Legg Mason Partners Municipal Funds – ‘497’ on 8/1/00

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Definitive Material   —   Rule 497
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 497         Definitive Material                                  167    960K 

Document Table of Contents

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[LOGO] Smith Barney                                                             
Mutual Funds                                                      

Your Serious Money. Professionally Managed./SM/                                 

P R O S P E C T U S                                                             

National                                                                        
Portfolio                                                                       

Class A, B, L and Y Shares                                                      

----------------------------------------------------                            

July 28, 2000                                                                   

The Securities and Exchange Commission has not approved or disapproved these    
securities as an investment or determined whether this prospectus is accurate or
complete. Any statement to the contrary is a crime.                             

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National Portfolio                                                              

Contents                                                                      

                                                                [Download Table]
                                                                                
Investments, risks and performance..........................................   2

More on the fund's investments..............................................   6

Management..................................................................   7

Choosing a class of shares to buy...........................................   8

Comparing the fund's classes................................................   9

Sales charges...............................................................  10

More about deferred sales charges...........................................  12

Buying shares...............................................................  13

Exchanging shares...........................................................  14

Redeeming shares............................................................  16

Other things to know about share transactions...............................  18

Dividends, distributions and taxes..........................................  20

Share price.................................................................  21

Financial highlights........................................................  22

You should know: An investment in the fund is not a bank deposit and is not     
insured or guaranteed by the FDIC or any other government agency.               

                                                       Smith Barney Mutual Funds

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Investments, risks and performance                                            

Investment objective                                                            
The fund seeks as high a level of income exempt from federal income taxes as is 
consistent with prudent investing.                                              

Principal investment strategies                                                 

Key investments The fund invests at least 80% of its net assets in "municipal   
securities," which are debt obligations issued by any of the 50 states and      
their political subdivisions, agencies and public authorities. The interest on  
these securities is excluded from gross income for federal income tax purposes. 
As a result, the interest rate on these securities normally is lower than it    
would be if the securities were subject to federal taxation. The fund may       
invest in municipal securities of varying maturities, but typically focuses on  
municipal securities that have remaining maturities at the time of purchase of  
from five to more than thirty years. The fund invests exclusively in municipal  
securities that are rated investment grade at the time of purchase or are of    
comparable quality if unrated. At least two-thirds of the municipal securities  
must be rated, at the time of purchase, within the three highest investment     
grade rating categories.                                                        

Selection process The manager selects securities primarily by identifying       
undervalued sectors and individual securities, while also selecting securities  
it believes will benefit from changes in market conditions. In selecting indi-  
vidual securities, the manager:                                                 

. Uses fundamental credit analysis to estimate the relative value and attrac- 
tiveness of various securities and sectors and to exploit opportunities in  
the municipal bond market                                                   
 . Considers the potential impact of supply/demand imbalances for obligations of
different states, the yield available for securities with different maturi- 
 ties and a security's maturity in light of the outlook for the issuer and its
sector and interest rates                                                   
. May trade between general obligation and revenue bonds and among various reve-
 nue bond sectors, such as housing, hospital and industrial development, based
on their apparent relative values and their impact on the level of dividends
generated by the overall portfolio                                          
. Identifies individual securities with the most potential for added value, such
as those involving unusual situations, new issuers, the potential for credit
upgrades, unique structural characteristics or innovative features          

National Portfolio                                                              

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Principal risks of investing in the fund                                        
Investors could lose money on their investment in the fund, or the fund may not 
perform as well as other investments, if:                                       

. Interest rates rise, causing the value of the fund's portfolio to decline   
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or the security's credit rating is downgraded     
. Unfavorable legislation affects the tax-exempt status of municipal bonds    
 . The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect                                

It is possible that some of the fund's income distributions may be, and distri- 
butions of the fund's gains generally will be, subject to federal taxation. The 
fund may realize taxable gains on the sale of its securities or on transactions 
in futures contracts. Some of the fund's income may be subject to the federal   
alternative minimum tax. In addition, distributions of the fund's income and    
gains will generally be subject to state income taxation.                       

Who may want to invest The fund may be an appropriate investment if you:        

 . Are in a high federal tax bracket seeking income exempt from federal taxation
. Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio                                                        
. Are willing to accept the risks of municipal securities but are seeking to  
diversify your investment among issuers of different states                 

                                                       Smith Barney Mutual Funds

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Risk return bar chart                                                           
This bar chart indicates the risks of investing in the fund by showing changes  
in the fund's performance from year to year. Past performance does not neces-   
sarily indicate how the fund will perform in the future. The bar chart shows    
the performance of the fund's Class A shares for each of the past 10 calendar   
years. Class B, L and Y shares would have different performance because of      
their different expenses. The performance information in the chart does not     
reflect sales charges, which would reduce your return.                          

Total Returns for Class A Shares

[BAR GRAPH] 

90    7.57% 
91    13.01%
92    9.61% 
93    13.43%
94    -5.83%
95    18.9% 
96    3.68% 
97    10.58%
98    5.64% 
99    -4.61%

Calendar years ended December 31  

Quarterly returns:                                                              
Highest: 7.36% in 1st quarter 1995; Lowest: (4.96)% in 1st quarter 1994; Year   
to date: 4.48% through 6/30/00                                                  

Risk return table                                                               
This table indicates the risks of investing in the fund by comparing the aver-  
age annual total return of each class for the periods shown with that of the    
Lehman Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unman- 
aged index of municipal bonds, and the Lipper General Municipal Debt Funds      
Average (the "Lipper Average"), an average composed of the fund's peer group of 
mutual funds. This table assumes imposition of the maximum sales charge appli-  
cable to the class, redemption of shares at the end of the period, and rein-    
vestment of distributions and dividends.                                        

Average Annual Total Returns
Calendar Years Ended December 31, 1999

                                                                [Download Table]

Class          1 year  5 years 10 years Since inception Inception date
                                                                      
A              (8.45)%  5.68%   6.50%        6.78%         8/20/86    
B              (9.18)%  5.84%    n/a         6.36%         11/7/94    
L              (6.95)%  5.70%    n/a         4.78%          1/5/93    
Lehman Index   (2.06)%  6.91%   6.89%        7.12%            *       
Lipper Average (4.64)%  5.77%   6.18%        6.39%            *       

*Index comparison begins on August 31, 1986.                                    

National Portfolio                                                              

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Fee table                                                                       
This table sets forth the fees and expenses you will pay if you invest in fund  
shares.                                                                         

Shareholder fees

                                                                [Download Table]

(fees paid directly from your investment)        Class A Class B Class L Class Y
                                                                                
Maximum sales charge (load) imposed on                                          
purchases                                                                       
(as a % of offering price)                        4.00%    None   1.00%   None  
Maximum deferred sales charge (load) (as a % of                                 
the lower of net asset value at purchase or                                     
redemption)                                        None*  4.50%   1.00%   None  


Annual fund operating expenses

                                                                [Download Table]

(expenses deducted from fund assets)   Class A Class B Class L Class Y**
                                                                        
Management fee                          0.45%   0.45%   0.45%    0.45%  
Distribution and service (12b-1) fees   0.15%   0.65%   0.70%     None  
Other expenses                          0.08%   0.08%   0.11%    0.08%  
                                        -----   -----   -----    -----  
Total annual fund operating expenses    0.68%   1.18%   1.26%    0.53%  

*You may buy Class A shares in amounts of $500,000 or more at net asset value   
(without an initial sales charge) but if you redeem those shares within 12      
months of their purchase, you will pay a deferred sales charge of 1.00%.        
**For Class Y shares, "Other Expenses" have been estimated for the fiscal       
year ended March 31, 2000, based on expenses                                    
incurred by Class A shares because prior to March 31, 2000, no Class Y shares   
were sold.                                                                      

Example                                                                         
This example helps you compare the costs of investing in the fund with the      
costs of investing in other mutual funds. Your actual costs may be higher or    
lower. The example assumes:                                                     
. You invest $10,000 in the fund for the period shown                         
. Your investment has a 5% return each year                                   
. You reinvest all distributions and dividends without a sales charge         
. The fund's operating expenses remain the same                               

Number of years you own your shares 

                                                                [Download Table]

                                       1 year 3 years 5 years 10 years
                                                                      
Class A (with or without redemption)    $467   $609    $764    $1,213 
Class B (redemption at end of period)   $570   $675    $749    $1,293 
Class B (no redemption)                 $120   $375    $649    $1,293 
Class L (redemption at end of period)   $327   $496    $785    $1,607 
Class L (no redemption)                 $227   $496    $785    $1,607 
Class Y (with or without redemption)    $ 54   $170    $296    $  665 

                                                       Smith Barney Mutual Funds

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More on the fund's investments                                                

Municipal securities Municipal securities include debt obligations issued by    
certain governmental issuers such as Puerto Rico, the Virgin Islands and Guam.  
The municipal securities in which the fund invests include general obligation   
bonds, revenue bonds and municipal leases. These securities may pay interest at 
fixed, variable or floating rates. The fund may also hold zero coupon securi-   
ties which pay no interest during the life of the obligation but trade at       
prices below their stated maturity value.                                       

Other debt securities The fund may invest up to 20% of its assets in debt secu- 
rities which are issued or guaranteed by the full faith and credit of the U.S.  
government. These securities will generally be subject to federal and state     
taxation.                                                                       

Derivative contracts The fund may, but need not, use derivative contracts, such 
as financial futures, for any of the following purposes:                        
. To hedge against the economic impact of adverse changes in the market value of
portfolio securities due to changes in interest rates                       
. As a substitute for buying or selling securities                            

A futures contract will obligate or entitle the fund to deliver or receive an   
asset or cash payment based on the change in value of one or more securities.   
The other parties to certain futures contracts present the same types of        
default risk as issuers of fixed income securities.                             

The fund may also invest in inverse floating rate securities. These securities  
pay interest at a rate which moves in the opposite direction from movements in  
market interest rates. Inverse floaters and futures are volatile and involve    
leverage which may expose the fund to increased risk of loss. Therefore, using  
futures contracts can disproportionately increase losses and reduce             
opportunities for gains when interest rates are changing. The fund may not      
fully benefit from or may lose money on futures or inverse floaters used for    
hedging purposes if changes in their value do not correspond accurately to      
changes in the value of the fund's holdings. Futures and inverse floaters can   
also make a fund less liquid and harder to value, especially in declining mar-  
kets.                                                                           

Defensive investing The fund may depart from its principal investment strate-   
gies in response to adverse market, economic or political conditions by taking  
temporary defensive positions in all types of money market and short-term debt  
securities. If the fund takes a temporary defensive position, it may be unable  
to achieve its investment goal.                                                 

National Portfolio                                                              

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Management                                                                    

Manager The fund's investment adviser (the manager) is SSB Citi Fund Management 
LLC (successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith     
Barney Inc. The manager's address is 388 Greenwich Street, New York, New York   
10013. The manager selects the fund's investments and oversees its operations.  
The manager and Salomon Smith Barney are subsidiaries of Citigroup Inc.         
Citigroup businesses produce a broad range of financial services--asset manage- 
ment, banking and consumer finance, credit and charge cards, insurance, invest- 
ments, investment banking and trading--and use diverse channels to make them    
available to consumer and corporate customers around the world.                 

Peter M. Coffey, investment officer of SSB Citi Fund Management LLC and manag-  
ing director of Salomon Smith Barney, has been responsible for the day-to-day   
management of the fund's portfolio since November 1987. Mr. Coffey has 31 years 
of experience with the manager or its predecessors.                             

Management fees During the fiscal year ended March 31, 2000, the manager        
received an advisory fee equal to 0.45% of the fund's average daily net assets. 

Distributor The fund has entered into an agreement with Salomon Smith Barney    
Inc. to distribute the fund's shares.                                           

Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its   
Class A, B and L shares. Under the plan, the fund pays distribution and service 
fees. These fees are an ongoing expense and, over time, may cost you more than  
other types of sales charges.                                                   

Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company     
serves as the fund's transfer agent and shareholder servicing agent (the        
"transfer agent"). Pursuant to a sub-transfer agency and services agreement     
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-    
transfer agent (the "sub-transfer agent") to render certain shareholder record  
keeping and accounting services and functions.                                  

                                                       Smith Barney Mutual Funds

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Choosing a class of shares to buy                                             

You can choose among four classes of shares: Classes A, B, L and Y. Each class  
has different sales charges and expenses, allowing you to choose the class that 
best meets your needs. Which class is more beneficial to an investor depends on 
the amount and intended length of the investment.                               

. If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.                         
 . For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately    
invested. This may help offset the higher expenses of Class B and Class L   
shares, but only if the fund performs well.                                 
. Class L shares have a shorter deferred sales charge period than Class B     
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest- 
ors.                                                                        

You may buy shares from:                                                        
. A Salomon Smith Barney Financial Consultant                                 
. An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative                                  
. The fund, but only if you are investing through certain dealer representatives

Investment minimums Minimum initial and additional investment amounts vary      
depending on the class of shares you buy and the nature of your investment      
account.                                                                        

                                                                [Download Table]

                                                 Initial           Additional 
                                       Classes A, B, L   Class Y   All Classes
                                                                              
General                                    $1,000      $15 million     $50    
Monthly Systematic Investment Plans          $25           n/a         $25    
Quarterly Systematic Investment Plans        $50           n/a         $50    
Uniform Gift to Minors Accounts             $250       $15 million     $50    

National Portfolio                                                              

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Comparing the fund's classes                                                  

Your Salomon Smith Barney Financial Consultant or dealer representative can     
help you decide which class meets your goals. They may receive different com-   
pensation depending upon which class you choose.                                

                                                                [Download Table]

                           Class A     Class B     Class L     Class Y  
                                                                        
Key features             .Initial    .No initial .Initial    .No initial
                          sales       sales       sales       or        
                          charge      charge      charge is   deferred  
                          .You may    .Deferred   lower than  sales     
                          qualify     sales       Class A     charge    
                          for reduc-  charge      .Deferred   .Must     
                          tion or     declines    sales       invest at 
                          waiver of   over time   charge for  least $15 
                          initial     .Converts   only 1      million   
                          sales       to Class A  year        .Lower    
                          charge      after 8     .Does not   annual    
                          .Lower      years       convert to  expenses  
                          annual      .Higher     Class A     than the  
                          expenses    annual      .Higher     other     
                          than Class  expenses    annual      classes   
                          B and       than Class  expenses              
                          Class L     A           than Class            
                                                  A                     
------------------------------------------------------------------------
Initial sales charge     Up to       None        1.00%       None       
                         4.00%;                                         
                         reduced for                                    
                         large pur-                                     
                         chases and                                     
                         waived for                                     
                         certain                                        
                         investors.                                     
                         No charge                                      
                         for pur-                                       
                         chases of                                      
                         $500,000 or                                    
                         more                                           
------------------------------------------------------------------------
Deferred sales charge    1.00% on    Up to 4.50% 1.00% if    None       
                         purchases   charged     you redeem             
                         of $500,000 when you    within 1               
                         or more if  redeem      year of                
                         you redeem  shares. The purchase               
                         within 1    charge is                          
                         year of     reduced                            
                         purchase    over time                          
                                     and there                          
                                     is no                              
                                     deferred                           
                                     sales                              
                                     charge                             
                                     after 6                            
                                     years                              
------------------------------------------------------------------------
Annual distribution and  0.15% of    0.65% of    0.70% of    None       
service fees             average     average     average                
                         daily net   daily net   daily net              
                         assets      assets      assets                 
------------------------------------------------------------------------
Exchange privilege*      Class A     Class B     Class L     Class Y    
                         shares      shares      shares      shares     
                         of most     of most     of most     of most    
                         Smith       Smith       Smith       Smith      
                         Barney      Barney      Barney      Barney     
                         funds       funds       funds       funds      
------------------------------------------------------------------------

*Ask your Salomon Smith Barney Financial Consultant or dealer representative or 
visit the web site for the Smith Barney funds available for exchange.           

                                                       Smith Barney Mutual Funds

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Sales charges                                                                 

Class A shares                                                                  
You buy Class A shares at the offering price, which is the net asset value plus 
a sales charge. You pay a lower sales charge as the size of your investment     
increases to certain levels called breakpoints. You do not pay a sales charge   
on the fund's distributions or dividends you reinvest in additional Class A     
shares.                                                                         

                                                                [Download Table]

                                 Sales Charge as a % of 
                                 Offering   Net amount  
Amount of purchase               price  (%) invested (%)
                                                        
Less than $25,000                   4.00        4.17    
$25,000 but less than $50,000       3.50        3.63    
$50,000 but less than $100,000      3.00        3.09    
$100,000 but less than $250,000     2.50        2.56    
$250,000 but less than $500,000     1.50        1.52    
$500,000 or more                     -0-         -0-    

Investments of $500,000 or more You do not pay an initial sales charge when you 
buy $500,000 or more of Class A shares. However, if you redeem these Class A    
shares within one year of purchase, you will pay a deferred sales charge of 1%. 

Qualifying for a reduced Class A sales charge There are several ways you can    
combine multiple purchases of Class A shares of Smith Barney funds to take      
advantage of the breakpoints in the sales charge schedule.                      

 . Accumulation privilege - lets you combine the current value of Class A shares
owned                                                                     

. by you, or                                                                  
. by members of your immediate family,                                        

and for which a sales charge was paid, with the amount of your next purchase  
of Class A shares for purposes of calculating the initial sales charge. Cer-  
tain trustees and fiduciaries may be entitled to combine accounts in deter-   
mining their sales charge.                                                    

.  Letter of intent - lets you purchase Class A shares of the fund and other  
 Smith Barney funds over a 13-month period and pay the same sales charge, if
 any, as if all shares had been purchased at once. You may include purchases
 on which you paid a sales charge within 90 days before you sign the letter.

National Portfolio                                                              

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Waivers for certain Class A investors Class A initial sales charges are waived  
for certain types of investors, including:                                      

. Employees of members of the NASD                                            
 . Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met                                                     
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60 
days, if the investor's Salomon Smith Barney Financial Consultant or dealer 
representative is notified                                                  

If you want to learn about additional waivers of Class A initial sales charges, 
contact your Salomon Smith Barney Financial Consultant or dealer representative 
or consult the Statement of Additional Information ("SAI").                     

Class B shares                                                                  
You buy Class B shares at net asset value without paying an initial sales       
charge. However, if you redeem your Class B shares within six years of pur-     
chase, you will pay a deferred sales charge. The deferred sales charge          
decreases as the number of years since your purchase increases.                 

                                                                [Download Table]

Year after purchase    1st  2nd 3rd 4th 5th 6th through 8th
                                                           
Deferred sales charge  4.5%  4%  3%  2%  1%        0%      

Class B conversion After 8 years, Class B shares automatically convert into     
Class A shares. This helps you because Class A shares have lower annual         
expenses. Your Class B shares will convert to Class A shares as follows:        

                                                                [Download Table]

Shares issued:                          Shares issued:     Shares issued:      
At initial                              On reinvestment of Upon exchange from  
purchase                                dividends and      another Smith Barney
                                        distributions      fund                
                                                                               
Eight years after the date of purchase  In same proportion On the date the     
                                        as the number of   shares originally   
                                        Class B shares     acquired would      
                                        converting is to   have converted      
                                        total Class B      into Class A        
                                        shares you own     shares              
                                        (excluding shares                      
                                        issued as                              
                                        dividends)                             

Class L shares                                                                  

You buy Class L shares at the offering price, which is the net asset value plus 
a sales charge of 1% (1.01% of the net amount invested). In addition, if you    
redeem your Class L shares within one year of purchase, you will pay a deferred 
sales charge of 1%. If you held Class C shares of the fund and/or other Smith   
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge  
on Class L shares you buy before June 22, 2001.                                 

                                                       Smith Barney Mutual Funds

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Class Y shares                                                                  
You buy Class Y shares at net asset value with no initial sales charge and no   
deferred sales charge when you redeem. You must meet the $15,000,000 initial    
investment requirement. You can use a letter of intent to meet this requirement 
by buying Class Y shares of the fund over a 13-month period. To qualify, you    
must initially invest $5,000,000.                                               

More about deferred sales charges                                             

The deferred sales charge is based on the net asset value at the time of pur-   
chase or redemption, whichever is less, and therefore you do not pay a sales    
charge on amounts representing appreciation or depreciation.                    

In addition, you do not pay a deferred sales charge on:                         

. Shares exchanged for shares of another Smith Barney fund                    
. Shares representing reinvested distributions and dividends                  
. Shares no longer subject to the deferred sales charge                       

Each time you place a request to redeem shares, the fund will first redeem any  
shares in your account that are not subject to deferred sales charge and then   
the shares in your account that have been held the longest.                     

If you have redeemed shares of a Smith Barney fund in the past 60 days and paid 
a deferred sales charge, you may buy shares of the fund at the current net      
asset value and be credited with the amount of the deferred sales charge, if    
you notify your Salomon Smith Barney Financial Consultant or dealer representa- 
tive.                                                                           

Salomon Smith Barney receives deferred sales charges as partial compensation    
for its expenses in selling shares, including the payment of compensation to    
your Salomon Smith Barney Financial Consultant or dealer representative.        

Deferred sales charge waivers                                                   
The deferred sales charge for each share class will generally be waived:        

. On payments made through certain systematic withdrawal plans                
. For involuntary redemptions of small account balances                       
. For 12 months following the death or disability of a shareholder            

If you want to learn more about additional waivers of deferred sales charges,   
contact your Salomon Smith Barney Financial Consultant or dealer representative 
or consult the SAI.                                                             

National Portfolio                                                              

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Buying shares                                                                 

 Through a   You should contact your Salomon Smith Barney Financial Con-
Salomon Smith   sultant or dealer representative to open a brokerage account  
Barney   and make arrangements to buy shares.                   
Financial                                                             
representative   If you do not provide the following information, your order    
will be rejected:                             
. Class of shares being bought                
  . Dollar amount or number of shares being bought

               You should pay for your shares through your brokerage account
           no later than the third business day after you place your
               order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.     
--------------------------------------------------------------------------------

Through the   Certain investors who are clients of the selling group are  
fund's sub-   eligible to buy shares directly from the fund.              
transfer                                                            
agent                                                         

          . Write the sub-transfer agent at the following address:
Smith Barney National Portfolio     
Smith Barney Muni Funds             
(Specify class of shares)           
c/o PFPC Global Fund Services       
P.O. Box 9699                       
Providence, RI 02940-9699           
           . Enclose a check made payable to the fund to pay for the
                 shares. For initial purchases, complete and send an account
application.                              
    . For more information, call the transfer agent at
1-800-451-2010.                           

                                                       Smith Barney Mutual Funds

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   Through a   You may authorize Salomon Smith Barney, your dealer represen-
 systematic   tative or the sub-transfer agent to transfer funds automati-
investment   cally from a regular bank account, cash held in a Salomon  
      plan   Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.        

              . Amounts transferred should be at least: $25 monthly or $50
quarterly                                 
            . If you do not have sufficient funds in your account on a
                transfer date, Salomon Smith Barney, your dealer represen-
           tative or the sub-transfer agent may charge you a fee

         For more information, contact your Salomon Smith Barney
             Financial Consultant, dealer representative or the transfer
agent or consult the SAI.                     

Exchanging shares                                                             

Smith Barney   You should contact your Salomon Smith Barney Financial Con-  
    offers a   sultant or dealer representative to exchange into other Smith
distinctive   Barney funds. Be sure to read the prospectus of the Smith   
   family of   Barney fund you are exchanging into. An exchange is a taxable
funds   transaction.                                          
tailored to                                                               
help meet the   . You may exchange shares only for shares of the same class of
varying needs     another Smith Barney fund. Not all Smith Barney funds offer 
of both large     all classes.                                                
  and small   . Not all Smith Barney funds may be offered in your state of
investors     residence. Contact your Salomon Smith Barney Financial  
              Consultant, dealer representative or the transfer agent.

             . You must meet the minimum investment amount for each fund
(except for systematic changes).          
               . If you hold share certificates, the sub-transfer agent must
            receive the certificates endorsed for transfer or with
              signed stock powers (documents transferring ownership of
     certificates) before the exchange is effective.
                . The fund may suspend or terminate your exchange privilege if
      you engage in an excessive pattern of exchanges.

National Portfolio                                                              

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   Waiver of   Your shares will not be subject to an initial sales charge at
additional   the time of the exchange.                                  
sales charges                                                                 

              Your deferred sales charge (if any) will continue to be mea-
            sured from the date of your original purchase. If the fund
           you exchange into has a higher deferred sales charge, you
             will be subject to that charge. If you exchange at any time
               into a fund with a lower charge, the sales charge will not be
reduced.                                      
--------------------------------------------------------------------------------

By telephone                                                                
             If you do not have a brokerage account, you may be eligible
              to exchange shares through the transfer agent. You must com-
               plete an authorization form to authorize telephone transfers.
              If eligible, you may make telephone exchanges on any day the
             New York Stock Exchange is open. Call the transfer agent at
         1-800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern
time).                                        

             You can make telephone exchanges only between accounts that
have identical registrations.                 
--------------------------------------------------------------------------------

By mail                                                           
              If you do not have a Salomon Smith Barney brokerage account,
               contact your dealer representative or write to the sub-trans-
 fer agent at the address on the following page.

                                                       Smith Barney Mutual Funds

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Redeeming shares                                                              

Generally   Contact your Salomon Smith Barney Financial Consultant or 
     dealer representative to redeem shares of the fund.

             If you hold share certificates, the sub-transfer agent must
               receive the certificates endorsed for transfer or with signed
  stock powers before the redemption is effective.

             If the shares are held by a fiduciary or corporation, other
documents may be required.                    

             Your redemption proceeds will be sent within three business
             days after your request is received in good order. However,
              if you recently purchased your shares by check, your redemp-
           tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.   

            If you have a Salomon Smith Barney brokerage account, your
            redemption proceeds will be placed in your account and not
               reinvested without your specific instruction. In other cases,
               unless you direct otherwise, your redemption proceeds will be
 paid by check mailed to your address of record.
--------------------------------------------------------------------------------

     By mail   For accounts held directly at the fund, send written requests
     to the sub-transfer agent at the following address:
Smith Barney National Portfolio     
Smith Barney Muni Funds             
(Specify class of shares)           
c/o PFPC Global Fund Services       

P.O. Box 9699                       
Providence, RI 02490-9699           

  Your written request must provide the following:

. Your account number                         
          . The class of shares and the dollar amount or number of
shares to be redeemed                     
             . Signatures of each owner exactly as the account is regis-
tered                                     

National Portfolio                                                              

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By telephone                                                                
             If you do not have a brokerage account, you may be eligible
               to redeem shares in amounts up to $10,000 per day through the
            transfer agent. You must complete an authorization form to
               authorize telephone redemptions. If eligible, you may request
        redemptions by telephone on any day the New York Stock
             Exchange is open. Call the transfer agent at 1-800-451-2010
 between 9:00 a.m. and 4:00 p.m. (Eastern time).

               Your redemption proceeds can be sent by check to your address
               of record or by wire transfer to a bank account designated on
              your authorization form. You must submit a new authorization
            form to change the bank account designated to receive wire
               transfers and you may be asked to provide certain other docu-
ments.                                        
--------------------------------------------------------------------------------

Automatic                                                             
       cash   You can arrange for the automatic redemption of a portion of
withdrawal   your shares on a monthly or quarterly basis. To qualify you
      plans   must own shares of the fund with a value of at least $10,000
             and each automatic redemption must be at least $50. If your
          shares are subject to a deferred sales charge, the sales
         charge will be waived if your automatic payments do not
              exceed 1% per month of the value of your shares subject to a
deferred sales charge.                        

The following conditions apply:               

       . Your shares must not be represented by certificates
      . All dividends and distributions must be reinvested

         For more information, contact your Salomon Smith Barney
              Financial Consultant or dealer representative or consult the
SAI.                                          

                                                       Smith Barney Mutual Funds

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Other things to know about share transactions                                 

When you buy, exchange or redeem shares, your request must be in good order.    
This means you have provided the following information, without which your      
request will not be processed:                                                  

. Name of the fund                                                            
. Account number                                                              
. Class of shares being bought, exchanged or redeemed                         
. Dollar amount or number of shares being bought, exchanged or redeemed       
. Signature of each owner exactly as the account is registered                

The transfer agent will try to confirm that any telephone exchange or redemp-   
tion request is genuine by recording calls, asking the caller to provide a per- 
sonal identification number for the account, sending you a written confirmation 
or requiring other confirmation procedures from time to time.                   

Signature guarantees To be in good order, your redemption request must include  
a signature guarantee if you:                                                   

. Are redeeming over $10,000 of shares                                        
. Are sending signed share certificates or stock powers to the sub-transfer   
agent                                                                       
. Instruct the sub-transfer agent to mail the check to an address different from
the one on your account                                                     
. Changed your account registration                                           
. Want the check paid to someone other than the account owner(s)              
. Are transferring the redemption proceeds to an account with a different regis-
tration                                                                     

You can obtain a signature guarantee from most banks, dealers, brokers, credit  
unions and federal savings and loan institutions, but not from a notary public. 

The fund has the right to:                                                      

. Suspend the offering of shares                                              
. Waive or change minimum and additional investment amounts                   
. Reject any purchase or exchange order                                       
. Change, revoke or suspend the exchange privilege                            
. Suspend telephone transactions                                              

National Portfolio                                                              

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. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi- 
ties and Exchange Commission                                                
. Pay redemption proceeds by giving you securities. You may pay transaction   
costs to dispose of the securities                                          

Small account balances If your account falls below $500 because of a redemption 
of fund shares, the fund may ask you to bring your account up to $500. If your  
account is still below $500 after 60 days, the fund may close your account and  
send you the redemption proceeds.                                               

Excessive exchange transactions The manager may determine that a pattern of     
frequent exchanges is detrimental to the fund's performance and other share-    
holders. If so, the fund may limit additional purchases and/or exchanges by the 
shareholder.                                                                    

Share certificates The fund does not issue share certificates unless a written  
request signed by all registered owners is made to the sub-transfer agent. If   
you hold share certificates it will take longer to exchange or redeem shares.   

                                                       Smith Barney Mutual Funds

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Dividends, distributions and taxes                                            

Dividends The fund pays dividends each month from its net investment income.    
The fund generally makes capital gain distributions, if any, once a year, typi- 
cally in December. The fund may pay additional distributions and dividends at   
other times if necessary for the fund to avoid a federal tax. Capital gain dis- 
tributions and dividends are reinvested in additional fund shares of the same   
class you hold. The fund expects distributions to be primarily from income. You 
do not pay a sales charge on reinvested distributions or dividends. Alterna-    
tively, you can instruct your Salomon Smith Barney Financial Consultant, dealer 
representative or the transfer agent to have your distributions and/or divi-    
dends paid in cash. You can change your choice at any time to be effective as   
of the next distribution or dividend, except that any change given to the       
transfer agent less than five days before the payment date will not be effec-   
tive until the next distribution or dividend is paid.                           

Taxes In general, redeeming shares, exchanging shares and receiving distribu-   
tions (whether in cash or additional shares) are all taxable events.            

                                                                [Download Table]

Transaction        Federal tax status                                       
                                                                            
Redemption or      Usually capital gain or loss;                            
exchange of shares long-term only if shares owned                           
                   more than one year                                       

Long-term capital  Taxable gain                                             
gain distributions                                                          

Short-term capital Ordinary income                                          
gain distributions                                                          

Dividends          Excluded from gross income if from interest on tax-exempt
                   securities, otherwise ordinary income                    

Any taxable dividends and capital gain distributions are taxable whether        
received in cash or reinvested in fund shares. Long-term capital gain distribu- 
tions are taxable to you as long-term capital gain regardless of how long you   
have owned your shares. You may want to avoid buying shares when the fund is    
about to declare a capital gain distribution or a taxable dividend, because it  
will be taxable to you even though it may actually be a return of a portion of  
your investment.                                                                

After the end of each year, the fund will provide you with information about    
the distributions and dividends you received and any redemptions of shares dur- 
ing the previous year. If you do not provide the fund with your correct tax-    
payer identification number and any required certifications, you may be subject 
to back-up withholding of 31% of your distributions, dividends, and redemption  
proceeds. Because each shareholder's circum-                                    

National Portfolio                                                              

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stances are different and special tax rules may apply, you should consult your  
tax adviser about your investment in the fund.                                  

Share price                                                                   

You may buy, exchange or redeem shares at their net asset value, plus any       
applicable sales charge, next determined after receipt of your request in good  
order. The fund's net asset value is the value of its assets minus its liabili- 
ties. Net asset value is calculated separately for each class of shares. The    
fund calculates its net asset value every day the New York Stock Exchange is    
open. The Exchange is closed on certain holidays listed in the SAI. This calcu- 
lation is done when regular trading closes on the Exchange (normally 4:00 p.m., 
Eastern time).                                                                  

Generally, the fund's investments are valued by an independent pricing service. 
If market quotations or a valuation from the pricing service is not readily     
available for a security or if a security's value has been materially affected  
by events occurring after the close of the Exchange or market on which the      
security is principally traded, that security may be valued by another method   
that the fund's board believes accurately reflects fair value. A fund that uses 
fair value to price securities may value those securities higher or lower than  
another fund using market quotations to price the same securities. A security's 
valuation may differ depending on the method used for determining value.        

In order to buy, redeem or exchange shares at that day's price, you must place  
your order with your Salomon Smith Barney Financial Consultant or dealer repre- 
sentative before the New York Stock Exchange closes. If the New York Stock      
Exchange closes early, you must place your order prior to the actual closing    
time. Otherwise, you will receive the next business day's price.                

Salomon Smith Barney or members of the selling group must transmit all orders   
to buy, exchange or redeem shares to the fund's agent before the agent's close  
of business.                                                                    

                                                       Smith Barney Mutual Funds

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Financial highlights                                                          

The financial highlights tables are intended to help you understand the perfor- 
mance of each class for the past 5 years. Certain information reflects finan-   
cial results for a single share. Total return represents the rate that a        
shareholder would have earned (or lost) on a fund share assuming reinvestment   
of all dividends and distributions. The information in the following tables was 
audited by KPMG LLP, independent auditors, whose report, along with the fund's  
financial statements, is included in the annual report (available upon          
request). No information is present for Class Y shares because no shares were   
outstanding during these fiscal years.                                          

For a Class A share of beneficial interest outstanding throughout each year   
ended March 31:                                                               

                                                                [Download Table]

                               2000(/1/) 1999(/1/)      1998      1997      1996 
---------------------------------------------------------------------------------
                                                                                 
 Net asset value,                                                                
 beginning of year         $  13.97      $  14.16   $  13.60  $  13.67  $  13.32 
---------------------------------------------------------------------------------
 Income (loss) from                                                              
 operations:                                                                     
 Net investment income         0.74          0.74       0.79      0.81      0.81 
 Net realized and                                                                
 unrealized gain (loss)       (1.03)         0.03       0.73     (0.09)     0.35 
---------------------------------------------------------------------------------
 Total income (loss) from                                                        
 operations                   (0.29)         0.77       1.52      0.72      1.16 
---------------------------------------------------------------------------------
 Less distributions from:                                                        
 Net investment income        (0.73)        (0.75)     (0.80)    (0.79)    (0.81)
 Net realized gains           (0.01)        (0.21)     (0.16)      --        --  
---------------------------------------------------------------------------------
 Total distributions          (0.74)        (0.96)     (0.96)    (0.79)    (0.81)
---------------------------------------------------------------------------------
 Net asset value, end of                                                         
 year                      $  12.94      $  13.97   $  14.16  $  13.60  $  13.67 
---------------------------------------------------------------------------------
 Total return                 (2.03)%        5.50%     11.47%     5.41%     8.83%
---------------------------------------------------------------------------------
 Net assets, end of year                                                         
 (000)                     $363,812      $404,498   $370,891  $351,395  $378,421 
---------------------------------------------------------------------------------
 Ratios to average net                                                           
 assets:                                                                         
 Expenses                      0.68%         0.66%      0.66%     0.70%     0.70%
 Net investment income         5.59          5.21       5.61      5.92      5.88 
---------------------------------------------------------------------------------
 Portfolio turnover rate         68%           61%        87%       31%       27%
---------------------------------------------------------------------------------

(/1/) Per share amounts have been calculated using the monthly average shares   
method.                                                             

National Portfolio                                                              

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For a Class B share of beneficial interest outstanding throughout each year   
ended March 31:                                                               

                                                                [Download Table]

                                2000(/1/)  1999(/1/)    1998     1997     1996 
-------------------------------------------------------------------------------
                                                                               
 Net asset value, beginning of                                                 
 year                            $ 13.96    $ 14.16  $ 13.61  $ 13.67  $ 13.33 
-------------------------------------------------------------------------------
 Income (loss) from                                                            
 operations:                                                                   
 Net investment income              0.67       0.67     0.70     0.74     0.73 
 Net realized and unrealized                                                   
 gain (loss)                       (1.03)      0.02     0.74    (0.08)    0.35 
-------------------------------------------------------------------------------
 Total income (loss) from                                                      
 operations                        (0.36)      0.69     1.44     0.66     1.08 
-------------------------------------------------------------------------------
 Less distributions from:                                                      
 Net investment income             (0.66)     (0.68)   (0.73)   (0.72)   (0.74)
 Net realized gains                (0.01)     (0.21)   (0.16)     --       --  
-------------------------------------------------------------------------------
 Total distributions               (0.67)     (0.89)   (0.89)   (0.72)   (0.74)
-------------------------------------------------------------------------------
 Net asset value, end of year    $ 12.93    $ 13.96  $ 14.16  $ 13.61  $ 13.67 
-------------------------------------------------------------------------------
 Total return                      (2.56)%     4.92%   10.80%    4.95%    8.26%
-------------------------------------------------------------------------------
 Net assets, end of year (000)   $42,872    $36,451  $20,313  $12,691  $11,605 
-------------------------------------------------------------------------------
 Ratios to average net assets:                                                 
 Expenses                           1.18%      1.16%    1.29%    1.20%    1.19%
 Net investment income              5.11       4.71     4.95     5.42     5.37 
-------------------------------------------------------------------------------
 Portfolio turnover rate              68%        61%      87%      31%      27%
-------------------------------------------------------------------------------

(/1/) Per share amounts have been calculated using the monthly average shares   
method.                                                             

                                                       Smith Barney Mutual Funds

                                                                              23

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For a Class L share of beneficial interest outstanding throughout each year   
ended March 31:                                                               

                                                                [Download Table]

                           2000(/1/)  1999(/1/)(/2/)    1998     1997     1996 
-------------------------------------------------------------------------------
                                                                               
 Net asset value,                                                              
 beginning of year          $ 13.97      $ 14.16     $ 13.59  $ 13.65  $ 13.32 
-------------------------------------------------------------------------------
 Income (loss) from                                                            
 operations:                                                                   
 Net investment income         0.66         0.65        0.69     0.73     0.73 
 Net realized and                                                              
 unrealized gain (loss)       (1.02)        0.02        0.74    (0.08)    0.34 
-------------------------------------------------------------------------------
 Total income (loss) from                                                      
 operations                   (0.36)        0.67        1.43     0.65     1.07 
-------------------------------------------------------------------------------
 Less distributions from:                                                      
 Net investment income        (0.65)       (0.65)      (0.70)   (0.71)   (0.74)
 Net realized gains           (0.01)       (0.21)      (0.16)      --       -- 
-------------------------------------------------------------------------------
 Total distributions          (0.66)       (0.86)      (0.86)   (0.71)   (0.74)
-------------------------------------------------------------------------------
 Net assets value, end of                                                      
 year                       $ 12.95      $ 13.97     $ 14.16  $ 13.59  $ 13.65 
-------------------------------------------------------------------------------
 Total return                 (2.57)%       4.79%      10.71%    4.90%    8.13%
-------------------------------------------------------------------------------
 Net assets, end of year                                                       
 (000)                      $19,434      $18,528     $15,926  $14,901  $16,563 
-------------------------------------------------------------------------------
 Ratios to average net                                                         
 assets:                                                                       
 Expenses                      1.26%        1.24%       1.35%    1.27%    1.27%
 Net investment income         5.03         4.63        4.91     5.35     5.31 
-------------------------------------------------------------------------------
 Portfolio turnover rate         68%          61%         87%      31%      27%
-------------------------------------------------------------------------------

(/1/) Per share amounts have been calculated using the monthly average shares   
method.                                                             

(/2/) On June 12, 1998, the Class C shares were renamed Class L shares.         

National Portfolio                                                              

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                                                              SalomonSmithBarney
                                                    ----------------------------
                                                    A member of citigroup [LOGO]

National Portfolio                                                              

An investment portfolio of Smith Barney Muni Funds                              

Shareholder reports Annual and semiannual reports to shareholders provide addi- 
tional information about the fund's investments. These reports discuss the mar- 
ket conditions and investment strategies that affected the fund's performance.  

The fund sends only one report to a household if more than one account has the  
same address. Contact your Salomon Smith Barney Financial Consultant, dealer    
representative or the transfer agent if you do not want this policy to apply to 
you.                                                                            

Statement of additional information The statement of additional information     
provides more detailed information about the fund and is incorporated by refer- 
ence into (is legally part of) this prospectus.                                 

You can make inquiries about the fund or obtain shareholder reports or the      
statement of additional information (without charge) by contacting your Salomon 
Smith Barney Financial Consultant or dealer representative, by calling the fund 
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388  
Greenwich Street, MF2, New York, New York 10013.                                

Visit our web site. Our web site is located at www.smithbarney.com              

Information about the fund (including the SAI) can be reviewed and copied at    
the Securities and Exchange Commission's (the "Commission") Public Reference    
Room in Washington, D.C. In addition, information on the operation of the Pub-  
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090. 
Reports and other information about the fund are available on the EDGAR Data-   
base on the Commission's Internet site at http://www.sec.gov. Copies of this    
information may be obtained for a duplicating fee by electronic request at the  
following E-mail address: publicinfo@sec.gov, or by writing the Commission's    
Public Reference Section, Washington, D.C. 20549-0102.                          

If someone makes a statement about the fund that is not in this prospectus, you 
should not rely upon that information. Neither the fund nor the distributor is  
offering to sell shares of the fund to any person to whom the fund may not law- 
fully sell its shares.                                                          

SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.           

(Investment Company Act file                                                    
no. 811-04395)                                                                  

FD0663 7/00                                                                     

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[SMITH BARNEY MUTUAL FUNDS LOGO]                                                

Your Serious Money. Professionally Managed.(SM)                                 

P R O S P E C T U S                                                             

Georgia Portfolio                                                               

Class A, B, L and Y Shares                                                      
--------------------------                                                      
July 28, 2000                                                                   

The Securities and Exchange Commission has not approved or disapproved these    
securities or determined whether this prospectus is accurate or complete. Any   
statement to the contrary is a crime.                                           

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GEORGIA PORTFOLIO                                                               

CONTENTS                        

                                                                [Download Table]
                                                                
Investments, risks and performance.........................    2

More on the fund's investments.............................    8

Management.................................................   10

Choosing a class of shares to buy..........................   11

Comparing the fund's classes...............................   12

Sales charges..............................................   13

More about deferred sales charges..........................   16

Buying shares..............................................   17

Exchanging shares..........................................   18

Redeeming shares...........................................   20

Other things to know about share transactions..............   22

Dividends, distributions and taxes.........................   24

Share price................................................   25

Financial highlights.......................................   26

YOU SHOULD KNOW: An investment in the fund is not a bank deposit and is not     
insured or guaranteed by the FDIC or any other government agency.               

                                                     Smith Barney Mutual Funds 1

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INVESTMENTS, RISKS AND PERFORMANCE                                        

INVESTMENT OBJECTIVE                                                            

The fund seeks as high a level of income exempt from federal income taxes and   
Georgia personal income taxes as is consistent with prudent investing.          

PRINCIPAL INVESTMENT STRATEGIES                                                 

KEY INVESTMENTS  The fund invests at least 80% of its net assets in municipal   
securities and at least 65% of its net assets in Georgia municipal securities.  
Georgia municipal securities include securities issued by the State of Georgia  
and certain other municipal issuers, political subdivisions, agencies and public
authorities that pay interest which is exempt from Georgia state personal income
taxes. The fund focuses primarily on intermediate-term and long-term municipal  
securities which have remaining maturities at the time of purchase of from five 
to more than thirty years. The fund invests exclusively in municipal securities 
that are rated investment grade at the time of purchase or are of comparable    
quality if unrated. At least two-thirds of the municipal securities must be     
rated, at the time of purchase, within the three highest investment grade rating
categories by a nationally recognized rating organization.                      

SELECTION PROCESS  The manager selects securities primarily by identifying      
undervalued sectors and individual securities, while also selecting securities  
it believes will benefit from changes in market conditions. In selecting        
individual securities, the manager:                                             

- Uses fundamental credit analysis to estimate the relative value and           
 attractiveness of various securities and sectors and to exploit opportunities
in the municipal bond market                                                

- May trade between general obligation and revenue bonds and among various      
revenue bond sectors, such as housing, hospital and industrial development, 
based on their apparent relative values and their impact on the level of    
dividends generated by the overall portfolio                                

- Identifies individual securities with the most potential for added value, such
as those involving unusual situations, new issuers, the potential for credit
upgrades, unique structural characteristics or innovative features          

- Considers the yield available for securities with different maturities and a  
 security's maturity in light of the outlook for the issuer and its sector and
interest rates                                                              

2 Georgia Portfolio                                                             

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PRINCIPAL RISKS OF INVESTING IN THE FUND                                        

Investors could lose money on their investment in the fund, or the fund may not 
perform as well as other investments, if:                                       

- Interest rates rise, causing the value of the fund's portfolio to decline     

- The issuer of a security owned by the fund defaults on its obligation to pay  
principal and/or interest or the security's credit rating is downgraded     

- Georgia municipal securities fall out of favor with investors. The fund will  
suffer more than a national municipal fund from adverse events affecting    
Georgia municipal issuers                                                   

- Unfavorable legislation affects the tax-exempt status of municipal bonds      

- The manager's judgment about the attractiveness, value or income potential of 
a particular security proves to be incorrect                                

It is possible that some of the fund's income distributions may be, and         
distributions of the fund's gains generally will be, subject to federal and     
Georgia state taxation. The fund may realize taxable gains on the sale of its   
securities or on transactions in futures contracts. Some of the fund's income   
may be subject to the federal alternative minimum tax. In addition,             
distributions of the fund's income and gains will be taxable to investors in    
states other than Georgia.                                                      

The fund is classified as "non-diversified," which means it may invest a larger 
percentage of its assets in one issuer than a diversified fund. To the extent   
the fund invests its assets in fewer issuers, the fund will be more susceptible 
to negative events affecting those issuers.                                     

WHO MAY WANT TO INVEST  The fund may be an appropriate investment if you:       

- Are a Georgia taxpayer in a high federal tax bracket seeking income exempt    
from federal income taxes and Georgia personal income taxes                 

- Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio                                                        

- Are willing to accept the risks of municipal securities, including the risks  
of concentrating in a single state                                          

                                                     Smith Barney Mutual Funds 3

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RISK RETURN BAR CHART                                                           

This bar chart indicates the risks of investing in the fund by showing changes  
in the fund's performance from year to year. Past performance does not          
necessarily indicate how the fund will perform in the future. The bar chart     
shows the performance of the fund's Class A shares for each of the past 5 full  
calendar years. Class B, L and Y shares would have different performance because
of their different expenses. The performance information in the chart does not  
reflect sales charges, which would reduce your return.                          

TOTAL RETURN: CLASS A SHARES

[RISK RETURN BAR CHART IN PRINTABLE GRAPHIC]                                    

                                                                [Download Table]

95      96     97    98     99 
--      --     --    --     -- 
                               
21.99  3.98  12.67  5.66  -5.78

CALENDAR YEARS ENDED DECEMBER 31

QUARTERLY RETURNS:                                                              

Highest: 8.52% in 1st quarter 1995;  Lowest: (2.95)% in 2nd quarter 1999; Year  
to date: (1.48)% through 6/30/00                                                

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RISK RETURN TABLE                                                               

This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman 
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged     
index of municipal bonds, and the Lipper Georgia Municipal Debt Fund Average    
(the "Lipper Average"), an average composed of the fund's peer group of mutual  
funds. This table assumes imposition of the maximum sales charge applicable to  
the class, redemption of shares at the end of the period, and reinvestment of   
distributions and dividends.                                                    

AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1999

                                                                [Download Table]

    CLASS        1 YEAR    5 YEARS   10 YEARS   SINCE INCEPTION   INCEPTION DATE
                                                                                
      A           (9.52)%  6.43%      n/a         5.19%             4/4/94      
      B          (10.27)%  6.61%      n/a         5.06%            6/15/94      
      L           (8.21)%  6.50%      n/a         5.09%            4/14/94      
 Lehman Index     (2.06)%  6.91%      n/a         5.98%               *         
Lipper Average    (4.51)%  5.77%      n/a         4.93%               *         

*Index comparison begins on April 30, 1994.                                     

                                                     Smith Barney Mutual Funds 5

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FEE TABLE                                                                       

This table sets forth the fees and expenses you will pay if you invest in fund  
shares.                                                                         

SHAREHOLDER FEES

                                                                [Download Table]

(FEES PAID DIRECTLY FROM YOUR INVESTMENT)  CLASS A   CLASS B   CLASS L   CLASS Y
                                                                                
Maximum sales charge (load) imposed on                                          
purchases (as a % of offering price)       4.00%      None     1.00%      None  

Maximum deferred sales charge (load) (as                                        
a % of the lower of net asset value at                                          
purchase or redemption)                    None*     4.50%     1.00%      None  

ANNUAL FUND OPERATING EXPENSES

                                                                [Download Table]

(EXPENSES DEDUCTED FROM ASSETS)  CLASS A   CLASS B   CLASS L   CLASS Y**
                                                                        
Management fee                   0.45%     0.45%     0.45%      0.45%   

Distribution and service                                                
  (12b-1) fees                   0.15%     0.65%     0.70%      None    
Other expenses                   0.08%     0.20%     0.18%      0.18%   
                                  =====     =====     =====      =====  

Total annual fund operating                                             
  expenses                       0.68%     1.30%     1.33%      0.63%   

*You may buy Class A shares in amounts of $500,000 or more at net asset value   
(without an initial sales charge) but if you redeem those shares within 12      
months of their purchase, you will pay a deferred sales charge of 1.00%.        

**For Class Y shares, "Other Expenses" have been estimated for the fiscal year  
ended March 31, 2000, based on expenses                                         
incurred by Class A shares because prior to March 31, 2000, no Class Y shares   
were sold.                                                                      

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EXAMPLE                                                                         

This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.   
The example assumes:                                                            

- You invest $10,000 in the fund for the period shown                           

- Your investment has a 5% return each year                                     

- You reinvest all distributions and dividends without a sales charge           

- The fund's operating expenses remain the same                                 

NUMBER OF YEARS YOU OWN YOUR SHARES 

                                                                [Download Table]

                                   1 YEAR   3 YEARS   5 YEARS   10 YEARS
                                                                        
Class A (with or without                                                
redemption)                         $467     $609      $764      $1,213 

Class B (redemption at end of                                           
period)                             $582     $712      $813      $1,397 
Class B (no redemption)             $132     $412      $713      $1,397 

Class L (redemption at end of                                           
period)                             $334     $517      $821      $1,685 
Class L (no redemption)             $234     $517      $821      $1,685 

Class Y (with or without                                                
redemption)                         $ 64     $202      $351      $  786 

                                                     Smith Barney Mutual Funds 7

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MORE ON THE FUND'S INVESTMENTS                                            

GEORGIA MUNICIPAL SECURITIES  Georgia municipal securities include debt         
obligations issued by certain non-Georgia governmental issuers such as Puerto   
Rico, the Virgin Islands and Guam. The interest on these bonds is exempt from   
federal income tax and Georgia personal income tax. As a result, the interest   
rate on these bonds normally is lower than it would be if the bonds were subject
to taxation. The Georgia municipal securities in which the fund invests include 
general obligation bonds, revenue bonds and municipal leases. These securities  
may pay interest at fixed, variable or floating rates. The fund may also hold   
zero coupon securities which pay no interest during the life of the obligation  
but trade at prices below their stated maturity value.                          

OTHER DEBT SECURITIES  The fund may invest up to 35% of its assets in municipal 
securities of non-Georgia issuers. These securities will generally be exempt    
from federal, but not Georgia income taxes. The fund may also invest up to 20%  
of its assets in debt securities which are issued or guaranteed by the full     
faith and credit of the U.S. government. These securities will be subject to    
federal taxation and may be subject to state taxation.                          

DERIVATIVE CONTRACTS  The fund may, but need not, use derivative contracts, such
as financial futures, for any of the following purposes:                        

- To hedge against the economic impact of adverse changes in the market value of
portfolio securities due to changes in interest rates                       

- As a substitute for buying or selling securities                              

A futures contract will obligate or entitle the fund to deliver or receive an   
asset or cash payment based on the change in value of one or more securities.   
The other parties to certain futures contracts present the same types of default
risk as issuers of fixed income securities.                                     

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The fund may invest in inverse floating rate securities. These securities pay   
interest at a rate which moves in the opposite direction from movements in      
market interest rates. Inverse floaters and futures are volatile and involve    
leverage which may expose the fund to increased risk of loss. Therefore, using  
futures contracts can disproportionately increase losses and reduce             
opportunities for gains when interest rates are changing. The fund may not fully
benefit from or may lose money on futures or inverse floaters used for hedging  
purposes if changes in their value do not correspond accurately to changes in   
the value of the fund's holdings. Futures and inverse floaters can also make a  
fund less liquid and harder to value, especially in declining markets.          

DEFENSIVE INVESTING.  The fund may depart from its principal investment         
strategies in response to adverse market, economic or political conditions by   
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be    
unable to achieve its investment goal.                                          

                                                     Smith Barney Mutual Funds 9

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MANAGEMENT                                                                

MANAGER  The fund's investment adviser (the manager) is SSB Citi Fund Management
LLC (successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith     
Barney Inc. The manager's address is 388 Greenwich Street, New York, New York   
10013. The manager selects the fund's investments and oversees its operations.  
The manager and Salomon Smith Barney are subsidiaries of Citigroup Inc.         
Citigroup businesses produce a broad range of financial services -- asset       
management, banking and consumer finance, credit and charge cards, insurance,   
investments, investment banking and trading -- and use diverse channels to make 
them available to consumer and corporate customers around the world.            

Peter M. Coffey, investment officer of SSB Citi Fund Management LLC and managing
director of Salomon Smith Barney, has been responsible for the day-to-day       
management of the fund's portfolio since the fund commenced operations in April 
1994. Mr. Coffey has 31 years of experience with the manager or its             
predecessors.                                                                   

MANAGEMENT FEES  During the fiscal year ended March 31, 2000, the manager       
received an advisory fee equal to 0.45% of the fund's average daily net assets. 

DISTRIBUTOR  The fund has entered into an agreement with Salomon Smith Barney   
Inc. to distribute the fund's shares.                                           

DISTRIBUTION PLAN  The fund has adopted a Rule 12b-1 distribution plan for its  
Class A, B and L shares. Under the plan, the fund pays distribution and/or      
service fees. These fees are an ongoing expense and, over time, may cost you    
more than other types of sales charges.                                         

TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT  Citi Fiduciary Trust Company    
serves as the fund's transfer agent and shareholder servicing agent (the        
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer 
agent (the "sub-transfer agent") to render certain shareholder record keeping   
and accounting services and functions.                                          

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CHOOSING A CLASS OF SHARES TO BUY                                         

You can choose among four classes of shares: Classes A, B, L and Y. Each class  
has different sales charges and expenses, allowing you to choose the class that 
best meets your needs. Which class is more beneficial to an investor depends on 
the amount and intended length of the investment.                               

- If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.                         

- For Class B shares, all of your purchase amount and, for Class L shares, more 
of your purchase amount (compared to Class A shares) will be immediately    
invested. This may help offset the higher expenses of Class B and Class L   
shares, but only if the fund performs well.                                 

- Class L shares have a shorter deferred sales charge period than Class B       
  shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.

You may buy shares from:                                                        

- A Salomon Smith Barney Financial Consultant                                   

- An investment dealer in the selling group or a broker that clears through     
Salomon Smith Barney -- a dealer representative                             

- The fund, but only if you are investing through certain dealer representatives

INVESTMENT MINIMUMS  Minimum initial and additional investment amounts vary     
depending on the class of shares you buy and the nature of your investment      
account.                                                                        

                                                                [Download Table]

                                                INITIAL              ADDITIONAL 
                                     CLASSES A, B, L     CLASS Y     ALL CLASSES
                                                                                
General                                $1,000          $15 million       $50    

Monthly Systematic Investment Plans     $25                    n/a       $25    
Quarterly Systematic Investment                                                 
Plans                                   $50                    n/a       $50    

Uniform Gift to Minors Accounts         $250           $15 million       $50    

                                                    Smith Barney Mutual Funds 11

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COMPARING THE FUND'S CLASSES                                              

Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.                                          

                                                        [Enlarge/Download Table]

                            CLASS A           CLASS B           CLASS L           CLASS Y    
                                                                                             
KEY FEATURES            - Initial sales   - No initial      - Initial sales   - No initial or
                          charge            sales charge      charge is         deferred     
                        - You may         - Deferred          lower than        sales charge 
                          qualify for     sales charge        Class A         - Must invest  
                          reduction or      declines over   - Deferred        at least $15   
                          waiver of         time            sales charge        million      
                          initial sales   - Converts to       for only 1      - Lower annual 
                          charge            Class A after     year              expenses than
                        - Lower annual      8 years         - Does not          the other    
                          expenses than   - Higher annual     convert to        classes      
                          Class B and       expenses than     Class A                        
                          Class L           Class A         - Higher annual                  
                                                              expenses than                  
                                                              Class A                        
---------------------------------------------------------------------------------------------
INITIAL SALES CHARGE    Up to 4.00%;      None              1.00%             None           
                        reduced for                                                          
                        large purchases                                                      
                        and waived for                                                       
                        certain                                                              
                        investors. No                                                        
                        charge for                                                           
                        purchases of                                                         
                        $500,000 or                                                          
                        more                                                                 
---------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE   1.00% on          Up to 4.50%       1.00% if you      None           
                        purchases of      charged when      redeem within 1                  
                        $500,000 or       you redeem        year of                          
                        more if you       shares. The       purchase                         
                        redeem within 1   charge is                                          
                        year of           reduced over                                       
                        purchase          time and there                                     
                                          is no deferred                                     
                                          sales charge                                       
                                          after 6 years                                      
---------------------------------------------------------------------------------------------
ANNUAL DISTRIBUTION     0.15% of          0.65% of          0.70% of          None           
AND SERVICE FEES        average daily     average daily     average daily                    
                        net assets        net assets        net assets                       
---------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE*     Class A shares    Class B shares    Class L shares    Class Y shares 
                        of most Smith     of most Smith     of most Smith     of most Smith  
                        Barney funds      Barney funds      Barney funds      Barney funds   
---------------------------------------------------------------------------------------------

*Ask your Salomon Smith Barney Financial Consultant or dealer representative or 
visit the web site for the Smith Barney funds available for exchange.           

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SALES CHARGES                                                             

CLASS A SHARES                                                                  

You buy Class A shares at the offering price, which is the net asset value plus 
a sales charge. You pay a lower sales charge as the size of your investment     
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.

                                                                [Download Table]

                                          SALES CHARGE AS A % OF      
                                     OFFERING              NET AMOUNT 
        AMOUNT OF PURCHASE           PRICE (%)            INVESTED (%)
                                                                      
Less than $25,000                     4.00                  4.17      
$25,000 but less than $50,000         3.50                  3.63      
$50,000 but less than $100,000        3.00                  3.09      
$100,000 but less than $250,000       2.50                  2.56      
$250,000 but less than $500,000       1.50                  1.52      
$500,000 or more                      0.00                  0.00      

INVESTMENTS OF $500,000 OR MORE  You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A    
shares within one year of purchase, you will pay a deferred sales charge of 1%. 

QUALIFYING FOR A REDUCED CLASS A SALES CHARGE  There are several ways you can   
combine multiple purchases of Class A shares of Smith Barney funds to take      
advantage of the breakpoints in the sales charge schedule.                      

- Accumulation privilege - lets you combine the current value of Class A shares 
owned                                                                       

- by you, or                                                                

- by members of your immediate family,                                      

and for which a sales charge was paid, with the amount of your next purchase of 
Class A shares for purposes of calculating the initial sales charge. Certain    
trustees and fiduciaries may be entitled to combine accounts in determining     
their sales charge.                                                             

- Letter of intent - lets you purchase Class A shares of the fund and other     
Smith Barney funds over a 13-month period and pay the same sales charge, if 
  any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge within 90 days before you sign the letter.    

                                                    Smith Barney Mutual Funds 13

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WAIVERS FOR CERTAIN CLASS A INVESTORS  Class A initial sales charges are waived 
for certain types of investors, including:                                      

- Employees of members of the NASD                                              

- Clients of newly employed Salomon Smith Barney Financial Consultants, if      
certain conditions are met                                                  

- Investors who redeemed Class A shares of a Smith Barney fund in the past 60   
days, if the investor's Salomon Smith Barney Financial Consultant or dealer 
representative is notified                                                  

If you want to learn about the additional waivers of Class A initial sales      
charges, contact your Salomon Smith Barney Financial Consultant or dealer       
representative or consult the Statement of Additional Information ("SAI").      

CLASS B SHARES                                                                  

You buy Class B shares at net asset value without paying an initial sales       
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.                                  

                                                                [Download Table]

  YEAR AFTER PURCHASE     1ST   2ND   3RD   4TH   5TH   6TH THROUGH 8TH
                                                                       
Deferred sales charge     4.5%   4%    3%    2%    1%          0%      

CLASS B CONVERSION  After 8 years, Class B shares automatically convert into    
Class A shares. This helps you because Class A shares have lower annual         
expenses. Your Class B shares will convert to Class A shares as follows:        

                                                                [Download Table]
                                                                   
                       Shares issued: On      Shares issued: Upon  
                       reinvestment           exchange from another
Shares issued: At      of dividends and       Smith Barney fund    
initial purchase       distributions                               

Eight years after the  In same proportion     On the date the      
date of purchase       as the number of       shares originally    
                       Class B shares         acquired would have  
                       converting is to       converted into Class 
                       total Class B          A shares             
                       shares you own                              
                       (excluding shares                           
                       issued as dividends)                        

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CLASS L SHARES                                                                  

You buy Class L shares at the offering price, which is the net asset value plus 
a sales charge of 1% (1.01% of the net amount invested). In addition, if you    
redeem your Class L shares within one year of purchase, you will pay a deferred 
sales charge of 1%. If you held Class C shares of the fund and/or other Smith   
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge  
on Class L shares you buy before June 22, 2001.                                 

CLASS Y SHARES                                                                  

You buy Class Y shares at net asset value with no initial sales charge and no   
deferred sales charge when you redeem. You must meet the $15,000,000 initial    
investment requirement. You can use a letter of intent to meet this requirement 
by buying Class Y shares of the fund over a 13-month period. To qualify, you    
must initially invest $5,000,000.                                               

                                                    Smith Barney Mutual Funds 15

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MORE ABOUT DEFERRED SALES CHARGES                                         

The deferred sales charge is based on the net asset value at the time of        
purchase or redemption, whichever is less, and therefore you do not pay a sales 
charge on amounts representing appreciation or depreciation.                    

In addition, you do not pay a deferred sales charge on:                         

- Shares exchanged for shares of another Smith Barney fund                      

- Shares representing reinvested distributions and dividends                    

- Shares no longer subject to the deferred sales charge                         

Each time you place a request to redeem shares, the fund will first redeem any  
shares in your account that are not subject to a deferred sales charge and then 
the shares in your account that have been held the longest.                     

If you redeemed shares of a Smith Barney fund in the past 60 days and paid a    
deferred sales charge, you may buy shares of the fund at the current net asset  
value and be credited with the amount of the deferred sales charge, if you      
notify your Salomon Smith Barney Financial Consultant or dealer representative. 

Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your   
Salomon Smith Barney Financial Consultant or dealer representative.             

