Registration No. 33-11417
811-4994
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 13
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 14
X
SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND
(Exact name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 720-9218
Francis J. McNamara, III, Esq.
Secretary
Smith Barney Shearson Massachusetts Municipals Fund
One Boston Place
Boston, Massachusetts 02108
(Name and Address of Agent of Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
______ immediately upon filing pursuant to Rule 485(b)
X on January 29, 1994 pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
______________________________________________________________________________
___
The Registrant has previously filed a declaration of indefinite registration
of its shares pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. The Registrant's Rule 24f-2 Notice for the fiscal year ended
November 30, 1993 was filed on January 28, 1994.
SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND
FORM N-IA
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A.
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Condensed Financial
Information
Financial Highlights;
The Fund's Performance
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objective and
Management Policies; Massachusetts
Municipal Securities;
Additional Information
5. Management of the Fund
Prospectus Summary; Management of
the Fund; Distributor; Additional
Information; Annual Report
6. Capital Stock and Other
Securities
Variable Pricing System;
Additional Information; Dividends,
Distributions and Taxes
7. Purchase of Securities Being
Offered
Variable Pricing System; Purchase
of Shares; Valuation of Shares;
Exchange Privilege; Distributor
8. Redemption or Repurchase
Variable Pricing System; Purchase
of Shares; Redemption of Shares
9. Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover Page
11. Table of Contents
Contents
12. General Information
Organization and Description of
Fund Shares
13. Investment Objectives and
Policies
Investment Objective and
Management Policies; Municipal
Bonds
14. Management of the Fund
Management of the Fund;
Distributor
15. Control Persons and Principal
Holders of Securities
Management of the Fund
16. Investment Advisory and Other
Services
Management of the Fund;
Distributor; Custodian and
Transfer Agent
17. Brokerage Allocation
Investment Objective and
Management Policies
18. Capital Stock and Other
Securities
Purchase of Shares; Taxes
19. Purchase, Redemption and
Pricing of
Securities Being Offered
Purchase of Shares; Redemption of
Shares; Valuation of Shares;
Exchange Privilege
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
<PAGE>
JANUARY 29, 1994
SMITH BARNEY SHEARSON
MASSACHUSETTS
MUNICIPALS
FUND
PROSPECTUS BEGINS
ON PAGE ONE.
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
PROSPECTUS January 29, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson Massachusetts Municipals Fund (the "Fund") is a
non-diversified municipal bond fund that seeks to provide Massachusetts
investors with as high a level of dividend income exempt from Federal income
taxes and Massachusetts state personal income taxes as is consistent with
prudent investment management and the preservation of capital.
This Prospectus concisely sets forth certain information about the Fund,
including sales charges, distribution and service fees and expenses, which
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated January 29, 1994, as amended or supplemented from
time to time, which is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting your Smith Barney Shearson Financial Consultant. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated by reference into this Prospectus
in
its entirety.
SMITH BARNEY SHEARSON INC.
Distributor
GREENWICH STREET ADVISORS
Investment Adviser
THE BOSTON COMPANY ADVISORS, INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
------------------------------------------------------------
FINANCIAL HIGHLIGHTS 10
------------------------------------------------------------
VARIABLE PRICING SYSTEM 13
------------------------------------------------------------
THE FUND'S PERFORMANCE 14
------------------------------------------------------------
MANAGEMENT OF THE FUND 16
------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 18
------------------------------------------------------------
MASSACHUSETTS MUNICIPAL SECURITIES 25
------------------------------------------------------------
PURCHASE OF SHARES 27
------------------------------------------------------------
REDEMPTION OF SHARES 31
------------------------------------------------------------
VALUATION OF SHARES 35
------------------------------------------------------------
EXCHANGE PRIVILEGE 36
------------------------------------------------------------
DISTRIBUTOR 42
------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 43
------------------------------------------------------------
ADDITIONAL INFORMATION 46
------------------------------------------------------------
</TABLE>
2
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION. CROSS REFERENCES IN THIS SUMMARY ARE TO HEADINGS IN THE
PROSPECTUS.
SEE "TABLE OF CONTENTS."
BENEFITS TO INVESTORS THE FUND OFFERS INVESTORS SEVERAL IMPORTANT BENEFITS:
- - Dividends consisting primarily of tax-exempt income for Massachusetts
investors.
- - A professionally managed portfolio comprised primarily of investment-grade
Massachusetts municipal bonds.
- - A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of municipal
securities.
- - Investment liquidity through convenient purchase and redemption procedures.
- - Different methods for purchasing shares that allow investment flexibility
and
a wider range of investment alternatives.
- - Automatic dividend reinvestment feature, plus exchange privilege within the
same class of shares of most other funds in the Smith Barney Shearson Group
of Funds.
INVESTMENT OBJECTIVE The Fund is an open-end, non-diversified management
investment company that seeks to provide Massachusetts investors with as high
a
level of dividend income exempt from Federal income taxes and Massachusetts
personal income taxes as is consistent with prudent investment management and
the preservation of capital. Its investments consist primarily of
intermediate-
and long-term investment-grade municipal securities issued by the Commonwealth
of Massachusetts and certain other municipal issuers, political subdivisions,
agencies and public authorities that pay interest which is exempt from
Massachusetts personal income taxes ("Massachusetts Municipal Securities").
Intermediate-and long-term municipal securities have remaining maturities at
the
time of purchase of between three and twenty years. See "Investment Objective
and Management Policies."
3
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
VARIABLE PRICING SYSTEM The Fund offers two classes of shares ("Classes")
designed to provide investors with the flexibility of selecting an investment
best suited to their needs. These Classes, Class A shares and Class B shares,
differ principally in terms of the sales charges and rates of expense to which
they are subject. See "Variable Pricing System."
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 4.50%. The Fund pays an annual service fee of
.15% of the value of average daily net assets of this Class. See "Purchase of
Shares."
CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 4.50% of redemption
proceeds, declining by .50% after the first year and by 1% each year
thereafter
to zero. The Fund pays an annual service fee of .15% and an annual
distribution
fee of .50% of the value of average daily net assets of this Class. See
"Purchase of Shares."
CLASS B CONVERSION FEATURE_Class B shares will convert automatically to Class
A
shares, based on relative net asset value, eight years after the date of
original purchase. Upon conversion, these shares will no longer be subject to
an
annual distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith
Barney Shearson Inc. ("Smith Barney Shearson"), or a broker that clears
securities transactions through Smith Barney Shearson on a fully disclosed
basis
(an "Introducing Broker"). Smith Barney Shearson recommends that, in most
cases,
single investments of $250,000 or more should be made in Class A. See
"Purchase
of Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
See "Purchase or Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic
Investment
Plan under which they may authorize the automatic placement of a purchase
order
each month or quarter for Fund shares in an amount not less than $100. See
"Purchase of Shares."
4
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A shares are redeemable at
net asset value and Class B shares are redeemable at net asset value less any
applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND Greenwich Street Advisors, a division of Mutual
Management Corp. ("Greenwich Street Advisors"), serves as the Fund's
investment
adviser. Mutual Management Corp. provides investment advisory and management
services to investment companies affiliated with Smith Barney Shearson. Mutual
Management Corp. is controlled by Smith Barney Shearson Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc.,
formerly known as Primerica Corporation, ("Travelers"), a diversified
financial
services holding company engaged in the businesses of providing investment,
consumer finance and insurance services.
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), which in turn is a wholly owned subsidiary of Mellon
Bank
Corporation ("Mellon"). See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
class of certain other funds in the Smith Barney Shearson Group of Funds and
certain money market funds. Certain exchanges may be subject to a sales charge
differential. See "Exchange Privilege."
VALUATION OF SHARES The net asset value of each Class is quoted daily in the
financial section of most newspapers and is also available from your Smith
Barney Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are declared
daily and paid on the last business day of the Smith Barney Shearson statement
month. Distributions of net realized long-and short-term capital gains, if
any,
are declared and paid annually after the end of the fiscal year in which they
have been earned. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a
Class
will be reinvested automatically unless otherwise specified by an investor in
additional shares of the same Class at current net asset value. Shares
acquired
by dividend and distribution reinvestments will not be
5
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
subject to any sales charge or CDSC. Class B shares acquired through dividend
and distribution reinvestments will become eligible for conversion to Class A
shares on a pro-rata basis. See "Dividends, Distributions and Taxes" and
"Variable Pricing System."
RISK FACTORS AND SPECIAL CONSIDERATIONS
There can be no assurance that the Fund will achieve its investment
objective.
Assets of the Fund may be invested in the municipal securities of both
Massachusetts and non-Massachusetts municipal issuers. Dividends derived from
interest on obligations of non-Massachusetts municipal issuers, as a general
rule, will be exempt from Federal income taxes, but may be subject to
Massachusetts state personal income taxes. Dividends derived from certain
municipal securities (including Massachusetts Municipal Securities), however,
may be a specific tax preference item for Federal alternative minimum tax
purposes. The Fund may invest without limit in securities subject to the
Federal
alternative minimum tax. See "Investment Objective and Management Policies"
and
"Dividends, Distributions and Taxes."
The Fund is more susceptible to factors adversely affecting issuers of
Massachusetts municipal securities than is a municipal bond fund that does not
emphasize these issuers. See "Massachusetts Municipal Securities" in the
Prospectus and "Special Considerations Relating to Massachusetts Municipal
Securities" in the Statement of Additional Information for further details
about
the risks of investing in Massachusetts obligations.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), which means that
the Fund is not limited by the 1940 Act in the proportion of its assets that
it
may invest in the obligations of a single issuer. The Fund's assumption of
large
positions in the obligations of a small number of issuers may cause the 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. See "Investment Objective and Management Policies."
The Fund generally will invest at least 75% of its assets in securities
rated
investment grade, and may invest the remainder of its assets in securities
rated
as low as C by Moody's Investors Service, Inc. ("Moody's") or D by Standard &
Poor's Corporation ("S&P"), or in unrated obligations of
6
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
comparable quality. Securities in the fourth highest rating category, though
considered to be investment grade, have speculative characteristics.
Securities
rated as low as D are extremely speculative and are in actual default of
interest and/or principal payments.
There are several risks in connection with the use of when-issued
securities,
municipal bond index and interest rate futures contracts and put and call
options thereon as hedging devices, and municipal leases. See "Investment
Objective and Management Policies--Certain Portfolio Strategies."
THE FUND'S EXPENSES
The following expense table lists the costs and expenses an investor will
incur either directly or indirectly as a shareholder of the Fund, based on the
maximum sales charge or maximum CDSC that may be incurred at the time of
purchase or redemption of the Fund's current operating expenses.
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
---------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% --
Maximum CDSC (as a percentage of redemption
proceeds) -- 4.50%
---------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees (net of fee waivers) .19% .19%
12b-1 fees* .15 .65
Other expenses** .48 .47
---------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES .82% 1.31%
---------------------------------------------------------------------------
<FN>
*Upon conversion, Class B shares will no longer be subject to a
distribution fee.
**All expenses are based on data for the Fund's fiscal year ended November
30, 1993.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges
imposed on purchases or redemptions of Fund shares and investors may pay
actual
charges of less than 4.50% depending on the amount purchased and, in the case
of
Class B shares, the length of time the shares
7
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
are held. See "Purchase of Shares" and "Redemption of Shares." Management fees
paid by the Fund include investment advisory fees payable to Greenwich Street
Advisors at the following annual rates: .35% of the value of the Fund's
average
daily net assets up to $500 million and .32% of the value of its average daily
net assets in excess of $500 million, and administration fees payable to
Boston
Advisors at the following annual rates: .20% of the value of the Fund's
average
daily net assets up to $500 million and .18% of the value of its average daily
net assets in excess of $500 million. The nature of the services for which the
Fund pays management fees is described under "Management of the Fund." Smith
Barney Shearson receives an annual 12b-1 service fee of .15% of the value of
average daily net assets of Class A shares. Smith Barney Shearson also
receives
with respect to Class B shares an annual 12b-1 fee of .65% of the value of
average daily net assets of those shares, consisting of a .50% distribution
fee
and a .15% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing
costs
and registration fees.
Greenwich Street Advisors and Boston Advisors have voluntarily waived
investment advisory and administration fees in the aggregate amount equal to
.36% of the Fund's average daily net assets. This has the effect of lowering
the
Fund's overall expense ratio and increasing the returns otherwise available to
investors. If Greenwich Street Advisors and Boston Advisors had not elected to
voluntarily waive fees and reimburse expenses, the Fund's total operating
expenses for the 1993 fiscal year, as a percentage of average daily net
assets,
would have been 1.18% for Class A shares and 1.68% for Class B shares.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to
a hypothetical $1,000 investment in the Fund assuming a 5% total return. THE
EXAMPLE ASSUMES PAYMENT BY THE FUND OF OPERATING EXPENSES AT THE LEVELS SET
FORTH IN THE ABOVE TABLE. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION
OF PAST OR FUTURE EXPENSES AND ACTUAL
8
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE
ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY
RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10
YEARS*
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------
- ---
Class A shares** $53 $70 $89
$142
Class B shares:
Assumes complete redemption at end
of each time period*** $58 $72 $82
$144
Assumes no redemption $13 $42 $72
$144
-----------------------------------------------------------------------------
- ---
<FN>
*Ten-year figures assume conversion of Class B shares into Class A shares
at
the end of the eighth year following the date of purchase.
**Assumes deduction at the time of purchase of the maximum 4.50% sales
charge.
***Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
</TABLE>
9
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS & LYBRAND, INDEPENDENT
ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE FUND'S ANNUAL REPORT DATED
NOVEMBER 30, 1993. THIS INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES THAT ALSO APPEAR IN THE FUND'S ANNUAL
REPORT, WHICH IS INCORPORATED BY REFERENCE INTO THE STATEMENT OF ADDITIONAL
INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR
ENDED
11/30/93#
<S> <C>
Net Asset Value, beginning of year $ 12.63
- ----------------------------------------------------------------------
Income from investment operations:
Net investment income*** 0.72
Net realized and unrealized gain/(loss) on investments 0.72
Total from investment operations 1.44
Less Distributions:
Dividends from net investment income (0.73)
Distributions in excess of net investment income (0.01)
Distributions from net realized capital gains (0.07)
Distributions from capital --
- ----------------------------------------------------------------------
Total Distributions (0.81)
- ----------------------------------------------------------------------
Net Asset Value, end of year $ 13.26
- ----------------------------------------------------------------------
Total return+ 11.74%
- ----------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $32,592
Ratio of operating expenses to average net assets** 0.82%
Ratio of net investment income to average net assets 5.49%
Portfolio turnover rate 10%
- ----------------------------------------------------------------------
<FN>
*The Fund commenced operations on December 21, 1987. Any shares
outstanding prior to November 6, 1992 were designated as Class A
shares.
**Expense ratios before voluntary waiver of fees and/or reimbursement
of expenses by investment adviser and/ or administrator for the
fiscal years ended November 30, 1993, 1992, 1991, 1990, 1989 and
the fiscal period ended November 30, 1988 were 1.18%, 1.32%, 1.28%,
1.09%, 1.72% and 2.00%, respectively.
***Net investment income before waiver of fees and reimbursement of
expenses by investment adviser and/or administrator for the fiscal
years ended November 30, 1993, 1992, 1991, 1990, 1989 and the
fiscal period ended November 30, 1988 was $0.67, $0.69, $0.77,
$0.80, $0.74, and $0.66.
+Total return represents aggregate total return for the periods
indicated and does not reflect any applicable sales charge.
++Annualized.
#Per share amounts have been calculated using the monthly average
shares method, which more appropriately presents the per share data
as the undistributed method does not accord with results of
operations for this period.
</TABLE>
10
<PAGE>
- ---------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
11/30/92 11/30/91 11/30/90 11/30/89 11/30/88*
<S> <C> <C> <C> <C>
$ 12.28 $ 11.81 $ 12.11 $ 11.88 $ 11.40
------------------------------------------------
0.77 0.84 0.84 0.88 0.82
0.43 0.48 (0.27) 0.21 0.54
1.20 1.32 0.57 1.09 1.36
(0.77) (0.84) (0.85) (0.86) (0.82)
(0.04) -- (0.02) -- (0.06)
(0.04) (0.01) -- -- --
------------------------------------------------
(0.85) (0.85) (0.87) (0.86) (0.88)
------------------------------------------------
$ 12.63 $ 12.28 $ 11.81 $ 12.11 $ 11.88
------------------------------------------------
10.06% 11.57% 4.93% 9.43% 12.25%
------------------------------------------------
$27,354 $19,621 $18,036 $20,375 $14,548
0.71% 0.66% 0.74% 0.58% 0.67%++
6.12% 6.89% 7.00% 7.24% 7.00%++
73% 87% 51% 28% 128%
------------------------------------------------
</TABLE>
11
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
11/30/93# 11/30/92*
<S> <C> <C>
Net Asset Value, beginning of year $ 12.63 $12.52
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income*** 0.66 0.06
Net realized and unrealized gain on investments 0.72 0.10
Total from investment operations 1.38 0.16
Less Distributions:
Dividends from net investment income (0.67) (0.05)
Distributions in excess of net investment income (0.01)
Distributions from net realized capital gains (0.07) --
- -----------------------------------------------------------------------------
Total Distributions (0.75) (0.05)
- -----------------------------------------------------------------------------
Net Asset Value, end of year $ 13.26 $12.63
- -----------------------------------------------------------------------------
Total return+ 11.09% 1.29%
- -----------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $22,317 $2,938
Ratio of operating expenses to average net
assets** 1.31% 1.34%++
Ratio of net investment income to average net
assets 4.99% 5.49%++
Portfolio turnover rate 10% 73%
- -----------------------------------------------------------------------------
<FN>
*The Fund commenced selling Class B shares on November 6, 1992.
**Expense ratios before voluntary waiver of fees and/or reimbursement of
expenses by investment adviser and administrator for the fiscal year ended
November 30, 1993, and the fiscal period ended November 30, 1992 were
1.68% and 1.94%, respectively.
***Net investment income before voluntary waiver of fees and/or reimbursement
of expenses by investment adviser and administrator for the fiscal year
ended November 30, 1993, and the fiscal period ended November 30, 1992 was
$0.61 and $0.05, respectively.
+Total return represents aggregate total return for the periods indicated
and does not reflect any applicable CDSC.
++Annualized.
#Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data as the
undistributed method does not accord with results of operations for this
period.
</TABLE>
12
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
VARIABLE PRICING SYSTEM
The Fund offers individual investors two methods of purchasing shares, thus
enabling investors to choose the Class that best suits their needs, given the
amount of purchase and intended length of investment.
CLASS A SHARES. Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 4.50% imposed at the time of purchase. The
initial sales charge may be reduced or waived for certain purchases. Class A
shares are subject to an annual service fee of .15% of the value of the Fund's
average daily net assets attributable to the Class. The annual service fee is
used by Smith Barney Shearson to compensate its Financial Consultants for
ongoing services provided to shareholders. The sales charge is used to
compensate Smith Barney Shearson for expenses incurred in selling Class A
shares. See "Purchase of Shares."
CLASS B SHARES. Class B shares are sold at net asset value per share subject
to a maximum 4.50% CDSC, which is assessed only if the shareholder redeems
shares within the first five years of investment. This results in 100% of the
investor's assets being used to acquire shares of the Fund. After the first
year
from the purchase of a share, the CDSC declines to 4.00%; for each year of
investment thereafter within this five-year time frame, the applicable CDSC
declines by 1%; in year six, the applicable CDSC is reduced to 0%. See
"Purchase
of Shares" and "Redemption of Shares."
Class B shares are subject to an annual service fee of .15% and an annual
distribution fee of .50% of the value of the Fund's average daily net assets
attributable to the Class. Like the service fee applicable to Class A shares,
the Class B service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses
such
as sales commissions, Smith Barney Shearson's branch office overhead expenses
and marketing costs associated with Class B shares, such as preparation of
sales
literature, advertising and printing and distributing prospectuses, statements
of additional information and other materials to prospective investors in
Class
B shares. A Financial Consultant may receive different levels of compensation
for selling different Classes.
13
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SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
VARIABLE PRICING SYSTEM (CONTINUED)
Class B shares are subject to a distribution fee and a higher transfer agency
fee than Class A shares which, in turn, will cause Class B shares to have a
higher expense ratio and pay lower dividends than Class A shares.
Eight years after the date of purchase, Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
shares of each Class, and will no longer be subject to a distribution fee. In
addition, a certain portion of Class B shares that have been acquired through
the reinvestment of dividends and distributions ("Class B Dividend Shares")
will
be converted at that time. That portion will be a percentage of the total
number
of Class B Dividend Shares owned by the shareholder equal to the ratio of the
total number of Class B shares converting at the time to the total number of
Class B shares (other than Class B Dividend Shares) owned by the shareholder.
Class B shares will first be convertible into Class A shares on or about
September 30, 1994. The conversion of Class B shares into Class A shares is
subject to the continuing availability of an opinion of counsel to the effect
that such conversions will not constitute taxable events for Federal tax
purposes.
- --------------------------------------------------------------------
THE FUND'S PERFORMANCE
YIELD
From time to time, the Fund advertises the 30-day "yield" and "equivalent
taxable yield" of each Class. The yield of a Class refers to the income
generated by an investment in those shares over the 30-day period identified
in
the advertisement and is computed by dividing the net investment income per
share earned by the Fund during the period by the maximum public offering
price
per share on the last day of the period. This income is "annualized" by
assuming
that the amount of income is generated each month over a one-year period and
is
compounded semi-annually. The annualized income is then shown as a percentage
of
the net asset value.
The Fund's equivalent taxable yield demonstrates the yield on a taxable
investment necessary to produce an after-tax yield equal to the Fund's tax-
exempt yield for each Class. It is calculated by increasing the yield shown
for
the Class to the extent necessary to reflect the payment of taxes at
14
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SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
specified tax rates. Thus, the equivalent taxable yield always will exceed the
Fund's yield. For more information on equivalent taxable yields, please refer
to
the table under "Dividends, Distributions and Taxes."
TOTAL RETURN
From time to time, the Fund may advertise the "average annual total return"
over various periods of time for each Class. Total return figures show the
average percentage change in value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period.
These
figures reflect changes in the price of the Fund's shares and assume that any
income dividends and/or capital gains distributions made by the Fund during
the
period were reinvested in shares of the same Class. Class A total return
figures
include the maximum initial 4.50% sales charge and Class B total return
figures
include any applicable CDSC. These figures also take into account the service
and distribution fees, if any, payable with respect to the Classes.
Figures will be given for the recent one-, five-and ten-year periods, or for
the life of a Class to the extent it has not been in existence for any such
period, and may be given for other periods as well, such as on a year-by-year
basis. When considering average annual total return figures for periods longer
than one year, it is important to note that a Class' average annual total
return
for any one year in the period might have been greater or less than the
average
for the entire period. "Aggregate total return" figures may be used for
various
periods, representing the cumulative change in the value of an investment in a
Class for the specific period (again reflecting changes in share prices and
assuming reinvestment of dividends and distributions). Aggregate total return
may be calculated either with or without the effect of the maximum 4.50% sales
charge for the Class A shares or any applicable CDSC for Class B shares and
may
be shown by means of schedules, charts or graphs, and may indicate subtotals
of
the various components of total return (that is, changes in value of initial
investment, income dividends and capital gains distributions). Because of the
differences in sales charges and distribution fees, the performance of each of
the Classes will differ.
In reports or other communications to shareholders or in advertising
material,
performance of the Classes may be compared with that of other mutual funds or
classes of shares of other funds as listed in the rankings
15
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
prepared by Lipper Analytical Services, Inc. or similar independent services
that monitor the performance of mutual funds or other industry or financial
publications such as BARRON'S, BUSINESS WEEK, CDA, INVESTMENT TECHNOLOGIES,
INC., FORBES, FORTUNE, INSTITUTIONAL INVESTOR, INVESTORS DAILY, KIPLINGER'S
PERSONAL FINANCE, MONEY, MORNINGSTAR MUTUAL FUND VALUES, THE NEW YORK TIMES,
USA
TODAY and THE WALL STREET JOURNAL. It is important to note that yield and
total
return performance figures are based on historical earnings and are not
intended
to indicate future performance. To the extent that any advertisement or sales
literature of the Fund describes the expenses or performance of a Class, it
will
also disclose such information for the other Class. The Statement of
Additional
Information further describes the methods used to determine performance.
