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.
16 _X_
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
_X_
Amendment No. 17
_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 Offices) (Zip
Code)
(212) 720-9218
Registrant's Telephone Number,
including area
code
Christina T. Sydor
Secretary
Smith Barney Massachusetts Municipals
Fund 388 Greenwich Street,
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public
Offering: As soon as possible after this
PostEffective Amendment becomes effective.
It is proposed that this filing becomes effective:
____ immediately upon filing pursuant to Rule
485(b) _X__ on January 31, 1996, pursuant to
Rule 485(b)
____ 60 days after filing pursuant to Rule 485(a)
The Registrant has previously filed a declaration
of indefinite registration of its shares pursuant
to Rule 24f2 under the Investment Company Act of
1940, as amended.
Registrant's Rule 24f-2 Notice for the fiscal year
ended November 30, 1995 was filed on January
10, 1996 as
Accession # 80984696-000001.
CALCULATION OF REGISTRATION FEE UNDER THE
SECURITIES ACT OF 1933
Proposed Proposed Proposed
Maximum Maximum
Maximum
Title of Offering Aggregate
Aggregate Securities Amount Price
Per Offering Registrati
Being Being Unit
Price
on
Fee
Registered Registered
Shares of
Common
Stock par
value 36,948 $13.50
$498,798
$100.00
$.001 per
share
of Smith
Barney
Massachuse
tts
Municipals
Fund
The shares being registered as set
forth in this table are in addition to
the indefinite number of shares of
common stock which the Registrant has
registered under the Securities Act of
1933, as amended (the "1933 Act"),
pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as
amended (the "1940 Act"). The
Registrant's Rule 24f-2 Notice for the
fiscal year ended November 30, 1995
was filed on January 10, 1996.
Based on the Registrant's Class A
closing price of $13.50 on January
10, 1996 pursuant to Rule 457(d) under
the 1933 Act and Rule 24(e)-2 under
the 1940 Act.
In response to Rule 24(e)-2 (b) under
the 1940 Act: (1) the calculation
of the maximum aggregate offering
price is made pursuant to Rule 24e-2;
(2) 800,416 shares of common stock
were redeemed by the Registrant during
the fiscal year ended November 30,
1995; (3) 784,949 of such shares
are being used for reductions pursuant
to Rule 24f-2 during the current
fiscal year; and (4)15,467 shares
are being used for reduction in this
amendment pursuant to Rule 24e-2(a).
SMITH BARNEY MASSACHUSETTS MUNICIPALS
FUND
FORM N-1A
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 Financial
Highlights
Information
4. General Description of Cover Page;
Prospectus
Registrant Summary;
Investment
Objective
and Management
Policies;
Massachusetts
Municipal
Securities;
Additional
Information
5. Management of the Fund Management of
the
Fund;
Distributor;
Additional
Information
6. Capital Stock and Other Investment
Objective
and
Securities Management
Policies;
Dividends,
Distributions
and Taxes;
Additional
Information
7. Purchase of Securities Purchase of
Shares;
Valuation
Being Offered of Shares;
Redemption
of
Shares ;
Exchange
Privilege;
Minimum Account
Size;
Distributor;
Additional
Information
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 Table of
Contents
12. General Information Distributor;
Additional
Information
13. Investment Objective and Investment
Objective and Policies Management
Policies
14. Management of the Fund Management of
the
Fund;
Distributor
15. Control Persons and
Principal Holders of Management of
the
Fund
Securities
16. Investment Advisory and Management of
the Fund; other Services
Distributor
17. Brokerage Allocation Investment
Objective
and
Management
Policies 18. Capital Stock and Other
Investment Objectives and Securities
Management
Policies ;
Purchase of
Shares;
Redemption of
Shares; Taxes
19. Purchase, Redemption and Purchase of
Shares; Pricing of Redemption of
Shares;
Securities being Distributor;
Valuation
of
Offered Shares; Exchange
Privilege
20. Tax Status Taxes
21. Underwriters Distributor
22. Calculation of Performance Data
Performance Data
23. Financial Statements Financial
Statements
SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND
PART A
<PAGE>
P R O S P E C T U S
SMITH BARNEY
Massachusetts
Municipals
Fund
JANUARY 29, 1996
PROSPECTUS BEGINS ON PAGE ONE
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PROSPECTUS
JANUARY 29, 1996
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 pro-
spective investors will find helpful in
making an investment decision. Invest-
ors are encouraged to read this Prospectus
carefully and retain it for future
reference.
Additional information about the Fund is
contained in a Statement of Addi-
tional Information dated January 29, 1996, as
amended or supplemented from time
to time, that is available upon request and
without charge by calling or writ-
ing the Fund at the telephone number or
address set forth above or by contact-
ing a Smith Barney Financial Consultant. The
Statement of Additional Informa-
tion 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
11
- ----------------------------------------------
- --
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
15
- ----------------------------------------------
- --
MASSACHUSETTS MUNICIPAL SECURITIES
21
- ----------------------------------------------
- --
VALUATION OF SHARES
23
- ----------------------------------------------
- --
DIVIDENDS, DISTRIBUTIONS AND TAXES
24
- ----------------------------------------------
- --
PURCHASE OF SHARES
26
- ----------------------------------------------
- --
EXCHANGE PRIVILEGE
34
- ----------------------------------------------
- --
REDEMPTION OF SHARES
38
- ----------------------------------------------
- --
MINIMUM ACCOUNT SIZE
40
- ----------------------------------------------
- --
- -
PERFORMANCE
41
- ----------------------------------------------
- --
MANAGEMENT OF THE FUND
42
- ----------------------------------------------
- --
- -
DISTRIBUTOR
44
- ----------------------------------------------
- --
ADDITIONAL INFORMATION
45
- ----------------------------------------------
- --
</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 Prospec-
tus. 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 and Massachusetts personal
income taxes as is consistent with prudent
investment management and the pres-
ervation 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 Massa-
chusetts personal income taxes ("Massachusetts
Municipal Securities"). Inter-
mediate- and long-term municipal securities
have remaining maturities at the
time of purchase from three to in excess of
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 initial sales charge, but will
be subject to a contingent
deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months
of purchase. See "Prospectus Summary--Reduced
or No Initial Sales Charge."
Class B Shares. Class B shares are offered at
net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds,
declining by 0.50% the first
year after purchase and by 1.00% each year
thereafter to zero. This CDSC may
be waived for certain redemptions. Class B
shares are subject to an annual
serv-
3
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
ice 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 dis-
tributions ("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
Fund shares, which when combined
with current holdings 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 pur-
chase.
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 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
4
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
return on these additional invested amounts
may partially or wholly offset the
higher annual expenses of these Classes.
Because the Fund's future return can-
not 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 distri-
bution 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."
Smith Barney Financial Consultants may receive
different compensation for
selling each Class of shares. See "Purchase of
Shares" and "Management of the
Fund" for a complete description of the
sales charges and service and distri-
bution 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 Bar-
ney on a fully disclosed basis (an
"Introducing Broker") or an investment
dealer in the selling group. See "Purchase
of Shares."
5
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
INVESTMENT MINIMUMS Investors in Class A,
Class B and Class C shares may open
an account by making an initial investment of
at least $1,000 for each
account. Investors in Class Y shares may open
an account for an initial
investment of $5,000,000. Subsequent
investments of at least $50 may be made
for all Classes. The minimum initial
investment requirement for Class A, Class
B and Class C shares and the subsequent
investment requirement for all Classes
through the Systematic Investment Plan
described below is $50. There is no
minimum 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 Invest-
ment 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 $50.
See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed
on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business.
See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual
Funds Management Inc. ("SBMFM")
serves as the Fund's investment adviser and
administrator. 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 Travelers Group
Inc. ("Travelers"), a diversified financial
services holding company engaged,
through its subsidiaries, principally in four
business segments: Investment
Services, Consumer Finance Services, Life
Insurance Services and Property &
Casualty Insurance Services. 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 respec-
tive net asset values next determined, plus
any applicable sales charge dif-
ferential. 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 paid on
the last Friday of each calendar month to
shareholders of record as of
6
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
the preceding Tuesday. Distributions of net
realized long- and short-term cap-
ital 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 any
Class will be reinvested automatically, unless
otherwise specified by an
investor, in additional shares of the same
Class at current net asset value.
Shares acquired by dividend and distribution
reinvestments will not be subject
to any sales charge or CDSC. Class B shares
acquired through dividend and dis-
tribution 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 munic-
ipal issuers. Dividends derived from interest
on obligations of non-Massachu-
setts municipal issuers, as a general rule,
will be exempt from Federal income
taxes, but may be subject to Massachusetts
state personal income taxes. Divi-
dends derived from certain municipal
securities (including Massachusetts
Municipal Securities), however, may be a
specific tax preference item for Fed-
eral 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 Mas-
sachusetts Municipal Securities than is a
municipal bond fund that does not
emphasize these issuers. See "Massachusetts
Municipal Securities" in the Pro-
spectus and "Special Considerations Relating
to Massachusetts Municipal Secu-
rities" 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."
7
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
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 Stan-
dard & Poor's Corporation ("S&P"), which are
often referred to as "junk bonds,"
or in unrated obligations of comparable
quality. Securities in the fourth high-
est 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
whenissued 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 Manage-
ment Policies--Certain Portfolio
Strategies."
8
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
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 operat-
ing 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)
0.31% 0.31% 0.31% 0.31%
12b-1 fees**
0.15 0.65 0.70 --
Other expenses***
0.37 0.39 0.34 0.37
- ----------------------------------------------
- -------------------------------
TOTAL FUND OPERATING EXPENSES
0.83% 1.35% 1.35% 0.68%
- ----------------------------------------------
- -------------------------------
</TABLE>
* 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, 1995.
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% serv-
ice 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%
distri-
9
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PROSPECTUS SUMMARY (CONTINUED)
bution fee and a 0.15% service fee. "Other
expenses" in the above table include
fees for shareholder services, custodial
fees, legal and accounting fees,
printing costs and registration fees.
EXAMPLE
The following example is intended to assist an
investor in understanding the
various costs that an investor in the 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 $84 $138
Class B
59 73 84 148
Class C
24 43 74 162
Class Y
7 22 38 85
An investor would pay the following
expenses on the same investment, assuming
the same annual return and no redemption:
Class A
$48 $65 $84 $138
Class B
14 43 74 148
Class C
14 43 74 162
Class Y
7 22 38 85
- ----------------------------------------------
- -------------------------------
</TABLE>
* Ten-year figures assume conversion of Class
B
shares to Class A shares at
the end of the eighth year following the date
of purchase.
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 REPRESENTA-
TION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
10
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
FINANCIAL HIGHLIGHTS
The following information for the fiscal
year ended November 30, 1995 has been
audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon
appears in the Fund's Annual Report dated
November 30, 1995. The
information for the fiscal years ended
November 30, 1988 through November 30,
1994 has been audited by Coopers & Lybrand
L.L.P. 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,
which is incorporated by refer-
ence into the Statement of Additional
Information. No information is presented
for Class Y shares since no Class Y shares
were outstanding for the periods
shown.
FOR A SHARE OF EACH CLASS OF BENEFICIAL
INTEREST OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS A SHARES
1995
1994 1993(1) 1992
- ----------------------------------------------
- --------------------------------
<S> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $
11.35 $ 13.26 $ 12.63 $ 12.28
- ----------------------------------------------
- --------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income(2)
0.69 0.70 0.72 0.77
Net realized and unrealized gains (loss)
1.61 (1.85) 0.72 0.43
- ----------------------------------------------
- --
- -------------------------------
Total Income (Loss) From Operations
2.30 (1.15) 1.44 1.20
- ----------------------------------------------
- --------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income
(0.68) (0.69) (0.73) (0.77)
Overdistribution of net investment income
(0.01) (0.01) (0.01) --
Net realized gains
-
- - (0.06) (0.07) (0.04)
Capital
-
- - -- -- (0.04)
- ----------------------------------------------
- --------------------------------
Total Distributions
(0.69) (0.76) (0.81) (0.85)
- ----------------------------------------------
- --------------------------------
NET ASSET VALUE, END OF YEAR $
12.96 $ 11.35 $ 13.26 $ 12.63
- ----------------------------------------------
- --------------------------------
TOTAL RETURN
20.73% (9.07)% 11.75% 10.06%
- ----------------------------------------------
- --------------------------------
NET ASSETS, END OF YEAR (000'S)
$29,156 $27,634 $32,592 $27,354
- ----------------------------------------------
- --------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)
0.83% 0.81% 0.82% 0.71%
Net investment income
5.42 5.55 5.49 6.12
- ----------------------------------------------
- --------------------------------
PORTFOLIO TURNOVER RATE
10% 37% 10% 73%
- ----------------------------------------------
- --------------------------------
</TABLE>
11
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS A SHARES 1991 1990
1989 1988*
- ----------------------------------------------
- ----------------
<S> <C> <C>
<C>
<C>
NET ASSET VALUE,
BEGINNING OF YEAR $ 11.81 $ 12.11 $
11.88 $ 11.40
- ----------------------------------------------
- ----------------
INCOME (LOSS) FROM
OPERATIONS:
Net investment income(2) 0.84
0.84 0.88 0.82
Net realized and
unrealized gains (loss) 0.48
(0.27) 0.21 0.54
- ----------------------------------------------
- ----------------
Total Income (Loss) From
Operations 1.32 0.57
1.09 1.36
- ----------------------------------------------
- ----------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.84)
(0.85)
(0.86) (0.82)
Overdistribution of net
investment income -- --
- -- --
Net realized gains --
(0.02)
- -- (0.06)
Capital (0.01) --
- -- --
- ----------------------------------------------
- ----------------
TOTAL DISTRIBUTIONS (0.85) (0.87)
(0.86) (0.88)
- ----------------------------------------------
- ----------------
NET ASSET VALUE, END OF
YEAR $ 12.28 $ 11.81 $
12.11 $ 11.88
- ----------------------------------------------
- ----------------
TOTAL RETURN 11.57% 4.93%
9.43% 12.25%
- ----------------------------------------------
- --
- ---------------
NET ASSETS, END OF YEAR
(000'S) $19,621 $18,036
$20,375 $14,548
- ----------------------------------------------
- ----------------
RATIOS TO AVERAGE NET
ASSETS:
Expenses(2) 0.66% 0.74%
0.58% 0.67%++
Net investment
income/(loss) 6.89% 7.00%
7.24% 7.00%++
- ----------------------------------------------
- ----------------
Portfolio turnover rate 87% 51%
28% 128%
- ----------------------------------------------
- ----------------
</TABLE>
(1) Per share amounts have been calculated
using the monthly average shares
method, which more appropriately
presents the per share data for this year
since use of the undistributed
investment income method does not accord
with results of operations.
(2) The investment adviser waived all or part
of its fees for the seven years
ended November 30, 1995 and the period
from December 21, 1987 through
November 30, 1988. If such fees were not
waived, the per share
decrease in net investment income and the
expense ratios would have been
as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES EXPENSE
RATIOS
IN NET INVESTMENT INCOME WITHOUT FEE
WAIVERS
----------------------------- ---------------
- --------------
1995 1994 1993 1992 1991 1990 1989
1988 1995 1994 1993 1992 1991
----- ----- ----- ----- ----- ----- ----- ---
- -- ----- -----
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C> <C>
Class A $0.03 $0.04 $0.05 $0.08 $0.07 $0.04
$0.14 $0.16 1.07% 1.09% 1.18% 1.32% 1.28%
</TABLE>
* The Fund commenced operations on December
21, 1987. Any shares outstanding
prior to November 6, 1992 were
designated as Class A shares.
12
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF BENEFICIAL
INTEREST OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS B SHARES
1995 1994 1993 1992(1)
- ----------------------------------------------
- ---------------------------------
<S> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $
11.35 $ 13.26 $ 12.63 $12.52
- ----------------------------------------------
- ---------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income
0.63 0.63 0.66 0.06
Net realized and unrealized gains (loss)
1.61 (1.84) 0.72 0.10
- ----------------------------------------------
- ---------------------------------
Total Income (Loss) From Operations
2.24 (1.21) 1.38 0.16
- ----------------------------------------------
- --
- --------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income
(0.62) (0.63) (0.67) (0.05)
Overdistribution of net investment income
(0.01) (0.01) (0.01) --
Net realized gains
-
- - (0.06) (0.07) --
- ----------------------------------------------
- ---------------------------------
TOTAL DISTRIBUTIONS
(0.63) (0.70) (0.75) (0.05)
- ----------------------------------------------
- ---------------------------------
NET ASSET VALUE, END OF YEAR $
12.96 $ 11.35 $ 13.26 $12.63
- ----------------------------------------------
- ---------------------------------
TOTAL RETURN
20.15% (9.50)% 11.09% 1.29%++
- ----------------------------------------------
- ---------------------------------
NET ASSETS, END OF YEAR (000'S)
$28,726 $23,279 $22,317 $2,938
- ----------------------------------------------
- ---------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses
1.35% 1.32% 1.31% 1.34%+
Net investment income
4.94 5.04 4.09 5.49+
- ----------------------------------------------
- --
- --------------------------------
Portfolio turnover rate
10% 37% 10% 73%
- ----------------------------------------------
- ---------------------------------
</TABLE>
(1) For the period from November 6, 1992
(inception date) to November 30,
1992.
