contain a number of
provisions affecting the ability of local agencies to levy and collect
both existing and future taxes, assessments, fees and charges. Article
XIIIC requires that all new or increased local taxes be submitted to
the electorate before they become effective. Taxes for general
governmental purposes require a majority vote and taxes for specific
purposes require a two-thirds vote. Further, any general purpose tax
which was imposed, extended or increased without voter approval after
December 31, 1994 must be approved by a majority vote within two years.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for
municipal services and programs. Article XIIID also contains several
new provisions affecting "fees" and "charges," defined for purposes of
Article XIIID to mean "any levy other than an ad valorem tax, a special
tax, or an assessment, imposed by a [local government] upon a parcel or
upon a person as an incident of property ownership, including a user
fee or charge for a property related service." All new and existing
property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which generate
revenues exceeding the funds required to provide the property related
service or are used for unrelated purposes. There are new notice,
hearing and protest procedures for levying or increasing property
related fees and charges, and, except for fees or charges for sewer,
water and refuse collection services (or fees for electrical and gas
service, which are not treated as "property related" for purposes of
Article XIIID), no property related fee or charge may be imposed or
increased without majority approval by the property owners subject to
the fee or charge or, at the option of the local agency, two-thirds
voter approval by the electorate residing in the affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes,
assessments, fees and charges. Consequently, local voters could, by
future initiative, repeal, reduce or prohibit the future imposition or
increase of any local tax, assessment, fee or charge. It is unclear how
this right of local initiative may be used in cases where taxes or
charges have been or will be specifically pledged to secure debt
issues.
The interpretation and application of Proposition 218 will ultimately
be determined by the courts with respect to a number of matters, and it
is not possible at this time to predict with certainly the outcome of
such determinations. Proposition 218 is generally viewed as restricting
the fiscal flexibility of local governments, and for this reason, some
ratings of California cities and counties have been, and others may be,
reduced.
The State and its local governments are subject to an annual
"appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended
by Propositions 98 and 111 in 1988 and 1990, respectively. Article
XIIIB prohibits the State or any covered local government from spending
"appropriations subject to limitation" in excess of the appropriations
limit imposed. "Appropriations subject to limitation" are
authorizations to spend "proceeds of taxes," which consist of tax
revenues and certain other funds, including proceeds from regulatory
licenses, user charges or other fees, to the extent that such proceeds
exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is
imposed on appropriations of funds, which are not "proceeds of taxes,"
such as reasonable user charges or fees, and certain other non-tax
funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior
to January 1, 1979, or subsequently authorized by the voters, (2)
appropriations arising from certain emergencies declared by the
Governor, (3) appropriations for certain capital outlay projects, (4)
appropriations by the State of post-1989 increases in gasoline taxes
and vehicle weight fees, and (5) appropriations made in certain cases
of emergency. The appropriations limit for each year is adjusted
annually to reflect changes in cost of living and population, and any
transfers of service responsibilities between government units. The
definitions for such adjustments were liberalized in 1990 to follow
more closely growth in the State's economy.
"Excess" revenues are measured over a two year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must
refund 50% of any excess, with the other 50% paid to schools and
community colleges. With more liberal annual adjustment factors since
1988, and depressed revenues since 1990 because of the recession, few
governments are currently operating near their spending limits, but
this condition may change over time. Local governments may by voter
approval exceed their spending limits for up to four years. For at
least the last ten years, appropriations subject to limitation have
been under the State's limit. State appropriations are estimated to be
$3.8 billion under the limit for fiscal year 1999-2000.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID
of the California Constitution, the ambiguities and possible
inconsistencies in their terms, and the impossibility of predicting
future appropriations or changes in population and cost of living, and
the probability of continuing legal challenges, it is not currently
possible to determine fully the impact of these Articles on California
municipal obligations or on the ability of the State or local
governments to pay debt service on such California municipal
obligations. It is not possible, at the present time, to predict the
outcome of any pending litigation with respect to the ultimate scope,
impact or constitutionality of these Articles or the impact of any such
determinations upon State agencies or local governments, or upon their
ability to pay debt service on their obligations. Further initiatives
or legislative changes in laws or the California Constitution may also
affect the ability of the State or local issuers to repay their
obligations.
Obligations of the State of California
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support
of the public school system and public institutions of higher
education. As of January 1, 2000, the State had outstanding
approximately $20.5 billion of long-term general obligation bonds, plus
$681 million of general obligation commercial paper which will be
refunded by long-term bonds in the future, and $6.7 billion of lease-
purchase debt supported by the State General Fund. The State also had
about $13.7 billion of authorized and unissued long-term general
obligation bonds and lease-purchase debt. In FY 1998-99, debt service
on general obligation bonds and lease purchase debt was approximately
4.4% of General Fund revenues.
Recent Financial Results
The principal sources of General Fund revenues in 1998-1999 were the
California personal income tax (53 percent of total revenues), the
sales tax (32 percent), bank and corporation taxes (10 percent), and
the gross premium tax on insurance (2 percent). An estimated 20% of
personal income tax receipts (10% of total General Fund) is derived
from capital gains realizations and stock option income. While these
sources have been extraordinarily strong in the past few years, they
are particularly volatile; any sustained drop in stock market levels
could have a significant impact on these revenues. The State maintains
a Special Fund for Economic Uncertainties (the "SFEU"), derived from
General Fund revenues, as a reserve to meet cash needs of the General
Fund, but which is required to be replenished as soon as sufficient
revenues are available. Year-end balances in the SFEU are included for
financial reporting purposes in the General Fund balance. Because of
the recession and an accumulated budget deficit, no reserve was
budgeted in the SFEU from 1992-93 to 1995-96.
A a result of the severe economic recession from 1990-94 and other
factors, during this period the State experienced substantial revenue
shortfalls, and greater than anticipated social service costs. The
State accumulated and sustained a budget deficit in the budget reserve,
the SFEU, approaching $2.8 billion at its peak at June 30, 1993. The
Legislature and Governor responded to these deficits by enacting a
series of fiscal steps between FY1991-92 and FY1994-95, including
significant cuts in health and welfare and other program expenditures,
tax increases, transfers of program responsibilities and some funding
sources from the State to local governments, and transfer of about $3.6
billion in annual local property tax revenues primarily from cities and
counties to local school districts, thereby reducing State funding for
schools. The budget deficits also led to cash flow shortfalls which led
the State to use external cash flow borrowing over the end of the
fiscal year for several years to fund the deficit.
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, $2.1 billion in 1997-
98, and $1.6 billion in 1998-99) 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 (the SFEU) totaled about $1.8 billion at June
30, 1998 and $3.1 billion at June 30, 1999.
The growth in General Fund revenues since the end of the recession
resulted in significant increases in State funding for local school
districts under Proposition 98. From the recession level of about
$4,300 per pupil, annual State funding has increased to over $6,000 per
pupil in FY 1999-2000. A significant amount of the new moneys have been
directed to specific educational reforms, including reduction of class
sizes in many grade levels. The improved budget condition also allowed
annual increases in support for higher education in the State,
permitting increased enrollment and reduction of student fees. Part of
the 1997-98 Budget Act was completion of State welfare reform
legislation to implement the new federal law passed in 1996. The new
State program, called "CalWORKs," became effective January 1, 1998, and
emphasizes programs to bring aid recipients into the workforce. As
required by federal law, new time limits are placed on receipt of
welfare aid. Generally, health and welfare costs have been contained
even during the recent period of economic recovery, with the first real
increases (after inflation) in welfare support levels occurring in
1999-2000.
One of the most important elements of the 1998-99 Budget Act was
agreement on substantial tax cuts. The largest of these was a phased-in
cut in the Vehicle License Fee (an annual tax on the value of cars
registered in the State, the "VLF"). Starting on January 1, 1999, the
VLF has been reduced by 25 percent. Under pre-existing law, VLF funds
are automatically transferred to cities and counties, so the new
legislation provided for the General Fund to make up the reductions. If
State General Fund revenues continue to grow above certain targeted
levels in future years, the cut could reach as much as 67.5 percent by
the year 2003. The initial 25 percent VLF cut will be offset by about
$500 million in General Fund money in FY 1998-99, and $1 billion
annually for future years. Other tax cuts in FY 1998-99 included an
increase in the dependent credit exemption for personal income tax
filers, restoration of a renter's tax credit for taxpayers, and a
variety of business tax relief measures. The total cost of these tax
cuts was estimated at $1.4 billion for FY 1998-99.
1999-2000 Budget.
The 1999-00 Budget Act was signed on June 29, 1999, only the second
time in the decade the budget was in place at the start of the fiscal
year. After the Governor used his line-item veto power to reduce
expenditures by about $581 million, the final spending plan called for
about $63.7 billion of General Fund expenditures, $16.1 billion of
Special Fund expenditures, and $1.5 billion in bond funded
expenditures. The Governor's final budget actions left the SFEU with an
estimated balance of $881 million at June 30, 2000, but the Governor
also reduced spending to set aside $300 million for future
appropriation for either employee pay raises or potential litigation
costs. The final Budget Act generally provided increased funding for a
wide range of programs. Education spending under Proposition 98
received the largest increase (over $2.3 billion above 1998-99), with
other significant increases for higher education, health and welfare,
natural resources and capital outlay. The budget provides several
hundred million dollars in direct new aid to cities and counties.
The final spending plan includes several targeted tax cuts for
businesses, totaling under $100 million in 1999-00. The plan also
includes a one-time, one-year additional cut of 10 percent in the
Vehicle License Fee for calendar year 2000. This cut will cost the
General Fund about $500 million in each of 1999-00 and 2000-01 to make
up lost funds for local governments. Under the 1998 law, the VLF cut to
35 percent would become permanent in the year 2001 if General Fund
revenues reach a certain specified level in 2000-01. Current estimates
indicate this level will be reached.
In January, 2000, the Governor released his proposed budget for fiscal
year 2000-01 (the "2000 Governor's Budget"), which also included
updated revenue and expenditure projections for 1999-2000. Reflecting
the continued strong economy in the State, the Administration revised
its revenue estimates upward by $2.1 billion to $65.2 billion;
expenditures were also projected to increase by a like amount. The
Administration's projected balance in the SFEU at June 30, 2000
increased from about $880 million to over $2.4 billion. In February,
2000 the State Legislative Analyst's Office ("LAO") released a report
with more recent revenue estimates, based in part on actual revenues
for December, 1999 and January, 2000, which were not available for the
2000 Governor's Budget. In the fourth quarter of 1999, personal income
tax revenues were 17% higher than the year-earlier period. The LAO
Report indicated revenues in 1999-2000 could be as much as $2.1 billion
higher than the 2000 Governor's Budget estimate.
Although, as noted, the Administration projected a budget reserve in
the SFEU of about $2.4 billion on June 30, 1999, the General Fund fund
balance on that date also reflects $1.0 billion of "loans" which the
General Fund made to local schools in the recession years, representing
cash outlays above the mandatory minimum funding level. Settlement of
litigation over these transactions in July 1996 calls for repayment of
these loans over the period ending in 2001-02, about equally split
between outlays from the General Fund and from schools' entitlements.
The 1999-2000 Budget Act contained a $350 million appropriation from
the General Fund toward this settlement.
Proposed 2000-01 Budget
In the 2000 Governor's Budget, the Administration proposed General Fund
expenditures of $68.8 billion, based on expected revenues of $68.2
billion (including $390 million from the tobacco litigation settlement
and sale of assets). The proposal included a balance in the SFEU at
June 30, 2001 of $1.2 billion, plus set-aside of an additional $600
million for legal contingencies and legislative initiatives. The
Governor proposed substantial additional funding for K-12 schools,
higher education, capital outlay and other programs. The February, 2000
LAO Report indicated General Fund revenues for 2000-01 could be as much
as $2.1 billion higher than projected in the 2000 Governor's Budget (in
addition to the $2.1 billion additional revenue for 1999-2000),
assuming continued strong economic growth in the State and in the stock
market. Final decisions for the 2000-01 Budget will be made by the
Governor and Legislature by July, 2000. Although the State's strong
economy is producing record revenues to the State government, the
State's budget continues to be under stress from mandated spending on
education, a rising prison population, and social needs of a growing
population with many immigrants. These factors which limit State
spending growth also put pressure on local governments. There can be no
assurances that, if economic conditions weaken, or other factors
intercede, the State will not experience budget gaps in the future.
Bond Rating
The ratings on California's long-term general obligation bonds were
reduced in the early 1990's from "AAA" levels, which had existed prior
to the recession. After 1996, the three major rating agencies raised
their ratings of California's general obligation bonds, which as of
February, 2000 were assigned ratings of "AA-" from Standard & Poor's,
"Aa3" from Moody's and "AA" from Fitch.
There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations
issued by local California issuers may be unrelated to creditworthiness
of obligations issued by the State of California, and that there is no
obligation on the part of the State to make payment on such local
obligations in the event of default.