Performance figures may be obtained from your Smith Barney Shearson Financial
Consultant.
- --------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Trustees. The Trustees approve all significant agreements
between the Fund and the companies that furnish services to the Fund,
including
agreements with the Fund's distributor, investment adviser, administrator,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to Greenwich Street Advisors and Boston Advisors. The Statement of
Additional Information contains general background information regarding each
Trustee and executive officer of the Fund.
INVESTMENT ADVISER--GREENWICH STREET ADVISORS
Greenwich Street Advisors, located at Two World Trade Center, New York, New
York 10048, serves as the Fund's investment adviser. Greenwich Street Advisors
(through its predecessors) has been in the investment counseling business
since
1934 and is a division of Mutual Management Corp. which was incorporated in
1978. Greenwich Street Advisors renders investment advice to investment
companies that had aggregate assets under management as of December 31, 1993
in
excess of $42 billion.
16
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SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
Subject to the supervision and direction of the Fund's Board of Trustees,
Greenwich Street Advisors manages the Fund's portfolio in accordance with the
Fund's investment objective and policies, makes investment decisions for the
Fund, places orders to purchase and sell securities and employs professional
portfolio managers, and securities analysts who provide research services to
the
Fund. For the fiscal year ended November 30, 1993, Greenwich Street Advisors
was
paid investment advisory fees equal to .12% of the value of the average daily
net assets of the Fund and waived an amount equal to .23% of the value of the
average daily net assets of the Fund.
PORTFOLIO MANAGEMENT
Lawrence T. McDermott, Managing Director of Greenwich Street Advisors, has
served as Vice President and Investment Officer of the Fund since December 21,
1987 and manages the day-to-day operations of the Fund, including making all
investment decisions.
Mr. McDermott's management discussion and analysis, and additional
performance
information regarding the Fund during the fiscal year ended November 30, 1993
is
included in the Annual Report dated November 30, 1993. A copy of the Annual
Report may be obtained upon request without charge from your Smith Barney
Shearson Financial Consultant or by writing or calling the Fund at the address
or phone number listed on page one of this Prospectus.
ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's administrator. Boston Advisors is a wholly owned
subsidiary
of TBC, a financial services holding company, which is in turn a wholly owned
subsidiary of Mellon. Boston Advisors provides investment management,
investment
advisory and/or administrative services to investment companies that had
aggregate assets under management as of December 31, 1993, in excess of $86
billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists in all aspects of the Fund's administration and operation.
For
the fiscal year ended November 30, 1993, Boston Advisors was paid
17
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
administration fees in an amount equal to .07% of the value of the average
daily
net assets of the Fund and waived an amount equal to .13% of the value of the
average daily net assets of the Fund.
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The investment objective of the Fund is to provide Massachusetts investors
with as high a level of dividend income exempt from Federal and Massachusetts
personal income taxes as is consistent with prudent investment management and
the preservation of capital. This investment objective may not be changed
without the approval of the holders of a majority of the Fund's outstanding
shares. There can be no assurance that the Fund's investment objective will be
achieved.
The Fund will operate subject to an investment policy providing that, under
normal market conditions, the Fund will invest at least 80% of its net assets
in
Massachusetts Municipal Securities. The Fund may invest up to 20% of its net
assets in municipal securities of non-Massachusetts municipal issuers, the
interest on which is excluded from gross income for Federal income tax
purposes
(not including the possible applicability of a Federal alternative minimum
tax),
but which is subject to Massachusetts personal income taxes. When Greenwich
Street Advisors believes that market conditions warrant adoption of a
temporary
defensive posture, the Fund may invest without limit in non-Massachusetts
municipal issues and in "Temporary Investments" as described below.
The Fund generally will invest at least 75% of its total assets in
investment-grade debt obligations rated no lower than Baa, MIG 3 or Prime-1 by
Moody's or BBB, SP-2 or A-1 by S&P, or in unrated obligations of comparable
quality. Unrated securities will be considered to be of investment grade if
deemed by Greenwich Street Advisors to be comparable in quality to instruments
so rated, or if other outstanding obligations of the issuers of the unrated
securities are rated Baa or better by Moody's or BBB or better by S&P. The
balance of the Fund's assets may be invested in securities as low as C by
Moody's or D by S&P, or comparable unrated securities. Securities in the
fourth
highest rating category, though considered
18
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
to be investment grade, have speculative characteristics. Securities rated as
low as D are extremely speculative and are in actual default of interest
and/or principal payments.
The Fund's average weighted maturity will vary from time to time based on
the
judgment of Greenwich Street Advisors. The Fund intends to focus on
intermediate-and long-term obligations, that is, obligations with remaining
maturities at the time of purchase of between three and twenty years.
Obligations which are rated Baa by Moody's or BBB by S&P and those which are
rated lower than investment-grade are subject to greater market fluctuation
and
more uncertainty as to payment of principal and interest, and therefore
generate
higher yields than obligations rated above Baa or BBB. A description of the
rating systems of Moody's and S&P is contained in the Statement of Additional
Information.
Because many issuers of Massachusetts Municipal Securities may choose not to
have their obligations rated, it is possible that a large portion of the
Fund's
portfolio may consist of unrated obligations. Unrated obligations are not
necessarily of lower quality than rated obligations, but to the extent the
Fund
invests in unrated obligations, the Fund will be more reliant on Greenwich
Street Advisors' judgment, analysis and experience than would be the case if
the
Fund invested only in rated obligations.
As used in this prospectus, the term "Massachusetts Municipal Leases"
generally refers to participants in intermediate-and short-term debt
obligations
issued by Massachusetts municipalities consisting of leases or installment
purchase contracts for property or equipment. The interest on such obligations
is, in the opinion of counsel to the issuers, excluded from gross income for
Federal income tax purposes and exempt from Massachusetts personal income
taxes.
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
19
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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, Greenwich Street
Advisors 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.
The Fund may invest without limit in private activity bonds. Interest income
on certain types of private activity bonds issued after August 7, 1986 to
finance non-governmental activities is a specific tax preference item for
purposes of the Federal individual and corporate alternative minimum taxes.
Individual and corporate shareholders may be subject to a Federal alternative
minimum tax to the extent the Fund's dividends are derived from interest on
those bonds. Dividends derived from interest income on Massachusetts Municipal
Securities are a component of the "current earnings" adjustment item for
purposes of the Federal corporate alternative minimum tax.
The Fund is classified as a non-diversified investment company under the
1940
Act, which means that the Fund is not limited by the 1940 Act in the
proportion
of its assets that it may invest in the obligations of a single issuer. The
Fund
intends to conduct its operations, however, so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"), which will relieve the Fund of any liability for Federal
income tax to the extent its earnings are distributed to shareholders. To so
qualify, among other requirements, the Fund will limit its investments so
that,
at the close of each quarter of the taxable year, (a) not more than 25% of the
market value of the Fund's total assets will be invested in the securities of
a
single issuer and (b) with respect to 50% of
20
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 Fund's assumption of large positions in the obligations of a small
number of issuers may cause the 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.
The Fund may invest without limit in debt obligations that are repayable out
of revenue streams generated from economically-related projects or facilities.
Sizeable investments in such obligations could involve an increased risk to
the
Fund should any of the related projects or facilities experience financial
difficulties. In addition, the Fund may invest up to an aggregate of 15% of
its
total assets in securities with contractual or other restrictions on resale
and
other instruments which are not readily marketable and up to 5% of its assets
in
the securities of issuers which have been in continuous operation for less
than
three years. Notwithstanding the foregoing, the Fund shall not invest more
than
10% of its assets in securities (excluding those subject to Rule 144A under
the
Securities Act of 1933, as amended) that are restricted. The Fund also is
authorized to borrow an amount of up to 10% of its total assets (including the
amount borrowed) valued at market less liabilities (not including the amount
borrowed) in order to meet anticipated redemptions and to pledge its assets to
the same extent in connection with the borrowings.
Further information about the Fund's investment policies, including a list
of
those restrictions on the Fund's investment activities that cannot be changed
without shareholder approval, appears in the Statement of Additional
Information.
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may employ,
among
others, the following portfolio strategies:
WHEN-ISSUED SECURITIES. New issues of Massachusetts Municipal Securities
(and
other tax-exempt obligations) are frequently offered on a when-issued basis,
which means that delivery and payment for such securities normally take place
15
to 45 days after the date of the commitment to purchase. The
21
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
payment obligation and the interest rate that will be received on when-issued
securities are fixed at the time the buyer enters into the commitment.
Massachusetts Municipal Securities, like other investments made by the Fund,
may
decline or appreciate in value before their actual delivery to the Fund. Due
to
the fluctuations in the value of securities purchased and sold on a when-
issued
basis, the yields obtained on these securities may be higher or lower than the
yields available in the market on the date when the investments actually are
delivered to the buyers. The Fund will not accrue income with respect to a
when-issued security prior to its stated delivery date. The Fund will
establish
a segregated account with the Fund's custodian consisting of cash, obligations
issued or guaranteed by the United States government or its agencies or
instrumentalities ("U.S. government securities") or other high grade debt
obligations in an amount equal to the amount of the purchase price of the
when-issued securities. Placing securities rather than cash in the segregated
account may have a leveraging effect on the Fund's net assets. The Fund
generally will make commitments to purchase Massachusetts Municipal Securities
(and other tax-exempt obligations) on a when-issued basis only with the
intention of actually acquiring the securities, but the Fund may sell these
securities before the delivery date if it is deemed advisable.
TEMPORARY INVESTMENTS. Under normal market conditions, the Fund may hold up
to
20% of its total assets in cash or money market instruments, including taxable
money market instruments ("Temporary Investments"). In addition, when Smith
Barney Shearson believes that market conditions warrant, including when
acceptable Massachusetts Municipal Securities are unavailable, the Fund may
take
a temporary defensive posture and invest without limitation in Temporary
Investments. Tax-exempt securities eligible for short-term investment by the
Fund are municipal notes rated at the time of purchase within the three
highest
grades by Moody's or S&P or, if not rated, issued by issuers with outstanding
debt securities rated within the three highest grades by Moody's or S&P. The
Fund may also invest in certain taxable short-term instruments having quality
characteristics comparable to those for tax-exempt investments. To the extent
the Fund holds Temporary Investments, it may not achieve its investment
objective.
MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON
MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS. The Fund may enter
into municipal bond index and interest rate futures contracts and
22
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
purchase and sell options on these futures contracts that are traded on a
United
States exchange or board of trade. Such investments, if any, by the Fund will
be
made solely for the purpose of hedging against changes in the value of its
portfolio securities and in the value of securities it intends to purchase due
to anticipated changes in interest rates and market conditions and when the
transactions are economically appropriate to the reduction of risks inherent
in
the management of the Fund.
A municipal bond index futures contract, which is based on an index of
long-term, tax-exempt municipal bonds, is an agreement in which two parties
agree to take or make delivery of an amount of cash equal to a specific dollar
amount times the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index contract was
originally written. Interest rate futures contracts are contracts for the
future
purchase or sale of specified interest rate sensitive debt securities such as
United States Treasury bills, bonds and notes, obligations of the Government
National Mortgage Association and bank certificates of deposit. Although most
interest rate futures contracts require the delivery of the underlying
securities, some settle in cash. Each contract designates the price, date,
time
and place of delivery. Entering into a futures contract to deliver the index
or
instrument underlying the contract is referred to as entering into a "short"
position in the futures contract, whereas entering into a futures contract to
take delivery of the index or instrument is referred to as entering into a
"long" position in the futures contract.
A put or call option on a municipal bond index or interest rate futures
contract gives the purchaser the right, in return for the premium paid, to
assume a short or long position, respectively, in the underlying futures
contract at a specified exercise price at any time prior to the expiration
date
of the option. The Fund may purchase put and call options on both municipal
bond
index and interest rate futures contracts. The Fund will sell options on these
futures contracts only as part of closing purchase transactions to terminate
its
options positions, although no assurance can be given that closing
transactions
can be effected.
Entering into a futures contract for a purchase or sale of a municipal bond
index or debt security or purchasing options on index or interest rate futures
contracts will enable the Fund to protect its assets from fluctuations
23
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
in interest rates on tax-exempt securities without initially buying or selling
the securities. The Fund may enter into futures contracts to sell an index or
debt security or may purchase put options when Greenwich Street Advisors
believes that interest rates will increase and consequently the value of the
Fund's portfolio securities will decrease. The Fund may enter into futures
contracts to buy an index or debt security or may purchase call options when
Greenwich Street Advisors anticipates purchasing portfolio securities at a
time
of declining interest rates.
There are several risks in connection with the use of municipal bond index
and
interest rate futures contracts and options on those futures contracts as
hedging devices. There can be no assurance that there will be a correlation
between price movements in the municipal bond index or interest rate futures,
on
the one hand, and price movements in municipal bonds which are the subject of
the hedge, on the other hand. The lack of correlation could be pronounced with
respect to municipal bond index futures contracts because the Fund primarily
will hold Massachusetts Municipal Securities rather than a selection of the
bonds constituting an index. Positions in futures contracts and options on
futures contracts may be closed out only by entering into offsetting positions
on the exchange on which the contract was initiated, and no assurance can be
given that an active market will exist for the contract or the option at any
particular time. Consequently, the Fund may realize a loss on a futures
contract
that is not offset by an increase in the price of the municipal bonds that are
being hedged or may not be able to close a futures position in the event of
adverse price movements. Any income earned by the Fund from transactions in
futures contracts and options on futures contracts will be taxable.
Accordingly,
it is anticipated that such investments will be made only in unusual
circumstances, such as when Greenwich Street Advisors anticipates an extreme
change in interest rates or market conditions.
The Fund will not enter into any futures contracts or options on futures
contracts if immediately thereafter, the aggregate initial margin deposits on
all of the Fund's existing futures contracts and premiums paid for unexpired
options on futures contracts, to establish such positions that are not bona
fide
hedging positions (as defined by the Commodities Futures Trading Commission),
would exceed 5% of the market value of the Fund's total assets, after taking
into account unrealized profits and losses on any existing contracts. When the
Fund enters into futures contracts to purchase an index
24
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
or debt security or purchases call options, an amount of cash, U.S. government
securities or other high grade debt securities equal to the market value of
the
contract will be deposited and maintained in a segregated account with the
Fund's custodian to collateralize the positions, thereby insuring that the use
of the contract is unleveraged.
- --------------------------------------------------------------------
MASSACHUSETTS MUNICIPAL SECURITIES
As used in this Prospectus, the term "Massachusetts Municipal Securities"
generally refers to intermediate-and long-term debt obligations issued by the
Commonwealth of Massachusetts and its political subdivisions, agencies and
public authorities (together with certain other governmental issuers such as
Puerto Rico, the Virgin Islands and Guam) to obtain funds for various public
purposes. The interest on such obligations is, in the opinion of bond counsel
to
the issuers, excluded from gross income for Federal income tax purposes and
exempt from Massachusetts personal income taxes and, for that reason,
generally
is fixed at a lower rate than it would be if it were subject to such taxes.
Interest income on certain Massachusetts Municipal Securities is a specific
tax
preference item for purposes of the Federal individual and corporate
alternative
minimum taxes.
CLASSIFICATIONS
The two principal classifications of Massachusetts Municipal Securities are
"general obligation bonds" and "revenue bonds." General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds are payable from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source, but not from the general taxing power. Sizeable investments in such
obligations could involve an increased risk to the Fund should any of such
related facilities experience financial difficulties. In addition, certain
types
of private activity bonds issued by or on behalf of public authorities to
obtain
funds for privately operated facilities are included in the term Massachusetts
Municipal Securities, provided that the interest paid on the bonds qualifies
as
excluded from gross income for Federal income tax
25
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MASSACHUSETTS MUNICIPAL SECURITIES (CONTINUED)
purposes and as exempt from Massachusetts personal income taxes. Tax-exempt
private activity bonds do not generally carry the pledge of the credit of the
issuing municipality.
SPECIAL CONSIDERATIONS
Municipal leases, like other municipal debt obligations, are subject to the
risk of non-payment. The ability of issuers of municipal leases to make timely
lease payments may be adversely impacted in general economic downturns and as
relative governmental cost burdens are allocated and reallocated among
Federal,
state and local governmental units. Such non-payment would result in a
reduction
of income to the Fund, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the net
asset value of the Fund. Issuers of municipal securities might seek protection
under the bankruptcy laws. In the event of bankruptcy of such an issuer, the
Fund could experience delays and limitations with respect to the collection of
principal and interest on such municipal leases and the Fund may not, in all
circumstances, be able to collect all principal and interest to which it is
entitled. To enforce its rights in the event of a default in lease payments,
the
Fund may take possession of and manage the assets securing the issuer's
obligations on such securities, which may increase the Fund's operating
expenses
and adversely affect the net asset value of the Fund. Any income derived from
the Fund's ownership or operation of such assets may not be tax-exempt. In
addition, the Fund's intention to qualify as a "regulated investment company"
under the Code may limit the extent to which the Fund may exercise its rights
by
taking possession of such assets, because as a regulated investment company
the
Fund is subject to certain limitations on its investments and on the nature of
its income.
Because it invests primarily in Massachusetts Municipal Securities, the Fund
may be affected by any political, economic, regulatory, legal or other
developments that constrain the taxing, spending and revenue collection
authority of issuers of Massachusetts Municipal Securities or otherwise affect
the ability of such issuers to pay interest or repay principal or any premium.
Several statutes limit the taxing authority of certain Massachusetts
governmental entities and may impair the ability of some issuers of
Massachusetts Municipal Securities to maintain debt service on their
obligations. It should be noted that the Commonwealth has experienced fiscal
difficulties,
26
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MASSACHUSETTS MUNICIPAL SECURITIES (CONTINUED)
including an operating deficit in each of the fiscal years ended June 30, 1989
through 1991, resulting from lower-than-expected tax revenues in the face of
growing expenditures for state programs and services. Budgeted operating funds
ended fiscal 1992 with an excess of revenues and other sources over
expenditures
and other uses. The Preliminary Financial Report of the Commonwealth relating
to
the fiscal 1993 budget projects an operating deficit which will be offset by
the
use of positive fund balances existing as of the close of fiscal 1992.
Budgeted
revenues and other sources to be collected in fiscal 1994 are currently
estimated by the Executive Office of Administration and Finance to fall short
of
the expenditures authorized by the fiscal 1994 budget.
Massachusetts has experienced a slowdown in certain sectors of the economy,
including high technology, construction, real estate, financial services and
manufacturing. Increased unemployment and a decrease in growth in per capita
personal income have contributed both to decreased tax revenues and to
increased
state expenditures. Any significant imbalance in revenues and expenditures is
likely to affect the bond ratings and credit standing of the public
authorities
and municipalities within Massachusetts, as well as of the Commonwealth
itself.
Any imbalance could adversely affect the market values and marketability of
obligations issued by such entities, and could result in payment defaults on
outstanding obligations. For additional information concerning the
Commonwealth's economic difficulties and other considerations relating to
investments in Massachusetts Municipal Securities, see the Statement of
Additional Information.
- --------------------------------------------------------------------
PURCHASE OF SHARES
Purchases of shares must be made through a brokerage account maintained with
Smith Barney Shearson or with an Introducing Broker. When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A or Class
B
shares. No maintenance fee will be charged in connection with a brokerage
account through which an investor purchases or holds shares. Purchases are
effected at the public offering price next determined after a purchase order
is
received by Smith Barney Shearson or the Introducing Broker (the "trade
date").
Payment for Fund shares generally is due to Smith Barney Shearson or the
Introducing Broker on the
27
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
fifth business day (the "settlement date") after the trade date. Investors who
make payment prior to the settlement date may permit the payment to be held in
their brokerage accounts or may designate a temporary investment (such as a
money market fund in the Smith Barney Shearson Group of Funds) for the payment
until the settlement date. The Fund reserves the right to reject any purchase
order and to suspend the offering of shares for a period of time.
Purchase orders received by Smith Barney Shearson or by an Introducing
Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York
time, on any day the Fund calculates its net asset value, are priced according
to the net asset value determined on that day. Purchase orders received after
the close of regular trading on the NYSE are priced as of the time the net
asset
value is next determined. See "Valuation of Shares."
SYSTEMATIC INVESTMENT PLAN. The Fund offers shareholders a Systematic
Investment Plan, under which shareholders may authorize Smith Barney Shearson
or
an Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid
automatically
from cash held in the shareholder's Smith Barney Shearson brokerage account or
through the automatic redemption of the shareholder's shares of a Smith Barney
Shearson money market fund. For further information regarding the Systematic
Investment Plan, shareholders should contact their Smith Barney Shearson
Financial Consultants.
MINIMUM INVESTMENTS. The minimum initial investment in the Fund is $1,000
and
the minimum subsequent investment is $200, except that the minimum initial and
subsequent investments for the Systematic Investment Plan are both $100. There
are no minimum investment requirements for employees of Travelers and its
subsidiaries, including Smith Barney Shearson. The Fund reserves the right at
any time to vary the initial and subsequent investment minimums. Certificates
for Fund shares are issued upon request to the Fund's transfer agent, The
Shareholder Services Group, Inc. ("TSSG"), a subsidiary of First Data
Corporation.
28
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value
of that Class plus a sales charge, which is imposed in accordance with the
following schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE
AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET
VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------
- ------
Less than $25,000 4.50% 4.71%
$25,000 but under $50,000 4.00% 4.17%
$50,000 but under $100,000 3.50% 3.63%
$100,000 but under $250,000 3.00% 3.09%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 1.50% 1.52%
$1,000,000 or more** 0.00% 0.00%
- ------------------------------------------------------------------------------
- ------
<FN>
*Smith Barney Shearson has adopted guidelines directing its Financial
Consultants
and Introducing Brokers that single investments of $250,000 or more should
be in
Class A shares.
**No sales charge is imposed on purchases of Class A shares of $1 million or
more;
however, a CDSC of .75% is imposed for the first year after purchase. The
CDSC on
Class A shares is payable to Smith Barney Shearson which, with Boston
Advisors,
compensates Smith Barney Shearson Financial Consultants upon the sale of
these
shares. The CDSC will be waived in the same circumstances in which the CDSC
applicable to Class B shares is waived. See "Redemption of Shares--
Contingent
Deferred Sales Charge--Class B Shares--Waiver of CDSC."
</TABLE>
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Fund shares to receive volume discounts. Investors eligible
to receive volume discounts include individuals and their immediate families,
tax-qualified employee benefit plans and trustees or other professional
fiduciaries, including a bank or an investment adviser registered with the SEC
under the 1940 Act purchasing shares for one or more trust estates or
fiduciary
accounts even though more than one beneficiary is involved. The initial sales
charge is reduced to 1% for Smith Barney Shearson Personal Living Trust
program
participants for whom Smith Barney Shearson acts as Trustee. Reduced sales
charges on Class A shares also are available under a combined right of
accumulation, under which an investor may combine the value of Class A shares
already held in the Fund and in any of the funds in the Smith Barney Shearson
Group of Funds listed below (except those sold without a sales charge), along
with the
29
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
value of the Class A shares being purchased, to qualify for a reduced sales
charge. For example, if an investor owns Class A shares of the Fund and other
funds in the Smith Barney Shearson Group of Funds that have an aggregate value
of $22,000, and makes an additional investment in Class A shares of the Fund
of
$4,000, the sales charge applicable to the additional investment would be 4%,
rather than the 4.50% normally charged on a $4,000 purchase. Investors
interested in further information regarding reduced sales charges should
contact
their Smith Barney Shearson Financial Consultants.
Class A shares may be offered without any applicable sales charges to: (a)
employees of Travelers and its subsidiaries, including Smith Barney Shearson
and
employee benefit plans for such employees and their immediate families when
orders on their behalf are placed by such employees; (b) accounts managed by
registered investment advisory subsidiaries of Travelers; (c) directors,
trustees or general partners of any investment company for which Smith Barney
Shearson serves as distributor; (d) any other investment company in connection
with the combination of such company with the Fund by merger, acquisition of
assets or otherwise; (e) shareholders who have redeemed Class A shares in the
Fund (or Class A shares of another fund in the Smith Barney Shearson Group of
Funds that are sold with a maximum sales charge of at least 4.50%) and who
wish
to reinvest their redemption proceeds in the Fund, provided the reinvestment
is
made within 30 days of the redemption; and (f) any client of a newly employed
Smith Barney Shearson Financial Consultant (for a period up to 90 days from
the
commencement of the Financial Consultant's employment with Smith Barney
Shearson), on the condition that the purchase is made with the proceeds of the
redemption of shares of a mutual fund that (i) was sponsored by the Financial
Consultant's prior employer, (ii) was originally sold to the client by the
Financial Consultant and (iii) when purchased, such shares were sold with a
sales charge.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value
of that Class. No initial sales charge is imposed at the time of purchase. A
CDSC is imposed, however, on certain redemptions of Class B shares. See
"Redemption of Shares" which describes the CDSC in greater detail.
