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. 15
X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 X
Amendment No. 16
X
SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(212) 723-9218
Christina T. Sydor
Secretary
Smith Barney Massachusetts Municipals Fund
388 Greenwich Street
New York, New York 10013
(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, 1995 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 ending November 30, 1994 was filed on January 20,
1995 .
SMITH BARNEY 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
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objective and
Management Policies; Massachusetts
Municipal Securities;
Additional Information
5. Management of the Fund
Management of the Fund;
Distributor; Additional
Information; Annual Report
6. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Dividends,
Distributions and Taxes;
Additional Information
7. Purchase of Securities Being
Offered
Valuation of Shares; Purchase of
Shares; Exchange Privilege;
Redemption of Shares; Minimum
Account Size; Distributor
8. Redemption or Repurchase
Purchase of Shares; Redemption of
Shares; Exchange Privilege
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
Distributor; Additional
Information
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
17. Brokerage Allocation
Investment Objective and
Management Policies
18. Capital Stock and Other
Securities
Purchase of Shares; Redemption of
Shares; Taxes
19. Purchase, Redemption and
Pricing of
Securities Being Offered
Valuation of Shares; Purchase of
Shares; Exchange Privilege;
Redemption of Shares;
Distributor
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
PROSPECTUS JANUARY 29, 1995
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney 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, that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated January 29, 1995, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and 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
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
--------------------------------------------------------------
FINANCIAL HIGHLIGHTS 12
--------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 16
--------------------------------------------------------------
MASSACHUSETTS MUNICIPAL SECURITIES 22
--------------------------------------------------------------
VALUATION OF SHARES 25
--------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 26
--------------------------------------------------------------
PURCHASE OF SHARES 29
--------------------------------------------------------------
EXCHANGE PRIVILEGE 37
--------------------------------------------------------------
REDEMPTION OF SHARES 41
--------------------------------------------------------------
MINIMUM ACCOUNT SIZE 42
--------------------------------------------------------------
PERFORMANCE 43
--------------------------------------------------------------
MANAGEMENT OF THE FUND 44
--------------------------------------------------------------
DISTRIBUTOR 46
--------------------------------------------------------------
ADDITIONAL INFORMATION 48
--------------------------------------------------------------
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN
THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION
OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
BY THE FUND OR
THE DISTRIBUTOR TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION.
2
<PAGE>
SMITH BARNEY
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."
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."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of
shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rate of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.00% and are subject to an annual service fee of 0.15% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which when
combined with current holdings of Class A shares offered with a sales charge
equal or exceed $500,000 in the aggregate, will be made at net asset value with
no sales charge, but will be subject to a contingent deferred sales charge
("CDSC") of 1.00% on redemptions made within 12 months of purchase. See
"Prospectus Summary -- Reduced or No Initial Sales Charge."
3
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
CLASS B SHARES. Class B shares are offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% the first year
after purchase and by 1.00% each year thereafter to zero. This CDSC may be
waived for certain redemptions. Class B shares are subject to an annual service
fee of 0.15% and an annual distribution fee of 0.50% of the average daily net
assets of this Class. The Class B shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A shares.
CLASS B SHARES CONVERSION FEATURE. Class B shares will convert
automatically
to Class A shares, based on relative net asset value, eight years after the date
of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class B
shares that have been acquired through the reinvestment of dividends and
distributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares -- Deferred Sales Charge Alternatives."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.15% and an annual
distribution fee of 0.55% of the average daily net assets of this Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months of
purchase. This CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Class C shares, which when combined
with current holdings of Class C shares of the Fund equal or exceed $500,000 in
the aggregate, should be made in Class A shares at net asset value with no sales
charge, and will be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase.
CLASS Y SHARES. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
INTENDED HOLDING PERIOD. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length
4
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
of his or her investment. Shareholders who are planning to establish a program
of regular investment may wish to consider Class A shares; as the investment
accumulates, shareholders may qualify for reduced sales charges and the shares
are subject to lower ongoing expenses over the term of the investment. As an
alternative, Class B and Class C shares are sold without any initial sales
charge so the entire purchase price is immediately invested in the Fund. Any
investment return on these additional invested amounts may partially or wholly
offset the higher annual expenses of these Classes. Because the Fund's future
return cannot be predicted, however, there can be no assurance that this would
be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to any initial sales charge, CDSC or service or
distribution fees. The maximum purchase amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no maximum
purchase amount for Class Y shares.
REDUCED OR NO INITIAL SALES CHARGE. The initial sales charge on Class A
shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in the Fund. In addition, Class A share purchases,
which when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase. The $500,000 aggregate investment
may be met by adding the purchase to the net asset value of all Class A shares
held in funds sponsored by Smith Barney Inc. ("Smith Barney") listed under
"Exchange Privilege." Other Class A share purchases may also be eligible for a
reduced initial sales charge. See "Purchases of Shares." Because the ongoing
expenses of Class A
5
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
shares may be lower than those for Class B and Class C shares, purchasers
eligible to purchase Class A shares at net asset value or at a reduced sales
charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distributions and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor, Smith
Barney, a broker that clears securities transactions through Smith Barney on a
fully disclosed basis (an "Introducing Broker") or an investment dealer in the
selling group. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an
account by making an initial investment of at least $1,000 for each account.
Investors in Class Y shares may open an account for an initial investment of
$5,000,000. Subsequent investments of at least $50 may be made for all Classes.
The minimum initial investment requirement for Class A, Class B and Class C
shares and the subsequent investment requirement for all Classes through the
Systematic Investment Plan described below is $100. There is no minimum
investment requirement in Class A shares for unitholders who invest
distributions from a unit investment trust ("UIT") sponsored by Smith Barney.
See "Purchase of 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."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
6
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc.
("SBMFM")
serves as the Fund's investment adviser. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. ("Travelers"), a
diversified financial services holding company engaged, through its
subsidiaries, principally in four business segments: Investment Services,
Consumer Finance Services, Life Insurance Services and Property & Casualty
Insurance Services.
SBMFM also serves as the Fund's administrator and The Boston Company Advisors,
Inc. ("Boston Advisors") serves as the Fund's sub-administrator. Boston Advisors
is a wholly owned subsidiary of The Boston Company, Inc. ("TBC"), which in turn
is an indirect 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 of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differential.
See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. 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 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 were
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 subject to any sales
charge or CDSC. Class B shares acquired through
7
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
dividend and distribution reinvestments will become eligible for conversion to
Class A shares on a PRO RATA basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
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"), which are often referred to as "junk bonds," or in
unrated obligations of comparable quality. Securities in
8
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 certain portfolio
strategies by the Fund, such as 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 AND, UNLESS OTHERWISE NOTED, THE FUND'S
OPERATING
EXPENSES FOR ITS MOST RECENT FISCAL YEAR:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.00% None None None
Maximum CDSC (as a percentage of original
cost or redemption proceeds, whichever is
lower) None* 4.50% 1.00% None
-------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees (net of fee waivers) 0.18% 0.18% 0.18% 0.18%
12b-1 fees** 0.15 0.65 0.70 --
Other expenses*** 0.48 0.49 0.48 0.48
-------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.81% 1.32% 1.36%
0.66%
-------------------------------------------------------------------------------------
<FN>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value with no sales charge, but will be
subject to a CDSC of 1.00% on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
*** For Class Y shares, "Other expenses" have been estimated based on expenses
incurred by Class A shares because no Class Y shares had been sold as of
November 30, 1994.
</TABLE>
9
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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 actually
pay lower or no charges depending on the amount purchased and, in the case of
Class B, Class C and certain Class A shares, the length of time the shares are
held. See "Purchase of Shares" and "Redemption of Shares." Smith Barney receives
an annual 12b-1 service fee of 0.15% of the value of average daily net assets of
Class A shares. Smith Barney also receives, with respect to Class B shares, an
annual 12b-1 fee of 0.65% of the value of average daily net assets of that
Class, consisting of a 0.50% distribution fee and a 0.15% service fee. For Class
C shares, Smith Barney receives an annual 12b-1 fee of 0.70% of the value of
average daily net assets of that Class, consisting of a 0.55% distribution fee
and a 0.15% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees.
During the fiscal year ended November 30, 1994, the Fund's investment adviser
and administrator voluntarily waived portions of their fees in amounts equal to
0.17% and 0.10%, respectively, of the value of the Fund's average daily net
assets. This had the effect of lowering the Fund's overall expenses and
increasing the returns otherwise available to investors. If these fees had not
been waived, the Fund's total operating expenses for the 1994 fiscal year, as a
percentage of its average daily net assets, would have been 1.09%, 1.60% and
1.59% for Class A, Class B and Class C shares, respectively.
10
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
EXAMPLE THE FOLLOWING EXAMPLE IS INTENDED TO ASSIST AN INVESTOR
IN UNDERSTANDING
THE VARIOUS COSTS THAT AN INVESTOR IN THE FUND WILL BEAR
DIRECTLY OR INDIRECTLY.
THE EXAMPLE ASSUMES PAYMENT BY THE FUND OF OPERATING EXPENSES
AT THE LEVELS SET
FORTH IN THE TABLE ABOVE. SEE "PURCHASE OF SHARES," "REDEMPTION
OF SHARES" AND
"MANAGEMENT OF THE FUND."
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A $48 $65 $83 $136
Class B 58 72 82 145
Class C 24 43 74 164
Class Y 7 21 37 82
An investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A 48 65 83 136
Class B 13 42 72 145
Class C 14 43 74 164
Class Y 7 21 37 82
--------------------------------------------------------------------------------
<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.
</TABLE>
The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES
MAY BE GREATER OR
LESS THAN THOSE SHOWN.
11
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS &
LYBRAND L.L.P.,
INDEPENDENT ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE
FUND'S ANNUAL
REPORT. THE INFORMATION SET OUT BELOW SHOULD BE READ IN
CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES THAT ALSO APPEAR IN THE
FUND'S ANNUAL
REPORT DATED NOVEMBER 30, 1994, WHICH IS INCORPORATED BY
REFERENCE INTO THE
STATEMENT OF ADDITIONAL INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
11/30/94 11/30/93#
<S> <C> <C>
Operating performance:
Net Asset Value, beginning of year $ 13.26 $ 12.63
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income** 0.70 0.72
Net realized and unrealized gain/(loss) on investments (1.85) 0.72
- ---------------------------------------------------------------------------------
Total from investment operations (1.15) 1.44
Less Distributions:
Dividends from net investment income (0.69) (0.73)
Distributions in excess of net investment income (0.01) (0.01)
Distributions from net realized capital gains (0.06) (0.07)
Distributions from capital -- --
- ---------------------------------------------------------------------------------
Total Distributions (0.76) (0.81)
- ---------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.35 $ 13.26
- ---------------------------------------------------------------------------------
Total return+ (9.07)% 11.74%
- ---------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $27,634 $32,592
Ratio of operating expenses to average net assets*** 0.81% 0.82%
Ratio of net investment income to average net assets 5.55% 5.49%
Portfolio turnover rate 37% 10%
- ---------------------------------------------------------------------------------
<FN>
* The Fund commenced operations on December 21, 1987. Any shares outstanding
prior to November 6, 1992 were designated as Class A shares.
** Net investment income before voluntary waiver of fees and reimbursement of
expenses by investment adviser and sub-investment adviser and/or
administrator for the years ended November 30, 1994, 1993, 1992, 1991, 1990,
1989 and the fiscal period ended November 30, 1988 was $0.66, $0.67, $0.69,
$0.77, $0.80, $0.74, and $0.66, respectively.
*** Annualized expense ratios before voluntary waiver of fees and/or
reimbursement of expenses by investment adviser and sub-investment adviser
and/or administrator for the years ended November 30, 1994, 1993, 1992, 1991,
1990, 1989 and the period ended November 30, 1988 were 1.09%, 1.18%, 1.32%,
1.28%, 1.09%, 1.72% and 2.00%, respectively.
+ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
++ Annualized.
# Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for this year
since the use of the undistributed method does not accord with the results of
operations.
