Registration No. 33-51558
811-7150
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. 5
X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 6
X
SMITH BARNEY FLORIDA MUNICIPALS FUND
(formally known as Smith Barney Shearson Florida Municipals Fund)
(Exact name of Registrant as Specified in Charter)
388 Greenwich Street , New York, New York 100 13
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code
(212) 72 3 -9218
Christina T. Sydor
Secretary
Smith Barney Florida Municipals Fund
388 Greenwich Street
New York, NY 10 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering:
As soon as possible after this Post-Effective Amendment
becomes effective.
It is proposed that this filing will become effective:
______ immediately upon filing pursuant to Rule 485(b)
X on December 30, 1994 pursuant to Rule 485(b)
______ 60 days after filing pursuant to Rule 485(a)
on pursuant to Rule 485(a)
___________________________________________________________________________
_________
The Registrant has previously filed a declaration of indefinite
registration of its shares pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice for the
fiscal year ended October 31, 199 4 will be filed on December 30,
1994 .
SMITH BARNEY FLORIDA MUNICIPALS FUND
FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
Part A
Item No.
Prospectus Caption
1. Cover Page
Cover Page
2. Synopsis
Prospectus Summary
3. Financial Highlights
Financial Highlights
4. General Description of
Registrant
Cover Page; Prospectus Summary;
Investment Objective and
Management Policies; Florida
Municipal Securities; Additional
Information
5. Management of the Fund
Management of the Fund;
Additional Information; Annual
Report
6. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Florida
Municipal Securities; Dividends,
Distributions and Taxes;
Additional Information
7. Purchase of Securities Being
Offered
Purchase of Shares; Valuation of
Shares; Redemption of Shares;
Exchange Privilege ; Minimum
Account Size; Distributor;
Additional Information
8 Redemption or Repurchase
Purchase of Shares; Redemption of
Shares;
9. Legal Proceedings
Not Applicable
Part B
Item No.
Statement of
Additional Information Caption
10. Cover Page
Cover page
11. Table of Contents
Contents
12. General Information and
History
Distributor; Additional
Information
13. Investment Objectives and
Policies
Investment Objective and
Management Policies; Municipal
Bonds
14. Management of the Fund
Management of the Fund;
Distributor;
15. Control Persons and Principal
Holders of
Securities
Management of the Fund
16. Investment Advisory and Other
Services
Management of the Fund;
Distributor
17. Brokerage Allocation
Investment Objective and
Management Policies; Distributor
18. Capital Stock and Other
Securities
Investment Objective and
Management Policies; Purchase of
Shares; Redemption of Shares;
Taxes
19. Purchase, Redemption and
Pricing of
Securities Being Offered
Purchase of Shares; Redemption of
Shares; Distributor; Valuation of
Shares; Exchange Privilege
20. Tax Status
Taxes
21. Underwriters
Distributor
22. Calculation of Performance
Data
Performance Data
23. Financial Statements
Financial Statements
<PAGE>
P
R
SMITH BARNEY
O
FLORIDA
S
MUNICIPALS
P
FUND
E
DECEMBER 30, 1994
C
T Prospectus begins on page one
U
S
[LOGO] SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
SMITH BARNEY
Florida Municipals Fund
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PROSPECTUS December 30, 1994
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388 Greenwich Street
New York, New York 10013
(212) 723-9218
Smith Barney Florida Municipals Fund (the "Fund") is a non-diversified
municipal bond fund that seeks to provide investors with as high a level of
dividend income exempt from Federal income taxes as is consistent with prudent
investment management and the preservation of capital. The Fund seeks to achieve
this objective by investing primarily in Florida municipal obligations. The Fund
intends to manage its portfolio so that the Fund's shares will be exempt from
the Florida intangibles tax.
This Prospectus sets forth concisely certain information about the Fund,
including sales charges, distribution and service fees and expenses, that
prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated December 30, 1994, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Fund at the telephone number or address set forth above or by
contacting a Smith Barney Financial Consultant. The Statement of Additional
Information has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
SMITH BARNEY MUTUAL FUNDS MANAGEMENT INC.
Investment Adviser and Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY
Florida Municipals Fund
<TABLE>
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TABLE OF CONTENTS
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<S> <C>
PROSPECTUS SUMMARY 3
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FINANCIAL HIGHLIGHTS 11
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 13
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FLORIDA MUNICIPAL SECURITIES 22
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VALUATION OF SHARES 24
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DIVIDENDS, DISTRIBUTIONS AND TAXES 25
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PURCHASE OF SHARES 29
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EXCHANGE PRIVILEGE 36
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REDEMPTION OF SHARES 40
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MINIMUM ACCOUNT SIZE 41
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PERFORMANCE 42
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MANAGEMENT OF THE FUND 43
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DISTRIBUTOR 45
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ADDITIONAL INFORMATION 46
--------------------------------------------------------------------------
</TABLE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Fund or the
distributor. This Prospectus does not constitute an offer by the Fund or the
distributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such an offer or solicitation in any such jurisdiction.
2
<PAGE>
SMITH BARNEY
Florida Municipals Fund
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PROSPECTUS SUMMARY
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The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospectus.
See "Table of Contents."
INVESTMENT OBJECTIVE The Fund is an open-end, non-diversified management
investment company that seeks to provide investors with as high a level of
dividend income exempt from Federal income taxes as is consistent with prudent
investment management and the preservation of capital. Its investments consist
primarily of intermediate- and long-term investment-grade Florida municipal
securities which include municipal securities issued by the State of Florida and
certain other municipal issuers, political subdivisions, agencies and public
authorities that pay interest which is exempt from Federal income taxes. See
"Florida Municipals Securities." Intermediate- and long-term municipal
securities have remaining maturities at the time of purchase of between three
and twenty years. The Fund intends to manage its portfolio so that the Fund's
shares will be exempt from the Florida intangibles tax. See "Investment
Objective and Management Policies" and "Dividends, Distributions and Taxes."
ALTERNATIVE PURCHASE ARRANGEMENTS The Fund offers several classes of shares
("Classes") to investors designed to provide them with the flexibility of
selecting an investment best suited to their needs. The general public is
offered three Classes of shares: Class A shares, Class B shares and Class C
shares, which differ principally in terms of sales charges and rates of expenses
to which they are subject. A fourth Class of shares, Class Y shares, is offered
only to investors meeting an initial investment minimum of $5,000,000. See
"Purchase of Shares" and "Redemption of Shares."
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.00% and are subject to an annual service fee of 0.15% of
the average daily net assets of the Class. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares, which when
combined with current holdings of Class A shares offered with a sales charge
equal or exceed $500,000 in the aggregate, will be made at net asset value with
no sales charge, but will be subject to a contingent deferred sales charge
("CDSC") of 1.00% on redemptions made within 12 months of purchase. See
"Prospectus Summary--Reduced or No Initial Sales Charge."
Class B Shares. Class B shares are offered at net asset value subject to a
maximum CDSC of 4.50% of redemption proceeds, declining by 0.50% the first
3
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
- --------------------------------------------------------------------------------
year after purchase and by 1.00% each year thereafter to zero. This CDSC may be
waived for certain redemptions. Class B shares are subject to an annual service
fee of 0.15% and an annual distribution fee of 0.50% of the average daily net
assets of the Class. The Class B shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A shares.
Class B Shares Conversion Feature. Class B shares will convert automatically to
Class A shares, based on relative net asset value, eight years after the date of
the original purchase. Upon conversion, these shares will no longer be subject
to an annual distribution fee. In addition, a certain portion of Class B shares
that have been acquired through the reinvestment of dividends and distributions
("Class B Dividend Shares") will be converted at that time. See "Purchase of
Shares--Deferred Sales Charge Alternatives."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge. They are subject to an annual service fee of 0.15% and an annual
distribution fee of 0.55% of the average daily net assets of the Class, and
investors pay a CDSC of 1.00% if they redeem Class C shares within 12 months of
purchase. The CDSC may be waived for certain redemptions. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A shares. Purchases of Class C shares, which when combined
with current holdings of Class C shares of the Fund equal or exceed $500,000 in
the aggregate, should be made in Class A shares at net asset value with no sales
charge, and will be subject to a CDSC of 1.00% on redemptions made within 12
months of purchase.
Class Y Shares. Class Y shares are available only to investors meeting an
initial investment minimum of $5,000,000. Class Y shares are sold at net asset
value with no initial sales charge or CDSC. They are not subject to any service
or distribution fees.
In deciding which Class of Fund shares to purchase, investors should
consider the following factors, as well as any other relevant facts and
circumstances:
Intended Holding Period. The decision as to which Class of shares is more
beneficial to an investor depends on the amount and intended length of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to consider Class A shares; as the investment accumulates
shareholders may qualify for reduced sales charges and the shares are subject to
lower ongoing expenses over the term of the investment. As an alternative,
4
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
- --------------------------------------------------------------------------------
Class B and Class C shares are sold without an initial sales charge so the
entire purchase price is immediately invested in the Fund. Any investment return
on these additional invested amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, while Class C shares have a shorter CDSC period than Class B
shares, they do not have a conversion feature, and therefore, are subject to an
ongoing distribution fee. Thus, Class B shares may be more attractive than Class
C shares to investors with longer term investment outlooks.
Investors investing a minimum of $5,000,000 must purchase Class Y shares,
which are not subject to an initial sales charge, CDSC or service or
distribution fees. The maximum purchase amount for Class A shares is $4,999,999,
Class B shares is $249,999 and Class C shares is $499,999. There is no maximum
purchase amount for Class Y shares.
Reduced or No Initial Sales Charge. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
would be immediately invested in the Fund. In addition, Class A share purchases,
which when combined with current holdings of Class A shares offered with a sales
charge equal or exceed $500,000 in the aggregate, will be made at net asset
value with no initial sales charge, but will be subject to a CDSC of 1.00% on
redemptions made within 12 months of purchase. The $500,000 aggregate investment
may be met by adding the purchase to the net asset value of all Class A shares
held in funds sponsored by Smith Barney Inc. ("Smith Barney") listed under
"Exchange Privilege." Class A share purchases may also be eligible for a reduced
initial sales charge. See "Purchase of Shares." Because the ongoing expenses of
Class A shares may be lower than those for Class B and Class C shares,
purchasers eligible to purchase Class A shares at net asset value or at a
reduced sales charge should consider doing so.
Smith Barney Financial Consultants may receive different compensation for
selling each Class of shares. Investors should understand that the purpose of
the CDSC on the Class B and Class C shares is the same as that of the initial
sales charge on the Class A shares.
See "Purchase of Shares" and "Management of the Fund" for a complete
description of the sales charges and service and distribution fees for each
Class of
5
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
- --------------------------------------------------------------------------------
shares and "Valuation of Shares," "Dividends, Distributions and Taxes" and
"Exchange Privilege" for other differences between the Classes of shares.
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney, a broker that clears securities transactions through Smith Barney
on a fully disclosed basis (an "Introducing Broker") or an investment dealer in
the selling group. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors in Class A, Class B and Class C shares may open
an account by making an initial investment of at least $1,000 for each account.
Investors in Class Y shares may open an account for an initial investment of
$5,000,000. Subsequent investments of at least $50 may be made for all Classes.
The minimum initial investment requirement for Class A, Class B and Class C
shares and the subsequent investment requirement for all Classes through the
Systematic Investment Plan described below is $100. There is no minimum
investment requirement in Class A for unitholders who invest distributions from
a unit investment trust ("UIT") sponsored by Smith Barney. See "Purchase of
Shares."
SYSTEMATIC INVESTMENT PLAN The Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase order
each month or quarter for Fund shares in an amount of at least $100. See
"Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
MANAGEMENT OF THE FUND Smith Barney Mutual Funds Management Inc. ("SBMFM")
serves as the Fund's investment adviser. SBMFM provides investment advisory and
management services to investment companies affiliated with Smith Barney. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. ("Travelers"), a
diversified financial services company engaged, through its subsidiaries,
principally in four business segments: Investment Services, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
SBMFM also serves as the Fund's administrator and The Boston Company
Advisors, Inc. ("Boston Advisors") serves as the Fund's sub-administrator.
Boston Advisors is a wholly owned subsidiary of The Boston Company, Inc.
6
<PAGE>
SMITH BARNEY
Florida Municipals Fund
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PROSPECTUS SUMMARY (CONTINUED)
- --------------------------------------------------------------------------------
("TBC"), which in turn is an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
class of certain other funds of the Smith Barney Mutual Funds at the respective
net asset values next determined, plus any applicable sales charge differential.
See "Exchange Privilege."
VALUATION OF SHARES Net asset value of the Fund for the prior day generally is
quoted daily in the financial section of most newspapers and is also available
from Smith Barney Financial Consultants. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are declared
daily and paid on the last business day of the Smith Barney statement month.
Distributions of net realized long- and short-term capital gains, if any, are
declared and paid annually after the end of the fiscal year in which they were
earned. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of any
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and
distribution reinvestments will become eligible for conversion to Class A shares
on a pro rata basis. See "Dividends, Distributions and Taxes."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the Fund
will achieve its investment objective. Dividends derived from certain municipal
securities (including Florida Municipal Securities), although exempt from
Federal income tax, may be a specific tax preference item for Federal
alternative minimum tax purposes. The Fund may invest without limit in such
securities. See "Investment Objective and Management Policies" and "Dividends,
Distributions and Taxes." The Fund is more susceptible to factors adversely
affecting issuers of Florida Municipal Securities than is a municipal bond fund
that does not emphasize these issuers. See "Florida Municipal Securities" in the
Prospectus and "Special Considerations Relating to Florida Municipal Securities"
in the Statement of Additional Information for further details about the risks
of investing in Florida obligations. The Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a
7
<PAGE>
SMITH BARNEY
Florida Municipals Fund
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PROSPECTUS SUMMARY (CONTINUED)
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single issuer. The Fund's assumption of large positions in the obligations of a
small number of issuers may cause the Fund's share price to fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers. See
"Investment Objective and Management Policies." The Fund generally will invest
at least 75% of its assets in securities rated investment grade, and may invest
the remainder of its assets in securities rated as low as C by Moody's Investors
Service, Inc. ("Moody's") or D by Standard & Poor's Corporation ("S&P") or Fitch
Investors Service, Inc. ("Fitch"), which are often referred to as "junk bonds,"
or in unrated obligations of comparable quality. Securities in the fourth
highest rating category, though considered to be investment grade, have
speculative characteristics. Securities rated as low as D are extremely
speculative and are in actual or imminent default of interest and/or principal
payments. There are risks connected with the use of certain portfolio strategies
by the Fund, such as the use of when-issued securities, municipal bond index and
interest rate futures contracts and put and call options thereon as hedging
devices, municipal leases, floating and variable rate obligations and securities
lending. See "Investment Objective and Management Policies--Certain Portfolio
Strategies."
8
<PAGE>
SMITH BARNEY
Florida Municipals Fund
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PROSPECTUS SUMMARY (CONTINUED)
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<TABLE>
THE FUND'S EXPENSES The following expense table lists the costs and expenses an
investor will incur, either directly or indirectly, as a shareholder of the
Fund, based on the maximum sales charge or maximum CDSC that may be incurred at
the time of purchase or redemption, and, unless otherwise noted, the Fund's
operating expenses for its most recent fiscal year:
<CAPTION>
CLASS A CLASS B CLASS C CLASS Y
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<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a
percentage of offering price) 4.00% None None None
Maximum CDSC (as a percentage of original cost or
redemption proceeds, whichever is lower) None* 4.50% 1.00% None
- ---------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.55% 0.55% 0.55% 0.55%
12b-1 fees** 0.15 0.65 0.70% --
Other expenses*** 0.29% 0.29% 0.29% 0.29%
- ---------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.99% 1.49% 1.54% 0.84%
- ---------------------------------------------------------------------------------------------
<FN>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge, equal or exceed $500,000 in
the aggregate, will be made at net asset value with no sales charge, but
will be subject to a CDSC of 1.00% on redemptions made within 12 months.
** Upon conversion of Class B shares to Class A shares, such shares will no
longer be subject to a distribution fee. Class C shares do not have a
conversion feature and, therefore, are subject to an ongoing distribution
fee. As a result, long-term shareholders of Class C shares may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
*** For Class C and Class Y shares, "Other expenses" have been estimated based
on expenses incurred by Class A shares because Class C and Class Y shares
were not available for purchase prior to November 7, 1994.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
actually pay lower or no charges depending on the amount purchased and, in the
case of Class B, Class C and certain Class A shares, the length of time the
shares are held. See "Purchase of Shares" and "Redemption of Shares." Smith
Barney receives an annual 12b-1 service fee of 0.15% of the value of average
daily net assets of Class A shares. Smith Barney also receives, with respect to
Class B shares, an annual 12b-1 fee of 0.65% of the value of average daily net
assets of that Class, consisting of a 0.50% distribution fee and a 0.15% service
fee. For Class C shares, Smith Barney receives an annual 12b-1 fee of 0.70% of
the value of average daily net assets of that Class, consisting of a 0.55%
distribution fee and a 0.15% service fee. "Other expenses" in the above table
include fees for
9
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
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shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees.
During the fiscal year ended October 31, 1994, the Fund's investment
adviser and administrator voluntarily waived portions of its respective fees in
amounts equal to 51.64% each, of the value of the Fund's average daily net
assets. This had the effect of lowering the Fund's overall expenses and
increasing the returns otherwise available to investors. If these fees had not
been waived, the Fund's total operating expenses for the 1994 fiscal year, as a
percentage of its average daily net assets, would have been 1.63% for Class A
shares and 1.78% for Class B shares, respectively.
<TABLE>
EXAMPLE The following example is intended to assist an investor in
understanding the various costs that an investor in the Fund will bear directly
or indirectly. The example assumes payment by the Fund of operating expenses at
the levels set forth in the table above. See "Purchase of Shares," "Redemption
of Shares" and "Management of the Fund."
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5.00% annual
return and (2) redemption at the end of each time
period:
Class A $50 $70 $93 $157
Class B 60 77 91 164
Class C 26 49 84 183
Class Y 9 27 47 104
An investor would pay the following expenses on the
same investment, assuming the same annual return
and no redemption:
Class A 50 70 93 157
Class B 15 47 81 164
Class C 16 49 84 183
Class Y 9 27 47 104
===========================================================================================
<FN>
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
</TABLE>
The example also provides a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, the Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
10
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
The following information has been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report thereon appears in the Fund's Annual
Report dated October 31, 1994. The information set out below should be read in
conjunction with the financial statements and related notes that also appear in
the Fund's Annual Report, which is incorporated by reference into the Statement
of Additional Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<CAPTION>
YEAR PERIOD
ENDED ENDED
10/31/94*** 10/31/93*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.53 $ 9.55
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income+ 0.51 0.49
Net realized and unrealized gain/(loss) on investments (1.25) 1.02
- -------------------------------------------------------------------------------------
Total from investment operations (0.75) 1.51
- -------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.51) (0.49)
Distributions in excess of net investment income (0.01) --
Distributions from realized capital gains (0.03) (0.04)
- -------------------------------------------------------------------------------------
Total distributions (0.55) (0.53)
- -------------------------------------------------------------------------------------
Net asset value, end of period $ 9.24 $ 10.53
- -------------------------------------------------------------------------------------
Total return++ (7.31)% 16.07%
=====================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $14,087 $13,450
Ratio of operating expenses to average net assets+++ 0.99% 0.97%**
Ratio of net investment income to average net assets 5.13% 4.78%**
Portfolio turnover rate 55% 27%
=====================================================================================
<FN>
* The Fund commenced operations on November 6, 1992.
** Annualized.
*** Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method does not accord with results of
operations.
+ Net investment income before waiver of fees by investment adviser and
administrator was $0.48 and $0.45 for the year ended October 31, 1994 and
the period ended October 31, 1993, respectively.
++ Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charge.
+++ Annualized expense ratio before waiver of fees by investment adviser and
administrator was 1.27% and 1.38% for the year ended October 31, 1994 and
the period ended October 31, 1993, respectively.
</TABLE>
11
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<CAPTION>
YEAR PERIOD
ENDED ENDED
10/31/94*** 10/31/93*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.53 $ 9.55
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income+ 0.46 0.44
Net realized and unrealized gain/(loss) on investment (1.25) 1.02
- -------------------------------------------------------------------------------------
Total from investment operations (0.79) 1.46
- -------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.46) (0.44)
Distributions in excess of net investment income (0.01) --
Distributions from realized capital gains (0.03) (0.04)
- -------------------------------------------------------------------------------------
Total distributions (0.50) (0.48)
- -------------------------------------------------------------------------------------
Net asset value, end of period $ 9.24 $ 10.53
- -------------------------------------------------------------------------------------
Total return++ (7.76)% 15.52%
=====================================================================================
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $35,026 $34,826
Ratio of operating expenses to average net assets+++ 1.49% 1.48%**
Ratio of net investment income to average net assets 4.62% 4.27%**
Portfolio turnover rate 55% 27%
=====================================================================================
<FN>
* The Fund commenced operations on November 6, 1992.
** Annualized.
*** Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method does not accord with results of
operations.
+ Net investment income before waiver of fees by investment adviser and
administrator was $0.43 and $0.40 for the year ended October 31, 1994 and
the period ended October 31, 1993, respectively.
++ Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charge.
+++ Annualized expense ratio before waiver of fees by investment adviser and
administrator was 1.78% and 1.88% for the year ended October 31, 1994 and
the period ended October 31, 1993, respectively.
</TABLE>
Prior to November 7, 1994, the Fund did not offer Class C or Class Y shares
and, accordingly, no comparable financial information is available at this time
for those Classes.
12
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to provide investors with as high a
level of dividend income exempt from Federal income taxes as is consistent with
prudent investment management and the preservation of capital. The Fund's
investment objective may not be changed without the approval of the holders of a
majority of the Fund's outstanding shares. The Fund seeks to achieve its
objective by investing primarily in intermediate- and long-term investment grade
Florida Municipal Securities. The Fund intends to manage its portfolio so that
the Fund's shares will be exempt from the Florida intangibles tax. There can be
no assurance that the Fund's investment objective will be achieved.
The Fund operates subject to a fundamental investment policy providing
that, under normal market conditions, the Fund invests at least 80% of its net
assets in Florida Municipal Securities. The Fund may invest up to 20% of its net
assets in municipal securities of non-Florida municipal issuers, the interest on
which is excluded from gross income for Federal income tax purposes (not
including the possible applicability of a Federal alternative minimum tax),
although it does not intend to do so. For temporary defensive purposes, the Fund
may invest without limit in non-Florida municipal issuers and in "Temporary
Investments" as described below.
The Fund generally invests at least 75% of its total assets in securities
rated within the four highest categories of Moody's (Aaa, Aa, A, Baa), S&P (AAA,
AA, A, BBB), Fitch (AAA, AA, A, BBB) or in unrated obligations of comparable
quality. Unrated securities will be considered to be of investment grade if
deemed by SBMFM to be comparable in quality to instruments so rated, or if other
outstanding obligations of the issuers of the unrated securities are rated Baa
or better by Moody's or BBB or better by S&P or Fitch. The balance of the Fund's
assets may be invested in securities rated as low as C by Moody's or D by S&P or
Fitch, or comparable unrated securities which are often referred to as "junk
bonds." Securities in the fourth highest rating category, though considered to
be investment grade, have speculative characteristics. Securities rated as low
as D are extremely speculative and are in actual default of interest and/or
principal payments.
The Fund's average weighted maturity will vary from time to time based on
the judgment of SBMFM. The Fund intends to focus on intermediate- and long-term
obligations, that is, obligations with remaining maturities at the time of
purchase of between three and twenty years. Obligations which are rated Baa by
Moody's or BBB by S&P or Fitch and those which are rated lower than
investment-grade are subject to greater market fluctuation and more uncertainty
13
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
as to payment of principal and interest, and therefore generate higher yields
than obligations rated above Baa or BBB. A description of the rating systems of
Moody's, S&P and Fitch is contained in the Statement of Additional Information.
Because many issuers of Florida Municipal Securities may choose not to have
their obligations rated, it is possible that a large portion of the Fund's
portfolio may consist of unrated obligations. Unrated obligations are not
necessarily of lower quality than rated obligations, but to the extent the Fund
invests in unrated obligations, the Fund will be more reliant on SBMFM's
judgment, analysis and experience than would be the case if the Fund invested
only in rated obligations.
The Fund may invest without limit in private activity bonds. Interest
income on certain types of private activity bonds issued after August 7, 1986 to
finance non-governmental activities is a specific tax preference item for
purposes of the Federal individual and corporate alternative minimum taxes.
Individual and corporate shareholders may be subject to a Federal alternative
minimum tax to the extent the Fund's dividends are derived from interest on
those bonds. Dividends derived from interest income on Florida Municipal
Securities are a component of the "current earnings" adjustment item for
purposes of the Federal corporate alternative minimum tax.
The Fund is classified as a non-diversified investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that it may invest in the obligations of a single
issuer. The Fund intends to conduct its operations, however, so as to qualify as
a "regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which will relieve the Fund of any liability for
Federal income tax to the extent its earnings are distributed to shareholders.
To so qualify, among other requirements, the Fund will limit its investments so
that, at the close of each quarter of the taxable year, (a) not more than 25% of
the market value of the Fund's total assets will be invested in the securities
of a single issuer and (b) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. The Fund's
assumption of large positions in the obligations of a small number of issuers
may cause the Fund's share price to fluctuate to a greater extent than that of a
diversified company as a
14
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
result of changes in the financial condition or in the market's assessment of
the issuers.
The Fund may invest without limit in debt obligations that are repayable
out of revenue streams generated from economically related projects or
facilities. Sizeable investments in such obligations could involve an increased
risk to the Fund should any of the related projects or facilities experience
financial difficulties. In addition, the Fund may invest up to an aggregate of
15% of its total assets in securities with contractual or other restrictions on
resale and other instruments which are not readily marketable and up to 5% of
its assets in the securities of issuers which have been in continuous operation
for less than three years. The Fund also is authorized to borrow an amount of up
to 10% of its total assets in order to meet anticipated redemptions and to
pledge its assets to the same extent in connection with the borrowings.