30
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
Smith Barney Shearson has adopted guidelines, in view of the relative sales
charges and distribution fees applicable to the Classes, directing Financial
Consultants and Introducing Brokers that all purchases of shares of $250,000
or
more should be for Class A shares. Smith Barney Shearson reserves the right to
vary these guidelines at any time.
- --------------------------------------------------------------------
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day that the Fund calculates its
net asset value. See "Valuation of Shares." Redemption requests received in
proper form prior to the close of regular trading on the NYSE are priced at
the
net asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value
as next determined. 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 TSSG
receives
further instructions from Smith Barney Shearson, or if the shareholder's
account
is not with Smith Barney Shearson, from the shareholder directly.
The Fund normally transmits redemption proceeds for credit to the
shareholder's account at Smith Barney Shearson or to the Introducing Broker at
no charge (other than any applicable CDSC) within seven days after receipt of
a
redemption request. Generally, these funds will not be invested for the
shareholder's benefit without specific instruction and Smith Barney Shearson
will benefit from the use of temporarily uninvested funds. A shareholder who
pays for Fund shares by personal check will be credited with the proceeds of a
redemption of those shares only after the purchase check has been collected,
which may take up to 10 days or more. A shareholder who anticipates the need
for
more immediate access to his or her investment should purchase shares with
Federal Funds, by bank wire or by certified or cashier's check.
31
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
A Fund account that is reduced by a shareholder to a value of $500 or less
may
be subject to redemption by the Fund, but only after the shareholder has been
given at least 30 days in which to increase the account balance to more than
$500.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introducing Broker. A shareholder desiring to redeem Fund shares represented
by
certificates also must present such certificates to Smith Barney Shearson or
the
Introducing Broker endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered. Redemption requests
involving shares represented by certificates will not be deemed received until
the certificates are received by TSSG in proper form.
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request for redemption to:
Smith Barney Shearson Massachusetts Municipals Fund
Class A or B (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to TSSG or your Smith Barney Shearson Financial
Consultant must (a) state the Class and number or dollar amount of shares to
be
redeemed, (b) identify the shareholder's account number and (c) be signed by
each registered owner exactly as the shares are registered. If the shares to
be
redeemed were issued in certificate form, the certificates also must be
endorsed
for transfer (or be accompanied by an endorsed stock power) and must be
submitted to TSSG together with the redemption request. Any signature
appearing
on a redemption request, share certificate or stock power must be guaranteed
by
a domestic bank, savings and loan institution, domestic credit union, member
bank of the Federal Reserve System or member firm of a national securities
exchange. TSSG may require additional supporting documents for redemptions
made
by corporations,
32
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
executors, administrators, trustees or guardians. A redemption request will
not
be deemed to be properly received until TSSG receives all required documents
in
proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares of the Fund with a value of at least $10,000 may
elect to receive periodic cash payments of at least $50 monthly. Any
applicable
CDSC will not be waived on amounts withdrawn by a shareholder that exceed 2%
per
month of the value of the shareholder's shares subject to the CDSC at the time
the withdrawal plan commences. For further information regarding the automatic
cash withdrawal plan, shareholders should contact their Smith Barney Shearson
Financial Consultants.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class
B shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years. No charge is imposed to the extent that the net asset value of the
Class
B shares redeemed does not exceed (a) the current net asset value of Class B
shares purchased through reinvestment of dividends or capital gains
distributions, plus (b) the current net asset value of Class B shares
purchased
more than five years prior to the redemption, plus (c) increases in the net
asset value of the shareholder's Class B shares above the purchase payments
made
during the preceding five years.
In circumstances in which the CDSC is imposed, 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 during a month
will be aggregated and deemed to have
33
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
been made on the last day of the preceding Smith Barney Shearson statement
month. The following table sets forth the rates of the charge for redemptions
of
Class B shares by investors:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT WAS MADE
CDSC
<S> <C>
- ------------------------------------------------------------------------------
- ----
First
4.50%
Second
4.00%
Third
3.00%
Fourth
2.00%
Fifth
1.00%
Sixth
0.00%
Seventh
0.00%
Eighth
0.00%
- ------------------------------------------------------------------------------
- ----
</TABLE>
Class B shares will automatically convert to Class A shares eight years
after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not
already been effected. In the case of redemptions of Class B shares of other
funds in the Smith Barney Shearson Group of Funds issued in exchange for Class
B
shares of the Fund, the term "purchase payments" refers to the purchase
payments
for the shares given in exchange. In the event of an exchange of Class B
shares
of funds with differing CDSC schedules, the shares will be, in all cases,
subject to the higher CDSC schedule. See "Exchange Privilege."
WAIVERS OF CDSC. The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) automatic cash withdrawals in amounts equal to or less than
2%
per month of the value of the shareholder's shares at the time the withdrawal
plan commences (see above); (c) redemptions of shares following the death or
disability of the shareholder; (d) involuntary redemptions; (e) redemption
proceeds from other funds in the Smith Barney Shearson Group of Funds that are
reinvested within 30 days of the
34
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
redemption; and (f) redemptions of shares in connection with a combination of
any investment company with the Fund by merger, acquisition of assets or
otherwise.
- --------------------------------------------------------------------
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday,
Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of a Class is determined as of the close of
regular trading on the NYSE and is computed by dividing the value of the
Fund's
net assets attributable to that Class by the total number of shares of that
Class outstanding. Generally, the Fund's investments are valued at market
value
or, in the absence of a market value with respect to any securities, at fair
value as determined by or under the direction of the Fund's Board of Trustees.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Fund's Board of Trustees determines that amortized cost
reflects fair market value of those investments. Amortized cost involves
valuing
an instrument at its original cost to the Fund 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.
Further information regarding the Fund's valuation policies is contained in
the
Statement of Additional Information.
35
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same class in the
following funds in the Smith Barney Shearson Group of Funds as indicated, to
the
extent shares are offered for sale in the shareholder's state of residence:
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
---------------------------------------------------------------------------
MUNICIPAL BOND FUNDS
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND, an
intermediate-term municipal bond fund investing in
investment-grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an
intermediate
and long-term municipal bond fund investing in medium-and
lower-rated securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
Arizona investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for California investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an
intermediate- and long-term municipal bond fund designed for
Florida investors.
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New Jersey investors.
</TABLE>
36
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK
MUNICIPALS FUND, an intermediate-term municipal bond fund
designed for New York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
New York investors.
INCOME FUNDS
A, B SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME
FUND,
seeks high current income while limiting the degree of
fluctuation in net asset value resulting from movement in
interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND, invests
in
a portfolio of high quality debt securities that may be
denominated in U.S. dollars or selected foreign currencies
and
that have remaining maturities of not more than one year.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests
in
high quality, short-term debt securities denominated in U.S.
dollars as well as a range of foreign currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND,
invests
exclusively in securities issued by the United States
Treasury
and other U.S. government securities.
A, B SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND,
seeks
high current income primarily by allocating and reallocating
its assets among various types of fixed-income securities.
A, B SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC., invests
in obligations issued or guaranteed by the U.S. government
and
its agencies and instrumentalities with emphasis on
mortgage-backed government securities.
</TABLE>
37
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A, B SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a
high
current return by investing in U.S. government securities.
A, B SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks
maximum current income consistent with prudent investment
management and preservation of capital by investing in
corporate bonds.
A, B SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current
income by investing in high-yielding corporate bonds,
debentures and notes.
A, B SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current income
and capital appreciation by investing in bonds, debentures
and
notes of foreign and domestic issuers.
GROWTH AND INCOME FUNDS
A*, B* SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income
and capital appreciation by investing in convertible
securities.
A*, B* SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing in equity and debt securities of utilities
companies.
A*, B* SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high
total return consisting of current income and capital
appreciation by investing in a combination of equity, fixed-
income and money market securities.
A*, B* SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks total
return by investing in dividend-paying common stocks.
A*, B* SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks income
and
long-term capital growth by investing in income-producing
equity securities.
</TABLE>
38
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
GROWTH FUNDS
A*, B* SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-
term
appreciation of capital.
A*, B* SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks
long-term capital growth with current income as a secondary
objective.
A*, B* SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
A*, B* SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND, an
equity fund seeking capital appreciation, with income as a
secondary consideration.
A*, B* SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
A*, B* SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-term
capital appreciation by investing in equity securities
primarily of emerging growth companies.
A*, B* SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, an equity
fund seeking long-term capital growth by investing
principally
in the common stocks of foreign and domestic issuers.
A*, B* SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term capital
appreciation by investing primarily in securities of issuers
based in European countries.
A*, B* SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND
INC.,
seeks long-term capital appreciation by investing primarily
in
precious metal- and mineral-related companies and gold
bullion.
</TABLE>
39
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
MONEY MARKET FUNDS
** SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified portfolio of high quality money market
instruments.
*** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND INC., invests in a
diversified portfolio of high quality money market
instruments.
*** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND INC.,
invests in short-term U.S. government and agency securities.
*** SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND INC.,
invests in short-term, high quality municipal obligations.
*** SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET
FUND,
invests in short-term, high quality California municipal
obligations.
*** SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET FUND,
invests in short-term, high quality New York municipal
obligations.
---------------------------------------------------------------------------
<FN>
*Shares of this fund are subject to a higher sales charge or CDSC than that
applicable to the Fund's shares.
**Shares of this money market fund may be exchanged for Class B shares of
the
Fund.
***Shares of this money market fund may be exchanged for Class A shares of
the
Fund.
</TABLE>
TAX EFFECT. The exchange of shares of one fund for shares of another fund is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
CLASS A EXCHANGES. Class A shareholders of the funds in the Smith Barney
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 4.50% will be subject to the appropriate "sales charge
differential" upon the exchange of their shares for Class A
40
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
shares of the Fund, or other funds sold with a higher sales charge. The "sales
charge differential" is limited to a percentage rate no greater than the
excess
of the sales charge rate applicable to purchases of shares of the mutual fund
being acquired in the exchange over the sales charge rate(s) actually paid on
the mutual fund shares relinquished in the exchange and on any predecessor of
those shares. For purposes of the exchange privilege, shares obtained through
automatic reinvestment of dividends, as described below, are treated as having
paid the same sales charges applicable to the shares on which the dividends
were
paid. However, if no sales charge was imposed upon the initial purchase of the
shares, any shares obtained through automatic reinvestment will be subject to
a
sales charge differential upon exchange.
CLASS B EXCHANGES. Class B shareholders of the Fund who wish to exchange all
or a portion of their Class B shares for Class B shares in any of the funds
identified above may do so without imposition of an exchange fee. In the event
a
Class B shareholder wishes to exchange all or a portion of his or her shares
for
shares in any of the funds imposing a CDSC higher than that imposed by the
Fund,
the exchanged Class B shares will be subject to the higher applicable CDSC.
Upon
an exchange, the new Class B shares will be deemed to have been purchased on
the
same date as the Class B shares of the Fund which have been exchanged.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Although the
exchange
privilege is an important benefit, excessive exchange transactions can be
detrimental to the Fund's performance and its shareholders. Greenwich Street
Advisors 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,
Greenwich Street Advisors will notify Smith Barney Shearson, and Smith Barney
Shearson may, at its discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination, Smith Barney Shearson
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 Smith Barney Shearson
funds ordinarily available, which position the shareholder would expect to
maintain for a significant period of time. All relevant factors will be
considered in determining what constitutes an abusive pattern of exchanges.
41
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
Shareholders exercising the exchange privilege with any of the other funds
in
the Smith Barney Shearson Group of Funds should review the prospectus of that
fund carefully prior to making an exchange. Smith Barney Shearson reserves the
right to reject any exchange request. The exchange privilege may be modified
or
terminated at any time after written notice to shareholders. For further
information regarding the exchange privilege or to obtain the current
prospectuses for members of the Smith Barney Shearson Group of Funds,
investors
should contact their Smith Barney Shearson Financial Consultants.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New York
10013 and serves as distributor of the Fund's shares. Smith Barney Shearson is
a
wholly owned subsidiary of Holdings, which in turn is a wholly owned
subsidiary
of Travelers. Smith Barney Shearson is paid an annual service fee with respect
to Class A and Class B shares of the Fund at the rate of .15% of the value of
the average daily net assets of the respective Class. Smith Barney Shearson is
also paid an annual distribution fee with respect to Class B shares at the
rate
of .50% of the value of the average daily net assets attributable to those
shares. The fees are authorized pursuant to a services and distribution plan
(the "Plan") adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act and
are used by Smith Barney Shearson to pay its Financial Consultants for
servicing
shareholder accounts and, in the case of Class B shares, to cover expenses
primarily intended to result in the sale of those shares. These expenses
include: costs of printing and distributing the Fund's Prospectus, Statement
of
Additional Information and sales literature to prospective investors; an
allocation of overhead and other Smith Barney Shearson branch office
distribution-related expenses; payments to and expenses of Smith Barney
Shearson
Financial Consultants and other persons who provide support services in
connection with the distribution of the shares; and accruals for interest on
the
amount of the foregoing expenses which exceed distribution fees and, in the
case
of Class B shares, the CDSC received by Smith Barney Shearson. The payments to
Smith Barney Shearson Financial Consultants for selling shares of a Class
include a commission paid at the time of sale and a continuing fee for
42
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
servicing shareholder accounts for as long as a shareholder remains a holder
of
that Class. Smith Barney Shearson Financial Consultants may receive different
levels of compensation for selling one Class over another.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson and
the
payments may exceed distribution expenses actually incurred. The Fund's Board
of
Trustees will evaluate the appropriateness of the Plan and its payment terms
on
a continuing basis and in so doing will consider all relevant factors,
including
expenses borne by Smith Barney Shearson, amounts received under the Plan and
the
proceeds of the CDSC.
- --------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund declares dividends from net investment income (that is, income
other
than net realized long- and short-term capital gains) on each day the Fund is
open for business and pays dividends on the last business day of the Smith
Barney Shearson statement month. Unless a shareholder instructs that dividends
or capital gains distributions on shares of any Class be paid in cash and
credited to the shareholder's account at Smith Barney Shearson, dividends and
capital gains distributions will be reinvested automatically in additional
shares of the Class at net asset value, subject to no sales charge or CDSC.
The
Fund's earnings for Saturdays, Sundays and holidays are declared as dividends
on
the next business day. Distributions of net realized long- and short-term
capital gains, if any, are declared and paid annually after the end of the
fiscal year in which they have been earned. Shares redeemed during the month
are
entitled to dividends declared up to and including the date of redemption. In
addition, in order to avoid the application of a 4% nondeductible excise tax
on
certain undistributed amounts of ordinary income and capital gains, the Fund
may
make a distribution shortly before each December 31 of net realized capital
gains earned during the year ended on the preceding October 31. The Fund also
expects to make any additional distributions necessary to avoid the
application
of this tax.
If, for any full fiscal year, the Fund's total distributions exceed current
and accumulated earnings and profits, the excess distributions generally will
43
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
be treated as a tax-free return of capital (up to the amount of the
shareholder's tax basis in his or her shares). The amount treated as a tax-
free
return of capital will reduce a shareholder's adjusted basis in his or her
shares. Pursuant to the requirements of the 1940 Act and other applicable
laws,
a notice will accompany any distribution paid from sources other than net
investment income. In the event the Fund distributes amounts in excess of its
net investment income and net realized capital gains, such distributions may
have the effect of decreasing the Fund's total assets, which may increase the
Fund's expense ratio.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code and will designate and pay
exempt-interest dividends derived from interest earned on qualifying tax-
exempt
obligations. Such exempt-interest dividends may be excluded by shareholders
from
their gross income for Federal income tax purposes although (a) all or a
portion
of such exempt-interest dividends will be a specific preference item for
purposes of the Federal individual and corporate alternative minimum taxes to
the extent they are derived from certain types of private activity bonds
issued
after August 7, 1986, and (b) all exempt-interest dividends will be a
component
of the "current earnings" adjustment item for purposes of the Federal
corporate
alternative minimum tax and the Federal environmental tax. Under Massachusetts
law, exempt-interest dividends paid by the Fund are exempt from Massachusetts
personal income tax for individuals who are otherwise subject to Massachusetts
personal income tax to the extent the dividends are derived from interest
payments on Massachusetts Municipal Securities and Massachusetts Municipal
Leases.
Dividends paid from taxable net investment income, if any, and distributions
of any net realized short-term capital gains (whether from tax-exempt or
taxable
obligations) are taxable to shareholders as ordinary income regardless of how
long shareholders have held their Fund shares and whether such dividends or
distributions are received in cash or reinvested in additional Fund shares.
Distributions of net realized long-term capital gains (whether from tax-exempt
or taxable securities) are taxable to shareholders as long-term capital gains
regardless of how long they have held Fund shares and whether such
distributions
are received in cash or reinvested in Fund shares. The per share dividends and
distributions on Class A shares will be higher than the per share dividends
and
distributions on Class B shares as a result of lower distribution and transfer
agency fees applicable to the
44
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Class A shares. Furthermore, as a general rule, a shareholder's gain or loss
on
a sale or redemption of Fund shares will be a long-term capital gain or loss
if
the shareholder has held the shares for more than one year and will be a
short-term capital gain or loss if the shareholder has held the shares for one
year or less. The Fund's dividends and distributions will not qualify for the
dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. These statements will set forth the dollar
amount of income excluded from Federal income taxes or exempt from
Massachusetts
personal income taxes and the dollar amount, if any, subject to Federal income
taxes or Massachusetts personal income taxes. Moreover, these statements will
designate the amount of exempt-interest dividends which are a specific
preference item for purposes of the Federal individual and corporate
alternative
minimum taxes. Shareholders should consult their tax advisers with specific
reference to their own tax situations.
TAX-EXEMPT INCOME VS. TAXABLE INCOME
The table below shows Massachusetts taxpayers how to translate the tax
savings
from investments such as the Fund into an equivalent return from a taxable
investment. The tax-exempt yields used are for illustration only and are not
intended to represent current or future yields for the Fund, which may be
higher
or lower than those shown.
<TABLE>
<CAPTION>
COMBINED
MASSA- EFFECTIVE
TAXABLE INCOME FEDERAL CHUSETTS COMBINED MARGINAL
- ------------------------------- MARGINAL MARGINAL MARGINAL TAX
TAX-EXEMPT RATE
SINGLE JOINT TAX RATE TAX RATE TAX RATE RATE* 2.00%
3.00% 4.00% 5.00% 6.00% 7.00%
- --------------- --------------- -------- -------- -------- -------- ------- --
- ----- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
EQUIVALENT TAXABLE YIELD
$ 22,750 $ 38,000 15.00% 12.00% 27.00% 25.20% 2.67%
4.01% 5.35% 6.68% 8.02% 9.36%
22,751-55,100 38,001-91,850 28.00 12.00 40.00 36.64 3.16
4.73 6.31 7.89 9.47 11.05
55,101-115,000 91,851-140,000 31.00 12.00 43.00 39.28 3.29
4.94 6.59 8.23 9.88 11.53
115,001-250,000 140,001-250,000 36.00 12.00 48.00 43.68 3.55
5.33 7.10 8.88 10.65 12.43
over 250,000 over 250,000 39.60 12.00 51.60 46.85 3.76
5.64 7.53 9.41 11.29 13.17
- ------------------------------------------------------------------------------
- -------------------
<FN>
*Combined effective marginal tax rate represents the combined Federal and
Massachusetts tax rates on dividend income
adjusted to account for the Federal deduction of Massachusetts taxes paid.
</TABLE>
The Federal and Massachusetts tax rates shown are those currently in effect
for 1994. The calculations assume that no income will be subject to the
Federal,
state or local alternative minimum tax. The rates are subject to adjustment
for
the Internal Revenue Service inflation indexation.
45
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
ADDITIONAL INFORMATION
The Fund was organized on January 13, 1987 under the laws of the
Commonwealth
of Massachusetts and is a business entity commonly known as a "Massachusetts
business trust." The Fund commenced operations on December 21, 1987, under the
name Shearson Lehman Massachusetts Municipals. On December 7, 1988, August 27,
1990 and July 30, 1993, the Fund changed its name to SLH Massachusetts
Municipals Fund, Shearson Lehman Brothers Massachusetts Municipals Fund and
Smith Barney Shearson Massachusetts Municipals Fund, respectively.
The Fund offers shares of beneficial interest currently classified into two
Classes--A and B. Each Class of shares has a par value of $.001 per share and
represents an identical interest in the Fund's investment portfolio. As a
result, the Classes have the same rights, privileges and preferences, except
with respect to: (a) the designation of each Class; (b) the effect of the
respective sales charges for each Class; (c) the distribution and/or service
fees borne by each Class; (d) the expenses allocable exclusively to each
Class;
(e) voting rights on matters exclusively affecting a single Class; (f) the
exchange privilege of each Class; and (g) the conversion feature of the Class
B
shares. The Fund's Board of Trustees does not anticipate that there will be
any
conflicts among the interests of the holders of the different Classes. The
Trustees, on an ongoing basis, will consider whether any such conflict exists
and, if so, take appropriate action.
When matters are submitted for shareholder vote, shareholders of each Class
will have one vote for each full share held and a proportionate, fractional
vote
for each fractional share held of that Class. Generally, shares of the Fund
will
be voted on a Fund-wide basis on all matters except matters affecting only the
interests of one Class. The Fund does not hold annual shareholder meetings.
There normally will be no meetings of shareholders held for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. Any Trustee may be removed from office upon the vote of shareholders
holding at least two-thirds of the Fund's outstanding shares at a meeting
called
for that purpose. The Trustees are required to call such a meeting upon the
written request of shareholders holding at least 10% of the Fund's outstanding
shares. In
46
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
addition, shareholders who meet certain criteria will be assisted by the Fund
in
communicating with other shareholders in seeking the holding of such a
meeting.
Boston Safe Deposit and Trust Company, a wholly owned subsidiary of TBC, is
located at One Boston Place, Boston, Massachusetts 02108, and serves as
custodian of the Fund's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as
the Fund's transfer agent.
The Fund sends to each of its shareholders a semi-annual report and an
audited
annual report, which include listings of the investment securities held by the
Fund at the end of the period covered. In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to consolidate the mailing of its
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a copy of each report. In addition, the Fund also plans to consolidate
the mailing of its Prospectus so that a shareholder having multiple accounts
will receive a single Prospectus annually. Any shareholder who does not want
this consolidation to apply to his or her account should contact his or her
Financial Consultant or TSSG. Shareholders may direct inquiries regarding the
Fund to their Smith Barney Shearson Financial Consultants.
-------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT
OF
ADDITIONAL INFORMATION AND/OR IN THE FUND'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE FUND'S SHARES, AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
47
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
TRUSTEES
Herbert Barg
Alfred J. Bianchetti
Robert E. Borgesen
Martin Brody
Dwight B. Crane
James J. Crisona
Robert A. Frankel
Peter H. Gallary
Dr. Paul Hardin
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD AND
INVESTMENT OFFICER
Stephen P. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
Lawrence T. McDermott
VICE PRESIDENT AND
INVESTMENT OFFICER
Karen L. Mahoney-Malcomson
INVESTMENT OFFICER
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
48
<PAGE>
SMITH BARNEY SHEARSON
MASSACHUSETTS
MUNICIPALS
FUND
Two World Trade Center
New York, New York 10048
Fund 41, 209
FD0226 A4
Smith Barney Shearson
MASSACHUSETTS MUNICIPALS FUND
Two World Trade Center
New York, New York 10048
(212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION JANUARY 29, 1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney Shearson
Massachusetts Municipals Fund (the "Fund") dated January 29, 1994, as
amended or supplemented from time to time, and should be read in conjunc-
tion with the Fund's Prospectus. The Fund's Prospectus may be obtained
from your Smith Barney Shearson Financial Consultant or by writing or
calling the Fund at the address or telephone number set forth above. This
Statement of Additional Information, although not in itself a prospectus,
is incorporated by reference into the Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used in both the Pro-
spectus and this Statement of Additional Information, except where shown
below:
<TABLE>
<CAPTION>
<S>
<C>
Management of the Fund
1
Investment Objective and Management Policies
6
Municipal Bonds (See in the Prospectus "Massachusetts Municipal Securities")
14
Purchase of Shares
19
Redemption of Shares
19
Distributor
20
Valuation of Shares
22
Exchange Privilege
22
Performance Data (See in the Prospectus "The Fund's Performance")
23
Taxes (See in the Prospectus "Dividends, Distributions and Taxes")
26
Custodian and Transfer Agent (See in the Prospectus "Additional Information")
29
Organization and Description of Fund Shares (See in the Prospectus
"Additional Information")
29
Financial Statements
30
Appendix
A-1
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the organi-
zations that provide services to the Fund. These organizations are the
following:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Smith Barney Shearson Inc.