</TABLE>
12
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<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>
13
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
11/30/94 11/30/93# 11/30/92*
<S> <C> <C> <C>
Operating performance:
Net Asset Value, beginning of year $ 13.26 $ 12.63 $12.52
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income** 0.63 0.66 0.06
Net realized and unrealized gain on investments (1.84) 0.72 0.10
- -------------------------------------------------------------------------------------
Total from investment operations (1.21) 1.38 0.16
Less Distributions:
Dividends from net investment income (0.63) (0.67) (0.05)
Distributions in excess of net investment income (0.01) (0.01)
Distributions from net realized capital gains (0.06) (0.07) --
- -------------------------------------------------------------------------------------
Total Distributions (0.70) (0.75) (0.05)
- -------------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.35 $ 13.26 $12.63
- -------------------------------------------------------------------------------------
Total return+ (9.50)% 11.09% 1.29%
- -------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of year (000's) $23,279 $22,317 $2,938
Ratio of operating expenses to average net
assets*** 1.32% 1.31% 1.34%++
Ratio of net investment income to average net
assets 5.04% 4.99% 5.49%++
Portfolio turnover rate 37% 10% 73%
- -------------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** Net investment income before voluntary waiver of fees and/or reimbursement of
expenses by investment adviser and sub-investment adviser and/or
administrator for the years ended November 30, 1994 and 1993, and the period
ended November 30, 1992 was $0.60, $0.61 and $0.05, respectively.
*** Annualized expense ratios before voluntary waiver of fees and/or
reimbursement of expenses by investment adviser and sub-investment adviser
and/or administrator for the years ended November 30, 1994 and 1993, and the
period ended November 30, 1992 were 1.60%, 1.68% and 1.94%, respectively.
+ 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 for this year
since the use of the undistributed method does not accord with the results of
operations.
</TABLE>
14
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
PERIOD
ENDED
11/30/94*
<S> <C>
Operating performance:
Net Asset Value, beginning of period $ 11.34
- ------------------------------------------------------------------------
Income from investment operations:
Net investment income** 0.05
Net realized and unrealized gain on investments 0.00
- ------------------------------------------------------------------------
Total from investment operations 0.05
Less distributions:
Dividends from net investment income (0.04)
Distributions in excess of net investment income (0.00)#
- ------------------------------------------------------------------------
Total distributions (0.04)
- ------------------------------------------------------------------------
Net Asset Value, end of period $ 11.35
- ------------------------------------------------------------------------
Total return+ 0.40%
- ------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 75
Ratio of operating expenses to average net assets*** 1.36%++
Ratio of net investment income to average net assets 5.00%++
Portfolio turnover rate 37%
- ------------------------------------------------------------------------
<FN>
* The Fund began selling Class C shares on November 10, 1994.
** Net investment income before voluntary waiver of fees and/or reimbursement of
expenses by investment adviser and/or administrator for the period ended
November 30, 1994 was $0.05.
*** Annualized expense ratio before voluntary waiver of fees and/or reimbursement
of expenses by investment adviser and/or administrator for the period ended
November 30, 1994 was 1.63%.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
++ Annualized.
# Amount represents less than $0.01.
</TABLE>
AS OF NOVEMBER 30, 1994, NO CLASS Y SHARES HAD BEEN SOLD AND,
ACCORDINGLY, NO
COMPARABLE FINANCIAL INFORMATION IS AVAILABLE AT THIS TIME FOR
THAT CLASS.
15
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS 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 operates 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 SBMFM 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 SBMFM 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 rated as low as C by Moody's or D by S&P, or
comparable unrated securities which are often referred to as "junk bonds."
Securities in the fourth highest rating category, though considered to be
investment grade, have speculative characteristics. Securities rated as low as D
are extremely speculative and are in actual default of interest and/or principal
payments.
The Fund's average weighted maturity will vary from time to time based on the
judgment of SBMFM. 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
16
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 SBMFM's
judgment, analysis and experience than would be the case if the Fund invested
only in rated obligations.
The Fund may invest without limit in "municipal leases," which generally are
participations in intermediate- and short-term debt obligations issued by
municipalities consisting of leases or installment purchase contracts for
property or equipment. Municipal leases may take the form of a lease or an
installment purchase contract issued by state and local government authorities
to obtain funds to acquire a wide variety of equipment and facilities such as
fire and sanitation vehicles, computer equipment and other capital assets.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. Although
"non-appropriation" lease obligations are often secured by the underlying
property, disposition of the property in the event of foreclosure might prove
difficult. There is no limitation on the percentage of the Fund's assets that
may be invested in municipal lease obligations. In evaluating municipal lease
obligations, SBMFM 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
17
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 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.
18
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 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
19
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 SBMFM
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 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.
20
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 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 SBMFM 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 SBMFM anticipates purchasing
portfolio securities at a time of declining interest rates.
21
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
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 SBMFM anticipates an extreme change in interest
rates or market conditions.
When the Fund enters into futures contracts to purchase an index 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
22
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MASSACHUSETTS MUNICIPAL SECURITIES (CONTINUED)
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 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
23
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MASSACHUSETTS MUNICIPAL SECURITIES (CONTINUED)
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, including an operating deficit in each of the fiscal years ended
June 30, 1989 through 1991. Budgeted operating funds ended fiscal 1992, 1993 and
1994 with an excess of revenues and other sources over expenditures and other
uses. Budgeted revenues and other sources to be collected in fiscal 1995 are
currently estimated by the Executive Office of Administration and Finance to
fall short of the expenditures authorized by the fiscal 1995 budget. 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 such imbalance could
adversely affect the market values and marketability of obligations issued by
such entities, and could result in payment defaults on outstanding obligations.
During the period from 1989 through 1992, Massachusetts experienced a slowdown
in certain sectors of the economy, including high technology, construction, real
estate, financial services and manufacturing. Since 1992, employment within most
of these sectors has improved as part of a general
24
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MASSACHUSETTS MUNICIPAL SECURITIES (CONTINUED)
recovery of the economy. Employment losses within the manufacturing sector have
continued, but at a slower rate than in prior years. 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.
- --------------------------------------------------------------------
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 Fund's net asset value per share is determined as of the close of regular
trading on the NYSE, on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the 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.
25
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from its 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 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.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, subject to no sales charge or CDSC. 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 December 31 in each year of any undistributed ordinary income or
capital gains and expects to make any other dividends and distributions as are
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 may be treated as
a taxable dividend or 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 per share dividends on Class B and Class C shares may be lower than the
per share dividends on Class A and Class Y shares principally as a result of the
distribution fee applicable with respect to Class B and Class C shares. The per
share dividends on Class A shares of the Fund may be lower than the per share
dividends on Class Y shares principally as a result of the service fee
applicable to Class A shares. Distributions of capital gains, if any, will be
the same amount for Class A, Class B, Class C and Class Y shares.
26
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAXES
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. In addition, corporate shareholders may incur a greater
Federal "environmental" tax liability through the receipt of Fund dividends and
distributions. 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 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 additional Fund shares. Furthermore, as a
general rule, a shareholder's gain or loss on a sale or redemption of his or her
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. Each shareholder will also receive, if
27
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
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. These statements may set forth the dollar amount of income excluded or
exempt 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 that is a specific preference item for
purposes of the Federal individual and corporate alternative minimum taxes.
Shareholders should consult their own tax advisors 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
$ 23,350 $ 39,000 15.00% 12.00% 27.00% 25.20% 2.67% 4.01%
5.35% 6.68% 8.02% 9.36%
23,351-56,550 39,001-94,250 28.00 12.00 40.00 36.64 3.16 4.73 6.31
7.89 9.47 11.05
56,551-117,950 94,251-143,600 31.00 12.00 43.00 39.28 3.29 4.94 6.59
8.23 9.88 11.53
117,951-256,500 143,601-256,500 36.00 12.00 48.00 43.68 3.55 5.33 7.10
8.88 10.65 12.43
over 256,500 over 256,500 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 1995. 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.
28
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
PURCHASE OF SHARES
GENERAL
The Fund offers four Classes of shares. Class A shares are sold to investors
with an initial sales charge and Class B and Class C shares are sold without an
initial sales charge but are subject to a CDSC payable upon certain redemptions.
Class Y shares are sold without an initial sales charge or CDSC and are
available only to investors investing a minimum of $5,000,000. See "Prospectus
Summary -- Alternative Purchase Arrangements" for a discussion of factors to
consider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney, an Introducing Broker or an investment dealer in the selling
group. When purchasing shares of the Fund, investors must specify whether the
purchase is for Class A, Class B, Class C or Class Y shares. No maintenance fee
will be charged by the Fund in connection with a brokerage account through which
an investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account by making
an initial investment of at least $1,000 for each account in the Fund. Investors
in Class Y shares may open an account by making an initial investment of
$5,000,000. Subsequent investments of at least $50 may be made for all Classes.
For the Fund's Systematic Investment Plan, the minimum initial investment
requirement for Class A, Class B and Class C shares and the subsequent
investment requirement for all Classes is $100. There are no minimum investment
requirements for Class A shares for employees of Travelers and its subsidiaries,
including Smith Barney, Trustees of the Fund and their spouses and children and
unitholders who invest distributions from a UIT sponsored by Smith Barney. The
Fund reserves the right to waive or change minimums, to decline any order to
purchase its shares and to suspend the offering of shares from time to time.
Shares purchased will be held in the shareholder's account by the Fund's
transfer agent, The Shareholder Services Group, Inc., a subsidiary of First Data
Corporation ("TSSG"). Share certificates are issued only upon a shareholder's
written request to TSSG.
Purchase orders received by Smith Barney prior to the close of regular trading
on the NYSE, on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day. Orders
29
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
received by dealers or Introducing Brokers prior to the close of regular trading
on the NYSE on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day, provided the order is
received by Smith Barney prior to Smith Barney's close of business (the "trade
date"). Currently, payment for Fund shares is due on the fifth business day
after the trade date (the "settlement date"). The Fund anticipates that, in
accordance with regulatory changes, beginning on or about June 1, 1995, the
settlement date will be the third business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG is authorized through
preauthorized transfers of $100 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Fund
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply cash held in the shareholder's Smith
Barney brokerage account or redeem the shareholder's shares of a Smith Barney
money market fund to make additions to the account. Additional information is
available from the Fund or a Smith Barney Financial Consultant.
30
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are as
follows:
<TABLE>
<CAPTION>
DEALERS
SALES CHARGE SALES CHARGE
REALLOWANCE
AS % OF AS % OF AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT
INVESTED OFFERING PRICE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Less than $25,000 4.00% 4.17% 3.60%
$25,000-$49,999 3.50% 3.63% 3.15%
$50,000-$99,999 3.00% 3.09% 2.70%
$100,000-$249,999 2.50% 2.56% 2.25%
$250,000-$499,999 1.50% 1.52% 1.35%
$500,000 and over * * *
- -------------------------------------------------------------------------------------
<FN>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months
of purchase. The CDSC on Class A shares is payable to Smith Barney, which
compensates Smith Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The CDSC is waived in the same
circumstances in which the CDSC applicable to Class B and Class C shares is
waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
</TABLE>
Members of the selling group may receive up to 90% of the sales charge and may
be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases of
Class A shares of the Fund made at one time by "any person," which includes an
individual, his or her spouse and children, or a trustee or other fiduciary of a
single trust estate or single fiduciary account. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value of
all Class A shares held in funds sponsored by Smith Barney that are offered with
a sales charge listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to Trustees
of the Fund and employees of Travelers and its subsidiaries, or to the spouses
and children of such persons (including the surviving spouse of a
31
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
deceased Trustee or employee, and retired Trustees or employees); (b) offers of
Class A shares to any other investment company in connection with the
combination of such company with the Fund by merger, acquisition of assets or
otherwise; (c) purchases of Class A shares by any client of a newly employed
Smith Barney Financial Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment with Smith Barney), on the
condition the purchase of Class A shares is made with the proceeds of the
redemption of shares of a mutual fund which (i) was sponsored by the Financial
Consultant's prior employer, (ii) was sold to the client by the Financial
Consultant and (iii) was subject to a sales charge; (d) shareholders who have
redeemed Class A shares in the Fund (or Class A shares of another fund of the
Smith Barney Mutual Funds that are offered with a sales charge equal to or
greater than the maximum sales charge of the Fund) and who wish to reinvest
their redemption proceeds in the Fund, provided the reinvestment is made within
60 calendar days of the redemption; (e) accounts managed by registered
investment advisory subsidiaries of Travelers; and (f) investments of
distributions from a UIT sponsored by Smith Barney. In order to obtain such
discounts, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase would qualify for the
elimination of the sales charge.