Legal Proceedings
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that if decided against the State,
may require the State to make significant future expenditures or may
substantially impair revenues. Trial courts have recently entered
tentative decisions or injunctions, which would overturn several parts
of the State's recent budget compromises. The matters covered by these
lawsuits include reductions in welfare payments and the use of certain
cigarette tax funds for health costs. All of these cases are subject to
further proceedings and appeals, and if California eventually loses,
the final remedies may not have to be implemented in one year. The
State recently lost cases involving a smog impact fee on out-of-state
automobiles (total liability of about $560 million) and certain
corporate tax credits ($100 million). The Administration has proposed
payment of the smog impact fee claims from current revenues.
Other Issuers of California Municipal Obligations
There are a number of State agencies, instrumentalities and political
subdivisions of the State that issue municipal obligations, some of
which may be conduit revenue obligations payable from payments from
private borrowers. These entities are subject to various economic risks
and uncertainties, and the credit quality of the securities issued by
them may vary considerably from the credit quality of obligations
backed by the full faith and credit of the State.
The effect of these various constitutional and statutory changes upon
the ability of California municipal securities issuers to pay interest
and principal on their obligations remains unclear. Furthermore, other
measures affecting the taxing or spending authority of California or
its political subdivisions may be approved or enacted in the future.
Legislation has been or may be introduced which would modify existing
taxes or other revenue-raising measures or which either would further
limit or, alternatively, would increase the abilities of state and
local governments to impose new taxes or increase existing taxes. It is
not possible, at present, to predict the extent to which any such
legislation will be enacted. Nor is it possible, at present, to
determine the impact of any such legislation on California municipal
obligations in which the Fund may invest, future allocations of state
revenues to local governments or the abilities of state or local
governments to pay the interest on, or repay the principal of, such
California municipal obligations.
Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California in 1989 and
Southern California in 1994 experienced major earthquakes causing
billions of dollars in damages. The federal government provided more
than $13 billion in aid for both earthquakes, and neither event has had
any long-term negative economic impact. Any California municipal
obligation in the Fund could be affected by an interruption of revenues
because of damaged facilities, or, consequently, income tax deductions
for casualty losses or property tax assessment reductions. Compensatory
financial assistance could be constrained by the inability of (i) an
issuer to have obtained earthquake insurance coverage rates; (ii) an
insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State government to
appropriate sufficient funds within their respective budget
limitations.
APPENDIX C
Special Considerations Relating to Florida Municipal Obligations.
See Special Note prior to Appendix B.
General
Population. In 1980, Florida was the seventh most populous state in the
U.S. Florida has grown dramatically since then and as of April 1,
1998, ranks fourth with an estimated population of 15 million. In
1998, about 232,000 more new residents moved into Florida than moved
out. The U.S. average population increase since 1990 is about 1.0%
annually, while Florida's average increase is about 1.9% annually.
Florida continues to be one of the fastest growing of the largest
states.
Florida's strong population growth is one reason Florida's economy is
performing better than the U.S. as a whole. In addition to attracting
senior citizens to Florida as a place for retirement, Florida is also
recognized as attracting a significant number of individuals of working
age (18-64). In recent years, Florida's prime working age population
(18-44) has grown at an average annual rate of more than 2.0%. More
than 60% of Florida's total population is at the working age (18-64).
This share is not expected to change appreciably into the twenty-first
century.
Income. According to the U.S. Department of Commerce and the Florida
Consensus Economic Estimating Conference, personal income in Florida
has been growing strongly the last several years and has generally
performed better than the U.S. as a whole and the southeast U.S. in
particular. This is due to the fact that Florida's population has been
growing at a very strong pace and, since the early 70's, its economy
has diversified providing a broader economic base.
Florida's real income per person has tracked closely with the U.S.
average and has tracked above the southeast. Florida has a
proportionately greater retirement age population than other states. As
a result, 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 to
persons residing in Florida. Transfer payments (Social Security and
pension benefits, among other sources of income) are typically less
sensitive to the ups and downs of the economy than wages and salaries
and other employment income. Transfer payments (Social Security and
pension benefits, and other sources of income), therefore, act as a
stabilizing force in weak economic periods.
The personal income of residents of the various states in the U.S. is
frequently used to make comparisons among the various states. However,
using personal income to compare Florida to other states can be
misleading. Florida's personal income is systematically underestimated.
Contributions by employers to employees' pension, profit sharing, and
other retirement plans are included in personal income of that employee
while the employee is working and earning wages and salary. When those
same employees retire, to avoid double accounting, retirement payments
to them from those retirement plans are excluded in computing personal
income. Florida retirees are more likely to be collecting retirement
benefits that they earned in a state other than Florida. As a result,
Florida personal income is underestimated.
Florida's personal income per person in 1998 was $25,852. The U.S.
average personal income per person was slightly higher at $26,412.
Personal income per person in the southeast United States was
significantly lower at $23,725. Total Florida real personal income is
forecasted to increase 4.9% in the fiscal year ended June 30, 1999, and
3.5% in the fiscal year ending June 30, 2000. Florida real personal
income per person is projected to increase 3.1% in the fiscal year
ended June 30, 1999, and 1.8% in the fiscal year ending June 30, 2000.
The Florida economy appears to be growing in line with, but stronger
than, the U.S. economy; however, the Florida economy is expected to
grow more slowly in the fiscal year ending June 30, 2000, than in the
fiscal year ended June 30, 1999.
Employment
Since 1992, Florida's population has increased an estimated 11.7%,
while the number of employed persons in Florida increased 15.0%. In
the same period, Florida's total non-farm employment has grown
approximately 24.6%, while U.S. non-farm jobs increased 15.9%. Florida
is gradually becoming less dependent on employment related to
construction, agriculture, or manufacturing, and more dependent on
employment related to trade and services. This has also contributed to
Florida's strong economic performance.
Presently, services constitute 36% and trade 25.5% of Florida's total
non-farm jobs. The U.S., however, has a greater percentage of
manufacturing jobs than Florida. Manufacturing jobs tend to pay higher
wages, but service jobs can also pay well and tend to be less sensitive
to swings in the business cycle. Florida 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.
. Florida's unemployment rate throughout the 1980's was consistently
lower than that for the U.S. In the early 1990's Florida's
unemployment rate was higher than that of the U.S. In current years,
Florida's unemployment rate has again generally fallen below that of
the U.S. Florida's unemployment rate was 4.3% during 1998. The U.S.
unemployment rate was 4.5% during 1998. It is estimated that Florida's
unemployment rate will be 4.2% in the fiscal year ended June 30, 1999,
and 4.4% in the fiscal year ending June 30, 2000.
Florida's economy is expected to grow at a moderate rate along with the
U.S., but is expected to out perform the U.S. as a whole. Total non-
farm employment in Florida is expected to increase 3.4% for the fiscal
year ended June 30, 1999 and 2.9% for the fiscal year ending June 30,
2000. Trade and services, the two largest employment sectors, account
for more than half of the total non-farm employment in Florida.
Employment in the service sectors should experience an increase of 5.5%
for the fiscal year ended June 30, 1999, while growing 4.4% for the
fiscal year ending June 30, 2000. Trade is expected to expand 2.8% for
the fiscal year ended June 30, 1999, and 2.8% for the fiscal year
ending June 30, 2000. The service sector is now Florida's largest
employment category.
Construction
In the past, Florida's economy has been highly dependent on the
construction industry and construction related manufacturing. This
dependency has declined in recent years and continues to decline as a
result of continued diversification of Florida's economy. For example,
in 1973, total contract construction employment as a share of total
non-farm employment was about 10%, in the late 1980's, the share had
edged downward to 7.5%, and in 1998, the share was only 5.3%. This
trend is expected to continue as Florida's economy continues to
diversify. Florida, nevertheless, has a dynamic construction industry,
with the percentage of housing starts increasing in 1998 by 11.1%, and
construction jobs overall increasing by 5.1%, due to low interest rates
and favorable economic conditions.
A driving force behind Florida's construction industry has been
Florida's rapid rate of population growth. Although Florida currently
is the fourth most populous state, its annual population growth is now
projected to slow somewhat as the number of people moving into Florida
is expected to remain over 200,000 a year during the next decade. This
population trend should provide fuel for business and home builders to
keep construction activity lively in Florida in the next few years.
Moreover, recent federal tax reforms reducing capital gains realized on
the sale of homes may increase the purchases of second, pre- retirement
homes in Florida.
Single and multi-family housing starts in Florida for the fiscal year
ended June 30, 1999, are projected to reach a combined level of
144,000, decreasing slightly to 143,000 for the fiscal year ending June
30, 2000. Total construction expenditures in Florida are forecasted to
increase 8.6% for the fiscal year ended June 30, 1999, and increase
2.5% for the fiscal year ending June 30, 2000. Single and multi-family
housing starts in Florida are projected to account for about 9% of all
the housing starts in the U.S. for the fiscal year ended June 30, 1999
and 9.53% of all housing starts in the U.S. for the fiscal year ending
June 30, 2000.
Tourism
Tourism is one of Florida's most important industries. Approximately
48.7 million tourists visited Florida in 1998, a 3.7% increase over
1997. Tourists in Florida are, in essence, additional residents for
purposes of determining Florida tax revenues. Florida's tourist
industry over the years has become more sophisticated, attracting
visitors year-round and, to a degree, reducing its seasonality.
Visitors to Florida tend to arrive slightly more by air than by auto.
Tourist arrivals to Florida are forecasted to increase by 2.0% for the
fiscal year endedJune 30, 1999, and 1.7% for the fiscal year ending
June 30, 2000. Tourist arrivals to Florida by air are expected to
increase by 3.2% for the fiscal year ended June 30, 1999, and increase
by 3.9% for the fiscal year ending June 30, 2000. Tourist arrivals by
car are expected to increase by 0.6% for the fiscal year ended June 30,
1999, and decrease 1.0% for the fiscal year ending June 30, 2000. By
June 30, 1999, 49.7 million domestic and international tourists are
expected to have visited Florida. For the fiscal year ending June 30,
2000, about 50.6 million tourists are expected to visit Florida.
Revenues and Expenses
Estimated General Revenue plus Working Capital and Budget Stabilization
funds available to Florida for the fiscal year ended June 30, 1999,
total $19,481.8 million, a 5.2% increase over the fiscal year ended
June 30, 1998. Of the total General Revenue plus Working Capital and
Budget Stabilization funds available to Florida, $17,779.5 million of
that is Estimated Revenues and represents an increase of 5.0% over the
previous year's Estimated Revenues. With effective General Revenues
plus Working Capital Fund and Budget Stabilization appropriations at
$18,220.0 million, including $100.9 million transferred to the Budget
Stabilization Fund, unencumbered reserves at the fiscal year ended June
30, 1999, are estimated at $1,360.7 million. Estimated General Revenue
plus Working Capital and Budget Stabilization funds available to
Florida for the fiscal year ending June 30, 2000, total $20,133.9
million, a 3.3% increase over the fiscal year ended June 30, 1999. The
$18,555.2 million in Estimated Resources represents an increase of 4.4%
over the previous year's Estimated Revenues.
General Revenues and Expenses
For the fiscal year ended June 30, 1997, approximately 67% of Florida's
total direct revenue to its four operating funds were derived from
Florida taxes and fees, with Federal grants and other special revenue
accounting for the balance. The large majority of Florida General
Revenue Funds available to Florida for the fiscal year ended June 30,
1997, were made up of the following taxes:
Sales and use tax--68%
Corporate income tax--8%
Intangible personal property tax--4%
Beverage tax--3%
Estate tax--3%
During the same fiscal year ended June 30, 1997, the large majority of
expenditures from Florida's General Revenue Fund were as follows:
Education--53%
Health and welfare--26%
Public Safety--14%
Florida Sales and Use Tax
Florida's sales and use tax (6%) currently accounts for Florida's
single largest source of tax receipts. Slightly less than 10% of
Florida'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 in such counties. In addition to
this money from the State of Florida, local governments may (by a vote
of the residents) assess a 0.5% or a 1.0% discretionary sales surtax
within their county. Proceeds from this local option sales tax are used
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. The indigent health care tax alone cannot
exceed 0.5% and when combined with the infrastructure surtax cannot
exceed 1.0%.
For the fiscal year ended June 30, 1997, Florida sales and use tax
receipts (exclusive of the tax on gasoline and special fuels) totaled
$12,089 million, an increase of 5.5% over the fiscal year ended June
30, 1996, collections.
Alcoholic Beverage Tax
Florida imposes an alcoholic beverage, wholesale tax (excise tax) on
beer, wine, and liquor. This tax is one of Florida's major tax sources.
Ninety-eight percent of the revenues collected from this tax are
deposited into Florida's General Revenue Fund.
Alcoholic beverage tax totaled $447.2 million for the fiscal year ended
June 30, 1997.
Corporate Income Tax
Florida imposes an income tax on corporations. All receipts of the
corporate income tax are credited to the General Revenue Fund.
For the fiscal year ended June 30, 1997, corporate income tax totaled
$1,362.3 million, an increase of 17.2% from the fiscal year ended June
30, 1996.