("Smith Barney Shearson") Distributor
Greenwich Street Advisors Investment
Adviser
The Boston Company Advisors, Inc.
("Boston Advisors") Administrator
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund are dis-
cussed in the Prospectus and in this Statement of Additional Information.
TRUSTEES AND EXECUTIVE OFFICERS OF THE FUND
The names of the Trustees and executive officers of the Fund, together
with information as to their principal business occupations during the
past five years, are shown below. Each Trustee who is an "interested per-
son" of the Fund, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), is indicated by an asterisk.
Herbert Barg, Trustee. Private Investor. His address is 273 Montgomery Av-
enue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Trustee. Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 17466.
Robert E. Borgesen, Trustee. Retired; formerly Vice President of Morgan
Guaranty Trust Company of New York. His address is 160 Southeast Crestwood
Circle, Stuart, Florida 34997.
Martin Brody, Trustee. Vice Chairman of the Board of Restaurant Associates
Corp.; a Director of Jaclyn, Inc. His address is HMK Associates, Three ADP
Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Trustee. Professor, Graduate School of Business Adminis-
tration, Harvard University; a Director of Peer Review Analysis, Inc. His
address is Graduate School of Business Administration, Harvard University,
Boston, Massachusetts 02163.
James J. Crisona, Trustee. Attorney; formerly Justice of the Supreme Court
of the State of New York. His address is 118 East 60th Street, New York,
New York 10022.
Robert A. Frankel, Trustee. Management Consultant; retired Vice President
of The Reader's Digest Association, Inc. His address is 102 Grand Street,
Croton-on-Hudson, New York 10520.
*Peter H. Gallary, Trustee. Prior to January 1994, President, Director and
Chief Executive Officer of Boston Advisors and Executive Vice President of
The Boston Company, Inc. and Boston Safe; prior to May 1990, a partner at
Coopers & Lybrand. His address is One Boston Place, Boston, Massachusetts
02108.
Dr. Paul Hardin, Trustee. Chancellor of the University of North Carolina
at Chapel Hill; a Director of The Summit Bancorporation. His address is
University of North Carolina, 103 S. Building, Chapel Hill, North Carolina
27599.
Stephen E. Kaufman, Trustee. Attorney. His address is 277 Park Avenue, New
York, New York 10172.
Joseph J. McCann, Trustee. Financial Consultant; formerly Vice President
of Ryan Homes, Inc. His address is 200 Oak Park Place, Pittsburgh, Penn-
sylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer. Execu-
tive Vice President of Smith Barney Shearson and Chairman of Smith Barney
Shearson Strategy Advisers Inc.; prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers");
Vice Chairman of Shearson Asset Management; a Director of PanAgora Asset
Management, Inc. and PanAgora Asset Management Limited. His address is Two
World Trade Center, New York, New York 10048.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney Shearson; Director and President of Mutual Management Corp.
and Smith, Barney Advisers, Inc. and Trustee of Corporate Realty Income
Trust I. His address is 1345 Avenue of the Americas, New York, New York
10105.
Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney Shearson; President of Smith Barney Shearson Strategy Advisers
Inc.; prior to July 1993, Senior Vice President of Shearson Lehman Broth-
ers; Vice President of Shearson Lehman Investment Strategy Advisors Inc.
His address is Two World Trade Center, New York, New York 10048.
Lawrence T. McDermott, Vice President and Investment Officer. Managing Di-
rector of Greenwich Street Advisors; prior to July 1993, Managing Director
of Shearson Lehman Advisors. His address is Two World Trade Center, New
York, New York 10048.
Karen L. Mahoney-Malcomson, Investment Officer. Senior Vice President of
Greenwich Street Advisors; prior to July 1993, Senior Vice President of
Shearson Lehman Advisors. Her address is Two World Trade Center, New York,
New York 10048.
Vincent Nave, Treasurer. Senior Vice President of Boston Advisors and Bos-
ton Safe. His address is One Boston Place, Boston, Massachusetts 02108.
Francis J. McNamara, III, Secretary. Senior Vice President and General
Counsel of Boston Advisors; prior to June 1989, Vice President and Associ-
ate Counsel of Boston Advisors. His address is One Boston Place, Boston,
Massachusetts 02108.
All of the Trustees of the Fund also serve as directors, trustees and/or
general partners of other mutual funds for which Smith Barney Shearson
serves as principal underwriter. As of January 15, 1994, Trustees and of-
ficers of the Fund as a group owned less than 1% of the Fund's shares of
beneficial interest.
No director, officer or employee of Smith Barney Shearson or Boston Advi-
sors or of any parent or subsidiary of those corporations receives any
compensation from the Fund for serving as an officer or Trustee of the
Fund. The Fund pays each Trustee who is not an officer, director or em-
ployee of Smith Barney Shearson or Boston Advisors or any of their affili-
ates a fee of $1,000 per annum plus $100 per meeting attended and reim-
burses them for travel and out-of-pocket expenses. For the fiscal year
ended November 30, 1993, such fees and expenses totalled $17,437.
INVESTMENT ADVISER -- GREENWICH STREET ADVISORS
ADMINISTRATOR -- BOSTON ADVISORS
Greenwich Street Advisors serves as investment adviser to the Fund pursu-
ant to a written agreement dated July 30, 1993 (the "Advisory Agreement"),
which was first approved by the Fund's Board of Trustees, including a ma-
jority of those Trustees who are not "interested persons" of the Fund or
Smith Barney Shearson, on April 7, 1993. The services provided by Green-
wich Street Advisors under the Advisory Agreement are described in the
Prospectus. Greenwich Street Advisors bears all expenses in connection
with the performance of its services and pays the salary of any officer or
employee who is employed by both it and the Fund. Greenwich Street Advi-
sors is a division of Mutual Management Corp., which is in turn a wholly
owned subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc., formerly
Primerica Corporation ("Travelers").
As compensation for Greenwich Street Advisors' services rendered to the
Fund, the Fund pays a fee computed daily and payable monthly at the fol-
lowing annual rates: .35% of the value of the Fund's average daily net as-
sets up to $500 million and .32% of the value of the Fund's average daily
net assets in excess of $500 million. For the fiscal years ended November
30, 1991 and 1992, there were no advisory fees paid to Shearson Lehman Ad-
visors, the predecessor to Greenwich Street Advisors, due to voluntary fee
waivers and expense reimbursements. For the fiscal year ended November 30,
1993, the Fund paid to Shearson Lehman Advisors and Greenwich Street Advi-
sors, net of fee waivers and expense reimbursements, $51,498 in advisory
fees. For the fiscal year ended November 30, 1991, Shearson Lehman Advi-
sors voluntarily waived advisory fees and reimbursed expenses of $60,549
and $7,640, respectively. For the fiscal year ended November 30, 1992,
Shearson Lehman Advisors voluntarily waived advisory fees and reimbursed
expenses of $82,321 and $9,213, respectively. For the fiscal year ended
November 30, 1993, Shearson Lehman Advisors and Greenwich Street Advisors
voluntarily waived advisory fees of $101,803.
Boston Advisors serves as the Fund's administrator pursuant to a written
agreement dated May 21, 1993 (the "Administration Agreement"), which was
most recently approved by the Fund's Board of Trustees, including a major-
ity of those Trustees who are not "interested persons" of the Fund or
Smith Barney Shearson, on July 21, 1993. Prior to May 21, 1993, Boston Ad-
visors acted in the capacity as the Fund's sub-investment adviser and ad-
ministrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), a financial services holding company, which is in
turn a wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Bos-
ton Advisors pays the salaries of all officers and employees who are em-
ployed by both it and the Fund.
Certain services provided to the Fund by Boston Advisors pursuant to the
Administration Agreement are described in the Prospectus under "Management
of the Fund." In addition to those services, Boston Advisors furnishes the
Fund with statistical and research data, clerical help and accounting,
data processing, bookkeeping, internal auditing and legal services and
certain other services required by the Fund, prepares reports to the
Fund's shareholders, and prepares tax returns and reports to and filings
with, the Securities and Exchange Commission (the "SEC") and state blue
sky authorities. Boston Advisors bears all expenses in connection with the
performance of its services.
As compensation for Boston Advisors' services rendered to the Fund, the
Fund pays a fee computed daily and payable monthly at the following annual
rates: .20% of the value of the Fund's average daily net assets up to $500
million and .18% of the value of the Fund's average daily net assets in
excess of $500 million. For the fiscal years ended November 30, 1991 and
1992, there were no sub-investment advisory and administration fees paid
to Boston Advisors, due to voluntary fee waivers and expense reimburse-
ments. For the fiscal year ended November 30, 1993, the Fund paid to Bos-
ton Advisors, net of fee waivers, $29,427 and Boston Advisors voluntarily
waived fees of $58,174 in administration fees. For the fiscal year ended
November 30, 1991, Boston Advisors voluntarily waived fees and reimbursed
expenses of $34,599 and $4,373, respectively. For the fiscal year ended
November 30, 1992, Boston Advisors voluntarily waived fees and reimbursed
expenses of $47,041 and $5,265, respectively.
The Fund bears expenses incurred in its operation including: taxes, inter-
est, brokerage fees and commissions, if any; fees of Trustees of the Fund
who are not officers, directors, shareholders or employees of Smith Barney
Shearson or Boston Advisors; SEC fees and state blue sky qualification
fees; charges of custodians; transfer and dividend disbursing agent's
fees; certain insurance premiums; outside auditing and legal expenses;
costs of any independent pricing service; costs of maintenance of the
Fund's existence as a business trust; costs of investor services (includ-
ing allocated telephone and personnel expenses); and costs of preparation
and printing of prospectuses and statements of additional information for
regulatory purposes and for distribution to shareholders; costs of prepa-
ration and printing of shareholders' reports; costs incurred in connection
with meetings of the Fund's shareholders, officers and Board of Trustees.
Greenwich Street Advisors and Boston Advisors have each agreed that if in
any fiscal year the aggregate expenses of the Fund (including fees payable
pursuant to the Advisory Agreement and the Administration Agreement, but
excluding interest, taxes, brokerage and, if permitted by the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Fund, Greenwich
Street Advisors and Boston Advisors will, to the extent required by law,
reduce their management fees by the amount of such excess expenses, such
amount to be allocated between them in the proportion that their respec-
tive fees bear to the aggregate of such fees paid by the Fund. Such fee
reduction, if any, will be reconciled on a monthly basis. The most re-
strictive state limitation applicable to the Fund presently requires a re-
duction of fees in any year that such expenses exceed 2.5% of the first
$30 million of average daily net assets, 2.0% of the next $70 million of
average daily net assets and 1.5% of the remaining average daily net as-
sets. No fee reduction was required for the fiscal years ended November
30, 1991, 1992 and 1993.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. Goodwin,
Procter & Hoar serves as special Massachusetts counsel for the Fund and
has reviewed the portions of the Prospectus and Statement of Additional
Information concerning Massachusetts taxes and the description of the spe-
cial considerations relating to investments in Massachusetts municipal se-
curities. The Trustees who are not "interested persons" of the Fund have
selected Stroock & Stroock & Lavan as their counsel.
Coopers & Lybrand, independent accountants, One Post Office Square, Bos-
ton, Massachusetts 02109, serve as auditors of the Fund and render an
opinion on the Fund's financial statements annually.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies
it employs to achieve that objective. The following discussion supplements
the description of the Fund's investment policies in the Prospectus. For
purposes of this Statement of Additional Information, obligations of non-
Massachusetts municipal issuers that pay interest which is excluded from
gross income for Federal income tax purposes ("Non-Massachusetts Municipal
Securities") and obligations of the Commonwealth of Massachusetts and its
political subdivisions, agencies and public authorities (together with
certain other municipal issuers such as Puerto Rico, the Virgin Islands
and Guam) that pay interest which is excluded from gross income for Fed-
eral income tax purposes and exempt from Massachusetts personal income
taxes ("Massachusetts Municipal Securities"), are collectively referred to
as "Municipal Bonds."
As noted in the Prospectus, the Fund is classified as a non-diversified
investment company under the 1940 Act, which means that the Fund is not
limited by the 1940 Act in the proportion of its assets that may be in-
vested in the obligations of a single issuer. The identification of the
issuer of Municipal Bonds generally depends upon the terms and conditions
of the security. When the assets and revenues of an agency, authority, in-
strumentality or other political subdivision are separate from those of
the government creating the issuing entity and the security is backed only
by the assets and revenues of such entity, such entity would be deemed to
be the sole issuer. Similarly, in the case of a private activity bond, if
that bond is backed only by the assets and revenues of the nongovernmental
user, then such nongovernmental user is deemed to be the sole issuer. If
in either case, however, the creating government or some other entity
guarantees a security, such a guarantee would be considered a separate se-
curity and would be treated as an issue of such government or other en-
tity.
USE OF RATINGS AS INVESTMENT CRITERIA
In general, the ratings of Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") represent the opinions of those
agencies as to the quality of the Municipal Bonds and short-term invest-
ments which they rate. It should be emphasized, however, that such ratings
are relative and subjective, are not absolute standards of quality and do
not evaluate the market risk of securities. These ratings will be used by
the Fund as initial criteria for the selection of portfolio securities,
but the Fund also will rely upon the independent advice of Greenwich
Street Advisors to evaluate potential investments. Among the factors that
will be considered are the long-term ability of the issuer to pay princi-
pal and interest and general economic trends. To the extent the Fund in-
vests in lower-rated and comparable unrated securities, the Fund's
achievement of its investment objective may be more dependent on Greenwich
Street Advisors' credit analysis of such securities than would be the case
for a portfolio consisting entirely of higher-rated securities. The Appen-
dix contains information concerning the ratings of Moody's and S&P and
their significance.
Subsequent to its purchase by the Fund, an issue of Municipal Bonds may
cease to be rated or its rating may be reduced below the rating given at
the time the securities were acquired by the Fund. Neither event will re-
quire the sale of such Municipal Bonds by the Fund, but Greenwich Street
Advisors will consider such event in its determination of whether the Fund
should continue to hold the Municipal Bonds. In addition, to the extent
the ratings change as a result of changes in such organizations or their
rating systems or due to a corporate restructuring of Moody's or S&P, the
Fund will attempt to use comparable ratings as standards for its invest-
ments in accordance with its investment objective and policies.
The Fund generally may invest up to 25% of its total assets in securities
rated below investment grade, i.e., lower than Baa, MIG 3 or Prime-1 by
Moody's or BBB, SP-2 or A-1 by S&P, or in unrated securities of comparable
quality. Such securities (a) will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are out-
weighed by large uncertainties or major risk exposures to adverse condi-
tions and (b) are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation.
While the market values of low-rated and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher-rated securities, the market values of certain low-rated
and comparable unrated municipal securities also tend to be more sensitive
than higher-rated securities to short-term corporate and industry develop-
ments and changes in economic conditions (including recession) in specific
regions or localities or among specific types of issuers. In addition,
lower-rated securities and comparable unrated securities generally present
a higher degree of credit risk. During an economic downturn or a prolonged
period of rising interest rates, the ability of issuers of lower-rated and
comparable unrated securities to service their payment obligations, meet
projected goals or obtain additional financing may be impaired. The risk
of loss due to default by such issuers is significantly greater because
low-rated and comparable unrated securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
The Fund may incur additional expenses to the extent it is required to
seek recovery upon a default in the payment of principal or interest on
its portfolio holdings.
While the market for municipal securities is considered to be generally
adequate, the existence of limited markets for particular low-rated and
comparable unrated securities may diminish the Fund's ability to (a) ob-
tain accurate market quotations for purposes of valuing such securities
and calculating its net asset value and (b) sell the securities at fair
value either to meet redemption requests or to respond to changes in the
economy or in the financial markets. The market for certain low-rated and
comparable unrated securities has not fully weathered a major economic re-
cession. Any such economic downturn would adversely affect the value of
such securities and the ability of the issuers of these securities to
repay principal and pay interest thereon.
Fixed-income securities, including low-rated securities and comparable un-
rated securities, frequently have call or buy-back features that permit
their issuers to call or repurchase the securities from their holders,
such as the Fund. If an issuer exercises these rights during periods of
declining interest rates, the Fund may have to replace the security with a
lower yielding security, thus resulting in a decreased return to the Fund.
TEMPORARY INVESTMENTS
When the Fund is maintaining a defensive position, the Fund may invest in
short-term investments ("Temporary Investments") consisting of: (a) the
following tax-exempt securities: notes of municipal issuers having, at the
time of purchase, a rating within the three highest grades of Moody's or
S&P or, if not rated, having an issue of outstanding Municipal Bonds rated
within the three highest grades by Moody's or S&P; and (b) the following
taxable securities: obligations of the United States government, its agen-
cies or instrumentalities ("U.S. government securities"), including repur-
chase agreements with respect to such securities; other debt securities
rated within the three highest grades by Moody's and S&P, commercial paper
rated in the highest grade by either of such rating services; and certifi-
cates of deposit of domestic banks with assets of $1 billion or more. The
Fund may invest in Temporary Investments for defensive reasons in antici-
pation of a market decline. At no time will more than 20% of the Fund's
total assets be invested in Temporary Investments unless the Fund has
adopted a defensive investment policy. The Fund intends, however, to pur-
chase tax-exempt Temporary Investments pending the investment of the pro-
ceeds of the sale of portfolio securities or of the Fund's shares of bene-
ficial interest, or in order to have highly liquid securities available to
meet anticipated redemptions.
INVESTMENTS IN MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS
AND OPTIONS ON MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS
Municipal Bond Index and Interest Rate Futures Contracts. The purpose of
entering into a municipal bond index or interest rate futures contract by
the Fund, as the holder of long-term Municipal Bonds, is to protect the
Fund from fluctuations in interest rates on tax-exempt securities without
buying or selling the Municipal Bonds. If the Fund owns long-term Munici-
pal Bonds and interest rates are expected to increase, for example, the
Fund might enter into futures contracts to sell a municipal bond index or
the debt security underlying the interest rate future. Such a transaction
would have much the same effect as selling some of the long-term Municipal
Bonds in the Fund's portfolio. If interest rates increase as anticipated,
the value of certain long-term Municipal Bonds in the Fund's portfolio
would decline, but the value of the Fund's futures contracts would in-
crease at approximately the same rate, thereby keeping the net asset value
of the Fund from declining as much as it otherwise would have. Of course,
because the value of the Municipal Bonds in the Fund's portfolio will far
exceed the value of the futures contracts entered into by the Fund, an in-
crease in the value of the futures contracts could only mitigate -- but
not totally offset -- the decline in the value of the portfolio.
When interest rates are expected to decline, futures contracts to purchase
a municipal bond index or debt security could be entered into to hedge
against the Fund's anticipated purchases of long-term Municipal Bonds at
higher prices. Because the rate of fluctuation in the value of the futures
contracts should be similar to that of long-term Municipal Bonds, the Fund
could enter into futures contracts at lower prices. At the time the Fund
deems it appropriate to purchase the Municipal Bonds, the futures con-
tracts could be liquidated and the Fund's cash could then be used to buy
long-term Municipal Bonds. The Fund could accomplish similar results by
selling Municipal Bonds with long maturities and investing in Municipal
Bonds with short maturities when interest rates are expected to increase
or by buying Municipal Bonds with long maturities and selling Municipal
Bonds with short maturities when interest rates are expected to decline.
In circumstances when the market for Municipal Bonds may not be as liquid
as that for the futures contracts, however, the ability to enter into such
contracts could enable the Fund to react more quickly to anticipated
changes in market conditions or interest rates.
Unlike the purchase or sale of a Municipal Bond, no consideration is paid
or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit in the name of the futures
commission merchant effecting the transaction an amount of cash or cash
equivalents equal to approximately 10% of the contract amount (this amount
is subject to change by the board of trade on which the contract is traded
and members of the board of trade may charge a higher amount). This amount
is known as initial margin and is in the nature of a performance bond or
good faith deposit on the contract that is returned to the Fund upon ter-
mination of the futures contract, assuming that all contractual obliga-
tions have been satisfied. Subsequent payments, known as variation margin,
to and from the futures commission merchant will be made on a daily basis
as the price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as marking-to-market. At any time
prior to the expiration of the contract, the Fund may elect to close the
position by taking an opposite position, which will operate to terminate
the Fund's existing position in the futures contract.
There are several risks in connection with the use of municipal bond index
and interest rate futures contracts as hedging devices. Successful use of
these futures contracts by the Fund is subject to Greenwich Street Advi-
sors' ability to predict correctly movements in the direction of interest
rates. Such predictions involve skills and techniques which may be differ-
ent from those involved in the management of a long-term municipal bond
portfolio. In addition, there can be no assurance that there will be a
correlation between movements in the price of the municipal bond index or
the debt security underlying the futures contract and movements in the
price of the Municipal Bonds which are the subject of the hedge. The de-
gree of imperfection of correlation depends upon various circumstances,
such as variations in speculative market demand for futures contracts and
Municipal Bonds and technical influences in futures trading. The degree of
imperfection of correlation may be increased with respect to the Fund,
which will hold primarily Massachusetts Municipal Securities rather than a
selection of the bonds constituting any index. The Fund's Municipal Bonds
and the bonds in the index also may differ in such respects as interest
rate levels, maturities and creditworthiness of issuers. A decision of
whether, when and how to hedge involves the exercise of skill and judg-
ment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in interest rates.
Although the Fund intends to enter into futures contracts only if an ac-
tive market exists for the contracts, there can be no assurance that an
active market will exist for the contracts at any particular time. Most
domestic futures exchanges and boards of trade limit the amount of fluctu-
ation permitted in futures contract prices during a single trading day.
The daily limit establishes the maximum amount that 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 dur-
ing a particular trading day and therefore does not limit potential losses
because the limit may prevent the liquidation of unfavorable positions.
Futures contract prices may move to the daily limit for several consecu-
tive 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 might not be possible to close a fu-
tures 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 portfolio
being hedged, if any, may partially or completely offset losses on the fu-
tures contract. As described above, however, no assurance can be given
that the price of Municipal Bonds will, in fact, correlate with the price
movements in the municipal bond index or interest rate futures contract
and thus provide an offset to losses on a futures contract.
If the Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of Municipal Bonds held in its portfo-
lio and rates decrease instead, the Fund will lose part or all of the ben-
efit 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 se-
curities may, but will not necessarily, be at increased prices which re-
flect the decline in interest rates. The Fund may have to sell securities
at a time when it may be disadvantageous to do so.
Options on Municipal Bond Index and Interest Rate Futures Contracts. Op-
tions on futures contracts are similar to options on securities, which
give the purchaser the right, in return for the premium paid, to purchase
securities. A call option gives the purchaser of such option the right to
assume a long position in a specified underlying futures contract, and a
put option gives the purchaser the right to assume a short position in a
specified underlying futures contract, at a stated exercise price at any
time prior to the expiration date of the option. Upon exercise of an op-
tion, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumu-
lated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. The potential loss related to the
purchase of an option on a futures contract is limited to the premium paid
for the option (plus transaction costs). Because the value of the option
is fixed at the point of sale, no daily cash payments are made to reflect
changes in the value of the underlying contract; however, the value of the
option does change daily and that change would be reflected in the net
asset value of the Fund.