DEFERRED SALES CHARGE WAIVERS                                                   

The deferred sales charge for each share class will generally be waived:        

- On payments made through certain systematic withdrawal plans                  

- For involuntary redemptions of small account balances                         

- For 12 months following the death or disability of a shareholder              

If you want to learn more about additional waivers of deferred sales charges,   
contact your Salomon Smith Barney Financial Consultant or dealer representative 
or consult the SAI.                                                             

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BUYING SHARES                                                             

                                                                [Download Table]
                                                                       

           Through a   You should contact your Salomon Smith Barney    
       Salomon Smith   Financial Consultant or dealer representative to
    Barney Financial   open a brokerage account and make arrangements  
      representative   to buy shares.                                  
                       If you do not provide the following information,
                       your order will be rejected:                    
                       - Class of shares being bought                  
                       - Dollar amount or number of shares being bought
                       You should pay for your shares through your     
                       brokerage account no later than the third       
                       business day after you place your order. Salomon
                       Smith Barney or your dealer representative may  
                       charge an annual account maintenance fee.       
-----------------------------------------------------------------------
         Through the   Certain investors who are clients of the selling
 fund's sub-transfer   group are eligible to buy shares directly from  
               agent   the fund.                                       
                       - Write the sub-transfer agent at the following 
                       address:                                        
                       SMITH BARNEY GEORGIA PORTFOLIO                  
                           SMITH BARNEY MUNI FUNDS                     
                           (SPECIFY CLASS OF SHARES)                   
                           C/O PFPC GLOBAL FUND SERVICES               
                           P.O. BOX 9699                               
                           PROVIDENCE, RI 02940-9699                   
                       - Enclose a check made payable to the fund to   
                       pay for the shares. For initial purchases,      
                         complete and send an account application.     
                       - For more information, call the transfer agent 
                       at 1-800-451-2010.                              
-----------------------------------------------------------------------
           Through a   You may authorize Salomon Smith Barney, your    
          systematic   dealer representative or the sub-transfer agent 
     investment plan   to transfer funds automatically from a regular  
                       bank account, cash held in a Salomon Smith      
                       Barney brokerage account or Smith Barney money  
                       market fund to buy shares on a regular basis.   
                       - Amounts transferred should be at least: $25   
                       monthly or $50 quarterly                        
                       - If you do not have sufficient funds in your   
                       account on a transfer date, Salomon Smith       
                         Barney, your dealer representative or the     
                         sub-transfer agent may charge you a fee       
                       For more information, contact your Salomon Smith
                       Barney Financial Consultant, dealer             
                       representative or the transfer agent or consult 
                       the SAI.                                        

                                                    Smith Barney Mutual Funds 17

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EXCHANGING SHARES                                                         

                                                                [Download Table]
                                                                    
 Smith Barney offers   You should contact your Salomon Smith Barney 
       a distinctive   Financial Consultant or dealer representative
     family of funds   to exchange into other Smith Barney funds. Be
    tailored to help   sure to read the prospectus of the Smith     
    meet the varying   Barney fund you are exchanging into. An      
       needs of both   exchange is a taxable transaction.           
     large and small                                                
           investors   - You may exchange shares only for shares of 
                       the same class of another Smith Barney fund. 
                         Not all Smith Barney funds offer all       
                         classes.                                   
                       - Not all Smith Barney funds may be offered  
                       in your state of residence. Contact your     
                         Salomon Smith Barney Financial Consultant, 
                         dealer representative or the transfer      
                         agent.                                     
                       - You must meet the minimum investment amount
                         for each fund (except for systematic       
                         changes).                                  
                       - If you hold share certificates, the        
                       sub-transfer agent must receive the          
                         certificates endorsed for transfer or with 
                         signed stock powers (documents transferring
                         ownership of certificates) before the      
                         exchange is effective.                     
                       - The fund may suspend or terminate your     
                         exchange privilege if you engage in an     
                         excessive pattern of exchanges.            
--------------------------------------------------------------------
           Waiver of   Your shares will not be subject to an initial
          additional   sales charge at the time of the exchange.    
       sales charges                                                
                       Your deferred sales charge (if any) will     
                       continue to be measured from the date of your
                       original purchase. If the fund you exchange  
                       into has a higher deferred sales charge, you 
                       will be subject to that charge. If you       
                       exchange at any time into a fund with a lower
                       charge, the sales charge will not be reduced.
--------------------------------------------------------------------

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                                                                [Download Table]
                                                                    

        By telephone   If you do not have a brokerage account, you  
                       may be eligible to exchange shares through   
                       the transfer agent. You must complete an     
                       authorization form to authorize telephone    
                       transfers. If eligible, you may make         
                       telephone exchanges on any day the New York  
                       Stock Exchange is open. Call the transfer    
                       agent at 1-800-451-2010 between 9:00 a.m. and
                       4:00 p.m. (Eastern time).                    
                       You can make telephone exchanges only between
                       accounts that have identical registrations.  
--------------------------------------------------------------------
             By mail   If you do not have a Salomon Smith Barney    
                       brokerage account, contact your dealer       
                       representative or write to the sub-transfer  
                       agent at the address on the following page.  

                                                    Smith Barney Mutual Funds 19

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REDEEMING SHARES                                                          

                                                                [Download Table]
                                                                    
           Generally   Contact your Salomon Smith Barney Financial  
                       Consultant or dealer representative to redeem
                       shares of the fund.                          
                       If you hold share certificates, the          
                       sub-transfer agent must receive the          
                       certificates endorsed for transfer or with   
                       signed stock powers before the redemption is 
                       effective.                                   
                       If the shares are held by a fiduciary or     
                       corporation, other documents may be required.
                       Your redemption proceeds will be sent within 
                       three business days after your request is    
                       received in good order. However, if you      
                       recently purchased your shares by check, your
                       redemption proceeds will not be sent to you  
                       until your original check clears, which may  
                       take up to 15 days.                          
                       If you have a Salomon Smith Barney brokerage 
                       account, your redemption proceeds will be    
                       placed in your account and not reinvested    
                       without your specific instruction. In other  
                       cases, unless you direct otherwise, your     
                       redemption proceeds will be paid by check    
                       mailed to your address of record.            
--------------------------------------------------------------------
             By mail   For accounts held directly at the fund, send 
                       written requests to the sub-transfer agent at
                       the following address:                       
                       SMITH BARNEY GEORGIA PORTFOLIO               
                            SMITH BARNEY MUNI FUNDS                 
                            (SPECIFY CLASS OF SHARES)               
                            C/O PFPC GLOBAL FUND SERVICES           
                            P.O. BOX 9699                           
                            PROVIDENCE, RI 02490-9699               
                       Your written request must provide the        
                       following:                                   
                       - Your account number                        
                       - The class of shares and the dollar amount  
                       or number of shares to be redeemed           
                       - Signatures of each owner exactly as the    
                       account is registered                        
--------------------------------------------------------------------

20 Georgia Portfolio                                                            

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                                                                [Download Table]
                                                                    

        By telephone   If you do not have a brokerage account, you  
                       may be eligible to redeem shares in amounts  
                       up to $10,000 per day through the transfer   
                       agent. You must complete an authorization    
                       form to authorize telephone redemptions. If  
                       eligible, you may request redemptions by     
                       telephone on any day the New York Stock      
                       Exchange is open. Call the transfer agent at 
                       1-800-451-2010 between 9:00 a.m. and 4:00    
                       p.m. (Eastern time).                         
                       Your redemption proceeds can be sent by check
                       to your address of record or by wire transfer
                       to a bank account designated on your         
                       authorization form. You must submit a new    
                       authorization form to change the bank account
                       designated to receive wire transfers and you 
                       may be asked to provide certain other        
                       documents.                                   
--------------------------------------------------------------------
           Automatic   You can arrange for the automatic redemption 
                cash   of a portion of your shares on a monthly or  
          withdrawal   quarterly basis. To qualify you must own     
               plans   shares of the fund with a value of at least  
                       $10,000 and each automatic redemption must be
                       at least $50. If your shares are subject to a
                       deferred sales charge, the sales charge will 
                       be waived if your automatic payments do not  
                       exceed 1% per month of the value of your     
                       shares subject to a deferred sales charge.   
                       The following conditions apply:              
                       - Your shares must not be represented by     
                         certificates                               
                       - All dividends and distributions must be    
                         reinvested                                 
                       For more information, contact your Salomon   
                       Smith Barney Financial Consultant or dealer  
                       representative or consult the SAI.           

                                                    Smith Barney Mutual Funds 21

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OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS                             

When you buy, exchange or redeem shares, your request must be in good order.    
This means you have provided the following information, without which your      
request will not be processed:                                                  

- Name of the fund                                                              

- Account number                                                                

- Class of shares being bought, exchanged or redeemed                           

- Dollar amount or number of shares being bought, exchanged or redeemed         

- Signature of each owner exactly as the account is registered                  

The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal  
identification number for the account, sending you a written confirmation or    
requiring other confirmation procedures from time to time.                      

SIGNATURE GUARANTEES  To be in good order, your redemption request must include 
a signature guarantee if you:                                                   

- Are redeeming over $10,000 of shares                                          

- Are sending signed share certificates or stock powers to the sub-transfer     
agent                                                                       

- Instruct the sub-transfer agent to mail the check to an address different from
the one on your account                                                     

- Changed your account registration                                             

- Want the check paid to someone other than the account owner(s)                

- Are transferring the redemption proceeds to an account with a different       
registration                                                                

You can obtain a signature guarantee from most banks, dealers, brokers, credit  
unions and federal savings and loan institutions, but not from a notary public. 

The fund has the right to:                                                      

- Suspend the offering of shares                                                

- Waive or change minimum and additional investment amounts                     

- Reject any purchase or exchange order                                         

- Change, revoke or suspend the exchange privilege                              

- Suspend telephone transactions                                                

22 Georgia Portfolio                                                            

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- Suspend or postpone redemptions of shares on any day when trading on the New  
  York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission                                                     

- Pay redemption proceeds by giving you securities. You may pay transaction     
costs to dispose of the securities                                          

SMALL ACCOUNT BALANCES  If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your  
account is still below $500 after 60 days, the fund may close your account and  
send you the redemption proceeds.                                               

EXCESSIVE EXCHANGE TRANSACTIONS  The manager may determine that a pattern of    
frequent exchanges is detrimental to the fund's performance and other           
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.                                                                

SHARE CERTIFICATES  The fund does not issue share certificates unless a written 
request signed by all registered owners is made to the sub-transfer agent. If   
you hold share certificates it will take longer to exchange or redeem shares.   

                                                    Smith Barney Mutual Funds 23

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DIVIDENDS, DISTRIBUTIONS AND TAXES                                        

DIVIDENDS  The fund pays dividends each month from its net investment income.   
The fund generally makes capital gain distributions, if any, once a year,       
typically in December. The fund may pay additional distributions and dividends  
at other times if necessary for the fund to avoid a federal tax. Capital gain   
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You 
do not pay a sales charge on reinvested distributions or dividends.             
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant, 
dealer representative or the transfer agent to have your distributions and/or   
dividends paid in cash. You can change your choice at any time to be effective  
as of the next distribution or dividend, except that any change given to the    
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.                                

TAXES  In general, redeeming shares, exchanging shares and receiving            
distributions (whether in cash or additional shares) are all taxable events.    

                                                                [Download Table]

      TRANSACTION            FEDERAL TAX STATUS        GEORGIA TAX STATUS  
                                                                           

Redemption or exchange    Usually capital gain or   Usually capital gain or
  of shares               loss; long-term only if   loss                   
                          shares owned more than                           
                          one year                                         
Long-term capital gain    Taxable gain              Taxable gain           
  distributions                                                            

Short-term capital gain   Ordinary income           Ordinary income        
  distributions                                                            
Dividends                 Excluded from gross       Exempt from personal   
                          income if from interest   income taxes if from   
                          on tax-exempt             interest on Georgia    
                          securities, otherwise     municipal securities,  
                          ordinary income           otherwise ordinary     
                                                    income                 

Any taxable dividends and capital gain distributions are taxable whether        
received in cash or reinvested in fund shares. Long-term capital gain           
distributions are taxable to you as long-term capital gain regardless of how    
long you have owned your shares. You may want to avoid buying shares when the   
fund is about to declare a capital gain distribution or a taxable dividend,     
because it will be taxable to you even though it may actually be a return of a  
portion of your investment.                                                     

24 Georgia Portfolio                                                            

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After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during   
the previous year. If you do not provide the fund with your correct taxpayer    
identification number and any required certifications, you may be subject to    
back-up withholding of 31% of your distributions, dividends, and redemption     
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in   
the fund.                                                                       

SHARE PRICE                                                               

You may buy, exchange or redeem shares at their net asset value, plus any       
applicable sales charge, next determined after receipt of your request in good  
order. The fund's net asset value is the value of its assets minus its          
liabilities. Net asset value is calculated separately for each class of shares. 
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This        
calculation is done when regular trading closes on the Exchange (normally 4:00  
p.m., Eastern time).                                                            

Generally, the fund's investments are valued by an independent pricing service. 
If market quotations or a valuation from the pricing service is not readily     
available for a security or if a security's value has been materially affected  
by events occurring after the close of the Exchange or market on which the      
security is principally traded, that security may be valued by another method   
that the fund's board believes accurately reflects fair value. A fund that uses 
fair value to price securities may value those securities higher or lower than  
another fund using market quotations to price the same securities. A security's 
valuation may differ depending on the method used for determining value.        

In order to buy, redeem or exchange shares at that day's price, you must place  
your order with your Salomon Smith Barney Financial Consultant or dealer        
representative before the New York Stock Exchange closes. If the New York Stock 
Exchange closes early, you must place your order prior to the actual closing    
time. Otherwise, you will receive the next business day's price.                

Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of  
business.                                                                       

                                                    Smith Barney Mutual Funds 25

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FINANCIAL HIGHLIGHTS                                                      

The financial highlights tables are intended to help you understand the         
performance of each class for the past 5 years. Certain information reflects    
financial results for a single share. Total return represents the rate that a   
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was    
audited by KPMG LLP, independent auditors, whose report, along with the fund's  
financial statements, is included in the annual report (available upon request).
No information is present for Class Y shares because no shares were outstanding 
during these fiscal years.                                                      

FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:

                                                        [Enlarge/Download Table]

                                      2000(1)   1999(1)    1998      1997      1996  
                                                                                     
-------------------------------------------------------------------------------------
Net asset value,                                                                     
 beginning of year                    $ 13.43   $ 13.43   $ 12.48   $ 12.50   $12.10 
-------------------------------------------------------------------------------------
Income (loss) from operations:                                                       
 Net investment income(2)                0.65      0.62      0.67      0.69     0.70 
 Net realized and unrealized gain                                                    
   (loss)                               (1.06)     0.12      1.03      0.04     0.45 
-------------------------------------------------------------------------------------
Total income (loss) from operations     (0.41)     0.74      1.70      0.73     1.15 
-------------------------------------------------------------------------------------
Less distributions from:                                                             
 Net investment income                  (0.62)    (0.62)    (0.67)    (0.67)   (0.70)
 In excess of net investment income        --     (0.03)       --        --       -- 
 Net realized gains                        --     (0.09)    (0.08)    (0.08)   (0.05)
-------------------------------------------------------------------------------------
Total distributions                     (0.62)    (0.74)    (0.75)    (0.75)   (0.75)
-------------------------------------------------------------------------------------
Net asset value, end of year          $ 12.40   $ 13.43   $ 13.43   $ 12.48   $12.50 
-------------------------------------------------------------------------------------
Total return                            (2.97)%    5.61%    13.85%     5.95%    9.67%
-------------------------------------------------------------------------------------
Net assets, end of year (000)         $43,100   $34,680   $20,502   $14,495   $9,744 
-------------------------------------------------------------------------------------
Ratios to average net assets:                                                        
 Expenses(2)(3)                          0.68%     0.64%     0.50%     0.48%    0.38%
 Net investment income                   4.74      4.63      5.10      5.49     5.57 
-------------------------------------------------------------------------------------
Portfolio turnover rate                    98%       48%       36%       81%      63%
-------------------------------------------------------------------------------------

                                                                [Download Table]
                                                                 
(1)  Per share amounts have been calculated using monthly average
     shares method.                                              
(2)  The manager has waived all or a portion of its fees for the 
     years ended March 31, 1999, 1998, 1997 and 1996. In         
     addition, the manager reimbursed expenses of $56,755 for the
     year ended March 31, 1996. If such fees were not waived and 
     expenses not reimbursed, the effect on net investment income
     and expense ratios would have been as follows:              

                                                                [Download Table]

                                                              EXPENSE RATIOS      
                            NET INVESTMENT INCOME PER   WITHOUT FEE WAIVERS AND/OR
                                 SHARE DECREASES        EXPENSE REIMBURSEMENTS(4) 
                            1999   1998   1997   1996   1999   1998   1997   1996 
------------------------------------------------------  --------------------------
                                                                                  
Class A                     $0.01  $0.04  $0.04  $0.11  0.74%  0.83%  0.90%  1.23%
------------------------------------------------------  ------------------------- 

                                                                [Download Table]
                                                                 
(3)  As a result of voluntary expense limitations, expense ratios
     will not exceed 0.80% for Class A shares.                   

26 Georgia Portfolio                                                            

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FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:

                                                        [Enlarge/Download Table]

                                       2000(1)   1999(1)    1998      1997     1996  
                                                                                     
------------------------------------------------------------------------------------ 
Net asset value, beginning of year     $13.42    $13.43    $ 12.47   $12.50   $12.11 
------------------------------------------------------------------------------------ 
Income (loss) from operations:                                                       
 Net investment income(2)                0.56      0.56       0.61     0.62     0.64 
 Net realized and unrealized                                                         
   gain (loss)                          (1.03)     0.10       1.03     0.04     0.45 
------------------------------------------------------------------------------------ 
Total income (loss) from operations     (0.47)     0.66       1.64     0.66     1.09 
------------------------------------------------------------------------------------ 
Less distributions from:                                                             
 Net investment income                  (0.55)    (0.55)     (0.60)   (0.61)   (0.65)
 In excess of net investment income        --     (0.03)        --       --       -- 
 Net realized gains                        --     (0.09)     (0.08)   (0.08)   (0.05)
------------------------------------------------------------------------------------ 
Total distributions                     (0.55)    (0.67)     (0.68)   (0.69)   (0.70)
------------------------------------------------------------------------------------ 
Net asset value, end of year           $12.40    $13.42    $ 13.43   $12.47   $12.50 
------------------------------------------------------------------------------------ 
Total return                            (3.45)%    4.99%     13.39%    5.33%    9.08%
------------------------------------------------------------------------------------ 
Net assets, end of year (000)          $11,503   $13,633   $10,712   $7,354   $5,461 
------------------------------------------------------------------------------------ 
Ratios to average net assets:                                                        
 Expenses(2)(3)                          1.30%     1.15%      1.02%    1.00%    0.92%
 Net investment income                   4.47      4.12       4.58     4.97     5.20 
------------------------------------------------------------------------------------ 
Portfolio turnover rate                    98%       48%        36%      81%      63%
------------------------------------------------------------------------------------ 

                                                                [Download Table]
                                                                 
(1)  Per share amounts have been calculated using the monthly    
     average shares method.                                      
(2)  The manager has waived all or a portion of its fees for the 
     years ended March 31, 1999, 1998, 1997 and 1996. In         
     addition, the manager reimbursed expenses of $56,755 for the
     year ended March 31, 1996. If such fees were not waived and 
     expenses not reimbursed, the effect on net investment income
     and expense ratios would have been as follows:              

                                                        [Enlarge/Download Table]

                                                                    EXPENSE RATIOS         
                         NET INVESTMENT INCOME PER SHARE      WITHOUT FEE WAIVERS AND/OR   
                                    DECREASES                   EXPENSE REIMBURSEMENTS     
                         1999     1998     1997     1996   1999     1998     1997     1996 
---------------------------------------------------------  --------------------------------
                                                                                           
Class B                  $0.02    $0.04    $0.05    $0.10  1.26%    1.35%    1.42%    1.77%
---------------------------------------------------------  ----------------------------    

                                                        [Enlarge/Download Table]
                                                                                                           
(3)  As a result of voluntary expense limitations, expense ratios will not exceed 1.30% for Class B shares.

                                                    Smith Barney Mutual Funds 27

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FOR A CLASS L SHARE OF BENEFICIAL INTEREST OUTSTANDING

THROUGHOUT EACH YEAR ENDED MARCH 31:

                                                                [Download Table]

                                   2000(1)   1999(1)(2)    1998     1997     1996  
                                                                                   
-----------------------------------------------------------------------------------
Net asset value,                                                                   
  beginning of year                $13.41      $13.41     $12.46   $12.49   $12.09 
-----------------------------------------------------------------------------------
Income (loss) from operations:                                                     
  Net investment income(3)           0.56        0.55       0.60     0.62     0.63 
  Net realized and unrealized                                                      
    gain (loss)                     (1.04)       0.12       1.02     0.03     0.46 
-----------------------------------------------------------------------------------
Total income (loss) from                                                           
  operations                        (0.48)       0.67       1.62     0.65     1.09 
-----------------------------------------------------------------------------------
Less distributions from:                                                           
  Net investment income             (0.54)      (0.55)     (0.59)   (0.60)   (0.64)
  In excess of net investment                                                      
    income                             --       (0.03)        --       --       -- 
  Net realized gains                   --       (0.09)     (0.08)   (0.08)   (0.05)
-----------------------------------------------------------------------------------
Total distributions                 (0.54)      (0.67)     (0.67)   (0.68)   (0.69)
-----------------------------------------------------------------------------------
Net assets value, end of year      $12.39      $13.41     $13.41   $12.46   $12.49 
-----------------------------------------------------------------------------------
Total return                        (3.51)%      5.01%     13.23%    5.28%    9.12%
-----------------------------------------------------------------------------------
Net assets, end of year (000)      $5,893      $7,304     $4,641   $3,221   $2,914 
Ratios to average net assets:                                                      
  Expenses(3)(4)                     1.33%       1.20%      1.06%    1.04%    0.97%
  Net investment income              4.44        4.07       4.54     4.93     5.18 
-----------------------------------------------------------------------------------
Portfolio turnover rate                98%         48%        36%      81%      63%
-----------------------------------------------------------------------------------

                                                                [Download Table]
                                                                 
(1)  Per share amounts have been calculated using the monthly    
     average shares method.                                      
(2)  On June 12, 1998, the Class C shares were renamed Class L   
     shares.                                                     
(3)  The manager has waived all or a portion of its fees for the 
     years ended March 31, 1999, 1998, 1997 and 1996. In         
     addition, the manager reimbursed expenses of $56,755 for the
     year ended March 31,1996. If such fees were not waived and  
     expenses not reimbursed, the effect on net investment income
     and expense ratios would have been as follows:              

                                                        [Enlarge/Download Table]

                                                                    EXPENSE RATIOS         
                         NET INVESTMENT INCOME PER SHARE      WITHOUT FEE WAIVERS AND/OR   
                                    DECREASES                   EXPENSE REIMBURSEMENTS     
                         1999     1998     1997     1996   1999     1998     1997     1996 
---------------------------------------------------------  --------------------------------
                                                                                           
Class L                  $0.02    $0.04    $0.05    $0.10  1.31%    1.39%    1.46%    1.82%
---------------------------------------------------------  ----------------------------    

                                                        [Enlarge/Download Table]
                                                                                                           
(4)  As a result of voluntary expense limitations, expense ratios will not exceed 1.35% for Class L shares.

28 Georgia Portfolio                                                            

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                                                     [SALOMON SMITH BARNEY LOGO]

GEORGIA PORTFOLIO                                                               

An investment portfolio of Smith Barney Muni Funds                              

SHAREHOLDER REPORTS  Annual and semiannual reports to shareholders provide      
additional information about the fund's investments. These reports discuss the  
market conditions and investment strategies that affected the fund's            
performance.                                                                    

The fund sends only one report to a household if more than one account has the  
same address. Contact your Salomon Smith Barney Financial Consultant, dealer    
representative or the transfer agent if you do not want this policy to apply to 
you.                                                                            

STATEMENT OF ADDITIONAL INFORMATION The statement of additional information     
provides more detailed information about the fund and is incorporated by        
reference into (is legally part of) this prospectus.                            

You can make inquiries about the fund or obtain shareholder reports or the      
statement of additional information (without charge) by contacting your Salomon 
Smith Barney Financial Consultant or dealer representative, by calling the fund 
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388  
Greenwich Street, MF2, New York, New York 10013.                                

Visit our web site. Our web site is located at WWW.SMITHBARNEY.COM              

Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public        
Reference Room may be obtained by calling the Commission at 1-202-942-8090.     
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this         
information may be obtained for a duplicating fee by electronic request at the  
following E-mail address: PUBLICINFO@SEC.GOV, or by writing the Commission's    
Public Reference Section, Washington, D.C. 20549-0102.                          

If someone makes a statement about the fund that is not in this prospectus, you 
should not rely upon that information. Neither the fund nor the distributor is  
offering to sell shares of the fund to any person to whom the fund may not      
lawfully sell its shares.                                                       

Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.             

(Investment Company Act                                                         
file no. 811-04395)                                                             
FD0771 7/00                                                                     

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[SMITH BARNEY MUTUAL FUNDS LOGO]                                                

Your Serious Money. Professionally Managed.(SM)                                 

PROSPECTUS                                                                      

FLORIDA PORTFOLIO                                                               

CLASS A, B, L AND Y SHARES                                                      
----------------------------------                                              
JULY 28, 2000                                                                   

The Securities and Exchange Commission has not approved or disapproved these    
securities or determined whether this prospectus is accurate or complete. Any   
statement to the contrary is a crime.                                           

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FLORIDA PORTFOLIO                                                               

CONTENTS                        

                                                                [Download Table]
                                                                
Investments, risks and performance.........................    2

More on the fund's investments.............................    7

Management.................................................    9

Choosing a class of shares to buy..........................   10

Comparing the fund's classes...............................   11

Sales charges..............................................   12

More about deferred sales charges..........................   15

Buying shares..............................................   16

Exchanging shares..........................................   17

Redeeming shares...........................................   19

Other things to know about share transactions..............   21

Dividends, distributions and taxes.........................   23

Share price................................................   25

Financial highlights.......................................   26

YOU SHOULD KNOW: An investment in the fund is not a bank deposit and is not     
insured or guaranteed by the FDIC or any other government agency.               

1                                                      Smith Barney Mutual Funds

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INVESTMENTS, RISKS AND PERFORMANCE                                        

INVESTMENT OBJECTIVE                                                            

The fund seeks as high a level of income exempt from federal income taxes as is 
consistent with prudent investing.                                              

PRINCIPAL INVESTMENT STRATEGIES                                                 

KEY INVESTMENTS  The fund invests at least 80% of its net assets in municipal   
securities and at least 65% of its net assets in Florida municipal securities.  
Florida municipal securities include securities issued by the State of Florida  
and certain other municipal issuers, political subdivisions, agencies and public
authorities that pay interest which is excluded from gross income for federal   
income purposes. The fund generally favors municipal securities which enable its
shares to be exempt from the Florida intangibles tax. The fund focuses primarily
on intermediate-term and long-term municipal securities which have remaining    
maturities at the time of purchase of from three to more than thirty years. The 
fund invests exclusively in municipal securities that are rated investment grade
at the time of purchase or are of comparable quality if unrated. Investment     
grade bonds are those rated in any of the four highest long-term rating         
categories or, if unrated, of comparable quality. At least two-thirds of the    
municipal securities must be rated, at the time of purchase, within the three   
highest investment grade rating categories by a nationally recognized rating    
organization.                                                                   

SELECTION PROCESS  The manager selects securities primarily by identifying      
undervalued sectors and individual securities, while also selecting securities  
it believes will benefit from changes in market conditions. In selecting        
individual securities, the manager:                                             

- Uses fundamental credit analysis to estimate the relative value and           
 attractiveness of various securities and sectors and to exploit opportunities
in the municipal bond market                                                

- May trade between general obligation and revenue bonds and among various      
revenue bond sectors, such as housing, hospital and industrial development, 
based on their apparent relative values and their impact on the level of    
dividends generated by the overall portfolio                                

- Identifies individual securities with the most potential for added value, such
as those involving unusual situations, new issuers, the potential for credit
upgrades, unique structural characteristics or innovative features          

- Considers the yield available for securities with different maturities and a  
 security's maturity in light of the outlook for the issuer and its sector and
interest rates                                                              

Florida Portfolio                                                              2

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PRINCIPAL RISKS OF INVESTING IN THE FUND                                        

Investors could lose money on their investment in the fund, or the fund may not 
perform as well as other investments, if:                                       

- Interest rates rise, causing the value of the fund's portfolio to decline     

- The issuer of a security owned by the fund defaults on its obligation to pay  
principal and/or interest or the security's credit rating is downgraded     

- Florida municipal securities fall out of favor with investors. The fund will  
suffer more than a national municipal fund from adverse events affecting    
Florida municipal issuers                                                   

- Unfavorable legislation affects the tax-exempt status of municipal bonds      

- The manager's judgment about the attractiveness, value or income potential of 
a particular security proves to be incorrect                                

It is possible that some of the fund's income distributions may be, and         
distributions of the fund's gains generally will be, subject to federal         
taxation. Depending upon the composition of the fund's portfolio, shares of the 
fund may be subject to the Florida intangibles tax. The fund may realize taxable
gains on the sale of its securities or on transactions in futures contracts.    
Some of the fund's income may be subject to the federal alternative minimum tax.
In addition, distributions of the fund's income and gains will be taxable to    
investors in states other than Florida.                                         

The fund is classified as "non-diversified," which means it may invest a larger 
percentage of its assets in one issuer than a diversified fund. To the extent   
the fund invests its assets in fewer issuers, the fund will be more susceptible 
to negative events affecting those issuers.                                     

WHO MAY WANT TO INVEST  The fund may be an appropriate investment if you:       

- Are a Florida resident in a high federal tax bracket seeking income exempt    
from federal income taxes                                                   

- Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio                                                        

- Are willing to accept the risks of municipal securities, including the risks  
of concentrating in a single state                                          

3                                                      Smith Barney Mutual Funds

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RISK RETURN BAR CHART                                                           

This bar chart indicates the risks of investing in the fund by showing changes  
in the fund's performance from year to year. Past performance does not          
necessarily indicate how the fund will perform in the future. The bar chart     
shows the performance of the fund's Class A shares for each of the past 8 full  
calendar years. Class B, L and Y shares would have different performance because
of their different expenses. The performance information in the chart does not  
reflect sales charges, which would reduce your return.                          

TOTAL RETURN: CLASS A SHARES

[RISK RETURN BAR CHART IN PRINTABLE GRAPHIC]                                    

                                                                [Download Table]
         
92   8.90
93  13.14
94  -5.11
95  17.45
96   4.51
97  10.15
98   5.70
99  -4.54

CALENDAR YEARS ENDED DECEMBER 31

QUARTERLY RETURNS:                                                              

Highest: 6.86% in 1st quarter 1995;  Lowest: (5.02)% in 1st quarter 1994;       
Year to date: 1.65% through 6/30/00                                             

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RISK RETURN TABLE                                                               

This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman 
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged     
index of municipal bonds and the Lipper Florida Municipal Debt Fund Average (the
"Lipper Average"), an average composed of the fund's peer group of mutual funds.
This table assumes imposition of the maximum sales charge applicable to the     
class, redemption of shares at the end of the period, and reinvestment of       
distributions and dividends.                                                    

AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1999

                                                                [Download Table]

    CLASS        1 YEAR   5 YEARS   10 YEARS   SINCE INCEPTION   INCEPTION DATE
                                                                               
      A          (8.39)%  5.54%      n/a         6.03%             4/2/91      
      B          (9.12)%  5.72%      n/a         6.48%            11/16/94     
      L          (6.89)%  5.60%      n/a         4.78%             1/5/93      
 Lehman Index    (2.06)%  6.91%      n/a         6.68%                *        
Lipper Average   (4.35)%  5.89%      n/a         6.00%                *        

*Index comparison begins on April 30, 1991.                                     

5                                                      Smith Barney Mutual Funds

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FEE TABLE                                                                       
This table sets forth the fees and expenses you will pay if you invest in fund  
shares.                                                                         
SHAREHOLDER FEES

                                                                [Download Table]

(FEES PAID DIRECTLY FROM YOUR INVESTMENT)  CLASS A   CLASS B   CLASS L   CLASS Y
                                                                                
Maximum sales charge (load) imposed on                                          
purchases (as a % of offering price)       4.00%     None      1.00%     None   
Maximum deferred sales charge (load) (as                                        
a % of the lower of net asset value at                                          
purchase or redemption)                    None*     4.50%     1.00%     None   

ANNUAL FUND OPERATING EXPENSES

                                                                [Download Table]

(EXPENSES DEDUCTED FROM ASSETS)  CLASS A   CLASS B   CLASS L   CLASS Y**
                                                                        
Management fee                    0.50%     0.50%     0.50%      0.50%  
Distribution and service                                                
  (12b-1) fees                    0.15%     0.65%     0.70%       None  
Other expenses                    0.09%     0.11%     0.12%      0.09%  
Total annual fund operating                                             
  expenses                        0.74%     1.26%     1.32%      0.59%  
                                  =====     =====     =====      =====  

*You may buy Class A shares in amounts of $500,000 or more at net asset value   
(without an initial sales charge) but if you redeem those shares within 12      
months of their purchase, you will pay a deferred sales charge of 1.00%.        

**For Class Y shares, "Other Expenses" have been estimated for the fiscal year  
ended March 31, 2000, based on expenses                                         
incurred by Class A shares because prior to March 31, 2000, no Class Y shares   
were sold.                                                                      

EXAMPLE                                                                         

This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.   
The example assumes:                                                            

- You invest $10,000 in the fund for the period shown                           

- Your investment has a 5% return each year                                     

- You reinvest all distributions and dividends without a sales charge           

- The fund's operating expenses remain the same                                 

NUMBER OF YEARS YOU OWN YOUR SHARES 

                                                                [Download Table]

                                   1 YEAR   3 YEARS   5 YEARS   10 YEARS
                                                                        
Class A (with or without                                                
redemption)                         $473     $627      $795      $1,282 
Class B (redemption at end of                                           
period)                             $578     $700      $792      $1,379 
Class B (no redemption)             $128     $400      $692      $1,379 
Class L (redemption at end of                                           
period)                             $333     $514      $816      $1,674 
Class L (no redemption)             $233     $514      $816      $1,674 
Class Y (with or without                                                
redemption)                          $60     $189      $329        $738 

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MORE ON THE FUND'S INVESTMENTS                                            

FLORIDA MUNICIPAL SECURITIES  Florida municipal securities include debt         
obligations issued by certain non-Florida governmental issuers such as Puerto   
Rico, the Virgin Islands and Guam. The interest on these bonds is exempt from   
federal income tax. As a result, the interest rate on these bonds normally is   
lower than it would be if the bonds were subject to taxation. The Florida       
municipal securities in which the fund invests include general obligation bonds,
revenue bonds and municipal leases. These securities may pay interest at fixed, 
variable or floating rates. The fund may also hold zero coupon securities which 
pay no interest during the life of the obligation but trade at prices below     
their stated maturity value.                                                    

OTHER DEBT SECURITIES  The fund may invest up to 35% of its assets in municipal 
securities of non-Florida issuers. These securities will generally be exempt    
from federal taxation but not from the Florida intangibles tax. The fund may    
also invest up to 20% of its assets in debt securities which are issued or      
guaranteed by the full faith and credit of the U.S. government. These securities
will generally be subject to federal and state taxation.                        

DERIVATIVE CONTRACTS  The fund may, but need not, use derivative contracts, such
as financial futures, for any of the following purposes:                        

- To hedge against the economic impact of adverse changes in the market value of
portfolio securities due to changes in interest rates                       

- As a substitute for buying or selling securities                              

A futures contract will obligate or entitle the fund to deliver or receive an   
asset or cash payment based on the change in value of one or more securities.   
The other parties to certain futures contracts present the same types of default
risk as issuers of fixed income securities.                                     

7                                                      Smith Barney Mutual Funds

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The fund may invest in inverse floating rate securities. These securities pay   
interest at a rate which moves in the opposite direction from movements in      
market interest rates. Inverse floaters and futures are volatile and involve    
leverage which may expose the fund to increased risk of loss. Therefore, using  
futures or inverse floaters can disproportionately increase losses and reduce   
opportunities for gains when interest rates are changing. The fund may not fully
benefit from or may lose money on futures contracts used for hedging            
purposes if changes in their value do not correspond accurately to changes in   
the value of the fund's holdings. Futures and inverse floaters can also make a  
fund less liquid and harder to value, especially in declining markets.          

DEFENSIVE INVESTING  The fund may depart from its principal investment          
strategies in response to adverse market, economic or political conditions by   
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be    
unable to achieve its investment goal.                                          

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MANAGEMENT                                                                

MANAGER  The fund's investment adviser (the manager) is SSB Citi Fund Management
LLC (successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith     
Barney Inc. The manager's address is 388 Greenwich Street, New York, New York   
10013. The manager selects the fund's investments and oversees its operations.  
The manager and Salomon Smith Barney are subsidiaries of Citigroup Inc.         
Citigroup businesses produce a broad range of financial services -- asset       
management, banking and consumer finance, credit and charge cards, insurance,   
investments, investment banking and trading -- and use diverse channels to make 
them available to consumer and corporate customers around the world.            

Peter M. Coffey, investment officer of SSB Citi Fund Management LLC and managing
director of Salomon Smith Barney, has been responsible for the day-to-day       
management of the fund's portfolio since the fund commenced operations in April 
1991. Mr. Coffey has 31 years of experience with the manager or its             
predecessors.                                                                   

MANAGEMENT FEES  During the fiscal year ended March 31, 2000, the manager       
received an advisory fee equal to 0.50% of the fund's average daily net assets. 

DISTRIBUTOR  The fund has entered into an agreement with Salomon Smith Barney   
Inc. to distribute the fund's shares.                                           

DISTRIBUTION PLANS  The fund has adopted Rule 12b-1 distribution plans for its  
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than  
other types of sales charges.                                                   

TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT  Citi Fiduciary Trust Company    
serves as the fund's transfer agent and shareholder servicing agent (the        
"transfer agent"). Pursuant to a sub-transfer agency and services agreement with
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer 
agent (the "sub-transfer agent") to render certain shareholder record keeping   
and accounting services and functions.                                          

9                                                      Smith Barney Mutual Funds

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CHOOSING A CLASS OF SHARES TO BUY                                         

You can choose among four classes of shares: Classes A, B, L and Y. Each class  
has different sales charges and expenses, allowing you to choose the class that 
best meets your needs. Which class is more beneficial to an investor depends on 
the amount and intended length of the investment.                               

- If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.                         

- For Class B shares, all of your purchase amount and, for Class L shares, more 
of your purchase amount (compared to Class A shares) will be immediately    
invested. This may help offset the higher expenses of Class B and Class L   
shares, but only if the fund performs well.                                 

- Class L shares have a shorter deferred sales charge period than Class B       
  shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.

You may buy shares from:                                                        

- A Salomon Smith Barney Financial Consultant                                   

- An investment dealer in the selling group or a broker that clears through     
Salomon Smith Barney--a dealer representative                               

- The fund, but only if you are investing through certain dealer representatives

INVESTMENT MINIMUMS  Minimum initial and additional investment amounts vary     
depending on the class of shares you buy and the nature of your investment      
account.                                                                        

                                                                [Download Table]

                                                INITIAL              ADDITIONAL 
                                     CLASSES A, B, L     CLASS Y     ALL CLASSES
                                                                                
General                                $1,000          $15 million       $50    

Monthly Systematic Investment Plans     $25                    n/a       $25    
Quarterly Systematic Investment                                                 
Plans                                   $50                    n/a       $50    

Uniform Gift to Minors Accounts         $250           $15 million       $50    

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COMPARING THE FUND'S CLASSES                                              

Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.                                          

                                                        [Enlarge/Download Table]

                            CLASS A           CLASS B           CLASS L           CLASS Y    
                                                                                             
KEY FEATURES            - Initial sales   - No initial      - Initial sales   - No initial or
                          charge            sales charge      charge is         deferred     
                        - You may         - Deferred          lower than        sales charge 
                          qualify for       sales charge      Class A         - Must invest  
                          reduction or      declines over   - Deferred          at least $15 
                          waiver of         time              sales charge      million      
                          initial sales   - Converts to       for only 1      - Lower annual 
                          charge            Class A after     year              expenses than
                        - Lower annual      8 years         - Does not          the other    
                          expenses than   - Higher annual     convert to        classes      
                          Class B and       expenses than     Class A                        
                          Class L           Class A         - Higher annual                  
                                                              expenses than                  
                                                              Class A                        
---------------------------------------------------------------------------------------------
INITIAL SALES CHARGE    Up to 4.00%;      None              1.00%             None           
                        reduced for                                                          
                        large purchases                                                      
                        and waived for                                                       
                        certain                                                              
                        investors. No                                                        
                        charge for                                                           
                        purchases of                                                         
                        $500,000 or                                                          
                        more                                                                 
---------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE   1.00% on          Up to 4.50%       1.00% if you      None           
                        purchases of      charged when      redeem within 1                  
                        $500,000 or       you redeem        year of                          
                        more if you       shares. The       purchase                         
                        redeem within 1   charge is                                          
                        year of           reduced over                                       
                        purchase          time and there                                     
                                          is no deferred                                     
                                          sales charge                                       
                                          after 6 years                                      
---------------------------------------------------------------------------------------------
ANNUAL DISTRIBUTION     0.15% of          0.65% of          0.70% of          None           
AND SERVICE FEES        average daily     average daily     average daily                    
                        net assets        net assets        net assets                       
---------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE*     Class A shares    Class B shares    Class L shares    Class Y shares 
                        of most Smith     of most Smith     of most Smith     of most Smith  
                        Barney funds      Barney funds      Barney funds      Barney funds   
---------------------------------------------------------------------------------------------

*Ask your Salomon Smith Barney Financial Consultant or dealer representative or 
visit the web site for the Smith Barney funds available for exchange.           

11                                                     Smith Barney Mutual Funds

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SALES CHARGES                                                             

CLASS A SHARES                                                                  

You buy Class A shares at the offering price, which is the net asset value plus 
a sales charge. You pay a lower sales charge as the size of your investment     
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.

                                                                [Download Table]

                                          SALES CHARGE AS A % OF      
                                     OFFERING              NET AMOUNT 
        AMOUNT OF PURCHASE           PRICE (%)            INVESTED (%)
                                                                      
Less than $25,000                     4.00                  4.17      
$25,000 but less than $50,000         3.50                  3.63      
$50,000 but less than $100,000        3.00                  3.09      
$100,000 but less than $250,000       2.50                  2.56      
$250,000 but less than $500,000       1.50                  1.52      
$500,000 or more                      0.00                  0.00      

INVESTMENTS OF $500,000 OR MORE  You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A    
shares within one year of purchase, you will pay a deferred sales charge of 1%. 

QUALIFYING FOR A REDUCED CLASS A SALES CHARGE  There are several ways you can   
combine multiple purchases of Class A shares of Smith Barney funds to take      
advantage of the breakpoints in the sales charge schedule.                      

- Accumulation privilege - lets you combine the current value of Class A shares 
owned                                                                       

- by you, or                                                                

- by members of your immediate family,                                      

and for which a sales charge was paid, with the amount of your next purchase of 
Class A shares for purposes of calculating the initial sales charge. Certain    
trustees and fiduciaries may be entitled to combine accounts in determining     
their sales charge.                                                             

- Letter of intent - lets you purchase Class A shares of the fund and other     
Smith Barney funds over a 13-month period and pay the same sales charge, if 
  any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge within 90 days before you sign the letter.    

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WAIVERS FOR CERTAIN CLASS A INVESTORS  Class A initial sales charges are waived 
for certain types of investors, including:                                      

- Employees of members of the NASD                                              

- Clients of newly employed Salomon Smith Barney Financial Consultants, if      
certain conditions are met                                                  

- Investors who redeemed Class A shares of a Smith Barney fund in the past 60   
days, if the investor's Salomon Smith Barney Financial Consultant or dealer 
representative is notified                                                  

If you want to learn about additional waivers of Class A initial sales charges, 
contact your Salomon Smith Barney Financial Consultant or dealer representative 
or consult the Statement of Additional Information ("SAI").                     

CLASS B SHARES                                                                  

You buy Class B shares at net asset value without paying an initial sales       
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.                                  

                                                                [Download Table]

  YEAR AFTER PURCHASE     1ST   2ND   3RD   4TH   5TH   6TH THROUGH 8TH
                                                                       
Deferred sales charge     4.5%  4%    3%    2%    1%    0%             

CLASS B CONVERSION  After 8 years, Class B shares automatically convert into    
Class A shares. This helps you because Class A shares have lower annual         
expenses. Your Class B shares will convert to Class A shares as follows:        

                                                                [Download Table]
                                                                   
                       Shares issued: On      Shares issued: Upon  
                       reinvestment of        exchange from another
Shares issued: At      dividends and          Smith Barney fund    
initial purchase       distributions                               

Eight years after the  In same proportion     On the date the      
date of purchase       as the number of       shares originally    
                       Class B shares         acquired would have  
                       converting is to       converted into Class 
                       total Class B          A shares             
                       shares you own                              
                       (excluding shares                           
                       issued as dividends)                        

13                                                     Smith Barney Mutual Funds

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CLASS L SHARES                                                                  

You buy Class L shares at the offering price, which is the net asset value plus 
a sales charge of 1% (1.01% of the net amount invested). In addition, if you    
redeem your Class L shares within one year of purchase, you will pay a deferred 
sales charge of 1%. If you held Class C shares of the fund and/or other Smith   
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge  
on Class L shares you buy before June 22, 2001.                                 

CLASS Y SHARES                                                                  

You buy Class Y shares at net asset value with no initial sales charge and no   
deferred sales charge when you redeem. You must meet the $15,000,000 initial    
investment requirement. You can use a letter of intent to meet this requirement 
by buying Class Y shares of the fund over a 13-month period. To qualify, you    
must initially invest $5,000,000.                                               

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MORE ABOUT DEFERRED SALES CHARGES                                         

The deferred sales charge is based on the net asset value at the time of        
purchase or redemption, whichever is less, and therefore you do not pay a sales 
charge on amounts representing appreciation or depreciation.                    

In addition, you do not pay a deferred sales charge on:                         

- Shares exchanged for shares of another Smith Barney fund                      

- Shares representing reinvested distributions and dividends                    

- Shares no longer subject to the deferred sales charge                         

Each time you place a request to redeem shares, the fund will first redeem any  
shares in your account that are not subject to a deferred sales charge and then 
the shares in your account that have been held the longest.                     

If you redeemed shares of a Smith Barney fund in the past 60 days and paid a    
deferred sales charge, you may buy shares of the fund at the current net asset  
value and be credited with the amount of the deferred sales charge, if you      
notify your Salomon Smith Barney Financial Consultant or dealer representative. 

Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your   
Salomon Smith Barney Financial Consultant or dealer representative.             

DEFERRED SALES CHARGE WAIVERS                                                   

The deferred sales charge for each share class will generally be waived:        

- On payments made through certain systematic withdrawal plans                  

- For involuntary redemptions of small account balances                         

- For 12 months following the death or disability of a shareholder              

If you want to learn more about additional waivers of deferred sales charges,   
contact your Salomon Smith Barney Financial Consultant or dealer representative 
or consult the SAI.                                                             

15                                                     Smith Barney Mutual Funds

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BUYING SHARES                                                             

                                                                [Download Table]
                                                                       

           Through a   You should contact your Salomon Smith Barney    
       Salomon Smith   Financial Consultant or dealer representative to
    Barney Financial   open a brokerage account and make arrangements  
      representative   to buy shares.                                  
                       If you do not provide the following information,
                       your order will be rejected:                    
                       - Class of shares being bought                  
                       - Dollar amount or number of shares being bought
                       You should pay for your shares through your     
                       brokerage account no later than the third       
                       business day after you place your order. Salomon
                       Smith Barney or your dealer representative may  
                       charge an annual account maintenance fee.       
-----------------------------------------------------------------------
         Through the   Certain investors who are clients of the selling
 fund's sub-transfer   group are eligible to buy shares directly from  
               agent   the fund.                                       
                       - Write the sub-transfer agent at the following 
                         address:                                      
                           SMITH BARNEY FLORIDA PORTFOLIO              
                           SMITH BARNEY MUNI FUNDS                     
                           (SPECIFY CLASS OF SHARES)                   
                           C/O PFPC GLOBAL FUND SERVICES               
                           P.O. BOX 9699                               
                           PROVIDENCE, RI 02940-9699                   
                       - Enclose a check made payable to the fund to   
                         pay for the shares. For initial purchases,    
                         complete and send an account application.     
                       - For more information, call the transfer agent 
                         at 1-800-451-2010.                            
-----------------------------------------------------------------------
           Through a   You may authorize Salomon Smith Barney, your    
          systematic   dealer representative or the sub-transfer agent 
     investment plan   to transfer funds automatically from a regular  
                       bank account, cash held in a Salomon Smith      
                       Barney brokerage account or Smith Barney money  
                       market fund to buy shares on a regular basis.   
                       - Amounts transferred should be at least: $25   
                         monthly or $50 quarterly                      
                       - If you do not have sufficient funds in your   
                         account on a transfer date, Salomon Smith     
                         Barney, your dealer representative or the     
                         sub-transfer agent may charge you a fee       
                       For more information, contact your Salomon Smith
                       Barney Financial Consultant, dealer             
                       representative or the transfer agent or consult 
                       the SAI.                                        

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EXCHANGING SHARES                                                         

                                                                [Download Table]
                                                                     
 Smith Barney offers   You should contact your Salomon Smith Barney  
       a distinctive   Financial Consultant or dealer representative 
     family of funds   to exchange into other Smith Barney funds. Be 
    tailored to help   sure to read the prospectus of the Smith      
    meet the varying   Barney fund you are exchanging into. An       
       needs of both   exchange is a taxable transaction.            
     large and small                                                 
           investors   - You may exchange shares only for shares of  
                         the same class of another Smith Barney fund.
                         Not all Smith Barney funds offer all        
                         classes.                                    
                       - Not all Smith Barney funds may be offered   
                         in your state of residence. Contact your    
                         Salomon Smith Barney Financial Consultant,  
                         dealer representative or the transfer       
                         agent.                                      
                       - You must meet the minimum investment amount 
                         for each fund (except for systematic        
                         changes).                                   
                       - If you hold share certificates, the         
                         sub-transfer agent must receive the         
                         certificates endorsed for transfer or with  
                         signed stock powers (documents transferring 
                         ownership of certificates) before the       
                         exchange is effective.                      
                       - The fund may suspend or terminate your      
                         exchange privilege if you engage in an      
                         excessive pattern of exchanges.             
-------------------------------------------------------------------- 
           Waiver of   Your shares will not be subject to an initial 
          additional   sales charge at the time of the exchange.     
       sales charges                                                 
                       Your deferred sales charge (if any) will      
                       continue to be measured from the date of your 
                       original purchase. If the fund you exchange   
                       into has a higher deferred sales charge, you  
                       will be subject to that charge. If you        
                       exchange at any time into a fund with a lower 
                       charge, the sales charge will not be reduced. 
-------------------------------------------------------------------- 

17                                                     Smith Barney Mutual Funds

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                                                                [Download Table]
                                                                    

        By telephone   If you do not have a brokerage account, you  
                       may be eligible to exchange shares through   
                       the transfer agent. You must complete an     
                       authorization form to authorize telephone    
                       transfers. If eligible, you may make         
                       telephone exchanges on any day the New York  
                       Stock Exchange is open. Call the transfer    
                       agent at 1-800-451-2010 between 9:00 a.m. and
                       4:00 p.m. (Eastern time).                    
                       You can make telephone exchanges only between
                       accounts that have identical registrations.  
--------------------------------------------------------------------
             By mail   If you do not have a Salomon Smith Barney    
                       brokerage account, contact your dealer       
                       representative or write to the sub-transfer  
                       agent at the address on the following page.  

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REDEEMING SHARES                                                          

                                                                [Download Table]
                                                                    
           Generally   Contact your Salomon Smith Barney Financial  
                       Consultant or dealer representative to redeem
                       shares of the fund.                          
                       If you hold share certificates, the          
                       sub-transfer agent must receive the          
                       certificates endorsed for transfer or with   
                       signed stock powers before the redemption is 
                       effective.                                   
                       If the shares are held by a fiduciary or     
                       corporation, other documents may be required.
                       Your redemption proceeds will be sent within 
                       three business days after your request is    
                       received in good order. However, if you      
                       recently purchased your shares by check, your
                       redemption proceeds will not be sent to you  
                       until your original check clears, which may  
                       take up to 15 days.                          
                       If you have a Salomon Smith Barney brokerage 
                       account, your redemption proceeds will be    
                       placed in your account and not reinvested    
                       without your specific instruction. In other  
                       cases, unless you direct otherwise, your     
                       redemption proceeds will be paid by check    
                       mailed to your address of record.            
--------------------------------------------------------------------
             By mail   For accounts held directly at the fund, send 
                       written requests to the sub-transfer agent at
                       the following address:                       
                            SMITH BARNEY FLORIDA PORTFOLIO          
                            SMITH BARNEY MUNI FUNDS                 
                            (SPECIFY CLASS OF SHARES)               
                            C/O PFPC GLOBAL FUND SERVICES           
                            P.O. BOX 9699                           
                            PROVIDENCE, RI 02490-9699               
                       Your written request must provide the        
                       following:                                   
                       - Your account number                        
                       - The class of shares and the dollar amount  
                         or number of shares to be redeemed         
                       - Signatures of each owner exactly as the    
                         account is registered                      
--------------------------------------------------------------------

19                                                     Smith Barney Mutual Funds

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                                                                [Download Table]
                                                                    

        By telephone   If you do not have a brokerage account, you  
                       may be eligible to redeem shares in amounts  
                       up to $10,000 per day through the transfer   
                       agent. You must complete an authorization    
                       form to authorize telephone redemptions. If  
                       eligible, you may request redemptions by     
                       telephone on any day the New York Stock      
                       Exchange is open. Call the transfer agent at 
                       1-800-451-2010 between 9:00 a.m. and 4:00    
                       p.m. (Eastern time).                         
                       Your redemption proceeds can be sent by check
                       to your address of record or by wire transfer
                       to a bank account designated on your         
                       authorization form. You must submit a new    
                       authorization form to change the bank account
                       designated to receive wire transfers and you 
                       may be asked to provide certain other        
                       documents.                                   
--------------------------------------------------------------------
           Automatic   You can arrange for the automatic redemption 
                cash   of a portion of your shares on a monthly or  
          withdrawal   quarterly basis. To qualify you must own     
               plans   shares of the fund with a value of at least  
                       $10,000 and each automatic redemption must be
                       at least $50. If your shares are subject to a
                       deferred sales charge, the sales charge will 
                       be waived if your automatic payments do not  
                       exceed 1% per month of the value of your     
                       shares subject to a deferred sales charge.   
                       The following conditions apply:              
                       - Your shares must not be represented by     
                         certificates                               
                       - All dividends and distributions must be    
                         reinvested                                 
                       For more information, contact your Salomon   
                       Smith Barney Financial Consultant or dealer  
                       representative or consult the SAI.           

Florida Portfolio                                                             20

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OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS                             

When you buy, exchange or redeem shares, your request must be in good order.    
This means you have provided the following information, without which your      
request will not be processed:                                                  

- Name of the fund                                                              

- Account number                                                                

- Class of shares being bought, exchanged or redeemed                           

- Dollar amount or number of shares being bought, exchanged or redeemed         

- Signature of each owner exactly as the account is registered                  

The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal  
identification number for the account, sending you a written confirmation or    
requiring other confirmation procedures from time to time.                      

Signature guarantees. To be in good order, your redemption request must include 
a signature guarantee if you:                                                   

- Are redeeming over $10,000 of shares                                          

- Are sending signed share certificates or stock powers to the sub-transfer     
agent                                                                       

- Instruct the sub-transfer agent to mail the check to an address different from
the one on your account                                                     

- Changed your account registration                                             

- Want the check paid to someone other than the account owner(s)                

- Are transferring the redemption proceeds to an account with a different       
registration                                                                

You can obtain a signature guarantee from most banks, dealers, brokers, credit  
unions and federal savings and loan institutions, but not from a notary public. 

The fund has the right to:                                                      

- Suspend the offering of shares                                                

- Waive or change minimum and additional investment amounts                     

- Reject any purchase or exchange order                                         

- Change, revoke or suspend the exchange privilege                              

- Suspend telephone transactions                                                

21                                                     Smith Barney Mutual Funds

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- Suspend or postpone redemptions of shares on any day when trading on the New  
  York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission                                                     

- Pay redemption proceeds by giving you securities. You may pay transaction     
costs to dispose of the securities                                          

SMALL ACCOUNT BALANCES  If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your  
account is still below $500 after 60 days, the fund may close your account and  
send you the redemption proceeds.                                               

EXCESSIVE EXCHANGE TRANSACTIONS  The manager may determine that a pattern of    
frequent exchanges is detrimental to the fund's performance and other           
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.                                                                

SHARE CERTIFICATES  The fund does not issue share certificates unless a written 
request signed by all registered owners is made to the sub-transfer agent. If   
you hold share certificates it will take longer to exchange or redeem shares.   

Florida Portfolio                                                             22

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DIVIDENDS, DISTRIBUTIONS AND TAXES                                        

DIVIDENDS  The fund pays dividends each month from its net investment income.   
The fund generally makes capital gain distributions and pays dividends, if any, 
once a year, typically in December. The fund may pay additional distributions   
and dividends at other times if necessary for the fund to avoid a federal tax.  
Capital gain distributions and dividends are reinvested in additional fund      
shares of the same class you hold. The fund expects distributions to be         
primarily from income. You do not pay a sales charge on reinvested distributions
or dividends. Alternatively, you can instruct your Salomon Smith Barney         
Financial Consultant, dealer representative or the transfer agent to have your  
distributions and/or dividends paid in cash. You can change your choice at any  
time to be effective as of the next distribution or dividend, except that any   
change given to the transfer agent less than five days before the payment date  
will not be effective until the next distribution or dividend is paid.          

TAXES  In general, redeeming shares, exchanging shares and receiving            
distributions (whether in cash or additional shares) are all taxable events.    
Florida currently does not impose a personal income tax on individuals. Thus,   
individual shareholders of the fund will not be subject to any Florida state    
income tax on distributions received from the fund.                             

Florida does currently impose an "intangibles tax" on certain securities and    
other intangible assets owned by Florida residents. However, certain types of   
municipal obligations of Florida issuers, U.S. Treasury securities and municipal
obligations issued by certain U.S. territories and possessions are exempt from  
this intangibles tax. The fund seeks generally to select investments that will  
enable its shares to be exempt from the Florida intangibles tax and attempts to 
ensure that all of its assets held on the annual assessment date are exempt from
this tax. Certain of the fund's distributions will be taxable to corporate      
shareholders that are subject to Florida corporate income tax.                  

23                                                     Smith Barney Mutual Funds

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                                                                [Download Table]

           TRANSACTION                    FEDERAL TAX STATUS     
                                                                 

Redemption or exchange of shares   Usually capital gain or loss; 
                                   long-term only if shares owned
                                   more than one year            
Long-term capital gain             Taxable gain                  
  distributions                                                  

Short-term capital gain            Ordinary income               
  distributions                                                  
Dividends                          Excluded from gross income if 
                                   from interest on tax-exempt   
                                   securities, otherwise ordinary
                                   income                        

Any taxable dividends and capital gain distributions are taxable whether        
received in cash or reinvested in fund shares. Long-term capital gain           
distributions are taxable to you as long-term capital gain regardless of how    
long you have owned your shares. You may want to avoid buying shares when the   
fund is about to declare a capital gain distribution or a taxable dividend,     
because it will be taxable to you even though it may actually be a return of a  
portion of your investment.                                                     

After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during   
the previous year. If you do not provide the fund with your correct taxpayer    
identification number and any required certifications, you may be subject to    
back-up withholding of 31% of your distributions, dividends, and redemption     
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in   
the fund.                                                                       

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SHARE PRICE                                                               

You may buy, exchange or redeem shares at their net asset value, plus any       
applicable sales charge, next determined after receipt of your request in good  
order. The fund's net asset value is the value of its assets minus its          
liabilities. Net asset value is calculated separately for each class of shares. 
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This        
calculation is done when regular trading closes on the Exchange (normally 4:00  
p.m., Eastern time).                                                            

Generally, the fund's investments are valued by an independent pricing service. 
If market quotations or a valuation from the pricing service is not readily     
available for a security or if a security's value has been materially affected  
by events occurring after the close of the Exchange or market on which the      
security is principally traded, that security may be valued by another method   
that the fund's board believes accurately reflects fair value. A fund that uses 
fair value to price securities may value those securities higher or lower than  
another fund using market quotations to price the same securities. A security's 
valuation may differ depending on the method used for determining value.        

In order to buy, redeem or exchange shares at that day's price, you must place  
your order with your Salomon Smith Barney Financial Consultant or dealer        
representative before the New York Stock Exchange closes. If the New York Stock 
Exchange closes early, you must place your order prior to the actual closing    
time. Otherwise, you will receive the next business day's price.                

Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of  
business.                                                                       

25                                                     Smith Barney Mutual Funds

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FINANCIAL HIGHLIGHTS                                                      

The financial highlights tables are intended to help you understand the         
performance of each class for the past 5 years. Certain information reflects    
financial results for a single share. Total return represents the rate that a   
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was    
audited by KPMG LLP, independent auditors, whose report, along with the fund's  
financial statements, is included in the annual report (available upon request).
No information is present for Class Y shares because no shares were outstanding 
during these fiscal years.                                                      

FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:

                                                                [Download Table]

                                   2000(1)   1999(1)    1998     1997    1996(1)
                                                                                
--------------------------------------------------------------------------------
Net asset value, beginning of                                                   
  year                             $13.70    $13.74    $13.16   $13.24   $12.89 
--------------------------------------------------------------------------------
Income (loss) from operations:                                                  
  Net investment income              0.69      0.69      0.72     0.73     0.74 
  Net realized and unrealized                                                   
    gain (loss)                     (1.01)     0.06      0.72    (0.03)    0.35 
--------------------------------------------------------------------------------
Total income (loss) from                                                        
  operations                        (0.32)     0.75      1.44     0.70     1.09 
--------------------------------------------------------------------------------
Less distributions from:                                                        
  Net investment income             (0.68)    (0.69)    (0.73)   (0.73)   (0.74)
  In excess of net                                                              
    investment income                  --     (0.01)       --       --       -- 
  Net realized gains                   --     (0.09)    (0.13)   (0.05)      -- 
--------------------------------------------------------------------------------
Total distributions                 (0.68)    (0.79)    (0.86)   (0.78)   (0.74)
--------------------------------------------------------------------------------
Net asset value, end of year       $12.70    $13.70    $13.74   $13.16   $13.24 
--------------------------------------------------------------------------------
Total return                        (2.25)%    5.56%    11.15%    5.44%    8.65%
--------------------------------------------------------------------------------
Net assets, end of year                                                         
  (millions)                       $  151      $160      $143     $127     $117 
--------------------------------------------------------------------------------
Ratios to average net assets:                                                   
  Expenses(2)                        0.74%     0.73%     0.76%    0.85%    0.70%
  Net investment income              5.32      4.99      5.28     5.56     5.62 
--------------------------------------------------------------------------------
Portfolio turnover rate                56%       43%       59%      62%      47%
--------------------------------------------------------------------------------

                                                                [Download Table]
                                                                 
(1)  Per share amounts have been calculated using the monthly    
     average shares method.                                      
(2)  As a result of voluntary expense limitations, expense ratios
     will not exceed 0.85% for Class A shares.                   

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FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:

                                                                [Download Table]

                                   2000(1)   1999(1)    1998     1997     1996(1) 
                                                                                  
--------------------------------------------------------------------------------- 
Net asset value, beginning of                                                     
  year                             $13.69    $13.73    $13.14   $13.23     $12.89 
--------------------------------------------------------------------------------- 
Income (loss) from operations:                                                    
  Net investment income              0.62      0.62      0.65     0.65       0.68 
  Net realized and unrealized                                                     
    gain (loss)                     (1.00)     0.06      0.72    (0.01)      0.35 
--------------------------------------------------------------------------------- 
Total income (loss) from                                                          
  operations                        (0.38)     0.68      1.37     0.64       1.03 
--------------------------------------------------------------------------------- 
Less distributions from:                                                          
  Net investment income             (0.61)    (0.62)    (0.65)   (0.68)     (0.69)
  In excess of net                                                                
    investment income                  --     (0.01)       --       --         -- 
  Net realized gains                   --     (0.09)    (0.13)   (0.05)        -- 
--------------------------------------------------------------------------------- 
Total distributions                 (0.61)    (0.72)    (0.78)   (0.73)     (0.69)
--------------------------------------------------------------------------------- 
Net asset value, end of year       $12.70    $13.69    $13.73   $13.14     $13.23 
--------------------------------------------------------------------------------- 
Total return                        (2.70)%    5.01%    10.59%    4.91%      8.09%
--------------------------------------------------------------------------------- 
Net assets, end of year                                                           
  (millions)                          $59       $66       $59      $51        $46 
--------------------------------------------------------------------------------- 
Ratios to average net assets:                                                     
  Expenses(2)                        1.26%     1.24%     1.28%    1.35%      1.20%
  Net investment income              4.80      4.48      4.76     4.93       5.00 
--------------------------------------------------------------------------------- 
Portfolio turnover rate                56%       43%       59%      62%        47%
--------------------------------------------------------------------------------- 

                                                                [Download Table]
                                                                 
(1)  Per share amounts have been calculated using the monthly    
     average shares method.                                      
(2)  As a result of voluntary expense limitations, expense ratios
     will not exceed 1.35%.                                      

27                                                     Smith Barney Mutual Funds

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FOR A CLASS L SHARE OF BENEFICIAL INTEREST

OUTSTANDING THROUGHOUT EACH YEAR ENDED MARCH 31:

                                                                [Download Table]

                               2000(1)   1999(1)(2)    1998     1997     1996(1) 
                                                                                 
-------------------------------------------------------------------------------- 
Net asset value, beginning of                                                    
  year                         $13.69      $13.74     $13.14   $13.22     $12.89 
-------------------------------------------------------------------------------- 
Income (loss) from                                                               
  operations:                                                                    
  Net investment income          0.61        0.61       0.64     0.65       0.66 
  Net realized and unrealized                                                    
    gain (loss)                 (1.00)       0.05       0.72    (0.01)      0.35 
-------------------------------------------------------------------------------- 
Total income (loss) from                                                         
  operations                    (0.39)       0.66       1.36     0.64       1.01 
-------------------------------------------------------------------------------- 
Less distributions from:                                                         
  Net investment income         (0.60)      (0.61)     (0.63)   (0.67)     (0.68)
  In excess of net                                                               
    investment income              --       (0.01)        --       --         -- 
  Net realized gains               --       (0.09)     (0.13)   (0.05)        -- 
-------------------------------------------------------------------------------- 
Total distributions             (0.60)      (0.71)     (0.76)   (0.72)     (0.68)
-------------------------------------------------------------------------------- 
Net assets value, end of year  $12.70      $13.69     $13.74   $13.14     $13.22 
-------------------------------------------------------------------------------- 
Total return                    (2.78)%      4.87%     10.51%    4.94%      7.96%
-------------------------------------------------------------------------------- 
Net assets, end of year                                                          
  (millions)                      $13         $12         $9       $7         $3 
-------------------------------------------------------------------------------- 
Ratios to average net assets:                                                    
  Expenses(3)                    1.32%       1.31%      1.33%    1.40%      1.28%
  Net investment income          4.74        4.41       4.71     4.84       5.04 
-------------------------------------------------------------------------------- 
Portfolio turnover rate            56%         43%        59%      62%        47%
-------------------------------------------------------------------------------- 

                                                                [Download Table]
                                                                 
(1)  Per share amounts have been calculated using the monthly    
     average shares method.                                      
(2)  On June 12, 1998, the Class C shares were renamed Class L   
     shares.                                                     
(3)  As a result of voluntary expense limitations, expense ratios
     will not exceed 1.40%.                                      

Florida Portfolio                                                             28

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                                                     [SALOMON SMITH BARNEY LOGO]

FLORIDA PORTFOLIO                                                               

An investment portfolio of Smith Barney Muni Funds                              

SHAREHOLDER REPORTS  Annual and semiannual reports to shareholders provide      
additional information about the fund's investments. These reports discuss the  
market conditions and investment strategies that affected the fund's            
performance.                                                                    

The fund sends only one report to a household if more than one account has the  
same address. Contact your Salomon Smith Barney Financial Consultant, dealer    
representative or the transfer agent if you do not want this policy to apply to 
you.                                                                            

STATEMENT OF ADDITIONAL INFORMATION The statement of additional information     
provides more detailed information about the fund and is incorporated by        
reference into (is legally part of) this prospectus.                            