Documentary Stamp Tax
Florida imposes a documentary stamp tax on deeds and other documents
relating to realty, corporate shares, bonds, certificate of
indebtedness, promissory notes, wage assignments, and retail charge
accounts. For the fiscal year ended June 30, 1997, 62.63% of these
taxes were deposited to the General Revenue Fund.
Documentary stamp tax collections totaled $844.2 million for the fiscal
year ended June 30, 1997, an 8.9% increase from the fiscal year ended
June 30, 1996.
Intangible Personal Property Tax
Florida imposes an annual intangible personal property tax on stocks,
bonds, including bonds secured by liens on 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
currently 2 mills (a mill is $1.00 of tax per $1,000.00 of property
value). Effective January 1, 2000, the rate for the annual intangible
tax will decrease to 1.5 mills. Florida also imposes a non-recurring 2
mill tax on mortgages and other obligations secured by liens on Florida
real property. Of the net taxes imposed on intangible personal
property, 66.5% are distributed to the General Revenue Fund. For the
fiscal year ended June 30, 1997, total intangible personal property tax
collections were $952.4 million, a 6.3% increase from the fiscal year
ended June 30, 1996.
Estate Tax
Florida 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 that ended June 30, 1997, receipts from this source
were $546.9 million, an increase of 30% over the fiscal year ended June
30, 1996.
Lottery
Florida began its own lottery in 1988. Florida law requires that
lottery revenues be distributed 50% to the public in prizes, at least
38.0% for use in enhancing education, and no more than 12.0%, for costs
of administering the lottery.
Lottery ticket sales for the fiscal year ended June 30, 1997 totaled
$2.09 billion, providing education with approximately $792.3 million.
Debt-Balanced Budget Requirement
At the end of the fiscal year ended June 30, 1998, Florida had
outstanding about $8,703 million in principal amount of debt secured by
its full faith and credit. Since then, the State has issued about $629
million in principal amount of full faith and credit bonds.
Florida's Constitution and statutes require that Florida not run a
deficit in its budget, as a whole, or in any separate fund within its
budget. Rather its budget and funds must be kept in balance from
currently available revenues each fiscal year. If the Governor or
Comptroller believes a deficit will occur in any fund, by statute, he
must certify his opinion to the Administrative Commission, which then
is authorized to reduce all Florida agency budgets and releases by a
sufficient amount to prevent a deficit in any fund. Additionally, the
Florida Constitution prohibits Florida from borrowing by issuing bonds
to fund its operations.
Litigation
Currently under litigation are several issues relating to Florida
actions or Florida 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 Florida's financial position.
APPENDIX D
See special note prior to Appendix B.
Special Considerations Relating to Georgia Municipal Obligations.
General
The fund's concentration in the debt obligations of one state carries a
higher risk than a portfolio that is geographically diversified. In
addition to State of Georgia general obligations and state agency
issues, the fund will invest in local bond issues, lease obligations
and revenue bonds, the credit quality and risk of which will vary
according to each security's own structure and underlying economics.
Debt
The State of Georgia and its local governments issued $5.6 billion in
municipal bonds in 1999, a 7% decrease from the previous year. As of
May 8, 2000, the state was rated Aaa by Moody's and AAA by S&P and
Fitch. The State of Georgia currently has net direct obligations of
approximately $5.2 billion. Since 1973, when a Constitutional Amendment
authorizing the issuance of state general obligation (GO) bonds was
implemented, the state has funded most of its capital needs through the
issuance of GO bonds. Previously, capital requirements were funded
through the issuance of bonds by 10 separate authorities and secured by
lease rental agreements and annual state appropriations. Its
Constitution permits the state to issue bonds for two types of public
purposes: (1) general obligation debt and (2) guaranteed revenue debt.
The Constitution imposes certain debt limits and controls. GO debt
service cannot exceed 10% of total revenue receipts less refunds of the
state treasury. GO bonds have a maximum maturity of 25 years and 67% of
the state's debt is scheduled to be retired in 10 years or less.
Maximum GO debt service requirements are well below the legal limit at
5.1% of fiscal year 1999 treasury receipts. Georgia has also taken the
step to establish "debt affordability" limits which state that
outstanding debt will not exceed 2.7% of personal income or that
maximum annual debt service will not exceed 5% of prior years revenues.
State debt issuance in the next few years will be limited so that the
state will decrease to these levels.
In addition to the general obligation and lease-backed debt described
above, $318 million bonds have been issued and are outstanding by the
Georgia World Congress Authority and $754 million bonds have been
issued and are outstanding by the Georgia Housing and Finance
Authority, none of which represent direct obligations of the state.
Economy
The State of Georgia has a population of approximately 7.6 million,
making it the 10th largest state. Since the 1960s, the state's
population has grown at a rate exceeding the national average, with the
growth rate during the 1980s nearly twice that of the entire country.
Stable to strong economic growth during the 1980s was led by the
Atlanta metropolitan statistical area, where approximately 45% of the
state's population is located. This area includes the capital city of
Atlanta, and 18 surrounding counties. The next largest metropolitan
area is the Columbus-Muscogee area followed by the Macon area.
The state's economy is well diversified. The current labor force of 4
million is largely concentrated in service and wholesale/retail trade
jobs, followed by lesser amounts in manufacturing and government.
Employment gains have substantially exceeded the region and the U.S.
since 1980. Georgia's one year employment growth (February 1999 to
February 2000) stood at 4.6% compared to the national rate of 2.4%. The
state's economy continues to outperform the nation. Georgia's per
capita income has steadily improved against the national average since
the 1960s and currently is 94% of the U.S. and 105% of the Southeast
region.
Financial
To a large degree, the creditworthiness of the portfolio is dependent
on the financial strength of the State of Georgia and its localities.
During the 1980s, the state's strong economic performance translated
into solid financial performance and the accumulation of substantial
reserves.
During fiscal 1989 to 1991, the state's financial condition was
affected by three years of revenue shortfalls brought on by recession.
During these periods, the Governor called special legislative sessions
to enact sizable spending cuts to achieve budget balance. Economic
conditions improved in 1992, allowing the state to restore its
financial cushion. Results for fiscal 1998 showed a continuation of
this positive trend with a surplus of $685 million and an ending
general fund balance of $1.2 billion, or 9% of revenues.
A significant portion of the portfolio's assets is expected to be
invested in the debt obligations of local governments and public
authorities with investment-grade ratings of BBB or higher. While local
governments in Georgia are primarily reliant on independent revenue
sources, such as property taxes, they are not immune to budget
shortfalls caused by cutbacks in state aid. The fund may purchase
obligations issued by public authorities in Georgia which are not
backed by the full faith and credit of the state and may or may not be
subject to annual appropriations from the State's General Fund.
Likewise, certain enterprises such as water and sewer systems or
hospitals may be affected by changes in economic activity.
Sectors
Certain areas of potential investment concentration present unique
risks. A significant portion of the fund's assets may be invested in
health care issues. For over a decade, the hospital industry has been
under significant pressure to reduce expenses and shorten length of
stay, a phenomenon which has negatively affected the financial health
of many hospitals. All hospitals are dependent on third-party
reimbursement sources such as the federal Medicare and state Medicaid
programs or private insurers. To the extent these payors reduce
reimbursement levels, the individual hospitals may be affected. In the
face of these pressures, the trend of hospital mergers and acquisitions
has accelerated in recent years. These organizational changes present
both risks and opportunities for the institutions involved.
The fund may from time to time invest in electric revenue issues which
have exposure to or participate in nuclear power plants which could
affect the issuers' financial performance. Such risks include
unexpected outages or plant shutdowns, increased Nuclear Regulatory
Commission surveillance or inadequate rate relief. In addition, the
financial performance of electric utilities may be impacted by
increased competition and deregulation of the electric utility
industry.
The fund may invest in private activity bond issues for corporate and
nonprofit borrowers. These issues sold through various governmental
conduits, are backed solely by the revenues pledged by the respective
borrowing corporations. No governmental support is implied.
APPENDIX E
See Special Note prior to Appendix B.
Special Considerations Relating to New York Municipal Obligations.
Risk Factors
The information set forth below is derived from the Official Statements
and/or preliminary drafts of Official Statements prepared in connection
with the issuance of New York State and New York City municipal bonds.
The Sponsors have not independently verified this information.
Economic Trends.
Over the long term, the State of New York (the "State") and the City of
New York (the "City") face serious potential 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 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
construction industries accounting for a significant portion of the
City's total employment earnings. Additionally, the City is the
nation's leading tourist destination. Manufacturing activity in the
City is conducted primarily in apparel and printing.
For each of the 1981 through 1999 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 2000
and 2001 fiscal years, before discretionary transfers, and budget gaps
for each of the 2002, 2003 and 2004 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, in future years, State budgets
will be adopted by the April 1 statutory deadline, or interim
appropriations will be 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 2000 through 2004
fiscal years (the "2000-2004 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 program for
financing capital projects for fiscal years 2000 through 2004
contemplates the issuance of $8.22 billion of general obligation bonds
and $5.75 billion of bonds to be issued by the New York City
Transitional Finance Authority (the "Finance Authority"). The City's
financing program the passage of legislation by the State which was
proposed by the City to increase the financing capacity of the Finance
Authority by $4 billion and assumes the effectiveness in fiscal year
2002 of a proposed State Constitutional amendment to increase the
City's general obligation debt limit.
In addition, the Financial Plan anticipates access to approximately
$2.4 billion in financing capacity of Tobacco Settlement Asset
Securitization Corporation, Inc. ("TSASC"), which will issue debt
secured by revenues derived from the settlement of litigation with
tobacco companies selling cigarettes in the United States. The Finance
Authority and TSASC were created to assist the City in financing its
capital program while 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, New York
City Municipal Water Finance Authority ("Water Authority"), Finance
Authority, TSASC and other bonds and notes will be subject to
prevailing market conditions. The City's planned capital and operating
expenditures are dependent upon the sale of its general obligation
debt, as well as debt of the Water Authority, Finance Authority and
TSASC. 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.
The City Comptroller and other agencies and public officials, from time
to time, issue reports and make public statements which, among other
things, state that projected revenues and expenditures may be different
from those forecast in the City's financial plans.
For the 1999 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 1999 fiscal year is the nineteenth year that the City has
achieved an operating surplus, before discretionary and other
transfers, and balanced operating results, after discretionary and
other transfers.
On May 1, 2000, the City released the Financial Plan for the 2000
through 2004 fiscal years, which relates to the City and certain
entities which receive funds from the City, and which is based on the
Executive Budget and Budget Message for the City's 2001 fiscal year
(the "Executive Budget") which begins July 1, 2000. The Financial Plan
is a modification to the financial plan submitted to the Control Board
on June 14, 1999 (the "June Financial Plan"), which was subsequently
modified in November 1999 and January 2000. The Financial Plan projects
revenues and expenditures for the 2000 and 2001 fiscal years balanced
in accordance with GAAP, and projects gaps of $1.68 billion, $1.95
billion and $1.84 billion for fiscal years 2002 through 2004,
respectively, after implementation of a gap-closing program.
Changes since the June Financial Plan include: (i) an increase in
projected revenues of $1.6 billion, $1.2 billion, $1.1 billion, $1.3
billion and $1.6 billion in fiscal years 2000 through 2004,
respectively, reflecting primarily increases in projected personal
income, business, sales, real estate transfer and mortgage recording
tax revenues; (ii) a delay in the assumed collection of $350 million of
projected rent payments for the City's airports from fiscal year 2001
to fiscal years 2002 through 2004; (iii) merit pay wage increases for
City employees of $30 million, $325 million, $750 million, $800 million
and $800 million in fiscal years 2000 through 2004, respectively,
contingent upon productivity savings set forth in the gap-closing
program; and (iv) net expenditure savings of $518 million in fiscal
year 2000, and net expenditure increases of $555 million, $798 million,
$1.0 bilion and $742 million in fiscal years 2001 through 2004,
respectively, reflecting, among other things, pension fund savings of
$524 million, $284 million and $49 million in fiscal years 2000 through
2002, respectively (resulting primarily from a market value restart
which has been approved by the trustees of one pension system but is
subject to approval by the trustees of the City's other pension systems
and the State Legislature), increased pension costs of $69 million and
$7 million in fiscal years 2003 and 2004, respectively, and increased
spending for education and other agencies.
The Financial Plan reflects discretionary transfers, for budget
stabilization purposes, including a discretionary transfer of $2.6
billion from fiscal year1999 to fiscal year 2000 primarily to pay debt
service due in fiscal year 2000, a proposed discretionary transfer from
fiscal year 2000 to fiscal year 2001 primarily to pay debt service due
in fiscal year 2001 totaling $2.9 billion, a proposed discretionary
transfer from fiscal year 2001 to fiscal year 2002 to pay debt service
due in fiscal year 2002 totaling $1.2 billion and a proposed
discretionary transfer from fiscal year 2002 to fiscal year 2003 to pay
debt service in fiscal year 2003 totaling $345 million.