The Fund will purchase put and call options on municipal bond index and
interest rate futures contracts which are traded on a United States ex-
change or board of trade as a hedge against changes in interest rates, and
will enter into closing transactions with respect to such options to ter-
minate existing positions. The Fund may purchase put options on interest
rate or municipal bond index futures contracts if Greenwich Street Advi-
sors anticipates a rise in interest rates. The purchase of put options on
these futures contracts is analogous to the purchase of put options on
debt securities so as to hedge a portfolio of debt securities against the
risk of rising interest rates. Because of the inverse relationship between
the trends in interest rates and values of debt securities, a rise in in-
terest rates would result in a decline in the value of Municipal Bonds
held in the Fund's portfolio. Because the value of a municipal bond index
or interest rate futures contract moves inversely in relation to changes
in interest rates, as is the case with Municipal Bonds, a put option on
such a contract becomes more valuable as interest rates rise. By purchas-
ing put options on these futures contracts at a time when Greenwich Street
Advisors expects interest rates to rise, the Fund would seek to realize a
profit to offset the loss in value of its portfolio securities without the
need to sell such securities.
The Fund may purchase call options on municipal bond index or interest
rate futures contracts if Greenwich Street Advisors anticipates a decline
in interest rates. The purchase of a call option on a municipal bond index
or interest rate futures contract represents a means of obtaining tempo-
rary exposure to market appreciation at limited risk. It is analogous to
the purchase of a call option on an individual debt security, which can be
used as a substitute for a position in the debt security itself. Depending
upon the pricing of the option compared to either the futures contract
upon which it is based, or upon the price of the underlying debt securi-
ties, it may or may not be less risky than ownership of the futures con-
tract or underlying debt securities. The Fund would purchase a call option
on a futures contract to hedge against a market advance when the Fund was
holding cash in anticipation of purchasing Municipal Bonds. The Fund could
take advantage of the anticipated rise in the value of long-term securi-
ties without actually buying them until the market had stabilized. At that
time, the options could be liquidated and the Fund's cash could be used to
buy Municipal Bonds.
The Fund would sell put and call options on futures contracts only as part
of closing transactions to terminate its options positions. No assurance
can be given that such closing transactions can be effected.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be sub-
ject to the existence of a liquid market. In addition, the Fund's purchase
of put or call options will be based upon predictions as to anticipated
interest rate trends by Greenwich Street Advisors, which could prove to be
inaccurate. Even if Greenwich Street Advisors' expectations are correct,
there may be an imperfect correlation between the change in the value of
the options and of the Fund's portfolio securities. The Fund's ability to
purchase and sell options on futures contracts and to trade in these con-
tracts may be limited to some extent by the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable to a regulated
investment company. See "Taxes" below.
Repurchase Agreements. The Fund may enter into repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by the
Fund and with certain dealers on the Federal Reserve Bank of New York's
list of reporting dealers. A repurchase agreement is a contract under
which the buyer of a security simultaneously commits to resell the secu-
rity to the seller at an agreed-upon price on an agreed-upon date. Under
the terms of a typical repurchase agreement, the Fund would acquire an un-
derlying debt obligation for a relatively short period (usually not more
than seven days) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Fund's holding period. This ar-
rangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. Under each repurchase
agreement, the selling institution will be required to maintain the value
of the securities subject to the repurchase agreement at not less than
their repurchase price. Greenwich Street Advisors or Boston Advisors, act-
ing under the supervision of the Fund's Board of Trustees, reviews on an
ongoing basis the value of the collateral and the creditworthiness of
those banks and dealers with which the Fund enters into repurchase agree-
ments to evaluate potential risks. Repurchase agreements could involve
certain risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon the Fund's ability to dis-
pose of the underlying securities, the risk of a possible decline in the
value of the underlying securities during the period in which the Fund
seeks to assert its rights to them, the risk of incurring expenses associ-
ated with asserting those rights and the risk of losing all or part of the
income from the agreement.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the protec-
tion of shareholders. Restrictions 1 through 7 below cannot be changed
without the approval of the holders of a majority of the outstanding
shares of the Fund, defined as the lesser of (a) 67% of the Fund's shares
present at a meeting, if the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (b) more than 50% of the
Fund's outstanding shares. The remaining restrictions may be changed by
the Fund's Board of Trustees at any time.
The Fund will not:
1. Issue senior securities as defined in the 1940 Act and any rules and
orders thereunder, except insofar as the Fund may be deemed to have issued
senior securities by reason of: (a) borrowing money or purchasing securi-
ties on a when-issued or delayed-delivery basis; (b) purchasing or selling
futures contracts and options on futures contracts and other similar in-
struments; and (c) issuing separate classes of shares.
2. Invest more than 25% of its total assets in securities, the issuers of
which are in the same industry. For purposes of this limitation, U.S. gov-
ernment securities 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 the Fund may borrow from banks for temporary
or emergency (not leveraging) purposes, including the meeting of redemp-
tion requests which might otherwise require the untimely disposition of
securities, in an amount not exceeding 10% of the value of the Fund's
total assets (including the amount borrowed) valued at market less liabil-
ities (not including the amount borrowed) at the time the borrowing is
made. Whenever borrowings exceed 5% of the value of the Fund's total as-
sets, the Fund will not make additional investments.
4. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its invest-
ment objective and policies; (b) repurchase agreements; and (c) loans of
its portfolio securities.
5. Engage in the business of underwriting securities issued by other per-
sons, except to the extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as amended, in disposing
of portfolio securities.
6. Purchase or sell real estate, real estate mortgages, real estate in-
vestment trust securities, commodities or commodity contracts, but this
shall not prevent the Fund from: (a) investing in securities of issuers
engaged in the real estate business and securities which are secured by
real estate or interests therein; (b) holding or selling real estate re-
ceived in connection with securities it holds; or (c) trading in futures
contracts and options on futures contracts.
7. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio se-
curities) or sell any securities short (except against the box). For pur-
poses of this restriction, the deposit or payment by the Fund of initial
or maintenance margin in connection with futures contracts and related op-
tions and options on securities is not considered to be the purchase of a
security on margin.
8. 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.
9. Purchase or sell oil and gas interests.
10. Invest more than 5% of the value of its total assets in the securi-
ties of issuers having a record, including predecessors, of less than
three years of continuous operation, except U.S. government securities.
(For purposes of this limitation, issuers include predecessors, sponsors,
controlling persons, general partners, guarantors and originators of un-
derlying assets which may have less than three years of continuous opera-
tion or relevant business experience.)
11. Invest in companies for the purpose of exercising control.
12. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of as-
sets and except to the extent permitted by Section 12 of the 1940 Act
(currently, up to 5% of the total assets of the Fund and no more than 3%
of the total outstanding voting stock of any one investment company).
13. Engage in the purchase or sale of put, call, straddle or spread op-
tions or in the writing of such options, except that the Fund may make
margin deposits in connection with municipal bond index and interest rate
futures contracts and may purchase and sell options on municipal bond
index and interest rate futures contracts.
Certain restrictions listed above permit the Fund to engage in investment
practices that the Fund does not currently pursue. The Fund has no present
intention of altering its current investment practices as otherwise de-
scribed in the Prospectus and this Statement of Additional Information and
any future change in those practices would require Board approval and ap-
propriate notice to shareholders. If a percentage restriction is complied
with at the time of an investment, a later increase or decrease in the
percentage of assets resulting from a change in the values of portfolio
securities or in the amount of the Fund's assets will not constitute a vi-
olation of such restriction. In order to permit the sale of the Fund's
shares in certain states, the Fund may make commitments more restrictive
than the restrictions described above. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund and its
shareholders it will revoke the commitment by terminating sales of its
shares in the state involved.
PORTFOLIO TRANSACTIONS
Newly issued securities normally are purchased directly from the issuer or
from an underwriter acting as principal. Other purchases and sales usually
are placed with those dealers from which it appears that the best price or
execution will be obtained; those dealers may be acting as either agents
or principals. The purchase price paid by the Fund to underwriters of
newly issued securities usually includes a concession paid by the issuer
to the underwriter, and purchases of after-market securities from dealers
normally are executed at a price between the bid and asked prices. The
Fund has paid no brokerage commissions since its commencement of opera-
tions.
Allocation of transactions, including their frequency, to various dealers
is determined by Greenwich Street Advisors in its best judgment and in a
manner deemed fair and reasonable to shareholders. The primary consider-
ations are availability of the desired security and the prompt execution
of orders in an effective manner at the most favorable prices. Subject to
these considerations, dealers that provide supplemental investment re-
search and statistical or other services to Greenwich Street Advisors may
receive orders for portfolio transactions by the Fund. Information so re-
ceived is in addition to, and not in lieu of, services required to be per-
formed by Greenwich Street Advisors, and the fees of Greenwich Street Ad-
visors are not reduced as a consequence of their receipt of such supple-
mental information. Such information may be useful to Greenwich Street
Advisors in serving both the Fund and other clients and, conversely, sup-
plemental information obtained by the placement of business of other cli-
ents may be useful to Greenwich Street Advisors in carrying out its obli-
gations to the Fund.
The Fund will not purchase Municipal Bonds during the existence of any un-
derwriting or selling group relating thereto of which Smith Barney Shear-
son is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of this limita-
tion in comparison with other investment companies which have a similar
investment objective but which are not subject to such limitation. The
Fund also may execute portfolio transactions through Smith Barney Shearson
and its affiliates in accordance with rules promulgated by the SEC.
While investment decisions for the Fund are made independently from those
of the other accounts managed by Greenwich Street Advisors, investments of
the type the Fund may make also may be made by those other accounts. When
the Fund and one or more other accounts managed by Greenwich Street Advi-
sors are prepared to invest in, or desire to dispose of, the same secu-
rity, available investments or opportunities for sales will be allocated
in a manner believed by Greenwich Street Advisors to be equitable to each.
In some cases, this procedure may adversely affect the price paid or re-
ceived by the Fund or the size of the position obtained or disposed of by
the Fund.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate (the lesser of purchases or sales of
portfolio securities during the year, excluding purchases or sales of
short-term securities, divided by the monthly average value of portfolio
securities) generally is not expected to exceed 100%, but the portfolio
turnover rate will not be a limiting factor whenever the Fund deems it de-
sirable to sell or purchase securities. Securities may be sold in antici-
pation of a rise in interest rates (market decline) or purchased in antic-
ipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another security of comparable qual-
ity may be purchased at approximately the same time in order to take ad-
vantage of what the Fund believes to be a temporary disparity in the nor-
mal yield relationship between the two securities. These yield disparities
may occur for reasons not directly related to the investment quality of
particular issues or the general movement of interest rates, such as
changes in the overall demand for or supply of various types of tax-exempt
securities. For the 1992 and 1993 fiscal years, the Fund's portfolio turn-
over rates were 73%, and 10%, respectively.
MUNICIPAL BONDS
GENERAL INFORMATION
Municipal Bonds generally are understood to include debt obligations is-
sued to obtain funds for various public purposes, including construction
of a wide range of public facilities, refunding of outstanding obliga-
tions, payment of general operating expenses and extensions of loans to
public institutions and facilities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately oper-
ated facilities are included within the term Municipal Bonds if the inter-
est paid thereon qualifies as excluded from gross income (but not neces-
sarily from alternative minimum taxable income) for Federal income tax
purposes in the opinion of bond counsel to the issuer.
The yields on Municipal Bonds are dependent upon a variety of factors, in-
cluding general economic and monetary conditions, the financial condition
of the issuer, general conditions of the Municipal Bond market, the size
of a particular offering, the maturity of the obligation offered and the
rating of the issue. Municipal Bonds 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 pay-
ment of principal or interest, or both, or imposing other constraints upon
enforcement of the obligations or upon the ability of municipalities to
levy taxes. The possibility also exists that as a result of litigation or
other conditions, the power or ability of any one or more issuers to pay,
when due, principal of and interest on its, or their, Municipal Bonds may
be materially and adversely affected.
WHEN-ISSUED SECURITIES
The 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 the 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 strat-
egy.
Municipal Bonds are subject to changes in value based upon the public's
perception of the creditworthiness of the issuers and changes, real or an-
ticipated, in the level of interest rates. In general, Municipal Bonds
tend to appreciate when interest rates decline and depreciate when inter-
est rates rise. Purchasing Municipal Bonds on a when-issued basis, there-
fore, can involve the risk that the yields available in the market when
the delivery takes place actually may be higher than those obtained in the
transaction itself. To account for this risk, a separate account of the
Fund consisting of cash or liquid debt securities equal to the amount of
the when-issued commitments will be established with 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 daily so that the value of the
account will equal the amount of such commitments by the Fund. Placing se-
curities 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 commit-
ted to purchase securities on a when-issued basis, there will be greater
fluctuations in its net assets than if it had set aside cash to satisfy
its purchase commitment. Upon the settlement date of the when-issued secu-
rities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the segregated account, sale of other securi-
ties 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 or Massachusetts personal income taxes.
When the 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 con-
sidered to be advantageous.
SPECIAL CONSIDERATIONS RELATING TO MASSACHUSETTS MUNICIPAL SECURITIES
The Commonwealth of Massachusetts and certain of its cities and towns and
public bodies are experiencing serious financial difficulties that have
adversely affected their credit standing. The prolonged effects of such
financial difficulties could adversely affect the market value of the Mas-
sachusetts Municipal Securities held by the Fund. The information summa-
rized below describes some of the more significant factors that could af-
fect the Fund or the ability of the obligors to pay debt service on cer-
tain of these securities. 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 offi-
cials. The Fund has not independently verified any of the information con-
tained in such statements and documents, but the Fund is not aware of
facts which would render such information inaccurate.
Fiscal Matters -- General. The Commonwealth's constitution requires, in
effect, that its budget, though not necessarily its operating expenditures
and revenues, be balanced each year. In addition, the Commonwealth has
certain budgetary procedures and fiscal controls in place that are de-
signed to ensure that sufficient cash is available to meet the Common-
wealth's obligations, that state expenditures are consistent with periodic
allotments of annual appropriations and that funds are expended consistent
with statutory and public purposes. The General Fund, in addition to being
the Commonwealth's primary operating fund, ordinarily functions as a re-
siduary fund to receive otherwise unallocated revenues and to provide mon-
ies to transfer to the other operating funds as required. The condition of
the General Fund generally is regarded as the principal indicator of
whether the Commonwealth's operating revenues and expenses are in balance.
The other principal operating funds (the Local Aid Fund and the Highway
Fund) are customarily funded to at least a zero balance.
The Commonwealth of Massachusetts has recently experienced fiscal diffi-
culties. Operating losses in fiscal 1989, 1990 and 1991, which totalled
$672 million, $1.251 billion and $21.2 million, respectively, were covered
primarily through deficit borrowings. During the period, fund balances in
the budgeted operating funds declined from opening balances of $353.2 mil-
lion in fiscal 1989 to ending balances of $549.4 million in fiscal 1992.
According to the Preliminary Report of the Commonwealth relating to fiscal
1993, the budgeted operating funds of the Commonwealth ended fiscal 1993
with a deficiency of revenues and other sources over expenditures and
other uses of $51.3 million and aggregate ending fund balances in the bud-
geted operating funds of the Commonwealth of approximately $498.1 million.
On July 19, 1993, the Governor signed into law the fiscal 1994 budget. As
signed by the Governor, the budget authorizes approximately $15.463 bil-
lion in fiscal 1994 expenditures. The Legislature had originally approved
a fiscal 1994 budget with appropriations totalling $15.545 billion. The
Governor exercised his authority to veto and reduce individual line-items
and reduced total expenditures by approximately $82.4 million in order to
bring the fiscal 1994 budget into balance and to fund fiscal 1993 appro-
priations continued into fiscal 1994 and certain other fiscal 1994 expen-
ditures which the Governor believes will be necessary. Total budgeted ex-
penditures and other uses for fiscal 1994 (excluding any supplemental ap-
propriations) are currently estimated to be approximately $15.500 billion.
Budgeted revenues and other sources to be collected in fiscal 1994 are
currently estimated by the Executive Office for Administration and Finance
to be approximately $14.483 billion. On September 24, 1993, the Governor
filed a supplemental appropriations bill recommending $75.4 million in
fiscal 1994 appropriations. The Governor had previously filed on June 28
and August 25, two other supplemental appropriation bills totalling $34.0
million to fund certain collective bargaining agreements. The Legislature
has not yet acted upon any of these supplemental appropriation bills.
The current economic slowdown in Massachusetts has led to decreased tax
revenues (due to decreasing growth in personal income, decreasing corpo-
rate profits and a decline in sales tax revenues) and to increased expen-
ditures. Municipalities and agencies of the Commonwealth are experiencing
the same economic effects. Moreover, they are affected by the financial
condition of the Commonwealth because they receive substantial funding
from the Commonwealth.
Limitations on Tax Revenues. In Massachusetts efforts to limit and reduce
levels of taxation have been under way for several years. Limits were es-
tablished on state tax revenues by legislation enacted on October 25, 1986
and by an initiative petition approved by the voters on November 4, 1986.
The two measures are inconsistent in several respects.
Chapter 62F, which was added to the General Laws by initiative petition in
November 1986, establishes a state tax revenue growth limit for each fis-
cal year equal to the average positive rate of growth in total wages and
salaries in the Commonwealth, as reported by the federal government, dur-
ing the three calendar years immediately preceding the end of such fiscal
year. Chapter 62F also requires that allowable state tax revenues be re-
duced by the aggregate amount received by local governmental units from
any newly authorized or increased local option taxes or excises. Any ex-
cess 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 li-
ability of all taxpayers in the Commonwealth for the immediately preceding
tax year. The legislation enacted in October 1986, which added Chapter 29B
to the General Laws, also establishes an allowable state revenue growth
factor by reference to total wages and salaries in the Commonwealth. How-
ever, rather than utilizing a three-year average wage and salary growth
rate, as used by Chapter 62F, Chapter 29B's formula utilizes one-third of
the positive percentage gain in Massachusetts wages and salaries, as re-
ported by the federal government, during the three calendar years immedi-
ately preceding the end of a given fiscal year. Additionally, unlike Chap-
ter 62F, Chapter 29B excludes from its definition of state tax revenues
income derived from local option taxes and excises and from revenues
needed to fund debt service costs.
Tax revenues in fiscal 1989 through fiscal 1993 were lower than the limit
set by either Chapter 62F or Chapter 29B. The Executive Office for Admin-
istration and Finance currently estimates that state tax revenues in fis-
cal 1994 will not reach the limit imposed by either of these statutes.
In January 1992 the Governor announced his intention to seek an amendment
to the state constitution that would require any Commonwealth tax increase
to receive at least a two-thirds majority vote in each house of the Legis-
lature. No action has yet been taken on this proposal.
Proposition 2 1/2 . In November of 1980, voters in the Commonwealth ap-
proved 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 provi-
sion 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 (a) 2.5% of the full and fair cash valuation of the
real estate and personal property therein, and (b) 2.5% over the previous
year's levy limit plus any growth in the tax base from certain new con-
struction and parcel subdivisions. Proposition 2 1/2 also limits any in-
crease in the charges and fees assessed by certain governmental entities,
including county governments, on cities and towns to the sum of (a) 2.5%
of the total charges and fees imposed in the preceding fiscal year, and
(b) any increase in charges for services customarily provided locally or
services obtained by the city or town at its option.
Many communities have responded to the limitation imposed by Proposition 2
1/2 through statutorily permitted overrides and exclusions. Override ac-
tivity peaked in fiscal 1991, when 182 communities attempted votes on one
of the three types of referenda questions (override of levy limit, exclu-
sion of debt service, or exclusion of capital expenditures) and 100 passed
at least one question, adding $58.5 million to their levy limits. In fis-
cal 1992, 67 of 143 communities had successful votes totalling $31.0 mil-
lion. In fiscal 1993, 83 communities attempted a vote; two-thirds of them
(56) passed questions aggregating $16.4 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.
Local Aid. 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 1994
approximately 28.7% of the Commonwealth's budget is estimated to be allo-
cated to Local Aid. Local Aid payments to cities, towns and regional
school districts take the form of both direct and indirect assistance.
Direct Local Aid decreased from $2.961 billion in fiscal 1989 to $2.328
billion in fiscal 1992 and increased to $2.488 billion in fiscal 1993. It
is estimated that fiscal 1994 expenditures for direct Local Aid will be
$2.737 billion, which is an increase of approximately 10.0% above the fis-
cal 1993 level. The additional amount of indirect Local Aid provided over
and above direct Local Aid was approximately $1.717 billion in fiscal
1993. It is estimated that in fiscal 1994 approximately $1.717 billion of
indirect Local Aid will also be paid.
A statute adopted by voter initiative petition to the November 1990 state-
wide election regulates the distribution of Local Aid to cities and towns.
The statute requires that, subject to annual appropriation, no less than
40% of collections from personal income taxes, sales and use taxes, corpo-
rate 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 would call for such an increase in
fiscal 1993 and in subsequent years. However, Local Aid payments expressly
remain subject to annual appropriation, and fiscal 1992 and fiscal 1993
appropriations for Local Aid did not meet, and fiscal 1994 appropriations
for Local Aid do not meet, the levels set forth in the initiative law.
Commonwealth Expenditures. From fiscal 1989 to fiscal 1990 budgeted expen-
ditures of the Commonwealth increased approximately 4.9% to $13.260 mil-
lion. Fiscal 1991 budgeted expenditures were $13.655 billion, or a 3.0%
increase over fiscal 1990 budgeted expenditures. For fiscal 1992, budgeted
expenditures were $13.420 billion, representing a decline of 1.7% from the
level of budgeted expenditures in fiscal 1991. Fiscal 1993 budgeted expen-
ditures were $14.712 billion, an increase of 9.7% from fiscal 1992. It is
estimated that fiscal 1994 budgeted expenditures will be $15.500 billion,
an increase of 5.4% over the fiscal 1993 level.
Commonwealth expenditures since fiscal 1989 largely reflect significant
growth in several programs and services provided by the Commonwealth,
principally Medicaid and group health insurance; public assistance pro-
grams; debt service; pensions; and assistance to the Massachusetts Bay
Transportation Authority and regional transit authorities.
The Commonwealth's pension systems were established on a pay-as-you-go
basis. The Commonwealth's unfunded actuarial pension liability is signifi-
cant -- approximately $8.485 billion as of January 1, 1992, for state em-
ployees and teachers and local retirement system cost-of-living increases.
The amount in the state's pension reserve, established to address the un-
funded liabilities of the two state systems, has increased significantly
in recent years due to substantial appropriations and changes in the law
relating to investment of retirement systems assets. As of June 30, 1993,
the reserve was approximately $3.877 billion. Comprehensive pension legis-
lation approved in 1988 committed the Commonwealth to fund future pension
liabilities currently and to amortize the Commonwealth's accumulated un-
funded liabilities over 40 years.
Other Factors. Many factors affect the financial condition of the Common-
wealth, 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, particu-
larly its human services programs, is in significant part dependent upon
continuing Federal reimbursements which have been declining.
Federal legislation in recent years has resulted in substantial reductions
in direct Federal payments and grants to states and municipalities for
programs in social service, water pollution control and other areas. Fed-
eral reimbursements have also declined as a result of decreased state ex-
penditures. Further loss of Federal grants and financing by the Common-
wealth could exacerbate the economic slowdown and cause programs to be
curtailed or cause the recipients of such funding to find other revenue
sources.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the Prospec-
tus applies to purchases made by any "purchaser," which is defined to in-
clude the following: (a) an individual; (b) an individual, his or her im-
mediate family purchasing shares for his or her own account; (c) a trustee
or other fiduciary purchasing shares for a single trust estate or single
fiduciary account; (d) a pension, profit-sharing or other employee benefit
plan qualified under Section 401(a) of the Code, and qualified employee
benefit plans of employers who are "affiliated persons" of each other
within the meaning of the 1940 Act; (e) tax-exempt organizations enumer-
ated in Section 501(c) (3) or (13) of the Code; (f) any other organized
group of persons, provided the organization has been in existence for at
least six months and was organized for a purpose other than the purchase
of investment company securities at a discount; and (g) a trustee or other
professional fiduciary (including a bank, or an investment adviser regis-
tered with the SEC under the Investment Advisers Act of 1940) 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 their Smith Barney Shearson Fi-
nancial Consultants.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in
Class A shares of the Fund and in Class A shares of other funds in the
Smith Barney Shearson Group of Funds that are sold with a sales charge,
including the purchase being made, of any "purchaser" (as defined above)
is $25,000 or more. The reduced sales charge is subject to confirmation of
the shareholder's holdings through a check of appropriate records. The
Fund reserves the right to terminate or amend the combined right of accu-
mulation at any time after written notice to shareholders. For further in-
formation regarding the right of accumulation, shareholders should contact
their Smith Barney Shearson Financial Consultants.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The public
offering price per Class A share of the Fund is equal to the net asset
value per share at the time of purchase plus a sales charge based on the
aggregate amount of the investment. The public offering price per Class B
share (and Class A share purchases, including applicable rights of accumu-
lation, equalling or exceeding $1 million) 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 (a) Class B shares and (b) Class A
shares when purchased in amounts equalling or exceeding $1 million. The
method of computing the public offering price is shown in the Fund's fi-
nancial statements incorporated by reference into this Statement of Addi-
tional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any period during which the New York Stock Exchange, Inc. ("NYSE")
is closed (other than for customary weekend and holiday closings), (b)
when trading in the markets the Fund normally utilizes is restricted, or
an emergency, as determined by the SEC, exists 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.
