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. 21 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940[X]
Amendment No. 22 [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) 816-6474
Registrant's Telephone Number, including area code
Christina T. Sydor, 388 Greenwich Street, New York,
New York 10013
(Name and Address of Agent for Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing becomes effective
(check appropriate box):
[ ] Immediately upon filing pursuant to paragraph
b [ X] on
March 29, 2000 pursuant to paragraph
b
[ ] 60 days after filing pursuant to paragraph
(a)(1) [
] on (date)
pursuant to
paragraph
(a)(1)
[ ] 75 days after filing pursuant to paragraph
(a)(2) [ ] on
(date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a
new effective date for a previously filed post-
effective amendment
Part A-Prospectus
[LOGO] Smith Barney
Mutual Funds
P R O S P E C T U S
Massachusetts
Municipal Fund
Class A, B, L and Y Shares
- --------------------------
March 29, 2000
The Securities and Exchange Commission has
not approved or disapproved these securities
or determined whether this prospectus is
accurate or complete. Any statement to the
contrary is a crime.
<PAGE>
Massachusetts Municipals Fund
Contents
<TABLE>
<S>
<C>
Investments, risks and
performance........................................
.. 2
More on the fund's
investments........................................
...... 6
Management.........................................
......................... 7
Choosing a class of shares to
buy........................................... 8
Comparing the fund's
classes............................................
.... 9
Sales
charges............................................
................... 10
More about deferred sales
charges...........................................
12
Buying
shares.............................................
.................. 13
Exchanging
shares.............................................
.............. 14
Redeeming
shares.............................................
............... 16
Other things to know about share
transactions............................... 18
Dividends, distributions and
taxes.......................................... 20
Share
price..............................................
................... 21
Financial
highlights.........................................
............... 22
</TABLE>
You should know: An investment in the fund is not a
bank deposit and is not
insured or guaranteed by the FDIC or any other
government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks to provide Massachusetts investors
with as high a level of divi-
dend income exempt from federal and Massachusetts
personal income taxes as is
consistent with prudent investment management and
the preservation of capital.
Principal investment strategies
Key investments The fund invests at least 80% of
its net assets in Massachu-
setts municipal securities. Massachusetts municipal
securities include securi-
ties issued by the Commonwealth of Massachusetts
and certain other municipal
issuers, political subdivisions, agencies and
public authorities that pay
interest which is exempt from Massachusetts
personal income taxes. The fund
focuses primarily on intermediate-term and long-
term municipal securities which
have remaining maturities at the time of purchase
from three to more than
twenty years. The fund can invest up to 25% of its
assets in below investment
grade bonds. Investment grade bonds are those rated
by a national ratings
organization in any of the four highest long-term
rating categories, or if
unrated, of comparable quality.
Selection process The manager selects individual
securities it believes are
undervalued or will benefit from changes in market
conditions. The manager
spreads the fund's investments among various
sectors, focusing more heavily on
sectors it believes are relatively undervalued. In
selecting individual securi-
ties, the manager:
. Uses fundamental credit analysis to estimate the
relative value and attrac-
tiveness of various securities and sectors and to
exploit opportunities in
the municipal bond market
. May trade between general obligation and revenue
bonds, and among various
revenue bond sectors, such as hospital,
industrial development and housing,
based on their apparent relative values
. Considers the yields available for securities
with different maturities and a
security's maturity in light of the outlook for
the issuer, its sector and
for interest rates
. Identifies individual securities with the most
potential for added value,
such as those involving unusual situations, new
issuers, the potential for
credit upgrades, unique structural
characteristics or innovative features
Massachusetts Municipals Fund
2
<PAGE>
Principal risks of investing in the fund
Investors could lose money on their investment in
the fund, or the fund may not
perform as well as other investments, if:
. Interest rates rise, causing the value of the
fund's portfolio to decline
. The issuer of a security owned by the fund
defaults on its obligation to pay
principal and/or interest or the security's
credit rating is downgraded. This
risk is higher for below investment grade bonds,
which are considered specu-
lative because they have a higher risk of issuer
default, are subject to
greater price volatility and may be illiquid
. Massachusetts municipal securities fall out of
favor with investors
. Unfavorable legislation affects the tax-exempt
status of municipal bonds
. The manager's judgment about the attractiveness,
value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income
distributions may be, and distri-
butions of the fund's gains generally will be,
subject to federal and Massachu-
setts state taxation. The fund may realize taxable
gains on the sale of its
securities or on transactions in derivative
contracts. Some of the fund's
income may be subject to the federal alternative
minimum tax. In addition, dis-
tributions of the fund's income and gains will be
subject to taxation to
investors in states other than Massachusetts.
The fund is classified as "non-diversified," which
means it may invest a larger
percentage of its assets in one issuer than a
diversified fund. To the extent
the fund concentrates its assets in fewer issuers,
the fund will be more sus-
ceptible to negative events affecting those
issuers.
Who may want to invest The fund may be an
appropriate investment if you are a
Massachusetts taxpayer:
. In a high federal tax bracket, seeking income
that is exempt from Massachu-
setts and federal taxation
. Currently have exposure to other asset classes
and are seeking to broaden
your investment portfolio
. Are willing to accept the risks of municipal
securities, including the risks
of concentrating in a single state
Smith Barney Mutual Funds
3
<PAGE>
Risk return bar chart
This bar chart indicates the risks of investing in
the fund by showing changes
in the fund's performance from year to year. Past
performance does not neces-
sarily indicate how the fund will perform in the
future. The bar chart shows
the performance of the fund's Class A shares for
each of the past 10 years.
Class B, L and Y shares have different performance
because of different
expenses. The performance information in the chart
does not reflect sales
charges, which would reduce your return.
Total Return for Class A
Shares
[BAR CHART]
90 91 92 93 94 95 96
97 98 99
----- ------ ---- ------ ------ ------ -----
- ------ ----- ------
4.98% 13.29% 9.09 12.73% -8.22% 18.53% 3.88%
10.16% 5.96% -6.24%
Calendar years ended
December 31
Quarterly returns:
Highest: 7.79% in 1st quarter 1995; Lowest: (7.14)%
in 1st quarter 1994
Risk return table
This table indicates the risks of investing in the
fund by comparing the aver-
age annual total return of each class for the
periods shown with that of the
Lehman Brothers Municipal Bond Index (the "Lehman
Index"), a broad-based unman-
aged index of municipal bonds and the Lipper
Massachusetts Municipal Fund Aver-
age (the "Lipper Funds Average"), an average
composed of the fund's peer group
of mutual funds. This table assumes imposition of
the maximum sales charge
applicable to the class, redemption of shares at
the end of the period, and
reinvestment of distributions and dividends.
Average Annual Total
Returns
Calendar Years Ended December 31,
1999
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years
Since inception Inception date
<S> <C> <C> <C> <C>
<C>
A (9.98)% 5.27% 5.67%
6.54% 12/21/87
B (10.78)% 5.44% n/a
4.58% 11/30/92
L (8.51)% 5.35% n/a
5.91% 11/10/94
Y** n/a n/a n/a
n/a n/a
Lehman Index (2.06)% 6.91% 6.89%
7.48% *
Lipper Funds Average (4.57)% 5.72% 6.27%
6.83% *
</TABLE>
* Index comparison begins on December 31, 1987.
** There are no Class Y shares outstanding for the
calendar year ended December
31, 1999.
Massachusetts Municipals Fund
4
<PAGE>
Fee table
This table sets forth the fees and expenses you
will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class
A Class B Class L Class Y
<S> <C>
<C> <C> <C>
Maximum sales charge (load) imposed on
purchases
(as a % of offering price)
4.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase
or redemption)
None* 4.50% 1.00% None
Annual fund operating
expenses
<CAPTION>
(expenses deducted from fund assets) Class
A Class B Class L Class Y**
<S> <C>
<C> <C> <C>
Management fee
0.50% 0.50% 0.50% 0.50%
Distribution and service (12b-1) fees
0.15% 0.65% 0.70% None
Other expenses
0.20% 0.21% 0.19% 0.20%
----
- - ----- ----- -----
Total annual fund operating expenses
0.85% 1.36% 1.39% 0.70%
</TABLE>
*You may buy Class A shares in amounts of $500,000
or more at net asset value
(without an initial sales charge) but if you redeem
those shares within 12
months of their purchase, you will pay a deferred
sales charge of 1.00%.
**For Class Y shares, "Other Expenses" have been
estimated based on expenses
incurred by Class A shares because as of November
30, 1999, no Class Y shares
had been sold.
Example
This example helps you compare the costs of
investing in the fund with the
costs of investing in other mutual funds. Your
actual costs may be higher or
lower. The example assumes:
. You invest $10,000 in the fund for the period
shown
. You redeem all of your shares at the end of the
period
. Your investment has a 5% return each year
. You reinvest all distributions and dividends
without a sales charge
. The fund's operating expenses remain the same
Number of years you own your
shares
<TABLE>
<CAPTION>
1 year 3
years 5 years 10 years
<S> <C> <C>
<C> <C>
Class A (with or without redemption) $483 $660
$852 $1,407
Class B (redemption at end of period) $638 $731
$845 $1,495
Class B (no redemption) $138 $431
$745 $1,495
Class L (redemption at end of period) $340 $536
$853 $1,752
Class L (no redemption) $240 $536
$853 $1,752
Class Y (with or without redemption) $ 72 $224
$390 $ 871
</TABLE>
Smith Barney Mutual Funds
5
<PAGE>
More on the fund's investments
Massachusetts municipal securities Massachusetts
municipal securities include
debt obligations issued by certain non-
Massachusetts governmental issuers such
as Puerto Rico, the Virgin Islands and Guam. The
interest on Massachusetts
municipal securities is exempt from federal income
tax and Massachusetts per-
sonal income tax. As a result, the interest rate on
these bonds normally is
lower than it would be if the bonds were subject to
taxation. The Massachusetts
municipal securities in which the fund invests
include general obligation
bonds, revenue bonds and municipal leases.
Derivatives and hedging techniques The fund may,
but need not, use derivative
contracts, such as futures and options on
securities and securities indices,
and options on futures, to hedge against adverse
changes in the market value of
its securities or interest rates.
A derivative contract will obligate or entitle the
fund to deliver or receive
an asset or cash payment based on the change in
value of one or more securities
or indices. Even a small investment in derivative
contracts can have a big
impact on the interest rate exposure. Therefore,
using derivatives can dispro-
portionately increase losses and reduce
opportunities for gains when securities
prices or interest rates are changing. The fund may
not fully benefit from or
may lose money on derivatives if changes in their
value do not correspond accu-
rately to changes in the value of the fund's
holdings. The other parties to
certain derivative contracts present the same types
of default risk as issuers
of fixed income securities. Derivatives can also
make the fund less liquid and
harder to value, especially in declining markets.
Defensive investing The fund may depart from its
principal investment strate-
gies in response to adverse market, economic or
political conditions by taking
temporary defensive positions in all types of money
market and short-term debt
securities. If the fund takes a temporary defensive
position, it may be unable
to achieve its investment goal.
Massachusetts Municipals Fund
6
<PAGE>
Management
Manager The fund's investment adviser and
administrator is SSB Citi Fund Man-
agement LLC (successor to SSBC Fund Management
Inc.), an affiliate of Salomon
Smith Barney Inc. The manager's address is 388
Greenwich Street, New York, New
York 10013. The manager selects the fund's
investments and oversees its opera-
tions. The manager and Salomon Smith Barney are
subsidiaries of Citigroup Inc.
Citigroup businesses produce a broad range of
financial services--asset manage-
ment, banking and consumer finance, credit and
charge cards, insurance, invest-
ments, investment banking and trading--and use
diverse channels to make them
available to consumer and corporate customers
around the world.
Peter Coffey, an investment officer of SSB Citi and
a managing director of Sal-
omon Smith Barney, assumed responsibility for the
day-to-day management of the
fund's portfolio on February 2, 1999. Mr. Coffey
has over 30 years of securi-
ties business experience.
Management fees During the fiscal year ended
November 30, 1999, the manager
received an advisory fee and an administration fee
equal to 0.30% and 0.20%,
respectively, of the fund's average daily net
assets.
Distributor The fund has entered into an agreement
with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting
of Salomon Smith Barney and
other broker-dealers sells fund shares to the
public.
Distribution plan The fund has adopted a Rule 12b-1
distribution plan for its
Class A, B and L shares. Under the plan, the fund
pays distribution and/or
service fees. These fees are an ongoing expense
and, over time, may cost you
more than other types of sales charges.
Transfer agent and shareholder servicing agent
Smith Barney Private Trust Com-
pany serves as the fund's transfer agent and
shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer
agency and services agreement
with the transfer agent, PFPC Global Fund Services
serves as the fund's sub-
transfer agent (the "sub-transfer agent") to render
certain shareholder record
keeping and accounting services and functions.
Smith Barney Mutual Funds
7
<PAGE>
Choosing a class of shares to buy
You can choose among four classes of shares:
Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing
you to choose the class that
best meets your needs. Which class is more
beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large
amounts, buying Class A shares
may help you reduce sales charges and ongoing
expenses.
. For Class B shares, all of your purchase amount
and, for Class L shares, more
of your purchase amount (compared to Class A
shares) will be immediately
invested. This may help offset the higher
expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales
charge period than Class B
shares. However, because Class B shares convert
to Class A shares, and Class
L shares do not, Class B shares may be more
attractive to long-term invest-
ors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a
broker that clears through
Salomon Smith Barney--a dealer representative
. The fund, but only if you are investing through
certain dealer
representatives
Investment minimums Minimum initial and additional
investment amounts vary
depending on the class of shares you buy and the
nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A,
B, L Class Y All Classes
<S> <C>
<C> <C>
General $1,000
$15 million $50
Monthly Systematic Investment Plans $ 25
n/a $25
Quarterly Systematic Investment Plans $ 50
n/a $50
Uniform Gift to Minor Accounts $ 250
$15 million $50
</TABLE>
Massachusetts Municipals Fund
8
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or
dealer representative can
help you decide which class meets your goals. They
may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B
Class L Class Y
<S> <C> <C>
<C> <C>
Key features .Initial .No initial
.Initial .No initial
sales sales
sales or
charge charge
charge is deferred
.You may .Deferred
lower than sales
qualify sales
Class A charge
for reduc- charge
.Deferred .Must
tion or declines
sales invest at
waiver of over time
charge for least $15
initial .Converts
only 1 million
sales to Class A
year .Lower
charge after 8
.Does not annual
.Lower years
convert to expenses
annual .Higher
Class A than the
expenses annual
.Higher other
than Class expenses
annual classes
B and than Class
expenses
Class L A
than Class
A
- ---------------------------------------------------
- ---------------------
Initial sales charge Up to None
1.00% None
4.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ---------------------------------------------------
- ---------------------
Deferred sales charge 1.00% on Up to 4.50%
1.00% if None
purchases charged
you redeem
of $500,000 when you
within 1
or more if redeem
year of
you redeem shares. The
purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ---------------------------------------------------
- ---------------------
Annual distribution and 0.15% of 0.65% of
0.70% of None
service fees average average
average
daily net daily net
daily net
assets assets
assets
- ---------------------------------------------------
- ---------------------
Exchange privilege* Class A Class B
Class L Class Y
shares shares
shares shares
of most of most of
most of most
Smith Smith
Smith Smith
Barney Barney
Barney Barney
funds funds
funds funds
- ---------------------------------------------------
- ---------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant
or dealer representative or
visit the web site for the Smith Barney funds
available for exchange.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which
is the net asset value plus
a sales charge. You pay a lower sales charge as the
size of your investment
increases to certain levels called breakpoints. You
do not pay a sales charge
on the fund's distributions or dividends you
reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a
% of
Offering Net
amount
Amount of purchase price (%) invested
(%)
<S> <C> <C>
Less than $25,000 4.00 4.17
$25,000 but less than $50,000 3.50 3.63
$50,000 but less than $100,000 3.00 3.09
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more -0- -0-
</TABLE>
Investments of $500,000 or more You do not pay an
initial sales charge when you
buy $500,000 or more of Class A shares. However, if
you redeem these Class A
shares within one year of purchase, you will pay a
deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There
are several ways you can
combine multiple purchases of Class A shares of
Smith Barney funds to take
advantage of the breakpoints in the sales charge
schedule.
. Accumulation privilege - lets you combine the
current value of Class A shares
owned
. by you, or
. by members of your immediate family,
and for which a sales charge was paid, with the
amount of your next purchase
of Class A shares for purposes of calculating the
initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to
combine accounts in deter-
mining their sales charge.
. Letter of intent - lets you purchase Class A
shares of the fund and other
Smith Barney funds over a 13-month period and pay
the same sales charge, if
any, as if all shares had been purchased at once.
You may include purchases
on which you paid a sales charge within 90 days
before you sign the letter.
Massachusetts Municipals Fund
10
<PAGE>
Waivers for certain Class A investors Class A
initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. Clients of newly employed Salomon Smith Barney
Financial Consultants, if cer-
tain conditions are met
. Investors who redeemed Class A shares of a Smith
Barney fund in the past 60
days, if the investor's Salomon Smith Barney
Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of
Class A initial sales charges,
contact your Salomon Smith Barney Financial
Consultant or dealer representative
or consult the Statement of Additional Information
("SAI").
Class B shares
You buy Class B shares at net asset value without
paying an initial sales
charge. However, if you redeem your Class B shares
within six years of pur-
chase, you will pay a deferred sales charge. The
deferred sales charge
decreases as the number of years since your
purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th
through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 4.5% 4% 3% 2% 1%
0%
</TABLE>
Class B conversion After 8 years, Class B shares
automatically convert into
Class A shares. This helps you because Class A
shares have lower annual
expenses. Your Class B shares will convert to Class
A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued:
Shares issued:
At initial On reinvestment of Upon
exchange from
purchase dividends and
another Smith
distributions
Barney fund
<S> <C> <C>
Eight years after the date In same proportion On
the date the
of purchase as the number of
shares originally
Class B shares
acquired would
converting is to have
converted
total Class B into
Class A
shares you own
shares
(excluding shares
issued as a divi-
dend)
</TABLE>
Smith Barney Mutual Funds
11
<PAGE>
Class L shares
You buy Class L shares at the offering price, which
is the net asset value plus
a sales charge of 1% (1.01% of the net amount
invested). In addition, if you
redeem your Class L shares within one year of
purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of
the fund and/or other Smith
Barney Mutual Funds on June 12, 1998, you will not
pay an initial sales charge
on Class L shares you buy before June 22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no
initial sales charge and no
deferred sales charge when you redeem. You must
meet the $15,000,000 initial
investment requirement. You can use a letter of
intent to meet this requirement
by buying Class Y shares of the fund over a 13-
month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset
value at the time of pur-
chase or redemption, whichever is less, and
therefore you do not pay a sales
charge on amounts representing appreciation or
depreciation.
In addition, you do not pay a deferred sales charge
on:
. Shares exchanged for shares of another Smith
Barney fund
. Shares representing reinvested distributions and
dividends
. Shares no longer subject to the deferred sales
charge
Each time you place a request to redeem shares, the
fund will first redeem any
shares in your account that are not subject to a
deferred sales charge and then
the shares in your account that have been held the
longest.
If you redeemed shares of a Smith Barney fund in
the past 60 days and paid a
deferred sales charge, you may buy shares of the
fund at the current net asset
value and be credited with the amount of the
deferred sales charge, if you
notify your Salomon Smith Barney Financial
Consultant or dealer representative.
Salomon Smith Barney receives deferred sales
charges as partial compensation
for its expenses in selling shares, including the
payment of compensation to
your Salomon Smith Barney Financial Consultant or
dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will
generally be waived:
. On payments made through certain systematic
withdrawal plans
Massachusetts Municipals Fund
12
<PAGE>
. For involuntary redemptions of small account
balances
. For 12 months following the death or disability
of a shareholder
If you want to learn more about additional waivers
of deferred sales charges,
contact your Salomon Smith Barney Financial
Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon
Smith Barney Financial Con-
Salomon Smith sultant or dealer representative
to open a brokerage account
Barney and make arrangements to buy
shares.
Financial
Consultant or If you do not provide the
following information, your order
dealer will be rejected
representative
. Class of shares being bought
. Dollar amount or number of
shares being bought
You should pay for your shares
through your brokerage account
no later than the third business
day after you place your
order. Salomon Smith Barney or
your dealer representative may
charge an annual account
maintenance fee.
- ---------------------------------------------------
- -----------------------------
Certain other investors who are
clients of the selling group
Through the are eligible to buy shares
directly from the fund.
fund's sub-
transfer
agent
. Write the sub-transfer agent at
the following address:
Smith Barney Massachusetts
Municipals Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
. Enclose a check made payable to
the fund to pay for the
shares. For initial purchases,
complete and send an account
application.
. For more information, call the
transfer agent at 1-800-451-
2010.
Smith Barney Mutual Funds
13
<PAGE>
Through a
systematic You may authorize Salomon Smith
Barney, your dealer represen-
investment tative or the sub-transfer agent
to transfer funds automati-
plan cally from a regular bank account,
cash held in a Salomon
Smith Barney brokerage account or
Smith Barney money market
fund to buy shares on a regular
basis.
. Amounts transferred should be at
least: $25 monthly or $50
quarterly
. If you do not have sufficient
funds in your account on a
transfer date, Salomon Smith
Barney, your dealer represen-
tative or the sub-transfer agent
may charge you a fee
For more information, contact your
Salomon Smith Barney
Financial Consultant, dealer
representative or the transfer
agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Salomon
Smith Barney Financial Con-
offers a sultant or dealer representative
to exchange into other Smith
distinctive Barney funds. Be sure to read the
prospectus of the Smith
family of Barney fund you are exchanging
into. An exchange is a taxable
funds transaction.
tailored to
help meet the . You may exchange shares only for
shares of the same class
varying needs of another Smith Barney fund.