(2) The investment adviser has waived all
or
part of its fees for the three
years ended November 30, 1995 and the
period ended November 30, 1992. If
such fees were not waived, the per
share decreases in net investment
income and expense ratios would have
been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES
EXPENSE RATIOS
IN NET INVESTMENT INCOME
WITHOUT FEE WAIVERS
--------------------------- --
- ---------------------
1995 1994 1993 1992
1995 1994 1993 1992
------ ------ ------ ------ --
- -- ----- ----- ------
<S> <C> <C> <C> <C>
<C>
<C> <C> <C>
Class B $0.04 $0.03 $0.05 $0.01
1.59% 1.60% 1.68% 1.94%+
</TABLE>
++Total return is not annualized, as it may
not
be representative of the total
return for the year.
+ Annualized.
13
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF BENEFICIAL
INTEREST OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS C SHARES
1995 1994(1)
- ----------------------------------------------
- -------------
<S> <C>
<C>
NET ASSET VALUE, BEGINNING OF YEAR
$11.35 $11.34
- ----------------------------------------------
- -------------
INCOME FROM OPERATIONS:
Net investment income
0.63 0.05
Net realized and unrealized gain
1.60 --
- ----------------------------------------------
- -------------
Total Income From Operations
2.23 0.05
- ----------------------------------------------
- -------------
LESS DISTRIBUTIONS FROM:
Net investment income
(0.63) (0.04)
Overdistribution of net investment income -
-
(0.00)*
Net realized capital gains -
-
- --
- ----------------------------------------------
- -------------
Total Distributions
(0.63) (0.04)
- ----------------------------------------------
- -------------
NET ASSET VALUE, END OF YEAR
$12.95 $11.35
- ----------------------------------------------
- -------------
TOTAL RETURN
20.04% 0.40%++
- ----------------------------------------------
- -------------
NET ASSETS, END OF YEAR ($000'S) $
146 $ 75
- ----------------------------------------------
- -------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(2)
1.35% 1.36%
Net investment income
4.65 5.00+
- ----------------------------------------------
- -------------
PORTFOLIO TURNOVER RATE
10% 37%
- ----------------------------------------------
- -------------
</TABLE>
(1) For the period from November 10, 1994
(inception date) to November 30,
1994.
(2) The investment adviser has waived all
or
part of its fees for the year
ended November 30, 1995 and the period
ended November 30, 1994. If such
fees were not waived, the per share
decrease in net investment income and
the ratios of expenses to average
net assets would have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES
EXPENSE RATIOS
IN NET INVESTMENT INCOME
WITHOUT FEE WAIVERS
------------------------- ----
- ---------------
1995 1994
1995 1994
------------ ------------ ----
- ---- ----------
<S> <C> <C> <C>
<C>
Class C $0.04
$0.00* 1.58% 0.63%+
</TABLE>
* Amount represents less than $0.01.
++Total return is not annualized, as it may
not
be representative of the total
return for the year.
+ Annualized.
14
<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 with-
out 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 nor-
mal 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 pos-
ture, 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 invest-
ment-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 pur-
chase from three to in excess of twenty
years. Obligations which are rated Baa
by Moody's or BBB by S&P and those which are
rated lower than investment grade
are subject to greater market fluctuation
and more uncertainty as to payment of
principal and interest, and therefore
generate higher yields than obli
15
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
gations 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 munic-
ipality for which the municipality's taxing
power is pledged, a lease obliga-
tion is ordinarily backed by the
municipality's covenant to budget for, appro-
priate 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-appropri-
ation" lease obligations are often secured by
the underlying property, dispo-
sition 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 obliga-
tions, 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 credit-
worthiness 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
16
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES (CONTINUED)
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 pur-
poses of the Federal individual and corporate
alternative minimum taxes. Indi-
vidual and corporate shareholders may be
subject to a Federal alternative min-
imum tax to the extent the Fund's dividends
are derived from interest on those
bonds. Dividends derived from interest income
on Massachusetts Municipal Secu-
rities 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 pro-
portion of its assets that it may invest in
the obligations of a single issu-
er. 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 share-
holders. 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.
The Fund may invest without limit in debt
obligations that are repayable out
of revenue streams generated from
economicallyrelated 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 opera-
tion for less than three years.
Notwithstanding the foregoing, the Fund shall
not invest more than 10%
17
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES (CONTINUED)
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 securi-
ties 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 fluc-
tuations 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 deliv-
ered to the buyers. The Fund will not
accrue income with respect to a when-
issued security prior to its stated
delivery date. The Fund will establish a
segregated account with the Fund's
custodian consisting of cash, obligations
issued or guaranteed by the United States
government or its agencies or
instrumentalities ("U.S. government
securities") or other high grade debt
obligations in an amount equal to the amount
of the purchase price of the
when-issued securities. Placing securities
rather than cash in the segregated
account may have a leveraging effect on the
Fund's net assets. The Fund gener-
ally 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.
18
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES (CONTINUED)
Temporary Investments. Under normal market
conditions, the Fund may hold up
to 20% of its total assets in cash or money
market instruments, including tax-
able money market instruments ("Temporary
Investments"). In addition, when
SBMFM believes that market conditions
warrant, including when acceptable Massa-
chusetts 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 antici-
pated changes in interest rates and market
conditions and when the transactions
are economically appropriate to the reduction
of risks inherent in the manage-
ment of the Fund.
A municipal bond index futures contract, which
is based on an index of long-
term, tax-exempt municipal bonds, is an
agreement in which two parties agree to
take or make delivery of an amount of cash
equal to a specific dollar amount
times the difference between the value of the
index at the close of the last
trading day of the contract and the price at
which the index contract was orig-
inally 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 securi-
ties, 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
19
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT
POLICIES (CONTINUED)
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 con-
tract 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 trans-
actions 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 rise 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.
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 pri-
marily 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 con-
tract 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 transac-
tions in futures contracts and options on
futures contracts will be taxable.
Accordingly,
20
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
(CONTINUED)
it is anticipated that such investments will
be made only in unusual circum-
stances, 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 securi-
ties or other high grade debt securities
equal to the market value of the con-
tract will be deposited and maintained in a
segregated account with the Fund's
custodian to collateralize the positions,
thereby insuring that the use of the
contract is unleveraged.
MASSACHUSETTS MUNICIPAL SECURITIES
As used in this Prospectus, the term
"Massachusetts Municipal Securities"
generally refers to intermediate- and long-
term debt obligations issued by the
Commonwealth of Massachusetts and its
political subdivisions, agencies and
public authorities (together with certain
other governmental issuers such as
Puerto Rico, the Virgin Islands and Guam) to
obtain funds for various public
purposes. The interest on such obligations
is, in the opinion of bond counsel
to the issuers, excluded from gross income
for Federal income tax purposes and
exempt from Massachusetts personal income
taxes and, for that reason, gener-
ally is fixed at a lower rate than it would
be if it were subject to such tax-
es. Interest income on certain Massachusetts
Municipal Securities is a spe-
cific 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 rev-
enues 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
21
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
MASSACHUSETTS MUNICIPAL SECURITIES
(CONTINUED)
income for Federal income tax purposes and
as
exempt from Massachusetts per-
sonal 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 reduc-
tion of income to the Fund, and could result
in a reduction in the value of the
municipal lease experiencing non-payment and
a potential decrease in the net
asset value of the Fund. Issuers of municipal
securities might seek protection
under the bankruptcy laws. In the event of
bankruptcy of such an issuer, the
Fund could experience delays and limitations
with respect to the collection of
principal and interest on such municipal
leases and the Fund may not, in all
circumstances, be able to collect all
principal and interest to which it is
entitled. To enforce its rights in the event
of a default in lease payments,
the Fund may take possession of and manage
the assets securing the issuer's
obligations on such securities, which may
increase the Fund's operating
expenses and adversely affect the net asset
value of the Fund. Any income
derived from the Fund's ownership or
operation of such assets may not be tax-
exempt. In addition, the Fund's intention to
qualify as a "regulated investment
company" under the Code may limit the extent
to which the Fund may exercise its
rights by taking possession of such assets,
because as a regulated investment
company the Fund is subject to certain
limitations on its investments and on
the nature of its income.
Because it invests primarily in Massachusetts
Municipal Securities, the Fund
may be affected by any political, economic,
regulatory, legal or other develop-
ments 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 enti-
ties 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 operat-
ing deficit in each of the fiscal years ended
June 30, 1989 through 1991. Bud-
geted operating funds ended fiscal 1992,
1993 and 1994 with an excess of reve-
nues and other sources
22
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
MASSACHUSETTS MUNICIPAL SECURITIES
(CONTINUED)
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 authori-
ties and municipalities within Massachusetts,
as well as of the Commonwealth
itself. Any such imbalance could adversely
affect the market values and mar-
ketability 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 slow-
down in certain sectors of the economy,
including high technology, construc-
tion, real estate, financial services and
manufacturing. Since 1992, employ-
ment within most of these sectors has improved
as part of a general recovery
of the economy. Employment losses within the
manufacturing sector have contin-
ued, but at a slower rate than in prior years.
For additional information con-
cerning the Commonwealth's economic
difficulties
and other considerations
relating to investments in
Massachusetts Municipal Securities,
see the State-
ment of Additional Information.
VALUATION OF SHARES
The Fund's net asset value per share is
determined as of the close of regu-
lar 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
State-
ment of Additional Information.
23
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund pays dividends from its net
investment income (that is, net income
other than its net realized long and short-
term capital gains) on the last Fri-
day of each calendar month to shareholders of
record as of the preceding Tues-
day. Distributions of net realized long- and
short-term capital gains, if any,
are declared and paid annually after the end
of the fiscal year in which they
have been earned.
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 an additional
distribution shortly before December 31 of
each year of any undistributed ordi-
nary income or capital gains and expects to
pay any other distributions as are
necessary to avoid the application of this
tax.
If, for any full fiscal year, the Fund's total
distributions exceed net
investment income and net realized capital
gains, the excess distributions may
be treated as a tax-free return of capital (up
to the amount of the sharehold-
er'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 invest-
ment 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
in the same amount for Class A, B, C and Y
shares.
TAXES
The Fund has qualified and intends to continue
to qualify each year as a reg-
ulated investment company under the Code
and will designate and pay exempt-
24
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES
(CONTINUED)
interest dividends derived from interest
earned
on qualifying tax-exempt obli-
gations. Such exempt-interest dividends may be
excluded by shareholders from
their gross income for Federal income tax
purposes although (a) all or a por-
tion 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
exemptinterest dividends will be a
component of the "current earnings" adjustment
item for purposes of the Fed-
eral 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 Massachu-
setts 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 tax-
able 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 distribu-
tions are received in cash or reinvested in
additional Fund shares. Further-
more, 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 share-
holder 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 divi-
dends-received deduction for corporations.
Statements as to the tax status of each
shareholder's dividends and distri-
butions are mailed annually. Each shareholder
will also receive, if appropri-
ate, 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
25
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
DIVIDENDS, DISTRIBUTIONS AND TAXES
(CONTINUED)
income taxes. Moreover, these statements will
designate the amount of exempt-
interest dividends that is a specific
preference item for purposes of the Fed-
eral individual and corporate alternative
minimum taxes. Shareholders should
consult their own tax advisors with
specific reference to their own tax situa-
tions.
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 redemp-
tions. 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 (except for pur-
chases of Class Y shares of Smith Barney
Concert Series Inc., for which there
is no minimum purchase amount). 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 mak-
ing 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 Clas-
ses. For the Fund's Systematic Investment
Plan, the minimum initial investment
requirement for Class A, Class B and Class C
shares and the subsequent invest-
ment requirement for all Classes is $50.
There are no minimum investment
requirements for Class A shares for employees
of Travelers and its subsidiar-
ies, including Smith Barney, Trustees of the
Fund and their spouses and chil-
dren 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,
26
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PURCHASE OF SHARES (CONTINUED)
First Data Investor Services Group, Inc.
(the "Transfer Agent"). Share certifi-
cates are issued only upon a shareholder's
written request to the Transfer
Agent.
Purchase orders received by the Fund or Smith
Barney prior to the close of
regular trading on the NYSE, on any day the
Fund calculates its net asset val-
ue, are priced according to the net asset
value determined on that day. Orders
received by dealers or Introducing Brokers
prior
to the close of regular trad-
ing 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 the Fund or Smith Barney prior to
Smith Barney's close of business
(the "trade date"). For shares purchased
though Smith Barney or Introducing
Brokers purchasing though Smith Barney,
payment for Fund shares is due on the
third business day after the trade date (the
"settlement date"). In all other
cases, payment must be made with the purchase
order.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their
accounts at any time by purchasing
shares through a service known as the
Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or
the Transfer Agent is authorized
through preauthorized transfers of $50 or
more to charge an account with a bank
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 the Transfer Agent. The Sys-
tematic 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. Addi-
tional information is available from the Fund
or a Smith Barney Financial Con-
sultant.
27
<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'
AMOUNT OF SALES CHARGE AS % SALES
CHARGE AS % REALLOWANCE AS %
INVESTMENT OF OFFERING PRICE OF
AMOUNT INVESTED OF 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 *
* *
- ----------------------------------------------
- -----------------------------
</TABLE>
* 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."
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
or Directors of any of the Smith Barney Mutual
Funds and employees of Travel-
ers and its subsidiaries and employees of
members of the National Association
of Securities Dealers, Inc., or to the
spouses and children of such persons
(including the surviving spouse of a
deceased Trustee or employee, and retired
Trustees or employees); (b) offers of Class
A shares to any other investment
company in connection with the combination
of such company with the Fund by
merger,
28
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PURCHASE OF SHARES (CONTINUED)
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 spon-
sored by the Financial Consultant's prior
employer, (ii) was sold to the cli-
ent 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 reinvest-
ment is made within 60 calendar days of the
redemption; (e) accounts managed
by registered investment advisory subsidiaries
of Travelers; and (f) invest-
ments 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 aggregat-
ing 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 informa-
tion at the time of purchase to permit
verification that the purchase quali-
fies for the reduced sales charge. The right
of accumulation is subject to
modification or discontinuance at any time
with respect to all shares pur-
chased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems,
a reduced sales charge or pur-
chase at net asset value will also be
available to employees (and partners) of
the same employer purchasing as a group,
provided each participant makes the
minimum initial investment required. The
sales charge applicable to purchases
by each member of such a group will be
determined by the table set forth above
under "Initial Sales Charge Alternative--Class
A Shares," and will be based
upon the aggregate sales of Class A shares of
Smith Barney Mutual Funds
offered with a sales charge to, and share
holdings of, all members of the
group.
29
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PURCHASE OF SHARES (CONTINUED)
To be eligible for such reduced sales charges
or to purchase at net asset val-
ue, 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 subsidiar-
ies, if any. Such plan may, but is not
required to, provide for payroll deduc-
tions. 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 representa-
tives 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
Class A Shares. A Letter of Intent for amounts
of $50,000 or more provides
an opportunity for an investor to obtain a
reduced sales charge by aggregating
investments over a 13 month period, provided
the investor refers to such Let-
ter when placing orders. For purposes of a
Letter of Intent, the "Amount
Invested" as referred to in the preceding
sales charge table includes pur-
chases of all Class A shares of the Fund and
other Smith Barney Mutual Funds
offered with a sales charge listed under
"Exchange Privilege" 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 com-
pute 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
30
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PURCHASE OF SHARES (CONTINUED)
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 the Transfer Agent to obtain a
Letter of Intent application.
Class Y shares. A Letter of Intent may also be
used as a way for investors
to meet the minimum investment requirement for
Class Y shares. Such investors
must make an initial minimum purchase of
$1,000,000 in Class Y shares of the
Fund and agree to purchase a total of
$5,000,000 of Class Y shares of the Fund
within six months from the date of the Letter.
If a total investment of
$5,000,000 is not made with the six-month
period, all Class Y shares purchased
to date will be transferred to Class A shares,
where they will be subject to
all fees (including a service fee of 0.15%)
and expenses applicable to the
Fund's Class A shares, which may include a
CDSC of 1%. The Fund expects that
such transfer will not be subject to Federal
income taxes. Please contact a
Smith Barney Financial Consultant or the
Transfer Agent for further
information.
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
original 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 num-
ber of years since the shareholder made the
purchase payment from
31
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PURCHASE OF SHARES (CONTINUED)
which the amount is being redeemed. Solely
for purposes of determining the num-
ber 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 and thereafter 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 pro-
portion 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 sharehold-
er. 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 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.
32
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PURCHASE OF SHARES (CONTINUED)
To provide an example, assume an investor
purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently,
the investor acquired 5 addi-
tional 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) au-
tomatic cash withdrawals in amounts equal to
or less than 1.00% per month of
the value of the shareholder's shares at the
time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan")
(provided, however, that automatic cash
withdrawals in amounts equal to or less than
2.00% per month of the value of
the shareholder's shares will be permitted for
withdrawal plans that were
established prior to November 7, 1994); (c)
redemptions of shares within 12
months following the death or disability of the
shareholder; (d) involuntary
redemptions; and (e) redemptions of shares made
in connection with a combina-
tion 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, rein-
vest all or part of the redemption proceeds
within 60 days and receive pro rata
credit for any CDSC imposed on the prior
redemption.
CDSC waivers will be granted subject to
confirmation (by Smith Barney in the
case of shareholders who are also Smith Barney
clients or by the Transfer Agent
in the case of all other shareholders) of the
shareholder's status or holdings,
as the case may be.
33
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
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.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Fundamental Value Fund Inc.
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc. -- Equity Income
Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Taxable Fixed-Income Funds
**Smith Barney Adjustable Rate Government
Income Fund
Smith Barney Diversified Strategic Income Fund
*Smith Barney Funds, Inc. -- Income Return
Account Portfolio
++Smith Barney Funds, Inc. -- Short-Term U.S.