DISTRIBUTIONS IN KIND
If the Fund's Board of Trustees determines that it would be detrimental to
the best interests of the remaining shareholders of the Fund to make a re-
demption payment wholly in cash, the Fund may pay, in accordance with
rules adopted by the SEC, any portion of a redemption in excess of the
lesser of $250,000 or 1% of the Fund's net assets by a distribution in
kind of portfolio securities in lieu of cash. Portfolio securities issued
in a distribution in kind will be readily marketable, although sharehold-
ers receiving distributions in kind may incur brokerage commissions when
subsequently disposing of 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 periodically. Withdrawals of at least
$50 monthly 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 2% per month of the value of a shareholder's
shares at the time the Withdrawal Plan commences. To the extent withdraw-
als 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 will reduce the
shareholder's investment and may ultimately exhaust it. Withdrawal pay-
ments should not be considered as income from investment in the Fund. Fur-
thermore, 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 par-
ticipating in the Withdrawal Plan, purchases by such shareholder in
amounts of less than $5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates
with TSSG as agent for Withdrawal Plan members. All dividends and distri-
butions on shares in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund. All applications for
participation in the Withdrawal Plan must be received by TSSG as With-
drawal Plan agent no later than the eighth day of the month to be eligible
for participation beginning with that month's withdrawal. The Withdrawal
Plan will not be carried over on exchanges between funds or classes of the
Fund ("Classes"). A new Withdrawal Plan application is required to estab-
lish the Withdrawal Plan in the new fund or Class. For additional informa-
tion, shareholders should contact their Smith Barney Shearson Financial
Consultants.
DISTRIBUTOR
Smith Barney Shearson serves as the Fund's distributor on a best efforts
basis pursuant to a written agreement dated July 30, 1993 (the "Distribu-
tion Agreement") which was first approved by the Fund's Board of Trustees
on April 7, 1993. For the fiscal years ended November 30, 1993, 1992 and
1991, Smith Barney Shearson or its precedessor, Shearson Lehman Brothers,
received $161,493, $324,607 and $210,903, respectively, in sales charges
from the sale of the Fund's Class A shares, and did not reallow any por-
tion thereof to dealers. For the period from November 6, 1992 through No-
vember 30, 1992 and for the fiscal year ended November 30, 1993, Smith
Barney Shearson or its predecessor, Shearson Lehman Brothers, received
from shareholders $0 and $11,913, respectively, in CDSC on the redemptions
of Class B shares.
Smith Barney Shearson forwards investors' funds for the purchase of Fund
shares five business days after placement of purchase orders (the "settle-
ment date"). When payment is made by the investor before settlement date,
unless otherwise directed by the investor, the funds will be held as a
free credit balance in the investor's brokerage account, and Smith Barney
Shearson may benefit from the temporary use of the funds. The investor may
designate another use for the funds prior to settlement date, such as an
investment in a money market fund (other than the Smith Barney Shearson
Money Market Fund) in the Smith Barney Shearson Group of Funds. If the in-
vestor instructs Smith Barney Shearson to invest the funds in a money mar-
ket fund in the Smith Barney Shearson Group of Funds, the amount of the
investment will be included as part of the average daily net assets of
both the Fund and the money market fund, and affiliates of Smith Barney
Shearson that serve the funds in an investment advisory capacity will ben-
efit from the fact that they are receiving investment management fees from
both such investment companies, computed on the basis of their average
daily net assets. The Fund's Board of Trustees has been advised of the
benefits to Smith Barney Shearson resulting from five-day settlement pro-
cedures and will take such benefits into consideration when reviewing the
Advisory and Distribution Agreements for continuance.
DISTRIBUTION ARRANGEMENTS
Shares of the Fund are distributed on a best efforts basis by Smith Barney
Shearson as exclusive sales agent of the Fund pursuant to the Distribution
Agreement. To compensate Smith Barney Shearson for the services it pro-
vides and for the expense it bears under the Distribution Agreement, the
Fund has adopted a services and distribution plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Fund pays Smith Barney
Shearson a service fee, accrued daily and paid monthly, calculated at the
annual rate of .15% of the value of the Fund's average daily net assets
attributable to the Class A and Class B shares. In addition, Class B
shares pay a distribution fee primarily intended to compensate Smith Bar-
ney Shearson for its initial expense of paying financial consultants a
commission upon sales of those shares. The Class B distribution fee is
calculated at the annual rate of .50% of the value of the Fund's average
net assets attributable to the shares of the Class. For the period from
November 6, 1992 through November 30, 1992, the Fund's Class A and Class B
shares paid $2,693 and $172, respectively, in service fees. For the same
period, the Fund's Class B shares paid $573 in distribution fees. For the
fiscal year ended November 30, 1993, the Fund's Class A and Class B shares
paid $45,865 and $19,835, respectively, in service fees. For the same pe-
riod, the Fund's Class B shares paid $66,117 in distribution fees.
Under its terms, the Plan continues from year to year, provided such con-
tinuance is approved annually by vote of the Fund's Board of Trustees, in-
cluding a majority of the Trustees who are not interested persons of the
Fund and who have no direct or indirect financial interest in the opera-
tion of the Plan or in the Distribution Agreement (the "Independent Trust-
ees"). The Plan may not be amended to increase the amount of the service
and distribution fees without shareholder approval, and all material
amendments of the Plan also must be approved by the Trustees and the Inde-
pendent Trustees in the manner described above. The Plan may be terminated
at any time with respect to a Class, without penalty, by vote of a major-
ity of the Independent Trustees or by a vote of a majority of the out-
standing voting securities of the Class (as defined in the 1940 Act). Pur-
suant to the Plan, Smith Barney Shearson will provide the Fund's Board of
Trustees with periodic reports of amounts expended under the Plan and the
purpose for which such expenditures were made.
VALUATION OF SHARES
The Prospectus discusses the time at which the net asset value of shares
of each Class of the Fund is determined for purposes of sales and redemp-
tions. Because of the differences in distribution fees and Class-specific
expenses, the per share net asset value of each Class will differ. The
following is a description of the procedures used by the Fund in valuing
its assets.
The valuation of the Fund's assets is made by Boston Advisors after con-
sultation with an independent pricing service (the "Service") approved by
the Fund's Board of Trustees. When, in the judgment of the Service, quoted
bid prices for investments are readily available and are representative of
the bid side of the market, these investments are valued at the mean be-
tween the quoted bid prices and asked prices. Investments for which, in
the judgment of the Service, there is no readily obtainable market quota-
tion (which may constitute a majority of the portfolio securities) are
carried at fair value as determined by the Service. For the most part,
such investments are liquid and may be readily sold. The Service may em-
ploy electronic data processing techniques and/or a matrix system to de-
termine valuations. The procedures of the Service are reviewed periodi-
cally by the officers of the Fund under the general supervision and re-
sponsibility of the Fund's Board of Trustees, which may replace any such
Service at any time if it determines it to be in the best interests of the
Fund to do so.
EXCHANGE PRIVILEGE
Class A and Class B shares of the Fund may be exchanged for shares of the
corresponding Class of many of the funds in the Smith Barney Shearson
Group of Funds, as indicated in the Prospectus, to the extent such shares
are offered for sale in the shareholder's state of residence.
Except as noted below, shareholders of any fund in the Smith Barney Shear-
son Group of Funds may exchange all or part of their shares for shares of
the same Class of other funds in the Smith Barney Shearson Group of Funds,
as listed in the Prospectus, on the basis of relative net asset value per
share at the time of exchange as follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds and the sales
charge differential, if any, will be applied. Class A shares of any
fund may be exchanged without a sales charge for shares of the funds
that are offered without a sales charge. Class A shares of any fund
purchased without a sales charge may be exchanged for shares sold with
a sales charge, and the appropriate sales charge differential will be
applied.
B. Class A shares of any fund acquired by a previous exchange of
shares purchased with a sales charge may be exchanged for Class A
shares of any of the other funds, and the sales charge differential,
if any, will be applied.
C. Class B shares of any fund may be exchanged without a sales
charge. Class B shares of the Fund exchanged for Class B shares of an-
other fund will be subject to the higher applicable CDSC of the two
funds and, for purposes of calculating CDSC rates and conversion peri-
ods, will be deemed to have been held since the date the shares being
exchanged were purchased.
Dealers other than Smith Barney Shearson must notify TSSG of the inves-
tor's prior ownership of Class A shares of Smith Barney Shearson High In-
come Fund and the account number in order to accomplish an exchange of
shares of Smith Barney Shearson High Income Fund under paragraph B above.
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 resident 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 any Smith Barney Shearson Financial Consultant.
Upon receipt of proper instructions and all necessary supporting docu-
ments, shares submitted for exchange are redeemed at the then-current net
asset value and, subject to any applicable CDSC, the proceeds are immedi-
ately invested, at a price as described above, in shares of the fund being
acquired. Smith Barney Shearson reserves 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, the Fund may quote yield or total return of a Class in
advertisements or in reports and other communications to shareholders. To
the extent any advertisement or sales literature of the Fund describes the
expenses or performance of any Class it will also disclose such informa-
tion for the other Class.
YIELD
A Class' 30-day yield figure described below is calculated according to a
formula prescribed by the SEC. The formula can be expressed as follows:
YIELD = 2 [(a-b / cd +1)6 -1]
Where: a =dividends and interest earned during the period.
b =expenses accrued for the period (net of reimbursement).
c =the average daily number of shares outstanding during the pe-
riod that were entitled to receive dividends.
d =the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Fund at a discount or pre-
mium, the formula generally calls for amortization of the discount or pre-
mium; the amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
The Fund's equivalent taxable 30-day yield for a Class of shares is com-
puted by dividing that portion of the Class' 30-day yield which is tax-
exempt by one minus a stated income tax rate and adding the product to
that portion, if any, of the Class' yield that is not tax-exempt.
Class A's yield and Class B's yield for the 30-day period ended November
30, 1993 (reflecting the waiver of the investment advisory and administra-
tion fees and reimbursement of expenses) was 4.47% and 4.15%, respec-
tively. Had fees not been waived and expenses reimbursed, the Fund's yield
for Class A and Class B shares for the same period would have been 4.10%
and 3.77%, respectively. The Fund's equivalent taxable yield for Class A
and Class B shares for that period (reflecting the waiver of the invest-
ment advisory and administration fees and reimbursement of expenses) would
have been 7.36% and 6.83%, respectively, assuming the payment of Federal
income taxes at a rate of 31% and Massachusetts income taxes at a rate of
12%. Had these fees not been waived and expenses reimbursed, the Fund's
equivalent taxable yield for Class A and Class B shares for the same pe-
riod would have been 6.75% and 6.21%, respectively.
The yields on municipal securities are dependent upon a variety of fac-
tors, including general economic and monetary conditions, conditions of
the municipal securities market, size of a particular offering, maturity
of the obligation offered and rating of the issue. Investors should recog-
nize that in periods of declining interest rates the Fund's yield for each
Class of shares will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates the Fund's yield for each
Class of shares will tend to be somewhat lower. Also, when interest rates
are falling, the inflow of net new money to the Fund from the continuous
sale of its shares will likely be invested in portfolio instruments pro-
ducing lower yields than the balance of the Fund's portfolio, thereby re-
ducing the current yield of the Fund. In periods of rising interest rates,
the opposite can be expected to occur.
AVERAGE ANNUAL TOTAL RETURN
A Class' "average annual total return" figures described in the Prospectus
and shown below are computed according to a formula prescribed by the SEC.
The formula can be expressed as follows:
P(1+T)n = ERV
Where: P =a hypothetical initial payment of $1,000.
T =average annual total return.
n =number of years.
ERV =Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5-, or 10-year period at the
end of a 1-, 5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and distri-
butions.
The average annual total return for Class A shares was as follows for the
periods indicated (reflecting the waiver of the Fund's investment advisory
and administration fees and reimbursement of expenses):
6.72% for the one-year period beginning on December 1, 1992 through Novem-
ber 30, 1993.
8.51% for the five-year period from December 1, 1988 through November 30,
1993.
9.22% per annum during the period from the Fund's commencement of opera-
tions on December 21, 1987 through November 30, 1993.
The average annual total return for Class B shares was as follows for the
periods indicated (reflecting the waiver of the Fund's investment advisory
and administration fees and reimbursement of expenses):
6.59% for the one-year period beginning on December 1, 1992 through Novem-
ber 30, 1993.
7.98% per annum during the period from commencement (November 6, 1992)
through November 30, 1993.
A Class' average annual total return figures assume that the maximum 4.50%
sales charge or maximum applicable CDSC assessed by the Fund has been de-
ducted from the hypothetical investment. Had the advisory and administra-
tion fees not been waived and expenses reimbursed, and assuming that the
maximum 4.50% sales charge had been deducted, Class A's average annual
total return would have been 11.32%, 8.88% and 9.30%, respectively, for
those same periods. Had the advisory and administration fees not been
waived and expenses reimbursed, and assuming the CDSC had not been de-
ducted at the time of redemption, Class B's average annual total return
would have been 10.67% and 11.28%, respectively, for the same periods.
AGGREGATE TOTAL RETURN
A Class' aggregate total return figures described in the Prospectus repre-
sent the cumulative change in the value of an investment in the Class for
the specified period and are computed by the following formula:
ERV-P / P
Where: P =a hypothetical initial payment of $10,000.
ERV =Ending Redeemable Value of a hypothetical $10,000 investment
made at the beginning of a 1-, 5-, or 10-year period at the
end of a 1-, 5-, or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and distri-
butions.
The aggregate total return for Class A shares was as follows for the peri-
ods indicated (reflecting the waiver of the Fund's investment advisory and
administration fees and reimbursement of expenses):
6.72% for the one-year period beginning on December 1, 1992 through Novem-
ber 30, 1993.
50.46% for the five-year period from December 1, 1988 through November 30,
1993.
68.89% for the period from the Fund's commencement of operations on Decem-
ber 21, 1987 through November 30, 1993.
The aggregate total return for Class B shares was as follows for the peri-
ods indicated (reflecting the waiver of the Fund's investment advisory and
administration fees and reimbursement of expenses):
6.59% for the one-year period beginning on December 1, 1992 through Novem-
ber 30, 1993.
8.53% for the period from commencement (November 6, 1992) through November
30, 1993.
A Class' aggregate total return figures assume that the maximum 4.50%
sales charge or maximum applicable CDSC has been deducted from the invest-
ment. If the maximum sales charge had not been deducted at the time of
purchase, Class A's aggregate total return for the same periods would have
been 11.74%, 57.55% and 76.85%, respectively. Also, if the maximum appli-
cable CDSC had not been deducted at the time of redemption, Class B's ag-
gregate total return for the same periods would have been 11.09% and
12.53%, respectively. Had fees not been waived and expenses reimbursed and
had the sales charge/CDSC not been applied, Class A's aggregate total re-
turn would have been 11.32%, 53.03% and 69.65%, respectively, for the same
periods, and Class B's aggregate total return would have been 10.67% and
12.06%, respectively, for the same periods.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future per-
formance. Each Class' net investment income changes in response to fluctu-
ations in interest rates and the expenses of the Fund. A Class' perfor-
mance will vary from time to time depending on market conditions, the com-
position of the Fund's portfolio and its operating expenses and the
expenses exclusively attributable to the Class. Consequently, any given
performance quotation should not be considered as representative of the
Class' performance for any specified period in the future. In addition,
because performance will vary, it may not provide a basis for comparing an
investment in a Class with certain bank deposits or other investments that
pay a fixed yield for a stated period of time. Investors comparing a
Class' performance with that of other investment companies should give
consideration to the quality and maturity of the respective investment
companies' portfolio securities.
TAXES
As described above and in the Fund's Prospectus, the Fund is designed to
provide shareholders with current income which is excluded from gross in-
come for Federal income tax purposes and which is exempt from Massachu-
setts personal income taxes. The Fund is not intended to constitute a bal-
anced investment program and is not designed for investors seeking capital
gains or maximum tax-exempt income irrespective of fluctuations in princi-
pal. Investment in the Fund would not be suitable for tax-exempt institu-
tions, qualified retirement plans, H.R. 10 plans and individual retirement
accounts because such investors would not gain any additional tax benefit
from the receipt of tax-exempt income.
The Fund intends to continue to qualify each year as a regulated invest-
ment company under the Code. If the Fund (a) qualifies as a regulated in-
vestment company and (b) distributes at least 90% of its taxable net in-
vestment income (including, for this purpose, net realized short-term cap-
ital 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 ex-
tent its taxable net investment income and its net realized long- and
short-term capital gains, if any, are distributed to its shareholders. Al-
though the Fund expects to be relieved of all or substantially all Federal
and state income or franchise taxes, depending upon the extent of its ac-
tivities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located or in which it is
otherwise deemed to be conducting business, that portion of the Fund's in-
come which is treated as earned in any such state or locality could be
subject to state and local tax. Any such taxes paid by the Fund would re-
duce the amount of income and gains available for distribution to share-
holders. All net investment income and net capital gains earned by the
Fund will be reinvested automatically in additional shares of the same
Class of the Fund at net asset value, unless the shareholder elects to re-
ceive dividends and distributions in cash. The Fund's net investment in-
come for dividend purposes consists of (a) interest accrued and discount
earned on the Fund's assets, (b) less amortization of market premium on
such assets, accrued expenses directly attributable to the Fund, and the
general expenses (e.g., legal, accounting and trustees' fees) of the Fund.
The amortization of market discount on the Fund's assets is not included
in the calculation of net income, unless the Fund elects to include ac-
crued market discount currently.
Because the Fund will distribute exempt-interest dividends, interest on
indebtedness incurred by a shareholder to purchase or carry Fund shares is
not deductible for Federal income tax purposes and Massachusetts personal
income tax purposes. If a shareholder receives exempt-interest dividends
with respect to any share and if the share is held by the shareholder for
six months or less, then, for Federal income tax purposes, any loss on the
sale or exchange of the share may, to the extent of exempt-interest divi-
dends, be disallowed. In addition, the Code may require a shareholder, if
he or she receives exempt-interest dividends, to treat as Federal taxable
income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that portion of any
exempt-interest dividend paid by the Fund which represents income derived
from private activity bonds held by the Fund may not retain its Federal
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" thereof.
Moreover, as noted in the Fund's Prospectus, (a) some or all of the Fund's
dividends may be a specific preference item, or a component of an adjust-
ment item, for purposes of the Federal individual and corporate alterna-
tive minimum taxes and (b) the receipt of the Fund's dividends and distri-
butions may affect a corporate shareholder's Federal "environmental" tax
liability. In addition, the receipt of the Fund's dividends and distribu-
tions may affect a foreign corporate shareholder's Federal "branch prof-
its" tax liability and the Federal "excess net passive income" tax liabil-
ity of a shareholder of a Subchapter S corporation. Shareholders should
consult their own tax advisors to determine whether they are (a) substan-
tial users with respect to a facility or related to such users within the
meaning of the Code or (b) subject to a Federal alternative minimum tax,
the Federal environmental tax, the Federal branch profits tax or the Fed-
eral excess net passive income tax.
As described above and in the Prospectus, the Fund may invest in municipal
bond index and interest rate futures contracts and options on these fu-
tures contracts. The Fund anticipates that these investment activities
will not prevent the Fund from qualifying as a regulated investment com-
pany; however, in order to continue to qualify as a regulated investment
company, the Fund might have to limit its investments in such municipal
bond index and interest rate futures contracts and options on these fu-
tures contracts. As a general rule, these investment activities will in-
crease or decrease the amount of long- and short-term capital gains or
losses realized by the 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 municipal bond index and
interest rate futures contracts and options on these futures contracts de-
scribed above (collectively referred to as "section 1256 contracts") is
taxed pursuant to a special "mark-to-market" system. Under the mark-to-
market system, the Fund may be treated as realizing a greater or lesser
amount of gains or losses than actually realized. As a general rule, gain
or loss on section 1256 contracts is treated as 60% long-term capital gain
or loss and 40% short-term capital gain or loss, and, accordingly, the
mark-to-market system generally will affect the amount of capital gains or
losses taxable to the Fund and the amount of distributions taxable to a
shareholder. Moreover, if the Fund invests in both section 1256 contracts
and offsetting positions in such contracts, then the Fund might not be
able to receive the benefit of certain recognized losses for an indetermi-
nate period of time. The Fund expects that its activities with respect to
section 1256 contracts and offsetting positions in those contracts (a)
will not cause it or its shareholders to be treated as receiving a materi-
ally greater amount of capital gains or distributions than actually real-
ized or received and (b) will permit it to use substantially all of the
losses for the fiscal years in which such losses actually occur.
While the Fund does not expect to realize a significant amount of net
long-term capital gains, any such realized capital gains will be distrib-
uted annually as described in the Fund's Prospectus. Such distributions
("capital gain dividends"), if any, will be taxable to shareholders as
long-term capital gains, regardless of how long a shareholder has held
Fund shares, and will be designated as capital gain dividends in a written
notice mailed by the Fund to shareholders after the close of the Fund's
prior taxable year. If a shareholder receives a capital gain dividend with
respect to any share and if the share has been held by the shareholder for
six months or less, then any loss (to the extent not disallowed pursuant
to the six-month rule described above relating to exempt-interest divi-
dends) on the sale or exchange of such share, to the extent of the capital
gain dividend, will be treated as a long-term capital loss.
If a shareholder (a) incurs a sales charge in acquiring shares of the
Fund, (b) disposes of those shares within 90 days and (c) acquires shares
in a mutual fund for which the otherwise applicable sales charge is re-
duced by reason of a reinvestment right (that is, exchange privilege), the
original sales charge increases the shareholder's tax basis in the origi-
nal shares only to the extent that the otherwise applicable sales charge
for the second acquisition is not reduced. The portion of the original
sales charge that does not increase the shareholder's tax basis in the
original shares would be treated as incurred with respect to the second
acquisition, and as a general rule, would increase the shareholder's tax
basis in the newly acquired shares. Furthermore, the same rule also ap-
plies to a disposition of the newly acquired or redeemed shares made
within 90 days of the second acquisition. This provision prevents a share-
holder from immediately deducting the sales charge or CDSC by shifting his
or her investment in a family of mutual funds.
Each shareholder will receive after the close of the calendar year an an-
nual statement as to the Federal income tax and Massachusetts personal in-
come tax status of his or her dividends and distributions from the Fund
for the prior calendar year. These statements also will designate the
amount of exempt-interest dividends that is a preference item for purposes
of the Federal individual and corporate alternative minimum taxes. Each
shareholder also will receive, if appropriate, various written notices
after the close of the Fund's prior taxable year as to the Federal income
tax status of his or her dividends and distributions which were received
from the Fund during the Fund's prior taxable year. Shareholders should
consult their tax advisors as to any other state and local taxes that may
apply to these dividends and distributions. The dollar amount of dividends
excluded or exempt from Federal income taxation and Massachusetts personal
income taxation and the dollar amount of dividends subject to Federal in-
come taxation and Massachusetts personal income taxation, if any, will
vary for each shareholder depending upon the size and duration of each
shareholder's investment in the Fund. To the extent the Fund earns taxable
net investment income, it intends to designate as taxable dividends the
same percentage of each day's dividend as its taxable net investment in-
come bears to its total net investment income earned on that day. There-
fore, the percentage of each day's dividend designated as taxable, if any,
may vary from day to day.