Not all Smith Barney funds
of both large offer all classes
and small
investors . Not all Smith Barney funds may
be offered in your state of
residence. Contact your Salomon
Smith Barney Financial
Consultant, dealer
representative or the transfer agent
. You must meet the minimum
investment amount for each fund
. If you hold share certificates,
the sub-transfer agent must
receive the certificates
endorsed for transfer or with
signed stock powers (documents
transferring ownership of
certificates) before the
exchange is effective
. The fund may suspend or
terminate your exchange privilege
if you engage in an excessive
pattern of exchanges
Massachusetts Municipals Fund
14
<PAGE>
Waiver of Your shares will not be subject to
an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if
any) will continue to be mea-
sured from the date of your
original purchase. If the fund
you exchange into has a higher
deferred sales charge, you
will be subject to that charge. If
you exchange at any time
into a fund with a lower charge,
the sales charge will not be
reduced.
- ---------------------------------------------------
- -----------------------------
By telephone
If you do not have a brokerage
account, you may be eligible
to exchange shares through the
transfer agent. You must com-
plete an authorization form to
authorize telephone transfers.
If eligible, you may make
telephone exchanges on any day the
New York Stock Exchange is open.
Call the transfer agent at
1-800-451-2010 between 9:00 a.m.
and 4:00 p.m. (Eastern
time).
You can make telephone exchanges
only between accounts that
have identical registrations.
- ---------------------------------------------------
- -----------------------------
By mail
If you do not have a Salomon Smith
Barney brokerage account,
contact your dealer representative
or write to the sub-trans-
fer agent at the address on the
following page.
Smith Barney Mutual Funds
15
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney
Financial Consultant or
dealer representative to redeem
shares of the fund.
If you hold share certificates,
the sub-transfer agent must
receive the certificates endorsed
for transfer or with signed
stock powers before the redemption
is effective.
If the shares are held by a
fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be
sent within three business
days after your request is
received in good order. However,
if you recently purchased your
shares by check, your redemp-
tion proceeds will not be sent to
you until your original
check clears, which may take up to
15 days.
If you have a Salomon Smith Barney
brokerage account, your
redemption proceeds will be placed
in your account and not
reinvested without your specific
instruction. In other cases,
unless you direct otherwise, your
redemption proceeds will be
paid by check mailed to your
address of record.
- ---------------------------------------------------
- -----------------------------
By mail
For accounts held directly at the
fund, send written requests
to the sub-transfer agent at the
following address:
Smith Barney Massachusetts
Municipals Fund
(Specify class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
Your written request must provide
the following:
. Your account number
. The class of shares and the
dollar amount or number of
shares to be redeemed
. Signatures of each owner exactly
as the account is regis-
tered
Massachusetts Municipals Fund
16
<PAGE>
By telephone
If you do not have a brokerage
account, you may be eligible
to redeem shares in amounts up to
$10,000 per day through the
transfer agent. You must complete
an authorization form to
authorize telephone redemptions.
If eligible, you may request
redemptions by telephone on any
day the New York Stock
Exchange is open. Call the
transfer agent at 1-800-451-2010
between 9:00 a.m. and 4:00 p.m.
(Eastern time).
Your redemption proceeds can be
sent by check to your address
of record or by wire transfer to a
bank account designated on
your authorization form. You must
submit a new authorization
form to change the bank account
designated to receive wire
transfers and you may be asked to
provide certain other docu-
ments.
- ---------------------------------------------------
- -----------------------------
Automatic You can arrange for the automatic
redemption of a portion of
cash your shares on a monthly or
quarterly basis. To qualify you
withdrawal must own shares of the fund with a
value of at least $10,000
plans and each automatic redemption must
be at least $50. If your
shares are subject to a deferred
sales charge, the sales
charge will be waived if your
automatic payments do not
exceed 1% per month of the value
of your shares subject to a
deferred sales charge.
The following conditions apply:
. Your shares must not be
represented by certificates
. All dividends and distributions
must be reinvested
For more information, contact your
Salomon Smith Barney
Financial Consultant or dealer
representative or consult the
SAI.
Smith Barney Mutual Funds
17
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your
request must be in good order.
This means you have provided the following
information, without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or
redeemed
. Dollar amount or number of shares being bought,
exchanged or redeemed
. Signature of each owner exactly as the account is
registered
The transfer agent will try to confirm that any
telephone exchange or redemp-
tion request is genuine by recording calls, asking
the caller to provide a per-
sonal identification number for the account,
sending you a written confirmation
or requiring other confirmation procedures from
time to time.
Signature guarantees To be in good order, your
redemption request must include
a signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock
powers to the sub-transfer
agent
. Instruct the sub-transfer agent to mail the check
to an address different
from the one on your account
. Changed your account registration
. Want the check paid to someone other than the
account owner(s)
. Are transferring the redemption proceeds to an
account with a different reg-
istration
You can obtain a signature guarantee from most
banks, dealers, brokers, credit
unions and federal savings and loan institutions,
but not from a notary public.
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment
amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
Massachusetts Municipals Fund
18
<PAGE>
. Suspend or postpone redemptions of shares on any
day when trading on the New
York Stock Exchange is restricted, or as
otherwise permitted by the Securi-
ties and Exchange Commission
. Pay redemption proceeds by giving you securities.
You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below
$500 because of a redemption
of fund shares, the fund may ask you to bring your
account up to $500. If your
account is still below $500 after 60 days, the fund
may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may
determine that a pattern of
frequent exchanges is detrimental to the fund's
performance and other share-
holders. If so, the fund may limit additional
purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share
certificates unless a written
request signed by all registered owners is made to
the sub-transfer agent. If
you hold share certificates it will take longer to
exchange or redeem shares.
Smith Barney Mutual Funds
19
<PAGE>
Dividends, distributions and taxes
Dividends The fund pays dividends each month from
its net investment income.
The fund generally makes capital gain
distributions, if any, once a year, typi-
cally in December. The fund may pay additional
distributions and dividends at
other times if necessary for the fund to avoid a
federal tax. Capital gain dis-
tributions and dividends are reinvested in
additional fund shares of the same
class you hold. The fund expects distributions to
be primarily from income. You
do not pay a sales charge on reinvested
distributions or dividends. Alterna-
tively, you can instruct your Salomon Smith Barney
Financial Consultant, dealer
representative or the transfer agent to have your
distributions and/or divi-
dends paid in cash. You can change your choice at
any time to be effective as
of the next distribution or dividend, except that
any change given to the
transfer agent less than five days before the
payment date will not be effec-
tive until the next distribution or dividend is
paid.
Taxes In general, redeeming shares, exchanging
shares and receiving distribu-
tions (whether in cash or additional shares) are
all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
Massachusetts tax status
<S> <C>
<C>
Redemption or exchange Usually capital
Usually capital gain
of shares gain or loss; long-term
only or loss
if shares owned
more than one year
Long-term capital gain Taxable gain
Taxable gain
distributions
Short-term capital gain Ordinary income
Ordinary income
distributions
Dividends Exempt if from
Exempt if from
interest on tax-exempt
interest on Massachusetts
securities, otherwise
municipal securities,
ordinary income
otherwise ordinary
income
</TABLE>
Any taxable dividends and capital gains are taxable
whether received in cash or
reinvested in fund shares. Long-term capital gain
distributions are taxable to
you as long-term capital gain regardless of how
long you have owned your
shares. You may want to avoid buying shares when
the fund is about to declare a
capital gain distribution or a taxable dividend,
because it will be taxable to
you even though it may actually be a return of a
portion of your investment.
After the end of each year, the fund will provide
you with information about
the distributions and dividends you received and
any redemptions of
Massachusetts Municipals Fund
20
<PAGE>
shares during the previous year. If you do not
provide the fund with your cor-
rect taxpayer identification number and any
required certifications, you may be
subject to back-up withholding of 31% of your
distributions, dividends, and
redemption proceeds. Because each shareholder's
circumstances are different and
special tax rules may apply, you should consult
your tax adviser about your
investment in the fund.
Share price
You may buy, exchange or redeem shares at their net
asset value, plus any
applicable sales charge, next determined after
receipt of your request in good
order. The fund's net asset value is the value of
its assets minus its liabili-
ties. Net asset value is calculated separately for
each class of shares. The
fund calculates its net asset value every day the
New York Stock Exchange is
open. The Exchange is closed on certain holidays
listed in the SAI. This calcu-
lation is done when regular trading closes on the
Exchange (normally 4:00 p.m.,
Eastern time).
Generally, the fund's investments are valued by an
independent pricing service.
If market quotations or a valuation from the
pricing service is not readily
available for a security or if a security's value
has been materially affected
by events occurring after the close of the Exchange
or market on which the
security is principally traded, that security may
be valued by another method
that the fund's board believes accurately reflects
fair value. A fund that uses
fair value to price securities may value those
securities higher or lower than
another fund using market quotations to price the
same securities. A security's
valuation may differ depending on the method used
for determining value.
In order to buy, redeem or exchange shares at that
day's price, you must place
your order with your Salomon Smith Barney Financial
Consultant or dealer repre-
sentative before the New York Stock Exchange
closes. If the New York Stock
Exchange closes early, you must place your order
prior to the actual closing
time. Otherwise, you will receive the next business
day's price.
Salomon Smith Barney or members of the selling
group must transmit all orders
to buy, exchange or redeem shares to the fund's
agent before the agent's close
of business.
Smith Barney Mutual Funds
21
<PAGE>
Financial highlights
The financial highlights tables are intended to
help you understand the perfor-
mance of each class for the past 5 years. Certain
information reflects finan-
cial results for a single share. Total return
represents the rate that a
shareholder would have earned (or lost) on a fund
share assuming reinvestment
of all dividends and distributions. The information
in the following tables was
audited by KPMG LLP, independent auditors, whose
report, along with the fund's
financial statements, is included in the annual
report (available upon
request). No information is present for Class Y
shares because no shares were
outstanding during these fiscal years.
For a Class A share of beneficial interest
outstanding throughout each year
ended November 30:
<TABLE>
<CAPTION>
1999(/3/) 1998 1997 1996 1995
- ---------------------------------------------------
- --------------------------------------
<S> <C>
<C> <C> <C> <C>
Net asset value, beginning of year $13.32
$13.18 $12.99 $12.96 $11.35
- ---------------------------------------------------
- --------------------------------------
Income (loss) from operations:
Net investment income(/1/) 0.62
0.65 0.66 0.68 0.69
Net realized and unrealized gain (loss)
(1.23) 0.34 0.32 0.02 1.61
- ---------------------------------------------------
- --------------------------------------
Total income (loss) from operations
(0.61) 0.99 0.98 0.70 2.30
- ---------------------------------------------------
- --------------------------------------
Less distributions from:
Net investment income
(0.62) (0.64) (0.67) (0.67) (0.69)
In excess of net investment income --
(0.01) -- -- --
Net realized gains --
(0.20) (0.12) -- --
- ---------------------------------------------------
- --------------------------------------
Total distributions
(0.62) (0.85) (0.79) (0.67) (0.69)
- ---------------------------------------------------
- --------------------------------------
Net asset value, end of year $12.09
$13.32 $13.18 $12.99 $12.96
- ---------------------------------------------------
- --------------------------------------
Total return(/2/)
(4.73)% 7.66% 7.85% 5.65% 20.73%
- ---------------------------------------------------
- --------------------------------------
Net assets, end of year (000)'s $35,386
$37,451 $32,736 $30,109 $29,159
- ---------------------------------------------------
- --------------------------------------
Ratios to average net assets:
Expenses(/1/)
0.85% 0.76% 0.80% 0.80% 0.83%
Net investment income 4.84
4.84 5.07 5.32 5.42
- ---------------------------------------------------
- --------------------------------------
Portfolio turnover rate
66% 51% 58% 23% 10%
- ---------------------------------------------------
- --------------------------------------
</TABLE>
(/1/) The adviser waived all or part of its fees
for the three years ended
November 30, 1997. If such fees had not been
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
1997 1996 1995 1997 1996
1995
- ---------------------------------------------------
- --------
<S> <C> <C> <C> <C> <C>
<C>
Class A $0.01 $0.01 $0.03 0.88% 0.91%
1.07%
- ---------------------------------------------------
- --------
</TABLE>
(/2/) Total return does not reflect any applicable
sales load or deferred sales
charge.
(/3/) Per share amounts have been calculated using
the monthly average shares
method.
Massachusetts Municipals Fund
22
<PAGE>
For a Class B share of beneficial interest
outstanding throughout each year
ended November 30:
<TABLE>
<CAPTION>
1999(/3/) 1998
1997 1996 1995
- ---------------------------------------------------
- ----------------------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of
year $ 13.30 $13.17
$12.99 $12.96 $11.35
- ---------------------------------------------------
- ----------------------------
Income (loss) from operations:
Net investment income(/1/) 0.56 0.58
0.60 0.61 0.63
Net realized and unrealized
gain (loss) (1.23) 0.33
0.31 0.03 1.61
- ---------------------------------------------------
- ----------------------------
Total income (loss) from
operations (0.67) 0.91
0.91 0.64 2.24
- ---------------------------------------------------
- ----------------------------
Less distributions from:
Net investment income (0.55)
(0.57) (0.61) (0.61) (0.63)
In excess of net investment
income --
(0.01) -- -- --
Net realized gains --
(0.20) (0.12) -- --
- ---------------------------------------------------
- ----------------------------
Total distributions (0.55)
(0.78) (0.73) (0.16) (0.63)
- ---------------------------------------------------
- ----------------------------
Net asset value, end of year $ 12.08 $13.30
$13.17 $12.99 $12.96
- ---------------------------------------------------
- ----------------------------
Total return(/2/) (5.18)%
7.05% 7.25% 5.14% 20.15%
- ---------------------------------------------------
- ----------------------------
Net assets, end of year
(000)'s $27,332 $30,285
$27,589 $28,874 $28,726
- ---------------------------------------------------
- ----------------------------
Ratios to average net assets:
Expenses(/1/) 1.36%
1.28% 1.31% 1.31% 1.35%
Net investment income 4.33 4.32
4.57 4.81 4.94
- ---------------------------------------------------
- ----------------------------
Portfolio turnover rate 66%
51% 58% 23% 10%
- ---------------------------------------------------
- ----------------------------
</TABLE>
(/1/) The adviser has waived all or part of its
fees for the three years ended
November 30, 1997. If such fees had not been
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 Without Fee Waivers
Income
1997 1996 1995 1997 1996
1995
- ---------------------------------------------------
- --
<S> <C> <C> <C> <C> <C> <C>
Class B $0.01 $0.01 $0.04 1.39% 1.42%
1.59%
- ---------------------------------------------------
- --
</TABLE>
(/2/) Total return does not reflect any applicable
sales load or deferred sales
charge.
(/3/) Per share amounts have been calculated using
the monthly average shares
method.
Smith Barney Mutual Funds
23
<PAGE>
For a Class L share of beneficial interest
outstanding throughout each year
ended November 30:
<TABLE>
<CAPTION>
1999(/3/)
1998(/4/) 1997 1996 1995
- ---------------------------------------------------
- -----------------------------
<S> <C> <C>
<C> <C> <C>
Net asset value, beginning of
year $13.30
$13.16 $12.98 $12.95 $11.35
- ---------------------------------------------------
- -----------------------------
Income (or loss) from
operations:
Net investment income(/1/) 0.56
0.58 0.59 0.60 0.63
Net realized and unrealized gain
(or loss) (1.24)
0.34 0.31 0.03 1.60
- ---------------------------------------------------
- -----------------------------
Total income (or loss) from
operations (0.68)
0.92 0.90 0.63 2.23
- ---------------------------------------------------
- -----------------------------
Less distributions from:
Net investment income (0.55)
(0.57) (0.60) (0.60) (0.63)
In excess of net investment
income --
(0.01) -- -- --
Net realized gains --
(0.20) (0.12) -- --
- ---------------------------------------------------
- -----------------------------
Total distributions (0.55)
(0.78) (0.72) (0.60) (0.63)
- ---------------------------------------------------
- -----------------------------
Net asset value, end of year $12.07
$13.30 $13.16 $12.98 $12.95
- ---------------------------------------------------
- -----------------------------
Total return(/2/) (5.28)%
7.11% 7.21% 5.09% 20.04%
- ---------------------------------------------------
- -----------------------------
Net assets, end of year (000)'s $2,867
$1,895 $428 $179 $146
- ---------------------------------------------------
- -----------------------------
Ratios to average net assets:
Expenses(/1/) 1.39%
1.31% 1.34% 1.34% 1.35%
Net investment income 4.32
4.25 4.51 4.77 4.65
- ---------------------------------------------------
- -----------------------------
Portfolio turnover rate 66%
51% 58% 23% 10%
- ---------------------------------------------------
- -----------------------------
</TABLE>
(/1/) The investment adviser waived all or part of
its fees for the three years
ended November 30, 1997. If such fees had not
been waived, the per share
decrease in net investment income and the
ratios of expenses would have
been as follows:
<TABLE>
<CAPTION>
Per Share Decreases Expense Ratios
In Net Investment Without Fee Waivers
Income
1997 1996 1995 1997 1996
1995
- ---------------------------------------------------
- --
<S> <C> <C> <C> <C> <C> <C>
Class L $0.01 $0.01 $0.04 1.42% 1.44%
1.58%
- ---------------------------------------------------
- --
</TABLE>
(/2/) Total return does not reflect any applicable
sales load or deferred sales
charge.
(/3/) Per share amounts have been calculated using
the monthly average shares
method.
(/4/) On June 12, 1998, Class C shares were
renamed Class L shares.
Massachusetts Municipals Fund
24
<PAGE>
SalomonSmithBarney
- ----------------------------
A member of citigroup [LOGO]
Massachusetts
Municipals Fund
Shareholder reports Annual and semiannual reports
to shareholders provide addi-
tional information about the fund's investments.
These reports discuss the mar-
ket conditions and investment strategies that
affected the fund's performance.
The fund sends only one report to a household if
more than one account has the
same address. Contact your Salomon Smith Barney
Financial Consultant, dealer
representative or the transfer agent if you do not
want this policy to apply to
you.
Statement of additional information The statement
of additional information
provides more detailed information about the fund
and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain
shareholder reports or the
statement of additional information (without
charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer
representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at
Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at
www.smithbarney.com
Information about the fund (including the SAI) can
be reviewed and copied at
the Securities and Exchange Commission's (the
"Commission") Public Reference Room in Washington
D.C. In addition, informa-
tion on the operation of the Public Reference Room
may be obtained by calling
the Commission at 1-202-942-8090. Reports and other
information about the fund
are available on the EDGAR Database on the
Commission's Internet site at
http://www.sec.gov. Copies of this information may
be obtained for a duplicat-
ing fee by electronic request at the following E-
mail address:
[email protected], or by writing the Commission's
Public Reference Section,
Washington, D.C. 20549-0102.
If someone makes a statement about the fund that is
not in this prospectus, you
should not rely upon that information. Neither the
fund nor the distributor is
offering to sell shares of the fund to any person
to whom the fund may not law-
fully sell its shares.
SMSalomon Smith Barney is a service mark of Salomon
Smith Barney Inc.
(Investment Company Act file
no. 811-06290)
FD0226 3/00
Part B-Statement of Additional Information
March 29, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is
meant to be read in conjunction with the Prospectus
of
the Smith Barney Massachusetts Municipals Fund (the
"fund") dated March 29, 2000, as amended or
supplemented
from time to time (the "prospectus"), and is
incorporated by reference in it entirety into the
prospectus. Additional information about the
fund's
investments is available in the fund's annual and
semi-
annual reports to shareholders which are
incorporated
herein by reference. The prospectus and copies of
the
reports may be obtained free of charge by
contacting a
Salomon Smith Barney Financial Consultant, or by
writing
or calling Salomon Smith Barney Inc. ("Salomon
Smith
Barney") at the address or telephone number above.
TABLE OF CONTENTS
Trustees and Executive Officers of the Fund 2
Investment Objective and Management Policies 5
Risk Factors 17
Massachusetts Risk
Factors 18
Puerto Rico Risk
Factors 19
Investment
Restrictions 20
Portfolio
Transactions 22
Portfolio
Turnover 22
Purchase of Shares 23
Determination of Net Asset
Value 28
Valuation of Shares 29
Redemption of Shares 30
Investment Management and Other Services 33
Exchange Privilege 36
Performance Information 37
Dividends, Distributions and Taxes 42
Additional Information 46
Financial Statements 47
Other Information 48
Appendix A 49
TRUSTEES AND EXECUTIVE OFFICERS OF THE FUND
The names of the trustees of the trust and
executive
officers of the fund, together with information as
to
their principal business occupations, are set forth
below. The executive officers of the fund are
employees
of organizations that provide services to the fund.
Each trustee who is an "interested person" of the
trust,
as defined in the Investment Company Act of 1940,
as
amended (the "1940 Act") is indicated by an
asterisk.
The address of the executive officers of the fund,
except Heath B. McLendon, is 388 Greenwich Street,
New
York, New York 10013.
Herbert Barg (Age 76). Private Investor. His
address
is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania
19004.
*Alfred J. Bianchetti (Age 77). Retired; formerly
Senior Consultant to Dean Witter Reynolds Inc. His
address is 19 Circle End Drive, Ramsey, New Jersey
07466.
Martin Brody (Age 78). Consultant, HMK Associates;
Retired Vice Chairman of the Board of Restaurant
Associates Corp. His address is c/o HMK
Associates, 30
Columbia Turnpike, Florham Park, New Jersey 07932.
Dwight B. Crane (Age 62). Professor, Harvard
Business
School. His address is c/o Harvard Business
School,
Soldiers Field Road, Boston, Massachusetts 02163.
Burt N. Dorsett (Age 69). Managing Partner of
Dorsett
McCabe Management. Inc., an investment counseling
firm;
Director of Research Corporation Technologies,
Inc., a
nonprofit patent clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York
10021.
Elliot S. Jaffe (Age 73). Chairman of the Board
and
President of The Dress Barn, Inc. His address is
30
Dunnigan Drive, Suffern, New York 10901.