In addition, the Financial Plan sets forth gap-closing actions to
eliminate a previously projected gap for the 2001 fiscal year and to
reduce projected gaps for fiscal years 2002 through 2004. The gap-
closing actions for the 2000 through 2004 fiscal years include: (i)
additional agency actions totaling $370 million, $466 million, $273
million, $273 million and $273 million for fiscal years 2000 through
2004, respectively; (ii) assumed additional Federal and State actions
of $100 million in each of fiscal years 2001 through 2004, which are
subject to Federal and State approval; and (iii) proposed productivity
savings and reducing fringe benefits costs totaling $250 million, $265
million, $280 million and $300 million in fiscal years 2001 through
2004, respectively, to partly offset the costs of the proposed merit
pay program. The Financial Plan also reflects a proposed tax reduction
program totaling $364 million, $678 million, $816 million and $1.1
billion in fiscal years 2001 through 2004, respectively, including
elimination of the commercial rent tax over three years commencing June
1, 2000 at a cost of $97 million in fiscal year 2002, increasing to
$430 million in fiscal year 2004; a 50% reduction in the 14% personal
income tax surcharge on July 1, 2000 at a cost of $329 million in
fiscal year 2001, increasing to $403 million in fiscal year 2004; the
extension of current tax reductions for owners of cooperative and
condominium apartments at an annual cost of approximately $200 million
starting in fiscal year 2002; and repeal of the $2 flat fee hotel
occupancy tax effective December 1, 2000. It can be expected that the
Financial Plan will engender public debate which will continue through
the time the budget is scheduled to be adopted in June 2000. The
Financial Plan may be changed by the time the budget for fiscal year
2001 is adopted.
Wage increases for City employees are provided for in the Financial
Plan through a merit pay plan for two years after their collective
bargaining agreements expire in fiscal years 2000 and 2001, contingent
upon productivity savings. The Financial Plan does not make any
provision for wage increases thereafter. In addition, the economic and
financial condition of the City may be affected by various financial,
social, economic and other factors which could have a material effect
on the City.
The Financial Plan is based on numerous assumptions, including the
condition of the City's and the region's economies and modest
employment growth and the concomitant receipt of economically sensitive
tax revenues in the amounts projected. The 2000-2004 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 2000
through 2004 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 City 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.
On June 7, 1999, the City Council adopted a budget for fiscal year
2000. The adopted budget includes lower estimated debt service
expenditures in fiscal year 2000 resulting from a $456 million
increase, from $2.1 billion to $2.6 billion, in the proposed
discretionary transfer in the 1999 fiscal year to pay debt service due
in fiscal year 2000. The $456 million increase in the discretionary
transfer reflects increased tax revenues and decreased expenditures in
the 1999 fiscal year. The adopted budget also includes $220 million of
spending initiatives proposed by the City Council, other increased
spending and the net cost of revised tax reduction proposals, which
reflect the repeal of all of the City non-resident earnings tax and the
elimination of certain of the previously proposed tax reduction
initiatives.
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. On March 8, 1999, Fitch revised its
rating of City bonds upward to A. Moody's, Standard & Poor's and Fitch
currently rate the City's outstanding general obligation bonds A3, A-
and A, respectively.
New York State and its Authorities
The State ended the 1999-2000 fiscal year in balance on a cash basis,
with a reported closing balance in the General Fund of $1.17 billion,
after reserving $3.97 billion in the tax refund reserve account.
The State adopted the debt service portion of the State budget for the
2000- 01 fiscal year on March 31, 2000. The remainder of the budget for
the State's 2000-01 fiscal year was adopted by the State Legislature on
May 5, 2000, 35 days after the statutory deadline of April 1, 2000. The
adopted budget projects total General Fund spending of $38.9 billion,
an increase of 4.7 percent. The State's adopted budget assumes
continued growth could adversely affect these projections. There can be
no assurance that actual results will not differ materially and
adversely from the projections set forth in the State's adopted budget
projections. The State expects to produce revised financial plans and
its Annual Information Statement in the near future which will reflect
the adopted budget and other changes to its financial plan projections.
The State Financial Plan accompanying the Governor's 2000-01 Executive
Budget contained projections of potential imbalances in the 2001-02
fiscal year of $1.23 billion and in the 2002-03 fiscal year of $2.65
billion, assuming implementation of the 2000-01 Executive Budget
recommendations and application of tax reduction reserves used to
offset costs in each of the 2001-02 and 2002- 03 fiscal years,
respectively. Preliminary analysis of the 2001-02 projection after
adoption of the 2000-01 budget indicates that the State will have a
potential imbalance that is higher than the Executive Budget
projection.
Standard & Poor's rates the State's general obligation bonds A+, and
Moody's rates the State's general obligation bonds A2. On November 9,
1999, Standard & Poor's revised its rating on the State's general
obligation bonds from A to A+.
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 State Financial Plan.
The City has estimated that its potential future liability on account
of outstanding claims against it as of June 30, 1999 amounted to
approximately $3.5 billion.
APPENDIX F
Special Considerations Regarding Pennsylvania
See Special Note Prior to Appendix B
The following highlights only some of the more significant financial
trends and problems affecting Pennsylvania, and is based on information
drawn from official statements and prospectuses relating to securities
offerings of the Commonwealth of Pennsylvania, its agencies and
instrumentalities, as available on the date of this Statement of
Additional Information. The funds have not independently verified any
of the information contained in such official statements and other
publicly available documents, but are not aware of any fact which would
render such information inaccurate.
Overview
Because the funds concentrate their investments in Pennsylvania, there
are risks associated with the funds that would not exist if the funds'
investments were more widely diversified. These risks include the
possible enactment of new legislation in Pennsylvania that could affect
obligations of the state or its political subdivisions, municipalities
or agencies, economic factors that could affect such obligations, and
varying levels of supply and demand for obligations of the Commonwealth
and its political subdivisions, municipalities, and agencies.
Constitutional and Statutory Revenue Limitations
The Constitution of Pennsylvania requires that all taxes shall be
uniform, upon the same class of subjects, within the territorial limits
of the authority levying the tax, and shall be levied and collected
under the general laws of the Commonwealth of Pennsylvania.
The Constitution of Pennsylvania provides that the General Assembly may
exempt from taxation certain persons and property. For instance, the
General Assembly may establish exemption or special tax treatment for
classes based on age, disability, infirmity, or poverty.
Local taxes (other than Philadelphia) are generally authorized under
the Local Tax Enabling Act. This statute generally authorizes, and
imposes limits on, the ability of political subdivisions to impose
taxes. Pennsylvania's political subdivisions consist of counties,
municipalities, and school districts. The Local Tax Enabling Act does
not apply to counties whose taxing authority is limited for the most
part to real estate and personal property taxes, although the validity
of the personal property is the subject of litigation. Most
Philadelphia taxes (other than real estate and personal property taxes)
are imposed pursuant to the general authority of the Sterling Act and
the Little Sterling Act, applicable to the City and School District,
respectively. Each of these statutes grants broad taxing powers, but
generally prohibits taxing what the Commonwealth taxes. The
Philadelphia business privilege tax is imposed under the authority of
the First Class City Tax Reform Act.
The Pennsylvania Intergovernmental Cooperation Authority Act for cities
of the first class authorizes Philadelphia to enact a combination of a
sales tax, a realty transfer tax or a wage and net profits tax for the
benefit of the Pennsylvania Intergovernmental Cooperation Authority
("PICA"). The PICA tax on wages and net profits reduces the amount of
wage and net profits taxes imposed under the Sterling Act (prior to the
imposition of the PICA tax), so that the combined rate of tax remains
the same. Other local taxes are specially enacted or authorized for
certain classes of localities, including Philadelphia and Pittsburgh.
The Pennsylvania General Assembly has enacted legislation which gives
local governments the option of reducing property taxes and simplifying
their local tax system by collecting an earned income or other type of
tax. The General Assembly may, in the future,consider other local tax
reform measures.
Pennsylvania Taxes
The Commonwealth General Fund budgets for fiscal 1996 through 2000
included various tax reduction measures. Tax reductions included in
the enacted fiscal 1999 budget totaled an estimated $380.2 million. The
major components of the tax reductions are (i) a reduction in the tax
rate for the capital stock and franchise tax from 11.99 mils to 10.99
mils, (ii) a repeal of the gross receipts tax on regulated gas
utilities, (iii) a reduction of the minimum capital stock and franchise
tax from $300 to $200, (iv) raising the annual cap on net operating
loss carryovers from $1 million to $2 million, (v) increasing the
weighting of the sales factor of the corporate tax apportionment
formula from 50% to 60%, and (vi) a reduction of various other
miscellaneous items. Most of the major changes are effective January 1,
1999.
In the fall of 1998, Pennsylvania enacted the Keystone Opportunity
Zone Act, which provides for the creation of 12 "keystone opportunity
zones" designed to spur economic development by foregoing state and
local taxes under certain circumstances. The legislation provides for
relief from, among other things, corporate net income taxes, capital
stock/foreign franchise taxes, personal income taxes and sales and use
taxes (on purchases used and consumed by businesses in the zone).
General Economic Conditions in Pennsylvania
Historically, the key industries in Pennsylvania were manufacturing and
mining, led by steel and coal industries of national importance.
Dependence upon these industries made Pennsylvania vulnerable not only
to cyclical economic fluctuations, but also to pronounced long-term
changes in the nation's economic structure. In recent years, the state
has experienced growth in the services sector, including trade, medical
and health services, education, and financial institutions.
Manufacturing has fallen behind both the services sector and the trade
sector as the largest single source of employment within the
Commonwealth.
The five-year period ending with fiscal 1998 was a time of economic
growth with modest rates of growth at the beginning of the period and
larger increases during the more recent years. Throughout the period,
inflation has remained low, helping to restrain expenditure growth.
Favorable economic conditions have helped total revenues and other
sources rise at an annual average of 4.2% during the five-year period.
The annual growth rate for taxes of 4.3% almost matched the total
revenue rate. License and fee revenues rose at a 7.9% annual rate,
largely because of various motor vehicle fee increases effective for
fiscal 1998. Other revenues, mostly charges for sales and services and
investment income, increased at an average annual rate of 17.6%.
Expenditure and other uses during the fiscal 1994 through fiscal 1998
period rose at a 3.8% average annual rate, led by a 10.2% average
annual increase for protection of person and property costs.
Operations during the 1998 fiscal year increased the unappropriated
balance of Commonwealth revenues by $86.4 million to $488.7 million at
June 30, 1998 (prior to transfers). Higher than estimated revenues,
offset in part by increased reserves for tax refunds, and slightly
lower expenditures than budgeted were responsible for the increase.
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 in fiscal 1998
grew 4.8% over tax revenues during fiscal 1997. his rate of increase
includes the effect legislated tax reductions that affected receipts
during both fiscal years and therefore understates the actual
underlying rate of growth of tax revenue for fiscal 1998. Non-tax
revenues were $27.5 million (8.6%) over estimate, mostly due to greater
than anticipated interest earnings for the fiscal year.
Reserves established during fiscal 1998 for tax refunds totaled $910
million. This amount is a $370 million increase over tax refund
reserves for fiscal 1997 (representing a 68.5% increase). The fiscal
1998 amount includes a one-time addition intended to fund all fiscal
1998 tax refund liabilities, including that portion to be paid during
fiscal 1999.
Expenditures from all fiscal 1998 appropriations (including pooled
financing expenditures and net of current year lapses) totaled
$17,229.8 million. This 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.
For GAAP purposes, assets increased $705.1 million in fiscal 1998 and
liabilities rose by $111.1 million. These changes contributed to a
$310.3 million rise in the undesignated-unreserved balance for June 30,
1998 to $497.6 million, the highest level achieved since audited GAAP
reporting was instituted in 1984.
The 1999 fiscal year ended with an unappropriated surplus (prior to the
transfer to the Tax Stabilization Reserve Fund) of $702.9 million, an
increase of $214.2 million from June 30, 1998. Transfers to the Tax
Stabilization Reserve Fund total $225.4 million for fiscal year 1999
consisting of $105.4 million representing the statutory 15% of the
fiscal year-end unappropriated surplus and an additional $150 million
from the unappropriated surplus authorized by the General Assembly.
The $447.5 million balance of the unappropriated surplus was carried
over to fiscal year 2000. The higher unappropriated surplus was
generated by tax revenues that were $712.0 million (3.9%) above
estimate (after tax reductions enacted with the 1999 fiscal year budget
that were estimated to be $241.0 million) and $61.0 million of non-tax
revenue (18.4%) above estimate. Higher than anticipated appropriation
lapses also contributed to the higher surplus. A portion of the higher
revenues and appropriation lapses were used for supplemental fiscal
1999 appropriations totaling $357.8 million. Including the
supplemental appropriations and net of appropriation lapses,
expenditures for fiscal 1999 totaled $18,144.9 million, a 5.9% increase
over expenditures during fiscal 1998.
The General Fund budget for the 2000 fiscal year was approved by the
General Assembly in May 1999. The adopted budget includes estimated
spending from Commonwealth revenues of $19,061.5 million and estimated
revenues (net of estimated tax refunds and enacted tax changes) of
$18,699.9 million. Funds to cover the $361.6 million difference between
estimated revenues and projected spending will be obtained from a draw
down of the projected fiscal 1999 year-end balance. The level of
proposed spending represents an increase of 3.8% over the spending
authorized for fiscal 1999 of $18,367.5 million. Enacted tax changes
effective for fiscal 2000 total a net reduction of $380.2 million for
the General Fund.