Further information about the Fund's investment policies, including a list
of those restrictions on the Fund's investment activities that cannot be changed
without shareholder approval, appears in the Statement of Additional
Information.
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may employ,
among others, the following portfolio strategies:
Lower Rated Securities or "Junk Bonds." 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, lower-rated securities and comparable unrated
securities generally present a higher degree of credit risk. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower-rated and comparable unrated securities to service their payment
obligations, meet projected goals or obtain additional financing may be
impaired. The risk of loss due to default by such issuers is significantly
greater because low-rated and comparable unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. The Fund may incur additional
15
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on its portfolio holdings.
While the market for municipal securities is considered to be generally
adequate, the existence of limited markets for particular low-rated and
comparable unrated securities may diminish the Fund's ability to (a) 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
recession, however, would likely disrupt severely the market for such securities
and adversely affect the value of such securities. Any such economic downturn
also could adversely affect the ability of the issuers of such 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.
When-Issued Securities. New issues of municipal securities are frequently
offered on a when-issued basis, which means that delivery and payment for such
securities normally take place 15 to 45 days after the date of the commitment to
purchase. The payment obligation and the interest rate that will be received on
when-issued securities are fixed at the time the buyer enters into the
commitment. Municipal securities, like other investments made by the Fund, may
decline or appreciate in value before their actual delivery to the Fund. Due to
the fluctuations in the value of securities purchased and sold on a when-issued
basis, the yields obtained on these securities may be higher or lower than the
yields available in the market on the date when the investments actually are
delivered to the buyers. The Fund will not accrue income with respect to a when-
issued security prior to its stated delivery date. The Fund will establish a
segregated account with the Fund's custodian consisting of cash, obligations
issued or guaranteed by the United States government, its agencies or
instrumentalities ("U.S. government securities") or other high grade debt
obligations in an amount equal to the amount of the purchase price of the
when-issued securities. Placing securities rather than cash in the segregated
account may have
16
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
a leveraging effect on the Fund's net assets. The Fund generally will make
commitments to purchase municipal securities on a when-issued basis only with
the intention of actually acquiring the securities, but the Fund may sell these
securities before the delivery date if it is deemed advisable.
Temporary Investments. Under normal market conditions, the Fund may hold up
to 20% of its total assets in cash or money market instruments, including
taxable money market instruments ("Temporary Investments"). In addition, when
SBMFM believes that market conditions warrant, including when acceptable Florida
Municipal Securities are unavailable, the Fund may take a temporary defensive
posture and invest without limitation in Temporary Investments. Tax-exempt
securities eligible for short-term investment by the Fund are municipal notes
rated at the time of purchase within the two highest grades by Moody's, S&P or
Fitch or, if not rated, issued by issuers with outstanding debt securities rated
within the two highest grades by Moody's, S&P or Fitch. The Fund also may invest
in certain taxable short-term instruments having quality characteristics
comparable to those for tax-exempt investments. To the extent the Fund holds
Temporary Investments, it may not achieve its investment objective.
Municipal Bond Index and Interest Rate Futures Contracts and Options on
Municipal Bond Index and Interest Rate Futures Contracts. The Fund may enter
into municipal bond index and interest rate futures contracts and purchase and
sell options on these futures contracts that are traded on a United States
exchange or board of trade. Such investments, if any, by the Fund will be made
solely for the purpose of hedging against changes in the value of its portfolio
securities and in the value of securities it intends to purchase due to
anticipated changes in interest rates and market conditions and when the
transactions are economically appropriate to the reduction of risks inherent in
the management of the Fund.
A municipal bond index futures contract, which is based on an index of
long-term, tax-exempt municipal bonds, is an agreement in which two parties
agree to take or make delivery of an amount of cash equal to a specific dollar
amount times the difference between the value of the index at the close of the
last trading day of the contract and the price at which the index contract was
originally written. Interest rate futures contracts are contracts for the future
purchase or sale of specified interest rate sensitive debt securities such as
United States Treasury bills, bonds and notes, obligations of the Government
National Mortgage Association and bank certificates of deposit. Although most
interest
17
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
rate futures contracts require the delivery of the underlying securities, some
settle in cash. Each contract designates the price, date, time and place of
delivery. Entering into a futures contract to deliver the index or instrument
underlying the contract is referred to as entering into a "short" position in
the futures contract, whereas entering into a futures contract to take delivery
of the index or instrument is referred to as entering into a "long" position in
the futures contract.
A put or call option on a municipal bond index or interest rate futures
contract gives the purchaser the right, in return for the premium paid, to
assume a short or long position, respectively, in the underlying futures
contract at a specified exercise price at any time prior to the expiration date
of the option. The Fund may purchase put and call options on both municipal bond
index and interest rate futures contracts. The Fund will sell options on these
futures contracts only as part of closing purchase transactions to terminate its
options positions, although no assurance can be given that closing transactions
can be effected.
Entering into futures contracts for the purchase or sale of municipal bond
index or debt securities or purchasing options on index or interest rate futures
contracts will enable the Fund to protect its assets from fluctuations in
interest rates on tax-exempt securities without initially buying or selling the
securities. The Fund may enter into futures contracts to sell index or debt
securities or may purchase put options when SBMFM believes that interest rates
will increase and consequently the value of the Fund's portfolio securities will
decrease. The Fund may enter into futures contracts to buy index or debt
securities or may purchase call options when SBMFM anticipates purchasing
portfolio securities at a time of declining interest rates.
There are several risks in connection with the use of municipal bond index
and interest rate futures contracts and options on these futures contracts as
hedging devices. There can be no assurance that there will be a correlation
between price movements in the municipal bond index or interest rate futures, on
the one hand, and price movements in municipal bonds which are the subject of
the hedge, on the other hand. The lack of correlation could be pronounced with
respect to municipal bond index futures contracts because the Fund primarily
will hold Florida Municipal Securities rather than a selection of the bonds
constituting an index. Positions in futures contracts and options on futures
contracts may be closed out only by entering into offsetting positions on the
exchange on which the contract was initiated, and no assurance can be given
18
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
that an active market will exist for the contract or the option at any
particular time. Consequently, the Fund may realize a loss on a futures contract
that is not offset by an increase in the price of the municipal bonds that are
being hedged or may not be able to close a futures position in the event of
adverse price movements. Any income earned by the Fund from transactions in
futures contracts and options on futures contracts will be taxable. Accordingly,
it is anticipated that such investments will be made only in unusual
circumstances, such as when SBMFM anticipates an extreme change in interest
rates or market conditions.
The Fund will not enter into any futures contracts or purchase options on
futures contracts if immediately thereafter, the aggregate initial margin
deposits on all of the Fund's existing futures contracts and premiums paid for
unexpired options on futures contracts to establish such positions that are not
bona fide hedging positions (as defined by the Commodities Futures Trading
Commission) would exceed 5% of the value of the Fund's total assets, after
taking into account unrealized profits and losses on any existing contracts.
When the Fund enters into futures contracts to purchase an index or debt
security or purchases call options, an amount of cash, U.S. government
securities or other high grade debt securities equal to the market value of the
contract will be deposited and maintained in a segregated account with the
Fund's custodian to collateralize the positions, thereby insuring that the use
of the contract is unleveraged.
Municipal Leases. The Fund may invest without limit in "municipal leases,"
which are obligations issued by state and local governments or authorities to
finance the acquisition of equipment or facilities. Although lease obligations
do not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily backed
by the municipality's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. In addition to the "non-
appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds. Although "non-appropriation" lease obligations are
often secured by the underlying property, disposition of the property in the
event of foreclosure might prove difficult. There is no limitation on the
percentage of the Fund's assets that may be invested in municipal lease
obligations. In evaluating
19
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
municipal lease obligations, SBMFM will consider such factors as it deems
appropriate, which may include: (a) whether the lease can be canceled; (b) the
ability of the lease obligee to direct the sale of the underlying assets; (c)
the general creditworthiness of the lease obligor; (d) the likelihood that the
municipality will discontinue appropriate 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 failure to
appropriate funding; (f) whether the security is backed by a credit enhancement
such as insurance; and (g) any limitations which are imposed on the lease
obligor's ability to utilize substitute property or services rather than those
covered by the lease obligation.
Municipal leases, like other municipal debt obligations, are subject to the
risk of non-payment. The ability of issuers of municipal leases to make timely
lease payments may be adversely impacted in general economic downturns and as
relative governmental cost burdens are allocated and reallocated among Federal,
state and local governmental units. Such non-payment would result in a reduction
of income to the Fund, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the net
asset value of the Fund. Issuers of municipal securities might seek protection
under the bankruptcy laws. In the event of bankruptcy of such an issuer, the
Fund could experience delays and limitations with respect to the collection of
principal and interest on such municipal leases and the Fund may not, in all
circumstances, be able to collect all principal and interest to which it is
entitled. To enforce its rights in the event of a default in lease payments, the
Fund may take possession of and manage the assets securing the issuer's
obligations on such securities, which may increase the Fund's operating expenses
and adversely affect the net asset value of the Fund. Any income derived from
the Fund's ownership or operation of such assets may not be tax-exempt. In
addition, the Fund's intention to qualify as a "regulated investment company"
under the Code may limit the extent to which the Fund may exercise its rights by
taking possession of such assets, because as a regulated investment company the
Fund is subject to certain limitations on its investments and on the nature of
its income.
Floating and Variable Rate Obligations. The Fund also may purchase
floating and variable rate demand notes and bonds, which are tax-exempt
obligations ordinarily having stated maturities in excess of one year, but which
permit the holder to demand payment of principal at any time, or at specified
intervals. Variable rate demand notes include master demand notes which are
20
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
obligations that permit the Fund to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between the Fund, as
lender, and the borrower. The interest rates on these obligations fluctuate from
time to time. Frequently, such 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 these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no secondary market
for these obligations, although they are redeemable at face value. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability of
the borrower to pay principal and interest on demand. Each obligation purchased
by the Fund will meet the quality criteria established for the purchase of debt
obligations. The Fund will not invest more than 15% of the value of its net
assets in floating or variable rate demand obligations as to which it cannot
exercise the demand feature on not more than seven days' notice if there is no
secondary market available for these obligations, and in other illiquid
securities.
The Fund may purchase tender option bonds. A tender option bond is a
municipal obligation (generally held pursuant to a custodial arrangement) having
a relatively long maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term tax-exempt rates, that has been coupled with
the agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security holders the
option, at periodic intervals, to tender their securities to the institution and
receive the face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between the
municipal obligation's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee, the security
holder effectively holds a demand obligation that bears interest at the
prevailing short-term tax-exempt rate. SBMFM will consider on an ongoing basis
the creditworthiness of the issuer of the underlying municipal obligation, of
any custodian and of the third party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be terminable in
the event of a default in payment of principal or interest on the underlying
municipal obligations and for other reasons.
21
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
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 municipal
obligations. The underwriter of these certificates or receipts typically
purchases municipal obligations and deposits the obligations in an irrevocable
trust or custodial account with a custodian bank, which then issues receipts or
certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Although under the terms of
a custodial receipt, the Fund would be typically authorized to assert its rights
directly against the issuer of the underlying obligation, the Fund could be
required to assert through the custodian bank those rights as may exist against
the underlying issuer. Thus, in the event the underlying issuer fails to pay
principal and/or interest when due, a 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, in the event that
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.
Lending of Portfolio Securities. The Fund has the ability to lend
securities from its portfolio to brokers, dealers and other financial
organizations. Such loans, if and when made, may not exceed 20% of the Fund's
total assets, taken at value. Loans of portfolio securities by the Fund will be
collateralized by cash, letters of credit or U.S. government securities which
are maintained at all times in an amount equal to at least 100% of the current
market value (determined by marking to market daily) of the loaned securities.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delays in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will be made to firms deemed by SBMFM to be
of good standing and will not be made unless, in the judgment of SBMFM, the
consideration to be earned from such loans would justify the risk.
- --------------------------------------------------------------------------------
FLORIDA MUNICIPAL SECURITIES
- --------------------------------------------------------------------------------
As used in this Prospectus, the term "Florida Municipal Securities"
generally refers to debt obligations issued by the State of Florida and its
political
22
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
FLORIDA MUNICIPAL SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
subdivisions, agencies and public authorities (together with certain other
governmental issuers such as Puerto Rico, the Virgin Islands and Guam) to obtain
funds for various public purposes. The interest on such obligations is, in the
opinion of bond counsel to the issuers, excluded from gross income for Federal
income tax purposes and, for that reason, generally is fixed at a lower rate
than it would be if it were subject to such tax. Interest income on certain
Florida Municipal Securities is a specific tax preference item for purposes of
the Federal individual and corporate alternative minimum taxes.
Every person who is a resident of Florida on January 1 of a year is
required to pay an intangible personal property tax. The tax is imposed at a
0.20% rate on the value of the intangibles determined on December 31 of the
preceding year. Intangible personal property is broadly defined to include
shares of stock issued by corporations, bonds issued by corporations or state,
county or municipal governments outside the State of Florida and shares of
investment and money market funds. However, if the Fund's assets on December 31
of any year consist solely of assets exempt from the intangibles tax, the value
of the Fund's shares will be exempt from the Florida intangibles tax in the
following calendar year. The Fund will seek to invest in a manner that will
enable its shares each year to be exempt from the Florida intangibles tax. For a
more detailed discussion of Florida taxes, see "Dividends, Distributions and
Taxes--Florida Taxes" below.
CLASSIFICATIONS
The two principal classifications of Florida Municipal Securities are
"general obligation bonds" and "revenue bonds." General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds are payable from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source, but not from the general taxing power. Sizeable investments in such
obligations could involve an increased risk to the Fund should any of such
related facilities experience financial difficulties. In addition, certain types
of private activity bonds issued by or on behalf of public authorities to obtain
funds for privately operated facilities are included in the term Florida
Municipal Securities, provided that the interest paid on the bonds qualifies as
excluded from gross income for Federal income tax purposes and the obligations
are exempt from the Florida intangibles tax. Tax-exempt private activity bonds
do not generally carry the pledge of the credit of the issuing municipality.
23
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
FLORIDA MUNICIPAL SECURITIES (CONTINUED)
- --------------------------------------------------------------------------------
SPECIAL CONSIDERATIONS
Since the Fund's investments will generally emphasize Florida Municipal
Securities, the value of its shares may be especially affected by factors
pertaining to the Florida economy and other factors specifically affecting the
ability of issuers of such securities to meet their obligations. As a result,
the value of the Fund's shares may fluctuate more widely than the value of
shares of a portfolio investing in securities relating to a number of different
states. The ability of state, county or local governments to meet their
obligations will depend primarily on the availability of tax and other revenues
to those governments and on their fiscal conditions generally. The amounts of
tax and other revenues available to governmental issuers of Florida Municipal
Securities may be affected from time to time by economic, political and
demographic conditions within Florida. For example, on August 24, 1992,
Hurricane Andrew struck southern Florida causing damage to homes, businesses,
agriculture and infrastructure estimated to be $20 to $30 billion. In addition,
constitutional or statutory restrictions may limit a government's power to raise
revenues or increase taxes. The availability of Federal, state and local aid to
issuers of Florida Municipal Securities also may affect their ability to meet
their obligations. Payments of principal and interest on revenue bonds will
depend on the economic condition of the facility or specific revenue source from
whose revenues the payments will be made, which in turn could be affected by
economic, political and demographic conditions in the state. Any reduction in
the actual or perceived ability of an issuer of Florida Municipal Securities to
meet its obligations (including a reduction in the rating of its outstanding
securities) likely would affect adversely the market value and marketability of
its obligations and could affect adversely the values of other Florida Municipal
Securities as well.
- --------------------------------------------------------------------------------
VALUATION OF SHARES
- --------------------------------------------------------------------------------
The Fund's net asset value per share is determined as of the close of
regular trading on the NYSE, on each day that the NYSE is open, by dividing the
value of the Fund's net assets attributable to each Class by the total number of
shares of that Class outstanding.
Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Fund's Board of Trustees. Short-term
investments that mature in 60 days or less are valued at amortized cost
24
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
VALUATION OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
whenever the Board of Trustees determines that amortized cost reflects fair
value of those investments. Amortized cost 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. Further information regarding the Fund's
valuation policies is contained in the Statement of Additional Information.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends from net investment income (that is, income
other than net realized long- and short-term capital gains) on each day the Fund
is open for business and pays dividends on the last business day of the Smith
Barney statement month. Distributions of net-realized long- and short-term
capital gains, if any, are declared and paid annually after the end of the
fiscal year in which they have been earned.
If a shareholder does not otherwise instruct, dividends and capital gains
distributions will be reinvested automatically in additional shares of the same
Class at net asset value, with no sales charge or CDSC. In order to avoid the
application of a 4.00% nondeductible excise tax on certain undistributed amounts
of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 of each year of any undistributed
ordinary income or capital gains and expects to make any other distributions as
are necessary to avoid the application of this tax.
If, for any full fiscal year, the Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions may
be treated as a taxable dividend or a tax-free return of capital (up to the
amount of the shareholder's tax basis in his or her shares). The amount treated
as a tax-free return of capital will reduce a shareholder's adjusted basis in
his or her shares. Pursuant to the requirements of the 1940 Act and other
applicable laws, a notice will accompany any distribution paid from sources
other than net investment income. In the event the Fund distributes amounts in
excess of its net investment income and net realized capital gains, such
distributions may have the effect of decreasing the Fund's total assets, which
may increase the Fund's expense ratio.
25
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
- --------------------------------------------------------------------------------
The per share dividends on Class B shares and Class C shares may be lower
than the per share dividends on Class A and Class Y shares principally as a
result of the distribution fee applicable with respect to Class B and Class C
shares. The per share dividends on Class A shares of the Fund may be lower than
the per share dividends on Class Y shares principally as a result of the service
fee applicable to Class A shares. Distributions of capital gains, if any, will
be the same amount for Class A, Class B, Class C and Class Y shares.
TAXES
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Code and will designate and pay
exempt-interest dividends derived from interest earned on qualifying tax-exempt
obligations. Such exempt-interest dividends may be excluded by shareholders from
their gross income for Federal income tax purposes although (a) all or a portion
of such exempt-interest dividends will be a specific preference item for
purposes of the Federal individual and corporate alternative minimum taxes to
the extent they are derived from certain types of private activity bonds issued
after August 7, 1986, and (b) all exempt-interest dividends will be a component
of the "current earnings" adjustment item for purposes of the Federal corporate
alternative minimum tax. In addition, corporate shareholders may incur a greater
Federal "environmental" tax liability through the receipt of Fund dividends and
distributions.
Dividends paid from taxable net investment income, if any, and
distributions of any net realized short-term capital gains (whether from
tax-exempt or taxable obligations) are taxable to shareholders as ordinary
income, regardless of how long shareholders have held their Fund shares and
whether such dividends or distributions are received in cash or reinvested in
additional Fund shares. Distributions of net realized long-term capital gains
are taxable to shareholders as long-term capital gains regardless of how long
shareholders have held their Fund shares and whether such distributions are
received in cash or reinvested in additional shares. Furthermore, as a general
rule, a shareholder's gain or loss on a sale or redemption of his or her shares
will be a long-term capital gain or loss if the shareholder has held the shares
for more than one year and will be a short-term capital gain or loss if the
shareholder has held the shares for one year or less. The Fund's dividends and
distributions will not qualify for the dividends-received deduction for
corporations.
26
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
- --------------------------------------------------------------------------------
Florida Taxes. Florida does not currently impose an income tax on
individuals. Thus individual shareholders of the Fund will not be subject to any
Florida state income tax on dividends or distributions received from the Fund.
However, certain distributions will be taxable to corporate shareholders which
are subject to Florida corporate income tax.
Florida currently imposes an "intangibles tax" at the annual rate of 0.20%
on certain securities and other intangible assets owned by Florida residents.
Certain types of Florida Municipal Securities, U.S. government securities and
tax-exempt securities issued by certain U.S. territories and possessions are
exempt from this intangibles tax. The Fund has received a ruling from Florida
authorities that, if on December 31 of any year the Fund's portfolio consists
solely of such exempt assets, the Fund's shares will be exempt from the Florida
intangibles tax payable in the following calendar year. In order to take
advantage of the exemption from the intangibles tax in any year, the Fund must
sell any non-exempt assets held in its portfolio during the year and reinvest
the proceeds in exempt assets prior to December 31. To the extent that such a
portfolio restructuring may be necessary, transaction costs involved could
potentially reduce the Fund's investment return and might exceed any increased
investment return the Fund achieved by investing in non-exempt assets during the
year.
Statements as to the tax status of each shareholder's dividends and
distributions are mailed annually. Each shareholder will also receive, if
appropriate, various written notices after the close of the Fund's prior taxable
year as to the Federal income tax status of his or her dividends and
distributions which were received from the Fund during the Fund's prior taxable
year. These statements may set forth the dollar amount of income excluded from
Federal income taxes and indicate the extent to which the value of Fund shares
will be exempt from the Florida intangibles tax. Moreover, these statements will
designate the amount of exempt-interest dividends that are a specific preference
item for purposes of the Federal individual and corporate alternative minimum
taxes. Shareholders should consult their own tax advisers with specific
reference to their own tax situations.
27
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
- --------------------------------------------------------------------------------
TAX-EXEMPT INCOME VS. TAXABLE INCOME
<TABLE>
The table below shows taxpayers how to translate the tax savings from
investments such as the Fund into an equivalent return from a taxable
investment. The tax-exempt yields used are for illustration only and are not
intended to represent current or future yields for the Fund, which may be higher
or lower than those shown.
<CAPTION>
1994 COMBINED
TAXABLE INCOME* FLORIDA A TAX-EXEMPT INCOME FUND YIELD AT:
- ------------------------------------- AND FEDERAL ---------------------------------------
SINGLE JOINT TAX BRACKET** 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$22,750 $0-$38,000 15.00% 2.35% 3.53% 4.71% 5.88% 7.06% 8.24%
$22,751-$55,100 $38,001-$91,050 28.00% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72%
$55,101-$115,000 $91,051-$140,000 31.00% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14%
$115,001-$250,000 $140,001-$250,000 36.00% 3.13% 4.89% 6.25% 7.81% 9.38% 10.94%
over $250,000 over $250,000 39.60% 3.31% 4.97% 6.62% 8.28% 9.93% 11.50%
- ---------------------------------------------------------------------------------------------
<FN>
* This amount represents taxable income as defined in the Code.
** For Federal tax purposes, these combined rates reflect the applicable
marginal rates for 1994, including indexing for inflation.
</TABLE>
The Federal tax rates shown are those currently in effect for 1994 and are
subject to change. The calculations assume that no income will be subject to the
Federal alternative minimum tax.
The table above does not consider the additional benefit of the exemption
of the Fund's shares from the Florida intangibles tax.
28
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers four classes of shares. Class A shares are sold to
investors with an initial sales charge and Class B and Class C shares are sold
without an initial sales charge but are subject to a CDSC payable upon certain
redemptions. Class Y shares are sold without an initial sales charge or CDSC and
are available only to investors investing a minimum of $5,000,000. See
"Prospectus Summary--Alternative Purchase Arrangements" for a discussion of
factors to consider in selecting which Class of shares to purchase.
Purchases of Fund shares must be made through a brokerage account
maintained with Smith Barney, an Introducing Broker or an investment dealer in
the selling group. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A, Class B, Class C or Class Y shares. No
maintenance fee will be charged by the Fund in connection with a brokerage
account through which an investor purchases or holds shares.
Investors in Class A, Class B and Class C shares may open an account by
making an initial investment of at least $1,000 for each account in the Fund.
Investors in Class Y shares may open an account by making an initial investment
of $5,000,000. Subsequent investments of at least $50 may be made for all
Classes. For the Fund's Systematic Investment Plan, the minimum initial
investment requirement for Class A, Class B and Class C shares and the
subsequent investment requirements for all Classes is $100. There are no minimum
investment requirements for Class A shares for employees of Travelers and its
subsidiaries, including Smith Barney, Trustees of the Fund and their spouses and
children and unitholders who invest distributions from a UIT sponsored by Smith
Barney. The Fund reserves the right to waive or change minimums, to decline any
order to purchase its shares and to suspend the offering of shares from time to
time. Shares purchased will be held in the shareholder's account by the Fund's
transfer agent, The Shareholder Services Group, Inc. ("TSSG"), a subsidiary of
First Data Corporation. Share certificates are issued only upon a shareholder's
written request to TSSG.
Purchase orders received by Smith Barney prior to the close of regular
trading on the NYSE, on any day the Fund calculates its net asset value, are
priced according to the net asset value determined on that day. Orders received
by dealers or Introducing Brokers prior to the close of regular trading on the
NYSE on any day the Fund calculates its net asset value, are priced according to
the net asset value determined on that day, provided the order is received by
Smith Barney prior to Smith Barney's close of business (the "trade date").