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined above)
at a reduced sales charge or at net asset value determined by aggregating the
dollar amount of the new purchase and the total net asset value of all Class A
shares of the Fund and of funds sponsored by Smith Barney, which are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
32
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternative -- Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer or partnership-sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions. Smith
Barney may also offer a reduced sales charge or net asset value purchase for
aggregating related fiduciary accounts under such conditions that Smith Barney
will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available to
arrange for group meetings between representatives of the Fund and the members,
and must agree to include sales and other materials related to the Fund in its
publications and mailings to members at no cost to Smith Barney. In order to
obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity for
an investor to obtain a reduced sales charge by aggregating investments over a
13 month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the
33
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
"Amount of Investment" as referred to in the preceding sales charge table
includes purchases of all Class A shares of the Fund and other funds of the
Smith Barney Mutual Funds offered with a sales charge over a 13 month period
based on the total amount of intended purchases plus the value of all Class A
shares previously purchased and still owned. An alternative is to compute the 13
month period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If the goal is not
achieved within the period, the investor must pay the difference between the
sales charges applicable to the purchases made and the charges previously paid,
or an appropriate number of escrowed shares will be redeemed. Please contact a
Smith Barney Financial Consultant or TSSG to obtain a Letter of Intent
application.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at the net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, may be imposed on
certain redemptions of these shares. CDSC Shares are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares, which when combined with Class A shares
offered with a sales charge currently held by an investor, equal or exceed
$500,000 in the aggregate.
Any applicable CDSC will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the time of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than five years after their
purchase; or (d) with respect to Class C shares and Class A shares that are CDSC
Shares, shares redeemed more than 12 months after their purchase.
Class C and Class A shares that are CDSC Shares are subject to a 1.00% CDSC if
redeemed within 12 months of purchase. In circumstances in which the CDSC is
imposed on Class B shares, the amount of the charge will depend on the number of
years since the shareholder made the purchase payment from which the amount is
being redeemed. Solely for purposes of
34
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
determining the number of years since a purchase payment, all purchase payments
made during a month will be aggregated and deemed to have been made on the last
day of the preceding Smith Barney statement month. The following table sets
forth the rates of the charge for redemptions of Class B shares by shareholders.
<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 convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There also will be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of Class B shares (other than Class B Dividend Shares) owned by the
shareholder. Shareholders who held Class B shares of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World Income Fund") on July 15,
1994 and who subsequently exchanged those shares for Class B shares of the Fund
will be offered the opportunity to exchange all such Class B shares for Class A
shares of the Fund four years after the date on which those shares were deemed
to have been purchased. Holders of such Class B shares will be notified of the
pending exchange in writing approximately 30 days before the fourth anniversary
of the purchase date and, unless the exchange has been rejected in writing, the
exchange will occur on or about the fourth anniversary date. See "Prospectus
Summary -- Alternative Purchase Arrangements -- Class B Shares Conversion
Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital
35
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
appreciation or dividend and capital gain distribution reinvestments in such
other funds. For Federal income tax purposes, the amount of the CDSC will reduce
the gain or increase the loss, as the case may be, on the amount realized on
redemption. The amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 additional
shares through dividend reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of his or her investment. Assuming
at the time of the redemption the net asset value had appreciated to $12 per
share, the value of the investor's shares would be $1,260 (105 shares at $12 per
share). The CDSC would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see below) (provided, however, that automatic cash withdrawals in amounts equal
to or less than 2.00% per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to November 7, 1994);
(c) redemptions of shares within 12 months following the death or disability of
the shareholder; (d) involuntary redemptions; and (e) redemptions of shares made
in connection with a combination of the Fund with any investment company by
merger, acquisition of assets or otherwise. In addition, a shareholder who has
redeemed shares from other funds of the Smith Barney Mutual Funds may, under
certain circumstances, reinvest all or part of the redemption proceeds within 60
days and receive PRO RATA credit for any CDSC imposed on the prior redemption.
36
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
CDSC waivers will be granted subject to confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney clients or by TSSG in the case of
all other shareholders) of the shareholder's status or holdings, as the case may
be.
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged at the
net asset value next determined for shares of the same Class in the following
funds of the Smith Barney Mutual Funds, to the extent shares are offered for
sale in the shareholder's state of residence. Exchanges of Class A, Class B and
Class C shares are subject to minimum investment requirements and all shares are
subject to the other requirements of the fund into which exchanges are made and
a sales charge differential may apply.
<TABLE>
<C> <S>
FUND NAME
---------------------------------------------------------------------------------
GROWTH FUNDS
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -- Capital Appreciation Portfolio
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
GROWTH AND INCOME FUNDS
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Income and Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc. -- International Balanced Portfolio
</TABLE>
37
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
INCOME FUNDS
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc. -- Income Return Account Portfolio
Smith Barney Funds, Inc. -- Monthly Payment Government Portfolio
++ Smith Barney Funds, Inc. -- Short-Term U.S. Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government Securities Portfolio
Smith Barney Funds, Inc. -- Utility Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
* Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
MUNICIPAL BOND FUNDS
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Florida Municipals Fund
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
* Smith Barney Muni Funds -- California Limited Term Portfolio
Smith Barney Muni Funds -- California Portfolio
* Smith Barney Muni Funds -- Florida Limited Term Portfolio
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
* Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New Jersey Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
</TABLE>
38
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<C> <S>
MONEY MARKET FUNDS
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc. -- Cash Portfolio
++ Smith Barney Money Funds, Inc. -- Government Portfolio
*** Smith Barney Money Funds, Inc. -- Retirement Portfolio
++ Smith Barney Muni Funds -- California Money Market Portfolio
++ Smith Barney Muni Funds -- New York Money Market Portfolio
++ Smith Barney Municipal Money Market Fund, Inc.
<FN>
------------------------
* Available for exchange with Class A, Class C and Class Y shares of the Fund.
** Available for exchange with Class A, Class B and Class Y shares of the Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund.
</TABLE>
CLASS A EXCHANGES. Class A shares of the Smith Barney Mutual Funds sold
without a sales charge or with a maximum sales charge of less than the maximum
charged by other Smith Barney Mutual Funds will be subject to the appropriate
"sales charge differential" upon the exchange of such shares for Class A shares
of a fund sold with a higher sales charge. The "sales charge differential" is
limited to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends and capital gain distributions, are treated as having
paid the same sales charges applicable to the shares on which the dividends 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. In the event a Class B shareholder (unless such shareholder
was a Class B shareholder of the Short-Term World Income Fund on July 15, 1994)
wishes to exchange all or a portion of his or her shares in any of the funds
imposing a higher CDSC than that imposed by the 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 that have been exchanged.
39
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
CLASS C EXCHANGES. Upon an exchange, the new Class C shares will be deemed to
have been purchased on the same date as the Class C shares of the fund that have
been exchanged.
CLASS Y EXCHANGES. Class Y shareholders of the Fund who wish to exchange all
or a portion of their Class Y shares for Class Y shares in any of the funds
identified above may do so without imposition of any charge.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE.
Although the exchange
privilege is an important benefit, excessive exchange transactions can be
detrimental to the Fund's performance and its shareholders. SBMFM 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, SBMFM will notify
Smith Barney and Smith Barney may, at its discretion, decide to limit additional
purchases and/or exchanges by the shareholder. Upon such a determination, Smith
Barney will provide notice in writing or by telephone to the shareholder at
least 15 days prior to suspending the exchange privilege and during the 15 day
period the shareholder will be required to (a) redeem his or her shares in the
Fund or (b) remain invested in the Fund or exchange into any of the funds of the
Smith Barney Mutual Funds ordinarily available, which position the shareholder
would be expected to maintain for a significant period of time. All relevant
factors will be considered in determining what constitutes an abusive pattern of
exchanges.
Exchanges will be processed at the net asset value next determined, plus any
applicable sales charge differential. Redemption procedures discussed below are
also applicable for exchanging shares, and exchanges will be made upon receipt
of all supporting documents in proper form. If the account registration of the
shares of the fund being acquired is identical to the registration of the shares
of the fund exchanged, no signature guarantee is required. A capital gain or
loss for tax purposes will be realized upon the exchange, depending upon the
cost or other basis of shares redeemed. Before exchanging shares, investors
should read the current prospectus describing the shares to be acquired. The
Fund reserves the right to modify or discontinue exchange privileges upon 60
days' prior notice to shareholders.
40
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- --------------------------------------------------------------------
REDEMPTION OF SHARES
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the seventh day following receipt of
proper tender, except on any days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. The Fund anticipates that, in
accordance with regulatory changes, beginning on or about June 1, 1995, payment
will be made on the third business day after receipt of proper tender.
Generally, if the redemption proceeds are remitted to a Smith Barney brokerage
account, these funds will not be invested for the shareholder's benefit without
specific instruction and Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other than
a certified or official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Massachusetts Municipals Fund
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's
41
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
account number and (c) be signed by each registered owner exactly as the shares
are registered. If the shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or be accompanied by an endorsed
stock power) and must be submitted to TSSG together with the redemption request.
Any signature appearing on a redemption request, share certificate or stock
power must be guaranteed by an eligible guarantor institution such as a domestic
bank, savings and loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national securities exchange. TSSG
may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or guardians. A redemption
request will not be deemed 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 with a value of at least $10,000 may elect to
receive cash payments of at least $100 monthly or quarterly. The withdrawal plan
will be carried over on exchanges between funds or Classes of the Fund. Any
applicable CDSC will not be waived on amounts withdrawn by a shareholder that
exceed 1.00% per month of the value of the shareholder's shares subject to the
CDSC at the time the withdrawal plan commences. (With respect to withdrawal
plans in effect prior to November 7, 1994, any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00% per month of the shareholder's shares
subject to the CDSC.) For further information regarding the automatic cash
withdrawal plan, shareholders should contact a Smith Barney Financial
Consultant.
- --------------------------------------------------------------------
MINIMUM ACCOUNT SIZE
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in
42
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MINIMUM ACCOUNT SIZE (CONTINUED)
net asset value. Before the Fund exercises such right, shareholders will receive
written notice and will be permitted 60 days to bring accounts up to the minimum
to avoid automatic redemption.
- --------------------------------------------------------------------
PERFORMANCE
YIELD
From time to time, the Fund may advertise the 30 day "yield" and "equivalent
taxable yield" of each Class of shares. The yield 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 Class 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 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 include its total return, average annual total
return and current dividend return in advertisements and/or other types of sales
literature. These figures are computed separately for Class A, Class B, Class C
and Class Y shares of the Fund. THESE FIGURES ARE BASED ON HISTORICAL
EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Total return is
computed
for a specified period of time assuming deduction of the maximum sales charge,
if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by
43
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- ---------------------------------------------------------------------------
PERFORMANCE (CONTINUED)
the initial amount invested and subtracting 100%. The standard average annual
total return, as prescribed by the SEC, is derived from this total return which
provides the ending redeemable value. Such standard total return information may
also be accompanied with nonstandard total return information for differing
periods computed in the same manner but without annualizing the total return or
taking sales charges into account. The Fund calculates current dividend return
for each Class by annualizing the most recent monthly distribution and dividing
by the net asset value or the maximum public offering price (including sales
charge) on the last day of the period for which current dividend return is
presented. The current dividend return for each Class may vary from time to time
depending on market conditions, the composition of its investment portfolio and
operating expenses. These factors and possible differences in the methods used
in calculating current dividend return should be considered when comparing a
Class' current return to yields published for other investment companies and
other investment vehicles. The Fund also may include comparative performance
information in advertising or marketing its shares. Such performance information
may include data from Lipper Analytical Services, Inc. or similar independent
services that monitor the performance of mutual funds, or other industry
publications. The Fund will include performance data for Class A, Class B, Class
C and Class Y shares in any advertisement or information including performance
data of the Fund.
- --------------------------------------------------------------------
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 and administrator,
sub-administrator, custodian and transfer agent. The day-to-day operations of
the Fund are delegated to the Fund's investment adviser, administrator and
sub-administrator. The Statement of Additional Information contains background
information regarding each Trustee and executive officer of the Fund.
44
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
INVESTMENT ADVISER--SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser pursuant to a transfer of the investment advisory
agreement, effective November 7, 1994, from its affiliate, Mutual Management
Corp. (Mutual Management Corp. and SBMFM are both wholly owned subsidiaries of
Holdings). Investment advisory services continue to be provided to the Fund by
the same portfolio managers who had provided services under the agreement with
Mutual Management Corp. SBMFM (through its predecessors) has been in the
investment counseling business since 1934 and is a registered investment
adviser. SBMFM renders investment advice to investment companies that had
aggregate assets under management as of December 31, 1994 in excess of $50
billion.
Subject to the supervision and direction of the Fund's Board of Trustees,
SBMFM 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 investment
advisory services rendered, the Fund pays SBMFM a fee computed daily and payable
monthly at the following annual rates of average daily net assets: 0.35% up to
$500 million and 0.32% of the net assets in excess of $500 million. For the
fiscal year ended November 30, 1994, the Fund paid investment advisory fees
equal to 0.18% of the value of the average daily net assets of the Fund and
SBMFM waived an amount equal to 0.17% of the value of the Fund's average daily
net assets.