If a shareholder fails to furnish a correct taxpayer identification num-
ber, fails to report fully dividend or interest income, or fails to cer-
tify that he or she has provided a correct taxpayer identification number
and that he or she is not subject to "backup withholding," then the share-
holder may be subject to a 31% backup withholding tax with respect to (a)
taxable dividends and distributions and (b) the proceeds of any redemp-
tions of Fund shares. An individual's taxpayer identification number is
his or her social security number. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's regular Federal
income tax liability.
MASSACHUSETTS TAXES
In the opinion of the Fund's Massachusetts counsel, individual sharehold-
ers 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 attribut-
able to interest on obligations of the Commonwealth of Massachusetts and
its political subdivisions, agencies and public authorities (or on obliga-
tions of certain other governmental issuers such as Puerto Rico, the Vir-
gin Islands and Guam) that pay interest which is excluded from gross in-
come for Federal income tax purposes and exempt from Massachusetts per-
sonal income taxes. Other distributions from the Fund, including those
related to long- and short-term capital gains, other than certain gains
from certain Massachusetts Municipal Securities identified by the Massa-
chusetts Department of Revenue, generally will not be exempt from Massa-
chusetts personal income tax. Businesses should note that the Fund's dis-
tributions derived from Massachusetts Municipal Securities are not exempt
from Massachusetts corporate excise tax.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders and is not intended as a substi-
tute for careful tax planning. Investors are urged to consult their tax
advisors with specific reference to their own Federal, state and local tax
situations.
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as the Fund's custodian
pursuant to a custody agreement. Under the custody agreement, Boston Safe
holds the Fund's portfolio securities and keeps all necessary accounts and
records. For its services, Boston Safe receives a monthly fee based upon
the month-end market value of securities held in custody and also receives
securities transaction charges. The assets of the Fund are held under bank
custodianship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and pursu-
ant to a transfer agency agreement serves as the Fund's transfer agent.
Under the transfer agency agreement, TSSG maintains the shareholder ac-
count records for the Fund, handles certain communications between share-
holders and the Fund and distributes dividends and distributions payable
by the Fund. For these services, TSSG 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.
ORGANIZATION AND DESCRIPTION OF FUND SHARES
The Fund is a business trust established under the laws of the Common-
wealth of Massachusetts pursuant to a Master Trust Agreement dated January
13, 1987. The Fund commenced operations on December 21, 1987, under the
name Shearson Lehman Massachusetts Municipals. On December 7, 1988, August
27, 1990 and July 30, 1993, the Fund changed its name to SLH Massachusetts
Municipals Fund, Shearson Lehman Brothers Massachusetts Municipals Fund
and Smith Barney Shearson Massachusetts Municipals Fund, respectively
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. The Master
Trust Agreement disclaims shareholder liability for acts or obligations of
the Fund, however, and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Master Trust Agreement provides for indemnification
from Fund property for all losses and expenses of any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability
is limited to circumstances in which the Fund itself would be unable to
meet its obligations, a possibility which management of the Fund believes
is remote. Upon payment of any liability incurred by the Fund, a share-
holder paying such liability will be entitled to reimbursement from the
general assets of the Fund. The Trustees intend to conduct the operation
of the Fund in such a way so as to avoid, as far as possible, ultimate li-
ability of the shareholders for liabilities of the Fund.
DESCRIPTION OF SHARES
The Master Trust Agreement of the Fund permits the Trustees of the Fund to
issue an unlimited number of full and fractional shares of a single class
and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in
the Fund. Each share in the Fund represents an equal proportional interest
in the Fund with each other share. Shareholders of the Fund are entitled
upon its liquidation to share pro rata in its net assets available for
distribution. No shareholder of the Fund has any preemptive or conversion
rights. Shares of the Fund are fully paid and non-assessable.
Pursuant to the Master Trust Agreement, the Fund's Trustees may authorize
the creation of additional series of shares (the proceeds of which would
be invested in separate, independently managed portfolios) and additional
classes of shares within any series (which would be used to distinguish
among the rights of different categories of shareholders, as might be re-
quired by future regulations or other unforeseen circumstances).
VOTING RIGHTS
The shareholders of the Fund are entitled to a full vote for each full
share held (and a fractional vote for any fractional share held). The
Trustees of the Fund have the power to alter the number and the terms of
office of the Trustees, and have terms of unlimited duration (subject to
certain removal procedures) and may appoint their own successors, provided
at least a majority of the Trustees at all times have been elected by the
shareholders of the Fund. The voting rights of the shareholders of the
Fund are not cumulative, so that the holders of more than 50% of the
shares can, if they choose, elect all of the Trustees of the Fund; the
holders of the remaining shares of the Fund would be unable to elect any
of the Trustees.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended November 30, 1993 ac-
companies this Statement of Additional Information and is incorporated
into this Statement of Additional Information by reference in its en-
tirety.
APPENDIX
Description of S&P and Moody's ratings:
S&P RATINGS FOR MUNICIPAL BONDS
S&P's Municipal Bond ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue
bonds. General obligation bonds are usually secured by all resources
available to the municipality and the factors outlined in the rating defi-
nitions below are weighed in determining the rating. Because revenue bonds
in general are payable from specifically pledged revenues, the essential
element in the security for a revenue bond is the quantity and quality of
the pledged revenues available to pay debt service.
Although an appraisal of most of the same factors that bear on the quality
of general obligation bond credit is usually appropriate in the rating
analysis of a revenue bond, other factors are important, including partic-
ularly the competitive position of the municipal enterprise under review
and the basic security covenants. Although a rating reflects S&P's judg-
ment as to the issuer's capacity for the timely payment of debt service,
in certain instances it may also reflect a mechanism or procedure for an
assured and prompt cure of a default, should one occur, i.e., an insurance
program, Federal or state guarantee or the automatic withholding and use
of state aid to pay the defaulted debt service.
AAA
Prime -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible
to autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Qual-
ity of management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to re-
main, substantial. Stability of the pledged revenues is also exceptionally
strong, due to the competitive position of the municipal enterprise or to
the nature of the revenues. Basic security provisions (including rate cov-
enant, earnings test for issuance of additional bonds, and debt service
reserve requirements) are rigorous. There is evidence of superior manage-
ment.
AA
High Grade -- The investment characteristics of general obligation and
revenue bonds in this group are only slightly less marked than those of
the prime quality issues. Bonds rated "AA" have the second strongest ca-
pacity for payment of debt service.
A
Good Grade -- Principal and interest payments on bonds in this category
are regarded as safe. This rating describes the third strongest capacity
for payment of debt service. It differs from the two higher ratings be-
cause:
General Obligation Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expen-
ditures, or in quality of management. Under certain adverse circumstances,
any one such weakness might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional. Sta-
bility of the pledged revenues could show some variations because of in-
creased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Medium Grade -- Of the investment grade ratings, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" ratings is that the
latter shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among
the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged rev-
enues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and CC the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating cat-
egories, except in the AAA-Prime Grade category.
S&P RATINGS FOR MUNICIPAL NOTES
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) by S&P to distinguish more
clearly the credit quality of notes as compared to bonds. Notes rated SP-1
have a very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
the designation of SP-1+. Notes rated SP-2 have a satisfactory capacity to
pay principal and interest.
MOODY'S RATINGS FOR MUNICIPAL BONDS
Aaa
Bonds that are 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 ele-
ments are likely to change, such changes as can be visualized are most un-
likely 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 pro-
tective elements may be of greater amplitude or there may be other ele-
ments 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 se-
curity to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa
Bonds that are rated Baa are considered as medium-grade obligations, i.e.,
they are neither higfly protected nor poorly secured; interest payments
and principal security appear adequate for the present but certain protec-
tive elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment charac-
teristics and in fact have speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have speculative elements; their fu-
ture cannot be considered as well assured. Often the protection of inter-
est and principal payments may be very moderate and thereby not well safe-
guarded during both good and bad times over the future. Uncertainty of po-
sition characterizes bonds in this class.
B
Bonds that are rated B generally lack characteristics of the desirable in-
vestment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa
Bonds that are rated Caa are of poor standing. These issues may be in de-
fault or present elements of danger may exist with respect to principal or
interest.
Ca
Bonds that are rated Ca represent obligations that are speculative in a
high degree. These issues are often in default or have other marked short-
comings.
C
Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
MOODY'S RATINGS FOR MUNICIPAL NOTES
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction is in recognition of the differences between short- and long-
term credit risk. Loans bearing the designation MIG 1 or VMIG 1 are of the
best quality, enjoying strong protection by established cash flows of
funds for their servicing, from established and broad-based access to the
market for refinancing, or both. Loans bearing the designation MIG 2 or
VMIG 2 are of high quality, with margins of protection ample although not
as large as the preceding group. Loans bearing the designation MIG 3 or
VMIG 3 are of favorable quality, with all security elements accounted for
but lacking the undeniable strength of the preceding grades. Liquidity and
cash flow may be narrow and market access for refinancing is likely to be
less well established.
DESCRIPTION OF S&P A-1+ AND A-1 COMMERCIAL PAPER RATING
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the direct
credit support of an issuer or guarantor that possesses excellent long-
term operating and financial strengths combined with strong liquidity
characteristics (typically, such issuers or guarantors would display
credit quality characteristics which would warrant a senior bond rating of
"AA-" or higher), or the direct credit support of an issuer or guarantor
that possesses above-average long-term fundamental operating and financing
capabilities combined with ongoing excellent liquidity characteristics.
Paper rated A-1 by S&P has the following characteristics: liquidity ratios
are adequate to meet cash requirements; long-term senior debt is rated "A"
or better; the issuer has access to at least two additional channels of
borrowing; basic earnings and cash flow have an upward trend with allow-
ance made for unusual circumstances; typically, the issuer's industry is
well established and the issuer has a strong position within the industry;
and the reliability and quality of management are unquestioned.
DESCRIPTION OF MOODY'S PRIME-1 COMMERCIAL PAPER RATING
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are
the following: (1) evaluation of the management of the issuer; (2) eco-
nomic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and cus-
tomer acceptance; (4) liquidity; (5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years; (7) financial strength
of a parent company and the relationships which exist with the issuer; and
(8) recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
Two World Trade Center
New York, New York 10048 Fund 41
Smith Barney Shearson
MASSACHUSETTS
MUNICIPALS FUND
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 29, 1994
SMITH BARNEY SHEARSON
SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year ended November 30, 1993
and
the Report of Independent Accountants dated January 12, 1994 are incorporated
by reference to the Definitive 30(b)2-1 filed on January 25, 1994 as
Accession #0000053798-94-000030
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
Exhibit No. Description of Exhibit
All references are to the Registrant's registration statement on Form N-1A
(the "Registration Statement") as filed with the SEC on January 26, 1987
(File Nos. 33-11417 and 811-4994).
(1) (a) Amended and Restated Master Trust Agreement, dated November 5,
1992, is incorporated by reference to Post-Effective Amendment No. 12 filed on
November 26, 1993 ("Post-Effective Amendment No. 12").
(b) Amendment No. 1 to Registrant's Amended and Restated Master
Trust Agreement is incorporated by reference to Post-Effective Amendment No.
12.
(2) Registrant's By-Laws are incorporated by reference to the Registration
Statement.
(3) Not Applicable.
(4)(a) Registrant's form of stock certificate for Class A shares is
incorporated by reference to Pre-Effective Amendment No. 1 filed on December
2, 1987 ("Pre-Effective Amendment No. 1").
(b) Registrant's form of stock certificate for Class B shares is
incorporated by reference to Post-Effective Amendment No. 9 filed on October
23, 1992 ("Post-Effective Amendment No. 9").
(5) Investment Advisory Agreement with Greenwich Street Advisors, dated
July 30, 1993, is incorporated by reference to Post-Effective No. 12
(6) Distribution Agreement with Smith Barney Shearson Inc., dated July
30, 1993, is incorporated by reference to Post-Effective No. 12.
(7) Not Applicable.
(8) Custody Agreement with Boston Safe Deposit and Trust Company is
incorporated by reference to Pre-Effective Amendment No. 1.
(9) (a) Administration Agreement with The Boston Company Advisors,
Inc., dated May 21, 1993, is incorporated by reference to Post-Effective
Amendment No. 12.
(b) Transfer Agency Agreement with The Shareholder Services Group,
Inc., dated
August 2,1993, is filed herein.<R/>
(10) Not Applicable.
(11) (a) Consent of Morningstar Mutual Fund Values is incorporated by
reference to Post-Effective Amendment No. 9.
(b)
Consent of Independent Accountants is filed herein.
(c) Consent of Goodwin, Procter & Hoar, Special state Counsel, is
filed herein.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Services and Distribution Plan pursuant to Rule 12b-1, dated July 30,
1993, is incorporated by reference to Post-Effective Amendment No. 12.
Item 25. Persons Controlled by or under Common Control with Registrant
None
Item 26. Number of Holders of Securities
(1) (2)
Number of Record Holders by Class
Title of Class as of December 31, 1993
Beneficial Interest, Class A 807
par value $.001 per Class B 693
share
Item 27. Indemnification
The response to this item is incorporated by reference to the
Registration Statement.
Item 28(a). Business and Other Connections of Investment Adviser
Investment Adviser - - Greenwich Street Advisors
Greenwich Street Advisors, through its predecessors, has been in the
investment counseling business since 1934 and is a division of Mutual
Management Corp. ("MMC"). MMC was incorporated in 1978 and is a wholly owned
subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings"), which is in
turn a wholly owned subsidiary of The Travelers Inc. (formerly known as
Primerica Corporation) ("Travelers") .
The list required by this Item 28 of officers and directors of MMC and
Greenwich Street Advisors, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two fiscal years, is incorporated by
reference to Schedules A and D of FORM ADV filed by MMC on behalf of Greenwich
Street Advisors pursuant to the Advisers Act (SEC File No. 801-14437).
Prior to the close of business on July 30, 1993 (the "Closing"), Shearson
Lehman Advisors, a member of the Asset Management Group of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), served as the Registrant's
investment adviser. On the Closing, Travelers and Smith Barney, Harris Upham
& Co. Incorporated acquired the domestic retail brokerage and asset management
businesses of Shearson Lehman Brothers, which included the business of the
Registrant's prior investment adviser. Shearson Lehman Brothers was a wholly
owned subsidiary of Shearson Lehman Brothers Holdings Inc. ("Shearson
Holdings"). All of the issued and outstanding common stock of Shearson
Holdings (representing 92% of the voting stock) was held by American Express
Company. Information as to any past business vocation or employment of a
substantial nature engaged in by officers and directors of Shearson Lehman
Advisors can be located in Schedules A and D of FORM ADV filed by Shearson
Lehman Brothers on behalf of Shearson Lehman Advisors prior to July 30, 1993.
(SEC FILE NO. 801-3701)
1/27/94
Item 29. Principal Underwriters
Smith Barney Shearson Inc. ("Smith Barney Shearson") currently acts as
distributor for Smith Barney Shearson Managed Municipals Fund Inc., Smith
Barney Shearson New York Municipals Fund Inc., Smith Barney Shearson
California Municipals Fund Inc., Smith Barney Shearson Massachusetts
Municipals Fund, Smith Barney Shearson Global Opportunities Fund, Smith Barney
Shearson Aggressive Growth Fund Inc., Smith Barney Shearson Appreciation Fund
Inc., Smith Barney Shearson Small Capitalization Fund, Smith Barney Shearson
Worldwide Prime Assets Fund, Smith Barney Shearson Short-Term World Income
Fund, Smith Barney Shearson Principal Return Fund, Smith Barney Shearson
Municipal Money Market Fund Inc., Smith Barney Shearson Daily Dividend Fund
Inc., Smith Barney Shearson Government and Agencies Fund Inc., Smith Barney
Shearson Managed Governments Fund Inc., Smith Barney Shearson New York
Municipal Money Market Fund, Smith Barney Shearson California Municipal Money
Market Fund, Smith Barney Shearson Income Funds, Smith Barney Shearson Equity
Funds, Smith Barney Shearson Investment Funds Inc., Smith Barney Shearson
Precious Metals and Minerals Fund Inc., Smith Barney Shearson
Telecommunications Trust, Smith Barney Shearson Arizona Municipals Fund Inc.,
Smith Barney Shearson New Jersey Municipals Fund Inc., The USA High Yield Fund
N.V., Garzarelli Sector Analysis Portfolio N.V., The Advisors Fund L.P., Smith
Barney Shearson Fundamental Value Fund Inc., Smith Barney Shearson Series
Fund, The Trust for TRAK Investments, Smith Barney Shearson Income Trust,
Smith Barney Shearson FMA R Trust, Smith Barney Shearson Adjustable Rate
Government Income Fund, Smith Barney Shearson Florida Municipals Fund, Smith
Barney Funds, Inc., Smith Barney Equity Funds, Inc., Smith Barney Muni Funds,
Smith Barney World Funds, Inc., Smith Barney Money Funds, Inc., Smith Barney
Tax Free Money Fund, Inc., Smith Barney Variable Account Funds, Smith Barney
U.S. Dollar Reserve Fund (Cayman), Worldwide Special Fund, N.V., Worldwide
Securities Limited, (Bermuda), and various series of unit investment trusts.
Smith Barney Shearson is a wholly owned subsidiary of Smith Barney
Shearson Holdings Inc., which in turn is a wholly owned subsidiary of The
Travelers Inc. The information required by this Item 29 with respect to
each director, officer and partner of Smith Barney Shearson is incorporated by
reference to Schedule A of FORM BD filed by Smith Barney Shearson pursuant to
the Securities Exchange Act of 1934 (SEC File No. 812-8510).
1/27/94
Item 30. Location of Accounts and Records
(1) Smith Barney Shearson
Massachusetts Municipals Fund
Two World Trade Center
New York, New York 10048
(2) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(3) Boston Safe Deposit and Trust Company
Wellington Business Center
One Cabot Road
Medford, Massachusetts 02155
(4) Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
(5) The Shareholders Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
None
485(b) Certification
The Registrant hereby certifies that it meets all
requirements for
effectiveness pursuant to Rule 485(b) under the Securities
Act of 1933, as
amended.
The Registrant further represents pursuant to Rule
485(b)(2)(iv) that the
resignation of Richard P. Roelofs as Trustee of the
Registrant was not due
to any disagreement with the Registrant on any matter
relating to its
operation, policies or practices. Mr. Roelofs resigned his
position with the
Fund because there were too many interested trustees on the
Board.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant, SMITH
BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, has duly caused this Amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Boston, Commonwealth of
Massachusetts on the 24th day of January, 1994 .
SMITH BARNEY SHEARSON
MASSACHUSETTS MUNICIPALS FUND
By:/s/ Heath B.
McLendon*
Heath B. McLendon
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.*
Signature Title Date
/s/ Heath B. McLendon*
Heath B. McLendon Trustee
(Chairman of the Board)
1/24/94
/s/ Vincent Nave*
Vincent Nave Treasurer (Chief Financial
1/24/94
and Accounting Officer)
/s/ Alfred J. Bianchetti*
Alfred J. Bianchetti Trustee
1/24/94
/s/ Herbert Barg*
Herbert Barg Trustee
1/24/94
/s/ Robert E. Borgesen
Robert E. Borgesen Trustee
1/24/94
Martin Brody Trustee
/s/ Dwight B. Crane*
Dwight B. Crane Trustee
1/24/94
/s/ James J. Crisona*
James J. Crisona Trustee
1/24/94
/s/ Robert A. Frankel*
Robert A. Frankel Trustee
1/24/94
/s/ Peter H. Gallary*
Peter H. Gallary Trustee
1/24/94
Signature Title Date
/s/ Dr. Paul Hardin*
Dr. Paul Hardin Trustee
1/24/94
Stephen E. Kaufman Trustee
/s/ Joseph J. McCann*
Joseph J. McCann Trustee
1/24/94
*Signed by Lee D. Augsburger, their
duly authorized attorney-in-fact,
pursuant to power of attorney dated
October 20, 1992;
/s/ Lee D. Augsburger
Lee D. Augsburger
g/shared/domestic/clients/shearson/funds/mamu/n-1a13.doc
EXHIBIT 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Trustees of
Smith Barney Shearson Massachusetts Municipals Fund:
We hereby consent to the following with respect to Post-Effective
Amendment
No. 13 to the Registration Statement on Form N-1A (File No. 33-11417) under
the Securities
Act of 1933, as amended, of Smith Barney Shearson Massachusetts Municipals
Fund:
1. The incorporation by reference of our report dated January
12, 1994
accompanying the Annual Report for the fiscal year ended
November 30,
1993 of Smith Barney Shearson Massachusetts Municipals Fund,
in the
Statement of Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the
Prospectus.
3. The reference to our firm under the heading "Counsel and
Auditors" in
the Statement of Additional Information.
COOPERS & LYBRAND
Boston, Massachusetts
January 25, 1994
EXHIBIT 9(b)
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of August 2, 1993, between Smith Barney Shearson
Massachusetts Municipals Fund, (the "Fund"), a business trust organized
under the laws of the Commonwealth of Massachusetts and having its
principal place of business at Two World Trade Center, New York, NY 10048,
and THE SHAREHOLDER SERVICES GROUP, INC. (MA) (the "Transfer Agent"), a
Massachusetts corporation with principal offices at One Exchange Place, 53
State Street, Boston, Massachusetts 02109.
W I T N E S S E T H
That for and in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, Partnership Agreement, or similar
organizational document as the case may be, of the Fund as the same may be
amended from time to time.
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Fund, duly
authorized to give Oral Instructions or Written Instructions on behalf of
the Fund as indicated in a certificate furnished to the Transfer Agent
pursuant to Section 4(c) hereof as may be received by the Transfer Agent
from time to time.
(c) "Board of Directors" shall mean the Board of Directors,
Board of Trustees or, if the Fund is a limited partnership, the General
Partner(s) of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time deposit,
or cause to be deposited or held under the name or account of such a
custodian pursuant to a Custodian Agreement.
(f) "Fund" shall mean the entity executing this Agreement, and
if it is a series fund, as such term is used in the 1940 Act, such term
shall mean each series of the Fund hereafter created, except that
appropriate documentation with respect to each series must be presented to
the Transfer Agent before this Agreement shall become effective with
respect to each such series.
(g) "1940 Act" shall mean the Investment Company Act of 1940.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by the Transfer Agent from a person
reasonably believed by the Transfer Agent to be an Authorized Person;
(i) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the Securities
Act of 1933 and the 1940 Act.
(j) "Shares" refers collectively to such shares of capital
stock, beneficial interest or limited partnership interests, as the case
may be, of the Fund as may be issued from time to time and, if the Fund is
a closed-end or a series fund, as such terms are used in the 1940 Act any
other classes or series of stock, shares of beneficial interest or limited
partnership interests that may be issued from time to time.
(k) "Shareholder" shall mean a holder of shares of capital
stock, beneficial interest or any other class or series, and also refers to
partners of limited partnerships.
(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by the Transfer Agent to be an
Authorized Person and actually received by the Transfer Agent. Written
Instructions shall include manually executed originals and authorized
electronic transmissions, including telefacsimile of a manually executed
original or other process.
2. Appointment of the Transfer Agent. The Fund hereby appoints and
constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Fund and as shareholder servicing agent
for the Fund. The Transfer Agent accepts such appointments and agrees to
perform the duties hereinafter set forth.
3. Compensation.
(a) The Fund will compensate or cause the Transfer Agent to
be compensated for the performance of its obligations hereunder in
accordance with the fees set forth in the written schedule of fees annexed
hereto as Schedule A and incorporated herein. The Transfer Agent will
transmit an invoice to the Fund as soon as practicable after the end of
each calendar month which will be detailed in accordance with Schedule A,
and the Fund will pay to the Transfer Agent the amount of such invoice
within thirty (30) days after the Fund's receipt of the invoice.
In addition, the Fund agrees to pay, and will be billed
separately for, reasonable out-of-pocket expenses incurred by the Transfer
Agent in the performance of its duties hereunder. Out-of-pocket expenses
shall include, but shall not be limited to, the items specified in the
written schedule of out-of-pocket charges annexed hereto as Schedule B and
incorporated herein. Unspecified out-of-pocket expenses shall be limited to
those out-of-pocket expenses reasonably incurred by the Transfer Agent in
the performance of its obligations hereunder. Reimbursement by the Fund
for expenses incurred by the Transfer Agent in any month shall be made as
soon as practicable but no later than 15 days after the receipt of an
itemized bill from the Transfer Agent.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A, a revised fee schedule executed
and dated by the parties hereto.