Stephen E. Kaufman (Age 68). Attorney. His
address is
277 Park Avenue, New York, New York 10172.
Joseph J. McCann (Age 69). Financial Consultant;
Retired Financial Executive, Ryan Homes, Inc. His
address is 200 Oak Park Place, Pittsburgh,
Pennsylvania
15243.
*Heath B. McLendon (Age 66). Chairman of the Board
and
Investment Officer; Managing Director of Salomon
Smith
Barney Inc.; President of SSB Citi Fund Management
LLC
("SSB Citi" or the "manager") and Travelers
Investment
Adviser, Inc. ("TIA"); Chairman or Co-Chairman of
the
Board of 71 investment companies managed by
affiliates
of Salomon Smith Barney. His address is 7 World
Trade
Center, New York, New York 10048.
Cornelius C. Rose, Jr. (Age 66). President,
Cornelius
C. Rose Associates, Inc., financial consultants,
and
Chairman and Director of Performance Learning
Systems,
an educational consultant. His address is
Meadowbrook
Village, Building 4, Apt 6, West Lebanon, New
Hampshire
03784.
Lewis E. Daidone (Age 42). Senior Vice President
and
Treasurer; Managing Director of Salomon Smith
Barney;
Chief Financial Officer of the Smith Barney mutual
funds; Director and Senior Vice President of SSB
Citi
and TIA; Senior Vice President and Treasurer of 61
investment companies associated with Citigroup.
Peter Coffey (Age 55). Vice President and
Investment
Officer; Managing Director of Salomon Smith Barney;
Vice
President of SSB Citi and of 5 investment companies
associated with Salomon Smith Barney.
Anthony Pace (Age 34). Controller; Director of
Salomon
Smith Barney; Controller or Assistant Treasurer of
61
investment companies associated with Citigroup.
Christina T. Sydor (Age 49). Secretary; Managing
Director of Salomon Smith Barney; General Counsel
and
Secretary of SSB Citi and TIA; Secretary of 61
investment companies associated with Citigroup.
As of March 10, 2000, the trustees and officers of
the
funds, as a group, owned less than 1% of the
outstanding
shares of beneficial interest of the fund.
To the best knowledge of the trustees, as of March
10,
2000, the following shareholders or "groups" (as
such
term is defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended) owned
beneficially or
of record more than 5% of the shares of the
following
classes:
Class A
Percentage
East West Enterprises Inc. 6.9693%
Attn. Reverend Raymond C. Lee
675 Massachusetts Ave.
Cambridge, MA 02139-3309
Class L
Phillip J. Cade 11.5445%
Margaret P. Cade
JTWROS
24 Ginn Road
Winchester, MA 01890-2607
Lilla M. Pond TTEE 10.8758%
Lilla M. Pond TRUST
U/A/D 5/13/93
80 Lincoln Street
Norwood, MA 02062-1352
Myron Pulier 6.9806%
Anita Pulier JTWROS
c/o Salzman & Salzman
32 Court Street
Brooklyn, NY 11201-4404
No officer, trustee or employee of Salomon Smith
Barney
or any of its affiliates receives any compensation
from
the trust for serving as an officer of the funds or
trustee of the trust. The trust pays each trustee
who
is not an officer, trustee or employee of Salomon
Smith
Barney or any of its affiliates a fee of $1,000 per
annum plus $100 per in-person meeting or telephonic
meeting. Each trustee emeritus who is not an
officer,
director or employee of Salomon Smith Barney or its
affiliates receives a fee of $500 per annum plus
$50 per
in-person meeting or telephonic meeting. All
trustees
are reimbursed for travel and out-of-pocket
expenses
incurred to attend such meetings. For the most
recent
calendar year, the total aggregate reimbursement
was
$14,438.
For the fiscal year ended November 30, 1999, the
trustees of the trust were paid the following
compensation:
Name of Person
Aggregate
Compensati
on
from Fund
FYE
11/30/99
Total
Pension or
Retirement
Benefits
Accrued
as part of
Fund
Expenses
Aggregate
Compensation
From Fund And
Fund
Complex Paid to
Trustees
Calendar Year
Ended 12/31/99
Number of
Funds for
Which
Trustees
Serves
Within
Fund
Complex
Herbert Barg **
$1,500
$0
$114,288
16
Alfred
Bianchetti *
1,400
0
53,900
11
Martin Brody **
1,300
0
138,600
21
Dwight B. Crane
**
1,500
0
155,363
24
Burt N. Dorsett
**
1,500
0
57,950
11
Elliot S. Jaffe
**
1,200
0
45,100
11
Stephen E.
Kaufman **
1,500
0
110,650
13
Joseph J. McCann
**
1,500
0
58,050
11
Heath B.
McLendon *
0
- -
0
71
Cornelius C.
Rose, Jr. **
1,400
0
53,500
11
* Designates an "interested" trustee.
** Designates member of Audit Committee.
Upon attainment of age 80, fund trustees are
required to change to emeritus status. Trustees
emeritus are entitled to serve in emeritus status
for a maximum of 10 years. A trustee emeritus
may attend meetings but has no voting rights.
During the fund's last fiscal year, aggregate
compensation paid by the fund to trustees
achieving emeritus status totaled $700.
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 SAI, obligations of non-
Massachusetts
municipal issuers that pay interest which is
excluded
from gross income for Federal income tax purposes
("Non-
Massachusetts Municipal Securities") and
obligations of
The Commonwealth of Massachusetts and its political
subdivisions, agencies and public authorities
(together
with certain other municipal issuers such as Puerto
Rico, the Virgin Islands and Guam) that pay
interest
which is excluded from gross income for Federal
income
tax purposes and exempt from Massachusetts personal
income taxes ("Massachusetts Municipal
Securities"), are
collectively referred to as "Exempt Obligations."
Under
normal market conditions, the fund will invest at
least
80% of its net assets in Massachusetts Municipal
Securities. The fund may invest up to 20% of its
net
assets in non-Massachusetts Municipal Securities.
SSB
Citi serves as investment adviser and administrator
to
the fund.
Non-Diversified Classification. The fund is
classified
as a non-diversified fund under the 1940 Act, which
means the fund is not limited by the Act in the
proportion of its assets it may invest in the
obligations of a single issuer. The fund intends
to
conduct its operations, however, so as to qualify
as a
regulated investment company for purposes of the
Internal Revenue Code of 1986, as amended (the
"Code"),
which will relieve the fund of any liability for
the
Federal income tax and Massachusetts franchise tax,
as
applicable, to the extent its earnings are
distributed
to shareholders. To qualify as a regulated
investment
company, the fund will, among other things, 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.
As a result of the fund's non-diversified status,
an
investment in the fund may present greater risks to
investors than an investment in a diversified fund.
The
investment return on a non-diversified fund
typically is
dependent upon the performance of a smaller number
of
securities relative to the number of securities
held in
a diversified fund. The fund's assumption of large
positions in the obligations of a small number of
issuers will affect the value of its portfolio to a
greater extent than that of a diversified fund in
the
event of changes in the financial condition, or in
the
market's assessment, of the issuers.
The identification of the issuer of Exempt
Obligations
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 Ratings
Group
("S&P") and other nationally recognized statistical
ratings organizations ("NRSROs") represent the
opinions
of those agencies as to the quality of the Exempt
Obligations 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 the manager 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 the manager's
credit
analysis of such securities than would be the case
for
a portfolio consisting entirely of higher-rated
securities. The Appendix contains information
concerning the ratings of Moody's and S&P and their
significance.
Subsequent to its purchase by the fund, an issue of
Exempt Obligations 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 Exempt Obligations by the
fund,
but the manager will consider such event in its
determination of whether the fund should continue
to
hold the Exempt Obligations. 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, S&P or any NRSRO, the fund will attempt
to
use comparable ratings as standards for its
investments
in accordance with its investment objective and
policies.
The fund 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 have the equivalent rating by any
NRSRO,
or in unrated securities deemed to be of comparable
quality by SSB Citi. These securities, commonly
referred to as "junk bonds," (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. Securities rated as low as C by
Moody's or
D by S&P or have the equivalent rating by any NRSRO
are
extremely speculative and may be in actual default
of
interest and/or principal payments.
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, low-rated securities and
comparable unrated securities generally present a
higher
degree of credit risk. During an economic downturn
or
a prolonged period of rising interest rates, the
ability
of issuers of low-rated and comparable unrated
securities to service their payment obligations,
meet
projected goals or obtain additional financing may
be
impaired. The risk of loss due to default by such
issuers is significantly greater because low-rated
and
comparable unrated securities generally are
unsecured
and frequently are subordinated to the prior
payment of
senior indebtedness. The fund may incur additional
expenses to the extent it is required to seek
recovery
upon a default in the payment of principal or
interest
on its portfolio holdings.
While the market for municipal securities is
considered
generally to be adequate, the existence of limited
markets for particular low-rated and comparable
unrated
securities may diminish the fund's ability to (a)
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 buy-back features that permit their issuers to
call
or repurchase the securities from their holders,
such as
the fund. If an issuer exercises these rights
during
periods of declining interest rates, the fund may
have
to replace the security with a lower yielding
security,
thus resulting in a decreased return to the fund.
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
the Adviser's judgment, analysis and experience
than
would be the case if the fund invested only in
rated
obligations.
Maturity of Obligations Held By The Fund. The
fund's
average weighted maturity will vary from time to
time
based on the judgment of the manager. The fund
intends
to focus on intermediate and long-term obligations,
generally with maturities at the time of purchase
from
three to more than twenty years.
Exempt Obligations. Exempt Obligations are
classified
as general obligation bonds, revenue bonds and
notes.
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 revenue derived from a
particular
facility or class of facilities or, in some cases,
from
the proceeds of a special excise or other specific
revenue source, but not from the general taxing
power.
Notes are short-term obligations of issuing
municipalities or agencies and are sold in
anticipation
of a bond sale, collection of taxes or receipt of
other
revenues. Exempt Obligations bear fixed, floating
and
variable rates of interest, and variations exist in
the
security of Exempt Obligations, both within a
particular
classification and between classifications.
The yields on, and values of, Exempt Obligations
depend
on a variety of factors, including general economic
and
monetary conditions, conditions in the Exempt
Obligation
markets, size of a particular offering, maturity of
the
obligation and rating of the issue. Consequently,
Exempt Obligations with the same maturity, coupon
and
rating may have different yields or values.
Issuers of Exempt Obligations may be subject to the
provisions of bankruptcy, insolvency and other
laws,
such as the Federal Bankruptcy Reform Act of 1978,
affecting the rights and remedies of creditors. In
addition, the obligations of those issuers may
become
subject to laws enacted in the future by Congress,
state
legislatures or referenda extending the time for
payment
of principal and/or interest, 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
issuer
to pay, when due, the principal of, and interest
on, its
obligations may be materially affected.
Private Activity Bonds. The fund may invest
without
limit in Exempt Obligations that are "private
activity
bonds," as defined in the Code, which are in most
cases
revenue bonds. Private activity bonds generally do
not
carry the pledge of the credit of the issuing
municipality, but are guaranteed by or payable from
funds provided by the corporate entity on whose
behalf
they are issued. Interest income on certain types
of
private activity bonds issued after August 7, 1986
to
finance non-governmental activities is a specific
tax
preference item for purposes of the federal
individual
and corporate alternative minimum taxes.
Individual and
corporate shareholders may be subject to a federal
alternative minimum tax to the extent the fund's
dividends are derived from interest on these bonds.
Dividends derived from interest income on Exempt
Obligations are a "current earnings" adjustment
item for
purposes of the federal corporate alternative
minimum
tax. See "Taxes." Private activity bonds held by
the
fund will be included in the term Exempt
Obligations for
purposes of determining compliance with the fund's
policy of investing at least 80% of its total
assets in
Exempt Obligations.
Related Instruments. The fund may invest without
limit
in Exempt Obligations that are repayable out of
revenues
generated from economically related projects or
facilities or debt obligations whose issuers are
located
in the same state. Sizable investments in these
obligations could involve an increased risk to the
fund
should any of the related projects or facilities
experience financial difficulties.
U.S. Government Securities. The fund may invest in
debt
obligations of varying maturities issued or
guaranteed
by the United States government, its agencies or
instrumentalities ("U.S. Government Securities").
Direct
obligations of the U.S. Treasury include a variety
of
securities that differ in their interest rates,
maturities and dates of issuance. U.S. Government
Securities also include securities issued or
guaranteed
by the Federal Housing Administration, Farmers Home
Loan
Administration, Export-Import Bank of the United
States,
Small Business Administration, Government National
Mortgage Association ("GNMA"), General Services
Administration, Central Bank for Cooperatives,
Federal
Farm Credit Banks, Federal Home Loan Banks, Federal
Home
Loan Mortgage Corporation ("FHLMC"), Federal
Intermediate Credit Banks, Federal Land Banks,
Federal
National Mortgage Association ("FNMA"), Maritime
Administration, Tennessee Valley Authority,
District of
Columbia Armory Board and Student Loan Marketing
Association. The fund may also invest in
instruments
supported by the right of the issuer to borrow from
the
U.S. Treasury and instruments supported by the
credit of
the instrumentality. Because the U.S. government
is not
obligated by law to provide support to an
instrumentality it sponsors, a fund will invest in
obligations issued by such an instrumentality only
if
the manager determines that the credit risk with
respect
to the instrumentality does not make its securities
unsuitable for investment by the fund.
Municipal Obligations. The fund invests
principally in
debt obligations, issued by, or on behalf of,
states,
territories and possessions of the United States
and the
District of Columbia and their political
subdivisions,
agencies and instrumentalities or multistate
agencies or
authorities, the interest from which is, in the
opinion
of bond counsel to the issuer, excluded from gross
income for Federal income tax purposes ("Municipal
Obligations"). Municipal Obligations 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
issued by or on behalf of public authorities to
finance
privately operated facilities are considered to be
Municipal Obligations if the interest paid on them
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. Municipal Obligations may
be
issued to finance life care facilities, which are
an
alternative form of long-term housing for the
elderly
that offer residents the independence of a
condominium
life-style and, if needed, the comprehensive care
of
nursing home services. Bonds to finance these
facilities
have been issued by various state industrial
development
authorities. Because the bonds are secured only by
the
revenues of each facility and not by state or local
government tax payments, they are subject to a wide
variety of risks, including a drop in occupancy
levels,
the difficulty of maintaining adequate financial
reserves to secure estimated actuarial liabilities,
the
possibility of regulatory cost restrictions applied
to
health care delivery and competition from
alternative
health care or conventional housing facilities.
Municipal Leases. The fund may invest without
limit in
"municipal leases." Municipal leases may take the
form
of a lease or an installment purchase contract
issued by
state or 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. Interest payments on
qualifying
municipal leases are exempt from Federal income
taxes
and state income taxes within the state of
issuance.
Although lease obligations do not constitute
general
obligations of the municipality for which the
municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the
municipality's
covenant to budget for, appropriate and make the
payments due under the lease obligation. However,
certain lease obligations contain "non-
appropriation"
clauses which provide that the municipality has no
obligation to make lease or installment purchase
payments in future years unless money is
appropriated
for such purpose on a yearly basis. In addition to
the
"non-appropriation" risk, these securities
represent a
relatively new type of financing that has not yet
developed the depth of marketability associated
with
more conventional bonds. Although "non-
appropriation"
lease obligations are often secured by the
underlying
property, disposition of the property in the event
of
foreclosure might prove difficult. The fund may
invest
in municipal leases without non-appropriation
clauses
only when the municipality is required to continue
the
lease under all circumstances except bankruptcy.
There
is no limitation on the percentage of the fund's
assets
that may be invested in municipal lease
obligations. In
evaluating municipal lease obligations, the manager
will
consider such factors as it deems appropriate,
which my
include: (a) whether the lease can be canceled;
(b) the
ability of the lease obligee to direct the sale of
the
underlying assets; (c) the general creditworthiness
of
the lease obligor; (d) the likelihood that the
municipality will discontinue appropriating funding
for
the leased property in the event such property is
no
longer considered essential by the municipality;
(e) the
legal recourse of the lease obligee in the event of
such
a failure to appropriate funding; (f) whether the
security is backed by a credit enhancement such as
insurance; and (g) any limitations which are
imposed on
the lease obligor's ability to utilize substitute
property or services other than those covered by
the
lease obligation.
Municipal leases the fund may acquire will be both
rated
and unrated. Rated leases include those rated
investment grade at the time of investment or those
issued by issuers whose senior debt is rated
investment
grade at the time of investment. The fund may
acquire
unrated issues the manager deems to be comparable
in
quality to rated issues in which the fund is
authorized
to invest. A determination that an unrated lease
obligation is comparable in quality to a rated
lease
obligation will be subject to oversight and
approval by
the trust's board of trustees.
Municipal leases held by the fund will be
considered
illiquid securities unless the trust's board of
trustees
determines on an ongoing basis that the leases are
readily marketable. An unrated municipal lease
with a
non-appropriation risk that is backed by an
irrevocable
bank letter of credit or an insurance policy issued
by
a bank or insurer deemed by the manager to be of
high
quality and minimal credit risk, will not be deemed
to
be illiquid solely because the underlying municipal
lease is unrated, if the manager determines that
the
lease is readily marketable because it is backed by
the
letter of credit or insurance policy.
Zero Coupon Securities. The fund may invest in
zero
coupon Exempt Obligations. Zero coupon Exempt
Obligations are generally divided into two
categories:
pure zero obligations, which pay no interest for
their
entire life and zero/fixed obligations, which pay
no
interest for some initial period and thereafter pay
interest currently. In the case of a pure zero
obligation, the failure to pay interest currently
may
result from the obligation's having no stated
interest
rate, in which case the obligation pays only
principal
at maturity and is issued at a discount from its
stated
principal amount. A pure zero obligation may, in
the
alternative, carry a stated interest rate, but
provide
that no interest is payable until maturity. The
value to
the investor of a zero coupon Exempt Obligation
consists
of the economic accretion either of the difference
between the purchase price and the nominal
principal
amount (if no interest is stated to accrue) or of
accrued, unpaid interest during the Exempt
Obligation's
life or payment deferral period.
Custodial Receipts. The fund may acquire custodial
receipts or certificates underwritten by securities
dealers or banks that evidence ownership of future
interest payments, principal payments, or both, on
certain Exempt Obligations. The underwriter of
these
certificates or receipts typically purchases Exempt
Obligations and deposits the obligations in an
irrevocable trust or custodial account with a
custodian
bank, which then issues receipts or certificates
evidencing ownership of the periodic unmatured
coupon
payments and the final principal payment on the
obligations. Custodial receipts evidencing
specific
coupon or principal payments have the same general
attributes as zero coupon Exempt Obligations
described
above. Although under the terms of a custodial
receipt
the fund would typically be authorized to assert
its
rights directly against the issuer of the
underlying
obligations, the fund could be required to assert
through the custodian bank those rights as may
exist
against the underlying issuer. Thus, if the
underlying
issuer fails to pay principal and/or interest when
due,
the fund may be subject to delays, expenses and
risks
that are greater than those that would have been
involved if the fund had purchased a direct
obligation
of the issuer. In addition, if the trust or
custodial
account in which the underlying security has been
deposited is determined to be an association
taxable as
a corporation, instead of a non-taxable entity, the
yield on the underlying security would be reduced
in
recognition of any taxes paid.
Exempt Obligation Components. The fund may invest
in
Exempt Obligations, the interest rate on which has
been
divided by the issuer into two different and
variable
components, which together result in a fixed
interest
rate. Typically, the first of the components (the
"Auction Component") pays an interest rate that is
reset
periodically through an auction process; whereas
the
second of the components (the "Residual Component")
pays
a residual interest rate based on the difference
between
the total interest paid by the issuer on the Exempt
Obligation and the auction rate paid on the Auction
Component. The fund may purchase both Auction and
Residual Components.
Because the interest rate paid to holders of
Residual
Components is generally determined by subtracting
from
a fixed amount the interest rate paid to the
holders of
Auction Components, the interest rate paid to
Residual
Component holders will decrease as the Auction
Component's rate increases and increase as the
Auction
Component's rate decreases. Moreover, the
magnitude of
the increases and decreases in market value of
Residual
Components may be larger than comparable changes in
the
market value of an equal principal amount of a
fixed
rate Exempt Obligation having similar credit
quality,
redemption provisions and maturity.
Floating and Variable Rate Instruments. The fund
may
purchase floating and variable rate demand notes
and
bonds, which are Exempt Obligations normally having
a
stated maturity in excess of one year, but which
permit
their holder to demand payment of principal at any
time,
or at specified intervals. The maturity of a
floating
or variable rate demand note or bond will be deemed
shortened by virtue of a demand feature.
The issuer of floating and variable rate demand
obligations normally has a corresponding right,
after a
given period, to prepay at its discretion the
outstanding principal amount of the obligations
plus
accrued interest upon a specified number of days'
notice
to the holders of these obligations. The interest
rate
on a floating rate demand obligation is based on a
known
lending rate, such as a bank's prime rate, and is
adjusted automatically each time that rate is
adjusted.
The interest rate on a variable rate demand
obligation
is adjusted automatically at specified intervals.
Frequently, floating and variable rate obligations
are
secured by letters of credit or other credit
support
arrangements provided by banks. Use of letters of
credit or other credit support arrangements will
not
adversely affect the tax-exempt status of these
obligations. Because they are direct lending
arrangements between the lender and borrower,
floating
and variable rate obligations generally will not be
traded. In addition, generally no secondary market
exists for these obligations, although their
holders may
demand payment at face value. For these reasons,
when
floating and variable rate obligations held by the
fund
are not secured by letters of credit or other
credit
support arrangements, the fund's rights to demand
payment is dependent on the ability of the borrower
to
pay principal and interest on demand. The manager,
on
behalf of the fund, will consider on an ongoing
basis
the creditworthiness of the issuers of floating and
variable rate demand obligations held by the fund.