Treasury Securities Portfolio
Smith Barney Funds, Inc. -- U.S. Government
Securities Portfolio
Smith Barney Government Securities Fund
Smith Barney High Income Fund
34
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Tax Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
*Smith Barney Intermediate Maturity California
Municipals Fund
*Smith Barney Intermediate Maturity New York
Municipals Fund
Smith Barney Managed Municipals Fund Inc.
*Smith Barney 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 York Portfolio
Smith Barney Muni Funds -- Ohio Portfolio
Smith Barney Muni Funds -- Pennsylvania
Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
International Funds
Smith Barney Natural Resources Fund Inc.
Smith Barney World Funds, Inc. -- Emerging
Markets Portfolio
Smith Barney World Funds, Inc. -- European
Portfolio
Smith Barney World Funds, Inc. -- Global
Government Bond Portfolio
Smith Barney World Funds, Inc. -
International Balanced Portfolio
Smith Barney World Funds, Inc. -
International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific
Portfolio
Smith Barney Concert Series Inc.
Smith Barney Concert Series Inc. -- High
Growth Portfolio
Smith Barney Concert Series Inc. -- Growth
Portfolio
Smith Barney Concert Series Inc. -- Balanced
Portfolio
Smith Barney Concert Series Inc. -
Conservative Portfolio
Smith Barney Concert Series Inc. -- Income
Portfolio
35
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
EXCHANGE PRIVILEGE (CONTINUED)
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.
- ----------------------------------------------
- --------------------------------
* 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.
Class A Exchanges. Class A shares of Smith
Barney Mutual Funds sold without
a sales charge or with a maximum sales charge
of
less than the maximum charged
by other Smith Barney Mutual Funds will be
subject to the appropriate "sales
charge differential" upon the exchange of such
shares for Class A shares of a
fund sold with a higher sales charge. The
"sales charge differential" is lim-
ited 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 pur-
poses of the exchange privilege, shares
obtained through automatic reinvest-
ment 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 share-
holder 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.
36
<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 deter-
mine that a pattern of frequent exchanges is
excessive and contrary to the best
interests of the Fund's other shareholders. In
this event, the Fund may, at its
discretion, decide to limit additional
purchases and/or exchanges by the share-
holder. Upon such a determination, the Fund
will provide notice in writing or
by telephone to the shareholder at least 15
days prior to suspending the
exchange privilege and during the 15 day period
the shareholder will be
required to (a) redeem his or her shares in the
Fund or (b) remain invested in
the Fund or exchange into any of the funds of
the Smith Barney Mutual Funds
ordinarily available, which position the
shareholder would be expected to main-
tain 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 privi-
leges upon 60 days' prior notice to
shareholders.
37
<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 redemp-
tion proceeds will be remitted on or before the
third business day following
receipt of proper tender, except on any days on
which the NYSE is closed or as
permitted under the 1940 Act in extraordinary
circumstances. Generally, if the
redemption proceeds are remitted to a Smith
Barney brokerage account, these
funds will not be invested for the
shareholder's benefit without specific
instruction and Smith Barney will benefit from
the use of temporarily
uninvested funds. Redemption proceeds for
shares purchased by check, other
than a certified or official bank check, will
be remitted upon clearance of
the check, which may take up to ten days or
more.
Shares held by Smith Barney as custodian must
be redeemed by submitting a
written request to a Smith Barney Financial
Consultant. Shares other than
those held by Smith Barney as custodian may be
redeemed through an investor's
Financial Consultant, Introducing Broker or
dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Massachusetts Municipals Fund
Class A, B, C or Y (please specify)
c/o First Data Investor 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 account number
and (c) be signed by each registered owner
exactly as the shares are regis-
tered. If the shares to be redeemed were issued
in certificate form, the cer-
tificates must be endorsed for transfer (or be
accompanied by an endorsed
stock power) and must be submitted to the
Transfer Agent together with the
redemption request.
38
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
REDEMPTION OF SHARES (CONTINUED)
Any signature appearing on a redemption request
in excess of $2,000, must be
guaranteed by an eligible guarantor institution
such as a domestic bank, sav-
ings and loan institution, domestic credit
union, member bank of the Federal
Reserve System or member firm of a national
securities exchange. Written
redemption requests of $2,000 or less do not
require a signature guarantee
unless more than one such redemption request is
made in any 10-day period. The
Transfer Agent may require additional
supporting documents for redemptions made
by corporations, executors, administrators,
trustees or guardians. A redemption
request will not be deemed to be properly
received until the Transfer Agent
receives all required documents in proper
form.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM FOR
SHAREHOLDERS WHO DO NOT HAVE A
SMITH BARNEY BROKERAGE ACCOUNT
Certain shareholders may be eligible to redeem
and exchange Fund shares by
telephone. To determine if a shareholder is
entitled to participate in this
program, he or she should contact the Transfer
Agent at (800) 451-2010. Once
eligibility is confirmed, the shareholder must
complete and return a
Telephone/Wire Authorization Form, including a
signature guarantee, that will
be provided by the Transfer Agent upon
request. (Alternatively, an investor may
authorize telephone redemptions on the new
account application with a signature
guarantee when making his/her initial
investment in the Fund.)
Redemptions. Redemption requests of up to
$10,000 of any class or classes of
the Fund's shares may be made by eligible
shareholders by calling the Transfer
Agent at (800) 451-2010. Such request may be
made between 9:00 a.m. and 4:00
p.m. (New York City time) on any day the NYSE
is open. Redemptions of shares
(i) by retirement plans or (ii) for which
certificates have been issued are not
permitted under this program.
A shareholder will have the option of having
the redemption proceeds mailed
to his/her address of record or wired to a bank
account predesignated by the
shareholder. Generally, redemption proceeds
will be mailed or wired, as the
case may be, on the next business day
following the redemption request. In
order to use the wire procedures, the bank
receiving the proceeds must be a
member of the Federal Reserve System or have a
correspondent relationship with
a member bank. The Fund reserves the right to
charge shareholders a nominal fee
for each wire redemption. Such charges, if any,
will be assessed against the
shareholder's account from which shares were
redeemed. In order to change the
bank account designated to receive redemption
proceeds, a shareholder must com-
plete a new Telephone/Wire Authorization Form
and, for the protection of
39
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
REDEMPTION OF SHARES (CONTINUED)
the shareholder's assets, will be required to
provide a signature guarantee and
certain other documentation.
Exchanges. Eligible shareholders may make
exchanges by telephone if the
account registration of the fund being acquired
is identical to the registra-
tion of the shares of the fund exchanged. Such
exchange requests may be made by
calling the Transfer Agent at (800) 451-2010
between between 9:00 a.m. and 4:00
p.m. (New York City time) on any day on which
the NYSE is open.
Additional Information regarding Telephone
Redemption and Exchange
Program. Neither the Fund nor its agents will
be liable for following instruc-
tions communicated by telephone that are
reasonably believed to be genuine. The
Fund and its agents will employ procedures
designed to verify the identity of
the caller and legitimacy of instructions (for
example, a shareholder's name
and account number will be required and phone
calls may be recorded). The Fund
reserves the right to suspend, modify or
discontinue the telephone redemption
and exchange program or to impose a charge for
this service at any time follow-
ing at least seven (7) days' prior notice to
shareholders.
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 $50 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 Con-
sultant.
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, how-
40
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
MINIMUM ACCOUNT SIZE (CONTINUED)
ever, will not redeem shares based solely on
market reductions in net asset
value. Before the Fund exercises such right,
shareholders will receive written
notice and will be permitted 60 days to bring
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 gener-
ated 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.
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 histori-
cal 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 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
41
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
PERFORMANCE (CONTINUED)
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 depend-
ing 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 informa-
tion may include data from Lipper Analytical
Services, Inc. or similar inde-
pendent services that monitor the performance
of mutual funds, or other indus-
try publications.
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, includ-
ing agreements with the Fund's distributor,
investment adviser and administra-
tor, custodian and transfer agent. The day-to
day operations of the Fund are
delegated to the Fund's investment adviser and
administrator. The Statement of
Additional Information contains background
information regarding each Trustee
and executive officer of the Fund.
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 advi-
sory agreement, effective November 7, 1994,
from its affiliate, Mutual Manage-
ment Corp. (Mutual Management Corp. and SBMFM
are both wholly owned subsidiar-
ies of Holdings.) Investment advisory services
continue to be provided to the
Fund by the same portfolio managers who had
provided
42
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
MANAGEMENT OF THE FUND (CONTINUED)
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 November 30, 1995
in excess of $71 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. Prior to
November 17, 1995, for investment advisory
services rendered, the Fund paid
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. Effective
November 17, 1995, the Fund pays
SBMFM an advisory fee calculated at an annual
rate of 0.30% of average daily
net assets. For the fiscal year ended November
30, 1995, the Fund paid SBMFM
investment advisory fees equal to 0.20% of the
value of the average daily net
assets of the Fund.
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 (com-
mencement of operations) and manages the day-
today 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, 1995, is included
in the Annual Report dated November 30, 1995. A
copy of the Annual Report may
be obtained upon request without charge from a
Smith Barney Financial Consul-
tant 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
43
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
MANAGEMENT OF THE FUND (CONTINUED)
excess of $500 million. For the fiscal year
ended November 30, 1995, SBMFM was
paid administration fees equal to 0.11% of the
value of the average daily net
assets of the Fund.
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 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 automati-
cally convert to Class A shares eight years
after the date of original pur-
chase 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 con-
tinuing fee for servicing shareholder accounts
for as long as a shareholder
remains a holder of that Class. Smith Barney
Financial Consultants may receive
different levels of compensation for selling
different Classes of shares.
Payments under the Plan with respect to Class
B and Class C shares 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
44
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
DISTRIBUTOR (CONTINUED)
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.
ADDITIONAL INFORMATION
The Fund was organized on January 13, 1987
under the laws of the Common-
wealth of Massachusetts and is a business
entity commonly known as a "Massa-
chusetts business trust." It 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, privi-
leges 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 alloca-
ble 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.
PNC Bank, National Association, located at
17th and Chestnut Streets, Phila-
delphia, Pennsylvania 19103, serves as
custodian
of the Fund's investments.
First Data Investor Services Group, Inc.,
located at Exchange Place, Boston,
Massachusetts 02109, serves as the Fund's
transfer agent.
45
<PAGE>
SMITH BARNEY
Massachusetts Municipals Fund
ADDITIONAL INFORMATION (CONTINUED)
The Fund sends to each of its shareholders a
semi-annual report and an
audited annual report, which include listings
of the investment securities held
by the Fund at the end of the period covered.
In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to
consolidate the mailing of its
semi-annual and annual reports by household.
This consolidation means that a
household having multiple accounts with the
identical address of record will
receive a single copy of each report.
Shareholders who do not want this consol-
idation to apply to their accounts should
contact their Smith Barney Financial
Consultants or the Transfer Agent.
46
<PAGE>
[LOGO]
SMITH BARNEY
---
- --------
A Member of
Travelers Group [ART]
SMITH BARNEY
MASSACHUSETTS
MUNICIPALS
FUND
388
Greenwich Street
New York, New
York 10013
FD 0226 1/96
SMITH BARNEY MASSACHUSETTS MUNICIPALS
FUND
PART B
Smith Barney
Massachusetts Municipals Fund
388 Greenwich Street
New York, New York 10013
(212) 723-9218
Statement of Additional Information
January 29, 1996
This Statement of Additional Information
expands upon and supplements the information
contained in the current Prospectus of Smith
Barney Massachusetts Municipals Fund (the
"Fund"), dated January 29,
1996, 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 Barney
Financial Consultant or by writing or calling
the Fund at the address or telephone number
set forth above. This Statement of Additional
Information, although not in
itself a prospectus, is incorporated by
reference into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference, the same section
headings are used in both the Prospectus and
this Statement of Additional Information,
except where shown below: <TABLE>
<S>
<C>
Management of the
Fund..........................................
.. .. .. .. .. .. ..
...................................... 1
Investment Objective and Management
Policies......................................
.. .. .. .. .. .. .. ......... 5
Municipal Bonds (See in the Prospectus
"Massachusetts Municipal
Securities")............ 13
Purchase of
Shares........................................
.. .. .. .. .. .. ..
..............................................
.. . 18 Redemption of
Shares........................................
.. .. .. .. .. .. ..
...............................
............. 19
Distributor...................................
.. .. .. .. .. .. ..
..............................................
.. .. .. .. .. .. .. ...... 20
Valuation of
Shares........................................
.. .. .. .. .. .. ..
..............................................
.. 21 Exchange
Privilege.....................................
.. .. .. .. .. .. ..
..............................................
.. .. .. 22 Performance Data (See in the
Prospectus
"Performance'')...............................
.. .. .. .. .. .. .. 22
Taxes (See in the Prospectus "Dividends,
Distributions and
Taxes'')............................. 25
Additional
Information...................................
.. .. .. .. .. .. ..
..............................................
.. 27 Financial
Statements....................................
..
.. .. .. .. .. ..
..............................................
.. .. 29
Appendix......................................
.. .. .. .. .. .. ..
..............................................
.. .. .. . A-1 </TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are
employees of certain
of the organizations that provide services to
the Fund. These organizations are as follows:
<TABLE>
<S> <C>
Name Service
Smith Barney Inc.
("Smith
Barney'').....................................
.. .. .. .. .. .. .. .....
Distributor Smith Barney Mutual Funds
Management Inc.
("SBMFM'')....................................
.. .. .. .. .. .. .. .............
Investment Adviser
and
Administrator
PNC Bank, National Association
("PNC")..................... Custodian
First Data Investor Services Group, Inc.,
formerly The Shareholder Services Group,
Inc.,
(the "Transfer
Agent") ...................................
.. .. .. .. .. .. . Transfer Agent
</TABLE>
These organizations and the functions they
perform for the Fund are discussed 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 person'' 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 (Age 72).
Private Investor. His address is 273
Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004.
*Alfred J. Bianchetti, Trustee (Age 73).
Retired; formerly Senior Consultant to Dean
Witter Reynolds Inc. His address is 19 Circle
End Drive, Ramsey, New Jersey 07466.
Martin Brody, Trustee (Age 74). Vice Chairman
of the Board of Restaurant Associates Corp.
His address is HMK Associates, Three ADP
Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Trustee (Age 58). Professor,
Graduate School of Business Administration,
Harvard University; Business Consultant. His
address is Graduate School of Business
Administration, Harvard University, Boston,
Massachusetts 02163.
Burt N. Dorsett, Trustee (Age 65). 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 (Age 69). Chairman
of the Board and Chief Executive Officer of
The Dress Barn,
Inc. His address is 30 Dunnigan Drive,
Suffern, New York 10901.
Stephen E. Kaufman, Trustee (Age 63).
Attorney. His address is 277 Park Avenue, New
York, New York 10172.
Joseph J. McCann, Trustee (Age 65). Financial
Consultant. His address is 200 Oak Park Place,
Pittsburgh, Pennsylvania
15243.
*Heath B. McLendon, Chairman of the Board and
Investment Officer (Age 62). Managing
Director of Smith Barney and Chairman of Smith
Barney Strategy Advisers Inc.; prior to July
1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc. ("Shearson
Lehman Brothers"), Vice Chairman of Shearson
Asset Management, a Director of PanAgora Asset
Management, Inc. and PanAgora Asset Management
Limited. Mr. McLendon is Chairman of the
Board and Investment Officer of 41 Smith
Barney Mutual Funds. His address is 388
Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr., Trustee (Age 62).
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 (Age 88).
Attorney; formerly Justice of the Supreme
Court of the State of New York. His address is
118 East 60th Street, New York, New York
10022. Jessica M. Bibliowicz, President (Age
36). Executive Vice President of Smith Barney;
prior to 1994, Director of Sales and Marketing
for Prudential Mutual Funds; prior to 1990,
First Vice
President, Asset Management Division of
Shearson Lehman Brothers. Ms. Bibliowicz
serves as President of 41 Smith Barney Mutual
Funds. Her address is 388 Greenwich Street,
New York, New York 10013. Lawrence T.
McDermott, Vice President and Investment
Officer (Age 48). Investment Officer of SBMFM;
prior to November 7, 1994, Managing Director
of Greenwich Street Advisors; prior to July
1993, Managing Director of Shearson Lehman
Advisors, the predecessor to Greenwich Street
Advisors. Mr. McDermott serves as Investment
Officer of 8 Smith Barney Mutual
Funds. His address is 388 Greenwich Street,
New York, New York 10013.
Karen L. Mahoney-Malcomson, Investment Officer
(Age 38). Investment Officer of SBMFM; prior
to July 1993, Senior Vice President of
Shearson Lehman Advisors. Ms. Mahoney
Malcomson serves as Investment Officer of 4
Smith Barney Mutual Funds. Her address is 388
Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and
Treasurer (Age 38). Managing Director of Smith
Barney; Director and Senior Vice President of
SBMFM. Mr. Daidone serves as Senior Vice
President and Treasurer of 41 Smith Barney
Mutual Funds. His address is 388 Greenwich
Street, New York, New York 10013. Christina T.
Sydor, Secretary (Age 44). Managing Director
of Smith Barney; General Counsel
and Secretary of SBMFM. Ms. Sydor serves as
Secretary of 41 Smith Barney Mutual Funds.
Her address is 388 Greenwich Street, New York,
New York 10013.