4. Documents. In connection with the appointment of the Transfer
Agent the Fund shall deliver or caused to be delivered to the Transfer
Agent the following documents on or before the date this Agreement goes
into effect, but in any case within a reasonable period of time for the
Transfer Agent to prepare to perform its duties hereunder:
(a) If applicable, specimens of the certificates for Shares
of the Fund;
(b) All account application forms and other documents relating
to Shareholder accounts or to any plan, program or service offered by the
Fund;
(c) A signature card bearing the signatures of any officer of
the Fund or other Authorized Person who will sign Written Instructions or
is authorized to give Oral Instructions.
(d) A certified copy of the Articles of Incorporation, as
amended;
(e) A certified copy of the By-laws of the Fund, as amended;
(f) A copy of the resolution of the Board of Directors
authorizing the execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Fund with the
name, address and taxpayer identification number of each Shareholder, and
the number of Shares of the Fund held by each, certificate numbers and
denominations (if any certificates have been issued), lists of any accounts
against which stop transfer orders have been placed, together with the
reasons therefore, and the number of Shares redeemed by the Fund; and
(h) An opinion of counsel for the Fund with respect to the
validity of the Shares and the status of such Shares under the Securities
Act of 1933, as amended.
5. Further Documentation. The Fund will also furnish the Transfer
Agent with copies of the following documents promptly after the same shall
become available:
(a) each resolution of the Board of Directors authorizing the
issuance of Shares;
(b) any registration statements filed on behalf of the Fund
and all pre-effective and post-effective amendments thereto filed with the
Commission;
(c) a certified copy of each amendment to the Articles of
Incorporation or the By-laws of the Fund;
(d) certified copies of each resolution of the Board of
Directors or other authorization designating Authorized Persons; and
(e) such other certificates, documents or opinions as the
Transfer Agent may reasonably request in connection with the performance of
its duties hereunder.
6. Representations of the Fund. The Fund represents to the Transfer
Agent that all outstanding Shares are validly issued, fully paid and
non-assessable. When Shares are hereafter issued in accordance with the
terms of the Fund's Articles of Incorporation and its Prospectus, such
Shares shall be validly issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the Board of
Directors of the Fund shall declare a distribution payable in Shares, the
Fund shall deliver or cause to be delivered to the Transfer Agent written
notice of such declaration signed on behalf of the Fund by an officer
thereof, upon which the Transfer Agent shall be entitled to rely for all
purposes, certifying (i) the identity of the Shares involved, (ii) the
number of Shares involved, and (iii) that all appropriate action has been
taken.
8. Duties of the Transfer Agent. The Transfer Agent shall be
responsible for administering and/or performing those functions typically
performed by a transfer agent; for acting as service agent in connection
with dividend and distribution functions; and for performing shareholder
account and administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares in accordance with the terms of the Prospectus and
applicable law. The operating standards and procedures to be followed shall
be determined from time to time by agreement between the Fund and the
Transfer Agent and shall initially be as described in Schedule C attached
hereto. In addition, the Fund shall deliver to the Transfer Agent all
notices issued by the Fund with respect to the Shares in accordance with
and pursuant to the Articles of Incorporation or By-laws of the Fund or as
required by law and shall perform such other specific duties as are set
forth in the Articles of Incorporation including the giving of notice of
any special or annual meetings of shareholders and any other notices
required thereby.
9. Record Keeping and Other Information. The Transfer Agent shall
create and maintain all records required of it pursuant to its duties
hereunder and as set forth in Schedule C in accordance with all applicable
laws, rules and regulations, including records required by Section 31(a) of
the 1940 Act. All records shall be available during regular business hours
for inspection and use by the Fund. Where applicable, such records shall
be maintained by the Transfer Agent for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this
Agreement for reasonable visitation by the Fund, or any person retained by
the Fund as may be necessary for the Fund to evaluate the quality of the
services performed by the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in Schedule
C, the Transfer Agent shall perform such other duties and functions, and
shall be paid such amounts therefor, as may from time to time be agreed
upon in writing between the Fund and the Transfer Agent. The compensation
for such other duties and functions shall be reflected in a written
amendment to Schedule A or B and the duties and functions shall be
reflected in an amendment to Schedule C, both dated and signed by
authorized persons of the parties hereto.
11. Reliance by Transfer Agent; Instructions
(a) The Transfer Agent will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any
notice of any change of authority of any person until receipt of a Written
Instruction thereof from the Fund pursuant to Section 4(c). The Transfer
Agent will also have no liability when processing Share certificates which
it reasonably believes to bear the proper manual or facsimile signatures of
the officers of the Fund and the proper countersignature of the Transfer
Agent.
(b) At any time, the Transfer Agent may apply to any
Authorized Person of the Fund for Written Instructions and may seek advice
from legal counsel for the Fund, or its own legal counsel, with respect to
any matter arising in connection with this Agreement, and it shall not be
liable for any action taken or not taken or suffered by it in good faith in
accordance with such Written Instructions or in accordance with the opinion
of counsel for the Fund or for the Transfer Agent. Written Instructions
requested by the Transfer Agent will be provided by the Fund within a
reasonable period of time. In addition, the Transfer Agent, its officers,
agents or employees, shall accept Oral Instructions or Written Instructions
given to them by any person representing or acting on behalf of the Fund
only if said representative is an Authorized Person. The Fund agrees that
all Oral Instructions shall be followed within one business day by
confirming Written Instructions, and that the Fund's failure to so confirm
shall not impair in any respect the Transfer Agent's right to rely on Oral
Instructions. The Transfer Agent shall have no duty or obligation to
inquire into, nor shall the Transfer Agent be responsible for, the legality
of any act done by it upon the request or direction of a person reasonably
believed by the Transfer Agent to be an Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to
inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Shares or the sufficiency of the amount to be
received therefor; (ii) the legality of the redemption of any Shares, or
the propriety of the amount to be paid therefor; (iii) the legality of the
declaration of any dividend by the Board of Directors, or the legality of
the issuance of any Shares in payment of any dividend; or (iv) the legality
of any recapitalization or readjustment of the Shares.
12. Acts of God, etc. The Transfer Agent will not be liable or
responsible for delays or errors by acts of God or by reason of
circumstances beyond its control, including acts of civil or military
authority, national emergencies, labor difficulties, mechanical breakdown,
insurrection, war, riots, or failure or unavailability of transportation,
communication or power supply, fire, flood or other catastrophe.
13. Duty of Care and Indemnification. Each party hereto (the
"Indemnifying Party') will indemnify the other party (the "Indemnified
Party") against and hold it harmless from any and all losses, claims,
damages, liabilities or expenses of any sort or kind (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or suit
or other proceeding (a "Claim") unless such Claim has resulted from a
negligent failure to act or omission to act or bad faith of the Indemnified
Party in the performance of its duties hereunder. In addition, the Fund
will indemnify the Transfer Agent against and hold it harmless from any
Claim, damages, liabilities or expenses (including reasonable counsel fees)
that is a result of: (i) any action taken in accordance with Written or
Oral Instructions, or any other instructions, or share certificates
reasonably believed by the Transfer Agent to be genuine and to be signed,
countersigned or executed, or orally communicated by an Authorized Person;
(ii) any action taken in accordance with written or oral advice reasonably
believed by the Transfer Agent to have been given by counsel for the Fund
or its own counsel; or (iii) any action taken as a result of any error or
omission in any record (including but not limited to magnetic tapes,
computer printouts, hard copies and microfilm copies) delivered, or caused
to be delivered by the Fund to the Transfer Agent in connection with this
Agreement.
In any case in which the Indemnifying Party may be asked to indemnify
or hold the Indemnified Party harmless, the Indemnifying Party shall be
advised of all pertinent facts concerning the situation in question. The
Indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party although
the failure to do so shall not prevent recovery by the Indemnified Party.
The Indemnifying Party shall have the option to defend the Indemnified
Party against any Claim which may be the subject of this indemnification,
and, in the event that the Indemnifying Party so elects, such defense shall
be conducted by counsel chosen by the Indemnifying Party and satisfactory
to the Indemnified Party, and thereupon the Indemnifying Party shall take
over complete defense of the Claim and the Indemnified Party shall sustain
no further legal or other expenses in respect of such Claim. The
Indemnified Party will not confess any Claim or make any compromise in any
case in which the Indemnifying Party will be asked to provide
indemnification, except with the Indemnifying Party's prior written
consent. The obligations of the parties hereto under this Section shall
survive the termination of this Agreement.
14. Consequential Damages. In no event and under no circumstances
shall either party under this Agreement be liable to the other party for
indirect loss of profits, reputation or business or any other special
damages under any provision of this Agreement or for any act or failure to
act hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date first
written above and shall continue until August 2, 1994, and thereafter shall
automatically continue for successive annual periods ending on the
anniversary of the date first written above, provided that it may be
terminated by either party upon written notice given at least 60 days prior
to termination.
(b) In the event a termination notice is given by the Fund,
it shall be accompanied by a resolution of the Board of Directors,
certified by the Secretary of the Fund, designating a successor transfer
agent or transfer agents. Upon such termination and at the expense of the
Fund, the Transfer Agent will deliver to such successor a certified list of
shareholders of the Fund (with names and addresses), and all other relevant
books, records, correspondence and other Fund records or data in the
possession of the Transfer Agent, and the Transfer Agent will cooperate
with the Fund and any successor transfer agent or agents in the
substitution process.
16. Confidentiality. Both parties hereto agree that any non public
information obtained hereunder concerning the other party is confidential
and may not be disclosed to any other person without the consent of the
other party, except as may be required by applicable law or at the request
of the Commission or other governmental agency. The parties further agree
that a breach of this provision would irreparably damage the other party
and accordingly agree that each of them is entitled, without bond or other
security, to an injunction or injunctions to prevent breaches of this
provision.
17. Amendment. This Agreement may only be amended or modified by a
written instrument executed by both parties.
18. Subcontracting. The Fund agrees that the Transfer Agent may, in
its discretion, subcontract for certain of the services described under
this Agreement or the Schedules hereto; provided that the appointment of
any such Transfer Agent shall not relieve the Transfer Agent of its
responsibilities hereunder.
19. Miscellaneous.
(a) Notices. Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund or the
Transfer Agent, shall be sufficiently given if addressed to that party and
received by it at its office set forth below or at such other place as it
may from time to time designate in writing.
To the Fund:
Smith Barney Shearson Massachusetts Municipals Fund
Two World Trade Center, Floor 100
New York, NY 10048
Attention: Richard Roelofs
To the Transfer Agent:
The Shareholder Services Group
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Robert F. Radin, President
with a copy to TSSG Counsel
(b) Successors. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and
assigns, provided, however, that this Agreement shall not be assigned to
any person other than a person controlling, controlled by or under common
control with the assignor without the written consent of the other party,
which consent shall not be unreasonably withheld.
(c) Governing Law. This Agreement shall be governed
exclusively by the laws of the State of New York without reference to the
choice of law provisions thereof. Each party hereto hereby agrees that (i)
the Supreme Court of New York sitting in New York County shall have
exclusive jurisdiction over any and all disputes arising hereunder; (ii)
hereby consents to the personal jurisdiction of such court over the parties
hereto, hereby waiving any defense of lack of personal jurisdiction; and
(iii) appoints the person to whom notices hereunder are to be sent as agent
for service of process.
(d) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original;
but such counterparts shall, together, constitute only one instrument.
(e) Captions. The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(f) Use of Transfer Agent's Name. The Fund shall not use the
name of the Transfer Agent in any Prospectus, Statement of Additional
Information, shareholders' report, sales literature or other material
relating to the Fund in a manner not approved prior thereto in writing;
provided, that the Transfer Agent need only receive notice of all
reasonable uses of its name which merely refer in accurate terms to its
appointment hereunder or which are required by any government agency or
applicable law or rule. Notwithstanding the foregoing, any reference to the
Transfer Agent shall include a statement to the effect that it is a wholly
owned subsidiary of First Data Corporation.
(g) Use of Fund's Name. The Transfer Agent shall not use the
name of the Fund or material relating to the Fund on any documents or forms
for other than internal use in a manner not approved prior thereto in
writing; provided, that the Fund need only receive notice of all reasonable
uses of its name which merely refer in accurate terms to the appointment of
the Transfer Agent or which are required by any government agency or
applicable law or rule.
(h) Independent Contractors. The parties agree that they are
independent contractors and not partners or co-venturers.
(i) Entire Agreement; Severability. This Agreement and the
Schedules attached hereto constitute the entire agreement of the parties
hereto relating to the matters covered hereby and supersede any previous
agreements. If any provision is held to be illegal, unenforceable or
invalid for any reason, the remaining provisions shall not be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers, as of the day
and year first above written.
SMITH BARNEY SHEARSON THE SHAREHOLDER SERVICES
MASSACHUSETTS GROUP, INC.
MUNICIPALS FUND
By: /s/ Richard P. Roloefs By /s/ Michael G. McCarthy
Title: President Title: Vice President
A-1
Transfer Agent Fee
Schedule A
Class A shares
The Fund shall pay the Transfer Agent an annualized fee of $11.00 per
shareholder account that is open during any monthly period. Such fee shall
be billed by the Transfer Agent monthly in arrears on a prorated basis of
1/12 of the annualized fee for all accounts that are open during such a
month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent monthly in arrears.
Class B shares
The Fund shall pay the Transfer Agent an annualized fee of $12.50 per
shareholder account that is open during any monthly period. Such fee shall
be billed by the Transfer Agent monthly in arrears on a prorated basis of
1/12 of the annualized fee for all accounts that are open during such a
month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent monthly in arrears.
Class C shares
The Fund shall pay the Transfer Agent an annualized fee of $8.50 per
shareholder account that is open during any monthly period. Such fee shall
be billed by the Transfer Agent monthly in arrears on a prorated basis of
1/12 of the annualized fee for all accounts that are open during such a
month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent monthly in arrears.
Class D shares
The Fund shall pay the Transfer Agent an annualized fee of $9.50 per
shareholder account that is open during any monthly period. Such fee shall
be billed by the Transfer Agent monthly in arrears on a prorated basis of
1/12 of the annualized fee for all accounts that are open during such a
month.
The Fund shall pay the Transfer Agent an additional fee of $.125 per closed
account per month applicable to those shareholder accounts which close in a
given month and remain closed through the following month-end billing
cycle. Such fee shall be billed by the Transfer Agent monthly in arrears.
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class)
direct pass through to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including
all lease, maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment
and any
expenses incurred in connection with such terminals and
lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Record retention, retrieval and destruction costs, including,
but not
limited to exit fees harged by third party record keeping
vendors
- Third party audit reviews
- Insurance
- Such other miscellaneous expenses reasonably incurred by the
Transfer
Agent in performing its duties and responsibilities under
this
Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with the Transfer Agent. In addition,
the Fund will promptly reimburse the Transfer Agent for any other
unscheduled expenses incurred by the Transfer Agent whenever the Fund and
the Transfer Agent mutually agree that such expenses are not otherwise
properly borne by the Transfer Agent as part of its duties and obligations
under the Agreement.
C-1
Schedule C
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The Transfer Agent or its agent
shall maintain a record of the number of Shares held by each holder of
record which shall include name, address, taxpayer identification and which
shall indicate whether such Shares are held in certificates or
uncertificated form.
2. Shareholder Services. The Transfer Agent or its agent will
investigate all inquiries from shareholders of the Fund relating to
Shareholder accounts and will respond to all communications from
Shareholders and others relating to its duties hereunder and such other
correspondence as may from time to time be mutually agreed upon between the
Transfer Agent and the Fund. The Transfer Agent shall provide the Fund
with reports concerning shareholder inquires and the responses thereto by
the Transfer Agent, in such form and at such times as are agreed to by the
Fund and the Transfer Agent.
3. Share Certificates.
(a) At the expense of the Fund, it shall supply the Transfer
Agent or its agent with an adequate supply of blank share certificates to
meet the Transfer Agent or its agent's requirements therefor. Such Share
certificates shall be properly signed by facsimile. The Fund agrees that,
notwithstanding the death, resignation, or removal of any officer of the
Fund whose signature appears on such certificates, the Transfer Agent or
its agent may continue to countersign certificates which bear such
signatures until otherwise directed by Written Instructions.
(b) The Transfer Agent or its agent shall issue replacement
Share certificates in lieu of certificates which have been lost, stolen or
destroyed, upon receipt by the Transfer Agent or its agent of properly
executed affidavits and lost certificate bonds, in form satisfactory to the
Transfer Agent or its agent, with the Fund and the Transfer Agent or its
agent as obligees under the bond.
(c) The Transfer Agent or its agent shall also maintain a
record of each certificate issued, the number of Shares represented thereby
and the holder of record. With respect to Shares held in open accounts or
uncertificated form, i.e., no certificate being issued with respect
thereto, the Transfer Agent or its agent shall maintain comparable records
of the record holders thereof, including their names, addresses and
taxpayer identification. The Transfer Agent or its agent shall further
maintain a stop transfer record on lost and/or replaced certificates.
C-2
4. Mailing Communications to Shareholders; Proxy Materials. The
Transfer Agent or its agent will address and mail to Shareholders of the
Fund, all reports to Shareholders, dividend and distribution notices and
proxy material for the Fund's meetings of Shareholders. In connection with
meetings of Shareholders, the Transfer Agent or its Agent will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings, act as inspector of election at meetings and certify Shares voted
at meetings.
5. Sales of Shares
(a) Suspension of Sale of Shares. The Transfer Agent or its
agent shall not be required to issue any Shares of the Fund where it has
received a Written Instruction from the Fund or official notice from any
appropriate authority that the sale of the Shares of the Fund has been
suspended or discontinued. The existence of such Written Instructions or
such official notice shall be conclusive evidence of the right of the
Transfer Agent or its agent to rely on such Written Instructions or
official notice.
(b) Returned Checks. In the event that any check or other
order for the payment of money is returned unpaid for any reason, the
Transfer Agent or its agent will: (i) give prompt notice of such return to
the Fund or its designee; (ii) place a stop transfer order against all
Shares issued as a result of such check or order; and (iii) take such
actions as the Transfer Agent may from time to time deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or Repurchase of Shares. The
Transfer Agent or its agent shall process all requests to transfer or
redeem Shares in accordance with the transfer or repurchase procedures set
forth in the Fund's Prospectus.
The Transfer Agent or its agent will transfer or repurchase
Shares upon receipt of Oral or Written Instructions or otherwise pursuant
to the Prospectus and Share certificates, if any, properly endorsed for
transfer or redemption, accompanied by such documents as the Transfer Agent
or its agent reasonably may deem necessary.
The Transfer Agent or its agent reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the endorsement on
the instructions is valid and genuine. The Transfer Agent or its agent
also reserves the right to refuse to transfer or repurchase Shares until it
is satisfied that the requested transfer or repurchase is legally
authorized, and it shall incur no liability for the refusal, in good faith,
to make transfers or repurchases which the Transfer Agent or its agent, in
its good judgement, deems improper or unauthorized, or until it is
reasonably satisfied that there is no basis to any claims adverse to such
transfer or repurchase.
C-3
(b) Notice to Custodian and Fund. When Shares are redeemed,
the Transfer Agent or its agent shall, upon receipt of the instructions and
documents in proper form, deliver to the Custodian and the Fund or its
designee a notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on appropriate
accounts maintained by the Transfer Agent or its agent reflecting
outstanding Shares of the Fund and Shares attributed to individual
accounts.
(c) Payment of Repurchase Proceeds. The Transfer Agent or its
agent shall, upon receipt of the moneys paid to it by the Custodian for the
repurchase of Shares, pay such moneys as are received from the Custodian,
all in accordance with the procedures described in the written instruction
received by the Transfer Agent or its agent from the Fund.
The Transfer Agent or its agent shall not process or effect any
repurchase with respect to Shares of the Fund after receipt by the Transfer
Agent or its agent of notification of the suspension of the determination
of the net asset value of the Fund.
7. Dividends
(a) Notice to Agent and Custodian. Upon the declaration of
each dividend and each capital gains distribution by the Board of Directors
of the Fund with respect to Shares of the Fund, the Fund shall furnish or
cause to be furnished to the Transfer Agent or its agent a copy of a
resolution of the Fund's Board of Directors certified by the Secretary of
the Fund setting forth the date of the declaration of such dividend or
distribution, the ex-dividend date, the date of payment thereof, the record
date as of which shareholders entitled to payment shall be determined, the
amount payable per Share to the shareholders of record as of that date, the
total amount payable to the Transfer Agent or its agent on the payment date
and whether such dividend or distribution is to be paid in Shares of such
class at net asset value.
On or before the payment date specified in such resolution of
the Board of Directors, the Custodian of the Fund will pay to the Transfer
Agent sufficient cash to make payment to the shareholders of record as of
such payment date.
(b) Insufficient Funds for Payments. If the Transfer Agent
or its agent does not receive sufficient cash from the Custodian to make
total dividend and/or distribution payments to all shareholders of the Fund
as of the record date, the Transfer Agent or its agent will, upon notifying
the Fund, withhold payment to all Shareholders of record as of the record
date until sufficient cash is provided to the Transfer Agent or its agent.
C-4
Exhibit 1 to Schedule C
Summary of Services
The services to be performed by the Transfer Agent or its agent shall
be as follows:
A. DAILY RECORDS
Maintain daily the following information with respect to each
Shareholder account as received:
o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint tenant,
etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
o Answer written inquiries relating to Shareholder accounts
(matters relating to portfolio management, distribution of Shares and other
management policy questions will be referred to the Fund).
o Process additional payments into established Shareholder
accounts in accordance with Written Instruction from the Agent.
o Upon receipt of proper instructions and all required
documentation, process requests for repurchase of Shares.
o Identify redemption requests made with respect to
accounts in which Shares have been purchased within an agreed-upon period
of time for determining whether good funds have been collected with respect
to such purchase and process as agreed by the Agent in accordance with
written instructions set forth by the Fund.
o Examine and process all transfers of Shares, ensuring
that all transfer requirements and legal documents have been supplied.
C-5
o Issue and mail replacement checks.
o Open new accounts and maintain records of exchanges
between accounts
C. DIVIDEND ACTIVITY
o Calculate and process Share dividends and distributions
as instructed by the Fund.
o Compute, prepare and mail all necessary reports to
Shareholders or various authorities as requested by the Fund. Report to
the Fund reinvestment plan share purchases and determination of the
reinvestment price.
D. MEETINGS OF SHAREHOLDERS
o Cause to be mailed proxy and related material for all
meetings of Shareholders. Tabulate returned proxies (proxies must be
adaptable to mechanical equipment of the Agent or its agents) and supply
daily reports when sufficient proxies have been received.
o Prepare and submit to the Fund an Affidavit of Mailing.
o At the time of the meeting, furnish a certified list of
Shareholders, hard copy, microfilm or microfiche and, if requested by the
Fund, Inspection of Election.
E. PERIODIC ACTIVITIES
o Cause to be mailed reports, Prospectuses, and any other
enclosures requested by the Fund (material must be adaptable to mechanical
equipment of Agent or its agents).
o Receive all notices issued by the Fund with respect to the
Preferred Shares in accordance with and pursuant to the Articles of
Incorporation and the Indenture and perform such other specific duties as
are set forth in the Articles of Incorporation including a giving of notice
of a special meeting and notice of redemption in the circumstances and
otherwise in accordance with all relevant provisions of the Articles of
Incorporation.
shared\domestic\clients\shearson\funds\mamu\transfer.doc -17-
EXHIBIT 11(c)
GOODWIN, PROCTER & HOAR
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
Smith Barney Shearson Massachusetts Municipals Fund
Two World Trade Center
New York, NY 10048
Gentlemen:
We hereby consent to the reference to this firm's name in
the section of the Statment of Additional Information captioned
"Counsel and Auditors" that appears in Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A (Reg. No. 33-
11417) of Smith Barney Shearson Massachusetts Municipals Fund.
Sincerely,
/s/ Goodwin, Procter & Hoar
Goodwin, Procter & Hoar
shared\domestic\clients\shearson\funds\mamu\gp&h.doc