The estimate of Commonwealth revenue for fiscal 1999 is based on an
economic forecast for real gross domestic product to grow at a 1.4%
rate from the second quarter of 1999 to the second quarter of 2000.
Growth of real gross domestic product is expected to be restrained by a
slowing of the rate of consumer spending to a level consistent with
personal income gains and by smaller gains in business investment in
response to falling capacity utilization and profits. Slowing economic
growth is expected to cause the unemployment rate to rise through the
fiscal year but inflation is expected to remain moderate. Trends for
the Pennsylvania economy are expected to maintain their close
association with national economic trends. Personal income growth is
anticipated to remain slightly below that of the U.S. while the
Pennsylvania unemployment rate is anticipated to be very close to the
national rate.
Commonwealth revenues (excluding the estimated cost of enacted tax
reductions) are projected to increase by 2.8% over fiscal 1999
receipts. Appropriations from Commonwealth funds increased by 3.8% over
fiscal 1999 appropriations. Enacted tax cuts for fiscal 2000 total an
estimated $380.2 million to the General Fund. According to a November
30, 1999 press release from the Pennsylvania Secretary of Revenue,
General Fund revenues for December, 1999 totaled $1.7 billion, which
was $23.9 million, or 1.4% more than anticipated. Fiscal year-to-date
General Fund collections total $8.6 billion, which is $177 million, or
2.1% above estimate.
The following table shows the average annual unemployment rate for
Pennsylvania and the nation for the periods indicated. This
information is drawn from official statements and prospectuses relating
to securities offerings of the state of Pennsylvania, its agencies, and
instrumentalities. No independent verification of the information
contained in such official statements and other publicly available
documents has been made.
Period
Pennsylvania
United States
1989
4.5%
5.3%
1990
5.4%
5.6%
1991
7.0%
6.8%
1992
7.6%
7.5%
1993
7.1%
6.9%
1994
6.2%
6.1%
1995
5.9%
5.6%
1996
5.3%
5.4%
1997
5.2%
4.9%
1998
4.6%
4.5%
1999
4.3%
4.3%
As of August 1999 , the seasonally adjusted unemployment rate for the
Commonwealth was 4.5 %, compared to 4.2 % for the United States.
From time to time, certain Pennsylvania municipalities and political
subdivisions have experienced economic downturns. For example, the
financial condition of the City of Philadelphia in the early 1990s
had impaired its ability to borrow and resulted in its obligations
being downgraded by the major rating services to below investment
grade. However, these obligations have since been upgraded.
The Pennsylvania Intergovernmental Cooperation Authority ("PICA") was
created by Commonwealth legislation in 1991 to assist Philadelphia in
remedying its fiscal emergencies. PICA is designed to provide
assistance through the issuance of funding debt and to make factual
findings and recommendations to Philadelphia concerning its budgetary
and fiscal affairs. At this time Philadelphia is operating under a
five-year fiscal plan approved by PICA on June 15, 1999.
No further bonds are to be issued by PICA for the purpose of financing
a capital project or deficit as the authority for such bond sales
expired December 31, 1994. PICA's authority to issue debt for the
purpose of financing a cash flow deficit expired on December 31, 1996.
Its ability to refund existing outstanding debt is unrestricted. PICA
had $1,014.1 million in special revenue bonds outstanding as of June
30, 1999. Neither the taxing power nor the credit of the Commonwealth
is pledged to pay debt service on PICA's bonds.
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, some of which, if decided adversely to the Commonwealth, could
have a material adverse impact on governmental operations. All of the
foregoing factors could affect the outstanding obligations of the
Commonwealth and its municipalities and political subdivisions,
including obligations held by the funds. Further, there can be no
assurance that the same factors that adversely affect the economy of
the Commonwealth generally will not also adversely affect the market
value or marketability of obligations issued by local units of
government or local authorities in the Commonwealth, or the ability of
the obligators to pay the principal of or interest on such obligations.
In October 1999, Pennsylvania General Obligation Bonds were rated Aa3
by Moody's, AA by Fitch and AA by S&P.
APPENDIX G
Special Considerations Relating To Massachusetts Municipal Obligations
See Special Note Prior to Appendix B
Summary
The Commonwealth of Massachusetts and certain of its cities and towns
and public bodies have experienced financial difficulties in the past
that have adversely affected their credit standing. The recurrence of
such financial difficulties could adversely affect the market value of
the instruments held in the funds. The information summarized below
describes some of the more significant factors that could affect the
funds or the ability of the obligors to pay debt service. The sources
of such information are the official statements of issuers located in
the Commonwealth of Massachusetts, as well as other publicly available
documents, and statements of public information contained in such
statements and documents, but the funds are not aware of facts which
would render such information inaccurate.
Fiscal Matters
The Commonwealth's operating fund structure satisfies the requirements
of state finance law and is in accordance with generally accepted
accounting principles ("GAAP"), as defined by the Government Accounting
Standards Board. The General Fund and those special revenue funds which
are appropriated in the annual state budget receive most of the non-
bond and non-federal grant revenues of the Commonwealth. These funds
are referred to herein as the "budgeted operating funds" of the
Commonwealth. They do not include the capital projects funds of the
Commonwealth, into which the proceeds of Commonwealth bonds are
deposited. The three principal budgeted operating funds are the General
Fund, the Highway Fund and the Local Aid Fund. Expenditures from these
three funds generally account for approximately 93% of total
expenditures of the budgeted operating funds.
The Commonwealth's budgeted operating funds for fiscal 1996, 1997, 1998
and 1999 showed an excess (deficiency) of revenues and other sources
over expenditures and other uses of $446 million, $221 million, $798
million and ($80) million and positive fund balances $1.172 billion,
$1.394 billion, $2.192 billion and $2.112 billion, respectively. Over
the same period, budgeted expenditures and other uses were
approximately $16.881 billion for fiscal 1996, $17.949 billion for
fiscal 1997, $19.002 billion for fiscal 1998 and $20.245 billion for
fiscal 1999.
The Commonwealth's fiscal 2000 budget is based on numerous spending
and revenue estimates, the achievement of which cannot be assured. The
Executive Office of Administration and Finance estimates fiscal 2000
budgeted expenditures and other uses will total approximately $21.38
billion, while budgeted revenues and other sources will total
approximately $21.92 billion.
Limitations on Tax Revenues.
Chapter 62F, which was enacted by the voters in November 1986,
establishes a state tax revenue growth limit for each fiscal year equal
to the average positive rate of growth in total wages and salaries in
the Commonwealth, as reported by the federal government, during the
three calendar years immediately preceding the end of such fiscal year.
Chapter 62F also requires that allowable state tax revenues be reduced
by the aggregate amount received by local government units from any
newly authorized or increased local option taxes or excises. Any excess
in state tax revenue collections for a given fiscal year over the
prescribed limit, as determined by the State Auditor, is to be applied
as a credit against the then current personal income tax liability of
all taxpayers in the Commonwealth in proportion to the personal income
tax liability of all taxpayers in the commonwealth for the immediately
preceding tax year. The law does not exclude principal and interest
payments on Commonwealth debt obligations from the scope of its tax
limit. However, the preamble contained in Chapter 62F provides that
"although not specifically required by anything contained in this
chapter, it is assumed that from allowable state tax revenues as
defined herein the Commonwealth will give priority attention to the
funding of state financial assistance to local governmental units,
obligations under the state governmental pension systems, and payment
of principal and interest on debt and other obligations of the
Commonwealth."
Tax revenues in fiscal 1995 through fiscal 1999 were lower than the
limit set by Chapter 62F, and the Executive Office for Administration
and Finance currently estimates that state tax revenues in fiscal 2000
will not reach the limit imposed by either of these statutes. For
fiscal 1999, as calculated by the State Auditor pursuant to Chapter
62F, net state tax revenues were approximately $14.302 billion and
allowable state tax revenues were approximately $15.470 billion.
The fiscal 2000 budget contained several tax law changes, three of
which are anticipated to reduce tax revenues in fiscal 2000. The budget
reduced the income tax rate from 5.95% to 5.75% over three years, with
a 5.85% rate effective January 1, 2000, a 5.80% rate effective January
1, 2001 and a 5.75% rate effective January 1, 2002. The Department of
Revenue estimates that the budgetary cost of these provisions will be
approximately $65 million in fiscal 2000, $166 million in fiscal 2001,
$244 million in fiscal 2002 and $293 million in fiscal 2003 and
annually thereafter.
Local Aid Proposition 2 1/2
In November 1980, voters in the Commonwealth approved a statewide tax
limitation initiative petition, commonly known as Proposition 2 1/2, to
constrain levels of property taxation and to limit the charges and fees
imposed on cities and towns by certain governmental entities, including
county governments. Proposition 2 1/2 is not a provision of the state
constitution and accordingly is subject to amendment or repeal by the
legislature. Proposition 2 1/2, as amended to date, limits the property
taxes that may be levied by any city or town in any fiscal year to the
lesser of (i) 2.5% of the full and fair cash valuation of the real
estate and personal property therein, and (ii) 2.5% over the previous
year's levy limit plus any growth in the tax base from certain new
construction and parcel subdivisions. Proposition 2 1/2 also limits any
increase in the charges and fees assessed by certain governmental
entities, including county governments, on cities and towns to the sum
of (i) 2.5% of the total charges and fees imposed in the preceding
fiscal year, and (ii) any increase in charges for services customarily
provided locally or services obtained by the city or town at its
option. The law contains certain override provisions and, in addition,
permits debt service on specific bonds and notices and expenditures for
identified capital projects to be excluded from the limits by a
majority vote at a general or special election. At the time Proposition
2 1/2 was enacted, many cities and towns had property tax levels in
excess of the limit and were therefore required to roll back property
taxes with a concurrent loss of revenues. Between fiscal 1981 and
fiscal 1999, the aggregate property tax levy grew from $3.346 billion
to $6.753 billion, representing an increase of approximately 101.8%. By
contrast, according to the federal Bureau of Labor Statistics, the
consumer price index for all urban consumers in Boston grew during the
same period by approximately 107.9%.
Many communities have responded to the limitation imposed by
Proposition 2 1/2 through statutorily permitted overrides and
exclusions. There are three types of referenda questions (override of
levy limit, exclusion of debt service, or exclusion of capital
expenditures) which permit communities to exceed the limits of
Proposition 2 1/2. Override activity steadily increased throughout the
1980's before peaking in fiscal 1991 and decreasing thereafter. In
fiscal 1999, 24 communities had successful override referenda which
added $8.7 million to their levy limits. In fiscal 1999, the impact of
successful override referenda going back as far as fiscal 1993 was to
raise the levy limits of 125 communities by $67 million. Although
Proposition 2 1/2 will continue to constrain local property tax
revenues, significant capacity exists for overrides in nearly all
cities and towns.
In addition to overrides, Proposition 2 1/2 allows a community, through
voter approval, to assess taxes in excess of its levy limit for the
payment of certain capital projects (capital outlay expenditure
exclusions) and for the payment of specified debt service costs (debt
exclusions). Capital exclusions were passed by 20 communities in fiscal
1999 and totaled $4.6 million. In fiscal 1999, the impact of successful
debt exclusion votes going back as far as fiscal 1993, was to raise the
levy limits of 250 communities by $945.8 million.
Commonwealth Financial Support for Local Governments.
During the 1980s, the Commonwealth increased payments to its cities,
towns and regional school districts ("Local Aid") to mitigate the
impact of Proposition 2 1/2 on local programs and services. In fiscal
2000, approximately 21.7% of the Commonwealth's budget is estimated to
be allocated to direct Local Aid. Local Aid payments to cities, towns
and regional school districts take the form of both direct and indirect
assistance. Direct Local Aid consists of general revenue sharing funds
and specific program funds sent directly to local governments and
regional school districts as reported on the so-called "cherry sheet"
prepared by the Department of Revenue, excluding certain pension funds
and nonappropriated funds.
As a result of comprehensive education reform legislation enacted in
June 1993, a large portion of general revenue sharing funds are
earmarked for public education and are distributed through a formula
designed to provide more aid to the Commonwealth's poorer communities.
The legislation established a fiscal 1993 state spending base of
approximately $1.288 billion for local education purposes and required
annual increases in state expenditures for such purposes above that
base, subject to appropriation, estimated to be approximately $2.803
billion in fiscal 2000. All of the budgets in fiscal years 1994 through
2000 have fully funded the requirements imposed by this legislation.
Another component of general revenue sharing, the Lottery and
Additional Assistance programs, provides unrestricted funds for
municipal use. There are also several specific programs funded through
direct Local Aid, such as highway construction, school building
construction, and police education incentives.
In addition to direct Local Aid, the Commonwealth has provided
substantial indirect aid to local governments, including, for example,
payments for Massachusetts Bay Transportation Authority assistance and
debt service, pensions for teachers, housing subsidies and the costs of
courts and district attorneys that formerly had been paid by the
counties. Beginning July 1, 2000, Commonwealth support for the
Massachusetts Bay Transportation Authority will take the form of
dedicated tax revenues.
