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- --
April 29, 1994
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
Prospectus beginson page one.
[LOGO OF SMITH BARNEY SHEARSON APPEARS HERE]
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PROSPECTUS APRIL 29, 1994
Two World Trade Center
New York, New York 10048
(212) 720-9218
Smith Barney Shearson Managed Municipals Fund Inc. (the "Fund") is a
diversi-
fied municipal bond fund that seeks to maximize current interest income exempt
from Federal income taxes to the extent consistent with prudent investment
man-
agement and preservation of capital.
This Prospectus sets forth concisely certain information about the Fund,
including sales charges, distribution and service fees and expenses, which
pro-
spective investors will find helpful in making an investment decision. Invest-
ors are encouraged to read this Prospectus carefully and retain it for future
reference.
Additional information about the Fund is contained in a Statement of Addi-
tional Information dated April 29, 1994, as amended or supplemented from time
to time, that is available upon request and without charge by calling or writ-
ing the Fund at the telephone number or address set forth above or by contact-
ing your Smith Barney Shearson Financial Consultant. The Statement of Addi-
tional Information has been filed with the Securities and Exchange Commission
(the "SEC") and is incorporated by reference into this Prospectus in its
entirety.
SMITH BARNEY SHEARSON INC.
Distributor
GREENWICH STREET ADVISORS
Investment Adviser
THE BOSTON COMPANY ADVISORS, INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
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FINANCIAL HIGHLIGHTS 9
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VARIABLE PRICING SYSTEM 12
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THE FUND'S PERFORMANCE 13
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MANAGEMENT OF THE FUND 18
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 20
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MUNICIPAL BONDS 27
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PURCHASE OF SHARES 27
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REDEMPTION OF SHARES 31
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VALUATION OF SHARES 34
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EXCHANGE PRIVILEGE 35
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DISTRIBUTOR 40
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DIVIDENDS, DISTRIBUTIONS AND TAXES 41
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ADDITIONAL INFORMATION 44
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</TABLE>
2
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the
Prospectus. See "Table of Contents."
BENEFITS TO INVESTORSThe Fund offers investors several important benefits:
. Dividends consisting primarily of income which is exempt from Federal
income
tax.
. A professionally managed diversified portfolio of municipal obligations
providing reduced transaction costs not generally available to individual
investors.
. Investment liquidity through convenient purchase and redemption procedures.
. A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of municipal
obligations.
. Different methods for purchasing shares that allow investment flexibility
and a wider range of investment alternatives.
. Automatic dividend reinvestment feature, plus exchange privilege within the
same class of shares of most other funds in the Smith Barney Shearson Group
of Funds.
INVESTMENT OBJECTIVE The Fund is an open-end, diversified, management invest-
ment company designed to maximize current interest income which is excluded
from gross income for Federal income tax purposes to the extent consistent
with
prudent investment management and preservation of capital. The Fund seeks to
achieve its objective by investing in a professionally managed portfolio con-
sisting principally of intermediate- and long-term municipal securities issued
by state or municipal governments and by public authorities ("Municipal
Bonds"). Intermediate- and long-term municipal securities have remaining matu-
rities at the time of purchase of between three and twenty years. Under normal
market conditions, the Fund will invest at least 80% of its total assets in
such obligations. See "Investment Objective and Management Policies."
VARIABLE PRICING SYSTEM The Fund offers two classes of shares ("Classes")
designed to provide investors with the flexibility of selecting an investment
3
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
best suited to their needs. Class A shares and Class B shares differ, princi-
pally in terms of the sales charges and rate of expenses to which they are
sub-
ject. See "Variable Pricing System."
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 4.50%. The Fund pays an annual service fee of
.15% of the value of average daily net assets of this Class. See "Purchase of
Shares."
CLASS B SHARES These shares are offered at net asset value per share subject
to
a maximum contingent deferred sales charge ("CDSC") of 4.50% of redemption
pro-
ceeds, declining by .50% after the first year after purchase and by 1% each
year thereafter to zero. The Fund pays an annual service fee of .15% and an
annual distribution fee of .50% of the value of average daily net assets of
this Class. See "Purchase of Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class
A
shares, based on relative net asset value, eight years after the date of
origi-
nal purchase. Upon conversion, these shares will no longer be subject to an
annual distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
PURCHASE OF SHARES Shares may be purchased through the Fund's distributor,
Smith Barney Shearson Inc. ("Smith Barney Shearson"), or a broker that clears
securities transactions through Smith Barney Shearson on a fully disclosed
basis (an "Introducing Broker").
INVESTMENT MINIMUMSInvestors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLANThe Fund offers shareholders a Systematic Investment
Plan under which they may authorize the automatic placement of a purchase
order
each month or quarter for Fund shares in an amount not less than $100. See
"Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A shares are redeemable at
net asset value and Class B shares are redeemable at net asset value less any
applicable CDSC. See "Redemption of Shares."
4
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
MANAGEMENT OF THE FUND Greenwich Street Advisors, a division of Mutual Manage-
ment Corp. ("Greenwich Street Advisors") serves as the Fund's investment
advis-
er. Mutual Management Corp. provides investment advisory and management serv-
ices to investment companies affiliated with Smith Barney Shearson. Mutual
Man-
agement Corp. is controlled by Smith Barney Shearson Holdings Inc. ("Hold-
ings"). Holdings is a wholly owned subsidiary of The Travelers Inc., formerly
known as Primerica Corporation, ("Travelers"), a diversified financial
services
holding company engaged in the businesses of providing investment, consumer
finance and insurance services.
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston Com-
pany, Inc. ("TBC"), which in turn is an indirect wholly owned subsidiary of
Mellon Bank Corporation ("Mellon"). See "Management of the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
class of certain other funds in the Smith Barney Shearson Group of Funds. Cer-
tain exchanges may be subject to a sales charge differential. See "Exchange
Privilege."
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
finan-
cial section of most newspapers and is also available from any Smith Barney
Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income are declared
daily and paid on the last business day of the Smith Barney Shearson statement
month. Distributions of net realized long- and short-term capital gains, if
any, are declared and paid annually after the end of the fiscal year in which
they were earned. See "Dividends, Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of any
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and distribution reinvestments will not be subject
to any sales charge or CDSC. Class B shares acquired through dividend and dis-
tribution reinvestments will become eligible for conversion to Class A shares
on a pro-rata basis. See "Dividends, Distributions and Taxes" and "Variable
Pricing System."
5
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
Fund
will achieve its investment objective. The Fund has the right to invest in
"private activity bonds," the income for which may be taxable as a specific
preference item for purposes of the Federal alternative minimum tax. The Fund
may invest without limit in such securities (see "Investment Objective and
Man-
agement Policies" and "Dividends, Distributions and Taxes"). The Fund
generally
will invest at least 75% of its assets in securities rated A, MIG 3 or Prime-1
(P-1) by Moody's Investors Service, Inc. ("Moody's") or A, SP-2 or A-3 by
Stan-
dard & Poor's Corporation ("S&P"), and may invest the remainder of its assets
in securities rated as low as C by Moody's or D by S&P. Securities in the
fourth highest rating category, though considered to be investment grade, have
speculative characteristics. Securities rated as low as D are extremely specu-
lative and are in actual default of interest and/or principal payments. There
are risks connected with the use of certain portfolio strategies by the Fund,
such as the use of when-issued securities, municipal bond index futures con-
tracts and put and call options on interest rate futures as hedging devices,
and municipal leases. See "Investment Objective and Management Policies--Cer-
tain Portfolio Strategies."
6
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSESThe following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the
Fund,
based upon the maximum sales charge or maximum CDSC that may be incurred at
the
time of purchase or redemption and of the Fund's operating expenses for its
most recent fiscal year:
<TABLE>
<CAPTION>
CLASS A CLASS B
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<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% --
Maximum CDSC
(as a percentage of redemption proceeds) -- 4.50%
- -----------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees % %
12b-1 fees* .15 .65
Other expenses**
- -----------------------------------------------------------
TOTAL FUND OPERATING EXPENSES % %
- -----------------------------------------------------------
</TABLE>
* Upon conversion, Class B shares will no longer be subject to a distribution
fee.
** All expenses are based on data for the Fund's fiscal year ended February
28,
1994.
The sales charge and CDSC set forth in the above table are the maximum
charges imposed on purchases or redemptions of Fund shares and investors may
pay actual charges of less than 4.50% depending on the amount purchased and,
in
the case of Class B shares, the length of time the shares are held. See "Pur-
chase of Shares" and "Redemption of Shares." Management fees paid by the Fund
include investment advisory fees paid to Greenwich Street Advisors at the fol-
lowing annual rates: .35% of the value of the Fund's average daily net assets
up to $500 million; .32% of the value of its average daily net assets on the
next $1 billion; and .29% of the value of average daily net assets of the Fund
in excess of $1.5 billion. Management fees also include administration fees
paid to Boston Advisors at the following annual rates: .20% of the value of
the
Fund's average daily net assets up to $500 million; .18% of the next $1 bil-
lion; and .16% of the value of the Fund's average daily net assets in excess
of
$1.5 billion. The nature of the services for which the Fund pays management
fees is described under "Management of the Fund." Smith Barney Shearson
receives an
7
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PROSPECTUS SUMMARY (CONTINUED)
annual 12b-1 fee of .15% of the value of average daily net assets of Class A
shares. Smith Barney Shearson also receives annual 12b-1 fees of .65% of the
value of average daily net assets of Class B shares, consisting of a .50% dis-
tribution fee and a .15% service fee. "Other expenses" in the above table
include fees for shareholder services, custodial fees, legal and accounting
fees, printing costs and registration fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumu-
lative expenses that would be incurred over various periods with respect to a
hypothetical $1,000 investment in the Fund assuming a 5% total return. The
example assumes payment by the Fund of operating expenses at the levels set
forth in the above table. The example should not be considered a
representation
of past or future expenses and actual expenses may be greater or less than
those shown. Moreover, while the example assumes a 5% annual return, the
Fund's
actual performance will vary and may result in an actual return greater or
less
than 5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
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<S> <C> <C> <C> <C>
Class A shares** $ $ $ $
Class B shares:
Assumes complete redemption at end of each
time period*** $ $ $ $
Assumes no redemption $ $ $ $
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</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
** Assumes deduction at the time of purchase of the maximum 4.50% sales
charge.
*** Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
8
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
FINANCIAL HIGHLIGHTS
The following information has been audited by Coopers & Lybrand, independent
accountants, whose report thereon appears in the Fund's Annual Report dated
February 28, 1994. This information should be read in conjunction with the
financial statements and related notes that also appear in the Fund's Annual
Report, which is incorporated by reference into the Statement of Additional
Information.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
YEAR
ENDED ENDED ENDED ENDED ENDED
ENDED
2/28/94 2/28/93 2/29/92 2/28/91 2/28/90
2/28/89
<S> <C> <C> <C> <C> <C>
<C>
Net Asset Value,
beginning of year $15.62 $14.98 $15.00
$14.83 $15.05
Income from investment
operations:
Net investment income 1.00 1.05 1.06
1.12 1.11
Net gains on securities
(both realized and
unrealized) 1.64 .66 .04
.15 (.06)
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- ---------------
Total from investment
operations 2.64 1.71 1.10
1.27 1.05
Less distributions:
Dividends from net
investment income (1.00) (1.05) (1.09)
(1.10) (1.11)
Distributions from net
realized capital gains (.52) -- --
- -- (.16)
Distributions from
capital (.03) (.02) (.03)
- -- --
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- ---------------
Total distributions (1.55) (1.07) (1.12)
(1.10) (1.27)
Net Asset Value, end of
year $16.71 $15.62 $14.98
$15.00 $14.83
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- ---------------
Total Return 17.92% 11.79% 7.65%
8.78% 7.31%
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- ---------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in 000's) $1,795,160 $1,597,551 $1,461,374
$1,478,340 $1,520,016
Ratio of net investment
income to average net
assets 6.30% 6.83% 7.15%
7.43% 7.48%
Ratio of operating
expenses to average net
assets .64% .59% .58%
.58% .66%
Portfolio turnover rate 206% 173% 83%
115% 37%
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</TABLE>
9
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
2/29/88 2/28/87 2/28/86 2/28/85
<S> <C> <C> <C> <C>
Net Asset Value, beginning of year $15.88 $15.67 $13.39 $13.33
Income from investment operations:
Net investment income 1.13 1.16 1.22 1.23
Net gains on securities (both realized
and unrealized) (.83) .64 2.36 .18
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Total from investment operations .30 1.80 3.58 1.41
Less distributions:
Dividends from net investment income (1.12) (1.16) (1.22) (1.23)
Distributions from net realized capital
gains (.01) (.43) (.08) (.12)
Distributions from capital -- -- -- --
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Total distributions (1.13) (1.59) (1.30) (1.35)
Net Asset Value, end of year $15.05 $15.88 $15.67 $13.39
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Total Return 2.33% 12.35% 28.25% 11.44%
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RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's) $601,202 788,791 516,452 251,986
Ratio of net investment income to
average net assets 7.59% 7.42% 8.48% 9.40%
Ratio of operating expenses to average
net assets .57% .59% .66% .69%
Portfolio turnover rate 20% 15% 53% 70%
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</TABLE>
10
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
2/28/94 2/28/93*
<S> <C> <C>
Net Asset Value, beginning of period $15.81
Income from investment operations:
Net investment income .32
Net gains on securities (both realized and unrealized) 1.42
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Total from investment operations 1.74
Less distributions:
Dividends from net investment income (.31)
Distributions from net realized capital gains (.52)
Distributions from capital (.01)
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Total distributions (0.84)
Net Asset Value, end of period $16.71
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Total Return 11.26%+
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RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) 61,359
Ratio of net investment income to average net assets 5.70%+
Ratio of operating expenses to average net assets 1.24%+
Portfolio turnover rate 206%
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</TABLE>
* The Fund commenced selling Class B shares on November 6, 1992.
+ Annualized.
11
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
VARIABLE PRICING SYSTEM
The Fund offers individual investors two methods of purchasing shares, thus
enabling investors to choose the Class that best suits their needs, given the
amount of purchase and intended length of investment.
Class A Shares.Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 4.50% imposed at the time of purchase. The
ini-
tial sales charge may be reduced or waived for certain purchases. Class A
shares are subject to an annual service fee of .15% of the value of the Fund's
average daily net assets attributable to the Class. The annual service fee is
used by Smith Barney Shearson to compensate its Financial Consultants for
ongo-
ing services provided to shareholders. The sales charge is used to compensate
Smith Barney Shearson for expenses incurred in selling Class A shares. See
"Purchase of Shares."
Class B Shares.Class B shares are sold at net asset value per share subject
to a maximum 4.50% CDSC, which is assessed only if the shareholder redeems
shares within the first five years of investment. This results in 100% of the
investor's assets being used to acquire shares of the Fund. The first year
from
the purchase of a share, the CDSC declines to 4.00%; for each year thereafter
within this five-year timeframe, the applicable CDSC declines by 1%; in year
six, the applicable CDSC is reduced to 0%. See "Purchase of Shares" and "Re-
demption of Shares."
Class B shares are subject to an annual service fee of .15% and an annual
distribution fee of .50% of the value of the Fund's average daily net assets
attributable to the Class. Like the service fee applicable to Class A shares,
the Class B service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses
such
as sales commissions, Smith Barney Shearson branch office overhead expenses
and
marketing costs associated with Class B shares, such as preparation of sales
literature, advertising and printing and distributing prospectuses, statements
of additional information and other materials to prospective investors in
Class
B shares. A Financial Consultant may receive different levels of compensation
for selling different Classes. Class B shares are subject to a distribution
fee
and a higher transfer agency fee than Class A shares which, in turn, will
cause
Class B shares to have a higher expense ratio and pay lower dividends than
Class A shares.
12
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
VARIABLE PRICING SYSTEM (CONTINUED)
Eight years after the date of purchase, Class B shares will convert
automati-
cally to Class A shares, based on the relative net asset values of shares of
shares of each Class, and will no longer be subject to a distribution fee. In
addition, a certain portion of Class B shares that have been acquired through
the reinvestment of dividends and distributions ("Class B Dividend Shares")
will be converted at that time. That portion will be a percentage of the total
number of shares owned by the shareholder equal to the ratio of the total num-
ber of Class B shares converting at the time to the total number of Class B
shares (other than Class B Dividend Shares) owned by the shareholders. Class B
shares will first be convertible into Class A shares on or about September 30,
1994. The conversion of Class B shares into Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that such con-
versions will not constitute taxable events for Federal tax purposes.