As of January 15, 1996, 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 subsidiary receives
any compensation from the Fund for serving as
an officer or Trustee of the Fund. The Fund
pays each Trustee who is not an officer,
director or 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
outofpocket expenses. For the calendar year
ended December 31, 1995, the Trustees of the
Fund were paid the following compensation:
Aggregate Compensation
Aggregate Compensation from the Smith
Barney Trustee (*) from the Fund Mutual
Funds <TABLE> <S> <C> <C>
Herbert Barg (18) $1,500 $81,850
Alfred Bianchetti (13) 1,500 37,000
Martin Brody (21) 1,400 93,300 Dwight
B. Crane (24) 1,500 119,250 James J. Crisona
(12)1 750 25,050 Burt N. Dorsett (13)
1,500 51,400 Elliot S. Jaffe (13) 1,500
50,900 Stephen E. Kaufman (15) 1,500 57,000 Joseph
J. McCann (13) 1,500 37,400 Heath B. McLendon
(41) -------
- --
- ----Cornelius C. Rose (13) 1,500 51,500
</TABLE> * Indicates number of funds within the
Smith Barney Mutual Fund complex for which each
Trustee serves as Director/Trustee.
1 Trustee emeritus. A Trustee emeritus may attend
meetings but has no voting rights at such meetings.
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
Travelers Group Inc. The
investment advisory agreement is dated July 30,
1993 (the "Advisory Agreement"), 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 employed by both it
and the Fund. Effective November 17, 1995, as
compensation for investment advisory services, the
Fund pays SBMFM a fee computed daily and payable
monthly at 0.30% of the value of the Fund's
average daily net assets. Prior to that time, the
Fund paid its investment adviser 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
million and 0.32% of the value of the Fund's
average daily net assets in excess of $500
million. For the fiscal years ended November 30,
1994 and 1995, the Fund paid SBMFM and/or its
predecessor, net of fee waivers and expense
reimbursements, $96,113 and $190,675,
respectively, in investment advisory fees. For
the fiscal years ended November 30, 1994 and 1995,
SBMFM and/or its predecessor voluntarily waived
investment advisory fees of $95,209 and $82,803,
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 majority of Trustees who are
not "interested persons" of the Fund or Smith
Barney, on July 19, 1995. The services
provided by SBMFM under the Administration
Agreement are described in the Prospectus under
"Management of the Fund.'' SBMFM pays the salary
of all officers and employees who are employed by
both it and the Fund and bears all expenses in
connection with the performance of its services.
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. 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. For the fiscal year ended
November 30, 1995, the Fund paid SBMFM $109,514
(net of fee waivers amounting to $47,369) in
administration fees. Prior to April 20, 1994,
The Boston Company Advisors, Inc. ("Boston
Advisors") served as the Fund's administrator.
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.
The Fund bears expenses incurred in its operation
including: taxes, interest, brokerage fees and
commissions, if any; fees of Trustees of the Fund
who are not officers, directors, shareholders or
employees of Smith Barney or SBMFM; Securities and
Exchange Commission ("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 (including
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 has agreed that if in any fiscal year the
aggregate expenses of the Fund (including fees
payable pursuant to the Advisory Agreement and
Administration Agreement, 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)
exceed the expense limitation of any state having
jurisdiction over the Fund, SBMFM will, to the
extent required by state law, reduce its
management fee by the amount of such excess
expenses. Any fee reductions will be reconciled on
a monthly basis. The most restrictive state
expense limitation applicable to the Fund would
require SBMFM to reduce its 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, 1993, 1994
and 1995.
Counsel and Auditors
Willkie Farr & Gallagher serves as legal counsel
to the Fund. The Trustees who are not "interested
persons" of
the Fund have selected Stroock & Stroock & Lavan
as their legal counsel.
KPMG Peat Marwick LLP, independent auditors, 345
Park Avenue, New York, New York 10154, serve as
auditors of the Fund and have rendered an opinion
on the Fund's financial statements for the fiscal
year ending November 30, 1995. Prior to KPMG Peat
Marwick's appointment, Coopers & Lybrand L.L.P.,
independent accountants, served as auditors of the
Fund and rendered opinions on the Fund's financial
statements.
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 ("NonMassachusetts 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
Federal 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 nondiversified 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 invested 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, instrumentality 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 security and would be
treated as an issue of such government or other
entity.
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 investments 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 evaluate potential
investments. Among the factors that will be
considered are the long-term ability of the issuer
to pay principal and interest and general 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 securities than
would be the case for a portfolio consisting
entirely of higherrated 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 require the sale of such
Municipal Bonds by the Fund, but SBMFM will
consider such event in its determination of
whether the Fund should continue to hold the
Municipal Bonds. In addition, to the extent the
ratings change as a result of changes in such
organizations or their rating systems or due to a
corporate restructuring of Moody's or S&P, the
Fund will attempt to use comparable ratings as
standards for its 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 outweighed by large
uncertainties or major risk
exposures to adverse conditions 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 developments and
changes in economic conditions (including
recession) in specific regions or localities or
among specific types of issuers. In addition,
lowrated 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 lowrated 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 lowrated and
comparable unrated securities may diminish the
Fund's ability to (a) obtain 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 recession. 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 unrated securities,
frequently have call or buyback 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
following tax exempt securities notes of municipal
issuers having, at the time of purchase, a rating
within the three
highest grades of Moody's or S&P or, if not rated,
having an issue of outstanding Municipal Bonds
rated within the three highest grades by Moody's
or S&P; and (b) the following taxable securities:
obligations of the United States government, its
agencies or instrumentalities ("U.S. government
securities"), including repurchase 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
certificates of deposit of domestic banks with
assets of $1 billion or more. The Fund may invest
in Temporary Investments for defensive reasons in
anticipation 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 purchase taxexempt
Temporary Investments pending the investment of
the proceeds of the sale of portfolio securities
or
of the Fund's shares of beneficial 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 taxexempt
securities without buying or selling the Municipal
Bonds. If the Fund owns longterm Municipal 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 increase 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 increase 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 contracts 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
termination of the futures contract, assuming that
all contractual obligations 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 predict correctly movements in the
direction of interest rates. Such predictions
involve skills and techniques which may be
different from those involved in the management of
a longterm municipal bond portfolio. In addition,
there can be no assurance that there will be a
correlation between movements in the price of the
municipal bond index or the debt security
underlying the futures contract and movements in
the price of the Municipal Bonds which are the
subject of the hedge. The 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, maturities and
creditworthiness of issuers. A decision of
whether, when and how to hedge involves the
exercise of skill and judgment, and even a
wellconceived hedge may be unsuccessful to some
degree because of market behavior or unexpected
trends in interest rates.
Although the Fund intends to enter into futures
contracts only if an active 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
fluctuation 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 during 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 consecutive trading days with
little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting
some futures traders to substantial losses. In
such event, it might not be possible to close a
futures position and, in the event of adverse
price movements, the Fund would be required to
make daily cash payments of variation margin. In
such circumstances, an increase in the value of
the portion of the portfolio being hedged, if any,
may partially or completely offset losses on the
futures 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 portfolio
and rates decrease instead, the Fund will lose
part or all of the benefit of the increased value
of the Municipal Bonds it has hedged because it
will have offsetting losses in its
futures positions. In addition, in such
situations, if the Fund has insufficient cash, it
may have to sell securities to meet daily
variation margin requirements. Such sales of
securities may, but will not necessarily, be at
increased prices which reflect the decline in
interest rates. The Fund may have to sell
securities at a time when it may be
disadvantageous to do so.
Options on Municipal Bond Index and Interest Rate
Futures Contracts. Options 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 option, 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 accumulated 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
exchange or board of trade as a hedge against
changes in interest rates, and will enter into
closing transactions with respect to such options
to terminate 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
contract moves inversely in relation to changes in
interest rates, as is the case with Municipal
Bonds, a put option on such a contract becomes
more valuable as interest rates rise. By
purchasing put options on these futures 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 substitute
for a position in the debt security itself.
Depending upon the pricing of the option compared
to either the futures contract upon which it is
based, or upon the price of the underlying debt
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 contract to
hedge against a market advance when the Fund was
holding cash in anticipation of purchasing
Municipal Bonds. The Fund could take advantage of
the anticipated rise in the value of long-
term securities without actually buying them until
the market had stabilized. At that time, the
options could be
liquidated and the Fund's cash could be used to
buy Municipal Bonds.
The Fund would sell put and call options on
futures contracts only as part of closing
transactions to terminate its options positions.
No assurance can be given that such closing
transactions can be effected. There are several
risks relating to options on futures contracts.
The ability to establish and close out positions
on such options will be subject 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
security to the seller at an agreed-upon price on
an agreedupon date. Under the terms of a typical
repurchase agreement, the Fund would acquire an
underlying 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 arrangement
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, acting under the
supervision of the Fund's Board of Trustees,
reviews on an ongoing basis the value of the
collateral and the creditworthiness of those banks
and dealers with which the Fund enters into
repurchase agreements to evaluate potential risks.
Repurchase agreements could involve certain risks
in the event of default or insolvency of the other
party, including possible delays or restrictions
upon the Fund's ability to 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 agreement.
Investment Restrictions
The Fund has adopted the following investment
restrictions for the protection 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 securities on a whenissued or
delayed delivery basis; (b) purchasing or selling
futures contracts and options on futures contracts
and other similar instruments; 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.
government 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
redemption 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 liabilities (not
including the amount borrowed) at the time the
borrowing is made. Whenever borrowings exceed 5%
of the value of the Fund's total assets, 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 investment
objective and policies; (b) repurchase agreements;
and (c) loans of its portfolio securities.
5. Engage in the business of underwriting
securities issued by other persons, except to the
extent that the Fund may technically be deemed to
be an underwriter under the Securities Act of
1933, as amended, in disposing of portfolio
securities.
6. Purchase or sell real estate, real estate
mortgages, real estate investment 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 received 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 shortterm credits as are necessary for the
clearance of purchases and sales of portfolio
securities) or sell any securities short (except
against the box). For purposes of this
restriction, the deposit or payment by the Fund of
initial
or maintenance margin in connection with futures
contracts and related options and options on
securities is not considered to be the purchase of
a security on margin.
8. 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 securities 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 underlying 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
assets 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 options 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 described in the Prospectus
and this Statement of Additional Information and
any future change in those practices would require
Board approval and appropriate 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 violation 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
aftermarket 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 operations.)
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 availability of the desired
security and the prompt execution of orders in an
effective manner at the most favorable prices.
Subject to these considerations, dealers that
provide supplemental investment research and
statistical 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 supplemental
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 underwriting or selling group
relating thereto of which Smith Barney is a
member, except to the extent permitted by the SEC.
Under certain circumstances, 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 desire to dispose of, the
same security, available investments or
opportunities for sales will be allocated in a
manner believed by SBMFM to be equitable 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 desirable to sell or purchase
securities. Securities may be sold in anticipation
of a rise in interest rates (market decline) or
purchased in anticipation of a decline in interest
rates (market rise) and later sold. In addition, a
security may be sold and another security of
comparable quality may be purchased at
approximately the same time in order to take
advantage of what the Fund believes to be a
temporary disparity in the normal yield
relationship between the two securities. These
yield disparities may occur for reasons not
directly related to the investment quality of
particular issues or the general movement of
interest rates, such as changes in
the overall demand for or supply of various types
of taxexempt securities. For the 1993,
1994 and 1995 fiscal years, the Fund's portfolio
turnover rates were 10%, 37% and 10%,
respectively.
MUNICIPAL BONDS
General Information
Municipal Bonds generally are understood to
include debt obligations issued to obtain funds
for various public purposes, including
construction of a wide range of public facilities,
refunding of outstanding obligations, 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
operated facilities are included within the term
Municipal Bonds if the interest paid thereon
qualifies as excluded from gross income (but not
necessarily 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, including 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 payment 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 whenissued basis only with the intention of
actually acquiring the securities, the Fund may
sell these securities before the settlement date
if it is deemed advisable as a matter of
investment strategy.
Municipal Bonds are subject to changes in value
based upon the public's perception of the
creditworthiness of the issuers and changes, real
or anticipated, in the level of interest rates. In
general, Municipal Bonds tend to appreciate when
interest rates decline and depreciate when
interest rates rise. Purchasing Municipal Bonds on
a when issued basis, therefore, can involve the
risk that the yields available in the market when
the delivery takes place 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 whenissued 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 securities rather
than cash in the segregated account may have a
leveraging effect on the Fund's net assets. That
is, to the extent the Fund remains substantially
fully invested in securities at the same time it
has committed to purchase securities on a when
issued basis, there will be greater fluctuations
in its net assets than if it had set aside cash to
satisfy its purchase commitment. Upon the
settlement date of the when-issued securities, the
Fund will meet its obligations from thenavailable
cash flow, sale of securities held in the
segregated account, sale of other securities or,
although it normally would not expect to do so,
from the sale of the when-issued securities
themselves (which may have a value
greater or less than the Fund's payment
obligations). Sales of securities to meet such
obligations may involve the realization of capital
gains, which are not exempt from Federal 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 considered 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 securities.
The sources of such information are the official
statements of issuers located in the Commonwealth
of Massachusetts, as well as other publicly
available documents, and statements of public
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 designed to
ensure that sufficient cash is available to meet
the Commonwealth'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 residuary fund to
receive otherwise unallocated revenues and to
provide monies 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. In order to constrain
future debt service costs, the Executive Office
for Administration and Finance established in
November, 1988 an annual fiscal year limit on
capital spending of $925 million, effective fiscal
1990. In January, 1990, legislation was enacted to
impose a limit on debt service in Commonwealth
budgets beginning in fiscal 1991. The law provides
that no more than 10% of the total appropriations
in any fiscal year may be expended for payment of
interest and principal on general obligation debt
of the Commonwealth (excluding Fiscal Recovery
Bonds). It is possible that other measures
affecting the taxing or spending authority of
Massachusetts or its political subdivisions may be
approved or enacted in the future. From the fiscal
year 1987 through fiscal year 1994 (estimate),
this percentage has been substantially below the
limit established by this
law.
Operating 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 positive 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 current operating
surplus of $26.8 million and ending fund balances
of $589.3 million prior to taking into account
certain revenue and expenditure reductions based
on preliminary financial information. Fiscal 1995
is currently 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
appropriations 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
Administration 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
established 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 fiscal year equal to the average positive
rate of growth in total wages and salaries in the
Commonwealth, as reported by the Federal
government, during the three calendar years
immediately preceding the end of such fiscal year.
Chapter 62F also requires that allowable state tax
revenues be reduced by the aggregate amount
received by local governmental units from any
newly authorized or increased local option taxes
or excises. Any excess in state tax revenue
collections for a
given fiscal year over the prescribed limit, as
determined by the State Auditor, is to be applied
as a credit against the then current personal
income tax liability of all taxpayers in the
Commonwealth in proportion to the personal income
tax liability of all taxpayers in the Commonwealth
for the immediately preceding tax year. The
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. However, rather than utilizing a
three year average wage and salary growth rate, as
used by Chapter 62F, Chapter 29B's formula
utilizes onethird of the positive percentage gain
in Massachusetts wages and salaries, as reported
by the federal government, during the three
calendar years immediately preceding the end of a
given fiscal year. Additionally, unlike Chapter
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
Administration and Finance currently estimates
that state tax revenues in fiscal 1995 will not
reach the limit imposed by either of these
statutes.
Proposition 2 1/2. During recent years,
limitations were placed on the taxing authority of
certain Massachusetts governmental entities that
may impair the ability of the issuers of some of
the Bonds in Massachusetts to maintain debt
service on their obligations. For example, in
November of 1980, voters in the
Commonwealth approved a statewide tax limitation
initiative petition, commonly known as Proposition
2 1/2, to constrain levels of property taxation
and to limit the charges
and fees imposed on cities and towns by certain
governmental entities, including county
governments. Proposition 2 1/2 is not a provision
of the state constitution and accordingly is
subject to amendment or repeal by the legislature.
Proposition 2 1/2, as amended to date, limits the
property taxes that may be levied by any city or
town in any fiscal year to the lesser of (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
construction and parcel subdivisions. Proposition
2 1/2 also limits any increase in the charges and
fees assessed by certain governmental entities,
including county governments, on cities and towns
to the sum of (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. As a result of
Proposition 2 1/2, between fiscal 1981 and fiscal
1989, the aggregate property tax levy declined in
real terms by 15.6%.
Many communities have responded to the limitation
imposed by Proposition 2 1/2 through statutorily
permitted overrides
and exclusions. Override activity peaked in fiscal
1991, when 182 communities attempted votes on one
of the three types of referenda questions
(override of levy limit, exclusion of debt
service, or exclusion of capital expenditures) and
100 passed at least one question, adding $58.5
million to their levy limits. In fiscal 1992, 67
of 143 communities had successful votes totalling
$31.0 million. 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 expenditures 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 approximately $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 statewide 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,
corporate excise taxes and lottery fund proceeds
be distributed to cities and towns. Under the law,
the Local Aid distribution to each city or town
would equal no less than 100% of the total Local
Aid received for fiscal 1989. Distributions in
excess of fiscal 1989 levels would be based on new
formulas that would replace the current Local Aid
distribution formulas. By its terms, the new
formula would have called for a substantial
increase in direct Local Aid in fiscal 1992 and
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 appropriations for Local Aid do not
meet, the levels set forth in the initiative law.
Commonwealth Expenditures. From fiscal 1989 to
fiscal 1990 budgeted expenditures of the
Commonwealth increased approximately 4.9% to
$13.260 million. 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 expenditures
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 programs; debt
service; pensions; and assistance to the
Massachusetts Bay Transportation Authority and
regional transit authorities.
The Commonwealth's pension systems were
established on a payas-you-go basis. The
Commonwealth's unfunded actuarial pension
liability is significant approximately $8.469
billion as of June 30, 1994, for state employees
and teachers and local retirement system cost-of
living increases. The amount in the state's
pension reserve, established to address the
unfunded 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. Pension funding
is estimated to be $951 million in fiscal 1994.