PORTFOLIO MANAGEMENT
Lawrence T. McDermott, an Investment Officer of SBMFM, has served as Vice
President and Investment Officer of the Fund since December 21, 1987
(commencement of operations) and manages the day-to-day operations of the Fund,
including making all investment decisions.
Management's discussion and analysis, and additional performance information
regarding the Fund during the fiscal year ended November 30, 1994, is included
in the Annual Report dated November 30, 1994. A copy of the
45
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
Annual Report may be obtained upon request without charge from a Smith Barney
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects of the
Fund's administration. For administration services rendered, the Fund pays a fee
computed daily and payable monthly at the following annual rates of average
daily net assets: 0.20% up to $500 million and 0.18% of the net assets in excess
of $500 million. For the fiscal year ended November 30, 1994, the Fund paid
administration fees equal to 0.10% of the value of the average daily net assets
of the Fund and the administrator waived an amount equal to 0.10% of the value
of the Fund's average daily net assets.
SUB-ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-administrator. Boston Advisors provides investment
management, investment advisory and/or administrative services to investment
companies that had aggregate assets under management as of December 31, 1994, in
excess of $69 billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a sub-administration agreement dated April 20, 1994, Boston
Advisors is paid a portion of the administration fee paid by the Fund to SBMFM
at a rate agreed upon from time to time between Boston Advisors and SBMFM. Prior
to April 20, 1994, Boston Advisors served as the Fund's administrator.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities
46
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
as may be sold to the public. Pursuant to a plan of distribution adopted by the
Fund under Rule 12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a
service fee with respect to Class A, Class B and Class C shares of the Fund at
the annual rate of 0.15% of the average daily net assets of the respective
Class. Smith Barney also is paid a distribution fee with respect to Class B and
Class C shares at the annual rate of 0.50% and 0.55%, respectively, of the
average daily net assets attributable to those Classes. Class B shares which
automatically convert to Class A shares eight years after the date of original
purchase will no longer be subject to a distribution fee. The fees are used by
Smith Barney to pay its Financial Consultants for servicing shareholder accounts
and, in the case of Class B and Class C shares, to cover expenses primarily
intended to result in the sale of those shares. These expenses include:
advertising expenses; the cost of printing and mailing prospectuses to potential
investors; payments to and expenses of Smith Barney Financial Consultants and
other persons who provide support services in connection with the distribution
of shares; interest and/or carrying charges; and indirect and overhead costs of
Smith Barney associated with the sale of Fund shares, including lease, utility,
communications and sales promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
continuing fee for servicing shareholder accounts for as long as a share-
holder remains a holder of that Class. Smith Barney Financial Consultants may
receive different levels of compensation for selling different Classes of
shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney 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, amounts received under the Plan and the proceeds
of the CDSC.
47
<PAGE>
SMITH BARNEY
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" and is registered with the SEC as a non-diversified open-end
management investment company.
Each Class of the Fund 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.
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. The Trustees will call a meeting for any purpose upon
the written request of shareholders holding at least 10% of the Fund's
outstanding shares and the Fund will assist shareholders in calling such a
meeting as required by the 1940 Act. 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.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, 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
48
<PAGE>
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
Fund's printing and mailing costs, the Fund plans to consolidate the mailing of
its semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. Shareholders who do not want this
consolidation to apply to their accounts should contact their Smith Barney
Financial Consultants or TSSG.
49
Smith Barney
MASSACHUSETTS MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION JANUARY 29, 1995
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney Massachu-
setts Municipals Fund (the "Fund"), dated January 29, 1995, as amended or
supplemented from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained from a Smith Bar-
ney Financial Consultant or by writing or calling the Fund at the address
or telephone number set forth above. This Statement of Additional Informa-
tion, 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>
<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 20
Distributor 20
Valuation of Shares 22
Exchange Privilege 22
Performance Data (See in the Prospectus "Performance") 23
Taxes (See in the Prospectus "Dividends, Distributions and Taxes") 26
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 Inc.
("Smith Barney") Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM") Investment Adviser and Administrator
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-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.
Martin Brody, Trustee. Vice Chairman of the Board of Restaurant Associates
Industries Corp.; a Director of Jaclyn, Inc. His address is HMK Associ-
ates, 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.
Burt N. Dorsett, Trustee. Managing Partner of Dorsett McCabe Management,
Inc., an investment counseling firm; Director of Research Corporation
Technologies, Inc., a non-profit patent-clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
Elliot S. Jaffe, Trustee. Chairman of the Board and President of The Dress
Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York 10901.
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. Managing
Director of Smith Barney and Chairman of Smith Barney Strategy Advisers
Inc.; prior to July 1993, Senior Executive Vice President of Shearson Leh-
man Brothers Inc. ("Shearson Lehman Brothers"), Vice Chairman of Shearson
Asset Management, a Director of PanAgora Asset Management, Inc. and PanAg-
ora Asset Management Limited. His address is 388 Greenwich Street, New
York, New York 10013.
Cornelius C. Rose, Jr., Trustee. President, Cornelius C. Rose Associates,
Inc., Financial Consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is P.O. Box 355,
Fair Oaks, Enfield, New Hampshire 03748.
James J. Crisona, Trustee Emeritus. Attorney; formerly Justice of the Su-
preme Court of the State of New York. His address is 118 East 60th Street,
New York, New York 10022.
Stephen J. Treadway, President. Managing Director of Smith Barney; Direc-
tor and President of Mutual Management Corp. and SBMFM; and Trustee of
Corporate Realty Income Trust Inc. His address is 388 Greenwich Street,
New York, New York 10013.
Lawrence T. McDermott, Vice President and Investment Officer. Investment
Officer of SBMFM; prior to July 1993, Managing Director of Shearson Lehman
Advisors, the predecessor to SBMFM. His address is 388 Greenwich Street,
New York, New York 10013.
Karen L. Mahoney-Malcomson, Investment Officer. Investment Officer of
SBMFM; prior to July 1993, Senior Vice President of Shearson Lehman Advi-
sors. Her address is 388 Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer. Managing Director
and Chief Financial Officer of Smith Barney; Director and Senior Vice
President of SBMFM. His address is 388 Greenwich Street, New York, New
York 10013.
Christina T. Sydor, Secretary. Managing Director of Smith Barney; General
Counsel and Secretary of SBMFM. Her address is 388 Greenwich Street, New
York, New York 10013.
Each Trustee also serves as a director, trustee and/or general partner of
certain other mutual funds for which Smith Barney serves as distributor.
As of January 15, 1995, the Trustees and officers of the Fund, as a group,
owned none of the Fund's outstanding shares of beneficial interest.
No officer, director or employee of Smith Barney or any parent or subsid-
iary 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, di-
rector or employee of Smith Barney or of its affiliates a fee of $1,000
per annum plus $100 per meeting attended and each Trustee Emeritus $500
per annum plus $50 per meeting attended. All Trustees are reimbursed for
travel and out-of-pocket expenses. For the fiscal year ended November 30,
1994, such fees and expenses totalled $15,726.
For the calendar year ended December 31, 1994, the Trustees of the Fund
were paid the following compensation:
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
AGGREGATE COMPENSATION FROM THE SMITH
BARNEY
TRUSTEE (AGE) FROM THE FUND MUTUAL FUNDS
<S> <C> <C>
Herbert Barg (71) $1,500 $ 77,850
Martin Brody (73) 1,150 111,675
Dwight B. Crane (57) 1,500 125,975
James J. Crisona (87) 1,500 67,350
Burt N. Dorsett (64) 350 34,300
Elliot S. Jaffe (68) 350 33,300
Stephen E. Kaufman (62) 1,500 83,600
Joseph J. McCann (64) 1,500 51,100
Cornelius C. Rose, Jr (61). 350 33,300
</TABLE>
INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM
SBMFM serves as investment adviser to the Fund pursuant to a transfer of
the investment advisory agreement, effective November 7, 1994, from its
affiliate, Mutual Management Corp. Mutual Management Corp. and SBMFM are
both wholly owned subsidiaries of Smith Barney Holdings Inc. ("Holdings"),
which in turn is a wholly owned subsidiary of The Travelers Inc. The in-
vestment advisory agreement is dated July 30, 1993 (the "Advisory Agree-
ment"), and was first approved by the Fund's Board of Trustees, including
a majority of those Trustees who are not "interested persons" of the Fund
or Smith Barney, on April 7, 1993. The services provided by SBMFM under
the Advisory Agreement are described in the Prospectus under "Management
of the Fund." SBMFM bears all expenses in connection with the performance
of its services and pays the salary of any officer or employee who is em-
ployed by both it and the Fund.
As compensation for investment advisory services, the Fund pays SBMFM a
fee computed daily and payable monthly at the following annual rates:
0.35% of the value of the Fund's average daily net assets up to $500 mil-
lion and 0.32% of the value of the Fund's average daily net assets in ex-
cess of $500 million. For the fiscal year ended November 30, 1992, there
were no investment advisory fees paid to Shearson Lehman Advisors, the
predecessor to SBMFM, due to voluntary fee waivers and expense reimburse-
ments. For the fiscal years ended November 30, 1993 and 1994, the Fund
paid SBMFM and/or its predecessor, net of fee waivers and expense reim-
bursements, $51,498 and $96,113, respectively, in investment advisory
fees. For the fiscal year ended November 30, 1992, Shearson Lehman Advi-
sors voluntarily waived investment advisory fees and reimbursed expenses
of $82,321 and $9,213, respectively. For the fiscal years ended November
30, 1993 and 1994, SBMFM and/or its predecessor voluntarily waived invest-
ment advisory fees of $101,803 and $95,209, respectively.
SBMFM also serves as administrator to the Fund pursuant to a written
agreement dated April 20, 1994 (the "Administration Agreement"), which was
most recently approved by the Fund's Board of Trustees, including a major-
ity of Trustees who are not "interested persons" of the Fund or Smith Bar-
ney, on July 20, 1994. The services provided by SBMFM under the Adminis-
tration Agreement are described in the Prospectus under "Management of the
Fund." SBMFM pays the salary of all officers and employees who are em-
ployed by both it and the Fund and bears all expenses in connection with
the performance of its services. For the fiscal period from April 20, 1994
through November 30, 1994, the Fund paid $32,879 (net of fee waivers
amounting to $34,514) in administration fees.
As compensation for administrative services rendered to the Fund, SBMFM
receives a fee computed daily and payable monthly at the following annual
rates of average daily net assets: 0.20% up to $500 million; and 0.18% in
excess of $500 million.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors serves as the Fund's sub-administrator pursuant to a writ-
ten agreement dated April 20, 1994 (the "Sub-Administration Agreement"),
which was most recently approved by the Fund's Board of Trustees, includ-
ing a majority of those Trustees who are not "interested persons" of the
Fund or Smith Barney, on July 20, 1994. Under the Sub-Administration
Agreement, Boston Advisors is paid a portion of the administration fee
paid by the Fund to SBMFM at a rate agreed upon from time to time between
Boston Advisors and SBMFM. 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").
Prior to April 20, 1994, Boston Advisors served as the Fund's administra-
tor and prior to May 21, 1993, also served as the Fund's sub-investment
adviser. For the fiscal year ended November 30, 1992, there were no sub-
investment advisory and administration fees paid to Boston Advisors, due
to voluntary fee waivers and expense reimbursements. For the fiscal year
ended November 30, 1992, Boston Advisors voluntarily waived fees and reim-
bursed expenses of $47,041 and $5,265, respectively. For the fiscal year
ended November 30, 1993, the Fund paid to Boston Advisors, net of fee
waivers, $29,427 and Boston Advisors voluntarily waived $58,174 in admin-
istration fees. For the fiscal period from December 1, 1993 through April
19, 1994, the Fund paid $20,458 (net of fee waivers amounting to $21,476)
to Boston Advisors in administration fees.
Certain services provided to the Fund by Boston Advisors pursuant to the
Sub-Administration Agreement are described in the Prospectus under "Man-
agement of the Fund." In addition to those services, Boston Advisors pays
the salaries of all officers and employees who are employed by both it and
the Fund, maintains office facilities for the Fund, 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 share-
holders, and prepares tax returns and reports to, and filings with, the
Securities and Exchange Commission (the "SEC") and state Blue Sky authori-
ties. Boston Advisors bears all expenses in connection with the perfor-
mance of its services.
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 Bar-
ney, SBMFM 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 maintaining corporate existence; costs of investor services (in-
cluding allocated telephone and personnel expenses); costs of preparing
and printing of prospectuses for regulatory purposes and for distribution
to existing shareholders; costs of shareholders' reports and shareholder
meetings; and meetings of the officers or Board of Trustees of the Fund.