You can make inquiries about the fund or obtain shareholder reports or the      
statement of additional information (without charge) by contacting your Salomon 
Smith Barney Financial Consultant or dealer representative, by calling the fund 
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388  
Greenwich Street, MF2, New York, New York 10013.                                

Visit our web site. Our web site is located at WWW.SMITHBARNEY.COM              

Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public        
Reference Room may be obtained by calling the Commission at 1-202-942-8090.     
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this         
information may be obtained for a duplicating fee by electronic request at the  
following E-mail address: PUBLICINFO@SEC.GOV, or by writing the Commission's    
Public Reference Section, Washington, D.C. 20549-0102.                          

If someone makes a statement about the fund that is not in this prospectus, you 
should not rely upon that information. Neither the fund nor the distributor is  
offering to sell shares of the fund to any person to whom the fund may not      
lawfully sell its shares.                                                       

Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.             

(Investment Company Act                                                         
file no. 811-04395)                                                             
FD0605 7/00                                                                     

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[SB]Smith Barney                                                                
[MF]Mutual Funds                                                                

Your Serious Money.Professionally Managed./SM/                                  

P R O S P E C T U S                                                             

New York                                                                        
Portfolio                                                                       

Class A, B, L and Y Shares                                                      
-------------------------------------------                                     
July 28, 2000                                                                   

The Securities and Exchange Commission has not approved or disapproved these    
securities or determined whether this prospectus is accurate or complete. Any   
statement to the contrary is a crime.                                           

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New York Portfolio                                                              

Contents                                                                        

                                                                [Download Table]
                                                                                
Investments, risks and performance..........................................   2

More on the fund's investments..............................................   6

Management..................................................................   7

Choosing a class of shares to buy...........................................   8

Comparing the fund's classes................................................   9

Sales charges...............................................................  10

More about deferred sales charges...........................................  12

Buying shares...............................................................  13

Exchanging shares...........................................................  14

Redeeming shares............................................................  16

Other things to know about share transactions...............................  18

Dividends, distributions and taxes..........................................  20

Share price.................................................................  21
Financial highlights........................................................  22

You should know: An investment in the fund is not a bank deposit and is not     
insured or guaranteed by the FDIC or any other government agency.               

                                                       Smith Barney Mutual Funds

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Investments, risks and performance                                            

Investment objective                                                            
The fund seeks as high a level of income exempt from federal income taxes and   
New York state and New York City personal income taxes as is consistent with    
prudent investing.                                                              

Principal investment strategies                                                 
Key investments The fund invests at least 80% of its net assets in municipal    
securities, and at least 65% of its net assets in New York municipal securi-    
ties. New York municipal securities include securities issued by the State of   
New York and certain other municipal issuers, political subdivisions, agencies  
and public authorities that pay interest which is exempt from New York State    
and New York City personal income taxes. The fund focuses primarily on interme- 
diate-term and long-term municipal securities which have remaining maturities   
at the time of purchase from three to more than thirty years. The fund invests  
exclusively in municipal securities that are rated investment grade at the time 
of purchase or are of equivalent quality if unrated. At least two-thirds of the 
municipal securities must be rated, at the time of purchase, within the three   
highest investment grade rating categories by a nationally recognized rating    
organization.                                                                   

Selection process The manager selects securities primarily by identifying       
undervalued sectors and individual securities, while also selecting securities  
it believes will benefit from changes in market conditions. In selecting indi-  
vidual securities, the manager:                                                 

.Uses fundamental credit analysis to estimate the relative value and attrac-  
tiveness of various securities and sectors and to exploit opportunities in  
the municipal bond market                                                   
 .May trade between general obligation and revenue bonds and among various reve-
 nue bond sectors, such as housing, hospital and industrial development, based
on their apparent relative values                                           
 .Identifies individual securities with the most potential for added value, such
as those involving unusual situations, new issuers, the potential for credit
upgrades, unique structural characteristics or innovative features          
.Considers the yield available for securities with different maturities and a 
 security's maturity in light of the outlook for the issuer and its sector and
interest rates                                                              

New York Portfolio                                                              

2                                                                               

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Principal risks of investing in the fund                                        
Investors could lose money on their investment in the fund, or the fund may not 
perform as well as other investments, if:                                       

.Interest rates rise, causing the value of the fund's portfolio to decline    
.The issuer of a security owned by the fund defaults on its obligation to pay 
principal and/or interest or the security's credit rating is downgraded     
.New York municipal securities fall out of favor with investors. The fund will
suffer more than a national municipal fund from adverse events affecting New
York municipal issuers                                                      
.Unfavorable legislation affects the tax-exempt status of municipal bonds     
.The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect                                

It is possible that some of the fund's income distributions may be, and distri- 
butions of the fund's gains generally will be, subject to federal income taxa-  
tion and New York State and New York City personal income taxation. The fund    
may realize taxable gains on the sale of its securities or on transactions in   
futures contracts. Some of the fund's income may be subject to the federal      
alternative minimum tax. In addition, distributions of the fund's income and    
gains will be taxable to investors in states other than New York.               

The fund is classified as "non-diversified," which means it may invest a larger 
percentage of its assets in one issuer than a diversified fund. To the extent   
the fund invests its assets in fewer issuers, the fund will be more susceptible 
to negative events affecting those issuers.                                     

Who may want to invest The fund may be an appropriate investment if you:        

.Are a New York taxpayer in a high federal tax bracket seeking income exempt  
from federal income taxes and New York personal income taxes                
 .Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio                                                        
.Are willing to accept the risks of municipal securities, including the risks 
of concentrating in a single state                                          

                                                       Smith Barney Mutual Funds

                                                                               3

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Risk return bar chart                                                           
This bar chart indicates the risks of investing in the fund by showing changes  
in the fund's performance from year to year. Past performance does not neces-   
sarily indicate how the fund will perform in the future. The bar chart shows    
the performance of the fund's Class A shares for each of the past 10 calendar   
years. Class B, L and Y shares would have different performance because of      
their different expenses. The performance information in the chart does not     
reflect sales charges, which would reduce your return.                          

Total Return for Class A Shares 

[BAR CHART] 

1990    1991    1992    1993    1994    1995    1996    1997    1998    1999  
----    ----    ----    ----    ----    ----    ----    ----    ----    ----  
5.42%   14.77%  9.92%   12.93%  -5.95%  18.26%  4.19%   10.34%  5.89%   -4.36%

Calendar years ended December 31  

Quarterly returns:                                                              
Highest: 7.17% in 1st quarter 1995; Lowest: (5.20)% in 1st quarter 1994         

Year to date: 4.84% through 6/30/00.                                            

Risk return table                                                               
This table indicates the risks of investing in the fund by comparing the aver-  
age annual total return of each class for the periods shown with that of the    
Lehman Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unman- 
aged index of municipal bonds and the Lipper New York Municipal Debt Funds      
Average (the "Lipper Average"), an average composed of the fund's peer group of 
mutual funds. This table assumes imposition of the maximum sales charge appli-  
cable to the class, redemption of shares at the end of the period, and rein-    
vestment of distributions and dividends.                                        

Average Annual Total Returns

Calendar Years Ended December 31, 1999      

                                                                [Download Table]

Class           1 year  5 years 10 years Since inception Inception date
                                                                       
 A              (8.17)%  5.73%   6.44%        6.30%         1/16/87    
 B              (8.91)%  5.91%    n/a         6.42%         11/11/94   
 L              (6.73)%  5.80%    n/a         4.81%          1/8/93    
 Lehman Index   (2.06)%  6.91%   6.89%        6.81%            *       
 Lipper Average (4.86)%  5.68%   6.09%        5.82%            *       

* Index comparison begins on January 31, 1987.                                  

New York Portfolio                                                              

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Fee table                                                                       
This table sets forth the fees and expenses you will pay if you invest in fund  
shares.                                                                         

Shareholder fees

                                                                [Download Table]

(fees paid directly from your investment)     Class A Class B Class L Class Y  
                                                                               
Maximum sales charge (load) imposed on                                         
purchases (as a % of offering price)           4.00%   None    1.00%   None    
Maximum deferred sales charge (load) (as a %                                   
of the lower of net asset value at purchase                                    
or redemption)                                 None*   4.50%   1.00%   None    

                         Annual fund operating expenses                        

(expenses deducted from fund assets)          Class A Class B Class L Class Y**
                                                                               
Management fee                                 0.50%   0.50%   0.50%   0.50%   
Distribution and service (12b-1) fees          0.15%   0.65%   0.70%   None    
Other expenses                                 0.06%   0.08%   0.07%   0.06%   
                                               -----   -----   -----   -----   
Total annual fund operating expenses           0.71%   1.23%   1.27%   0.56%   

*You may buy Class A shares in amounts of $500,000 or more at net asset value   
(without an initial sales charge) but if you redeem those shares within 12      
months of their purchase, you will pay a deferred sales charge of 1.00%.        

**For Class Y shares "Other Expenses" have been estimated based on expenses     
incurred by Class A shares because no Class Y shares were outstanding for the   
fiscal year ended March 31, 2000.                                               

Example                                                                         

This example helps you compare the costs of investing in the fund with the      
costs of investing in other mutual funds. Your actual costs may be higher or    
lower. The example assumes:                                                     

.You invest $10,000 in the fund for the period shown                          
.Your investment has a 5% return each year                                    
.You reinvest all distributions and dividends without a sales charge          
.The fund's operating expenses remain the same                                

Number of years you own your shares 

                                                                [Download Table]

                                       1 year 3 years 5 years 10 years
                                                                      
Class A (with or without redemption)    $470   $618    $779    $1,247 
Class B (redemption at end of period)   $575   $690    $776    $1,344 
Class B (no redemption)                 $125   $390    $676    $1,344 
Class L (redemption at end of period)   $328   $499    $790    $1,619 
Class L (no redemption)                 $228   $499    $790    $1,619 
Class Y (with or without redemption)    $ 57   $179    $313    $  701 

                                                       Smith Barney Mutual Funds

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More on the fund's investments                                                

New York municipal securities New York municipal securities include debt obli-  
gations issued by certain non-New York governmental issuers such as Puerto      
Rico, the Virgin Islands and Guam. The interest on these bonds is exempt from   
federal income tax and New York personal income tax. As a result, the interest  
rate on these bonds normally is lower than it would be if the bonds were sub-   
ject to taxation. The New York municipal securities in which the fund invests   
include general obligation bonds, revenue bonds and municipal leases. These     
securities may pay interest at fixed, variable or floating rates. The fund may  
also hold zero coupon securities which pay no interest during the life of the   
obligation but trade at prices below their stated maturity value.               

Other debt securities The fund may invest up to 35% of its assets in municipal  
securities of non-New York issuers. These securities will generally be exempt   
from federal, but not New York, income taxes. The fund may also invest up to    
20% of its assets in debt securities which are issued or guaranteed by the full 
faith and credit of the U.S. government. These securities will generally be     
subject to federal and state taxation.                                          

Derivative contracts The fund may, but need not, use derivative contracts, such 
as financial futures and options on financial futures, for any of the following 
purposes:                                                                       

 .To hedge against the economic impact of adverse changes in the market value of
portfolio securities because of changes in interest rates                   
.As a substitute for buying or selling securities                             

A futures contract will obligate or entitle the fund to deliver or receive an   
asset or cash payment based on the change in value of one or more securities.   
Even a small investment in futures can have a big impact on a fund's interest   
rate exposure. Therefore, using futures can disproportionately increase losses  
and reduce opportunities for gains when interest rates are changing. The fund   
may not fully benefit from or may lose money on futures if changes in their     
value do not correspond accurately to changes in the value of the fund's hold-  
ings. The other parties to certain futures contracts present the same types of  
default risk as issuers of fixed income securities. Futures can also make a     
fund less liquid and harder to value, especially in declining markets.          

Defensive investing The fund may depart from its principal investment strate-   
gies in response to adverse market, economic or political conditions by taking  
temporary defensive positions in all types of money market and short-term debt  
securities. If the fund takes a temporary defensive position, it may be unable  
to achieve its investment goal.                                                 

New York Portfolio                                                              

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Management                                                                    

Manager The fund's investment adviser is SSB Citi Fund Management LLC (succes-  
sor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney Inc.    
The manager's address is 388 Greenwich Street, New York, New York 10013. The    
manager selects the fund's investments and oversees its operations. The manager 
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup busi-     
nesses produce a broad range of financial services--asset management, banking   
and consumer finance, credit and charge cards, insurance, investments, invest-  
ment banking and trading--and use diverse channels to make them available to    
consumer and corporate customers around the world.                              

Joseph P. Deane, investment officer of the manager and managing director of     
Salomon Smith Barney, has been responsible for the day-to-day management of the 
fund's portfolio since February 1999. Mr. Deane has 30 years of securities      
business experience.                                                            

Management fees During the fiscal year ended March 31, 2000, the manager        
received an advisory fee equal to 0.50% of the fund's average daily net assets. 

Distributor The fund has entered into an agreement with Salomon Smith Barney    
Inc. and PFS Distributors, Inc. to distribute the fund's shares.                

Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its   
Class A, B and L shares. Under the plan, the fund pays distribution and/or      
service fees. These fees are an ongoing expense and, over time, may cost you    
more than other types of sales charges.                                         

Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company     
serves as the fund's transfer agent and shareholder servicing agent (the        
"transfer agent"). Pursuant to a sub-transfer agency and services agreement     
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-    
transfer agent (the "sub-transfer agent") to render certain shareholder record  
keeping and accounting services and functions.                                  

                                                       Smith Barney Mutual Funds

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Choosing a class of shares to buy                                             

You can choose among four classes of shares: Classes A, B, L and Y. Each class  
has different sales charges and expenses, allowing you to choose the class that 
best meets your needs. Which class is more beneficial to an investor depends on 
the amount and intended length of the investment.                               

 .If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.                         
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately    
invested. This may help offset the higher expenses of Class B and Class L   
shares, but only if the fund performs well.                                 
.Class L shares have a shorter deferred sales charge period than Class B      
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest- 
ors.                                                                        

You may buy shares from:                                                        
.A Salomon Smith Barney Financial Consultant                                  
 .An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative                                  
 .The fund, but only if you are investing through certain dealer representatives

Investment minimums Minimum initial and additional investment amounts vary      
depending on the class of shares you buy and the nature of your investment      
account.                                                                        

                                                                [Download Table]

                                                 Initial           Additional 
                                       Classes A, B, L   Class Y   All Classes
                                                                              
General                                    $1,000      $15 million     $50    
Monthly Systematic Investment Plans        $   25          n/a         $25    
Quarterly Systematic Investment Plans      $   50          n/a         $50    
Uniform Gift to Minors Accounts            $  250      $15 million     $50    

New York Portfolio                                                              

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Comparing the fund's classes                                                  

Your Salomon Smith Barney Financial Consultant or dealer representative can     
help you decide which class meets your goals. They may receive different com-   
pensation depending upon which class you choose.                                

                                                                [Download Table]

                           Class A     Class B     Class L     Class Y  
                                                                        
Key features             .Initial    .No initial .Initial    .No initial
                          sales       sales       sales       or        
                          charge      charge      charge is   deferred  
                          .You may    .Deferred   lower than  sales     
                          qualify     sales       Class A     charge    
                          for reduc-  charge      .Deferred   .Must     
                          tion or     declines    sales       invest at 
                          waiver of   over time   charge for  least $15 
                          initial     .Converts   only 1      million   
                          sales       to Class A  year        .Lower    
                          charge      after 8     .Does not   annual    
                          .Lower      years       convert to  expenses  
                          annual      .Higher     Class A     than the  
                          expenses    annual      .Higher     other     
                          than Class  expenses    annual      classes   
                          B and       than Class  expenses              
                          Class L     A           than Class            
                                                  A                     
------------------------------------------------------------------------
Initial sales charge     Up to       None        1.00%       None       
                         4.00%;                                         
                         reduced for                                    
                         large pur-                                     
                         chases and                                     
                         waived for                                     
                         certain                                        
                         investors.                                     
                         No charge                                      
                         for pur-                                       
                         chases of                                      
                         $500,000 or                                    
                         more                                           
------------------------------------------------------------------------
Deferred sales charge    1.00% on    Up to 4.50% 1.00% if    None       
                         purchases   charged     you redeem             
                         of $500,000 when you    within 1               
                         or more if  redeem      year of                
                         you redeem  shares. The purchase               
                         within 1    charge is                          
                         year of     reduced                            
                         purchase    over time                          
                                     and there                          
                                     is no                              
                                     deferred                           
                                     sales                              
                                     charge                             
                                     after 6                            
                                     years                              
------------------------------------------------------------------------
Annual distribution and  0.15% of    0.65% of    0.70% of    None       
service fees             average     average     average                
                         daily net   daily net   daily net              
                         assets      assets      assets                 
------------------------------------------------------------------------
Exchange privilege       Class A     Class B     Class L     Class Y    
                         shares of   shares of   shares of   shares of  
                         most Smith  most Smith  most Smith  most Smith 
                         Barney      Barney      Barney      Barney     
                         funds       funds       funds       funds      
------------------------------------------------------------------------

*Ask your Salomon Smith Barney Financial Consultant or dealer representative or 
visit the web site for the Smith Barney funds available for exchange.           

                                                       Smith Barney Mutual Funds

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Sales charges                                                                 

Class A shares                                                                  
You buy Class A shares at the offering price, which is the net asset value plus 
a sales charge. You pay a lower sales charge as the size of your investment     
increases to certain levels called breakpoints. You do not pay a sales charge   
on the fund's distributions or dividends you reinvest in additional Class A     
shares.                                                                         

                                                                [Download Table]

                                 Sales Charge as a % of
                                 Offering  Net amount  
Amount of purchase               price (%) invested (%)
                                                       
Less than $25,000                  4.00        4.17    
$25,000 but less than $50,000      3.50        3.63    
$50,000 but less than $100,000     3.00        3.09    
$100,000 but less than $250,000    2.50        2.56    
$250,000 but less than $500,000    1.50        1.52    
$500,000 or more                    -0-         -0-    

Investments of $500,000 or more You do not pay an initial sales charge when you 
buy $500,000 or more of Class A shares. However, if you redeem these Class A    
shares within one year of purchase, you will pay a deferred sales charge of 1%. 

Qualifying for a reduced Class A sales charge There are several ways you can    
combine multiple purchases of Class A shares of Smith Barney funds to take      
advantage of the breakpoints in the sales charge schedule.                      

.Accumulation privilege - lets you combine the current value of Class A shares
owned                                                                       

.by you, or                                                                   
.by members of your immediate family,                                         

and for which a sales charge was paid, with the amount of your next purchase  
of Class A shares for purposes of calculating the initial sales charge. Cer-  
tain trustees and fiduciaries may be entitled to combine accounts in deter-   
mining their sales charge.                                                    

.Letter of intent - lets you purchase Class A shares of the fund and other    
Smith Barney funds over a 13-month period and pay the same sales charge, if 
any, as if all shares had been purchased at once. You may include purchases 
on which you paid a sales charge within 90 days before you sign the letter. 

New York Portfolio                                                              

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Waivers for certain Class A investors Class A initial sales charges are waived  
for certain types of investors, including:                                      

.Employees of members of the NASD                                             
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met                                                     
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60  
days, if the investor's Salomon Smith Barney Financial Consultant or dealer 
representative is notified                                                  

If you want to learn about additional waivers of Class A initial sales charges, 
contact your Salomon Smith Barney Financial Consultant or dealer representative 
or consult the Statement of Additional Information ("SAI").                     

Class B shares                                                                  
You buy Class B shares at net asset value without paying an initial sales       
charge. However, if you redeem your Class B shares within six years of pur-     
chase, you will pay a deferred sales charge. The deferred sales charge          
decreases as the number of years since your purchase increases.                 

                                                                [Download Table]

Year after purchase    1st  2nd 3rd 4th 5th 6th through 8th
                                                           
Deferred sales charge  4.5%  4%  3%  2%  1%        0%      

Class B conversion After 8 years, Class B shares automatically convert into     
Class A shares. This helps you because Class A shares have lower annual         
expenses. Your Class B shares will convert to Class A shares as follows:        

                                                                [Download Table]

Shares issued: At initial purchase      Shares issued: On  Shares issued:    
                                        reinvestment of    Upon exchange from
                                        dividends and      another Smith     
                                        distributions      Barney fund       
                                                                             
Eight years after the date of purchase  In same proportion On the date the   
                                        as the number of   shares originally 
                                        Class B shares     acquired would    
                                        converting is to   have converted    
                                        total Class B      into Class A      
                                        shares you own     shares            
                                        (excluding shares                    
                                        issued as divi-                      
                                        dends)                               

                                                       Smith Barney Mutual Funds

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Class L shares                                                                  
You buy Class L shares at the offering price, which is the net asset value plus 
a sales charge of 1% (1.01% of the net amount invested). In addition, if you    
redeem your Class L shares within one year of purchase, you will pay a deferred 
sales charge of 1%. If you held Class C shares of the fund and/or other Smith   
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge  
on Class L shares you buy before June 22, 2001.                                 

Class Y shares                                                                  
You buy Class Y shares at net asset value with no initial sales charge and no   
deferred sales charge when you redeem. You must meet the $15,000,000 initial    
requirement. You can use a letter of intent to meet this requirement by buying  
Class Y shares of the fund over a 13-month period. To qualify, you must ini-    
tially invest $5,000,000.                                                       

More about deferred sales charges                                             

The deferred sales charge is based on the net asset value at the time of pur-   
chase or redemption, whichever is less, and therefore you do not pay a sales    
charge on amounts representing appreciation or depreciation.                    

In addition, you do not pay a deferred sales charge on:                         

.Shares exchanged for shares of another Smith Barney fund                     
.Shares representing reinvested distributions and dividends                   
.Shares no longer subject to the deferred sales charge                        

Each time you place a request to redeem shares, the fund will first redeem any  
shares in your account that are not subject to a deferred sales charge and then 
the shares in your account that have been held the longest.                     

If you redeemed shares of a Smith Barney fund in the past 60 days and paid a    
deferred sales charge, you may buy shares of the fund at the current net asset  
value and be credited with the amount of the deferred sales charge, if you      
notify your Salomon Smith Barney Financial Consultant or dealer representative. 

Salomon Smith Barney receives deferred sales charges as partial compensation    
for its expenses in selling shares, including the payment of compensation to    
your Salomon Smith Barney Financial Consultant or dealer representative.        

New York Portfolio                                                              

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Deferred sales charge waivers                                                   
The deferred sales charge for each share class will generally be waived:        

.On payments made through certain systematic withdrawal plans                 
.For involuntary redemptions of small account balances                        
.For 12 months following the death or disability of a shareholder             

If you want to learn more about additional waivers of deferred sales charges,   
contact your Salomon Smith Barney Financial Consultant or dealer representative 
or consult the SAI.                                                             

Buying shares                                                                 

 Through a   You should contact your Salomon Smith Barney Financial Con-
Salomon Smith   sultant or dealer representative to open a brokerage account  
Barney   and make arrangements to buy shares.                   
Financial                                                             
representative   If you do not provide the following information, your order    
will be rejected:                             

.Class of shares being bought                 
 .Dollar amount or number of shares being bought

               You should pay for your shares through your brokerage account
           no later than the third business day after you place your
               order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.     
--------------------------------------------------------------------------------

        Certain investors who are clients of the selling group are
Through the   eligible to buy shares directly from the fund.              
fund's sub-                                                               
transfer                                                            
agent                                                                   

         .Write the sub-transfer agent at the following address:
Smith Barney New York Portfolio     
Smith Barney Muni Funds             
(Specify class of shares)           

c/o PFPC Global Fund Services       

P.O. Box 9699                       

Providence, RI 02940-9699           

          .Enclose a check made payable to the fund to pay for the
                 shares. For initial purchases, complete and send an account
application.                              
              .For more information, call the transfer agent at 1-800-451-
2010.                                     

                                                       Smith Barney Mutual Funds

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Through a                                                             
  systematic   You may authorize Salomon Smith Barney, your dealer represen-
 investment   tative or the sub-transfer agent to transfer funds automati-
    plan   cally from a regular bank account, cash held in a Salomon
             Smith Barney brokerage account or Smith Barney money market
fund to buy shares on a regular basis.        

             .Amounts transferred should be at least: $25 monthly or $50
quarterly                                 

           .If you do not have sufficient funds in your account on a
                transfer date, Salomon Smith Barney, your dealer represen-
           tative or the sub-transfer agent may charge you a fee

         For more information, contact your Salomon Smith Barney
             Financial Consultant, dealer representative or the transfer
agent or consult the SAI.                     

Exchanging shares                                                             

Smith Barney   You should contact your Salomon Smith Barney Financial Con-  
    offers a   sultant or dealer representative to exchange into other Smith
distinctive   Barney funds. Be sure to read the prospectus of the Smith   
   family of   Barney fund you are exchanging into. An exchange is a taxable
funds   transaction.                                          
tailored to                                                               
help meet the   .You may exchange shares only for shares of the same class of 
varying needs     another Smith Barney fund. Not all Smith Barney funds offer 
of both large     all classes.                                                
 and small   .Not all Smith Barney funds may be offered in your state of
investors     residence. Contact your Salomon Smith Barney Financial  
              Consultant, dealer representative or the transfer agent.

            .You must meet the minimum investment amount for each fund
(except for systematic exchanges).        

              .If you hold share certificates, the sub-transfer agent must
            receive the certificates endorsed for transfer or with
              signed stock powers (documents transferring ownership of
     certificates) before the exchange is effective.
               .The fund may suspend or terminate your exchange privilege if
      you engage in an excessive pattern of exchanges.

New York Portfolio                                                              

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   Waiver of   Your shares will not be subject to an initial sales charge at
additional   the time of the exchange.                                  
sales charges                                                                 

              Your deferred sales charge (if any) will continue to be mea-
            sured from the date of your original purchase. If the fund
           you exchange into has a higher deferred sales charge, you
             will be subject to that charge. If you exchange at any time
               into a fund with a lower charge, the sales charge will not be
reduced.                                      
--------------------------------------------------------------------------------

By telephone                                                                
             If you do not have a brokerage account, you may be eligible
              to exchange shares through the transfer agent. You must com-
               plete an authorization form to authorize telephone transfers.
              If eligible, you may make telephone exchanges on any day the
             New York Stock Exchange is open. Call the transfer agent at
         1-800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern
time).                                        

             You can make telephone exchanges only between accounts that
have identical registrations.                 
--------------------------------------------------------------------------------

By mail                                                           
              If you do not have a Salomon Smith Barney brokerage account,
               contact your dealer representative or write to the sub-trans-
 fer agent at the address on the following page.

                                                       Smith Barney Mutual Funds

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Redeeming shares                                                              

Generally   Contact your Salomon Smith Barney Financial Consultant or 
     dealer representative to redeem shares of the fund.

             If you hold share certificates, the sub-transfer agent must
               receive the certificates endorsed for transfer or with signed
  stock powers before the redemption is effective.

             If the shares are held by a fiduciary or corporation, other
documents may be required.                    

             Your redemption proceeds will be sent within three business
             days after your request is received in good order. However,
              if you recently purchased your shares by check, your redemp-
           tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.   

            If you have a Salomon Smith Barney brokerage account, your
            redemption proceeds will be placed in your account and not
               reinvested without your specific instruction. In other cases,
               unless you direct otherwise, your redemption proceeds will be
 paid by check mailed to your address of record.
--------------------------------------------------------------------------------

By mail                                                           
               For accounts held directly at the fund, send written requests
     to the sub-transfer agent at the following address:
Smith Barney New York Portfolio     
Smith Barney Muni Funds             
(Specify class of shares)           

c/o PFPC Global Fund Services       

P.O. Box 9699                       

Providence, RI 02940-9699           

  Your written request must provide the following:

.Your account number                          
         .The class of shares and the dollar amount or number of
shares to be redeemed                     
            .Signatures of each owner exactly as the account is regis-
tered                                     

New York Portfolio                                                              

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By telephone                                                                
             If you do not have a brokerage account, you may be eligible
               to redeem shares in amounts up to $10,000 per day through the
            transfer agent. You must complete an authorization form to
               authorize telephone redemptions. If eligible, you may request
        redemptions by telephone on any day the New York Stock
             Exchange is open. Call the transfer agent at 1-800-451-2010
 between 9:00 a.m. and 4:00 p.m. (Eastern time).

               Your redemption proceeds can be sent by check to your address
               of record or by wire transfer to a bank account designated on
              your authorization form. You must submit a new authorization
            form to change the bank account designated to receive wire
               transfers and you may be asked to provide certain other docu-
ments.                                        
--------------------------------------------------------------------------------

  Automatic   You can arrange for the automatic redemption of a portion of
      cash   your shares on a monthly or quarterly basis. To qualify you
 withdrawal   must own shares of the fund with a value of at least $10,000
     plans   and each automatic redemption must be at least $50. If your
          shares are subject to a deferred sales charge, the sales
         charge will be waived if your automatic payments do not
              exceed 1% per month of the value of your shares subject to a
deferred sales charge.                        

The following conditions apply:               

      .Your shares must not be represented by certificates
     .All dividends and distributions must be reinvested

         For more information, contact your Salomon Smith Barney
              Financial Consultant or dealer representative or consult the
SAI.                                          

                                                       Smith Barney Mutual Funds

                                                                              17

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Other things to know about share transactions                                 

When you buy, exchange or redeem shares, your request must be in good order.    
This means you have provided the following information, without which your      
request will not be processed:                                                  

.Name of the fund                                                             
.Account number                                                               
.Class of shares being bought, exchanged or redeemed                          
.Dollar amount or number of shares being bought, exchanged or redeemed        
.Signature of each owner exactly as the account is registered                 

The transfer agent will try to confirm that any telephone exchange or redemp-   
tion request is genuine by recording calls, asking the caller to provide a per- 
sonal identification number for the account, sending you a written confirmation 
or requiring other confirmation procedures from time to time.                   

Signature guarantees To be in good order, your redemption request must include  
a signature guarantee if you:                                                   

.Are redeeming over $10,000 of shares                                         

.Are sending signed share certificates or stock powers to the sub-transfer    
agent                                                                       

 .Instruct the sub-transfer agent to mail the check to an address different from
the one on your account                                                     
.Changed your account registration                                            
.Want the check paid to someone other than the account owner(s)               
 .Are transferring the redemption proceeds to an account with a different regis-
tration                                                                     

You can obtain a signature guarantee from most banks, dealers, brokers, credit  
unions and federal savings and loan institutions, but not from a notary public. 

The fund has the right to:                                                      

.Suspend the offering of shares                                               
.Waive or change minimum and additional investment amounts                    
.Reject any purchase or exchange order                                        
.Change, revoke or suspend the exchange privilege                             
.Suspend telephone transactions                                               

New York Portfolio                                                              

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.Suspend or postpone redemptions of shares on any day when trading on the New 
York Stock Exchange is restricted, or as otherwise permitted by the Securi- 
ties and Exchange Commission                                                
.Pay redemption proceeds by giving you securities. You may pay transaction    
costs to dispose of the securities                                          

Small account balances If your account falls below $500 because of a redemption 
of fund shares, the fund may ask you to bring your account up to $500. If your  
account is still below $500 after 60 days, the fund may close your account and  
send you the redemption proceeds.                                               

Excessive exchange transactions The manager may determine that a pattern of     
frequent exchanges is detrimental to the fund's performance and other share-    
holders. If so, the fund may limit additional purchases and/or exchanges by the 
shareholder.                                                                    

Share certificates The fund does not issue share certificates unless a written  
request signed by all registered owners is made to the sub-transfer agent. If   
you hold share certificates it will take longer to exchange or redeem shares.   

                                                       Smith Barney Mutual Funds

                                                                              19

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Dividends, distributions and taxes                                            

Dividends The fund pays dividends each month from its net investment income.    
The fund generally makes capital gain distributions and pays dividends, if any, 
once a year, typically in December. The fund may pay additional distributions   
and dividends at other times if necessary for the fund to avoid a federal tax.  
Capital gain distributions and dividends are reinvested in additional fund      
shares of the same class you hold. The fund expects distributions to be primar- 
ily from income. You do not pay a sales charge on reinvested distributions or   
dividends. Alternatively, you can instruct your Salomon Smith Barney Financial  
Consultant, dealer representative or the transfer agent to have your distribu-  
tions and/or dividends paid in cash. You can change your choice at any time to  
be effective as of the next distribution or dividend, except that any change    
given to the transfer agent less than five days before the payment date will    
not be effective until the next distribution or dividend is paid.               

Taxes In general, redeeming shares, exchanging shares and receiving distribu-   
tions (whether in cash or additional shares) are all taxable events.            

                                                                [Download Table]

Transaction              Federal tax status           New York tax status      
                                                                               
Redemption or            Usually capital              Usually capital gain     
exchange of shares       gain or loss; long-term only or loss                  
                         if shares owned                                       
                         more than one year                                    

Long-term capital gain   Taxable gain                 Taxable gain             
distributions                                                                  

Short-term capital gain  Ordinary income              Ordinary income          
distributions                                                                  
Dividends                Excluded from gross          Exempt from personal     
                         income if from interest      income taxes if from     
                         on tax- exempt               interest on New York     
                         securities, otherwise        municipal securities,    
                         ordinary income              otherwise ordinary income

Any taxable dividends and capital gain distributions are taxable whether        
received in cash or reinvested in fund shares. Long-term capital gain distribu- 
tions are taxable to you as long-term capital gain regardless of how long you   
have owned your shares. You may want to avoid buying shares when the fund is    
about to declare a capital gain distribution or a dividend, because it will be  
taxable to you even though it may actually be a return of a portion of your     
investment.                                                                     

After the end of each year, the fund will provide you with information about    
the distributions and dividends you received and any redemptions of             

New York Portfolio                                                              

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shares during the previous year. If you do not provide the fund with your cor-  
rect taxpayer identification number and any required certifications, you may be 
subject to back-up withholding of 31% of your distributions, dividends, and     
redemption proceeds. Because each shareholder's circumstances are different and 
special tax rules may apply, you should consult your tax adviser about your     
investment in the fund.                                                         

Share price                                                                   

You may buy, exchange or redeem shares at their net asset value, plus any       
applicable sales charge, next determined after receipt of your request in good  
order. The fund's net asset value is the value of its assets minus its liabili- 
ties. Net asset value is calculated separately for each class of shares. The    
fund calculates its net asset value every day the New York Stock Exchange is    
open. The Exchange is closed on certain holidays listed in the SAI. This calcu- 
lation is done when regular trading closes on the Exchange (normally 4:00 p.m., 
Eastern time).                                                                  

Generally, the fund's investments are valued by an independent pricing service. 
If market quotations or a valuation from the pricing service is not readily     
available for a security or if a security's value has been materially affected  
by events occurring after the close of the Exchange or market on which the      
security is principally traded, that security may be valued by another method   
that the fund's board believes accurately reflects fair value. A fund that uses 
fair value to price securities may value those securities higher or lower than  
another fund using market quotations to price the same securities. A security's 
valuation may differ depending on the method used for determining value.        

In order to buy, redeem or exchange shares at that day's price, you must place  
your order with your Salomon Smith Barney Financial Consultant or dealer repre- 
sentative before the New York Stock Exchange closes. If the New York Stock      
Exchange closes early, you must place your order prior to the actual closing    
time. Otherwise, you will receive the next business day's price.                

Salomon Smith Barney or members of the selling group must transmit all orders   
to buy, exchange or redeem shares to the fund's agent before the agent's close  
of business.                                                                    

                                                       Smith Barney Mutual Funds

                                                                              21

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Financial highlights                                                          

The financial highlights tables are intended to help you understand the perfor- 
mance of each class for the past 5 years. Certain information reflects finan-   
cial results for a single share. Total return represents the rate that a        
shareholder would have earned (or lost) on a fund share assuming reinvestment   
of all dividends and distributions. The information in the following tables was 
audited by KPMG LLP, independent auditors, whose report, along with the fund's  
financial statements, is included in the annual report (available upon          
request). No information is presented for Class Y shares because no shares were 
outstanding during these fiscal years.                                          

For a Class A share of capital stock outstanding throughout each year ended   
March 31:                                                                     

                                                                [Download Table]

                                   2000(/1/)  1999(/1/)   1998    1997    1996 
-------------------------------------------------------------------------------
                                                                               
 Net asset value, beginning of                                                 
 year                               $13.69     $13.91   $13.16  $13.19  $12.83 
-------------------------------------------------------------------------------
 Income (loss) from operations:                                                
 Net investment income                0.68       0.68     0.72    0.74    0.75 
 Net realized and unrealized gain                                              
 (loss)                              (0.91)      0.07     0.81   (0.03)   0.35 
-------------------------------------------------------------------------------
 Total income (loss) from                                                      
 operations                          (0.23)      0.75     1.53    0.71    1.10 
-------------------------------------------------------------------------------
 Less distributions from:                                                      
 Net investment income               (0.67)     (0.70)   (0.73)  (0.74)  (0.74)
 Net realized gains                  (0.01)     (0.27)   (0.05)     --      -- 
-------------------------------------------------------------------------------
 Total distributions                 (0.68)     (0.97)   (0.78)  (0.74)  (0.74)
-------------------------------------------------------------------------------
 Net asset value, end of year       $12.78     $13.69   $13.91  $13.16  $13.19 
-------------------------------------------------------------------------------
 Total return                        (1.61)%     5.50%   11.83%   5.48%   8.71%
-------------------------------------------------------------------------------
 Net assets, end of year                                                       
 (millions)                           $482       $556     $554    $531    $558 
-------------------------------------------------------------------------------
 Ratios to average net assets:                                                 
 Expenses(/2/)                        0.71%      0.70%    0.71%   0.75%   0.72%
 Net investment income                5.20       4.94     5.28    5.58    5.84 
-------------------------------------------------------------------------------
 Portfolio turnover rate                33%        60%      71%     53%     36%
-------------------------------------------------------------------------------

(/1/) Per share amounts have been calculated using the monthly average shares   
method.                                                             

(/2/) As a result of voluntary expense limitations, the expense ratio will not  
exceed 0.85% for Class A shares.                                    

New York Portfolio                                                              

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For a Class B share of capital stock outstanding throughout each year ended   
March 31:                                                                     

                                                                [Download Table]

                                    2000(/1/)  1999(/1/)   1998    1997    1996 
--------------------------------------------------------------------------------
                                                                                
 Net asset value, beginning of                                                  
 year                                $13.68     $13.89   $13.15  $13.18  $12.84 
--------------------------------------------------------------------------------
 Income (loss) from operations:                                                 
 Net investment income                 0.61       0.61     0.65    0.67    0.67 
 Net realized and unrealized gain                                               
 (loss)                               (0.90)      0.07     0.80   (0.03)   0.35 
--------------------------------------------------------------------------------
 Total income (loss) from                                                       
 operations                           (0.29)      0.68     1.45    0.64    1.02 
--------------------------------------------------------------------------------
 Less distributions from:                                                       
 Net investment income                (0.60)     (0.62)   (0.66)  (0.67)  (0.68)
 Net realized gains                   (0.01)     (0.27)   (0.05)     --      -- 
--------------------------------------------------------------------------------
 Total distributions                  (0.61)     (0.89)   (0.71)  (0.67)  (0.68)
--------------------------------------------------------------------------------
 Net asset value, end of year        $12.78     $13.68   $13.89  $13.15  $13.18 
--------------------------------------------------------------------------------
 Total return                         (2.09)%     5.02%   11.19%   4.96%   8.05%
--------------------------------------------------------------------------------
 Net assets, end of year                                                        
 (millions)                            $156       $192     $195    $185    $181 
--------------------------------------------------------------------------------
 Ratios to average net assets:                                                  
 Expenses(/2/)                         1.23%      1.23%    1.23%   1.27%   1.25%
 Net investment income                 4.67       4.42     4.76    5.06    5.45 
--------------------------------------------------------------------------------
 Portfolio turnover rate                 33%        60%      71%     53%     36%
--------------------------------------------------------------------------------

(/1/) Per share amounts have been calculated using the monthly average shares   
method.                                                             

(/2/) As a result of voluntary expense limitations, the expense ratio will not  
exceed 1.35% for Class B shares.                                    

                                                       Smith Barney Mutual Funds

                                                                              23

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For a Class L share of capital stock outstanding throughout each year ended   
March 31:                                                                     

                                                                [Download Table]

                           2000(/2/)  1999(/1/)(/2/)    1998     1997    1996 
------------------------------------------------------------------------------
                                                                              
 Net asset value,                                                             
 beginning of year          $ 13.67      $ 13.88     $ 13.14  $ 13.17  $12.83 
------------------------------------------------------------------------------
 Income (loss) from                                                           
 operations:                                                                  
 Net investment income         0.60         0.60        0.64     0.66    0.66 
 Net realized and                                                             
 unrealized gain (loss)       (0.90)        0.07        0.80    (0.02)   0.36 
------------------------------------------------------------------------------
 Total income (loss) from                                                     
 operations                   (0.30)        0.67        1.44     0.64    1.02 
------------------------------------------------------------------------------
 Less distributions from:                                                     
 Net investment income        (0.59)       (0.61)      (0.65)   (0.67)  (0.68)
 Net realized gains           (0.01)       (0.27)      (0.05)      --      -- 
------------------------------------------------------------------------------
 Total distributions          (0.60)       (0.88)      (0.70)   (0.67)  (0.68)
------------------------------------------------------------------------------
 Net assets value, end of                                                     
 year                       $ 12.77      $ 13.67     $ 13.88  $ 13.14  $13.17 
------------------------------------------------------------------------------
 Total return                 (2.14)%       4.95%      11.13%    4.91%   8.07%
------------------------------------------------------------------------------
 Net assets, end of year                                                      
 (000s)                     $17,633      $18,221     $10,611  $10,055  $8,931 
------------------------------------------------------------------------------
 Ratios to average net                                                        
 assets:                                                                      
 Expenses(/3/)                 1.27%        1.27%       1.28%    1.32%   1.28%
 Net investment income         4.64         4.37        4.71     5.01    5.02 
------------------------------------------------------------------------------
 Portfolio turnover rate         33%          60%         71%      53%     36%
------------------------------------------------------------------------------

(/1/) On June 12, 1998, Class C shares were renamed Class L shares.             
(/2/) Per share amounts have been calculated using the monthly average shares   
method.                                                             

(/3/) As a result of voluntary expense limitations, the expense ratio will not  
exceed 1.40% for Class L shares.                                    

New York Portfolio                                                              

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                                                              SalomonSmithBarney
                                                    ----------------------------
                                                    A member of citigroup [LOGO]

New York Portfolio                                                              

An investment portfolio of Smith Barney Muni Funds                              

Shareholder reports Annual and semiannual reports to shareholders provide addi- 
tional information about the fund's investments. These reports discuss the mar- 
ket conditions and investment strategies that affected the fund's performance.  

The fund sends only one report to a household if more than one account has the  
same address. Contact your Salomon Smith Barney Financial Consultant, dealer    
representative or the transfer agent if you do not want this policy to apply to 
you.                                                                            

Statement of additional information The statement of additional information     
provides more detailed information about the fund and is incorporated by refer- 
ence into (is legally part of) this prospectus.                                 

You can make inquiries about the fund or obtain shareholder reports or the      
statement of additional information (without charge) by contacting your Salomon 
Smith Barney Financial Consultant or dealer representative, by calling the fund 
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388  
Greenwich Street, MF2, New York, New York 10013.                                

Visit our web site. Our web site is located at www.smithbarney.com              

Information about the fund (including the SAI) can be reviewed and copied at    
the Securities and Exchange Commission's (the "Commission") Public Reference    
Room in Washington, D.C. In addition, information on the operation of the Pub-  
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090. 
Reports and other information about the fund are available on the EDGAR Data-   
base on the Commission's Internet site at http://www.sec.gov. Copies of this    
information may be obtained for a duplicating fee by electronic request at the  
following E-mail address: publicinfo@sec.gov, or by writing the Commission's    
Public Reference Section, Washington, D.C. 20549-0102.                          

If someone makes a statement about the fund that is not in this prospectus, you 
should not rely upon that information. Neither the fund nor the distributor is  
offering to sell shares of the fund to any person to whom the fund may not law- 
fully sell its shares.                                                          

/SM/Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.         

(Investment Company Act file                                                    
no. 811-04395)                                                                  

FD0604 7/00                                                                     

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[LOGO] Smith Barney                                                             
Mutual Funds                                                      
Your Serious Money. Professionally Managed./SM/                                 

P R O S P E C T U S                                                             

Massachusetts                                                                   
Money Market                                                                    
Portfolio                                                                       
Class A and Y Shares                                                            
------------------------------------------------------------                    
July 28, 2000                                                                   

The Securities and Exchange Commission has not approved or disapproved these    
securities or determined whether this prospectus is accurate or complete. Any   
statement to the contrary is a crime.                                           

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Massachusetts Money Market Portfolio                                            

Contents                                                                        

                                                                [Download Table]
                                                                                
Investments, risks and expenses.............................................   2
More on the fund's investments..............................................   6
Management..................................................................   7
Choosing a class of shares to buy...........................................   8
Salomon Smith Barney brokerage accounts.....................................   9
Letter of intent: Class Y shares............................................   9
Deferred sales charges......................................................  10
Buying shares...............................................................  11
Exchanging shares...........................................................  12
Redeeming shares............................................................  14
Other things to know about share transactions...............................  16
Dividends, distributions and taxes..........................................  18
Share price.................................................................  19
Financial highlights........................................................  20

You should know: An investment in the fund is not a bank deposit and is not     
insured or guaranteed by the FDIC or any other government agency. There is no   
assurance that the fund will be able to maintain a stable net asset value of    
$1.00 per share.                                                                

                                                       Smith Barney Mutual Funds

                                                                               1

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Investments, risks and expenses                                               

Investment objective                                                            
The fund seeks to provide income exempt from both federal income taxes and Mas- 
sachusetts personal income taxes.                                               

Principal investment strategies                                                 

Key investments The fund invests at least 80% of its assets in short-term high  
quality Massachusetts municipal securities. These include securities issued by  
the Commonwealth of Massachusetts and certain other municipal issuers, politi-  
cal subdivisions, agencies and public authorities that pay interest which is    
exempt from Massachusetts state personal income taxes. All of the securities in 
which the fund invests are rated in one of the two highest short-term rating    
categories, or if unrated, of equivalent quality. All of these securities have  
remaining maturities of 397 days or less. The fund maintains a dollar-weighted  
average portfolio maturity of 90 days or less.                                  

Selection process The manager selects securities primarily by identifying       
undervalued sectors and individual securities. The manager only selects securi- 
ties of issuers which it believes present minimal credit risk. In selecting     
individual securities, the manager:                                             

. Uses fundamental credit analysis to estimate the relative value and attrac- 
tiveness of various securities and sectors                                  
. May trade between general obligation and revenue bonds and among various reve-
 nue bond sectors, such as housing, hospital and industrial development, based
on their apparent relative values                                           
. Measures the potential impact of supply/demand imbalances for fixed versus  
variable rate securities                                                    
 . Considers the yields available for securities with different maturities and a
security's maturity in light of the outlook for interest rates to identify  
individual securities that offer return advantages at similar risk levels   

Massachusetts Money Market Portfolio                                            

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Principal risks of investing in the fund                                        
Although the fund seeks to preserve the value of your investment at $1 per      
share, it is possible to lose money by investing in the fund, or the fund could 
underperform other municipal short-term debt instruments or money market funds, 
if:                                                                             

. Interest rates rise, causing the value of the fund's portfolio to decline   
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or the security's credit rating is downgraded     
 . Massachusetts municipal securities fall out of favor with investors. The fund
 will suffer more than a national municipal fund from adverse events affecting
Massachusetts municipal issuers                                             
 . Unfavorable legislation affects the tax-exempt status of municipal securities
. The manager's judgment about the attractiveness, value, income potential or 
credit quality of a particular security proves to be incorrect              

It is possible that some of the fund's income distributions may be, and distri- 
butions of the fund's gains generally will be, subject to federal income taxa-  
tion and Massachusetts state personal income taxation. The fund may realize     
taxable gains on the sale of its securities. Some of the fund's income may be   
subject to the federal alternative minimum tax. In addition, distributions of   
the fund's income and gains will be taxable to investors in states other than   
Massachusetts.                                                                  

Who may want to invest The fund may be an appropriate investment if you:        

. Are a Massachusetts taxpayer in a high federal tax bracket seeking current  
income exempt from federal income taxes and Massachusetts personal income   
taxes                                                                       
. Seeking exposure to short-term municipal securities at a minimum level of   
additional risk                                                             
. Are looking to allocate a portion of your assets to money market securities 

Because this fund commenced operations on September 14, 1999, the fund does not 
yet have a sufficient operating history to generate the performance information 
in bar chart and table form which appears in this location in the other Smith   
Barney Muni Funds prospectuses.                                                 

                                                       Smith Barney Mutual Funds

                                                                               3

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Fee table                                                                       
This table sets forth the estimated fees and expenses you will pay if you       
invest in fund shares.                                                          

Shareholder fees

                                                                [Download Table]

(fees paid directly from your investment)   Class A Class Y
                                                           
Maximum sales charge (load) imposed          None    None  
on purchases (as a % of offering price)                    
Maximum deferred sales charge (load)         None*   None  
(as a % of the lower of net asset value at                 
purchase or redemption)                                    

Annual fund operating expenses

                                                                [Download Table]

(expenses deducted from fund assets)     Class A Class Y**
                                                          

Management fees***                        0.50%    0.50%  
Distribution and service (12b-1) fees     0.10%    None   
Other expenses                            0.16%    0.16%  
                                          -----    -----  
Total annual fund operating expenses      0.76%    0.66%  


*Class A Shares acquired through an exchange for shares of another Smith Barney 
Mutual Fund which were originally acquired at net asset value subject to a con- 
tingent deferred sales charge ("CDSC") remain subject to the original fund's    
CDSC.                                                                           
**For Class Y shares "Other Expenses" have been estimated based on expenses     
incurred by Class A shares because no Class Y shares were outstanding for the   
fiscal year ended March 31, 2000.                                               
***Because the manager has voluntarily agreed to limit total annual fund oper-  
ating expenses to 0.65% of the fund's average net assets exclusive of 12b-1     
fees and certain other expenses, actual expenses were:                          

                                                                [Download Table]


                                    Class A   Class Y**

                                                       
Management fee                         0.39%   0.39%   
Total annual fund operating expenses   0.65%   0.55%   

The manager may change or eliminate these expenses at any time.                 

Massachusetts Money Market Portfolio                                            

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Example                                                                         
This example helps you compare the costs of investing in the fund with the      
costs of investing in other mutual funds. Your actual costs may be higher or    
lower. The example assumes:                                                     
.You invest $10,000 in the fund for the period shown                          
.Your investment has a 5% return each year                                    
.You reinvest all distributions and dividends without a sales charge          
.The fund's operating expenses remain the same                                
.Redemption of your shares at the end of the period                           

Number of years you own your shares 

                                                                [Download Table]

         1 year 3 years 5 years 10 years
                                        
Class A   $78    $243    $422     $942  
Class Y   $67    $211    $368     $822  

                                                       Smith Barney Mutual Funds

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More on the fund's investments                                                

Massachusetts municipal securities Massachusetts municipal securities include   
debt obligations issued by certain non-Massachusetts governmental issuers such  
as Puerto Rico, the Virgin Islands and Guam. The interest on Massachusetts      
municipal securities is exempt from federal income tax and Massachusetts per-   
sonal income tax. As a result, the interest rate on these securities normally   
is lower than it would be if the securities were subject to taxation. The       
municipal securities in which the fund invests include general obligation and   
revenue bonds and notes and tax-exempt commercial paper. The fund may invest in 
floating or variable rate municipal securities. Some of these securities may    
have stated final maturities of more than 397 days but have demand features     
that entitle the fund to receive the principal amount of the securities either  
at any time or at specified intervals.                                          

Structured securities The fund may invest up to 20% of its assets in three      
types of structured securities: tender option bonds, partnership interests and  
swap-based securities. These securities represent participation interests in a  
special purpose trust or partnership holding one or more municipal bonds and/or 
municipal bond interest rate swaps. A typical swap enables the trust or part-   
nership to exchange a municipal bond interest rate for a floating or variable,  
short-term municipal interest rate.                                             

These structured securities are a type of derivative instrument. Unlike some    
derivatives, these securities are not designed to leverage the fund's portfolio 
or increase its exposure to interest rate risk.                                 

Investments in structured securities raise certain tax, legal, regulatory and   
accounting issues which may not be presented by investments in other municipal  
bonds. These issues could be resolved in a manner that could hurt the perfor-   
mance of the fund.                                                              

Defensive investing The fund may depart from its principal investment strate-   
gies in response to adverse market, economic or political conditions by taking  
temporary defensive positions in all types of taxable money market and short-   
term debt securities. If the fund takes a temporary defensive position, it may  
be unable to achieve its investment goal.                                       

Massachusetts Money Market Portfolio                                            

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Management                                                                    

Manager The fund's investment manager is SSB Citi Fund Management LLC (succes-  
sor to SSBC Fund Management Inc.), an affiliate of Salomon Smith Barney Inc.    
The manager's address is 388 Greenwich Street, New York, New York 10013. The    
manager selects the fund's investments and oversees its operations. The manager 
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup busi-     
nesses produce a broad range of financial services--asset management, banking   
and consumer finance, credit and charge cards, insurance, investments, invest-  
ment banking and trading--and use diverse channels to make them available to    
consumer and corporate customers around the world.                              

Management fees During the fiscal year ended March 31, 2000, the manager        
received an advisory fee equal to 0.39% of the fund's average daily net assets. 

Distributor The fund has entered into an agreement with Salomon Smith Barney    
Inc. to distribute the fund's shares.                                           

Distribution plan The fund has adopted a Rule 12b-1 distribution plan for its   
Class A shares. Under the plan, Class A shares pay a service fee. The fee in    
Class A shares is an ongoing expense and, over time, it increases the cost of   
your investment and may cost you more than other types of sales charges.        

Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company     
serves as the fund's transfer agent and shareholder servicing agent (the        
"transfer agent"). Pursuant to a sub-transfer agency and services agreement     
with the transfer agent, PFPC Global Fund Services serves as the fund's sub-    
transfer agent (the "sub-transfer agent") to render certain shareholder record  
keeping and accounting services and functions.                                  

                                                       Smith Barney Mutual Funds

                                                                               7

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Choosing a class of shares to buy                                             

You may purchase Class A shares which are sold at net asset value with no ini-  
tial or deferred sales charge. Class A shares are subject to ongoing distribu-  
tion and service fees.                                                          

You may purchase Class Y shares only if you are making an initial investment of 
at least $15,000,000. Class Y shares are sold at net asset value.               

You may buy shares from:                                                        

.A Salomon Smith Barney Financial Consultant                                  
 .An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative                                  

Investment minimums Minimum initial and additional investment amounts vary      
depending on the class of shares you buy and the nature of your investment      
account.                                                                        

                                                                [Download Table]

                                           Initial        Additional 
                                     Class A    Class Y   All Classes
                                                                     
General                               $1,000  $15 million     $50    
Salomon Smith Barney Sweep Features  variable     n/a      variable  
Uniform Gift to Minors Accounts        $250   $15 million     $50    

Massachusetts Money Market Portfolio                                            

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Salomon Smith Barney Brokerage Accounts                                       

If you maintain certain types of securities brokerage accounts with Salomon     
Smith Barney, you may request that your free credit balances (i.e., immediately 
available funds) be invested automatically in Class A shares of a designated    
money market fund either daily or weekly. A complete record of fund dividends,  
purchases and redemptions will be included on your regular Salomon Smith Barney 
brokerage statement. In addition to this sweep service, shareholders of Salomon 
Smith Barney FMA PLUSSM accounts may also take advantage of: free dividend      
reinvestment, unlimited checking, 100 free ATM withdrawals each year, gain/loss 
analysis and online computer access to account information. Contact your Salo-  
mon Smith Barney Financial Consultant for more complete information.            

Letter of intent: Class Y shares                                              

You may buy Class Y shares of the fund at net asset value with no initial sales 
charge. To purchase Class Y shares, you must meet the $15,000,000 initial       
investment requirement. You can use a letter of intent to meet this requirement 
by buying Class Y shares of a fund over a 13-month period. To qualify, you must 
initially invest $5,000,000.                                                    

                                                       Smith Barney Mutual Funds

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Deferred sales charges                                                        

If Class A shares of the fund are acquired by exchange from another Smith Bar-  
ney fund subject to a deferred sales charge the original deferred sales charge  
will apply to these shares. If you redeem these shares within 12 months of the  
date you purchased shares of the original fund, the fund's shares may be sub-   
ject to a deferred sales charge of 1.00%.                                       

The deferred sales charge is based on the net asset value at the time of pur-   
chase or redemption, whichever is less, and therefore you do not pay a sales    
charge on amounts representing appreciation or depreciation.                    

You do not pay a deferred sales charge on:                                      

.Shares exchanged for shares of another Smith Barney fund                     
.Shares that represent reinvested distributions and dividends                 
.Shares that are no longer subject to the deferred sales charge               

Each time you place a request to redeem shares that were acquired by exchange   
from another Smith Barney fund subject to a deferred sales charge, the fund     
will first redeem any shares in your account that are not subject to a deferred 
sales charge and then the shares in your account that have been held the long-  
est.                                                                            

If you redeemed shares of a Smith Barney fund in the past 60 days and paid a    
deferred sales charge, you may buy shares of the fund at the current net asset  
value and be credited with the amount of the deferred sales charge, if you      
notify your Salomon Smith Barney Financial Consultant or dealer representative. 

Salomon Smith Barney receives deferred sales charges as partial compensation    
for its expenses in selling shares, including the payment of compensation to    
your Salomon Smith Barney Financial Consultant or dealer representative.        

Deferred sales charge waivers                                                   
The deferred sales charge for Class A shares will generally be waived:          

.For involuntary redemptions of small account balances                        
.For 12 months following the death or disability of a shareholder             

If you want to learn about additional waivers of deferred sales charges, con-   
tact your Salomon Smith Barney Financial Consultant or dealer representative or 
consult the Statement of Additional Information ("SAI").                        

Massachusetts Money Market Portfolio                                            

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Buying shares                                                                 

 Through a   You should contact your Salomon Smith Barney Financial Con-
Salomon Smith   sultant or dealer representative to open a brokerage account  
Barney   and make arrangements to buy shares.                   
Financial                                                             
Consultant or                                                                 
dealer                                                          
representative                                                                  

             If you do not provide the following information, your order
will be rejected:                             
.Class of shares being bought                 
 .Dollar amount or number of shares being bought

               You should pay for your shares through your brokerage account
           no later than the third business day after you place your
               order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.     
--------------------------------------------------------------------------------
Through the   Certain investors who are clients of the selling group are  
fund's sub-   eligible to buy shares directly from the fund.              
transfer                                                            
agent                                                         

         .Write the sub-transfer agent at the following address:
             Smith Barney Massachusetts Money Market Portfolio
Smith Barney Muni Funds             
(Specify class of shares)           
c/o PFPC Global Fund Services       
P.O. Box 9699                       
Providence, RI 02940-9699           
          .Enclose a check made payable to the fund to pay for the
                 shares. For initial purchases, complete and send an account
application.                              
              .For more information, call the transfer agent at 1-800-451-
2010.                                     

         For more information, contact your Salomon Smith Barney
             Financial Consultant, dealer representative or the transfer
agent or consult the SAI.                     

                                                       Smith Barney Mutual Funds

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Exchanging shares                                                             

Smith Barney   You should contact your Salomon Smith Barney Financial Con-  
    offers a   sultant or dealer representative to exchange into other Smith
distinctive   Barney funds. Be sure to read the prospectus of the Smith   
family of   Barney fund you are exchanging into.                      
funds                                                         
tailored to                                                               
help meet the                                                                 
varying needs                                                                 
of both large                                                                 
and small                                                             
investors                                                             

               .You may exchange shares only for shares of the same class of
                 another Smith Barney fund. Not all Smith Barney funds offer
all classes.                              
             .Not all Smith Barney funds may be offered in your state of
                 residence. Contact your Salomon Smith Barney Financial Con-
           sultant, dealer representative or the transfer agent.
             .You must meet the minimum investment amount for each fund.
              .If you hold share certificates, the sub-transfer agent must
            receive the certificates endorsed for transfer or with
              signed stock powers (documents transferring ownership of
     certificates) before the exchange is effective.
               .The fund may suspend or terminate your exchange privilege if
      you engage in an excessive pattern of exchanges.

--------------------------------------------------------------------------------
Sales charges   Your shares may be subject to an initial sales charge at the  
               time of the exchange. For more information, contact your Sal-
               omon Smith Barney Financial Consultant, dealer representative
or the transfer agent.                        

              Your deferred sales charge (if any) will continue to be mea-
          sured from the date of your original purchase of another
   fund's shares subject to a deferred sales charge.

Massachusetts Money Market Portfolio                                            

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By telephone   If you do not have a brokerage account, you may be eligible  
              to exchange shares through the transfer agent. You must com-
               plete an authorization form to authorize telephone transfers.
              If eligible, you may make telephone exchanges on any day the
             New York Stock Exchange is open. Call the transfer agent at
         1-800-451-2010 between 9:00 a.m. and 4:00 p.m. (Eastern
time).                                        

             You can make telephone exchanges only between accounts that
have identical registrations.                 
--------------------------------------------------------------------------------
    By mail   If you do not have a Salomon Smith Barney brokerage account,
               contact your dealer representative or write to the sub-trans-
 fer agent at the address on the following page.

                                                       Smith Barney Mutual Funds

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Redeeming shares                                                              

Generally   Contact your Salomon Smith Barney Financial Consultant or 
     dealer representative to redeem shares of the fund.

             If you hold share certificates, the sub-transfer agent must
               receive the certificates endorsed for transfer or with signed
  stock powers before the redemption is effective.

             If the shares are held by a fiduciary or corporation, other
documents may be required.                    

             Your redemption proceeds will be sent within three business
             days after your request is received in good order. However,
              if you recently purchased your shares by check, your redemp-
           tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.   

            If you have a Salomon Smith Barney brokerage account, your
            redemption proceeds will be placed in your account and not
               reinvested without your specific instruction. In other cases,
               unless you direct otherwise, your redemption proceeds will be
 paid by check mailed to your address of record.
--------------------------------------------------------------------------------
     By mail   For accounts held directly at the fund, send written requests
     to the sub-transfer agent at the following address:
             Smith Barney Massachusetts Money Market Portfolio
Smith Barney Muni Funds             
(Specify class of shares)           
c/o PFPC Global Fund Services       
P.O. Box 9699                       
Providence, RI 02940-9699           

  Your written request must provide the following:

.Your account number                          
         .The class of shares and the dollar amount or number of
shares to be redeemed                     
            .Signatures of each owner exactly as the account is regis-
tered                                     

Massachusetts Money Market Portfolio                                            

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By telephone   If you do not have a brokerage account, you may be eligible  
               to redeem shares in amounts up to $10,000 per day through the
            transfer agent. You must complete an authorization form to
               authorize telephone redemptions. If eligible, you may request
        redemptions by telephone on any day the New York Stock
             Exchange is open. Call the transfer agent at 1-800-451-2010
 between 9:00 a.m. and 4:00 p.m. (Eastern time).

               Your redemption proceeds can be sent by check to your address
               of record or by wire transfer to a bank account designated on
              your authorization form. You must submit a new authorization
            form to change the bank account designated to receive wire
               transfers and you may be asked to provide certain other docu-
ments.                                        

         For more information, contact your Salomon Smith Barney
              Financial Consultant or dealer representative or consult the
SAI.                                          

                                                       Smith Barney Mutual Funds

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Other things to know about share transactions                                 

When you buy, exchange or redeem shares, your request must be in good order.    
This means you have provided the following information, without which your      
request will not be processed:                                                  

.Name of the fund                                                             
.Account number                                                               
.Class of shares being bought, exchanged or redeemed                          
.Dollar amount or number of shares being bought, exchanged or redeemed        
.Signature of each owner exactly as the account is registered                 

A request to purchase becomes effective only when Salomon Smith Barney, a sell- 
ing group member of the transfer agent receives, or converts the purchase       
amount into federal funds. The transfer agent will try to confirm that any tel- 
ephone exchange or redemption request is genuine by recording calls, asking the 
caller to provide a personal identification number for the account, sending you 
a written confirmation or requiring other confirmation procedures from time to  
time.                                                                           

Signature guarantees To be in good order, your redemption request must include  
a signature guarantee if you:                                                   

.Are redeeming over $10,000 of shares                                         
.Are sending signed share certificates or stock powers to the sub-transfer    
agent                                                                       
 .Instruct the sub-transfer agent to mail the check to an address different from
the one on your account                                                     
.Changed your account registration                                            
.Want the check paid to someone other than the account owner(s)               
 .Are transferring the redemption proceeds to an account with a different regis-
tration                                                                     

You can obtain a signature guarantee from most banks, dealers, brokers, credit  
unions and federal savings and loan institutions, but not from a notary public. 

The fund has the right to:                                                      

.Suspend the offering of shares                                               
.Waive or change minimum and additional investment amounts                    
.Reject any purchase or exchange order                                        
.Change, revoke or suspend the exchange privilege                             
.Suspend telephone transactions                                               

Massachusetts Money Market Portfolio                                            

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.Suspend or postpone redemptions of shares on any day when trading on the New 
York Stock Exchange is restricted, or as otherwise permitted by the Securi- 
ties and Exchange Commission                                                
.Pay redemption proceeds by giving you securities. You may pay transaction    
costs to dispose of the securities.                                         

Small account balances If your account falls below $500 because of a redemption 
of fund shares, the fund may ask you to bring your account up to $500. If your  
account is still below $500 after 60 days, the fund may close your account and  
send you the redemption proceeds.                                               

Excessive exchange transactions The manager may determine that a pattern of     
frequent exchanges is detrimental to the fund's performance and other share-    
holders. If so, the fund may limit additional purchases and/or exchanges by the 
shareholder.                                                                    

Share certificates The fund does not issue share certificates unless a written  
request signed by all registered owners is made to the sub-transfer agent. If   
you hold share certificates it will take longer to exchange or redeem shares.   