Participation Interests. The fund may purchase
from
financial institutions tax-exempt participation
interests in Exempt Obligations. A participation
interest gives the fund an undivided interest in
the
Exempt Obligation in the proportion that the fund's
participation interest bears to the total amount of
the
Exempt Obligation. These instruments may have
floating
or variable rates of interest. If the
participation
interest is unrated, it will be backed by an
irrevocable
letter of credit or guarantee of a bank that the
trust's
board of trustees has determined meets certain
quality
standards, or the payment obligation otherwise will
be
collateralized by U.S. government securities. The
fund
will have the right, with respect to certain
participation interests, to demand payment, on a
specified number of days' notice, for all or any
part of
the fund's interest in the Exempt Obligation, plus
accrued interest. The fund intends to exercise its
right with respect to these instruments to demand
payment only upon a default under the terms of the
Exempt Obligation or to maintain or improve the
quality
of its investment portfolio.
Taxable Investments. Under normal conditions, the
fund
may hold up to 20% of its total assets in cash or
money
market instruments, including taxable money market
instruments (collectively, "Taxable Investments").
In
addition, when the manager believes that market
conditions warrant, the fund may take a temporary
defensive posture and invest without limitation in
short-term Exempt Obligations and Taxable
Investments.
To the extent the fund holds Taxable Investments
and,
under certain market conditions, certain floating
and
variable rate demand obligations or Auction
Components,
the fund may not achieve its investment objective.
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 Exempt
Obligations
rated within the three highest grades by Moody's or
S&P;
and (b) the following taxable securities: 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 tax-exempt
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.
Investment Techniques
The fund may employ, among others, the investment
techniques described below, which may give rise to
taxable income or gain:
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
is to protect the fund from fluctuations in
interest
rates on tax-exempt securities without buying or
selling
the Exempt Obligations. If the fund owns long-term
Exempt Obligations 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 Exempt Obligations in the
fund's
portfolio. If interest rates increase as
anticipated,
the value of certain long-term Exempt Obligations
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 Exempt
Obligations 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 Exempt
Obligations at higher prices. Because the rate of
fluctuation in the value of the futures contracts
should
be similar to that of long-term Exempt Obligations,
the
fund could enter into futures contracts at lower
prices.
At the time the fund deems it appropriate to
purchase
the Exempt Obligations, the futures contracts could
be
liquidated and the fund's cash could then be used
to buy
long-term Exempt Obligations. The fund could
accomplish
similar results by selling Exempt Obligations with
long
maturities and investing in Exempt Obligations with
short maturities when interest rates are expected
to
increase or by buying Exempt Obligations with long
maturities and selling Exempt Obligations with
short
maturities when interest rates are expected to
decline.
When the market for Exempt Obligations when it is
not
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 the manager's
ability to predict correctly movements in the
direction
of interest rates. Such predictions involve skills
and
techniques which may be different from those
involved in
the management of a long-term municipal bond
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
Exempt Obligations 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 Exempt
Obligations and technical influences on 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 Exempt Obligations 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 well-
conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in
interest rates.
Although the fund intends to enter into futures
contracts only if an 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 Exempt
Obligations 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 Exempt Obligations held in its portfolio and
rates
decrease instead, the fund will lose part or all of
the
benefit of the increased value of the Exempt
Obligations
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 the manager 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 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 Exempt Obligations, 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 the manager 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 the
manager
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 Exempt Obligations.
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 Exempt Obligations.
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
the manager, which could prove to be inaccurate.
Even
if the manager'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.
When-Issued Securities and Delayed-Delivery
Transactions. The fund may purchase securities on
a
"when-issued" basis or for delayed delivery (i.e.,
payment or delivery occur beyond the normal
settlement
date at a stated price and yield). The fund does
not
intend to engage in these transactions for
speculative
purposes, but only in furtherance of its investment
goal. These transactions occur when securities are
purchased or sold by the fund with payment and
delivery
taking place in the future to secure what is
considered
an advantageous yield and price to the fund at the
time
of entering into the transaction. The payment
obligation and the interest rate that will be
received
on when-issued securities are fixed at the time the
buyer enters into the commitment. Because of
fluctuations in the value of securities purchased
or
sold on a when-issued or delayed-delivery basis,
the
prices obtained on such securities may be higher or
lower than the prices available in the market on
the
dates when the investments are actually delivered
to the
buyers.
When the fund agrees to purchase when-issued or
delayed-
delivery securities, the fund will set aside cash
or
liquid securities equal to the amount of the
commitment
in a segregated account. Normally, the fund will
set
aside portfolio securities to satisfy a purchase
commitment, and in such a case the fund may be
required
subsequently to place additional assets in the
segregated account in order to ensure that the
value of
the account remains equal to the amount of the
fund's
commitment. The assets contained in the segregated
account will be marked-to-market daily. It may be
expected that the fund's net assets will fluctuate
to a
greater degree when it sets aside portfolio
securities
to cover such purchase commitments than when it
sets
aside cash. When the fund engages in when-issued
or
delayed-delivery transactions, it relies on the
other
party 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
advantageous.
Stand-by Commitments. The fund may acquire "stand-
by
commitments" with respect to Exempt Obligations
held in
its portfolio. Under a stand-by commitment, a
broker,
dealer or bank is obligated to repurchase at the
fund's
option specified securities at a specified price
and, in
this way, a stand-by commitment is subject to the
ability of the seller to make payment on demand.
The
fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend
to
exercise the rights afforded by the commitments for
trading purposes. The fund anticipates that stand-
by
commitments will be available from brokers, dealers
and
banks without the payment of any direct or indirect
consideration. The fund may pay for stand-by
commitments if payment is deemed necessary, thus
increasing to a degree the cost of the underlying
Exempt
Obligations and similarly decreasing the security's
yield to the fund.
Illiquid Securities. The fund may invest up to 15%
of
its net assets in illiquid securities, which term
includes securities subject to contractual or other
restrictions on resale and other instruments that
lack
readily available markets. In addition, up to 5%
of the
value of each fund's assets may be invested in
securities of entities that have been in continuous
operation for fewer than three years.
Notwithstanding
the foregoing, the fund will not invest more than
10% of
its assets (excluding those subject to Rule 144A
under
the Securities Act of 1933, as amended) that are
restricted. The fund also is authorized to borrow
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.
Repurchase Agreements. The fund may agree to
purchase
securities from a bank or recognized securities
dealer
and simultaneously commit to resell the securities
to
the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to
the
coupon rate or maturity of the purchased securities
("repurchase agreements"). The fund would maintain
custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or
dealer
to pay the repurchase price on the date agreed to
would
be, in effect, secured by such securities. If the
value
of such securities were less than the repurchase
price,
plus interest, the other party to the agreement
would be
required to provide additional collateral so that
at all
times the collateral is at least 102% of the
repurchase
price plus accrued interest. Default by or
bankruptcy
of a seller would expose the fund to possible loss
because of adverse market action, expenses and/or
delays
in connection with the disposition of the
underlying
obligations. The financial institutions with which
the
fund may enter into repurchase agreements will be
banks
and non-bank dealers of U.S. Government securities
on
the Federal Reserve Bank of New York's list of
reporting
dealers, if such banks and non-bank dealers are
deemed
creditworthy by the fund's manager. The manager
will
continue to monitor creditworthiness of the seller
under
a repurchase agreement, and will require the seller
to
maintain during the term of the agreement the value
of
the securities subject to the agreement to equal at
least 102% of the repurchase price (including
accrued
interest). In addition, the manager will require
that
the value of this collateral, after transaction
costs
(including loss of interest) reasonably expected to
be
incurred on a default, be equal to 102% or greater
than
the repurchase price (including accrued premium)
provided in the repurchase agreement or the daily
amortization of the difference between the purchase
price and the repurchase price specified in the
repurchase agreement. The manager will mark-to-
market
daily the value of the securities. Repurchase
agreements are considered to be loans by a fund
under
the 1940 Act.
RISK FACTORS
The following summaries are included for the
purpose of
providing certain information regarding the
economic
climate and financial condition of the Commonwealth
of
Massachusetts and Puerto Rico, and are based
primarily
on information from official statements made
available
in connection with the issuance of certain
securities
and other documents and sources and does not
purport to
be complete. The trust has not undertaken to
verify
independently such information and the trust
assumes no
responsibility for the accuracy of such
information.
These summaries do not provide information
regarding
most securities in which the fund is permitted to
invest
and in particular do not provide specific
information on
the issuers or types of municipal securities in
which
the fund invests or the private business entities
whose
obligations support the payments on AMT-Subject
bonds in
which the fund will invest. Therefore, the general
risk
factors as to the credit of the state or its
political
subdivisions discussed herein may not be relevant
to the
fund. Although revenue obligations of a state or
its
political subdivisions may be payable from a
specific
project or source, there can be no assurance that
future
economic difficulties and the resulting impact on
state
and local government finances will not adversely
affect
the market value of the fund or the ability of the
respective obligors to make timely payments of
principal
and interest on such obligations. In addition, a
number
of factors may adversely affect the ability of the
issuers of municipal securities to repay their
borrowings that are unrelated to the financial or
economic condition of a state, and that, in some
cases,
are beyond their control. Furthermore, issuers of
municipal securities are generally not required to
provide ongoing information about their finances
and
operations to holders of their debt obligations,
although a number of cities, counties and other
issuers
prepare annual reports.
MASSACHUSETTS RISK FACTORS
Following is a brief summary of select factors
affecting
the fund. It does not represent a complete analysis
of
every material fact affecting Massachusetts debt
obligations. The summary is based on a sampling of
offering statements for the debt of each state's
issuers, data from independent rating agencies,
and/or
data reported in other public sources. The fund
has not
independently verified this information, and will
not
update it during the year.
The fund invests primarily in obligations of the
Commonwealth of Massachusetts and its local
governments,
including counties, cities, townships, special
districts, agencies, and authorities. As a result
of
this investment focus, events in Massachusetts are
likely to affect the fund's investment performance.
These events may include:
o Public policy changes.
o Economic and tax base erosion.
o Limits on tax increases.
o Budget deficits and other financial
difficulties.
o Changes in ratings assigned to municipal
issuers.
Public Policy. Since 1990, there have been
limitations
on the amount of direct bonds that the Commonwealth
may
have outstanding in a fiscal year. In addition,
there
has been a 10% limit on the amount of the total
appropriation in any fiscal year that may be
expended
for repayment of principal and payment of interest
on
general obligation debt of the Commonwealth. Each
of
these limitations may be changed by the
Massachusetts
legislature.
Economic and Tax Base. With an estimated
population of
6.2 million, the Commonwealth's population has
increased
by 2.6% over the last decade, about one-third of
the
U.S. rate of growth. As of November 1999, the
Commonwealth's unadjusted unemployment rate was
3.2%
compared to a national average of 4.1%. Per capita
personal income in the Commonwealth has
historically
exceeded that of the U.S. and for 1998 was 24%
above the
national average.
Limits on Tax Increases. In Massachusetts, the tax
on
personal property and real estate is virtually the
only
source of tax revenues available to cities and
towns to
meet local costs. "Proposition 2 1/2", an
initiative
petition adopted by the voters of the Commonwealth
on
November 4, 1980, limits the power of Massachusetts
cities and towns and certain tax-supported
districts and
public agencies to raise revenue from property
taxes to
support their operations, including the payment of
certain debt service. Proposition 2 1/2 required
many
cities and towns to reduce their property tax
levels to
a stated percentage of the full and fair cash value
of
their taxable real estate and personal property.
It also limited the amount by which the total
property
taxes assessed by a city or town might increase
from
year to year. Although the limitations of
Proposition
2 1/2 on tax increases may be overridden and
amounts for
debt service and capital expenditures excluded from
such
limitation by the voters of the relevant
municipality,
Proposition 2 1/2 will continue to restrain
significantly the ability of cities and towns to
pay
for local services. To offset shortfalls
experienced
by local governments as a result of Proposition 2
1/2,
the Commonwealth has significantly increased direct
local aid since 1981, but this aid may be reduced
during
times of fiscal stress.
Fiscal Health. Certain cities and towns within the
Commonwealth, and the Commonwealth itself, have at
times
experienced serious financial difficulties, which
have
adversely affected their credit standing. While it
last
experienced a budget deficit in 1990, the
Commonwealth
has posted consistent surplus operations since then
and
currently enjoys a sound financial position.
Fiscal
year 1998 is operating fund balances ended strong
at
over 10% of expenditures. However, Commonwealth
debt
levels remain above average. Per capita state debt
of
$2,600 is third highest in the U.S., where the
median is
about $540. In addition, the Commonwealth
currently has
significant unfounded liabilities relating to its
retirement systems. Total Commonwealth debt is
expected
to increase in the near term as bonds are issued
for
various capitals needs, particularly the Boston
Central
Artery Project.
Ratings Assigned to Municipal Issuers. In general,
the
ratings assigned to any municipal issuer's debt
depend
on the state and local economy, the health of the
issuer's finances, the amount of the issuer's debt,
the
quality of management, and the strength of legal
provisions in debt documents that protect debt
holders.
Credit risk is usually lower wherever the economy
is
strong, growing and diversified; financial
operations
are sound; and the debt burden is reasonable.
PUERTO RICO RISK FACTORS
Puerto Rico Bonds. Certain of the Bonds in the
fund may
be general obligations and/or revenue bonds of
issuers
located in Puerto Rico. Such bonds will be
affected by
general economic conditions in Puerto Rico. The
economy
of Puerto Rico is fully integrated with that of the
mainland United States. During fiscal year 1998,
approximately 90% of Puerto Rico's exports were to
the
United States mainland, which was also the source
of 61%
of Puerto Rico's imports. In fiscal 1998, Puerto
Rico
experienced a $8.5 billion positive adjusted
merchandise
trade balance. The dominant sectors of the Puerto
Rico
economy are manufacturing and services. Gross
product
in fiscal 1995 was $28.4 billion ($25.9 billion in
1992
prices) and gross product in fiscal 1999 was $38.1
billion ($29.7 billion in 1992 prices). This
represents
an increase in gross product of 34.5% from fiscal
1995
to 1999 (14.5% in 1992 prices). According to the
Labor
Department's Household Employment Survey, average
employment increased from 1,051,000 in fiscal 1995
to
1,147,000 in fiscal 1999. Average unemployment
decreased
from 13.8% in fiscal 1995 to 12.5% in fiscal 1999.
The
Planning Board's gross product forecast for fiscal
2000,
made in October 1999, projected an increase of 2.7%
over
fiscal 1999.
INVESTMENT RESTRICTIONS
The fund has adopted the following investment
restrictions for the protection of shareholders.
Restrictions 1 through 6 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 the rules, regulations and
orders thereunder, except as permitted
under the 1940 Act and the rules,
regulations and orders thereunder.
2. Invest more than 25% of its total assets in
securities, the issuers of which 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 (a) the fund may
borrow from banks for temporary or
emergency (not leveraging) purposes,
including the meeting of redemption
requests which might otherwise require the
untimely disposition of securities, and (b)
the fund may, to the extent consistent with
its investment policies, enter into reverse
repurchase agreements, forward roll
transactions and similar investment
strategies and techniques. To the extent
that it engages in transactions described
in (a) and (b), the fund will be limited so
that no more than 33 1/3% of the value of
its total assets (including the amount
borrowed), valued at the lesser of cost or
market, less liabilities (not including the
amount borrowed), is derived from such
transactions.
4. Make loans. This restriction does not
apply to: (a) the purchase of debt
obligations in which the fund may invest
consistent with its investment objectives
and policies; (b) repurchase agreements;
and (c) loans of its portfolio securities,
to the fullest extent permitted under the
1940 Act.
5. Engage in the business of underwriting
securities issued by other persons, except
to the extent that the fund may technically
be deemed to be an underwriter under the
Securities Act of 1933, as amended, in
disposing of portfolio securities.
6. Purchase or sell real estate, real estate
mortgages, commodities or commodity
contracts, but this restriction shall not
prevent the fund from (a) investing in
securities of issuers engaged in the real
estate business or the business of
investing in real estate (including
interests in limited partnerships owning or
otherwise engaging in the real estate
business or the business of investing in
real estate) and securities which are
secured by real estate or interests
therein; (b) holding or selling real estate
received in connection with securities it
holds or held; (c) trading in futures
contracts and options on futures contracts
(including options on currencies to the
extent consistent with the fund's
investment objective and policies); or (d)
investing in real estate investment trust
securities.
7. Purchase any securities on margin (except
for such short-term 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
underlying securities and other assets in
escrow and collateral agreements with
respect to initial or maintenance margin in
connection with futures contracts and
related options and options on securities,
indexes or similar items is not considered
to be the purchase of a security on margin.
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 SAI 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.
PORTFOLIO TRANSACTIONS
Newly issued securities normally are purchased
directly
from the issuer or from an underwriter acting as
principal. Other purchases and sales usually are
placed
with those dealers from which it appears that the
best
price or execution will be obtained; those dealers
may
be acting as either agents or principals. The
purchase
price paid by the fund to underwriters of newly
issued
securities usually includes a concession paid by
the
issuer to the underwriter, and purchases of after-
market
securities from dealers normally are executed at a
price
between the bid and asked prices. For the 1997,
1998 and
1999 fiscal years, the fund has paid no brokerage
commissions.
Allocation of transactions, including their
frequency,
to various dealers is determined by the manager 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 the manager
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 the
manager, and the fees of the manager are not
reduced as
a consequence of its of such supplemental
information.
Such information may be useful to the manager 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 the
manager
in carrying out its obligations to the fund.
The fund will not purchase Exempt Obligations
during the
existence of any underwriting or selling group
relating
thereto of which Salomon 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 Salomon
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 the manager, 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 the
manager 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 the manager 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
tax-exempt securities. For the 1998 and 1999
fiscal
years, the fund's portfolio turnover rates were 51%
and
66%, respectively.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for
purchase. See the prospectus for a discussion of
factors to consider in selecting which Class of
shares
to purchase.
Class A Shares. Class A shares are sold to
investors at
the public offering price, which is the net asset
value
plus an initial sales charge as follows:
Amount of
Investment
Sales Charge as
a %
Of Transaction
Sales Charge as
a %
of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
4.00%
4.17%
3.60%
$ 25,000 - 49,999
3.50
3.63
3.15
50,000 99,999
3.00
3.09
2.70
100,000 249,999
2.50
2.56
2.25
250,000 499,999
1.50
1.52
1.35
500,000 and over
*
*
*
* Purchases of Class A shares of $500,000 or more
will
be made at net asset value without any initial
sales
charge, but will be subject to a deferred sales
charge
of 1.00% on redemptions made within 12 months of
purchase. The deferred sales charge on Class A
shares
is payable to Salomon Smith Barney, which
compensates
Salomon Smith Barney Financial Consultants and
other
dealers whose clients make purchases of $500,000 or
more. The deferred sales charge is waived in the
same
circumstances in which the deferred sales charge
applicable to Class B and Class L shares is waived.
See "Purchase of Shares-Deferred Sales Charge
Alternatives" and "Purchase of Shares-Waivers of
Deferred Sales Charge."
Members of 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 and his or her immediate family, or a
trustee
or other fiduciary of a single trust estate or
single
fiduciary account.
Class B Shares. Class B shares are sold without an
initial sales charge but are subject to a deferred
sales
charge payable upon certain redemptions. See
"Deferred
Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an
initial
sales charge of 1.00% (which is equal to 1.01% of
the
amount invested) and are subject to a deferred
sales
charge payable upon certain redemptions. See
"Deferred
Sales Charge Provisions" below. Until June 22,
2001
purchases of Class L shares by investors who were
holders of Class C shares of the fund and/or other
Smith
Barney mutual funds on June 12, 1998 will not be
subject
to the 1% initial sales charge.
Class Y Shares. Class Y shares are sold without an
initial sales charge or deferred sales charge and
are
available only to investors investing a minimum of
$15,000,000 (except purchases of Class Y shares by
Smith
Barney Concert Allocation Series Inc., for which
there
is no minimum purchase amount).
General
Investors may purchase shares from a Salomon Smith
Barney Financial Consultant or a Dealer
Representative.
In addition, certain investors, including
qualified
retirement plans purchasing through certain Dealer
Representatives, may purchase shares directly from
the
fund. When purchasing shares of the fund,
investors
must specify whether the purchase is for Class A,
Class
B, Class L or Class Y shares. Salomon Smith Barney
and
Dealer Representatives may charge their customers
an
annual account maintenance fee in connection with a
brokerage account through which an investor
purchases or
holds shares. Accounts held directly at PFPC
Global
Fund Services ("sub-transfer agent") are not
subject to
a maintenance fee.
Investors in Class A, Class B and Class L shares
may
open an account in the fund by making an initial
investment of at least $1,000 for each account, in
the
fund. Investors in Class Y shares may open an
account by
making an initial investment of $15,000,000.
Subsequent
investments of at least $50 may be made for all
Classes.
For shareholders purchasing shares of the fund
through
the Systematic Investment Plan on a monthly basis,
the
minimum initial investment requirement for Class A,
Class B and Class L shares and subsequent
investment
requirement for all Classes is $25. For
shareholders
purchasing shares of the fund through the
Systematic
Investment Plan on a quarterly basis, the minimum
initial investment required for Class A, Class B
and
Class L shares and the subsequent investment
requirement
for all Classes is $50. There are no minimum
investment
requirements for Class A shares for employees of
Citigroup and its subsidiaries, including Salomon
Smith
Barney, unitholders who invest distributions from a
Unit
Investment Trust ("UIT") sponsored by Salomon Smith
Barney, and Directors/Trustees of any of the Smith
Barney mutual funds, and their spouses and
children. 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 sub-transfer agent. Share certificates are
issued
only upon a shareholder's written request to the
sub-
transfer agent. It is not recommended that the fund
be
used as a vehicle for Keogh, IRA or other qualified
retirement plans.