29
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
Currently, payment for Fund shares is due on the fifth business day after the
trade date (the "settlement date"). The Fund anticipates that, in accordance
with regulatory changes, beginning on or about June 1, 1995, the settlement date
will be the third business day after the trade date.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or TSSG is authorized through
preauthorized transfers of $100 or more to charge the regular bank account or
other financial institution indicated by the shareholder on a monthly or
quarterly basis to provide systematic additions to the shareholder's Fund
account. A shareholder who has insufficient funds to complete the transfer will
be charged a fee of up to $25 by Smith Barney or TSSG. The Systematic Investment
Plan also authorizes Smith Barney to apply cash held in the shareholder's Smith
Barney brokerage account or redeem the shareholder's shares of a Smith Barney
money market fund to make additions to the account. Additional information is
available from the Fund or a Smith Barney Financial Consultant.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
<TABLE>
The sales charges applicable to purchases of Class A shares of the Fund are as follows:
<CAPTION>
DEALERS
SALES CHARGE SALES CHARGE REALLOWANCE
AS % OF AS % OF AS % OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 4.00% 4.17% 3.60%
$25,000-$49,999 3.50% 3.63% 3.15%
$50,000-$99,999 3.00% 3.09% 2.70%
$100,000-$249,999 2.50% 2.56% 2.25%
$250,000-$499,999 1.50% 1.52% 1.35%
$500,000 and over * * *
- ---------------------------------------------------------------------------------------------
<FN>
* Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months
of purchase. The CDSC on Class A shares is payable to Smith Barney, which
compensates Smith Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The CDSC is waived in the same
circumstances in which the CDSC applicable to Class B and Class C shares is
waived. See "Deferred Sales Charge Alternatives" and "Waivers of CDSC."
</TABLE>
30
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
Members of the selling group may receive up to 90% of the sales charge and
may be deemed to be underwriters of the Fund as defined in the Securities Act of
1933, as amended.
The reduced sales charges shown above apply to the aggregate of purchases
of Class A shares of the Fund made at one time by "any person," which includes
an individual, his or her spouse and children, or a trustee or other fiduciary
of a single trust estate or single fiduciary account. The reduced sales charge
minimums may also be met by aggregating the purchase with the net asset value of
all Class A shares held in funds sponsored by Smith Barney that are offered with
a sales charge listed under "Exchange Privilege."
INITIAL SALES CHARGE WAIVERS
Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to Trustees
of the Fund and employees of Travelers and its subsidiaries, or to the spouses
and children of such persons (including the surviving spouse of a deceased
Trustee or employee, and retired Trustees or employees); (b) offers of Class A
shares to any other investment company in connection with the combination of
such company with the Fund by merger, acquisition of assets or otherwise; (c)
purchases of Class A shares by any client of a newly employed Smith Barney
Financial Consultant (for a period up to 90 days from the commencement of the
Financial Consultant's employment with Smith Barney), on the condition the
purchase of Class A shares is made with the proceeds of the redemption of shares
of a mutual fund which (i) was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial Consultant and (iii) was
subject to a sales charge; (d) shareholders who have redeemed Class A shares in
the Fund (or Class A shares of another fund of the Smith Barney Mutual Funds
that are offered with a sales charge equal to or greater than the maximum sales
charge of the Fund) and who wish to reinvest their redemption proceeds in the
Fund, provided the reinvestment is made within 60 calendar days of the
redemption; (e) accounts managed by registered investment advisory subsidiaries
of Travelers; and (f) investments of distributions from a UIT sponsored by Smith
Barney. In order to obtain such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
would qualify for the elimination of the sales charge.
31
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
RIGHT OF ACCUMULATION
Class A shares of the Fund may be purchased by "any person" (as defined
above) at a reduced sales charge or at net asset value determined by aggregating
the dollar amount of the new purchase and the total net asset value of all Class
A shares of the Fund and of funds sponsored by Smith Barney, which are offered
with a sales charge listed under "Exchange Privilege" then held by such person
and applying the sales charge applicable to such aggregate. In order to obtain
such discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
GROUP PURCHASES
Upon completion of certain automated systems, a reduced sales charge or
purchase at net asset value will also be available to employees (and partners)
of the same employer purchasing as a group, provided each participant makes the
minimum initial investment required. The sales charge applicable to purchases by
each member of such a group will be determined by the table set forth above
under "Initial Sales Charge Alternatives--Class A Shares," and will be based
upon the aggregate sales of Class A shares of Smith Barney Mutual Funds offered
with a sales charge to, and share holdings of, all members of the group. To be
eligible for such reduced sales charges or to purchase at net asset value, all
purchases must be pursuant to an employer or partnership-sanctioned plan meeting
certain requirements. One such requirement is that the plan must be open to
specified partners or employees of the employer and its subsidiaries, if any.
Such plan may, but is not required to, provide for payroll deductions. Smith
Barney may also offer a reduced sales charge or net asset value purchase for
aggregating related fiduciary accounts under such conditions that Smith Barney
will realize economies of sales efforts and sales related expenses. An
individual who is a member of a qualified group may also purchase Class A shares
at the reduced sales charge applicable to the group as a whole. The sales charge
is based upon the aggregate dollar value of Class A shares offered with a sales
charge that have been previously purchased and are still owned by the group,
plus the amount of the current purchase. A "qualified group" is one which (a)
has been in existence for more than six months, (b) has a purpose other than
acquiring Fund shares at a discount and (c) satisfies uniform criteria which
enable Smith Barney to realize economies of scale in its costs of distributing
shares. A qualified group must have more than 10 members, must be available to
32
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
arrange for group meetings between representatives of the Fund and the members,
and must agree to include sales and other materials related to the Fund in its
publications and mailings to members at no cost to Smith Barney. In order to
obtain such reduced sales charge or to purchase at net asset value, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. Approval
of group purchase reduced sales charge plans is subject to the discretion of
Smith Barney.
LETTER OF INTENT
A Letter of Intent for amounts of $50,000 or more provides an opportunity
for an investor to obtain a reduced sales charge by aggregating investments over
a 13 month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all Class
A shares of the Fund and other funds of the Smith Barney Mutual Funds offered
with a sales charge over a 13 month period based on the total amount of intended
purchases plus the value of all Class A shares previously purchased and still
owned. An alternative is to compute the 13 month period starting up to 90 days
before the date of execution of the Letter of Intent. Each investment made
during the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the period,
the investor must pay the difference between the sales charges applicable to the
purchases made and the charges previously paid, or an appropriate number of
escrowed shares will be redeemed. New Letters of Intent will be accepted
beginning January 1, 1995. Please contact a Smith Barney Financial Consultant or
TSSG to obtain a Letter of Intent application.
DEFERRED SALES CHARGE ALTERNATIVES
"CDSC Shares" are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, may be imposed on
certain redemptions of these shares. "CDSC Shares" are: (a) Class B shares; (b)
Class C shares; and (c) Class A shares, which when combined with Class A shares
offered with a sales charge currently held by an investor, equal or exceed
$500,000 in the aggregate.
33
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
Any applicable CDSC will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at the time of
redemption. CDSC Shares that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital gain distributions; (c)
with respect to Class B shares, shares redeemed more than five years after their
purchase; or (d) with respect to Class C and Class A shares that are CDSC
Shares, shares redeemed more than 12 months after their purchase.
Class C and Class A shares that are CDSC Shares are subject to a 1.00% CDSC
if redeemed within 12 months of purchase. In circumstances in which the CDSC is
imposed on Class B shares, the amount of the charge will depend on the number of
years since the shareholder made the purchase payment from which the amount is
being redeemed. Solely for purposes of determining the number of years since a
purchase payment, all purchase payments made during a month will be aggregated
and deemed to have been made on the last day of the preceding Smith Barney
statement month. The following table sets forth the rates of the CDSC for
redemptions of Class B shares by shareholders.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC
----------------------------------------------------------------------------
<S> <C>
First 4.50%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
----------------------------------------------------------------------------
</TABLE>
Class B shares will convert automatically to Class A shares eight years
after the date on which they were purchased and thereafter will no longer be
subject to any distribution fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the shareholder as the total
number of his or her Class B shares converting at the time bears to the total
number of Class B shares (other than Class B Dividend Shares) owned by the
shareholder. Shareholders who held Class B shares of Smith Barney Shearson
Short-Term World Income Fund (the "Short-Term World Income Fund") on July 15,
1994 and who subsequently exchanged those shares for Class B shares
34
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
of the Fund will be offered the opportunity to exchange all such Class B shares
for Class A shares of the Fund four years after the date on which those shares
were deemed to have been purchased. Holders of such Class B shares will be
notified of the pending exchange in writing approximately 30 days before the
fourth anniversary of the purchase date and, unless the exchange has been
rejected in writing, the exchange will occur on or about the fourth anniversary
date. See "Prospectus Summary--Alternative Purchase Arrangements--Class B Shares
Conversion Feature."
The length of time that CDSC Shares acquired through an exchange have been
held will be calculated from the date that the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and Fund shares being
redeemed will be considered to represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, on the amount realized on redemption. The
amount of any CDSC will be paid to Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share for a cost of $1,000. Subsequently, the investor acquired 5
additional shares through dividends reinvestment. During the fifteenth month
after the purchase, the investor decided to redeem $500 of his or her
investment. Assuming at the time of the redemption the net asset value had
appreciated to $12 per share, the value of the investor's shares would be $1,260
(105 shares at $12 per share). The CDSC would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would
be charged at a rate of 4.00% (the applicable rate for Class B shares) for a
total deferred sales charge of $9.60.
WAIVERS OF CDSC
The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see below) (provided, however, that automatic cash withdrawals in amounts equal
to or less than 2.00% per month of the value of the shareholder's shares will be
permitted for withdrawal plans that were established prior to November 7, 1994);
(c) redemptions of shares within 12 months following the death or disability of
the shareholder; (d) involuntary redemp-
35
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
tions; and (e) redemptions of shares made in connection with a combination of
the Fund with any investment company by merger, acquisition of assets or
otherwise. In addition, a shareholder who has redeemed shares from other funds
of the Smith Barney Mutual Funds may, under certain circumstances, reinvest all
or part of the redemption proceeds within 60 days and receive pro rata credit
for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by TSSG in the
case of all other shareholders) of the shareholder's status or holdings, as the
case may be.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Except as otherwise noted below, shares of each Class may be exchanged at
the net asset value next determined for shares of the same Class in the
following funds of the Smith Barney Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of residence. Exchanges of Class A,
Class B and Class C shares are subject to minimum investment requirements and
all shares are subject to the other requirements of the fund into which
exchanges are made, and a sales charge differential may apply.
FUND NAME
Growth Funds
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney European Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc.--Capital Appreciation Portfolio
Smith Barney Global Opportunities Fund
Smith Barney Precious Metals and Minerals Fund Inc.
Smith Barney Special Equities Fund
Smith Barney Telecommunications Growth Fund
Smith Barney World Funds, Inc.--European Portfolio
Smith Barney World Funds, Inc.--International Equity Portfolio
Smith Barney World Funds, Inc.--Pacific Portfolio
36
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
- --------------------------------------------------------------------------------
Growth and Income Funds
Smith Barney Convertible Fund
Smith Barney Funds, Inc.--Income and Growth Portfolio
Smith Barney Growth and Income Fund
Smith Barney Premium Total Return Fund
Smith Barney Strategic Investors Fund
Smith Barney Utilities Fund
Smith Barney World Funds, Inc.--International Balanced Portfolio
Income Funds
** Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
* Smith Barney Funds, Inc.--Income Return Account Portfolio
Smith Barney Funds, Inc.--Monthly Payment Government Portfolio
++ Smith Barney Funds, Inc.--Short-Term U.S. Treasury Securities
Portfolio
Smith Barney Funds, Inc.--U.S. Government Securities Portfolio
Smith Barney Funds, Inc.--Utility Portfolio
Smith Barney Global Bond Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
* Smith Barney Limited Maturity Treasury Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney World Funds, Inc.--Global Government Bond Portfolio
Municipal Bonds Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
* Smith Barney Intermediate Maturity California Municipals Fund
* Smith Barney Intermediate Maturity New York Municipals Fund
* Smith Barney Limited Maturity Municipals Fund
Smith Barney Managed Municipals Fund Inc.
Smith Barney Massachusetts Municipals Fund
* Smith Barney Muni Funds--California Limited Term Portfolio
Smith Barney Muni Funds--California Portfolio
* Smith Barney Muni Funds--Florida Limited Term Portfolio
Smith Barney Muni Funds--Florida Portfolio
Smith Barney Muni Funds--Georgia Portfolio
* Smith Barney Muni Funds--Limited Term Portfolio
37
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
- --------------------------------------------------------------------------------
Smith Barney Muni Funds--National Portfolio
Smith Barney Muni Funds--New Jersey Portfolio
Smith Barney Muni Funds--New York Portfolio
Smith Barney Muni Funds--Ohio Portfolio
Smith Barney Muni Funds--Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Smith Barney Tax-Exempt Income Fund
Money Market Funds
+ Smith Barney Exchange Reserve Fund
++ Smith Barney Money Funds, Inc.--Cash Portfolio
++ Smith Barney Money Funds, Inc.--Government Portfolio
*** Smith Barney Money Funds, Inc.--Retirement Portfolio
++ Smith Barney Municipal Money Market Fund, Inc.
++ Smith Barney Muni Funds--California Money Market Portfolio
++ Smith Barney Muni Funds--New York Money Market Portfolio
- --------------------------------------------------------------------------------
* Available for exchange with Class A, Class C and Class Y shares of the
Fund.
** Available for exchange with Class A, Class B and Class Y shares of the
Fund.
*** Available for exchange with Class A shares of the Fund.
+ Available for exchange with Class B and Class C shares of the Fund.
++ Available for exchange with Class A and Class Y shares of the Fund.
Class A Exchanges. Class A shares of Smith Barney Mutual Funds sold
without a sales charge or with a maximum sales charge of less than the maximum
charged by other Smith Barney Mutual Funds will be subject to the appropriate
"sales charge differential" upon the exchange of such shares for Class A shares
of a fund sold with a higher sales charge. The "sales charge differential" is
limited to a percentage rate no greater than the excess of the sales charge rate
applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sales charge rate(s) actually paid on the mutual fund shares
relinquished in the exchange and on any predecessor of those shares. For
purposes of the exchange privilege, shares obtained through automatic
reinvestment of dividends and capital gain distributions are treated as having
paid the same sales charges applicable to the shares on which the dividends or
distributions were paid; however, if no sales charge was imposed upon the
initial purchase of shares, any shares obtained through automatic reinvestment
will be subject to a sales charge differential upon exchange.
Class B Exchanges. In the event a Class B shareholder (unless such
shareholder was a Class B shareholder of the Short-Term World Income Fund on
38
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
- --------------------------------------------------------------------------------
July 15, 1994) wishes to exchange all or a portion of his or her shares in any
of the funds imposing a higher CDSC than that imposed by the Fund, the exchanged
Class B shares will be subject to the higher applicable CDSC. Upon an exchange,
the new Class B shares will be deemed to have been purchased on the same date as
the Class B shares of the Fund that have been exchanged.
Class C Exchanges. Upon an exchange, the new Class C shares will be deemed
to have been purchased on the same date as the Class C shares of the Fund that
have been exchanged.
Class Y Exchanges. Class Y shareholders of the Fund who wish to exchange
all or a portion of their Class Y shares for Class Y shares in any of the funds
identified above may do so without imposition of any charge.
Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its shareholders. SBMFM may
determine that a pattern of frequent exchanges is excessive and contrary to the
best interests of the Fund's other shareholders. In this event, SBMFM will
notify Smith Barney and Smith Barney may, at its discretion, decide to limit
additional purchases and/or exchanges by a shareholder. Upon such a
determination, Smith Barney will provide notice in writing or by telephone to
the shareholder at least 15 days prior to suspending the exchange privilege and
during the 15 day period the shareholder will be required to (a) redeem his or
her shares in the Fund or (b) remain invested in the Fund or exchange into any
of the funds of the Smith Barney Mutual Funds ordinarily available, which
position the shareholder would be expected to maintain for a significant period
of time. All relevant factors will be considered in determining what constitutes
an abusive pattern of exchanges.
Exchanges will be processed at the net asset value next determined, plus
any applicable sales charge differential. Redemption procedures discussed below
are also applicable for exchanging shares, and exchanges will be made upon
receipt of all supporting documents in proper form. If the account registration
of the shares of the fund being acquired is identical to the registration of the
shares of the fund exchanged, no signature guarantee is required. A capital gain
or loss for tax purposes will be realized upon the exchange, depending upon the
cost or other basis of shares redeemed. Before exchanging shares, investors
should read the current prospectus describing the shares to be acquired. The
Fund reserves the right to modify or discontinue exchange privileges upon 60
days' prior notice to shareholders.
39
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund is required to redeem the shares of the Fund tendered to it, as
described below, at a redemption price equal to their net asset value per share
next determined after receipt of a written request in proper form at no charge
other than any applicable CDSC. Redemption requests received after the close of
regular trading on the NYSE are priced at the net asset value next determined.
If a shareholder holds shares in more than one Class, any request for
redemption must specify the Class being redeemed. In the event of a failure to
specify which Class, or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the Fund's transfer
agent receives further instructions from Smith Barney, or if the shareholder's
account is not with Smith Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the seventh day following receipt of
proper tender, except on any days on which the NYSE is closed or as permitted
under the 1940 Act in extraordinary circumstances. The Fund anticipates that,
in accordance with regulatory changes, beginning on or about June 1, 1995,
payment will be made on the third business day after receipt of proper tender.
Generally, if the redemption proceeds are remitted to a Smith Barney brokerage
account, these funds will not be invested for the shareholder's benefit without
specific instruction and Smith Barney will benefit from the use of temporarily
uninvested funds. Redemption proceeds for shares purchased by check, other than
a certified or official bank check, will be remitted upon clearance of the
check, which may take up to ten days or more.
Shares held by Smith Barney as custodian must be redeemed by submitting a
written request to a Smith Barney Financial Consultant. Shares other than those
held by Smith Barney as custodian may be redeemed through an investor's
Financial Consultant, Introducing Broker or a dealer in the selling group or by
submitting a written request for redemption to:
Smith Barney Florida Municipals Fund
Class A, B, C or Y (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's 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
40
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
- --------------------------------------------------------------------------------
endorsed for transfer (or be accompanied by an endorsed stock power) and must be
submitted to TSSG together with the redemption request. Any signature appearing
on a redemption request, share certificate or stock power must be guaranteed by
an eligible guarantor institution such as a domestic bank, savings and loan
institution, domestic credit union, member bank of the Federal Reserve System or
member firm of a national securities exchange. TSSG may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption request will not be deemed
properly received until TSSG receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $100 monthly or quarterly. The withdrawal plan
will be carried over on exchanges between funds or Classes of the Fund. Any
applicable CDSC will not be waived on amounts withdrawn by a shareholder that
exceed 1.00% per month of the value of the shareholder's shares subject to the
CDSC at the time the withdrawal plan commences. (With respect to withdrawal
plans in effect prior to November 7, 1994, any applicable CDSC will be waived on
amounts withdrawn that do not exceed 2.00% per month of the shareholder's shares
subject to the CDSC.) For further information regarding the automatic cash
withdrawal plan, shareholders should contact a Smith Barney Financial
Consultant.
- --------------------------------------------------------------------------------
MINIMUM ACCOUNT SIZE
- --------------------------------------------------------------------------------
The Fund reserves the right to involuntarily liquidate any shareholder's
account in the Fund if the aggregate net asset value of the shares held in the
Fund account is less than $500. (If a shareholder has more than one account in
this Fund, each account must satisfy the minimum account size.) The Fund,
however, will not redeem shares based solely on market reductions in net asset
value. Before the Fund exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid automatic redemption.
41
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
YIELD
From time to time, the Fund may advertise the 30 day "yield" and
"equivalent taxable yield" of each Class of shares. The yield refers to the
income generated by an investment in those shares over the 30 day period
identified in the advertisement and is computed by dividing the net investment
income per share earned by the Class during the period by the maximum public
offering price per share on the last day of the period. This income is
"annualized" by assuming the amount of income is generated each month over a one
year period and is compounded semi-annually. The annualized income is then shown
as a percentage of the net asset value.
The equivalent taxable yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to the Fund's tax-exempt yield for
each Class. It is calculated by increasing the yield shown for the Class to the
extent necessary to reflect the payment of taxes at specified tax rates. Thus,
the equivalent taxable yield always will exceed the Fund's yield. For more
information on equivalent taxable yields, refer to the table under "Dividends,
Distributions and Taxes."
TOTAL RETURN
From time to time, the Fund may include its total return, average annual
total return and current dividend return in advertisements and/or other types of
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class Y shares of the Fund. These figures are based on historical
earnings and are not intended to indicate future performance. Total return is
computed for a specified period of time assuming deduction of the maximum sales
charge, if any, from the initial amount invested and reinvestment of all income
dividends and capital gain distributions on the reinvestment dates at prices
calculated as stated in this Prospectus, then dividing the value of the
investment at the end of the period so calculated by the initial amount invested
and subtracting 100%. The standard average annual total return, as prescribed by
the SEC, is derived from this total return which provides the ending redeemable
value. Such standard total return information may also be accompanied with
nonstandard total return information for differing periods computed in the same
manner but without annualizing the total return or taking sales charges into
account. The Fund calculates current dividend return for each Class by
annualizing the most recent monthly distribution and dividing by the net asset
value or the maximum public offering price (including sales charge) on the
42
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
PERFORMANCE (CONTINUED)
- --------------------------------------------------------------------------------
last day of the period for which current dividend return is presented. The
current dividend return for each Class may vary from time to time depending on
market conditions, the composition of its investment portfolio and operating
expenses. These factors and possible differences in the methods used in
calculating current dividend return should be considered when comparing a Class'
current return to yields published for other investment companies and other
investment vehicles. The Fund may also include comparative performance
information in advertising or marketing its shares. Such performance information
may include data from Lipper Analytical Services, Inc. or similar independent
services that monitor the performance of mutual funds, or other industry
publications. The Fund will include performance data for Class A, Class B, Class
C and Class Y shares in any advertisement or information including performance
data of the Fund.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Trustees. The Trustees approve all significant
agreements between the Fund and the companies that furnish services to the Fund,
including agreements with the Fund's distributor, investment adviser,
administrator, sub-administrator, custodian and transfer agent. The day-to-day
operations of the Fund are delegated to the Fund's investment adviser,
administrator and sub-administrator. The Statement of Additional Information
contains background information regarding each Trustee and executive officer of
the Fund.
INVESTMENT ADVISER -- SBMFM
SBMFM, located at 388 Greenwich Street, New York, New York 10013, serves as
the Fund's investment adviser pursuant to a transfer of the investment advisory
agreement effective November 7, 1994, from its affiliate Mutual Management Corp.
(Mutual Management Corp. and SBMFM are both wholly owned subsidiaries of
Holdings.) Investment advisory services continue to be provided to the Fund by
the same portfolio managers who had provided services under the agreement with
Mutual Management Corp. SBMFM (through predecessor entities) has been in the
investment counseling business since 1934 and is a registered investment
adviser. SBMFM renders investment advice to
43
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
- --------------------------------------------------------------------------------
investment companies that had aggregate assets under management as of November
30, 1994 in excess of $51.4 billion.
Subject to the supervision and direction of the Fund's Board of Trustees,
SBMFM manages the Fund's portfolio in accordance with the Fund's 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. For
investment advisory services rendered, the Fund pays SBMFM a fee at the
following rates of its average daily net assets: 0.35% up to $500 million and
0.32% in excess of $500 million. For the fiscal year ended October 31, 1994,
SBMFM was paid investment advisory fees equal to 0.17% of the value of the
average daily net assets of the Fund.
PORTFOLIO MANAGEMENT
Lawrence T. McDermott, an Investment Officer of SBMFM, has served as Vice
President and Investment Officer of the Fund since it commenced operations and
manages the day-to-day operations of the Fund, including making all investment
decisions.
Management's discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended October 31, 1994, is
included in the Annual Report dated October 31, 1994. A copy of the Annual
Report may be obtained upon request without charge from a Smith Barney Financial
Consultant or by writing or calling the Fund at the address or phone number
listed on page one of this Prospectus.
ADMINISTRATOR
SBMFM also serves as the Fund's administrator and oversees all aspects of
the Fund's administration. For administration services rendered, the Fund pays
SBMFM a fee at the following annual rates of its average daily net assets: 0.20%
to $500 million; and 0.18% in excess of $500 million. For the fiscal year ended
October 31, 1994, the Fund paid administration fees equal to 0.10% of its
average daily net assets.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's sub-administrator. Boston Advisors provides invest-
44
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND (CONTINUED)
- --------------------------------------------------------------------------------
ment management, investment advisory, administrative and/or sub-administrative
services to investment companies which had aggregate assets under management as
of November 30, 1994, in excess of $94.7 billion.
Boston Advisors calculates the net asset value of the Fund's shares and
generally assists SBMFM in all aspects of the Fund's administration and
operation. Under a Sub-Administration Agreement dated April 20, 1994, Boston
Advisors is paid a portion of the administration fee paid by the Fund to SBMFM
at a rate agreed upon from time to time between Boston Advisors and SBMFM. Prior
to April 20, 1994, Boston Advisors served as the Fund's administrator.
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DISTRIBUTOR
- --------------------------------------------------------------------------------
Smith Barney is located at 388 Greenwich Street, New York, New York 10013.
Smith Barney distributes shares of the Fund as principal underwriter and as such
conducts a continuous offering pursuant to a "best efforts" arrangement
requiring Smith Barney to take and pay for only such securities as may be sold
to the public. Pursuant to a plan of distribution adopted by the Fund under Rule
12b-1 under the 1940 Act (the "Plan"), Smith Barney is paid a service fee with
respect to Class A, Class B and Class C shares of the Fund at the annual rate of
0.15% of the average daily net assets of the respective Class. Smith Barney is
also paid a distribution fee with respect to Class B and Class C shares at the
annual rate of 0.50% and 0.55%, respectively, of the average daily net assets
attributable to those Classes. Class B shares which automatically convert to
Class A shares eight years after the date of original purchase will no longer be
subject to a distribution fee. The fees are used by Smith Barney to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B and Class C shares, to cover expenses primarily intended to result in
the sale of those shares. These expenses include: advertising expenses; the cost
of printing and mailing prospectuses to potential investors; payments to and
expenses of Smith Barney Financial Consultants and other persons who provide
support services in connection with the distribution of shares; interest and/or
carrying charges; and indirect and overhead costs of Smith Barney associated
with the sale of Fund shares, including lease, utility, communications and sales
promotion expenses.