                                                       Smith Barney Mutual Funds

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Dividends, distributions and taxes                                            

Dividends The fund declares a dividend of substantially all of its net invest-  
ment income on each day the New York Stock Exchange (NYSE) is open. Income div- 
idends are paid monthly. The fund generally makes capital gain distributions,   
if any, once a year, typically in December. The fund may pay additional distri- 
butions and dividends at other times if necessary for the fund to avoid a fed-  
eral tax. Capital gain distributions and dividends are reinvested in additional 
fund shares of the same class you hold. The fund expects distributions to be    
primarily from income. You do not pay a sales charge on reinvested distribu-    
tions or dividends. Alternatively, you can instruct your Salomon Smith Barney   
Financial Consultant, dealer representative or the transfer agent to have your  
distributions and/or dividends paid in cash. You can change your choice at any  
time to be effective as of the next distribution or dividend, except that any   
change given to the transfer agent less than five days before the payment date  
will not be effective until the next distribution or dividend is paid.          

Taxes In general, redeeming shares, exchanging shares and receiving distribu-   
tions (whether in cash or additional shares) are all taxable events.            

                                                                [Download Table]

Transaction                Federal tax status     Massachusetts tax status
                                                                          
Redemption or exchange of  Usually no gain or     Usually no gain or      
shares                     loss; loss may result  loss; loss may          
                           to extent of any       result to extent of     
                           deferred sales charge  any deferred sales      
                                                  charge                  
Long-term capital gain     Taxable gain           Taxable gain            
distributions                                                             
Short-term capital gain    Ordinary income        Ordinary income         
distributions                                                             
Dividends                  Excluded from gross    Exempt from personal    
                           income if from         income taxes if from    
                           interest on tax-exempt interest on             
                           securities, otherwise  Massachusetts           
                           ordinary income        municipal               
                                                  securities,             
                                                  otherwise ordinary      
                                                  income                  

The fund anticipates that it will normally not earn or distribute any long-term 
capital gains.                                                                  

After the end of each year, the fund will provide you with information about    
the distributions and dividends you received and any redemptions of             

Massachusetts Money Market Portfolio                                            

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shares during the previous year. If you do not provide the fund with your cor-  
rect taxpayer identification number and any required certifications, you may be 
subject to back-up withholding of 31% of your distributions and dividends.      
Because each shareholder's circumstances are different and special tax rules    
may apply, you should consult your tax adviser about your investment in the     
fund.                                                                           

Share price                                                                   

You may buy, exchange or redeem shares at their net asset value, plus any       
applicable sales charge, next determined after receipt of your request in good  
order. The fund's net asset value is the value of its assets minus its liabili- 
ties. Net asset value is calculated separately for each class of shares. The    
fund calculates its net asset value every day the New York Stock Exchange is    
open. The Exchange is closed on certain holidays listed in the SAI. This calcu- 
lation is done when regular trading closes on the Exchange (normally 4:00 p.m., 
Eastern time).                                                                  

The fund uses the amortized cost method to value its portfolio securities.      
Using this method, the fund constantly amortizes over the remaining life of a   
security the difference between the principal amount due at maturity and the    
cost of the security to the fund. The fund intends to use its best effort to    
continue to maintain a constant net asset value of $1.00.                       

                                                                [Download Table]

                                           Purchase is Effective and Dividends  
Form of Purchase Payment                                  Begin                 
                                                                                
 .Payment in federal funds                 If received before At the close of   
 .Having a sufficient cash balance in      the close of       regular trading on
 your account with Salomon Smith Barney   regular trading on the Exchange on    
 or a selling group member                the Exchange:      that day           
                                          If received after  At the close of    
                                          the close of       regular trading on 
                                          regular trading on the Exchange on    
                                          the Exchange:      the next business  
                                                             day                
 .Other forms of payment, with conversion  At the close of regular trading on   
 into, or advance of, federal funds by    the Exchange on the next business day 
 Salomon Smith Barney or a selling group                                        
 member                                                                         
 .Other forms of payment received by the                                        
 transfer agent                                                                 

Salomon Smith Barney or members of the selling group must transmit all orders   
to buy, exchange or redeem shares to the fund's agent before the agent's close  
of business.                                                                    

                                                       Smith Barney Mutual Funds

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Financial highlights                                                          

The financial highlights table is intended to help you understand the perfor-   
mance of each class for the past 5 years (or since inception if less than 5     
years). Certain information reflects financial results for a single share.      
Total return represents the rate that a shareholder would have earned (or lost) 
on a fund share assuming reinvestment of all dividends and distributions. The   
information in the following tables was audited by KPMG LLP, independent audi-  
tors, whose report, along with the fund's financial statements, is included in  
the annual report (available upon request). No information is presented for     
Class Y shares because no shares were outstanding during the fiscal period.     

For a Class A share of beneficial interest outstanding throughout the period  
ended March 31:                                                               

                                                                [Download Table]

                                        2000(/1/)            
-------------------------------------------------------------
                                                             
 Net asset value, beginning of period     $1.00              
-------------------------------------------------------------
 Net investment income(/2/)               0.016              
 Dividends from net investment income    (0.016)             
-------------------------------------------------------------
 Net asset value, end of period           $1.00              
-------------------------------------------------------------
 Total return++                            1.66%             
-------------------------------------------------------------
 Net assets, end of period (millions)      $260              
-------------------------------------------------------------
 Ratios to average net assets+:                              
 Expenses(/2/)(/3/)                        0.65%             
 Net investment income                     3.05              
-------------------------------------------------------------
(/1/For)the period from September 14, 1999 to March 31, 2000.

(/2/The)manager waived a portion of its fees for the period ended March 31,     
 2000. If such fees were not waived, the per share decrease on net invest-
ment income and the actual expense ratio would have been as follows:    

                                                                [Download Table]

            Per Share Decreases to Expense Ratios 
            Net Investment Income  Without Waivers
                                                  
2000 (/1/)          $0.001              0.76%     
--------------------------------------------------

(/3/As)a result of voluntary expense limitations, the expense ratio will not    
exceed 0.65%.                                                           
++Total return is not annualized, as it may not be representative of the total
return for the year.                                                      
+ Annualized.                                                                 

Massachusetts Money Market Portfolio                                            

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                                                              SalomonSmithBarney
                                                    ----------------------------
                                                    A member of citigroup [LOGO]

Massachusetts                                                                   
Money Market Portfolio                                                          
An investment portfolio of Smith Barney Muni Funds                              

Shareholder reports Annual and semiannual reports to shareholders provide addi- 
tional information about the fund's investments. These reports discuss the mar- 
ket conditions and investment strategies that affected the fund's performance.  

The fund sends only one report to a household if more than one account has the  
same address. Contact your Salomon Smith Barney Financial Consultant, dealer    
representative or the transfer agent if you do not want this policy to apply to 
you.                                                                            

Statement of additional information The statement of additional information     
provides more detailed information about the fund and is incorporated by refer- 
ence into (is legally part of) this prospectus.                                 

You can make inquiries about the fund or obtain shareholder reports or the      
statement of additional information (without charge) by contacting your Salomon 
Smith Barney Financial Consultant or dealer representative, by calling the fund 
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388  
Greenwich Street, MF2, New York, New York 10013.                                

Visit our web site. Our web site is located at www.smithbarney.com              

Information about the fund (including the SAI) can be reviewed and copied at    
the Securities and Ex-change Commission's (the "Commission") Public Reference   
Room in Washington, D.C. In addition, information on the operation of the Pub-  
lic Reference Room may be obtained by calling the Commission at 1-202-942-8090. 
Reports and other information about the fund are available on the EDGAR Data-   
base on the Commission's Internet site at http://www.sec.gov. Copies of this    
information may be obtained for a duplicating fee by electronic request at the  
following E-mail address: publicinfo@sec.gov, or by writing the Commission's    
Public Reference Section, Washington, D.C. 20549-0102.                          

If someone makes a statement about the fund that is not in this prospectus, you 
should not rely upon that information. Neither the fund nor the distributor is  
offering to sell shares of the fund to any person to whom the fund may not law- 
fully sell its shares.                                                          

SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.           

(Investment Company Act file                                                    
no. 811-04395)                                                                  
FD01673 7/00                                                                    

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[SMITH BARNEY MUTUAL FUNDS LOGO] SMITH BARNEY MUTUAL FUNDS                      
YOURS SERIOUS MONEY. PROFESSIONALLY MANAGED. (TM)                               

PROSPECTUS                                                                      

PENNSYLVANIA                                                                    
PORTFOLIO                                                                       
CLASS A, B, L AND Y SHARES                                                      
-----------------------------------------------                                 
JULY 28, 2000                                                                   

The Securities and Exchange Commission has not approved or disapproved these    
securities or determined whether this prospectus is accurate or complete.  Any  
statement to the contrary is a crime.                                           

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PENNSYLVANIA PORTFOLIO                                                          

CONTENTS                                                                  

                                                                [Download Table]
                                                                

Investments, risks and performance.........................    2

More on the fund's investments.............................    7

Management.................................................    9

Choosing a class of shares to buy..........................   10

Comparing the fund's classes...............................   11

Sales charges..............................................   12

More about deferred sales charges..........................   15

Buying shares..............................................   16

Exchanging shares..........................................   17

Redeeming shares...........................................   19

Other things to know about share transactions..............   21

Dividends, distributions and taxes.........................   23

Share price................................................   25

Financial highlights.......................................   25

YOU SHOULD KNOW: An investment in the fund is not a bank deposit and is not     
insured or guaranteed by the FDIC or any other government agency.               

1  Pennsylvania Portfolio                                                       

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INVESTMENTS, RISKS AND PERFORMANCE                                        

INVESTMENT OBJECTIVE                                                            

The fund seeks as high a level of income exempt from federal income taxes and   
Pennsylvania personal income taxes as is consistent with prudent investing.     

PRINCIPAL INVESTMENT STRATEGIES                                                 

KEY INVESTMENTS  The fund invests at least 80% of its net assets in municipal   
securities, and at least 65% of its net assets in Pennsylvania municipal        
securities. Pennsylvania municipal securities include securities issued by the  
Commonwealth of Pennsylvania and certain other municipal issuers, political     
subdivisions, agencies and public authorities that pay interest which is exempt 
from Pennsylvania state personal income taxes. The fund focuses primarily on    
intermediate-term and long-term municipal securities which have remaining       
maturities at the time of purchase from five to more than thirty years. The fund
invests exclusively in municipal securities that are rated investment grade at  
the time of purchase or are of comparable quality if unrated. At least          
two-thirds of the municipal securities must be rated, at the time of purchase,  
within the three highest investment grade rating categories by a nationally     
recognized rating organization.                                                 

SELECTION PROCESS  The manager selects securities primarily by identifying      
undervalued sectors and individual securities, while also selecting securities  
it believes will benefit from changes in market conditions. In selecting        
individual securities, the manager:                                             

- Uses fundamental credit analysis to estimate the relative value and           
 attractiveness of various securities and sectors and to exploit opportunities
in the municipal bond market                                                

- May trade between general obligation and revenue bonds and among various      
revenue bond sectors, such as housing, hospital and industrial development, 
based on their apparent relative values and their impact on the level of    
dividends generated by the overall portfolio                                

- Identifies individual securities with the most potential for added value, such
as those involving unusual situations, new issuers, the potential for credit
upgrades, unique structural characteristics or innovative features          

- Considers the yield available for securities with different maturities and a  
 security's maturity in light of the outlook for the issuer and its sector and
interest rates                                                              

2  Pennsylvania Portfolio                                                       

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PRINCIPAL RISKS OF INVESTING IN THE FUND                                        

Investors could lose money on their investment in the fund, or the fund may not 
perform as well as other investments, if:                                       

- Interest rates rise, causing the value of the fund's portfolio to decline     

- The issuer of a security owned by the fund defaults on its obligation to pay  
principal and/or interest or the security's credit rating is downgraded     

- Pennsylvania municipal securities fall out of favor with investors. The fund  
 will suffer more than a national municipal fund from adverse events affecting
Pennsylvania municipal issuers                                              

- Unfavorable legislation affects the tax-exempt status of municipal bonds      

- The manager's judgment about the attractiveness, value or income potential of 
a particular security proves to be incorrect                                

It is possible that some of the fund's income distributions may be, and         
distributions of the fund's gains generally will be, subject to federal income  
taxation and Pennsylvania state personal income taxation. The fund may realize  
taxable gains on the sale of its securities or on transactions in futures       
contracts. Some of the fund's income may be subject to the federal alternative  
minimum tax. In addition, distributions of the fund's income and gains will be  
taxable to investors in states other than Pennsylvania.                         

The fund is classified as "non-diversified," which means it may invest a larger 
percentage of its assets in one issuer than a diversified fund. To the extent   
the fund invests its assets in fewer issuers, the fund will be more susceptible 
to negative events affecting those issuers.                                     

WHO MAY WANT TO INVEST  The fund may be an appropriate investment if you:       

- Are a Pennsylvania taxpayer in a high federal tax bracket seeking income      
exempt from federal income taxes and Pennsylvania personal income taxes     

- Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio                                                        

- Are willing to accept the risks of municipal securities, including the risks  
of concentrating in a single state                                          

                                                   Smith Barney Mutual Funds   3

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RISK RETURN BAR CHART                                                           

This bar chart indicates the risks of investing in the fund by showing changes  
in the fund's performance from year to year. Past performance does not          
necessarily indicate how the fund will perform in the future. The bar chart     
shows the performance of the fund's Class A shares for each of the past 5 full  
calendar years. Class B, L and Y shares would have different performance because
of their different expenses. The performance information in the chart does not  
reflect sales charges, which would reduce your return.                          

TOTAL RETURN CLASS A SHARES 
[Bar Chart]                                                                     

                                                                [Download Table]


95            96           97            98            99   
--            --           --            --            --   
                                                            
19.52%      4.06%         12.00%       5.76%         (6.24)%


CALENDAR YEARS ENDED DECEMBER 31

QUARTERLY RETURNS:                                                              

Highest: 8.04% in 1st quarter 1995;  Lowest: (2.69)% in 4th quarter 1999        
Year to date: 4.53% through 6/30/00.                                            

RISK RETURN TABLE                                                               

This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman 
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged     
index of municipal bonds, and the Lipper Pennsylvania Municipal Debt Funds      
Average (the "Lipper Average"), an average composed of the fund's peer group of 
mutual funds. This table assumes imposition of the maximum sales charge         
applicable to the class, redemption of shares at the end of the period, and     
reinvestment of distributions and dividends.                                    

AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1999

                                                                [Download Table]

    CLASS        1 YEAR   5 YEARS  10 YEARS  SINCE INCEPTION  INCEPTION DATE
                                                                            
      A         (9.97)%   5.80%     n/a        5.17%            4/4/94      
      B         (10.17)%  5.96%     n/a        4.92%           6/20/94      
      L         (8.59)%   5.84%     n/a        5.12%            4/5/94      
 Lehman Index   (2.06)%   6.91%    6.89%       5.98%              *         
Lipper Average  (4.70)%   5.71%    6.20%       4.86%              *         

*Index comparison begins on April 30, 1994.                                     

4  Pennslyvania Portfolio                                                       

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FEE TABLE                                                                       
This table sets forth the fees and expenses you will pay if you invest in fund  
shares.                                                                         

SHAREHOLDER FEES

                                                                [Download Table]

(FEES PAID DIRECTLY FROM YOUR INVESTMENT)  CLASS A   CLASS B   CLASS L   CLASS Y
                                                                                
Maximum sales charge (load) imposed on                                          
purchases (as a % of offering price)       4.00%      None     1.00%     None   

Maximum deferred sales charge (load) (as                                        
a % of the lower of net asset value at                                          
purchase or redemption)                    None*     4.50%     1.00%     None   

ANNUAL FUND OPERATING EXPENSES

                                                                [Download Table]

(EXPENSES DEDUCTED FROM ASSETS)  CLASS A   CLASS B   CLASS L   CLASS Y**
                                                                        
Management fee***                0.45%     0.45%     0.45%      0.45%   

Distribution and service                                                
  (12b-1) fees                   0.15%     0.65%     0.70%      None    
Other expenses                   0.15%     0.16%     0.17%      0.15%   
                                  -----     -----     -----      -----  

Total annual fund operating                                             
  expenses                       0.75%     1.26%     1.32%      0.60%   


 *You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge) but if you redeem those shares within 12      
months of their purchase, you will pay a deferred sales charge of 1.00%.        

**For Class Y shares, "Other Expenses" have been estimated based on expenses  
incurred by Class A shares because no Class Y shares were outstanding for the   
fiscal year ended March 31, 2000.                                               

***Because the manager has voluntarily agreed to limit total annual fund        
operating expenses to 0.65% of the fund's average net assets exclusive of 12b-1 
fees and certain other expenses, actual expenses were:                          

                            CLASS A    CLASS B    CLASS L    CLASS Y**
Management fee                   0.33%     0.33%      0.33%      0.33%      

Total annual fund operating                                                 
expenses                         0.63%     1.15%      1.20%      0.48%      

The manager may change or eliminate these expense limits at any time.           

                                                   Smith Barney Mutual Funds   5

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EXAMPLE                                                                         

This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.   
The example assumes:                                                            

- You invest $10,000 in the fund for the period shown                           

- Your investment has a 5% return each year                                     

- You reinvest all distributions and dividends without a sales charge           

- The fund's operating expenses remain the same                                 

NUMBER OF YEARS YOU OWN YOUR SHARES 

                                                                [Download Table]

                                    1 YEAR   3 YEARS   5 YEARS   10 YEARS
                                                                         
Class A (with or without                                                 
redemption)                          $474     $630      $800      $1,293 

Class B (redemption at end of                                            
period)                              $578     $700      $792      $1,382 
Class B (no redemption)              $128     $400      $692      $1,382 

Class L (redemption at end of                                            
period)                              $333     $514      $816      $1,674 
Class L (no redemption)              $233     $514      $816      $1,674 

Class Y (with or without                                                 
redemption)                          $ 61     $192      $335      $  750 

6  Pennslyvania Portfolio                                                       

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MORE ON THE FUND'S INVESTMENTS                                            

PENNSYLVANIA MUNICIPAL SECURITIES  Pennsylvania municipal securities include    
debt obligations issued by certain non-Pennsylvania governmental issuers such as
Puerto Rico, the Virgin Islands and Guam. The interest on these bonds is exempt 
from federal income tax and Pennsylvania personal income tax. As a result, the  
interest rate on these bonds normally is lower than it would be if the bonds    
were subject to taxation. The Pennsylvania municipal securities in which the    
fund invests include general obligation bonds, revenue bonds and municipal      
leases. These securities may pay interest at fixed, variable or floating rates. 
The fund may also hold zero coupon securities which pay no interest during the  
life of the obligation but trade at prices below their stated maturity value.   

OTHER DEBT SECURITIES  The fund may invest up to 35% of its assets in municipal 
securities of non-Pennsylvania issuers. These securities will generally be      
exempt from federal, but not Pennsylvania income taxes. The fund may also invest
up to 20% of its assets in debt securities which are issued or guaranteed by the
full faith and credit of the U.S. government. These securities will generally be
subject to federal and state taxation.                                          

DERIVATIVE CONTRACTS  The fund may, but need not, use derivative contracts, such
as financial futures, for any of the following purposes:                        

- To hedge against the economic impact of adverse changes in the market value of
portfolio securities because of changes in interest rates                   

- As a substitute for buying or selling securities                              

A futures contract will obligate or entitle the fund to deliver or receive an   
asset or cash payment based on the change in value of one or more securities.   
The other parties to certain futures contracts present the same types of default
risk as issuers of fixed income securities.                                     

                                               Smith and Barney Mutual Funds   7

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The fund may invest in inverse floating rate securities. These securities pay   
interest at a rate which moves in the opposite direction from movements in      
market interest rates. Inverse floaters and futures are volatile and involve    
leverage which may expose the fund to increased risk of loss. Therefore, using  
futures or inverse floaters can disproportionately increase losses and reduce   
opportunities for gains when interest rates are changing. The fund may not fully
benefit from or may lose money on futures used for hedging purposes if changes  
in their value do not correspond accurately to changes in the value of the      
fund's holdings. Futures and inverse floaters can also make a fund less         
liquid and harder to value, especially in declining markets.                    

DEFENSIVE INVESTING  The fund may depart from its principal investment          
strategies in response to adverse market, economic or political conditions by   
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be    
unable to achieve its investment goal.                                          

8  Pennsylvania Portfolio                                                       

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MANAGEMENT                                                                

MANAGER  The fund's investment adviser (the manager) is SSB Citi Fund Management
LLC (successor to SSBC Fund Management Inc.), an affiliate of Salomon Smith     
Barney Inc. The manager's address is 388 Greenwich Street, New York, New York   
10013. The manager selects the fund's investments and oversees its operations.  
The manager and Salomon Smith Barney are subsidiaries of Citigroup Inc.         
Citigroup businesses produce a broad range of financial services -- asset       
management, banking and consumer finance, credit and charge cards, insurance,   
investments, investment banking and trading -- and use diverse channels to make 
them available to consumer and corporate customers around the world.            

Peter M. Coffey, investment officer of the manager and managing director of     
Salomon Smith Barney, has been responsible for the day-to-day management of the 
fund's portfolio since the fund commenced operations in April 1994. Mr. Coffey  
has 31 years of securities business experience with the manager or its          
predecessor.                                                                    

MANAGEMENT FEES  During the fiscal year ended March 31, 2000, the manager       
received an advisory fee equal to 0.33% of the fund's average daily net assets. 

DISTRIBUTOR  The fund has entered into an agreement with Salomon Smith Barney   
Inc. to distribute the fund's shares.                                           

DISTRIBUTION PLAN  The fund has adopted a Rule 12b-1 distribution plan for its  
Class A, B and L shares. Under the plan, the fund pays distribution and/or      
service fees. These fees are an ongoing expense and, over time, may cost you    
more than other types of sales charges.                                         

TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT  Citi Fiduciary Trust Company    
serves as the fund's transfer agent and shareholder servicing agent (the        
"transfer agent"). Pursuant to a subtransfer agency and services agreement with 
the transfer agent, PFPC Global Fund Services serves as the fund's sub-transfer 
agent (the "sub-transfer agent") to render certain shareholder record keeping   
and accounting services and functions.                                          

                                                    Smith Barney Mutual Funds  9

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CHOOSING A CLASS OF SHARES TO BUY                                         

You can choose among four classes of shares: Classes A, B, L and Y. Each class  
has different sales charges and expenses, allowing you to choose the class that 
best meets your needs. Which class is more beneficial to an investor depends on 
the amount and intended length of the investment.                               

- If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.                         

- For Class B shares, all of your purchase amount and, for Class L shares, more 
of your purchase amount (compared to Class A shares) will be immediately    
invested. This may help offset the higher expenses of Class B and Class L   
shares, but only if the fund performs well.                                 

- Class L shares have a shorter deferred sales charge period than Class B       
  shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.

You may buy shares from:                                                        

- A Salomon Smith Barney Financial Consultant                                   

- An investment dealer in the selling group or a broker that clears through     
Salomon Smith Barney--a dealer representative                               

- The fund, but only if you are investing through certain dealer representatives

INVESTMENT MINIMUMS  Minimum initial and additional investment amounts vary     
depending on the class of shares you buy and the nature of your investment      
account.                                                                        

                                                                [Download Table]

                                                INITIAL              ADDITIONAL 
                                     CLASSES A, B, L     CLASS Y     ALL CLASSES
                                                                                
General                                $1,000          $15 million       $50    

Monthly Systematic Investment Plans     $25                    n/a       $25    

Quarterly Systematic Investment                                                 
Plans                                   $50                    n/a       $50    

Uniform Gift to Minors Accounts         $250           $15 million       $50    

10  Pennsylvania Portfolio                                                      

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COMPARING THE FUND'S CLASSES                                              

Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.                                          

                                                        [Enlarge/Download Table]

                            CLASS A           CLASS B           CLASS L           CLASS Y    
                                                                                             
KEY FEATURES            - Initial sales   - No initial      - Initial sales   - No initial or
                          charge            sales charge      charge is         deferred     
                        - You may         - Deferred          lower than        sales charge 
                          qualify for       sales charge      Class A         - Must invest  
                          reduction or      declines over   - Deferred          at least $15 
                          waiver of         time              sales charge      million      
                          initial sales   - Converts to       for only 1      - Lower annual 
                          charge            Class A after     year              expenses than
                        - Lower annual      8 years         - Does not          the other    
                          expenses than   - Higher annual     convert to        classes      
                          Class B and       expenses than     Class A                        
                          Class L           Class A         - Higher annual                  
                                                              expenses than                  
                                                              Class A                        
---------------------------------------------------------------------------------------------
INITIAL SALES CHARGE    Up to 4.00%;      None              1.00%             None           
                        reduced for                                                          
                        large purchases                                                      
                        and waived for                                                       
                        certain                                                              
                        investors. No                                                        
                        charge for                                                           
                        purchases of                                                         
                        $500,000 or                                                          
                        more                                                                 
---------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE   1.00% on          Up to 4.50%       1.00% if you      None           
                        purchases of      charged when      redeem within 1                  
                        $500,000 or       you redeem        year of                          
                        more if you       shares. The       purchase                         
                        redeem within 1   charge is                                          
                        year of           reduced over                                       
                        purchase          time and there                                     
                                          is no deferred                                     
                                          sales charge                                       
                                          after 6 years                                      
---------------------------------------------------------------------------------------------
ANNUAL DISTRIBUTION     0.15% of          0.65% of          0.70% of          None           
AND SERVICE FEES        average daily     average daily     average daily                    
                        net assets        net assets        net assets                       
---------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE*     Class A shares    Class B shares    Class L shares    Class Y shares 
                        of most Smith     of most Smith     of most Smith     of most Smith  
                        Barney funds      Barney funds      Barney funds      Barney funds   
---------------------------------------------------------------------------------------------

*Ask your Salomon Smith Barney Financial Consultant or dealer representative or 
visit the web site for the Smith Barney funds available for exchange.           

                                                  Smith Barney Mutual Funds   11

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SALES CHARGES                                                             

CLASS A SHARES                                                                  

You buy Class A shares at the offering price, which is the net asset value plus 
a sales charge. You pay a lower sales charge as the size of your investment     
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.

                                                                [Download Table]

                                          SALES CHARGE AS A % OF      
                                     OFFERING              NET AMOUNT 
        AMOUNT OF PURCHASE           PRICE (%)            INVESTED (%)
                                                                      
Less than $25,000                     4.00                  4.17      
$25,000 but less than $50,000         3.50                  3.63      
$50,000 but less than $100,000        3.00                  3.09      
$100,000 but less than $250,000       2.50                  2.56      
$250,000 but less than $500,000       1.50                  1.52      
$500,000 or more                      0.00                  0.00      

INVESTMENTS OF $500,000 OR MORE  You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A    
shares within one year of purchase, you will pay a deferred sales charge of 1%. 

QUALIFYING FOR A REDUCED CLASS A SALES CHARGE  There are several ways you can   
combine multiple purchases of Class A shares of Smith Barney funds to take      
advantage of the breakpoints in the sales charge schedule.                      

- Accumulation privilege - lets you combine the current value of Class A shares 
owned                                                                       

- by you, or                                                                

- by members of your immediate family,                                      

and for which a sales charge was paid, with the amount of your next purchase of 
Class A shares for purposes of calculating the initial sales charge. Certain    
trustees and fiduciaries may be entitled to combine accounts in determining     
their sales charge.                                                             

- Letter of intent - lets you purchase Class A shares of the fund and other     
Smith Barney funds over a 13-month period and pay the same sales charge, if 
  any, as if all shares had been purchased at once. You may include purchases on
which you paid a sales charge within 90 days before you sign the letter.    

12  Pennsylvania Portfolio                                                      

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WAIVERS FOR CERTAIN CLASS A INVESTORS  Class A initial sales charges are waived 
for certain types of investors, including:                                      

- Employees of members of the NASD                                              

- Clients of newly employed Salomon Smith Barney Financial Consultants, if      
certain conditions are met                                                  

- Investors who redeemed Class A shares of a Smith Barney fund in the past 60   
days, if the investor's Salomon Smith Barney Financial Consultant or dealer 
representative is notified                                                  

If you want to learn about additional waivers of Class A initial sales charges, 
contact your Salomon Smith Barney Financial Consultant or dealer representative 
or consult the Statement of Additional Information ("SAI").                     

CLASS B SHARES                                                                  

You buy Class B shares at net asset value without paying an initial sales       
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.                                  

                                                                [Download Table]

  YEAR AFTER PURCHASE     1ST   2ND   3RD   4TH   5TH   6TH THROUGH 8TH
                                                                       
Deferred sales charge     4.5%   4%    3%    2%    1%          0%      

CLASS B CONVERSION  After 8 years, Class B shares automatically convert into    
Class A shares. This helps you because Class A shares have lower annual         
expenses. Your Class B shares will convert to Class A shares as follows:        

                                                                [Download Table]
                                                                   
                       Shares issued: On      Shares issued: Upon  
                       reinvestment of        exchange from another
Shares issued: At      dividends and          Smith Barney fund    
initial purchase       distributions                               

Eight years after the  In same proportion     On the date the      
date of purchase       as the number of       shares originally    
                       Class B shares         acquired would have  
                       convert-ing is to      converted into Class 
                       total Class B shares   A shares             
                       you own (excluding                          
                       shares issued as                            
                       dividends)                                  

                                                   Smith Barney Mutual Funds  13

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CLASS L SHARES                                                                  

You buy Class L shares at the offering price, which is the net asset value plus 
a sales charge of 1% (1.01% of the net amount invested). In addition, if you    
redeem your Class L shares within one year of purchase, you will pay a deferred 
sales charge of 1%. If you held Class C shares of the fund and/or other Smith   
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge  
on Class L shares you buy before June 22, 2001.                                 

CLASS Y SHARES                                                                  

You buy Class Y shares at net asset value with no initial sales charge and no   
deferred sales charge when you redeem. You must meet the $15,000,000 initial    
investment requirement. You can use a letter of intent to meet this requirement 
by buying Class Y shares of the fund over a 13-month period. To qualify, you    
must initially invest $5,000,000.                                               

14  Pennsylvania Portfolio                                                      

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MORE ABOUT DEFERRED SALES CHARGES                                         

The deferred sales charge is based on the net asset value at the time of        
purchase or redemption, whichever is less, and therefore you do not pay a sales 
charge on amounts representing appreciation or depreciation.                    

In addition, you do not pay a deferred sales charge on:                         

- Shares exchanged for shares of another Smith Barney fund                      

- Shares representing reinvested distributions and dividends                    

- Shares no longer subject to the deferred sales charge                         

Each time you place a request to redeem shares, the fund will first redeem any  
shares in your account that are not subject to a deferred sales charge and then 
the shares in your account that have been held the longest.                     

If you redeemed shares of a Smith Barney fund in the past 60 days and paid a    
deferred sales charge, you may buy shares of the fund at the current net asset  
value and be credited with the amount of the deferred sales charge, if you      
notify your Salomon Smith Barney Financial Consultant or dealer representative. 

Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your   
Salomon Smith Barney Financial Consultant or dealer representative.             

DEFERRED SALES CHARGE WAIVERS                                                   

The deferred sales charge for each share class will generally be waived:        

- On payments made through certain systematic withdrawal plans                  

- For involuntary redemptions of small account balances                         

- For 12 months following the death or disability of a shareholder              

If you want to learn more about additional waivers of deferred sales charges,   
contact your Salomon Smith Barney Financial Consultant or dealer representative 
or consult the SAI.                                                             

                                                  Smith Barney Mutual Funds   15

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BUYING SHARES                                                             

                                                                [Download Table]
                                                                       

           Through a   You should contact your Salomon Smith Barney    
       Salomon Smith   Financial Consultant or dealer representative to
    Barney Financial   open a brokerage account and make arrangements  
      representative   to buy shares.                                  

                       If you do not provide the following information,
                       your order will be rejected:                    

                       - Class of shares being bought                  
                       - Dollar amount or number of shares being bought

                       You should pay for your shares through your     
                       brokerage account no later than the third       
                       business day after you place your order. Salomon
                       Smith Barney or your dealer representative may  
                       charge an annual account maintenance fee.       
-----------------------------------------------------------------------
         Through the   Certain investors who are clients of the selling
 fund's sub-transfer   group are eligible to buy shares directly from  
               agent   the fund.                                       

                       - Write the sub-transfer agent at the following 
                         address:                                      
                           SMITH BARNEY PENNSYLVANIA PORTFOLIO         
                           SMITH BARNEY MUNI FUNDS                     
                           (SPECIFY CLASS OF SHARES)                   
                           C/O PFPC GLOBAL FUND SERVICES               
                           P.O. BOX 9699                               
                           PROVIDENCE, RI 02940-9699                   
                       - Enclose a check made payable to the fund to   
                         pay for the shares. For initial purchases,    
                         complete and send an account application.     
                       - For more information, call the transfer agent 
                         at 1-800-451-2010.                            
-----------------------------------------------------------------------
           Through a   You may authorize Salomon Smith Barney, your    
          systematic   dealer representative or the sub-transfer agent 
     investment plan   to transfer funds automatically from a regular  
                       bank account, cash held in a Salomon Smith      
                       Barney brokerage account or Smith Barney money  
                       market fund to buy shares on a regular basis.   

                       - Amounts transferred should be at least: $25   
                         monthly or $50 quarterly                      
                       - If you do not have sufficient funds in your   
                         account on a transfer date, Salomon Smith     
                         Barney, your dealer representative or the     
                         sub-transfer agent may charge you a fee       

                       For more information, contact your Salomon Smith
                       Barney Financial Consultant, dealer             
                       representative or the transfer agent or consult 
                       the SAI.                                        

16  Pennsylvania Portfolio                                                      

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EXCHANGING SHARES                                                         

                                                                [Download Table]
                                                                     
 Smith Barney offers   You should contact your Salomon Smith Barney  
       a distinctive   Financial Consultant or dealer representative 
     family of funds   to exchange into other Smith Barney funds. Be 
    tailored to help   sure to read the prospectus of the Smith      
    meet the varying   Barney fund you are exchanging into. An       
       needs of both   exchange is a taxable transaction.            
     large and small                                                 
           investors   - You may exchange shares only for shares of  
                         the same class of another Smith Barney fund.
                         Not all Smith Barney funds offer all        
                         classes.                                    
                       - Not all Smith Barney funds may be offered   
                         in your state of residence. Contact your    
                         Salomon Smith Barney Financial Consultant,  
                         dealer representative or the transfer       
                         agent.                                      
                       - You must meet the minimum investment amount 
                         for each fund (except for systematic        
                         exchanges).                                 
                       - If you hold share certificates, the         
                         sub-transfer agent must receive the         
                         certificates endorsed for transfer or with  
                         signed stock powers (documents transferring 
                         ownership of certificates) before the       
                         exchange is effective.                      
                       - The fund may suspend or terminate your      
                         exchange privilege if you engage in an      
                         excessive pattern of exchanges.             
-------------------------------------------------------------------- 
           Waiver of   Your shares will not be subject to an initial 
          additional   sales charge at the time of the exchange.     
       sales charges                                                 
                       Your deferred sales charge (if any) will      
                       continue to be measured from the date of your 
                       original purchase. If the fund you exchange   
                       into has a higher deferred sales charge, you  
                       will be subject to that charge. If you        
                       exchange at any time into a fund with a lower 
                       charge, the sales charge will not be reduced. 
-------------------------------------------------------------------- 

                                                  Smith Barney Mutual Funds   17

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                                                                [Download Table]
                                                                    

        By telephone   If you do not have a brokerage account, you  
                       may be eligible to exchange shares through   
                       the transfer agent. You must complete an     
                       authorization form to authorize telephone    
                       transfers. If eligible, you may make         
                       telephone exchanges on any day the New York  
                       Stock Exchange is open. Call the transfer    
                       agent at 1-800-451-2010 between 9:00 a.m. and
                       4:00 p.m. (Eastern time).                    

                       You can make telephone exchanges only between
                       accounts that have identical registrations.  
--------------------------------------------------------------------
             By mail   If you do not have a Salomon Smith Barney    
                       brokerage account, contact your dealer       
                       representative or write to the sub-transfer  
                       agent at the address on the following page.  

18  Pennsylvania Portfolio                                                      

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REDEEMING SHARES                                                          

                                                                [Download Table]
                                                                    
           Generally   Contact your Salomon Smith Barney Financial  
                       Consultant or dealer representative to redeem
                       shares of the fund.                          

                       If you hold share certificates, the          
                       sub-transfer agent must receive the          
                       certificates endorsed for transfer or with   
                       signed stock powers before the redemption is 
                       effective.                                   

                       If the shares are held by a fiduciary or     
                       corporation, other documents may be required.
                       Your redemption proceeds will be sent within 
                       three business days after your request is    
                       received in good order. However, if you      
                       recently purchased your shares by check, your
                       redemption proceeds will not be sent to you  
                       until your original check clears, which may  
                       take up to 15 days.                          

                       If you have a Salomon Smith Barney brokerage 
                       account, your redemption proceeds will be    
                       placed in your account and not reinvested    
                       without your specific instruction. In other  
                       cases, unless you direct otherwise, your     
                       redemption proceeds will be paid by check    
                       mailed to your address of record.            
--------------------------------------------------------------------
             By mail   For accounts held directly at the fund, send 
                       written requests to the sub-transfer agent at
                       the following address:                       
                            SMITH BARNEY PENNSYLVANIA PORTFOLIO     
                            SMITH BARNEY MUNI FUNDS                 
                            (SPECIFY CLASS OF SHARES)               
                            C/O PFPC GLOBAL FUND SERVICES           
                            P.O. BOX 9699                           
                            PROVIDENCE, RI 02940-9699               
                       Your written request must provide the        
                       following:                                   
                       - Your account number                        
                       - The class of shares and the dollar amount  
                         or number of shares to be redeemed         
                       - Signatures of each owner exactly as the    
                         account is registered                      
--------------------------------------------------------------------

                                                  Smith Barney Mutual Funds   19

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                                                                [Download Table]
                                                                    

        By telephone   If you do not have a brokerage account, you  
                       may be eligible to redeem shares in amounts  
                       up to $10,000 per day through the transfer   
                       agent. You must complete an authorization    
                       form to authorize telephone redemptions. If  
                       eligible, you may request redemptions by     
                       telephone on any day the New York Stock      
                       Exchange is open. Call the transfer agent at 
                       1-800-451-2010 between 9:00 a.m. and 4:00    
                       p.m. (Eastern time).                         

                       Your redemption proceeds can be sent by check
                       to your address of record or by wire transfer
                       to a bank account designated on your         
                       authorization form. You must submit a new    
                       authorization form to change the bank account
                       designated to receive wire transfers and you 
                       may be asked to provide certain other        
                       documents.                                   
--------------------------------------------------------------------
           Automatic   You can arrange for the automatic redemption 
                cash   of a portion of your shares on a monthly or  
          withdrawal   quarterly basis. To qualify you must own     
               plans   shares of the fund with a value of at least  
                       $10,000 and each automatic redemption must be
                       at least $50. If your shares are subject to a
                       deferred sales charge, the sales charge will 
                       be waived if your automatic payments do not  
                       exceed 1% per month of the value of your     
                       shares subject to a deferred sales charge.   

                       The following conditions apply:              
                       - Your shares must not be represented by     
                         certificates                               
                       - All dividends and distributions must be    
                         reinvested                                 

                       For more information, contact your Salomon   
                       Smith Barney Financial Consultant or dealer  
                       representative or consult the SAI.           

20  Pennsylvania Portfolio                                                      

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OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS                             

When you buy, exchange or redeem shares, your request must be in good order.    
This means you have provided the following information, without which your      
request will not be processed:                                                  

- Name of the fund                                                              

- Account number                                                                

- Class of shares being bought, exchanged or redeemed                           

- Dollar amount or number of shares being bought, exchanged or redeemed         

- Signature of each owner exactly as the account is registered                  

The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal  
identification number for the account, sending you a written confirmation or    
requiring other confirmation procedures from time to time.                      

Signature guarantees. To be in good order, your redemption request must include 
a signature guarantee if you:                                                   

- Are redeeming over $10,000 of shares                                          

- Are sending signed share certificates or stock powers to the sub-transfer     
agent                                                                       

- Instruct the sub-transfer agent to mail the check to an address different from
the one on your account                                                     

- Changed your account registration                                             

- Want the check paid to someone other than the account owner(s)                

- Are transferring the redemption proceeds to an account with a different       
registration                                                                

You can obtain a signature guarantee from most banks, dealers, brokers, credit  
unions and federal savings and loan institutions, but not from a notary public. 

The fund has the right to:                                                      

- Suspend the offering of shares                                                

- Waive or change minimum and additional investment amounts                     

- Reject any purchase or exchange order                                         

- Change, revoke or suspend the exchange privilege                              

- Suspend telephone transactions                                                

                                                   Smith Barney Mutual Funds  21

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- Suspend or postpone redemptions of shares on any day when trading on the New  
  York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission                                                     

- Pay redemption proceeds by giving you securities. You may pay transaction     
costs to dispose of the securities                                          

SMALL ACCOUNT BALANCES  If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your  
account is still below $500 after 60 days, the fund may close your account and  
send you the redemption proceeds.                                               

EXCESSIVE EXCHANGE TRANSACTIONS  The manager may determine that a pattern of    
frequent exchanges is detrimental to the fund's performance and other           
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.                                                                

SHARE CERTIFICATES  The fund does not issue share certificates unless a written 
request signed by all registered owners is made to the sub-transfer agent. If   
you hold share certificates it will take longer to exchange or redeem shares.   

22  Pennsylvania Portfolio                                                      

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DIVIDENDS, DISTRIBUTIONS AND TAXES                                        

DIVIDENDS  The fund pays dividends each month from its net investment income.   
The fund generally makes capital gain distributions, if any, once a year,       
typically in December. The fund may pay additional distributions and dividends  
at other times if necessary for the fund to avoid a federal tax. Capital gain   
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You 
do not pay a sales charge on reinvested distributions or dividends.             
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant, 
dealer representative or the transfer agent to have your distributions and/or   
dividends paid in cash. You can change your choice at any time to be effective  
as of the next distribution or dividend, except that any change given to the    
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.                                

TAXES  In general, redeeming shares, exchanging shares and receiving            
distributions (whether in cash or additional shares) are all taxable events.    

                                                                [Download Table]

                                                  PENNSYLVANIA     
     TRANSACTION        FEDERAL TAX STATUS         TAX STATUS      
                                                                   

Redemption or          Usually capital gain   Usually capital gain 
exchange of shares     or loss; long-term     or loss              
                       only if shares owned                        
                       more than one year                          

Long-term capital      Taxable gain           Taxable gain         
gain distributions                                                 

Short-term capital     Ordinary income        Ordinary income      
gain distributions                                                 

Dividends              Excluded from gross    Exempt from personal 
                       income if from         income taxes if from 
                       interest on            interest on          
                       tax-exempt             Pennsylvania         
                       securities, otherwise  municipal securities,
                       ordinary income        otherwise ordinary   
                                              income               

                                                  Smith Barney Mutual Funds   23

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Any taxable dividends and capital gain distributions are taxable whether        
received in cash or reinvested in fund shares. Long-term capital gain           
distributions are taxable to you as long-term capital gain regardless of how    
long you have owned your shares. You may want to avoid buying shares when the   
fund is about to declare a capital gain distribution or a taxable dividend,     
because it will be taxable to you even though it may actually be a return of a  
portion of your investment.                                                     

After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during   
the previous year. If you do not provide the fund with your correct taxpayer    
identification number and any required certifications, you may be subject to    
back-up withholding of 31% of your distributions, dividends, and redemption     
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in   
the fund.                                                                       

24  Pennsylvania Portfolio                                                      

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SHARE PRICE                                                               

You may buy, exchange or redeem shares at their net asset value, plus any       
applicable sales charge, next determined after receipt of your request in good  
order. The fund's net asset value is the value of its assets minus its          
liabilities. Net asset value is calculated separately for each class of shares. 
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This        
calculation is done when regular trading closes on the Exchange (normally 4:00  
p.m., Eastern time).                                                            

Generally, the fund's investments are valued by an independent pricing service. 
If market quotations or a valuation from the pricing service is not readily     
available for a security or if a security's value has been materially affected  
by events occurring after the close of the Exchange or market on which the      
security is principally traded, that security may be valued by another method   
that the fund's board believes accurately reflects fair value. A fund that uses 
fair value to price securities may value those securities higher or lower than  
another fund using market quotations to price the same securities. A security's 
valuation may differ depending on the method used for determining value.        

In order to buy, redeem or exchange shares at that day's price, you must place  
your order with your Salomon Smith Barney Financial Consultant or dealer        
representative before the New York Stock Exchange closes. If the New York Stock 
Exchange closes early, you must place your order prior to the actual closing    
time. Otherwise, you will receive the next business day's price.                

Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of  
business.                                                                       

FINANCIAL HIGHLIGHTS                                                      

The financial highlights tables are intended to help you understand the         
performance of each class for the past 5 years. Certain information reflects    
financial results for a single share. Total return represents the rate that a   
shareholder would have earned (or lost) on a fund share assuming reinvestment of
all dividends and distributions. The information in the following tables was    
audited by KPMG LLP, independent auditors, whose report, along with the fund's  
financial statements, is included in the annual report (available upon request).
No information is presented for Class Y shares because no shares were           
outstanding during these fiscal years.                                          

                                                   Smith Barney Mutual Funds  25

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FOR A CLASS A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:

                                                                [Download Table]

                                   2000(1)   1999(1)    1998      1997     1996(1) 
                                                                                   
---------------------------------------------------------------------------------- 
Net asset value, beginning of                                                      
  year                              $13.44    $13.54    $12.66    $12.62    $12.40 
---------------------------------------------------------------------------------- 
Income (loss) from operations:                                                     
  Net investment income(2)            0.67      0.66      0.73      0.71      0.70 
  Net realized and unrealized                                                      
    gain (loss)                      (1.25)     0.08      0.95      0.04      0.29 
---------------------------------------------------------------------------------- 
Total income (loss) from                                                           
  operations                         (0.58)     0.74      1.68      0.75      0.99 
---------------------------------------------------------------------------------- 
Less distributions from:                                                           
  Net investment income              (0.66)    (0.69)    (0.69)    (0.71)    (0.72)
  Net realized gains                 (0.02)    (0.15)    (0.11)       --     (0.05)
---------------------------------------------------------------------------------- 
Total distributions                  (0.68)    (0.84)    (0.80)    (0.71)    (0.77)
---------------------------------------------------------------------------------- 
Net asset value, end of year        $12.18    $13.44    $13.54    $12.66    $12.62 
---------------------------------------------------------------------------------- 
Total return                         (4.31)%    5.61%    13.52%     6.11%     8.08%
---------------------------------------------------------------------------------- 
Net assets, end of year (000s)     $27,978   $31,718   $15,955   $15,152   $11,847 
---------------------------------------------------------------------------------- 
Ratios to average net assets:                                                      
  Expenses(2)(3)                      0.63%     0.50%     0.37%     0.37%     0.38%
  Net investment income               5.29      4.94      5.46      5.66      5.57 
---------------------------------------------------------------------------------- 
Portfolio turnover rate                 54%       49%       81%      122%       88%
---------------------------------------------------------------------------------- 

                                                                [Download Table]
                                                                 
(1)  Per share amounts have been calculated using the monthly    
     average shares method.                                      
(2)  The manager has waived all or a portion of its fees for the 
     years ended March 31, 2000, 1999, 1998, 1997 and 1996. In   
     addition, the manager reimbursed expenses of $23,433 for the
     year ended March 31, 1996. If such fees were not waived and 
     expenses not reimbursed, the effect on net investment income
     and expense ratios would have been as follows:              

                                                                [Download Table]

                                                     EXPENSE RATIOS          
             NET INVESTMENT INCOME PER         WITHOUT FEE WAIVERS AND/OR    
                  SHARE DECREASES                EXPENSE REIMBURSEMENTS      
         2000   1999   1998   1997   1996   2000   1999   1998   1997   1996 
-----------------------------------------------------------------------------
                                                                             
Class A  $0.01  $0.03  $0.05  $0.06  $0.07  0.75%  0.75%  0.79%  0.82%  0.93%
-----------------------------------------------------------------------------

                                                                [Download Table]
                                                                 
(3)  As a result of voluntary expense limitations, expense ratios
     will not exceed 0.80% for Class A shares.                   

26  Pennsylvania Portfolio                                                      

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FOR A CLASS B SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:

                                                                [Download Table]

                                   2000(1)   1999(1)    1998      1997     1996(1) 
                                                                                   
---------------------------------------------------------------------------------- 
Net asset value, beginning of                                                      
  year                              $13.42    $13.52    $12.64    $12.61    $12.39 
---------------------------------------------------------------------------------- 
Income (loss) from operations:                                                     
  Net investment income(2)            0.60      0.60      0.65      0.65      0.64 
  Net realized and unrealized                                                      
    gain (loss)                      (1.24)     0.07      0.96      0.03      0.29 
---------------------------------------------------------------------------------- 
Total income (loss) from                                                           
  operations                         (0.64)     0.67      1.61      0.68      0.93 
---------------------------------------------------------------------------------- 
Less distributions from:                                                           
  Net investment income              (0.59)    (0.62)    (0.62)    (0.65)    (0.66)
  Net realized gains                 (0.02)    (0.15)    (0.11)       --     (0.05)
---------------------------------------------------------------------------------- 
Total distributions                  (0.61)    (0.77)    (0.73)    (0.65)    (0.71)
---------------------------------------------------------------------------------- 
Net asset value, end of year        $12.17    $13.42    $13.52    $12.64    $12.61 
---------------------------------------------------------------------------------- 
Total return                         (4.78)%    5.07%    12.97%     5.56%     7.61%
---------------------------------------------------------------------------------- 
Net assets, end of year (000s)     $26,296   $25,234   $19,268   $15,559   $13,131 
---------------------------------------------------------------------------------- 
Ratios to average net assets:                                                      
  Expenses(2)(3)                      1.15%     1.01%     0.89%     0.88%     0.88%
  Net investment income               4.79      4.45      4.94      5.15      5.07 
---------------------------------------------------------------------------------- 
Portfolio turnover rate                 54%       49%       81%      122%       88%
---------------------------------------------------------------------------------- 

                                                                [Download Table]
                                                                 
(1)  Per share amounts have been calculated using the monthly    
     average shares method.                                      
(2)  The manager has waived all or a portion of its fees for the 
     years ended March 31, 2000, 1999, 1998, 1997 and 1996. In   
     addition, the manager reimbursed expenses of $23,433 for the
     year ended March 31, 1996. If such fees were not waived and 
     expenses not reimbursed, the effect on net investment income
     and expense ratios would have been as follows:              

                                                                [Download Table]

                                                     EXPENSE RATIOS          
             NET INVESTMENT INCOME PER         WITHOUT FEE WAIVERS AND/OR    
                  SHARE DECREASES                EXPENSE REIMBURSEMENTS      
         2000   1999   1998   1997   1996   2000   1999   1998   1997   1996 
-----------------------------------------------------------------------------
                                                                             
Class B  $0.01  $0.03   0.05   0.06   0.07  1.26%  1.26%  1.31%  1.33%  1.44%
-----------------------------------------------------------------------------

                                                                [Download Table]
                                                                 
(3)  As a result of voluntary expense limitations, expense ratios
     will not exceed 1.30% for Class B shares.                   

                                                Smith Barney Mutual Funds   27

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FOR A CLASS L SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH YEAR ENDED MARCH 31:

                                                                [Download Table]

                                   2000(2)   1999(1)(2)    1998     1997    1996(2)
                                                                                   
-----------------------------------------------------------------------------------
Net asset value, beginning of                                                      
  year                             $13.41      $13.51     $12.64   $12.61   $12.39 
-----------------------------------------------------------------------------------
Income (loss) from operations:                                                     
  Net investment income(3)           0.59        0.60       0.64     0.64     0.64 
  Net realized and unrealized                                                      
    gain (loss)                     (1.24)       0.06       0.96     0.04     0.29 
-----------------------------------------------------------------------------------
Total income (loss) from                                                           
  operations                        (0.65)       0.66       1.60     0.68     0.93 
-----------------------------------------------------------------------------------
Less distributions from:                                                           
  Net investment income             (0.58)      (0.61)     (0.62)   (0.65)   (0.66)
  Net realized gains                (0.02)      (0.15)     (0.11)      --    (0.05)
-----------------------------------------------------------------------------------
Total distributions                 (0.60)      (0.76)     (0.73)   (0.65)   (0.71)
-----------------------------------------------------------------------------------
Net assets value, end of year      $12.16      $13.41     $13.51   $12.64   $12.61 
-----------------------------------------------------------------------------------
Total return                        (4.83)%      5.02%     12.84%    5.51%    7.56%
-----------------------------------------------------------------------------------
Net assets, end of year (000s)     $8,635     $10,490     $7,729   $5,731   $4,682 
-----------------------------------------------------------------------------------
Ratios to average net assets:                                                      
  Expenses(3)(4)                     1.20%       1.07%      0.94%    0.94%    0.94%
  Net investment income              4.70        4.40       4.89     5.09     5.00 
-----------------------------------------------------------------------------------
Portfolio turnover rate                54%         49%        81%     122%      88%
-----------------------------------------------------------------------------------

                                                                [Download Table]
                                                                 
(1)  On June 12, 1998, Class C shares were renamed Class L       
     shares.                                                     
(2)  Per share amounts have been calculated using the monthly    
     average shares method.                                      
(3)  The manager has waived all or a portion of its fees for the 
     years ended March 31, 2000, 1999, 1998, 1997 and 1996. In   
     addition, the manager reimbursed expenses of $23,433 for the
     year ended March 31,1996. If such fees were not waived and  
     expenses not reimbursed, the effect on net investment income
     and expense ratios would have been as follows:              

                                                                [Download Table]

                                                     EXPENSE RATIOS          
             NET INVESTMENT INCOME PER         WITHOUT FEE WAIVERS AND/OR    
                  SHARE DECREASES                EXPENSE REIMBURSEMENTS      
         2000   1999   1998   1997   1996   2000   1999   1998   1997   1996 
-----------------------------------------------------------------------------
                                                                             
Class L  $0.01  $0.03  $0.05  $0.06  $0.07  1.32%  1.32%  1.36%  1.39%  1.49%
-----------------------------------------------------------------------------

                                                                [Download Table]
                                                                 
(4)  As a result of voluntary expense limitations, expense ratios
     will not exceed 1.35% for Class L shares.                   

28  Pennsylvania Portfolio                                                      

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                                                     [SALOMON SMITH BARNEY LOGO]

PENNSYLVANIA PORTFOLIO                                                          

AN INVESTMENT PORTFOLIO OF SMITH BARNEY MUNI FUNDS                              

SHAREHOLDER REPORTS  Annual and semiannual reports to shareholders provide      
additional information about the fund's investments. These reports discuss the  
market conditions and investment strategies that affected the fund's            
performance.                                                                    

The fund sends only one report to a household if more than one account has the  
same address. Contact your Salomon Smith Barney Financial Consultant, dealer    
representative or the transfer agent if you do not want this policy to apply to 
you.                                                                            

STATEMENT OF ADDITIONAL INFORMATION The statement of additional information     
provides more detailed information about the fund and is incorporated by        
reference into (is legally part of) this prospectus.                            

You can make inquiries about the fund or obtain shareholder reports or the      
statement of additional information (without charge) by contacting your Salomon 
Smith Barney Financial Consultant or dealer representative, by calling the fund 
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388  
Greenwich Street, MF2, New York, New York 10013.                                

Visit our web site. Our web site is located at WWW.SMITHBARNEY.COM              

Information about the fund (including the SAI) can be reviewed and copied at the
Securities and Exchange Commission's (the "Commission") Public Reference Room in
Washington, D.C. In addition, information on the operation of the Public        
Reference Room may be obtained by calling the Commission at 1-202-942-8090.     
Reports and other information about the fund are available on the EDGAR Database
on the Commission's Internet site at HTTP://WWW.SEC.GOV. Copies of this         
information may be obtained for a duplicating fee by electronic request at the  
following E-mail address: PUBLICINFO@SEC.GOV, or by writing the Commission's    
Public Reference Section, Washington, D.C. 20549-0102.                          

If someone makes a statement about the fund that is not in this prospectus, you 
should not rely upon that information. Neither the fund nor the distributor is  
offering to sell shares of the fund to any person to whom the fund may not      
lawfully sell its shares.                                                       

Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.             

(Investment Company Act                                                         
file no. 811-04395)                                                             
FD0772 7/00                                                                     

Smith Barney Muni Funds                                                         
388 Greenwich Street                                                            
New York, NY 10013                                                              
(800) 451-2010                                                                  

Statement of Additional                                                         
Information                                                                     
July 28, 2000                                                                   

This Statement of Additional Information (the "SAI") expands    
upon and supplements the information contained in the current                   
prospectuses of the Smith Barney Muni Funds (the "Trust") dated July            
28, 2000, each as amended or supplemented from time to time, and                
should be read in conjunction with the prospectuses.  Shares of Smith           
Barney Muni Funds are offered currently with a choice of nine                   
portfolios: the National Portfolio, the Limited Term Portfolio, the             
Florida Portfolio, the Georgia Portfolio, the New York Portfolio, the           
Pennsylvania Portfolio, the California Money Market Portfolio, the New          
York Money Market Portfolio and the Massachusetts Money Market                  
Portfolio (collectively referred to as "funds" and individually as a            
"fund"). Additional information about a fund's investments is                   
available in the fund's annual and semi-annual reports to                       
shareholders.  Each fund's prospectus may be obtained free of charge            
from your Salomon Smith Barney Financial Consultant.  The New York              
Portfolio's prospectus may also be obtained free of charge from a               
registered representative of PFS Investments Inc. ("PFSI"), or by               
writing or calling the Trust at the address or telephone number set             
forth above.  This SAI, although not in itself a prospectus, is                 
incorporated by reference into the prospectus in its entirety.                  

TABLE OF CONTENTS                                                               
Page                                                                            

Investment Objective and Management Policies    2                               
Trustees and Officers   14                                                      
Distribution    18                                                              
Purchase of Shares      22                                                      
PFSI Accounts   27                                                              
Redemption of Shares    29                                                      
Valuation of Shares     30                                                      
Exchange Privilege      31                                                      
Performance Data        33                                                      
The Funds       35                                                              
Voting Rights   37                                                              
Taxes           38                                                              
Additional Information  43                                                      
Financial Statements    45                                                      
Other Information.............................................................  
........................................45                                    

Appendix A - Ratings Definitions        A-1                                     
Appendix B - Special Considerations Relating to California Municipal            
Obligations     B-1                                                             
Appendix C - Special Considerations Relating to Florida Municipal               
Obligations     C-1                                                             
Appendix D - Special Considerations Relating to Georgia Municipal               
Obligations     D-1                                                             
Appendix E - Special Considerations Relating to New York Municipal              
Obligations     E-1                                                             
Appendix F - Special Considerations Relating to Pennsylvania Municipal          
Obligations     F-1                                                             
Appendix G - Special Considerations Relating to Massachusetts                   
Municipal Obligations   G-1                                                     
Appendix H - Special Considerations Relating to Municipal Obligations           
of the                                                                          
U.S. Virgin Islands and Guam    H-1                                             
Appendix I - Special Considerations Relating to Municipal Obligations     
of Puerto Rico  I-1                                                             

INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES                                    

Each prospectus discusses a specific fund's investment objective
and policies. The following discussion supplements the description of           
each fund's investment policies in its prospectus.  SSB Citi Fund               
Management LLC, successor to SSBC Fund Management Inc. ("SSB Citi" or           
the "Manager") serves as investment manager and administrator to each           
fund.                                                                           

National Portfolio.  The National Portfolio seeks as high a     
level of income exempt from federal income taxes as is consistent with          
prudent investing.  The National Portfolio has a fundamental policy             
that, under normal market conditions, it will seek to invest 100% of            
its total assets - and the fund will invest not less than 80% of its            
total assets - in municipal obligations the interest on which is                
exempt from federal income taxes (other than the alternative minimum            
tax ("AMT").  The fund may also invest up to 20% of its assets in               
taxable fixed income securities issued or guaranteed by the full faith          
and credit of the United States.                                                

Limited Term Portfolio seeks as high a level of income exempt   
from federal income taxes as is consistent with prudent investing.              
The Limited Term Portfolio has a fundamental policy that, under normal          
market conditions, it will seek to invest 100% of its total assets -            
and the fund will invest not less than 80% of its total assets - in             
municipal obligations the interest on which is exempt from federal              
income taxes (other than the AMT). The fund normally invests in                 
securities that have remaining maturities of 20 years or less and               
maintains  an average effective maturity of between three and 10                
years. The fund may invest up to 20% of its assets in taxable fixed             
income securities issued or guaranteed by the full faith and credit of          
the United States.                                                              

Florida Portfolio seeks to pay its shareholders as high a level 
of income exempt from federal income taxes as is consistent with                
prudent investing, and generally selects investments that will enable           
its shares to be exempt from the Florida intangibles tax.  The Florida          
Portfolio has a fundamental policy that, under normal market                    
conditions, it will seek to invest 100% of its total assets - and the           
fund will invest not less than 80% of its total assets - in municipal           
obligations the interest on which is exempt from federal income taxes           
(other than the AMT).  It is also a fundamental policy that under               
normal market conditions the fund will invest at least 65% of its net           
assets in municipal obligations issued by the State of Florida, its             
political subdivisions and their agencies and instrumentalities and in          
other municipal obligations which are exempt from Florida intangibles           
tax.  The fund may invest up to 20% of its assets in taxable fixed              
income securities, but only in obligations issued or guaranteed by the          
full faith and credit of the United States.                                     

Georgia Portfolio seeks to provide as high a level of income    
exempt from federal income taxes and from Georgia personal income               
taxes as is consistent with prudent investing.  The Georgia Portfolio           
has a fundamental policy that, under normal market conditions, it will          
seek to invest 100% of its total assets - and the fund will invest not          
less than 80% of its total assets - in municipal obligations the                
interest on which is exempt from federal income taxes (other than the           
AMT).  It is also a fundamental policy that, under normal market                
conditions, the fund will invest at least 65% of its total assets in            
municipal obligations, the interest on which is also exempt from the            
personal income taxes of the State of Georgia in the opinion of bond            
counsel to issuers.  The fund may invest up to 20% of its assets in             
taxable fixed income securities, but only in obligations issued or              
guaranteed by the full faith and credit of the United States.                   

New York Portfolio seeks to provide as high a level of income   
exempt from federal income taxes and from New York State and New York           
City personal income taxes as is consistent with prudent investing.             
The New York Portfolio has a fundamental policy that, under normal              
market conditions, it will seek to invest 100% of its total assets -            
the fund will invest not less than 80% of its total assets - in                 
municipal obligations the interest on which is exempt from federal              
income taxes (other than the AMT) and not less than 65% of its total            
assets in municipal obligations the interest on which is also exempt            
from personal income taxes of New York State in the opinion of bond             
counsel to issuers.  The fund may invest up to 20% of its total assets          
in taxable fixed income securities, but only in obligations issued or           
guaranteed by the full faith and credit of the United States.                   

Pennsylvania Portfolio seeks to pay its shareholders as high a  
level of income exempt from both federal income taxes and Pennsylvania          
personal income taxes as is consistent with prudent investing.  The             
Pennsylvania Portfolio has a fundamental policy that, under normal              
market conditions, it will seek to invest 100% of its total assets -            
and the fund will invest not less than 80% of its total assets - in             
municipal obligations the interest on which is exempt from federal              
income taxes (other than the AMT).  It is also a fundamental policy             
that under normal market conditions, the fund will invest at least 65%          
of its assets in municipal obligations the interest on which is also            
exempt from personal income taxes of the Commonwealth of Pennsylvania           
in the opinion of bond counsel to the issuers.  The fund may invest up          
to 20% of its assets in taxable fixed income securities, but only in            
obligations issued or guaranteed by the full faith and credit of the            
United States.                                                                  

California Money Market Portfolio seeks to provide income exempt
from federal income taxes and from California personal income taxes             
from a fund of high quality short-term municipal obligations selected           
for liquidity and stability.  The California Money Market Portfolio             
has a fundamental policy that, under normal market conditions, at               
least 80% of its total assets will be invested in securities that               
produce income that is exempt from federal income taxes (other than             
the AMT) and from California personal income taxes in the opinion of            
bond counsel for the various issuers.                                           

New York Money Market Portfolio seeks to provide its            
shareholders with income exempt from both federal income taxes and New          
York State and New York City personal income taxes from a fund of high          
quality short-term New York municipal obligations selected for                  
liquidity and stability.  The New York Money Market Portfolio has a             
fundamental policy that, under normal market conditions, at least 80%           
of its total assets will be invested in securities that produce income          
that is exempt from federal income taxes (other than the AMT) and from          
New York State and City personal income taxes in the opinion of bond            
counsel for the various issuers.                                                

Massachusetts Money Market Portfolio seeks to provide income                    
exempt from federal income taxes and from Massachusetts personal                
income taxes from a portfolio of high quality short-term municipal              
obligations selected for liquidity and stability.  The Massachusetts            
Money Market Portfolio has a fundamental policy that, under normal              
market conditions, at least 80% of its total assets will be invested            
in securities that produce income that is exempt from federal income            
taxes (other than the alternative minimum tax) and from Massachusetts           
personal income taxes in the opinion of bond counsel for the various            
issuers.                                                                        

Municipal Obligations.  In general, municipal obligations are   
debt obligations (bonds or notes) issued by or on behalf of states,             
territories and possessions of the United States and their political            
subdivisions, agencies and instrumentalities the interest on which is           
exempt from Federal income tax in the opinion of bond counsel to the            
issuer.  Municipal obligations are issued to obtain funds for various           
public purposes, many of which may enhance the quality of life,                 
including the construction of a wide range of public facilities, such           
as airports, bridges, highways, housing, hospitals, mass                        
transportation, schools, streets, water and sewer works, gas, and               
electric utilities.  They may also be issued to refund outstanding              
obligations, to obtain funds for general operating expenses, or to              
obtain funds to loan to other public institutions and facilities and            
in anticipation of the receipt of revenue or the issuance of other              
obligations.  In addition, the term "municipal obligations" includes            
certain types of industrial development bonds ("IDBs") issued by                
public authorities to obtain funds to provide various privately-                
operated facilities for business and manufacturing, housing, sports,            
convention or trade show facilities, airport, mass transit, port and            
parking facilities, air or water pollution control facilities, and              
certain facilities for water supply, gas, electricity or sewerage or            
solid waste disposal.                                                           

The two principal classifications of municipal obligations are  
"general obligation" and "revenue."  General obligations are secured            
by a municipal issuer's pledge of its full faith, credit, and taxing            
power for the payment of principal and interest.  Revenue obligations           
are payable only 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.  Although IDBs            
are issued by municipal authorities, they are generally secured by the          
revenues derived from payments of the industrial user.  The payment of          
the principal and interest on IDBs is dependent solely on the ability           
of the user of the facilities financed by the bonds to meet its                 
financial obligations and the pledge, if any, of real and personal              
property so financed as security for such payment.  Currently, the              
majority of each fund's municipal obligations are revenue bonds.                