THE FUND'S PERFORMANCE
YIELD
From time to time, the Fund may advertise the 30-day "yield" and "equivalent
taxable yield" of each Class of shares. The yield refers to the income gener-
ated by an investment in those shares over the 30-day period identified in the
advertisement and is computed by dividing the net investment income per share
earned by the Class during the period by the maximum public offering price per
share on the last day of the period. This income is "annualized" by assuming
the amount of income is generated each month over a one-year period and is
com-
pounded semi-annually. The annualized income is then shown as a percentage of
the net asset value.
The equivalent taxable yield demonstrates the yield on a taxable investment
necessary to produce an after-tax yield equal to the Fund's tax-exempt yield
for each Class. It is calculated by increasing the yield shown for the Class
to
the extent necessary to reflect the payment of taxes at specified tax rates.
Thus, the equivalent taxable yield always will exceed the Fund's yield. For
more information on equivalent taxable yields, refer to the table under "Divi-
dends, Distributions and Taxes."
13
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
The Fund's yield for Class A and Class B shares for the 30-day period ended
February 28, 1994 was % and %, respectively. The equivalent taxable yield
for the same period was %, and %, respectively assuming the payment of
Fed-
eral income taxes at a rate of 31%.
TOTAL RETURN
From time to time, the Fund may advertise the "average annual total return"
over various periods of time for each Class. Total return figures show the
average percentage change in the value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period.
These figures reflect changes in the price of the shares and assume that any
income dividends and/or capital gains distributions made by the Fund with
respect to a Class during the period were reinvested in shares of the same
Class. Class A total average annual return figures include the maximum initial
4.50% sales charge and Class B total return figures include any applicable
CDSC. These figures also take into account the service and distribution fees,
if any, payable with respect to the Classes.
Total return figures will be given for the recent one-, five- and ten-year
periods, or for the life of a Class to the extent it has not been in existence
for any such periods, and may be given for other periods as well, such as on a
year-by- year basis. When considering average annual total return figures for
periods longer than one year, it is important to note that a Class' average
annual total return for any one year in the period might have been greater or
less than the average for the entire period. "Aggregate total return" figures
may be used for various periods, representing the cumulative change in the
value of an investment in a Class for the specific period (again reflecting
changes in share prices and assuming reinvestment of dividends and distribu-
tions). Aggregate total return may be calculated either with or without the
effect of the maximum 4.50% sales charge for the Class A shares or any
applica-
ble CDSC for Class B shares and may be shown by means of schedules, charts or
graphs, and may indicate subtotals of the various components of total return
(that is, changes in the value of initial investment, income dividends and
cap-
ital gains distributions). Because of the differences in sales charges and
dis-
tribution fees, the performance of each of the Classes will differ.
In reports or other communications to shareholders or in advertising materi-
al, performance of the Classes may be compared with that of other mutual funds
or classes of shares of other funds as listed in the rankings prepared by
14
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
Lipper Analytical Services, Inc. or similar independent services that monitor
the performance of mutual funds, or other industry or financial publications
such as Barron's, Business Week, CDA Investment Technologies, Inc., Forbes,
Fortune, Institutional Investor, Investors Daily, Kiplinger's Personal
Finance,
Money, Morningstar Mutual Fund Values, The New York Times, USA Today and The
Wall Street Journal. It is important to note that yield and total return fig-
ures are based on historical earnings and are not intended to indicate future
performance. To the extent that any advertisement or sales literature of the
Fund describes the expenses or performance of a Class, it will also disclose
such information for the other class. The Statement of Additional Information
contains a description of the methods used to determine performance. Perfor-
mance figures may be obtained from your Smith Barney Shearson Financial
Consul-
tant.
An investment of $10,000 in shares of the Fund (now designated as Class A
shares) made on March 1, 1983 (after deducting the maximum sales charge of
4.50%) grew to $ through February 28, 1993, after investment of all
divi-
dends and distributions. This represents an aggregate total return of %
as compared with an increase of % for the Lehman Brothers Municipal Bond
Index (a widely recognized, unmanaged measure of the total return performance
of the municipal bond market) and % for the Consumer Price Index.
Previous
and current conditions affecting the prices of municipal bonds held by the
Fund
may be different from conditions affecting the prices of municipal bonds in
the
future and, therefore, the results shown should not necessarily be considered
as representative of the return which may be realized by an investment in the
Fund's Class A shares today.
15
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
<TABLE>
<CAPTION>
OTHER
INDICES
VALUE OF
VALUE OF REINVESTED LEHMAN
INITIAL DIVIDENDS AND PERIOD BROTHERS PERIOD
PERIOD
$10,000 CAPITAL GAINS TOTAL CHANGE MUNICIPAL CHANGE
COST OF CHANGE
YEAR ENDED INVESTMENT DISTRIBUTIONS(3) VALUE (%) BOND INDEX (%)
LIVING(4) (%)
- ------------------------------------------------------------------------------
- ----------------
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
March 1, 1983
February 29, 1984
February 28, 1985
February 28, 1986
February 28, 1987
February 29, 1988
February 28, 1989
February 28, 1990
February 28, 1991
February 29, 1992
February 28, 1993
February 28, 1994
- ------------------------------------------------------------------------------
- ----------------
</TABLE>
Explanatory Notes:
(1) Does not reflect the Class A annual service fee of .15% of the value of
average daily net assets of the Class which became payable commencing on
November 6, 1992. Prior to that date, the Fund incurred no service or
distribution fees, which will have the effect of reducing future
performance.
(2) Based on maximum sales charge of 4.50% of the offering price.
(3) No adjustment has been made for shareholders' tax liability on dividends
or
capital gains.
(4) Measured by Consumer Price Index.
16
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
CLASS A SHARES
Illustration of an Assumed Investment of $10,000
with Income Dividends and Capital Gains Distributions Reinvested from March 1,
1983 through February 28, 1994(1)
[MAC CHART]
- ------------------------------------------------------------------------------
- --
(1) The chart above covers the period from March 1, 1983 to February 28, 1994.
This period was one in which interest rates and municipal bond prices
fluctuated widely. The results shown should not be considered as a
representation of the dividend income or capital gain or loss which may be
realized from an investment made in the Fund today.
(2) Based on maximum current sales charge of 4.5% of the offering price.
The following total return figures assume that the maximum 4.50% sales charge
has been deducted from the investment at the time of purchase. The Fund's
aver-
age annual total returns for the Class A shares were as follows for the
periods
indicated:
% for the one-year period beginning on March 1, 1993 through February
28, 1994;
17
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
THE FUND'S PERFORMANCE (CONTINUED)
% per annum during the five-year period beginning on March 1, 1989
through February 28, 1994;
% per annum during the ten-year period beginning on March 1, 1984
through February 28, 1994; and
% per annum during the period from commencement of operations (March 4,
1981) through February 28, 1994.
The aggregate total returns for the Class A shares were as follows for the
periods indicated:
% for the one-year period beginning March 1, 1993 through February 28,
1994;
% for the five-year period beginning March 1, 1989 through February 28,
1994;
% for the ten-year period beginning March 1, 1984 through February 28,
1994; and
% per annum during the period from commencement of operations (March 4,
1981) through February 28, 1994.
These aggregate total return figures do not assume that the maximum 4.5%
sales charge has been deducted from the investment at the time of purchase. If
the sales charge had been deducted at the time of purchase, the aggregate
total
return for its Class A shares for those same periods would have been %, %,
%, and %, respectively.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund rests with
the Fund's Board of Directors. The Directors approve all significant
agreements
between the Fund and the companies that furnish services to the Fund,
including
agreements with the Fund's distributor, investment adviser, administrator,
cus-
todian and transfer agent. The day-to-day operations of the Fund are delegated
to the Fund's investment adviser and administrator. The Statement of
Additional
Information contains background information regarding each Director and execu-
tive officer of the Fund.
18
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
INVESTMENT ADVISER--GREENWICH STREET ADVISORS
Greenwich Street Advisors, located at Two World Trade Center, New York, New
York 10048, serves as the Fund's investment adviser. Greenwich Street Advisors
(through predecessor entities) has been in the investment counselling business
since 1934 and is a division of Mutual Management Corp. which was incorporated
in 1978. Greenwich Street Advisors renders investment advice to investment
com-
panies that had aggregate assets under management as of March 31, 1994, in
excess of $ billion.
Subject to the supervision and direction of the Fund's Board of Directors,
Greenwich Street Advisors manages the Fund's portfolio in accordance with the
Fund's stated investment objective and policies, makes investment decisions
for
the Fund, places orders to purchase and sell securities and employs profes-
sional portfolio managers and securities analysts who provide research
services
to the Fund. For the fiscal year ended February 28, 1994, Greenwich Street
Advisors was paid investment advisory fees equal to .12% of the value of the
average daily net assets of the Fund and waived an amount equal to % of the
value of the average daily net assets of the Fund.
PORTFOLIO MANAGEMENT
Joseph P. Deane, Vice President, Investment Officer of the Fund since and
Managing Director of Greenwich Street Advisors, is responsible for managing
the
day-to-day operations of the Fund, including the making of investment deci-
sions.
Mr. Deane's management discussion and analysis, and additional performance
regarding the Fund during the fiscal year ended February 28, 1994 is included
in the Annual Report dated February 28, 1994. A copy of the Annual Report may
be obtained upon request and without charge from your Smith Barney Shearson
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors, located at One Boston Place, Boston, Massachusetts 02108,
serves as the Fund's administrator. Boston Advisors provides investment
manage-
ment, investment advisory and/or administrative services to investment compa-
nies that had aggregate assets under management as of March 31, 1994, in
excess
of $ billion.
19
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
MANAGEMENT OF THE FUND (CONTINUED)
Boston Advisors calculates the net asset value of the Fund's shares and gen-
erally assists in all aspects of the Fund's administration and operation. For
the fiscal year ended February 28, 1994, Boston Advisors was paid % in
admin-
istration fees.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund seeks to maximize current interest income exempt from Federal
income
taxes to the extent consistent with prudent investment management and the
pres-
ervation of capital by investing in a professionally managed, diversified
port-
folio consisting of municipal securities that pay interest which is excluded
from gross income for Federal income tax purposes and that are issued by or on
behalf of the states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, or multi-state agencies or authorities, generally known as
"Municipal Bonds." This investment objective may not be changed without the
approval of the holders of a majority of the Fund's outstanding shares. There
is no guarantee that the Fund's investment objective will be achieved.
The Fund will operate subject to a fundamental investment policy providing
that, under normal market conditions, the Fund will invest at least 80% of its
net assets in Municipal Bonds. For temporary defensive purposes, the Fund may
invest without limit in "Temporary Investments" as described below.
The Fund generally will invest at least 75% of its total assets in obliga-
tions rated no lower than A, MIG 3 or Prime-1 (P-1) by Moody's or A, SP-2 or
A-
3 by S&P. If notes are not rated, the issuer's bond rating must be at least A
as determined by Moody's or S&P. The balance of the Fund's assets may be
invested in securities rated as low as C by Moody's or D by S&P, or comparable
unrated securities. Securities in the fourth higher rating category, though
considered to be investment grade, have speculative characteristics.
Securities
rated as low as D are extremely speculative and are in actual default of
inter-
est and/or principal payments. The Fund's average weighted maturity will vary
from time to time based on the judgment of Smith Barney Shearson. The Fund
intends to focus on intermediate- and long-term obligations; that is, obliga-
tions with remaining maturities at the time of purchase of between three and
twenty years. These investments are subject to greater market fluctuation and
more uncertainty as to payment of principal and interest, and, therefore, gen-
erate higher yields than higher rated securities. It should be emphasized that
ratings
20
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
are relative and subjective and are not absolute standards of quality.
Although
these ratings are initial criteria for selection of portfolio investments, the
Fund also will make its own evaluation of these securities. Among the factors
that will be considered are the long-term ability of the issuers to pay
princi-
pal and interest and general economic trends.
While the market values of low-rated and comparable unrated securities tend
to react less to fluctuations in interest rate levels than the market values
of
higher-rated securities, the market values of certain low-rated and comparable
unrated municipal securities also tend to be more sensitive than higher-rated
securities to short-term corporate and industry developments and changes in
economic conditions (including recession) in specific regions or localities or
among specific types of issuers. In addition, low-rated securities and
compara-
ble unrated securities generally present a higher degree of credit risk.
During
an economic downturn or a prolonged period of rising interest rates, the abil-
ity of issuers of low-rated and comparable unrated securities to service their
payment obligations, meet projected goals or obtain additional financing may
be
impaired. The risk of loss due to default by such issuers is significantly
greater because low-rated and comparable unrated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. The Fund may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal or inter-
est on its portfolio holdings.
While the market for municipal securities is considered to be generally ade-
quate, the existence of limited markets for particular low-rated and
comparable
unrated securities may diminish the Fund's ability to (a) obtain accurate mar-
ket quotations for purposes of valuing such securities and calculating its net
asset value and (b) sell the securities at fair value either to meet
redemption
requests or to respond to changes in the economy or in the financial markets.
The market for certain low-rated and comparable unrated securities has not
fully weathered a major economic recession. Any such recession, however, would
likely disrupt severely the market for such securities and adversely affect
the
value of the securities and the ability of the issuers of these securities to
repay principal and pay interest thereon.
Fixed-income securities, including low-rated securities and comparable
unrated securities, frequently have call or buy-back features that permit
their
issuers to call or repurchase the securities from their holders, such as the
Fund. If an issuer exercises these rights during periods of declining interest
rates, the
21
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Fund may have to replace the security with a lower yielding security, thus
resulting in a decreased return to the Fund.
A description of the rating systems of Moody's and S&P is contained in the
Statement of Additional Information.
The Fund may invest without limit in "municipal leases," which are obliga-
tions issued by state and local governments or authorities to finance the
acquisition of equipment or facilities. The interest on such obligations is,
in
the opinion of counsel to the issuers, excluded from gross income for Federal
income tax purposes. Although lease obligations do not constitute general
obli-
gations 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 obliga-
tion. However, certain lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
install-
ment 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
devel-
oped the depth of marketability associated with more conventional bonds.
Although "non-appropriation" lease obligations are often secured by the under-
lying 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, Greenwich Street Advisors 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
municipali-
ty; (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
enhance-
ment such as insurance; and (g) any limitations which are imposed on the lease
obligor's ability to utilize substitute property or services rather than those
covered by the lease obligation.
The Fund may invest without limit in private activity bonds. Interest income
on certain types of private activity bonds issued after August 7, 1986 to
finance nongovernmental activities is a specific tax preference item for pur-
poses of the Federal individual and corporate alternative minimum taxes. Indi-
vidual and corporate shareholders may be subject to a Federal alternative
mini-
mum tax to the
22
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
extent that the Fund's dividends are derived from interest on these bonds.
Div-
idends derived from interest income on all Municipal Bonds are a component of
the "current earnings" adjustment item for purposes of the Federal corporate
alternative minimum tax.
The Fund may invest without limit in debt obligations which are repayable
out
of revenue streams generated from economically related projects or facilities
or debt obligations whose issuers are located in the same state. Sizeable
investments in such obligations could involve an increased risk to the Fund
should any of such related projects or facilities experience financial diffi-
culties. In addition, the Fund may invest up to 15% of its total assets in
securities with contractual or other restrictions on resale and other instru-
ments which are not readily marketable. Notwithstanding the foregoing, the
Fund
shall not invest more than 10% of its assets in securities (excluding those
subject to Rule 144A under the Securities Act of 1993, as amended) that are
restricted. The Fund also is authorized to borrow up to 10% of its total
assets
(including the amount borrowed) valued at market less liabilities (not includ-
ing the amount borrowed) to meet anticipated redemptions and to pledge its
assets to the same extent in connection with such borrowings.
Further information about the Fund's investment policies, including a list
of
those restrictions on the Fund's investment activities that cannot be changed
without shareholder approval, appears in the Statement of Additional Informa-
tion.
CERTAIN PORTFOLIO STRATEGIES
In attempting to achieve its investment objective, the Fund may employ,
among
others, the following portfolio strategies.