SBMFM and Boston Advisors have each agreed that if in any fiscal year the
aggregate expenses of the Fund (including fees payable pursuant to the Ad-
visory Agreement, Administration Agreement and Sub-Administration Agree-
ment, but excluding interest, taxes, brokerage fees paid pursuant to the
Fund's services and distribution plan, and, with the prior written consent
of the necessary state securities commissions, extraordinary expenses) ex-
ceed the expense limitation of any state having jurisdiction over the
Fund, SBMFM and Boston Advisors will, to the extent required by state 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. Any fee re-
ductions will be reconciled on a monthly basis. The most restrictive state
expense limitation applicable to the Fund would require SBMFM and Boston
Advisors to reduce their fees in any year that such expenses exceed 2.50%
of the first $30 million of average daily net assets, 2.00% of the next
$70 million of average daily net assets and 1.50% of the remaining average
daily net assets. No fee reduction was required for the fiscal years ended
November 30, 1992, 1993 and 1994.
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 legal counsel.
KPMG Peat Marwick LLP, independent accountants, 345 Park Avenue, New York,
New York 10154, serve as auditors of the Fund and will render an opinion
on the Fund's financial statements annually beginning with the fiscal year
ending November 30, 1995. Prior to KPMG Peat Marwick's appointment, Coo-
pers & Lybrand L.L.P., independent accountants, served as auditors of the
Fund and rendered an opinion on the Fund's financial statements for the
fiscal year ended November 30, 1994.
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 SBMFM to evalu-
ate potential investments. Among the factors that will be considered are
the long-term ability of the issuer to pay principal and interest and gen-
eral economic trends. To the extent the Fund invests in lower-rated and
comparable unrated securities, the Fund's achievement of its investment
objective may be more dependent on SBMFM's credit analysis of such securi-
ties than would be the case for a portfolio consisting entirely of higher-
rated securities. The Appendix 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 SBMFM will con-
sider 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 investments 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,
low-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 low-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 generally to be
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, it may invest in short-
term investments ("Temporary Investments") consisting of: (a) the follow-
ing 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 SBMFM's ability to pre-
dict correctly movements in the direction of interest rates. Such predic-
tions involve skills and techniques which may be different from those in-
volved in the management of a long-term municipal bond portfolio. In addi-
tion, 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 Munici-
pal Bonds which are the subject of the hedge. The degree of imperfection
of correlation depends upon various circumstances, such as variations in
speculative market demand for futures contracts and Municipal 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, ma-
turities and creditworthiness of issuers. A decision of whether, when and
how to hedge involves the exercise of skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of market be-
havior 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 SBMFM 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 interest 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 con-
tract 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 purchasing put options on these fu-
tures contracts at a time when SBMFM 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 SBMFM 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 temporary 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 substi-
tute for a position in the debt security itself. Depending upon the pric-
ing of the option compared to either the futures contract upon which it is
based, or upon the price of the underlying debt securities, it may or may
not be less risky than ownership of the futures contract or underlying
debt securities. The Fund would purchase a call option on a futures con-
tract 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 securities without actu-
ally buying them until the market had stabilized. At that time, the op-
tions could be liquidated and the Fund's cash could be used to buy Munici-
pal 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 SBMFM, which could prove to be inaccurate. Even if
SBMFM's 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 contracts 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. SBMFM or Boston Advisors, acting under the super-
vision of the Fund's Board of Trustees, reviews on an ongoing basis the
value of the collateral and the creditworthiness of those banks and deal-
ers with which the Fund enters into repurchase agreements to evaluate po-
tential risks. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible de-
lays or restrictions upon the Fund's ability to dispose 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 associated with asserting those
rights and the risk of losing all or part of the income from the agree-
ment.
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.)
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 SBMFM in its best judgment and in a manner deemed fair
and reasonable to shareholders. The primary considerations are availabil-
ity of the desired security and the prompt execution of orders in an ef-
fective manner at the most favorable prices. Subject to these consider-
ations, dealers that provide supplemental investment research and statis-
tical or other services to SBMFM may receive orders for portfolio
transactions by the Fund. Information so received is in addition to, and
not in lieu of, services required to be performed by SBMFM, and the fees
of SBMFM are not reduced as a consequence of their receipt of such supple-
mental information. Such information may be useful to SBMFM in serving
both the Fund and other clients and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to
SBMFM in carrying out its obligations 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 is a
member, except to the extent permitted by the SEC. Under certain circum-
stances, the Fund may be at a disadvantage because of this limitation 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 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 SBMFM, 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 SBMFM are prepared to invest in, or de-
sire to dispose of, the same security, available investments or opportuni-
ties for sales will be allocated in a manner believed by SBMFM to be equi-
table to each. In some cases, this procedure may adversely affect the
price paid or received 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 1993 and 1994 fiscal years, the Fund's portfolio turn-
over rates were 10%, and 37%, 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 have experienced financial difficulties that have adversely
affected their credit standing. The prolonged effects of such financial
difficulties could adversely affect the market value of the Massachusetts
Municipal Securities held by the Fund. The information summarized below
describes some of the more significant factors that could affect the Fund
or the ability of the obligors to pay debt service on certain of these se-
curities. 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 officials. The Fund
has not independently verified any of the information contained 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 experienced fiscal difficulties. Op-
erating losses in 1990 and 1991, which totalled $1.251 billion and $21.2
million, respectively, were covered primarily through deficit borrowings.
During the period, fund balances in the budgeted operating funds increased
from opening balances of negative $1.104 billion in fiscal 1990 to posi-
tive ending balances of $549.4 million in fiscal 1992. The Commonwealth
ended fiscal 1992 and 1993 with operating surpluses of $312.3 million and
$13.1 million, respectively, and statutory closing fund balances increased
to $562.5 million at the end of fiscal 1993. Fiscal 1994 ended with a cur-
rent operating surplus of $26.8 million and ending fund balances of $589.3
million prior to taking into account certain revenue and expenditure re-
ductions based on preliminary financial information. Fiscal 1995 is cur-
rently estimated to end with a deficiency of revenues and other sources
over expenditures and other uses of $126.0 million.
On July 10, 1994, the Governor signed into law the fiscal 1995 budget,
which, together with authorizations contained in the final fiscal 1994 ap-
propriations bill and expected supplemental appropriations relating to
welfare and certain other programs, provides for approximately $16.482
billion in fiscal 1995 expenditures. Budgeted revenues and other sources
to be collected in fiscal 1995 are estimated by the Executive Office of
Administration and Finance to be approximately $16.364 billion. In recent
months, the rate of growth in certain tax revenue categories, including,
in particular, the income tax, has slowed. Fiscal 1994 tax revenues were
approximately $87 million below the Department of Revenue's tax revenue
estimate of $10.694 billion. In September 1994, the Secretary for Adminis-
tration and Finance revised the fiscal 1995 tax revenue estimate to
$11.234 billion, a reduction of approximately $75 million from the most
recent prior revenue estimate arrived at jointly with the Legislature in
May 1994.
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 1994 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 1995 will not reach the limit imposed by either of these statutes.
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
1995, approximately 32.1% of the Commonwealth's budget is estimated to be
allocated 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 $2.360
billion in fiscal 1992 and increased to $2.547 billion in fiscal 1993 and
$2.727 billion in fiscal 1994. It is estimated that fiscal 1995 expendi-
tures for direct Local Aid will be $2.979 billion, which is an increase of
approximately 9.2% above the fiscal 1994 level. The additional amount of
indirect Local Aid provided over and above direct Local Aid was approxi-
mately $2.069 billion in fiscal 1994. It is estimated that in fiscal 1995
approximately $2.318 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, fiscal 1993 and
fiscal 1994 appropriations for Local Aid did not meet, and fiscal 1995 ap-
propriations for Local Aid do not meet, the levels set forth in the ini-
tiative 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 $14.696 billion, an increase of 9.6% from fiscal 1992. Fiscal
1994 budgeted expenditures were $15.952 billion, an increase of 8.5% from
fiscal 1993. It is estimated that fiscal 1995 budgeted expenditures will
be $16.482 billion, an increase of 3.3% over the fiscal 1994 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 $8.469 billion as of June 30, 1994, 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 December 31,
1993, the reserve was approximately $4.124 billion. Comprehensive pension
legislation approved in 1988 committed the Commonwealth to fund future
pension liabilities currently and to amortize the Commonwealth's accumu-
lated unfunded 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's spouse and his
or her children purchasing shares for their own account; (c) a trustee or
other fiduciary purchasing shares for a single trust estate or single fi-
duciary 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; and (f) 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, as amended)
purchasing shares of the Fund for one or more trust estates or fiduciary
accounts. Purchasers who wish to combine purchase orders to take advantage
of volume discounts on Class A shares should contact a Smith Barney Finan-
cial Consultant.
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 of the
Smith Barney Mutual Funds that are offered with a sales charge, including
the purchase being made, of any "purchaser" is $25,000 or more. The re-
duced sales charge is subject to confirmation of the shareholder's hold-
ings through a check of appropriate records. The Fund reserves the right
to terminate or amend the combined right of accumulation at any time after
written notice to shareholders. For further information regarding the
right of accumulation, shareholders should contact a Smith Barney Finan-
cial Consultant.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The public
offering price per Class A and Class Y share of the Fund is equal to the
net asset value per share at the time of purchase plus, for Class A
shares, an initial sales charge based on the aggregate amount of the in-
vestment. The public offering price per Class B and Class C share (and
Class A share purchases, including applicable rights of accumulation,
equalling or exceeding $500,000) is equal to the net asset value per share
at the time of purchase and no sales charge is imposed at the time of pur-
chase. A contingent deferred sales charge ("CDSC"), however, is imposed on
certain redemptions of Class B, Class C, and Class A shares when purchased
in amounts exceeding $500,000. The method of computing the public offering
price is shown in the Fund's financial statements, incorporated by refer-
ence in their entirety into this Statement of Additional 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 or 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 SEC
rules, any portion of a redemption in excess of the lesser of $250,000 or
1.00% of the Fund's net assets by a distribution in kind of portfolio se-
curities in lieu of cash. Securities issued as a distribution in kind may
incur brokerage commissions when shareholders subsequently sell those se-
curities.
AUTOMATIC CASH WITHDRAWAL PLAN
An automatic cash withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares with a value of at least $10,000 and who wish
to receive specific amounts of cash monthly or quarterly. Withdrawals of
at least $100 may be made under the Withdrawal Plan by redeeming as many
shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. Any applicable CDSC will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value of a shareholder's
shares at the time the Withdrawal Plan commences. (With respect to With-
drawal Plans in effect prior to November 7, 1994, any applicable CDSC will
be waived on amounts withdrawn that do not exceed 2.00% per month of the
value of a shareholder's shares at the time the Withdrawal Plan com-
mences.) To the extent withdrawals exceed dividends, distributions and ap-
preciation of a shareholder's investment in the Fund, there will be a re-
duction in the value of the shareholder's investment, and continued with-
drawal payments will reduce the shareholder's investment and may
ultimately exhaust it. Withdrawal payments should not be considered as in-
come from investment in the Fund. Furthermore, as it generally would not
be advantageous to a shareholder to make additional investments in the
Fund at the same time he or she is participating in the Withdrawal Plan,
purchases by such shareholder in amounts of less than $5,000 ordinarily
will not be permitted.
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. For additional informa-
tion, shareholders should contact a Smith Barney Financial Consultant. Ef-
fective November 7, 1994, Withdrawal Plans should be set up with a Smith
Barney Financial Consultant. A shareholder who purchases shares directly
through TSSG may continue to do so and applications for participation in
the Withdrawal Plan must be received by TSSG no later than the eighth day
of the month to be eligible for participation beginning with that month's
withdrawals.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts basis pur-
suant to a written agreement dated July 30, 1993 (the "Distribution Agree-
ment"), which was most recently approved by the Fund's Board of Trustees
on July 20, 1994. For the fiscal years ended November 30, 1992, 1993 and
1994, Smith Barney and/or its predecessor, Shearson Lehman Brothers, re-
ceived $324,607, $161,493 and $93,015, respectively, in sales charges from
the sale of the Fund's Class A shares, and did not reallow any portion
thereof to dealers. For the period from November 6, 1992 through November
30, 1992 and for the fiscal years ended November 30, 1993 and 1994, Smith
Barney or its predecessor, Shearson Lehman Brothers, received from share-
holders $0, $11,913 and $58,056, respectively, in CDSC on the redemptions
of Class B shares.