For purposes of diversification and concentration under the     
Investment Company Act of 1940, as amended (the "1940 Act"), the                
identification of the issuer of municipal obligations depends on the            
terms and conditions of the obligation.  If the assets and revenues of          
an agency, authority, instrumentality or other political subdivision            
are separate from those of the government creating the subdivision and          
the obligation is backed only by the assets and revenues of the                 
subdivision, such subdivision is regarded as the sole issuer.                   
Similarly, in the case of an IDB or a pollution control revenue bond,           
if the bond is backed only by the assets and revenues of the non-               
governmental user, the non-governmental user is regarded as the sole            
issuer.  If in either case the creating government or another entity            
guarantees an obligation, the guaranty is regarded as a separate                
security and treated as an issue of such guarantor.  Similar criteria           
apply for purposes of the diversification requirements under                    
Subchapter M of the Internal Revenue Code of 1986, as amended (the              
"Code").                                                                        

The yields on municipal obligations are dependent on a variety  
of factors, including general market conditions, supply and demand,             
general conditions of the municipal market, size of a particular                
offering, the maturity of the obligation and the rating of the issue.           
The ratings of Nationally Recognized Statistical Ratings Organizations          
("NRSROs") such as Moody's Investment Service, Inc. ("Moody's") and             
Standard & Poor's Ratings Group ("S&P") represent their opinions as to          
the quality of the municipal obligations that they undertake to rate.           
It should be emphasized, however, that such ratings are general and             
are not absolute standards of quality.  Consequently, municipal                 
obligations with the same maturity, coupon and rating may have                  
different yields when purchased in the open market, while municipal             
obligations of the same maturity and coupon with different ratings may          
have the same yield.                                                            

Each fund may invest in securities the disposition of which is  
subject to legal or contractual restrictions.  The sale of restricted           
securities often requires more time and results in higher dealer                
discounts or other selling expenses than does the sale of securities            
that are not subject to restrictions on resale.  Restricted securities          
may sell at a price lower than similar securities that are not subject          
to restrictions on resale.                                                      

Securities may be sold in anticipation of a market decline (a   
rise in interest rates) or purchased in anticipation of a market rise           
(a decline in interest rates).  In addition, a security may be sold             
and another purchased at approximately the same time to take advantage          
of what the manager believes to be a temporary disparity in the normal          
yield relationship between the two securities.  The fund believes               
that, in general, the secondary market for tax-exempt securities in             
each of the fund's portfolios may be less liquid than that for taxable          
fixed-income securities.  Accordingly, the ability of a fund to make            
purchases and sales of securities in the foregoing manner may be                
limited.  Yield disparities may occur for reasons not directly related          
to the investment quality of particular issues or the general movement          
of interest rates, but instead due to such factors as changes in the            
overall demand for or supply of various types of tax-exempt securities          
or changes in the investment objectives of investors.                           

Municipal obligations also are subject to the provisions of     
bankruptcy, insolvency and other laws affecting the rights and                  
remedies of creditors, such as the federal Bankruptcy Code, and laws,           
if any, that may be enacted by Congress or state legislatures                   
extending the time for payment of principal or interest, or both, or            
imposing other constraints upon enforcement of such obligations or              
upon the ability of municipalities to levy taxes.  There is also the            
possibility that, as a result of litigation or other conditions, the            
power or ability of any one or more issuers to pay, when due, the               
principal of and interest on its or their Municipal Bonds may be                
materially affected.                                                            

Ratings.  Municipal bonds purchased for the funds (except       
California Money Market, New York Money Market and Massachusetts Money          
Market Portfolios) must, at the time of purchase, be investment-grade           
municipal bonds, and at least two-thirds of a fund's municipal bonds            
must be rated within the three highest ratings categories by NRSRO.             
Investment-grade bonds are rated within the four highest categories by          
an NRSRO, such as those rated Aaa, Aa, A and Baa by Moody's or AAA,             
AA, A and BBB by S&P or, if unrated, determined to be of comparable             
quality by the manager; pre-refunded bonds escrowed by U.S. Treasury            
obligations are considered AAA rated (the highest rating) even though           
the issuer does not obtain a new rating.  Up to one-third of assets of          
a fund may be invested in municipal bonds rated in the fourth highest           
category (this grade, while regarded as having an adequate capacity to          
pay interest and repay principal, is considered to be of medium                 
quality and has speculative characteristics) or in unrated municipal            
bonds if, based upon credit analysis by the manager, it is believed             
that such securities are at least of comparable quality to those                
securities in which the fund may invest.  In determining the                    
suitability of an investment in an unrated municipal bond, the manager          
will take into consideration debt service coverage, the purpose of the          
financing, history of the issuer, existence of other rated securities           
of the issuer and other general conditions as may be relevant,                  
including comparability to other issues.  After a fund purchases a              
municipal bond, the issue may cease to be rated or its rating may be            
reduced below the minimum required for purchase.  Such an event would           
not require the elimination of the issue from the fund but the manager          
will consider such an event in determining whether the fund should              
continue to hold the security.                                                  

Each fund's (except California Money Market, New York Money     
Market and Massachusetts Money Market Portfolios) short-term municipal          
obligations will be limited to high-grade obligations (obligations              
that are secured by the full faith and credit of the United States or           
are rated MIG 1 or MIG 2, VMIG 1 or VMIG 2 or Prime-1 or Aa or better           
by Moody's or SP-1+, SP-1, SP-2, or A-1 or AA or better by S&P or have          
a rating within comparable categories by any other NRSRO, or                    
obligations that are unrated but determined by the manager to be                
comparable).                                                                    

Short-Term Instruments.  Among the types of short-term          
instruments in which each fund may invest are floating- or variable-            
rate demand instruments, tax-exempt commercial paper (generally having          
a maturity of less than nine months), and other types of notes                  
generally having maturities of less than three years, such as Tax               
Anticipation Notes, Revenue Anticipation Notes, Tax and Revenue                 
Anticipation Notes and Bond Anticipation Notes.  Demand instruments             
usually have an indicated maturity of more than one year, but contain           
a demand feature that enables the holder to redeem the investment on            
no more than 30 days' notice; variable-rate demand instruments provide          
for automatic establishment of a new interest rate on set dates;                
floating-rate demand instruments provide for automatic adjustment of            
their interest rates whenever some other specified interest rate                
changes (e.g., the prime rate).  Each fund may purchase participation           
interests in variable-rate tax-exempt securities (such as Industrial            
Development Bonds) owned by banks.  Participations are frequently               
backed by an irrevocable letter of credit or guarantee of a bank that           
the manager has determined meets the prescribed quality standards for           
the fund.  Participation interests will be purchased only; if                   
management believes interest income on such interests will be tax-              
exempt when distributed as dividends to shareholders.                           

Investments in participation interests in variable-rate tax-    
exempt securities (such as IDBs) purchased from banks give the                  
purchaser an undivided interest in the tax-exempt security in the               
proportion that the fund participation interest bears to the total              
principal amount of the tax-exempt security with a demand repurchase            
feature.  Participation interests are frequently backed by an                   
irrevocable letter of credit or guarantee of a bank that the manager,           
under the supervision of the Trustees, has determined meets the                 
prescribed quality standards for the fund.  A fund has the right to             
sell the instrument back to the bank and draw on the letter of credit           
on demand on seven days' notice or less, for all or any part of the             
fund's participation interest in the tax-exempt security, plus accrued          
interest.  Each fund  intends to exercise the demand under the letter           
of credit only (1) upon a default under the terms of the documents of           
the tax-exempt security, (2) as needed to provide liquidity in order            
to meet redemptions, or (3) to maintain a high quality investment               
fund.  Banks will retain a service and letter of credit fee and a fee           
for issuing repurchase commitments in an amount equal to the excess of          
the interest paid on the tax-exempt securities over the negotiated              
yield at which the instruments were purchased by a fund.  The manager           
will monitor the pricing, quality and liquidity of the variable-rate            
demand instruments held by each fund, including the IDBs supported by           
bank letters of credit or guarantees, on the basis of published                 
financial information, reports of rating agencies and other bank                
analytical services to which the manager may subscribe.                         

Limited Term Portfolio.  The Limited Term Portfolio tries to                    
reduce the volatility of its share prices by seeking to maintain an             
average effective portfolio maturity of between 3 and 10 years.  It             
measures the "average" maturity of all of its securities on a "dollar-          
weighted" basis, meaning that larger securities holdings have a                 
greater effect on overall portfolio maturity than smaller holdings.             

The "effective" maturity of a security is not always the same as
the stated maturity date.  A number of factors may cause the                    
"effective" maturity to be shorter than the stated maturity.  For               
example, a bond's effective maturity might be deemed to be shorter              
(for pricing and trading purposes) than its stated maturity if its              
coupon interest rate or rate of accretion of discount on the bond, is           
higher than current market interest rates when the bond is callable             
(that means the issuer can pay off the bond prior to its stated                 
maturity) in addition to other factors such as mandatory put                    
provisions and scheduled sinking fund payments.  When interest rates            
change, securities that have an effective maturity that is shorter              
than their stated maturity tend to behave like securities having those          
shorter maturity dates.                                                         

Money Market Instruments. The California Money Market Portfolio,
New York Money Market Portfolio and Massachusetts Money Market                  
Portfolio each operate as a money market fund, and utilize certain              
investment policies so that, to the extent reasonably possible, its             
price per share will not change from $1.00, although no assurance can           
be given that this goal will be achieved on a continuous basis.  For            
example, none of these funds will purchase a security which, after              
giving effect to any demand features, has a remaining maturity of               
greater than 397 days, or maintain a dollar-weighted average fund               
maturity in excess of 90 days.                                                  

The California Money Market, New York Money Market and          
Massachusetts Money Market Portfolios' investments are limited to               
United States dollar-denominated instruments that, at the time of               
acquisition (including any related credit enhancement features) have            
received a rating in one of the two highest categories for short-term           
debt obligations from the "Requisite NRSROs," securities of issuers             
that have received such a rating with respect to other comparable               
securities, and comparable unrated securities.  "Requisite NRSROs"              
means (a) any two nationally recognized statistical rating                      
organizations NRSROs) that have issued a rating with respect to a               
security or class of debt obligations of an issuer, or (b) one NRSRO,           
if only one NRSRO has issued such rating at the time that the fund              
acquires the security.  The NRSROs currently designated as such by the          
Securities and Exchange Commission ("SEC") are Standard & Poor's                
("S&P"), Moody's, Duff and Phelps Inc., Fitch IBCA, Inc. ("Fitch") and          
Thomson BankWatch.                                                              

The California Money Market, New York Money Market and          
Massachusetts Money Market Portfolios' may each invest up to 20% of             
the value of their assets in one or more of the three principal types           
of derivative product structures described below.  Derivative products          
are typically structured by a bank, broker-dealer or other financial            
institution.  A derivative product generally consists of a trust or             
partnership through which the fund holds an interest in one or more             
underlying bonds coupled with a conditional right to sell ("put") the           
fund's interest in the underlying bonds at par plus accrued interest            
to a  financial institution (a "Liquidity Provider").  Typically, a             
derivative product is structured as a trust or partnership which                
provides for pass-through tax-exempt income.  There are currently               
three principal types of derivative structures: (1) "Tender Option              
Bonds", which are instruments which grant the holder thereof the right          
to put an underlying bond at par plus accrued interest at specified             
intervals to a Liquidity Provider; (2) "Swap Products", in which the            
trust or partnership swaps the payments due on an underlying bond with          
a swap counterpart who agrees to pay a floating municipal money market          
interest rate; and (3) "Partnerships", which allocate to the partners           
income, expenses, capital gains and losses in accordance with a                 
governing partnership agreement.                                                

Investments in derivative products raise certain tax, legal,    
regulatory and accounting issues which may not be presented by                  
investments in other municipal bonds.  There is some risk that certain          
issues could be resolved in a manner that could adversely impact the            
performance of a fund.  For example, the tax-exempt treatment of the            
interest paid to holders of derivative products is premised on the              
legal conclusion that the holders of such derivative products have an           
ownership interest in the underlying bonds. While the fund receives an          
opinion of legal counsel to the effect that the income from each                
derivative product is tax-exempt to the same extent as the underlying           
bond, the Internal Revenue Service (the "IRS") has not issued a ruling          
on this subject.  Were the Internal Revenue Service (the "IRS") to              
take a contrary position, there is a risk that the interest paid on             
such derivative products would be deemed taxable.                               

The funds intend to limit the risk of derivative products by    
purchasing only those derivative products that are consistent with the          
funds' investment objective and policies.  The funds will not use such          
instruments to leverage securities.  Hence, derivative products'                
contributions to the overall market risk characteristics of a fund              
will not materially alter its risk profile and will be fully                    
representative of the fund's maturity guidelines.                               

Stand-By Commitments.  The California Money Market, New York    
Money Market and Massachusetts Money Market Portfolios may acquire              
"stand-by commitments" with respect to municipal obligations held in            
their respective  funds.  Under a stand-by commitment a dealer agrees           
to purchase, at the fund's option, specified municipal obligations at           
a specified price.  The funds intend to enter into stand-by                     
commitments only with dealers, banks and broker-dealers that, in the            
opinion of the manager, present minimal credit risks.  In evaluating            
the creditworthiness of the issuer of a stand-by commitment, the                
manager will review periodically the issuer's assets, liabilities,              
contingent claims and other relevant financial information.  Because a          
fund invests in securities backed by banks and other financial                  
institutions, change in the credit quality of these institutions could          
cause losses to the fund and affect its share price.  The funds will            
acquire stand-by commitments solely to facilitate fund liquidity and            
do not intend to exercise their rights thereunder for trading                   
purposes.                                                                       

Other Factors to be Considered.  The California Money Market,   
New York Money Market and Massachusetts Money Market Portfolios                 
anticipate being as fully invested as practicable in tax-exempt                 
securities.  The funds may invest in taxable investments due to market          
conditions or pending investment of proceeds from sales of shares or            
proceeds from the sale of fund securities or in anticipation of                 
redemptions.  However, the funds generally expect to invest the                 
proceeds received from the sale of shares in municipal obligations as           
soon as reasonably possible, which is generally within one day.  At no          
time will more than 20% of the funds' net assets be invested in                 
taxable investments except when the manager has determined that market          
conditions warrant a fund adopting a temporary defensive investment             
posture.  To the extent a fund's assets are invested for temporary              
defensive purposes, such assets will not be invested in a manner                
designed to achieve a fund's investment objective.                              

From time to time, proposals have been introduced before        
Congress for the purpose of restricting or eliminating the federal              
income tax exemption for interest on municipal obligations, and                 
similar proposals may be introduced in the future.  If one of these             
proposals were enacted, the availability of tax exempt obligations for          
investment by the funds and the value of a fund's investments would be          
affected.  The fund's Board of Directors would then reevaluate the              
fund's investment objective and policies.                                       

Municipal Bond Index Futures Contracts.  The funds (except      
California Money Market, New York Money Market and Massachusetts Money          
Market Portfolios) may each invest in municipal bond futures contracts          
(currently traded on the Chicago Board of Trade).  Municipal bond               
futures contracts are listed contracts based on U.S. government                 
securities and are used by each fund as a hedging policy in pursuit of          
its investment objective; provided that immediately thereafter not              
more than 33 1/3% of the fund's net assets would be hedged or the               
amount of margin deposits on the fund's existing futures contracts              
would not exceed 5% on the value of its total assets.  A municipal              
bond index futures contract is an agreement pursuant to which two               
parties agree to take or make delivery of an amount of cash equal to a          
specific dollar amount multiplied by 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. No                
physical delivery of the underlying municipal bonds in the index is             
made. Municipal bond index futures contracts based on an index of 40            
tax-exempt, long-term municipal bonds with an original issue size of            
at least $50 million and a rating of A- or higher by S&P or A or                
higher by Moody's began trading in mid-1985.  The purpose of the                
acquisition or sale of a municipal bond index futures contract by the           
fund, as the holder of long-term municipal securities, is to protect a          
fund from fluctuations in interest rates on tax-exempt securities               
without actually buying or selling long-term municipal securities.              

There are several risks in connection with the use of futures   
contracts as a hedging device. Successful use of futures contracts by           
a fund is subject to the manager's ability to predict correctly                 
movements in the direction of interest rates. Such predictions involve          
skills and techniques which may be different from those involved in             
the management of a long-term municipal bond fund.  In addition, there          
can be no assurance that there will be a correlation between movements          
in the price of the municipal bond index and movements in the price of          
the Municipal Bonds which are the subject of the hedge.  The degree of          
imperfection of correlation depends upon various circumstances, such            
as variations in speculative market demand for futures contracts and            
municipal securities, technical influences on futures trading, and              
differences between the municipal securities being hedged and the               
municipal securities underlying the futures contracts, in such                  
respects as interest rate levels, maturities and creditworthiness of            
issuers. A decision of whether, when and how to hedge involves the              
exercise of skill and judgment and even a well-conceived hedge may be           
unsuccessful to some degree because of market behavior or unexpected            
trends in interest rates.                                                       

Although a fund intends to purchase or sell futures contracts   
only if there is an active market for such contracts, there is no               
assurance that a liquid market will exist for the contracts at any              
particular time.  Most domestic futures exchanges and boards of trade           
limit the amount of fluctuation permitted in futures contract prices            
during a single trading day. The daily limit establishes the maximum            
amount the price of a futures contract may vary either up or down from          
the previous day's settlement price at the end of a trading session.            
Once the daily limit has been reached in a particular contract, no              
trades may be made that day at a price beyond that limit. The daily             
limit governs only price movement during a particular trading day and,          
therefore, does not limit potential losses because the limit may                
prevent the liquidation of unfavorable positions. It is possible that           
futures contract prices could move to the daily limit for several               
consecutive trading days with little or no trading, thereby preventing          
prompt liquidation of futures positions and subjecting some futures             
traders to substantial losses. In such event, it will not be possible           
to close a futures position and, in the event of adverse price                  
movements, the fund would be required to make daily cash payments of            
variation margin.  In such circumstances, an increase in the value of           
the portion of the fund being hedged, if any, may partially or                  
completely offset losses on the futures contract. As described above,           
however, there is no guarantee that the price of Municipal Bonds will,          
in fact, correlate with the price movements in the municipal bond               
index futures contract and thus provide an offset to losses on a                
futures contract.                                                               

If a fund has hedged against the possibility of an increase in  
interest rates adversely affecting the value of the Municipal Bonds             
held in its fund and rates decrease instead, the fund will lose part            
or all of the benefit of the increased value of the Municipal Bonds it          
has hedged because it will have offsetting losses in its futures                
positions. In addition, in such situations, if the fund has                     
insufficient cash, it may have to sell securities to meet daily                 
variation margin requirements.  Such sales of securities may, but will          
not necessarily, be at increased prices which reflect the decline in            
interest rates. The fund may have to sell securities at a time when it          
may be disadvantageous to do so.                                                

When a fund purchases municipal bond index futures contracts, an
amount of cash and U.S. government securities or other high grade debt          
securities equal to the market value of the futures contracts will be           
deposited in a segregated account with the fund's custodian or in the           
fund's records to collateralize the positions and thereby insure that           
the use of such futures contracts is not leveraged. In addition, the            
ability of a fund to trade in municipal bond index futures contracts            
and options on interest rate futures contracts may be materially                
limited by the requirements of the Code applicable to a regulated               
investment company. See "Taxes."                                                

Interest Rate Futures Contracts.  A fund may purchase and sell                  
interest rate futures contracts as a hedge against changes in interest          
rates.  An interest rate futures contract is an agreement between two           
parties to buy and sell a security for a set price on a future date.            
Interest rate futures contracts are traded on designated "contracts             
markets" which, through their clearing corporations, guarantee                  
performance of the contracts.  Currently, there are interest rate               
futures contracts based on securities such as long-term Treasury                
bonds, Treasury notes, GNMA certificates and three-month Treasury               
bills.                                                                          

Generally, if market interest rates increase, the value of                      
outstanding debt securities declines (and vice versa).  Entering into           
an interest rate futures contract for the sale of securities has an             
effect similar to the actual sale of securities, although sale of the           
interest rate futures contract might be accomplished more easily and            
quickly.  For example, if a fund holds long-term U.S. government                
securities and SSB Citi anticipates a rise in long-term interest                
rates, the fund could, in lieu of disposing of its portfolio                    
securities, enter into interest rate futures contracts for the sale of          
similar long-term securities.  If interest rates increased and the              
value of the fund's securities declined, the value of the fund's                
interest rate futures contracts would increase, thereby protecting the          
fund by preventing the net asset value from declining as much as it             
otherwise would have declined.  Similarly, entering into interest rate          
futures contracts for the purchase of securities has an effect similar          
to the actual purchase of the underlying securities, but permits the            
continued holding of securities other than the underlying securities.           
For example, if SSB Citi expects long-term interest rates to decline,           
the fund might enter into interest rate futures contracts for the               
purchase of long-term securities, so that it could gain rapid market            
exposure that may offset anticipated increases in the cost of                   
securities that it intends to purchase, while continuing to hold                
higher-yielding short-term securities or waiting for the long-term              
market to stabilize.                                                            

Municipal Leases.  Each fund (except California Money Market,   
New York Money Market and Massachusetts Money Market Portfolios) may            
invest without limit in "municipal leases," which generally are                 
participations in intermediate-and short-term debt obligations issued           
by municipalities consisting of leases or installment purchase                  
contracts for property or equipment.  Although lease obligations do             
not constitute general obligations of the municipality for which the            
municipality's taxing power is pledged, a lease obligation is                   
ordinarily backed by the municipality's covenant to budget for,                 
appropriate and make the payments due under the lease obligation.               
However, certain lease obligations contain "non-appropriation" clauses          
which provide that the municipality has no obligation to make lease or          
installment purchase payments in future years unless money is                   
appropriated for such purpose on a yearly basis.  In addition to the            
"non-appropriation" risk, these securities represent a relatively new           
type of financing that has not yet developed the depth of                       
marketability associated with more conventional bonds.  Although "non-          
appropriation" lease obligations are often secured by the underlying            
property, disposition of the property in the event of foreclosure               
might prove difficult.  There is no limitation on the percentage of             
the fund's assets that may be invested in municipal lease obligations.          
In evaluating municipal lease obligations, the manager will consider            
such factors as it deems appropriate, which may include:  (a) whether           
the lease can be canceled; (b) the ability of the lease obligee to              
direct the sale of the underlying assets; (c) the general                       
creditworthiness of the lease obligor; (d) the likelihood that the              
municipality will discontinue appropriating funding for the leased              
property in the event such property is no longer considered essential           
by the municipality; (e) the legal recourse of the lease obligee in             
the event of such a failure to appropriate funding; (f) whether the             
security is backed by a credit enhancement such as insurance; and (g)           
any limitations which are imposed on the lease obligor's ability to             
utilize substitute property or services rather than those covered by            
the lease obligation.                                                           

Private Activity Bonds.  Each fund may invest without limits 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 that the fund's dividends are             
derived from interest on those bonds.  Dividends derived from interest          
income on tax-exempt municipal obligations are a component of the               
"current earnings" adjustment item for purposes of the federal                  
corporate alternative minimum tax.                                              

Zero Coupon or Deferred Interest Securities.  Each fund (except 
California Money Market, New York Money Market and Massachusetts Money          
Market Portfolios) may invest in zero coupon or deferred interest               
bonds.  Zero coupon or deferred interest securities are debt                    
obligations which do not entitle the holder to any periodic payments            
of interest prior to maturity or a specified cash payment date when             
the securities begin paying current interest (the "cash payment date")          
and therefore are issued and traded at a discount from their face               
amounts or par values. The discount varies depending on the time                
remaining until maturity or cash payment date, prevailing interest              
rates, liquidity of the security and the perceived credit quality of            
the issuer. The discount, in the absence of financial difficulties of           
the issuer, decreases as the final maturity or cash payment date of             
the security approaches.  The market prices of zero coupon or deferred          
interest securities generally are more volatile than the market prices          
of other debt securities that pay interest periodically and are likely          
to respond to changes in interest rates to a greater degree than do             
debt securities having similar maturities and credit quality.  The              
credit risk factors pertaining to low-rated securities also apply to            
low-rated zero coupon or deferred interest bonds.  Such zero coupon or          
deferred interest bonds carry an additional risk in that, unlike bonds          
which pay interest throughout the period to maturity, the fund will             
realize no cash until the cash payment date unless a portion of such            
securities is sold and, if the issuer defaults, the fund may obtain no          
return at all on its investment.                                                

Current federal income tax laws may require the holder of a zero
coupon or deferred interest security to accrue income with respect to           
that security prior to the receipt of cash payments. To maintain its            
qualification as a regulated investment company and avoid liability             
for federal income taxes, a fund may be required to distribute income           
accrued with respect to zero coupon or deferred interest securities             
and may have to dispose of fund securities under disadvantageous                
circumstances in order to generate cash to satisfy these distribution           
requirements.                                                                   

When-Issued Securities.  Each 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 a 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 strategy.                                                            

Municipal bonds are subject to changes in value based upon the  
public's perception of the creditworthiness of the issuers and                  
changes, real or anticipated, in the level of interest rates. In                
general, municipal bonds tend to appreciate when interest rates                 
decline and depreciate when interest rates rise. Purchasing municipal           
bonds on a when-issued basis, therefore, can involve the risk that the          
yields available in the market when the delivery takes place may                
actually 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 at 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 on a daily basis so the             
value of the account will equal the amount of such commitments by the           
fund. Placing securities rather than cash in the segregated account             
may have a leveraging effect on the fund's net assets.  That is, to             
the extent the fund remains substantially fully invested in securities          
at the same time it has committed to purchase securities on a when-             
issued basis, there will be greater fluctuations in its net assets              
than if it had set aside cash to satisfy its purchase commitments.              
Upon the settlement date of the when-issued securities, the fund will           
meet obligations from then-available cash flow, sale of securities              
held in the segregated account, sale of other securities or, although           
it normally would not expect to do so, from the sale of the when-               
issued securities themselves (which may have a value greater or less            
than the fund's payment obligations). Sales of securities to meet such          
obligations may involve the realization of capital gains, which are             
not exempt from federal income taxes or individual state personal               
income tax.                                                                     

When a fund engages in when-issued transactions, it relies on   
the seller to consummate the trade. Failure of the seller to do so may          
result in the fund's incurring a loss or missing an opportunity to              
obtain a price considered to be advantageous.                                   

Short-Term Trading.  Fund transactions will be undertaken       
principally to accomplish each fund's objective in relation to                  
anticipated movements in the general level of interest rates, but each          
fund may also engage in short-term trading consistent with its                  
objective.                                                                      

Short-Term Borrowing.  The funds may borrow on a short-term     
basis in amounts of up to 5% of its assets in order to facilitate the           
settlement of fund securities transactions.                                     

Diversified Status.  The Florida Portfolio, Georgia Portfolio,  
New York Portfolio and Pennsylvania Portfolio and the Massachusetts             
Money Market, New York Money Market and California Money Market                 
Portfolios are each registered as a non-diversified investment company          
under the 1940 Act, which means that the funds are not limited by the           
1940 Act in the proportion of its assets that it may invest in the              
obligations of a single issuer. However, the California, New York and           
Massachusetts Money Market Portfolios intend to comply with the                 
diversification requirements under Rule 2a-7 of the 1940 Act.  Each             
fund intends to conduct its operations so as to qualify as a                    
"regulated investment company" for purposes of the the Code, which              
will relieve each fund of any liability for federal income tax and              
California and New York state, respectively, franchise tax to the               
extent its earnings are distributed to shareholders.  To so qualify,            
among other requirements, the funds will limit their 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 funds'                   
assumption of large positions in the obligations of a small number of           
issuers may cause a 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.           

Illiquid Securities.  Each fund (except California Money Market,
New York Money Market and Massachusetts Money Market Portfolios) will           
not invest more than 15% of the value of its net assets in illiquid             
securities, including those for which there is no established market.           
The New York Money Market, California Money Market and Massachusetts            
Money Market Portfolios will not invest more than 10% of the value of           
their total assets in illiquid securities, which may include certain            
derivative products and will include any repurchase transactions that           
do not mature within seven days.                                                

Portfolio Turnover.  Each fund's portfolio turnover rate (the   
lesser of purchases or sales of fund securities during the year,                
excluding purchases or sales of short-term securities, divided by the           
monthly average value of fund securities) generally is not expected to          
exceed 100%, but the fund turnover rate will not be a limiting factor           
whenever the fund deems it desirable to sell or purchase securities.            
Securities may be sold in anticipation of a rise in interest rates              
(market decline) or purchased in anticipation of a decline in interest          
rates (market rise) and later sold. In addition, a security may be              
sold and another security of comparable quality may be purchased at             
approximately the same time in order to take advantage of what the              
fund believes to be a temporary disparity in the normal yield                   
relationship between the two securities.  These yield disparities may           
occur for reasons not directly related to the investment quality of             
particular issues or the general movement of interest rates, such as            
changes in the overall demand for or supply of various types of tax-            
exempt securities.                                                              

Special Considerations Relating to California Municipal         
Securities.  See Appendix B for a discussion of the considerations              
relating to California Municipal Securities.                                    

Special Considerations Relating to Florida Municipal Securities.
See Appendix C for a discussion of the considerations relating to               
Florida Municipal Securities.                                                   

Special Considerations Relating to Georgia Municipal Securities.
See Appendix D for a discussion of the considerations relating to               
Georgia Municipal Securities.                                                   

Special Considerations Relating to New York Municipal           
Securities.  See Appendix E for a discussion of the considerations              
relating to New York Municipal Securities.                                      

Special Considerations Relating to Pennsylvania Municipal       
Securities.  See Appendix F for a discussion of the considerations              
relating to Pennsylvania Municipal Securities.                                  

Special Considerations Relating to Massachusetts Municipal      
Securities.   See Appendix G for a discussion of the considerations             
relating to Massachusetts Municipal Securities.                                 

Investment Restrictions                                                         

Each of the funds is subject to certain restrictions and        
policies that are "fundamental," which means that they may not be               
changed without a "vote of a majority of the outstanding voting                 
securities" of the fund, as defined under the 1940 Act and Rule 18f-2           
thereunder (see "Voting").  The funds are subject to other                      
restrictions and policies that are "non-fundamental" and which may be           
changed by the fund's Board of Trustees without shareholder approval,           
subject to any applicable disclosure requirements.                              

Fundamental Policies - All funds.  Without the approval of a majority           
of its outstanding voting securities, no fund may:                              

1.      Issue "senior securities" as defined in the 1940 Act and the            
rules, regulations and orders thereunder, except as permitted under             
the 1940 Act and the rules, regulations and orders thereunder.                  

2.      Invest more than 25% of its total assets in securities, the             
issuers of which conduct their principal business activities in the             
same industry. For purposes of this limitation, securities of the U.S.          
government (including its agencies and instrumentalities) and                   
securities of state or municipal governments and their political                
subdivisions are not considered to be issued by members of any                  
industry.                                                                       

3.      Borrow money, except that (a) the fund may borrow from banks for        
temporary or emergency (not leveraging) purposes, including the                 
meeting of redemption requests which might otherwise require the                
untimely disposition of securities, and (b) the fund may, to the                
extent consistent with its investment policies, enter into reverse              
repurchase agreements, forward roll transactions and similar                    
investment strategies and techniques. To the extent that it engages in          
transactions described in (a) and (b), the fund will be limited so              
that no more than 33 -1/3% of the value of its total assets (including          
the amount borrowed), valued at the lesser of cost or market, less              
liabilities (not including the amount borrowed) is derived from such            
transactions.                                                                   

4.      Make loans. This restriction does not apply to: (a) the purchase        
of debt obligations in which the fund may invest consistent with its            
investment objectives and policies; (b) repurchase agreements; and (c)          
loans of its fund securities, to the fullest extent permitted under             
the 1940 Act.                                                                   

5.      Engage in the business of underwriting securities issued by             
other persons, except to the extent that the fund may technically be            
deemed to be an underwriter under the Securities Act of 1933, as                
amended, ("the 1933 Act") in disposing of fund securities.                      

6.      Purchase or sell real estate, real estate mortgages, real estate        
investment trust securities, commodities or commodity contracts, but            
this restriction shall not prevent the fund from (a) investing in               
securities of issuers engaged in the real estate business or the                
business of investing in real estate (including interests in limited            
partnerships owning or otherwise engaging in the real estate business           
or the business of investing in real estate) and securities which are           
secured by real estate or interests therein; (b) holding or selling             
real estate  received in connection with securities it holds or held;           
or (c) trading in  futures contracts and options on futures contracts           
(including options on currencies to the extent consistent with the              
fund's investment objective and policies).                                      

Additional Fundamental Policies.  Without the approval of a majority            
of its outstanding voting securities, neither the National Portfolio            
nor the Limited Term Portfolio may:                                             

1.      Invest in a manner that would cause the fund to fail to be a            
"diversified company" under the 1940 Act and the rules, regulations             
and orders thereunder.                                                          

Nonfundamental Policies.  As a nonfundamental policy, no fund may:              

1.      Purchase any securities on margin (except for such short-term           
credits as are necessary for the clearance of purchases and sales of            
fund securities) or sell any securities short (except "against the              
box").  For purposes of this restriction, the deposit or payment by             
the fund of underlying securities and other assets in escrow and                
collateral agreements with respect to initial or maintenance margin in          
connection with futures contracts and related options and options on            
securities, indexes or similar items is not considered to be the                
purchase of a security on margin.                                               

2.      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.                                                                       

3.      Write or purchase put, call, straddle or spread options.                

4.      Invest more than 5% of its assets in unseasoned issuers with            
less than three years of continuous operations (including that of               
predecessors).                                                                  

5.      Purchase oil, gas or other mineral leases, rights or royalty            
contracts or exploration or development programs, except that each              
fund may invest in the securities of issuers which operate, invest in,          
or sponsor such programs.                                                       

Additional Nonfundamental Policies.  As a nonfundamental policy,                

1.      Neither the National Portfolio nor the New York Portfolio may           
invest in securities of another investment company except as permitted          
by Section 12(d)(1) of the 1940 Act or as part of a merger,                     
consolidation, or acquisition.                                                  

All of the foregoing restrictions stated in terms of percentages
will apply at the time an investment is made; a subsequent increase or          
decrease in the percentage that may result from changes in values or            
net assets will not result in a violation of the restriction.                   

TRUSTEES AND OFFICERS                                                           

Set forth below is a list of each Trustee and executive officer 
of the fund, including a description of principal occupation during             
the last 5 years, age and address of each such person.                          

LEE ABRAHAM, Trustee (Age 72).                                                  
Retired; Director/Trustee of 12 investment companies associated with            
Citigroup Inc. ("Citigroup"); Director of R.G. Barry Corp., a footwear          
manufacturer, Signet Group plc, a specialty retailer, and eNote.com,            
Inc., a computer hardware company;  Formerly Chairman and Chief                 
Executive Officer of Associated Merchandising Corporation, a major              
retail merchandising and sourcing organization; His address is 106              
Barnes Road, Stamford, Connecticut 06902.                                       

ALLAN J. BLOOSTEIN, Trustee (Age 70).                                           
President of Allan J. Bloostein Associates, a consulting firm;                  
Director/Trustee of 19 investment companies associated with Citigroup;          
Director of CVS Corporation, a drug store chain, and Taubman Centers            
Inc., a real estate development company; Retired Vice Chairman and              
Director of The May Department Stores Company; His address is 27 West           
67th Street, New York, New York 10023.                                          

JANE DASHER, Trustee (Age 50).                                                  
Investment Officer of Korsant Partners, a family investment company.            
Director/Trustee of 12 investment companies associated with Citigroup.          
Prior to 1997, an Independent Financial Consultant;  Her address is             
283 Greenwich Avenue, Greenwich, Conntecticut 06830.                            

DONALD R. FOLEY, Trustee (Age 77).                                              
Retired; Director/Trustee of 12 investment companies associated with            
Citigroup; Formerly Vice President of Edwin Bird Wilson, Incorporated           
(an advertising agency); His address is 3668 Freshwater Drive,                  
Jupiter, Florida  33477.                                                        

RICHARD E. HANSON, Jr., Trustee (Age 58).                                       
Retired; Formerly Head of School, New Atlanta Jewish Community High             
School, Atlanta, Georgia; Director/Trustee of 14 investment companies           
associated with Citigroup; Formerly Headmaster, The Peck School,                
Morristown, New Jersey; His address is 58 Ivy Chase, Atlanta, GA                
30342.                                                                          

PAUL HARDIN, Trustee (Age 69).                                                  
Professor of Law at University of North Carolina at Chapel Hill;                
Director/Trustee of 14 investment companies associated with Citigroup;          
Director of The Summit Bancorporation.  Formerly, Chancellor of the             
University of North Carolina at Chapel Hill; His address is 12083               
Morehead, Chapel Hill, North Carolina 27514.                                    

*HEATH B. MCLENDON, Chairman of the Board, President and Chief                  
Executive Officer (Age 67).                                                     
Managing Director of Salomon Smith Barney; Chairman, Co-Chairman or             
Trustee of 78 investment companies affiliated with Citigroup.;                  
President of SSB Citi and Travelers Investment Advisors ("TIA");                
former Chairman of Smith Barney Strategy Advisors Inc.  His address is          
7 World Trade Center, New York, New York, 10048.                                

RODERICK C. RASMUSSEN, Trustee (Age 73).                                        
Investment Counselor; Director/Trustee of 12 investment companies               
associated with Citigroup. Formerly, Vice President of Dresdner and             
Company Inc. (investment counselors); His address is 9 Cadence Court,           
Morristown, NJ 07960.                                                           

JOHN P. TOOLAN, Trustee (Age 69).                                               
Retired; Director/Trustee of 12 investment companies associated with            
Smith Barney. Trustee of John Hancock Funds; Formerly, Director and             
Chairman of Smith Barney Trust Company, Director of Smith Barney                
Holdings Inc. and the Manager and Senior Executive Vice President,              
Director and Member of the Executive Committee of Smith Barney. His             
address is 13 Chadwell Place, Morristown, New Jersey, 07960.                    

LEWIS E. DAIDONE, Senior Vice President and Treasurer (Age 42).                 
Managing Director of Salomon Smith Barney; Senior Vice President or             
Executive Vice President and Treasurer of 61 investment companies               
affiliated with Citigroup, and Director and Senior Vice President of            
the manager and TIA.  His address is 125 Broad Street, New York, New            
York 10004.                                                                     

PETER M. COFFEY, Vice President and Investment Officer  (Age 56).               
Managing Director of Salomon Smith Barney; Vice President of the                
Manager and of five investment companies associated with Salomon Smith          
Barney.  His address is 388 Greenwich Street, New York, NY 10013.               

JOSEPH DEANE, Vice President and Investment Officer (Age 51).                   
Managing Director of Salomon Smith Barney and Investment Officer of             
SSB Citi.  His address is 388 Greenwich Street, New York, NY 10013.             

JOSEPH BENEVENTO, Vice President and Investment Officer (Age 31).               
Vice President of Smith Barney and Vice President of the fund and four          
investment companies associated with Salomon Smith Barney.  His                 
address is 388 Greenwich Street, New York, NY 10013.                            

ANTHONY PACE, Controller (Florida, Georgia, Limited Term, National,             
New York, Pennsylvania Portfolios (Age 35).                                     
Director of Salomon Smith Barney; Controller or Assistant Treasurer of          
various investment companies affiliated with Citigroup since 1999.              
His address is 125 Broad Street, New York, New York 10004.                      

IRVING DAVID, Controller (California Money Market, New York Money               
Market and Massachusetts Money Market Portfolios) (Age 38).                     
Director of Salomon Smith Barney.  Controller or Assistant Treasurer            
of 43 investment companies affiliated with Citigroup.  His address is           
125 Broad Street, New York, New York 10004.                                     

CHRISTINA T. SYDOR, Secretary (Age 49).                                         
Managing Director of Salomon Smith Barney and Secretary of 61                   
investment companies affiliated with Salomon Smith Barney; Secretary            
and General Counsel of the Manager and TIA.  Her address is 388                 
Greenwich Street, New York, NY 10013.                                           

*Designates a Trustee that is an "interested person" as defined in the          
1940 Act. Such persons compensated by Smith Barney and are not                  
separately compensated by the fund for serving as a fund officer or             
Trustee.                                                                        

The following table shows the compensation paid by the fund to  
each person who was a Trustee during the fund's last fiscal year.               
None of the officers of the fund received any compensation from the             
fund for such period.  Officers and interested Trustees of the fund             
are compensated by Salomon Smith Barney.                                        

COMPENSATION TABLE                                                              

Name of Person                                                                  

Aggregate                                                                       
Compensation                                                                    
from Fund                                                                       
For Fiscal                                                                      
Year                                                                            
Ended                                                                           
03/31/00                                                                        
Pension or                                                                      
Retirement                                                                      
Benefits                                                                        
Accrued as                                                                      
part of                                                                         
Fund                                                                            
Expenses                                                                        
Total                                                                           
Compensation                                                                    
from Fund                                                                       
Complex for                                                                     
Calendar Year                                                                   
Ended 12/31/99                                                                  

Number of                                                                       
Funds for                                                                       
Which Person                                                                    
Serves within                                                                   
Fund Complex                                                                    
Lee Abraham                                                                     
$3,395                                                                          
$0                                                                              
$71,133                                                                         
12                                                                              
Allan J. Bloostein                                                              
3,395                                                                           
0                                                                               
112,483                                                                         
19                                                                              
Jane F. Dasher                                                                  
4,584                                                                           
0                                                                               
65,733                                                                          
12                                                                              
Donald R. Foley+                                                                
4,584                                                                           
0                                                                               
71,300                                                                          
12                                                                              
Richard E. Hanson                                                               
3,414                                                                           
0                                                                               
68,233                                                                          
14                                                                              
Paul Hardin                                                                     
4,584                                                                           
0                                                                               
90,450                                                                          
14                                                                              
Heath B. McLendon*                                                              
0                                                                               
0                                                                               
0                                                                               
78                                                                              
Roderick C.                                                                     
Rasmussen                                                                       
4,584                                                                           
0                                                                               
71,200                                                                          
12                                                                              
John P. Toolan+                                                                 
4,448                                                                           
0                                                                               
69,100                                                                          
12                                                                              
_________________________                                                       

*       Designates a person that is an "interested Trustee" of the              
Trust.                                                                          

+       Pursuant to a deferred compensation plan, the indicated persons         
elected to defer payment of the following amounts of their                      
compensation from the Trust: Donald R. Foley - $1,274, Roderick                 
C. Rasmussen - $398 and John P. Toolan - $4,448, and the                        
following amounts of their compensation from the fund Complex:                  
Donald R. Foley: $21,600, and John P. Toolan: $69,100.                          

Upon attainment of age 72 the fund's current Trustees may elect 
to change to emeritus status.  Any Trustees elected or appointed                
to the Board in the future will be required to change to                        
emeritus status upon attainment of age 80.  Trustees Emeritus                   
are entitled to serve in emeritus status for a maximum of 10                    
years during which time they are paid 50% of the annual retainer                
fee and meeting fees otherwise applicable to the fund's                         
Trustees, together with reasonable out-of-pocket expenses for                   
each meeting attended.  For the last fiscal year, the total paid                
to Emeritus Trustees by the Trust was $2621.                                    

On July 10, 2000, the Trustees and officers owned in the        
aggregate less than 1% of the outstanding shares of each fund of the            
Trust.                                                                          

Investment Manager and Administrator                                            

SSB Citi is investment manager to each of the funds pursuant to 
a written agreement (the "Advisory Agreement").  The services provided          
by the manager under each Advisory Agreement are described in the               
prospectuses under "Management."  The manager pays the salary of any            
officer and employee who is employed by both it and the funds. The              
manager bears all expenses in connection with the performance of its            
services.  The Manager is a wholly owned subsidiary of Citigroup.               

The Advisory Agreements for the National Portfolio, the Georgia 
Portfolio and Pennsylvania Portfolio provides for a management fee at           
the annual rate of 0.45% of the fund's average net assets.  The                 
management fee for the Limited Term Portfolio, the Florida Portfolio            
and the New York Portfolio is an annual rate of 0.50% of the fund's             
average net assets.                                                             

At a Meeting of Shareholders of the Limited Term Portfolio, the 
Florida Portfolio and the New York Portfolio held on December 15,               
1995, the shareholders of each of these funds approved a new Advisory           
Agreement that increases the effective management fee paid by Smith             
Barney Muni Funds on behalf of each of these funds from 0.45% to 0.50%          
of each of these funds' average daily net assets.                               

The Advisory Agreements for the California Money Market         
Portfolio, the New York Money Market Portfolio and the Massachusetts            
Money Market Portfolio provide for the payment of a management fee at           
an annual rate based on each Money Market Portfolio's average daily             
net assets in accordance with the following schedule:                           

0.500% on the first $2.5 billion of net assets; 
0.475% on the next $2.5 billion; and            
0.450% on net assets in excess of $5 billion.   
0.400 on net assets in excess of $7.5 billion   

Based on the current asset levels of each Money Market          
Portfolio, except California Money Market, the effective rate of the            
management fee for each of the money market funds is 0.50%.  The                
effective rate of the management fee for California Money Market                
Portfolio is 49.7%.                                                             

For the fiscal years or period ended March 31, 2000, 1999 and   
1998, the management fee paid by each fund was as follows:                      

PORTFOLIO                                                                       

2000                                                                            
1999                                                                            

1998                                                                            

National                                                                        
$1,990,02                                                                       
4                                                                               
$1,976,56                                                                       
2                                                                               
$1,754,11                                                                       
6                                                                               
Limited Term                                                                    
1,755,970                                                                       
1,625,157                                                                       
1,416,637                                                                       
New York                                                                        
3,530,004                                                                       
3,811,463                                                                       
3,734,185                                                                       
Florida                                                                         
1,132,816                                                                       
1,109,500                                                                       
974,400                                                                         
California Money                                                                
11,636,11                                                                       
1                                                                               
9,619,316                                                                       
7,817,640                                                                       
New York Money                                                                  
7,182,349                                                                       
6,110,859                                                                       
5,154,859                                                                       
Georgia (a)                                                                     
249,390                                                                         
200,616                                                                         
35,458                                                                          
Pennsylvania (b)                                                                
310,437                                                                         
235,522                                                                         
13,969                                                                          
Massachusetts Money                                                             
(c)                                                                             
457,792                                                                         
--                                                                              
--                                                                              

(a)     The manager waived its management fee in excess of 0.33% of the         
portfolio's average daily net assets for the fiscal year ended                  
March 31, 1998 and in excess of 0.35% of the portfolio's average                
daily net assets for the fiscal year ended March 31, 1999.                      
(b) The manager waived its management fee in excess of 0.33% of the             
portfolio's average daily net assets for the fiscal year ended                  
March 31, 1998, in excess of 0.25% of the portfolio's average                   
daily net assets for the fiscal year ended March 31, 1999 and in                
excess of 0.25% of the portfolio's average daily net assets for                 
the fiscal year ended March 31, 2000.                                           
(c) Massachusetts Money Market Portfolio commenced operations on                
September 14, 1999.The manager waived a portion of its fees for                 
the period ended March 31, 2000.                                                

The Advisory Agreements further provide that all other expenses 
not specifically assumed by the manager under the Advisory Agreement            
on behalf of each fund are borne by the fund.  Expenses payable by the          
fund include, but are not limited to, all charges of custodians                 
(including sums as custodian and sums for keeping books and for                 
rendering other services to the fund) and shareholder servicing                 
agents, expenses of preparing, printing and distributing all                    
prospectuses, proxy material, reports and notices to shareholders, all          
expenses of shareholders' and Trustees' meetings, filing fees and               
expenses relating to the registration and qualification of the fund's           
shares and the fund under Federal or state securities laws and                  
maintaining such registrations and qualifications (including the                
printing of the fund's  registration statements), fees of auditors and          
legal counsel, costs of performing fund valuations, out-of-pocket               
expenses of Trustees and fees of Trustees who are not "interested               
persons" as defined in the 1940 Act, interest, taxes and governmental           
fees, fees and commissions of every kind, expenses of issue,                    
repurchase or redemption of shares, insurance expense, association              
membership dues, all other costs incident to the fund's existence and           
extraordinary expenses such as litigation and indemnification                   
expenses.  Direct expenses of each portfolio of the fund, including             
but not limited to the management fee, are charged to that fund, and            
general trust expenses are allocated among the funds on the basis of            
relative net assets.                                                            

The manager has voluntarily agreed to waive its fees if in any  
fiscal year the aggregate expenses of any Class of the following                
funds, exclusive of 12b-1 fees, taxes, brokerage, interest and                  
extraordinary expenses, such as litigation costs, exceed the indicated          
percentage of such fund's average net assets for that fiscal year:              

National                                                                        
0.65%                                                                           
Limited Term                                                                    
0.70%                                                                           
New York                                                                        
0.70%                                                                           
Florida                                                                         
0.70%                                                                           
California Money Market                                                         
0.70%                                                                           
New York Money Market                                                           
0.70%                                                                           
Georgia                                                                         
0.65%                                                                           
Pennsylvania                                                                    
0.65%                                                                           
Massachusetts Money Market                                                      
0.70%                                                                           

The foregoing expense limitations may be terminated at any time 
by the manager by notification to existing shareholders and by                  
supplementing the relevant fund's then-current prospectus and/or SAI.           

DISTRIBUTION                                                                    

Distributor. Effective June 5, 2000, Salomon Smith Barney, Inc.,
located at 388 Greenwich Street, New York, New York 10013 and PFS               
Distributors, Inc. ("PFS Distributors") serve as the fund's co-                 
distributors pursuant to a written agreements dated June 5, 2000 (the           
"Distribution Agreements") which was approved by the fund's Board of            
Directors, including a majority of the independent directors, on March          
15, 2000.   Prior to and up to June 5, 2000, CFBDS, Inc. served as              
each Fund's Distributor.                                                        

The Distributor may be deemed to be an underwriter for purposes                 
of the 1933 Act. From time to time, the Distributor, or PFS                     
Distributors or its affiliates may also pay for certain non-cash sales          
incentives provided to PFSI Registered Representatives. Such                    
incentives do not have any effect on the net amount invested. In                
addition to the reallowances from the applicable public offering price          
described above, PFS Distributors may, from time to time, pay or allow          
additional reallowances or promotional incentives, in the form of cash          
or other compensation to PFSI Registered Representatives that sell              
shares of each portfolio.                                                       

The Distributor has entered into a selling agreement with PFS                   
Distributors and PFS Distributors has entered into an agreement with            
PFSI giving PFSI the right to sell shares of each portfolio of the              
fund on behalf of the Distributor.  The Distributor's obligation is an          
agency or "best efforts" arrangement under which the Distributor is             
required to take and pay only for such shares of each portfolio as may          
be sold to the public.  The Distributor is not obligated to sell any            
stated number of shares.  The Distribution Agreements are renewable             
from year to year if approved (a) by the directors or by a vote of a            
majority of the fund's outstanding voting securities, and (b) by the            
affirmative vote of a majority of directors who are not parties to the          
Distribution Agreements or interested persons of any party by votes             
cast in person at a meeting called for such purpose.  The Distribution          
Agreements provide that they will terminate if assigned, and that they          
may be terminated without penalty by either party on 60 days' written           
notice.                                                                         

The Trust, on behalf of each fund, has adopted a plan of        
distribution pursuant to Rule 12b-1 (the "Plan") under the 1940 Act             
under which a service fee is paid by each class of shares (other than           
Class Y shares) of each fund to Salomon Smith Barney and PFSI in                
connection with shareholder service expenses.  The only Classes of              
shares being offered for sale through PFSI are Classes A and B shares.          
Under the Plan, Salomon Smith Barney is paid a fee with respect to              
shares of each portfolio sold through Salomon Smith Barney and PFSI is          
paid a fee with respect to shares or each portfolio sold through PFS            
Distributors.  Under the Plan, the fund pays Salomon Smith Barney, or           
PFSI (who pays its Registered Representative), as the case may be, a            
service fee equal to 0.15% of the average daily net assets of each              
class (the service fee payable by the Class A shares of the California          
Money Market, New York Money Market and Massachusetts Money Market              
Portfolios is 0.10%).  The service fee, is primarily used to pay                
Salomon Smith Barney Financial Consultants (and PFSI Registered                 
Representatives) for servicing shareholder accounts.  In addition,              
each fund pays Salomon Smith Barney a distribution fee with respect to          
Class B and Class L shares (except California Money Market Portfolio,           
New York Money Market Portfolio and Massachusetts Money Market                  
Portfolio which do not offer Class B or L shares and Limited Term               
Portfolio which does not offer Class B shares and has a different rate          
for its Class L shares), calculated at the annual rates of 0.50% and            
0.55%, respectively, and 0.20% for Limited Term Portfolio Class L               
shares, of the value of the fund's average daily net assets                     
attributable to those classes (and pays PFSI with respect to Class A            
and B ) 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; payment            
to and expenses of Salomon Smith Barney Financial Consultants, PFSI             
Registered Representatives, 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 Salomon             
Smith Barney and PFSI associated with the sale of portfolio shares,             
including lease, utility, communications and sales promotion expenses.          
Class B shares that automatically convert to Class A shares eight               
years after the date of original purchase will no longer be subject to          
a distribution fee.                                                             

For the year ended March 31, 2000, the table below represents   
the fees which have been accrued and/or paid to Salomon Smith Barney            
pursuant to Rule 12b-1 for each of the fund's portfolios:                       

PORTFOLIO                                                                       

Class A                                                                         

Class B                                                                         

Class L                                                                         

Class Y                                                                         

Total                                                                           

California Money Market                                                         
$2,326,2                                                                        
76                                                                              
N/A                                                                             
N/A                                                                             
--                                                                              
$2,326,2                                                                        
76                                                                              
National                                                                        
$575,400                                                                        
$257,153                                                                        
$133,459                                                                        
--                                                                              
$966,012                                                                        
Limited Term                                                                    
$422,895                                                                        
N/A                                                                             
$137,063                                                                        
--                                                                              
$559,958                                                                        
Florida                                                                         
$227,824                                                                        
$404,396                                                                        
$87,262                                                                         
--                                                                              
$719,482                                                                        
Georgia                                                                         
$53,885                                                                         
$81,307                                                                         
$48,914                                                                         
--                                                                              
$184,106                                                                        
New York                                                                        
$773,742                                                                        
$1,116,3                                                                        
37                                                                              
$129,002                                                                        
--                                                                              
$2,019,0                                                                        
81                                                                              
New York Money Market                                                           
$1,436,4                                                                        
70                                                                              
N/A                                                                             
N/A                                                                             
--                                                                              
$1,436,4                                                                        
70                                                                              
Pennsylvania                                                                    
$48,736                                                                         
$172,681                                                                        
$69,503                                                                         
--                                                                              
$290,920                                                                        
Massachusetts Money                                                             
Market*                                                                         
$91,214                                                                         
N/A                                                                             
N/A                                                                             
--                                                                              
$91,214                                                                         
*Massachusetts Money Market Portfolio commenced operations on                   
September 14, 1999.                                                             

+                                                                               
Commissions on Class A Shares.  For the 1998 fiscal year, the                   
aggregate dollar amount of commissions on Class A shares, all of which          
were paid to Salomon Smith Barney, is as follows:                               

Name of Fund                                                                    
Fiscal Year                                                                     
Ended 03/31/98                                                                  

California Money Market                                                         
n/a                                                                             

National                                                                        
$345,000                                                                        

Limited Term                                                                    
$315,000                                                                        

Florida                                                                         
$319,000                                                                        

Georgia                                                                         
$75,000                                                                         

New York                                                                        
$489,000                                                                        

New York Money Market                                                           
n/a                                                                             

Pennsylvania                                                                    
$40,000                                                                         

Massachusetts Money Market                                                      
n/a                                                                             

For the periods April 1, 1998 through October 7, 1998 and October 8,            
1998 through March 31, 1999, and for the 2000 fiscal year the                   
aggregate dollar amounts of commissions on Class A shares, are as               
follows:                                                                        

Class A                                                                         

Name of Fund                                                                    
04/01/98                                                                        
through                                                                         
10/07/98*                                                                       
10/08/98                                                                        
through                                                                         
03/31/99**                                                                      
Fiscal Year                                                                     
Ended                                                                           
03/31/00***                                                                     
California Money Market                                                         
n/a                                                                             
n/a                                                                             
n/a                                                                             
National                                                                        
$336,000                                                                        
$355,000                                                                        
$343,000                                                                        
Limited Term                                                                    
$294,000                                                                        
$573,000                                                                        
$259,000                                                                        
Florida                                                                         
$201,000                                                                        
$268,000                                                                        
$235,000                                                                        
Georgia                                                                         
$77,000                                                                         
$91,000                                                                         
$61,000                                                                         
New York                                                                        
$268,000                                                                        
$350,000                                                                        
$358,000                                                                        
New York Money Market                                                           
n/a                                                                             
n/a                                                                             
n/a                                                                             
Pennsylvania                                                                    
$75,000                                                                         
$132,000                                                                        
$93,000                                                                         
Massachusetts Money Market                                                      
n/a                                                                             
n/a                                                                             
n/a                                                                             

*The entire amount was paid to Salomon Smith Barney.                            

** The following amounts were paid to Salomon Smith Barney:  $319,500,          
$515,700, $241,200, $81,900, $315,000, and $118,800, for the National,          
Limited Term, Florida, Georgia, New York, and Pennsylvania Portfolios.          

*** The following amounts were paid to Salomon Smith Barney:                    
$308,700, $233,100, $211,500, $54,900, $322,200, and $83,700, for the           
National, Limited Term, Florida, Georgia, New York, and Pennsylvania            
Portfolios.                                                                     

Commissions on Class L Shares.  For the periods June 12, 1998 through           
October 7, 1998 and October 8, 1998 through March 31, 1999, and for             
the 2000 fiscal year the aggregate dollar amounts of commissions on             
Class L shares are as follows:                                                  

Class L                                                                         
(On June 12, 1998, Class C                                                      
shares were renamed Class L                                                     
shares)                                                                         

Name of Fund                                                                    
06/12/98                                                                        
through                                                                         
10/07/98*                                                                       
10/08/98                                                                        
through                                                                         
03/31/99**                                                                      
Fiscal Year                                                                     
Ended                                                                           
03/31/00***                                                                     
California Money Market                                                         
n/a                                                                             
n/a                                                                             
n/a                                                                             
National                                                                        
$18,000                                                                         
$6,000                                                                          
$19,000                                                                         
Limited Term                                                                    
$26,000                                                                         
$91,000                                                                         
$45,000                                                                         
Florida                                                                         
$9,000                                                                          
$14,000                                                                         
$13,000                                                                         
Georgia                                                                         
$7,000                                                                          
$13,000                                                                         
$9,000                                                                          
New York                                                                        
$17,000                                                                         
$48,000                                                                         
$44,000                                                                         
New York Money Market                                                           
n/a                                                                             
n/a                                                                             
n/a                                                                             
Pennsylvania                                                                    
$6,000                                                                          
$9,000                                                                          
$18,000                                                                         
Massachusetts Money Market                                                      
n/a                                                                             
n/a                                                                             
n/a                                                                             

*       The entire amount was paid to Salomon Smith Barney.                     

**      The following amounts were paid to Salomon Smith Barney:  $5,400,       
$81,900, $12,600, $11,700, $43,200 and $8,100 for the National,                 
Limited Term, Florida, Georgia, New York, and Pennsylvania Portfolios,          
respectively.                                                                   

***The following amounts were paid to Salomon Smith Barney:  $17,100,           
$40,500, $11,700, $8,100, $39,600 and $16,200 for the National,                 
Limited Term, Florida, Georgia, New York, and Pennsylvania Portfolios,          
respectively.                                                                   

As set forth in the prospectuses, a contingent deferred sales   
charge ("CDSC") may be imposed on certain redemptions of Class A,               
Class B and Class L shares. The amount of the CDSC will depend on the           
number of years since the shareholder made the purchase payment from            
which the amount is being redeemed. See "Deferred Sales Charge                  
Provisions" below.                                                              

Code of Ethics                                                                  

Pursuant to Rule 17j-1 of the 1940 Act, the fund, its investment
advisers and principal underwriter have adopted codes of ethics that            
permit personnel to invest in securities for their own accounts,                
including securities that may be purchased or held by the fund.  All            
personnel must place the interests of clients first and avoid                   
activities, interests and relationships that might interfere with the           
duty to make decisions in the best interests of the clients.  All               
personal securities transactions by employees must adhere to the                
requirements of the codes and must be conducted in such a manner as to          
avoid any actual or potential conflict of interest, the appearance of           
such a conflict, or the abuse of an employee's position of trust and            
responsibility.                                                                 

A copy of the fund's code of ethics is on file with the SEC.    

Custodian                                                                       

All fund securities and cash owned by the funds will be held in 
the custody of PNC Bank, National Association, 17th and Chestnut                
Streets, Philadelphia, Pennsylvania  19103.                                     

Counsel                                                                         

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York                
10019, serves as counsel to the funds.                                          

Sullivan & Cromwell, 125 Broad Street, New York, New York 10004,                
serves as counsel to the directors who are not "interested persons" of          
the funds.                                                                      

Auditors                                                                        

KPMG LLP, 757 Third Avenue, New York, New York 10017, has been  
selected to serve as independent auditors of the funds and to render            
an opinion on the funds' financial statements for the fiscal year               
ending March 31, 2001.                                                          

PURCHASE OF SHARES                                                              

The National Portfolio, Georgia Portfolio, New York Portfolio   
and Pennsylvania Portfolio each offer four classes ("Classes") of               
shares:  Class A, Class B, Class L and Class Y.  The Limited Term               
Portfolio offers three classes of shares:  Class A, Class L and Class           
Y.  Class A shares are sold to investors with an initial sales charge           
and Class B shares are sold without an initial sales charge but with            
higher ongoing expenses and a Contingent Deferred Sales Charge                  
("CDSC") payable upon certain redemption's.  Class L shares are sold            
with a lower initial sales charge than Class A shares but with higher           
ongoing expenses and a CDSC.  Class Y shares are sold without an                
initial sales charge and are available only to investors investing a            
minimum of $15,000,000.  The California Money Market Portfolio, the             
New York Money Market Portfolio, and the Massachusetts Money Market             
Portfolio each offer two classes of shares:  Class A and Class Y.               
Class A shares of each of the California Money Market, New York Money           
Market and Massachusetts Money Market Portfolios are sold without an            
initial sales charge.  These alternatives are designed to provide               
investors with the flexibility of selecting an investment best suited           
to his or her needs based on the amount of purchase, the length of              
time the investor expects to hold the shares and other circumstances.           

The following classes of shares are available for purchase.  See
the prospectus for a discussion of factors to consider in selecting             
which Class of shares to purchase.                                              

Class A Shares. Class A shares of California Money Market, New York             
Money Market and Massachusetts Money Market Portfolios are sold                 
without sales charges.  Class A shares of Limited Term Portfolio have           
an initial sales charge of 2.00% of the transaction (2.04% of amount            
invested) of the first $499,999 invested; and no initial sales charge           
for investments of $500,000 and over.*                                          

Class A shares of each fund except California Money Market, New York            
Money Market, Massachusetts Money Market and Limited Term Portfolios            
are sold to investors at the public offering price, which is the net            
asset value plus an initial sales charge as follows:                            

Amount of                                                                       
Investment                                                                      

Sales Charge as                                                                 
a %                                                                             
Of Transaction                                                                  

Sales Charge as                                                                 
a %                                                                             
of Amount                                                                       
Invested                                                                        
Dealers'                                                                        
Reallowance as %                                                                
Of Offering Price                                                               
Less than $25,000                                                               
4.00%                                                                           
4.17%                                                                           
3.60%                                                                           
$ 25,000 - 49,999                                                               
3.50                                                                            
3.63                                                                            
3.15                                                                            
50,000 - 99,999                                                                 
3.00                                                                            
3.09                                                                            
2.70                                                                            
100,000 - 249,999                                                               
2.50                                                                            
2.56                                                                            
2.25                                                                            
250,000 - 499,999                                                               
1.50                                                                            
1.52                                                                            
1.35                                                                            
500,000 and over                                                                
*                                                                               
*                                                                               
*                                                                               

*  Purchases of Class A shares of $500,000 or more will be made at net          
asset value without any initial sales charge, but will be subject to            
a deferred sales charge of 1.00% on redemptions made within 12 months           
of purchase. The deferred sales charge on Class A shares is payable             
to Salomon Smith Barney, which compensates Salomon Smith Barney                 
Financial Consultants and other dealers whose clients make purchases            
of $500,000 or more. The deferred sales charge is waived in the same            
circumstances in which the deferred sales charge applicable to Class            
B and Class L shares is waived. See "Purchase of Shares-Deferred                
Sales Charge Alternatives" and "Purchase of Shares-Waivers of                   
Deferred Sales Charge."                                                         

Members of a selling group may receive up to 90% of the sales charge            
and may be deemed to be underwriters of a fund as defined in the 1933           
Act.  The reduced sales charges shown above apply to the aggregate of           
purchases of Class A shares of a fund made at one time by "any                  
person," which includes an individual and his or her immediate family,          
or a trustee or other fiduciary of a single trust estate or single              
fiduciary account.                                                              

Class B Shares.  Class B shares are sold without an initial sales               
charge but are subject to a deferred sales charge payable upon certain          
redemptions.  See "Deferred Sales Charge Provisions" below.                     