The payments to Smith Barney Financial Consultants for selling shares of a
Class include a commission or fee paid by the investor or Smith Barney at the
time of sale and, with respect to Class A, Class B and Class C shares, a
45
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
- --------------------------------------------------------------------------------
continuing fee for servicing shareholder accounts for as long as a shareholder
remains a holder of that Class. Smith Barney Financial Consultants may receive
different levels of compensation for selling different Classes of shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney and the payments
may exceed distribution expenses actually incurred. The Fund's Board of Trustees
will evaluate the appropriateness of the Plan and its payment terms on a
continuing basis and in so doing will consider all relevant factors, including
expenses borne by Smith Barney, amounts received under the Plan and proceeds of
the CDSC.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was organized under the laws of the Commonwealth of Massachusetts
on August 31, 1992 and is registered with the SEC as a non-diversified, open-end
management investment company.
Each Class of the Fund represents an identical interest in the Fund's
investment portfolio. As a result, the Classes have the same rights, privileges
and preferences, except with respect to: (a) the designation of each Class; (b)
the effect of the respective sales charges for each Class; (c) the distribution
and/or service fees borne by each Class; (d) the expenses allocable exclusively
to each Class; (e) voting rights on matters exclusively affecting a single
Class; (f) the exchange privilege of each Class; and (g) the conversion feature
of the Class B shares. The Trustees do not anticipate that there will be any
conflicts among the interests of the holders of the different Classes. The
Trustees, on an ongoing basis, will consider whether any such conflict exists
and, if so, take appropriate action.
The Fund does not hold annual shareholder meetings. There normally will be
no meetings of shareholders held for the purpose of electing Trustees unless and
until such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. The Trustees will call a
meeting for any purpose upon the written request of shareholders holding at
least 10% of the Fund's outstanding shares and the Fund will assist shareholders
in calling such a meeting as required by the 1940 Act.
46
<PAGE>
SMITH BARNEY
Florida Municipals Fund
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
When matters are submitted for shareholder vote, shareholders of each Class
will have one vote for each full share owned and a proportionate fractional vote
for any fractional share held of that Class. Generally, shares of the Fund will
be voted on a Fund-wide basis on all matters except matters affecting only the
interests of one Class.
Boston Safe Deposit and Trust Company is an indirect wholly owned
subsidiary of Mellon and is located at One Boston Place, Boston, Massachusetts
02108, and serves as custodian of the Fund's investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Fund's transfer agent.
The Fund sends to each of its shareholders a semi-annual report and an
audited annual report, which include listings of the investment securities held
by the Fund at the end of the period covered. In an effort to reduce the Fund's
printing and mailing costs, the Fund plans to consolidate the mailing of its
semi-annual and annual reports by household. This consolidation means that a
household having multiple accounts with the identical address of record will
receive a single copy of each report. Shareholders who do not want this
consolidation to apply to their account should contact their Smith Barney
Financial Consultant or TSSG.
------------------------------
47
<PAGE>
SMITH BARNEY
------------
A Member of TravelersGroup [LOG0 -
AN
UMBRELLA]
SMITH BARNEY
FLORIDA MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013
[Recycle Recycled Fund 237.238
logo] Recyclable FD022214
Smith Barney
FLORIDA MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013
(212) 723-9218
STATEMENT OF ADDITIONAL INFORMATION DECEMBER 30, 1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney Florida
Municipals Fund (the "Fund") dated December 30, 1994, as amended or sup-
plemented from time to time, and should be read in conjunction with the
Fund's Prospectus. The Fund's Prospectus may be obtained from a Smith Bar-
ney Financial Consultant or by writing or calling the Fund at the address
or telephone number set forth above. This Statement of Additional Informa-
tion, although not in itself a prospectus, is incorporated by reference
into the Prospectus in its entirety.
CONTENTS
For ease of reference, the same section headings are used in both the Pro-
spectus and this Statement of Additional Information, except where shown
below:
<TABLE>
<S> <C>
Management of the Fund 1
Investment Objective and Management Policies 5
Municipal Bonds (See in the Prospectus "Florida Municipal Securities") 13
Purchase of Shares 16
Redemption of Shares 17
Distributor 18
Valuation of Shares 19
Exchange Privilege 20
Performance Data (See in the Prospectus "Performance") 21
Taxes (See in the Prospectus "Dividends, Distributions and Taxes") 24
Additional Information 27
Financial Statements 28
Appendix A-1
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the organi-
zations that provide services to the Fund. These organizations are the
following:
<TABLE>
<CAPTION>
NAME SERVICE
<S> <C>
Smith Barney Inc.
("Smith Barney") Distributor
Smith Barney Mutual Funds Management Inc.
("SBMFM") Investment Adviser and Administrator
The Boston Company Advisors, Inc.
("Boston Advisors") Sub-Administrator
Boston Safe Deposit and Trust Company
("Boston Safe") Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund are dis-
cussed in the Prospectus and in this Statement of Additional Information.
TRUSTEES AND EXECUTIVE OFFICERS OF THE FUND
The names of the Trustees and executive officers of the Fund, together
with information as to their principal business occupations during the
past five years, are shown below. Each Trustee who is an "interested per-
son" of the Fund, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), is indicated by an asterisk.
Herbert Barg, Trustee. Private investor. His address is 273 Montgomery Av-
enue, Bala Cynwyd, Pennsylvania 19004.
*Alfred J. Bianchetti, Trustee. Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 07466.
Martin Brody, Trustee. Vice Chairman of the Board of Restaurant Associates
Industries Corp.; a Director of Jaclyn, Inc. His address is HMK Associ-
ates, Three ADP Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Trustee. Professor, Graduate School of Business Adminis-
tration, Harvard University; a Director of Peer Review Analysis, Inc. His
address is Graduate School of Business Administration, Harvard University,
Boston, Massachusetts 02163.
James J. Crisona, Trustee. Attorney; formerly Justice of the Supreme Court
of the State of New York. His address is 118 East 60th Street, New York,
New York 10022.
Burt N. Dorsett, Trustee. Managing Partner of Dorsett McCabe Management,
Inc., an investment counseling firm; Director of Research Corporation
Technologies Inc., a non-profit patent-clearing and licensing firm. His
address is 201 East 62nd Street, New York, New York 10021.
Robert A. Frankel, Trustee. Management Consultant; retired Vice President
of The Reader's Digest Association, Inc. His address is 102 Grand Street,
Croton-on-Hudson, New York 10520.
Elliot S. Jaffe, Trustee. Chairman of the Board and President of The Dress
Barn, Inc. His address is 30 Dunnigan Drive, Suffern, New York 10901.
Dr. Paul Hardin, Trustee. Chancellor of the University of North Carolina
at Chapel Hill; a Director of The Summit Bancorporation. His address is
University of North Carolina, 103 S. Building, Chapel Hill, North Carolina
27599.
Stephen E. Kaufman, Trustee. Attorney. His address is 277 Park Avenue, New
York, New York 10017.
Joseph J. McCann, Trustee. Financial Consultant; formerly Vice President
of Ryan Homes, Inc., Pittsburgh, Pennsylvania. His address is 200 Oak Park
Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer. Execu-
tive Vice President of Smith Barney and Chairman of Smith Barney Strategy
Advisers Inc.; prior to July 1993, Senior Executive Vice President of
Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers"); Vice Chairman
of Shearson Asset Management; a Director of PanAgora Asset Management,
Inc. and PanAgora Asset Management Limited. His address is 388 Greenwich
Street, New York, New York 10013.
Cornelius C. Rose, Jr., Trustee. President, Cornelius C. Rose Associates,
Inc., Financial Consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is P.O. Box 355,
Fair Oaks, Enfield, New Hampshire 03748.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney; Director and President of Mutual Mangement Corp. and SBMFM;
and Trustee of Corporate Realty Income Trust Inc. His address is 388
Greenwich Street, New York, New York 10013.
Lewis E. Daidone, Senior Vice President and Treasurer. Managing Director
and Chief Financial Officer of Smith Barney; Director and Senior Vice
President of SBMFM. His address is 388 Greenwich Street, New York, New
York 10013.
Lawrence T. McDermott, Vice President and Investment Officer. Managing Di-
rector of SBMFM; prior to July 1993, Managing Director of Greenwich Street
Advisors and Shearson Lehman Advisors, the predecessor to Greenwich Street
Advisors. His address is 388 Greenwich Street, New York, New York 10013.
Karen L. Mahoney-Malcomson, Investment Officer. Director of SBMFM; prior
to July 1993, Senior Vice President of Shearson Lehman Advisors. Her ad-
dress is 388 Greenwich Street, New York, New York 10013.
Christina T. Sydor, Secretary. Managing Director of Smith Barney; General
Counsel and Secretary of SBMFM. Her address is 388 Greenwich Street, New
York, New York 10013.
All of the Trustees of the Fund also serve as directors, trustees and/or
general partners of other mutual funds for which Smith Barney serves as
principal underwriter. As of December 30, 1994, the Trustees and officers
of the Fund as a group owned none of the outstanding shares of beneficial
interest of the Fund.
No director, officer or employee of Smith Barney or any parent or subsid-
iary receives any compensation from the Fund for serving as an officer or
Trustee of the Fund. The Fund pays each Trustee who is not an officer, di-
rector or employee of Smith Barney or any of its affiliates a fee of
$2,500 per annum plus $250 per meeting attended and reimburses them for
travel and out-of-pocket expenses. For the fiscal year ended October 31,
1994, such fees and expenses totalled $40,681.
INVESTMENT ADVISER AND ADMINISTRATOR -- SBMFM
SBMFM serves as investment adviser to the Fund pursuant to a transfer of
the investment advisory agreement effective November 7, 1994 (the "Advi-
sory Agreement"), from its affiliate, Mutual Management Corp. Mutual Man-
agement Corp. and SBMFM are both wholly owned subsidiaries of Smith Barney
Holdings Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The
Travelers Inc. ("Travelers"). The Advisory Agreement is dated July 30,
1993, and was first approved by the Board of Trustees, including a major-
ity of those Trustees who are not "interested persons" of the Fund or
Smith Barney, on April 7, 1993. The services provided by SBMFM under the
Advisory Agreement are described in the Prospectus under "Management of
the Fund." SBMFM pays the salary of any officer and employee who is em-
ployed by both it and the Fund.
As compensation for investment advisory services, the Fund pays SBMFM a
fee computed daily and paid monthly at the following annual rates of the
Fund's average daily net assets: 0.35% up to $500 million; and 0.32% in
excess of $500 million. For the period from November 6, 1992 (commencement
of operations) through October 31, 1993, and the fiscal year ended October
31, 1994, the Fund incurred advisory fees for Mutual Management Corp.
and/or Shearson Lehman Advisors, the Fund's investment adviser prior to
Mutual Management Corp., in the amount of $119,596 and $179,905, respec-
tively. For the same periods, the investment adviser voluntarily waived
investment advisory fees of $88,140 and $92,898, respectively.
SBMFM also serves as administrator to the Fund pursuant to a written
agreement dated April 20, 1994, (the "Administration Agreement") which was
most recently approved by the Fund's Board of Trustees, including a major-
ity of Trustees who are not "interested persons" of the Fund or SBMFM, on
July 20, 1994. The services provided by SBMFM under the Administration
Agreement are described in the Prospectus under "Management of the Fund."
SBMFM pays the salary of any officer and employee who is employed by both
it and the Fund and bears all expenses in connection with the performance
of its services.
As compensation for administrative services rendered to the Fund, SBMFM
receives a fee paid at the following annual rates of the Fund's average
daily net assets: 0.20% up to $500 million; and 0.18% in excess of $500
million. For the period from April 20, 1994 through October 31, 1994, the
Fund incurred $54,922 in administration fees, of which SBMFM waived
$28,360.
SUB-ADMINISTRATOR -- BOSTON ADVISORS
Boston Advisors serves as sub-administrator to the Fund pursuant to a
written agreement (the "Sub- Administration Agreement") dated April 20,
1994, which was most recently approved by the Fund's Board of Trustees,
including a majority of Trustees who are not "interested persons" of the
Fund or Boston Advisors, on July 20, 1994. Under the Sub-Administration
Agreement, Boston Advisors is paid a portion of the administration fee
paid by the Fund to SBMFM at a rate agreed upon from time to time between
Boston Advisors and SBMFM. Boston Advisors is a wholly owned subsidiary of
The Boston Company, Inc. ("TBC"), a financial services holding company,
which is in turn a wholly owned subsidiary of Mellon Bank Corporation
("Mellon").
Prior to April 20, 1994, Boston Advisors served as the Fund's sub-
investment adviser and/or administrator. For the period from November 6,
1992 (commencement of operations) through October 31, 1993, and the fiscal
period November 1, 1993 through April 19, 1994 the fees incurred for Bos-
ton Advisors amounted to $68,341 and $47,881, respectively. Boston Advi-
sors voluntarily waived sub- investment advisory and/or administration
fees in the amount of $50,366 and $24,724, respectively.
Certain services provided to the Fund by Boston Advisors pursuant to the
Sub-Administration Agreement are described in the Prospectus under "Man-
agement of the Fund." In addition to those services, Boston Advisors pays
the salaries of all officers and employees who are employed by both it and
the Fund, maintains office facilities for the Fund, furnishes the Fund
with statistical and research data, clerical help and accounting, data
processing, bookkeeping, internal auditing and legal services and certain
other services required by the Fund, prepares reports to the Fund's share-
holders, and prepares tax returns and filings with the Securities and Ex-
change Commission (the "SEC") and state Blue Sky authorities. Boston Advi-
sors bears all expenses in connection with the performance of its ser-
vices.
The Fund bears expenses incurred in its operation including: taxes, inter-
est, brokerage fees and commissions, if any; fees of Trustees who are not
officers, directors, shareholders or employees of Smith Barney, SBMFM or
Boston Advisors; SEC fees and state Blue Sky qualification fees; charges
of custodian; transfer and dividend disbursing agent's fees; certain in-
surance premiums; outside auditing and legal expenses; costs of any inde-
pendent pricing service; costs of maintaining corporate existence; costs
attributable to investors services (including allocated telephone and per-
sonnel expenses); costs of preparation and printing of prospectuses for
regulatory purposes and for distribution to existing shareholders; cost of
shareholders' reports and shareholder meetings and meetings of the offic-
ers or Board of Trustees of the Fund.
SBMFM and Boston Advisors have agreed that if in any fiscal year the ag-
gregate expenses of the Fund (including fees payable pursuant to the Advi-
sory, Sub-Administration and Administration Agreements, but excluding in-
terest, taxes, brokerage fees paid pursuant to the Fund's services and
distribution plan, and, with the prior written consent of the necessary
state securities commissions, extraordinary expenses) exceed the expense
limitation of any state having jurisdiction over the Fund, SBMFM and Bos-
ton Advisors will, to the extent required by state law, reduce their man-
agement fees by the amount of such excess expenses, such amount to be al-
located between them in the proportion that their respective fees bear to
the aggregate of such fees paid by the Fund. Such fee reductions, will be
reconciled on a monthly basis. For the fiscal year ended October 31, 1994,
no such fee reduction was required.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. Gunster,
Yoakley and Stewart P.A. serves as special Florida counsel for the Fund
and has reviewed the portions of the Prospectus and this Statement of Ad-
ditional Information concerning Florida taxes and the description of the
special considerations relating to Florida Municipal Securities (as de-
fined below). The Trustees who are not "interested persons" of the Fund
have selected Stroock & Stroock & Lavan as their legal counsel.
KPMG Peat Marwick, LLP, independent accountants, 345 Park Avenue, New
York, New York 10154, serve as auditors of the Fund and will render an
opinion on the Fund's financial statements annually. Prior to October 19,
1994, Coopers & Lybrand L.L.P., independent auditors, served as auditors
of the Fund and rendered an opinion on the Fund's financial statements for
the fiscal year ended October 31, 1994.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies
it employs to achieve that objective. The following discussion supplements
the description of the Fund's investment policies in the Prospectus. For
purposes of this Statement of Additional Information, obligations of non-
Florida municipal issuers that pay interest which is excluded from gross
income for Federal income tax purposes ("Non-Florida Municipal Securi-
ties") and obligations of the State of Florida and its political subdivi-
sions, agencies and public authorities (together with certain other munic-
ipal issuers such as Puerto Rico, the Virgin Islands and Guam) that pay
interest which is excluded from gross income for Federal income tax pur-
poses and is exempt from the Florida intangibles tax ("Florida Municipal
Securities"), are collectively referred to as "Municipal Bonds."
As noted in the Prospectus, the Fund is classified as a non-diversified
investment company under the 1940 Act, which means that the Fund is not
limited by the 1940 Act in the proportion of its assets that may be in-
vested in the obligations of a single issuer. The identification of the
issuer of Municipal Bonds generally depends upon the terms and conditions
of the security. When the assets and revenues of an agency, authority, in-
strumentality or other political subdivision are separate from those of
the government creating the issuing entity and the security is backed only
by the assets and revenues of such entity, such entity would be deemed to
be the sole issuer. Similarly, in the case of a private activity bond, if
that bond is backed only by the assets and revenues of the nongovernmental
user, then such nongovernmental user is deemed to be the sole issuer. If,
in either case, however, the creating government or some other entity
guarantees a security, such a guarantee would be considered a separate se-
curity and would be treated as an issue of such government or other en-
tity.
USE OF RATINGS AS INVESTMENT CRITERIA
In general, the ratings of Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P") and Fitch Investors Service, Inc.
("Fitch") represent the opinions of those agencies as to the quality of
the Municipal Bonds and short-term investments which they rate. It should
be emphasized, however, that such ratings are relative and subjective, are
not absolute standards of quality and do not evaluate the market risk of
securities. These ratings will be used by the Fund as initial criteria for
the selection of portfolio securities, but the Fund also will rely upon
the independent advice of SBMFM to evaluate potential investments. Among
the factors that will be considered are the long-term ability of the is-
suer to pay principal and interest and general economic trends. To the ex-
tent the Fund invests in lower-rated and comparable unrated securities the
Fund's achievement of its investment objective may be more dependent on
SBMFM's credit analysis of such securities than would be the case for a
portfolio consisting entirely of higher-rated securities. The Appendix
contains information concerning the ratings of Moody's, S&P and Fitch and
their significance.
Subsequent to its purchase by the Fund, an issue of Municipal Bonds may
cease to be rated or its rating may be reduced below the rating given at
the time the securities were acquired by the Fund. Neither event will re-
quire the sale of such Municipal Bonds by the Fund, but SBMFM will con-
sider such events in its determination of whether the Fund should continue
to hold the Municipal Bonds. In addition, to the extent the ratings change
as a result of changes in such organizations or their rating systems or
due to a corporate restructuring of Moody's, S&P or Fitch, the Fund will
attempt to use comparable ratings as standards for its investments in ac-
cordance with its investment objective and policies.
The Fund generally may invest up to 25% of its total assets in securities
rated below investment grade, i.e., lower than Baa, MIG 3 or Prime-1 by
Moody's, BBB, SP-2 or A-1 by S&P or BBB or F-2 by Fitch, or in unrated se-
curities of comparable quality often referred to as "junk bonds." Such se-
curities (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 or (b) are
predominantly speculative with respect to the issuer's capacity to pay in-
terest and repay principal in accordance with the terms of the obligation.
TEMPORARY INVESTMENTS
When the Fund is maintaining a defensive position, the Fund may invest in
short-term investments ("Temporary Investments") consisting of the follow-
ing: (a) tax-exempt securities: notes of municipal issuers having, at the
time of purchase, a rating within the two highest grades of Moody's, S&P
or Fitch or, if not rated, having an issue of outstanding Municipal Bonds
rated within the two highest grades by Moody's, S&P or Fitch; and (b) tax-
able securities: obligations of the United States government, its agencies
or instrumentalities, including repurchase agreements with respect to such
securities; other debt securities rated within the three highest grades by
Moody's, S&P or Fitch; commercial paper rated in the highest grade by ei-
ther 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 Tem-
porary Investments unless the Fund has adopted a defensive investment pol-
icy. The Fund intends, however, to purchase tax-exempt Temporary Invest-
ments pending the investment of the proceeds of the sale of portfolio se-
curities or of the Fund's shares, or in order to have highly liquid
securities available to meet anticipated redemptions.
INVESTMENTS IN MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS
AND OPTIONS ON MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS
Municipal Bond Index and Interest Rate Futures Contracts. The purpose of
entering into a municipal bond index or interest rate futures contract by
the Fund, as the holder of long-term Municipal Bonds, is to protect the
Fund from fluctuations in interest rates on tax-exempt securities without
buying or selling the Municipal Bonds. If the Fund owns long-term Munici-
pal Bonds and interest rates are expected to increase, for example, the
Fund might enter into futures contracts to sell a municipal bond index or
the debt security underlying the interest rate future. Such a transaction
would have much the same effect as selling some of the long-term Municipal
Bonds in the Fund's portfolio. If interest rates increased as anticipated,
the value of certain long-term Municipal Bonds in the Fund's portfolio
would decline, but the value of the Fund's futures contracts would in-
crease at approximately the same rate, thereby keeping the net asset value
of the Fund from declining as much as it otherwise would have. Of course,
because the value of the Municipal Bonds in the Fund's portfolio will far
exceed the value of the futures contracts entered into by the Fund, an in-
crease in the value of the futures contracts could only mitigate -- but
not totally offset -- the decline in the value of the portfolio.
When interest rates are expected to decline, futures contracts to purchase
a municipal bond index or debt security could be entered into to hedge
against the Fund's anticipated purchases of long-term Municipal Bonds at
higher prices. Because the rate of fluctuation in the value of the futures
contracts should be similar to that of long-term Municipal Bonds, the Fund
could enter into futures contracts at lower prices. At the time the Fund
deems it appropriate to purchase the Municipal Bonds, the futures con-
tracts could be liquidated and the Fund's cash could then be used to buy
long-term Municipal Bonds. The Fund could accomplish similar results by
selling Municipal Bonds with long maturities and investing in Municipal
Bonds with short maturities when interest rates are expected to increase
or by buying Municipal Bonds with long maturities and selling Municipal
Bonds with short maturities when interest rates are expected to decline.
In circumstances when the market for Municipal Bonds may not be as liquid
as that for the futures contracts, however, the ability to enter into such
contracts could enable the Fund to react more quickly to anticipated
changes in market conditions or interest rates.
Unlike the purchase or sale of a Municipal Bond, no consideration is paid
or received by the Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit in the name of the futures
commission merchant effecting the transaction an amount of cash or cash
equivalents equal to approximately 10% of the contract amount (this amount
is subject to change by the board of trade on which the contract is traded
and members of the board of trade may charge a higher amount). This amount
is known as initial margin and is in the nature of a performance bond or
good faith deposit on the contract that is returned to the Fund upon ter-
mination of the futures contract, assuming that all contractual obliga-
tions have been satisfied. Subsequent payments, known as variation margin,
to and from the futures commission merchant will be made on a daily basis
as the price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as marking-to-market. At any time
prior to the expiration of the contract, the Fund may elect to close the
position by taking an opposite position, which will operate to terminate
the Fund's existing position in the futures contract.
There are several risks in connection with the use of municipal bond index
and interest rate futures contracts as a hedging device. Successful use of
these futures contracts by the Fund is subject to SBMFM's ability to pre-
dict correctly movements in the direction of interest rates. Such predic-
tions involve skills and techniques which may be different from those in-
volved in the management of a long-term municipal bond portfolio. In addi-
tion, there can be no assurance that there will be a correlation between
movements in the price of the municipal bond index or the debt security
underlying the futures contract and movements in the price of the Munici-
pal Bonds which are the subject of the hedge. The degree of imperfection
of correlation depends upon various circumstances, such as variations in
speculative market demand for futures contracts and Municipal Bonds and
technical influences in futures trading. The degree of imperfection of
correlation may be increased with respect to the Fund, which will hold
primarily Florida Municipal Securities rather than a selection of the
bonds constituting any index. The Fund's Municipal Bonds and the bonds in
the index also may differ in such respects as interest rate levels, matu-
rities and creditworthiness of issuers. A decision of whether, when and
how to hedge involves the exercise of skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of market be-
havior or unexpected trends in interest rates.
Although the Fund intends to enter into futures contracts only if an ac-
tive market exists for the contracts, there can be no assurance that an
active market will exist for the contract at any particular time. Most do-
mestic futures exchanges and boards of trade limit the amount of fluctua-
tion permitted in futures contract prices during a single trading day. The
daily limit establishes the maximum amount that the price of a futures
contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a
price beyond that limit. The daily limit governs only price movement dur-
ing a particular trading day and therefore does not limit potential losses
because the limit may prevent the liquidation of unfavorable positions.
Futures contract prices may move to the daily limit for several consecu-
tive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event, it might not be possible to close a fu-
tures position and, in the event of adverse price movements, the Fund
would be required to make daily cash payments of variation margin. In such
circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may partially or completely offset losses on the fu-
tures contract. As described above, however, no assurance can be given
that the price of Municipal Bonds will, in fact, correlate with the price
movements in the municipal bond index or interest rate futures contract
and thus provide an offset to losses on a futures contract.
If the Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of Municipal Bonds held in its portfo-
lio and rates decrease instead, the Fund will lose part or all of the ben-
efit of the increased value of the Municipal Bonds it has hedged because
it will have offsetting losses in its futures positions. In addition, in
such situations, if the Fund has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of se-
curities may, but will not necessarily, be at increased prices which re-
flect the decline in interest rates. The Fund may have to sell securities
at a time when it may be disadvantageous to do so.