Initiative Law
A statute adopted by voter initiative petition at the November 1990
statewide election regulates the distribution of Local Aid to cities
and towns. This statute requires that, subject to annual appropriation,
no less than 40% of collections from personal income taxes, sales and
use taxes, corporate excise taxes, and lottery fund proceeds be
distributed to cities and towns. Under the law, the Local Aid
distribution to each city or town would equal no less than 100% of the
total Local Aid received for fiscal 1989. Distributions in excess of
fiscal 1989 levels would be based on new formulas that would replace
the current Local Aid distribution formulas. By its terms, the new
formula would have called for a substantial increase in direct Local
Aid in fiscal 1992 and subsequent years. Nonetheless, Local Aid
payments remain subject to annual appropriation by the legislature, and
appropriations for Local Aid since the enactment of the initiative law
have not met the levels set forth in the initiative law.
Commonwealth Expenditures.
Fiscal 1996 budgeted expenditures were $16.881 billion, an increase of
4.0% from fiscal 1995. Fiscal 1997 budgeted expenditures were $17.949
billion, an increase of 6.3% over fiscal 1996 levels. Fiscal 1998
budgeted expenditures were $19.002 billion, an increase of 5.9% over
fiscal 1997. Fiscal 1999 budgeted expenditures were $20.245 billion, an
increase of 6.5% over fiscal 1998. It is estimated that fiscal 2000
budgeted expenditures will be $21.382 billion, an increase of 5.6% over
fiscal 1999.
Commonwealth expenditures since 1996 largely reflect significant growth
in several programs and services provided by the Commonwealth,
principally direct Local Aid, Medicaid, higher education, and other
program expenditures.
The Commonwealth is responsible for the payment of pension benefits for
state employees and for school teachers throughout the state and for
certain cost-of-living increases payable to local government retirees.
The Commonwealth has adopted a funding schedule under which it is
required to fund future pension liabilities currently and to amortize
the accumulated unfunded liabilities by June 30, 2018. Since the
adoption of this schedule, the amount of the unfunded liability has
been reduced significantly. In fiscal 1999, the pension expenditure was
$990 million. In fiscal 1996, a number of reform measures affecting
pensions were enacted into law. Among the most notable were a measure
consolidating the assets of the state employees' and teachers'
retirement system into a single investment fund and another that will
reform the disability pension system.
Commonwealth Bond and Note Liabilities.
The Commonwealth is authorized to issue three types of debt: general
obligation debt, special obligation debt and federal grant anticipation
notes. General obligation debt is secured by a pledge of the full
faith and credit of the Commonwealth. Special obligation debt may be
secured either with a pledge of receipts credited to the Highway Fund
or with a pledge of receipts credited to the Boston Convention and
Exhibition Center Fund. Federal grant anticipation notes are secured
by a pledge of federal highway construction reimbursements. In
addition, certain independent authorities and agencies within the
Commonwealth are statutorily authorized to issue bonds and notes for
which the Commonwealth is either directly, in whole or in part, or
indirectly liable. As of January 1, 2000, the Commonwealth's total bond
and note liabilities were $15.365 billion, consisting of approximately
$9.899 billion of general obligation debt, $586 million of special
obligation debt, $922 million of federal grant anticipation notes,
$3.744 billion of Commonwealth supported debt and $215 million of
Commonwealth guaranteed debt. Based on the United States census
resident population estimate for Massachusetts for 1999, the per capita
debt as of June 30, 1999 was $2,470.
Commonwealth Capital Spending
Since fiscal 1992, the Executive Office for Administration and Finance
has maintained a five-year capital spending plan, including an annual
administrative limit on the amount of bond-financed state capital
spending. Actual bond-financed capital expenditures during fiscal years
1996, 1997, 1998 and 1999 were approximately $908 million, $955
million, $1.0 billion and $1.0 billion, respectively. Total capital
spending for the current five year plan is estimated to be $2.707
billion for fiscal 2000, $2.935 billion for fiscal 2001, $2.034 billion
for fiscal 2002, $1.706 billion for fiscal 2003 and $1.577 billion for
fiscal 2004. Capital spending for fiscal years 2000 through 2004 to be
financed from debt issued by the Commonwealth is forecast at $5
billion, which includes both general obligation bonds and state gas tax
bonds, and which is significantly below legislatively authorized
capital spending levels. The five-year capital plan contemplates that
the projected level of capital spending will leverage approximately
$2.301 billion of federal highway funding. Due to the size and
complexity of the Commonwealth's capital program, and other factors,
the timing and the amount of actual expenditures and debt issuances
over the period will likely vary somewhat from the annual spending
amounts contained in the five-year capital plan.
The largest single component of the Commonwealth's capital program
currently is the Central Artery/Ted Williams Tunnel project, a major
construction project that is part of the completion of the federal
interstate highway system. The project involves the depression of a
portion of Interstate 93 in downtown Boston (the Central Artery), which
is now an elevated highway, and the construction of a new tunnel under
Boston harbor (the Ted Williams Tunnel) to link the Boston terminus of
the Massachusetts turnpike (Interstate 90) to Logan International
Airport and points north. The magnitude of the Central Artery/Ted
Williams Tunnel project has resulted in the realignment of certain
transportation assets in the Commonwealth and the development of
additional financing mechanisms to support its completion, including
payments from the Massachusetts Turnpike Authority and the
Massachusetts Port Authority and state borrowings in anticipation of
future federal highway reimbursements. The completed project will be
owned and operated by the Massachusetts Turnpike authority as part of
the Metropolitan Highway System which was established in conjunction
with the project.
On February 1, 2000, the Massachusetts Turnpike Authority revised
upward by $1.398 billion its estimate of the total expenditures
expected to be required to complete the project. The Turnpike Authority
characterized this revision as preliminary and subject to further
review but expressed confidence that the estimate of total expenditures
should not be expected to increase further, so long as unanticipated
funding delays or other events beyond the scope of the review do not
occur. Cash outlays from fiscal 2000 through the completion of the
project are now projected to be approximately $5.388 billion rather
than the previous project of approximately $3.990 billion. According to
the revised estimate, by the time of the project's completion, the
project is expected to have required expenditures totaling
approximately $13.1 billion, excluding insurance reimbursements and
proceeds from real estate dispositions related to the project that will
be received after project completion. These reimbursements are
anticipated to be approximately $900 million, resulting in a net
project cost of approximately $12.2 billion.
As a consequence of the revised project cost estimate, the project
officials are developing a revised project financing plan to identify
the means of financing the $1.4 billion in current estimated additional
project costs. The Turnpike Authority has indicated that it intends to
use the revenue raising capacity and assets of the Turnpike Authority
to help meet the increased costs, and that it has under consideration a
variety of options and measures, including without limitation the
acceleration of planned toll increases, additional toll increases, sale
and/or lease of air rights and other assets, development of real
estate parcels that become available as a result of the depression of
the Central Artery and ancillary revenues generated by
telecommunication and fiber optic contracts. The Turnpike Authority is
in the process of reviewing these and other options to fund the
project's additional needs and expects to make recommendations promptly
over the next several months. The Commonwealth's revised funding plan
may require or include other sources of revenue, on either a temporary
or permanent basis, including additional Commonwealth funds. The use of
such other financing sources may require legislative approval and
certain executive branch action.
Other Factors
Many factors affect the financial condition of the Commonwealth,
including many social environmental, and economic conditions, which are
beyond the control of the Commonwealth. As with most urban states, the
continuation of many of the Commonwealth's programs, particularly its
human service programs, is in significant part dependent upon
continuing federal reimbursements which have been declining.
APPENDIX H
Special Considerations Relating to Municipal Obligations of the U.S.
Virgin Islands and of Guam
U.S. Virgin Islands
The United States Virgin Islands ("USVI") is heavily reliant on the
tourism industry, with roughly 43% of non-agricultural employment in
tourist-related trade and services. The tourism industry is
economically sensitive and would likely be affected adversely by a
recession in either the United States or Europe.
An important component of the USVI revenue base is the federal excise
tax on rum exports. Tax revenues rebated by the federal government to
the USVI provide the primary security of many outstanding USVI bonds.
Since more than 90% of the rum distilled in the USVI is distilled at
one plant, any interruption in its operations (as occurred after
Hurricane Hugo in 1989) would adversely affect these revenues. The last
major hurricane to impact the USVI was Hurricane Marilyn on September
15, 1995. Consequently, there can be no assurance that rum exports to
the United States and the rebate of tax revenues to the USVI will
continue at their present levels. The preferential tariff treatment the
USVI rum industry currently enjoys could be reduced under NAFTA.
Increased competition from Mexican rum producers could reduce USVI rum
imported to the U.S., decreasing excise tax revenues generated. The
USVI is periodically hit by hurricanes. Several hurricanes have caused
extensive damage, which has had a negative impact on revenue
collections. There is currently no rated, unenhanced Virgin Islands
debt outstanding (although there is unrated debt outstanding).
Guam
The U.S. territory of Guam derives a substantial portion of its
economic base from Japanese tourism. With a reduced U.S. military
presence on the island, Guam has relied more heavily on tourism in the
past few years. During its 1997 fiscal year, the government was able to
make noticeable progress on its traditional budgetary problems
operating with a balanced budget for that fiscal year. However, during
1998, the Japanese recession combined with the impact of typhoon Paka
resulted in a budget deficit of $21 million. With hotels alone
accounting for 8.5% of Guam's employment and Japanese tourists
comprising 86% of total visitor arrivals, the Japanese recession and
depreciation of the yen versus the dollar in 1999 have had a negative
impact on the island's economy. Based on these factors, S&P downgraded
Guam's rating to BBB- from BBB with a negative outlook on May 26, 1999.
There does seem to be some recent improvement in the Japanese economy.
However, Guam has not realized any economic benefit as visitor arrivals
are 0.8% below 1998 levels for the second quarter ended June 30, 1999,
driving General Fund revenues down 3.1%.
Special Considerations Relating to Puerto Rico Municipal Obligation
See Special Note Prior to Appendix B
Fiscal Matters
The fiscal year of the Government of Puerto Rico begins each July 1.
The Governor is constitutionally required to submit to the Legislature
an annual balanced budget of capital improvements and operating
expenses of the central government for the ensuing fiscal year. The
annual budget is prepared by the Office of Management and Budget
("OMB"), working with the Planning Board, the Department of the
Treasury, and other government offices and agencies. Section 7 of
Article VI of the Constitution provides that "The appropriations made
for any fiscal year shall not exceed the total revenues, including
available surplus, estimated for said fiscal year unless the imposition
of taxes sufficient to cover said appropriations is provided by law."
The annual budget, which is developed utilizing elements of program
budgeting and zero-base budgeting, includes an estimate of revenues and
other resources for the ensuing fiscal year under: (i) laws existing at
the time the budget is submitted; and (ii) legislative measures
proposed by the Governor and submitted with the proposed budget, as
well as the Governor's recommendations as to appropriations that in his
judgment are necessary, convenient, and in conformity with the four -
year investment plan prepared by the Planning Board.
A Budgetary Fund was created by Act No. 147 of June 18, 1980, as
amended (the "Budgetary Fund Act"), to cover the appropriations
approved in any fiscal year in which the revenues available for such
fiscal year are insufficient, honor the public debt, and provide for
unforeseen circumstances in the provision of public services. The
Budgetary Fund Act was amended in 1994 to require that an annual
legislative appropriation equal to one third of one percent (.33%) of
the total budgeted appropriations for each fiscal year be deposited in
the Budgetary Fund. In 1997, the Budgetary Fund Act was further amended
to increase the annual legislative appropriation required to be
deposited in the Budgetary Fund to one percent (1%) of the total
revenues of the preceding fiscal year, beginning in fiscal year 2000.
In addition, other income (not classified as revenues) that is not
assigned by law to a specific purpose is also required to be deposited
in the Budgetary Fund. The maximum balance of the Budgetary Fund may
not exceed six percent (6%) of the total appropriations included in the
budget for the preceding fiscal year.
In Puerto Rico, the central government has many functions which in the
fifty states are the responsibility of local government, such as
providing public education and police and fire protection. The central
government also makes large annual grants to the University of Puerto
Rico and to the municipalities. Debt service on Sugar Corporation notes
paid by the Government of Puerto Rico is included in current expenses
for economic development, and debt service on Urban Renewal and Housing
Corporation bonds and notes and on Housing Bank and Finance Agency
mortgage subsidy bonds paid by the Government of Puerto Rico is
included in current expenses for housing.
Approximately 25.2% of the General Fund is committed, including debt
service on direct debt of the Commonwealth and on the debt of the Sugar
Corporation, municipal subsidies, grants to the University of Puerto
Rico, contributions to Aqueduct and Sewer Authority, and rental
payments to Public Building Authority, among others.
