Registration No. 2-69308
811-3097
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.[ ]
Post-Effective Amendment No. 33 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 33 [X]
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
(Exact name of Registrant as specified in Charter)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices) (Zip Code)
(212) 816-6474
Registrant's Telephone Number, including area code
Christina T. Sydor, 388 Greenwich Street, New York, New
York 10013
(Name and Address of Agent for Service)
Continuous
(Approximate Date of Proposed Public Offering)
It is proposed that this filing becomes effective (check
appropriate box):
[ ] Immediately upon filing pursuant to paragraph b
[ ] on (date) pursuant to paragraph b
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on June 28, 1999 pursuant to paragraph
(a)(1)of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
[ ] This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
Part A
<PAGE>
Draft 4/22/99
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[Logo]
Smith Barney Mutual Funds
Investing for your future.
Every day.
- --------------------------
Prospectus Smith Barney
Mutual Funds
- ----------------------------------------------------------
June 28, 1999 Managed Municipals Fund Inc.
Class A, B, L and Y Shares
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
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Contents
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Fund goal and main strategies.................. 4
Risks, performance and expenses................ 5
More on the fund's investments................. 8
Management..................................... 9
Choosing a class of shares to buy.............. 10
Comparing the fund's classes................... 11
Sales charge................................... 12
More about deferred sales charges.............. 15
Buying shares.................................. 16
Exchanging shares.............................. 17
Redeeming shares............................... 18
Other things to know about
share transactions............................ 20
Dividends, distributions and taxes............. 22
Share price.................................... 23
Financial highlights........................... 24
You should know:
An investment in the fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other government agency.
Managed Municipals Fund Inc. 1
<PAGE>
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Fund goal and main strategies
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Investment objective
The fund seeks to maximize current interest income which is excluded from gross
income for regular federal income tax purposes to the extent consistent with
prudent investment management and the preservation of capital.
Key investments
The fund invests primarily in intermediate-term and long-term investment grade
municipal securities. These include securities issued by any of the 50 states
and certain other municipal issuers, political subdivisions, agencies and public
authorities that pay interest which is exempt from federal income tax.
Intermediate-term and long-term municipal securities have remaining maturities
at the time of purchase of from three to more than thirty years. The fund can
invest up to 20% of its assets in below investment grade bonds or in unrated
securities of equivalent quality (commonly known as "junk bonds"). Investment
grade bonds are those rated in any of the four highest long-term rating
categories, or if unrated, of comparable quality.
Selection process
The manager selects securities primarily by identifying undervalued sectors and
individual securities, while also selecting securities it believes will benefit
from changes in market conditions. In selecting individual securities, the
manager:
. Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit opportunities
in the municipal bond market
. Measures the potential impact of supply/demand imbalances for obligations of
different states, the yields available for securities with different
maturities and a security's maturity in light of the outlook for interest
rates to identify individual securities that balance potential return and risk
. May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial development,
based on their apparent relative values
. Identifies individual securities with the most potential for added value,
such as those involving unusual situations, new issuers, the potential for
credit upgrades, unique structural characteristics or innovative features
2
<PAGE>
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Risks, performance and expenses
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Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
. Interest rates rise, causing the value of the fund's portfolio to decline
. The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or the security's credit rating is downgraded
. Municipal securities fall out of favor with investors
. Unfavorable legislation affects the tax-exempt status of municipal bonds
. The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of the fund's gains generally will be, subject to federal
taxation. The fund may realize taxable gains on the sale of its securities or on
transactions in derivatives. Some of the fund's income may be subject to the
federal alternative minimum tax. In addition, distributions of the fund's
income and gains will be subject to state personal income taxation.
The fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in one issuer than a diversified fund. To the extent
the fund concentrates its assets in fewer issuers, the fund will be more
susceptible to negative events affecting those issuers.
Who may want to invest
The fund may be an appropriate investment if you:
. Are a taxpayer in a high federal tax bracket seeking income exempt from
federal taxation
. Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio
. Are willing to accept the risks of municipal securities
Managed Municipals Fund Inc. 3
<PAGE>
Total return
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of the
past 10 calendar years. Class B, L and Y shares would have different performance
because of their different expenses. The performance information in the chart
does not reflect sales charges, which would reduce your return.