When-Issued Securities.New issues of Municipal Bonds frequently are offered
on a when-issued basis, which means that delivery and payment for such securi-
ties normally take place within 45 days after the date of the commitment to
purchase. The payment obligation and the interest rate that will be received
on
when-issued securities are fixed at the time the buyer enters into the commit-
ment. As a result, the yields obtained on such securities may be higher or
lower than the yields available in the market on the dates when the
instruments
actually are delivered to the buyers. In addition, during the period before
delivery and payment, there is no accrual of interest and there may be
fluctua-
tions in the price of the securities. The Fund will establish a segregated
account with the Fund's custodian consisting of cash, obligations issued or
guaranteed
23
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
by the United States government or its agencies or instrumentalities ("U.S.
government securities") or other high grade debt obligations in an amount
equal
to the purchase price of the Fund's when-issued commitments. Placing
securities
rather than cash in the segregated account may have a leveraging effect on the
Fund's net assets. The Fund generally will make commitments to purchase such
Municipal Bonds on a when-issued basis only with the intention of actually
acquiring the securities, but the Fund may sell the securities before the set-
tlement date if it is deemed advisable.
Temporary Investments.Under normal market conditions, the Fund may hold up
to
20% of its total assets in cash or money market instruments, including taxable
money market instruments ("Temporary Investments"). In addition, when Smith
Barney Shearson believes that market conditions warrant, including when
accept-
able Municipal Bonds are unavailable, the Fund may take a temporary defensive
posture and invest without limitation in Temporary Investments. Securities
eli-
gible for short-term investment by the Fund are tax-exempt notes of municipal
issuers having, at the time of purchase, a rating within the three highest
grades of Moody's or S&P or, if not rated, having an issue of outstanding
Municipal Bonds rated within the three highest grades of Moody's or S&P, and
certain taxable short-term instruments having quality characteristics compara-
ble to those for Municipal Bonds. To the extent the Fund holds Temporary
Investments, it may not achieve its investment objective. Since its commence-
ment of operations, the Fund has not found it necessary to make taxable Tempo-
rary Investments, and it is not expected that such action will be necessary.
Financial Futures and Options Transactions.To hedge against a decline in the
value of Municipal Bonds it owns or an increase in the price of Municipal
Bonds
it proposes to purchase, the Fund may enter into financial futures contracts
and invest in options on financial futures contracts that are traded on a
domestic exchange or board of trade. The futures contracts or options on
futures contracts that may be entered into by the Fund will be restricted to
those that are either based on an index of Municipal Bonds or relate to debt
securities the prices of which are anticipated by Smith Barney Shearson to
cor-
relate with the prices of the Municipal Bonds owned or to be purchased by the
Fund.
In entering into a financial futures contract, the Fund will be required to
deposit with the broker through which it undertakes the transaction an amount
of cash or cash equivalents equal to approximately 5% of the contract amount.
This amount, which is known as "initial margin," is subject to change by the
24
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
exchange or board of trade on which the contract is traded, and members of the
exchange or board of trade may charge a higher amount. Initial margin is in
the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. In accordance with a process
known
as "marking-to-market," subsequent payments, known as "variation margin," to
and from the broker will be made daily as the price of the index or securities
underlying the futures contract fluctuates, making the long and short
positions
in the futures contract more or less valuable. At any time prior to the
expira-
tion of a futures contract, the Fund may elect to close the position by taking
an opposite position, which will operate to terminate the Fund's existing
posi-
tion in the contract.
A financial futures contract provides for the future sale by one party and
the purchase by the other party of a certain amount of a specified property at
a specified price, date, time and place. Unlike the direct investment in a
futures contract, an option on a financial futures contract gives the
purchaser
the right, in return for the premium paid, to assume a position in the finan-
cial futures contract at a specified exercise price at any time prior to the
expiration date of the option. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will
be accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case
of a put, the exercise price of the option on the futures contract. The poten-
tial loss related to the purchase of an option on financial futures contracts
is limited to the premium paid for the option (plus transaction costs). The
value of the option may change daily and that change would be reflected in the
net asset value of the Fund.
Regulations of the Commodity Futures Trading Commission applicable to the
Fund require that its transactions in financial futures contracts and options
on financial futures contracts be engaged in for bona fide hedging purposes or
other permitted purposes, and that no such transactions may be entered into by
the Fund if the aggregate initial margin deposits and premiums paid by the
Fund
exceed 5% of the market value of its assets. In addition, the Fund will, with
respect to its purchases of financial futures contracts, establish a
segregated
account consisting of cash or cash equivalents in an amount equal to the total
market value of the futures contracts, less the amount of initial margin on
deposit for the contracts. The Fund's ability to trade in financial futures
contracts and options on financial futures contracts may be limited to some
extent
25
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
by the requirements of the Internal Revenue Code of 1986, as amended (the
"Code") applicable to a regulated investment company that are described below
under "Dividends, Distributions and Taxes."
Although the Fund intends to enter into financial futures contracts and
options on financial futures contracts that are traded on a domestic exchange
or board of trade only if an active market exists for those instruments, no
assurance can be given that an active market will exist for them at any
partic-
ular time. If closing a futures position in anticipation of adverse price
move-
ments is not possible, the Fund would be required to make daily cash payments
of variation margin. In those circumstances, an increase in the value of the
portion of the Fund's investments being hedged, if any, may offset partially
or
completely losses on the futures contract. No assurance can be given, however,
that the price of the securities being hedged will correlate with the price
movements in a futures contract and, thus, provide an offset to losses on the
futures contract or option on the futures contract. In addition, in light of
the risk of an imperfect correlation between securities held by the Fund that
are the subject of a hedging transaction and the futures or options used as a
hedging device, the hedge may not be fully effective because, for example,
losses on the securities held by the Fund may be in excess of gains on the
futures contract or losses on the futures contract may be in excess of gains
on
the securities held by the Fund that were the subject of the hedge. In an
effort to compensate for the imperfect correlation of movement in the price of
the securities being hedged and movements in the price of futures contracts,
the Fund may enter into financial futures contracts or options on financial
futures contracts in a greater or lesser dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the futures
con-
tract has been less or greater than that of the securities. This "over
hedging"
or "under hedging" may adversely affect the Fund's net investment results if
market movements are not as anticipated when the hedge is established.
If the Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of securities it holds and rates decrease
instead, the Fund will lose part or all of the benefit of the increased value
of securities that it has hedged because it will have offsetting losses in its
futures or options positions. In addition, in those situations, if the Fund
has
insufficient cash, it may have to sell securities to meet daily variation mar-
gin requirements on the futures contracts at a time when it may be disadvanta-
geous to do so. These sales of securities may, but will not necessarily, be at
increased prices that reflect the decline in interest rates.
26
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
MUNICIPAL BONDS
The term "Municipal Bonds" generally is understood to include debt obliga-
tions issued to obtain funds for various public purposes, the interest on
which
qualifies, in the opinion of bond counsel to the issuer, as excluded from
gross
income for Federal income tax purposes. In addition, Municipal Bonds may
include "private activity bonds" if the proceeds from such bonds are used for
the construction, equipment, repair or improvement of privately operated
indus-
trial or commercial facilities, and the interest paid on such bonds may be
excluded from gross income for Federal income tax purposes. Current Federal
tax
laws place substantial limitations on the aggregate amount of such bonds that
any given state may issue.
CLASSIFICATIONS
The two principal classifications of Municipal Bonds are "general
obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable from the revenues derived from a par-
ticular facility or class of facilities or, in some cases, from the proceeds
of
a special excise or other specific revenue source, but not from the general
taxing power. Sizeable investments in such obligations could involve an
increased risk to the Fund should any of such related facilities experience
financial difficulties. Private activity bonds are in most cases revenue bonds
and generally do not carry the pledge of the credit of the issuing municipali-
ty. There are, of course, variations in the security of Municipal Bonds, both
within a particular classification and between classifications.
PURCHASE OF SHARES
Purchases of shares must be made through a brokerage account maintained with
Smith Barney Shearson or with an Introducing Broker. When purchasing shares of
the Fund, investors must specify whether the purchase is for Class A or Class
B
shares. No maintenance fee will be charged in connection with a brokerage
account through which an investor purchases or holds shares. Purchases are
effected at the public offering price next determined after a purchase order
is
received by Smith Barney Shearson or an Introducing Broker (the "trade date").
Payment is generally due to Smith Barney Shearson or an Introducing Broker on
the fifth business day after the trade date (the "settlement date"). Investors
who make payment prior to the settlement date may permit
27
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
the payment to be held in their brokerage accounts or may designate a
temporary
investment (such as a money market fund in the Smith Barney Shearson Group of
Funds) for the payment until the settlement date. The Fund reserves the right
to reject any purchase order and to suspend the offering of shares for a
period
of time.
Purchase orders received by Smith Barney Shearson or an Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New
York time, on any day the Fund calculates its net asset value, are priced
according to the net asset value determined on that day. Purchase orders
received after the close of regular trading on the NYSE are priced as of the
time the net asset value per share is next determined. See "Valuation of
Shares."
Systematic Investment Plan.The Fund offers shareholders a Systematic Invest-
ment Plan under which shareholders may authorize Smith Barney Shearson or an
Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid automati-
cally from cash held in the shareholder's Smith Barney Shearson brokerage
account or through the automatic redemption of the shareholder's shares of a
Smith Barney Shearson money market fund. For further information regarding the
Systematic Investment Plan, shareholders should contact their Smith Barney
Shearson Financial Consultants.
Minimum Investments.The minimum initial investment in the Fund is $1,000 and
the minimum subsequent investment is $200, except that the minimum initial and
subsequent investments for the Systematic Investment Plan are both $100. There
are no minimum investment requirements for employees of The Travelers Inc.
(formerly known as Primerica Corporation) ("Travelers") and its subsidiaries,
including Smith Barney Shearson. The Fund reserves the right to vary at any
time the initial and subsequent investment minimums. Certificates for Fund
shares are issued upon request to the Fund's transfer agent, The Shareholder
Services Group, Inc. ("TSSG"), a subsidiary of First Data Corporation.
CLASS A SHARES
The public offering price for Class A shares is the per share net asset
value
of that Class plus a sales charge, which is imposed in accordance with the
fol-
lowing schedule:
28
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Under $25,000 4.50% 4.71%
$25,000 but under $50,000 4.00% 4.17%
$50,000 but under $100,000 3.50% 3.63%
$100,000 but under $250,000 3.00% 3.09%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 1.50% 1.52%
$1,000,000 or more** 0.00% 0.00%
- -------------------------------------------------------------------------
</TABLE>
* Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and Introducing Brokers that single investments of $250,000 or
more should be made in Class A shares.
** No sales charge is imposed on purchases of $1 million or more; however, a
CDSC of .75% is imposed for the first year after purchase. The CDSC on
Class
A shares is payable to Smith Barney Shearson which, with Boston Advisors,
compensates Smith Barney Shearson Financial Consultants upon the sale of
these shares. The CDSC is waived in the same circumstances in which the
CDSC
applicable to Class B shares is waived. See "Redemption of Shares--
Contingent Deferred Sales Charge--Class B Shares--Waiver of CDSC."
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Class A shares to receive volume discounts. Investors
eligi-
ble to receive volume discounts include individuals and their immediate fami-
lies and trustees or other professional fiduciaries (including a bank, or an
investment adviser registered with the SEC under the Investment Advisers Act
of
1940, as amended) purchasing shares for one or more trust estates or fiduciary
accounts even though more than one beneficiary is involved. The initial sales
charge is also reduced to 1% for Smith Barney Shearson Personal Living Trust
program participants for whom Smith Barney Shearson acts as trustee. Reduced
sales charges on Class A shares are also available under a combined right of
accumulation, under which an investor may combine the value of Class A shares
already held in the Fund and in any of the funds in the Smith Barney Shearson
Group of Funds listed below (except those sold without a sales charge), along
with the value of the Class A shares being purchased, to qualify for a reduced
sales charge. For example, if an investor owns Class A shares of the Fund and
other funds in the Smith Barney Shearson Group of Funds sold with a sales
charge that have an aggregate value of $22,000, and makes an additional
invest-
ment in the Class A shares of the Fund of $4,000, the sales charge applicable
to the additional investment would be 4%, rather than the 4.50%
29
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
PURCHASE OF SHARES (CONTINUED)
normally charged on a $4,000 purchase. Investors interested in further
informa-
tion regarding reduced sales charges should contact their Smith Barney
Shearson
Financial Consultants.
Class A shares may be offered without any applicable sales charges to: (a)
employees of Travelers and its subsidiaries, including Smith Barney Shearson,
and their immediate families when orders on their behalf are placed by such
employees; (b) accounts managed by registered investment advisory subsidiaries
of Travelers; (c) directors, trustees or general partners of any investment
company for which Smith Barney Shearson serves as distributor; (d) any other
investment company in connection with the combination of such company with the
Fund by merger, acquisition of assets or otherwise; (e) shareholders who have
redeemed Class A shares in the Fund (or Class A shares in another fund in the
Smith Barney Shearson Group of Funds that are sold with a maximum 4.50% sales
charge) and who wish to reinvest their redemption proceeds in the Fund, pro-
vided the reinvestment is made within 30 days of the redemption; and (f) any
client of a newly employed Smith Barney Shearson Financial Consultant (for a
period of up to 90 days from the commencement of the Financial Consultant's
employment with Smith Barney Shearson), on the condition the purchase is made
with the proceeds of the redemption of shares of a mutual fund that (i) was
sponsored by the Financial Consultant's prior employer, (ii) was sold to a
cli-
ent by the Financial Consultant, and (iii) when purchased, such shares were
sold with a sales charge or are subject to a charge upon redemption.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset
value
of that Class. No initial sales charge is imposed at the time of purchase. A
CDSC is imposed, however, on certain redemptions of Class B shares. See "Re-
demption of Shares" which describes the CDSC in greater detail.
Shearson has adopted guidelines, in view of the relative sales charges and
distribution fees applicable to the Classes, directing Smith Barney Shearson
Financial Consultants and Introducing Brokers that all purchases of shares of
$250,000 or more should be for Class A shares. Smith Barney Shearson reserves
the right to vary these guidelines at any time.
30
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day the Fund's net asset value
is
calculated. See "Valuation of Shares." Redemption requests received in proper
form prior to the close of regular trading on the NYSE are priced at the net
asset value per share determined on that day. Redemption requests received
after the close of regular trading on the NYSE are priced at the net asset
value next determined. If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class being redeemed. In the event
of a failure to specify which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will be delayed until the
Fund's transfer agent receives further instructions from Smith Barney
Shearson,
or if the shareholder's account is not with Smith Barney Shearson, from the
shareholder directly.
The Fund normally transmits redemption proceeds for credit to the sharehold-
er's account at Smith Barney Shearson or to the Introducing Broker at no
charge
(other than any applicable CDSC) within seven days after receipt of a redemp-
tion request. Generally, these funds will not be invested for the
shareholder's
benefit without specific instruction and Smith Barney Shearson will benefit
from the use of temporarily uninvested funds. A shareholder who pays for Fund
shares by personal check will be credited with the proceeds of a redemption of
those shares only after the purchase check has been collected, which may take
up to 10 days or more. A shareholder who anticipates the need for more immedi-
ate access to his or her investment should purchase shares with Federal funds,
by bank wire or a certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of $500 or less
may be subject to redemption by the Fund, but only after the shareholder has
been given at least 30 days in which to increase the account balance to more
than $500.
Shares may be redeemed in one of the following ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introduc-
ing Broker. A shareholder desiring to redeem shares represented by
certificates
also must present the certificates to Smith Barney Shearson or the Introducing
Broker endorsed for transfer (or accompanied by an endorsed stock power),
signed exactly as the shares are registered. Redemption requests involving
shares represented by certificates will not be deemed received until the cer-
tificates are received by the Fund's transfer agent in proper form.
31
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request for redemption to:
Smith Barney Shearson Managed Municipals Fund Inc.
Class A or B (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to the Fund's transfer agent, TSSG, or your
Smith Barney Shearson Financial Consultant must (a) state the Class and number
or dollar amount of shares to be redeemed, (b) identify the shareholder's
account number and (c) be signed by each registered owner exactly as the
shares
are registered. If the shares to be redeemed were issued in certificate form,
the certificates must be endorsed for transfer (or be accompanied by an
endorsed stock power) and must be submitted to TSSG together with the redemp-
tion request. Any signature appearing on a redemption request, share certifi-
cate or stock power must be guaranteed by a domestic bank, savings and loan
institution, domestic credit union, member bank of the Federal Reserve System
or member firm of a national securities exchange. TSSG may require additional
supporting documents for redemptions made by corporations, executors, adminis-
trators, trustees or guardians. A redemption request will not be deemed prop-
erly received until TSSG receives all required documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares of the Fund with a value of at least $10,000 may
elect to receive periodic cash payments of at least $50 monthly. Any
applicable
CDSC will not be waived on amounts withdrawn by a shareholder that exceed 2%
per month of the value of the shareholder's shares subject to the CDSC at the
time the withdrawal plan commences. For further information regarding the
auto-
matic cash withdrawal plan, shareholders should contact their Smith Barney
Shearson Financial Consultants.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of
Class
B shares, however effected, that causes the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder
32
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
for the purchase of Class B shares ("purchase payments") during the preceding
five years. No charge is imposed to the extent that the net asset value of the
Class B shares redeemed does not exceed (a) the current net asset value of
Class B shares purchased through reinvestment of dividends or capital gains
distributions, plus (b) the current net asset value of Class B shares
purchased
more than five years prior to the redemption, plus (c) increases in the net
asset value of the shareholder's Class B shares above the purchase payments
made during the preceding five years.