Purchase orders received by the fund or a Salomon
Smith
Barney Financial Consultant prior to the close of
regular trading on the NYSE, on any day the fund
calculates its net asset value, are priced
according to
the net asset value determined on that day (the
"trade
date"). Orders received by a Dealer Representative
prior to the close of regular trading on the NYSE
on any
day 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 the
fund's
agent prior to its close of business. For shares
purchased through Salomon Smith Barney or a Dealer
Representative purchasing through Salomon Smith
Barney,
payment for shares of the fund is due on the third
business day after the trade date. In all other
cases,
payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make
additions to their accounts at any time by
purchasing
shares through a service known as the Systematic
Investment Plan. Under the Systematic Investment
Plan,
Salomon Smith Barney or the sub-transfer agent is
authorized through preauthorized transfers of at
least
$25 on a monthly basis or at least $50 on a
quarterly
basis to charge the shareholder's account held with
a
bank or other financial institution on a monthly or
quarterly basis as indicated by the shareholder, to
provide for systematic additions to the
shareholder's
fund account. A shareholder who has insufficient
funds
to complete the transfer will be charged a fee of
up to
$25 by Salomon Smith Barney or the sub-transfer
agent.
The Systematic Investment Plan also authorizes
Salomon
Smith Barney to apply cash held in the
shareholder's
Salomon Smith Barney brokerage account or redeem
the
shareholder's shares of a Smith Barney money market
fund
to make additions to the account. Additional
information
is available from the fund or a Salomon Smith
Barney
Financial Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A
shares may be made at net asset value without a
sales
charge in the following circumstances: (a) sales to
(i)
Board Members and employees of Citigroup and its
subsidiaries and any Citigroup affiliated funds
including the Smith Barney mutual funds (including
retired Board Members and employees); the immediate
families of such persons (including the surviving
spouse
of a deceased Board Member or employee); and to a
pension, profit-sharing or other benefit plan for
such
persons and (ii) employees of members of the
National
Association of Securities Dealers, Inc., provided
such
sales are made upon the assurance of the purchaser
that
the purchase is made for investment purposes and
that
the securities will not be resold except through
redemption or repurchase; (b) offers of Class A
shares
to any other investment company to effect the
combination of such company with the fund by
merger,
acquisition of assets or otherwise; (c) purchases
of
Class A shares by any client of a newly employed
Salomon
Smith Barney Financial Consultant (for a period up
to 90
days from the commencement of the Financial
Consultant's
employment with Salomon Smith Barney), on the
condition
the purchase of Class A shares is made with the
proceeds
of the redemption of shares of a mutual fund which
(i)
was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the
Financial
Consultant and (iii) was subject to a sales charge;
(d)
purchases by shareholders who have redeemed Class A
shares in the fund (or Class A shares of another
Smith
Barney mutual fund that is offered with a sales
charge)
and who wish to reinvest their redemption proceeds
in
the fund, provided the reinvestment is made within
60
calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) investments of
distributions from or proceeds from a sale of a UIT
sponsored by Salomon Smith Barney; and (g)
purchases by
investors participating in a Salomon Smith Barney
fee-
based arrangement. In order to obtain such
discounts,
the purchaser must provide sufficient information
at the
time of purchase to permit verification that the
purchase would qualify for the elimination of the
sales
charge.
Right of Accumulation. Class A shares of the fund
may
be purchased by "any person" (as defined above) at
a
reduced sales charge or at net asset value
determined by
aggregating the dollar amount of the new purchase
and
the total net asset value of all Class A shares of
the
fund and of other Smith Barney mutual funds that
are
offered with a sales charge as currently listed
under
"Exchange Privilege" then held by such person and
applying the sales charge applicable to such
aggregate.
In order to obtain such discount, the purchaser
must
provide sufficient information at the time of
purchase
to permit verification that the purchase qualifies
for
the reduced sales charge. The right of
accumulation is
subject to modification or discontinuance at any
time
with respect to all shares purchased thereafter.
Letter of Intent - Class A Shares. A Letter of
Intent
for an amount of $50,000 or more provides an
opportunity
for an investor to obtain a reduced sales charge by
aggregating investments over a 13 month period,
provided
that the investor refers to such Letter when
placing
orders. For purposes of a Letter of Intent, the
"Amount
of Investment" as referred to in the preceding
sales
charge table includes (i) all Class A shares of the
fund
and other Smith Barney mutual funds offered with a
sales
charge acquired during the term of the letter plus
(ii)
the value of all Class A shares previously
purchased and
still owned. Each investment made during the
period
receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal
is not
achieved within the period, the investor must pay
the
difference between the sales charges applicable to
the
purchases made and the charges previously paid, or
an
appropriate number of escrowed shares will be
redeemed.
The term of the Letter will commence upon the date
the
Letter is signed, or at the options of the
investor, up
to 90 days before such date. Please contact a
Salomon
Smith Barney Financial Consultant or Smith Barney
Private Trust Company (the "Transfer Agent") to
obtain
a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of
Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is
no
minimum purchase amount). Such investors must make
an
initial minimum purchase of $5,000,000 in Class Y
shares
of the fund and agree to purchase a total of
$15,000,000
of Class Y shares of the fund within 13 months from
the
date of the Letter. If a total investment of
$15,000,000
is not made within the 13-month period, all Class Y
shares purchased to date will be transferred to
Class A
shares, where they will be subject to all fees
(including a service fee of 0.15%) and expenses
applicable to the fund's Class A shares, which may
include a deferred sales charge of 1.00%. Please
contact
a Salomon Smith Barney Financial Consultant or the
Transfer Agent for further information.
Deferred Sales Charge Provisions
"Deferred Sales Charge Shares" are: (a) Class B
shares;
(b) Class L shares; and (c) Class A shares that
were
purchased without an initial sales charge but are
subject to a deferred sales charge. A deferred
sales
charge may be imposed on certain redemptions of
these
shares.
Any applicable deferred sales charge will be
assessed on
an amount equal to the lesser of the original cost
of
the shares being redeemed or their net asset value
at
the time of redemption. Deferred Sales Charge
Shares
that are redeemed will not be subject to a deferred
sales charge to the extent the value of such shares
represents: (a) capital appreciation of fund
assets; (b)
reinvestment of dividends or capital gain
distributions;
(c) with respect to Class B shares, shares redeemed
more
than five years after their purchase; or (d) with
respect to Class L shares and Class A shares that
are
Deferred Sales Charge Shares, shares redeemed more
than
12 months after their purchase.
Class L shares and Class A shares that are Deferred
Sales Charge Shares are subject to a 1.00% deferred
sales charge if redeemed within 12 months of
purchase.
In circumstances in which the deferred sales charge
is
imposed on Class B shares, the amount of the charge
will
depend on the number of years since the shareholder
made
the purchase payment from which the amount is being
redeemed. Solely for purposes of determining the
number
of years since a purchase payment, all purchase
payments
made during a month will be aggregated and deemed
to
have been made on the last day of the preceding
Salomon
Smith Barney statement month. The following table
sets
forth the rates of the charge for redemptions of
Class
B shares by shareholders.
Year Since Purchase Payment Was Made
Deferred sales charge
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class
A
shares eight years after the date on which they
were
purchased and thereafter will no longer be subject
to
any distribution fees. There will also be converted
at
that time such proportion of Class B Dividend
Shares
owned by the shareholders as the total number of
his or
her Class B shares converting at the time bears to
the
total number of outstanding Class B shares (other
than
Class B Dividend Shares) owned by the shareholder.
In determining the applicability of any Deferred
Sales
Charge, it will be assumed that a redemption is
made
first of shares representing capital appreciation,
next
of shares representing the reinvestment of
dividends and
capital gain distributions and finally of other
shares
held by the shareholder for the longest period of
time.
The length of time that Deferred Sales Charge
Shares
acquired through an exchange have been held will be
calculated from the date the shares exchanged were
initially acquired in one of the other Smith Barney
mutual funds, and fund shares being redeemed will
be
considered to represent, as applicable, capital
appreciation or dividend and capital gain
distribution
reinvestments in such other funds. For Federal
income
tax purposes, the amount of the deferred sales
charge
will reduce the gain or increase the loss, as the
case
may be, on the amount realized on redemption. The
amount
of any deferred sales charge will be paid to
Salomon
Smith Barney.
To provide an example, assume an investor purchased
100
Class B shares of the fund at $10 per share for a
cost
of $1,000. Subsequently, the investor acquired 5
additional shares of the fund through dividend
reinvestment. During the fifteenth month after the
purchase, the investor decided to redeem $500 of
his or
her investment. Assuming at the time of the
redemption
the net asset value had appreciated to $12 per
share,
the value of the investor's shares would be $1,260
(105
shares at $12 per share). The deferred sales charge
would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested
dividend shares ($60). Therefore, $240 of the $500
redemption proceeds ($500 minus $260) would be
charged
at a rate of 4.00% (the applicable rate for Class B
shares) for a total deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a)
exchanges (see "Exchange Privilege"); (b) automatic
cash
withdrawals in amounts equal to or less than 1.00%
per
month of the value of the shareholder's shares at
the
time the withdrawal plan commences (see "Automatic
Cash
Withdrawal Plan") (however, automatic cash
withdrawals
in amounts equal to or less than 2.00% per month of
the
value of the shareholder's shares will be permitted
for
withdrawal plans established prior to November 7,
1994);
(c) redemptions of shares within 12 months
following the
death or disability of the shareholder; (d)
involuntary
redemptions; and (e) redemptions of shares to
effect a
combination of the fund with any investment company
by
merger, acquisition of assets or otherwise. In
addition,
a shareholder who has redeemed shares from other
Smith
Barney mutual funds may, under certain
circumstances,
reinvest all or part of the redemption proceeds
within
60 days and receive pro rata credit for any
deferred
sales charge imposed on the prior redemption.
Deferred sales charge waivers will be granted
subject to
confirmation (by Salomon Smith Barney in the case
of
shareholders who are also Salomon Smith Barney
clients
or by the Transfer Agent in the case of all other
shareholders) of the shareholder's status or
holdings,
as the case may be.
Volume Discounts
The schedule of sales charges on Class A shares
described in the prospectus applies to purchases
made by
any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual's
spouse
and his or her children purchasing shares for their
own
account; (c) a trustee or other fiduciary
purchasing
shares for a single trust estate or single
fiduciary
account; and (d) a trustee or other professional
fiduciary (including a bank, or an investment
adviser
registered with the SEC under the Investment
Advisers
Act of 1940, as amended) purchasing shares of the
fund
for one or more trust estates or fiduciary
accounts.
Purchasers who wish to combine purchase orders to
take
advantage of volume discounts on Class A shares
should
contact a Salomon Smith Barney Financial
Consultant.
DETERMINATION OF NET ASSET VALUE
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, Martin Luther King,
Jr.
Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and
Christmas,
and on the preceding Friday or subsequent Monday
when
one of these holidays falls on a Saturday or
Sunday,
respectively. Because of the differences in
distribution fees and class-specific expenses, the
per
share net asset value of each class may differ. The
following is a description of the procedures used
by the
fund in valuing its assets.
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 Board of Trustees. A
security
that is primarily traded on a domestic or foreign
exchange is valued at the last sale price on that
exchange or, if there were no sales during the day,
at
the mean between the bid and asked price. Over-the-
counter securities are valued at the mean between
the
bid and asked price. If market quotations for
those
securities are not readily available, they are
valued at
fair value, as determined in good faith by the
fund's
Board of Trustees. An option is generally valued
at the
last sale price or, in the absence of a last sale
price,
the last offer price.
U.S. government securities will be valued at the
mean
between the closing bid and asked prices 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 investments maturing in 60 days or less
are
valued at amortized cost whenever the Board of
Trustees
determines that amortized cost reflects fair value
of
those investments. Amortized cost valuation
involves
valuing an instrument at its cost initially 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
instrument.
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.
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 L share (and Class A share purchases,
including applicable rights of accumulation,
equaling or
exceeding $500,000) is equal to the net asset value
per
share at the time of purchase and no sales charge
is
imposed at the time of purchase. The method of
computing the public offering price is shown in the
fund's financial statements, incorporated by
reference
in their entirety into this SAI.
VALUATION OF SHARES
The fund's net asset value per share is determined
as of
close of regular trading on the NYSE, on each day
that
the NYSE is open, by dividing value of the fund's
net
assets attributable to each Class by the total
number of
shares of that Class outstanding.
When, in judgement of the pricing service, quoted
bid
prices for investments are readily available and
are
representative of the bid side of the market, these
investments are valued at the mean between the
quoted
bid and asked prices. Investments for which, in
the
judgement of the pricing service, there is no
readily
obtainable market quotation (which may contribute a
majority of the portfolio securities) are carried
at
fair value of securities of similar type, yield
maturity. Pricing services generally determine
value by
reference to transactions in municipal obligations,
quotations from municipal bond dealers, market
transaction in comparable securities and various
relationships between securities. Short-term
investments that mature in 60 days or less are
valued at
amortized cost whenever the board of trustees
determines
that amortized cost is fair value. Amortized cost
valuation involves valuing an instrument at its
cost
initially 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. Securities
and
other assets that are not priced by a pricing
service
and for which market quotations are not available
will
be valued in good faith at fair value by or under
the
direction of the fund's Board of Trustees.
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
deferred
sales charge. 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 Transfer Agent receives further
instructions
from Salomon Smith Barney, or if the shareholder's
account is not with Salomon Smith Barney, from the
shareholder directly. The redemption proceeds will
be
remitted on or before the third business day
following
receipt of proper tender, except on any days on
which
the NYSE is closed or as permitted under the 1940
Act in
extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Salomon Smith
Barney brokerage account, these funds will not be
invested for the shareholder's benefit without
specific
instruction and Salomon Smith Barney will benefit
from
the use of temporarily uninvested funds. Redemption
proceeds for shares purchased by check, other than
a
certified or official bank check, will be remitted
upon
clearance of the check, which may take up to
fifteen
days.
Shares held by Salomon Smith Barney as custodian
must be
redeemed by submitting a written request to a
Salomon
Smith Barney Financial Consultant. Shares other
than
those held by Salomon Smith Barney as custodian may
be
redeemed through an investor's Financial
Consultant,
Dealer Representative or by submitting a written
request
for redemption to:
Smith Barney Massachusetts Municipals Fund
Class A, B, L or Y (please specify)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
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 registered. If the shares to be redeemed were
issued
in certificate form, the certificates must be
endorsed
for transfer (or be accompanied by an endorsed
stock
power) and must be submitted to the Transfer Agent
together with the redemption request. Any signature
appearing on a share certificate, stock power or
written
redemption request in excess of $10,000 must be
guaranteed by an eligible guarantor institution,
such as
a domestic bank, savings and loan institution,
domestic
credit union, member bank of the Federal Reserve
System
or member firm of a national securities exchange.
Written redemption requests of $10,000 or less do
not
require a signature guarantee unless more than one
such
redemption request is made in any 10-day period.
Redemption proceeds will be mailed to an investor's
address of record. The Transfer Agent may require
additional supporting documents for redemptions
made by
corporations, executors, administrators, trustees
or
guardians. A redemption request will not be deemed
properly received until the Transfer Agent receives
all
required documents in proper form.
Telephone Redemption and Exchange Program.
Shareholders
who do not have a brokerage account may be eligible
to
redeem and exchange shares by telephone. To
determine if
a shareholder is entitled to participate in this
program, he or she should contact the Transfer
Agent at
1-800-451-2010. Once eligibility is confirmed, the
shareholder must complete and return a
Telephone/Wire
Authorization Form, along with 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 the applicant's signature guarantee when
making
his/her initial investment in a fund.)
Redemptions. Redemption requests of up to $10,000
of
any class or classes of shares of a fund may be
made by
eligible shareholders by calling the Transfer Agent
at
1-800-451-2010. Such requests may be made between
9:00
a.m. and 4:00 p.m. (Eastern 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 complete a new Telephone/Wire
Authorization Form and, for the protection of 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 shares
of
the fund being acquired is identical to the
registration
of the shares of the fund exchanged. Such exchange
requests may be made by calling the Transfer Agent
at 1-
800-451-2010 between 9:00 a.m. and 4:00 p.m.
(Eastern
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 instructions
communicated
by telephone that are reasonably believed to be
genuine.
The fund and its agents will employ procedures
designed
to verify the identity of the caller and legitimacy
of
instructions (for example, a shareholder's name and
account number will be required and phone calls may
be
recorded). The fund reserves the right to suspend,
modify or discontinue the telephone redemption and
exchange program or to impose a charge for this
service
at any time following at least seven (7) days'
prior
notice to shareholders.
Redemptions in Kind. In conformity with applicable
rules of the SEC, redemptions may be paid in
portfolio
securities, in cash or any combination of both, as
the
Board of Trustees may deem advisable; however,
payments
shall be made wholly in cash unless the Board of
Trustees believes economic conditions exist that
would
make such a practice detrimental to the best
interests
of the fund and its remaining shareholders. If a
redemption is paid in portfolio securities, such
securities will be valued in accordance with the
procedures described under "Determination of Net
Asset
Value" in the Prospectus and a shareholder would
incur
brokerage expenses if these securities were then
converted to cash.
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 deferred sales charge 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 deferred sales charge 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 sub-
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 Salomon
Smith
Barney Financial Consultant. Withdrawal Plans
should be
set up with a Salomon Smith Barney Financial
Consultant.
A shareholder who purchases shares directly through
the
sub-transfer agent may continue to do so and
applications for participation in the Withdrawal
Plan
must be received by the sub-transfer agent no later
than
the eighth day of the month to be eligible for
participation beginning with that month's
withdrawals.
For additional information, shareholders should
contact
a Salomon Smith Barney Financial Consultant.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Adviser and Administrator - SSB Citi
SSB Citi (successor to SSBC Fund Management Inc.)
serves
as investment adviser to the fund pursuant to an
investment advisory agreement (the "Investment
Advisory
Agreement") with the trust which was approved by
the
Board of Trustees, including a majority of trustees
who
are not "interested persons" of the trust or the
manager. The manager is a wholly owned subsidiary
of
Salomon Smith Barney Holdings Inc. ("Holdings"),
which
in turn, is a wholly owned subsidiary of Citigroup
Inc.
("Citigroup"). Subject to the supervision and
direction
of the trust's Board of Trustees, the manager
manages
the fund's portfolio in accordance with the fund's
stated 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. The manager pays the
salary of any officer and employee who is employed
by
both it and the trust. The manager bears all
expenses in
connection with the performance of its services.
SSB
Citi (through its predecessor entities) has been in
the
investment counseling business since 1968 and
renders
investment advice to a wide variety of individual,
institutional and investment company clients that
had
aggregate assets under management as of January 31,
2000
in excess of $186 billion.
As compensation for investment advisory services,
the
fund pays the manager a fee computed daily and
payable
monthly at 0.30% of the value of the fund's average
daily net assets. For the fiscal years ended
November
30, 1997, 1998 and 1999, the fund paid the manager
net
of fee waivers and expense reimbursements,
$202,259,
$189,712 and $212,123, respectively, in investment
advisory fees. For the fiscal year ended November
30,
1997, the manager voluntarily waived investment
advisory
fees of $26,561.
The manager also serves as administrator to the
fund
pursuant to a written agreement (the
"Administration
Agreement"). The services provided by the manager
under
the Administration Agreement are described in the
prospectus under "Management". The manager 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 administrator SSB Citi: (a) assists in
supervising
all aspects of the fund's operations except those
performed by the fund's investment manager under
its
investment advisory agreement; b) supplies the fund
with
office facilities (which may be in SSB Citi's own
offices), statistical and research data, data
processing
services, clerical, accounting and bookkeeping
services,
including, but not limited to, the calculation of
(i)
the net asset value of shares of the fund, (ii)
applicable contingent deferred sales charges and
similar
fees and charges and (iii) distribution fees,
internal
auditing and legal services, internal executive and
administrative services, and stationary and office
supplies; and (c) prepares reports to shareholders
of
the fund, tax returns and reports to and filings
with
the SEC and state blue sky authorities.
As compensation for administrative services
rendered to
the fund, the manager 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 year ended
November 30, 1997, the fund paid the manager
$99,811
(net of fee waivers amounting to $17,707) in
administration fees. For the fiscal years ended
November 30, 1998 and 1999, the fund paid the
manager
$126,474 and $141,415 in administration fees,
respectively.
The fund bears expenses incurred in its operations
including: taxes, interest, brokerage fees and
commissions, if any; fees of trustees of the fund
who
are not officers, directors, shareholders or
employees
of Salomon Smith Barney or the manager; Securities
and
Exchange Commission (the "SEC") fees and state Blue
Sky
notice 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.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the fund,
the
investment adviser and principal underwriter have
adopted codes of ethics that permit personnel to
invest
in securities for their own accounts, including
securities that may be purchased or held by the
fund.
All personnel must place the interests of clients
first
and avoid activities, interests and relationships
that
might interfere with the duty to make decisions in
the
best interests of the clients. All personal
securities
transactions by employees must adhere to the
requirements of the codes and must be conducted in
such
a manner as to avoid any actual or potential
conflict of
interest, the appearance of such a conflict, or the
abuse of an employee's position of trust and
responsibility.
A copy of the fund's code of ethics is on file with
the
SEC.
Auditors
KPMG LLP, independent auditors, 345 Park Avenue,
New
York, New York 10154, have been selected to serve
as
auditors of the fund and to render opinions on the
fund's financial statements for the fiscal year
ended
November 30, 2000.
Distributor. CFBDS, Inc., located at 20 Milk
Street,
Boston, Massachusetts 02109-5408 serves as the
fund's
distributor pursuant to a written agreement dated
October 8, 1998 (the "Distribution Agreement")
which was
approved by the fund's Board of Trustees, including
a
majority of the Independent Trustees on July 15,
1998.
Prior to the merger of Travelers Group, Inc. and
Citicorp Inc. on October 8, 1998, Salomon Smith
Barney
served as the fund's distributor. For the fiscal
year
ended November 30, 1997, Salomon Smith Barney,
received
$68,000, in sales charges from the sale of Class A
shares, and did not reallow any portion thereof to
dealers. For the period December 1, 1997 through
October
7, 1998 the aggregate dollar amount of sales
charges on
Class A shares was $55,400 all of which was paid to
Salomon Smith Barney. For the period October 8,
1998
through November 30, 1998 the aggregate dollar
amount of
sales charges on Class A shares was $48,000,
$43,200 of
which was paid to Salomon Smith Barney. For the
fiscal
year ended November 30, 1999, Salomon Smith Barney
received $70,000 in sales charges from the sale of
Class
A shares.