Options on Municipal Bond Index and Interest Rate Futures Contracts. Op-
tions on futures contracts are similar to options on securities, which
give the purchaser the right, in return for the premium paid, to purchase
securities. A call option gives the purchaser of such option the right to
assume a long position in a specified underlying futures contract, and a
put option gives the purchaser the right to assume a short position in a
specified underlying futures contract, at a stated exercise price at any
time prior to the expiration date of the option. Upon exercise of an op-
tion, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumu-
lated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. The potential loss related to the
purchase of an option on a futures contract is limited to the premium paid
for the option (plus transaction costs). Because the value of the option
is fixed at the point of sale, no daily cash payments are made to reflect
changes in the value of the underlying contract; however, the value of the
option does change daily and that change would be reflected in the net
asset value of the Fund.
The Fund will purchase put and call options on municipal bond index and
interest rate futures contracts which are traded on a United States ex-
change or board of trade as a hedge against changes in interest rates, and
will enter into closing transactions with respect to such options to ter-
minate existing positions. The Fund may purchase put options on interest
rate or municipal bond index futures contracts if SBMFM anticipates a rise
in interest rates. The purchase of put options on these futures contracts
is analogous to the purchase of put options on debt securities so as to
hedge a portfolio of debt securities against the risk of rising interest
rates. Because of the inverse relationship between the trends in interest
rates and values of debt securities, a rise in interest rates would result
in a decline in the value of Municipal Bonds held in the Fund's portfolio.
Because the value of a municipal bond index or interest rate futures con-
tract moves inversely in relation to changes in interest rates, as is the
case with Municipal Bonds, a put option on such a contract becomes more
valuable as interest rates rise. By purchasing put options on these fu-
tures contracts at a time when SBMFM expects interest rates to rise, the
Fund would seek to realize a profit to offset the loss in value of its
portfolio securities without the need to sell such securities.
The Fund may purchase call options on municipal bond index or interest
rate futures contracts if SBMFM anticipates a decline in interest rates.
The purchase of a call option on a municipal bond index or interest rate
futures contract represents a means of obtaining temporary exposure to
market appreciation at limited risk. It is analogous to the purchase of a
call option on an individual debt security, which can be used as a substi-
tute for a position in the debt security itself. Depending upon the pric-
ing of the option compared to either the futures contract upon which it is
based, or upon the price of the underlying debt securities, it may or may
not be less risky than ownership of the futures contract or underlying
debt securities. The Fund would purchase a call option on a futures con-
tract to hedge against a market advance when the Fund was holding cash in
anticipation of purchasing Municipal Bonds. The Fund could take advantage
of the anticipated rise in the value of long-term securities without actu-
ally buying them until the market had stabilized. At that time, the op-
tions could be liquidated and the Fund's cash could be used to buy Munici-
pal Bonds.
The Fund would sell put and call options on futures contracts only as part
of closing transactions to terminate its options positions. No assurance
can be given that such closing transactions can be effected.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be sub-
ject to the existence of a liquid market. In addition, the Fund's purchase
of put or call options will be based upon predictions as to anticipated
interest rate trends by SBMFM, which could prove to be inaccurate. Even if
SBMFM's expectations are correct, there may be an imperfect correlation
between the change in the value of the options and of the Fund's portfolio
securities. The Fund's ability to purchase and sell options on futures
contracts and to trade in these contracts may be limited to some extent by
the requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to a regulated investment company. See "Taxes" below.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain member banks which are the issuers of instruments acceptable for
purchase by the Fund and with certain dealers on the Federal Reserve Bank
of New York's list of reporting dealers. A repurchase agreement is a con-
tract under which the buyer of a security simultaneously commits to resell
the security to the seller at an agreed-upon price on an agreed-upon date.
Under the terms of a typical repurchase agreement, the Fund would acquire
an underlying debt obligation for a relatively short period (usually not
more than seven days) subject to an obligation of the seller to repur-
chase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to mar-
ket fluctuations during the Fund's holding period. Under each repurchase
agreement, the selling institution will be required to maintain the value
of the securities subject to the repurchase agreement at not less than
their repurchase price. SBMFM or Boston Advisors, acting under the super-
vision of the Fund's Board of Trustees, reviews on an ongoing basis the
value of the collateral and the creditworthiness of those banks and deal-
ers with which the Fund enters into repurchase agreements to evaluate po-
tential risks. Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible de-
lays or restrictions upon the Fund's ability to dispose of the underlying
securities, the risk of a possible decline in the value of the underlying
securities during the period in which the Fund seeks to assert its rights
to them, the risk of incurring expenses associated with asserting those
rights and the risk of losing all or part of the income from the agree-
ment.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the protec-
tion of shareholders. Restrictions 1 through 7 below cannot be changed
without the approval of the holders of a majority vote 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 Board of Trustees at any time.
The Fund will not:
1. Issue senior securities as defined in the 1940 Act and any rules and
orders thereunder, except insofar as the Fund may be deemed to have issued
senior securities by reason of: (a) borrowing money or purchasing securi-
ties on a when-issued or delayed-delivery basis; (b) purchasing or selling
futures contracts and options on futures contracts and other similar in-
struments; and (c) issuing separate classes of shares.
2. Invest more than 25% of its total assets in securities, the issuers of
which are in the same industry. For purposes of this limitation, U.S. gov-
ernment securities and securities of state or municipal governments and
their political subdivisions are not considered to be issued by members of
any industry.
3. Borrow money, except that the Fund may borrow from banks for temporary
or emergency (not leveraging) purposes, including the meeting of redemp-
tion requests which might otherwise require the untimely disposition of
securities, in an amount not exceeding 10% of the value of the Fund's
total assets (including the amount borrowed) valued at market less liabil-
ities (not including the amount borrowed) at the time the borrowing is
made. Whenever borrowings exceed 5% of the value of the Fund's total as-
sets, the Fund will not make additional investments.
4. Make loans. This restriction does not apply to: (a) the purchase of
debt obligations in which the Fund may invest consistent with its invest-
ment objectives and policies; (b) repurchase agreements; and (c) loans of
its portfolio securities.
5. Engage in the business of underwriting securities issued by other per-
sons, except to the extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as amended, in disposing
of portfolio securities.
6. Purchase or sell real estate, real estate mortgages, real estate in-
vestment trust securities, commodities or commodity contracts, but this
shall not prevent the Fund from: (a) investing in securities of issuers
engaged in the real estate business and securities which are secured by
real estate or interests therein; (b) holding or selling real estate re-
ceived in connection with securities it holds; or (c) trading in futures
contracts and options on futures contracts.
7. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio se-
curities) or sell any securities short (except against the box). For pur-
poses of this restriction, the deposit or payment by the Fund of initial
or maintenance margin in connection with futures contracts and related op-
tions and options on securities is not considered to be the purchase of a
security on margin.
8. Purchase or otherwise acquire any security if, as a result, more than
15% of its net assets would be invested in securities that are illiquid.
9. Purchase or sell oil and gas interests.
10. Invest more than 5% of the value of its total assets in the securi-
ties of issuers having a record, including predecessors, of less than
three years of continuous operation, except obligations issued or guaran-
teed by the United States government, its agencies or instrumentalities.
(For purposes of this investment restriction, issuers include predeces-
sors, 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 required as part of a merger, consolidation or acquisition of as-
sets and except to the extent permitted by Section 12 of the 1940 Act
(currently, up to 5% of the total assets of the Fund and no more than 3%
of the total outstanding voting stock of any one investment company).
13. Engage in the purchase or sale of put, call, straddle or spread op-
tions or in the writing of such options, except that the Fund may make
margin deposits in connection with municipal bond index and interest rate
futures contracts and may purchase and sell options on municipal bond
index and interest rate futures contracts.
Certain restrictions listed above permit the Fund without shareholder ap-
proval to engage in investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering its current invest-
ment practices as otherwise described in the Prospectus and this Statement
of Additional Information and any future change in those practices would
require Board approval and appropriate disclosure to investors. If a per-
centage 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 as-
sets will not constitute a violation of such restriction. In order to per-
mit the sale of the Fund's shares in certain states, the Fund may make
commitments more restrictive than the restrictions described above. Should
the Fund determine that any such commitment is no longer in the best in-
terests of the Fund and its shareholders it will revoke the commitment by
terminating sales of its shares in the state involved.
PORTFOLIO TRANSACTIONS
Newly issued securities normally are purchased directly from the issuer or
from an underwriter acting as principal. Other purchases and sales usually
are placed with those dealers from which it appears that the best price or
execution will be obtained; those dealers may be acting as either agents
or principals. The purchase price paid by the Fund to underwriters of
newly issued securities usually includes a concession paid by the issuer
to the underwriter, and purchases of after-market securities from dealers
normally are executed at a price between the bid and asked prices. The
Fund has paid no brokerage commissions since its commencement of opera-
tions.
Allocation of transactions, including their frequency, to various dealers
is determined by SBMFM in its best judgment and in a manner deemed fair
and reasonable to shareholders. The primary considerations are availabil-
ity of the desired security and the prompt execution of orders in an ef-
fective manner at the most favorable prices. Subject to these consider-
ations, dealers that provide supplemental investment research and statis-
tical or other services to SBMFM may receive orders for portfolio
transactions by the Fund. Information so received is in addition to, and
not in lieu of, services required to be performed by SBMFM, and the fees
of SBMFM are not reduced as a consequence of their receipt of such supple-
mental information. Such information may be useful to SBMFM in serving
both the Fund and other clients and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to
SBMFM in carrying out their obligations to the Fund.
The Fund will not purchase Municipal Bonds during the existence of any un-
derwriting or selling group relating thereto of which Smith Barney is a
member, except to the extent permitted by the SEC. Under certain circum-
stances, the Fund may be at a disadvantage because of this limitation in
comparison with other investment companies which have a similar investment
objective but which are not subject to such limitation. The Fund also may
execute portfolio transactions through Smith Barney and its affiliates in
accordance with rules promulgated by the SEC.
While investment decisions for the Fund are made independently from those
of the other accounts managed by SBMFM, investments of the type the Fund
may make also may be made by those other accounts. When the Fund and one
or more other accounts managed by SBMFM are prepared to invest in, or de-
sire to dispose of, the same security, available investments or opportuni-
ties for sales will be allocated in a manner believed by SBMFM to be equi-
table to each. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate (the lesser of purchases or sales of
portfolio securities during the year, excluding purchases or sales of
short-term securities, divided by the monthly average value of portfolio
securities) generally is not expected to exceed 100%, but the portfolio
turnover rate will not be a limiting factor whenever the Fund deems it de-
sirable to sell or purchase securities. Securities may be sold in antici-
pation of a rise in interest rates (market decline) or purchased in antic-
ipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another security of comparable qual-
ity may be purchased at approximately the same time in order to take ad-
vantage of what the Fund believes to be a temporary disparity in the nor-
mal yield relationship between the two securities. These yield disparities
may occur for reasons not directly related to the investment quality of
particular issues or the general movement of interest rates, such as
changes in the overall demand for or supply of various types of tax-exempt
securities. For the period from November 6, 1992 (commencement of opera-
tions) through October 31, 1993, and the fiscal year ended October 31,
1994, the Fund's portfolio turnover rates were 27% and 55%, respectively.
MUNICIPAL BONDS
GENERAL INFORMATION
Municipal Bonds generally are understood to include debt obligations is-
sued to obtain funds for various public purposes, including construction
of a wide range of public facilities, refunding of outstanding obliga-
tions, payment of general operating expenses and extensions of loans to
public institutions and facilities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately oper-
ated facilities are included within the term Municipal Bonds if the inter-
est paid thereon qualifies as excluded from gross income (but not neces-
sarily from alternative minimum taxable income) for Federal income tax
purposes in the opinion of bond counsel to the issuer.
The yields on Municipal Bonds are dependent upon a variety of factors, in-
cluding general economic and monetary conditions, general money market
conditions, the financial condition of the issuer, general conditions of
the Municipal Bond market, the size of a particular offering, the maturity
of the obligation offered and the rating of the issue. Municipal Bonds are
subject to the provisions of bankruptcy, insolvency and other laws affect-
ing the rights and remedies of creditors, such as the Federal Bankruptcy
Code, and laws, if any, that may be enacted by Congress or state legisla-
tures extending the time for payment of principal or interest, or both, or
imposing other constraints upon enforcement of the obligations or upon the
ability of municipalities to levy taxes. The possibility also exists that
as a result of litigation or other conditions, the power or ability of any
one or more issuers to pay, when due, principal of and interest on its, or
their, Municipal Bonds may be materially and adversely affected.
WHEN-ISSUED SECURITIES
The Fund may purchase Municipal Bonds on a "when-issued" basis (i.e., for
delivery beyond the normal settlement date at a stated price and yield).
The payment obligation and the interest rate that will be received on the
Municipal Bonds purchased on a when-issued basis are each fixed at the
time the buyer enters into the commitment. Although the Fund will purchase
Municipal Bonds on a when-issued basis only with the intention of actually
acquiring the securities, the Fund may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strat-
egy.
Municipal Bonds are subject to changes in value based upon the public's
perception of the creditworthiness of the issuers and changes, real or an-
ticipated, in the level of interest rates. In general, Municipal Bonds
tend to appreciate when interest rates decline and depreciate when inter-
est rates rise. Purchasing Municipal Bonds on a when-issued basis, there-
fore, can involve the risk that the yields available in the market when
the delivery takes place actually may be higher than those obtained in the
transaction itself. To account for this risk, a separate account of the
Fund consisting of cash or liquid debt securities equal to the amount of
the when-issued commitments will be established with the Fund's custodian
bank. For the purpose of determining the adequacy of the securities in the
account, the deposited securities will be valued at market or fair value.
If the market or fair value of such securities declines, additional cash
or securities will be placed in the account daily so that the value of the
account will equal the amount of such commitments by the Fund. Placing se-
curities rather than cash in the segregated account may have a leveraging
effect on the Fund's net assets. That is, to the extent the Fund remains
substantially fully invested in securities at the same time it has commit-
ted to purchase securities on a when-issued basis, there will be greater
fluctuations in its net assets than if it had set aside cash to satisfy
its purchase commitment. Upon the settlement date of the when-issued secu-
rities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the segregated account, sale of other securi-
ties or, although it normally would not expect to do so, from the sale of
the when-issued securities themselves (which may have a value greater or
less than the Fund's payment obligations). Sales of securities to meet
such obligations may involve the realization of capital gains, which are
not exempt from Federal personal income taxes.
When the Fund engages in when-issued transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price con-
sidered to be advantageous.
VARIABLE AND FLOATING RATE INSTRUMENTS
The Fund may purchase variable and floating rate obligations as described
in the Prospectus. SBMFM will consider the earning power, cash flows and
other liquidity ratios of the issuers and guarantors of such obligations
and, for obligations subject to a demand feature, will monitor their fi-
nancial status to meet payment on demand.
The variable and floating rate demand instruments that the Fund may pur-
chase include participations in Municipal Securities purchased from and
owned by financial institutions, primarily banks. Participation interests
provide the Fund with a specified undivided interest (up to 100%) in the
underlying obligation and the right to demand payment of the unpaid prin-
cipal balance plus accrued interest on the participation interest from the
institution upon a specified number of days' notice, not to exceed 30
days. Each participation interest is backed by an irrevocable letter of
credit or guarantee of a bank that SBMFM has determined meets the pre-
scribed quality standards for the Fund. The bank typically retains fees
out of the interest paid on the obligation for servicing the obligation,
providing the letter of credit and issuing the repurchase commitment.
TAX-EXEMPT DERIVATIVES
The Fund may hold tax-exempt derivatives which may be in the form of ten-
der option bonds, participations, beneficial interests in a trust, part-
nership interests or other forms. A number of different structures have
been used. For example, interests in long-term fixed rate Municipal Bonds,
held by a bank as trustee or custodian, are coupled with tender option,
demand and other features when the tax-exempt derivatives are created. To-
gether, these features entitle the holder of the interest to tender (or
put) the underlying Municipal Bond to a third party at periodic intervals
and to receive the principal amount thereof. In some cases, Municipal
Bonds are represented by custodial receipts evidencing rights to receive
specific future interest payments, principal payments, or both, on the un-
derlying municipal securities held by the custodian. Under such arrange-
ments, the holder of the custodial receipt has the option to tender the
underlying municipal securities at their face value to the sponsor (usu-
ally a bank or broker dealer or other financial institution), which is
paid periodic fees equal to the difference between the bond's fixed coupon
rate and the rate that would cause the bond, coupled with the tender op-
tion, to trade at par on the date of a rate adjustment. The Fund may hold
tax-exempt derivatives, such as participation interests and custodial re-
ceipts, for Municipal Bonds which give the holder the right to receive
payment of principal subject to the conditions described above. The Inter-
nal Revenue Service has not ruled on whether the interest received on tax-
exempt derivatives in the form of participation interests or custodial re-
ceipts is tax-exempt, and accordingly, purchases of any such interest or
receipts are based on the opinion of counsel to the sponsors of such de-
rivative securities. Neither the Fund nor SBMFM will review independently
the underlying proceedings related to the creation of any tax-exempt de-
rivatives or the bases for such opinions.
SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL SECURITIES
Florida is characterized by population growth and substantial capital
needs which are being funded through frequent debt issuance and pay-as-
you-go financing. The State's population growth has averaged 2.5% since
1993, and has been a fundamental basis for Florida's economic performance.
Tax-supported debt has doubled since 1980. Net tax-supported debt per cap-
ita in 1993 was forecasted by the Florida Legislature's Joint Legislative
Management Committee at $412.
From 1984 to 1993, Florida's real per capita personal income rose an aver-
age of 5.4% per year while the national per capita personal income in-
creased an average of 5.5%. Because Florida has a proportionally greater
retirement age population, property income (dividends, interest and rent)
and transfer payments (Social Security and pension benefits, among other
sources of income) constitute a higher proportion of total personal in-
come, which can act as a stabilizing influence on the economy. In 1993,
Florida's employment income comprised 62.0% of total personal income,
while the Nation's share of total personal income in the form of wages and
salaries and other labor benefits was 72.0%
Since 1980, Florida's total non-farm employment has grown by approximately
64.4%. The job creation rate for the State of Florida is almost twice the
rate for the nation as a whole, since 1980. The service sector is Flori-
da's largest employer, and constitutes 32.1% of total non-farm employment.
Florida has a concentration of manufacturing jobs in high-tech and high
value-added sectors, such as electrical and electronic equipment, as well
as printing and publishing. These jobs accounted for 8.7% of Florida's
total non-farm employment in 1993 while manufacturing accounted for 16.2%
of United States employment in that year. Florida's unemployment rate
throughout the 1980s (6.5%) tracked below that of the nation's (7.1%). In
recent years, however, as the State's economic growth slowed from its pre-
vious highs, the unemployment rate tracked above the national average
(Florida's unemployment rate was 8.2% versus 7.4% for the nation in 1992
and the Florida Consensus Economic Estimating Conference estimated Flori-
da's 1993 unemployment rate at 6.9% versus an estimated 6.8% for the na-
tion).
The State of Florida is constitutionally bound to maintain the State bud-
get as a whole, and each separate fund within the State budget, in balance
from currently available revenues each fiscal year (July 1 -- June 30).
Florida's financial operations are maintained through the use of three
types of funds -- the General Revenue Fund, which receives the majority of
State tax revenues, Trust Funds and the Working Capital Fund. Monies for
all funds are expended pursuant to appropriation acts. The Trust Funds
consist of monies received by the State which under law or trust agreement
are segregated for a purpose authorized by law. Revenues in the General
Revenue Fund unencumbered by appropriations may be transferred to the
Working Capital Fund. The Working Capital Fund is, effectively, the
State's rainy day fund.
For fiscal year 1993-94, the estimated General Revenue plus Working Capi-
tal funds available totalled $13,582.7 million, an 8.4% increase over
1992-93. This amount reflects a transfer of $190.0 million, out of an es-
timated $220.0 million in non-recurring revenue due to Hurricane Andrew,
to a hurricane relief trust fund. The $12,943.5 million in Estimated Reve-
nues (excluding the Hurricane Andrew impacts) represents a 7.3% increase
over the analogous figure in 1992-93. With General Revenue plus Working
Capital Fund appropriations at $13,279.9 million, unencumbered reserves at
the end of 1993-94, are estimated at $302.8 million.
For fiscal year 1994-95, the estimated General Revenue plus Working Capi-
tal and Budget Stabilization funds available totalled $14,573.7 million, a
7.3% increase over 1993-94. This amount reflects a transfer of $159.0 mil-
lion in non-recurring revenue due to Hurricane Andrew, to a hurricane re-
lief trust fund. The $13,860.8 million in Estimated Revenues (excluding
the Hurricane Andrew impacts) and recently legislated revenue impacts rep-
resent a 7.1% increase over the analogous figure in 1993-94. With combined
General Revenue, Working Capital Fund, and Budget Stabilization Fund ap-
propriations at $14,293.2 million, unencumbered reserves at the end of
1994-95 are estimated at $280.5 million.
The massive effort to rebuild destroyed or damaged property in the wake of
Hurricane Andrew is responsible for the substantial positive revenue im-
pacts. Most of the impact is in the sales tax.
The State of Florida is presently rated Aa/AA/AA by Moody's, S&P and
Fitch, respectively. S&P and Fitch presently regard the outlook for the
State as stable.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the Prospec-
tus applies to purchases made by any "purchaser," which is defined to in-
clude the following: (a) an individual; (b) an individual's spouse and his
or her children purchasing shares for his or her own account; (c) a
trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account; (d) a pension, profit-sharing or other employee
benefit plan qualified under Section 401(a) of the Code, and qualified em-
ployee benefit plans of employers who are "affiliated persons" of each
other within the meaning of the 1940 Act; (e) tax-exempt organizations
enumerated in Section 501(c) (3) or (13) of the Code; and (f) a trustee or
other professional fiduciary (including a bank, or an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, as
amended) purchasing shares of the Fund for one or more trust estates or
fiduciary accounts. Purchasers who wish to combine purchase orders to take
advantage of volume discounts on Class A shares should contact a Smith
Barney Financial Consultant.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in
Class A shares of the Fund and in Class A shares of other funds of the
Smith Barney Mutual Funds that are offered with a sales charge, including
the purchase being made, of any purchaser, is $25,000 or more. The reduced
sales charge is subject to confirmation of the shareholder's holdings
through a check of appropriate records. The Fund reserves the right to
terminate or amend the combined right of accumulation at any time after
notice to shareholders. For further information regarding the right of ac-
cumulation, shareholders should contact a Smith Barney Financial Consult-
ant.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The public
offering price for a Class A and Class Y share of the Fund is equal to the
net asset value per share at the time of purchase plus, for Class A
shares, an initial sales charge based on the aggregate amount of the in-
vestment. The public offering price for a Class B and Class C share, and
Class A share purchases, including applicable right of accumulation,
equalling or exceeding $500,000 is equal to the net asset value per share
at the time of purchase and no sales charge is imposed at the time of pur-
chase. A contingent deferred sales charge ("CDSC"), however, is imposed on
certain redemptions of Class B, and Class A shares when purchased in
amounts exceeding $500,000. The method of computation of public offering
price is shown in the Fund's financial statements, incorporated by refer-
ence in their entirety into this Statement of Additional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any period during which the New York Stock Exchange, Inc. ("NYSE")
is closed (other than for customary weekend and holiday closings), (b)
when trading in the markets the Fund normally utilizes is restricted, or
an emergency, as determined by the SEC, exists so that disposal of the
Fund's investments or determination of net asset value is not reasonably
practicable or (c) for such other periods as the SEC by order may permit
for protection of the Fund's shareholders.
DISTRIBUTION IN KIND
If the Board of Trustees of the Fund determines that it would be detrimen-
tal 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% of the Fund's net assets by a distribution in kind of port-
folio 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 $100 may be made under the Withdrawal Plan by redeeming as many
shares of the Fund as may be necessary to cover the stipulated withdrawal
payment. Any applicable CDSC will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value of a shareholder's
shares at the time the Withdrawal Plan commences. (With respect to With-
drawal Plans in effect prior to November 7, 1994, any applicable CDSC will
be waived on amounts withdrawn that do not exceed 2.00% per month of the
value of a shareholder's shares at the time the Withdrawal Plan com-
mences.) To the extent withdrawals exceed dividends, distributions and ap-
preciation of a shareholder's investment in the Fund, there will be a re-
duction in the value of the shareholder's investment, and continued with-
drawal payments will reduce the shareholder's investment and may
ultimately exhaust it. Withdrawal payments should not be considered as in-
come from investment in the Fund. Furthermore, as it generally would not
be advantageous to a shareholder to make additional investments in the
Fund at the same time he or she is participating in the Withdrawal Plan,
purchases by such shareholders in amounts of less than $5,000 ordinarily
will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates
with TSSG as agent for Withdrawal Plan members. All dividends and distri-
butions on shares in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund. Withdrawal Plans should
be set up with a Smith Barney Financial Consultant. A shareholder who pur-
chases shares directly through TSSG may continue to do so and applications
for participation in the Withdrawal Plan must be received by TSSG no later
than the eighth day of the month to be eligible for participation begin-
ning with that month's withdrawals. For additional information, sharehold-
ers should contact a Smith Barney Financial Consultant.
DISTRIBUTOR
Smith Barney serves as the Fund's distributor on a best efforts basis pur-
suant to a written agreement dated July 30, 1993 (the "Distribution Agree-
ment"), which was most recently first approved by the Fund's Board of
Trustees on July 20, 1994. For the period from November 6, 1992 (commence-
ment of operations) through October 31, 1993 and the fiscal year ended Oc-
tober 31, 1994, Smith Barney or its predecessor Shearson Lehman Brothers
received $296,194 and $82,800, respectively, in sales charges from the
sale of Class A shares, and did not reallow any portion thereof to deal-
ers. For the period from November 6, 1992 through October 31, 1993 and the
fiscal year ended October 31, 1994, Smith Barney or Shearson Lehman Broth-
ers received $101,218 and $103,281, respectively, in CDSC on redemptions
of the Fund's Class B shares.