Comprehensive pension legislation approved in 1988
committed the Commonwealth to fund future pension
liabilities currently and to amortize the
Commonwealth's accumulated unfunded liabilities
over 40 years.
From 1980 to 1989, the Massachusetts unemployment
rate was significantly lower than the national
average. The Massachusetts unemployment rate
averaged 9.0%, 8.5% and 6.9% in calendar 1991,
1992, and 1993, respectively.
The Massachusetts unemployment rate in December,
1993 was 6.3% as compared to 6.6% for November,
1993 and 8.6% for December of 1992, although the
rate has been volatile throughout this period. The
Massachusetts unemployment rate in January and
February, 1994 was 7.2% and 6.4%, respectively;
these rates are not comparable to prior rates due
to a new rate computation which became effective
in 1994.
The balance in the Massachusetts Unemployment
Compensation Trust Fund had been exhausted as of
September, 1991 due to the continued high levels
of
unemployment. As of December 31, 1992, the
Massachusetts Unemployment Compensation Trust Fund
balance was in deficit by $377 million. As of
November 30, 1993, the Fund was in deficit by $163
million. Benefit payments in excess of
contributions are being financed by use of
repayable advances from the federal unemployment
loan account. Legislation enacted in May, 1992
increased employer contributions in order to
reduce advances from the federal loan account. The
additional increases in contributions provided by
the new legislation should result in a positive
balance in the Unemployment Compensation Trust
Fund by the end of December, 1994 and rebuild
reserves in the system to over $1 billion by the
end of 1996.
Other Factors. Many factors affect the financial
condition of the Commonwealth, including many
social, environmental and economic conditions,
which are beyond the control of the Commonwealth.
As with most urban states, the continuation of
many of the Commonwealth's programs, particularly
its human 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. Federal
reimbursements have also declined as a result of
decreased state expenditures. Further loss of
Federal grants and financing by the Commonwealth
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 Prospectus applies to
purchases made by any "purchaser," which is
defined to include the following: (a) an
individual; (b) an individual's spouse and his
or her children purchasing shares for their
own account; (c) a trustee or other fiduciary
purchasing shares for a single trust estate or
single fiduciary account; (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) taxexempt
organizations enumerated 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 registered with
the SEC under the Investment Advisers Act of
1940, as amended) purchasing shares of the
Fund for one or more trust estates or
fiduciary accounts. Purchasers who wish to
combine purchase orders to take advantage of
volume discounts on Class A shares should
contact a Smith Barney Financial 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
reduced sales charge is subject to
confirmation of the shareholder's holdings
through a check of appropriate records. The
Fund reserves the right to terminate or amend
the combined right of accumulation at any time
after written notice to shareholders. For
further information regarding the right of
accumulation, shareholders should contact a
Smith Barney Financial 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 investment. 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 purchase. 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
reference 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 redemption 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 securities
in lieu of cash. Securities issued as a
distribution in kind may incur brokerage
commissions when shareholders subsequently
sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the
"Withdrawal Plan") is available to
shareholders who own shares with a value of at
least $10,000 and who wish to receive specific
amounts of cash monthly or quarterly.
Withdrawals of at least $50 may be made under
the Withdrawal Plan by redeeming as many
shares of the Fund as may be necessary to
cover the stipulated withdrawal payment. Any
applicable CDSC will not be waived on amounts
withdrawn by shareholders that exceed 1.00%
per month of the value of a shareholder's
shares at the time the Withdrawal Plan
commences. (With respect to Withdrawal Plans
in effect prior to November 7, 1994, any
applicable CDSC will be waived on amounts
withdrawn that do not exceed 2.00% per month
of the value of a shareholder's shares at the
time the Withdrawal Plan commences.) To the
extent withdrawals exceed dividends,
distributions and appreciation of a
shareholder's investment in the Fund, there
will be a reduction in the value of the
shareholder's investment, and continued
withdrawal payments will reduce the
shareholder's investment and may
ultimately exhaust it. Withdrawal payments
should not be considered as income from
investment in the Fund. Furthermore, as it
generally would not be advantageous to a
shareholder to make additional investments in
the Fund at the same time he or she is
participating in the Withdrawal Plan,
purchases by such shareholder in amounts of
less than $5,000 ordinarily will not be
permitted.
Shareholders who wish to participate in the
Withdrawal Plan and who hold their shares in
certificate form must deposit their share
certificates with the Transfer Agent as agent
for Withdrawal Plan members. All dividends and
distributions on shares in the Withdrawal Plan
are reinvested automatically at net asset
value in additional shares of the Fund. For
additional information, shareholders should
contact a Smith Barney Financial Consultant.
Effective November 7, 1994, Withdrawal Plans
should be set up with a Smith Barney Financial
Consultant. A shareholder who purchases shares
directly through the Transfer Agent may
continue to do so and applications for
participation in the Withdrawal Plan must be
received by the Transfer Agent no later than
the eighth day of the month to be eligible
for participation beginning with that month's
withdrawals.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor
on a
best efforts basis pursuant to a written
agreement dated July 30, 1993 (the
"Distribution Agreement"), which was most
recently approved by the Fund's Board of
Trustees on July 19, 1995. For the fiscal
years ended November 30, 1993, 1994 and 1995,
Smith Barney and/or its predecessor, Shearson
Lehman Brothers, received $161,493, $93,015
and $42,000, 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 fiscal years ended November
30, 1993, 1994 and 1995, Smith Barney or its
predecessor, Shearson Lehman Brothers,
received from shareholders $11,913, $58,056
and $61,000, respectively, in CDSC on the
redemptions of Class B and Class C shares.
When payment is made by the investor before
settlement date, unless otherwise noted by the
investor, the funds will be held as a free
credit balance 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 invest the funds in a Smith Barney
money market fund, the amount of the
investment will be included as part of the
average
daily net assets of both the Fund and the
money market fund, and affiliates of Smith
Barney 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 average 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,
1995, Smith Barney incurred distribution
expenses totalling approximately $288,100,
consisting of approximately $12,000 for
advertising, $2,500 for printing and mailing
of prospectuses, $138,000 for support
services, $132,000 to Smith Barney Financial
Consultants, and $3,600 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 expense it bears under
the Distribution Agreement, the Fund has
adopted a services and distribution plan (the
"Plan") pursuant to Rule 12b-1 under the 1940
Act. Under the Plan, the Fund pays Smith
Barney 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 fiscal year ended
November 30, 1993, the Class A and Class B
shares incurred $45,865 and $19,835,
respectively, 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 distibution fees. For the
fiscal year ended November 30, 1995, the Class
A, Class B and Class C shares incurred
$42,539, $39,517 and $79, respectively, in
service fees. For the same
period, the Class B and Class C shares
incurred $131,725 and $293, respectively, in
distribution fees.
Under its terms, the Plan continues from year
to year,
provided such continuance is approved annually
by vote of the Fund's Board of Trustees,
including a majority of the Trustees who are
not interested persons of the Fund and who
have no direct or indirect financial interest
in the operation of the Plan or in the
Distribution Agreement (the "Independent
Trustees''). 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 Trustees 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 Independent Trustees
or by vote of a majority of the outstanding
voting securities 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 reports 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 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. Because of the differences in
distribution fees and Classspecific expenses,
the per share net asset value of each Class
may differ. The following is a description of
the procedures used by the Fund in valuing its
assets.
Securities listed on a national securities
exchange will be valued on the basis of the
last sale on the date on which the valuation
is made or, in the absence of sales, at the
mean between the closing bid and asked prices.
Overthecounter securities will be valued on
the basis of the bid price at the close of
business on each day, or, if market quotations
for those securities are not readily
available, at fair value, as determined in
good faith by
the Fund's
Board of Trustees. Short-term obligations
with maturities of 60 days or less are valued
at amortized cost, which constitutes fair
value as determined by the Fund's Board of
Trustees. 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
effect of fluctuating interest rates on the
market value of the instruments. All other
securities and other assets of the Fund will
be valued at fair value as determined in good
faith by the Fund's Board of Trustees.
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 another fund will
be subject to the higher applicable CDSC of
the two funds and, for purposes of calculating
CDSC rates and conversion periods, 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
the Transfer Agent of the investor's prior
ownership of Class A
shares of Smith Barney High Income Fund and
the account 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 decision. This privilege is
available to shareholders residing in any
state in which the fund shares being acquired
may legally be sold. Prior to any exchange,
the shareholder would obtain and review a copy
of the current prospectus of each fund into
which an exchange is being considered.
Prospectuses may be obtained from a Smith
Barney Financial Consultant.
Upon receipt of proper instructions and all
necessary supporting documents, shares
submitted for exchange are redeemed at the
then-current net asset value and, subject
to any applicable CDSC, the proceeds are
immediately invested, at a price as described
above, in shares of the fund being
acquired. Smith Barney reserves the right to
reject any exchange request. The exchange
privilege may be modified or terminated at any
time after written notice to shareholders.
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, Institutional
Investor, Investors Daily, Money, Morningstar
Mutual Fund Values, The New York Times, 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.
Average Annual Total Return
"Average annual total return'', as described
below, is 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
distributions.
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
administration fees and reimbursement of
expenses):
15.93% for the one-year period from December
1, 1994 through November 30, 1995.
7.66% for the five-year period from December
1, 1990 through November 30, 1995.
8.14% per annum during the period from the
Fund's commencement of operations on December
21, 1987 through November 30, 1995.
A Class' average annual total return assumes
that the maximum applicable sales charge or
CDSC assessed by the Fund has been deducted
from the hypothetical investment. Had the
advisory and administration fees not been
waived and expenses reimbursed, and assuming
that the maximum 4.00% sales charge had not
been deducted, Class A's average annual total
return would have been 20.73%, 8.54% and
8.71%, respectively, 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
(reflecting the waiver of the Fund's
investment advisory and administration fees
and reimbursement of expenses):
15.65% for the one-year period from on
December 1, 1994 through November 30, 1995.
6.10% per annum during the period from
commencement (November 6, 1992) through
November 30, 1995.
Had the advisory and administration fees not
been waived and expenses reimbursed, 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 20.15% and 6.67%, respectively, for the
same periods.
Aggregate Total Return
"Aggregate total return" represents the
cumulative change in the value of an
investment in the Class for the specified
period and are computed by the following
formula:
ERV-P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value of a
hypothetical $10,000 investment made at the
beginning of a 1-, 5, or 10-year period at the
end of a 1-, 5-, or 10year period (or
fractional portion thereof), assuming
reinvestment of all dividends and
distributions.
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 advisory and administration fees
and reimbursement of expenses):
15.93% for the one-year period from December
1, 1994 through November 30, 1995.
44.63% for the five-year period from December
1, 1990 through November 30, 1995.
86.29% for the period from the Fund's
commencement of operations on December 21,
1987 through November 30, 1995.
A Class' aggregate total return assumes that
the maximum applicable sales charge or maximum
applicable CDSC has been deducted from the
investment. 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 20.73%, 50.63% and
94.14%, respectively.
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 advisory and administration fees
and reimbursement of expenses):
15.65% for the one-year period from December
1, 1994 through November 30, 1995.
19.90% for the period from commencement
(November 6, 1992) through November 30, 1995.
If the maximum applicable CDSC had not been
deducted at the time of redemption, Class B's
aggregate total return for the same periods
would have been 20.15% and 21.90%,
respectively.
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 advisory
and administration fees and reimbursement of
expenses):
20.53% for the period from commencement
(November 10, 1994) through November 30, 1995.
If the maximum applicable CDSC had not been
deducted at the time of redemption, Class C's
aggregate total return for the same period
would have been 20.53%.
Performance will vary from time to time
depending on market conditions, the
composition of the Fund's portfolio and
operating expenses and the expenses
exclusively attributable to the Class.
Consequently, any given performance quotation
should not be considered as representative of
the Class' performance for any specified
period in the future. Because performance 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' performance with
that of other mutual funds should give
consideration to the quality and maturity of
the respective investment companies' portfolio
securities.
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 performance. Each Class' net
investment income changes in response to
fluctuations in interest rates and the
expenses of the Fund.
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 consult
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 income for Federal income
tax purposes and which is exempt from
Massachusetts personal income taxes. The Fund
is not intended to constitute a balanced
investment program and is not designed for
investors seeking capital gains or maximum
taxexempt income irrespective of fluctuations
in principal. Investment in the Fund would not
be suitable for taxexempt institutions,
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 taxexempt 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 (reduced by certain expenses), the Fund
will not be liable for Federal income taxes to
the extent its taxable net investment income
and its net realized longand shortterm
capital gains, if any, are distributed to its
shareholders.
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
exemptinterest 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 exemptinterest
dividends, 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 taxexempt 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
adjustment item, for purposes of the Federal
individual and corporate alternative minimum
taxes and (b) the receipt of the Fund's
dividends and distributions may affect a
corporate shareholder's Federal
"environmental" tax liability. In addition,
the receipt of the Fund's dividends and
distributions may affect a foreign corporate
shareholder's Federal "branch profits" tax
liability and the Federal "excess net passive
income'' tax liability of a shareholder of a
Subchapter S corporation. Shareholders should
consult their own tax advisors to determine
whether they are (a) substantial users with
respect to a facility or related to 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 Federal "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
activities will not prevent the Fund from
qualifying as a regulated investment company;
however, in order to continue to qualify as a
regulated investment company, the Fund might
have to limit its investments in such
municipal bond index and interest rate futures
contracts and options on these futures
contracts. As a general rule, these investment
activities will increase or decrease the
amount of longand 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 described above (collectively
referred to as "section
1256 contracts") is taxed pursuant
to a special "mark-to-market'' system. Under
the markto market system, these instruments
are treated as if sold at the Fund's fiscal
year end 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 contracts is treated as 60% long
term capital gain or loss and 40% shortterm
capital gain or loss, and, accordingly, the
marktomarket system generally will affect the
amount of capital gains or losses taxable to
the Fund and the amount of distributions
taxable to a shareholder. Moreover,
if the Fund invests in both section 1256
contracts and offsetting positions, 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 contracts 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
dividends"), if any, will be taxable to
shareholders as long-term capital gains,
regardless of how long they have held Fund
shares, and will be designated as capital gain
dividends in a written notice mailed by the
Fund to shareholders after the close of the
Fund's taxable year. If a shareholder receives
a capital gain dividend with respect to any
share and if the share has been held by the
shareholder for six months or less, then any
loss (to the extent not disallowed pursuant to
the six-month rule described above relating to
exemptinterest dividends) on the sale or
exchange of such share, to the extent of the
capital gain dividend, will be treated as
a long-term capital loss.
If a shareholder incurs a sales charge in
acquiring shares of the Fund, disposes of
those shares within 90 days and then acquires
shares in a mutual fund for which the
otherwise applicable sales charge is reduced
by reason of a reinvestment right (that is,
exchange privilege), the original sales charge
will not be taken into account in computing
gain or loss on the original shares to the
extent the subsequent sales charge is reduced.
Instead, 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 acquired 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 annual statement as to
the Federal income tax and Massachusetts
personal income 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 exemptinterest 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 income 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 income bears to its
total net investment income earned on that
day. Investors 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
taxable payment.
If a shareholder fails to furnish a correct
taxpayer identification number, fails to
report fully dividend or interest income, or
fails to certify that he or she has provided a
correct taxpayer identification number and
that he or she is not subject to ``backup
withholding,'' then the shareholder may be
subject to a 31% backup withholding tax with
respect to (a) taxable dividends and
distributions and (b) the proceeds of any
redemptions 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
Individual shareholders who are otherwise
subject to Massachusetts personal income tax
will not be subject to Massachusetts personal
income tax on exemptinterest dividends
received from the Fund to the extent the
dividends are attributable to interest on
obligations of the Commonwealth of
Massachusetts and its political subdivisions,
agencies and public authorities (or on
obligations of certain other governmental
issuers such as Puerto Rico, the Virgin
Islands and Guam) that pay interest which is
excluded from gross income for Federal income
tax purposes and exempt from Massachusetts
personal income taxes. Other
distributions from the Fund, including those
related to long- and shortterm capital gains,
other than certain gains from certain
Massachusetts Municipal Securities identified
by the Massachusetts Department of Revenue,
generally will not be exempt from
Massachusetts personal income tax. Businesses
should note that the Fund's distributions
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
substitute 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
PNC is located at 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103,
and serves as the Fund's custodian. Under the
custody agreement, PNC holds the Fund's
portfolio securities and keeps all necessary
accounts and records. For its services, PNC
receives a monthly fee based upon the month-
end market value of securities held in custody
and also receives securities transaction
charges. The assets of the Fund are held under
bank custodianship in compliance with the 1940
Act.
First Data Investor Services Group, Inc.
is located at Exchange Place, Boston,
Massachusetts 02109, and serves as the Fund's
transfer agent. Under the transfer agency
agreement, the Transfer Agent maintains the
shareholder account records for the Fund,
handles certain communications between
shareholders and the Fund, and distributes
dividends and distributions payable by the
Fund. For these services, the Transfer Agent
receives a monthly fee computed on the basis
of the number of shareholder accounts it
maintains for the Fund during the month, and
is reimbursed for outofpocket expenses.
The Fund is a business trust established under
the laws of the Commonwealth 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 Municipals. 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 Municipals Fund,
respectively.