When payment is made by the investor before settlement date, unless other-
wise noted by the investor, the funds will be held as a free credit bal-
ance in the investor's brokerage account, and Smith Barney 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 Smith Barney Exchange Reserve Fund) of the
Smith Barney Mutual Funds. If the investor instructs Smith Barney to in-
vest the funds in a Smith Barney money market fund, the amount of the in-
vestment 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 that
serve the funds in an investment advisory or administrative capacity will
benefit from the fact they are receiving fees from both such investment
companies for managing those assets, computed on the basis of their aver-
age daily net assets. The Fund's Board of Trustees has been advised of the
benefits to Smith Barney resulting from these settlement procedures and
will take such benefits into consideration when reviewing the Advisory,
Administration and Distribution Agreements for continuance.
For the fiscal year ended November 30, 1994, Smith Barney incurred distri-
bution expenses totalling approximately $325,700, consisting of approxi-
mately $3,000 for advertising, $3,000 for printing and mailing of prospec-
tuses, $121,700 for support services, $178,000 to Smith Barney Financial
Consultants, and $20,000 in accruals for interest on the excess of Smith
Barney expenses incurred in distributing the Fund's shares over the sum of
the distribution fees and CDSC received by Smith Barney from the Fund.
DISTRIBUTION ARRANGEMENTS
To compensate Smith Barney for the services it provides and for the ex-
pense 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 a service fee,
accrued daily and paid monthly, calculated at the annual rate of 0.15% of
the value of the Fund's average daily net assets attributable to the Class
A, Class B and Class C shares. In addition, the Fund pays Smith Barney a
distribution fee with respect to the Class B and Class C shares primarily
intended to compensate Smith Barney for its initial expense of paying its
Financial Consultants a commission upon sales of those shares. The Class B
distribution fee is calculated at the annual rate of 0.50% of the value of
the Fund's average daily net assets attributable to the shares of the
Class. The Class C distribution fee is calculated at the annual rate of
0.55% of the value of the Fund's average daily net assets attributable to
the shares of the Class. For the period from November 6, 1992 through No-
vember 30, 1992, the Class A and Class B shares incurred $2,693 and $172,
respectively, in service fees. For the same period, the Class B shares in-
curred $573 in distribution fees. For the fiscal year ended November 30,
1993, the Class A and Class B shares incurred $45,865 and $19,835, respec-
tively, in service fees. For the same period, the Fund's Class B shares
incurred $66,117 in distribution fees. For the fiscal year ended November
30, 1994, the Class A, Class B and Class C shares incurred $46,201,
$35,788 and $6, respectively, in service fees. For the same period, the
Class B and Class C shares incurred $119,293 and $22, respectively, 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 amendments of
the Plan also must be approved by the Trustees and the Independent Trust-
ees in the manner described above. The Plan may be terminated with respect
to a Class at any time, without penalty, by vote of a majority of the In-
dependent Trustees or by vote of a majority of the outstanding voting se-
curities of the Class (as defined in the 1940 Act). Pursuant to the Plan,
Smith Barney will provide the Fund's Board of Trustees with periodic re-
ports of amounts expended under the Plan and the purpose for which such
expenditures were made.
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 cur-
rently 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. Because of the
differences in distribution fees and Class-specific expenses, the per
share net asset value of each Class may differ. The following is a de-
scription 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
Except as noted below, shareholders of any fund of the Smith Barney Mutual
Funds may exchange all or part of their shares for shares of the same
Class of other funds of the Smith Barney Mutual Funds, to the extent such
shares are offered for sale in the shareholder's state of residence, on
the basis of relative net asset value per share at the time of exchange as
follows:
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 deemed to be purchased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney High Income Fund and the ac-
count number in order to accomplish an exchange of shares of Smith Barney
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 a Smith Barney 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 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. The
Fund may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include the
following industry and financial publications: Barron's, Business Week,
CDA Investment Technologies, Inc., Changing Time, Forbes, Fortune, Insti-
tutional Investor, Investors Daily, Money, Morningstar Mutual Fund Values,
The New York Time, USA Today and The Wall Street Journal. To the extent
any advertisement or sales literature of the Fund describes the expenses
or performance of any Class it will also disclose such information for the
other Classes.
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.
The Class A and Class B yield for the 30 day period ended November 30,
1994 (reflecting the waiver of the investment advisory and administration
fees and reimbursement of expenses) was 6.08% and 5.84%, respectively. 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 5.79% and 5.55%,
respectively. The Fund's equivalent taxable yield for Class A and Class B
shares for that period (reflecting the waiver of the investment advisory
and administration fees and reimbursement of expenses) would have been
10.67% and 10.25%, 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 equiva-
lent taxable yield for Class A and Class B shares for the same period
would have been 10.16% and 9.74%, 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
"Average annual total return" figures, as described 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 Fund's average annual total return for Class A shares assuming the
maximum applicable sales charge was as follows for the periods indicated
(reflecting the waiver of the Fund's investment advisory and administra-
tion fees and reimbursement of expenses):
(12.71)% for the one-year period beginning on December 1, 1993 through No-
vember 30, 1994.
4.68% for the five-year period from December 1, 1989 through November 30,
1994.
6.45% per annum during the period from the Fund's commencement of opera-
tions on December 21, 1987 through November 30, 1994.
A Class' average annual total return figures assume that the maximum ap-
plicable sales charge or CDSC assessed by the Fund has
been deducted from the hypothetical investment. Had the advisory and ad-
ministration fees not been waived and expenses reimbursed, and assuming
that the maximum 4.00% sales charge had not been deducted, Class A's aver-
age annual total return would have been (9.47)%, 4.99% and 6.26%, respec-
tively, for those same periods.
The Fund's average annual total return for Class B shares assuming the
maximum applicable CDSC was as follows for the periods indicated (reflect-
ing the waiver of the Fund's investment advisory and administration fees
and reimbursement of expenses):
(13.36)% for the one-year period beginning on December 1, 1993 through No-
vember 30, 1994.
(0.43)% per annum during the period from commencement (November 6, 1992)
through November 30, 1994.
Had the advisory and administration fees not been waived and expenses re-
imbursed, and assuming the maximum applicable CDSC had not been deducted
at the time of redemption, Class B's average annual total return would
have been (9.90)% and 0.41%, respectively, for the same periods.
AGGREGATE TOTAL RETURN
Aggregate total return figures, as described below, represent the cumula-
tive 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 Fund's aggregate total return for Class A shares was as follows for
the periods indicated (reflecting the waiver of the Fund's investment ad-
visory and administration fees and reimbursement of expenses):
(12.71)% for the one-year period beginning on December 1, 1993 through No-
vember 30, 1994.
25.68% for the five-year period from December 1, 1989 through November 30,
1994.
54.38% for the period from the Fund's commencement of operations on Decem-
ber 21, 1987 through November 30, 1994.
A Class' aggregate total return figures assume that the maximum applicable
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 (9.07)%, 30.92% and 60.81%, respectively. Had fees not been waived
and expenses reimbursed and had the sales charge not been applied, Class
A's aggregate total return would have been (9.47)%, 27.57% and 52.45%, re-
spectively, for the same periods.
The Fund's aggregate total return for Class B shares was as follows for
the periods indicated (reflecting the waiver of the Fund's investment ad-
visory and administration fees and reimbursement of expenses):
(13.36)% for the one-year period beginning on December 1, 1993 through No-
vember 30, 1994.
(0.88)% for the period from commencement (November 6, 1992) through Novem-
ber 30, 1994.
If the maximum applicable CDSC had not been deducted at the time of re-
demption, Class B's aggregate total return for the same periods would have
been (9.05)% and 1.84%, respectively. Had fees not been waived and ex-
penses reimbursed and had the CDSC not been applied, Class B's aggregate
total return would have been (9.90)% and 0.85%, respectively, for the same
periods.
The Fund's aggregate total return for Class C shares was as follows for
the period indicated (reflecting the waiver of the Fund's investment advi-
sory and administration fees and reimbursement of expenses):
(0.60)% for the period from commencement (November 10, 1994) through No-
vember 30, 1994.
If the maximum applicable CDSC had not been deducted at the time of re-
demption, Class C's aggregate total return for the same period would have
been 0.40%. Had fees not been waived and expenses reimbursed and had the
CDSC not been applied, Class C's aggregate total return would have been
0.37% for the same period.
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.
Performance will vary from time to time depending on market conditions,
the composition of the Fund's portfolio and operating expenses and the ex-
penses exclusively attributable to the Class. Consequently, any given per-
formance quotation should not be considered as representative of the
Class' performance for any specified period in the future. Because perfor-
mance will vary, it may not provide a basis for comparing an investment in
the Class with certain bank deposits or other investments that pay a fixed
yield for a stated period of time. Investors comparing a Class' perfor-
mance with that of other mutual funds should give consideration to the
quality and maturity of the respective investment companies' portfolio se-
curities.
TAXES
The following is a summary of selected Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended
as a substitute for individual tax advice and investors are urged to con-
sult their own tax advisors as to the tax consequences of an investment in
the Fund.
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 has qualified and intends to continue to qualify each year as a
regulated investment company under the Code. Provided that the Fund (a) is
a regulated investment company and (b) distributes at least 90% of its
taxable net investment income (including, for this purpose, net realized
short-term capital gains) and 90% of its tax-exempt interest income (re-
duced by certain expenses), the Fund will not be liable for Federal income
taxes to the extent its taxable net investment income and its net realized
long- and short-term capital gains, if any, are distributed to its share-
holders.
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 such 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 such 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 Fund's Prospectus, the Fund may invest in
municipal bond index and interest rate futures contracts and options on
these futures contracts. The Fund anticipates that these investment activ-
ities will not prevent the Fund from qualifying as a regulated investment
company; however, in order to continue to qualify as a regulated invest-
ment company, the Fund might have to limit its investments in such munici-
pal bond index and interest rate futures contracts and options on these
futures 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, these instruments are treated as if sold at the Fund's fis-
cal year end and for their fair market value. As a result, 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 con-
tracts 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 gener-
ally 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,
which together constitute a straddle, then the Fund may be required to
defer certain realized losses. The Fund expects that its activities with
respect to section 1256 contracts and offsetting positions in those con-
tracts will not cause it to be treated as receiving a materially greater
amount of capital gains than actually realized and 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 gains realized will be distributed as
described in the Fund's Prospectus. Such distributions ("capital gain div-
idends"), if any, will be taxable to shareholders as long-term capital
gains, regardless of how long they have held Fund shares, and will be des-
ignated as capital gain dividends in a written notice mailed by the Fund
to shareholders after the close of the Fund's taxable year. If a share-
holder 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 de-
scribed above relating to exempt-interest dividends) on the sale or ex-
change of such share, to the extent of the capital gain dividend, will be
treated as a long-term capital loss.
If a shareholder incurs a sales charge in acquiring shares of the Fund,
disposes of those shares within 90 days and then acquires shares in a mu-
tual fund for which the otherwise applicable sales charge is reduced by
reason of a reinvestment right (that is, exchange privilege), the original
sales charge will not be taken into account in computing gain/loss on
original shares to the extent the subsequent sales charge is reduced. In-
stead, it will be added to the tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of the newly ac-
quired or redeemed shares made within 90 days of the second acquisition.
This provision prevents a shareholder from immediately deducting the sales
charge by shifting his or her investment in a family of mutual funds.
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. Inves-
tors considering buying shares of the Fund just prior to a record date for
a capital gain distribution should be aware that, regardless of whether
the price of the Fund shares to be purchased reflects the amount of the
forthcoming distribution payment, any such payment will be a distribution
payment.
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.
ADDITIONAL INFORMATION
Boston Safe, an indirect wholly owned subsidiary of Mellon, is located at
One Boston Place, Boston, Massachusetts 02108, and serves as the Fund's
custodian. Under the custody agreement, Boston Safe holds the Fund's port-
folio securities and keeps all necessary accounts and records. For its
services, Boston Safe receives a monthly fee based upon the month-end mar-
ket value of securities held in custody and also receives securities
transaction charges. The assets of the Fund are held under bank custodian-
ship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Fund's transfer agent. Under the transfer agency agreement, TSSG
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund, and distributes divi-
dends and distributions payable by the Fund. For these services, TSSG re-
ceives 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.
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, as amended from time to time. The Fund commenced operations on
December 21, 1987, under the name Shearson Lehman Massachusetts Munici-
pals. On December 7, 1988, August 27, 1990, July 30, 1993 and October 14,
1994, the Fund changed its name to SLH Massachusetts Municipals Fund,
Shearson Lehman Brothers Massachusetts Municipals Fund, Smith Barney
Shearson Massachusetts Municipals Fund and Smith Barney Massachusetts Mu-
nicipals 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, 1994 ac-
companies this Statement of Additional Information and is incorporated
herein by reference in its entirety.