Class L Shares.  Class L shares are sold with an initial sales charge           
of 1.00% (which is equal to 1.01% of the amount invested) and are               
subject to a deferred sales charge payable upon certain redemptions.            
See "Deferred Sales Charge Provisions" below.  Until June 22, 2001              
purchases of Class L shares by investors who were holders of Class C            
shares of the fund on June 12, 1998 will not be subject to the 1%               
initial sales charge.                                                           

Class Y Shares.  Class Y shares are sold without an initial sales               
charge or deferred sales charge and are available only to investors             
investing a minimum of $15,000,000 (except purchases of Class Y shares          
by Smith Barney Concert Allocation Series Inc., for which there is no           
minimum purchase amount).                                                       

General                                                                         

Investors may purchase shares from a Salomon Smith Barney Financial             
Consultant or a broker that clears through Salomon Smith Barney                 
("Dealer Representative").  In addition, certain investors purchasing           
through certain Dealer Representatives, may purchase shares directly            
from a fund.  When purchasing shares of a fund, investors must specify          
which class is being purchased.  Salomon Smith Barney and Dealer                
Representatives may charge their customers an annual account                    
maintenance fee in connection with a brokerage account through which            
an investor purchases or holds shares.  Accounts held directly at PFPC          
Global Fund Services, Inc ("PFPC" or "sub-transfer agent") are not              
subject to a maintenance fee.                                                   

Investors in Class A, Class B and Class L shares may open an account            
in a fund by making an initial investment of at least $1,000 for each           
account, in the fund. Investors in Class Y shares may open an account           
by making an initial investment of $15,000,000. Subsequent investments          
of at least $50 may be made for all Classes. For shareholders                   
purchasing shares of a fund through the Systematic Investment Plan on           
a monthly basis, the minimum initial investment requirement for Class           
A, Class B and Class L shares and subsequent investment requirement             
for all Classes is $25. For shareholders purchasing shares of a fund            
through the Systematic Investment Plan on a quarterly basis, the                
minimum initial investment required for Class A, Class B and Class L            
shares and the subsequent investment requirement for all Classes is             
$50.  There are no minimum investment requirements for Class A shares           
for employees of Citigroup and its subsidiaries, including Salomon              
Smith Barney, unitholders who invest distributions from a Unit                  
Investment Trust ("UIT") sponsored by Salomon Smith Barney, and                 
Directors/Trustees of any of the Smith Barney Mutual Funds, and their           
spouses and children. A fund reserves the right to waive or change              
minimums, to decline any order to purchase its shares and to suspend            
the offering of shares from time to time. Shares purchased will be              
held in the shareholder's account by the sub-transfer agent. Share              
certificates are issued only upon a shareholder's written request to            
the sub-transfer agent.                                                         

Purchase orders received by a fund or a Salomon Smith Barney Financial          
Consultant prior to the close of regular trading on the New York Stock          
Exchange (NYSE"), on any day the fund calculates its net asset value,           
are priced according to the net asset value determined on that day              
(the "trade date").  Orders received by a Dealer Representative prior           
to the close of regular trading on the NYSE on any day a fund                   
calculates its net asset value, are priced according to the net asset           
value determined on that day, provided the order is received by a fund          
or the fund's agent prior to its close of business. For shares                  
purchased through Salomon Smith Barney or a Dealer Representative               
purchasing through Salomon Smith Barney, payment for shares of the              
fund is due on the third business day after the trade date. In all              
other cases, payment must be made with the purchase order.                      

Systematic Investment Plan.  Shareholders may make additions to their           
accounts at any time by purchasing shares through a service known as            
the Systematic Investment Plan.  Under the Systematic Investment Plan,          
Salomon Smith Barney or the sub-transfer agent is authorized through            
preauthorized transfers of at least $25 on a monthly basis or at least          
$50 on a quarterly basis to charge the shareholder's account held with          
a bank or other financial institution on a monthly or quarterly basis           
as indicated by the shareholder, to provide for systematic additions            
to the shareholder's fund account. A shareholder who has insufficient           
funds to complete the transfer will be charged a fee of up to $25 by            
Salomon Smith Barney or the sub-transfer agent..  The Systematic                
Investment Plan also authorizes Salomon Smith Barney to apply cash              
held in the shareholder's Salomon Smith Barney brokerage account or             
redeem the shareholder's shares of a Smith Barney money market fund to          
make additions to the account. Additional information is available              
from the fund or a Salomon Smith Barney Financial Consultant or a               
Dealer Representative.                                                          

Sales Charge Waivers and Reductions                                             

Initial Sales Charge Waivers.  Purchases of Class A shares may be made          
at net asset value without a sales charge in the following                      
circumstances: (a) sales to (i) Board Members and employees of                  
Citigroup and its subsidiaries and any Citigroup affiliated funds               
including the Smith Barney Mutual Funds (including retired Board                
Members and employees); the immediate families of such persons                  
(including the surviving spouse of a deceased Board Member or                   
employee); and to a pension, profit-sharing or other benefit plan for           
such persons and (ii) employees of members of the National Association          
of Securities Dealers, Inc., provided such sales are made upon the              
assurance of the purchaser that the purchase is made for investment             
purposes and that the securities will not be resold except through              
redemption or repurchase; (b) offers of Class A shares to any other             
investment company to effect the combination of such company with the           
fund by merger, acquisition of assets or otherwise; (c) purchases of            
Class A shares by any client of a newly employed Salomon Smith Barney           
Financial Consultant (for a period up to 90 days from the commencement          
of the Financial Consultant's employment with Salomon Smith Barney),            
on the condition the purchase of Class A shares is made with the                
proceeds of the redemption of shares of a mutual fund which (i) was             
sponsored by the Financial Consultant's prior employer, (ii) was sold           
to the client by the Financial Consultant and (iii) was subject to a            
sales charge; (d) purchases by shareholders who have redeemed Class A           
shares in the fund (or Class A shares of another Smith Barney Mutual            
Fund that is offered with a sales charge) and who wish to reinvest              
their redemption proceeds in the fund, provided the reinvestment is             
made within 60 calendar days of the redemption; (e) purchases by                
accounts managed by registered investment advisory subsidiaries of              
Citigroup; (f) direct rollovers by plan participants of distributions           
from a 401(k) plan offered to employees of Citigroup or its                     
subsidiaries or a 401(k) plan enrolled in the Smith Barney 401(k)               
Program (Note: subsequent investments will be subject to the                    
applicable sales charge); (g) purchases by a separate account used to           
fund certain unregistered variable annuity contracts; (h) investments           
of distributions from or proceeds from a sale of a UIT sponsored by             
Salomon Smith Barney; (i) purchases by investors participating in a             
Salomon Smith Barney fee-based arrangement; and (j) accounts                    
associated with "k" Choice and Collective Choice. In order to obtain            
such discounts, the purchaser must provide sufficient information at            
the time of purchase to permit verification that the purchase would             
qualify for the elimination of the sales charge.                                

Right of Accumulation.  Class A shares of the fund may be purchased by          
"any person" (as defined above) at a reduced sales charge or at net             
asset value determined by aggregating the dollar amount of the new              
purchase and the total net asset value of all Class A shares of the             
fund and of other Smith Barney Mutual Funds that are offered with a             
sales charge as currently listed under "Exchange Privilege" then held           
by such person and applying the sales charge applicable to such                 
aggregate.  In order to obtain such discount, the purchaser must                
provide sufficient information at the time of purchase to permit                
verification that the purchase qualifies for the reduced sales charge.          
The right of accumulation is subject to modification or discontinuance          
at any time with respect to all shares purchased thereafter.                    

Letter of Intent - Class A Shares.  A Letter of Intent for an amount            
of $50,000 or more provides an opportunity for an investor to obtain a          
reduced sales charge by aggregating investments over a 13 month                 
period, provided that the investor refers to such Letter when placing           
orders.  For purposes of a Letter of Intent, the "Amount of                     
Investment" as referred to in the preceding sales charge table                  
includes (i) all Class A shares of the fund and other Smith Barney              
Mutual Funds offered with a sales charge acquired during the term of            
the letter plus (ii) the value of all Class A shares previously                 
purchased and still owned.  Each investment made during the period              
receives the reduced sales charge applicable to the total amount of             
the investment goal.  If the goal is not achieved within the period,            
the investor must pay the difference between the sales charges                  
applicable to the purchases made and the charges previously paid, or            
an appropriate number of escrowed shares will be redeemed.  The term            
of the Letter will commence upon the date the Letter is signed, or at           
the option of the investor, up to 90 days before such date.  Please             
contact a Salomon Smith Barney Financial Consultant or the Transfer             
Agent to obtain a Letter of Intent application.                                 

Letter of Intent - Class Y Shares.  A Letter of Intent may also be              
used as a way for investors to meet the minimum investment requirement          
for Class Y shares (except purchases of Class Y shares by Smith Barney          
Concert Allocation Series Inc., for which there is no minimum purchase          
amount).  Such investors must make an initial minimum purchase of               
$5,000,000 in Class Y shares of the fund and agree to purchase a total          
of $15,000,000 of Class Y shares of the fund within 13 months from the          
date of the Letter.  If a total investment of $15,000,000 is not made           
within the 13-month period, all Class Y shares purchased to date will           
be transferred to Class A shares, where they will be subject to all             
fees (including a service fee of 0.25%) and expenses applicable to the          
fund's Class A shares, which may include a deferred sales charge of             
1.00%. Please contact a Salomon Smith Barney Financial Consultant or            
the Transfer Agent for further information.                                     

Deferred Sales Charge Provisions                                                

"Deferred Sales Charge Shares" are: (a) Class B shares; (b) Class L             
shares; and (c) Class A shares that were purchased without an initial           
sales charge but are subject to a deferred sales charge.  A deferred            
sales charge may be imposed on certain redemptions of these shares.             

Any applicable deferred sales charge will be assessed on an amount              
equal to the lesser of the original cost of the shares being redeemed           
or their net asset value at the time of redemption. Deferred Sales              
Charge Shares that are redeemed will not be subject to a deferred               
sales charge to the extent the value of such shares represents: (a)             
capital appreciation of fund assets; (b) reinvestment of dividends or           
capital gain distributions; (c) with respect to Class B shares, shares          
redeemed more than five years after their purchase; or (d) with                 
respect to Class L shares and Class A shares that are Deferred Sales            
Charge Shares, shares redeemed more than 12 months after their                  
purchase.                                                                       

Class L shares and Class A shares that are Deferred Sales Charge                
Shares are subject to a 1.00% deferred sales charge if redeemed within          
12 months of purchase. In circumstances in which the deferred sales             
charge is imposed on Class B shares, the amount of the charge will              
depend on the number of years since the shareholder made the purchase           
payment from which the amount is being redeemed.  Solely for purposes           
of determining the number of years since a purchase payment, all                
purchase payments made during a month will be aggregated and deemed to          
have been made on the last day of the preceding Salomon Smith Barney            
statement month. The following table sets forth the rates of the                
charge for redemptions of Class B shares by shareholders.                       

Year Since Purchase Payment Was                                                 
Made                                                                            

Deferred sales charge                                                           

First                                                                           

4.50%                                                                           

Second                                                                          

4.00                                                                            

Third                                                                           

3.00                                                                            

Fourth                                                                          

2.00                                                                            

Fifth                                                                           

1.00                                                                            

Sixth and thereafter                                                            

0.00                                                                            

Class B shares will convert automatically to Class A shares eight               
years after the date on which they were purchased and thereafter will           
no longer be subject to any distribution fees. There will also be               
converted at that time such proportion of Class B Dividend Shares               
(Class B shares that were acquired through the reinvestment of                  
dividends and distributions) owned by the shareholders as the total             
number of his or her Class B shares converting at the time bears to             
the total number of outstanding Class B shares (other than Class B              
Dividend Shares) owned by the shareholder.                                      

In determining the applicability of any CDSC, it will be assumed that           
a redemption is made first of shares representing capital                       
appreciation, next of shares representing the reinvestment of                   
dividends and capital gains distributions and finally of other shares           
held by the shareholder for the longest period of time.  The length of          
time that Deferred Sales Charge Shares acquired through an exchange             
have been held will be calculated from the date the shares exchanged            
were initially acquired in one of the other Smith Barney Mutual Funds,          
and fund shares being redeemed will be considered to represent, as              
applicable, capital appreciation or dividend and capital gain                   
distribution reinvestments in such other funds. For Federal income tax          
purposes, the amount of the deferred sales charge will reduce the gain          
or increase the loss, as the case may be, on the amount realized on             
redemption. The amount of any deferred sales charge will be paid to             
Salomon Smith Barney.                                                           

To provide an example, assume an investor purchased 100 Class B shares          
of the fund at $10 per share for a cost of $1,000.  Subsequently, the           
investor acquired 5 additional shares of the fund through dividend              
reinvestment.  During the fifteenth month after the purchase, the               
investor decided to redeem $500 of his or her investment.  Assuming at          
the time of the redemption the net asset value had appreciated to $12           
per share, the value of the investor's shares would be $1,260 (105              
shares at $12 per share). The deferred sales charge would not be                
applied to the amount which represents appreciation ($200) and the              
value of the reinvested dividend shares ($60).  Therefore, $240 of the          
$500 redemption proceeds ($500 minus $260) would be charged at a rate           
of 4.00% (the applicable rate for Class B shares) for a total deferred          
sales charge of $9.60.                                                          

Waivers of Deferred Sales Charge                                                

The deferred sales charge will be waived on: (a) exchanges (see                 
"Exchange Privilege"); (b) automatic cash withdrawals in amounts equal          
to or less than 1.00% per month of the value of the shareholder's               
shares at the time the withdrawal plan commences (see "Automatic Cash           
Withdrawal Plan") (however, automatic cash withdrawals in amounts               
equal to or less than 2.00% per month of the value of the                       
shareholder's shares will be permitted for withdrawal plans                     
established prior to November 7, 1994); (c) redemptions of shares               
within 12 months following the death or disability of the shareholder;          
(d) redemptions of shares made in connection with qualified                     
distributions from retirement plans or IRAs upon the attainment of age          
591/2; (e) involuntary redemptions; and (f) redemptions of shares to            
effect a combination of the fund with any investment company by                 
merger, acquisition of assets or otherwise. In addition, a shareholder          
who has redeemed shares from other Smith Barney Mutual Funds may,               
under certain circumstances, reinvest all or part of the redemption             
proceeds within 60 days and receive pro rata credit for any deferred            
sales charge imposed on the prior redemption.                                   

Deferred sales charge waivers will be granted subject to confirmation           
(by Salomon Smith Barney in the case of shareholders who are also               
Salomon Smith Barney clients or by the Transfer Agent in the case of            
all other shareholders) of the shareholder's status or holdings, as             
the case may be.                                                                

Volume Discounts                                                                

The schedule of sales charges on Class A shares described in the                
prospectus applies to purchases made by any "purchaser," which is               
defined to include the following: (a) an individual; (b) an                     
individual's spouse and his or her children purchasing shares for               
their own account; (c) a trustee or other fiduciary purchasing shares           
for a single trust estate or single fiduciary account; and (d) a                
trustee or other professional fiduciary (including a bank, or an                
investment adviser registered with the SEC under the Investment                 
Advisers Act of 1940, as amended) purchasing shares of the fund for             
one or more trust estates or fiduciary accounts.  Purchasers who wish           
to combine purchase orders to take advantage of volume discounts on             
Class A shares should contact a Salomon Smith Barney Financial                  
Consultant.                                                                     

Determination of Public Offering Price                                          

Each fund offers its shares to the public on a continuous basis.  The           
public offering price for a Class A, Class L (effective June 12, 1998           
the former Class C shares were renamed Class L shares) and Class Y              
share of a fund is equal to the net asset value per share at the time           
of purchase, plus for Class A and Class L shares an initial sales               
charge based on the aggregate amount of the investment.  The public             
offering price for a Class B share (and Class A share purchases,                
including applicable rights of accumulation, equaling or exceeding              
$500,000) is equal to the net asset value per share at the time of              
purchase and no sales charge is imposed at the time of purchase. A              
contingent deferred sales charge ("CDSC"), however, is imposed on               
certain redemptions of Class B and Class L shares, and Class A shares           
when purchased in amounts equaling or exceeding $500,000. The method            
of computation of the public offering price is shown in the fund's              
financial statements, incorporated by reference in their entirety into          
this SAI.                                                                       

PFSI Accounts                                                                   

Initial purchase of shares of the fund must be made through a PFSI              
Registered Representative by completing the appropriate application.            
The completed application should be forwarded to PFS Shareholder                
Services, P.O. Box 105033, Atlanta, GA 30348. Checks drawn on foreign           
banks must be payable in U.S. dollars and have the routing number of            
the U.S. bank encoded on the check. Subsequent investments may be sent          
directly to PFS Shareholder Services.  In processing applications and           
investments, PFS Shareholder Services acts as agent for the investor            
and for PFSI and also as agent for the distributor, in accordance with          
the terms of the prospectus.  If the transfer agent ceases to act as            
such, a successor company named by the fund will act in the same                
capacity so long as the account remains open.                                   

Shares purchased will be held in the shareholder's account by PFS               
Shareholder Services. Share certificates are issued only upon a                 
shareholder's written request to the sub-transfer agent. A shareholder          
that has insufficient funds to complete any purchase will be charged a          
fee of up to $30 per returned purchase by PFS Shareholder Services.             

Investors in Class A and Class B shares may open an account by making           
an initial investment of at least $1,000 for each account in each               
Class (except for Systematic Investment Plan accounts). Subsequent              
investments of at least $50 may be made for each Class. For the fund's          
Systematic Investment Plan, the minimum initial investment requirement          
for Class A and Class B shares and the subsequent investment                    
requirement for each Class is $25. There are no minimum investment              
requirements in Class A shares for employees of Citigroup and its               
subsidiaries, including Salomon Smith Barney, Directors or Trustees of          
any of the Smith Barney Mutual Funds, and their spouses and children.           
The fund reserves the right to waive or change minimums, to decline             
any order to purchase its shares and to suspend the offering of shares          
from time to time.  Purchase orders received by the transfer agent or           
sub-transfer agent 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.                        

Initial purchases of fund shares may be made by wire.  The minimum              
investment that can be made by wire is $10,000. Before sending the              
wire, the PFS Investments Registered Representative must contact the            
PFS Shareholder Services at (800) 665-8677 to obtain proper wire                
instructions.  Once an account is open, a shareholder may make                  
additional investments by wire.  The shareholder should contact PFS             
Shareholder Services at (800) 544-5445 to obtain proper wire                    
instructions.                                                                   

Shareholders who establish telephone transaction authority on their             
account and supply bank account information may make additions to               
their accounts at any time.  Shareholders should contact PFS                    
Shareholder Services at (800) 544-5445 between 8:00 a.m. and 8:00 p.m.          
eastern time any day that the NYSE is open.  If a shareholder does not          
wish to allow telephone subsequent investments by any person in his             
account, he should decline the telephone transaction option on the              
account application.  The minimum telephone subsequent investment is            
$250 and can be up to a maximum of $10,000.  By requesting a                    
subsequent purchase by telephone, you authorize PFS Shareholder                 
Services to transfer funds from the bank account provided for the               
amount of the purchase.  A shareholder that has insufficient funds to           
complete the transfer will be charged a fee of up to $30 by PFS                 
Shareholder Services.  A shareholder who places a stop payment on a             
transfer or the transfer is returned because the account has been               
closed, will also be charged a fee of up to $30 by PFS Shareholder              
Services.  Subsequent investments by telephone may not be available if          
the shareholder cannot reach PFS Shareholder Services whether because           
all telephone lines are busy or for any other reason; in such case, a           
shareholder would have to use the fund's regular subsequent investment          
procedure described above.                                                      

Redemption proceeds can be sent by check to the address of record, or           
deposited into your bank account designated on the application via the          
Automated Clearinghouse (ACH).  A shareholder will be charged a $25             
service fee for wire transfers and a nominal service fee for transfers          
made directly to the shareholder's bank by the ACH.  Wire transfers             
are not available on phone redemptions.  PFS Shareholder Services will          
process and mail a shareholder's redemption check usually within two            
to three business days after receiving the redemption request in good           
order.  The shareholder may request the proceeds to be mailed by two-           
day air express for an $8 fee that will be deducted from the                    
shareholder's account or by one-day air express for a $15 fee that              
will be deducted from the shareholder's account.                                

An Account Transcript is available at a shareholder's request, which            
identifies every financial transaction in an account since it has               
opened.  To defray administrative expenses involved with providing              
multiple years worth of information, there is a $15 charge for each             
Account Transcript requested.  Additional copies of tax forms are               
available at the shareholder's request.  A $10 fee for each tax form            
will be assessed.                                                               

Additional information regarding PFS Shareholder Services may be                
obtained by contacting the Client Services Department at (800)                  
544-5445.                                                                       

REDEMPTION OF SHARES                                                            

The right of redemption may be suspended or the date of payment 
postponed (a) for any period during which the 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           
exists, as determined by the SEC, 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.                               

If the shares to be redeemed were issued in certificate form,   
the certificates must be endorsed for transfer (or be accompanied by            
an endorsed stock power) and must be submitted to the sub-transfer              
agent  together with the redemption request.  Any signature appearing           
on a share certificate, stock power or written redemption request in            
excess of $10,000 must be guaranteed by an eligible guarantor                   
institution such as a domestic bank, savings and loan institution,              
domestic credit union, member bank of the Federal Reserve System or             
member firm of a national securities exchange.  Written redemption              
requests of $10,000 or less do not require a signature guarantee                
unless more than one such redemption request is made in any 10-day              
period or the redemption proceeds are to be sent to an address other            
than the address of record.  Unless otherwise directed, redemption              
proceeds will be mailed to an investor's address of record.  The                
Transfer Agent may require additional supporting documents for                  
redemptions made by corporations, executors, administrators, trustees           
or guardians.  A redemption request will not be deemed properly                 
received until PFPC receives all required documents in proper form.             
Redemption proceeds will be mailed to the shareholder's address of              
record.                                                                         

If a shareholder holds shares in more than one Class, any       
request for redemption must specify the Class being redeemed.  In the           
event of a failure to specify which Class, or if the investor owns              
fewer shares of the Class than specified, the redemption request will           
be delayed until the Transfer Agent receives further instructions from          
Salomon Smith Barney, or if the shareholder's account is not with               
Salomon Smith Barney, from the shareholder directly.  The redemption            
proceeds will be remitted on or before the third business day                   
following receipt of proper tender, except on any days on which the             
NYSE is closed or as permitted under the 1940 Act, in extraordinary             
circumstances.  Generally, if the redemption proceeds are remitted to           
a Salomon Smith Barney brokerage account, these funds will not be               
invested for the shareholder's benefit without specific instructions            
and Salomon Smith Barney will benefit from the use of temporarily               
uninvested funds.  Redemption proceeds for shares purchased by check,           
other than a certified or official bank check, will be remitted upon            
clearance of the check, which may take up to fifteen days or more.              

Distributions in Kind                                                           

If the Board of Trustees of the fund determines that it would be
detrimental to the best interests of the remaining shareholders to              
make a redemption payment wholly in cash, each fund may pay, in                 
accordance with SEC rules, any portion of a redemption in excess of             
the lesser of $250,000 or 1.00% of the fund's net assets by a                   
distribution in kind of fund securities in lieu of cash. Securities             
issued as a distribution in kind may incur brokerage commissions when           
shareholders subsequently sell those securities.                                

Automatic Cash Withdrawal Plan                                                  

An automatic cash withdrawal plan (the "Withdrawal Plan") is    
available to shareholders who own shares with a value of at least               
$10,000 and who wish to receive specific amounts of cash monthly or             
quarterly. Withdrawals of at least $50 may be made under the                    
Withdrawal Plan by redeeming as many shares of the fund as may be               
necessary to cover the stipulated withdrawal payment.  Any applicable           
CDSC will not be waived on amounts withdrawn by shareholders that               
exceed 1.00% per month of the value of a shareholder's shares at the            
time the Withdrawal Plan commences. (With respect to Withdrawal Plans           
in effect prior to November 7, 1994, any applicable CDSC will be                
waived on amounts withdrawn that do not exceed 2.00% per month of the           
value of the shareholder's shares that are subject to a CDSC). To the           
extent withdrawals exceed dividends, distributions and appreciation of          
a shareholder's investment in the fund, there will be a reduction in            
the value of the shareholder's investment, and continued withdrawal             
payments may reduce the shareholder's investment and ultimately                 
exhaust it. Withdrawal payments should not be considered as income              
from investment in the fund. Furthermore, as it generally would not be          
advantageous to a shareholder to make additional investments in the             
fund at the same time he or she is participating in the Withdrawal              
Plan, purchases by such shareholder in amounts of less than $5,000              
ordinarily will not be permitted. All dividends and distributions on            
shares in the Withdrawal Plan are reinvested automatically at net               
asset value in additional shares of the fund.                                   

Shareholders who wish to participate in the Withdrawal Plan and 
who hold their shares in certificate form must deposit their share              
certificates with the Transfer Agent as agent for Withdrawal Plan               
members.  For additional information, shareholders should contact a             
Salomon Smith Barney Financial Consultant or their Financial                    
Consultant, the Introducing Broker or dealer in the selling group. A            
shareholder who purchases shares directly through the sub-transfer              
agent may continue to do so and applications for participation in the           
Withdrawal Plan must be received by the sub-transfer agent no later             
than the eighth day of the month to be eligible for participation               
beginning with that month's withdrawal.                                         

VALUATION OF SHARES                                                             

The prospectus states that the net asset value of each fund's   
Classes of shares will be determined on any date that the NYSE is               
open.  The NYSE is closed on the following holidays: New Year's Day,            
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial             
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.           

The California Money Market Portfolio, the New York Money Market
Portfolio and the Massachusetts Money Market Portfolio use the                  
"amortized cost method" for valuing fund securities pursuant to Rule            
2a-7 under the 1940 Act (the "Rule").  The amortized cost method of             
valuation of a fund's securities (including any securities held in the          
separate account maintained for when-issued securities) involves                
valuing a security at its cost at the time of purchase 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.  The market value of each fund's                
securities will fluctuate on the basis of the creditworthiness of the           
issuers of such securities and with changes in interest rates                   
generally.  While the amortized cost method provides certainty in               
valuation, it may result in periods during which value, as determined           
by amortized cost, is higher or lower than the price the fund would             
receive if it sold the instrument.  During such periods the yield to            
investors in a fund may differ somewhat from that obtained in a                 
similar company that uses mark-to-market values for all its fund                
securities.  For example, if the use of amortized cost resulted in a            
lower (higher) aggregate fund value on a particular day, a prospective          
investor in a fund would be able to obtain a somewhat higher (lower)            
yield than would result from investment in such similar company, and            
existing investors would receive less (more) investment income.  The            
purpose of this method of valuation is to attempt to maintain a                 
constant net asset value per share, and it is expected that the price           
of each such fund's shares will remain at $1.00; however, shareholders          
should be aware that despite procedures that will be followed to have           
a stable price, including maintaining a maximum dollar-weighted                 
average fund maturity of 90 days, investing in securities that have or          
are deemed to have remaining maturities of only 397 days or less and            
investing in only United States dollar-denominated instruments                  
determined by the fund's Board of Trustees to be of high quality with           
minimal credit risks and which are Eligible Securities (as defined              
below), there is no assurance that at some future date there will not           
be a rapid change in prevailing interest rates, a default by an issuer          
or some other event that could cause one of these fund's price per              
share to change from $1.00.                                                     

An Eligible Security is defined in the Rule to mean a security  
which:  (a) has a remaining maturity of 397 days or less; (b)(i) is             
rated in the two highest short-term rating categories by any two                
NRSROs that have issued a short-term rating with respect to the                 
security or class of debt obligations of the issuer, or (ii) if only            
one NRSRO has issued a short-term rating with respect to the security,          
then by that NRSRO; (c) was a long-term security at the time of                 
issuance, is rated in the three highest long-term rating categories by          
the requisite NRSROs, and whose issuer has outstanding a short-term             
debt obligation which is comparable in priority and security and has a          
rating as specified in clause (b) above; or (d) if no rating is                 
assigned by any NRSRO as provided in clauses (b) and (c) above, the             
unrated security is determined to be of comparable quality to any such          
rated security.                                                                 

EXCHANGE PRIVILEGE                                                              

Except as noted below, shareholders of certain Smith Barney     
Mutual Funds may exchange all or part of their shares for shares of             
the same class of other 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:                                                            

Florida, Georgia, New York, Pennsylvania and National Portfolios.               

A.      Class A and Class Y shareholders of the fund who wish to
exchange all or a portion of their shares for shares of the respective          
Class in any of the funds of the Smith Barney Mutual Fund Complex may           
do so without imposition of any charge.                                         

  B.      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.  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.                                                       

C.      Upon exchange, the new Class L shares will be deemed to 
have been purchased on the same date as the Class L shares of the fund          
that have been exchanged.                                                       

Limited Term Portfolio.                                                         

A.      Class A and Class Y shareholders of the fund who wish to
exchange all or a portion of their shares for shares of the respective          
Class in any of the funds of the Smith Barney Mutual Fund Complex may           
do so without imposition of any charge.                                         

B.      Upon exchange, the new Class L shares will be deemed to 
have been purchased on the same date as the Class L shares of the fund          
that have been exchanged.                                                       

California Money Market, New York Money Market  and Massachusetts               
Money Market Portfolios.                                                        

A.      Class A shares of the fund will be subject to the       
appropriate sales charge upon the exchange of such shares for Class A           
shares of another fund of the Smith Barney Mutual Funds sold with a             
sales charge.                                                                   

 B.      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 a fund's performance and            
its shareholders.  The manager may determine that a pattern of                  
frequent exchanges is excessive and contrary to the best interests of           
the fund's other shareholders.  In this event, each fund may, at its            
discretion, decide to limit additional purchases and/or exchanges by a          
shareholder.  Upon such a determination, the fund will provide notice           
in writing or by telephone to the shareholder at least 15 days prior            
to suspending the exchange privilege and during the 15 day period the           
shareholder will be required to (a) redeem his or her shares in the             
fund or (b) remain invested in the fund or exchange into any of the             
funds of the Smith Barney Mutual funds ordinarily available, which              
position the shareholder would be expected to maintain for a                    
significant period of time.  All relevant factors will be considered            
in determining what constitutes an abusive pattern of exchanges.                

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
documents, shares submitted for exchange are redeemed at the then-              
current net asset value and, subject to any applicable CDSC, the                
proceeds immediately invested, at a price as described above, in                
shares of the fund being acquired. Smith Barney reserves the right to           
reject any exchange request.  The exchange privilege may be modified            
or terminated at any time after written notice to shareholders.                 
As stated in the prospectus for shares distributed through PFS                  
Distributors, the exchange privilege is limited.                                

Additional Information Regarding Telephone Redemption and Exchange              
Program.                                                                        

Neither the Trust nor its agents will be liable for following   
instructions communicated by telephone that are reasonably believed to          
be genuine.  The Trust and its agents will employ procedures designed           
to verify the identity of the caller and legitimacy of instructions             
(for example, a shareholder's name and account number will be required          
and phone calls may be recorded).  Each fund reserves the right to              
suspend, modify or discontinue the telephone redemption and exchange            
program or to impose a charge for this service at any time following            
at least seven (7) days prior notice to shareholders.                           
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 Salomon Smith Barney           
Financial Consultant or a PFS Investments Registered Representative.            
Upon receipt of proper instructions and all necessary supporting                
documents, shares submitted for exchange are redeemed at the then-              
current net asset value and the proceeds are immediately invested at a          
price as described above in shares of the portfolio being acquired.             
Salomon Smith Barney and PFS Distributors reserve 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, in advertisements and other types of sales   
literature, each fund may compare its performance to that of other              
mutual funds with similar investment objectives, to appropriate                 
indices or rankings such as those compiled by Lipper Analytical                 
Services, Inc. or to other financial alternatives.                              

Each fund, other than the California Money Market Portfolio, New
York Money Market Portfolio and Massachusetts Money Market Portfolio,           
computes the average annual total return during specified periods that          
would equate the initial amount invested to the ending redeemable               
value of such investment by adding one to the computed average annual           
total return, raising the sum to a power equal to the number of years           
covered by the computation and multiplying the result by one thousand           
dollars which represents the hypothetical initial investment.  The              
calculation assumes deduction of the maximum sales charge from the              
initial amount invested and reinvestment of all income dividends and            
capital gains distributions on the reinvestment dates at prices                 
calculated as stated in the prospectus.  The ending redeemable value            
is determined by assuming a complete redemption at the end of the               
period(s) covered by the average annual total return computation.               
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.                                                     

Each fund's average annual total return with respect to its     
Class A shares for the one-year period, five- and ten-year periods, if          
any, and for the life of the fund ended March 31, 2000 is as follows:           

Average Annual Total Return                                                     

PORTFOLIO                                                                       

1-Year                                                                          

5-Years                                                                         

10-Years                                                                        

Life of                                                                         
Fund                                                                            

Inception                                                                       
Date                                                                            

National                                                                        
(5.94)%                                                                         
4.87%                                                                           
6.77%                                                                           
6.91%                                                                           
8/20/86                                                                         
Limited                                                                         
Term                                                                            
(3.45)%                                                                         
4.22%                                                                           
5.62%                                                                           
5.84%                                                                           
11/28/88                                                                        
New York                                                                        
(5.54)%                                                                         
5.03%                                                                           
6.87%                                                                           
6.46%                                                                           
1/16/87                                                                         
Florida                                                                         
(6.16)%                                                                         
4.75%                                                                           
N/A                                                                             
6.19%                                                                           
4/2/91                                                                          
Georgia                                                                         
(7.60)%                                                                         
5.42%                                                                           
N/A                                                                             
5.56%                                                                           
4/4/94                                                                          
Pennsylvani                                                                     
a                                                                               
(8.87)%                                                                         
4.78%                                                                           
N/A                                                                             
5.45%                                                                           
4/4/94                                                                          

Each fund's average annual total return with respect to its     
Class B shares for the one-year period and for the life of the fund             
ended March 31, 2000 is as follows:                                             

PORTFOLIO                                                                       

1-Year                                                                          

5-Year                                                                          
Life of                                                                         
Fund                                                                            

Inceptio                                                                        
n Date                                                                          

National                                                                        
(6.73)%                                                                         
5.02%                                                                           
6.67%                                                                           
11/7/94                                                                         
New York                                                                        
(6.29)%                                                                         
5.17%                                                                           
6.78%                                                                           
11/11/94                                                                        
Florida                                                                         
(6.88)%                                                                         
4.92%                                                                           
6.73%                                                                           
11/16/94                                                                        
Georgia                                                                         
(5.43)%                                                                         
5.56%                                                                           
5.43%                                                                           
6/15/94                                                                         
Pennsylvani                                                                     
a                                                                               
(6.71)%                                                                         
4.96%                                                                           
5.21%                                                                           
6/20/94                                                                         

Each fund's average annual total return with respect to its     
Class L shares for a one-year period, five-year period, if any, and             
for the life of the fund's Class L shares through March 31, 2000 is as          
follows:                                                                        

PORTFOLIO                                                                       

1-Year                                                                          

5-Years                                                                         

Life of                                                                         
Fund                                                                            

Inceptio                                                                        
n                                                                               
Date                                                                            

National                                                                        
(4.46)%                                                                         
4.89%                                                                           
5.06%                                                                           
1/5/93                                                                          
Limited                                                                         
Term                                                                            
(3.62)%                                                                         
4.17%                                                                           
4.40%                                                                           
1/5/93                                                                          
New York                                                                        
(4.06)%                                                                         
5.08%                                                                           
5.13%                                                                           
1/8/93                                                                          
Florida                                                                         
(4.68)%                                                                         
4.79%                                                                           
5.01%                                                                           
1/5/93                                                                          
Georgia                                                                         
(7.60)%                                                                         
5.47%                                                                           
5.44%                                                                           
4/14/94                                                                         
Pennsylvani                                                                     
a                                                                               
(8.87)%                                                                         
4.84%                                                                           
5.40%                                                                           
4/5/94                                                                          

The fund's average annual total return with respect to its Class
Y shares for the life of the fund's Class Y shares through March 31,            
2000 is as follows:                                                             

PORTFOLIO                                                                       

1-Year                                                                          
Life of                                                                         
Fund                                                                            

Inception                                                                       
Date                                                                            

Limited                                                                         
Term                                                                            
(1.31)%                                                                         
0.09%                                                                           
11/12/98                                                                        

Each fund's yield, other than for the California Money Market   
Portfolio, the New York Money Market Portfolio and the Massachusetts            
Money Market Portfolio, is computed by dividing the net investment              
income per share earned during a specified 30-day period ending at              
month end by the maximum offering price per share on the last day of            
such period and annualizing the result.  For purposes of yield                  
calculation, interest income is determined based on a yield to                  
maturity percentage for each long-term debt obligation in the fund;             
income from short-term obligations is based on the current payment              
rate.  Yield information may be accompanied with information on tax             
equivalent yield computed in the same manner, with adjustment for               
assumed Federal income tax rates.  No taxable instruments are                   
presently held by any of the funds.                                             

Each fund's distribution rate, other than those of the          
California Money Market Portfolio, the New York Money Market Portfolio          
and the Massachusetts Money Market Portfolio, is calculated by                  
analyzing the latest income distribution and dividing the result by             
the maximum offering price per share as of the end of the period to             
which the distribution relates.  The distribution rate is not computed          
in the same manner as, and therefore can be significantly different             
from, the above-described yield which will be computed in accordance            
with applicable regulations.  A fund may quote its distribution rate            
together with the above-described standard total return and yield               
information in its supplemental sales literature.  The use of such              
distribution rates would be subject to an appropriate explanation of,           
among other matters, how the components of the distribution rate                
differ from the above described yield.                                          

California Money Market Portfolio's yield with respect to its   
Class A shares for the seven-day period ended March 31, 2000 was 2.62%          
(the effective yield was 2.65%) with an average dollar-weighted fund            
maturity of 31 days; the New York Money Market Portfolio's yield with           
respect to its Class A shares for the seven-day period ended March 31,          
2000 was 3.05% (the effective yield was 3.09%) with an average dollar-          
weighted fund maturity of 38 days; the Massachusetts Money Market               
Portfolio yield with respect to its Class A shares for the seven-day            
period ended March 31, 2000 was 3.16% (the effective yield was 3.21%)           
with an average dollar-weighted fund maturity of 34 days.  From time            
to time the California Money Market Portfolio, the New York Money               
Market Portfolio and the Massachusetts Money Market Portfolio may               
advertise their yields, effective yields and taxable equivalent                 
yields.  These yield figures are based on historical earnings and are           
not intended to indicate future performance.  The yield of each fund            
refers to the net investment income generated by an investment in each          
fund over a specific seven-day period (which will be stated in the              
advertisement).  This net investment income is then annualized.  The            
effective yield is calculated similarly but, when annualized, the               
income earned by an investment in each fund is assumed to be                    
reinvested.  The effective yield will be slightly higher than the               
yield because of the compounding effect of the assumed reinvestment.            
The tax equivalent yield also is calculated similarly to the yield,             
except that a stated income tax rate is used to demonstrate the                 
taxable yield necessary to produce an after-tax yield equivalent to             
the tax-exempt yield of each fund.                                              

Performance information may be useful in evaluating a fund and  
for providing a basis for comparison with other financial                       
alternatives.  Since the performance of each fund changes in response           
to fluctuations in market conditions, interest rates and fund                   
expenses, no performance quotation should be considered a                       
representation as to the fund's performance for any future period.              

THE FUNDS                                                                       

The interest of a shareholder is in the assets and earnings of  
the fund in which he or she holds shares.  The Board of Trustees has            
authorized the issuance of shares in separate series, each                      
representing shares in one of the separate funds.  Pursuant to such             
authority, the Board may also authorize the creation of additional              
series of shares and additional classes of shares within any series.            
The investment objectives, policies and restrictions applicable to              
additional funds would be established by the Board of Trustees at the           
time such funds were established and may differ from those set forth            
in the prospectuses and this SAI.  In the event of liquidation or               
dissolution of a fund or of the Trust, shares of a fund are entitled            
to receive the assets belonging to that fund and a proportionate                
distribution, based on the relative net assets of the respective                
funds, of any general assets not belonging to any particular fund that          
are available for distribution.                                                 

The Declaration of Trust may be amended only by a "majority     
shareholder vote" as defined therein, except for certain amendments             
that may be made by the Board of Trustees.  The Declaration of Trust            
and the By-Laws of the Trust are designed to make the Trust similar in          
certain respects to an entity organized as a corporation.  The                  
principal distinction between the two forms of business organization            
relates to shareholder liability described below.  Under Massachusetts          
law, shareholders of a business trust may, under certain                        
circumstances, be held personally liable as partners for the                    
obligations of the trust, which is not the case with a corporation.             
The Declaration of Trust of the Trust provides that shareholders shall          
not be subject to any personal liability for the acts or obligations            
of the Trust and that every written obligation, contract, instrument            
or undertaking made by the Trust shall contain a provision to the               
effect that the shareholders are not personally liable thereunder.              

Special counsel for the Trust is of the opinion that no personal
liability will attach to the shareholders under any undertaking                 
containing such provision when adequate notice of such provision is             
given, except possibly in a few jurisdictions.  With respect to (a)             
all types of claims in the latter jurisdictions; (b) tort claims; (c)           
contract claims where the provision referred to is omitted from the             
undertaking; (c) claims for taxes; and (d) certain statutory                    
liabilities in other jurisdictions, a shareholder may be held                   
personally liable to the extent that claims are not satisfied by the            
Trust; however, upon payment of any such liability the shareholder              
will be entitled to reimbursement from the general assets of the                
Trust.  The Board of Trustees intends to conduct the operations of the          
Trust, with the advice of counsel, in such a way so as to avoid, as             
far as possible, ultimate liability of the shareholders for                     
liabilities of the Trust.                                                       

The Declaration of Trust further provides that no Trustee,      
officer or employee of the Trust is liable to the Trust or to a                 
shareholder, except as such liability may arise from his or her or its          
own bad faith, willful misfeasance, gross negligence, or reckless               
disregard of his or its duties, nor is any Trustee, officer or                  
employee personally liable to any third persons in connection with the          
affairs of the Trust.  It also provides that all third persons shall            
look solely to the Trust property or the property of the appropriate            
portfolio of the Trust for satisfaction of claims arising in                    
connection with the affairs of the Trust or a particular portfolio,             
respectively.  With the exceptions stated, the Declaration of Trust             
provides that a Trustee, officer or employee is entitled to be                  
indemnified against all liability in connection with the affairs of             
the Trust.                                                                      

The Trust shall continue without limitation of time subject to  
the provisions in the Declaration of Trust concerning termination of            
the Trust or any of the series of the Trust by action of the                    
shareholders or by action of the Trustees upon notice to the                    
shareholders.                                                                   

VOTING RIGHTS                                                                   

The Board of Trustees has the power to alter the number and the 
terms of office of the Trustees, and may at any time lengthen their             
own terms or make their terms of unlimited duration (subject to                 
certain removal procedures) and fill vacancies, provided that in                
accordance with the 1940 Act, (i) a shareholder meeting to elect                
Trustees must promptly be called if at any time at least a majority of          
the Trustees have not been elected by the shareholders of the Trust,            
and (ii) at least 2/3 of the Trustees must have been so elected upon            
the filing of any vacancy by the board without a shareholder vote.              
Shares do not have cumulative voting rights and therefore the holders           
of more than 50% of the outstanding shares of the Trust may elect all           
of the Trustees irrespective of the votes of other shareholders.                
Class A, Class B, Class L and Class Y shares of a portfolio of the              
Trust, if any, represent interests in the assets of that fund and have          
identical voting, dividend, liquidation and other rights on the same            
terms and conditions, except that each Class of shares has exclusive            
voting rights with respect to provisions of the fund's Rule 12b-1               
distribution plan which pertain to a particular class.  For example, a          
change in investment policy for a fund would be voted upon only by              
shareholders of the fund involved.  Additionally, approval of each              
fund's Advisory Agreement is a matter to be determined separately by            
that fund.  Approval of a proposal by the shareholders of one fund is           
effective as to that fund whether or not enough votes are received              
from the shareholders of the other funds to approve the proposal as to          
those funds. As of July 17, 1999 the following shareholders                     
beneficially owned 5% or more of a class of shares of a portfolio of            
the Trust:                                                                      

Georgia Portfolio Class A                               % of shares             

MLPF&S for the Sole Benefit of its Customers            9.471%                  
Attn.: Fund Administration                                                      
4800 Deer Lake Drive, East 3rd Floor                                            
Jacksonsville, FL 32246                                                         

Gwyn H. Gordon                                  7.5486%                         
Helaine Sugarman, TTEES                                                         
Rosalie H. Alterman Rev Trust                                                   
DTD 5/7/1997                                                                    
774 W. Sussex Road                                                              
Altanta, GA  30306                                                              

Georgia Portfolio Class L                                                       

E.K. Gandy                                              6.3237%                 
164 Country Club Road                                                           
Macon, GA  31210-4747                                                           

Pennsylvania Portfolio Class A                                                  

Abraham L. Morris                                       7.6534%                 
906 Frog Hollow Terrace                                                         
Rydal, PA 19046-2403                                                            

SB Private Trust Co. of N.J.                            6.8231%                 
#138018738151 D. D'Arienzo                                                      
Trustee of CE Minerals Exec.                                                    
Deferral/Retention Plan                                                         
153 East 53rd Street, 23rd Floor                                                
New York, NY  10043-0001                                                        

Murray L. Katz and                                      5.1475%                 
Harriet L. Katz  JTWROS                                                         
186 Commadore Drive                                                             
Jupiter, FL 33477-4004                                                          

Massachusetts Money Market Portfolio Class A                                    

Mr. Michael J. Zak                                      5.5496%                 
74 Musterfield Road                                                             
Concord, MA  01742-1613                                                         

TAXES                                                                           

The following is a summary of certain material tax              
considerations affecting each fund and its shareholders.  Please refer          
to the applicable prospectus for further discussion.  In addition to            
the considerations described below and in the applicable prospectus,            
there may be other federal, state, local or foreign tax implications            
to consider.  Because taxes are a complex matter, shareholders and              
prospective shareholders are urged to consult their tax advisors for            
more detailed information with respect to the tax consequences of an            
investment.                                                                     

Capital gain distributions, if any, are taxable to shareholders,
and are declared and paid at least annually.  On March 31, 2000, the            
unused capital loss carryovers, by fund, were approximately as                  
follows:  Limited Term portfolio, $11,508,000; California Money Market          
portfolio, $50,600, New York Money Market portfolio, $29,300; New York          
portfolio, $9,400,000; Georgia portfolio, $1,015,300; Pennsylvania              
portfolio, $668,000; Florida portfolio, $2,430,000; National                    
portfolio, $4,176,000.  For Federal income tax purposes, these amounts          
are available to be applied against future capital gains of the fund            
that has the carryovers, if any, that are realized prior to the                 
expiration of the applicable carryover.  The carryovers expire as               
follows:                                                                        

PORTFOLIO                                                                       
March                                                                           
31,                                                                             

(in thousands)                                                                  
2003                                                                            
2004                                                                            
2005                                                                            
2006                                                                            
2007                                                                            
2008                                                                            
Limited Term                                                                    
$273                                                                            
$1,740                                                                          
-                                                                               
-                                                                               
-                                                                               
$9,495                                                                          
CA Money                                                                        
-                                                                               
$1                                                                              
-                                                                               
-                                                                               
-                                                                               
$49.6                                                                           
NY Money                                                                        
-                                                                               
-                                                                               
-                                                                               
-                                                                               
-                                                                               
$29.3                                                                           
New York                                                                        
-                                                                               
-                                                                               
-                                                                               
-                                                                               
-                                                                               
$9,400                                                                          
Georgia                                                                         
-                                                                               
-                                                                               
-                                                                               
-                                                                               
$32                                                                             
$983.3                                                                          
Pennsylvania                                                                    
-                                                                               
-                                                                               
-                                                                               
-                                                                               
-                                                                               
$668                                                                            
Florida                                                                         
-                                                                               
-                                                                               
-                                                                               
-                                                                               
-                                                                               
$2,430                                                                          
National                                                                        
-                                                                               
-                                                                               
-                                                                               
-                                                                               
-                                                                               
$4,176                                                                          
Mass Money                                                                      
-                                                                               
-                                                                               
-                                                                               
-                                                                               
-                                                                               
-                                                                               

As described above and in the Prospectuses, each fund is        
designed to provide investors with current income, in the form of               
"exempt-interest dividends," which is excluded from gross income for            
Federal income tax purposes and, except for the Limited Term Portfolio          
and the National Portfolio,  exempt from otherwise applicable state             
and/or local personal income taxes in a particular state.  No fund is           
intended to be a balanced investment program, and the funds are not             
designed for investors seeking capital gains or maximum tax-exempt              
income irrespective of fluctuations in principal.  Investment in any            
fund would not be suitable for tax-exempt institutions, qualified               
retirement plans, H.R. 10 plans and individual retirement accounts              
because those investors would not gain any additional tax benefit from          
the receipt of tax-exempt income.                                               

Each fund has qualified and intends to continue to qualify each 
year as a "regulated investment company" under the Code.  Provided              
that a fund (a) is a regulated investment company and (b) distributes           
to its shareholders at least 90% of its taxable net investment income           
(including, for this purpose, its 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-             
term and short-term capital gains, if any, are distributed to its               
shareholders.  Any such taxes paid by a fund would reduce the amount            
of income and gains available for distribution to shareholders.                 

Because each fund will distribute exempt-interest dividends,    
interest on indebtedness incurred by a shareholder to purchase or               
carry shares of a fund is not deductible for federal income tax                 
purposes.  If a shareholder receives exempt-interest dividends with             
respect to any share of a fund and if the share is held by the                  
shareholder for six months or less, then any loss on the sale or                
exchange of the share may, to the extent of the exempt-interest                 
dividends, be disallowed.  In addition, the Code may require a                  
shareholder that receives exempt-interest dividends to treat as                 
taxable income a portion of certain otherwise non-taxable social                
security and railroad retirement benefit payments.  Furthermore, the            
portion of any exempt-interest dividend paid by a fund that represents          
income derived from "private activity bonds" held by the fund may not           
retain its tax-exempt status in the hands of a shareholder who is a             
"substantial user" of a facility financed by such bonds, or a "related          
person" of the substantial user.  Moreover, some or all of a fund's             
exempt-interest dividends may be a specific preference item, or a               
component of an adjustment item, for purposes of the federal                    
individual and corporate alternative minimum taxes.  In addition, the           
receipt of a fund's dividends and distributions may affect a foreign            
corporate shareholder's federal "branch profits" tax liability and the          
federal and California "excess net passive income" tax liability of a           
Subchapter S corporation.  Shareholders should consult their own tax            
advisors to determine whether they are (a) "substantial users" with             
respect to a facility or "related" to those users within the meaning            
of the Code or (b) subject to a federal alternative minimum tax, the            
federal "branch profits" tax, or the federal or California "excess net          
passive income" tax.                                                            

As a general rule, a fund's gain or loss on a sale or exchange                  
of an investment will be a long-term capital gain or loss if the fund           
has held the investment for more than one year and will be a short-             
term capital gain or loss if it has held the investment for one year            
or less. Shareholders of each fund will receive an annual statement as          
to the income tax status of his or her dividends and distributions for          
the prior calendar year.  Each shareholder will also receive, if                
appropriate, various written notices after the close of a fund's prior          
taxable year as to the federal income tax status of certain dividends           
or distributions which were received from the fund during the fund's            
prior taxable year.                                                             

          Dividends paid by any fund from interest income on taxable
investments, net realized short-term capital gains and all or a portion         
of any gains realized from the sale or other disposition of certain             
market discount bonds are subject to federal income tax as ordinary             
income.  Distributions, if any, from net realized long-term capital             
gains ("capital gain dividends") are taxable as long-term capital gains         
regardless of the length of time a shareholder has owned fund shares.           

If, in any taxable year, a fund fails to qualify as a regulated                 
investment company under the Code or fails to meet the distribution             
requirement, it would be taxed in the same manner as an ordinary                
corporation and distributions to its shareholders would not be                  
deductible by the fund in computing its taxable income.  In addition,           
in the event of a failure to qualify, the fund's distributions, to the          
extent derived from the fund's current or accumulated earnings and              
profits would constitute dividends (eligible for the corporate                  
dividends-received deduction) which are taxable to shareholders as              
ordinary income, even though those distributions might otherwise (at            
least in part) have been treated in the shareholders' hands as tax-             
exempt interest.  If such fund fails to qualify as a regulated                  
investment company in any year, it must pay out its earnings and                
profits accumulated in that year in order to qualify again as a                 
regulated investment company. In addition, if a fund failed to qualify          
as a regulated investment company for a period greater than one                 
taxable year, such fund may be required to recognize any net built-in           
gains with respect to certain o fits assets (the excess of the                  
aggregate gains, including items of income, over aggregate losses that          
would have been realized if the fund had been liquidated) in order to           
qualify as a regulated investment company in a subsequent year.                 

   Shareholders are required to pay tax on all taxable
distributions even if those distributions are automatically reinvested          
in additional shares.  None of the dividends paid by any fund will              
qualify for the corporate dividends-received deduction.  Certain                
distributions paid in January may be treated as if received on December         
31 for federal income tax purposes.  Each fund will inform shareholders         
of the source and tax status of all distributions promptly after the            
close of each calendar year.                                                    

              Some of the funds may invest in exchange-traded municipal bond
index futures contracts.  As a general rule, these investment                   
activities will increase or decrease the amount of long-term and short-         
term capital gains or losses realized by a 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 these           
futures contracts (referred to herein as "section 1256 contracts") is           
taxed pursuant to a special "mark-to-market" system.  Under the mark-           
to-market system, these instruments are treated as if sold at a fund's          
fiscal year end for their fair market value.  As a result, the fund may         
be recognizing gains or losses before they are 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.         
Marking-to-market and the application of this 60/40 rule to unrealized          
gains and losses on section 1256 contracts generally will affect the            
amount and timing of capital gains or losses of a fund and of                   
distributions taxable to a shareholder.  Moreover, if a fund invests in         
both section 1256 contracts and offsetting positions to such contracts,         
which together constitute a straddle, then the fund may be required to          
defer certain realized losses.                                                  

           A shareholder's gain or loss, if any, on the disposition of
shares of a fund that are held as capital assets (whether by                    
redemption, sale or exchange) generally will be a long-term or short-           
term capital gain or loss depending on whether the shares had been held         
for tax purposes for more than one year, or one year or less,                   
respectively.  If a shareholder receives a capital gain dividend with           
respect to any share and redeems or otherwise sells the share before it         
has been held by the shareholder for more than six months, then any             
loss (to the extent not disallowed pursuant to the other six-month rule         
described above relating to exempt-interest dividends) on the sale or           
other disposition of such share will be treated as long-term capital            
loss to the extent of the capital gain dividend.                                

               If a shareholder incurs a sales charge when acquiring shares of
a fund, disposes of those shares within 90 days and then acquires               
shares in a mutual fund for which the otherwise applicable sales charge         
is reduced by reason of a reinvestment right (e.g., an exchange                 
privilege), the original sales charge will not be taken into account            
when computing gain or loss on the original shares to the extent the            
subsequent sales charge is reduced.  The portion of the original sales          
charge that does not increase the shareholder's tax basis in the                
original shares will be treated as incurred with respect to the second          
acquisition and, as a general rule, will increase the shareholder's tax         
basis in the newly acquired shares.  Furthermore, the same rule also            
applies to a disposition of the newly acquired shares made within 90            
days of the second acquisition.  This provision prevents a shareholder          
from immediately deducting the sales charge by shifting his or her              
investment in a family of mutual funds.                                         

             Investors considering buying shares of a fund just prior to a
record date for a capital gain distribution should be aware that,               
regardless of whether the price of the fund shares to be purchased              
reflects the amount of the forthcoming distribution payment, any such           
payment will be a taxable distribution payment.                                 

               Each fund may be required to withhold (as "backup withholding")
31% of all taxable dividends, capital gain distributions, and (except           
for California Money Market Portfolio, New York Money Market Portfolio          
and Massachusetts Money Market Portfolio) the proceeds of any                   
redemption, regardless of whether gain or loss is realized upon the             
redemption, for shareholders who do not provide the fund with their             
correct taxpayer identification number (social security or employer             
identification number) and any required certifications.  Withhholding           
from taxable dividends and capital gain distributions also is required          
for shareholders who otherwise are subject to backup withholding.  Any          
tax withheld as a result of backup withholding does not constitute an           
additional tax, and may be claimed as a credit on the shareholders'             
federal income tax returns.                                                     

From time to time, proceedings have been introduced before      
Congress for the purpose of restricting or eliminating the federal              
income tax exemption for interest on municipal obligations.  It may be          
expected that similar proposals may be introduced in the future.  If            
such proposals were to be enacted, the ability of a fund to pay                 
"exempt interest" dividends could be adversely affected and the fund            
would then need to reevaluate its investment objectives and policies            
and consider changes in its structure.                                          

State Tax Information                                                           

California State Taxes California shareholders will not be subject to           
California state personal income tax on dividends they receive from             
the California Money Market Portfolio to the extent that such                   
distributions qualify as exempt-interest dividends under the Code and           
California law and provided that, at the close of each quarter of the           
Portfolio's taxable year, at least 50% of the Portfolio's total assets          
are invested in municipal obligations of California issuers.  To the            
extent that distributions are derived from taxable income, including            
long or short-term capital gains, such distributions will not be                
exempt from California state personal income tax.  Dividends on the             
California Portfolio are not excluded in determining California state           
franchise taxes on corporations and financial institutions.                     

Florida Taxes Florida currently does not impose a personal income tax           
on individuals.  Thus, individual shareholders of the Florida                   
Portfolio will not be subject to any Florida state income tax on                
distributions received from the Florida Portfolio.  However, certain            
distributions will be taxable to corporate shareholders that are                
subject to Florida corporate income tax.                                        

Florida currently imposes an "intangibles tax" on certain                       
securities and other intangible assets owned by Florida residents.              
Certain types of municipal obligations of Florida issuers, U.S.                 
Treasury securities and municipal obligations issued by certain U.S.            
territories and possessions are exempt from this intangibles tax.  The          
Florida Portfolio seeks generally to select investments that will               
enable its shares to be exempt from the Florida intangibles tax and             
attempts to ensure that all of its assets held on the annual                    
assessment date are exempt from this tax.  Additionally, the Florida            
Department of Revenue has ruled that, if on the annual assessment date          
of any year the Florida Portfolio consists solely of such exempt                
assets, then the Florida Portfolio's shares will be exempt from the             
Florida intangibles tax.  The Florida Portfolio intends to provide              
shareholders annually with information relating to its assets                   
necessary to permit shareholders to determine whether the value of              
Florida Portfolio shares held is exempt from the Florida intangibles            
tax.                                                                            

Investors purchasing municipal obligations of their state of                    
residence, or a fund comprised of such obligations, should recognize            
that the benefits of the exemption from local taxes, in addition to             
the exemption from federal taxes, necessarily limits the fund's                 
ability to diversify geographically.  The Florida Portfolio will make           
available annually to its shareholders information concerning the tax           
status of its distributions, including the amount of its dividends              
designated as exempt-interest dividends and as capital gain dividends.          

The foregoing is only a brief summary of the tax considerations                 
generally affecting the Florida Portfolio and its shareholders who are          
Florida residents.  Investors are urged to consult their tax advisers           
with specific reference to their own tax situation.                             

Georgia Taxes Exempt-interest dividends and distributions by the                
Georgia Portfolio to a Georgia resident that are attributable to                
interest on Georgia municipal obligations or direct obligations of the          
United States and its territories and possessions will not be subject           
to the State of Georgia personal income tax.  Dividends or other                
distributions by the Georgia Portfolio which are attributable to other          
sources, including all distributions that qualify as capital gains              
dividends for federal income tax purposes, will be subject to the               
State of Georgia personal income tax at the applicable rate.                    

Investors purchasing municipal obligations of their state of                    
residence, or a fund comprised of such obligations, should recognize            
that the benefits of the exemption from local taxes, in addition to             
the exemption from federal taxes, necessarily limits the fund's                 
ability to diversify geographically.  The Georgia Portfolio will make           
available annually to its shareholders information concerning the tax           
status of its distributions, including the amount of its dividends              
designated as exempt-interest dividends and as capital gain dividends.          

The foregoing is only a brief summary of the tax considerations                 
generally affecting the Georgia Portfolio and its shareholders who are          
Georgia residents.  Investors are urged to consult their tax advisers           
with specific reference to their own tax situation.                             

Massachusetts Taxes  Individual shareholders who are otherwise subject          
to Massachusetts personal income tax will not be subject to                     
Massachusetts personal income tax on exempt-interest dividends                  
received from the fund to the extent the dividends are attributable to          
interest on obligations of the Commonwealth of Massachusetts and its            
political subdivisions, agencies and public authorities (or on                  
obligations of certain other governmental issuers such as Puerto Rico,          
the Virgin Islands and Guam) that pay interest which is excluded from           
gross income for federal income tax purposes and exempt from                    
Massachusetts personal income taxes.  Other distributions from                  
Massachusetts Money Market Portfolio, including those related to long-          
and short-term capital gains, other than certain gains from certain             
Massachusetts Municipal Securities identified by the Massachusetts              
Department of revenue, generally will not be exempt from Massachusetts          
personal income tax.  Businesses should note that Massachusetts Money           
Market Portfolio's distributions derived from Massachusetts Municipal           
Securities are not exempt from Massachusetts corporate excise tax.              

The foregoing is only a brief summary of the tax considerations                 
generally affecting the Massachusetts Money Market Portfolio and its            
shareholders who are Massachusetts residents.  Shareholders are urged           
to consult their own tax advisers with specific reference to their own          
tax situation.                                                                  

New York State and City Taxes New York resident shareholders of the             
New York Portfolio or the New York Money Market Portfolio will not be           
subject to New York State and New York City personal income taxes on            
exempt-interest dividends attributable to interest on tax-exempt                
obligations of the State of New York and its political subdivisions,            
as well as certain other obligations the interest on which is                   
considered exempt for New York State and New York City purposes.  The           
New York Money Market Portfolio is required to report annually the              
source, tax status and recipient information related to its exempt-             
interest dividends distributed within the State of New York.  Exempt-           
interest dividends are not excluded in determining New York State               
franchise or New York City business taxes on corporations and                   
financial institutions.                                                         

The foregoing is only a brief summary of some of the tax                        
considerations generally affecting the New York Portfolio, the New              
York Money Market Portfolio and their shareholders who are New York             
residents.  Investors are urged to consult their tax advisors with              
specific reference to their own tax situation.                                  

Pennsylvania Taxes Exempt-interest dividends distributed by the                 
Pennsylvania Portfolio will not be subject to the Pennsylvania                  
personal income tax, the corporate net income tax or to the                     
Philadelphia school district investment income tax to the extent that           
the dividends are attributable to interest received by the Portfolio            
from its investments in Pennsylvania municipal obligations and U.S.             
Government obligations, including obligations issued by U.S.                    
possessions.  For Pennsylvania personal income tax purposes, capital            
gain distributions are treated as ordinary dividends and are taxed at           
ordinary income tax rates.                                                      

Investors purchasing municipal obligations of their state of                    
residence, or a fund comprised of such obligations, should recognize            
that the benefits of the exemption from local taxes, in addition to             
the exemption from federal taxes, necessarily limits the fund's                 
ability to diversify geographically.  The Pennsylvania Portfolio will           
make available annually to its shareholders information concerning the          
tax status of its distributions, including the amount of its dividends          
designated as exempt-interest dividends and as capital gain dividends.          

The foregoing is only a brief summary of some of the tax                        
considerations generally affecting the Pennsylvania Portfolio and its           
shareholders who are Pennsylvania residents.  Investors are urged to            
consult their tax advisors with specific reference to their own tax             
situation.                                                                      

ADDITIONAL INFORMATION                                                          

The Trust, an open-end management investment company, is        
organized as a "Massachusetts business trust" pursuant to a                     
Declaration of Trust dated August 14, 1985.  Pursuant to the                    
Declaration of Trust, the Board of Trustees has authorized the                  
issuance of different series of shares, each representing shares in             
separate funds.  The assets of each fund are segregated and separately          
managed.  Each share of a fund represents an equal proportionate                
interest in the net assets of that fund with each other share of the            
same fund and is entitled to such dividends and distributions out of            
the net income of that fund as are declared in the discretion of the            
Board of Trustees.  Shareholders are entitled to one vote for each              
share held and will vote by individual fund except as otherwise                 
permitted by the 1940 Act.  It is the intention of the Trust not to             
hold annual meetings of shareholders.  The Board of Trustees may call           
meetings of shareholders for action by shareholder vote as may be               
required by the 1940 Act or the Declaration of Trust, and shareholders          
are entitled to call a meeting upon a vote of 10% of the fund's                 
outstanding shares for purposes of voting on removal of a Trustee or            
Trustees.  The Trust will assist shareholders in calling such a                 
meeting as required by the 1940 Act.  Shares do not have cumulative             
voting rights or preemptive rights and have only such conversion or             
exchange rights as the Board of Trustees may grant in its discretion.           
Shares are redeemable as set forth under "Redemption of Shares."                

The Trust sends to each of its fund's shareholders a semi-annual
report and an audited annual report, which include listings of the              
investment securities held by the funds at the end of the reporting             
period.  In an effort to reduce each fund's printing and mailing                
costs, each 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 Financial Consultants or the Transfer Agent.                              

PNC Bank, National Association, located at 17th and Chestnut    
Streets, Philadelphia, Pennsylvania 19103, serves as the custodian of           
each fund. Under the custody agreement with the trust, PNC holds each           
fund's portfolio securities and keeps all necessary accounts and                
records.  For its services, PNC receives a monthly fee based upon the           
month-end market value of securities held in custody and also receives          
certain securities transaction charges. The assets of each fund are             
held under bank custodianship in compliance with the 1940 Act.                  

    Citi Fiduciary Trust Company, located at 125 Broad Street, New York,
New York 10004, serves as the fund's transfer and dividend-paying               
agent.  Under the transfer agency agreement, the transfer agent                 
maintains the shareholder account records for the fund, handles                 
certain communications between shareholders and the fund, distributes           
dividends and distributions payable by the fund and produces                    
statements with respect to account activity for the fund and its                
shareholders.  For these services, the transfer agent receives fees             
from the fund computed on the basis of the number of shareholder                
accounts that the transfer agent maintains for the fund during the              
month and is reimbursed for out-of-pocket expenses.                             