In the fiscal 1999 budget revenues and other resources of all budgetary
funds total $10,308,078,000 excluding balances from the previous fiscal
year and general obligation bonds authorized. he estimated net
increase in General Fund revenues in fiscal 1999 are accounted for by
increases in personal income taxes (up $258,354,000), retained non-
resident income tax (up $176,921,000), general excise tax of 5% (up
$60,259,000), motor vehicles and accessories (up $61,569,000), federal
excise taxes on off-shore shipments (up $33,033,000), special excise
tax on certain petroleum products (up $20,282,000), corporation income
taxes (up $17,347,000), registration and document certification fees
(up $13,433,000), alcoholic beverages (up $5,347,000), licenses (up
$4,681,000), electronic lottery (up $4,965,000) and decreases in
property taxes (down $3,460,000), customs (down $11,864,000) and
tollgate taxes (down $56,420,000).
Current expenses and capital improvements of all budgetary funds total
$10,687,869,000, an increase of $951,255,000 from fiscal 1998. The
major changes in General Fund expenditures by program in fiscal 1999
are: public safety and protection (up $187,444,000), education (up
$165,661,000), health (up $160,256,000), general government (up
$77,714,000), other debts (up $69,721,000), welfare (up $24, 182,000),
economic development (up $15,865,000), special pension contributions
(up $6,115,000), and decreases in transportation and communications
(down $83,000), housing (down $620,000), debt service (down
$13,849,000), and contributions to municipalities (down $37,969,000).
The general obligation bond authorization for the fiscal 1999 budget
was $475,000,000.
In the fiscal 2000 budget proposal revenues and other resources of all
budgetary funds total $10,426,475,000 excluding balances from the
previous fiscal year and general obligation bonds authorized. The
estimated net increase in General Fund revenues in fiscal 2000 are
accounted for by increases in personal income taxes (up $199,000,000),
corporation income taxes (up $102,000,000), general excise tax of 5%
(up $65,000,000), income tax withheld from non-residents (up
$44,000,000), motor vehicles and accessories (up $22,000,000),
alcoholic beverages (up $13,000,000), registration and document
certification fees (up $10,000,000), and decreases in property taxes
(down $2,000,000), special excise tax on certain petroleum products
(down $3,000,000), cigarettes (down $6,000,000), federal excise taxes
on off-shore shipments (down $24,000,000), and tollgate taxes (down
$14,000,000).
Current expenses and capital improvements of all budgetary funds total
$11,012,166,000, an increase of $324,297,000 from fiscal 1999. The
major changes in General Fund expenditures by program in fiscal 2000
are: general government (up $157,265,000), health (up $83,310,000),
debt service (up $94,550,000), contributions to municipalities (up
$66,296,000), education (up $75,035,000), transportation and
communications (up $13,636,000), special pension contributions (up
$3,792,000), housing (down $4,645,000), economic development (down
$30,201,000), public safety and protection (down $26,999,000), and
other debts service (down $106,488,000).
The general obligation bond authorization for the fiscal 2000 budget
was $475,000,000.
The Government of Puerto Rico is required to contribute directly to
three retirement systems for public employees. The Government of Puerto
Rico is responsible for approximately 66% of total employer
contributions to Employees Retirement System and 100% and 99% of total
employer contributions to the Judiciary and Teachers Retirement
Systems, respectively. As of July 1, 1998 the total pension benefit
obligation for the Employees Retirement System and the Judiciary
Retirement System was $7,638,000,000 and $95,5000,000, respectively,
and the unfunded pension benefit obligation for the same period was
$5,963,000,000 and $28,400,000, respectively. As of June 30, 1998, the
accrued pension liability of the Teachers Retirement System was
$3,154,678,299, the value of assets amounted to $2,135,436,000, and the
resulting unfunded accrued liability was $1,019,242,299, an increase of
$48,437,260 from the prior valuation made as of June 30, 1997.
On February 1, 1990, the Legislature of Puerto Rico enacted Act No. 1
amending the organic act of the Employees Retirement System to reduce
the future pension liabilities of the Employees Retirement System.
Also, Act No. 305 of September 24, 1999, further amends the organic act
of the Employees Retirement System to change it, prospectively, from a
defined benefit system to a defined contribution system. Based on
actuarial studies conducted by the actuary of the Employees Retirement
System, it is expected that the implementation of the defined
contribution system will allow the Government of Puerto Rico to reduce
the current actuarial deficit of the Employees Retirement System. Also,
the law approving the sale of a controlling interest in PRTC to a
consortium led by GTE International Telecommunications Incorporated
provides that any future proceeds received by the Government from the
sale of its remaining stock ownership in PRTC will be transferred to
the Employees Retirement System to reduce its accumulated unfunded
pension benefit obligation. It is recognized that it will be necessary
to further strengthen the finances of the Teachers Retirement System in
order to assure that combined contributions and investment income
continue to exceed benefit payments, avoiding the possible future
drawdown of assets.
General Economic Conditions in Puerto Rico
The economy of Puerto Rico is fully integrated with that of the United
States. In fiscal 1998, trade with the United States accounted for
approximately 90% of Puerto Rico's exports and approximately 61% of its
imports. In this regard, in fiscal 1998 Puerto Rico experienced a $8.5
billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1998, aggregate
personal income was $33.7 billion ($30.8 billion in 1992 prices) and
personal per capita income was $8,817 ($8,063 in 1992 prices). Gross
product in fiscal 1995 was $28.4 billion ($25.9 billion in 1992 prices)
and gross product in fiscal 1999 was $38.1 billion ($29.7 billion in
1992 prices). This represents an increase in gross product of 34% from
fiscal 1995 to 1999 (14.5% in 1992 prices).
Puerto Rico's economic expansion, which has lasted over ten years,
continued throughout the five year period from fiscal 1995 through
fiscal 1999. Almost every sector of the economy participated, and
record levels of employment were achieved. Factors behind the
continued expansion included Government-sponsored economic development
programs, periodic declines in the exchange value of the U.S. dollar,
increases in the level of federal transfers, low oil prices and the
relatively low cost of borrowing funds during the period.
Average employment increased from 1,051,000 in fiscal 1995, to
1,147,000 in fiscal 1999. Unemployment, although at relatively low
historical levels, remains above the U.S. average. Average unemployment
decreased from 13.8% in fiscal 1995, to 12.5% in fiscal 1999.
Manufacturing is the largest sector in the economy, accounting for
$23.0 billion or 42.8% of gross domestic product in fiscal 1998. The
manufacturing sector employed 141,068 workers as of March 1999.
Manufacturing in Puerto Rico is now more diversified than during
earlier phases of industrial development. In the last two decades,
industrial development has tended to be more capital intensive and
dependent on skilled labor. This gradual shift is best exemplified by
heavy investment in pharmaceuticals, scientific instruments, computers,
microprocessors, and electrical products over the last decade. While
total employment in the manufacturing sector decreased by 12,205 from
March 1997 to March 1999, other indicators suggest that manufacturing
production did not decrease. Average weekly hours worked increased
5.2%, industrial energy consumption increased 0.7% and exports
increased 45.7% from fiscal 1997 to fiscal 1999. Most of the decreases
in employment have been concentrated in the labor intensive industries,
particularly apparel, textile and tuna manufacturing. The services
sector, which includes wholesale and retail trade and finance,
insurance, real estate, hotels and related services, and other
services, ranks second in its contribution to gross domestic product
and it is the sector that employs the greatest number of people. In
fiscal 1998, the service sector generated $19.6 billion in gross
domestic product or 36.5% of the total. Employment in this sector grew
from 478,079 in fiscal 1994 to 572,765 in fiscal 1998, a cumulative
increase of 19.8%. This increase was greater than the 12.5% cumulative
growth in employment over the same period. The Government sector of
the Commonwealth plays an important role in the economy of the island.
In fiscal year 1998, the Government accounted for $5.2 billion of
Puerto Rico's gross domestic product, or 9.8% of the total, and
provided 21.5% of the total employment. The construction industry has
experienced real growth since fiscal 1987. In fiscal 1999, investment
in construction rose to an unprecedented $6.6 billion, an increase of
23.9% as compared to $5.4 billion for fiscal 1998. Tourism also
contributes significantly to the island economy, accounting for 6.4% of
the island's gross domestic product in fiscal 1998.
New Economic Model
The present administration has developed and is implementing a new
economic development program which is based on the premise that the
private sector should provide the primary impetus for economic
development and growth. This new program, which is referred to as the
New Economic Model, promotes changing the role of the Government from
one of being a provider of most basic services to that of a facilitator
for private sector initiatives and encourages private sector investment
by reducing Government-imposed regulatory restraints.
The New Economic Model contemplates the development of initiatives that
will foster private investment in, and private management of, sectors
that are served more efficiently and effectively by the private
enterprise. One of these initiatives has been the adoption of a new tax
code intended to expand the tax base, reduce top personal and corporate
tax rates, and simplify the tax system. Another initiative is the
improvement and expansion of Puerto Rico's infrastructure to facilitate
private sector development and growth, such as the construction of the
water pipeline and cogeneration facilities described below and the
construction of a light rail system for the San Juan metropolitan area.
The New Economic Model also seeks to identify and promote areas in
which Puerto Rico can compete more effectively in the global markets.
Tourism has been identified as one such area because of its potential
for job creation and contribution to the gross product. In 1993, a new
Tourism Incentives Act and a Tourism Development Fund were implemented
in order to provide special tax incentives and financing for the
development of new hotel projects and the tourism industry. As a
result of these initiatives, new hotels have been constructed or are
under construction which have increased the number of hotel rooms on
the island from 8,415 in fiscal 1992 to 11,095 at the end of fiscal
1999 and to a projected 12,650 by the end of fiscal 2000.
The New Economic Model also seeks to reduce the size of the
Government's direct contribution to gross domestic product. As part of
this goal, the Government has transferred certain governmental
operations and sold a number of its assets to private parties. Among
these are: (i) the Government sold the assets of the Puerto Rico
Maritime Authority; (ii) the Aqueducts and Sewer Authority executed a
construction and operating agreement with a private consortium for the
struction, and operation of an approximately 75 million gallon per day
water pipeline to the San Juan metropolitan area from the Dos Bocas
reservoir in Utuado; (iii) the Electric Power Authority executed power
purchase contracts with private power producers under which two
cogeneration plants (with a total capacity of approximately 874
megawatts), using fuels other than oil, will be constructed; (iv) the
Corrections Administration entered into operating agreements with two
private companies for the operation of three new correctional
facilities; (v) the Government entered into a definitive agreement to
sell certain assets of a pineapple juice processing business and sold
certain mango growing operations; (vi) the Government is in the process
of transferring to local sugar cane growers certain sugar processing
facilities; (vii) the Government sold three hotel properties and is
currently negotiating the sale of a complex consisting of two hotels
and a convention center; and (viii) the Government sold a controlling
interest in the Puerto Rico Telephone Company, a subsidiary of the
Telephone Authority, to a consortium led by GTE International
Telecommunications Incorporated.
One of the goals of the Rossello administration is to change Puerto
Rico's public health care system from one in which the Government
provides free health services to low income individuals through public
health facilities owned and administered by the Government to one in
which all medical services are provided by the private sector and the
Government provides comprehensive health insurance coverage for
qualifying (generally low income) Puerto Rico residents. Under this
new system, the Government selects, through a bidding system, one
private health insurance company in each of several designated regions
of the island and pays such insurance company the insurance premium for
each eligible beneficiary within such region. This new health insurance
system is now covering 77 municipalities out of a total of 78 on the
island. It is expected that the last municipality will be added in July
2000. The total cost of this program will depend on the number of
municipalities included in the program, the number of participants
receiving coverage, and the date coverage commences. As of August 1,
1999, over 1.7 million persons were participating in the program at an
estimated annual cost to Puerto Rico for fiscal 2000 of approximately
$994 million. In conjunction with this program, the operation of
certain public health facilities has been transferred to private
entities. The Government's current privatization plan for health
facilities provides for the transfer of ownership of all health
facilities to private entities. The Government has sold forty-four
health facilities to private companies and is currently in the process
of closing the sale of fourteen additional health facilities to such
companies.
Tax Incentives
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, particularly those under the Puerto Rico
Industrial Incentives Program and Sections 30A and 936 of the Internal
Revenue Code 1986, as amended (the "Code").
Since 1948, Puerto Rico has promulgated various industrial incentive
laws designed to stimulate industrial investment. Under these laws,
companies engaged in manufacturing and certain other designated
activities were eligible to receive full or partial exemption from
income, property, and other taxes. The most recent of these laws is Act
No. 135 of December 2, 1997 (the "1998 Tax Incentives Law").
The benefits provided by the 1998 Tax Incentives Law are available to
new companies as well as companies currently conducting tax-exempt
operations in Puerto Rico that choose to renegotiate their existing tax
exemption grant. Activities eligible for tax exemption include
manufacturing, certain services performed for markets outside Puerto
Rico, the production of energy from local renewable sources for
consumption in Puerto Rico, and laboratories for scientific and
industrial research. For companies qualifying thereunder, the 1998 Tax
Incentives Law imposes income tax rates ranging from 2% to 7%. In
addition, it grants 90% exemption from property taxes, 100% exemption
from municipal license taxes during the first eighteen months of
operation and between 80% and 60% thereafter, and 100% exemption from
municipal excise taxes. The 1998 Tax Incentives Law also provides
various special deductions designated to stimulate employment and
productivity, research and development, and capital investment in
Puerto Rico.