In circumstances in which the CDSC is imposed, 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 during a month
will be aggregated and deemed to have been made on the last day of the preced-
ing Smith Barney Shearson statement month.
The following table sets forth the rates of the charge for redemptions of
Class B shares by investors:
<TABLE>
<CAPTION>
YEARS SINCE PURCHASE
PAYMENT WAS MADE CDSC
- ----------------------------------
<S> <C>
First 4.50%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
- ----------------------------------
</TABLE>
Class B shares will automatically convert to Class A shares eight years
after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has
not already been effected. In the case of redemptions of Class B shares of
other funds in the Smith Barney Shearson Group of Funds issued in exchange for
33
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
REDEMPTION OF SHARES (CONTINUED)
Class B shares of the Fund, the term "purchase payments" refers to the
purchase
payments for the shares given in exchange. In the event of an exchange of
Class
B shares of funds with differing CDSC schedules, the shares will be, in all
cases, subject to the higher CDSC schedule. See "Exchange Privilege."
Waivers of CDSC. The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) automatic cash withdrawals in amounts equal to or less than
2%
per month of the value of the shareholder's Class B shares at the time the
withdrawal plan commences (see above); (c) redemptions of shares following the
death or disability of the shareholder; (d) involuntary redemptions; (e)
redemption proceeds from other funds in the Smith Barney Shearson Group of
Funds that are reinvested within 30 days of the redemption; and (f)
redemptions
of shares in connection with a combination of any investment company with the
Fund by merger, acquisition of assets or otherwise.
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except days on which the NYSE is closed. The NYSE currently is
scheduled to be closed on New Year's Day, Presidents' Day, Good Friday, Memo-
rial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively.
The net asset value per share of a Class is determined as of the close of
regular trading on the NYSE and is computed by dividing the value of the
Fund's
net assets attributable to that Class by the total number of shares of that
Class outstanding. Generally, the Fund's investments are valued at market
value
or, in the absence of a market value with respect to any securities, at fair
value as determined by or under the direction of the Fund's Board of
Directors.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Directors determine that amortized cost reflects fair value
of those investments. Amortized cost valuation involves valuing an instrument
at its cost initially and, thereafter, assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. Further information
regarding the Fund's valuation policies is contained in the Statement of Addi-
tional Information.
34
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class in the
following funds in the Smith Barney Shearson Group of Funds, to the extent
shares are offered for sale in the shareholder's state of residence:
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- ------
<C> <S>
Municipal Bond Funds
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND, an
intermediate-term municipal bond fund investing in investment-
grade
obligations.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an intermediate-
and
long-term municipal bond fund investing in medium- and lower-
rated
securities.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate-
and long-term municipal bond fund designed for Arizona
investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA
MUNICIPALS
FUND, an intermediate-term municipal bond fund designed for
California
investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an intermediate-
and
long-term municipal bond fund designed for Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPAL FUND, an
intermediate-
and long-term municipal bond fund designed for Massachusetts
investors.
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate- and long-term municipal bond fund designed for New
Jersey investors.
</TABLE>
35
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- ------
<C> <S>
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK MUNICIPALS
FUND,
an intermediate-term municipal bond fund designed for New York
investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate-
and long-term municipal bond fund designed for New York
investors.
A, B SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME FUND,
seeks
high current income while limiting the degree of fluctuation in
net
asset value resulting from movement in interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND, invests in a
portfolio of high quality debt securities that may be
denominated in
U.S. dollars or selected foreign currencies and that have
remaining
maturities of not more than one year.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests in
high
quality, short-term debt securities denominated in U.S. dollars
as
well as a range of foreign currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND, invests
exclusively in securities issued by the United States Treasury
and
other U.S. government securities.
A, B SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND, seeks
high
current income primarily by allocating and reallocating its
assets
among various types of fixed-income securities.
A, B SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC., invests in
obligations issued or guaranteed by the U.S. government and its
agencies and instrumentalities with emphasis on mortgage-backed
government securities.
A, B SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a high
current
return by investing in U.S. government securities.
</TABLE>
36
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- ------
<C> <S>
A, B SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks maximum
current income consistent with prudent investment management and
preservation of capital by investing in corporate bonds.
A, B SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current
income by
investing in high-yielding corporate bonds, debentures and
notes.
A, B SMITH BARNEY SHEARSON GLOBAL BOND FUND, seeks current income and
capital appreciation by investing in bonds, debentures and notes
of
foreign and domestic issuers.
A*, B* SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income and
capital appreciation by investing in convertible securities.
A*, B* SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing
in equity and debt securities of utilities companies.
A*, B* SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high total
return consisting of current income and capital appreciation by
investing in a combination of equity, fixed-income and money
market
securities.
A*, B* SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks total
return by
investing in dividend-paying common stocks.
A*, B* SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks income and
long-
term capital growth by investing in income-producing equity
securities.
Growth Funds
A*, B* SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-term
appreciation of capital.
A*, B* SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks long-
term
capital growth with current income as a secondary objective.
</TABLE>
37
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- ------
<C> <S>
A*, B* SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation
by following a sector strategy.
A*, B* SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND, an equity
fund
seeking capital appreciation, with income as a secondary
consideration.
A*, B* SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks above-
average
capital growth.
A*, B* SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-term
capital
appreciation by investing in equity securities primarily of
emerging
growth companies.
A*, B* SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, an equity fund
seeking long-term capital growth by investing principally in the
common stocks of foreign and domestic issuers.
A*, B* SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term capital
appreciation by investing primarily in securities of issuers
based in
European countries.
A*, B* SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND INC.,
seeks
long-term capital appreciation by investing primarily in
precious
metal- and mineral-related companies and gold bullion.
Money Market Funds
** SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a
diversified
portfolio of high quality money market instruments.
*** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND INC., invests in a
diversified portfolio of high quality money market instruments.
*** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND INC., invests
in short-term U.S. government and agency securities.
*** SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND INC., invests
in
short-term, high quality municipal obligations.
</TABLE>
38
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
- ------------------------------------------------------------------------------
- ------
<C> <S>
*** SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET FUND,
invests
in short-term, high quality California municipal obligations.
*** SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET FUND,
invests in
short-term, high quality New York municipal obligations.
- ------------------------------------------------------------------------------
- ------
</TABLE>
* Shares of this fund are subject to a higher sales charge or CDSC than that
applicable to the Fund's shares.
** Shares of this money market fund may be exchanged for Class B shares of
the
Fund.
*** Shares of this money market fund may be exchanged for Class A shares of
the
Fund.
Tax Effect. The exchange of shares of one fund for shares of another fund is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize
a
taxable gain or loss in connection with an exchange.
Class A Exchanges.Shareholders of Class A shares of the funds in the
Shearson
Group of Funds sold without a sales charge or with a maximum sales charge of
less than 4.50% will be subject to the appropriate "sales charge differential"
upon the exchange of their shares for Class A shares of the Fund or other fund
sold with a higher sales charge. The "sales charge differential" is limited to
a percentage rate no greater than the excess of the sales charge rate applica-
ble to purchases of shares of the mutual fund being acquired in the exchange
over the sales charge rate(s) actually paid on the mutual fund shares relin-
quished in the exchange and on any predecessor of those shares. For purposes
of
the exchange privilege, shares obtained through automatic reinvestment of
divi-
dends, as described below, are treated as having paid the same sales charges
applicable to the shares on which the dividends were paid. However, if no
sales
charge was imposed upon the initial purchase of the shares, any shares
obtained
through automatic reinvestment will be subject to a sales charge differential
upon exchange.
Class B Exchanges. Class B shareholders of the Fund who wish to exchange all
or a portion of their Class B shares for Class B shares of any of the funds
identified above may do so without the imposition of an exchange fee. In the
event a Class B shareholder wishes to exchange all or a portion of his or her
shares for shares in any of these funds imposing a CDSC higher than
39
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
EXCHANGE PRIVILEGE (CONTINUED)
that imposed on the Fund, the exchanged Class B shares will be subject to the
higher applicable CDSC. Upon an exchange the new Class B shares will be deemed
to have been purchased on the same date as the Class B shares of the Fund that
have been exchanged.
Additional Information Regarding the Exchange Privilege.Although the
exchange
privilege is an important benefit, excessive exchange transactions can be det-
rimental to the Fund's performance and its shareholders. Greenwich Street
Advi-
sors may determine that a pattern of frequent exchanges is excessive and con-
trary to the best interests of the Fund's other shareholders. In this event,
Greenwich Street Advisors will notify Smith Barney Shearson, and Smith Barney
Shearson may, at its discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination, Smith Barney Shearson
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 Smith Barney
Shearson funds ordinarily available, which position the shareholder would
expect to maintain for a significant period of time. All relevant factors will
be considered in determining what constitutes an abusive pattern of exchanges.
Shareholders exercising the exchange privilege with any of the other funds
in
the Smith Barney Shearson Group of Funds should review the prospectus of that
fund carefully prior to making an exchange. Smith Barney Shearson reserves the
right to reject any exchange request. The exchange privilege may be modified
or
terminated at any time after written notice to shareholders. For further
infor-
mation regarding the exchange privilege or to obtain current prospectuses for
members of the Smith Barney Shearson Group of Funds, investors should contact
their Smith Barney Shearson Financial Consultant.
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New York
10013 and serves as distributor of the Fund's shares. Smith Barney Shearson is
paid an annual service fee with respect to Class A and Class B shares of the
Fund at the rate of .15% of the value of the average daily net
40
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
DISTRIBUTOR (CONTINUED)
assets of the respective Class. Smith Barney Shearson is also paid an annual
distribution fee with respect to Class B shares at the rate of .50% of the
value of the average daily net assets attributable to those shares. The fees
are authorized pursuant to a services and distribution plan (the "Plan")
adopted by the Fund pursuant to Rule 12b-1 under Investment Company Act of
1940, as amended ("1940 Act") and are used by Smith Barney Shearson to pay its
Financial Consultants for servicing shareholder accounts and, in the case of
Class B shares, to cover expenses primarily intended to result in the sale of
those shares. These expenses include: costs of printing and distributing the
Fund's Prospectus, Statement of Additional Information and sales literature to
prospective investors; an allocation of overhead and other Smith Barney
Shearsons branch office distribution-related expenses; payments to and
expenses
of Smith Barney Shearson Financial Consultants and other persons who provide
support services in connection with the distribution of the shares; and
accruals for interest on the amount of the foregoing expenses that exceed dis-
tribution fees and, in the case of Class B shares, the CDSC received by Smith
Barney Shearson. The payments to Smith Barney Shearson Financial Consultants
for selling shares of a Class include a commission paid at the time of sale
and
a continuing fee for servicing shareholder accounts for as long as a share-
holder remains a holder of that Class. The service fee is credited at the rate
of .15% of the value of the average daily net assets of the Class that remain
invested in the Fund. Smith Barney Shearson Financial Consultants may receive
different levels of compensation for selling one Class over another.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson and
the
payments may exceed distribution expenses actually incurred. The Fund's Board
of Directors will evaluate the appropriateness of the Plan and its payment
terms on a continuing basis and in so doing will consider all relevant
factors,
including expenses borne by Smith Barney Shearson, amounts received under the
Plan and the proceeds of CDSC.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund declares dividends from its net investment income (that is, income
other than its net realized long- and short-term capital gains) on each day
that the Fund is open for business and pays dividends on the last business day
of the Smith Barney Shearson statement month. Distributions of net realized
long- and
41
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
short-term capital gains, if any, are declared and paid annually after the end
of the fiscal year in which they have been earned. Unless a shareholder
instructs that dividends and capital gains distributions on shares of any
Class
be paid in cash and credited to the shareholder's account, dividends and capi-
tal gains distributions will be reinvested automatically in additional shares
of the Class at net asset value, subject to no sales charge or CDSC. The
Fund's
earnings for Saturdays, Sundays and holidays are declared as dividends on the
next business day. Shares redeemed during the month are entitled to dividends
declared up to and including the date of redemption. In addition, in order to
avoid the application of a 4% nondeductible excise tax on certain
undistributed
amounts of ordinary income and capital gains, the Fund may make an additional
distribution shortly before December 31 of each year of any undistributed
ordi-
nary income or capital gains and expects to make any other distributions as
are
necessary to avoid the application of this tax.
If, for any full fiscal year, the Fund's total distributions exceed net
investment income and net realized capital gains, the excess distributions
gen-
erally will be treated as a tax-free return of capital (up to the amount of
the
shareholder's tax basis in his or her shares). The amount treated as a tax-
free
return of capital will reduce a shareholder's adjusted basis in his or her
shares. Pursuant to the requirements of the 1940 Act and other applicable
laws,
a notice will accompany any distribution paid from sources other than net
investment income. In the event the Fund distributes amounts in excess of its
net investment income and net realized capital gains, such distributions may
have the effect of decreasing the Fund's total assets, which may increase the
Fund's expense ratio.
The Fund has qualified and intends to continue to qualify each year as a
reg-
ulated investment company under the Code and will designate and pay exempt-
interest dividends derived from interest earned on qualifying tax-exempt obli-
gations. Such exempt-interest dividends may be excluded by shareholders from
their gross incomes for Federal income tax purposes although (a) all or a por-
tion of such exempt-interest dividends will be a specific preference item for
purposes of the Federal individual and corporate alternative minimum taxes to
the extent they are derived from certain types of private activity bonds
issued
after August 7, 1986 and (b) all exempt-interest dividends will be a component
of the "current earnings" adjustment item for purposes of the Federal
corporate
alternative minimum tax. In addition, corporate shareholders may incur a
greater Federal "environmental" tax liability through the receipt of Fund
divi-
dends and distributions.
42
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Dividends paid from taxable net investment income, if any, and distributions
of any net realized short-term capital gains (whether from tax-exempt or tax-
able obligations) are taxable to shareholders as ordinary income regardless of
how long they have held their Fund shares and whether such dividends or
distri-
butions are received in cash or reinvested in additional Fund shares.
Distribu-
tions of net realized long-term capital gains will be taxable to shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares and whether such distributions are received in cash or reinvested in
Fund shares. Furthermore, as a general rule, a shareholder's gain or loss on a
sale or redemption of his or her shares will be a long-term capital gain or
loss if the shareholder has held the shares for more than one year and will be
a short-term capital gain or loss if the shareholder has held the shares for
one year or less. The Fund's dividends and distributions will not qualify for
the dividends-received deduction for corporations. The per share dividends and
distributions on Class A shares will be higher than those on Class B shares as
a result of lower distribution and transfer agency fees applicable to Class A
shares.
Statements as to the tax status of each shareholder's dividends and
distribu-
tions are mailed annually. Each shareholder will also receive, if appropriate,
various written notices after the close of the Fund's prior taxable year as to
the Federal income tax status of his or her dividends and distributions which
were received from the Fund during the Fund's prior taxable year. These state-
ments set forth the dollar amount of income excluded from Federal income taxes
and the dollar amount, if any, subject to Federal income taxes. Moreover,
these
statements will designate the amount of exempt-interest dividends which are a
specific preference item for purposes of the Federal individual and corporate
alternative minimum taxes. The Fund notifies shareholders annually as to the
interest excluded from Federal income taxes earned by the Fund with respect to
those states and possessions where the Fund has or had investments. Sharehold-
ers should consult their tax advisors about the status of the Fund's dividends
and distributions for state and local tax liabilities.
43
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
TAX-EXEMPT INCOME VS. TAXABLE INCOME
The table below shows individual taxpayers how to translate the tax savings
from investments such as the Fund into an equivalent return from a taxable
investment. The yields used below are for illustration only and are not
intended to represent current or future yields for the Fund, which may be
higher or lower than those shown.