When payment is made by the investor, unless otherwise noted by the inves-
tor, the funds will be held as a free credit balance in the investor's
brokerage account, and Smith Barney may benefit from the temporary use of
the funds. The investor may designate another use for the funds prior to
settlement date, such as an investment in an Exchange Reserve Fund of the
Smith Barney Mutual Funds. If the investor instructs Smith Barney to in-
vest the funds in a Smith Barney money market fund, the amount of the in-
vestment will be included as part of the average daily net assets of both
the Fund and the money market fund, and affiliates of Smith Barney that
serve the funds in an investment advisory or administrative capacity will
benefit from the fact that they are receiving fees from both such invest-
ment companies for managing those assets, computed on the basis of their
average daily net assets. The Fund's Board of Trustees has been advised of
the benefits to Smith Barney resulting from these settlement procedures
and will take such benefits into consideration when reviewing the Advi-
sory, Administration, Sub- Administration and Distribution Agreements for
continuance.
For the fiscal year ended October 31, 1994, Smith Barney incurred distri-
bution expenses totalling approximately $443,850, consisting of approxi-
mately $3,000 for advertising, $4,000 for printing and mailing of Prospec-
tuses, $192,850 for support services, $218,000 to Smith Barney Financial
Consultants, and $26,000 in accruals for interest on the excess of Smith
Barney expenses incurred in distributing the Fund's shares over the sum of
the distribution fees and CDSC received by Smith Barney from the Fund. No
comparable information is available for 1992, the year that the variable
pricing system was implemented.
DISTRIBUTION ARRANGEMENTS
To compensate Smith Barney for the services it provides and for the ex-
pense it bears under the Distribution Agreement, the Fund has adopted a
services and distribution plan (the "Plan") pursuant to Rule 12b-1 under
the 1940 Act. Under the Plan, the Fund pays Smith Barney a service fee,
accrued daily and paid monthly, calculated at the annual rate of 0.15% of
the value of the Fund's average daily net assets attributable to Class A,
Class B and Class C shares. In addition, the Fund pays Smith Barney a dis-
tribution fee with respect to the Class B and Class C shares primarily in-
tended to compensate Smith Barney for its initial expense of paying its
Financial Consultants a commission upon sales of those shares. The Class B
distribution fee is calculated at the annual rate of 0.50% of the value of
the Fund's average daily net assets attributable to the shares of the
Class. The Class C distribution fee is calculated at the annual rate of
0.55% of the value of the Fund's average net assets attributable to the
shares of the Class. For the period from November 6, 1992 (commencement of
operations) through October 31, 1993, the Class A and Class B shares in-
curred $14,558 and $36,698, respectively, in service fees. For the same
period, the Class B shares incurred $122,325 in distribution fees. For the
fiscal year ended October 31, 1994, the Class A and Class B shares in-
curred $21,965 and $55,137, respectively, in service fees. For the same
period, the Class B shares incurred $183,789 in distribution fees.
Under its terms, the Plan continues from year to year, provided such con-
tinuance is approved annually by vote of the Board of Trustees, including
a majority of the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Fund and who have no direct or indirect financial in-
terest in the operation of the Plan or in the Distribution Agreement (the
"Independent Trustees"). The Plan may not be amended to increase the
amount of the service and distribution fees without shareholder approval,
and all amendments of the Plan also must be approved by the Trustees and
the Independent Trustees in the manner described above. The Plan may be
terminated with respect to a Class at any time, without penalty, by vote
of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the Class (as defined in the 1940 Act).
Pursuant to the Plan, Smith Barney will provide the Board of Trustees with
periodic reports of amounts expended under the Plan and the purpose for
which such expenditures were made.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE cur-
rently is scheduled to be closed on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively. Because of the
differences in distribution fees and Class-specific expenses, the per
share net asset value of each Class may differ. The following is a de-
scription of the procedures used by the Fund in valuing its assets.
The valuation of the Fund's assets is made by Boston Advisors after con-
sultation with an independent pricing service (the "Service") approved by
the Board of Trustees. When, in the judgment of the Service, quoted bid
prices for investments are readily available and are representative of the
bid side of the market, these investments are valued at the mean between
the quoted bid prices and asked prices. Investments for which, in the
judgment of the Service, there is no readily obtainable market quotation
(which may constitute a majority of the portfolio securities) are carried
at fair value as determined by the Service. For the most part, such in-
vestments are liquid and may be readily sold. The Service may employ elec-
tronic data processing techniques and/or a matrix system to determine val-
uations. The procedures of the Service are reviewed periodically by the
officers of the Fund under the general supervision and responsibility of
the Board of Trustees, which may replace any such Service at any time if
it determines it to be in the best interests of the Fund to do so.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund of the Smith Barney Mutual
Funds may exchange all or part of their shares for shares of the same
Class of other funds of the Smith Barney Mutual Funds, to the extent such
shares are offered for sale in the shareholder's state of residence, on
the basis of relative net asset value per share at the time of exchange as
follows:
A. Class A shares of any fund purchased with a sales charge may be ex-
changed for Class A shares of any of the other funds and the sales charge
differential, if any, will be applied. Class A shares of any fund may be
exchanged without a sales charge for shares of the funds that are offered
without a sales charge. Class A shares of any fund purchased without a
sales charge may be exchanged for shares sold with a sales charge, and the
appropriate sales charge differential will be applied.
B. Class A shares of any fund acquired by a previous exchange of shares
purchased with a sales charge may be exchanged for Class A shares of any
of the other funds, and the sales charge differential, if any, will be ap-
plied.
C. Class B shares of any fund may be exchanged without a CDSC. Class B
shares of the Fund exchanged for Class B shares of another fund will be
subject to the higher applicable CDSC of the two funds and, for purposes
of calculating CDSC rates and conversion periods, will be deemed to have
been held since the date the shares being exchanged were deemed to be pur-
chased.
Dealers other than Smith Barney must notify TSSG of the investor's prior
ownership of Class A shares of Smith Barney High Income Fund and the ac-
count number in order to accomplish an exchange of shares of the Smith
Barney High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
Class in a fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. This
privilege is available to shareholders residing in any state in which the
Fund shares being acquired may legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the current prospectus of
each fund into which an exchange is being considered. Prospectuses may be
obtained from a Smith Barney Financial Consultant.
Upon receipt of proper instructions and all necessary supporting docu-
ments, shares submitted for exchange are redeemed at the then-current net
asset value and, subject to any applicable CDSC, the proceeds are immedi-
ately invested, at a price as described above, in shares of the fund being
acquired. Smith Barney reserves the right to reject any exchange request.
The exchange privilege may be modified or terminated at any time after
written notice to shareholders.
PERFORMANCE DATA
From time to time, the Fund may quote yield or total return of a Class in
advertisements or in reports and other communications to shareholders. The
Fund may include comparative performance information in advertising or
marketing the Fund's shares. Such performance information may include the
following industry and financial publications: Barron's, Business Week,
CDA Investment Technologies, Inc., Changing Times, Forbes, Fortune, Insti-
tutional Investor, Investors Daily, Money, Morningstar Mutual Fund Values,
The New York Times, USA Today and The Wall Street Journal. To the extent
any advertisement or sales literature of the Fund describes the expenses
or performance of any Class, it will also disclose such information for
the other Classes.
YIELD
A Class' 30 day yield figure described below is calculated according to a
formula prescribed by the SEC. The formula can be expressed as follows:
YIELD = 2[(a-b/cd +1)6 -1]
Where: a =dividends and interest earned during the period.
b =expenses accrued for the period (net of reimbursement).
c =the average daily number of shares outstanding during the pe-
riod that were entitled to receive dividends.
d =the maximum offering price per share on the last day of the
period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations purchased by the Fund at a discount or pre-
mium, the formula generally calls for amortization of the discount or pre-
mium; the amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
The Fund's equivalent taxable 30 day yield for a Class of shares is com-
puted by dividing that portion of the Class' 30 day yield which is tax-
exempt by one minus a stated income tax rate and adding the quotient to
that portion, if any, of the Class' yield that is not tax-exempt.
The Fund's Class A and Class B yields for the 30 day period ended October
31, 1994 (reflecting the waiver of the investment advisory and administra-
tion fees) were 5.80% and 5.57%, respectively. Had fees not been waived,
the Fund's yield for Class A and Class B shares for the same period would
have been 5.52% and 5.28%, respectively. The Fund's equivalent taxable
yield for Class A and Class B shares for that period (reflecting the
waiver of fees) were 8.41% and 8.07%, respectively, assuming the payment
of Federal income taxes at a rate of 31%. Had these fees not been waived,
the Fund's equivalent taxable yield for Class A and Class B shares for the
same period would have been 8.00% and 7.65%, respectively.
The municipal securities yield is dependent upon a variety of factors, in-
cluding general economic and monetary conditions, money market factors,
conditions of the municipal securities market, size of a particular offer-
ing, 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 mar-
ket rates, and in periods of rising interest rates the Fund's yield for
each Class of shares will tend to be somewhat lower. In addition, when in-
terest 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 instru-
ments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the current yield of the Fund. In periods of rising in-
terest rates, the opposite can be expected to occur.
AVERAGE ANNUAL TOTAL RETURN
"Average annual total return" figures, as described below, are computed
according to a formula prescribed by the SEC. The formula can be expressed
as follows:
P (1+T)n = ERV
Where: P =a hypothetical initial payment of $1,000.
T =average annual total return.
n =number of years.
ERV =Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of a 1-, 5- or 10-year period at the
end of the 1-,5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and distri-
butions.
The Fund's average annual total return for Class A shares without deduct-
ing the maximum applicable sales charge was as follows for the periods in-
dicated:
(7.31)% for the one-year period beginning November 1, 1993 through October
31, 1994;
3.75% during the period from commencement of operations, November 6, 1992
through October 31, 1994.
If the sales charge had been deducted at the time of purchase, the Fund's
average annual total return for Class A shares for those same periods
would have been (11.01)%, and 1.64%, respectively.
The Fund's average annual total return for Class B shares without deduct-
ing the maximum applicable CDSC was as follows for the periods indicated:
(7.76)% per annum for the one-year period beginning November 1, 1993
through October 31, 1994;
3.25% per annum during the period from commencement of operations, Novem-
ber 6, 1992 through October 31, 1994.
If the CDSC had been deducted at the time of purchase, the Fund's average
total return for Class B shares for those same periods would have been
(11.71)% and 1.34%, respectively.
AGGREGATE TOTAL RETURN
Aggregate total return figures, as described below, represent the cumula-
tive change in the value of an investment in the Class for the specified
period and are computed by the following formula:
ERV-P / P
Where: P = a hypothetical initial payment of $10,000.
ERV= Ending Redeemable Value of a hypothetical $10,000 invest-
ment made at the beginning of a 1-, 5- or 10- year period
at the end of the 1-, 5- or 10-year period (or fractional
portion thereof), assuming reinvestment of all dividends
and distributions.
The aggregate total returns for Class A shares were as follows for the pe-
riods indicated:
(7.31)% for the one-year period beginning November 1, 1993 through October
31, 1994;
7.59% for the period from commencement of operations, November 6, 1992
through October 31, 1994.
If the sales charge had been deducted at the time of purchase, the Fund's
aggregate total return for Class A shares for those same periods would
have been (11.01)%, and 3.29%, respectively. The total return figures have
been restated to show the change in the maximum sales charge.
The Fund's aggregate total return for Class B shares was as follows for
the periods indicated:
(7.76)% for the one year period beginning November 1, 1993 through October
31, 1994;
6.55% for the period from commencement of operations, November 6, 1992
through October 31, 1994.
If the maximum CDSC had been deducted at the time of purchase, the Fund's
aggregate total return for Class B shares for the same periods would have
been (11.71)% and 2.68%, respectively.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future per-
formance. Each Class' net investment income changes in response to fluctu-
ations in interest rates and the expenses of the Fund.
Performance will vary from time to time depending upon market conditions,
the composition of the Fund's portfolio and operating expenses and the ex-
penses exclusively attributable to the Class. Consequently, any given per-
formance quotation should not be considered 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' perfor-
mance with that of other mutual funds should give consideration to the
quality and maturity of the respective investment company's portfolio se-
curities.
TAXES
As described above and in the Fund's Prospectus, the Fund is designed to
provide shareholders with current income which is excluded from gross in-
come for Federal income tax purposes and to enable Fund shares to be ex-
empt from the Florida intangibles tax. The Fund is not intended to consti-
tute a balanced investment program and is not designed for investors seek-
ing 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 following is a summary of selected Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended
as a substitute for individual tax advice and investors are urged to con-
sult their own tax advisors as to the tax consequences of an investment in
the Fund.
The Fund intends to qualify each year as a regulated investment company
under the Code. Provided the Fund (a) qualifies as a regulated investment
company and (b) distributes at least 90% of its taxable net investment in-
come (including, for this purpose, net realized short-term capital gains)
and 90% of its tax-exempt interest income (reduced by certain expenses),
the Fund will not be liable for Federal income taxes to the extent its
taxable net investment income and its net realized long- and short-term
capital gains, if any, are distributed to its shareholders. Although the
Fund expects to be relieved of all or substantially all Federal and state
income or franchise taxes, depending upon the extent of its activities in
states and localities in which its offices are maintained, in which its
agents or independent contractors are located or in which it is otherwise
deemed to be conducting business, that portion of the Fund's income which
is treated as earned in any such state or locality could be subject to
state and local tax. Any such taxes paid by the Fund would reduce the
amount of income and gains available for distribution to shareholders. All
net investment income and net capital gains earned by the Fund will be re-
invested automatically in additional shares of the same Class of the Fund
at net asset value, unless the shareholder elects to receive dividends and
distributions in cash.
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. If a shareholder receives
exempt-interest dividends with respect to any share and if the share is
held by the shareholder for six months or less, then, for Federal income
tax purposes, any loss on the sale or exchange of the share may, to the
extent of exempt-interest dividends, be disallowed. In addition, the Code
may require a shareholder, if he or she receives exempt-interest divi-
dends, to treat as Federal taxable income a portion of certain otherwise
non-taxable social security and railroad retirement benefit payments. Fur-
thermore, 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 share-
holder who is a "substantial user" of a facility financed by such bonds or
a "related person" thereof. Moreover, as noted in the Fund's Prospectus,
(a) some or all of the Fund's dividends may be a specific preference item,
or a component of an adjustment item, for purposes of the Federal individ-
ual and corporate alternative minimum taxes and (b) the receipt of the
Fund's dividends and distributions may affect a corporate shareholder's
Federal "environmental" tax liability. In addition, the receipt of the
Fund's dividends and distributions may affect a foreign corporate share-
holder's Federal "branch profits" tax liability and the Federal "excess
net passive income" tax liability of a shareholder of a Subchapter S cor-
poration. Shareholders should consult their own tax advisors to determine
whether they are (a) substantial users with respect to a facility or re-
lated to such users within the meaning of the Code or (b) subject to a
Federal alternative minimum tax, the Federal environmental tax, the Fed-
eral branch profits tax or the Federal excess net passive income tax.
As described above and in the Prospectus, the Fund may invest in municipal
bond index and interest rate futures contracts and options on these fu-
tures contracts. The Fund anticipates that these investment activities
will not prevent the Fund from qualifying as a regulated investment com-
pany; however, in order to continue to qualify as a regulated investment
company, the Fund might have to limit its investments in such municipal
bond index and interest rate futures contracts and options on these fu-
tures contracts. As a general rule, these investment activities will in-
crease or decrease the amount of long- and short-term capital gains or
losses realized by the Fund and, accordingly, will affect the amount of
capital gains distributed to the Fund's shareholders.
For Federal income tax purposes, gain or loss on municipal bond index and
interest rate futures contracts and options on these futures contracts de-
scribed above (collectively referred to as "section 1256 contracts") is
taxed pursuant to a special "mark-to-market" system. Under the mark-to-
market system, the Fund may be treated as realizing a greater or lesser
amount of gains or losses than actually realized. As a general rule, gain
or loss on section 1256 contracts is treated as 60% long-term capital gain
or loss and 40% short-term capital gain or loss, and, accordingly, the
mark-to-market system generally will affect the amount of capital gains or
losses taxable to the Fund and the amount of distributions taxable to a
shareholder. Moreover, if the Fund invests in both section 1256 contracts
and offsetting positions in such contracts, then the Fund might not be
able to receive the benefit of certain recognized losses for an indetermi-
nate period of time. The Fund expects that its activities with respect to
section 1256 contracts and offsetting positions in those contracts (a)
will not cause it or its shareholders to be treated as receiving a materi-
ally greater amount of capital gains or distributions than actually real-
ized or received and (b) will permit it to use substantially all of the
losses for the fiscal years in which such losses actually occur.
While the Fund does not expect to realize a significant amount of net
long-term capital gains, any such realized capital gains will be distrib-
uted annually as described in the Fund's Prospectus. Such distributions
("capital gain dividends"), if any, will be taxable to shareholders as
long-term capital gains, regardless of how long a shareholder has held
Fund shares, and will be designated as capital gain dividends in a written
notice mailed by the Fund to shareholders after the close of the Fund's
prior taxable year. If a shareholder receives a capital gain dividend with
respect to any share and if the share has been held by the shareholder for
six months or less, then any loss (to the extent not disallowed pursuant
to the six-month rule described above relating to exempt-interest divi-
dends) on the sale or exchange of such share, to the extent of the capital
gain dividend, will be treated as a long-term capital loss.
If a shareholder (a) incurs a sales charge in acquiring shares of the
Fund, (b) disposes of those shares within 90 days and (c) acquires shares
in a mutual fund for which the otherwise applicable sales charge is re-
duced by reason of a reinvestment right (that is, exchange privilege), the
original sales charge increases the shareholder's tax basis in the origi-
nal shares only to the extent that the otherwise applicable sales charge
for the second acquisition is not reduced. The portion of the original
sales charge that does not increase the shareholder's tax basis in the
original shares would be treated as incurred with respect to the second
acquisition, and as a general rule, would increase the shareholder's tax
basis in the newly acquired shares. Furthermore, the same rule also ap-
plies to a disposition of the newly acquired shares made within 90 days of
the second acquisition. This provision prevents a shareholder from immedi-
ately deducting the sales charge by shifting his or her investment in a
family of mutual funds.
Each shareholder will receive after the close of the calendar year an an-
nual statement as to the Federal income tax status of his or her dividends
and distributions from the Fund for the prior calendar year. These state-
ments also will designate the amount of exempt-interest dividends that is
a preference item for purposes of the Federal individual and corporate al-
ternative minimum taxes. Each shareholder also will receive, if appropri-
ate, various written notices after the close of the Fund's prior taxable
year as to the Federal income tax status of his or her dividends and dis-
tributions which were received from the Fund during the Fund's prior tax-
able year. Shareholders should consult their tax advisors as to any other
state and local taxes that may apply to these dividends and distributions.
The dollar amount of dividends excluded or exempt from Federal income tax-
ation and the dollar amount of dividends subject to Federal income taxa-
tion, 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 tax-
able 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. Therefore, the percentage of each day's dividend designated as
taxable, if any, may vary from day to day.
Investors considering buying shares of the Fund just prior to a record
date for a capital gain distribution should be aware that, regardless of
whether the price of the Fund shares to be purchased reflects the amount
of the forthcoming distribution payment, any such payment will be a tax-
able distribution.
If a shareholder fails to furnish a correct taxpayer identification num-
ber, fails to report fully dividend or interest income, or fails to cer-
tify that he or she has provided a correct taxpayer identification number
and that he or she is not subject to "backup withholding," then the share-
holder may be subject to a 31% backup withholding tax with respect to (a)
taxable dividends and distributions and (b) the proceeds of any redemp-
tions of Fund shares. An individual's taxpayer identification number is
his or her social security number. The backup withholding tax is not an
additional tax and may be credited against a taxpayer's regular Federal
income tax liability.
FLORIDA TAXES
Florida does not impose an income tax on individuals. Thus, individual
shareholders of the Fund will not be subject to any Florida state or local
income taxes on dividends or distributions received from the Fund. How-
ever, certain distributions will be taxable to corporate shareholders that
are subject to Florida corporate income tax.
Provided that at the close of business on December 31 of a given year the
assets of the Fund are comprised exclusively of notes, bonds and other ob-
ligations issued by the State of Florida or its municipalities, counties
and other taxing districts, the United States government and its agencies,
Puerto Rico, Guam and the Virgin Islands, and other investments exempt
from the Florida intangibles tax, in the opinion of Florida counsel,
shares of the Fund will not be subject to the Florida intangibles tax for
the following calendar year. The Fund has obtained a ruling from the Flor-
ida Department of Revenue to confirm this consequence.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders and is not intended as a substi-
tute for careful tax planning. Investors are urged to consult their tax
advisors with specific reference to their own Federal, state and local tax
situations.
ADDITIONAL INFORMATION
The Fund is a business trust established under the laws of the Common-
wealth of Massachusetts pursuant to a Master Trust Agreement dated August
31, 1992, as amended from time to time (the "Trust Agreement"). The Fund
commenced operations on November 6, 1992, under the name Shearson Lehman
Brothers Florida Municipals Fund. On July 30, 1993 and October 14, 1994,
the Fund's name was changed to Smith Barney Shearson Florida Municipals
Fund and Smith Barney Florida Municipals Fund, respectively. Under the
Trust Agreement, the Fund's Trustees have authority to create an unlimited
number of shares of beneficial interest with a par value of $.001 per
share.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. The 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 Trust Agreement provides for indemnification from
Fund property for all losses and expenses of any shareholder held person-
ally liable for the obligations of the Fund. Thus, the risk of a share-
holder'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.
Boston Safe, an indirect wholly owned subsidiary of Mellon, is located at
One Boston Place, Boston, Massachusetts 02108, and serves as custodian of
the Fund. Under the custody agreement, Boston Safe holds the Fund's port-
folio securities and keeps all necessary accounts and records. For its
services, Boston Safe receives a monthly fee based upon the month-end mar-
ket value of securities held in custody and also receives securities
transaction charges. The assets of the Fund are held under bank custodian-
ship in compliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Fund's transfer agent. Under the transfer agency agreement, TSSG
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund and distributes dividends
and distributions payable by the Fund. For these services, TSSG receives a
monthly fee computed on the basis of the number of shareholder accounts it
maintains for the Fund during the month, and is reimbursed for out-of-
pocket expenses.
DESCRIPTION OF SHARES
The 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 distri-
bution. No shareholder of the Fund has any preemptive or conversion
rights. Shares of the Fund are fully paid and non-assessable.
Pursuant to the Trust Agreement, the Fund's Trustees may authorize the
creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios) and additional
classes of shares within any series (which would be used to distinguish
among the rights of different categories of shareholders, as might be re-
quired by future regulations or other unforeseen circumstances).
VOTING RIGHTS
The shareholders of the Fund are entitled to a full vote for each full
share held (and a fractional vote for any fractional share held). The
Trustees of the Fund have the power to alter the number and the terms of
office of the Trustees, and have terms of unlimited duration (subject to
certain removal procedures) and may appoint their own successors, provided
at least a majority of the Trustees at all times have been elected by the
shareholders of the Fund. The voting rights of the shareholders of the
Fund are not cumulative, so that the holders of more than 50% of the
shares can, if they choose, elect all of the Trustees of the Fund; the
holders of the remaining shares of the Fund would be unable to elect any
of the Trustees.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended October 31, 1994 accom-
panies this Statement of Additional Information and is incorporated herein
by reference in its entirety.
APPENDIX
Description of S&P, Moody's and Fitch ratings:
S&P RATINGS FOR MUNICIPAL BONDS
S&P's Municipal Bond ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue
bonds. General obligation bonds are usually secured by all resources
available to the municipality and the factors outlined in the rating defi-
nitions below are weighed in determining the rating. Because revenue bonds
in general are payable from specifically pledged revenues, the essential
element in the security for a revenue bond is the quantity and quality of
the pledged revenues available to pay debt service.
Although an appraisal of most of the same factors that bear on the quality
of general obligation bond credit is usually appropriate in the rating
analysis of a revenue bond, other factors are important, including partic-
ularly the competitive position of the municipal enterprise under review
and the basic security covenants. Although a rating reflects S&P's judg-
ment as to the issuer's capacity for the timely payment of debt service,
in certain instances it may also reflect a mechanism or procedure for an
assured and prompt cure of a default, should one occur, i.e., an insurance
program, Federal or state guarantee or the automatic withholding and use
of state aid to pay the defaulted debt service.
AAA
Prime -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible
to autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Qual-
ity of management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to re-
main, substantial. Stability of the pledged revenues is also exceptionally
strong, due to the competitive position of the municipal enterprise or to
the nature of the revenues. Basic security provisions (including rate cov-
enant, earnings test for issuance of additional bonds, and debt service
reserve requirements) are rigorous. There is evidence of superior manage-
ment.
AA
High Grade -- The investment characteristics of general obligation and
revenue bonds in this group are only slightly less marked than those of
the prime quality issues. Bonds rated "AA" have the second strongest ca-
pacity for payment of debt service.
Good Grade -- Principal and interest payments on bonds in this category
are regarded as safe. This rating describes the third strongest capacity
for payment of debt service. It differs from the two higher ratings be-
cause:
General Obligation Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expen-
ditures, or in quality of management. Under certain adverse circumstances,
any one such weakness might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional. Sta-
bility of the pledged revenues could show some variations because of in-
creased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Medium Grade -- Of the investment grade ratings, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" ratings is that the
latter shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among
the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged rev-
enues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC AND CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and CC the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating cat-
egories, except in the AAA-Prime Grade category.
S&P RATINGS FOR MUNICIPAL NOTES
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) by S&P to distinguish more
clearly the credit quality of notes as compared to bonds. Notes rated SP-1
have a very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
the designation of SP-1+. Notes rated SP-2 have a satisfactory capacity to
pay principal and interest.