Under the 1998 Tax Incentives Law, companies are able to repatriate or
distribute their profits free of dividend taxes. In addition, passive
income derived from designated investments will continue to be fully
exempt from income and municipal license taxes. Individual
shareholders of an exempted business are allowed a credit against their
Puerto Rico income taxes equal to 30% of their proportionate share in
the exempted business' income tax liability. Gain from the sale or
exchange of shares of an exempted business by its shareholders during
the exemption period will be subject to a 4% income tax rate.
For many years, U.S. companies operating in Puerto Rico enjoyed a
special tax credit that was available under Section 936 of the Code.
Originally, the credit provided an effective 100% federal tax exemption
for operating and qualifying investment income from Puerto Rico
sources. Amendments to Section 936 made in 1993 (the "1993 Amendments")
instituted two alternative methods for calculating the tax credit and
limited the amount of the credit that a qualifying company could claim.
These limitations are based on a percentage of qualifying income (the
"percentage of income limitation") and on qualifying expenditures on
wages and other wage related benefits (the "economic activity
limitation", also known as the "wage credit limitation"). As a result
of amendments incorporated in the Small Business Job Protection Act of
1996 enacted by the U.S. Congress and signed into law by President Bill
Clinton on August 20, 1996 (the "1996 Amendments"), the tax credit, as
described below, is now being phased out over a ten-year period for
existing claimants and is no longer available for corporations that
establish operations in Puerto Rico after October 13, 1995 (including
existing Section 936 Corporations (as defined below) to the extent
substantially new operations are established in Puerto Rico). The 1996
Amendments also moved the credit based on the economic activity
limitation to Section 30A of the Code and phased it out over 10 years.
In addition, the 1996 Amendments eliminated the credit previously
available for income derived from certain qualified investments in
Puerto Rico. The Section 30A Credit and the remaining Section 936
credit are discussed below.
Section 30a
The 1996 Amendments added a new Section 30A to the Code. Section 30A
permits a "qualifying domestic corporation" ("QDC") that meets certain
gross income tests (which are similar to the 80% and 75% gross income
tests of Section 936 of the Code discussed below) to claim a credit
(the "Section 30A Credit") against the federal income tax imposed on
taxable income derived from sources outside the United States from the
active conduct of a trade or business in Puerto Rico or from the sale
of substantially all the assets used in such business ("possession
income").
A QDC is a U.S. corporation which (i) was actively conducting a trade
or business in Puerto Rico on October 13, 1995, (ii) had a Section 936
election in effect for its taxable year that included October 13, 1995,
(iii) does not have in effect an election to use the percentage
limitation of Section 936(a)(4)(B) of the Code, and (iv) does not add a
"substantial new line of business."
The Section 30A Credit is limited to the sum of (i) 60% of qualified
possession wages as defined in the Code, which includes wages up to 85%
of the maximum earnings subject to the OASDI portion of Social Security
taxes plus an allowance for fringe benefits of 15% of qualified
possession wages, (ii) a specified percentage of depreciation
deductions ranging between 15% and 65%, based on the class life of
tangible property, and (iii) a portion of Puerto Rico income taxes paid
by the QDC, up to a 9% effective tax rate (but only if the QDC does not
elect the profit-split method for allocating income from intangible
property).
A QDC electing Section 30A of the Code may compute the amount of its
active business income, eligible for the Section 30A Credit, by using
either the cost sharing formula, the profit-split formula, or the cost-
plus formula, under the same rules and guidelines prescribed for such
formulas as provided under Section 936 (see discussion below). To be
eligible for the first two formulas, the QDC must have a significant
presence in Puerto Rico.
In the case of taxable years beginning after December 31, 2001, the
amount of possession income that would qualify for the Section 30A
Credit would be subject to a cap based on the QDC's possession income
for an average adjusted base period ending before October 14, 1995.
Section 30A applies only to taxable years beginning after December 31,
1995 and before January 1, 2006.
SECTION 936
Under Section 936 of the Code, as amended by the 1996 Amendments, and
as an alternative to the Section 30A Credit, U.S. corporations that
meet certain requirements and elect its application ("Section 936
Corporations") are entitled to credit against their U.S. corporate
income tax, the portion of such tax attributable to income derived from
the active conduct of a trade or business within Puerto Rico ("active
business income") and from the sale or exchange of substantially all
assets used in the active conduct of such trade or business. To qualify
under Section 936 in any given taxable year, a corporation must derive
for the three-year period immediately preceding the end of such taxable
year (i) 80% or more of its gross income from sources within Puerto
Rico and (ii) 75% or more of its gross income from the active conduct
of a trade or business in Puerto Rico.
Under Section 936, a Section 936 Corporation may elect to compute its
active business income, eligible for the Section 936 credit, under one
of three formulas: (A) a cost-sharing formula, whereby it is allowed to
claim all profits attributable to manufacturing intangibles, and other
functions carried out in Puerto Rico, provided it contributes to the
research and development expenses of its affiliated group or pays
certain royalties; (B) a profit-split formula, whereby it is allowed to
claim 50% of the net income of its affiliated group from the sale of
products manufactured in Puerto Rico; or (C) a cost-plus
formula,whereby it is allowed to claim a reasonable profit on the
manufacturing costs incurred in Puerto Rico. To be eligible for the
first two formulas, the Section 936 Corporation must have a significant
business presence in Puerto Rico for purposes of the Section 936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the Section
936 credit is only available to companies that were operating in Puerto
Rico on October 13, 1995, and had elected the percentage of income
limitation and is limited in amount to 40% of the credit allowable
prior to the 1993 Amendments, subject to a five-year phase-in period
from 1994 to 1998 during which period the percentage of the allowable
credit is reduced from 60% to 40%.
In the case of taxable years beginning on or after 1998, the possession
income subject to the Section 936 credit will be subject to a cap based
on the Section 936 Corporation's possession income for an average
adjusted base period ending on October 14, 1995. The Section 936
credit is eliminated for taxable years beginning in 2006.
Proposal To Extend The Phaseout Of Section 30a.
During 1997, the Government of Puerto Rico proposed to Congress the
enactment of a new permanent federal incentive program similar to that
provided under Section 30A. Such a program would provide U.S. companies
a tax credit based on qualifying wages paid and other wage-related
expenses, such as fringe benefits, as well as depreciation expenses for
certain tangible assets and research and development expenses. Under
the Governor's proposal, the credit granted to qualifying companies
would continue in effect until Puerto Rico shows, among other things,
substantial economic improvements in terms of certain economic
parameters. The fiscal 1998, fiscal 1999 and fiscal 2000 budgets
submitted by President Clinton to Congress included a proposal to
modify Section 30A to (i) extend the availability of the Section 30A
Credit indefinitely; (ii) make it available to companies establishing
operations in Puerto Rico after October 13, 1995; and (iii) eliminate
the income cap. This proposal was not included in the 1998 or 1999
budgets approved by Congress. While the Government of Puerto Rico plans
to continue lobbying for this proposal, it is not possible at this time
to predict whether the Section 30A Credit will be so
modified.
Outlook
It is not possible at this time to determine the long-term effect on
the Puerto Rico economy of the enactment of the 1996 Amendments. The
Government of Puerto Rico does not believe there will be short-term or
medium-term material adverse effects on Puerto Rico's economy as a
result of the enactment of the 1996 Amendments. The Government of
Puerto Rico further believes that during the phase-out period
sufficient time exists to implement additional incentive programs to
safeguard Puerto Rico's competitive position.
G:\legal\funds\sbmu\2000\secdocs\SAI2000 12
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.
d.8 Form of Management Agreement between Massachusetts
Money Market Portfolio and SSBC Fund Management Inc. is
incorporated by reference to Exhibit D.8 to Post-Effective
Amendment No 43.
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 incorporated by reference to Exhibit e.2 to Post-
Effective Amendment No. 41.
e.3 Broker Dealer Contract between the Mutual Management
Corp. and CFBDS, Inc. is incorporated by reference to
Exhibit e.3 to Post-Effective Amendment No. 41.
e.4 Form of Distribution Agreement with Salomon Smith
Barney Inc. is filed herewith.
e.5 Form of Distribution Agreement with PFS Distributors
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.1 Transfer Agency Agreement between Registrant and
Provident Financial Processing Corp. is incorporated by
reference to Exhibit 9 to Post-Effective Amendment No. 12.
h.2 Transfer Agency Agreement between Registrant and Citi
Fiduciary Trust Company is filed herewith.
h.3 Sub-Transfer Agency Agreement with PFPC Global Fund
Services is filed herewith.
i. Opinion of Gaston & Snow is incorporated by reference to
Exhibit 10 to Pre-Effective Amendment No. 1.
j.1 Auditors' Consent is filed herewith.
j.2 Power of Attorney is filed herewith.
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 incorporated by
reference to Exhibit m.5 to Post-Effective Amendment No. 41.
m.6 Form of Amended and Restated Shareholder Services and
Distribution Plan pursuant to Rule 12b-1 with Salomon Smith
Barney Inc. and PFS Distributors, Inc. is filed herewith.
n. Financial Data Schedule filed herewith.
o. Amended and Restated Plan pursuant to Rule 18f-3 is
incorporated by reference to Exhibit 18 to Post-Effective
Amendment No. 40.
p. Code of Ethics is filed herewith.
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 SSB Citi
Fund Management LLC, (successor to SSBC Fund Management
Inc.) 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) Salomon Smith Barney Inc., ("SSB"), the Registrant's Co-
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 Sector Series
Inc., 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.
PFS Distributors, Inc. the Registrant's Co-Distributor, is also
the distributor for the following Smith Barney funds: Concert
Investment Series, Smith Barney Investment Funds, Smith Barney
Aggressive Growth Fund Inc., Smith Barney Appreciation Fund Inc.,
Smith Barney Concert Allocation Series Inc., Smith Barney
Fundamental Value Fund Inc., Smith Barney Fundamental Value Fund
Inc., Smith Investment Funds, Smith Barney Money Funds, Inc., and
Smith Barney Income Funds.
(b) The information required by this Item 27 with respect to
each director and officer of SSB and PFS is incorporated by
reference to Schedule A of Form BD filed by SSB and PFS pursuant
to the Securities and Exchange Act of 1934 (File Nos. 812-85107
and 8-37352).
(c) Not applicable.
Item 28. Location of Accounts and Records
(1) With respect to the Registrant's Investment Adviser:
SSB Citi Fund Management LLC
Smith Barney Muni Funds
388 Greenwich Street
New York, New York 10013
(2) With respect to the Registrant's Transfer Agent
Citi Fiduciary Trust Company
7 World Trade Center
New York, New York 10017
(3) With respect to the Registrant's Custodian
PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(4) With respect to the Registrant's Sub-Transfer Agent
PFPC Global Fund Services.
P.O. Box 9699
Providence, Rhode Island 02940
(5) With respect to the Registrant's Sub-Transfer Agent:
PFS Shareholder Services
3100 Breckinridge Boulevard, Building 200
Duluth, Georgia 30099-0062
(6) With respect to the Registrant's Co-Distributors:
Salomon Smith Barney Inc.
7 World Trade Center
New York, New York 10017
PFS Distributors, Inc.
3100 Breckinridge Boulevard, Building 200
Duluth, Georgia 30099-0062
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, 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 26th day of July, 2000.
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 7/26/00
(Heath B. McLendon)
* Trustee
7/26/00
(Lee Abraham)
* Trustee
7/26/00
(Allan J. Bloostein)
* Trustee
7/26/00
(Jane F. Dasher)
* Trustee
7/26/00
(Donald R. Foley)
* Trustee
7/26/00
(Paul Hardin III)
* Trustee
7/26/00
(Richard E. Hanson)
* Trustee
7/26/00
(Roderick C. Rasmussen)
* Trustee
7/26/00
(John P. Toolan)
/s/ Lewis E. Daidone Senior
Vice President and Treasurer
7/26/00
(Lewis E. Daidone)
*By: /s/ Christina T. Sydor Secretary
7/26/00
Christina T. Sydor
Pursuant to Power of Attorney
EXHIBIT INDEX
Exhibit No. Exhibit
(e)(4) Form
of Distribution Agreement with Salomon Smith Barney Inc.
(e)(5) Form
of Distribution Agreement with PFS Distributors Inc.
(h)(2)
Transf
er Agency Agreement with Citi Fiduciary
Trust Company
(h)(3) Sub-
Transfer Agency Agreement with PFPC
Global Fund Services
(j)(1)
Auditors' Consent
(j)(2) Power
of Attorney
(m)(6) Form of Amended and Restated Shareholder
Services and Distribution Plan pursuant to Rule
12b-1 with Salomon Smith Barney Inc. and PFS
Distributors, Inc.
(n) Financial Data Schedule
(p) Code of Ethics