<TABLE>
<CAPTION>
FEDERAL
MARGINAL TAX-EXEMPT RATE
TAXABLE INCOME TAX RATE* 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%
- ------------------------------------------------------------------------------
- ---------
SINGLE JOINT EQUIVALENT TAXABLE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22,750 $ 38,000 15.00% 2.67% 4.01% 5.35% 6.68% 8.02%
9.36%
22,751-
55,100 38,001-91,850 28.00 3.16 4.73 6.31 7.89 9.47 11.05
55,101-
115,000 91,851-140,000 31.00 3.29 4.94 6.59 8.23 9.88 11.53
115,001-
205,000 140,001-250,000 36.00 3.55 5.33 7.10 8.88 10.65 12.43
over
250,000 over 250,000 39.60 3.76 5.54 7.53 9.41 11.29 13.17
- ------------------------------------------------------------------------------
- ---------
</TABLE>
* The Federal tax rates shown are those currently in effect for 1994. The
calculations assume that no income will be subject to the Federal
alternative
minimum tax.
ADDITIONAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on Septem-
ber 16, 1980, and is registered with the SEC as a diversified, open-end
manage-
ment investment company. Prior to December 15, 1988, the Fund's name was
Shearson Lehman Managed Municipals Inc. On December 15, 1988 the Fund changed
its name to SLH Managed Municipals Fund Inc., on November 6, 1992, the Fund
changed its name to Shearson Lehman Brothers Managed Municipals Fund Inc., and
on July 30, 1993, the Fund changed its name to Smith Barney Shearson Managed
Municipals Fund Inc.
Each Class represents an identical interest in the Fund's investment portfo-
lio. As a result, the Classes have the same rights, privileges and
preferences,
except with respect to: (a) the designation of each Class; (b) the effect of
the respective sales charges for each Class; (c) the distribution and/or serv-
ice fees borne by each Class; (d) the expenses allocable exclusively to each
Class; (e) voting rights on matters exclusively affecting a single Class; (f)
the exchange privilege of each Class; and (g) the conversion feature of the
Class B shares. The Board of Directors does not anticipate that there will be
any conflicts among the interests of the holders of the different Classes. The
Directors, on an ongoing basis, will consider whether any such conflict exists
and, if so, take appropriate action.
44
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
ADDITIONAL INFORMATION (CONTINUED)
The Fund does not hold annual shareholder meetings. There normally will be
no
meetings of shareholders for the purpose of electing Directors unless and
until
such time as less than a majority of the Directors holding office have been
elected by shareholders. The Directors will call a meeting for any purpose
upon
written request of shareholders holding at least 10% of the Fund's outstanding
shares. When matters are submitted for shareholder vote, shareholders of each
Class will have one vote for each full share owned and a proportionate, frac-
tional vote for any fractional share held of that Class. Generally, shares of
the Fund will be voted on a Fund-wide basis on all matters except matters
affecting only the interests of one Class.
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as custodian of the Fund's
investments.
TSSG, is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Fund's transfer agent.
The Fund sends to each of its shareholders a semi-annual report and an
audited annual report, which include listings of the investment securities
held
by the Fund at the end of the reporting period. In an effort to reduce the
Fund's printing and mailing costs, the Fund plans to consolidate the mailing
of
its semi-annual and annual reports by household. This consolidation means that
a household having multiple accounts with the identical address of record will
receive a single copy of each report. Any shareholder who does not want this
consolidation to apply to his or her account should contact his or her Finan-
cial Consultant or the Fund's transfer agent.
Shareholders may seek information regarding the Fund from their Shearson
Financial Consultants.
-----------------------
No person has been authorized to give any information or to make any repre-
sentations other than those contained in this Prospectus, the Statement of
Additional Information and/or the Fund's official sales literature in connec-
tion with the offering of the Fund's shares, and, if given or made, such other
information or representations must not be relied upon as having been autho-
rized by the Fund. This Prospectus does not constitute an offer in any state
in
which, or to any person to whom, such offer may not lawfully be made.
45
<PAGE>
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
DIRECTORS DISTRIBUTOR
Herbert Barg Smith Barney Shearson Inc.
Alfred J. Bianchetti 388 Greenwich Street
Robert E. Borgesen New York, New York 10013
Martin Brody
Dwight B. Crane INVESTMENT ADVISER
James J. Crisona Greenwich Street Advisors
Robert A. Frankel Two World Trade Center
Dr. Paul Hardin New York, New York 10048
Stephen E. Kaufman
Joseph J. McCann ADMINISTRATOR
Heath B. McLendon The Boston Company Advisors, Inc.
Richard P. Roelofs One Boston Place
Boston, Massachusetts 02108
OFFICERS
Heath B. McLendon AUDITORS AND COUNSEL
Chairman of the Board and Coopers & Lybrand
Investment Officer One Post Office Square
Boston, Massachusetts 02109
Stephen Treadway
President Willkie Farr & Gallagher
153 East 53rd Street
Richard P. Roelofs New York, New York 10022
Executive Vice President
TRANSFER AGENT
Joseph P. Deane The Shareholder Services Group, Inc.
Vice President and Exchange Place
Investment Officer Boston, Massachusetts 02109
David Fare CUSTODIAN
Investment Officer Boston Safe Deposit and Trust Company
One Boston Place
Vincent Nave Boston, Massachusetts 02108
Treasurer
Francis J. McNamara, III
Secretary
<PAGE>
- ------------------------------------------------------------------------------
- --
SMITH BARNEY SHEARSON
Managed Municipals Fund Inc.
Two World Trade Center
New York, New York 10048
Fund 5
FD
Smith Barney Shearson
MANAGED MUNICIPALS FUND INC.
Two World Trade Center
New York, New York 10048
(212) 720-9218
STATEMENT OF ADDITIONAL INFORMATION APRIL 29, 1994
This Statement of Additional Information expands upon and supplements the
information contained in the current Prospectus of Smith Barney Shearson
Managed Municipals Fund Inc. (the "Fund") dated April 29, 1994, as amended
or supplemented from time to time, and should be read in conjunction with
the Fund's Prospectus. The Fund's Prospectus may be obtained from your
Smith Barney Shearson Financial Consultant or by writing or calling the
Fund at the address or telephone number set forth above. This Statement of
Additional Information, although not in itself a prospectus, is incorpo-
rated by reference into the Prospectus in its entirety.
TABLE OF CONTENTS
For ease of reference, the same section headings are used in both the Pro-
spectus and this Statement of Additional Information, except where shown
below.
<TABLE>
<S>
<C>
Management of the Fund
1
Investment Objective and Management Policies
5
Municipal Bonds
10
Purchase of Shares
12
Redemption of Shares
13
Distributor
14
Valuation of Shares
15
Exchange Privilege
15
Performance Data (See in the Prospectus "The Fund's Performance")
16
Taxes (See in the Prospectus "Dividends, Distributions and Taxes")
18
Custodian and Transfer Agent (See in the Prospectus "Additional Information")
21
Financial Statements
21
Appendix
A-1
</TABLE>
MANAGEMENT OF THE FUND
The executive officers of the Fund are employees of certain of the organi-
zations that provide services to the Fund. These organizations are the
following:
<TABLE>
<CAPTION>
NAME
SERVICE
<S> <C>
Smith Barney Shearson Inc.
("Smith Barney Shearson")
Distributor
Greenwich Street Advisors (a division of Mutual Management Corp.)
Investment Adviser
The Boston Company Advisors, Inc.
("Boston Advisors")
Administrator
Boston Safe Deposit and Trust Company
("Boston Safe")
Custodian
The Shareholder Services Group, Inc. ("TSSG"),
a subsidiary of First Data Corporation
Transfer Agent
</TABLE>
These organizations and the functions they perform for the Fund are dis-
cussed in the Prospectus and in this Statement of Additional Information.
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The names of the Directors and executive officers of the Fund, together
with information as to their principal business occupations during the
past five years, are shown below. Each Director who is an "interested per-
son" of the Fund, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), is indicated by an asterisk.
Herbert Barg, Director. Private investor. His address is 273 Montgomery
Avenue, Bala Cynwyd, Pennsylvania 19004.
Alfred J. Bianchetti, Director. Retired; formerly Senior Consultant to
Dean Witter Reynolds Inc. His address is 19 Circle End Drive, Ramsey, New
Jersey 17466.
Robert E. Borgesen, Director. Retired; formerly Vice President of Morgan
Guaranty Trust Company of New York. His address is 160 Southeast Crestwood
Circle, Stuart, Florida 33497.
Martin Brody, Director. Vice Chairman of the Board of Restaurant Associ-
ates Industries, Corp.; a Director of Jaclyn, Inc. His address is HMK As-
sociates, Three ADP Boulevard, Roseland, New Jersey 07068.
Dwight B. Crane, Director. Professor, Graduate School of Business Adminis-
tration, Harvard University; a Director of Peer Review Analysis, Inc. His
address is Graduate School of Business Administration, Harvard University,
Boston, Massachusetts 02163.
James J. Crisona, Director. Attorney; formerly Justice of the Supreme
Court of the State of New York. His address is 118 East 60th Street, New
York, New York 10022.
Robert A. Frankel, Director. Management Consultant; retired Vice President
of The Reader's Digest Association, Inc. His address is 102 Grand Street,
Croton-on-Hudson, New York 10520.
*Peter H. Gallary, Director. Formerly President of Boston Advisors and Ex-
ecutive Vice President of The Boston Company, Inc. and Boston Safe; prior
to May 1990, a partner at Coopers & Lybrand. His address is 101 Federal
Street, 22nd floor, Boston, Massachusetts 02110.
Dr. Paul Hardin, Director. Chancellor of the University of North Carolina
at Chapel Hill; a Director of The Summit Bancorporation. His address is
University of North Carolina, 103 S. Building, Chapel Hill, North Carolina
27599.
Stephen E. Kaufman, Director. Attorney. His address is 277 Park Avenue,
New York, New York 10017.
Joseph J. McCann, Director. Financial Consultant; formerly, Vice President
of Ryan Homes, Inc., Pittsburgh, Pennsylvania. His address is 200 Oak Park
Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon, Chairman of the Board and Investment Officer. Execu-
tive Vice President of Smith Barney Shearson and Chairman of Smith Barney
Shearson Strategy Advisers Inc.; prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers Inc. ("Shearson Lehman Brothers");
Vice Chairman of Shearson Asset Management; a Director of PanAgora Asset
Management, Inc. and PanAgora Asset Management Limited. His address is Two
World Trade Center, New York, New York 10048.
Stephen J. Treadway, President. Executive Vice President and Director of
Smith Barney Shearson; Director and President of Mutual Management Corp.
and Smith, Barney Advisers, Inc. and Trustee of Corporate Realty Income
Trust I. His address is 1345 Avenue of the Americas, New York, New York
10105.
Richard P. Roelofs, Executive Vice President. Managing Director of Smith
Barney Shearson; President of Smith Barney Shearson Strategy Advisers
Inc.; prior to July 1993, Senior Vice President of Shearson Lehman Broth-
ers; Vice President of Shearson Lehman Investment Strategy Advisors Inc.
His address is Two World Trade Center, New York, New York 10048.
Joseph P. Deane, Vice President and Investment Officer. Managing Director
of Greenwich Street Advisors; prior to July 1993, Managing Director of
Shearson Lehman Advisors. His address is Two World Trade Center, New York,
New York 10048.
David Fare, Investment Officer. Vice President of Greenwich Street Advi-
sors; prior to July 1993, Vice President of Shearson Lehman Advisors. His
address is Two World Trade Center, New York, New York 10048.
Vincent Nave, Treasurer. Senior Vice President of Boston Advisors and Bos-
ton Safe. His address is One Boston Place, Boston, Massachusetts 02108.
Francis J. McNamara, III, Secretary. Senior Vice President and General
Counsel of Boston Advisors; prior to June 1989, Vice President and Associ-
ate Counsel of Boston Advisors. His address is One Boston Place, Boston,
Massachusetts 02108.
Each Director also serves as a director, trustee or general partner of
other mutual funds for which Smith Barney Shearson serves as distributor.
As of March 31, 1994, the Directors and officers of the Fund, as a group,
owned less than 1% of the outstanding common stock of the Fund.
No officer, director or employee of Smith Barney Shearson, Greenwich
Street Advisors or Boston Advisors or any of their affiliates will receive
any compensation from the Fund for serving as an officer or Director of
the Fund. The Fund pays each Director who is not an officer, director or
employee of Smith Barney Shearson, Greenwich Street Advisors or Boston Ad-
visors or any of their affiliates a fee of $2,000 per annum plus $500 per
meeting attended and reimburses them for travel and out-of-pocket ex-
penses. For the fiscal year ended February 28, 1994, such fees and ex-
penses totalled $66,951.
INVESTMENT ADVISER -- GREENWICH STREET ADVISORS
ADMINISTRATOR -- BOSTON ADVISORS
Greenwich Street Advisors serves as investment adviser to the Fund pursu-
ant to a written agreement dated July 30, 1993 (the "Advisory Agreement"),
which was first approved by the Board of Directors, including a majority
of those Directors who are not "interested persons" of the Fund or Smith
Barney Shearson on April 7, 1993. The services provided by Greenwich
Street Advisors under the Advisory Agreement are described in the Prospec-
tus. Greenwich Street Advisors bears all expenses in connection with the
performance of its services and pays the salary of any officers or em-
ployee who is employed by both it and the Fund. Greenwich Street Advisors
is a division of Mutual Management Corp., which is in turn a wholly owned
subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings"). Holdings
is a wholly owned subsidiary of The Travelers Inc., formerly Primerica
Corporation ("Travelers").
As compensation for Greenwich Street Advisors' services rendered to the
Fund, the Fund pays a fee computed daily and paid monthly at the following
annual rates: .35% of the value of the Fund's average daily net assets up
to $500 million and .32% of the value of its average daily net assets of
the next $1 billion; and .29% of the value of average daily net assets in
excess of $1.5 billion. For the 1994, 1993 and 1992 fiscal years, the Fund
paid Greenwich Street Advisors and/or Shearson Lehman Advisors, the Fund's
investment adviser prior to Greenwich Street Advisors $6,502,360,
$5,458,117 and $5,074,028, respectively, in investment advisory fees.
Boston Advisors serves as the Fund's administrator pursuant to a written
agreement dated May 22, 1993 (the "Administration Agreement"), which was
most recently approved by the Board of Directors of the Fund, including a
majority of the Directors who are not "interested persons" of the Fund or
Smith Barney Shearson, on July 21, 1993. Prior to May 21, 1993, Boston Ad-
visors acted in the capacity as the Fund's sub-investment adviser and ad-
ministrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc., a financial services holding company, which is in turn a
wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Boston Ad-
visors pays the salaries of all officers and employees who are employed by
both it and the Fund.
Certain of the services provided to the Fund by Boston Advisors pursuant
to the Administration Agreement are described in the Prospectus under
"Management of the Fund." In addition to those services, Boston Advisors
pays the salaries of all officers and employees who are employed by both
it and the Fund, maintains office facilities for the Fund, furnishes the
Fund with statistical and research data, clerical help and accounting,
data processing, bookkeeping, internal auditing and legal services and
certain other services required by the Fund, prepares reports to the
Fund's shareholders and prepares tax returns and reports to and filings
with the Securities and Exchange Commission (the "SEC") and state blue sky
authorities. Boston Advisors bears all expenses in connection with the
performance of its services.
As compensation for Boston Advisors' services rendered to the Fund, the
Fund pays a fee computed daily and paid monthly at the following annual
rates: .20% of the value of the Fund's average daily net assets up to $500
million; .18% of the value of its average daily net assets of the next $1
billion; and .16% of the value of average daily net assets in excess of
$1.5 billion. For the 1994, 1993 and 1992 fiscal years, the Fund paid Bos-
ton Advisors $3,656,475, $3,083,709 and $2,869,731, respectively, in sub-
investment advisory and/or administration fees.
The Fund bears expenses incurred in its operation, including: taxes, in-
terest, brokerage fees and commissions, if any; fees of Directors who are
not officers, directors, shareholders or employees of Smith Barney Shear-
son or Boston Advisors; SEC fees and state blue sky qualification fees;
charges of custodians; transfer and dividend disbursing agent fees; cer-
tain insurance premiums; outside auditing and legal expenses; costs of any
independent pricing service; costs of maintaining corporate existence;
costs of investor services (including allocated telephone and personnel
expenses); costs of preparing and printing of prospectuses for regulatory
purposes and for distribution to existing shareholders, costs of share-
holders' reports and shareholder meetings; meetings of the officers or
Board of Directors of the Fund.