[BAR GRAPH]
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% TOTAL RETURN: CLASS A SHARES
___________________________________________________________
7
___________________________________________________________
6
___________________________________________________________
5 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00
___________________________________________________________
4
___________________________________________________________
3
___________________________________________________________
2
___________________________________________________________
1
___________________________________________________________
0
___________________________________________________________
89 90 91 92 93 94 95 96 97 98
Calendar years ended December 31
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Quarterly returns: Highest: xx% in ___ quarter 199X; Lowest: xx% in ___
quarter 199X
Year to date: xx% through 3/31/99
Comparative performance
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the Lehman
Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unmanaged
index of municipal bonds and the Lipper Municipal Fund Average (the "Lipper
Average"), an average composed of the fund's peer group of mutual funds. This
table assumes imposition of the maximum sales charge applicable to the class,
redemption of shares at the end of the period, and reinvestment of distributions
and dividends.
<TABLE>
<CAPTION>
Average Annual Total Returns -- Calendar Years Ended December 31, 1998
<S> <C> <C> <C> <C> <C>
Class Inception date 1 year 5 years 10 years Since inception
A [xx/xx/xx]
B 11/6/92 n/a
L 11/19/94 n/a n/a
Y 4/4/95 n/a
Lehman Index n/a
Lipper n/a
Average
</TABLE>
*Index comparison begins on
4
<PAGE>
Fees and expenses
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
<TABLE>
<CAPTION>
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Shareholder fees
- ------------------------------------------------------------------------------------------------------
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on purchases (as 4.00% None 1.00% None
a % of offering price)
Maximum deferred sales charge (load) (as a % of the None* 4.50% 1.00% None
lower of net asset value at purchase or redemption)
Annual fund operating expenses
(expenses deducted from fund assets)
Management fee 0.48% 0.48% 0.48% 0.48%
Distribution and service (12b-1) fee 0.15% 0.65% 0.70% None
Other expenses
---- ---- ---- ----
Total annual fund operating expenses
==== ==== ==== ====
</TABLE>
*You may buy Class A shares in amounts of $500,000 or more at net asset value
(without an initial charge) but if you redeem those shares within 12 months of
their purchase, you will pay a deferred sales charge of 1.00%.
Example
This example helps you compare the costs of investing in the fund with the costs
of investing in other mutual funds. Your actual costs may be higher or lower.
The example assumes:
. You invest $10,000 in the fund for the period shown
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. The fund's operating expenses remain the same
<TABLE>
<CAPTION>
Number of years you own your shares
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Class A (with or without redemption) $ $ $ $
Class B (redemption at end of period) $ $ $ $
Class B (no redemption) $ $ $ $
Class L (redemption at end of period) $ $ $ $
Class L (no redemption) $ $ $ $
Class Y (with or without redemption) $ $ $ $
</TABLE>
Managed Municipals Fund Inc. 5
<PAGE>
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More on the fund's investments
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Municipal securities. Municipal securities are debt obligations issued by any of
the 50 states and their political subdivisions, agencies and public authorities
(together with certain other governmental issuers such as Puerto Rico, the
Virgin Islands and Guam). The interest on these bonds is exempt from federal
income tax. As a result, the interest rate on these bonds normally is lower than
it would be if the bonds were subject to taxation. The municipal securities in
which the fund invests include general obligation bonds, revenue bonds and
notes, and municipal leases. These securities may pay interest at fixed,
variable or floating rates. The fund may also hold zero coupon securities which
pay no interest during the life of the obligation but trade at prices below
their stated maturity value.
Below investment grade securities. Below investment grade securities are
considered speculative, involve a high risk of loss and are susceptible to
default or decline in market value because of adverse economic and business
developments. These securities are less liquid and have more volatile prices
than higher rated securities.
Derivative contracts. The fund may, but need not, use derivative contracts, such
as financial futures and options on financial futures, for any of the following
purposes:
. To hedge against the economic impact of adverse changes in the market value of
portfolio securities because of changes in interest rates
. As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in futures can have a big impact on a fund's interest
rate exposure. Therefore, using futures can disproportionately increase losses
and reduce opportunities for gains when interest rates are changing. The fund
may not fully benefit from or may lose money on futures if changes in their
value do not correspond accurately to changes in the value of the fund's
holdings. The other parties to certain futures present the same types of default
risk as issuers of fixed income securities. Futures can also make a fund less
liquid and harder to value, especially in declining markets.
Defensive investing. The fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If the fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
6
<PAGE>
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Management
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Manager. The fund's investment adviser and administrator (the manager) is SSBC
Fund Management Inc., an affiliate of Salomon Smith Barney Inc.
The manager's address is 388 Greenwich Street, New York, New York 10013. The
manager selects the fund's investments and oversees its operations. The manager
and Salomon Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses
produce a broad range of financial services -- asset management, banking and
consumer finance, credit and charge cards, insurance, investments, investment
banking and trading -- and use diverse channels to make them available to
consumer and corporate customers around the world.