For the period June 12, 1998 through October 7,
1998 the
aggregate dollar amount of sales charges on Class L
shares was $1,000, all of which was paid to Salomon
Smith Barney. For the period October 8, 1998
through
November 30, 1998 the aggregate dollar amount of
sales
charges on Class L shares was $2,000, $1,800 of
which
was paid to Salomon Smith Barney. For the fiscal
year
ended November 30, 1999, Salomon Smith Barney
received
$14,000 in sales charges from the sale of Class L
shares. For the fiscal year ended November 30,
1999,
Salomon Smith Barney or its predecessor received
from
shareholders $5,000 in deferred sales charges on
the
redemption of Class A shares.
For the fiscal years ended November 30, 1997, 1998
and
1999, Salomon Smith Barney or its predecessor
received
from shareholders $48,000, $39,000 and $30,000,
respectively, in deferred sales charges on the
redemption of Class B shares. For the fiscal years
ended November 30, 1997, 1998 and 1999, Salomon
Smith
Barney or its predecessor received from $0, $1,000
and
$0, respectively, in deferred sales charges on
redemption of Class L shares.
When payment is made by the investor before the
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 Salomon Smith
Barney
may benefit from the temporary use of the funds.
The
fund's Board of Trustees has been advised of the
benefits to Salomon Smith Barney resulting from
these
settlement procedures and will take such benefits
into
consideration when reviewing the Investment
Management
Agreement for continuance.
Distribution Arrangements. To compensate Salomon
Smith
Barney for the service it provides and for the
expense
it bears, 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
Salomon 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 L
shares.
In addition, the fund pays Salomon Smith Barney a
distribution fee with respect to Class B and Class
L
shares primarily intended to compensate Salomon
Smith
Barney for its initial expense of paying Financial
Consultants a commission upon sales of those
shares.
The Class B and Class L distribution fee is
calculated
at the annual rate of 0.50% and 0.55%,
respectively, of
the value of the fund's average net assets
attributable
to the shares of each Class.
For the fiscal year ended November 30, 1999,
Salomon
Smith Barney incurred distribution expenses
totaling
$382,464 consisting of approximately $19,648 for
advertising, $2,135 for printing and mailing of
prospectuses, $122,841 for support services,
$228,493 to
Salomon Smith Barney Financial Consultants, and
$9,347
in accruals for interest on the excess of Salomon
Smith
Barney expenses incurred in distributing the fund's
shares over the sum of the distribution fees and
deferred sales charge received by Salomon Smith
Barney
from the fund.
The following service and distribution fees were
incurred pursuant to a Distribution Plan during the
periods indicated:
Distribution Plan Fees
Fiscal Year
Ended
11/30/99
Fiscal Year
Ended 11/30/98
Fiscal Year
Ended
11/30/97
Class A
$ 57,668
$ 50,498
$ 45,984
Class B
$ 192,362
$ 186,823
$ 180,545
Class L*
$ 18,678
$ 7,934
$ 2,291
* Class L shares were called Class C shares until
June 12, 1998.
Under its terms, the Plan continues from year to
year,
provided such continuance is approved annually by
vote
of the Board of Trustees, including a majority of
the
Independent Trustees. The Plan may not be amended
to
increase the amount of the service and distribution
fees
without shareholder approval, and all material
amendments of the Plan also must be approved by the
Trustees and Independent Trustees in the manner
described above. The Plan may be terminated with
respect to a Class of the fund at any time, without
penalty, by vote of a majority of the Independent
Trustees or by a vote of a majority of the
outstanding
voting securities of the Class (as defined in the
1940
Act). Pursuant to the Plan, Salomon 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.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each
Class of
the fund may be exchanged for shares of the same
Class
of certain 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
L shares are subject to minimum investment
requirements
and all shares are subject to the other
requirements of
the fund into which exchanges are made.
Class B Exchanges. If a Class B shareholder wishes
to
exchange all or a portion of his or her shares in
any of
the funds imposing a higher deferred sales charge
than
that imposed by the fund, the exchanged Class B
shares
will be subject to the higher applicable deferred
sales
charge. 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.
Class L Exchanges. Upon an exchange, the new Class
L
shares will be deemed to have been purchased on the
same
date as the Class L shares of the fund that have
been
exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the fund who wish to exchange all
or a
portion of their shares for shares of the
respective
Class in any of the funds 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. The manager may determine that a
pattern
of frequent exchanges is excessive and contrary to
the
best interests of the fund's other shareholders. In
this
event, the fund may, at its discretion, decide to
limit
additional purchases and/or exchanges by the
shareholder. Upon such a determination, the fund
will
provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending
the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or
her
shares in the fund or (b) remain invested in the
fund or
exchange into any of the funds of the Smith Barney
mutual funds ordinarily available, which position
the
shareholder would be expected to maintain for a
significant period of time. All relevant factors
will be
considered in determining what constitutes an
abusive
pattern of exchanges.
Certain shareholders may be able to exchange shares
by
telephone. See ''Redemption of Shares Telephone
Redemptions and Exchange Program.'' Exchanges will
be
processed at the net asset value next determined.
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. An exchange involves a taxable
redemption
of shares, subject to the tax treatment described
in
"Dividends, Distributions and Taxes" below,
followed by
a purchase of shares of a different fund. Before
exchanging shares, investors should read the
current
prospectus describing the shares to be acquired.
The
fund reserves the right to modify or discontinue
exchange privileges upon 60 days' prior notice to
shareholders.
Additional Information Regarding Telephone
Redemption
and Exchange Program
Neither the fund nor its agents will be liable for
instructions communicated by telephone that are
reasonably believed to be genuine. The fund or its
agents will employ procedures designed to verify
the
identity of the caller and legitimacy of
instructions
(for example, a shareholder's name and account
number
will be required and phone calls may be recorded).
The
fund reserves the right to suspend, modify or
discontinue the telephone redemption and exchange
program or to impose a charge for this service at
any
time following at least seven (7) days' prior
notice to
shareholders.
PERFORMANCE INFORMATION
From time to time, the fund may quote 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 data from the following
industry
and financial publications: Barron's, Business
Week, CDA
Investment Technologies, Inc., Changing Times,
Forbes,
Fortune, Institutional Investor, Investors Daily,
Money,
Morningstar Mutual Fund Values, The New York Times,
USA
Today and The Wall Street Journal.
Yield and Equivalent Taxable Yield
A Class' 30-day yield figure described below is
calculated according to a formula prescribed by the
SEC.
The formula can be expressed as follows:
YIELD =2 [(a-b +1)6-1]
cd
Where: a = dividends and interest earned
during
the period.
b = expenses accrued for the period
(net of
reimbursement).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share
on the last day of the period.
For the purpose of determining the interest earned
(variable "a'' in the formula) on debt obligations
that
were purchased by the fund at a discount or
premium, the
formula generally calls for amortization of the
discount
or premium. The amortization schedule will be
adjusted
monthly to reflect changes in the market values of
the
debt obligations.
The fund's equivalent taxable 30-day yield for a
Class
of shares is computed by dividing that portion of
the
Class' 30-day yield which is tax-exempt by one
minus a
stated income tax rate and adding the product to
that
portion, if any, of the Class' yield that is not
tax-
exempt.
The yields on municipal securities are dependent
upon a
variety of factors, including general economic and
monetary conditions, conditions of the municipal
securities market, size of a particular offering,
maturity of the obligation offered and rating of
the
issue. Investors should recognize that in periods
of
declining interest rates the fund's yield for each
Class
of shares will tend to be somewhat higher than
prevailing market rates, and in periods of rising
interest rates the fund's yield for each Class of
shares
will tend to be somewhat lower. Also, when interest
rates are falling, the inflow of net new money to
the
fund from the continuous sale of its shares will
likely
be invested in portfolio instruments producing
lower
yields than the balance of the fund's portfolio,
thereby
reducing the current yield of the fund. In periods
of
rising interest rates, the opposite can be expected
to
occur.
The fund's yield for Class A, Class B and Class L
shares
for the 30-day period ended November 30, 1999 was
4.95%,
4.64% and 4.57%, respectively. The equivalent
taxable
yield for Class A, Class B and Class L shares for
that
same period was 9.31%, 8.73% and 8.60%,
respectively,
assuming the payment of Federal income taxes at a
rate
of 39.6% and Massachusetts taxes at a rate of 12%.
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):
(8.58)% for the one-year period ended
November 30, 1999.
6.26% for the five-year period ended
November 30, 1999.
5.90% for the ten-year period ended
November 30, 1999.
6.73% per annum during the period from the
fund's commencement of operations on
December 21, 1987 through November 30,
1999.
A Class' average annual total return assumes that
the
maximum applicable sales charge or deferred sales
charge
assessed by the fund has been deducted from the
hypothetical investment. Had the maximum 4.00%
sales
charge not been deducted, Class A's average annual
total
return would have been (4.73)%, 7.13%, 6.33% and
7.10%,
respectively, for those same periods.
The fund's average annual total return for Class B
shares assuming the maximum applicable deferred
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):
(9.27)% for the one-year period ended
November 30, 1999.
6.42% for the five-year period ended
November 30, 1999.
4.88% per annum during the period from the
fund's commencement of operations on
November 6, 1992 through November 30, 1999.
Had the maximum applicable deferred sales charge
not
been deducted at the time of redemption, Class B's
average annual total return would have been
(5.18)%,
6.58% and 4.88%, respectively, for the same
periods.
The fund's average annual total return for Class L
shares assuming the maximum applicable deferred
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):
(7.10)% for the one-year period ended
November 30, 1999.
6.33% for the five-year period ended
November 30, 1999.
6.34% per annum during the period from the
fund's commencement of operations on
November 10, 1994 through November 30,
1999.
Had the maximum applicable deferred sales charge
not
been deducted at the time of redemption, Class L's
average annual total return would have been
(5.28)%,
6.53% and 6.54%.
Aggregate Total Return
"Aggregate total return" represents the cumulative
change in the value of an investment in the Class
for
the specified period and is computed by the
following
formula:
ERV-P
P
Where: P = a hypothetical initial payment of
$10,000.
ERV= Ending Redeemable Value of a
hypothetical $10,000 investment made
at the beginning of a 1-, 5-, or 10-
year period at the end of a 1-, 5-,
or 10-year period (or fractional
portion thereof), assuming
reinvestment of all dividends and
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):
(8.58)% for the one-year period ended
November 30, 1999.
35.48% for the five-year period ended
November 30, 1999.
77.38% for the ten-year period ended
November 30, 1999.
117.71% for the period from the fund's
commencement of operations on December 21,
1987 through November 30, 1999.
A Class' aggregate total return assumes that the
maximum
applicable sales charge or maximum applicable
deferred
sales charge 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 (4.73)%, 41.09%,
84.7%
and 126.88%, 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):
(9.27)% for the one-year period ended
November 30, 1999.
36.52% for the five-year period ended
November 30, 1999.
40.05% for the period from commencement of
operations on November 6, 1992 through
November 30, 1999.
If the maximum applicable deferred sales charge had
not
been deducted at the time of redemption, Class B's
aggregate total return for the same periods would
have
been (5.18)%, 37.52% and 40.05%, respectively.
The fund's aggregate total return for Class L
shares was
as follows for the period indicated (reflecting the
waiver of the fund's investment advisory and
administration fees and reimbursement of expenses):
(7.10)% for the one-year period ended
November 30, 1999.
35.90% for the five-year period ended
November 30, 1999.
36.45% for the period from commencement of
operations on November 10, 1994 through
November 30, 1999.
If the maximum applicable deferred sales charge had
not
been deducted at the time of redemption, Class L's
aggregate total return for the same periods would
have
been (5.28)%, 37.22% and 37.78%.
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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. The fund's policy is
to
declare and pay exempt-interest dividends monthly.
Dividends from net realized capital gains, if any,
will
be distributed annually. The fund may also pay
additional dividends shortly before December 31
from
certain amounts of undistributed ordinary income
and
capital gains, in order to avoid a Federal excise
tax
liability. If a shareholder does not otherwise
instruct, exempt-interest dividends and capital
gain
distributions will be reinvested automatically in
additional shares of the same Class at net asset
value,
with no additional sales charge or deferred sales
charge.
The per share amounts of the exempt-interest
dividends
on Class B and Class L shares may be lower than on
Class
A and Class Y shares, mainly as a result of the
distribution fees applicable to Class B and Class L
shares. Similarly, the per share amounts of
exempt-
interest dividends on Class A shares may be lower
than
on Class Y shares, as a result of the service fee
attributable to Class A shares. Capital gain
distributions, if any, will be the same across all
Classes of fund shares (A, B, L and Y).
Taxes. The following is a summary of the material
United
States federal income tax considerations regarding
the
purchase, ownership and disposition of shares of
the
fund. Each prospective shareholder is urged to
consult
his own tax adviser with respect to the specific
federal, state and local consequences of investing
in
the fund. The summary is based on the laws in
effect on
the date of this SAI, which are subject to change.
The fund and its investments
As described 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
tax-exempt income irrespective of fluctuations in
principal. Investment in the fund would not be
suitable
for tax-exempt 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 tax-exempt income.
The fund intends to continue to qualify to be
treated as
a regulated investment company each taxable year
under
the Code. To so qualify, the fund must, among
other
things: (a) derive at least 90% of its gross income
in
each taxable year from dividends, interest,
payments
with respect to securities loans, and gains from
the
sale or other disposition of stock or securities or
foreign currencies, or other income (including, but
not
limited to, gains from options, futures or forward
contracts) derived with respect to its business of
investing in such stock, securities or currencies;
and
(b) diversify its holdings so that, at the end of
each
quarter of the fund's taxable year, (i) at least
50% of
the market value of the fund's assets is
represented by
cash, securities of other regulated investment
companies, United States government securities and
other
securities, with such other securities limited, in
respect of any one issuer, to an amount not greater
than
5% of the fund's assets and not greater than 10% of
the
outstanding voting securities of such issuer and
(ii)
not more than 25% of the value of its assets is
invested
in the securities (other than United States
government
securities or securities of other regulated
investment
companies) of any one issuer or any two or more
issuers
that the fund controls and are determined to be
engaged
in the same or similar trades or businesses or
related
trades or businesses.
As a regulated investment company, the fund will
not be
subject to United States federal income tax on its
net
investment income (i.e., income other than its net
realized long- and short-term capital gains) and
its net
realized long- and short-term capital gains, if
any,
that it distributes to its shareholders, provided
that
an amount equal to at least 90% of its investment
company taxable income (i.e., 90% of its taxable
income
minus the excess, if any, of its net realized long-
term
capital gains over its net realized short-term
capital
losses (including any capital loss carryovers),
plus or
minus certain other adjustments as specified in the
Code) and 90% of its net tax-exempt income for the
taxable year is distributed in compliance with the
Code's timing and other requirements but will be
subject
to tax at regular corporate rates on any taxable
income
or gains that it does not distribute.
The Code imposes a 4% nondeductible excise tax on
the
fund to the extent it does not distribute by the
end of
any calendar year at least 98% of its net
investment
income for that year and 98% of the net amount of
its
capital gains (both long-and short-term) for the
one-
year period ending, as a general rule, on October
31 of
that year. For this purpose, however, any income
or
gain retained by the fund that is subject to
corporate
income tax will be considered to have been
distributed
by year-end. In addition, the minimum amounts that
must
be distributed in any year to avoid the excise tax
will
be increased or decreased to reflect any
underdistribution or overdistribution, as the case
may
be, from the previous year. The fund anticipates
that
it will pay such dividends and will make such
distributions as are necessary in order to avoid
the
application of this tax.
If, in any taxable year, the fund fails to qualify
as a
regulated investment company under the Code or
fails to
meet the distribution requirement, it would be
taxed in
the same manner as an ordinary corporation and
distributions to its shareholders would not be
deductible by the fund in computing its taxable
income.
In addition, in the event of a failure to qualify,
the
fund's distributions, to the extent derived from
the
fund's current or accumulated earnings and profits
would
constitute dividends (eligible for the corporate
dividends-received deduction) which are taxable to
shareholders as ordinary income, even though those
distributions might otherwise (at least in part)
have
been treated in the shareholders' hands as tax-
exempt
interest. If the fund fails to qualify as a
regulated
investment company in any year, it must pay out its
earnings and profits accumulated in that year in
order
to qualify again as a regulated investment company.
In
addition, the fund may be required to recognize any
net
built-in gains (the excess of the aggregate gains,
including items of income, over aggregate losses
that
would have been realized if it had been liquidated)
in
order to qualify as a regulated investment company
in a
subsequent year.
On November 30, 1999, the unused capital loss
carryovers
by the fund were approximately$382,000. For Federal
income tax purposes, this amount is available to be
applied against future capital gains of the fund
that
has the carryovers, if any, that is realized prior
to
the expiration of the applicable carryover. The
carryover expires in 2007.
The fund's transactions in municipal bond index and
interest rate futures contracts and options on
these
futures contracts (collectively "section 1256
contracts") will be subject to special provisions
of the
Code (including provisions relating to "hedging
transactions" and "straddles") that, among other
things,
may affect the character of gains and losses
realized by
the fund (i.e., may affect whether gains or losses
are
ordinary or capital), accelerate recognition of
income
to the fund and defer fund losses. These rules
could
therefore affect the character, amount and timing
of
distributions to shareholders. These provisions
also (a)
will require the fund to mark-to-market certain
types of
the positions in its portfolio (i.e., treat them as
if
they were closed out) and (b) may cause the fund to
recognize income without receiving cash with which
to
pay dividends or make distributions in amounts
necessary
to satisfy the distribution requirements for
avoiding
income and excise taxes. The fund will monitor its
transactions, will make the appropriate tax
elections
and will make the appropriate entries in its books
and
records when it engages in these transactions in
order
to mitigate the effect of these rules and prevent
disqualification of the fund as a regulated
investment
company.
All section 1256 contracts held by the fund at the
end
of its taxable year are required to be marked to
their
market value, and any unrealized gain or loss on
those
positions will be included in the fund's income as
if
each position had been sold for its fair market
value at
the end of the taxable year. The resulting gain or
loss
will be combined with any gain or loss realized by
the
fund from positions in section 1256 contracts
closed
during the taxable year. Provided such positions
were
held as capital assets and were not part of a
"hedging
transaction" nor part of a "straddle," 60% of the
resulting net gain or loss will be treated as long-
term
capital gain or loss, and 40% of such net gain or
loss
will be treated as short-term capital gain or loss,
regardless of the period of time the positions were
actually held by the fund.
Taxation of 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 exempt-interest dividends with
respect to any share and if such share is held by
the
shareholder for six months or less, then, for
Federal
income tax purposes, any loss on the sale or
exchange of
such share may, to the extent of exempt-interest
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 tax-exempt status in the
hands of
a shareholder who is a "substantial user" of a
facility
financed by such bonds or a "related person"
thereof.
Moreover, 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. In
addition,
the receipt of the fund's dividends and
distributions
may affect a foreign corporate shareholder's
Federal
"branch profits" tax liability and 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 branch profits tax or the Federal "excess
net
passive income" tax.
The fund does not expect to realize a significant
amount
of capital gains. Net realized short-term capital
gains
are taxable to a United States shareholder as
ordinary
income, whether paid in cash or in shares.
Distributions of net-long-term capital gains, if
any,
that the fund designates as capital gains dividends
are
taxable as long-term capital gains, whether paid in
cash
or in shares and regardless of how long a
shareholder
has held shares of the fund.
Upon the sale or exchange of his shares, a
shareholder
will realize a taxable gain or loss equal to the
difference between the amount realized and his
basis in
his shares. Such gain or loss will be treated as
capital gain or loss, if the shares are capital
assets
in the shareholder's hands, and will be long-term
capital gain or loss if the shares are held for
more
than one year and short-term capital gain or loss
if the
shares are held for one year or less. Any loss
realized
on a sale or exchange will be disallowed to the
extent
the shares disposed of are replaced, including
replacement through the reinvesting of dividends
and
capital gains distributions in the fund, within a
61-day
period beginning 30 days before and ending 30 days
after
the disposition of the shares. In such a case, the
basis
of the shares acquired will be increased to reflect
the
disallowed loss. Any loss realized by a shareholder
on
the sale of a fund share held by the shareholder
for six
months or less (to the extent not disallowed
pursuant to
the six-month rule described above relating to
exempt-
interest dividends) will be treated for United
States
federal income tax purposes as a long-term capital
loss
to the extent of any distributions or deemed
distributions of long-term capital gains received
by the
shareholder with respect to such share.
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 (e.g., an 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, the disregarded portion of the
original sales charge 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
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.
Backup Withholding. The fund may be required to
withhold, for United States federal income tax
purposes,
31% of (a) taxable dividends and distributions and
(b)
redemption proceeds payable to shareholders who
fail to
provide the fund with their correct taxpayer
identification number or to make required
certifications, or who have been notified by the
IRS
that they are subject to backup withholding.
Certain
shareholders are exempt from backup withholding.
Backup
withholding is not an additional tax and any amount
withheld may be credited against a shareholder's
United
States federal income tax liabilities.
Notices. Shareholders will be notified annually by
the
fund as to the United States federal income tax and
Massachusetts personal income tax status of the
dividends and distributions made by the fund to its
shareholders. These statements also will designate
the
amount of exempt-interest dividends that is a
preference
item for purposes of the Federal individual and
corporate alternative minimum taxes. 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.
Massachusetts Taxation
Individual shareholders who are otherwise subject
to
Massachusetts personal income tax will not be
subject to
Massachusetts personal income tax on exempt-
interest
dividends received from the fund to the extent the
dividends are attributable to interest on
obligations of
the Commonwealth of Massachusetts and its political
subdivisions, agencies and public authorities (or
on
obligations of certain other governmental issuers
such
as Puerto Rico, the Virgin Islands and Guam) that
pay
interest which is excluded from gross income for
Federal
income tax purposes and exempt from Massachusetts
personal income taxes. Other distributions from
the
fund, including those related to long-and short-
term
capital gains, other than certain gains from
certain
Massachusetts Municipal Securities identified by
the
Massachusetts Department of revenue, generally will
not
be exempt from Massachusetts personal income tax.