Under Massachusetts law, shareholders could,
under certain circumstances, be held
personally liable for the obligations of the
Fund. The Master Trust
Agreement disclaims shareholder liability for
acts or obligations of the Fund, however, and
requires that notice of such disclaimer be
given in each agreement, obligation or
instrument entered into or executed by the
Fund or a
Trustee. The Master Trust Agreement provides
for indemnification from Fund property for all
losses and expenses of any shareholder held
personally liable for the obligations of the
Fund. Thus, the risk of a shareholder's
incurring financial
loss on account of shareholder liability is
limited to circumstances in which the Fund
itself would be unable to meet its
obligations, a possibility which management of
the Fund believes is remote. Upon payment of
any liability incurred by the Fund, a
shareholder 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 liability 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 nonassessable.
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
required 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, 1995 accompanies
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 definitions
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 particularly
the competitive position of the municipal
enterprise under review and the basic security
covenants. Although a rating reflects S&P's
judgment 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.
Quality of management appears superior.
Revenue Bonds - Debt service coverage has been,
and is expected to remain, 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 covenant, earnings test for issuance of
additional bonds, and debt service reserve
requirements) are rigorous. There is evidence of
superior management.
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 capacity 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 because:
General Obligation Bonds - There is some weakness,
either in the local economic base, in debt burden,
in the balance between revenues and expenditures,
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. Stability of the pledged revenues
could show
some variations because of increased 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 revenues 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
categories, 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
SP1, -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 elements are likely to change,
such changes as can be visualized are most
unlikely to impair the fundamentally strong
position of such issues.
Aa
Bonds that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa
group they comprise what are generally known as
high grade bonds. They are rated lower than the
best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or
there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa
securities.
A
Bonds that are rated A possess many favorable
investment attributes and are to be considered as
upper mediumgrade obligations. Factors giving
security 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 protective elements may be
lacking or may be characteristically unreliable
over any great length of time. Such bonds lack
outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have
speculative elements; their future cannot be
considered as well assured. Often the protection
of interest and principal payments may be very
moderate and thereby not well safeguarded during
both good and bad times over the future.
Uncertainty of position characterizes bonds in
this class.
B
Bonds that are rated B generally lack
characteristics of the desirable investment.
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 default 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 aboveaverage
longterm 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 allowance 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) economic 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 customer 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
Statement of
Additional Information
January 29, 1996
Smith Barney
Massachusetts Municipals Fund
388 Greenwich Street
New York, NY
10013..................................Fund
........................ 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, 1995 and the report of
Independent
Accountants dated November 30, 1995, are
incorporated by reference to the Definitive
30b2-
1
filed on January 31,1996 as Accession #0000091155
96000037.
Included in Part C:
Consent of Independent Auditors
(b) Exhibits
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. 3311417
and 8114994).
(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
("PostEffective No. 12").
(b) Amendment No. 1 to the Registrant's
Amended and Restated Master Trust
Agreement is incorporated by
reference to PostEffective Amendment
No. 12.
(c) Amendment No. 2 to the Registrant's
Amended and Restated Master Trust
Agreement is incorporated by
reference to Post Effective
Amendment No. 15 filed on January
26, 1995 ("PostEffective Amendment
No. 15").
(2) Registrant's By-Laws are incorporated
by
reference
to the Registration Statement.
(3) Not applicable.
(4) (a) Registrant's form of stock certificate
is
incorporated by reference to Post
Effective Amendment No. 9 filed on
October 23, 1992 ("PostEffective
Amendment No. 9").
(5) (a) Investment Advisory Agreement
dated July
30, 1993 between the Registrant and
Greenwich Street Advisors is incorporated by
reference to PostEffective Amendment
No. 12.
(b) Form of Transfer and Assumption of
Investment Advisory Agreement between
the Registrant, Mutual Management Corp.
and Smith Barney Mutual Funds Mangement
Inc. is filed herein.
(6) Distribution Agreement dated July 30,
1993,
between the Registrant and Smith Barney Shearson
Inc. is incorporated by reference to Post
Effective Amendment No. 12.
(7) Not applicable.
(8) Form of Custodian Agreement between the
Registrant
and PNC Bank, National Association
is filed herein.
(9) (a) Administration Agreement between the
Registrant and Smith, Barney Advisers,
Inc., dated April 20, 1994 is
incorporated by reference to
PostEffective Amendment No. 15.
(b) 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) Consent of Independent Accountants is
filed
herein.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Amended Service and Distribution
Plan
dated
as
of
November 7, 1994 pursuant to Rule
12b-1 between the Registrant and
Smith Barney Inc. is incorporated
by reference to Post Effective
Amendment No. 15.
(16) Performance Data is incorporated by
reference
to
Post-Effective Amendment No. 3 filed on
January 29, 1990.
(17) Not applicable.
(18) Form of Rule 18f-3(d) Multiple Class
Plan
of
the
Registrant is filed herein.
Item 25. Persons Controlled by or Under
Common
Control
with Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Title of Number of Record
Holders Class by class
as of
January 22,
1996
Common Stock Class A -
689 par value Class B
-
843
$.001 per share Class C -
002
Class Y 001
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.), which
in turn is a wholly owned subsidiary of Travelers
Group Inc. (formerly known as Primerica Corporation)
("Travelers"). SBMFM is registered as an investment
adviser under the Investment Advisers Act of 1940
("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
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 was a division of Mutual
Management Corp. ("MMC"). MMC was incorporated in
1978 and is a wholly owned subsidiary of Smith
Barney Holdings Inc. (formerly known as Smith Barney
Shearson Holdings Inc.) ("Holdings"), which in turn
is a wholly owned subsidiary of Travelers Group
Inc. (formerly known as Primerica Corporation)
("Travelers"). The list required by this Item 28 of
officers and directors of MMC and Greenwich Street
Advisors, together with information as to any
other business, profession, vocation or employment
of a substantial nature engaged in by such officers
and directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of
Form ADV filed by MMC on behalf of Greenwich Street
Advisors pursuant to the Advisers Act (SEC File No.
801-14437).
Prior to the close of business on July 30, 1993 (the
"Closing"), Shearson Lehman Advisors, a member of
the Asset Management Group of Shearson Lehman
Brothers Inc. ("Shearson Lehman Brothers"), served
as the Registrant's investment adviser. On the
Closing, Travelers and Smith Barney 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 or 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.
8013701).
Item 29. Principal Underwriters
Smith Barney Inc. ("Smith Barney") currently acts as
a
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
Managed Government Fund Inc., Smith Barney
Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund Inc., Smith Barney Principal
Return Fund, Smith Barney Income Funds, Smith Barney
Equity Funds, Smith Barney Investment Funds Inc.,
Smith Barney Natural Resources 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., Smith Barney/Travelers Series Fund, Smith
Barney Fundamental Value Fund Inc., Smith Barney
Series Fund, Consulting Group Capital Markets Funds,
Smith Barney Investment Trust, Smith Barney
Adjustable Rate Government Income 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
Municipal Money Market 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), Smith Barney
Institutional Cash Management Fund, Inc. 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 Travelers Group Inc. (formerly
known as Primerica Corporation) ("Travelers"). 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 officer, director 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. 8128510).
Item 30. Location of Accountants and
Records
(1) Smith Barney Massachusetts
Municipals Fund
388 Greenwich Street
New York, New York 10013
(2) Smith Barney Mutual
Funds Management Inc.
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National
Association
17th and Chestnut Streets
Philadelphia, Pennsylvania
19103
(4) First Data Investor Services
Group,
Inc.
One 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 the
requirements for effectiveness of this
registration statement pursuant to Rule 485(b)
under the Securities Act or 1933, as amended.
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant, SMITH BARNEY
MASSACHUSETTS MUNICIPALS FUND, has duly caused
this registration statement to be signed on its
behalf by the undersigned, thereto duly authorized
in the City of New York, and State of New York as
of the
25th day of January, 1996.
SMITH BARNEY
MASSACHUSETTS
MUNICIPALS FUND
/s/Heath B.
McLendon Heath
B. McLendon,
Chief
Executive Officer
Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been
signed below by the following persons in the
capacities and on the date indicated.
/s/Heath B. McLendon
Heath B. McLendon Chairman of the
Board
January 25, 1996
(Chief Executive Officer)
/s/Lewis E. Daidone
Lewis E. Daidone Treasurer
January
25, 1996
(Chief Financial
and Accounting Officer)
/s/Herbert Barg
Herbert Barg Director
January
25, 1996
/s/Alfred Bianchetti
Alfred J. Bianchetti
Director
January 25, 1996
/s/Martin Brody
Martin Brody
Director January
25, 1996
/s/Dwight B. Crane
Dwight B. Crane
Director
January 25, 1996
/s/Burt N. Dorsett
Burt N. Dorsett
Director
January 25, 1996
/s/Elliot S. Jaffe
Elliot S. Jaffe
Director
January 25, 1996
/s/Stephen E. Kaufman
Stephen E. Kaufman
Director January
25, 1996
/s/Joseph J. McCann
Joseph J. McCann
Director January
25, 1996
/s/Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr.
Director January 25, 1996
shared/domestic/clients/shearosn/fund/mamu
TRANSFER AND ASSUMPTION OF
INVESTMENT ADVISORY AGREEMENT
for
SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND
TRANSFER AND ASSUMPTION OF INVESTMENT ADVISORY
AGREEMENT, made as of the 7th day of November, 1994, by and
among Smith Barney Massachusetts Municipals Fund, a
Massachusetts business trust (the "Trust"), Mutual
Management Corp., a New York corporation ("MMC"), and Smith
Barney Mutual Funds Management Inc. ("SBMFM") a Delaware
corporation.
WHEREAS, the Trust is registered with the Securities
and Exchange Commission as an open-end management investment
company under the Investment Company Act of 1940, as amended
(the "Act"); and
WHEREAS, the Trust, on behalf of the Funds, and
MMC entered into an Investment Advisory Agreement on July
30, 1993, under which MMC serves as the investment adviser
(the "Investment Adviser") for the Funds of the Trust; and
WHEREAS, MMC desires that its interest, rights,
responsibilities and obligations in and under the Investment
Advisory Agreement be transferred to SBMFM and SBMFM desires
to assume MMC's interest, rights, responsibilities and
obligations in and under the Investment Advisory Agreement;
and
WHEREAS, this Agreement does not result in a change of
actual control or management of the Investment Adviser to
the Trust and, therefore, is not an "assignment" as defined
in Section 2(a)(4) of the Act nor an "assignment" for the
purposes of Section 15(a)(4) of the Act.
NOW, THEREFORE, in consideration of the mutual
covenants set forth in this Agreement and other good and
valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree as follows:
1. Assignment. Effective as of November 7, 1994 (the
"Effective Date"), MMC hereby transfers to SBMFM all of
MMC's interest, rights, responsibilities and obligations in
and under the Investment Advisory Agreement dated July 30,
1993, to which MMC is a party with the Trust.
2. Assumption and Performance of Duties. As of the
Effective Date, SBMFM hereby accepts all of MMC's interest
and rights, and assumes and agrees to perform all of MMC's
responsibilities and obligations in, and under the
Investment Advisory Agreement; SBMFM agrees to subject to
all of the terms and conditions of said Agreement; and SBMFM
shall indemnify and hold harmless MMC from any claim or
demand made thereunder arising or incurred after the
Effective Date.
3. Representation of SBMFM. SBMFM represents and
warrants that: (1) it is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended; and
(2) Smith Barney Holdings Inc. is its sole shareholder.
4. Consent. The Trust hereby consents to this
transfer by MMC to SBMFM of MMC's interest, rights,
responsibilities and obligations in and under the Investment
Advisory Agreement and to the acceptance and assumption by
SBMFM of the same. The Trust agrees, subject to the terms
and conditions of said Agreement, to look solely to SBMFM
for the performance of the Investment Adviser's
responsibilities and obligations under said Agreement from
and after the Effective Date, and to recognize as inuring
solely to SBMFM the interest and rights heretofore held by
MMC thereunder.
5. Limitation of Liability of Trustees, Officers and
Shareholders. It is expressly agreed that the obligations
of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents, or
employees of the Trust, personally, but shall bind only the
trust property of the Trust, as provided in the Declaration
of Trust of the Trust. The execution and delivery of this
Agreement have been authorized by the Trustees of the Trust
and signed by the President of the Trust, acting as such,
and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to
have been made by any of them individually of to impose any
liability on any of them, personally, but shall bond only
the trust property of the Trust as provided in its
Declaration of Trust.
6. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto
were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers
hereunto duly attested.
Attest:
By:
Secretary Smith Barney Massachusetts
Municipals Fund
Attest:
By:
Secretary Mutual Management Corp.
Attest:
By:
Secretary Smith Barney Mutual Funds
Management Inc.
CUSTODIAN SERVICES AGREEMENT
This Agreement is made as of June 19, 1995 by and
between SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND, a
Massachusetts business trust (the "Fund"), and PNC BANK,
NATIONAL ASSOCIATION, a national banking association ("PNC
Bank").
The Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund wishes to retain PNC Bank to
provide custodian services and PNC Bank wishes to furnish
such services, either directly or through an affiliate or
affiliates, as more fully described herein. In
consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person." The term "Authorized
Person" shall mean any officer of the Fund and any other
person, who is duly authorized by the Fund's Governing
Board, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate
attached hereto as the Authorized Persons Appendix, as such
Appendix may be amended in writing by the Fund's Governing
Board from time to time.
(b) "Book-Entry System." The term "Book-Entry
System" means Federal Reserve Treasury book-entry system for
United States and federal agency securities, its successor
or successors, and its nominee or nominees and any book-
entry system maintained by an exchange registered with the
SEC under the 1934 Act.
(c) "CFTC." The term "CFTC" shall mean the
Commodities Futures Trading Commission.
(d) "Governing Board." The term "Governing
Board" shall mean the Fund's Board of Directors if the Fund
is a corporation or the Fund's Board of Trustees if the Fund
is a trust, or, where duly authorized, a competent committee
thereof.
(e) "Oral Instructions." The term "Oral
Instructions" shall mean oral instructions received by PNC
Bank from an Authorized Person or from a person reasonably
believed by PNC Bank to be an Authorized Person.
(f) "SEC." The term "SEC" shall mean the
Securities and Exchange Commission.
(g) "Securities and Commodities Laws." The term
"Securities and Commodities Laws" shall mean the "1933 Act"
which shall mean the Securities Act of 1933, the "1934 Act"
which shall mean the Securities Exchange Act of 1934, the
1940 Act, and the "CEA" which shall mean the Commodities
Exchange Act, as amended.
(h) "Shares." The term "Shares" shall mean the
shares of stock of any series or class of the Fund, or,
where appropriate, units of beneficial interest in a trust
where the Fund is organized as a Trust.
(i) "Property." The term "Property" shall mean:
(i) any and all securities and other
investment items which the Fund may from time to time
deposit, or cause to be deposited, with PNC Bank or which
PNC Bank may from time to time hold for the Fund;
(ii) all income in respect of any of such
securities or other investment items;
(iii) all proceeds of the sale of any of such
securities or investment items; and
(iv) all proceeds of the sale of securities
issued by the Fund, which are received by PNC Bank from
time to time, from or on behalf of the Fund.
(j) "Written Instructions." The term "Written
Instructions" shall mean written instructions signed by one
Authorized Person and received by PNC Bank. The
instructions may be delivered by hand, mail, tested
telegram, cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to
provide custodian services to the Fund, and PNC Bank accepts
such appointment and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or,
where applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Governing Board, approving the
appointment of PNC Bank or its affiliates to provide
services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of the Fund's advisory agreement or
agreements;
(d) a copy of the Fund's distribution agreement
or agreements;
(e) a copy of the Fund's administration
agreements if PNC Bank is not providing the Fund with such
services; (f) copies of any shareholder
servicing agreements made in respect of the Fund; and
(g) certified or authenticated copies of any and
all amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations.
PNC Bank undertakes to comply with all applicable
requirements of the Securities and Commodities Laws and any
laws, rules and regulations of governmental authorities
having jurisdiction with respect to all duties to be
performed by PNC Bank hereunder. Except as specifically set
forth herein, PNC Bank assumes no responsibility for such
compliance by the Fund.
5. Instructions. Unless otherwise provided in this
Agreement, PNC Bank shall act only upon Oral and Written
Instructions. PNC Bank shall be entitled to rely upon any
Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to
be an Authorized Person) pursuant to this Agreement. PNC
Bank may assume that any Oral or Written Instructions
received hereunder are not in any way inconsistent with the
provisions of organizational documents or this Agreement or
of any vote, resolution or proceeding of the Fund's
Governing Board or of the Fund's shareholders.
The Fund agrees to forward to PNC Bank Written
Instructions confirming Oral Instructions so that PNC Bank
receives the Written Instructions by the close of business
on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not
received by PNC Bank shall in no way invalidate the
transactions or enforceability of the transactions
authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no
liability to the Fund in acting upon Oral or Written
Instructions provided such instructions reasonably appear to
have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt
as to any action it should or should not take, PNC Bank may
request directions or advice, including Oral or Written
Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in
doubt as to any questions of law pertaining to any action it
should or should not take, PNC Bank may request advice at
its own cost from such counsel of its own choosing (who may
be counsel for the Fund, the Fund's advisor or PNC Bank, at
the option of PNC Bank).
(c) Conflicting Advice. In the event of a
conflict between directions, advice or Oral or Written
Instructions PNC Bank receives from the Fund, and the advice
it receives from counsel, PNC Bank shall be entitled to rely
upon and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be
protected in any action it takes or does not take in
reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and
which PNC Bank believes, in good faith, to be consistent
with those directions, advice or Oral or Written
Instructions.
Nothing in this paragraph shall be construed so as to
impose an obligation upon PNC Bank (i) to seek such
directions, advice or Oral or Written Instructions, or (ii)
to act in accordance with such directions, advice or Oral or
Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC
Bank's properly taking or not taking such action.