Greenwich Street Advisors and Boston Advisors have agreed that if in any
fiscal year the aggregate expenses of the Fund (including fees pursuant to
the Advisory Agreement and the Administration Agreement, but excluding in-
terest, taxes, brokerage and, with the prior written consent of the neces-
sary state securities commissions, extraordinary expenses) exceed the ex-
pense limitation of any state having jurisdiction over the Fund, Greenwich
Street Advisors and Boston Advisors will, to the extent required by state
law, reduce their management fees by the amount of such excess expenses,
such amount to be allocated between them in the proportion that their re-
spective fees bear to the aggregate of such fees paid by the Fund. Such
fee reductions, if any, will be reconciled on a monthly basis. The most
restrictive state limitation currently applicable to the Fund would re-
quire a fee reduction in any year that such expenses exceed 2.5% of the
first $30 million of average daily net assets, 2% of the next $70 million
of average daily net assets and 1.5% of the remaining average daily net
assets. No fee reduction was required for the 1994, 1993 and 1992 fiscal
years.
COUNSEL AND AUDITORS
Willkie Farr & Gallagher serves as legal counsel to the Fund. The Direc-
tors who are not "interested persons" of the Fund have selected Stroock &
Stroock & Lavan as their counsel.
Coopers & Lybrand, independent accountants, One Post Office Square, Bos-
ton, Massachusetts 02109, serve as auditors of the Fund and render an
opinion on the Fund's financial statements annually.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Prospectus discusses the Fund's investment objective and the policies
it employs to achieve its objective. The following discussion supplements
the description of the Fund's investment objective and management policies
in the Prospectus. For purposes of this Statement of Additional Informa-
tion, intermediate- and long-term debt obligations issued by or on behalf
of states, territories and possessions of the United States and the Dis-
trict of Columbia and their political subdivisions, agencies or instrumen-
talities, or multistate agencies or authorities, are collectively referred
to as "Municipal Bonds."
RATINGS AS INVESTMENT CRITERIA
In general, the ratings of Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") represent the opinions of those
agencies as to the quality of the Municipal Bonds and short-term invest-
ments which they rate. It should be emphasized, however, that such ratings
are relative and subjective, are not absolute standards of quality and do
not evaluate the market risk of securities. These ratings will be used by
the Fund as initial criteria for the selection of portfolio securities,
but the Fund also will rely upon the independent advice of Greenwich
Street Advisors to evaluate potential investments. Among the factors that
will be considered are the long-term ability of the issuer to pay princi-
pal and interest and general economic trends. To the extent the Fund in-
vests in lower-rated and comparable unrated securities, the Fund's
achievement of its investment objective may be more dependent on Greenwich
Street Advisors' credit analysis of such securities than would be the case
for a portfolio consisting entirely of higher-rated securities. The Appen-
dix contains further information concerning the ratings of Moody's and S&P
and their significance.
Subsequent to its purchase by the Fund, an issue of Municipal Bonds may
cease to be rated or its rating may be reduced below the rating given at
the time the securities were acquired by the Fund. Neither event will re-
quire the sale of such Municipal Bonds by the Fund, but Greenwich Street
Advisors will consider such event in its determination of whether the Fund
should continue to hold such Municipal Bonds. In addition, to the extent
the ratings change as a result of changes in such organizations in their
rating systems or due to a corporate restructuring of Moody's or S&P, the
Fund will attempt to use comparable ratings as standards for its invest-
ments in accordance with its investment objective and policies.
The Fund may invest up to 25% of its total assets in securities rated
below A, MIG 3 or Prime-1 (P-1) by Moody's or A, SP-2 or A-3 by S&P, or in
unrated securities of comparable quality. Such securities (a) will likely
have some quality and protective characteristics that, in the judgment of
rating organizations, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (b) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation.
TEMPORARY INVESTMENTS
When the Fund is maintaining a defensive position, the Fund may invest in
short-term investments ("Temporary Investments") consisting of (a) the
following tax-exempt securities: notes of municipal issuers having, at the
time of purchase, a rating within the three highest grades of Moody's or
S&P or, if not rated, having an issue of outstanding Municipal Bonds rated
within the three highest grades by Moody's or S&P and (b) the following
taxable securities: obligations of the United States government, its agen-
cies or instrumentalities ("U.S. government securities"), repurchase
agreements, other debt securities rated within the three highest grades by
Moody's and S&P, commercial paper rated in the highest grade by either of
such rating services, and certificates of deposit of domestic banks with
assets of $1 billion or more. The Fund may invest in Temporary Investments
for defensive reasons in anticipation of a market decline. At no time will
more than 20% of the Fund's total assets be invested in Temporary Invest-
ments unless the Fund has adopted a defensive investment policy. The Fund
intends, however, to purchase tax-exempt Temporary Investments pending the
investment of the proceeds of the sale of portfolio securities or shares
of the Fund's common stock, or in order to have highly liquid securities
available to meet anticipated redemptions. Since the commencement of its
operations, the Fund has not found it necessary to purchase taxable Tempo-
rary Investments.
Repurchase Agreements. The Fund may engage in repurchase agreements with
banks which are the issuers of instruments acceptable for purchase by the
Fund and with certain dealers on the Federal Reserve Bank of New York's
list of reporting dealers. A repurchase agreement is a contract under
which the buyer of a security simultaneously commits to resell the secu-
rity to the seller at an agreed-upon price on an agreed-upon date. Under
the terms of a typical repurchase agreement, the Fund would acquire an un-
derlying debt obligation for a relatively short period (usually not more
than one week) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time,
thereby determining the yield during the Fund's holding period. This ar-
rangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including interest. Repurchase agreements could in-
volve certain risks in the event of default or insolvency of the other
party, including possible delays or restrictions upon the Fund's ability
to dispose of the underlying securities, the risk of a possible decline in
the value of the underlying securities during the period in which the Fund
seeks to assert its rights to them, the risk of incurring expenses associ-
ated with asserting those rights and the risk of losing all or part of the
income from the agreement. Greenwich Street Advisors or Boston Advisors,
acting under the supervision of the Fund's Board of Directors, reviews on
an ongoing basis the value of the collateral and the creditworthiness of
those banks and dealers with which the Fund enters into repurchase agree-
ments to evaluate potential risks.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the protec-
tion of shareholders. Restrictions 1 through 8 cannot be changed without
approval by the holders of a majority of the outstanding shares of the
Fund, defined as the lesser of (a) 67% of the Fund's shares present at a
meeting if the holders of more than 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the
Fund's outstanding shares. The remaining restrictions may be changed by
the Board of Directors at any time. The Fund may not:
1. With respect to 75% of the value of its total assets, invest more
than 5% of its total assets in securities of any one issuer, except
securities issued or guaranteed by the United States government, or
purchase more than 10% of the outstanding voting securities of such
issuer.
2. Issue senior securities as defined in the 1940 Act and any rules
and orders thereunder, except insofar as the Fund may be deemed to
have issued senior securities by reason of: (a) borrowing money or
purchasing securities on a when-issued or delayed-delivery basis; (b)
purchasing or selling futures contracts and options on futures con-
tracts and other similar instruments; and (c) issuing separate classes
of shares.
3. Invest more than 25% of its total assets in securities, the issu-
ers of which are in the same industry. For purposes of this limita-
tion, U.S. government securities and securities of state or municipal
governments and their political subdivisions are not considered to be
issued by members of any industry.
4. Borrow money, except that the Fund may borrow from banks for tem-
porary or emergency (not leveraging) purposes, including the meeting
of redemption requests which might otherwise require the untimely dis-
position of securities, in an amount not exceeding 10% of the value of
the Fund's total assets (including the amount borrowed) valued at mar-
ket less liabilities (not including the amount borrowed) at the time
the borrowing is made. Whenever borrowings exceed 5% of the value of
the Fund's total assets, the Fund will not make additional invest-
ments.
5. Make loans. This restriction does not apply to: (a) the purchase
of debt obligations in which the Fund may invest consistent with its
investment objectives and policies; (b) repurchase agreements; and (c)
loans of its portfolio securities.
6. Engage in the business of underwriting securities issued by other
persons, except to the extent that the Fund may technically be deemed
to be an underwriter under the Securities Act of 1933, as amended, in
disposing of portfolio securities.
7. Purchase or sell real estate, real estate mortgages, real estate
investment trust securities, commodities or commodity contracts, but
this shall not prevent the Fund from: (a) investing in securities of
issuers engaged in the real estate business and securities which are
secured by real estate or interests therein; (b) holding or selling
real estate received in connection with securities it holds; or (c)
trading in futures contracts and options on futures contracts.
8. Purchase any securities on margin (except for such short-term cred-
its as are necessary for the clearance of purchases and sales of port-
folio securities) or sell any securities short (except against the
box). For purposes of this restriction, the deposit or payment by the
Fund of initial or maintenance margin in connection with futures con-
tracts and related options and options on securities is not considered
to be the purchase of a security on margin.
9. 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.
10. Invest more than 5% of the value of its total assets in the secu-
rities of issuers having a record, including predecessors, of less
than three years of continuous operation, except U.S. government secu-
rities. (For purposes of this restriction; issuers include predeces-
sors, sponsors, controlling persons, general guarantors and origina-
tors of underlying assets which have less than three years of continu-
ous operation or relevant business experiences).
11. Invest in companies for the purpose of exercising control.
12. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of
assets and except for the purchase, to the extent permitted by Section
12 of the 1940 Act, of shares of registered unit investment trusts
whose assets consist substantially of Municipal Bonds.
13. Purchase or sell oil and gas interests.
14. Engage in the purchase and sale of put, call, straddle or spread
options or in writing of such options, except that the Fund may pur-
chase and sell options on interest rate futures contracts.
Certain restrictions listed above permit the Fund without shareholder ap-
proval to engage in investment practices that the Fund does not currently
pursue. The Fund has no present intention of altering its current invest-
ment practices as otherwise described in the Prospectus and this Statement
of Additional Information and any future change in those practices would
require Board approval and appropriate disclosure to investors.
For the purposes of Investment Restriction 3, private activity bonds,
where the payment of principal and interest is the ultimate responsibility
of companies within the same industry, are grouped together as an "indus-
try."
If any percentage restriction described above is complied with at the time
of investment, a later increase or decrease in percentage resulting from a
change in the values or assets will not constitute a violation of such re-
striction. In order to permit the sale of the Fund's shares in certain
states, the Fund may make commitments more restrictive than the listed re-
strictions above. Should the Fund determine that any such commitment is no
longer in the best interests of the Fund and its shareholders, it will re-
voke the commitment by terminating sales of its shares in the state in-
volved.
PORTFOLIO TRANSACTIONS
Newly issued securities normally are purchased directly from the issuer or
from an underwriter acting as a principal. Other purchases and sales usu-
ally are placed with those dealers from which it appears that the best
price or execution will be obtained; those dealers may be acting as either
agents or principals. The purchase price paid by the Fund to underwriters
of newly issued securities usually includes a concession paid by the is-
suer to the underwriter, and purchases of after-market securities from
dealers normally are executed at a price between the bid and asked prices.
For the fiscal year ended February 28, 1994, the Fund paid $167,464 in
brokerage commissions. For the fiscal years ended February 28, 1993 and
February 29, 1992, the Fund paid no brokerage commissions.
Allocation of transactions, including their frequency, to various dealers
is determined by Greenwich Street Advisors in its best judgment and in a
manner deemed fair and reasonable to shareholders. The primary consider-
ations are the availability of the desired security and the prompt execu-
tion of orders in an effective manner at the most favorable prices. Sub-
ject to these considerations, dealers which provide supplemental invest-
ment research and statistical or other services to Greenwich Street
Advisors may receive orders for transactions by the Fund. Information so
received enables Greenwich Street Advisors to supplement its own research
and analysis with the views and information of other securities firms.
Such information may be useful to Greenwich Street Advisors in serving
both the Fund and its other clients, and, conversely, supplemental infor-
mation obtained by the placement of business of other clients may be use-
ful to Greenwich Street Advisors in carrying out its obligations to the
Fund.
The Fund will not purchase Municipal Bonds during the existence of any un-
derwriting or selling group relating thereto of which Greenwich Street is
a member, except to the extent permitted by the SEC. Under certain circum-
stances, the Fund may be at a disadvantage because of this limitation in
comparison with other investment companies which have a similar investment
objective but which are not subject to this limitation.
While investment decisions for the Fund are made independently from those
of the other accounts managed by Greenwich Street Advisors, investments of
the type the Fund may make also may be made by such other accounts. When
the Fund and one or more other accounts managed by Greenwich Street Advi-
sors are prepared to invest in, or desire to dispose of, the same secu-
rity, available investments or opportunities for sales will be allocated
in a manner believed by Greenwich Street Advisors to be equitable to each.
In some cases this procedure may adversely affect the price paid or re-
ceived by the Fund or the size of the position obtained or disposed of by
the Fund.
PORTFOLIO TURNOVER
While the Fund's portfolio turnover rate (the lesser of purchases or sales
of portfolio securities during the year, excluding purchases or sales of
short-term securities, divided by the monthly average value of portfolio
securities) is generally not expected to exceed 100%, it has in the past
exceeded 100%. The rate of turnover will not be a limiting factor, how-
ever, when the Fund deems it desirable to sell or purchase securities.
This policy should not result in higher brokerage commissions to the Fund,
as purchases and sales of portfolio securities are usually effected as
principal transactions. Securities may be sold in anticipation of a rise
in interest rates (market decline) or purchased in anticipation of a de-
cline in interest rates (market rise) and later sold. In addition, a secu-
rity may be sold and another security of comparable quality purchased at
approximately the same time 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 re-
lated to the investment quality of particular issues or the general move-
ment of interest rates, such as changes in the overall demand for, or sup-
ply of, various types of tax-exempt securities. For the 1994 and 1993 fis-
cal years, the Fund's portfolio turnover rates were 131% and 206%,
respectively. This higher level of turnover was due to significant changes
in the portfolio in response to the unusual volatility experienced in mu-
nicipal bond markets during this period.
MUNICIPAL BONDS
GENERAL INFORMATION
Municipal Bonds generally are understood to include debt obligations is-
sued to obtain funds for various public purposes, including construction
of a wide range of public facilities, refunding of outstanding obliga-
tions, payment of general operating expenses and extensions of loans to
public institutions and facilities. Private activity bonds that are issued
by or on behalf of public authorities to finance various privately oper-
ated facilities are included within the term Municipal Bonds if the inter-
est paid thereon qualifies as excluded from gross income (but not neces-
sarily from alternative minimum taxable income) for Federal income tax
purposes in the opinion of bond counsel to the issuer.
In order to be classified as a diversified investment company under the
1940 Act, the Fund may not, with respect to 75% of its assets, invest more
than 5% of its total assets in the securities of any one issuer (except
U.S. government securities) or own more than 10% of the outstanding voting
securities of any one issuer. For the purposes of diversification under
the 1940 Act, the identification of the issuer of Municipal Bonds depends
upon the terms and conditions of the security. When the assets and reve-
nues of an agency, authority, instrumentality or other political subdivi-
sion are separate from those of the government creating the issuing entity
and the security is backed only by the assets and revenues of such entity,
such entity is deemed to be the sole issuer. Similarly, in the case of a
private activity bond, if that bond is backed only by the assets and reve-
nues of the nongovernmental user, then such nongovernmental user is deemed
to be the sole issuer. If, however, in either case, the creating govern-
ment or some other entity guarantees a security, such a guarantee would be
considered a separate security and is to be treated as an issue of such
government or other entity.
The yield on Municipal Bonds is dependent on a variety of factors, includ-
ing general economic and monetary conditions, general money market fac-
tors, general conditions of the Municipal Bond market, the financial con-
dition of the issuer, the size of a particular offering, maturity of the
obligation offered and the rating of the issue.
Municipal Bonds also may be subject to the provisions of bankruptcy, in-
solvency and other laws affecting the rights and remedies of creditors,
such as the Federal Bankruptcy Code, and laws, if any, which may be en-
acted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon en-
forcement of such obligations or upon the ability of municipalities to
levy taxes. The possibility also exists that, as a result of litigation or
other conditions, the power or ability of any one or more issuers to pay,
when due, the principal of and interest on, its or their Municipal Bonds
may be materially and adversely affected.
WHEN-ISSUED SECURITIES
The Fund may purchase Municipal Bonds on a "when-issued" basis (i.e., for
delivery beyond the normal settlement date at a stated price and yield).