Businesses should note that 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 material
tax
consequences affecting the fund and its
shareholders.
Shareholders are advised to consult their own tax
advisers with respect to the particular tax
consequences
to them of an investment in the fund.
ADDITIONAL INFORMATION
PNC, located at 17th and Chestnut Streets,
Philadelphia,
Pennsylvania 19103, 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.
Smith Barney Private Trust Company located at 388
Greenwich Street, New York, New York 10013, serves
as
the Transfer Agent and shareholder services agent
of the
fund.
PFPC Global Fund Services located at P.O. Box 9699,
Providence, Rhode Island 02940-9699, serves as the
fund's sub-transfer agent to render certain
shareholder
record-keeping and accounting services functions.
The fund is a Massachusetts 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 July 30, 1993
and
October 14, 1994, the fund changed its name to
Smith
Barney Shearson Massachusetts Municipals Fund and
Smith
Barney Massachusetts Municipals Fund, respectively.
Under Massachusetts's 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 non-assessable.
Pursuant to the Master Trust Agreement, the fund's
trustees may authorize the creation of additional
series
of shares (the proceeds of which would be invested
in
separate, independently managed portfolios) and
additional classes of shares within any series
(which
would be used to distinguish among the rights of
different categories of shareholders, as might be
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, 1999 is incorporated herein by
reference in
its entirety. The annual report was filed on
February
15, 2000, Accession Number 0000091155-00-000109.
OTHER INFORMATION
In an industry where the average portfolio manager
has
seven years of experience (source: ICI, 1998), the
portfolio managers of Smith Barney mutual funds
average
21 years in the industry and 15 years with the
firm.
Smith Barney mutual funds offers more than 60
mutual
funds. We understand that many investors prefer an
active role in allocating the mix of funds in their
portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund
management
that can be tailored to suit each investor's unique
financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation
decisions in conjunction with their Salomon Smith
Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range
of equity and fixed income strategies that seek
to capture opportunities across asset classes and
investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a fund of funds, investors can select a
Concert Portfolio that may help their investment
needs. As needs change, investors can easily
choose another long-term, diversified investment
from our Concert family.
Special Discipline Series
Our Special Discipline Series funds are
designed
for investors who are looking beyond more
traditional market categories: from natural
resources to a roster of state-specific municipal
funds.
APPENDIX A
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 SP-1, -2
or
- -3) by S&P to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated
SP-1
have a very strong or strong capacity to pay
principal
and interest. Those issues determined to possess
overwhelming safety characteristics are given the
designation of SP-1+. Notes rated SP-2 have a
satisfactory capacity to pay principal and
interest.
Moody's Ratings for Municipal Bonds
Aaa
Bonds that are Aaa are judged to be of the best
quality.
They carry the smallest degree of investment risk
and
are generally referred to as "gilt edge.'' Interest
payments are protected by a large or by an
exceptionally
stable margin and principal is secure. While the
various protective elements are likely to change,
such
changes as can be visualized are most unlikely to
impair
the fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be of high
quality
by all standards. Together with the Aaa group they
comprise what are generally known as high grade
bonds.
They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements
may be
of greater amplitude or there may be other elements
present which make the long-term risks appear
somewhat
larger than in Aaa securities.
A
Bonds that are rated A possess many favorable
investment
attributes and are to be considered as upper
medium-
grade obligations. Factors giving security to
principal
and interest are considered adequate, but elements
may
be present which suggest a susceptibility to
impairment
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 above-average
long-
term fundamental operating and financing
capabilities
combined with ongoing excellent liquidity
characteristics. Paper rated A-1 by S&P has the
following characteristics: liquidity ratios are
adequate
to meet cash requirements; long-term senior debt is
rated "A'' or better; the issuer has access to at
least
two additional channels of borrowing; basic
earnings and
cash flow have an upward trend with 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
March 29, 2000
Smith Barney Massachusetts Municipals Fund
388 Greenwich Street
New York, NY 10013
SALOMON
SMITH BARNEY
A Member
of Citigroup [Symbol]
14
u:\fundaccounting\legal\funds\mamu\2000\secdocs\mas
smunisai2000
Part C. Other Information
Item 23. Exhibits
Unless otherwise noted, all references
are to the Registrant's Registration
Statement on Form N-1A (the
"Registration Statement") as filed with
the SEC on January 26, 1987 (File Nos.
33-11417 and 811-4994).
(a) (1) First Amended and Restated Master Trust
Agreement, dated November 5, 1992, is
incorporated by reference to Post-
Effective Amendment No. 12 filed on
November 26, 1994 ("Post-Effective
Amendment No. 12").
(a) (2) Amendment No. 1 to the Registrant's
Amended and Restated Master Trust
Agreement is incorporated by reference
to Post-Effective Amendment No. 12.
(a) (3) 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 ("Post-
Effective Amendment No. 15").
(a) (4) Articles of Amendment dated June 1,
1998 to the Articles of Incorporation
is incorporated by reference to Post-
Effective Amendment No. 19 filed on
March 4, 1999 ("Post-Effective
Amendment No. 19").
(b) Registrant's by-laws are incorporated
by reference to the Registration Statement.
(c) Registrant's form of stock certificate
is incorporated by reference to Post-
Effective Amendment No. 9 filed on
October 23, 1992 ("Post-Effective
Amendment No. 9").
(d) (1) Investment Advisory Agreement
dated July 30, 1993 between the Registrant and
Greenwich Street Advisors is
incorporated by reference to Post-Effective
Amendment
No. 12.
(d) (2) Form of Transfer and Assumption of
Investment Advisory Agreement between
the Registrant, Mutual Management Corp.
and Smith Barney Mutual Funds
Management Inc. is incorporated by
reference to Post-Effective Amendment
No. 16.
(e) (1) Distribution Agreement dated July
30, 1993, between the Registrant and Smith Barney
Shearson Inc. is incorporated by
reference to Post-Effective Amendment No. 12.
(e) (2) Form of Distribution Agreement between
Registrant and CFBDS, Inc. is
incorporated by reference to Post-
Effective Amendment No. 19.
(e)(3) Selling Group Agreement is incorporated
by reference to Post-Effective No. 20
("Post-Effective No. 20") which was
filed on March 30, 1999.
(f) Not applicable.
(g) Form of Custodian Agreement between the
Registrant and PNC Bank, National
Association is incorporated by
reference to Post-Effective Amendment
No. 16.
(h) (1) Administration Agreement between the
Registrant and Smith, Barney Advisers,
Inc., dated April 20, 1994 is
incorporated by reference to Post-
Effective Amendment No. 15.
(h) (2) 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.
(i)(a) Opinion of Counsel regarding legality
of shares being registered is
incorporated by reference to the
Registration Statement filed on January
26, 1987..
(i)(b) Legal Counsel's Consent is incorporated
by reference to Post-Effective
Amendment No.20 filed on March 30,
1999.
(j) Consent of Independent Auditors is
filed herein.
(k) Not applicable.
(l) Purchase Agreement between the
Registrant and Shearson Lehman Brothers
is incorporated by reference to the
Registration Statement dated January
26, 1987.
(m) (1) 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.
(m) (2) Form of Amended Service and
Distribution Plan pursuant to Rule 12b-
1 between the Registrant and Salomon
Smith Barney Inc. is incorporated by
reference to Post-Effective Amendment
No. 19.
(n) Financial Data Schedule is filed
herein.
(o) (1) Form of Rule 18f-3(d) Multiple
Class Plan of the Registrant is incorporated by
reference to Post-Effective Amendment
No. 16.
(o) (2) Form of Rule 18f-3(d) Multiple Class
Plan of the Registrant is incorporated
by reference to Post-Effective
Amendment No. 19.
(p) Code of Ethics is filed herein.
Item 24. Persons Controlled by or Under
Common Control with Registrant
None.
Item 25. Indemnification.
The response to this item is incorporated by
reference to the Registration Statement.
Item 26. Business and Other Connections of
Investment Adviser
Investment Adviser - - SSB Citi Fund Management LLC
("SSB Citi") successor to SSBC Fund Management Inc.
("SSBC")
SSB Citi was incorporated in December 1968 under the
laws of the State of Delaware. On September 21,
1999, SSB Citi was converted into a Delaware Limited
Liability Company. SSB Citi is a wholly owned
subsidiary of Salomon Smith Barney Holdings Inc.
(formerly known as Smith Barney Holdings Inc.) which
in turn is a wholly owned subsidiary of Citigroup
Inc. ("Citigroup"). SSB Citi is registered as an
investment adviser under the Investment Advisers Act
of 1940 (the "Advisers Act").
The list required by this Item 26 of officers and
directors of SSB Citi 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 SSBC pursuant to the
Advisers Act (SEC File No. 801-8314).
Item 27. Principal Underwriters
(a) CFBDS, Inc., ("CFBDS") the Registrant's
Distributor, is also the distributor for the
following Smith Barney funds: Concert Investment
Series, Consulting Group Capital Markets Funds,
Greenwich Street Series Fund, Smith Barney
Adjustable Rate Government Income Fund, Smith
Barney Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund Inc., Smith Barney Arizona
Municipals Fund Inc., Smith Barney California
Municipals Fund Inc., Smith Barney Concert
Allocation Series Inc., Smith Barney Equity
Funds, Smith Barney Fundamental Value Fund Inc.,
Smith Barney Funds, Inc., Smith Barney Income
Funds, Smith Barney Institutional Cash
Management Fund, Inc., Smith Barney Investment
Funds Inc., Smith Barney Investment Trust, Smith
Barney Managed Governments Fund Inc., Smith
Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Smith
Barney Money Funds, Inc., Smith Barney Muni
Funds, Smith Barney Municipal Money Market Fund,
Inc., Smith Barney New Jersey Municipals Fund
Inc., Smith Barney Oregon Municipals Fund Inc.,
Smith Barney Principal Return Fund, Smith Barney
Sector Series Inc., Smith Barney Small Cap Blend
Fund, Inc., Smith Barney Telecommunications
Trust, Smith Barney Variable Account Funds,
Smith Barney World Funds, Inc., Travelers Series
Fund Inc., and various series of unit investment
trusts.
CFBDS also serves as the distributor for the
following funds: The Travelers Fund UL for Variable
Annuities, The Travelers Fund VA for Variable
Annuities, The Travelers Fund BD for Variable
Annuities, The Travelers Fund BD II for Variable
Annuities, The Travelers Fund BD III for Variable
Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable
Annuities, The Travelers Fund ABD II for Variable
Annuities, The Travelers Separate Account PF for
Variable Annuities, The Travelers Separate Account
PF II for Variable Annuities, The Travelers
Separate Account QP for Variable Annuities, The
Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for
Variable Annuities, The Travelers Separate Account
Five for Variable Annuities, The Travelers Separate
Account Six for Variable Annuities, The Travelers
Separate Account Seven for Variable Annuities, The
Travelers Separate Account Eight for Variable
Annuities, The Travelers Fund UL for Variable
Annuities, The Travelers Fund UL II for Variable
Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life
Insurance Separate Account Two, The Travelers
Variable Life Insurance Separate Account Three, The
Travelers Variable Life Insurance Separate Account
Four, The Travelers Separate Account MGA, The
Travelers Separate Account MGA II, The Travelers
Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for
Variable Annuities, The Travelers Money Market
Account for Variable Annuities, The Travelers Timed
Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed
Aggressive Stock Account for Variable Annuities,
The Travelers Timed Bond Account for Variable
Annuities.
In addition, CFBDS, the Registrant's Distributor,
is also the distributor for CitiFunds Multi-State
Tax Free Trust, CitiFunds Premium Trust, CitiFunds
Institutional Trust, CitiFunds Tax Free Reserves,
CitiFunds Trust I, CitiFunds Trust II, CitiFunds
Trust III, CitiFunds International Trust, CitiFunds
Fixed Income Trust, CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400,
CitiSelect VIP Folio 500, CitiFunds Small Cap
Growth VIP Portfolio. CFBDS is also the placement
agent for Large Cap Value Portfolio, Small Cap
Value Portfolio, International Portfolio, Foreign
Bond Portfolio, Intermediate Income Portfolio,
Short-Term Portfolio, Growth & Income Portfolio,
U.S. Fixed Income Portfolio, Large Cap Growth
Portfolio, Small Cap Growth Portfolio,
International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves
Portfolio, Cash Reserves Portfolio and U.S.
Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the
following Salomon Brothers funds: Salomon Brothers
Opportunity Fund Inc., Salomon Brothers Investors
Fund Inc., Salomon Brothers Capital Fund Inc.,
Salomon Brothers Series Funds Inc., Salomon
Brothers Institutional Series Funds Inc., Salomon
Brothers Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the
Centurion Funds, Inc.
(b) The information required by this Item 27 with
respect to each director and officer of CFBDS is
incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and
Exchange Act of 1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accountants and
Records
(1) Smith Barney Massachusetts Municipals
Fund
388 Greenwich Street
New York, New York 10013
(2) SSB Citi Fund Management LLC
(successor to SSBC Fund Management
Inc.)
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(4) Smith Barney Private Trust Company
388 Greenwich Street
New York, New York 10013
(5) PFPC Global Fund Services
(formerly known as First Data Investor
Services Group, Inc.)
101 Federal Street
Boston, Massachusetts 02110
(6) CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
None.
Exhibit Index
Exhibit No. Exhibit
(i) Consent of Independent Auditors
(n) Financial Data Schedule
(p) Code of Ethics
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933 (the "Securities Act") and
the Investment Company Act of 1940, the Registrant,
SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND,
certifies that it meets all of the requirements for
effectiveness of this registration statement under
rule 485(b) under the Securities Act 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 29th day of March, 2000.
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
March 29, 2000
(Chief Executive
Officer)
/s/Lewis E. Daidone *
Lewis E. Daidone Treasurer
March 29, 2000
(Chief Financial and
Accounting Officer)
/s/Herbert Barg *
Herbert Barg Trustee
March 29, 2000
/s/Alfred Bianchetti *
Alfred J. Bianchetti Trustee
March 29, 2000
/s/Martin Brody *
Martin Brody Trustee
March 29, 2000
/s/Dwight B. Crane *
Dwight B. Crane Trustee
March 29, 2000
/s/Burt N. Dorsett *
Burt N. Dorsett Trustee
March 29, 2000
/s/Elliot S. Jaffe *
Elliot S. Jaffe Trustee
March 29, 2000
/s/Stephen E. Kaufman *
Stephen E. Kaufman Trustee
March 29, 2000
/s/Joseph J. McCann *
Joseph J. McCann Trustee
March 29, 2000
/s/Cornelius C. Rose, Jr. *
Cornelius C. Rose, Jr. Trustee
March 29, 2000
Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant to the power of
attorney.
/s/Heath B. McLendon
Heath B. McLendon
PERSONAL INVESTMENT POLICY
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
SSB Citi Asset Management Group ("SSB Citi") , and
those U.S.?registered investment companies advised or
managed by SSB Citi that have adopted this policy
("Funds"), have adopted this policy on securities
transactions in order to accomplish two goals: first,
to minimize conflicts and potential conflicts of
interest between employees of SSB Citi and SSB Citi's
clients (including the Funds), and between Fund
directors or trustees and their Funds, and second, to
provide policies and procedures consistent with
applicable law, including Rule 17j-1 under the
Investment Company Act of 1940, to prevent fraudulent
or manipulative practices with respect to purchases
or sales of securities held or to be acquired by
client accounts. All U.S. employees of SSB Citi,
including employees who serve as Fund officers or
directors, and all directors or trustees
("directors") of each Fund, are Covered Persons under
this policy. Other Covered Persons are described in
Section II below.
I. Statement of Principles - All SSB Citi
employees owe a fiduciary duty to SSB Citi's clients
when conducting their personal investment
transactions. Employees must place the interests of
clients first and avoid activities, interests and
relationships that might interfere with the duty to
make decisions in the best interests of the clients.
All Fund directors owe a fiduciary duty to each Fund
of which they are a director and to that Fund's
shareholders when conducting their personal
investment transactions. At all times and in all
matters Fund directors shall place the interests of
their Funds before their personal interests. The
fundamental standard to be followed in personal
securities transactions is that Covered Persons may
not take inappropriate advantage of their positions.
All personal securities transactions by Covered
Persons shall adhere to the requirements of this
policy and shall be conducted in such a manner as to
avoid any actual or potential conflict of interest,
the appearance of such a conflict, or the abuse of
the person's position of trust and responsibility.
While this policy is designed to address both
identified conflicts and potential conflicts, it
cannot possibly be written broadly enough to cover
all potential situations. In this regard, Covered
Persons are expected to adhere not only to the
letter, but also the spirit of the policies contained
herein.
Employees are reminded that they also are subject to
other Citigroup policies, including policies on
insider trading, the purchase and sale of securities
listed on any applicable SSB Citi restricted list,
the receipt of gifts and service as a director of a
publicly traded company. Employees must never trade
in a security or commodity while in possession of
material, non-public information about the issuer or
the market for those securities or commodities, even
if the employee has satisfied all other requirements
of this policy.
The reputation of SSB Citi and its employees for
straightforward practices and integrity is a
priceless asset, and all employees have the duty and
obligation to support and maintain it when conducting
their personal securities transactions.
II. Applicability - SSB Citi Employees - This
policy applies to all U.S. employees of SSB Citi,
including part-time employees. Each employee,
including employees who serve as Fund officers or
directors, must comply with all of the provisions of
the policy applicable to SSB Citi employees unless
otherwise indicated. Certain employees are considered
to be "investment personnel" (i.e., portfolio
managers, traders and research analysts (and each of
their assistants)), and as such, are subject to
certain additional restrictions outlined in the
policy. All other employees of SSB Citi are
considered to be "advisory personnel."
Generally, temporary personnel and consultants
working in any SSB Citi business are subject to the
same provisions of the policy as full-time employees,
and their adherence to specific requirements will be
addressed on a case-by-case basis.
The personal investment policies, procedures and
restrictions referred to herein also apply to an
employee's spouse and minor children. The policies
also apply to any other account over which the
employee is deemed to have beneficial ownership. This
includes: accounts of any immediate family members
sharing the same household as the employee; accounts
of persons or other third parties for whom the
employee exercises investment discretion or gives
investment advice; a legal vehicle in which the
employee has a direct or indirect beneficial interest
and has power over investment decisions; accounts for
the benefit of a third party (e.g., a charity) which
may be directed by the employee (other than in the
capacity of an employee); and any account over which
the employee may be deemed to have control. For a
more detailed description of beneficial ownership,
see Exhibit A attached hereto.
These policies place certain restrictions on the
ability of an employee to purchase or sell securities
that are being or have been purchased or sold by an
SSB Citi managed fund or client account. The
restrictions also apply to securities that are
"related" to a security being purchased or sold by an
SSB Citi managed fund or client account. A "related
security" is one whose value is derived from the
value of another security (e.g., a warrant, option or
an indexed instrument).
Fund Directors - This policy applies to all directors
of Funds that have adopted this policy. The personal
investment policies, procedures and restrictions that
specifically apply to Fund directors apply to all
accounts and securities in which the director has
direct or indirect beneficial ownership. See Exhibit
A attached hereto for a more detailed description of
beneficial ownership.
Securities are defined as stocks, notes, bonds,
closed-end mutual funds, debentures, and other
evidences of indebtedness, including senior debt,
subordinated debt, investment contracts, commodity
contracts, futures and all derivative instruments
such as options, warrants and indexed instruments,
or, in general, any interest or instrument commonly
known as a "security."
III. Enforcement - It is the responsibility of each
Covered Person to act in accordance with a high
standard of conduct and to comply with the policies
and procedures set forth in this document. SSB Citi
takes seriously its obligation to monitor the
personal investment activities of its employees. Any
violation of this policy by employees will be
considered serious, and may result in disciplinary
action, which may include the unwinding of trades,
disgorgement of profits, monetary fine or censure,
and suspension or termination of employment. Any
violation of this policy by a Fund director will be
reported to the Board of Directors of the applicable
Fund, which may impose such sanctions as it deems
appropriate.
IV. Opening and Maintaining Employee Accounts - All
employee brokerage accounts, including spouse
accounts, accounts for which the employee is deemed
to have beneficial ownership, and any other accounts
over which the employee and/or spouse exercise
control, must be maintained either at Salomon Smith
Barney ("SSB") or at Citicorp Investment Services
("CIS"). For spouses or other persons who, by
reason of their employment, are required to conduct
their securities, commodities or other financial
transactions in a manner inconsistent with this
policy, or in other exceptional circumstances,
employees may submit a written request for an
exemption to the Compliance Department. If approval
is granted, copies of trade confirmations and monthly
statements must be sent to the Compliance Department.
In addition, all other provisions of this policy will
apply.
V. Excluded Accounts and Transactions - The
following types of accounts/transactions need not be
maintained at SSB or CIS, nor are they subject to the
other restrictions of this policy:
1. Accounts at outside mutual funds that hold only
shares of open-end funds purchased directly from that
fund company. Note: transactions relating to
closed-end funds are subject to the pre-clearance,
blackout period and other restrictions of this
policy;
2. Estate or trust accounts in which an employee
or related person has a beneficial interest, but no
power to affect investment decisions. There must be
no communication between the account(s) and the
employee with regard to investment decisions prior to
execution. The employee must direct the trustee/bank
to furnish copies of confirmations and statements to
the Compliance Department;
3. Fully discretionary accounts managed by either
an internal or external registered investment adviser
are permitted and may be custodied away from SSB and
CIS if (i) the employee receives permission from the
Regional Director of Compliance and the unit's Chief
Investment Officer, and (ii) there is no
communication between the manager and the employee
with regard to investment decisions prior to
execution. The employee must designate that copies
of trade confirmations and monthly statements be sent
to the Compliance Department;
4. Employees may participate in direct investment
programs which allow the purchase of securities
directly from the issuer without the intermediation
of a broker/dealer provided that the timing and size
of the purchases are established by a pre-arranged,
regularized schedule (e.g., dividend reinvestment
plans). Employees must pre-clear the transaction at
the time that the dividend reinvestment plan is being
set up. Employees also must provide documentation of
these arrangements and direct periodic (monthly or
quarterly) statements to the Compliance Department;
and
5. In addition to the foregoing, the following
types of securities are exempted from pre-clearance,
blackout periods, reporting and short-term trading
requirements: open-ended mutual funds; open-end unit
investment trusts; U.S. Treasury bills, bonds and
notes; mortgage pass-throughs (e.g. Ginnie Maes) that
are direct obligations of the U.S. government;
bankers acceptances; bank certificates of deposit;
commercial paper; and high quality short-term debt
instruments (meaning any instrument that has a
maturity at issuance of less than 366 days and that
is rated in one of the two highest rating categories
by a nationally recognized statistical rating
organization, such as S&P or Moody's), including
repurchase agreements.