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 highly 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
MASSACHUSETTS MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013 Fund 41
Smith Barney
MASSACHUSETTS
MUNICIPALS FUND
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 29, 1995
SMITH BARNEY
A Member of Travelers Group
SMITH BARNEY 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,
1994 and the Report of Independent Accountants is incorporated by reference
to the definitive 30b2-1 filed on January 26, 1995 as Accession #
0000053798-95-000053
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) First Amended and Restated Master Trust Agreement, dated
November 5, 1992, is incorporated by reference to Post-Effective Amendment
No. 12 filed on November 26, 1994 ("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.
(c) Amendment No. 2 to Registrant's First Amended and Restated
Master Trust Agreement, dated October 14, 1994, is filed herein.
(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 between the Registrant and Greenwich
Street Advisors, dated July 30, 1993, is incorporated by reference to Post-
Effective Amendment No. 12.
(6) Distribution Agreement between the Registrant and Smith Barney
Shearson Inc., dated July 30,1993, is incorporated by reference to Post-
Effective Amendment No. 12.
(7) Not Applicable.
(8) Custody Agreement between the Registrant and Boston Safe Deposit and
Trust Company is incorporated by reference to Pre-Effective Amendment No.
1.
(9) (a) Administration Agreement between the Registrant and Smith,
Barney Advisers, Inc., dated April 20, 1994, is filed herein.
(b) Sub-Administration Agreement between the Registrant and The
Boston Company Advisors, Inc., dated April 20, 1994, is filed herein.
(c) Transfer Agency Agreement between the Registrant and The
Shareholder Services Group, Inc., dated August 2, 1993, is incorporated by
reference to Post-Effective Amendment No. 13 filed on January 28, 1994.
(10) Not Applicable
(11)(a) Consent of Morningstar Mutual Fund Values is incorporated by
reference to Post-Effective Amendment No. 9.
(b) Consent of Goodwin, Procter & Hoar, special state counsel, is
filed herein.
(c) Consent of Independent Accountants is filed herein.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Amended Services and Distribution Plan pursuant to Rule 12b-1
between the Registrant and Smith Barney Inc., dated November 7, 1994, is
filed herein.
(16) Performance Data for the Registrant is incorporated by reference to
Post-Effective Amendment No. 3 filed on January 29, 1990.
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, 16, 1994
Beneficial Interest, Class A
771
par value $.001 per Class B
813
share Class C 2
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 - - Smith Barney Mutual Funds Management Inc., formerly
known as Smith, Barney
Advisers, Inc. ("SBMFM")
SBMFM was incorporated in December 1968 under the laws of the State of
Delaware. SBMFM is a wholly
owned subsidiary of Smith Barney Holdings Inc. (formerly known as Smith Barney
Shearson Holdings Inc.)
("Holdings"), which is in turn a wholly owned subsidiary of The Travelers Inc.
(formerly known as Primerica
Corporation) ("Travelers"). SBMFM is registered as an investment adviser under
the Investment Advisers Act
of 1940 (the "Advisers Act").
The list required by this Item 28 of officers and directors of SBMFM, 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
SBMFM pursuant to the Advisers Act (SEC File No. 801-8314).
Prior to the close of business on November 7, 1994, Greenwich Street Advisors
served as 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. ("MMC"). MMC was
incorporated in 1978 and is a
wholly owned subsidiary of Holdings, which is in turn a wholly owned subsidiary
of 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
Inc. (formerly known as Smith
Barney Shearson Inc.) acquired the domestic retail brokerage and asset
management business 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)
11/01/94
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as distributor for Smith
Barney Managed Municipals Fund Inc., Smith Barney New York Municipals Fund
Inc., Smith Barney California Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Global Opportunities Fund,
Smith Barney Aggressive Growth Fund Inc., Smith Barney Appreciation Fund
Inc., Smith Barney Principal Return Fund, Smith Barney Managed Governments
Fund Inc., Smith Barney Income Funds, Smith Barney Equity Funds, Smith
Barney Investment Funds Inc., Smith Barney Precious Metals and Minerals
Fund Inc., Smith Barney Telecommunications Trust, Smith Barney Arizona
Municipals Fund Inc., Smith Barney 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 Fundamental Value Fund Inc., Smith Barney
Series Fund, Consulting Group Capital Markets Funds, Smith Barney Income
Trust, Smith Barney Adjustable Rate Government Income Fund, Smith Barney
Florida Municipals Fund, Smith Barney Oregon Municipals Fund, Smith Barney
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), Smith Barney International Fund (Luxembourg) and various series
of unit investment trusts.
Smith Barney is a wholly owned subsidiary of Smith Barney Holdings
Inc. (formerly known as Smith Barney Shearson Holdings Inc.), which in turn
is a wholly owned subsidiary of The Travelers Inc. (formerly known as
Primerica Corporation). On June 1, 1994, Smith Barney changed its name
from Smith Barney Shearson Inc. to its current name. The information
required by this Item 29 with respect to each director, officer and partner
of Smith Barney is incorporated by reference to Schedule A of FORM BD filed
by Smith Barney pursuant to the Securities Exchange Act of 1934 (SEC File
No. 812-8510).
Item 30. Location of Accounts and Records
(1) Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(2) Smith Barney
Massachusetts Municipals Fund
388 Greenwich Street
New York, New York 10013
(3) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(4) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
(5) Boston Safe Deposit and Trust Company
Wellington Business Center
One Cabot Road
Medford, Massachusetts 02155
(7) 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 resignations of Robert Frankel and Paul Hardin were not due
to any disagreement with the Registrant on any matter relating to its
operations, policies or practices. Messrs. Frankel and Hardin resigned
because of increased board responsibilities for other investment companies
and a desire to reduce travel and minimize scheduling conflicts with other
professional obligations. </R
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
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
New York, State of New York on the 25th day of January, 1995 .
SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND
By:/s/ Heath B.
McLendon
Heath B. McLendon
Chief Executive Officer
We, the undersigned, hereby severally constitute and appoint Heath B.
McLendon, Christina T. Sydor and Lee D. Augsburger, and each of them
singly, our true and lawful attorneys, with full power to them, to sign for
us, and in our hands and in the capacities indicated below, any and all
Post-Effective Amendments to this Registration Statement and to file the
same, with all exhibits thereto, and other documents therewith, with the
Securities and Exchange Commission, granting unto said attorneys, and each
of them, acting alone, full power to do and perform each and every act and
thing requisite or necessary to be done in the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys or any of them may lawfully do or
cause to be done by virtue thereof.
WITNESS our hands on the date set forth below.
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) 01/25/95
/s/ Lewis Daidone
Lewis Daidone Senior Vice President
and Treasurer (Chief Financial
and Accounting Officer) 01/25/95
/s/ Alfred J. Bianchetti
Alfred J. Bianchetti Trustee
01/25/95
/s/ Herbert Barg
Herbert Barg Trustee
01/25/95
/s/ Martin Brody
Martin Brody Trustee
01/25/95
Signature Title Date
/s/ Dwight B. Crane
Dwight B. Crane Trustee
01/25/95
/s/ Burt N. Dorsett
Burt N. Dorsett Trustee
01/25/95
/s/ Elliot S. Jaffe
Elliot S. Jaffe Trustee
01/25/95
/s/ Stephen E. Kaufman
Stephen E. Kaufman Trustee
01/25/95
/s/ Joseph J. McCann
Joseph J. McCann Trustee 01/25/95
/s/ Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr. Trustee
01/25/95
g/shared/domestic/clients/shearson/funds/mamu/pea15
EXHIBIT 1(c)
SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND
AMENDMENT NO. 2 TO THE FIRST AMENDED AND RESTATED MASTER TRUST AGREEMENT
(Change of Name of the Fund and Change of Emeritus Policy)
The undersigned, Assistant Secretary of Smith Barney Shearson
Massachusetts Municipals Fund (the "Fund"), does hereby certify that
pursuant to Article I, Section 1.1 and Article VII, Section 7.3 of the
First Amended and Restated Master Trust Agreement dated November 5, 1992
which amended and restated the Master Trust Agreement of the Fund dated
January 13, 1987 the following votes were duly adopted by the Board of
Trustees at a Regular Meeting of the Board held on July 20, 1994:
(Change of Name of the Fund )
VOTED: That the name of the Fund previously established and designated
pursuant to the Fund's Master Trust Agreement be modified and amended as
set forth below:
Current Name: Name as Amended:
Smith BarneyShearson Smith Barney
Massachusetts Municipals Fund Massachusetts Municipals Fund
; and further
(Change of Emeritus Policy)
VOTED: That Article III, Sections 3.1(i) and 3.1(j) of the Fund's
Master Trust Agreement be and are hereby amended and restated in their
entirety as follows:
Section 3.1(i)
A Trustee who has reached the age of seventy two (72) years may elect
the status of Trustee Emeritus provided that the Trustee has served for ten
(10) years as a member of the Fund's Board of Trustees or of the Board of
Trustees of another investment company distributed, advised or administered
by an entity under common control with the Fund's distributor, investment
adviser or administrator. Upon reaching eighty (80) years of age, a
Trustee must elect status as a Trustee Emeritus. (The foregoing provisions
shall not be deemed to restrict a Trustee's ability to resign.)
Section 3.1(j)
A Board Member designated as a Trustee Emeritus may attend meetings
of the Board of Trustees, however, he or she shall have no voting rights
and shall not be under a duty to manage or direct the business and affairs
of the Fund. A Trustee Emeritus shall not be deemed to stand in a
fiduciary relation to the Fund and shall not be responsible to discharge
the duties of a Trustee or to exercise that diligence, care or skill which
a Trustee would ordinarily be required to exercise under applicable laws.
In addition, a Trustee Emeritus shall be indemnified to the full extent
that an officer or Trustee of the Fund may be indemnified under the Fund's
governing documents and applicable state and federal laws.
As long as a Board Member is a Trustee Emeritus, but in no event for
more than a period of ten (10) years, provided the Fund has net assets in
excess of $100 million, a Trustee Emeritus will receive 50% of the annual
retainer and annual meeting fees paid to active Board Members. In any
event, a Trustee Emeritus shall be entitled to reasonable out-of-pocket
expenses for each meeting attended; and further
VOTED: That the appropriate officers of the Fund be, and each hereby
is, authorized to execute and file any notices required to be filed
reflecting the foregoing changes; to execute amendments to the Fund's
Master Trust Agreement and By-Laws reflecting the foregoing change; and to
execute and file all requisite certificates, documents and instruments and
to take such other actions required to cause said amendment to become
effective and to pay all requisite fees and expenses incident thereto.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 14th day of October, 1994.
/s/ Lee D. Augsburger
Lee D. Augsburger
Assistant Secretary
shared/domestic/clients/shearson/funds/mamu/namchge2
EXHIBIT 9(a)
ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND
April 20, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
Smith Barney Shearson Massachusetts Municipals Fund (the "Fund"), a
business trust organized under the laws of the Commonwealth of
Massachusetts, confirms its agreement with Smith, Barney Advisers, Inc.
("SBA") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its First Amended and Restated Master Trust
Agreement dated November 5, 1992, as amended from time to time (the "Master
Trust Agreement"), in its Prospectus and Statement of Additional
Information as from time to time in effect and in such manner and to such
extent as may from time to time be approved by the Board of Trustees of the
Fund (the "Board"). Copies of the Fund's Prospectus, Statement of
Additional Information and Master Trust Agreement have been or will be
submitted to SBA. Greenwich Street Advisors Division of Mutual Management
Corp. ("Greenwich Street Advisors") serves as the Fund's investment adviser
and the Fund desires to employ and hereby appoints SBA to act as its
administrator. SBA accepts this appointment and agrees to furnish the
services to the Fund for the compensation set forth below. SBA is hereby
authorized to retain third parties and is hereby authorized to delegate
some or all of its duties and obligations hereunder to such persons
provided that such persons shall remain under the general supervision of
SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations except
those performed by the Fund's investment adviser under its investment
advisory agreement; (b) supply the Fund with office facilities (which may
be in SBA's own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and charges and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationary
and office supplies; and (c) prepare reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month a
fee for the previous month at the following annual rates of average daily
net assets: 0.20 of 1.00% of the Fund's average daily net assets up to $500
million and 0.18 of 1.00% of the Fund"s average daily net assets in excess
of $500 million.. The fee for the period from the date the Fund's initial
registration statement is declared effective by the SEC to the end of the
month during which the initial registration statement is declared effective
shall be prorated according to the proportion that such period bears to the
full monthly period. Upon any termination of this Agreement before the end
of any month, the fee for such part of a month shall be prorated according
to the proportion which such period bears to the full monthly period and
shall be payable upon the date of termination of this Agreement. For the
purpose of determining fees payable to SBA, the value of the Fund's net
assets shall be computed at the times and in the manner specified in the
Fund's Prospectus and Statement of Additional Information as from time to
time in effect.