The payment obligation and the interest rate that will be received on the
Municipal Bonds purchased on a when-issued basis are each fixed at the
time the buyer enters into the commitment. Although the Fund will purchase
Municipal Bonds on a when-issued basis only with the intention of actually
acquiring the securities, the Fund may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strat-
egy.
Municipal Bonds are subject to changes in value based upon the public's
perception of the creditworthiness of the issuers and changes, real or an-
ticipated, in the level of interest rates. In general, Municipal Bonds
tend to appreciate when interest rates decline and depreciate when inter-
est rates rise. Purchasing Municipal Bonds on a when-issued basis, there-
fore, can involve the risk that the yields available in the market when
the delivery takes place actually may be higher than those obtained in the
transaction itself. To account for this risk, a segregated 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 that the
value of the account will equal the amount of such commitments by the
Fund. Placing securities rather than cash in the segregated account may
have a leveraging effect on the Fund's net assets. That is, to the extent
the Fund remains substantially fully invested in securities at the same
time it has committed to purchase securities on a when-issued basis, there
will be greater fluctuations in its net assets than if it had set aside
cash to satisfy its purchase commitments. Upon the settlement date of the
when-issued securities, the Fund will meet its 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 se-
curities to meet such obligations may involve the realization of capital
gains, which are not exempt from Federal income taxes.
When the Fund engages in when-issued transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price con-
sidered to be advantageous.
MUNICIPAL LEASES
Municipal leases are municipal securities that may take the form of a
lease or an installment purchase contract issued by state and local gov-
ernment authorities to obtain funds to acquire a wide variety of equipment
and facilities such as fire and sanitation vehicles, computer equipment
and other capital assets. These obligations have evolved to make it possi-
ble for state and local government authorities to acquire property and
equipment without meeting constitutional and statutory requirements for
the issuance of debt. Thus, municipal leases have special risks not nor-
mally associated with Municipal Bonds. These obligations frequently con-
tain "non-appropriation" clauses that provide that the governmental issuer
of the municipal lease has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
legislative body on a yearly or other periodic basis. In addition to the
non-appropriation risk, municipal leases represent a type of financing
that has not yet developed the depth of marketability associated with Mu-
nicipal Bonds; moreover, although the obligations will be secured by the
leased equipment, the disposition of the equipment in the event of fore-
closure might prove difficult. In order to limit the risks, the Fund will
purchase either (a) municipal leases that are rated in the four highest
categories by Moody's or S&P or (b) unrated municipal leases that are pur-
chased principally from domestic banks or other responsible third parties
that have entered into an agreement with the Fund providing the seller
will either remarket or repurchase the municipal leases within a short pe-
riod after demand by the Fund.
PURCHASE OF SHARES
VOLUME DISCOUNTS
The schedule of sales charges on Class A shares described in the Prospec-
tus applies to purchases made by any "purchaser," which is defined to in-
clude the following: (a) an individual; (b) an individual's immediate fam-
ily purchasing shares for his or her own account; (c) a trustee or other
fiduciary purchasing shares for a single trust estate or single fiduciary
account; (d) a pension, profit-sharing or other employee benefit plan
qualified under Section 401(a) of the Code and qualified employee benefit
plans of employers who are "affiliated persons" of each other within the
meaning of the 1940 Act; (e) tax-exempt organizations enumerated in Sec-
tion 501(c)(3) or (13) of the Code; (f) any other organized group of per-
sons, provided the organization has been in existence for at least six
months and was organized for a purpose other than the purchase of invest-
ment company securities at a discount; and (g) a trustee or other profes-
sional fiduciary (including a bank, or an investment adviser registered
with the SEC under the Investment Advisers Act of 1940) purchasing shares
of the Fund for one or more trust estates or fiduciary accounts. Purchas-
ers who wish to combine purchase orders to take advantage of volume dis-
counts should contact their Smith Barney Shearson Financial Consultants.
COMBINED RIGHT OF ACCUMULATION
Reduced sales charges, in accordance with the schedule in the Prospectus,
apply to any purchase of Class A shares if the aggregate investment in
Class A shares of the Fund and in Class A shares of other funds in the
Smith Barney Shearson Group of Funds that are sold with a sales charge,
including the purchase being made, of any purchaser is $25,000 or more.
The reduced sales charge is subject to confirmation of the shareholder's
holdings through a check of appropriate records. The Fund reserves the
right to terminate or amend the combined right of accumulation at any time
after notice to shareholders. For further information regarding the right
of accumulation, shareholders should contact their Smith Barney Shearson
Financial Consultants.
DETERMINATION OF PUBLIC OFFERING PRICE
The Fund offers its shares to the public on a continuous basis. The public
offering price per Class A share of the Fund is equal to the net asset
value per share at the time of purchase plus a sales charge based on the
aggregate amount of the investment. The public offering price per Class B
share (and Class A share purchases, including applicable right of accumu-
lation, equalling or exceeding $1 million), 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"), how-
ever, is imposed on certain redemptions of Class B shares and Class A
shares when purchased in amounts exceeding $1 million. The method of com-
putation of the public offering price is shown in the Fund's financial
statements, which are incorporated by reference into this Statement of Ad-
ditional Information.
REDEMPTION OF SHARES
The right of redemption may be suspended or the date of payment postponed
(a) for any period during which the New York Stock Exchange, Inc. ("NYSE")
is closed (other than for customary weekend and holiday closings), (b)
when trading in 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 practi-
cable or (c) for such other periods as the SEC by order may permit for
protection of the Fund's shareholders.
DISTRIBUTION IN KIND
If the Fund's Board of Directors determines that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make a
redemption payment wholly in cash, the Fund may pay, in accordance with
rules adopted by the SEC, any portion of a redemption in excess of the
lesser of $250,000 or 1% of the Fund's net assets by a distribution in
kind of portfolio securities in lieu of cash. Portfolio securities issued
in a distribution in kind will be readily marketable, although sharehold-
ers receiving distributions in kind may incur brokerage commissions when
subsequently disposing of 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 periodically. Withdrawals of at least
$50 monthly 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 2% per month of the value of a shareholder's
shares at the time the Withdrawal Plan commences. To the extent withdraw-
als exceed dividends, distributions and appreciation of a shareholder's
investment in the Fund, there will be a reduction in the value of the
shareholder's investment, and continued withdrawal payments will reduce
the shareholder's investment and may ultimately exhaust it. Withdrawal
payments should not be considered as income from investment in the Fund.
Furthermore, as it generally would not be advantageous to a shareholder to
make additional investments in the Fund at the same time he or she is par-
ticipating in the Withdrawal Plan, purchases by such shareholders in
amounts of less than $5,000 ordinarily will not be permitted.
Shareholders who wish to participate in the Withdrawal Plan and who hold
their shares in certificate form must deposit their share certificates
with TSSG as agent for Withdrawal Plan members. All dividends and distri-
butions on shares in the Withdrawal Plan are reinvested automatically at
net asset value in additional shares of the Fund. All applications for
participation in the Withdrawal Plan must be received by TSSG as With-
drawal Plan agent no later than the eighth day of the month to be eligible
for participation beginning with that month's withdrawal. The Withdrawal
Plan will not be carried over on exchanges between funds or classes of the
Fund ("Classes"). A new Withdrawal Plan application is required to estab-
lish the Withdrawal Plan in the new fund or Class. For additional informa-
tion, shareholders should contact their Smith Barney Shearson Financial
Consultants.
DISTRIBUTOR
Smith Barney Shearson serves as the Fund's distributor on a best efforts
basis pursuant to a written agreement dated July 30, 1993 (the "Distribu-
tion Agreement"), which was first approved by the Fund's Board of Direc-
tors on April 7, 1993. For the 1992, 1993 and 1994 fiscal years, Smith
Barney Shearson or its predecessor Shearson Lehman Brothers received
$5,689,320, $54,735,968 and $4,194,780, respectively, in sales charges for
the sale of the Fund's Class A shares, and did not reallow any portion
thereof to dealers. For the period from November 6, 1992 through February
28, 1993 and for the fiscal year ended February 28, 1994 Smith Barney
Shearson or Shearson Lehman Brothers received $2,721 and $264,245 repre-
senting CDSC on redemption of the Fund's Class B shares.
Smith Barney Shearson forwards investors' funds for the purchase of Fund
shares five business days after the placement of purchase orders (i.e.,
the "settlement date"). When payment is made by the investor before set-
tlement date unless otherwise noted by the investor, the funds will be
held as a free credit balance in the investor's brokerage account and
Smith Barney Shearson may benefit from the temporary use of the funds. The
investor may designate another use for the funds prior to settlement date,
such as an investment in a money market fund (other than Smith Barney
Shearson Money Market Fund) in the Smith Barney Shearson Group of Funds.
If the investor instructs Smith Barney Shearson to invest the funds in a
fund in the Smith Barney Shearson Group of Funds, the amount of the in-
vestment will be included as part of the average daily net assets of both
the Fund and the money market fund, and affiliates of Smith Barney Shear-
son which serve the funds in an investment advisory or administrative ca-
pacity will benefit by receiving investment management fees from both such
investment companies, computed on the basis of their average daily net as-
sets. The Fund's Board of Directors has been advised of the benefits to
Smith Barney Shearson resulting from five-day settlement procedures and
will take such benefits into consideration when reviewing the Advisory and
Distribution Agreements for continuance.
DISTRIBUTION ARRANGEMENTS
Shares of the Fund are distributed on a best efforts basis by Smith Barney
Shearson as exclusive sales agent of the Fund pursuant to the Distribution
Agreement. To compensate Smith Barney Shearson for the services it pro-
vides and for the expense it bears under the Distribution Agreement, the
Fund has adopted a services and distribution plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Under the Plan, the Fund pays Smith Barney
Shearson a service fee, accrued daily and paid monthly, calculated at the
annual rate of .15% of the value of the Fund's average daily net assets
attributable to the Class A and Class B shares. In addition, Class B pays
a distribution fee primarily intended to compensate Smith Barney Shearson
for its initial expense of paying its Financial Consultants a commission
upon sales of the respective shares. The Class B distribution fee is cal-
culated at the annual rate of .50% of the value of the Fund's average net
assets attributable to the shares of the Class. For the period from Novem-
ber 6, 1992 through February 28, 1993, the Class A and Class B shares in-
curred $790,591 and $12,635, respectively, in service fees. For the same
period, the Class B shares incurred $42,119 in distribution fees. For the
fiscal year ended February 28, 1994, the Class A and Class B shares in-
curred $2,749,652 and $303,293, respectively, in service fees. For the
same period, the Class B shares incurred $1,010,976 in distribution fees.
Under its terms, the Plan continues from year to year, provided such con-
tinuance is approved annually by vote of the Board of Directors, including
a majority of the Directors who are not interested persons of the Fund and
who have no direct or indirect financial interest in the operation of the
Plan or in the Distribution Agreement (the "Independent Directors"). The
Plan may not be amended to increase the amount of the service and distri-
bution fees without shareholder approval, and all amendments of the Plan
also must be approved by the Directors and the Independent Directors in
the manner described above. The Plan may be terminated at any time with
respect to a Class, without penalty, by vote of a majority of the Indepen-
dent Directors or by a vote of a majority of the outstanding voting secu-
rities of the Class (as defined in the 1940 Act). Pursuant to the Plan,
Smith Barney Shearson will provide the Board of Directors with periodic
reports of amounts expended under the Plan and the purpose for which such
expenditures were made.
VALUATION OF SHARES
The Prospectus discusses the time at which the net asset value of shares
of each Class is determined for purposes of sales and redemptions. Because
of the differences in distribution fees and Class-specific expenses, the
per share net asset value of each Class will differ. The following is a
description of the procedures used by the Fund in valuing its assets.
The valuation of the Fund's assets is made by Boston Advisors after con-
sultation with an independent pricing service (the "Service") approved by
the Board of Directors. When, in the judgment of the Service, quoted bid
prices for investments are readily available and are representative of the
bid side of the market, these investments are valued at the mean between
the quoted bid and asked prices. Investments for which, in the judgment of
the Service, there is no readily obtainable market quotation (which may
constitute a majority of the portfolio securities) are carried at fair
value as determined by the Service. For the most part, such investments
are liquid and may be readily sold. The Service may employ electronic data
processing techniques and/or a matrix system to determine valuations. The
procedures of the Service are reviewed periodically by the officers of the
Fund under the general supervision and responsibility of the Board of Di-
rectors, which may replace any such Service at any time if it determines
it to be in the best interests of the Fund to do so.
EXCHANGE PRIVILEGE
Except as noted below, shareholders of any fund in the Smith Barney Shear-
son Group of Funds may exchange all or part of their shares for shares of
the same Class of other funds in the Smith Barney Shearson Group of Funds,
to the extent such shares are offered for sale in the shareholder's state
of residence, on the basis of relative net asset value per share at the
time of exchange as follows:
A. Class A shares of any fund purchased with a sales charge may be
exchanged for Class A shares of any of the other funds and the sales
charge differential, if any, will be applied. Class A shares of any
fund may be exchanged without a sales charge for shares of the funds
that are offered without a sales charge. Class A shares of any fund
purchased without a sales charge may be exchanged for shares sold with
a sales charge, and the appropriate sales charge differential will be
applied.
B. Class A shares of any fund acquired by a previous exchange of
shares purchased with a sales charge may be exchanged for Class A
shares of any of the other funds, and the sales charge differential,
if any, will be applied.
C. Class B shares of any fund may be exchanged without a sales
charge. Class B shares of the Fund exchanged for Class B shares of an-
other fund will be subject to the higher applicable CDSC of the two
funds and, for purposes of calculating CDSC rates and conversion peri-
ods, will be deemed to have been held since the date the shares being
exchanged were purchased.
Dealers other than Smith Barney Shearson must notify TSSG of the inves-
tor's prior ownership of Class A shares of Smith Barney Shearson High In-
come Fund and the account number in order to accomplish an exchange of
shares of Smith Barney Shearson High Income Fund under paragraph B above.
The exchange privilege enables shareholders to acquire shares of the same
class in a fund with different investment objectives when they believe
that a shift between funds is an appropriate investment decision. Prior to
any exchange, the shareholder should obtain and review a copy of the cur-
rent prospectus of each fund into which an exchange is being considered.
Prospectuses may be obtained from any Smith Barney Shearson Financial Con-
sultant.
Upon receipt of proper instructions and all necessary supporting docu-
ments, shares submitted for exchange are redeemed at the then-current net
asset value and, subject to any applicable CDSC, the proceeds are immedi-
ately invested, at a price as described above, in shares of the fund being
acquired. Smith Barney Shearson reserves the right to reject any exchange
request. The exchange privilege may be modified or terminated at any time
after notice to shareholders.
PERFORMANCE DATA
From time to time, the Fund may quote yield or total return of a Class in
advertisements or in reports and other communications to shareholders. To
the extent any advertisement or sales literature of the Fund describes the
expenses or performance of any Class it will also disclose such informa-
tion for the other Class.
YIELD
The 30-day yield figure described below is calculated according to a for-
mula prescribed by the SEC. The formula can be expressed as follows:
YIELD = 2[(a-b/cd +1)6 -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimburse-
ment).
c = the average daily number of shares outstanding dur-
ing the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day
of the period.
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by the Fund at a discount
or premium, the formula generally calls for amortization of the discount
or premium; the amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
The Fund's equivalent taxable 30-day yield for a Class is computed by di-
viding that portion of the Class' 30-day yield which is tax-exempt by one
minus a stated income tax rate and adding the product to that portion, if
any, of the Class' yield that is not tax-exempt.
The yield on municipal securities is dependent upon a variety of factors,
including general economic and monetary conditions, conditions of the mu-
nicipal securities market, size of a particular offering, maturity of the
obligation offered and rating of the issue. Investors should recognize
that, in periods of declining interest rates, the Fund's yield for each
Class of shares will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates the Fund's yield for each
Class of shares will tend to be somewhat lower. In addition, when interest
rates are falling, the inflow of net new money to the Fund from the con-
tinuous sale of its shares will likely be invested in portfolio instru-
ments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the current yield of the Fund. In periods of rising in-
terest rates, the opposite can be expected to occur.
AVERAGE ANNUAL TOTAL RETURN
"Average annual total return" figures, as described below, are computed
according to a formula prescribed by the SEC. The formula can be expressed
as follows:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value of a hypothetical $1,000
investment made at the beginning of a 1-, 5-, or
10-year period at the end of the 1-, 5-, or 10-
year period (or fractional portion thereof), as-
suming reinvestment of all dividends and distribu-
tions.
The Fund's average total return for Class B shares assuming the maximum
applicable CDSC was as follows for the periods indicated:
2.51% for the one year period beginning March 1, 1993 through February
28, 1994.