   PFPC Global Fund Services, located at P.O. Box 9699, Providence, RI
02940-9699, serves as the fund's sub-transfer agent.  Under the                 
transfer agency agreement, PFPC 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, PFPC 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.                                                                

FINANCIAL STATEMENTS                                                            

The funds' financial information is incorporated by reference to the            
funds' Annual Reports to Shareholders for the fiscal year ended March           
31, 2000 which were filed with the SEC on June 8, 2000, accession               
number 950130-00-003314.                                                        

OTHER INFORMATION                                                               

In an industry where the average portfolio manager has seven years of           
experience (source: ICI, 1998), the portfolio managers of Smith Barney          
Mutual Funds average 21 years in the industry and 15 years with the             
firm.                                                                           

Smith Barney Mutual Funds offers more than 60 mutual funds.  We                 
understand that many investors prefer an active role in allocating the          
mix of funds in their portfolio, while others want the asset                    
allocation decisions to be made by experienced managers.                        

That's why we offer four "styles" of fund management that can be                
tailored to suit each investor's unique financial goals.                        

Style Pure Series                                               
Our Style Pure Series funds stay fully invested within their                    
asset class and investment style, enabling investors to make                    
asset allocation decisions in conjunction with their Salomon                    
Smith Barney Financial Consultant.                                              

Classic Investor Series                                         
Our Classic Investor Series funds offer a range of equity and                   
fixed income strategies that seek to capture opportunities                      
across asset classes and investment styles using disciplined                    
investment approaches.                                                          

The Concert Allocation Series                                   
As a fund of funds, investors can select a Concert Portfolio                    
that may help their investment needs.  As needs change,                         
investors can easily choose another long-term, diversified                      
investment from our Concert family.                                             

Special Discipline Series                                       
Our Special Discipline Series funds are designed for            
investors who are looking beyond more traditional market categories:            
from natural resources to a roster of state-specific municipal funds.           

APPENDIX A                                                                      

Ratings of Municipal Bonds, Notes and Commercial Paper                          

Moody's Investors Service, Inc.  ("Moody's"):                                   

Aaa - Bonds that are rated Aaa are judged to be of the best quality.            
They carry the smallest degree of investment risk and are generally             
referred to as "gilt edge." Interest payments are protected by a large          
or by an exceptionally stable margin and principal is secure.  While            
the various protective elements are likely to change, such changes as           
can be visualized are most unlikely to impair the fundamentally strong          
position of such issues.                                                        

Aa - Bonds that are rated Aa are judged to be of high quality by all            
standards.  Together with the Aaa group, they comprise what are                 
generally known as high-grade bonds.  They are rated lower than the             
best bonds because margins of protection may not be as large as in Aaa          
securities or fluctuation of protective elements may be of greater              
amplitude or there may be other elements present which make the long-           
term risks appear somewhat larger than in Aaa securities.                       

A - Bonds that are rated A possess many favorable investment                    
attributes and are to be considered as upper-medium-grade obligations.          
Factors giving security to principal and interest are considered                
adequate but elements may be present which suggest a susceptibility to          
impairment some time in the future.                                             

Baa - Bonds that are rated Baa are considered medium-grade                      
obligations; i.e., they are neither highly protected nor poorly                 
secured.  Interest payments and principal security appear adequate for          
the present but certain protective elements may be lacking or may be            
characteristically unreliable over any great length of time.  Such              
bonds lack outstanding investment characteristics and in fact have              
speculative characteristics as well.                                            

Standard & Poor's Ratings Group ("S&P                                           

AAA - Debt rated AAA has the highest rating assigned by S&P.  Capacity          
to pay interest and repay principal is extremely strong.                        

AA - Debt rated AA has a very strong capacity to pay interest and               
repay principal and differs from the higher-rated issues only in small          
degree.                                                                         

A - Debt rated A has a strong capacity to pay interest and repay                
principal although it is somewhat more susceptible to the adverse               
effects of changes in circumstances and economic conditions than debt           
in higher-rated categories.                                                     

BBB - Debt rated BBB is regarded as having adequate capacity to pay             
interest and repay principal.  Whereas it normally exhibits adequate            
protection parameters, adverse economic conditions or changing                  
circumstances are more likely to lead to a weakened capacity to pay             
interest and repay principal for debt in this category than in higher-          
rated categories.                                                               

Fitch/IBCA, Inc.:                                                               

AAA - Bonds rated AAA by Fitch have the lowest expectation of credit            
risk.  The obligor has an exceptionally strong capacity for timely              
payment of financial commitments, which is highly unlikely to be                
adversely affected by foreseeable events.                                       

AA - Bonds rated AA by Fitch have a very low expectation of credit              
risk.  They indicate very strong capacity for timely payment of                 
financial commitments.  This capacity is not significantly vulnerable           
to foreseeable events.                                                          

A - Bonds rated A by Fitch are considered to have a low expectation of          
credit risk.  The capacity for timely payment of financial commitments          
is considered to be strong, but may be more vulnerable to changes in            
economic conditions and circumstances than bonds with higher ratings.           

BBB - Bonds rated BBB by Fitch currently have a low expectation of              
credit risk.  The capacity for timely payment of financial commitments          
is considered to be adequate.  Adverse changes in economic conditions           
and circumstances, however, are more likely to impair this capacity.            
This is the lowest investment grade category assigned by Fitch.                 

Plus and minus signs are used by Fitch to indicate the relative                 
position of a credit within a rating category.  Plus and minus signs,           
however, are not used in the AAA category.                                      

Description of State and Local Government Note Ratings                          

Notes are assigned distinct rating symbols in recognition of the                
differences between short-term and long-term credit risk.  Factors              
affecting the liquidity of the borrower and short-term cyclical                 
elements are critical in short-term ratings, while other factors of             
major importance in bond risk-- long-term secular trends for example--          
may be less important over the short run.                                       

Moody's Investors Service, Inc.:                                                

Moody's ratings for state and municipal notes and other short-term              
loans are designated Moody's Investment Grade ("MIG").  A short-term            
rating may also be assigned on an issue having a demand feature, a              
variable-rate demand obligation.  Such ratings will be designated as            
"VMIG."  Short-term ratings on issues with demand features are                  
differentiated by the use of the VMIG symbol to reflect such                    
characteristics as payment upon periodic demand rather than fixed               
maturity dates and payment relying on external liquidity.                       
Additionally, investors should be alert to the fact that the source of          
payment may be limited to the external liquidity with no or limited             
legal recourse to the issuer in the event the demand is not met.                
Symbols used are as follows:                                                    

MIG/VMIG 1 - Loans bearing this designation are of the best quality,            
enjoying strong protection from established cash flows of funds,                
superior liquidity support or demonstrated broad-based access to the            
market for refinancing.                                                         

MIG 2/VMIG 2 - Loans bearing this designation are of high quality,              
with margins of protection ample although not so large as in the                
preceding group.                                                                
Standard & Poor's Ratings Group:                                                

SP-1 - Very strong or strong capacity to pay principal interest.                
Those issues determined to possess overwhelming safety characteristics          
will be given a plus (+) designation.                                           

SP-2 - Satisfactory capacity to pay principal and interest.                     

Fitch/IBCA, Inc.:                                                               

Fitch's short-term ratings apply to debt obligations that are payable           
on demand or have original maturities of generally up to three years,           
including commercial paper, certificates of deposit, medium-term                
notes, and municipal and investment notes.                                      

The short-term rating places greater emphasis than a long-term rating           
on the existence of liquidity necessary to meet financial commitments           
in a timely manner.                                                             

Fitch's short-term ratings are as follows:                                      

F1+ - Issues assigned this rating are regarded as having the strongest          
capacity for timely payment of financial commitments.  The "+" denotes          
an exceptionally strong credit feature.                                         

F1 - Issues assigned this rating are regarded as having the strongest           
capacity for timely payment of financial commitments.                           

F2 - Issues assigned this rating have a satisfactory capacity for               
timely payment of financial commitments, but the margin of safety is            
not as great as in the case of the higher ratings.                              

F3 - The capacity for the timely payment of financial commitments is            
adequate; however, near-term adverse changes could result in a                  
reduction to non-investment grade.                                              

DESCRIPTION OF HIGHEST COMMERCIAL PAPER RATINGS                                 

Moody's Investors Service, Inc.:                                                

Prime-1 - Issuers (or related supporting institutions) rated Prime-1            
have a superior capacity for repayment of short-term promissory                 
obligations.  Prime-1 repayment capacity will normally be evidenced by          
the following characteristics: leading market positions in well-                
established industries; high rates of return on funds employed;                 
conservative capitalization structures with moderate reliance on debt           
and ample asset protection; broad margins in earnings coverage of               
fixed financial charges and high internal cash generation; and well-            
established access to a range of financial markets and assured sources          
of alternate liquidity.                                                         

Standard & Poor's Ratings Group:                                                

A-1 - This designation indicates that the degree of safety regarding            
timely payment is either overwhelming or very strong.  Those issues             
determined to possess overwhelming safety characteristics are denoted           
with a plus (+) sign designation.                                               

Appendices B-I - Special Note:                                                  

The following information (set forth in Appendices B-I) is a summary            
of special factors available at the time of the preparation of this             
SAI affecting municipal obligations for state-specific portfolios               
(California, New York and Massachusetts Money Markets, Florida,                 
Georgia, New York and Pennsylvania Portfolios).  Also included (set             
forth in Appendices H-I) is a summary of specific factors, available            
at the time of preparation of this SAI, affecting municipal                     
obligations for certain U.S. territories including Puerto Rico, the             
U.S. Virgin Islands and Guam for both state specific portfolios and             
the National and Limited Term Portfolios.  For any such state and               
territory, the summary does not purport to be a complete description            
and is based on information from official statements and other public           
information relating to securities offerings, finances and bond                 
ratings of issuers within the state and territory.  The manager has             
not independently verified any such information. The respective states          
and territories typically indicate that budgetary information is based          
on estimates and projections of revenues and expenditures for a fiscal          
year and must not be construed as statements of fact; estimates and             
projections are based upon various assumptions which may be affected            
by numerous factors, including future economic conditions in the                
state, territory  and the nation, and that there can be no assurance            
that the estimates will be achieved.  Generally, NRSROs base their              
ratings on information and materials furnished to the agencies and on           
investigations, studies and assumptions by the rating agencies at a             
particular point in time.  There is no assurance that any such rating           
remains in effect for a given period of time or that it will not be             
lowered or withdrawn entirely if, in the judgment of the NRSRO                  
originally establishing the rating, circumstances so warrant.  Any              
such change or withdrawal of the rating could have an adverse effect            
on the market price of the bonds.                                               

APPENDIX B                                                                      

Special Consideration Relating to California Municipal Obligations.             

See Special Note prior to Appendix B.                                           

Certain California constitutional amendments, legislative measures,             
executive orders, administrative regulations, and voter initiatives,            
as discussed below, could adversely affect the market values and                
marketability of, or result in default of, existing obligations,                
including obligations that may be held by a fund. Obligations of the            
state or local governments may also be affected by budgetary pressures          
affecting the State of California (the State) and economic conditions           
in the State. Interest income to a fund could also be adversely                 
affected. The following discussion highlights only some of the more             
significant financial trends and problems, and is based on information          
drawn from official statements and prospectuses relating to securities          
offerings of the State, its agencies, or instrumentalities, as                  
available as of the date of this SAI. The Manager has not                       
independently verified any of the information contained in such                 
official statements and other publicly available documents, but is not          
aware of any fact, which would render such information inaccurate.              

Alternative Minimum Tax                                                         

As long as a fund continues to qualify as a regulated investment                
company under the federal Internal Revenue Code, it will incur no               
California income or franchise tax liability on income and capital              
gains distributed to shareholders. California personal income tax law           
provides that exempt-interest dividends paid by a regulated investment          
company, or series thereof, from interest on obligations that are               
exempt from California personal income tax are excludable from gross            
income. For a fund to qualify to pay exempt-interest dividends under            
California law, at least 50% of the value of its assets must consist            
of such obligations at the close of each quarter of its fiscal year.            
For purposes of California personal income taxation, distributions to           
individual shareholders derived from interest on other types of                 
obligations and short-term capital gains will be taxed as dividends,            
and long-term capital gain distributions will be taxed as long-term             
capital gains. California has an alternative minimum tax similar to             
the federal AMT described above. However, the California AMT does not           
include interest from private activity municipal obligations as an              
item of tax preference. Interest on indebtedness incurred or continued          
by a shareholder in connection with the purchase of shares of a fund            
will not be deductible for California personal income tax purposes.             
Corporate taxpayers should note that dividends will not be exempt from          
California corporate income or franchise tax.                                   

General                                                                         

During the early 1990's, California experienced significant financial           
difficulties, which reduced its credit standing, but the State's                
finances have improved significantly since 1994, with ratings                   
increases since 1996. The ratings of certain related debt of other              
issuers for which California has an outstanding lease purchase,                 
guarantee or other contractual obligation (such as for state-insured            
hospital bonds) are generally linked directly to California's rating.           
Should the financial condition of California deteriorate again, its             
credit ratings could be reduced, and the market value and                       
marketability of all outstanding notes and bonds issued by California,          
its public authorities or local governments could be adversely                  
affected.                                                                       

Economic Factors                                                                

California's economy is the largest among the 50 states and one of the          
largest in the world. The State's population of over 34 million                 
represents about 12-1/2% of the total United States population and              
grew by 26% in the 1980s, more than double the national rate.                   
Population growth slowed to less than 1% annually in 1994 and 1995,             
but rose to almost 2% in the final years of the 1990's. During the              
early 1990's, net population growth in the State was due to births and          
foreign immigration, but in recent years, in-migration from the other           
states has increased and once more represents net positive growth.              

Total personal income in the State, at an estimated $964 billion in             
1999, accounts for almost 13% of all personal income in the nation.             
Total employment is over 15 million, the majority of which is in the            
service, trade and manufacturing sectors.                                       

From mid-1990 to late 1993, the State suffered a recession with the             
worst economic, fiscal and budget conditions since the 1930s.                   
Construction, manufacturing (especially aerospace), and financial               
services, among others, were all severely affected, particularly in             
Southern California. Recovery did not begin in California until 1994,           
later than the rest of the nation, but since that time California's             
economy has outpaced the national average. By the end of 1999,                  
unemployment in the State was at its lowest level in three decades.             

Economic indicators show a steady and strong recovery underway in               
California since the start of 1994 particularly in high technology              
manufacturing and services, including computer software, electronic             
manufacturing and motion picture/television production, and other               
services, entertainment and tourism, and both residential and                   
commercial construction. International economic problems starting in            
1997 had some moderating impact on California's economy, but negative           
impacts, such as a sharp drop in exports to Asia which hurt the                 
manufacturing and agricultural sectors, were offset by increased                
exports to Latin American and other nations, and a greater strength in          
services, computer software and construction. With economic conditions          
in many Asian countries recovering in 1999, that year had the                   
strongest economic growth in the State for the entire decade. Current           
forecasts predict continued strong growth of the State's economy in             
2000, with slower growth predicted in 2001 and beyond. Any delay or             
reversal of the recovery may create new shortfalls in State revenues.           

Constitutional Limitations On Taxes, Other Charges and Appropriations           

Certain California municipal obligations may be obligations of issuers          
which rely in whole or in part, directly or indirectly, on AD VALOREM           
property taxes as a source of revenue. The taxing powers of California          
local governments and districts are limited by Article XIIIA of the             
California Constitution, enacted by the voters in 1978 and commonly             
known as "Proposition 13." Briefly, Article XIIIA limits to 1% of full          
cash value of the rate of AD VALOREM property taxes on real property            
and generally restricts the reassessment of property to 2% per year,            
except under new construction or change of ownership (subject to a              
number of exemptions). Taxing entities may, however, raise AD VALOREM           
taxes above the 1% limit to pay debt service on voter-approved bonded           
indebtedness.    Under Article XIIIA, the basic 1% AD VALOREM tax levy          
is applied against the assessed value of property as of the owner's             
date of acquisition (or as of March 1, 1975, if acquired earlier),              
subject to certain adjustments. This system has resulted in widely              
varying amounts of tax on similarly situated properties. Several                
lawsuits have been filed challenging the acquisition-based assessment           
system of Proposition 13, but the U.S. Supreme Court upheld it in               
1992. Article XIIIA prohibits local governments from raising revenues           
through AD VALOREM taxes above the 1% limit; it also requires voters            
of any governmental unit to give two-thirds approval to levy any                
"special tax." Court decisions, however, allowed a non-voter approved           
levy of "general taxes" which were not dedicated to a specific use.             

On November 5, 1996, the voters of the State approved Proposition 218,          
called the "Right to Vote on Taxes Act." Proposition 218 added                  
Articles XIIIC and XIIID to the State Constitution, which contain a             
number of provisions affecting the ability of local agencies to levy            
and collect both existing and future taxes, assessments, fees and               
charges.  Article XIIIC requires that all new or increased local taxes          
be submitted to the electorate before they become effective. Taxes for          
general governmental purposes require a majority vote and taxes for             
specific purposes require a two-thirds vote. Further, any general               
purpose tax which was imposed, extended or increased without voter              
approval after December 31, 1994 must be approved by a majority vote            
within two years.                                                               

Article XIIID contains several new provisions making it generally more          
difficult for local agencies to levy and maintain "assessments" for             
municipal services and programs. Article XIIID also contains several            
new provisions affecting "fees" and "charges," defined for purposes of          
Article XIIID to mean "any levy other than an ad valorem tax, a                 
special tax, or an assessment, imposed by a [local government] upon a           
parcel or upon a person as an incident of property ownership,                   
including a user fee or charge for a property related service." All             
new and existing property related fees and charges must conform to              
requirements prohibiting, among other things, fees and charges which            
generate revenues exceeding the funds required to provide the property          
related service or are used for unrelated purposes. There are new               
notice, hearing and protest procedures for levying or increasing                
property related fees and charges, and, except for fees or charges for          
sewer, water and refuse collection services (or fees for electrical             
and gas service, which are not treated as "property related" for                
purposes of Article XIIID), no property related fee or charge may be            
imposed or increased without majority approval by the property owners           
subject to the fee or charge or, at the option of the local agency,             
two-thirds voter approval by the electorate residing in the affected            
area.                                                                           

In addition to the provisions described above, Article XIIIC removes            
limitations on the initiative power in matters of local taxes,                  
assessments, fees and charges. Consequently, local voters could, by             
future initiative, repeal, reduce or prohibit the future imposition or          
increase of any local tax, assessment, fee or charge. It is unclear             
how this right of local initiative may be used in cases where taxes or          
charges have been or will be specifically pledged to secure debt                
issues.                                                                         

The interpretation and application of Proposition 218 will ultimately           
be determined by the courts with respect to a number of matters, and            
it is not possible at this time to predict with certainly the outcome           
of such determinations. Proposition 218 is generally viewed as                  
restricting the fiscal flexibility of local governments, and for this           
reason, some ratings of California cities and counties have been, and           
others may be, reduced.                                                         

The State and its local governments are subject to an annual                    
"appropriations limit" imposed by Article XIIIB of the California               
Constitution, enacted by the voters in 1979 and significantly amended           
by Propositions 98 and 111 in 1988 and 1990, respectively. Article              
XIIIB prohibits the State or any covered local government from                  
spending "appropriations subject to limitation" in excess of the                
appropriations limit imposed. "Appropriations subject to limitation"            
are authorizations to spend "proceeds of taxes," which consist of tax           
revenues and certain other funds, including proceeds from regulatory            
licenses, user charges or other fees, to the extent that such proceeds          
exceed the cost of providing the product or service, but "proceeds of           
taxes" exclude most State subventions to local governments. No limit            
is imposed on appropriations of funds, which are not "proceeds of               
taxes," such as reasonable user charges or fees, and certain other              
non-tax funds, including bond proceeds.                                         

Among the expenditures not included in the Article XIIIB                        
appropriations limit are (1) the debt service cost of bonds issued or           
authorized prior to January 1, 1979, or subsequently authorized by the          
voters, (2) appropriations arising from certain emergencies declared            
by the Governor, (3) appropriations for certain capital outlay                  
projects, (4) appropriations by the State of post-1989 increases in             
gasoline taxes and vehicle weight fees, and (5) appropriations made in          
certain cases of emergency.  The appropriations limit for each year is          
adjusted annually to reflect changes in cost of living and population,          
and any transfers of service responsibilities between government                
units. The definitions for such adjustments were liberalized in 1990            
to follow more closely growth in the State's economy.                           

"Excess" revenues are measured over a two year cycle. Local                     
governments must return any excess to taxpayers by rate reductions.             
The State must refund 50% of any excess, with the other 50% paid to             
schools and community colleges. With more liberal annual adjustment             
factors since 1988, and depressed revenues since 1990 because of the            
recession, few governments are currently operating near their spending          
limits, but this condition may change over time. Local governments may          
by voter approval exceed their spending limits for up to four years.            
For at least the last ten years, appropriations subject to limitation           
have been under the State's limit. State appropriations are estimated           
to be $3.8 billion under the limit for fiscal year 1999-2000.                   

Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and               
XIIID of the California Constitution, the ambiguities and possible              
inconsistencies in their terms, and the impossibility of predicting             
future appropriations or changes in population and cost of living, and          
the probability of continuing legal challenges, it is not currently             
possible to determine fully the impact of these Articles on California          
municipal obligations or on the ability of the State or local                   
governments to pay debt service on such California municipal                    
obligations. It is not possible, at the present time, to predict the            
outcome of any pending litigation with respect to the ultimate scope,           
impact or constitutionality of these Articles or the impact of any              
such determinations upon State agencies or local governments, or upon           
their ability to pay debt service on their obligations. Further                 
initiatives or legislative changes in laws or the California                    
Constitution may also affect the ability of the State or local issuers          
to repay their obligations.                                                     

Obligations of the State of California                                          

Under the California Constitution, debt service on outstanding general          
obligation bonds is the second charge to the General Fund after                 
support of the public school system and public institutions of higher           
education. As of January 1, 2000, the State had outstanding                     
approximately $20.5 billion of long-term general obligation bonds,              
plus $681 million of general obligation commercial paper which will be          
refunded by long-term bonds in the future, and $6.7 billion of lease-           
purchase debt supported by the State General Fund. The State also had           
about $13.7 billion of authorized and unissued long-term general                
obligation bonds and lease-purchase debt. In FY 1998-99, debt service           
on general obligation bonds and lease purchase debt was approximately           
4.4% of General Fund revenues.                                                  

Recent Financial Results                                                        

The principal sources of General Fund revenues in 1998-1999 were the            
California personal income tax (53 percent of total revenues), the              
sales tax (32 percent), bank and corporation taxes (10 percent), and            
the gross premium tax on insurance (2 percent). An estimated 20% of             
personal income tax receipts (10% of total General Fund) is derived             
from capital gains realizations and stock option income. While these            
sources have been extraordinarily strong in the past few years, they            
are particularly volatile; any sustained drop in stock market levels            
could have a significant impact on these revenues.  The State                   
maintains a Special Fund for Economic Uncertainties (the "SFEU"),               
derived from General Fund revenues, as a reserve to meet cash needs of          
the General Fund, but which is required to be replenished as soon as            
sufficient revenues are available. Year-end balances in the SFEU are            
included for financial reporting purposes in the General Fund balance.          
Because of the recession and an accumulated budget deficit, no reserve          
was budgeted in the SFEU from 1992-93 to 1995-96.                               

A a result of the severe economic recession from 1990-94 and other              
factors, during this period the State experienced substantial revenue           
shortfalls, and greater than anticipated social service costs. The              
State accumulated and sustained a budget deficit in the budget                  
reserve, the SFEU, approaching $2.8 billion at its peak at June 30,             
1993. The Legislature and Governor responded to these deficits by               
enacting a series of fiscal steps between FY1991-92 and FY1994-95,              
including significant cuts in health and welfare and other program              
expenditures, tax increases, transfers of program responsibilities and          
some funding sources from the State to local governments, and transfer          
of about $3.6 billion in annual local property tax revenues primarily           
from cities and counties to local school districts, thereby reducing            
State funding for schools. The budget deficits also led to cash flow            
shortfalls which led the State to use external cash flow borrowing              
over the end of the fiscal year for several years to fund the deficit.          

The economy grew strongly during these fiscal years, and as a result,           
the General Fund took in substantially greater tax revenues (around             
$2.2 billion in 1995-96, $1.6 billion in 1996-97, $2.1 billion in               
1997-98, and $1.6 billion in 1998-99) than were initially planned when          
the budgets were enacted. These additional funds were largely directed          
to school spending as mandated by Proposition 98, and to make up                
shortfalls from reduced federal health and welfare aid in 1995-96 and           
1996-97. The accumulated budget deficit from the recession years was            
finally eliminated. The Department of Finance estimates that the                
State's budget reserve (the SFEU) totaled about $1.8 billion at June            
30, 1998 and $3.1 billion at June 30, 1999.                                     

The growth in General Fund revenues since the end of the recession              
resulted in significant increases in State funding for local school             
districts under Proposition 98. From the recession level of about               
$4,300 per pupil, annual State funding has increased to over $6,000             
per pupil in FY 1999-2000. A significant amount of the new moneys have          
been directed to specific educational reforms, including reduction of           
class sizes in many grade levels. The improved budget condition also            
allowed annual increases in support for higher education in the State,          
permitting increased enrollment and reduction of student fees.  Part            
of the 1997-98 Budget Act was completion of State welfare reform                
legislation to implement the new federal law passed in 1996. The new            
State program, called "CalWORKs," became effective January 1, 1998,             
and emphasizes programs to bring aid recipients into the workforce. As          
required by federal law, new time limits are placed on receipt of               
welfare aid. Generally, health and welfare costs have been contained            
even during the recent period of economic recovery, with the first              
real increases (after inflation) in welfare support levels occurring            
in 1999-2000.                                                                   

One of the most important elements of the 1998-99 Budget Act was                
agreement on substantial tax cuts. The largest of these was a phased-           
in cut in the Vehicle License Fee (an annual tax on the value of cars           
registered in the State, the "VLF"). Starting on January 1, 1999, the           
VLF has been reduced by 25 percent. Under pre-existing law, VLF funds           
are automatically transferred to cities and counties, so the new                
legislation provided for the General Fund to make up the reductions.            
If State General Fund revenues continue to grow above certain targeted          
levels in future years, the cut could reach as much as 67.5 percent by          
the year 2003. The initial 25 percent VLF cut will be offset by about           
$500 million in General Fund money in FY 1998-99, and $1 billion                
annually for future years. Other tax cuts in FY 1998-99 included an             
increase in the dependent credit exemption for personal income tax              
filers, restoration of a renter's tax credit for taxpayers, and a               
variety of business tax relief measures. The total cost of these tax            
cuts was estimated at $1.4 billion for FY 1998-99.                              

1999-2000 Budget.                                                               

The 1999-00 Budget Act was signed on June 29, 1999, only the second             
time in the decade the budget was in place at the start of the fiscal           
year. After the Governor used his line-item veto power to reduce                
expenditures by about $581 million, the final spending plan called for          
about $63.7 billion of General Fund expenditures, $16.1 billion of              
Special Fund expenditures, and $1.5 billion in bond funded                      
expenditures. The Governor's final budget actions left the SFEU with            
an estimated balance of $881 million at June 30, 2000, but the                  
Governor also reduced spending to set aside $300 million for future             
appropriation for either employee pay raises or potential litigation            
costs.  The final Budget Act generally provided increased funding for           
a wide range of programs. Education spending under Proposition 98               
received the largest increase (over $2.3 billion above 1998-99), with           
other significant increases for higher education, health and welfare,           
natural resources and capital outlay. The budget provides several               
hundred million dollars in direct new aid to cities and counties.               

The final spending plan includes several targeted tax cuts for                  
businesses, totaling under $100 million in 1999-00. The plan also               
includes a one-time, one-year additional cut of 10 percent in the               
Vehicle License Fee for calendar year 2000. This cut will cost the              
General Fund about $500 million in each of 1999-00 and 2000-01 to make          
up lost funds for local governments. Under the 1998 law, the VLF cut            
to 35 percent would become permanent in the year 2001 if General Fund           
revenues reach a certain specified level in 2000-01. Current estimates          
indicate this level will be reached.                                            

In January, 2000, the Governor released his proposed budget for fiscal          
year 2000-01 (the "2000 Governor's Budget"), which also included                
updated revenue and expenditure projections for 1999-2000. Reflecting           
the continued strong economy in the State, the Administration revised           
its revenue estimates upward by $2.1 billion to $65.2 billion;                  
expenditures were also projected to increase by a like amount. The              
Administration's projected balance in the SFEU at June 30, 2000                 
increased from about $880 million to over $2.4 billion. In February,            
2000 the State Legislative Analyst's Office ("LAO") released a report           
with more recent revenue estimates, based in part on actual revenues            
for December, 1999 and January, 2000, which were not available for the          
2000 Governor's Budget. In the fourth quarter of 1999, personal income          
tax revenues were 17% higher than the year-earlier period. The LAO              
Report indicated revenues in 1999-2000 could be as much as $2.1                 
billion higher than the 2000 Governor's Budget estimate.                        

Although, as noted, the Administration projected a budget reserve in            
the SFEU of about $2.4 billion on June 30, 1999, the General Fund fund          
balance on that date also reflects $1.0 billion of "loans" which the            
General Fund made to local schools in the recession years,                      
representing cash outlays above the mandatory minimum funding level.            
Settlement of litigation over these transactions in July 1996 calls             
for repayment of these loans over the period ending in 2001-02, about           
equally split between outlays from the General Fund and from schools'           
entitlements. The 1999-2000 Budget Act contained a $350 million                 
appropriation from the General Fund toward this settlement.                     

Proposed 2000-01 Budget                                                         

In the 2000 Governor's Budget, the Administration proposed General              
Fund expenditures of $68.8 billion, based on expected revenues of               
$68.2 billion (including $390 million from the tobacco litigation               
settlement and sale of assets). The proposal included a balance in the          
SFEU at June 30, 2001 of $1.2 billion, plus set-aside of an additional          
$600 million for legal contingencies and legislative initiatives. The           
Governor proposed substantial additional funding for K-12 schools,              
higher education, capital outlay and other programs. The February,              
2000 LAO Report indicated General Fund revenues for 2000-01 could be            
as much as $2.1 billion higher than projected in the 2000 Governor's            
Budget (in addition to the $2.1 billion additional revenue for 1999-            
2000), assuming continued strong economic growth in the State and in            
the stock market. Final decisions for the 2000-01 Budget will be made           
by the Governor and Legislature by July, 2000.   Although the State's           
strong economy is producing record revenues to the State government,            
the State's budget continues to be under stress from mandated spending          
on education, a rising prison population, and social needs of a                 
growing population with many immigrants. These factors which limit              
State spending growth also put pressure on local governments. There             
can be no assurances that, if economic conditions weaken, or other              
factors intercede, the State will not experience budget gaps in the             
future.                                                                         

Bond Rating                                                                     

The ratings on California's long-term general obligation bonds were             
reduced in the early 1990's from "AAA" levels, which had existed prior          
to the recession. After 1996, the three major rating agencies raised            
their ratings of California's general obligation bonds, which as of             
February, 2000 were assigned ratings of "AA-" from Standard & Poor's,           
"Aa3" from Moody's and "AA" from Fitch.                                         

There can be no assurance that such ratings will be maintained in the           
future. It should be noted that the creditworthiness of obligations             
issued by local California issuers may be unrelated to                          
creditworthiness of obligations issued by the State of California, and          
that there is no obligation on the part of the State to make payment            
on such local obligations in the event of default.                              

Legal Proceedings                                                               

The State is involved in certain legal proceedings (described in the            
State's recent financial statements) that if decided against the                
State, may require the State to make significant future expenditures            
or may substantially impair revenues. Trial courts have recently                
entered tentative decisions or injunctions, which would overturn                
several parts of the State's recent budget compromises. The matters             
covered by these lawsuits include reductions in welfare payments and            
the use of certain cigarette tax funds for health costs. All of these           
cases are subject to further proceedings and appeals, and if                    
California eventually loses, the final remedies may not have to be              
implemented in one year. The State recently lost cases involving a              
smog impact fee on out-of-state automobiles (total liability of about           
$560 million) and certain corporate tax credits ($100 million). The             
Administration has proposed payment of the smog impact fee claims from          
current revenues.                                                               

Other Issuers of California Municipal Obligations                               

There are a number of State agencies, instrumentalities and political           
subdivisions of the State that issue municipal obligations, some of             
which may be conduit revenue obligations payable from payments from             
private borrowers. These entities are subject to various economic               
risks and uncertainties, and the credit quality of the securities               
issued by them may vary considerably from the credit quality of                 
obligations backed by the full faith and credit of the State.                   

The effect of these various constitutional and statutory changes upon           
the ability of California municipal securities issuers to pay interest          
and principal on their obligations remains unclear. Furthermore, other          
measures affecting the taxing or spending authority of California or            
its political subdivisions may be approved or enacted in the future.            
Legislation has been or may be introduced which would modify existing           
taxes or other revenue-raising measures or which either would further           
limit or, alternatively, would increase the abilities of state and              
local governments to impose new taxes or increase existing taxes. It            
is not possible, at present, to predict the extent to which any such            
legislation will be enacted. Nor is it possible, at present, to                 
determine the impact of any such legislation on California municipal            
obligations in which the Fund may invest, future allocations of state           
revenues to local governments or the abilities of state or local                
governments to pay the interest on, or repay the principal of, such             
California municipal obligations.                                               

Substantially all of California is within an active geologic region             
subject to major seismic activity. Northern California in 1989 and              
Southern California in 1994 experienced major earthquakes causing               
billions of dollars in damages. The federal government provided more            
than $13 billion in aid for both earthquakes, and neither event has             
had any long-term negative economic impact. Any California municipal            
obligation in the Fund could be affected by an interruption of                  
revenues because of damaged facilities, or, consequently, income tax            
deductions for casualty losses or property tax assessment reductions.           
Compensatory financial assistance could be constrained by the                   
inability of (i) an issuer to have obtained earthquake insurance                
coverage rates; (ii) an insurer to perform on its contracts of                  
insurance in the event of widespread losses; or (iii) the federal or            
State government to appropriate sufficient funds within their                   
respective budget limitations.                                                  

APPENDIX C                                                                      

Special Considerations Relating to Florida Municipal Obligations.               

See Special Note prior to Appendix B.                                           

General                                                                         

Population. In 1980, Florida was the seventh most populous state in             
the U.S.  Florida has grown dramatically since then and as of April 1,          
1998, ranks fourth with an estimated population of 15 million.   In             
1998, about 232,000 more new residents moved into Florida than moved            
out.  The U.S. average population increase since 1990 is about 1.0%             
annually, while Florida's average increase is about 1.9% annually.              
Florida continues to be one of the fastest growing of the largest               
states.                                                                         

Florida's strong population growth is one reason Florida's economy is           
performing better than the U.S. as a whole. In addition to attracting           
senior citizens to Florida as a place for retirement, Florida is also           
recognized as attracting a significant number of individuals of                 
working age (18-64). In recent years, Florida's prime working age               
population (18-44) has grown at an average annual rate of more than             
2.0%. More than 60% of Florida's total population is at the working             
age (18-64).  This share is not expected to change appreciably into             
the twenty-first century.                                                       

Income. According to the U.S. Department of Commerce and the Florida            
Consensus Economic Estimating Conference, personal income in Florida            
has been growing strongly the last several years and has generally              
performed better than the U.S. as a whole and the southeast U.S. in             
particular. This is due to the fact that Florida's population has been          
growing at a very strong pace and, since the early 70's, its economy            
has diversified providing a broader economic base.                              

Florida's real income per person has tracked closely with the U.S.              
average and has tracked above the southeast.  Florida has a                     
proportionately greater retirement age population than other states.            
As a result, property, income (dividends, interest, and rent), and              
transfer payments (Social Security and pension benefits, among other            
sources of income) are relatively more important sources of income to           
persons residing in Florida. Transfer payments (Social Security and             
pension benefits, among other sources of income) are typically less             
sensitive to the ups and downs of the economy than wages and salaries           
and other employment income. Transfer payments (Social Security and             
pension benefits, and other sources of income), therefore, act as a             
stabilizing force in weak economic periods.                                     

The personal income of residents of the various states in the U.S. is           
frequently used to make comparisons among the various states. However,          
using personal income to compare Florida to other states can be                 
misleading. Florida's personal income is systematically                         
underestimated. Contributions by employers to employees' pension,               
profit sharing, and other retirement plans are included in personal             
income of that employee while the employee is working and earning               
wages and salary. When those same employees retire, to avoid double             
accounting, retirement payments to them from those retirement plans             
are excluded in computing personal income. Florida retirees are more            
likely to be collecting retirement benefits that they earned in a               
state other than Florida. As a result, Florida personal income is               
underestimated.                                                                 

Florida's personal income per person in 1998 was $25,852.  The U.S.             
average personal income per person was slightly higher at $26,412.              
Personal income per person in the southeast United States was                   
significantly lower at $23,725.  Total Florida real personal income is          
forecasted to increase 4.9% in the fiscal year ended June 30, 1999,             
and 3.5% in the fiscal year ending June 30, 2000.  Florida real                 
personal income per person is projected to increase 3.1% in the fiscal          
year ended June 30, 1999, and 1.8% in the fiscal year ending June 30,           
2000.                                                                           

The Florida economy appears to be growing in line with, but stronger            
than, the U.S. economy; however, the Florida economy is expected to             
grow more slowly in the fiscal year ending June 30, 2000, than in the           
fiscal year ended June 30, 1999.                                                

Employment                                                                      

Since 1992, Florida's population has increased an estimated 11.7%,              
while the number of employed persons in Florida increased 15.0%.  In            
the same period, Florida's total non-farm employment has grown                  
approximately 24.6%, while U.S. non-farm jobs increased 15.9%.                  
Florida is gradually becoming less dependent on employment related to           
construction, agriculture, or manufacturing, and more dependent on              
employment related to trade and services.  This has also contributed            
to Florida's strong economic performance.                                       

Presently, services constitute 36% and trade 25.5% of Florida's total           
non-farm jobs. The U.S., however, has a greater percentage of                   
manufacturing jobs than Florida. Manufacturing jobs tend to pay higher          
wages, but service jobs can also pay well and tend to be less                   
sensitive to swings in the business cycle. 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 type of manufacturing jobs tend to be less cyclical.          

. Florida's unemployment rate throughout the 1980's was consistently        
lower than that for the U.S.  In the early 1990's Florida's                     
unemployment rate was higher than that of the U.S.  In current years,           
Florida's unemployment rate has again generally fallen below that of            
the U.S.  Florida's unemployment rate was 4.3% during 1998.  The U.S.           
unemployment rate was 4.5% during 1998.  It is estimated that                   
Florida's unemployment rate will be 4.2% in the fiscal year ended June          
30, 1999, and 4.4% in the fiscal year ending June 30, 2000.                     

Florida's economy is expected to grow at a moderate rate along with             
the U.S., but is expected to out perform the U.S. as a whole.  Total            
non-farm employment in Florida is expected to increase 3.4% for the             
fiscal year ended June 30, 1999 and 2.9% for the fiscal year ending             
June 30, 2000. Trade and services, the two largest employment sectors,          
account for more than half of the total non-farm employment in                  
Florida.                                                                        

Employment in the service sectors should experience an increase of              
5.5% for the fiscal year ended June 30, 1999, while growing 4.4% for            
the fiscal year ending June 30, 2000. Trade is expected to expand 2.8%          
for the fiscal year ended June 30, 1999, and 2.8% for the fiscal year           
ending June 30, 2000.  The service sector is now Florida's largest              
employment category.                                                            

Construction                                                                    

In the past, Florida's economy has been highly dependent on the                 
construction industry and construction related manufacturing. This              
dependency has declined in recent years and continues to decline as a           
result of continued diversification of Florida's economy. For example,          
in 1973, total contract construction employment as a share of total             
non-farm employment was about 10%, in the late 1980's, the share had            
edged downward to 7.5%, and in 1998, the share was only 5.3%. This              
trend is expected to continue as Florida's economy continues to                 
diversify. Florida, nevertheless, has a dynamic construction industry,          
with the percentage of housing starts increasing in 1998 by 11.1%, and          
construction jobs overall increasing by 5.1%, due to low interest               
rates and favorable economic conditions.                                        

A driving force behind Florida's construction industry has been                 
Florida's rapid rate of population growth. Although Florida currently           
is the fourth most populous state, its annual population growth is now          
projected to slow somewhat as the number of people moving into Florida          
is expected to remain over 200,000 a year during the next decade. This          
population trend should provide fuel for business and home builders to          
keep construction activity lively in Florida in the next few years.             
Moreover, recent federal tax reforms reducing capital gains realized            
on the sale of homes may increase the purchases of second, pre-                 
retirement homes in Florida.                                                    

Single and multi-family housing starts in Florida for the fiscal year           
ended June 30, 1999, are projected to reach a combined level of                 
144,000, decreasing slightly to 143,000 for the fiscal year ending              
June 30, 2000.  Total construction expenditures in Florida are                  
forecasted to increase 8.6% for the fiscal year ended June 30, 1999,            
and increase 2.5% for the fiscal year ending June 30, 2000.  Single             
and multi-family housing starts in Florida are projected to account             
for about 9% of all the housing starts in the U.S. for the fiscal year          
ended June 30, 1999 and 9.53% of all housing starts in the U.S. for             
the fiscal year ending June 30, 2000.                                           

Tourism                                                                         

Tourism is one of Florida's most important industries. Approximately            
48.7 million tourists visited Florida in 1998, a 3.7% increase over             
1997.  Tourists in Florida are, in essence, additional residents for            
purposes of determining Florida tax revenues. Florida's tourist                 
industry over the years has become more sophisticated, attracting               
visitors year-round and, to a degree, reducing its seasonality.                 
Visitors to Florida tend to arrive slightly more by air than by auto.           

Tourist arrivals to Florida are forecasted to increase by 2.0% for the          
fiscal year endedJune 30, 1999, and 1.7% for the fiscal year ending             
June 30, 2000.  Tourist arrivals to Florida by air are expected to              
increase by 3.2% for the fiscal year ended June 30, 1999, and increase          
by 3.9% for the fiscal year ending June 30, 2000.  Tourist arrivals by          
car are expected to increase by 0.6% for the fiscal year ended June             
30, 1999, and decrease 1.0% for the fiscal year ending June 30, 2000.           
By June 30, 1999, 49.7 million domestic and international tourists are          
expected to have visited Florida. For the fiscal year ending June 30,           
2000, about 50.6 million tourists are expected to visit Florida.                

Revenues and Expenses                                                           

Estimated General Revenue plus Working Capital and Budget                       
Stabilization funds available to Florida for the fiscal year ended              
June 30, 1999, total $19,481.8 million, a 5.2% increase over the                
fiscal year ended June 30, 1998. Of the total General Revenue plus              
Working Capital and Budget Stabilization funds available to Florida,            
$17,779.5 million of that is Estimated Revenues and represents an               
increase of 5.0% over the previous year's Estimated Revenues. With              
effective General Revenues plus Working Capital Fund and Budget                 
Stabilization appropriations at $18,220.0 million, including $100.9             
million transferred to the Budget Stabilization Fund, unencumbered              
reserves at the fiscal year ended June 30, 1999, are estimated at               
$1,360.7 million.  Estimated General Revenue plus Working Capital and           
Budget Stabilization funds available to Florida for the fiscal year             
ending June 30, 2000, total $20,133.9 million, a 3.3% increase over             
the fiscal year ended June 30, 1999. The $18,555.2 million in                   
Estimated Resources represents an increase of 4.4% over the previous            
year's Estimated Revenues.                                                      

General Revenues and Expenses                                                   

For the fiscal year ended June 30, 1997, approximately 67% of                   
Florida's total direct revenue to its four operating funds were                 
derived from Florida taxes and fees, with Federal grants and other              
special revenue accounting for the balance.  The large majority of              
Florida General Revenue Funds available to Florida for the fiscal year          
ended June 30, 1997, were made up of the following taxes:                       

Sales and use tax--68%                                                          

Corporate income tax--8%                                                        

Intangible personal property tax--4%                                            

Beverage tax--3%                                                                

Estate tax--3%                                                                  

During the same fiscal year ended June 30, 1997, the large majority of          
expenditures from Florida's General Revenue Fund were as follows:               

Education--53%                                                                  

Health and welfare--26%                                                         

Public Safety--14%                                                              

Florida Sales and Use Tax                                                       

Florida's sales and use tax (6%) currently accounts for Florida's               
single largest source of tax receipts. Slightly less than 10% of                
Florida's sales and use tax is designated for local governments and is          
distributed to the respective counties in which collected for use by            
the counties, and the municipalities in such counties. In addition to           
this money from the State of Florida, local governments may (by a vote          
of the residents) assess a 0.5% or a 1.0% discretionary sales surtax            
within their county. Proceeds from this local option sales tax are              
used for funding local infrastructure programs and acquiring land for           
public recreation or conservation or protection of natural resources            
as provided under applicable Florida law. Certain charter counties              
have other taxing powers in addition, and non-consolidated counties             
with a population in excess of 800,000 may levy a local option sales            
tax to fund indigent health care. The indigent health care tax alone            
cannot exceed 0.5% and when combined with the infrastructure surtax             
cannot exceed 1.0%.                                                             

For the fiscal year ended June 30, 1997, Florida sales and use tax              
receipts (exclusive of the tax on gasoline and special fuels) totaled           
$12,089 million, an increase of 5.5% over the fiscal year ended June            
30, 1996, collections.                                                          

Alcoholic Beverage Tax                                                          

Florida imposes an alcoholic beverage, wholesale tax (excise tax) on            
beer, wine, and liquor. This tax is one of Florida's major tax                  
sources. Ninety-eight percent of the revenues collected from this tax           
are deposited into Florida's General Revenue Fund.                              

Alcoholic beverage tax totaled $447.2 million for the fiscal year               
ended June 30, 1997.                                                            

Corporate Income Tax                                                            

Florida imposes an income tax on corporations. All receipts of the              
corporate income tax are credited to the General Revenue Fund.                  

For the fiscal year ended June 30, 1997, corporate income tax totaled           
$1,362.3 million, an increase of 17.2% from the fiscal year ended June          
30, 1996.                                                                       

Documentary Stamp Tax                                                           

Florida imposes a documentary stamp tax on deeds and other documents            
relating to realty, corporate shares, bonds, certificate of                     
indebtedness, promissory notes, wage assignments, and retail charge             
accounts.  For the fiscal year ended June 30, 1997, 62.63% of these             
taxes were deposited to the General Revenue Fund.                               

Documentary stamp tax collections totaled $844.2 million for the                
fiscal year ended June 30, 1997, an 8.9% increase from the fiscal year          
ended June 30, 1996.                                                            

Intangible Personal Property Tax                                                

Florida imposes an annual intangible personal property tax on stocks,           
bonds, including bonds secured by liens on Florida real property,               
notes, governmental leaseholds, and certain other intangibles not               
secured by a lien on Florida real property. The annual rate of tax is           
currently 2 mills (a mill is $1.00 of tax per $1,000.00 of property             
value). Effective January 1, 2000, the rate for the annual intangible           
tax will decrease to 1.5 mills. Florida also imposes a non-recurring 2          
mill tax on mortgages and other obligations secured by liens on                 
Florida real property. Of the net taxes imposed on intangible personal          
property, 66.5% are distributed to the General Revenue Fund.  For the           
fiscal year ended June 30, 1997, total intangible personal property             
tax collections were $952.4 million, a 6.3% increase from the fiscal            
year ended June 30, 1996.                                                       

Estate Tax                                                                      

Florida imposes an estate tax on the estate of a decedent for the               
privilege of transferring property at death. All receipts of the                
estate tax are credited to the General Revenue Fund.                            

For the fiscal year that ended June 30, 1997, receipts from this                
source were $546.9 million, an increase of 30% over the fiscal year             
ended June 30, 1996.                                                            

Lottery                                                                         

Florida began its own lottery in 1988. Florida law requires that                
lottery revenues be distributed 50% to the public in prizes, at least           
38.0% for use in enhancing education, and no more than 12.0%, for               
costs of administering the lottery.                                             

Lottery ticket sales for the fiscal year ended June 30, 1997 totaled            
$2.09 billion, providing education with approximately $792.3 million.           

Debt-Balanced Budget Requirement                                                

At the end of the fiscal year ended June 30, 1998, Florida had                  
outstanding about $8,703 million in principal amount of debt secured            
by its full faith and credit. Since then, the State has issued about            
$629 million in principal amount of full faith and credit bonds.                

Florida's Constitution and statutes require that Florida not run a              
deficit in its budget, as a whole, or in any separate fund within its           
budget. Rather its budget and funds must be kept in balance from                
currently available revenues each fiscal year. If the Governor or               
Comptroller believes a deficit will occur in any fund, by statute, he           
must certify his opinion to the Administrative Commission, which then           
is authorized to reduce all Florida agency budgets and releases by a            
sufficient amount to prevent a deficit in any fund. Additionally, the           
Florida Constitution prohibits Florida from borrowing by issuing bonds          
to fund its operations.                                                         

Litigation                                                                      

Currently under litigation are several issues relating to Florida               
actions or Florida taxes that put at risk a portion of General Revenue          
Fund monies. There is no assurance that any of such matters,                    
individually or in the aggregate, will not have a material adverse              
affect on Florida's financial position.                                         

APPENDIX D                                                                      

See special note prior to Appendix B.                                           

Special Considerations Relating to Georgia Municipal Obligations.               

General                                                                         

The fund's concentration in the debt obligations of one state carries           
a higher risk than a portfolio that is geographically diversified. In           
addition to State of Georgia general obligations and state agency               
issues, the fund  will invest in local bond issues, lease obligations           
and revenue bonds, the credit quality and risk of which will vary               
according to each security's own structure and underlying economics.            

Debt                                                                            

The State of Georgia and its local governments issued $5.6 billion in           
municipal bonds in 1999, a 7% decrease from the previous year. As of            
May 8, 2000, the state was rated Aaa by Moody's and AAA by S&P and              
Fitch.  The State of Georgia currently has net direct obligations of            
approximately $5.2 billion. Since 1973, when a Constitutional                   
Amendment authorizing the issuance of state general obligation (GO)             
bonds was implemented, the state has funded most of its capital needs           
through the issuance of GO bonds.  Previously, capital requirements             
were funded through the issuance of bonds by 10 separate authorities            
and secured by lease rental agreements and annual state                         
appropriations. Its Constitution permits the state to issue bonds for           
two types of public purposes: (1) general obligation debt and (2)               
guaranteed revenue debt. The Constitution imposes certain debt limits           
and controls. GO debt service cannot exceed 10% of total revenue                
receipts less refunds of the state treasury. GO bonds have a maximum            
maturity of 25 years and 67% of the state's debt is scheduled to be             
retired in 10 years or less. Maximum GO debt service requirements are           
well below the legal limit at 5.1% of fiscal year 1999 treasury                 
receipts.  Georgia has also taken the step to establish "debt                   
affordability" limits which state that outstanding debt will not                
exceed 2.7% of personal income or that maximum annual debt service              
will not exceed 5% of prior years revenues. State debt issuance in the          
next few years will be limited so that the state will decrease to               
these levels.                                                                   

In addition to the general obligation and lease-backed debt described           
above, $318 million bonds have been issued and are outstanding by the           
Georgia World Congress Authority and $754 million bonds have been               
issued and are outstanding by the Georgia Housing and Finance                   
Authority, none of which represent direct obligations of the state.             

Economy                                                                         

The State of Georgia has a population of approximately 7.6 million,             
making it the 10th largest state. Since the 1960s, the state's                  
population has grown at a rate exceeding the national average, with             
the growth rate during the 1980s nearly twice that of the entire                
country. Stable to strong economic growth during the 1980s was led by           
the Atlanta metropolitan statistical area, where approximately 45% of           
the state's population is located. This area includes the capital city          
of Atlanta, and 18 surrounding counties. The next largest metropolitan          
area is the Columbus-Muscogee area followed by the Macon area.                  

The state's economy is well diversified. The current labor force of 4           
million is largely concentrated in service and wholesale/retail trade           
jobs, followed by lesser amounts in manufacturing and government.               
Employment gains have substantially exceeded the region and the U.S.            
since 1980. Georgia's one year employment growth (February 1999 to              
February 2000) stood at 4.6% compared to the national rate of 2.4%.             
The state's economy continues to outperform the nation. Georgia's per           
capita income has steadily improved against the national average since          
the 1960s and currently is 94% of the U.S. and 105% of the Southeast            
region.                                                                         

Financial                                                                       

To a large degree, the creditworthiness of the portfolio is dependent           
on the financial strength of the State of Georgia and its localities.           
During the 1980s, the state's strong economic performance translated            
into solid financial performance and the accumulation of substantial            
reserves.                                                                       

During fiscal 1989 to 1991, the state's financial condition was                 
affected by three years of revenue shortfalls brought on by recession.          
During these periods, the Governor called special legislative sessions          
to enact sizable spending cuts to achieve budget balance. Economic              
conditions improved in 1992, allowing the state to restore its                  
financial cushion. Results for fiscal 1998 showed a continuation of             
this positive trend with a surplus of $685 million and an ending                
general fund balance of $1.2 billion, or 9% of revenues.                        

A significant portion of the portfolio's assets is expected to be               
invested in the debt obligations of local governments and public                
authorities with investment-grade ratings of BBB or higher. While               
local governments in Georgia are primarily reliant on independent               
revenue sources, such as property taxes, they are not immune to budget          
shortfalls caused by cutbacks in state aid. The fund may purchase               
obligations issued by public authorities in Georgia which are not               
backed by the full faith and credit of the state and may or may not be          
subject to annual appropriations from the State's General Fund.                 
Likewise, certain enterprises such as water and sewer systems or                
hospitals may be affected by changes in economic activity.                      

Sectors                                                                         

Certain areas of potential investment concentration present unique              
risks. A significant portion of the fund's assets may be invested in            
health care issues. For over a decade, the hospital industry has been           
under significant pressure to reduce expenses and shorten length of             
stay, a phenomenon which has negatively affected the financial health           
of many hospitals. All hospitals are dependent on third-party                   
reimbursement sources such as the federal Medicare and state Medicaid           
programs or private insurers.  To the extent these payors reduce                
reimbursement levels, the individual hospitals may be affected. In the          
face of these pressures, the trend of hospital mergers and                      
acquisitions has accelerated in recent years. These organizational              
changes present both risks and opportunities for the institutions               
involved.                                                                       

The fund may from time to time invest in electric revenue issues which          
have exposure to or participate in nuclear power plants which could             
affect the issuers' financial performance. Such risks include                   
unexpected outages or plant shutdowns, increased Nuclear Regulatory             
Commission surveillance or inadequate rate relief. In addition, the             
financial performance of electric utilities may be impacted by                  
increased competition and deregulation of the electric utility                  
industry.                                                                       

The fund may invest in private activity bond issues for corporate and           
nonprofit borrowers. These issues sold through various governmental             
conduits, are backed solely by the revenues pledged by the respective           
borrowing corporations. No governmental support is implied.                     

APPENDIX E                                                                      

See Special Note prior to Appendix B.                                           

Special Considerations Relating to New York Municipal Obligations.              

Risk Factors                                                                    

The information set forth below is derived from the Official                    
Statements and/or preliminary drafts of Official Statements prepared            
in connection with the issuance of New York State and New York City             
municipal bonds. The Sponsors have not independently verified this              
information.                                                                    

Economic Trends.                                                                

Over the long term, the State of New York (the "State") and the City            
of New York (the "City") face serious potential economic problems. The          
City accounts for approximately 41% of the State's population and               
personal income, and the City's financial health affects the State in           
numerous ways. The State historically has been one of the wealthiest            
states in the nation.  For decades, however, the State has grown more           
slowly than the nation as a whole, gradually eroding its relative               
economic affluence. Statewide, urban centers have experienced                   
significant changes involving migration of the more affluent to the             
suburbs and an influx of generally less affluent residents.                     
Regionally, the older Northeast cities have suffered because of the             
relative success that the South and the West have had in attracting             
people and business. The City has also had to face greater competition          
as other major cities have developed financial and business                     
capabilities which make them less dependent on the specialized                  
services traditionally available almost exclusively in the City.                

The State has for many years had a very high State and local tax                
burden relative to other states. The State and its localities have              
used these taxes to develop and maintain their transportation                   
networks, public schools and colleges, public health systems, other             
social services and recreational facilities. Despite these benefits,            
the burden of State and local taxation, in combination with the many            
other causes of regional economic dislocation, has contributed to the           
decisions of some businesses and individuals to relocate outside, or            
not locate within, the State.                                                   

Notwithstanding the numerous initiatives that the State and its                 
localities may take to encourage economic growth and achieve balanced           
budgets, reductions in Federal spending could materially and adversely          
affect the financial condition and budget projections of the State and          
its localities.                                                                 

New York City                                                                   

The City, with a population of approximately 7.4 million, is an                 
international center of business and culture. Its non-manufacturing             
economy is broadly based, with the banking and securities, life                 
insurance, communications, publishing, fashion design, retailing and            
construction industries accounting for a significant portion of the             
City's total employment earnings. Additionally, the City is the                 
nation's leading tourist destination. Manufacturing activity in the             
City is conducted primarily in apparel and printing.                            

For each of the 1981 through 1999 fiscal years, the City had an                 
operating surplus, before discretionary transfers, and achieved                 
balanced operating results as reported in accordance with then                  
applicable generally accepted accounting principles ("GAAP"), after             
discretionary transfers. The City has been required to close                    
substantial gaps between forecast revenues and forecast expenditures            
in order to maintain balanced operating results. There can be no                
assurance that the City will continue to maintain balanced operating            
results as required by State law without tax or other revenue                   
increases or reductions in City services or entitlement programs,               
which could adversely affect the City's economic base.                          

As required by law, the City prepares a four-year annual financial              
plan, which is reviewed and revised on a quarterly basis and which              
includes the City's capital, revenue and expense projections and                
outlines proposed gap- closing programs for years with projected                
budget gaps. The City's current financial plan projects a surplus in            
the 2000 and 2001 fiscal years, before discretionary transfers, and             
budget gaps for each of the 2002, 2003 and 2004 fiscal years. This              
pattern of current year surplus operating results and projected                 
subsequent year budget gaps has been consistent through the entire              
period since 1982, during which the City has achieved surplus                   
operating results, before discretionary transfers, for each fiscal              
year.                                                                           

The City depends on aid from the State both to enable the City to               
balance its budget and to meet its cash requirements. There can be no           
assurance that there will not be reductions in State aid to the City            
from amounts currently projected; that, in future years, State budgets          
will be adopted by the April 1 statutory deadline, or interim                   
appropriations will be enacted; or that any such reductions or delays           
will not have adverse effects on the City's cash flow or expenditures.          
In addition, the Federal budget negotiation process could result in a           
reduction in or a delay in the receipt of Federal grants which could            
have additional adverse effects on the City's cash flow or revenues.            

The Mayor is responsible for preparing the City's financial plan,               
including the City's current financial plan for the 2000 through 2004           
fiscal years (the "2000-2004 Financial Plan" or "Financial Plan"). The          
City's projections set forth in the Financial Plan are based on                 
various assumptions and contingencies                                           
which are uncertain and which may not materialize. Such assumptions             
and contingencies include the condition of the regional and local               
economies, the provision of State and Federal aid and the impact on             
City revenues and expenditures of any future Federal or State policies          
affecting the City.                                                             

Implementation of the Financial Plan is dependent upon the City's               
ability to market its securities successfully. The City's program for           
financing capital projects for fiscal years 2000 through 2004                   
contemplates the issuance of $8.22 billion of general obligation bonds          
and $5.75 billion of bonds to be issued by the New York City                    
Transitional Finance Authority (the "Finance Authority"). The City's            
financing program the passage of legislation by the State which was             
proposed by the City to increase the financing capacity of the Finance          
Authority by $4 billion and assumes the effectiveness in fiscal year            
2002 of a proposed State Constitutional amendment to increase the               
City's general obligation debt limit.                                           
In addition, the Financial Plan anticipates access to approximately             
$2.4 billion in financing capacity of Tobacco Settlement Asset                  
Securitization Corporation, Inc. ("TSASC"), which will issue debt               
secured by revenues derived from the settlement of litigation with              
tobacco companies selling cigarettes in the United States. The Finance          
Authority and TSASC were created to assist the City in financing its            
capital program while keeping the City's indebtedness within the                
forecast level of the constitutional restrictions on the amount of              
debt the City is authorized to incur. In addition, the City issues              
revenue and tax anticipation notes to finance its seasonal working              
capital requirements.  The success of projected public sales of City,           
New York City Municipal Water Finance Authority ("Water Authority"),            
Finance Authority, TSASC and other bonds and notes will be subject to           
prevailing market conditions. The City's planned capital and operating          
expenditures are dependent upon the sale of its general obligation              
debt, as well as debt of the Water Authority, Finance Authority and             
TSASC. Future developments concerning the City and public discussion            
of such developments, as well as prevailing market conditions, may              
affect the market for outstanding City general obligation bonds and             
notes.                                                                          

The City Comptroller and other agencies and public officials, from              
time to time, issue reports and make public statements which, among             
other things, state that projected revenues and expenditures may be             
different from those forecast in the City's financial plans.                    

For the 1999 fiscal year, the City had an operating surplus, before             
discretionary and other transfers, and achieved balanced operating              
results, after discretionary and other transfers, in accordance with            
GAAP. The 1999 fiscal year is the nineteenth year that the City has             
achieved an operating surplus, before discretionary and other                   
transfers, and balanced operating results, after discretionary and              
other transfers.                                                                

On May 1, 2000, the City released the Financial Plan for the 2000               
through 2004 fiscal years, which relates to the City and certain                
entities which receive funds from the City, and which is based on the           
Executive Budget and Budget Message for the City's 2001 fiscal year             
(the "Executive Budget") which begins July 1, 2000. The Financial Plan          
is a modification to the financial plan submitted to the Control Board          
on June 14, 1999 (the "June Financial Plan"), which was subsequently            
modified in November 1999 and January 2000. The Financial Plan                  
projects revenues and expenditures for the 2000 and 2001 fiscal years           
balanced in accordance with GAAP, and projects gaps of $1.68 billion,           
$1.95 billion and $1.84 billion for fiscal years 2002 through 2004,             
respectively, after implementation of a gap-closing program.                    

Changes since the June Financial Plan include: (i) an increase in               
projected revenues of $1.6 billion, $1.2 billion, $1.1 billion, $1.3            
billion and $1.6 billion in fiscal years 2000 through 2004,                     
respectively, reflecting primarily increases in projected personal              
income, business, sales, real estate transfer and mortgage recording            
tax revenues; (ii) a delay in the assumed collection of $350 million            
of projected rent payments for the City's airports from fiscal year             
2001 to fiscal years 2002 through 2004; (iii) merit pay wage increases          
for City employees of $30 million, $325 million, $750 million, $800             
million and $800 million in fiscal years 2000 through 2004,                     
respectively, contingent upon productivity savings set forth in the             
gap-closing program; and (iv) net expenditure savings of $518 million           
in fiscal year 2000, and net expenditure increases of $555 million,             
$798 million, $1.0 bilion and $742 million in fiscal years 2001                 
through 2004, respectively, reflecting, among other things, pension             
fund savings of $524 million, $284 million and $49 million in fiscal            
years 2000 through 2002, respectively (resulting primarily from a               
market value restart which has been approved by the trustees of one             
pension system but is subject to approval by the trustees of the                
City's other pension systems and the State Legislature), increased              
pension costs of $69 million and $7 million in fiscal years 2003 and            
2004, respectively, and increased spending for education and other              
agencies.                                                                       

The Financial Plan reflects discretionary transfers, for budget                 
stabilization purposes, including a discretionary transfer of $2.6              
billion from fiscal year1999 to fiscal year 2000 primarily to pay debt          
service due in fiscal year 2000, a proposed discretionary transfer              
from fiscal year 2000 to fiscal year 2001 primarily to pay debt                 
service due in fiscal year 2001 totaling $2.9 billion, a proposed               
discretionary transfer from fiscal year 2001 to fiscal year 2002 to             
pay debt service due in fiscal year 2002 totaling $1.2 billion and a            
proposed discretionary transfer from fiscal year 2002 to fiscal year            
2003 to pay debt service in fiscal year 2003 totaling $345 million.             

In addition, the Financial Plan sets forth gap-closing actions to               
eliminate a previously projected gap for the 2001 fiscal year and to            
reduce projected gaps for fiscal years 2002 through 2004. The gap-              
closing actions for the 2000 through 2004 fiscal years include: (i)             
additional agency actions totaling $370 million, $466 million, $273             
million, $273 million and $273 million for fiscal years 2000 through            
2004, respectively; (ii) assumed additional Federal and State actions           
of $100 million in each of fiscal years 2001 through 2004, which are            
subject to Federal and State approval; and (iii) proposed productivity          
savings and reducing fringe benefits costs totaling $250 million, $265          
million, $280 million and $300 million in fiscal years 2001 through             
2004, respectively, to partly offset the costs of the proposed merit            
pay program. The Financial Plan also reflects a proposed tax reduction          
program totaling $364 million, $678 million, $816 million and $1.1              
billion in fiscal years 2001 through 2004, respectively, including              
elimination of the commercial rent tax over three years commencing              
June 1, 2000 at a cost of $97 million in fiscal year 2002,  increasing          
to $430 million in fiscal year 2004; a 50% reduction in the 14%                 
personal income tax surcharge on July 1, 2000 at a cost of $329                 
million in fiscal year 2001, increasing to $403 million in fiscal year          
2004; the extension of current tax reductions for owners of                     
cooperative and condominium apartments at an annual cost of                     
approximately $200 million starting in fiscal year 2002; and repeal of          
the $2 flat fee hotel occupancy tax effective December 1, 2000. It can          
be expected that the Financial Plan will engender public debate which           
will continue through the time the budget is scheduled to be adopted            
in June 2000. The Financial Plan may be changed by the time the budget          
for fiscal year 2001 is adopted.                                                

Wage increases for City employees are provided for in the Financial             
Plan through a merit pay plan for two years after their collective              
bargaining agreements expire in fiscal years 2000 and 2001, contingent          
upon productivity savings. The Financial Plan does not make any                 
provision for wage increases thereafter. In addition, the economic and          
financial condition of the City may be affected by various financial,           
social, economic and other factors which could have a material effect           
on the City.                                                                    

The Financial Plan is based on numerous assumptions, including the              
condition of the City's and the region's economies and modest                   
employment growth and the concomitant receipt of economically                   
sensitive tax revenues in the amounts projected. The 2000-2004                  
Financial Plan is subject to various other uncertainties and                    
contingencies relating to, among other factors, the extent, if any, to          
which wage increases for City employees exceed the annual wage costs            
assumed for the 2000 through 2004 fiscal years; continuation of                 
projected interest earnings assumptions for pension fund assets and             
current assumptions with respect to wages for City employees affecting          
the City's required pension fund contributions; the willingness and             
ability of the State to provide the aid contemplated by the Financial           
Plan and to take various other actions to assist the City; the ability          
of City agencies to maintain balanced budgets; the willingness of the           
Federal government to provide the amount of Federal aid contemplated            
in the Financial Plan; the impact on City revenues and expenditures of          
Federal and State welfare reform and any future legislation affecting           
Medicare or other entitlement programs; adoption of the City's budgets          
by the City Council in substantially the forms submitted by the Mayor;          
the ability of the City to implement cost reduction initiatives, and            
the success with which the City controls expenditures; the impact of            
conditions in the real estate market on real estate tax revenues; the           
City's ability to market its securities successfully in the public              
credit markets; and unanticipated expenditures that may be incurred as          
a result of the need to maintain the City's infrastructure.                     