7. Records. The books and records pertaining to the
Fund which are in the possession of PNC Bank, shall be the
property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and
other applicable securities laws, rules and regulations.
The Fund, or the Fund's Authorized Persons, shall have
access to such books and records at all time during PNC
Bank's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an Authorized Person
of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep
confidential all records of the Fund and information
relative to the Fund and its shareholders (past, present and
potential), unless the release of such records or
information is otherwise consented to, in writing, by the
Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PNC Bank
may be exposed to civil or criminal contempt proceedings or
when required to divulge. The Fund further agrees that,
should PNC Bank be required to provide such information or
records to duly constituted authorities (who may institute
civil or criminal contempt proceedings for failure to
comply), PNC Bank shall not be required to seek the Fund's
consent prior to disclosing such information.
9. Cooperation with Accountants. PNC Bank shall
cooperate with the Fund's independent public accountants and
shall take all reasonable action in the performance of its
obligations under this Agreement to ensure that the
necessary information is made available to such accountants
for the expression of their opinion, as required by the
Fund.
10. Disaster Recovery. PNC Bank shall enter into and
shall maintain in effect with appropriate parties one or
more agreements making reasonable provision for emergency
use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of
equipment failures, PNC Bank shall, at no additional expense
to the Fund, take reasonable steps to minimize service
interruptions but shall have no liability with respect
thereto.
11. Compensation. As compensation for custody
services rendered by PNC Bank during the term of this
Agreement, the Fund will pay to PNC Bank a fee or fees as
may be agreed to in writing from time to time by the Fund
and PNC Bank.
12. Indemnification. The Fund agrees to indemnify and
hold harmless PNC Bank and its nominees from all taxes,
charges, expenses, assessment, claims and liabilities
(including, without limitation, liabilities arising under
the Securities and Commodities Laws and any state and
foreign securities and blue sky laws, and amendments
thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or
indirectly from any action which PNC Bank takes or does not
take (i) at the request or on the direction of or in
reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its
nominees, shall be indemnified against any liability to the
Fund or to its shareholders (or any expenses incident to
such liability) arising out of PNC Bank's own willful
misfeasance, bad faith, negligence or reckless disregard of
its duties and obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be
under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be
specifically agreed to by PNC Bank, in writing. PNC Bank
shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith
and to use its best effort, within reasonable limits, in
performing services provided for under this Agreement. PNC
Bank shall be responsible for its own negligent failure to
perform its duties under this Agreement. Notwithstanding the
foregoing, PNC Bank shall not be responsible for losses
beyond its control, provided that PNC Bank has acted in
accordance with the standard of care set forth above; and
provided further that PNC Bank shall only be responsible for
that portion of losses or damages suffered by the Fund that
are attributable to the negligence of PNC Bank.
Without limiting the generality of the foregoing or of
any other provision of this Agreement, PNC Bank, in
connection with its duties under this Agreement, shall not
be under any duty or obligation to inquire into and shall
not be liable for (a) the validity or invalidity or
authority or lack thereof of any Oral or Written
Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PNC
Bank reasonably believes to be genuine; or (b) delays or
errors or loss of data occurring by reason of circumstances
beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the
contrary, PNC Bank shall have no liability to the Fund for
any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was
known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund will
deliver or arrange for delivery to PNC Bank, all the
property owned by the Fund, including cash received as a
result of the distribution of its Shares, during the period
that is set forth in this Agreement. PNC Bank will not be
responsible for such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank,
acting upon Written Instructions, shall open and maintain
separate account(s) in the Fund's name using all cash
received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial
accounts for each separate series, class or portfolio of the
Fund and shall hold in such account(s) all cash received
from or for the accounts of the Fund specifically designated
to each separate series, class or portfolio. PNC Bank shall
make cash payments from or for the account of the Fund only
for:
(i) purchases of securities in the name of
the Fund or PNC Bank or PNC Bank's nominee as provided in
sub-paragraph j and for which PNC Bank has received a copy
of the broker's or dealer's confirmation or payee's invoice,
as appropriate;
(ii) purchase or redemption of Shares of the
Fund delivered to PNC Bank;
(iii) payment of, subject to Written
Instructions, interest, taxes, administration, accounting,
distribution, advisory, management fees or similar expenses
which are to be borne by the Fund;
(iv) payment to, subject to receipt of
Written Instructions, the Fund's transfer agent, as agent
for the shareholders, an amount equal to the amount of
dividends and distributions stated in the Written
Instructions to be distributed in cash by the transfer agent
to shareholders, or, in lieu of paying the Fund's transfer
agent, PNC Bank may arrange for the direct payment of cash
dividends and distributions to shareholders in accordance
with procedures mutually agreed upon from time to time by
and among the Fund, PNC Bank and the Fund's transfer agent;
(v) payments, upon receipt of Written
Instructions, in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund
and held by or delivered to PNC Bank;
(vi) payments of the amounts of dividends
received with respect to securities sold short; payments
made to a sub-custodian pursuant to provisions in sub-
paragraph c of this Paragraph; and
(viii) payments, upon Written Instructions made
for other proper Fund purposes. PNC Bank is hereby
authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian
for the account of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities
received by it for the account of the Fund in a separate
account that physically segregates such securities from
those of any other persons, firms or corporations, except
for securities held in a Book-Entry System. All such
securities shall be held or disposed of only upon Written
Instructions of the Fund pursuant to the terms of this
Agreement. PNC Bank shall have no power or authority to
assign, hypothecate, pledge or otherwise dispose of any such
securities or investment, except upon the express terms of
this Agreement and upon Written Instructions, accompanied by
a certified resolution of the Fund's Governing Board,
authorizing the transaction. In no case may any member of
the Fund's Governing Board, or any officer, employee or
agent of the Fund withdraw any securities. At PNC Bank's
own expense and for its own convenience, PNC Bank may enter
into sub-custodian agreements with other banks or trust
companies to perform duties described in this sub-paragraph
c. Such bank or trust company shall have an aggregate
capital, surplus and undivided profits, according to its
last published report, of at least one million dollars
($1,000,000), if it is a subsidiary or affiliate of PNC
Bank, or at least twenty million dollars ($20,000,000) if
such bank or trust company is not a subsidiary or
affiliate of PNC Bank. In addition, such bank or trust
company must agree to comply with the relevant provisions of
the 1940 Act and other applicable rules and regulations.
PNC Bank shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold
the Fund harmless from PNC Bank's own (or any sub-custodian
chosen by PNC Bank under the terms of this sub-paragraph c)
acts or omissions, under the standards of care provided for
herein.
(d) Transactions Requiring Instructions. Upon
receipt of Oral or Written Instructions and not otherwise,
PNC Bank, directly or through the use of the Book-Entry
System, shall:
(i) deliver any securities held for the Fund
against the receipt of payment for the sale of such
securities;
(ii) execute and deliver to such persons as
may be designated in such Oral or Written Instructions,
proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any
securities may be exercised;
(iii) deliver any securities to the issuer
thereof, or its agent, when such securities are called,
redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is
to be delivered to PNC Bank;
(iv) deliver any securities held for the Fund
against receipt of other securities or cash issued or paid
in connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of any
conversion privilege;
(v) deliver any securities held for the Fund
to any protective committee, reorganization committee or
other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale
of assets of any corporation, and receive and hold under the
terms of this Agreement such certificates of deposit,
interim receipts or other instruments or documents as may be
issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the
assets of the Fund and take such other steps as shall be
stated in said Oral or Written Instructions to be for the
purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to the Fund
to any bank or trust company for the purpose of a pledge or
hypothecation to secure any loan incurred by the Fund;
provided, however, that securities shall be released only
upon payment to PNC Bank of the monies borrowed, except that
in cases where additional collateral is required to secure a
borrowing already made subject to proper prior
authorization, further securities may be released for that
purpose; and repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing the loan;
(viii) release and deliver securities owned by
the Fund in connection with any repurchase agreement entered
into on behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in connection with
such repurchase agreements, but only upon the delivery of
the securities;
(ix) release and deliver or exchange
securities owned by the Fund in connection with any
conversion of such securities, pursuant to their terms, into
other securities;
(x) release and deliver securities owned by
the Fund for the purpose of redeeming in kind shares of the
Fund upon delivery thereof to PNC Bank; and
(xi) release and deliver or exchange
securities owned by the Fund for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph d above.
(e) Use of Book-Entry System. The Fund shall deliver
to PNC Bank certified resolutions of the Fund's Governing
Board approving, authorizing and instructing PNC Bank on a
continuous and on-going basis, to deposit in the Book-Entry
System all securities belonging to the Fund eligible for
deposit therein and to utilize the Book-Entry System to the
extent possible in connection with settlements of purchases
and sales of securities by the Fund, and deliveries and
returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with
borrowings. PNC Bank shall continue to perform such duties
until it receives Written or Oral Instructions authorizing
contrary actions(s).
To administer the Book-Entry System properly, the
following provisions shall apply:
(i) With respect to securities of the Fund
which are maintained in the Book-Entry system, established
pursuant to this sub-paragraph e hereof, the records of PNC
Bank shall identify by Book-Entry or otherwise those
securities belonging to the Fund. PNC Bank shall furnish
the Fund a detailed statement of the Property held for the
Fund under this Agreement at least monthly and from time to
time and upon written request.
(ii) Securities and any cash of the Fund
deposited in the Book-Entry System will at all times be
segregated from any assets and cash controlled by PNC Bank
in other than a fiduciary or custodian capacity but may be
commingled with other assets held in such capacities. PNC
Bank and its sub-custodian, if any, will pay out money only
upon receipt of securities and will deliver securities only
upon the receipt of money.
(iii) All books and records maintained by PNC
Bank which relate to the Fund's participation in the Book-
Entry System will at all times during PNC Bank's regular
business hours be open to the inspection of the Fund's duly
authorized employees or agents, and the Fund will be
furnished with all information in respect of the services
rendered to it as it may require.
(iv) PNC Bank will provide the Fund with
copies of any report obtained by PNC Bank on the system of
internal accounting control of the Book-Entry System
promptly after receipt of such a report by PNC Bank. PNC
Bank will also provide the Fund with such reports on its own
system of internal control as the Fund may reasonably
request from time to time.
(f) Registration of Securities. All Securities
held for the Fund which are issued or issuable only in
bearer form, except such securities held in the Book-Entry
System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name
of the Fund; PNC Bank; the Book-Entry System; a sub-
custodian; or any duly appointed nominee(s) of the Fund, PNC
Bank, Book-Entry system or sub-custodian. The Fund reserves
the right to instruct PNC Bank as to the method of
registration and safekeeping of the securities of the Fund.
The Fund agrees to furnish to PNC Bank appropriate
instruments to enable PNC Bank to hold or deliver in proper
form for transfer, or to register its registered nominee or
in the name of the Book-Entry System, any securities which
it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. PNC
Bank shall hold all such securities which are not held in
the Book-Entry System in a separate account for the Fund in
the name of the Fund physically segregated at all times from
those of any other person or persons.
(g) Voting and Other Action. Neither PNC Bank
nor its nominee shall vote any of the securities held
pursuant to this Agreement by or for the account of the
Fund, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System,
shall execute in blank and promptly deliver all notice,
proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not
the Fund then Written or Oral Instructions must designate
the person(s) who owns such securities.
(h) Transactions Not Requiring Instructions. In
the absence of contrary Written Instructions, PNC Bank is
authorized to take the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account
of the Fund, all income, dividends, distributions, coupons,
option premiums, other payments and similar items, included
or to be included in the Property, and, in addition,
promptly advise the Fund of such receipt and credit such
income, as collected, to the Fund's custodian account;
(B) endorse and deposit for collection,
in the name of the Fund, checks, drafts, or other orders for
the payment of money;
(C) receive and hold for the account of
the Fund all securities received as a distribution on the
Fund's portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
portfolio securities belonging to the Fund held by PNC Bank
hereunder;
(D) present for payment and collect the
amount payable upon all securities which may mature or be
called, redeemed, or retired, or otherwise become payable on
the date such securities become payable; and
(E) take any action which may be
necessary and proper in connection with the collection and
receipt of such income and other payments and the
endorsement for collection of checks, drafts, and other
negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver
or cause to be delivered Property against payment or other
consideration or written receipt therefor in the following
cases:
(1) for examination by a broker or
dealer selling for the account of the Fund in accordance
with street delivery custom;
(2) for the exchange of interim
receipts or temporary securities for definitive securities;
and
(3) for transfer of securities
into the name of the Fund or PNC Bank or nominee of either,
or for exchange of securities for a different number of
bonds,certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to
be delivered to PNC Bank.
(B) Unless and until PNC Bank receives
Oral or Written Instructions to the contrary, PNC Bank
shall:
(1) pay all income items held by
it which call for payment upon presentation and hold the
cash received by it upon such payment for the account of the
Fund;
(2) collect interest and cash
dividends received, with notice to the Fund, to the Fund's
account;
(3) hold for the account of the
Fund all stock dividends, rights and similar securities
issued with respect to any securities held by PNC Bank; and
(4) execute as agent on behalf of
the Fund all necessary ownership certificates required by
the Internal Revenue Code or the Income Tax Regulations of
the United States Treasury Department or under the laws of
any State now or hereafter in effect, inserting the Fund's
name, on such certificate as the owner of the securities
covered thereby, to the extent it may lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written
or Oral Instructions establish and maintain segregated
account(s) on its records for and on behalf of the Fund.
Such account(s) may be used to transfer cash and securities,
including securities in the Book-Entry System:
(A) for the purposes of compliance by
the Fund with the procedures required by a securities or
option exchange, providing such procedures comply with the
1940 Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered investment
companies; and
(B) Upon receipt of Written
Instructions, for other proper corporate purposes.
(ii) PNC Bank may enter into separate
custodial agreements with various futures commission
merchants ("FCMs") that the Fund uses ("FCM Agreement").
Pursuant to an FCM Agreement, the Fund's margin deposits in
any transactions involving futures contracts and options on
futures contracts will be held by PNC Bank in accounts ("FCM
Account") subject to the disposition by the FCM involved in
such contracts and in accordance with the customer contract
between FCM and the Fund ("FCM Contract"), SEC rules and the
rules of the applicable commodities exchange. Such FCM
Agreements shall only be entered into upon receipt of
Written Instructions from the Fund which state that:
(A) a customer agreement between the
FCM and the Fund has been entered into; and
(B) the Fund is in compliance with all
the rules and regulations of the CFTC. Transfers of initial
margin shall be made into a FCM Account only upon Written
Instructions; transfers of premium and variation margin may
be made into a FCM Account pursuant to Oral Instructions.
Transfers of funds from a FCM
Account to the FCM for which PNC Bank holds such an account
may only occur upon certification by the FCM to PNC Bank
that pursuant to the FCM Agreement and the FCM Contract, all
conditions precedent to its right to give PNC Bank such
instructions have been satisfied.
(iii) PNC Bank shall arrange for the
establishment of IRA custodian accounts for such share-
holders holding Shares through IRA accounts, in accordance
with the Fund's prospectuses, the Internal Revenue Code
(including regulations), and with such other procedures as
are mutually agreed upon from time to time by and among the
Fund, PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall
settle purchased securities upon receipt of Oral or Written
Instructions from the Fund or its investment advisor(s) that
specify:
(i) the name of the issuer and the title of
the securities, including CUSIP number if applicable;
(ii) the number of shares or the principal
amount purchased and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such
purchase; and
(vi) the name of the person from whom or the
broker through whom the purchase was made. PNC Bank shall
upon receipt of securities purchased by or for the Fund pay
out of the moneys held for the account of the Fund the total
amount payable to the person from whom or the broker through
whom the purchase was made, provided that the same conforms
to the total amount payable as set forth in such Oral or
Written Instructions.
(k) Sales of Securities. PNC Bank shall settle
sold securities upon receipt of Oral or Written Instructions
from the Fund that specify:
(i) the name of the issuer and the title of
the security, including CUSIP number if applicable;
(ii) the number of shares or principal amount
sold, and accrued interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund
upon such sale;
(vi) the name of the broker through whom or
the person to whom the sale was made; and
(vii) the location to which the security must
be delivered and delivery deadline, if any. PNC Bank shall
deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the total
amount payable is the same as was set forth in the Oral or
Written Instructions. Subject to the foregoing, PNC Bank
may accept payment in such form as shall be satisfactory to
it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in
securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the
following reports:
(A) such periodic and special reports
as the Fund may reasonably request;
(B) a monthly statement summarizing all
transactions and entries for the account of the Fund,
listing the portfolio securities belonging to the Fund with
the adjusted average cost of each issue and the market value
at the end of such month, and stating the cash account of
the Fund including disbursement;
(C) the reports to be furnished to the
Fund pursuant to Rule 17f-4; and
(D) such other information as may be
agreed upon from time to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the
Fund any proxy statement, proxy material, notice of a call
or conversion or similar communication received by it as
custodian of the Property. PNC Bank shall be under no other
obligation to inform the Fund as to such actions or events.
(m) Collections. All collections of monies or
other property, in respect, or which are to become part of
the Property (but not the safekeeping thereof upon receipt
by PNC Bank) shall be at the sole risk of the Fund. If
payment is not received by PNC Bank within a reasonable time
after proper demands have been made, PNC Bank shall notify
the Fund in writing, including copies of all demand letters,
any written responses, memoranda of all oral responses and
telephonic demands thereto, and await instructions from the
Fund. PNC Bank shall not be obliged to take legal action
for collection unless and until reasonably indemnified to
its satisfaction. PNC Bank shall also notify the Fund as
soon as reasonably practicable whenever income due on
securities is not collected in due course.