MOODY'S RATINGS FOR MUNICIPAL BONDS
AAA
Bonds which are Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective ele-
ments are likely to change, such changes as can be visualized are most un-
likely to impair the fundamentally strong position of such issues.
AA
Bonds which are rated Aa are judged to be of high quality by all stan-
dards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because mar-
gins 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 which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving se-
curity to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA
Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured; interest pay-
ments 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 which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of in-
terest 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 which 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 de-
fault or present elements of danger that may exist with respect to princi-
pal or interest.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Baa. The modifier 1 indicates that the se-
curity ranks in the higher end of its generic rating category; the modi-
fier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
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-term credit
risk and long-term risk. Loans bearing the designation MIG 1 or VMIG 1 are
of the best quality, enjoying strong protection by established cash flows
of funds for their servicing, from established and broad-based access to
the market for refinancing, or both. Loans bearing the designation MIG 2
or VMIG 2 are of high quality, with margins of protection ample although
not as large as the preceding group. Loans bearing the designation MIG 3
or VMIG 3 are of favorable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Liquidity
and cash flow may be narrow and market access for refinancing is likely to
be less well established.
DESCRIPTION OF S&P A-1+ AND A-1 COMMERCIAL PAPER RATING
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the direct
credit support of an issuer or guarantor that possesses excellent long-
term operating and financial strengths combined with strong liquidity
characteristics (typically, such issuers or guarantors would display
credit quality characteristics which would warrant a senior bond rating of
"AA-" or higher), or the direct credit support of an issuer or guarantor
that possesses above-average long-term fundamental operating and financing
capabilities combined with ongoing excellent liquidity characteristics.
Paper rated A-1 by S&P has the following characteristics: liquidity ratios
are adequate to meet cash requirements; long-term senior debt is rated "A"
or better; the issuer has access to at least two additional channels of
borrowing; basic earnings and cash flow have an upward trend with allow-
ance made for unusual circumstances; typically, the issuer's industry is
well established and the issuer has a strong position within the industry;
and the reliability and quality of management are unquestioned.
DESCRIPTION OF MOODY'S PRIME-1 COMMERCIAL PAPER RATING
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are
the following: (1) evaluation of the management of the issuer; (2) eco-
nomic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and cus-
tomer acceptance; (4) liquidity; (5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years; (7) financial strength
of a parent company and the relationships which exist with the issuer; and
(8) recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.
FITCH MUNICIPAL BOND RATINGS
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings
take into consideration special features of the issue, its relationship to
other obligations of the issuer, the current financial condition and oper-
ative performance of the issuer and of any guarantor, as well as the po-
litical and economic environment that might affect the issuer's future fi-
nancial strength and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay in-
terest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is con-
sidered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the rat-
ings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service require-
ments.
B
Bonds rated B are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of con-
tinued timely payment of principal and interest reflects the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires
and advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default payment of interest and/or
principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or principal.
DDD, DD AND D
Bonds rated DDD, DD and D are in actual or imminent default of interest
and/or principal payments. Such bonds are extremely speculative and should
be valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for
recovery on these bonds and D represents the lowest potential for recov-
ery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category covering 12-36 months or
the DDD, DD or D categories.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commer-
cial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the ex-
istence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are re-
garded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an assur-
ance of timely payment only slightly less in degree than issues rated
F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory de-
gree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
SMITH BARNEY
FLORIDA MUNICIPALS FUND
388 Greenwich Street
New York, New York 10013 Fund 237
Smith Barney
FLORIDA
MUNICIPALS FUND
STATEMENT OF
ADDITIONAL INFORMATION
DECEMBER 30, 1994
SMITH BARNEY
SMITH BARNEY FLORIDA MUNICIPALS FUND
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Included in Part A:
Financial Highlights
Included in Part B:
The Registrant's Annual Report for the fiscal year ended
October 31, 199 4 and the Report of
Independent Accountants dated
December 6, 1994 are incorporated by reference to
the Definitive 30b2 filed on December 30 ,
199 4 as Accession #0000053798-9 4-
000635.
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
All references are to the Registrant's registration statement on Form N-1A
as filed with the Securities and Exchange Commission (the "SEC") on
September 2, 1992, File Nos. 33-51558 and 811-7150 (the "Registration
Statement").
(1) (a) Registrant's Amended and Restated Master Trust Agreement
dated November 5, 1992 and Amendment No. 1 to the Master Trust Agreement
dated July 30, 1993 is incorporated by reference to Post-Effective
Amendment No. 2 ("Post-Effective Amendment No. 2").
(b) Amendments Nos. 2 and 3 of the Amended and Restated
Master Trust Agreement, dated October 14, 1994 and November 3, 1994,
respectively, are filed herein.
(2) Registrant's By-Laws are incorporated by reference to the
Registration Statement.
(3) Not Applicable.
(4) Registrant's form of stock certificate for Class A and Class B
shares is incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement filed on October 1, 1992 ("Pre-Effective Amendment
No. 1").
(5) (a) Investment Advisory Agreement between the Registrant and
Smith Barney Shearson Inc. ("Smith Barney Shearson") is incorporated by
reference to Post-Effective Amendment No. 2.
(b) Form of Transfer and Assumption of Investment Advisory
Agreement, dated November 7, 1994, between Mutual Management Corp. and
Smith Barney Mutual Funds Management Inc. is filed herein
(6) Distribution Agreement between the Registrant and Smith Barney
Shearson is incorporated by reference to Post-Effective Amendment No. 2.
(7) Not Applicable.
(8) Custodian Agreement between the Registrant and Boston Safe Deposit
and Trust Company ("Boston Safe") is incorporated by reference to Post-
Effective Amendment No. 1
(9)(a) Administration Agreement dated April 20, 1994, between the
Registrant and Smith, Barney Advisers, Inc. ("SBA") is filed herein.
(b) Sub-Administration Agreement dated April 20, 1994, between the
Registrant, SBA and The Boston Company Advisors, Inc. is filed herein.
(c) Transfer Agency Agreement between the Registrant and The
Shareholder Services Group, Inc. dated August 2, 1993 is incorporated by
reference to Post-Effective Amendment No. 3 ("Post-Effective Amendment No.
3").
(10) Opinion of Florida Counsel is filed herein.
(11) Consent of Independent Accountants is filed herein
(12) Not Applicable.
(13) Purchase Agreement between the Registrant and Shearson Lehman
Brothers Inc. is incorporated by reference to Post-Effective Amendment No.
1.
(14) Not Applicable.
(15) Amended Service and Distribution Plan pursuant to Rule 12b-1
between the Registrant and Smith Barney Inc. is filed herein.
(16) Performance Data is incorporated by reference to Post-Effective
Amendment No. 1.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Title of Class Holders by Class as of December 16,
1994
Shares representing Class A- 371
beneficial interests,
par value $.001 per Class B - 962
share
Class C - 3
Item 27. Indemnification
The response to this item is incorporated by reference to Pre-
Effective Amendment No. 2 to the Registration Statement filed with the SEC
on October 16, 1992 ("Pre-Effective No. 2").
Item 30. Location of Accounts and Records
(1) Smith Barney Florida Municipals Fund
388 Greenwich Street
New York, New York 100 13
(2) Smith Barney Mutual Funds Management Inc.
388 Greenwich Street
New York, New York 10013
( 3 ) The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
( 4 ) Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
( 5 ) The Shareholder Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a trustee or trustees of
Registrant when requested in writing to do so by the holders of at least
10% of Registrant's outstanding shares and, in connection with the meeting,
to comply with the provisions of Section 16(c) of the 1940 Act relating to
communications with the shareholders of certain common-law trusts.
485(b) Certification
The Registrant hereby certifies that it meets all requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1993, as
amended.
The Registrant further represents pursuant to Rule 485(b)(2)(iv) that
the resignation of Robert E. Borgesen was not due to any disagreement with
the Registrant on any matter relating to its operations, policies or
practices. Mr. Borgesen resigned due to health reasons.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the
Registrant, SMITH BARNEY FLORIDA MUNICIPALS FUND, has duly caused
this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the
City of New York, State of New York on the 27th day of December,
1994.
SMITH BARNEY
FLORIDA MUNICIPALS FUND
By: /s/ Heath B. McLendon*
Heath B. McLendon
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on the
dates indicated.*
Signature Title Date
/s/ Heath B. McLendon* Chairman of the Board
12/27/94
Heath B. McLendon (Chief Executive Officer)
/s/ Lewis E. Daidone* Senior Vice President and Treasurer
12/27/94
Lewis E. Daidone (Chief Financial Officer)
/s/ Herbert Barg* Trustee
12/27/94
Herbert Barg
/s/ Alfred J. Bianchetti* Trustee
12/27/94
Alfred J. Bianchetti
Signature Title Date
/s/ Martin Brody* Trustee
12/27/94
Martin Brody
/s/ Dwight B. Crane* Trustee
12/27/94
Dwight B. Crane
/s/ James J. Crisona* Trustee
12/27/94
James J. Crisona
/s/ Burt N. Dorsett* Trustee
12/27/94
Burt N. Dorsett
/s/ Robert A. Frankel* Trustee
12/27/94
Robert A. Frankel
/s/ Elliot S. Jaffe* Trustee
12/27/94
Elliot S. Jaffe
/s/ Dr. Paul Hardin* Trustee
12/27/94
Dr. Paul Hardin
/s/ Stephen E. Kaufman* Trustee
12/27/94
Stephen E. Kaufman
/s/ Joseph J. McCann* Trustee
12/27/94
Joseph J. McCann
/s/ Cornelius C. Rose, Jr.* Trustee
12/27/94
Cornelius C. Rose, Jr.
*Signed by Lee D. Augsburger, their
duly authorized attorney-in-fact, pursuant
to power of attorney dated November 3, 1994.
/s/ Lee D. Augsburger
Lee D. Augsburger
Attorney-in-Fact
g/shared/domestic/clients/shearson/funds/flmu/pea5
EXHIBIT 1(b)
SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND
AMENDMENT NO. 2 TO THE FIRST AMENDED AND RESTATED MASTER TRUST AGREEMENT
(Change of Name of the Fund and Change of Emeritus Policy )
The undersigned, Assistant Secretary of Smith Barney Shearson Florida
Municipals Fund (the "Fund"), does hereby certify that pursuant to Article
I, Section 1.1 and Article VII, Section 7.3 of the First Amended and
Restated Master Trust Agreement dated November 5, 1992 ("Master Trust
Agreement"), which amended and restated the Master Trust Agreement of the
Fund dated August 31, 1992, the following votes were duly adopted by the
Board of Trustees at a Regular Meeting of the Board held on July 20, 1994:
(Change of Name of the Fund)
VOTED: That the name of the Fund previously established and designated
pursuant to the Fund's Master Trust Agreement be modified and amended as
set forth below:
Current Name: Name as Amended:
Smith Barney Shearson Smith Barney
Florida Municipals Fund Florida Municipals Fund
; and further
(Change of Emeritus Policy)
VOTED: That Article III, Sections 3.1(i) and 3.1(j) of the Fund's
Master Trust Agreement be and are hereby amended and restated in their
entirety as follows:
Section 3.1(i)
A Trustee who has reached the age of seventy two (72) years may elect
the status of Trustee Emeritus provided that the Trustee has served for ten
(10) years as a member of the Fund's Board of Trustees or of the Board of
Trustees of another investment company distributed, advised or administered
by an entity under common control with the Fund's distributor, investment
adviser or administrator. Upon reaching eighty (80) years of age, a
Trustee must elect status as a Trustee Emeritus. (The foregoing provisions
shall not be deemed to restrict a Trustee's ability to resign.)
Section 3.1(j)
A Board Member designated as a Trustee Emeritus may attend meetings
of the Board of Trustees, however, he or she shall have no voting rights
and shall not be under a duty to manage or direct the business and affairs
of the Fund. A Trustee Emeritus shall not be deemed to stand in a
fiduciary relation to the Fund and shall not be responsible to discharge
the duties of a Trustee or to exercise that diligence, care or skill which
a Trustee would ordinarily be required to exercise under applicable laws.
In addition, a Trustee Emeritus shall be indemnified to the full extent
that an officer or Trustee of the Fund may be indemnified under the Fund's
governing documents and applicable state and federal laws.
As long as a Board Member is a Trustee Emeritus, but in no event for
more than a period of ten (10) years, provided the Fund has net assets in
excess of $100 million, a Trustee Emeritus will receive 50% of the annual
retainer and annual meeting fees paid to active Board Members. In any
event, a Trustee Emeritus shall be entitled to reasonable out-of-pocket
expenses for each meeting attended; and further
VOTED: That the appropriate officers of the Fund be, and each hereby
is, authorized to execute and file any notices required to be filed
reflecting the foregoing changes; to execute amendments to the Fund's
Master Trust Agreement and By-Laws reflecting the foregoing change; and to
execute and file all requisite certificates, documents and instruments and
to take such other actions required to cause said amendment to become
effective and to pay all requisite fees and expenses incident thereto.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 14th day of October, 1994.
/s/ Lee D. Augsburger
Lee D. Augsburger
Assistant Secretary
SMITH BARNEY FLORIDA MUNICIPALS FUND
AMENDMENT NO. 3 TO THE FIRST AMENDED AND RESTATED
MASTER TRUST AGREEMENT
WHEREAS, Section 4.1 of the First Amended And Restated Master Trust
Agreement of Smith Barney Florida Municipals Fund (the "Trust") dated
November 5, 1992, as amended, authorizes the Trustees of the Trust to issue
classes of shares of any Sub-Trust or divide the Shares of any Sub-Trust
into classes, having different dividend, liquidation, voting and other
rights as the Trustees may determine;
WHEREAS, the Trustees have previously established and designated four
classes of shares, Classes A, B, C and D for the sole Sub-Trust of the
Trust: Smith Barney Florida Municipals Fund;
WHEREAS, the Trustees unanimously voted on July 20, 1994 to
redesignate the
existing Class C shares of the Sub-Trust as Class Z shares, such change to
be effective
concurrently with the effectiveness of the Supplement to the Prospectus of
the Sub-Trust
describing said Class Z shares;
WHEREAS, the Trustees unanimously voted on July 20, 1994 to
redesignate the
existing Class D shares of the Sub-Trust as Class C shares, such change to
be effective
concurrently with the effectiveness of the Supplement to the Prospectus of
the Sub-Trust
describing said Class C shares; and
WHEREAS, the Trustees unanimously voted on July 20, 1994 to establish
and
designate a new class of shares of the Sub-Trust as Class Y shares.
NOW, THEREFORE, the undersigned Assistant Secretary of the Trust
hereby states as follows:
1. That, pursuant to the vote of the Trustees, (i) the existing
class of shares of the aforementioned Sub-Trust heretofore designated as
Class C shares be redesignated as Class Z shares of the Smith Barney
Florida Municipals Fund; and (ii) the existing class of shares of the
aforementioned Sub-Trust heretofore designated as Class D shares be
redesignated as Class C shares of the Smith Barney Florida Municipals Fund;
such changes
to become effective concurrently with the effectiveness of the Supplement
to the Prospectus of the Sub-Trust describing the redesignated Class Z and
Class C shares. Each such class of shares shall have the rights and
preferences as set forth in the Supplement to the Prospectus of the Sub-
Trust dated November 7, 1994, as such Prospectus may be further amended
from time to time.
2. That, pursuant to the vote of the Trustees, the aforementioned
Sub-Trust be divided into an additional class of shares established and
designated as Class Y shares. Such class of shares shall have the rights
and preferences as set forth in the Supplement to the Prospectus of the
Sub-Trust dated November 7, 1994, as such Prospectus may be further amended
from time to time.
IN WITNESS WHEREOF, the undersigned hereby sets his hand this 3rd day
of
November, 1994.
SMITH BARNEY FLORIDA MUNICIPALS
FUND
/s/ Lee D. Augsburger
By: Lee D. Augsburger
Title: Assistant Secretary
EXHIBIT 5(b)
FORM OF TRANSFER AND ASSUMPTION OF
INVESTMENT ADVISORY AGREEMENT
for
SMITH BARNEY FLORIDA MUNICIPALS FUND
TRANSFER AND ASSUMPTION OF INVESTMENT ADVISORY AGREEMENT, made
as of the 7th day of November, 1994, by and among Smith Barney
Florida Municipals Fund, a Massachusetts business trust (the
"Trust"), Mutual Management Corp., a New York corporation ("MMC"),
and Smith Barney Mutual Funds Management Inc. ("SBMFM") a Delaware
corporation.
WHEREAS, the Trust is registered with the Securities and
Exchange Commission as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "Act");
and
WHEREAS, the Trust, on behalf of the Funds, and MMC
entered into an Investment Advisory Agreement on July 30, 1993,
under which MMC serves as the investment adviser (the "Investment
Adviser") for the Funds of the Trust; and
WHEREAS, MMC desires that its interest, rights,
responsibilities and obligations in and under the Investment
Advisory Agreement be transferred to SBMFM and SBMFM desires to
assume MMC's interest, rights, responsibilities and obligations in
and under the Investment Advisory Agreement; and
WHEREAS, this Agreement does not result in a change of actual
control or management of the Investment Adviser to the Trust and,
therefore, is not an "assignment" as defined in Section 2(a)(4) of
the Act nor an "assignment" for the purposes of Section 15(a)(4) of
the Act.
NOW, THEREFORE, in consideration of the mutual covenants set
forth in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. Assignment. Effective as of November 7, 1994 (the
"Effective Date"), MMC hereby transfers to SBMFM all of MMC's
interest, rights, responsibilities and obligations in and under the
Investment Advisory Agreement dated July 30, 1993, to which MMC is
a party with the Trust.
2. Assumption and Performance of Duties. As of the
Effective Date, SBMFM hereby accepts all of MMC's interest and
rights, and assumes and agrees to perform all of MMC's
responsibilities and obligations in, and under the Investment
Advisory Agreement; SBMFM agrees to subject to all of the terms and
conditions of said Agreement; and SBMFM shall indemnify and hold
harmless MMC from any claim or demand made thereunder arising or
incurred after the Effective Date.
3. Representation of SBMFM. SBMFM represents and warrants
that: (1) it is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended; and (2) Smith Barney
Holdings Inc. is its sole shareholder.
4. Consent. The Trust hereby consents to this transfer by
MMC to SBMFM of MMC's interest, rights, responsibilities and
obligations in and under the Investment Advisory Agreement and to
the acceptance and assumption by SBMFM of the same. The Trust
agrees, subject to the terms and conditions of said Agreement, to
look solely to SBMFM for the performance of the Investment
Adviser's responsibilities and obligations under said Agreement
from and after the Effective Date, and to recognize as inuring
solely to SBMFM the interest and rights heretofore held by MMC
thereunder.
5. Limitation of Liability of Trustees, Officers and
Shareholders. It is expressly agreed that the obligations of the
Trust hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the
Trust, personally, but shall bind only the trust property of the
Trust, as provided in the Declaration of Trust of the Trust. The
execution and delivery of this Agreement have been authorized by
the Trustees of the Trust and signed by the President of the Trust,
acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have
been made by any of them individually of to impose any liability on
any of them, personally, but shall bond only the trust property of
the Trust as provided in its Declaration of Trust.
6. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers hereunto
duly attested.
Attest:
By:
Secretary Smith Barney Florida Municipals
Fund
Attest:
By:
Secretary Mutual Management Corp.
Attest:
By:
Secretary Smith Barney Mutual Funds
Management Inc.
shared/domestic/clients/shearosn/fund/flmu
EXHIBIT 9(a)
ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND
April 20, 1994
Smith, Barney Advisers, Inc.
1345 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Smith Barney Shearson Florida Municipals Fund (the "Fund"), a
business trust organized under the laws of the Commonwealth of
Massachusetts, confirms its agreement with Smith, Barney Advisors, Inc.
("SBA") as follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Amended and Restated Master Trust Agreement
dated July 30, 1993, as amended from time to time (the "Master Trust
Agreement"), in its Prospectus and Statement of Additional Information as
from time to time in effect and in such manner and to such extent as may
from time to time be approved by the Board of Trustees of the Fund (the
"Board"). Copies of the Fund's Prospectus, Statement of Additional
Information and Master Trust Agreement have been or will be submitted to
SBA. Greenwich Street Advisors, a division of Mutual Management Corp. (
"Greenwich Street Advisors") serves as the Fund's investment adviser and
the Fund desires to employ and hereby appoints SBA to act as its
administrator. SBA accepts this appointment and agrees to furnish the
services to the Fund for the compensation set forth below. SBA is hereby
authorized to retain third parties and is hereby authorized to delegate
some or all of its duties and obligations hereunder to such persons
provided that such persons shall remain under the general supervision of
SBA.
2. Services as Administrator
Subject to the supervision and direction of the Board, SBA
will: (a) assist in supervising all aspects of the Fund's operations except
those performed by the Fund's investment adviser under its investment
advisory agreement; (b) supply the Fund with office facilities (which may
be in SBA's own offices), statistical and research data, data processing
services, clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and charges and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationary
and office supplies; and (c) prepare reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, the Fund will pay SBA on the first business day of each month a
fee for the previous month at an annual rate of .20 of 1.00% of the Fund's
average daily net assets. The fee for the period from the date the Fund's
initial registration statement is declared effective by the SEC to the end
of the month during which the initial registration statement is declared
effective shall be prorated according to the proportion that such period
bears to the full monthly period. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month shall be
prorated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement. For the purpose of determining fees payable to SBA, the value
of the Fund's net assets shall be computed at the times and in the manner
specified in the Fund's Prospectus and Statement of Additional Information
as from time to time in effect.
4. Expenses
SBA will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other
expenses to be incurred in its operation, including: taxes, interest,
brokerage fees and commissions, if any; fees of the members of the Board of
the Fund who are not officers, directors or employees of Smith Barney
Shearson Inc. or its affiliates or any person who is an affiliate of any
person to whom duties may be delegated hereunder; SEC fees and state blue
sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; the Fund's and Board members' proportionate share of
insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and
printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of the officers or Board and any
extraordinary expenses. In addition, the Fund will pay all distribution
fees pursuant to a Distribution Plan adopted under Rule 12b-1 of the
Investment Company Act of 1940, as amended (the "1940 Act").
5. Reimbursement to the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement (s), but excluding distribution fees, interest, taxes,
brokerage and, if permitted by state securities commissions, extraordinary
expenses) exceed the expense limitations of any state having jurisdiction
over the Fund, SBA will reimburse the Fund for that excess expense to the
extent required by state law in the same proportion as its respective fees
bear to the combined fees for investment advice and administration. The
expense reimbursement obligation of SBA will be limited to the amount of
its fees hereunder. Such expense reimbursement, if any, will be estimated,
reconciled and paid on a monthly basis.
6. Standard of Care
SBA shall exercise its best judgment in rendering the services
listed in paragraph 2 above, and SBA shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect SBA against
liability to the Fund or to its shareholders to which SBA would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or by reason of SBA's reckless
disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This Agreement shall continue automatically for successive
annual periods, provided such continuance is specifically approved at least
annually by the Board.
8. Service to Other Companies or Accounts
The Fund understands that SBA now acts, will continue to act
and may act in the future as administrator to one or more other investment
companies, and the Fund has no objection to SBA so acting. In addition,
the Fund understands that the persons employed by SBA or its affiliates to
assist in the performance of its duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of SBA or its affiliates to engage in and
devote time and attention to other businesses or to render services of
whatever kind or nature.
9. Indemnification
The Fund agrees to indemnify SBA and its officers, directors,
employees, affiliates, controlling persons, agents (including persons to
whom responsibilities are delegated hereunder) ("indemnitees") against any
loss, claim, expense or cost of any kind (including reasonable attorney's
fees) resulting or arising in connection with this Agreement or from the
performance or failure to perform any act hereunder, provided that no such
indemnification shall be available if the indemnitee violated the standard
of care in paragraph 6 above. This indemnification shall be limited by the
1940 Act, and relevant state law. Each indemnitee shall be entitled to
advancement of its expenses in accordance with the requirements of the 1940
Act and the rules, regulations and interpretations thereof as in effect
from time to time.
10. Limitation of Liability
The Fund, SBA and Boston Advisors agree that the obligations of
the Fund under this Agreement shall not be binding upon any of the Board
members, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund individually, but are binding only
upon the assets and property of the Fund, as provided in the Master Trust
Agreement and Bylaws. The execution and delivery of this Agreement has
been duly authorized by the Fund, SBA and Boston Advisors, and signed by an
authorized officer of each, acting as such. Neither the authorization by
the Board members of the Fund, nor the execution and delivery by the
officer of the Fund shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the assets and property of the Fund as provided in the
Master Trust Agreement and Bylaws.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by singing and returning to us the enclosed
copy hereof.
Very truly yours,
Smith Barney Shearson
Florida Municipals Fund
By: /s/ Heath B. McLendon
Name: Heath B. McLendon
Title: Chairman of the Board
Accepted:
Smith, Barney Advisers, Inc.
By: /s/ Christina Sydor
Name: Christina Sydor
Title: Secretary
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act"), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
Formal Reconciliations - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
Calculate Net Income, Mil Rate and Yield for Daily
Distribution Funds - Calculate income on purchase and sales, calculate
change in income due to variable rate change, combine all daily income
less expenses to arrive at net income, calculate mil rate and yields (1
day, 7 day and 30 day);
Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian records;
Pricing - Determine N.A.V. for Fund using market value of
all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
Reporting of Price to Transfer Agent- N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio managers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board members, tax authorities, statistical and performance
reporting companies and the Fund's auditors; interface with the Fund's
auditors; prepare monthly reconciliation packages, including expense pro
forma; prepare amortization schedules for premium and discount bonds
based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and
calculate daily expenses based on expense ratios supplied by Fund's
treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
Coordinate the preparation and review of the annual,
semi-annual and quarterly portfolio of investments and financial
statements included in the Fund's shareholder reports.