On June 7, 1999, the City Council adopted a budget for fiscal year              
2000. The adopted budget includes lower estimated debt service                  
expenditures in fiscal year 2000 resulting from a $456 million                  
increase, from $2.1 billion to $2.6 billion, in the proposed                    
discretionary transfer in the 1999 fiscal year to pay debt service due          
in fiscal year 2000. The $456 million increase in the discretionary             
transfer reflects increased tax revenues and decreased expenditures in          
the 1999 fiscal year. The adopted budget also includes $220 million of          
spending initiatives proposed by the City Council, other increased              
spending and the net cost of revised tax reduction proposals, which             
reflect the repeal of all of the City non-resident earnings tax and             
the elimination of certain of the previously proposed tax reduction             
initiatives.                                                                    

On July 16, 1998, Standard & Poor's revised its rating of City bonds            
upward from BBB+ to A-. Moody's rating of City bonds was revised in             
February 1998 to A3 from Baa1. On March 8, 1999, Fitch revised its              
rating of City bonds upward to A. Moody's, Standard & Poor's and Fitch          
currently rate the City's outstanding general obligation bonds A3, A-           
and A, respectively.                                                            

New York State and its Authorities                                              

The State ended the 1999-2000 fiscal year in balance on a cash basis,           
with a reported closing balance in the General Fund of $1.17 billion,           
after reserving $3.97 billion in the tax refund reserve account.                

The State adopted the debt service portion of the State budget for the          
2000- 01 fiscal year on March 31, 2000. The remainder of the budget             
for the State's 2000-01 fiscal year was adopted by the State                    
Legislature on May 5, 2000, 35 days after the statutory deadline of             
April 1, 2000. The adopted budget projects total General Fund spending          
of $38.9 billion, an increase of 4.7 percent. The State's adopted               
budget assumes continued growth could adversely affect these                    
projections. There can be no assurance that actual results will not             
differ materially and adversely from the projections set forth in the           
State's adopted budget projections. The State expects to produce                
revised financial plans and its Annual Information Statement in the             
near future which will reflect the adopted budget and other changes to          
its financial plan projections.                                                 

The State Financial Plan accompanying the Governor's 2000-01 Executive          
Budget contained projections of potential imbalances in the 2001-02             
fiscal year of $1.23 billion and in the 2002-03 fiscal year of $2.65            
billion, assuming implementation of the 2000-01 Executive Budget                
recommendations and application of tax reduction reserves used to               
offset costs in each of the 2001-02 and 2002- 03 fiscal years,                  
respectively. Preliminary analysis of the 2001-02 projection after              
adoption of the 2000-01 budget indicates that the State will have a             
potential imbalance that is higher than the Executive Budget                    
projection.                                                                     

Standard & Poor's rates the State's general obligation bonds A+, and            
Moody's rates the State's general obligation bonds A2. On November 9,           
1999, Standard & Poor's revised its rating on the State's general               
obligation bonds from A to A+.                                                  

Litigation                                                                      

A number of court actions have been brought involving State finances.           
The court actions in which the State is a defendant generally involve           
State programs and miscellaneous tort, real property, and contract              
claims. While the ultimate outcome and fiscal impact, if any, on the            
State of those proceedings and claims are not currently predictable,            
adverse determinations in certain of them might have a material                 
adverse effect upon the State's ability to carry out the State                  
Financial Plan.                                                                 

The City has estimated that its potential future liability on account           
of outstanding claims against it as of June 30, 1999 amounted to                
approximately $3.5 billion.                                                     

APPENDIX F                                                                      

Special Considerations Regarding Pennsylvania                                   

See Special Note Prior to Appendix B                                            

The following highlights only some of the more significant financial            
trends and problems affecting Pennsylvania, and is based on                     
information drawn from official statements and prospectuses relating            
to securities offerings of the Commonwealth of Pennsylvania, its                
agencies and instrumentalities, as available on the date of this                
Statement of Additional Information. The funds have not independently           
verified any of the information contained in such official statements           
and other publicly available documents, but are not aware of any fact           
which would render such information inaccurate.                                 

Overview                                                                        

Because the funds concentrate their investments in Pennsylvania, there          
are risks associated with the funds that would not exist if the funds'          
investments were more widely diversified. These risks include the               
possible enactment of new legislation in Pennsylvania that could                
affect obligations of the state or its political subdivisions,                  
municipalities or agencies, economic factors that could affect such             
obligations, and varying levels of supply and demand for obligations            
of the Commonwealth and its political subdivisions, municipalities,             
and agencies.                                                                   

Constitutional and Statutory Revenue Limitations                                

The Constitution of Pennsylvania requires that all taxes shall be               
uniform, upon the same class of subjects, within the territorial                
limits of the authority levying the tax, and shall be levied and                
collected under the general laws of the Commonwealth of Pennsylvania.           

The Constitution of Pennsylvania provides that the General Assembly             
may exempt from taxation certain persons and property.  For instance,           
the General Assembly may establish exemption or special tax treatment           
for classes based on age, disability, infirmity, or poverty.                    

Local taxes (other than Philadelphia) are generally authorized under            
the Local Tax Enabling Act. This statute generally authorizes, and              
imposes limits on, the ability of political subdivisions to impose              
taxes. Pennsylvania's political subdivisions consist of counties,               
municipalities, and school districts.  The Local Tax Enabling Act does          
not apply to counties whose taxing authority is limited for the most            
part to real estate and personal property taxes, although the validity          
of the personal property is the subject of litigation. Most                     
Philadelphia taxes (other than real estate and personal property                
taxes) are imposed pursuant to the general authority of the Sterling            
Act and the Little Sterling Act, applicable to the City and School              
District, respectively. Each of these statutes grants broad taxing              
powers, but generally prohibits taxing what the Commonwealth taxes.             
The Philadelphia business privilege tax is imposed under the authority          
of the First Class City Tax Reform Act.                                         

The Pennsylvania Intergovernmental Cooperation Authority Act for                
cities of the first class authorizes Philadelphia to enact a                    
combination of a sales tax, a realty transfer tax or a wage and net             
profits tax for the benefit of the Pennsylvania Intergovernmental               
Cooperation Authority ("PICA"). The PICA tax on wages and net profits           
reduces the amount of wage and net profits taxes imposed under the              
Sterling Act (prior to the imposition of the PICA tax), so that the             
combined rate of tax remains the same. Other local taxes are specially          
enacted or authorized for certain classes of localities, including              
Philadelphia and Pittsburgh.                                                    

The Pennsylvania General Assembly has enacted legislation which gives           
local governments the option of reducing property taxes and                     
simplifying their local tax system by collecting an earned income or            
other type of tax.  The General Assembly may, in the future,consider            
other local tax reform measures.                                                

Pennsylvania Taxes                                                              

The Commonwealth General Fund budgets for fiscal 1996 through 2000              
included various tax reduction measures.  Tax reductions included in            
the enacted fiscal 1999 budget totaled an estimated $380.2 million.             
The major components of the tax reductions are (i) a reduction in the           
tax rate for the capital stock and franchise tax from 11.99 mils to             
10.99 mils, (ii) a repeal of the gross receipts tax on regulated gas            
utilities, (iii) a reduction of the minimum capital stock and                   
franchise tax from $300 to $200, (iv) raising the annual cap on net             
operating loss carryovers from $1 million to $2 million, (v)                    
increasing the weighting of the sales factor of the corporate tax               
apportionment formula from 50% to 60%, and (vi) a reduction of various          
other miscellaneous items. Most of the major changes are effective              
January 1, 1999.                                                                

In the fall of 1998, Pennsylvania enacted the Keystone Opportunity        
Zone Act, which provides for the creation of 12 "keystone opportunity           
zones" designed to spur economic development by foregoing state and             
local taxes under certain circumstances. The legislation provides for           
relief from, among other things, corporate net income taxes, capital            
stock/foreign franchise taxes, personal income taxes and sales and use          
taxes (on purchases used and consumed by businesses in the zone).               

General Economic Conditions in Pennsylvania                                     

Historically, the key industries in Pennsylvania were manufacturing             
and mining, led by steel and coal industries of national importance.            
Dependence upon these industries made Pennsylvania vulnerable not only          
to cyclical economic fluctuations, but also to pronounced long-term             
changes in the nation's economic structure. In recent years, the state          
has experienced growth in the services sector, including trade,                 
medical and health services, education, and financial institutions.             
Manufacturing has fallen behind both the services sector and the trade          
sector as the largest single source of employment within the                    
Commonwealth.                                                                   

The five-year period ending with fiscal 1998 was a time of economic       
growth with modest rates of growth at the beginning of the period and           
larger increases during the more recent years. Throughout the period,           
inflation has remained low, helping to restrain expenditure growth.             
Favorable economic conditions have helped total revenues and other              
sources rise at an annual average of 4.2% during the five-year period.          
The annual growth rate for taxes of 4.3% almost matched the total               
revenue rate. License and fee revenues rose at a 7.9% annual rate,              
largely because of various motor vehicle fee increases effective for            
fiscal 1998. Other revenues, mostly charges for sales and services and          
investment income, increased at an average annual rate of 17.6%.                
Expenditure and other uses during the fiscal 1994 through fiscal 1998           
period rose at a 3.8% average annual rate, led by a 10.2% average               
annual increase for protection of person and property costs.                    

Operations during the 1998 fiscal year increased the unappropriated             
balance of Commonwealth revenues by $86.4 million to $488.7 million at          
June 30, 1998 (prior to transfers). Higher than estimated revenues,             
offset in part by increased reserves for tax refunds, and slightly              
lower expenditures than budgeted were responsible for the increase.             

Commonwealth revenues (prior to tax refunds) during the fiscal year             
totaled $18,123.2 million, $676.1 million (3.9%) above the estimate             
made at the time the budget was enacted. Tax revenue in fiscal 1998             
grew 4.8% over tax revenues during fiscal 1997.  his rate of increase           
includes the effect legislated tax reductions that affected receipts            
during both fiscal years and therefore understates the actual                   
underlying rate of growth of tax revenue for fiscal 1998.  Non-tax              
revenues were $27.5 million (8.6%) over estimate, mostly due to                 
greater than anticipated interest earnings for the fiscal year.                 

Reserves established during fiscal 1998 for tax refunds totaled $910            
million.  This amount is a $370 million increase over tax refund                
reserves for fiscal 1997 (representing a 68.5% increase). The fiscal            
1998 amount includes a one-time addition intended to fund all fiscal            
1998 tax refund liabilities, including that portion to be paid during           
fiscal 1999.                                                                    

Expenditures from all fiscal 1998 appropriations (including pooled              
financing expenditures and net of current year lapses) totaled                  
$17,229.8 million. This represents an increase of 4.5% over fiscal              
1997 appropriation expenditures. Lapses of appropriation authority              
during the fiscal year totaled $161.8 million including $58.8 million           
from fiscal 1998 appropriations. These appropriation lapses were used           
to fund $120.5 million of supplemental fiscal 1998 appropriations.              

For GAAP purposes, assets increased $705.1 million in fiscal 1998 and           
liabilities rose by $111.1 million. These changes contributed to a              
$310.3 million rise in the undesignated-unreserved balance for June             
30, 1998 to $497.6 million, the highest level achieved since audited            
GAAP reporting was instituted in 1984.                                          

The 1999 fiscal year ended with an unappropriated surplus (prior to             
the transfer to the Tax Stabilization Reserve Fund) of $702.9 million,          
an increase of $214.2 million from June 30, 1998. Transfers to the Tax          
Stabilization Reserve Fund total $225.4 million for fiscal year 1999            
consisting of $105.4 million representing the statutory 15% of the              
fiscal year-end unappropriated surplus and an additional $150 million           
from the unappropriated surplus authorized by the General Assembly.             
The $447.5 million balance of the unappropriated surplus was carried            
over to fiscal year 2000. The higher unappropriated surplus was                 
generated by tax revenues that were $712.0 million (3.9%) above                 
estimate (after tax reductions enacted with the 1999 fiscal year                
budget that were estimated to be $241.0 million) and $61.0 million of           
non-tax revenue (18.4%) above estimate. Higher than anticipated                 
appropriation lapses also contributed to the higher surplus. A portion          
of the higher revenues and appropriation lapses were used for                   
supplemental fiscal 1999 appropriations totaling $357.8 million.                
Including the supplemental appropriations and net of appropriation              
lapses, expenditures for fiscal 1999 totaled $18,144.9 million, a 5.9%          
increase over expenditures during fiscal 1998.                                  

The General Fund budget for the 2000 fiscal year was approved by the            
General Assembly in May 1999. The adopted budget includes estimated             
spending from Commonwealth revenues of $19,061.5 million and estimated          
revenues (net of estimated tax refunds and enacted tax changes) of              
$18,699.9 million. Funds to cover the $361.6 million difference                 
between estimated revenues and projected spending will be obtained              
from a draw down of the projected fiscal 1999 year-end balance. The             
level of proposed spending represents an increase of 3.8% over the              
spending authorized for fiscal 1999 of $18,367.5 million.  Enacted tax          
changes effective for fiscal 2000 total a net reduction of $380.2               
million for the General Fund.                                                   

The estimate of Commonwealth revenue for fiscal 1999 is based on an             
economic forecast for real gross domestic product to grow at a 1.4%             
rate from the second quarter of 1999 to the second quarter of 2000.             
Growth of real gross domestic product is expected to be restrained by           
a slowing of the rate of consumer spending to a level consistent with           
personal income gains and by smaller gains in business investment in            
response to falling capacity utilization and profits. Slowing economic          
growth is expected to cause the unemployment rate to rise through the           
fiscal year but inflation is expected to remain moderate.  Trends for           
the Pennsylvania economy are expected to maintain their close                   
association with national economic trends. Personal income growth is            
anticipated to remain slightly below that of the U.S. while the                 
Pennsylvania unemployment rate is anticipated to be very close to the           
national rate.                                                                  

Commonwealth revenues (excluding the estimated cost of enacted tax              
reductions) are projected to increase by 2.8% over fiscal 1999                  
receipts. Appropriations from Commonwealth funds increased by 3.8%              
over fiscal 1999 appropriations. Enacted tax cuts for fiscal 2000               
total an estimated $380.2 million to the General Fund.  According to a          
November 30, 1999 press release from the Pennsylvania Secretary of              
Revenue, General Fund revenues for December, 1999 totaled $1.7                  
billion, which was $23.9 million, or 1.4% more than anticipated.                
Fiscal year-to-date General Fund collections total $8.6 billion, which          
is $177 million, or 2.1% above estimate.                                        

The following table shows the average annual unemployment rate for              
Pennsylvania and the nation for the periods indicated.  This                    
information is drawn from official statements and prospectuses                  
relating to securities offerings of the state of Pennsylvania, its              
agencies, and instrumentalities. No independent verification of the             
information contained in such official statements and other publicly            
available documents has been made.                                              

Period                                                                          
Pennsylvania                                                                    
United States                                                                   
1989                                                                            
4.5%                                                                            
5.3%                                                                            
1990                                                                            
5.4%                                                                            
5.6%                                                                            
1991                                                                            
7.0%                                                                            
6.8%                                                                            
1992                                                                            
7.6%                                                                            
7.5%                                                                            
1993                                                                            
7.1%                                                                            
6.9%                                                                            
1994                                                                            
6.2%                                                                            
6.1%                                                                            
1995                                                                            
5.9%                                                                            
5.6%                                                                            
1996                                                                            
5.3%                                                                            
5.4%                                                                            
1997                                                                            
5.2%                                                                            
4.9%                                                                            
1998                                                                            
4.6%                                                                            
4.5%                                                                            
1999                                                                            
4.3%                                                                            
4.3%                                                                            

As of August 1999 , the seasonally adjusted unemployment rate for the           
Commonwealth was 4.5 %, compared to 4.2 % for the United States.                

From time to time, certain Pennsylvania municipalities and political            
subdivisions have experienced economic downturns. For example, the              
financial condition of the City of Philadelphia in the early 1990s              
had impaired its ability to borrow and resulted in its obligations              
being downgraded by the major rating services to below investment               
grade. However, these obligations have since been upgraded.                     

The Pennsylvania Intergovernmental Cooperation Authority ("PICA") was           
created by Commonwealth legislation in 1991 to assist Philadelphia in           
remedying its fiscal emergencies. PICA is designed to provide                   
assistance through the issuance of funding debt and to make factual             
findings and recommendations to Philadelphia concerning its budgetary           
and fiscal affairs.     At this time Philadelphia is operating under a          
five-year fiscal plan approved by PICA on June 15, 1999.                        

No further bonds are to be issued by PICA for the purpose of financing          
a capital project or deficit as the authority for such bond sales               
expired December 31, 1994. PICA's authority to issue debt for the               
purpose of financing a cash flow deficit expired on December 31, 1996.          
Its ability to refund existing outstanding debt is unrestricted.  PICA          
had $1,014.1 million in special revenue bonds outstanding as of June            
30, 1999. Neither the taxing power nor the credit of the Commonwealth           
is pledged to pay debt service on PICA's bonds.                                 

There is various litigation pending against the Commonwealth, its               
officers, and employees. In 1978, the Pennsylvania General assembly             
approved a limited waiver of sovereign immunity. Damages for any loss           
are limited to $250,000 for each person and $1 million for each                 
accident. The Supreme Court held that this limitation is                        
constitutional. Approximately 3,500 suits against the Commonwealth are          
pending, some of which, if decided adversely to the Commonwealth,               
could have a material adverse impact on governmental operations.  All           
of the foregoing factors could affect the outstanding obligations of            
the Commonwealth and its municipalities and political subdivisions,             
including obligations held by the funds. Further, there can be no               
assurance that the same factors that adversely affect the economy of            
the Commonwealth generally will not also adversely affect the market            
value or marketability of obligations issued by local units of                  
government or local authorities in the Commonwealth, or the ability of          
the obligators to pay the principal of or interest on such                      
obligations. In October 1999, Pennsylvania General Obligation Bonds             
were rated Aa3 by Moody's, AA by Fitch and AA by S&P.                           

APPENDIX G                                                                      

Special Considerations Relating To Massachusetts Municipal Obligations          

See Special Note Prior to Appendix B                                            

Summary                                                                         

The Commonwealth of Massachusetts and certain of its cities and towns           
and public bodies have experienced financial difficulties in the past           
that have adversely affected their credit standing. The recurrence of           
such financial difficulties could adversely affect the market value of          
the instruments held in the funds. The information summarized below             
describes some of the more significant factors that could affect the            
funds or the ability of the obligors to pay debt service. The sources           
of such information are the official statements of issuers located in           
the Commonwealth of Massachusetts, as well as other publicly available          
documents, and statements of public information contained in such               
statements and documents, but the funds are not aware of facts which            
would render such information inaccurate.                                       

Fiscal Matters                                                                  

The Commonwealth's operating fund structure satisfies the requirements          
of state finance law and is in accordance with generally accepted               
accounting principles ("GAAP"), as defined by the Government                    
Accounting Standards Board. The General Fund and those special revenue          
funds which are appropriated in the annual state budget receive most            
of the non-bond and non-federal grant revenues of the Commonwealth.             
These funds are referred to herein as the "budgeted operating funds"            
of the Commonwealth. They do not include the capital projects funds of          
the Commonwealth, into which the proceeds of Commonwealth bonds are             
deposited. The three principal budgeted operating funds are the                 
General Fund, the Highway Fund and the Local Aid Fund. Expenditures             
from these three funds generally account for approximately 93% of               
total expenditures of the budgeted operating funds.                             

The Commonwealth's budgeted operating funds for fiscal 1996, 1997,              
1998 and 1999 showed an excess (deficiency) of revenues and other               
sources over expenditures and other uses of $446 million, $221                  
million, $798 million and ($80) million and positive fund balances              
$1.172 billion, $1.394 billion, $2.192 billion and $2.112 billion,              
respectively. Over the same period, budgeted expenditures and other             
uses were approximately $16.881 billion for fiscal 1996, $17.949                
billion for fiscal 1997, $19.002 billion for fiscal 1998 and $20.245            
billion for fiscal 1999.                                                        

The Commonwealth's fiscal 2000 budget is based on numerous spending       
and revenue estimates, the achievement of which cannot be assured. The          
Executive Office of Administration and Finance estimates fiscal 2000            
budgeted expenditures and other uses will total approximately $21.38            
billion, while budgeted revenues and other sources will total                   
approximately $21.92 billion.                                                   

Limitations on Tax Revenues.                                                    

Chapter 62F, which was enacted by the voters in November 1986,                  
establishes a state tax revenue growth limit for each fiscal year               
equal to the average positive rate of growth in total wages and                 
salaries in the Commonwealth, as reported by the federal government,            
during the three calendar years immediately preceding the end of such           
fiscal year. Chapter 62F also requires that allowable state tax                 
revenues be reduced by the aggregate amount received by local                   
government units from any newly authorized or increased local option            
taxes or excises. Any excess in state tax revenue collections for a             
given fiscal year over the prescribed limit, as determined by the               
State Auditor, is to be applied as a credit against the then current            
personal income tax liability of all taxpayers in the Commonwealth in           
proportion to the personal income tax liability of all taxpayers in             
the commonwealth for the immediately preceding tax year. The law does           
not exclude principal and interest payments on Commonwealth debt                
obligations from the scope of its tax limit. However, the preamble              
contained in Chapter 62F provides that "although not specifically               
required by anything contained in this chapter, it is assumed that              
from allowable state tax revenues as defined herein the Commonwealth            
will give priority attention to the funding of state financial                  
assistance to local governmental units, obligations under the state             
governmental pension systems, and payment of principal and interest on          
debt and other obligations of the Commonwealth."                                

Tax revenues in fiscal 1995 through fiscal 1999 were lower than the             
limit set by Chapter 62F, and the Executive Office for Administration           
and Finance currently estimates that state tax revenues in fiscal 2000          
will not reach the limit imposed by either of these statutes. For               
fiscal 1999, as calculated by the State Auditor pursuant to Chapter             
62F, net state tax revenues were approximately $14.302 billion and              
allowable state tax revenues were approximately $15.470 billion.                

The fiscal 2000 budget contained several tax law changes, three of              
which are anticipated to reduce tax revenues in fiscal 2000. The                
budget reduced the income tax rate from 5.95% to 5.75% over three               
years, with a 5.85% rate effective January 1, 2000, a 5.80% rate                
effective January 1, 2001 and a 5.75% rate effective January 1, 2002.           
The Department of Revenue estimates that the budgetary cost of these            
provisions will be approximately $65 million in fiscal 2000, $166               
million in fiscal 2001, $244 million in fiscal 2002 and $293 million            
in fiscal 2003 and annually thereafter.                                         

Local Aid        Proposition 2 1/2                                              

In November 1980, voters in the Commonwealth approved a statewide tax           
limitation initiative petition, commonly known as Proposition 2 1/2,            
to constrain levels of property taxation and to limit the charges and           
fees imposed on cities and towns by certain governmental entities,              
including county governments. Proposition 2 1/2 is not a provision of           
the state constitution and accordingly is subject to amendment or               
repeal by the legislature. Proposition 2 1/2, as amended to date,               
limits the property taxes that may be levied by any city or town in             
any fiscal year to the lesser of (i) 2.5% of the full and fair cash             
valuation of the real estate and personal property therein, and (ii)            
2.5% over the previous year's levy limit plus any growth in the tax             
base from certain new construction and parcel subdivisions.                     
Proposition 2 1/2 also limits any increase in the charges and fees              
assessed by certain governmental entities, including county                     
governments, on cities and towns to the sum of (i) 2.5% of the total            
charges and fees imposed in the preceding fiscal year, and (ii) any             
increase in charges for services customarily provided locally or                
services obtained by the city or town at its option. The law contains           
certain override provisions and, in addition, permits debt service on           
specific bonds and notices and expenditures for identified capital              
projects to be excluded from the limits by a majority vote at a                 
general or special election. At the time Proposition 2 1/2 was                  
enacted, many cities and towns had property tax levels in excess of             
the limit and were therefore required to roll back property taxes with          
a concurrent loss of revenues. Between fiscal 1981 and fiscal 1999,             
the aggregate property tax levy grew from $3.346 billion to $6.753              
billion, representing an increase of approximately 101.8%. By                   
contrast, according to the federal Bureau of Labor Statistics, the              
consumer price index for all urban consumers in Boston grew during the          
same period by approximately 107.9%.                                            

Many communities have responded to the limitation imposed by              
Proposition 2 1/2 through statutorily permitted overrides and                   
exclusions. There are three types of referenda questions (override of           
levy limit, exclusion of debt service, or exclusion of capital                  
expenditures) which permit communities to exceed the limits of                  
Proposition 2 1/2. Override activity steadily increased throughout the          
1980's before peaking in fiscal 1991 and decreasing thereafter.  In             
fiscal 1999, 24 communities had successful override referenda which             
added $8.7 million to their levy limits. In fiscal 1999, the impact of          
successful override referenda going back as far as fiscal 1993 was to           
raise the levy limits of 125 communities by $67 million.  Although              
Proposition 2 1/2 will continue to constrain local property tax                 
revenues, significant capacity exists for overrides in nearly all               
cities and towns.                                                               

In addition to overrides, Proposition 2 1/2 allows a community,                 
through voter approval, to assess taxes in excess of its levy limit             
for the payment of certain capital projects (capital outlay                     
expenditure exclusions) and for the payment of specified debt service           
costs (debt exclusions). Capital exclusions were passed by 20                   
communities in fiscal 1999 and totaled $4.6 million. In fiscal 1999,            
the impact of successful debt exclusion votes going back as far as              
fiscal 1993, was to raise the levy limits of 250 communities by $945.8          
million.                                                                        

Commonwealth Financial Support for Local Governments.                           

During the 1980s, the Commonwealth increased payments to its cities,            
towns and regional school districts ("Local Aid") to mitigate the               
impact of Proposition 2 1/2 on local programs and services. In fiscal           
2000, approximately 21.7% of the Commonwealth's budget is estimated to          
be allocated to direct Local Aid. Local Aid payments to cities, towns           
and regional school districts take the form of both direct and                  
indirect assistance. Direct Local Aid consists of general revenue               
sharing funds and specific program funds sent directly to local                 
governments and regional school districts as reported on the so-called          
"cherry sheet" prepared by the Department of Revenue, excluding                 
certain pension funds and nonappropriated funds.                                

As a result of comprehensive education reform legislation enacted         
in June 1993, a large portion of general revenue sharing funds are              
earmarked for public education and are distributed through a formula            
designed to provide more aid to the Commonwealth's poorer communities.          
The legislation established a fiscal 1993 state spending base of                
approximately $1.288 billion for local education purposes and required          
annual increases in state expenditures for such purposes above that             
base, subject to appropriation, estimated to be approximately $2.803            
billion in fiscal 2000. All of the budgets in fiscal years 1994                 
through 2000 have fully funded the requirements imposed by this                 
legislation.                                                                    

Another component of general revenue sharing, the Lottery and                   
Additional Assistance programs, provides unrestricted funds for                 
municipal use. There are also several specific programs funded through          
direct Local Aid, such as highway construction, school building                 
construction, and police education incentives.                                  

In addition to direct Local Aid, the Commonwealth has provided                  
substantial indirect aid to local governments, including, for example,          
payments for Massachusetts Bay Transportation Authority assistance and          
debt service, pensions for teachers, housing subsidies and the costs            
of courts and district attorneys that formerly had been paid by the             
counties. Beginning July 1, 2000, Commonwealth support for the                  
Massachusetts Bay Transportation Authority will take the form of                
dedicated tax revenues.                                                         

Initiative Law                                                                  

A statute adopted by voter initiative petition at the November 1990             
statewide election regulates the distribution of Local Aid to cities            
and towns. This statute requires that, subject to annual                        
appropriation, no less than 40% of collections from personal income             
taxes, sales and use taxes, corporate excise taxes, and lottery fund            
proceeds be distributed to cities and towns.  Under the law, the Local          
Aid distribution to each city or town would equal no less than 100% of          
the total Local Aid received for fiscal 1989. Distributions in excess           
of fiscal 1989 levels would be based on new formulas that would                 
replace the current Local Aid distribution formulas. By its terms, the          
new formula would have called for a substantial increase in direct              
Local Aid in fiscal 1992 and subsequent years. Nonetheless, Local Aid           
payments remain subject to annual appropriation by the legislature,             
and appropriations for Local Aid since the enactment of the initiative          
law have not met the levels set forth in the initiative law.                    

Commonwealth Expenditures.                                                      

Fiscal 1996 budgeted expenditures were $16.881 billion, an increase of          
4.0% from fiscal 1995. Fiscal 1997 budgeted expenditures were $17.949           
billion, an increase of 6.3% over fiscal 1996 levels.  Fiscal 1998              
budgeted expenditures were $19.002 billion, an increase of 5.9% over            
fiscal 1997. Fiscal 1999 budgeted expenditures were $20.245 billion,            
an increase of 6.5% over fiscal 1998. It is estimated that fiscal 2000          
budgeted expenditures will be $21.382 billion, an increase of 5.6%              
over fiscal 1999.                                                               

Commonwealth expenditures since 1996 largely reflect significant                
growth in several programs and services provided by the Commonwealth,           
principally direct Local Aid, Medicaid, higher education, and other             
program expenditures.                                                           

The Commonwealth is responsible for the payment of pension benefits             
for state employees and for school teachers throughout the state and            
for certain cost-of-living increases payable to local government                
retirees. The Commonwealth has adopted a funding schedule under which           
it is required to fund future pension liabilities currently and to              
amortize the accumulated unfunded liabilities by June 30, 2018.  Since          
the adoption of this schedule, the amount of the unfunded liability             
has been reduced significantly. In fiscal 1999, the pension                     
expenditure was $990 million. In fiscal 1996, a number of reform                
measures affecting pensions were enacted into law. Among the most               
notable were a measure consolidating the assets of the state                    
employees' and teachers' retirement system into a single investment             
fund and another that will reform the disability pension system.                

Commonwealth Bond and Note Liabilities.                                         

The Commonwealth is authorized to issue three types of debt: general            
obligation debt, special obligation debt and federal grant                      
anticipation notes.  General obligation debt is secured by a pledge of          
the full faith and credit of the Commonwealth. Special obligation debt          
may be secured either with a pledge of receipts credited to the                 
Highway Fund or with a pledge of receipts credited to the Boston                
Convention and Exhibition Center Fund.  Federal grant anticipation              
notes are secured by a pledge of federal highway construction                   
reimbursements. In addition, certain independent authorities and                
agencies within the Commonwealth are statutorily authorized to issue            
bonds and notes for which the Commonwealth is either directly, in               
whole or in part, or indirectly liable. As of January 1, 2000, the              
Commonwealth's total bond and note liabilities were $15.365 billion,            
consisting of approximately $9.899 billion of general obligation debt,          
$586 million of special obligation debt, $922 million of federal grant          
anticipation notes, $3.744 billion of Commonwealth supported debt and           
$215 million of Commonwealth guaranteed debt. Based on the United               
States census resident population estimate for Massachusetts for 1999,          
the per capita debt as of June 30, 1999 was $2,470.                             

Commonwealth Capital Spending                                                   

Since fiscal 1992, the Executive Office for Administration and Finance          
has maintained a five-year capital spending plan, including an annual           
administrative limit on the amount of bond-financed state capital               
spending. Actual bond-financed capital expenditures during fiscal               
years 1996, 1997, 1998 and 1999 were approximately $908 million, $955           
million, $1.0 billion and $1.0 billion, respectively. Total capital             
spending for the current five year plan is estimated to be $2.707               
billion for fiscal 2000, $2.935 billion for fiscal 2001, $2.034                 
billion for fiscal 2002, $1.706 billion for fiscal 2003 and $1.577              
billion for fiscal 2004.  Capital spending for fiscal years 2000                
through 2004 to be financed from debt issued by the Commonwealth is             
forecast at $5 billion, which includes both general obligation bonds            
and state gas tax bonds, and which is significantly below                       
legislatively authorized capital spending levels. The five-year                 
capital plan contemplates that the projected level of capital spending          
will leverage approximately $2.301 billion of federal highway funding.          
Due to the size and complexity of the Commonwealth's capital program,           
and other factors, the timing and the amount of actual expenditures             
and debt issuances over the period will likely vary somewhat from the           
annual spending amounts contained in the five-year capital plan.                

The largest single component of the Commonwealth's capital program        
currently is the Central Artery/Ted Williams Tunnel project, a major            
construction project that is part of the completion of the federal              
interstate highway system. The project involves the depression of a             
portion of Interstate 93 in downtown Boston (the Central Artery),               
which is now an elevated highway, and the construction of a new tunnel          
under Boston harbor (the Ted Williams Tunnel) to link the Boston                
terminus of the Massachusetts turnpike (Interstate 90) to Logan                 
International Airport and points north. The magnitude of the Central            
Artery/Ted Williams Tunnel project has resulted in the realignment of           
certain transportation assets in the Commonwealth and the development           
of additional financing mechanisms to support its completion,                   
including payments from the Massachusetts Turnpike Authority and the            
Massachusetts Port Authority and state borrowings in anticipation of            
future federal highway reimbursements. The completed project will be            
owned and operated by the Massachusetts Turnpike authority as part of           
the Metropolitan Highway System which was established in conjunction            
with the project.                                                               

On February 1, 2000, the Massachusetts Turnpike Authority revised         
upward by $1.398 billion its estimate of the total expenditures                 
expected to be required to complete the project. The Turnpike                   
Authority characterized this revision as preliminary and subject to             
further review but expressed confidence that the estimate of total              
expenditures should not be expected to increase further, so long as             
unanticipated funding delays or other events beyond the scope of the            
review do not occur. Cash outlays from fiscal 2000 through the                  
completion of the project are now projected to be approximately $5.388          
billion rather than the previous project of approximately $3.990                
billion. According to the revised estimate, by the time of the                  
project's completion, the project is expected to have required                  
expenditures totaling approximately $13.1 billion, excluding insurance          
reimbursements and proceeds from real estate dispositions related to            
the project that will be received after project completion. These               
reimbursements are anticipated to be approximately $900 million,                
resulting in a net project cost of approximately $12.2 billion.                 

As a consequence of the revised project cost estimate, the project        
officials are developing a revised project financing plan to identify           
the means of financing the $1.4 billion in current estimated                    
additional project costs. The Turnpike Authority has indicated that it          
intends to use the revenue raising capacity and assets of the Turnpike          
Authority to help meet the increased costs, and that it has under               
consideration a variety of options and measures, including without              
limitation the acceleration of planned toll increases, additional toll          
increases, sale and/or lease of air rights and other assets,                    
development of real estate parcels that become available as a result            
of the depression of the Central Artery and ancillary revenues                  
generated by telecommunication and fiber optic contracts. The Turnpike          
Authority is in the process of reviewing these and other options to             
fund the project's additional needs and expects to make                         
recommendations promptly over the next several months.  The                     
Commonwealth's revised funding plan may require or include other                
sources of revenue, on either a temporary or permanent basis,                   
including additional Commonwealth funds. The use of such other                  
financing sources may require legislative approval and certain                  
executive branch action.                                                        

Other Factors                                                                   

Many factors affect the financial condition of the Commonwealth,                
including many social environmental, and economic conditions, which             
are beyond the control of the Commonwealth. As with most urban states,          
the continuation of many of the Commonwealth's programs, particularly           
its human service programs, is in significant part dependent upon               
continuing federal reimbursements which have been declining.                    

APPENDIX H                                                                      

Special Considerations Relating to Municipal Obligations of the U.S.            
Virgin Islands and of Guam                                                      

U.S. Virgin Islands                                                             

The United States Virgin Islands ("USVI") is heavily reliant on the             
tourism industry, with roughly 43% of non-agricultural employment in            
tourist-related trade and services. The tourism industry is                     
economically sensitive and would likely be affected adversely by a              
recession in either the United States or Europe.                                

An important component of the USVI revenue base is the federal excise           
tax on rum exports. Tax revenues rebated by the federal government to           
the USVI provide the primary security of many outstanding USVI bonds.           
Since more than 90% of the rum distilled in the USVI is distilled at            
one plant, any interruption in its operations (as occurred after                
Hurricane Hugo in 1989) would adversely affect these revenues. The              
last major hurricane to impact the USVI was Hurricane Marilyn on                
September 15, 1995. Consequently, there can be no assurance that rum            
exports to the United States and the rebate of tax revenues to the              
USVI will continue at their present levels. The preferential tariff             
treatment the USVI rum industry currently enjoys could be reduced               
under NAFTA. Increased competition from Mexican rum producers could             
reduce USVI rum imported to the U.S., decreasing excise tax revenues            
generated. The USVI is periodically hit by hurricanes. Several                  
hurricanes have caused extensive damage, which has had a negative               
impact on revenue collections. There is currently no rated, unenhanced          
Virgin Islands debt outstanding (although there is unrated debt                 
outstanding).                                                                   

Guam                                                                            

The U.S. territory of Guam derives a substantial portion of its                 
economic base from Japanese tourism. With a reduced U.S. military               
presence on the island, Guam has relied more heavily on tourism in the          
past few years. During its 1997 fiscal year, the government was able            
to make noticeable progress on its traditional budgetary problems               
operating with a balanced budget for that fiscal year. However, during          
1998, the Japanese recession combined with the impact of typhoon Paka           
resulted in a budget deficit of $21 million. With hotels alone                  
accounting for 8.5% of Guam's employment and Japanese tourists                  
comprising 86% of total visitor arrivals, the Japanese recession and            
depreciation of the yen versus the dollar in 1999 have had a negative           
impact on the island's economy. Based on these factors, S&P downgraded          
Guam's rating to BBB- from BBB with a negative outlook on May 26,               
1999. There does seem to be some recent improvement in the Japanese             
economy. However, Guam has not realized any economic benefit as                 
visitor arrivals are 0.8% below 1998 levels for the second quarter              
ended June 30, 1999, driving General Fund revenues down 3.1%.                   

EXHIBIT I                                                                       
Special Considerations Relating to Puerto Rico Municipal Obligation             

See Special Note Prior to Appendix B                                            

Fiscal Matters                                                                  

The fiscal year of the Government of Puerto Rico begins each July 1.            
The Governor is constitutionally required to submit to the Legislature          
an annual balanced budget of capital improvements and operating                 
expenses of the central government for the ensuing fiscal year.  The            
annual budget is prepared by the Office of Management and Budget                
("OMB"), working with the Planning Board, the Department of the                 
Treasury, and other government offices and agencies. Section 7 of               
Article VI of the Constitution provides that "The appropriations made           
for any fiscal year shall not exceed the total revenues, including              
available surplus, estimated for said fiscal year unless the                    
imposition of taxes sufficient to cover said appropriations is                  
provided by law."                                                               

The annual budget, which is developed utilizing elements of program             
budgeting and zero-base budgeting, includes an estimate of revenues             
and other resources for the ensuing fiscal year under: (i) laws                 
existing at the time the budget is submitted; and (ii) legislative              
measures proposed by the Governor and submitted with the proposed               
budget, as well as the Governor's recommendations as to appropriations          
that in his judgment are necessary, convenient, and in conformity with          
the four - year investment plan prepared by the Planning Board.                 

A Budgetary Fund was created by Act No. 147 of June 18, 1980, as                
amended (the "Budgetary Fund Act"), to cover the appropriations                 
approved in any fiscal year in which the revenues available for such            
fiscal year are insufficient, honor the public debt, and provide for            
unforeseen circumstances in the provision of public services.  The              
Budgetary Fund Act was amended in 1994 to require that an annual                
legislative appropriation equal to one third of one percent (.33%) of           
the total budgeted appropriations for each fiscal year be deposited in          
the Budgetary Fund. In 1997, the Budgetary Fund Act was further                 
amended to increase the annual legislative appropriation required to            
be deposited in the Budgetary Fund to one percent (1%) of the total             
revenues of the preceding fiscal year, beginning in fiscal year 2000.           
In addition, other income (not classified as revenues) that is not              
assigned by law to a specific purpose is also required to be deposited          
in the Budgetary Fund. The maximum balance of the Budgetary Fund may            
not exceed six percent (6%) of the total appropriations included in             
the budget for the preceding fiscal year.                                       

In Puerto Rico, the central government has many functions which in the          
fifty states are the responsibility of local government, such as                
providing public education and police and fire protection. The central          
government also makes large annual grants to the University of Puerto           
Rico and to the municipalities. Debt service on Sugar Corporation               
notes paid by the Government of Puerto Rico is included in current              
expenses for economic development, and debt service on Urban Renewal            
and Housing Corporation bonds and notes and on Housing Bank and                 
Finance Agency mortgage subsidy bonds paid by the Government of Puerto          
Rico is included in current expenses for housing.                               

Approximately 25.2% of the General Fund is committed, including debt            
service on direct debt of the Commonwealth and on the debt of the               
Sugar Corporation, municipal subsidies, grants to the University of             
Puerto Rico, contributions to Aqueduct and Sewer Authority, and rental          
payments to Public Building Authority, among others.                            

In the fiscal 1999 budget revenues and other resources of all                   
budgetary funds total $10,308,078,000 excluding balances from the               
previous fiscal year and general obligation bonds authorized.  he               
estimated net increase in General Fund revenues in fiscal 1999 are              
accounted for by increases in personal income taxes (up $258,354,000),          
retained non-resident income tax (up $176,921,000), general excise tax          
of 5% (up $60,259,000), motor vehicles and accessories (up                      
$61,569,000), federal excise taxes on off-shore shipments (up                   
$33,033,000), special excise tax on certain petroleum products (up              
$20,282,000), corporation income taxes (up $17,347,000), registration           
and document certification fees (up $13,433,000), alcoholic beverages           
(up $5,347,000), licenses (up $4,681,000), electronic lottery (up               
$4,965,000) and decreases in property taxes (down $3,460,000), customs          
(down $11,864,000) and tollgate taxes (down $56,420,000).                       

Current expenses and capital improvements of all budgetary funds total          
$10,687,869,000, an increase of $951,255,000 from fiscal 1998. The              
major changes in General Fund expenditures by program in fiscal 1999            
are: public safety and protection (up $187,444,000), education (up              
$165,661,000), health (up $160,256,000), general government (up                 
$77,714,000), other debts (up $69,721,000), welfare (up $24, 182,000),          
economic development (up $15,865,000), special pension contributions            
(up $6,115,000), and decreases in transportation and communications             
(down $83,000), housing (down $620,000), debt service (down                     
$13,849,000), and contributions to municipalities (down $37,969,000).           

The general obligation bond authorization for the fiscal 1999 budget            
was $475,000,000.                                                               

In the fiscal 2000 budget proposal revenues and other resources of all          
budgetary funds total $10,426,475,000 excluding balances from the               
previous fiscal year and general obligation bonds authorized. The               
estimated net increase in General Fund revenues in fiscal 2000 are              
accounted for by increases in personal income taxes (up $199,000,000),          
corporation income taxes (up $102,000,000), general excise tax of 5%            
(up $65,000,000), income tax withheld from non-residents (up                    
$44,000,000), motor vehicles and accessories (up $22,000,000),                  
alcoholic beverages (up $13,000,000), registration and document                 
certification fees (up $10,000,000), and decreases in property taxes            
(down $2,000,000), special excise tax on certain petroleum products             
(down $3,000,000), cigarettes (down $6,000,000), federal excise taxes           
on off-shore shipments (down $24,000,000), and tollgate taxes (down             
$14,000,000).                                                                   

Current expenses and capital improvements of all budgetary funds total          
$11,012,166,000, an increase of $324,297,000 from fiscal 1999. The              
major changes in General Fund expenditures by program in fiscal 2000            
are: general government (up $157,265,000), health (up $83,310,000),             
debt service (up $94,550,000), contributions to municipalities (up              
$66,296,000), education (up $75,035,000), transportation and                    
communications (up $13,636,000), special pension contributions (up              
$3,792,000), housing (down $4,645,000), economic development (down              
$30,201,000), public safety and protection (down $26,999,000), and              
other debts service (down $106,488,000).                                        

The general obligation bond authorization for the fiscal 2000 budget            
was $475,000,000.                                                               

The Government of Puerto Rico is required to contribute directly to             
three retirement systems for public employees. The Government of                
Puerto Rico is responsible for approximately 66% of total employer              
contributions to Employees Retirement System and 100% and 99% of total          
employer contributions to the Judiciary and Teachers Retirement                 
Systems, respectively. As of July 1, 1998 the total pension benefit             
obligation for the Employees Retirement System and the Judiciary                
Retirement System was $7,638,000,000 and $95,5000,000, respectively,            
and the unfunded pension benefit obligation for the same period was             
$5,963,000,000 and $28,400,000, respectively. As of June 30, 1998, the          
accrued pension liability of the Teachers Retirement System was                 
$3,154,678,299, the value of assets amounted to $2,135,436,000, and             
the resulting unfunded accrued liability was $1,019,242,299, an                 
increase of $48,437,260 from the prior valuation made as of June 30,            
1997.                                                                           

On February 1, 1990, the Legislature of Puerto Rico enacted Act No. 1           
amending the organic act of the Employees Retirement System to reduce           
the future pension liabilities of the Employees Retirement System.              
Also, Act No. 305 of September 24, 1999, further amends the organic             
act of the Employees Retirement System to change it, prospectively,             
from a defined benefit system to a defined contribution system.  Based          
on actuarial studies conducted by the actuary of the Employees                  
Retirement System, it is expected that the implementation of the                
defined contribution system will allow the Government of Puerto Rico            
to reduce the current actuarial deficit of the Employees Retirement             
System. Also, the law approving the sale of a controlling interest in           
PRTC to a consortium led by GTE International Telecommunications                
Incorporated provides that any future proceeds received by the                  
Government from the sale of its remaining stock ownership in PRTC will          
be transferred to the Employees Retirement System to reduce its                 
accumulated unfunded pension benefit obligation. It is recognized that          
it will be necessary to further strengthen the finances of the                  
Teachers Retirement System in order to assure that combined                     
contributions and investment income continue to exceed benefit                  
payments, avoiding the possible future drawdown of assets.                      

General Economic Conditions in Puerto Rico                                      

The economy of Puerto Rico is fully integrated with that of the United          
States. In fiscal 1998, trade with the United States accounted for              
approximately 90% of Puerto Rico's exports and approximately 61% of             
its imports. In this regard, in fiscal 1998 Puerto Rico experienced a           
$8.5 billion positive adjusted merchandise trade balance.                       

Since fiscal 1985, personal income, both aggregate and per capita, has          
increased consistently each fiscal year. In fiscal 1998, aggregate              
personal income was $33.7 billion ($30.8 billion in 1992 prices) and            
personal per capita income was $8,817 ($8,063 in 1992 prices).  Gross           
product in fiscal 1995 was $28.4 billion ($25.9 billion in 1992                 
prices) and gross product in fiscal 1999 was $38.1 billion ($29.7               
billion in 1992 prices). This represents an increase in gross product           
of 34% from fiscal 1995 to 1999 (14.5% in 1992 prices).                         

Puerto Rico's economic expansion, which has lasted over ten years,              
continued throughout the five year period from fiscal 1995 through              
fiscal 1999. Almost every sector of the economy participated, and               
record levels of employment were achieved.  Factors behind the                  
continued expansion included Government-sponsored economic development          
programs, periodic declines in the exchange value of the U.S. dollar,           
increases in the level of federal transfers, low oil prices and the             
relatively low cost of borrowing funds during the period.                       

Average employment increased from 1,051,000 in fiscal 1995, to                  
1,147,000 in fiscal 1999. Unemployment, although at relatively low              
historical levels, remains above the U.S. average. Average                      
unemployment decreased from 13.8% in fiscal 1995, to 12.5% in fiscal            
1999.                                                                           

Manufacturing is the largest sector in the economy, accounting for              
$23.0 billion or 42.8% of gross domestic product in fiscal 1998.  The           
manufacturing sector employed 141,068 workers as of March 1999.                 
Manufacturing in Puerto Rico is now more diversified than during                
earlier phases of industrial development. In the last two decades,              
industrial development has tended to be more capital intensive and              
dependent on skilled labor. This gradual shift is best exemplified by           
heavy investment in pharmaceuticals, scientific instruments,                    
computers, microprocessors, and electrical products over the last               
decade. While total employment in the manufacturing sector decreased            
by 12,205 from March 1997 to March 1999, other indicators suggest that          
manufacturing production did not decrease.  Average weekly hours                
worked increased 5.2%, industrial energy consumption increased 0.7%             
and exports increased 45.7% from fiscal 1997 to fiscal 1999.  Most of           
the decreases in employment have been concentrated in the labor                 
intensive industries, particularly apparel, textile and tuna                    
manufacturing.  The services sector, which includes wholesale and               
retail trade and finance, insurance, real estate, hotels and related            
services, and other services, ranks second in its contribution to               
gross domestic product and it is the sector that employs the greatest           
number of people. In fiscal 1998, the service sector generated $19.6            
billion in gross domestic product or 36.5% of the total.  Employment            
in this sector grew from 478,079 in fiscal 1994 to 572,765 in fiscal            
1998, a cumulative increase of 19.8%. This increase was greater than            
the 12.5% cumulative growth in employment over the same period.  The            
Government sector of the Commonwealth plays an important role in the            
economy of the island. In fiscal year 1998, the Government accounted            
for $5.2 billion of Puerto Rico's gross domestic product, or 9.8% of            
the total, and provided 21.5% of the total employment.  The                     
construction industry has experienced real growth since fiscal 1987.            
In fiscal 1999, investment in construction rose to an unprecedented             
$6.6 billion, an increase of 23.9% as compared to $5.4 billion for              
fiscal 1998.  Tourism also contributes significantly to the island              
economy, accounting for 6.4% of the island's gross domestic product in          
fiscal 1998.                                                                    

New Economic Model                                                              

The present administration has developed and is implementing a new              
economic development program which is based on the premise that the             
private sector should provide the primary impetus for economic                  
development and growth. This new program, which is referred to as the           
New Economic Model, promotes changing the role of the Government from           
one of being a provider of most basic services to that of a                     
facilitator for private sector initiatives and encourages private               
sector investment by reducing Government-imposed regulatory                     
restraints.                                                                     

The New Economic Model contemplates the development of initiatives              
that will foster private investment in, and private management of,              
sectors that are served more efficiently and effectively by the                 
private enterprise. One of these initiatives has been the adoption of           
a new tax code intended to expand the tax base, reduce top personal             
and corporate tax rates, and simplify the tax system.  Another                  
initiative is the improvement and expansion of Puerto Rico's                    
infrastructure to facilitate private sector development and growth,             
such as the construction of the water pipeline and cogeneration                 
facilities described below and the construction of a light rail system          
for the San Juan metropolitan area.                                             

The New Economic Model also seeks to identify and promote areas in              
which Puerto Rico can compete more effectively in the global markets.           
Tourism has been identified as one such area because of its potential           
for job creation and contribution to the gross product. In 1993, a new          
Tourism Incentives Act and a Tourism Development Fund were implemented          
in order to provide special tax incentives and financing for the                
development of new hotel projects and the tourism industry.  As a               
result of these initiatives, new hotels have been constructed or are            
under construction which have increased the number of hotel rooms on            
the island from 8,415 in fiscal 1992 to 11,095 at the end of fiscal             
1999 and to a projected 12,650 by the end of fiscal 2000.                       

The New Economic Model also seeks to reduce the size of the                     
Government's direct contribution to gross domestic product.  As part            
of this goal, the Government has transferred certain governmental               
operations and sold a number of its assets to private parties.  Among           
these are: (i) the Government sold the assets of the Puerto Rico                
Maritime Authority; (ii) the Aqueducts and Sewer Authority executed a           
construction and operating agreement with a private consortium for the          
struction, and operation of an approximately 75 million gallon per day          
water pipeline to the San Juan metropolitan area from the Dos Bocas             
reservoir in Utuado; (iii)  the Electric Power Authority executed               
power purchase contracts with private power producers under which two           
cogeneration plants (with a total capacity of approximately 874                 
megawatts), using fuels other than oil, will be constructed; (iv) the           
Corrections Administration entered into operating agreements with two           
private companies for the operation of three new correctional                   
facilities; (v) the Government entered into a definitive agreement to           
sell certain assets of a pineapple juice processing business and sold           
certain mango growing operations; (vi) the Government is in the                 
process of transferring to local sugar cane growers certain sugar               
processing facilities; (vii) the Government sold three hotel                    
properties and is currently negotiating the sale of a complex                   
consisting of two hotels and a convention center; and (viii) the                
Government sold a controlling interest in the Puerto Rico Telephone             
Company, a subsidiary of the Telephone Authority, to a consortium led           
by GTE International Telecommunications Incorporated.                           

One of the goals of the Rossello administration is to change Puerto             
Rico's public health care system from one in which the Government               
provides free health services to low income individuals through public          
health facilities owned and administered by the Government to one in            
which all medical services are provided by the private sector and the           
Government provides comprehensive health insurance coverage for                 
qualifying (generally low income) Puerto Rico residents.  Under this            
new system, the Government selects, through a bidding system, one               
private health insurance company in each of several designated regions          
of the island and pays such insurance company the insurance premium             
for each eligible beneficiary within such region. This new health               
insurance system is now covering 77 municipalities out of a total of            
78 on the island. It is expected that the last municipality will be             
added in July 2000. The total cost of this program will depend on the           
number of municipalities included in the program, the number of                 
participants receiving coverage, and the date coverage commences.  As           
of August 1, 1999, over 1.7 million persons were participating in the           
program at an estimated annual cost to Puerto Rico for fiscal 2000 of           
approximately $994 million. In conjunction with this program, the               
operation of certain public health facilities has been transferred to           
private entities. The Government's current privatization plan for               
health facilities provides for the transfer of ownership of all health          
facilities to private entities. The Government has sold forty-four              
health facilities to private companies and is currently in the process          
of closing the sale of fourteen additional health facilities to such            
companies.                                                                      

Tax Incentives                                                                  

One of the factors assisting the development of the manufacturing               
sector in Puerto Rico has been the federal and Commonwealth tax                 
incentives available, particularly those under the Puerto Rico                  
Industrial Incentives Program and Sections 30A and 936 of the Internal          
Revenue Code 1986, as amended (the "Code").                                     

Since 1948, Puerto Rico has promulgated various industrial incentive            
laws designed to stimulate industrial investment. Under these laws,             
companies engaged in manufacturing and certain other designated                 
activities were eligible to receive full or partial exemption from              
income, property, and other taxes. The most recent of these laws is             
Act No. 135 of December 2, 1997 (the "1998 Tax Incentives Law").                

The benefits provided by the 1998 Tax Incentives Law are available to           
new companies as well as companies currently conducting tax-exempt              
operations in Puerto Rico that choose to renegotiate their existing             
tax exemption grant. Activities eligible for tax exemption include              
manufacturing, certain services performed for markets outside Puerto            
Rico, the production of energy from local renewable sources for                 
consumption in Puerto Rico, and laboratories for scientific and                 
industrial research. For companies qualifying thereunder, the 1998 Tax          
Incentives Law imposes income tax rates ranging from 2% to 7%. In               
addition, it grants 90% exemption from property taxes, 100% exemption           
from municipal license taxes during the first eighteen months of                
operation and between 80% and 60% thereafter, and 100% exemption from           
municipal excise taxes. The 1998 Tax Incentives Law also provides               
various special deductions designated to stimulate employment and               
productivity, research and development, and capital investment in               
Puerto Rico.                                                                    

Under the 1998 Tax Incentives Law, companies are able to repatriate or          
distribute their profits free of dividend taxes. In addition, passive           
income derived from designated investments will continue to be fully            
exempt from income and municipal license taxes.  Individual                     
shareholders of an exempted business are allowed a credit against               
their Puerto Rico income taxes equal to 30% of their proportionate              
share in the exempted business' income tax liability.  Gain from the            
sale or exchange of shares of an exempted business by its shareholders          
during the exemption period will be subject to a 4% income tax rate.            

For many years, U.S. companies operating in Puerto Rico enjoyed a               
special tax credit that was available under Section 936 of the Code.            
Originally, the credit provided an effective 100% federal tax                   
exemption for operating and qualifying investment income from Puerto            
Rico sources. Amendments to Section 936 made in 1993 (the "1993                 
Amendments") instituted two alternative methods for calculating the             
tax credit and limited the amount of the credit that a qualifying               
company could claim. These limitations are based on a percentage of             
qualifying income (the "percentage of income limitation") and on                
qualifying expenditures on wages and other wage related benefits (the           
"economic activity limitation", also known as the "wage credit                  
limitation"). As a result of amendments incorporated in the Small               
Business Job Protection Act of 1996 enacted by the U.S. Congress and            
signed into law by President Bill Clinton on August 20, 1996 (the               
"1996 Amendments"), the tax credit, as described below, is now being            
phased out over a ten-year period for existing claimants and is no              
longer available for corporations that establish operations in Puerto           
Rico after October 13, 1995 (including existing Section 936                     
Corporations (as defined below) to the extent substantially new                 
operations are established in Puerto Rico). The 1996 Amendments also            
moved the credit based on the economic activity limitation to Section           
30A of the Code and phased it out over 10 years. In addition, the 1996          
Amendments eliminated the credit previously available for income                
derived from certain qualified investments in Puerto Rico. The Section          
30A Credit and the remaining Section 936 credit are discussed below.            

Section 30a                                                                     

The 1996 Amendments added a new Section 30A to the Code.  Section 30A           
permits a "qualifying domestic corporation" ("QDC") that meets certain          
gross income tests (which are similar to the 80% and 75% gross income           
tests of Section 936 of the Code discussed below) to claim a credit             
(the "Section 30A Credit") against the federal income tax imposed on            
taxable income derived from sources outside the United States from the          
active conduct of a trade or business in Puerto Rico or from the sale           
of substantially all the assets used in such business ("possession              
income").                                                                       

A QDC is a U.S. corporation which (i) was actively conducting a trade           
or business in Puerto Rico on October 13, 1995, (ii) had a Section 936          
election in effect for its taxable year that included October 13,               
1995, (iii) does not have in effect an election to use the percentage           
limitation of Section 936(a)(4)(B) of the Code, and (iv) does not add           
a "substantial new line of business."                                           

The Section 30A Credit is limited to the sum of (i) 60% of qualified            
possession wages as defined in the Code, which includes wages up to             
85% of the maximum earnings subject to the OASDI portion of Social              
Security taxes plus an allowance for fringe benefits of 15% of                  
qualified possession wages, (ii) a specified percentage of                      
depreciation deductions ranging between 15% and 65%, based on the               
class life of tangible property, and (iii) a portion of Puerto Rico             
income taxes paid by the QDC, up to a 9% effective tax rate (but only           
if the QDC does not elect the profit-split method for allocating                
income from intangible property).                                               

A QDC electing Section 30A of the Code may compute the amount of its            
active business income, eligible for the Section 30A Credit, by using           
either the cost sharing formula, the profit-split formula, or the               
cost-plus formula, under the same rules and guidelines prescribed for           
such formulas as provided under Section 936 (see discussion below).             
To be eligible for the first two formulas, the QDC must have a                  
significant presence in Puerto Rico.                                            

In the case of taxable years beginning after December 31, 2001, the             
amount of possession income that would qualify for the Section 30A              
Credit would be subject to a cap based on the QDC's possession income           
for an average adjusted base period ending before October 14, 1995.             

Section 30A applies only to taxable years beginning after December 31,          
1995 and before January 1, 2006.                                                

SECTION 936                                                                     

Under Section 936 of the Code, as amended by the 1996 Amendments, and           
as an alternative to the Section 30A Credit, U.S. corporations that             
meet certain requirements and elect its application ("Section 936               
Corporations") are entitled to credit against their U.S. corporate              
income tax, the portion of such tax attributable to income derived              
from the active conduct of a trade or business within Puerto Rico               
("active business income") and from the sale or exchange of                     
substantially all assets used in the active conduct of such trade or            
business. To qualify under Section 936 in any given taxable year, a             
corporation must derive for the three-year period immediately                   
preceding the end of such taxable year (i) 80% or more of its gross             
income from sources within Puerto Rico and (ii) 75% or more of its              
gross income from the active conduct of a trade or business in Puerto           
Rico.                                                                           

Under Section 936, a Section 936 Corporation may elect to compute its           
active business income, eligible for the Section 936 credit, under one          
of three formulas: (A) a cost-sharing formula, whereby it is allowed            
to claim all profits attributable to manufacturing intangibles, and             
other functions carried out in Puerto Rico, provided it contributes to          
the research and development expenses of its affiliated group or pays           
certain royalties; (B) a profit-split formula, whereby it is allowed            
to claim 50% of the net income of its affiliated group from the sale            
of products manufactured in Puerto Rico; or (C) a cost-plus                     
formula,whereby it is allowed to claim a reasonable profit on the               
manufacturing costs incurred in Puerto Rico. To be eligible for the             
first two formulas, the Section 936 Corporation must have a                     
significant business presence in Puerto Rico for purposes of the                
Section 936 rules.                                                              

As a result of the 1993 Amendments and the 1996 Amendments, the                 
Section 936 credit is only available to companies that were operating           
in Puerto Rico on October 13, 1995, and had elected the percentage of           
income limitation and is limited in amount to 40% of the credit                 
allowable prior to the 1993 Amendments, subject to a five-year phase-           
in period from 1994 to 1998 during which period the percentage of the           
allowable credit is reduced from 60% to 40%.                                    

In the case of taxable years beginning on or after 1998, the                    
possession income subject to the Section 936 credit will be subject to          
a cap based on the Section 936 Corporation's possession income for an           
average adjusted base period ending on October 14, 1995.  The Section           
936 credit is eliminated for taxable years beginning in 2006.                   

Proposal To Extend The Phaseout Of Section 30a.                                 

During 1997, the Government of Puerto Rico proposed to Congress the             
enactment of a new permanent federal incentive program similar to that          
provided under Section 30A. Such a program would provide U.S.                   
companies a tax credit based on qualifying wages paid and other wage-           
related expenses, such as fringe benefits, as well as depreciation              
expenses for certain tangible assets and research and development               
expenses.  Under the Governor's proposal, the credit granted to                 
qualifying companies would continue in effect until Puerto Rico shows,          
among other things, substantial economic improvements in terms of               
certain economic parameters. The fiscal 1998, fiscal 1999 and fiscal            
2000 budgets submitted by President Clinton to Congress included a              
proposal to modify Section 30A to (i) extend the availability of the            
Section 30A Credit indefinitely; (ii) make it available to companies            
establishing operations in Puerto Rico after October 13, 1995; and              
(iii) eliminate the income cap. This proposal was not included in the           
1998 or 1999 budgets approved by Congress. While the Government of              
Puerto Rico plans to continue lobbying for this proposal, it is not             
possible at this time to predict whether the Section 30A Credit will            
be so                                                                           
modified.                                                                       

Outlook                                                                         

It is not possible at this time to determine the long-term effect on            
the Puerto Rico economy of the enactment of the 1996 Amendments. The            
Government of Puerto Rico does not believe there will be short-term or          
medium-term material adverse effects on Puerto Rico's economy as a              
result of the enactment of the 1996 Amendments.  The Government of              
Puerto Rico further believes that during the phase-out period                   
sufficient time exists to implement additional incentive programs to            
safeguard Puerto Rico's competitive position.                                   

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘497’ Filing		Date		First		Last			Other Filings
		6/30/18		167
		1/1/06		167
		1/1/02		167
		12/31/01		167
		6/30/01		167
		6/22/01		12		167
		3/31/01		167					24F-2NT,  N-30D,  NSAR-B,  NT-NSAR
		1/1/01		167
		12/1/00		167
Filed on:		8/1/00
		7/28/00		1		167
		7/10/00		167
		7/1/00		167
		6/30/00		167
		6/8/00		167					N-30D
		6/5/00		167
		6/1/00		167
		5/8/00		167
		5/5/00		167
		5/1/00		167
		4/1/00		167
		3/31/00		6		167			24F-2NT,  N-30D,  NSAR-B
		3/15/00		167
		2/1/00		167
		1/1/00		167
		12/31/99		5		141
		11/30/99		167					NT-NSAR
		11/9/99		167
		9/24/99		167					497
		9/14/99		118		167			497J
		8/1/99		167
		7/17/99		167
		6/30/99		167
		6/29/99		167
		6/15/99		167					NSAR-B
		6/14/99		167
		6/7/99		167					497
		5/26/99		167
		3/31/99		54		167			24F-2NT,  N-30D,  NSAR-B,  NT-NSAR
		3/8/99		167
		1/1/99		167
		10/8/98		167
		10/7/98		167
		7/16/98		167
		7/1/98		167
		6/30/98		167
		6/12/98		12		167			497
		4/1/98		167
		3/31/98		54		167			24F-2NT,  N-30D,  NSAR-B,  NSAR-B/A
		1/1/98		167
		12/2/97		167					NSAR-A
		6/30/97		167
		3/31/97		54		165			24F-2NT,  N-30D,  NSAR-B
		12/31/96		167
		11/5/96		167
		8/20/96		167
		6/30/96		167
		3/31/96		54		165			24F-2NT,  N-30D,  NSAR-B
		12/31/95		167
		12/15/95		167					497,  N14EL24/A
		10/14/95		167
		10/13/95		167
		9/15/95		167
		12/31/94		167
		11/7/94		167
		4/30/94		33		141
		6/30/93		167
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