15. Duration and Termination. This Agreement shall
continue until terminated by the Fund or by PNC Bank on
sixty (60) days' prior written notice to the other party.
In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the
shareholders of the Fund to dissolve or to function without
a custodian of its cash, securities or other property), PNC
Bank shall not deliver cash, securities or other property of
the Fund to the Fund. It may deliver them to a bank or
trust company of PNC Bank's choice, having an aggregate
capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under
terms similar to those of this Agreement. PNC Bank shall
not be required to make any such delivery or payment until
full payment shall have been made to PNC Bank of all of its
fees, compensation, costs and expenses. PNC Bank shall have
a security interest in and shall have a right of setoff
against Property in the Fund's possession as security for
the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications,
including Written Instructions, shall be in writing or by
confirming telegram, cable, telex or facsimile sending
device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address: Airport Business Center, International Court
2, 200 Stevens Drive, Lester, Pennsylvania 19113, marked for
the attention of the Custodian Services Department (or its
successor) (b) if to the Fund, at the address of the Fund;
or (c) if to neither of the foregoing, at such other address
as shall have been notified to the sender of any such notice
or other communication. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall
be deemed to have been given immediately. If notice is sent
by first-class mail, it shall be deemed to have been given
five days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day
it is delivered.
17. Amendments. This Agreement, or any term hereof,
may be changed or waived only by a written amendment, signed
by the party against whom enforcement of such change or
waiver is sought. 18. Delegation. PNC Bank may
assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i)
PNC Bank gives the Fund thirty (30) days prior written
notice; (ii) the delegate agrees with PNC Bank to comply
with all relevant provisions of the 1940 Act; and (iii) PNC
Bank and such delegate promptly provide such information as
the Fund may request, and respond to such questions as the
Fund may ask, relative to the assignment, including (without
limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. 20. Further Actions. Each party
agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties and
supersedes all prior agreements and understandings relating
to the subject matter hereof, provided that the parties may
embody in one or more separate documents their agreement, if
any, with respect to delegated duties and/or Oral
Instructions. The captions in this Agreement are included
for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law. If any provision
of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below
on the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
SMITH BARNEY MASSACHUSETTS
MUNICIPALS FUND
By:
Title:
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
21
Independent Auditors' Consent
To the Shareholders and Trustees of Smith Barney Massachusettss
Municipals Fund:
We consent to the use of our report dated January 17, 1996
incorporated herein by reference and to the references to our
Firm under the headings "Financial Highlights" in the
Prospectus and "Counsel and Auditors" in the Statement of
Additional Information.
KPMG PEAT MARWICK LLP
New York, New York
January 29, 1996
EXHIBIT 18
Rule 18f-3 (d) Multiple Class Plan
for Smith Barney Mutual Funds
Introduction
This plan (the "Plan") is adopted pursuant to Rule 18f-3 (d)
of
the Investment Company Act of 1940, as amended (the "1940
Act").
The purpose of the Plan is to restate the existing
arrangements
previously approved by the Boards of Directors and Trustees
of
certain of the open-end investment companies set forth on
Schedule A (the "Funds" and each a "Fund") distributed by
Smith
Barney Inc. ("Smith Barney") under the Funds' existing order
of
exemption (Investment Company Act Release Nos. 20042
(January 28,
1994) (notice) and 20090 (February 23, 1994)). Shares of
the
Funds are distributed pursuant to a system (the "Multiple
Class
System") in which each class of shares (a "Class") of a Fund
represents a pro rata interest in the same portfolio of
investments of the Fund and differs only to the extent
outlined
below.
I. Distribution Arrangements and Service Fees
One or more Classes of shares of the Funds are offered for
purchase by investors with the following sales load
structure.
In addition, pursuant to Rule 12b-1 under the 1940 Act (the
"Rule"), the Funds have each adopted a plan (the "Services
and
Distribution Plan") under which shares of the Classes are
subject
to the services and distribution fees described below.
1. Class A Shares
Class A shares are offered with a front-end sales load and
under
the Services and Distribution Plan are subject to a service
fee
of up to 0.25% of average daily net assets. In addition,
the
Funds are permitted to asses a contingent deferred sales
charge
("CDSC") on certain redemptions of Class A shares sold
pursuant
to a complete waiver of front-end sales loads applicable to
large
purchases, if the shares are redeemed within one year of the
date
of purchase. This waiver applies to sales of Class A shares
where the amount of purchase is equal to or exceeds $500,000
although this amount may be changed in the future.
2. Class B Shares
Class B shares are offered without a front-end sales load,
but
are subject to a five-year declining CDSC and under the
Services
and Distribution Plan are subject to a service fee at an
annual
rate of up to 0.25% of average daily net assets and a
distribution fee at an annual rate of up to 0.75% of average
daily net assets.
3. Class C Shares
Class C shares are offered without a front-end load, but are
subject to a one-year CDSC and under the Services and
Distribution Plan are subject to a service fee at an annual
rate
of up to 0.25% of average daily net assets and a
distribution fee
at an annual rate of up to 0.75% of average daily net
assets.
Unlike Class B shares, Class C shares do not have the
conversion
feature as discussed below and accordingly, these shares are
subject to a distribution fee for an indefinite period of
time.
The Funds reserve the right to impose these fees at such
higher
rates as may be determined.
4. Class Y Shares
Class Y shares are offered without impositions of either a
sales
charge or a service or distribution fee for investments
where the
amount of purchase is equal to or exceeds $5 million.
5. Class Z Shares
Class Z shares are offered without imposition of either a
sales
charge or a service or distribution fee for purchase (i) by
employee benefit and retirement plans of Smith Barney and
its
affiliates, (ii) by certain unit investment trusts sponsored
by
Smith Barney and its affiliates, and (iii) although not
currently
authorized by the governing boards of the Funds, when and if
authorized, (x) by employees of Smith Barney and its
affiliates
and (y) by directors, general partners or trustees of any
investment company for which Smith Barney serves as a
distributor
and, for each of (x) and (y), their spouses and minor
children.
6. Additional Classes of Shares
The Boards of Directors and Trustees of the Funds have the
authority to create additional classes, or change existing
Classes, from time to time, in accordance with Rule 18f-3 of
the
1940 Act.
II. Expense Allocations
Under the Multiple Class System, all expenses incurred by a
Fund
are allocated among the various Classes of shares based on
the
net assets of the Fund attributable to each Class, except
that
each Class's net assets value and expenses reflect the
expenses
associated with that Class under the Fund's Services and
Distribution Plan, including any costs associated with
obtaining
shareholder approval of the Services and Distribution Plan
(or an
amendment thereto) and any expenses specific to that Class.
Such
expenses are limited to the following:
(I) transfer agency fees as identified by the transfer
agent as being attributable to a specific Class;
(ii) printing and postage expenses related to
preparing and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a Class
of
shares;
(iv) Securities and Exchange Commission registration
fees
incurred by a Class of shares;
(v) the expense of administrative personnel and
services as
required to support the shareholders of a specific Class;
(vi) litigation or other legal expenses relating
solely to
one Class of shares; and
(vii) fees of members of the governing boards of the
funds
incurred as a result of issues relating to one Class of
shares.
Pursuant to the Multiple Class System, expenses of a Fund
allocated to a particular Class of shares of that Fund are
borne
on a pro rata basis by each outstanding share of that Class.
III. Conversion Rights of Class B Shares
All Class B shares of each Fund will automatically convert
to
Class A shares after a certain holding period, expected to
be, in
most cases, approximately eight years but may be shorter.
Upon
the expiration of the holding period, Class B shares (except
those purchases through the reinvestment of dividends and
other
distributions paid in respect of Class B shares) will
automatically convert to Class A shares of the Fund at the
relative net asset value of each of the Classes, and will,
as a
result, thereafter be subject to the lower fee under the
Services
and Distribution Plan. For purposes of calculating the
holding
period required for conversion, newly created Class B shares
issued after the date of implementation of the Multiple
Class
System are deemed to have been issued on (i) the date on
which
the issuance of the Class B shares occurred or (ii) for
Class B
shares obtained through an exchange, or a series of
exchanges,
the date on which the issuance of the original Class B
shares
occurred.
Shares purchased through the reinvestment of dividends and
other
distributions paid in respect of Class B shares are also
Class B
shares. However, for purposes of conversion to Class A, all
Class B shares in a shareholder's Fund account that were
purchased through the reinvestment of dividends and other
distributions paid in respect of Class B shares (and that
have
not converted to Class A shares as provided in the following
sentence) are considered to be held in a separate sub-
account.
Each time any Class B shares in the shareholder's Fund
account
(other than those in the sub-account referred to in the
preceding
sentence) convert to Class A, a pro rata portion of the
Class B
shares then in the sub-account also converts to Class A.
The
portion is determined by the ratio that the shareholder's
Class B
shares converting to Class A bears to the shareholder's
total
Class B shares not acquired through dividends and
distributions.
The conversion of Class B shares to Class A shares is
subject to
the continuing availability of a ruling of the Internal
Revenue
Service that payment of different dividends on Class A and
Class
B shares does not result in the Fund's dividends or
distributions
constituting "preferential dividends" under the Internal
Revenue
Code of 1986, as amended (the "Code"), and the continuing
availability of an opinion of counsel to the effect that the
conversion of shares does not constitute a taxable event
under
the Code. The conversion of Class B shares to Class A
shares may
be suspended if this opinion is no longer available, In the
event that conversion of Class B shares of not occur, Class
B
shares would continue to be subject to the distribution fee
and
any incrementally higher transfer agency costs attending the
Class B shares for an indefinite period.
IV. Exchange Privileges
Shareholders of a Fund may exchange their shares at net
asset
value for shares of the same Class in certain other of the
Smith
Barney Mutual Funds as set forth in the prospectus for such
Fund.
Class A shareholders who wish to exchange all or part of
their
shares for Class A shares of a Fund sold subject to a sales
charge equal to or lower that that assessed with respect to
the
shares of the Fund being exchanged may do so without paying
a
sales charge. Class A shareholders of a Fund who wish to
exchange all or part of their shares for Class A shares of a
Fund
sold subject to a sales charge higher than that assessed
with
respect to the shares of the Fund being exchanged are
charged the
appropriate "sales charge differential." Funds only permit
exchanges into shares of money market funds having a plan
under
the Rule if, as permitted by paragraph (b) (5) of Rule 11a-3
under the 1940 Act, either (i) the time period during which
the
shares of the money market funds are held is included in the
calculations of the CDSC or (ii) the time period is not
included
but the amount of the CDSC is reduced by the amount of any
payments made under a plan adopted pursuant to the Rule by
the
money market funds with respects to those shares.
Currently, the
Funds include the time period during which shares of the
money
market fund are held in the CDSC period. The exchange
privileges
applicable to all Classes of shares must comply with Rule
11a-3
under the 1940 Act.
Smith Barney Sponsored Investment Companies
Operating under Rule 18f-3 - Schedule A
(as of August 25, 1995)
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund
Smith Barney Equity Funds -
Smith Barney Strategic Investors Fund
Smith Barney Growth and Income Fund
Smith Barney Florida Municipals Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -
Income and Growth Portfolio
Utilities Portfolio
Income Return Account Portfolio
Monthly Payment Government Portfolio
Short-Term U.S. Treasury Securities Portfolio
U.S. Government Securities Portfolio
Smith Barney Income Funds -
Smith Barney Premium Total Return Fund
Smith Barney Convertible Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney High Income Fund
Smith Barney Tax-Exempt Income Fund
Smith Barney Exchange Reserve Fund
Smith Barney Utilities Fund
Smith Barney Income Trust -
Smith Barney Limited Maturity Municipals Fund
Smith Barney Limited Maturity Treasury Fund
Smith Barney Intermediate Maturity
California Municipals Fund
Smith Barney Intermediate Maturity
New York Municipals Fund
Smith Barney Investment Funds Inc. -
Smith Barney Special Equities Fund
Smith Barney Government Securities Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Growth Opportunity Fund
Smith Barney Managed Growth Fund
Smith Barney Institutional Cash Management Fund Inc.
Smith Barney Managed Governments Fund Inc.
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
Smith Barney Money Funds, Inc. -
Cash Portfolio
Government Portfolio
Retirement Portfolio
Smith Barney Municipal Money Market Fund, Inc.
Smith Barney Muni Funds -
California Portfolio
California Limited Portfolio
California Money Market Portfolio
Florida Portfolio
Florida Limited Portfolio
Georgia Portfolio
Limited Term Portfolio
National Portfolio
New Jersey Portfolio
New York Portfolio
New York Money Market Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney New York Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Telecommunications Trust -
Smith Barney Telecommunications Growth Fund
Smith Barney Telecommunications Income Fund
Smith Barney World Funds, Inc. -
International Equity Portfolio
International Balanced Portfolio
European Portfolio
Pacific Portfolio
Global Government Bond Portfolio
u:\legal\data\18f3plan.txt 08/25/95 1:55 PM
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000809846
<NAME> SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 56,966,787
<INVESTMENTS-AT-VALUE> 54,683,858
<RECEIVABLES> 1,245,594
<ASSETS-OTHER> 35,271
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,247,652
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 216,819
<TOTAL-LIABILITIES> 216,819
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,339,185
<SHARES-COMMON-STOCK> 2,249,537
<SHARES-COMMON-PRIOR> 2,435,104
<ACCUMULATED-NII-CURRENT> 2,826,954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (591,281)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,282,929
<NET-ASSETS> 58,030,833
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,414,891
<OTHER-INCOME> 0
<EXPENSES-NET> 587,937
<NET-INVESTMENT-INCOME> 2,826,954
<REALIZED-GAINS-CURRENT> (145,044)
<APPREC-INCREASE-CURRENT> 7,360,473
<NET-CHANGE-FROM-OPS> 10,042,383
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,891,910)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 203,917
<NUMBER-OF-SHARES-REDEEMED> (472,105)
<SHARES-REINVESTED> 82,621
<NET-CHANGE-IN-ASSETS> 7,042,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (34,400)
<OVERDIST-NET-GAINS-PRIOR> (446,237)
<GROSS-ADVISORY-FEES> 300,189
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 54,757,122
<PER-SHARE-NAV-BEGIN> 13.26
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 1.61
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.69)
<RETURNS-OF-CAPITAL> 20.73
<PER-SHARE-NAV-END> 12.96
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<ARTICLE> 6
<CIK> 0000809846
<NAME> SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND - CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
[INVESTMENTS-AT-COST] 56,966,787
[INVESTMENTS-AT-VALUE] 54,683,858
[RECEIVABLES] 1,245,594
[ASSETS-OTHER] 35,271
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 58,247,652
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 216,819
[TOTAL-LIABILITIES] 216,819
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 56,339,185
[SHARES-COMMON-STOCK] 2,217,041
[SHARES-COMMON-PRIOR] 2,051,567
[ACCUMULATED-NII-CURRENT] 2,826,954
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (591,281)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,282,929
[NET-ASSETS] 58,030,833
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 3,414,891
[OTHER-INCOME] 0
[EXPENSES-NET] 587,937
[NET-INVESTMENT-INCOME] 2,826,954
[REALIZED-GAINS-CURRENT] (145,044)
[APPREC-INCREASE-CURRENT] 7,360,473
[NET-CHANGE-FROM-OPS] 10,042,383
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (2,891,910)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 421,164
[NUMBER-OF-SHARES-REDEEMED] (321,620)
[SHARES-REINVESTED] 65,930
[NET-CHANGE-IN-ASSETS] 7,042,834
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] (34,400)
[OVERDIST-NET-GAINS-PRIOR] (446,237)
[GROSS-ADVISORY-FEES] 300,189
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 54,757,122
[PER-SHARE-NAV-BEGIN] 13.26
[PER-SHARE-NII] 0.63
[PER-SHARE-GAIN-APPREC] 1.61
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.63)
[RETURNS-OF-CAPITAL] 20.15
[PER-SHARE-NAV-END] 12.96
[EXPENSE-RATIO] 1.35
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<ARTICLE> 6
<CIK> 0000809846
<NAME> SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND - CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
[INVESTMENTS-AT-COST] 56,966,787
[INVESTMENTS-AT-VALUE] 54,683,858
[RECEIVABLES] 1,245,594
[ASSETS-OTHER] 35,271
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 58,247,652
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 216,819
[TOTAL-LIABILITIES] 216,819
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 56,339,185
[SHARES-COMMON-STOCK] 11,243
[SHARES-COMMON-PRIOR] 6,617
[ACCUMULATED-NII-CURRENT] 2,826,954
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (591,281)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,282,929
[NET-ASSETS] 58,030,833
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 3,414,891
[OTHER-INCOME] 0
[EXPENSES-NET] 587,937
[NET-INVESTMENT-INCOME] 2,826,954
[REALIZED-GAINS-CURRENT] (145,044)
[APPREC-INCREASE-CURRENT] 7,360,473
[NET-CHANGE-FROM-OPS] 10,042,383
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (2,891,910)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 11,151
[NUMBER-OF-SHARES-REDEEMED] (6,691)
[SHARES-REINVESTED] 166
[NET-CHANGE-IN-ASSETS] 7,042,834
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] (34,400)
[OVERDIST-NET-GAINS-PRIOR] (446,237)
[GROSS-ADVISORY-FEES] 300,189
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 54,757,122
[PER-SHARE-NAV-BEGIN] 11.34
[PER-SHARE-NII] 0.63
[PER-SHARE-GAIN-APPREC] 1.60
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] (0.63)
[RETURNS-OF-CAPITAL] 20.04
[PER-SHARE-NAV-END] 12.95
[EXPENSE-RATIO] 1.35
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