Joseph P. Deane, investment officer of SSBC Fund Management Inc. and senior vice
president and managing director of Salomon Smith Barney, has been responsible
for the day-to-day management of the fund's portfolio since November 1988. Mr.
Deane has 29 years of investment management experience.
Management fees. During the fiscal year ended February 28, 1999, the manager
received an advisory fee and an administrative fee equal to ___% and ___%,
respectively, of the fund's average daily net assets.
Distributor. The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans. The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and service
fees. These fees are an ongoing expense and, over time, may cost you more than
other types of sales charges.
Year 2000 issue. Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund (limited to requesting and receiving reports from its
service providers) or its service providers to correct the problem will be
successful.
Managed Municipals Fund Inc. 7
<PAGE>
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Choosing a class of shares to buy
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You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
. If you plan to invest regularly or in large amounts, buying Class A shares
may help you reduce sales charges and ongoing expenses.
. For Class B shares, all of your purchase price and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
. Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class L
shares do not, Class B shares may be more attractive to long-term investors.
You may buy shares from:
. A Salomon Smith Barney Financial Consultant
. An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
. The fund, but only if you are investing through certain qualified plans or
certain dealer representatives
Investment minimums. Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
------------------------------ -----------
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
Uniform Gift to Minor Accounts $ 250 $15 million $50
</TABLE>
8
<PAGE>
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Comparing the fund's classes
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Your Salomon Smith Barney Financial Consultant or dealer representative can help
you decide which class meets your goals. They may receive different compensation
depending upon which class you choose.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key .Initial sales charge . No initial sales . Initial sales . No initial or
features .You may qualify charge charge is lower deferred sales charge
for reduction or . Deferred sales than Class A . Must invest at least
waiver of initial charge declines . Deferred sales $15 million
sales charge over time charge for only 1 . Lower annual
. Lower annual . Converts to year expenses than the
expenses than Class Class A after 8 . Does not other classes
B and Class L years convert to
. Higher annual Class A
expenses than . Higher annual
Class A expenses than
Class A
- ------------------------------------------------------------------------------------------------------------------
Initial sales Up to 4.00%; None 1.00% None
charge reduced for large
purchases and
waived for certain
investors. No
charge for
purchases of
$500,000 or more
- ------------------------------------------------------------------------------------------------------------------
Deferred 1% on purchases of Up to 4.50% 1% if you redeem None
sales charge $500,000 or more if charged when you within 1 year of
you redeem within redeem shares. purchase
1 year of purchase The charge is
reduced over time
and there is no
deferred sales
charge after 6 years
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Annual 0.15% of average 0.65% of average 0.70% of average None
distribution daily net assets daily net assets daily net assets
and service
fees
- ------------------------------------------------------------------------------------------------------------------
Exchange Class A shares of Class B shares of Class L shares of Class Y shares of
privilege* most Smith Barney most Smith Barney most Smith most Smith Barney
funds funds Barney funds funds
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*Ask your Salomon Smith Barney Financial Consultant or dealer representative or
visit the web site for the Smith Barney funds available for exchange.
Managed Municipals Fund Inc. 9
<PAGE>
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Sales charge
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Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund's distributions or dividends you reinvest in additional Class A shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 4.00 4.17
- -----------------------------------------------------------
$25,000 but less than $50,000 3.50 3.63
- -----------------------------------------------------------
$50,000 but less than $100,000 3.00 3.09
- -----------------------------------------------------------
$100,000 but less than $250,000 2.50 2.56
- -----------------------------------------------------------
$250,000 but less than $500,000 1.50 1.52
- -----------------------------------------------------------
$500,000 or more -0- -0-
- -----------------------------------------------------------
</TABLE>
Investments of $500,000 or more. You do not pay an initial sales charge when
you buy $500,000 or more of Class A shares. However, if you redeem these Class
A shares within one year of purchase, you will pay a deferred sales charge of
1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
. Accumulation privilege - lets you combine the current value of Class A shares
owned
. by you, or
. by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase of
Class A shares for purposes of calculating the initial sales charge. Certain
trustees and fiduciaries may be entitled to combine accounts in determining
their sales charge.
10
<PAGE>
. Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales charge, if any,
as if all shares had been purchased at once. You may include purchases on which
you paid a sales charge within 90 days before you sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
. Employees of members of the NASD
. Clients of newly employed Salomon Smith Barney Financial Consultants, if
certain conditions are met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn more about the requirements for reductions or waivers of
Class A initial sales charges, contact your Salomon Smith Barney Financial
Consultant or dealer representative or consult the Statement of Additional
Information ("SAI").