4. Expenses
SBA will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of the members of the Board of
the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc. or its affiliates or any person who is an affiliate of any
person to whom duties may be delegated hereunder; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that excess expense to the
extent required by state law in the same proportion as its respective fees
bear to the combined fees for investment advice and administration. The
expense reimbursement obligation of SBA will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the services
listed in paragraph 2 above, and SBA shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect SBA against
liability to the Fund or to its shareholders to which SBA would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by reason of SBA's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to SBA so acting. In addition,
the Fund understands that the persons employed by SBA or its affiliates to
assist in the performance of its duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers, directors,
employees, affiliates, controlling persons, agents (including persons to
whom responsibilities are delegated hereunder) ("indemnitees") against any
loss, claim, expense or cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this Agreement or from the
performance or failure to perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee violated the standard
of care in paragraph 6 above. This indemnification shall be limited by the
1940 Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the 1940
Act and the rules, regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Master Trust
Agreement and Bylaws. The execution and delivery of this Agreement has
been duly authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each, acting as such.
Neither the authorization by the Board members of the Fund, nor the
execution and delivery by the officer of the Fund shall be deemed to have
been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the assets and property of the Fund as
provided in the Master Trust Agreement and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by singing and returning to us the enclosed
copy hereof.
Very truly yours,
Smith Barney Shearson
Massachusetts Municipals Fund
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: /s/ Christina T. Sydor
Name: Christina T. Sydor
Title: Secretary
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
* Form 8613
* Form 1120-RIC
* Board Members' and Shareholders' 1099s
* Mailings in connection with Section 852 and
related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Master Trust Agreement and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares.
4
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A-4
shared\domestic\clients\shearson\funds\mamu\admin.doc
EXHIBIT 9(b)
SUB-ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND
April 20, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02109
Dear Sirs:
Smith Barney Shearson Massachusetts Municipals Fund (the
"Fund"), a business trust organized under the laws of the Commonwealth of
Massachusetts and Smith, Barney Advisers, Inc. ("SBA") confirm their
agreement with The Boston Company Advisors, Inc. ("Boston Advisors") as
follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its First Amended and Restated Master Trust
Agreement dated November 5, 1992, as amended from time to time (the "Master
Trust Agreement"), in its Prospectus and Statement of Additional
Information as from time to time in effect, and in such manner and to such
extent as may from time to time be approved by the Board of Trustees of the
Fund (the "Board"). Copies of the Fund's Prospectus, Statement of
Additional Information and Master Trust Agreement have been or will be
submitted to you. The Fund employs SBA as its administrator, and the Fund
and SBA desire to employ and hereby appoint Boston Advisors as the Fund's
sub-administrator. Boston Advisors accepts this appointment and agrees to
furnish the services to the Fund, for the compensation set forth below,
under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and SBA,
Boston Advisors will: (a) assist in supervising all aspects of the Fund's
operations except those performed by the Fund's investment adviser under
the Fund's investment advisory agreement; (b) supply the Fund with office
facilities (which may be in Boston Advisor's own offices), statistical and
research data, data processing services, clerical, accounting and
bookkeeping services, including, but not limited to, the calculation of (i)
the net asset value of shares of the Fund, (ii) applicable contingent
deferred sales charges and similar fees and changes and (iii) distribution
fees, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; and (c)
prepare reports to shareholders of the Fund, tax returns and reports to and
filings with the Securities and Exchange Commission (the "SEC") and state
blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of each
month a fee for the previous month calculated in accordance with the terms
set forth in Appendix B, and as agreed to from time to time by the Fund,
SBA and Boston Advisors. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Boston Advisors, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with the
performance of its services under this Agreement. The Fund will bear
certain other expenses to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of the Board members
of the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc., Boston Advisors of their affiliates; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and its Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston Advisory
will reimburse the Fund for that excess expense to the extent required by
state law in the same proportion as its respective fees bear to the
combined fees for investment advice and administration. The expense
reimbursement obligation of Boston Advisors will be limited to the amount
of its fees hereunder. Such expense reimbursement, if any, will be
estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in rendering
the services listed in paragraph 2 above. Boston Advisors shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which this Agreement
relates, provided that nothing herein shall be deemed to protect or purport
to protect Boston Advisors against liability to the Fund or to its
shareholders to which Boston Advisors would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of
Boston Advisor's reckless disregard of its obligations and duties under
this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without the
written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or more
other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and nothing
contained herein shall be deemed to limit or restrict the right of Boston
Advisors or its affiliates to engage in and devote time and attention to
other businesses or to render services of whatever kind of nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including reasonable
attorney's fees) resulting or arising in connection with this Agreement or
from the performance or failure to perform any act hereunder, provided that
not such indemnification shall be available if the indemnitee violated the
standard of care in paragraph 6 above. This indemnification shall be
limited by the 1940 Act, and relevant state law. Each indemnitee shall be
entitled to advancement of its expenses in accordance with the requirements
of the 1940 Act and the rules, regulations and interpretations thereof as
in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Master Trust
Agreement and Bylaws. The execution and delivery of this Agreement has
been duly authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board Members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Master Trust Agreement.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us the
enclosed copy hereof.
Very truly yours,
Smith Barney Shearson
Massachusetts Municipals Fund
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By:/s/ Christina T. Sydor
Name: Christina T. Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By: /s/ Francis J. McNamara, III
Name: Francis J. McNamara, III
Title: General Counsel
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
- Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
- Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
- Formal Reconciliation - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
- Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
- Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and Yield for Daily
Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
- Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian reports;
- Pricing - Determine N.A.V. for the Fund using market value
of all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
- Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
- System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
- Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
- Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
- Reporting of Price to Transfer Agent - N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
- Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.).
Publications
- Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
- Provide an Assistant Treasurer for the Fund;
- Authorize payment of bills for expenses of the Fund;
- Establish and monitor the rate of expense accruals;
- Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
- Monitor mark-to-market comparisons for money market funds;
- Recommend valuations to be used for securities which are not
readily saleable;
- Function as a liaison with the Fund's outside auditors and
arrange for audits;
- Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
- Prepare and file forms with the Internal Revenue Service
* Form 8613
* Form 1120-RIC
* Board Members' and Shareholders' 1099s
* Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
- File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
- Prepare and file proxy statements;
- Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
- Provide an Assistant Secretary for the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
- Organize, attend and keep minutes of shareholder meetings;
- Maintain Articles of Incorporation or Master Trust
Agreements and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
- Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
- Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
- Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Schedule B
Fee
4
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shared\domestic\clients\shearson\funds\mamu\subadmin.doc
EXHIBIT 11(b)
GOODWIN, PROCTER & HOAR
January 13, 1995
Smith Barney 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 Statement of Additional Information captioned "Counsel and Auditors"
that appears in Post-Effective Amendment No. 15 to the Registration
Statement on Form N-1A (Reg. No. 33-11417) of Smith Barney Massachusetts
Municipals Fund.
Sincerely,
/s/ Goodwin, Procter & Hoar
GOODWIN, PROCTER & HOAR
domestic/clients/shearson/funds/mamu/goodwin.doc
EXHIBIT 11(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Trustees of
Smith Barney Massachusetts Municipals Fund:
We hereby consent to the following with respect to
Post-Effective Amendment No. 15 to the Registration Statement on
Form N-1A (File No. 33-11417) under the Securities Act of 1933,
as amended, of Smith Barney Massachusetts Municipals Fund
(formerly Smith Barney Shearson Massachusetts Municipals Fund):
1. The incorporation by reference of our report dated January
12, 1995 accompanying the Annual Report for the fiscal year
ended November 30, 1994 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 L.L.P.
Boston, Massachusetts
January 24, 1995
s:\domestic\clients\shearson\funds\mamu\c&lcon.doc
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>01
<NAME> Smith Barney Massachusetts Municipals Fund - Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
<INVESTMENTS-AT-COST> 56,876,032
<INVESTMENTS-AT-VALUE> 51,818,962
<RECEIVABLES> 1,349,287
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53,168,249
<PAYABLE-FOR-SECURITIES> 1,009,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,171,250
<TOTAL-LIABILITIES> 2,180,250
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,525,706
<SHARES-COMMON-STOCK> 2,435,104
<SHARES-COMMON-PRIOR> 2,457,288
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 34,400
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 446,237
<ACCUM-APPREC-OR-DEPREC> (5,057,070)
<NET-ASSETS> 50,987,999
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,477,690
<OTHER-INCOME> 0
<EXPENSES-NET> 565,567
<NET-INVESTMENT-INCOME> 2,912,123
<REALIZED-GAINS-CURRENT> (446,237)
<APPREC-INCREASE-CURRENT> (7,763,594)
<NET-CHANGE-FROM-OPS> (5,297,708)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,720,407
<DISTRIBUTIONS-OF-GAINS> 148,111
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 354,792
<NUMBER-OF-SHARES-REDEEMED> 479,403
<SHARES-REINVESTED> 102,427
<NET-CHANGE-IN-ASSETS> (3,920,550)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 251,796
<OVERDISTRIB-NII-PRIOR> 27,141
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 191,322
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 716,766
<AVERAGE-NET-ASSETS> 54,663,391
<PER-SHARE-NAV-BEGIN> 13.26
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> (1.85)
<PER-SHARE-DIVIDEND> 0.70
<PER-SHARE-DISTRIBUTIONS> 0.06
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.35
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<ARTICLE> 6
<SERIES>
[NUMBER]02
<NAME> Smith Barney Massachusetts Municipals Fund - Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
[INVESTMENTS-AT-COST] 56,876,032
[INVESTMENTS-AT-VALUE] 51,818,962
[RECEIVABLES] 1,349,287
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 53,168,249
[PAYABLE-FOR-SECURITIES] 1,009,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,171,250
[TOTAL-LIABILITIES] 2,180,250
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 56,525,706
[SHARES-COMMON-STOCK] 2,051,567
[SHARES-COMMON-PRIOR] 1,682,618
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 34,400
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 446,237
[ACCUM-APPREC-OR-DEPREC] (5,057,070)
[NET-ASSETS] 50,987,999
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 3,477,690
[OTHER-INCOME] 0
[EXPENSES-NET] 565,567
[NET-INVESTMENT-INCOME] 2,912,123
[REALIZED-GAINS-CURRENT] (446,237)
[APPREC-INCREASE-CURRENT] (7,763,594)
[NET-CHANGE-FROM-OPS] (5,297,708)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1,219,362
[DISTRIBUTIONS-OF-GAINS] 103,685
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 577,550
[NUMBER-OF-SHARES-REDEEMED] 274,929
[SHARES-REINVESTED] 66,328
[NET-CHANGE-IN-ASSETS] (3,920,550)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 251,796
[OVERDISTRIB-NII-PRIOR] 27,141
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 191,322
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 716,766
[AVERAGE-NET-ASSETS] 54,663,391
[PER-SHARE-NAV-BEGIN] 13.26
[PER-SHARE-NII] 0.63
[PER-SHARE-GAIN-APPREC] (1.84)
[PER-SHARE-DIVIDEND] 0.64
[PER-SHARE-DISTRIBUTIONS] 0.06
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 11.35
[EXPENSE-RATIO] 1.32
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<SERIES>
[NUMBER]03
<NAME> Smith Barney Massachusetts Municipals Fund - Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1994
<PERIOD-END> Nov-30-1994
[INVESTMENTS-AT-COST] 56,876,032
[INVESTMENTS-AT-VALUE] 51,818,962
[RECEIVABLES] 1,349,287
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 53,168,249
[PAYABLE-FOR-SECURITIES] 1,009,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,171,250
[TOTAL-LIABILITIES] 2,180,250
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 56,525,706
[SHARES-COMMON-STOCK] 6,617
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 34,400
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 446,237
[ACCUM-APPREC-OR-DEPREC] (5,057,070)
[NET-ASSETS] 50,987,999
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 3,477,690
[OTHER-INCOME] 0
[EXPENSES-NET] 565,567
[NET-INVESTMENT-INCOME] 2,912,123
[REALIZED-GAINS-CURRENT] (446,237)
[APPREC-INCREASE-CURRENT] (7,763,594)
[NET-CHANGE-FROM-OPS] (5,297,708)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 85
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 6,614
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 3
[NET-CHANGE-IN-ASSETS] (3,920,550)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 251,796
[OVERDISTRIB-NII-PRIOR] 27,141
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 191,322
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 716,766
[AVERAGE-NET-ASSETS] 54,663,391
[PER-SHARE-NAV-BEGIN] 11.34
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] 0.04
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 11.35
[EXPENSE-RATIO] 1.36
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