11.12% per annum during the period from commencement (November 6, 1992)
through February 28, 1994.
The Fund's average total return for Class B shares without the CDSC was as
follows for the periods indicated:
6.86% for the one year period beginning March 1, 1993 through February
28, 1994.
14.04% per annum during the period from commencement (November 6, 1992)
through February 28, 1994.
AGGREGATE TOTAL RETURN
Aggregate total return figures, as described below, represent the cumula-
tive change in the value of an investment in the Class for the specified
period and are computed by the following formula:
ERV-P / P
Where: P = a hypothetical initial payment of $10,000.
ERV = Ending Redeemable Value of a hypothetical $10,000
investment made at the beginning of a 1-, 5-, or
10-year period at the end of the 1-, 5-, or 10-
year period (or fractional portion thereof), as-
suming reinvestment of all dividends and distribu-
tions.
The Fund's aggregate total return for Class B shares was as follows for
the periods indicated:
6.86% for the one year period beginning March 1, 1993 through February
28, 1994.
18.89% for the period from November 6, 1992 through February 28, 1994.
These figures do not assume that the maximum 4.5% CDSC assessed by the
Fund has been deducted from the investment at the time of purchase. If the
maximum CDSC had been deducted at the time of purchase, the Fund's aggre-
gate total return for the same periods would have been 2.51% and 14.89%,
respectively.
It is important to note that the total return figures set forth above are
based on historical earnings and are not intended to indicate future per-
formance. Each Class' net investment income changes in response to fluctu-
ation in interest rates and the expenses of the Fund. Performance will
vary from time to time depending upon market conditions, the composition
of the Fund's portfolio and operating expenses and the expenses exclu-
sively attributable to the Class. Consequently, any given performance quo-
tation should not be considered representative of the Class' performance
for any specified period in the future. Because performance will vary, it
may not provide a basis for comparing an investment in the Class with cer-
tain bank deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing a Class' performance with that
of other mutual funds should give consideration to the quality and matu-
rity of the respective investment companies' portfolio securities.
TAXES
As described above and in the Prospectus, the Fund is designed to provide
shareholders with current income which is excluded from gross income for
Federal income tax purposes. The Fund is not intended to constitute a bal-
anced investment program and is not designed for investors seeking capital
gains or maximum tax-exempt income irrespective of fluctuations in princi-
pal. Investment in the Fund would not be suitable for tax-exempt institu-
tions, qualified retirement plans, H.R. 10 plans and individual retirement
accounts because such investors would not gain any additional tax benefit
from the receipt of tax-exempt income.
The following is a summary of selected Federal income tax considerations
that may affect the Fund and its shareholders. The summary is not intended
as a substitute for individual tax advice and investors are urged to con-
sult their own tax advisors as to the tax consequences of an investment in
the Fund.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). Provided that the Fund (a) is a regulated investment
company and (b) distributes at least 90% of its taxable net investment in-
come (including, for this purpose, its net realized short-term capital
gains) and 90% of its tax-exempt interest income (reduced by certain ex-
penses), the Fund will not be liable for Federal income taxes to the ex-
tent 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 the Fund would reduce the amount of income and gains
available for distribution to shareholders.
Because the Fund will distribute exempt-interest dividends, interest on
indebtedness incurred by a shareholder to purchase or carry Fund shares is
not deductible for Federal income tax purposes. If a shareholder receives
exempt-interest dividends with respect to any share and if such share is
held by the shareholder for six months or less, then any loss on the sale
or exchange of such share may, to the extent of such exempt-interest divi-
dends, be disallowed. In addition, the Code may require a shareholder, if
he or she receives exempt-interest dividends, to treat as Federal taxable
income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. Furthermore, that portion of any
exempt-interest dividend paid by the Fund which represents income derived
from private activity bonds held by the Fund may not retain its tax-exempt
status in the hands of a shareholder who is a "substantial user" of a fa-
cility financed by such bonds, or a "related person" thereof. Moreover, as
noted in the Fund's Prospectus, (a) some or all of the Fund's dividends
may be a specific preference item, or a component of an adjustment item,
for purposes of the Federal individual and corporate alternative minimum
taxes and (b) the receipt of Fund dividends and distributions may affect a
corporate shareholder's Federal "environmental" tax liability. In addi-
tion, the receipt of Fund dividends and distributions may affect a foreign
corporate shareholder's Federal "branch profits" tax liability and the
Federal "excess net passive income" tax liability of a shareholder of a
Subchapter S corporation. Shareholders should consult their own tax advi-
sors as to whether they are (a) substantial users with respect to a facil-
ity or related to such users within the meaning of the Code or (b) subject
to a Federal alternative minimum tax, the Federal environmental tax, the
Federal branch profits tax, or the Federal "excess net passive income"
tax.
As described above and in the Fund's Prospectus, the Fund may invest in
municipal bond index futures and financial futures contracts and options
on interest rate futures and financial futures contracts. The Fund antici-
pates that these investment activities will not prevent the Fund from
qualifying as a regulated investment company; however, in order to con-
tinue to qualify as a regulated investment company, the Fund might have to
limit its investments in futures contracts and options on futures con-
tracts. As a general rule, these investment activities will increase or
decrease the amount of long- and short-term capital gains or losses real-
ized by the Fund and, accordingly, will affect the amount of capital gains
distributed to the Fund's shareholders.
For Federal income tax purposes, gain or loss on the futures contracts and
options described above (collectively referred to as "section 1256 con-
tracts") is taxed pursuant to a special "mark-to-market system." Under the
mark-to-market system, these instruments are treated as if sold at the
Fund's fiscal year end for their fair market value. As a result, the Fund
will 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
and, accordingly, the mark-to-market system generally will affect the
amount of capital gains or losses taxable to the Fund and the amount of
distributions taxable to a shareholder. Moreover, if the Fund invests in
both section 1256 contracts and offsetting positions in such contracts,
which together constitute a straddle, then the Fund may be required to
defer certain realized losses. The Fund expects that its activities with
respect to section 1256 contracts and offsetting positions in those con-
tracts will not cause it to be treated as recognizing a materially greater
amount of capital gains than actually realized and will permit it to use
substantially all of its losses in those fiscal years in which such losses
actually occur.
While the Fund does not expect to realize a significant amount of net
long-term capital gains, any such gains realized will be distributed as
described in the Fund's Prospectus. Such distributions ("capital gain div-
idends"), if any, will be taxable to shareholders as long-term capital
gains, regardless of how long they have held Fund shares, and will be des-
ignated as capital gain dividends in a written notice mailed by the Fund
to the shareholders after the close of the Fund's prior taxable year. If a
shareholder receives a capital gain dividend with respect to any share and
if the share has been held by the shareholder for six months or less, then
any loss (to the extent not disallowed pursuant to the six-month rule de-
scribed above relating to exempt-interest dividends) on the sale or ex-
change of such share, to the extent of the capital gain dividend, shall be
treated as a long-term capital loss.
If a shareholder incurs a sales charge when acquiring shares of the Fund,
disposes of those shares within 90 days and then acquires shares in a mu-
tual fund for which the otherwise applicable sales charge is reduced by
reason of a reinvestment right (that is, exchange privilege), the original
sales charge will not be taken into account in computing gain/loss on
original shares to the extent the subsequent sales charge is reduced. In-
stead, it will be added to the tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of the newly ac-
quired shares made within 90 days of the second acquisition. This provi-
sion prevents a shareholder from immediately deducting the sales charge by
shifting his or her investment within a family of mutual funds.
Each shareholder will receive after the close of the calendar year an an-
nual statement as to the Federal income tax status of his or her dividends
and distributions from the Fund for the prior calendar year. These state-
ments also will designate the amount of exempt-interest dividends that is
a specific preference item for purposes of the Federal individual and cor-
porate alternative minimum taxes. Each shareholder also will receive, if
appropriate, various written notices after the close of the Fund's prior
taxable year as to the Federal income tax status of his or her dividends
and distributions which were received from the Fund during the Fund's
prior taxable year. Shareholders should consult their tax advisors as to
any state and local taxes that may apply to these dividends and distribu-
tions. The dollar amount of dividends excluded from Federal income taxa-
tion and the dollar amount subject to Federal income taxation, if any,
will vary for each shareholder depending upon the size and duration of
each shareholder's investment in the Fund. To the extent the Fund earns
taxable net investment income, it intends to designate as taxable divi-
dends the same percentage of each day's dividend as its taxable net in-
vestment income bears to its total net investment income earned for the
year.
Investors considering buying shares of the Fund just prior to a record
date for a capital gain distribution should be aware that, regardless of
whether the price of the Fund shares to be purchased reflects the amount
of the forthcoming distribution payment, any such payment will be a dis-
tribution payment.
If a shareholder fails to furnish a correct taxpayer identification num-
ber, fails to fully report dividend and interest income, or fails to cer-
tify that he or she has provided a correct taxpayer identification number
and that he or she is not subject to such withholding, the shareholder may
be subject to a 31% "backup withholding" tax with respect to (a) taxable
dividends and distributions and (b) any proceeds of any redemptions of
Fund shares. An individual's taxpayer identification number is his or her
social security number. The backup withholding tax is not an additional
tax and may be credited against a shareholder's regular Federal income tax
liability.
The foregoing is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substi-
tute for careful tax planning. Individuals are often exempt from state and
local personal income taxes on distributions of tax-exempt interest income
derived from obligations of issuers located in the state in which they re-
side when these distributions are received directly from these issuers,
but are usually subject to such taxes on income derived from obligations
of issuers located in other jurisdictions. Shareholders are urged to con-
sult their tax advisors with specific reference to their own tax situa-
tions.
CUSTODIAN AND TRANSFER AGENT
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston
Place, Boston, Massachusetts 02108, and serves as the custodian of the
Fund. Under the custody agreement, Boston Safe holds the Fund's portfolio
securities and keeps all necessary accounts and records. For its services,
Boston Safe receives a monthly fee based upon the month-end market value
of securities held in custody and also receives securities transaction
charges. The assets of the Fund are held under bank custodianship in com-
pliance with the 1940 Act.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves
as the Fund's transfer agent. Under its transfer agency agreement, TSSG
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Fund and distributes dividends
and distributions payable by the Fund. For these services, TSSG receives a
monthly fee computed on the basis of the number of shareholder accounts it
maintains for the Fund during the month, and is reimbursed for out-of-
pocket expenses.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended February 28, 1994 ac-
companies this Statement of Additional Information and is incorporated
herein by reference in its entirety.
APPENDIX
Description of S&P and Moody's ratings:
S&P RATINGS FOR MUNICIPAL BONDS
S&P's Municipal Bond ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue
bonds. General obligation bonds are usually secured by all resources
available to the municipality and the factors outlined in the rating defi-
nitions below are weighed in determining the rating. Because revenue bonds
in general are payable from specifically pledged revenues, the essential
element in the security for a revenue bond is the quantity and quality of
the pledged revenues available to pay debt service.
Although an appraisal of most of the same factors that bear on the quality
of general obligation bond credit is usually appropriate in the rating
analysis of a revenue bond, other factors are important, including partic-
ularly the competitive position of the municipal enterprise under review
and the basic security covenants. Although a rating reflects S&P's judg-
ment as to the issuer's capacity for the timely payment of debt service,
in certain instances it may also reflect a mechanism or procedure for an
assured and prompt cure of a default, should one occur, i.e., an insurance
program, Federal or state guarantee or the automatic withholding and use
of state aid to pay the defaulted debt service.
AAA
Prime -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible
to autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Qual-
ity of management appears superior.
Revenue Bonds -- Debt service coverage has been, and is expected to re-
main, substantial. Stability of the pledged revenues is also exceptionally
strong, due to the competitive position of the municipal enterprise or to
the nature of the revenues. Basic security provisions (including rate cov-
enant, earnings test for issuance of additional bonds, and debt service
reserve requirements) are rigorous. There is evidence of superior manage-
ment.
AA
High Grade -- The investment characteristics of general obligation and
revenue bonds in this group are only slightly less marked than those of
the prime quality issues. Bonds rated "AA" have the second strongest ca-
pacity for payment of debt service.
A
Good Grade -- Principal and interest payments on bonds in this category
are regarded as safe. This rating describes the third strongest capacity
for payment of debt service. It differs from the two higher ratings be-
cause:
General Obligation Bonds -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expen-
ditures, or in quality of management. Under certain adverse circumstances,
any one such weakness might impair the ability of the issuer to meet debt
obligations at some future date.
Revenue Bonds -- Debt service coverage is good, but not exceptional. Sta-
bility of the pledged revenues could show some variations because of in-
creased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.
BBB
Medium Grade -- Of the investment grade ratings, this is the lowest.
General Obligation Bonds -- Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of
debt service. The difference between "A" and "BBB" ratings is that the
latter shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among
the factors considered.
Revenue Bonds -- Debt coverage is only fair. Stability of the pledged rev-
enues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC AND CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and CC the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C
The rating C is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating cat-
egories, except in the AAA-Prime Grade category.
S&P RATINGS FOR MUNICIPAL NOTES
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) by S&P to distinguish more
clearly the credit quality of notes as compared to bonds. Notes rated SP-1
have a very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
the designation of SP-1+. Notes rated SP-2 have a satisfactory capacity to
pay principal and interest.
MOODY'S RATINGS FOR MUNICIPAL BONDS
AAA
Bonds which are Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective ele-
ments are likely to change, such changes as can be visualized are most un-
likely to impair the fundamentally strong position of such issues.
AA
Bonds which are rated Aa are judged to be of high quality by all stan-
dards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because mar-
gins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving se-
curity to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA
Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest pay-
ments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of in-
terest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA
Bonds that are rated Caa are of poor standing. These issues may be in de-
fault or present elements of danger may exist with respect to principal or
interest.
CA
Bonds that are rated Ca represent obligations that are speculative in a
high degree. These issues are often in default or have other marked short-
comings.
C
Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through Baa. The modifier 1 indicates that the se-
curity ranks in the higher end of its generic rating category; the modi-
fier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
MOODY'S RATINGS FOR MUNICIPAL NOTES
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and for variable rate de-
mand obligations are designated Variable Moody's Investment Grade
("VMIG"). This distinction is in recognition of the differences between
short-term credit risk and long-term risk. Loans bearing the designation
MIG 1 or VMIG 1 are of the best quality, enjoying strong protection by es-
tablished cash flows of funds for their servicing, superior liquidity sup-
port or from established and broad-based access to the market for refi-
nancing or both. Loans bearing the designation MIG 2 or VMIG 2 are of high
quality, with ample margins of protection although not as large as the
preceding group. Loans bearing the designation MIG 3 or VMIG 3 are of fa-
vorable quality, with all security elements accounted for, but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow may
be narrow and market access for refinancing is likely to be less well es-
tablished.
DESCRIPTION OF S&P A-1+ AND A-1 COMMERCIAL PAPER RATING
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the direct
credit support of an issuer or guarantor that possesses excellent long-
term operating and financial strengths combined with strong liquidity
characteristics (typically, such issuers or guarantors would display
credit quality characteristics which would warrant a senior bond rating of
"AA-" or higher), or the direct credit support of an issuer or guarantor
that possesses above average long-term fundamental operating and financing
capabilities combined with ongoing excellent liquidity characteristics.
Paper rated A-1 by S&P has the following characteristics: liquidity ratios
are adequate to meet cash requirements; long-term senior debt is rated "A"
or better; the issuer has access to at least two additional channels of
borrowing; basic earnings and cash flow have an upward trend with allow-
ance made for unusual circumstances; typically, the issuer's industry is
well established and the issuer has a strong position within the industry;
and the reliability and quality of management are unquestioned.
DESCRIPTION OF MOODY'S PRIME-1 COMMERCIAL PAPER RATING
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are
the following: (a) evaluation of the management of the issuer; (b) eco-
nomic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (c)
evaluation of the issuer's products in relation to competition and cus-
tomer acceptance; (d) liquidity; (e) amount and quality of long-term debt;
(f) trend of earnings over a period of ten years; (g) financial strength
of a parent company and the relationships which exist with the issuer; and
(h) recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to
meet such obligations.
SMITH BARNEY SHEARSON
MANAGED MUNICIPALS FUND INC.
Two World Trade Center
New York, New York 10048
Smith Barney Shearson
MANAGED
MUNICIPALS
FUND INC.
STATEMENT OF
ADDITIONAL INFORMATION
APRIL 29, 1994
SMITH BARNEY SHEARSON