VI. Securities Holding Period/Short-Term Trading -
Securities transactions must be for investment
purposes rather than for speculation. Consequently,
employees may not profit from the purchase and sale,
or sale and purchase, of the same or equivalent
securities within sixty (60) calendar days,
calculated on a First In, First Out (FIFO) basis
(i.e., the security may be sold on the 61st day).
Citigroup securities received as part of an
employee's compensation are not subject to the 60-day
holding period. All profits from short-term trades
are subject to disgorgement. However, with the prior
written approval of both a Chief Investment Officer
and the Regional Director of Compliance, and only in
rare and/or unusual circumstances, an employee may
execute a short-term trade that results in a
significant loss or in break-even status.
VII. Pre-Clearance - All SSB Citi employees must
pre-clear all personal securities transactions (see
Section V for a listing of accounts, transactions and
securities that do not require pre-clearance). A copy
of the pre-clearance form is attached as Exhibit B.
In addition, employees are prohibited from engaging
in more than twenty (20) transactions in any calendar
month, except with prior written approval from their
Chief Investment Officer, or designee. A transaction
must not be executed until the employee has received
the necessary approval. Pre-clearance is valid only
on the day it is given. If a transaction is not
executed on the day pre-clearance is granted, it is
required that pre-clearance be sought again on a
subsequent day (i.e., open orders, such as limit
orders, good until cancelled orders and stop-loss
orders, must be pre-cleared each day until the
transaction is effected). In connection with
obtaining approval for any personal securities
transaction, employees must describe in detail any
factors which might be relevant to an analysis of the
possibility of a conflict of interest. Any trade
that violates the pre-clearance process may be
unwound at the employee's expense, and the employee
will be required to absorb any resulting loss and to
disgorge any resulting profit.
In addition to the foregoing, the CGAM NA Director of
Global Equity Research, or his designate, must
approve all personal securities transactions for
members of the CGAM Research Department prior to pre-
clearance from the Compliance Department as set forth
in this section. Pre-approval by the Director of
Research, or his designate, is in addition to and
does not replace the requirement for the pre-
clearance of all personal securities transactions.
VIII. Blackout Periods - No Covered Person shall
purchase or sell, directly or indirectly, any
security in which he/she has, or by reason of the
transaction acquires, any direct or indirect
beneficial ownership if he/she has knowledge at the
time of such transaction that the security is being
purchased or sold, or is being considered for
purchase or sale, by a managed fund or client account
or in the case of a Fund director, by the director's
Fund. In addition, the following Blackout Periods
apply to the categories of SSB Citi employees listed
below:
1. Portfolio Managers and Portfolio Manager
Assistants - may not buy or sell any securities for
personal accounts seven (7) calendar days before or
after managed funds or client accounts he/she manages
trade in that security.
2. Traders and Trader Assistants - may not buy or
sell any securities for personal accounts three (3)
calendar days before or seven (7) calendar days after
managed funds or client accounts he/she executes
trades for trade in that security.
3. Research Analysts and Research Assistants - may
not buy or sell any securities for personal accounts:
seven (7) calendar days before or after the issuance
of or a change in any recommendation; or seven (7)
calendar days before or after any managed fund or
client account about which the employee is likely to
have trading or portfolio information (as determined
by the Compliance Department) trades in that
security.
4. Advisory Personnel (see Section II for details)
- - may not buy or sell any securities for personal
accounts on the same day that a managed fund or
client account about which the employee is likely to
have trading or portfolio information (as determined
by the Compliance Department) trades in that
security.
5. Unit Trust Personnel - all employees assigned
to the Unit Trust Department are prohibited from
transacting in any security when a SSB Citi-sponsored
Unit Trust portfolio is buying the same (or a
related) security, until seven business days after
the later of the completion of the accumulation
period or the public announcement of the trust
portfolio. Similarly, all UIT employees are
prohibited from transacting in any security held in a
UIT (or a related security) seven business days prior
to the liquidation period of the trust.
Employees in the above categories may also be
considered Advisory Personnel for other accounts
about which the employee is likely to have trading or
portfolio information (as determined by the
Compliance Department).
Any violation of the foregoing provisions will
require the employee's trade to be unwound, with the
employee absorbing any resulting loss and disgorging
any resulting profit. Advisory personnel are subject
to the unwinding of the trade provision; however,
they may not be required to absorb any resulting loss
(at the discretion of the Compliance Department and
the employee's supervisor). Please be reminded that,
regardless of the provisions set forth above, all
employees are always prohibited from effecting
personal securities transactions based on material,
non-public information.
Blackout period requirements shall not apply to any
purchase or sale, or series of related transactions
involving the same or related securities, involving
500 or fewer shares in the aggregate if the issuer
has a market capitalization (outstanding shares
multiplied by the current price per share) greater
than $10 billion and is listed on a U.S. Stock
Exchange or NASDAQ. Note: Pre-clearance is still
required. Under certain circumstances, the Compliance
Department may determine that an employee may not
rely upon this "Large Cap/De Minimis" exemption. In
such a case, the employee will be notified prior to
or at the time the pre-clearance request is made.
IX. Prohibited Transactions - The following
transactions by SSB Citi employees are prohibited
without the prior written approval from the Chief
Investment Officer, or designee, and the Regional
Compliance Director:
1. The purchase of private placements; and
2. The acquisition of any securities in an initial
public offering (new issues of municipal debt
securities may be acquired subject to the other
requirements of this policy (e.g., pre-clearance).)
X. Transactions in Options and Futures - SSB Citi
employees may buy or sell derivative instruments such
as individual stock options, options and futures on
indexes and options and futures on fixed-income
securities, and may buy or sell physical commodities
and futures and forwards on such commodities. These
transactions must comply with all of the policies and
restrictions described in this policy, including pre-
clearance, blackout periods, transactions in
Citigroup securities and the 60-day holding period.
However, the 60-day holding period does not apply to
individual stock options that are part of a hedged
position where the underlying stock has been held for
more than 60 days and the entire position (including
the underlying security) is closed out.
XI. Prohibited Recommendations - No Covered Person
shall recommend or execute any securities transaction
by any managed fund or client account, or, in the
case of a Fund director, by the director's Fund,
without having disclosed, in writing, to the Chief
Investment Officer, or designee, any direct or
indirect interest in such securities or issuers,
except for those securities purchased pursuant to the
"Large Cap/De Minimis" exemption described in Section
VIII above. Prior written approval of such
recommendation or execution also must be received
from the Chief Investment Officer, or designee. The
interest in personal accounts could be in the form
of:
1. Any direct or indirect beneficial ownership of
any securities of such issuer;
2. Any contemplated transaction by the person in
such securities;
3. Any position with such issuer or its
affiliates; or
4. Any present or proposed business relationship
between such issuer or its affiliates and the person
or any party in which such person has a significant
interest.
XII. Transactions in Citigroup Securities - Unless
an SSB Citi employee is a member of a designated
group subject to more restrictive provisions, or is
otherwise notified to the contrary, the employee may
trade in Citigroup securities without restriction
(other than the pre-clearance and other requirements
of this policy), subject to the limitations set forth
below.
Employees whose jobs are such that they know about
Citigroup's quarterly earnings prior to release may
not engage in any transactions in Citigroup
securities during the "blackout periods" beginning on
the first day of a calendar quarter and ending on the
second business day following the release of earnings
for the prior quarter. Members of the SSB Citi
Executive Committee and certain other senior SSB Citi
employees are subject to these blackout periods.
Stock option exercises are permitted during a
blackout period (but the simultaneous exercise of an
option and sale of the underlying stock is
prohibited). With regard to exchange traded options,
no transactions in Citigroup options are permitted
except to close or roll an option position that
expires during a blackout period. Charitable
contributions of Citigroup securities may be made
during the blackout period, but an individual's
private foundation may not sell donated Citigroup
common stock during the blackout period. "Good 'til
cancelled" orders on Citigroup stock must be
cancelled before entering a blackout period and no
such orders may be entered during a blackout period.
No employee may engage at any time in any personal
transactions in Citigroup securities while in
possession of material non-public information.
Investments in Citigroup securities must be made with
a long-term orientation rather than for speculation
or for the generation of short-term trading profits.
In addition, please note that employees may not
engage in the following transactions:
Short sales of Citigroup securities;
Purchases or sales of options ("puts" or
"calls") on Citigroup securities, except writing a
covered call at a time when the securities could have
been sold under this policy;
Purchases or sales of futures on Citigroup
securities; or
Any transactions relating to Citigroup
securities that might reasonably appear speculative.
The number of Citigroup shares an employee is
entitled to in the Citigroup Stock Purchase Plan is
not treated as a long stock position until such time
as the employee has given instructions to purchase
the shares of Citigroup. Thus, employees are not
permitted to use options to hedge their financial
interest in the Citigroup Stock Purchase Plan.
Contributions into the firm's 401(k) Plan are not
subject to the restrictions and prohibitions
described in this policy.
XIII. Acknowledgement and Reporting Requirements -
SSB Citi Employees - All new SSB Citi employees must
certify that they have received a copy of this
policy, and have read and understood its provisions.
In addition, all SSB Citi employees must:
1. Acknowledge receipt of the policy and any
modifications thereof, in writing (see Exhibit C for
the form of Acknowledgement);
2. Within 10 days of becoming an SSB Citi
employee, disclose in writing all information with
respect to all securities beneficially owned and any
existing personal brokerage relationships (employees
must also disclose any new brokerage relationships
whenever established). Such information should be
provided on the form attached as Exhibit D;
3. Direct their brokers to supply, on a timely
basis, duplicate copies of confirmations of all
personal securities transactions (Note: this
requirement may be satisfied through the transmission
of automated feeds);
4. Within 10 days after the end of each calendar
quarter, provide information relating to securities
transactions executed during the previous quarter for
all securities accounts (Note: this requirement may
be satisfied through the transmission of automated
feeds);
5. Submit an annual holdings report containing
similar information that must be current as of a date
no more than 30 days before the report is submitted,
and confirm at least annually all brokerage
relationships and any and all outside business
affiliations (Note: this requirement may be
satisfied through the transmission of automated feeds
or the regular receipt of monthly brokerage
statements); and
6. Certify on an annual basis that he/she has read
and understood the policy, complied with the
requirements of the policy and that he/she has pre-
cleared and disclosed or reported all personal
securities transactions and securities accounts
required to be disclosed or reported pursuant to the
requirements of the policy.
Fund Directors - Fund Directors shall deliver the
information required by Items 1 through 6 of the
immediately preceding paragraph, except that a Fund
director who is not an "interested person" of the
Fund within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940, and who would be
required to make reports solely by reason of being a
Fund Director, is not required to make the initial
and annual holdings reports required by Items 2 and
5. Also, a "non-interested" Fund Director need not
supply duplicate copies of confirmations of personal
securities transactions required by Item 3, and need
only make the quarterly transactions reports required
by Item 4 as to any security if at the time of a
transaction by the Director in that security, he/she
knew or in the ordinary course of fulfilling his/her
official duties as a Fund Director should have known
that, during the 15-day period immediately preceding
or following the date of that transaction, that
security is or was purchased or sold by that
Director's Fund or was being considered for purchase
or sale by that Director's Fund.
Disclaimer of Beneficial Ownership - The reports
described in Items 4 and 5 above may contain a
statement that the reports shall not be construed as
an admission by the person making the reports that
he/she has any direct or indirect beneficial
ownership in the securities to which the reports
relate.
XIV. Handling of Disgorged Profits - Any amounts
that are paid/disgorged by an employee under this
policy shall be donated by SSB Citi to one or more
charities. Amounts donated may be aggregated by SSB
Citi and paid to such charity or charities at the end
of each year.
XV. Confidentiality - All information obtained from
any Covered Person pursuant to this policy shall be
kept in strict confidence, except that such
information will be made available to the Securities
and Exchange Commission or any other regulatory or
self-regulatory organization or to the Fund Boards of
Directors to the extent required by law, regulation
or this policy.
XVI. Other Laws, Rules and Statements of Policy -
Nothing contained in this policy shall be interpreted
as relieving any person subject to the policy from
acting in accordance with the provision of any
applicable law, rule or regulation or, in the case of
SSB Citi employees, any statement of policy or
procedure governing the conduct of such person
adopted by Citigroup, its affiliates and
subsidiaries.
XVII. Retention of Records - All records relating to
personal securities transactions hereunder and other
records meeting the requirements of applicable law,
including a copy of this policy and any other
policies covering the subject matter hereof, shall be
maintained in the manner and to the extent required
by applicable law, including Rule 17j-1 under the
1940 Act. The Compliance Department shall have the
responsibility for maintaining records created under
this policy.
XVIII. Monitoring - SSB Citi takes seriously its
obligation to monitor the personal investment
activities of its employees and to review the
periodic reports of all Covered Persons. Employee
personal investment transaction activity will be
monitored by the Compliance Department. All noted
deviations from the policy requirements will be
referred back to the employee for follow-up and
resolution (with a copy to be supplied to the
employee's supervisor). Any noted deviations by Fund
directors will be reported to the Board of Directors
of the applicable Fund for consideration and follow-
up as contemplated by Section III hereof.
XIX. Exceptions to the Policy - Any exceptions to
this policy must have the prior written approval of
both the Chief Investment Officer and the Regional
Director of Compliance. Any questions about this
policy should be directed to the Compliance
Department.
XX. Board Review - Fund management and SSB Citi
shall provide to the Board of Directors of each Fund,
on a quarterly basis, a written report of all
material violations of this policy, and at least
annually, a written report and certification meeting
the requirements of Rule 17j-1 under the 1940 Act.
XXI. Other Codes of Ethics - To the extent that any
officer of any Fund is not a Covered Person
hereunder, or an investment subadviser of or
principal underwriter for any Fund and their
respective access persons (as defined in Rule 17j-1)
are not Covered Persons hereunder, those persons must
be covered by separate codes of ethics which are
approved in accordance with applicable law.
XXII. Amendments - SSB Citi Employees - Unless
otherwise noted herein, this policy shall become
effective as to all SSB Citi employees on March 30,
2000. This policy may be amended as to SSB Citi
employees from time to time by the Compliance
Department. Any material amendment of this policy
shall be submitted to the Board of Directors of each
Fund for approval in accordance with Rule 17j-1 under
the 1940 Act.
Fund Directors - This policy shall become
effective as to a Fund upon the approval and adoption
of this policy by the Board of Directors of that Fund
in accordance with Rule 17j-1 under the 1940 Act or
at such earlier date as determined by the Secretary
of the Fund. Any material amendment of this policy
that applies to the directors of a Fund shall become
effective as to the directors of that Fund only when
the Board of Directors of that Fund has approved the
amendment in accordance with Rule 17j-1 or at such
earlier date as determined by the Secretary of the
Fund.
March 15, 2000
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of
Securities if you have or share a direct or indirect
"Pecuniary Interest" in the Securities.
You have a "Pecuniary Interest" in Securities if you
have the opportunity, directly or indirectly, to
profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary
Interest in Securities:
1. Securities held by members of your immediate
family sharing the same household; however, this
presumption may be rebutted by convincing evidence
that profits derived from transactions in these
Securities will not provide you with any economic
benefit.
"Immediate family" means any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law,
and includes any adoptive relationship.
2. Your interest as a general partner in
Securities held by a general or limited partnership.
3. Your interest as a manager-member in the
Securities held by a limited liability company.
You do not have an indirect Pecuniary Interest in
Securities held by a corporation, partnership,
limited liability company or other entity in which
you hold an equity interest, unless you are a
controlling equityholder or you have or share
investment control over the Securities held by the
entity.
The following circumstances constitute Beneficial
Ownership by you of Securities held by a trust:
1. Your ownership of Securities as a trustee where
either you or members of your immediate family have a
vested interest in the principal or income of the
trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the
consent of all of the beneficiaries is required in
order for you to revoke the trust.
The foregoing is a summary of the meaning of
"beneficial ownership". For purposes of the attached
policy, "beneficial ownership" shall be interpreted
in the same manner as it would be in determining
whether a person is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934 and
the rules and regulations thereunder
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<OTHER-ITEMS-ASSETS> 0
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<TOTAL-LIABILITIES> 833,472
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<PAID-IN-CAPITAL-COMMON> 69,058,623
<SHARES-COMMON-STOCK> 2,927,071
<SHARES-COMMON-PRIOR> 2,812,286
<ACCUMULATED-NII-CURRENT> 11,452
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (385,406)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,099,554)
<NET-ASSETS> 65,585,115
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,022,833
<OTHER-INCOME> 0
<EXPENSES-NET> 768,174
<NET-INVESTMENT-INCOME> 3,254,659
<REALIZED-GAINS-CURRENT> (385,406)
<APPREC-INCREASE-CURRENT> (6,430,461)
<NET-CHANGE-FROM-OPS> (3,561,208)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,855,210
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 540,749
<NUMBER-OF-SHARES-REDEEMED> 514,447
<SHARES-REINVESTED> 88,483
<NET-CHANGE-IN-ASSETS> (4,045,980)
<ACCUMULATED-NII-PRIOR> (3,298)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 353,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 768,174
<AVERAGE-NET-ASSETS> 38,439,627
<PER-SHARE-NAV-BEGIN> 13.32
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> (1.23)
<PER-SHARE-DIVIDEND> 0.62
<PER-SHARE-DISTRIBUTIONS> 0.00
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<PERIOD-END> NOV-30-1999
<INVESTMENTS-AT-COST> 67,122,722
<INVESTMENTS-AT-VALUE> 64,023,168
<RECEIVABLES> 2,395,419
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,418,587
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 833,472
<TOTAL-LIABILITIES> 833,472
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,058,623
<SHARES-COMMON-STOCK> 2,262,503
<SHARES-COMMON-PRIOR> 2,276,436
<ACCUMULATED-NII-CURRENT> 11,452
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (385,406)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,099,554)
<NET-ASSETS> 65,585,115
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,022,833
<OTHER-INCOME> 0
<EXPENSES-NET> 768,174
<NET-INVESTMENT-INCOME> 3,254,659
<REALIZED-GAINS-CURRENT> (385,406)
<APPREC-INCREASE-CURRENT> (6,430,461)
<NET-CHANGE-FROM-OPS> (3,561,208)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,269,263
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 440,199
<NUMBER-OF-SHARES-REDEEMED> 508,468
<SHARES-REINVESTED> 54,336
<NET-CHANGE-IN-ASSETS> (4,045,980)
<ACCUMULATED-NII-PRIOR> (3,298)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 353,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 768,174
<AVERAGE-NET-ASSETS> 29,585,908
<PER-SHARE-NAV-BEGIN> 13.30
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (1.23)
<PER-SHARE-DIVIDEND> 0.55
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.08
<EXPENSE-RATIO> 1.36
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000809846
<NAME> SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND
<SERIES>
<NUMBER>
<NAME> SMITH BARNEY MASSACHUSETTS MUNICIPALS FUND CLASS L
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> NOV-30-1999
<INVESTMENTS-AT-COST> 67,122,722
<INVESTMENTS-AT-VALUE> 64,023,168
<RECEIVABLES> 2,395,419
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,418,587
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 833,472
<TOTAL-LIABILITIES> 833,472
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,058,623
<SHARES-COMMON-STOCK> 237,499
<SHARES-COMMON-PRIOR> 142,480
<ACCUMULATED-NII-CURRENT> 11,452
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (385,406)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,099,554)
<NET-ASSETS> 65,585,115
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,022,833
<OTHER-INCOME> 0
<EXPENSES-NET> 768,174
<NET-INVESTMENT-INCOME> 3,254,659
<REALIZED-GAINS-CURRENT> (385,406)
<APPREC-INCREASE-CURRENT> (6,430,461)
<NET-CHANGE-FROM-OPS> (3,561,208)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 115,436
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 106,235
<NUMBER-OF-SHARES-REDEEMED> 17,506
<SHARES-REINVESTED> 6,290
<NET-CHANGE-IN-ASSETS> (4,045,980)
<ACCUMULATED-NII-PRIOR> (3,298)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 353,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 768,174
<AVERAGE-NET-ASSETS> 2,670,961
<PER-SHARE-NAV-BEGIN> 13.30
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (1.24)
<PER-SHARE-DIVIDEND> 0.55
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.07
<EXPENSE-RATIO> 1.39
</TABLE>
Independent Auditors' Consent
To the Shareholders and Trustees of
Smith Barney Massachusetts Municipals Fund:
We consent to the incorporation by reference, in
this Prospectus and Statement of Additional
Information, of our report dated January 14, 2000,
on the statement of assets and liabilities for the
Smith Barney Massachusetts Municipals Fund (the
Fund) as of November 30, 1999 and the related
statement of operations for the year then ended, the
statements of changes in net assets for each of the
years in the two-year period then ended and the
financial highlights for each of the years in the
five-year period then ended. These financial
statements and financial highlights and our report
thereon are included in the Annual Report of the
Fund as filed on Form N-30D.
We also consent to the references to our firm under
the headings "Financial Highlights"in the Prospectus
and "Auditors" in the Statement of Additional
Information.
K
PMG
LLP
New York, New York
March 27, 2000
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