Statistical Reporting
Total return reporting;
SEC 30-day yield reporting and 7-day yield reporting
(for money market funds);
Prepare dividend summary;
Prepare quarter-end reports;
Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.)
Publications
Coordinate the printing and mailing process with
outside printers for annual and semi-annual reports, prospectuses,
statements of additional information, proxy statements and special
letters or supplements;
Provide graphics and design assistance relating to the
creation of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
to the Fund:
Provide a Treasurer and Assistant Treasurer for the
Fund;
Determine expenses properly chargeable to the Fund;
Authorize payment of bills for expenses of the Fund;
Establish and monitor the rate of expense accruals;
Prepare financial materials for review by the Fund's
Board (e.g., Rule 2a-7, 10f-3, 17a-7 and 17e-1 reports, repurchase
agreement dealer lists, securities transactions);
Recommend dividends to be voted by the Fund's Board;
Monitor mark-to-market comparisons for money market
funds;
Recommend valuation to be used for securities which
are not readily saleable;
Function as a liaison with the Fund's outside auditors
and arrange for audits;
Provide accounting, financial and tax support relating
to portfolio management and any contemplated changes in the Fund's
structure or operations;
Prepare and file forms with the Internal Revenue
Service
* Form 8613
* Form 1120-RIC
* Board Members' and Shareholders' 1099s
* Mailings in connection with Section 852 and
related regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
File annual and semi-annual shareholder reports with
the appropriate regulatory agencies;
Prepare and file proxy statements;
Review marketing material for SEC and NASD clearance;
Provide legal assistance for shareholder
communications.
Corporate and Secretarial Services
Provide a Secretary and an Assistant Secretary for the
Fund;
Maintain general corporate calendar;
Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
Organize, attend and keep minutes of shareholder
meetings;
Maintain Master Trust Agreement and By-Laws of the
Fund.
Legal Consultation and Business Planning
Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
Develop or assist in developing guidelines and
procedures to improve overall compliance by the Fund and its various
agents;
Manage Fund litigation matters and assume full
responsibility for the handling of routine Fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing
compliance manuals, conducting seminars for fund accounting and advisory
personnel and performing on-going testing of the Fund's portfolio to
assist the Fund's investment adviser in complying with prospectus
guidelines and limitations, 1940 Act requirements and Internal Revenue
Code requirements. The Department may also act as liaison to the SEC
during its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully
automated environment using blue sky registration software developed by
Price Waterhouse. In addition to being responsible for the initial and
on-going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale
EXHIBIT 9(b)
SUB-ADMINISTRATION AGREEMENT
SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND
April 20, 1994
The Boston Company Advisors, Inc.
One Exchange Place
Boston, MA 02210
Dear Sirs:
Smith Barney Shearson Florida Municipals Fund (the "Fund"),
a business trust organized under the laws of the Commonwealth of
Massachusetts and Smith, Barney Advisers, Inc. ("SBA") confirm their
agreement with The Boston Company Advisors, Inc. ("Boston Advisors") as
follows:
1. Investment Description; Appointment
The Fund desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the
limitations specified in its Amended and Restated Master Trust Agreement
dated July 30, 1993, as amended from time to time (the "Master Trust
Agreement"), in its Prospectus and Statement of Additional Information
as from time to time in effect, and in such manner and to such extent as
may from time to time be approved by the Board of Trustees of the Fund
(the "Board"). Copies of the Fund's Prospectus, Statement of Additional
Information and Master Trust Agreement have been or will be submitted to
you. The Fund employs SBA as its administrator, and the Fund and SBA
desire to employ and hereby appoint Boston Advisors as the Fund's sub-
administrator. Boston Advisors accepts this appointment and agrees to
furnish the services to the Fund, for the compensation set forth below,
under the general supervision of SBA.
2. Services as Sub-Administrator
Subject to the supervision and direction of the Board and
SBA, Boston Advisors will: (a) assist in supervising all aspects of the
Fund's operations except those performed by the Fund's investment
adviser under the Fund's investment advisory agreement; (b) supply the
Fund with office facilities (which may be in Boston Advisor's own
offices), statistical and research data, data processing services,
clerical, accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of shares of the
Fund, (ii) applicable contingent deferred sales charges and similar fees
and changes and (iii) distribution fees, internal auditing and legal
services, internal executive and administrative services, and stationery
and office supplies; and (c) prepare reports to shareholders of the
Fund, tax returns and reports to and filings with the Securities and
Exchange Commission (the "SEC") and state blue sky authorities.
3. Compensation
In consideration of services rendered pursuant to this
Agreement, SBA will pay Boston Advisors on the first business day of
each month a fee for the previous month calculated in accordance with
the terms set forth in Appendix B, and as agreed to from time to time
by the Fund, SBA and Boston Advisors. Upon any termination of this
Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to
the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees
payable to Boston Advisors, the value of the Fund's net assets shall be
computed at the times and in the manner specified in the Fund's
Prospectus and Statement of Additional Information as from time to time
in effect.
4. Expenses
Boston Advisors will bear all expenses in connection with
the performance of its services under this Agreement. The Fund will
bear certain other expenses to be incurred in its operation, including:
taxes, interest, brokerage fees and commissions, if any; fees of the
Board members of the Fund who are not officers, directors or employees
of Smith Barney Shearson Inc., Boston Advisors of their affiliates; SEC
fees and state blue sky qualification fees; charges of custodians and
transfer and dividend disbursing agents; the Fund's and its Board
members' proportionate share of insurance premiums, professional
association dues and/or assessments; outside auditing and legal
expenses; costs of maintaining the Fund's existence; costs attributable
to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports
and meetings of the officers or Board and any extraordinary expenses.
In addition, the Fund will pay all distribution fees pursuant to a
Distribution Plan adopted under Rule 12b-1 of the Investment Company Act
of 1940, as amended (the "1940 Act").
5. Reimbursement of the Fund
If in any fiscal year the aggregate expenses of the Fund
(including fees pursuant to this Agreement and the Fund's investment
advisory agreement(s) and administration agreement, but excluding
distribution fees, interest, taxes, brokerage and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense
limitations of any state having jurisdiction over the Fund, Boston
Advisory will reimburse the Fund for that excess expense to the extent
required by state law in the same proportion as its respective fees bear
to the combined fees for investment advice and administration. The
expense reimbursement obligation of Boston Advisors will be limited to
the amount of its fees hereunder. Such expense reimbursement, if any,
will be estimated, reconciled and paid on a monthly basis.
6. Standard of Care
Boston Advisors shall exercise its best judgment in
rendering the services listed in paragraph 2 above. Boston Advisors
shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with the matters to which
this Agreement
relates, provided that nothing herein shall be deemed to protect or
purport to protect Boston Advisors against liability to the Fund or to
its shareholders to which Boston Advisors would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its part
in the performance of its duties or by reason of Boston Advisor's
reckless disregard of its obligations and duties under this Agreement.
7. Term of Agreement
This agreement shall continue automatically for successive
annual periods, provided that it may be terminated by 90 days' written
notice to the other parties by any of the Fund, SBA or Boston Advisors.
This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns, provided, however,
that this agreement may not be assigned, transferred or amended without
the written consent of all the parties hereto.
8. Service to Other Companies or Accounts
The Fund understands that Boston Advisors now acts, will
continue to act and may act in the future as administrator to one or
more other investment companies, and the Fund has no objection to Boston
Advisors so acting. In addition, the Fund understands that the persons
employed by Boston Advisors to assist in the performance of its duties
hereunder may or may not devote their full time to such service and
nothing contained herein shall be deemed to limit or restrict the right
of Boston Advisors or its affiliates to engage in and devote time and
attention to other businesses or to render services of whatever kind of
nature.
9. Indemnification
SBA agrees to indemnify Boston Advisors and its officers,
directors, employees, affiliates, controlling persons and agents
("indemnitees") to the extent that indemnification is available from the
Fund, and Boston Advisors agrees to indemnify SBA and its indemnitees,
against any loss, claim, expenses or cost of any kind (including
reasonable attorney's fees) resulting or arising in connection with this
Agreement or from the performance or failure to perform any act
hereunder, provided that not such indemnification shall be available if
the indemnitee violated the standard of care in paragraph 6 above. This
indemnification shall be limited by the 1940 Act, and relevant state
law. Each indemnitee shall be entitled to advancement of its expenses
in accordance with the requirements of the 1940 Act and the rules,
regulations and interpretations thereof as in effect from time to time.
10. Limitations of Liability
The Fund, SBA and Boston Advisors agree that the obligations
of the Fund under this Agreement shall not be binding upon any of the
Board members, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Fund individually, but are
binding only upon the assets and property of the Fund, as provided in
the Master Trust Agreement and Bylaws. The execution and delivery of
this Agreement has been duly authorized by the Fund, SBA and Boston
Advisors, and signed by an authorized officer of each, acting as such.
Neither the authorization by the Board Members of the Fund, nor the
execution and delivery by the officer of the Fund shall be deemed to
have been made by any of them individually or to impose any liability on
any of them personally, but shall bind only the assets and property of
the Fund as provided in the Master Trust Agreement.
If the foregoing is in accordance with your understanding,
kindly indicate your acceptance hereof by signing and returning to us
the enclosed copy hereof.
Very truly yours,
Smith Barney Shearson
Florida Municipals Fund
By: /s/ Heath B. McLendon
Heath B. McLendon
Title: Chairman of the Board
Smith, Barney Advisers, Inc.
By: /s/ Christina Sydor
Christina Sydor
Title: Secretary
Accepted:
The Boston Company Advisors, Inc.
By: s/ Joseph W. Dello Russo
Joseph W. Dello Russo
Title Senior Vice President
Appendix A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive
accrual-based recordkeeping and management information. They include
maintaining a fund's books and records in accordance with the Investment
Company Act of 1940, as amended (the "1940 Act" ), net asset value
calculation, daily dividend calculation, tax accounting and portfolio
accounting.
The designated fund accountants interact with the Fund's
custodian, transfer agent and investment adviser daily. As required,
the responsibilities of each fund accountant may include:
- Cash Reconciliation - Reconcile prior day's ending cash
balance per custodian's records and the accounting system to the prior
day's ending cash balance per fund accounting's cash availability
report;
- Cash Availability - Combine all activity affecting the
Fund's cash account and produce a net cash amount available for
investment;
- Formal Reconciliation - Reconcile system generated reports
to prior day's calculations of interest, dividends, amortization,
accretion, distributions, capital stock and net assets;
- Trade Processing - Upon receipt of instructions from the
investment adviser review, record and transmit buys and sells to the
custodian;
- Journal Entries - Input entries to the accounting system
reflecting shareholder activity and Fund expense accruals;
- Reconcile and Calculate N.O.A. (net other assets) - Compile
all activity affecting asset and liability accounts other than
investment account;
- Calculate Net Income, Mil Rate and Yield for Daily
Distribution
Funds - Calculate income on purchases and sales, calculate
change in income due to variable rate change; combine all daily income
less expenses to arrive at net income; calculate mil rate and yields (1
day, 7 day and 30 day);
- Mini-Cycle (except for Money Market Funds) - Review intra
day trial balance and reports, review trial balance N.O.A.;
- Holdings Reconciliation - Reconcile the portfolio holdings
per the system to custodian reports;
- Pricing - Determine N.A.V. for the Fund using market value
of all securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
- Money Market Fund Pricing - Monitor valuation for compliance
with Rule 2a-7;
- System Check-Back - Verify the change in market value of
securities which saw trading activity per the system;
- Net Asset Value Reconciliation - Identify the impact of
current day's Fund activity on a per share basis;
- Reporting of Price to NASDAQ - 5:30 P.M. is the final
deadline for Fund prices being reported to the newspaper;
- Reporting of Price to Transfer Agent - N.A.V.s are reported
to transfer agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate
actions of portfolio holdings to portfolio mangers; initiate
notification to custodian procedures on outstanding income receivables;
provide information to the Fund's treasurer for reports to shareholders,
SEC, Board, tax authorities, statistical and performance reporting
companies and the Fund's auditors; interface with Fund's auditors;
prepare monthly reconciliation packages, including expense pro forma;
prepare amortization schedules for premium and discount bonds based on
the effective yield method; prepare vault reconciliation reports to
indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made
available to the Fund fall within three main categories: Financial
Reporting; Statistical Reporting; and Publications. The following is a
summary of the services made available to the Fund by the Financial
Administration Division:
Financial Reporting
- Coordinate the preparation and review of the annual, semi-
annual and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
- Total return reporting;
- SEC 30-day yield reporting and 7-day yield reporting (for
money market funds);
- Prepare dividend summary;
- Prepare quarter-end reports;
- Communicate statistical data to the financial media
(Donoghue, Lipper, Morningstar, et al.).
Publications
- Coordinate the printing and mailing process with outside
printers for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
Treasury. The following is a summary of the treasury services available
to the Fund:
- Provide an Assistant Treasurer for the Fund;
- Authorize payment of bills for expenses of the Fund;
- Establish and monitor the rate of expense accruals;
- Prepare financial materials for review by the Fund's Board
(e.g., Rule 2a-7, 10f-3 17a-7 and 17e-1 reports, repurchase agreement
dealer lists, securities transactions);
- Monitor mark-to-market comparisons for money market funds;
- Recommend valuations to be used for securities which are not
readily saleable;
- Function as a liaison with the Fund's outside auditors and
arrange for audits;
- Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the fund's
structure or operations;
- Prepare and file forms with the Internal Revenue Service
* Form 8613
* Form 1120-RIC
* Board Members' and Shareholders' 1099s
* Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made
available to the Fund fall within four main areas: SEC and Public
Disclosure Assistance; Corporate and Secretarial Services; Compliance
Services; and Blue Sky Registration. The following is a summary of the
legal and regulatory services available to the Fund:
SEC and Public Disclosure Assistance
- File annual amendments to the Fund's registration
statements, including updating the prospectus and statement of
additional information where applicable;
- File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
- Prepare and file proxy statements;
- Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
- Provide an Assistant Secretary for the Fund;
- Maintain general corporate calendar;
- Prepare agenda and background materials for Fund board
meetings, make presentations where appropriate, prepare minutes and
follow-up matters raised at Board meetings;
- Organize, attend and keep minutes of shareholder meetings;
- Maintain Articles of Incorporation or Master Trust
Agreements and By-Laws of the Fund.
Legal Consultation and Business Planning
- Provide general legal advice on matters relating to
portfolio management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
- Maintain continuing awareness of significant emerging
regulatory and legislative developments which may affect the Fund,
update the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or appropriate;
- Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
- Manage Fund litigation matters and assume full
responsibility for the handling of routine fund examinations and
investigations by regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel
and performing on-going testing of the Fund's portfolio to assist the
Fund's investment adviser in complying with prospectus guidelines and
limitations, 1940 Act requirements and Internal Revenue Code
requirements. The Department may also act as liaison to the SEC during
its routine examinations of the Fund.
State Regulation
The State Regulation Department operates in a fully automated
environment using blue sky registration software development by Price
Waterhouse. In addition to being responsible for the initial and on-
going registration of shares in each state, the Department acts as
liaison between the Fund and state regulators, and monitors and reports
on shares sold and remaining registered shares available for sale.
Schedule B
Fee
shared\domestic\clients\shearson\funds \flmu\admin1.doc
A-5
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A-5
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EXHIBIT 10
Gunster, Yoakley & Stewart, P.A.
Phillips Point, Suite 500 East
Attorneys At Law
777 South Flagler Drive
West Palm Beach, Florida 33401-6194
P.O. Box 4567
West Palm Beach, Florida 33402-4587
December 27, 1994
Smith Barney
Florida Municipals Fund
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
We have acted as special Florida counsel for the Smith Barney Florida
Municipals Fund, a business trust established under the laws of the
Commonwealth of Massachusetts (the "Fund").
As legal counsel for the Fund, we have examined, among other things,
such state laws and executed original documents (or copies, certified or
otherwise identified to our satisfaction as being true copies of such
documents), certificates and records as we deemed necessary and appropriate
for the purpose of preparing this opinion letter. As to various questions
of fact material to this opinion letter, where relevant facts were not
independently established, we have relied upon statements of and materials
published by officials of the State of Florida.
We have assumed the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted
to us as certified or photostatic copies, and the authenticity of the
originals of such copies. We have assumed that all signatories were and
are legally competent to execute and deliver the documents executed by each
of them.
This opinion has been prepared and is to be construed in accordance
with the Report on Standards For Florida Opinions dated April 8, 1991
issued by the Business Law Section of The Florida Bar (the "Report"). The
Report is incorporated by reference into this opinion.
Smith Barney
December 27, 1994
Page 2
Based upon and subject to the foregoing, and in reliance thereon, and
subject to the qualifications hereunder expressed, we are of the opinion
that the information set forth
under the caption "Dividends, Distributions and Taxes - Florida Taxes" in
the Prospectus, in the first two full paragraphs under the caption "Florida
Municipal Securities" in the Prospectus, and under the caption "Taxes -
Florida Taxes" in the Statement of Additional
Information, included in the Fund's registration statement on Form N-1A
(the "Registration Statement"), insofar as such information sets forth
matters of Florida law, is, in all material respects, true and correct.
In addition, in connection with such examination, we have reviewed
the information set forth under the caption "Florida Municipal Securities -
Special Considerations" in the Prospectus and "Municipal Bonds - Special
Considerations Relating to Florida Municipal Securities" in the Statement
of Additional Information, included as part of the Registration Statement.
In connection with such review, nothing has come to our attention which
leads us to believe that such information contains an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
light of the circumstances under which they were made.
We are members of the Bar of the State of Florida and do not herein
express any opinion as to matters governed by the laws of any jurisdiction
other than the internal laws of the State of Florida (without reference to
the choice-of-law or conflict-of-law provisions, principles or decisions
under Florida law, or under any other state, federal or foreign law); and
we have assumed compliance with all other laws, including, without
limitation, Federal, foreign and other states' laws.
Our opinions are limited to the specific issues addressed and are
limited in all respects to laws and facts existing on the date hereof. By
rendering our opinion letter, we do not undertake to advise you of any
changes in such laws or facts which may occur or come to our attention
after the date hereof.
The foregoing opinions are furnished to you at your request, are
solely for your benefit and may not be relied upon by any other party
without the prior written consent of a shareholder of this law firm.
Very truly yours,
/s/Gunster, Yoakley & Stewart,
P.A.
Gunster, Yoakley & Stewart, P.A.
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Smith Barney Florida Municipals Fund:
We hereby consent to the following with respect to
Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A (File No. 33-51558) under the Securities Act of 1933,
as amended, of Smith Barney Florida Municipals Fund (formerly
Smith Barney Shearson Florida Municipals Fund):
1. The incorporation by reference of our report dated December
8, 1994 accompanying the Annual Report dated October 31, 1994 of
Smith Barney Florida Municipals Fund, in the Statement of
Additional Information.
2. The reference to our firm under the heading "Financial
Highlights" in the Prospectus.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 23, 1994
EXHIBIT 15
AMENDED SERVICES AND DISTRIBUTION PLAN
SMITH BARNEY FLORIDA MUNICIPALS FUND
This Services and Distribution Plan (the "Plan") is adopted in
accordance with rule 12b-1 (the "Rule") under the Investment Company Act of
1940, as amended (the "1940 Act"), by Smith Barney Florida Municipals Fund,
a business trust organized under the laws of the Commonwealth of
Massachusetts (the "Fund"), subject to the following terms and conditions:
Section 1. Annual Fee
(a) Class A Service Fee. The Fund will pay to the distributor of its
shares, Smith Barney Inc., a corporation organized under the laws of the
State of Delaware ("Distributor"), a service fee under the Plan at the
annual rate of .15% of the average daily net assets of the Fund
attributable to the Class A shares (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .15% of the
average daily net assets of the Fund attributable to the Class B shares
(the "Class B Service Fee").
(c) Service Fee for Class C shares. The Fund will pay to the
Distributor a service fee under the Plan at the annual rate of .15% of the
average daily net assets of the Fund attributable to the Class C shares
(the "Class C Service Fee," and collectively with the Class A Service Fee
and the Class B Service Fee, the "Service Fees").
(d) Distribution Fee for Class B shares. In addition to the Class B
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .50% of the average daily net assets of the fund
attributable to the Class B Distribution Fee, the "Distribution Fees").
(e) Distribution Fee for Class C shares. In addition to the Class C
Service Fee, the Fund will pay the Distributor a distribution fee under the
Plan at the annual rate of .55% of the average daily net assets of the Fund
attributable to the Class C shares (the "Class C Distribution Fee," and
collectively with the Class B Distribution Fee, the "Distribution Fees").
(f) Payment of Fees. The Service Fees and Distribution Fees will be
calculated daily and paid monthly by the Fund with respect to the foregoing
classes of the fund's shares (each a "Class" and together the "Classes") at
the annual rates indicated above.
Section 2. Expenses Covered by the Plan
With respect to expenses incurred by each Class its respective
Service Fees and/or Distribution Fees may be used for; (a) costs of
printing and distributing the Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs
involved in preparing, printing and distributing sales literature
pertaining o the Fund; (c) an allocation of overhead and other branch
office distribution-related expenses of the Distributor; (d) payments made
to, and expenses of Smith Barney Financial Consultants and other persons
who provide support services in connection with the distribution of the
Fund's shares, including but not limited to, office space and equipment,
telephone
facilities, answering routine inquires regarding the Fund, processing
shareholder transactions and providing any other shareholder services not
otherwise provided by the Fund's Transfer agent; and (e) accruals for
interest on the amount of the foregoing expenses that exceed the
Distribution Fee and, in the case of Class B shares, the contingent
deferred sales charge received by the Distributor; provided, however, that
the Distribution Fees may be used by the Distributor only to cover expenses
primarily intended to result in the sale of the Fund's Class B and C
shares, including without limitation, payments to Distributor's financial
consultants ant the time of the sale of Class B and C shares. In addition,
Service Fees are intended to be used by the Distributor primarily to pay
its financial consultants for servicing shareholder accounts, including a
continuing fee to each such financial consultant, which fee shall begin to
accrue immediately after the sale of such shares.
Section 3. Approval of Shareholders
The Plan will not take effect, and no fees will be payable in
accordance with Section 1 of the Plan, with respect to a Class until the
Plan has been approved by a vote of a least a majority of the outstanding
voting securities of the Class. The Plan will be deemed to have been
approved with respect to a class so longer as a majority of the outstanding
voting securities of the Class votes for the approval of the Plan,
notwithstanding that: (a) the Plan has not been approved by a major of the
outstanding voting securities of any other Class, or (b) the Plan has not
been approved by a majority of the outstanding voting securities of the
Fund.
Section 4. Approval of Trustees
Neither the Plan nor any related agreements will take effect until
approved by a majority of both (a) the full Board of Trustees of the Fund
and (b) those Trustees who are not interested persons of the Fund and who
have not direct or indirect financial interest in the operation of the Plan
or in any agreements related to it (the "Qualified Trustees"), cast in
person at a meeting called for the purpose of voting on the Plan and the
related agreements.
Section 5. Continuance of the Plan
The Plan will continue in effect with respect to each Class until
November 7, 1995, and thereafter for successive twelve-month periods with
respect to each Class; provided, however, that such continuance is
specifically approved at least annually by the Trustees of the Fund and by
a majority of the Qualified Trustees.
Section 6. Termination
The Plan may be terminated at any time with respect to a Class (i) by
the Fund without the payment of any penalty, by the vote of a majority of
the outstanding voting securities of such Class or (ii) by a vote of the
Qualified Trustees. The Plan may remain in effect with respect to a
particular Class even if the Plan has been terminated in accordance with
this Section 6 with respect to any other Class.
Section 7. Amendments
The Plan may to be amended with respect to any Class so as to
increase materially the amounts of the Fees described in Section 1 above,
unless the amendment is approved by a vote of the holders of at least a
majority of the outstanding voting securities of that class. No material
amendment to the Plan may be made unless approved by the Fund's Board of
Trustees in the manner described in Section 4 above.
Section 8. Selection of Certain Trustees
While the Plan is in effect, the selection and nomination of the
Fund's Trustees who are not interested persons of the Fund will be
committed to the discretion of the Trustees then in office who are not
interested persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect, a person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to the Plan or any related agreement will prepare and furnish to
the Fund's Board of Trustees and the Board will review, at least quarterly,
written reports complying with the requirements of the Rule, which sets out
the amounts expended under the Plan and the purposes for which those
expenditures were made.
Section 10. Preservation of Materials
The Fund will preserve copies of the Plan, any agreement relating to
the Plan and any report made pursuant to Section 9 above, for a period of
not less than six years (the first two years in an easily accessible place)
from the date of the Plan, agreement or report.
Section 11. Meanings of Certain Terms
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning
that those terms have under the 1940 Act by the Securities and Exchange
Commission.
Section 12. Limitation of Liability
It is expressly agreed that the obligations of the Fund hereunder
shall not be binding upon of the Trustees, shareholders, nominees,
officers, employees or agents, whether past, present or future, of the
Fund, individually, but are binding only upon the assets and property of
the Fund, as provided, as provided in the Master Trust Agreement of the
Fund. The execution and delivery of this Plan has been authorized by the
Trustees and by shareholders of the Fund holding at least a majority of the
outstanding voting securities and signed by an authorized officer of the
Fund, acting as such, and neither such authorization by such Trustees and
shareholders nor such execution and delivery by such officer be deemed to
have made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property or the Fund as
provided in its Master Trust Agreement.
IN WITNESS WHEREOF, the Fund execute the Plan as of November 7, 1994.
SMITH BARNEY
FLORIDA MUNICIPALS FUND
By: /s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board
g\shared\domestic\clients\shearson\funds\flmu\12b1pln2.doc10:51 AM
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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