Managed Municipals Fund Inc. 11
<PAGE>
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Sales charge
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Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of purchase,
you will pay a deferred sales charge. The deferred sales charge decreases as the
number of years since your purchase increases.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
6th
Year after purchase 1st 2nd 3rd 4th 5th through
8th
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Shares issued: Shares issued: Shares issued:
At initial On reinvestment of Upon exchange from
purchase dividends and another Smith Barney
distributions fund
- ----------------------------------------------------------------------------------------
Eight years after the In same proportion as the On the date the shares
date of purchase number of Class B shares originally acquired would
converting is to total Class B have converted into Class A
shares you own shares
- ----------------------------------------------------------------------------------------
</TABLE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund on June 12, 1998, you
will not pay an initial sales charge on Class L shares you buy before June 22,
2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 6-month period. To qualify, you must
initially invest $5,000,000.
12
<PAGE>
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More about deferred sales charges
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The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
. Shares exchanged for shares of another Smith Barney fund
. Shares representing reinvested distributions and dividends
. Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation for
its expenses in selling shares, including the payment of compensation to your
Salomon Smith Barney Financial Consultant or dealer representative.
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
. On payments made through certain systematic withdrawal plans
. For involuntary redemptions of small account balances
. For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Managed Municipals Fund Inc. 13
<PAGE>
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Buying shares
- --------------------------------------------------------------------------------
Through a You should contact your Salomon Smith Barney Financial Consultant
Salomon or dealer representative to open a brokerage account and make
Smith arrangements to buy shares.
Barney
Financial If you do not provide the following information, your order will
represen- be rejected:
tative
. Class of shares being bought
. Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account no
later than the third business day after you place your order.
Salomon Smith Barney or your dealer representative may charge an
annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who are
fund's clients of the selling group are eligible to buy shares directly
transfer from the fund.
agent
. Write the transfer agent at the following address:
Smith Barney Managed Municipals Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
. Enclose a check to pay for the shares. For initial purchases,
complete and send an account application.
. For more information, call the transfer agent at
1-800-451-2010.
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer
systematic representative or the transfer agent to transfer funds
investment automatically from a regular bank account, cash held in a
Salomon Smith Barney brokerage account or Smith Barney money
market fund to buy shares on a regular basis.
. Amounts transferred should be at least: $25 monthly or $50
quarterly
. If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer representative
or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney Financial
Consultant, dealer representative or the transfer agent or
consult the SAI. Exchanging shares
14
<PAGE>
- --------------------------------------------------------------------------------
Exchanging shares
- --------------------------------------------------------------------------------
Smith You should contact your Salomon Smith Barney Financial
Barney Consultant or dealer representative to exchange into other
offers a Smith Barney funds. Be sure to read the prospectus of the Smith
distinctive Barney fund you are exchanging into. An exchange is a taxable
family of transaction.
funds
tailored to . You may exchange shares only for shares of the same class of
help meet another Smith Barney fund. Not all Smith Barney funds offer all
the varying classes.
needs of
both large . Not all Smith Barney funds may be offered in your state of
and small residence. Contact your Smith Barney Financial Consultant,
investors. dealer representative or the transfer agent.
. You must meet the minimum investment amount for each fund.
. If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers (documents transferring ownership of certificates)
before the exchange is effective.
. The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales
charges Your deferred sales charge (if any) will continue to be
measured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you will
be subject to that charge. If you exchange at any time into a
fund with a lower charge, the sales charge will not be reduced.
- --------------------------------------------------------------------------------
By If you do not have a brokerage account, you may be eligible to
telephone exchange shares through the transfer agent. You must complete an
authorization form to authorize telephone transfers. If
eligible, you may make telephone exchanges on any day the New
York Stock Exchange is open. Call the transfer agent at 1-800-
451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern time).
Requests received after the close of regular trading on the
Exchange are priced at the net asset value next determined.
You can make telephone exchanges only between accounts that have
identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
Managed Municipals Fund Inc. 15
<PAGE>
- --------------------------------------------------------------------------------
Redeeming shares
- --------------------------------------------------------------------------------
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must receive
the certificates endorsed for transfer or with signed stock
powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business days
after your request is received in good order. However, if you
recently purchased your shares by check, your redemption proceeds
will not be sent to you until your original check clears, which
may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests to
the transfer agent at the following address:
Smith Barney Managed Municipals Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
. Your account number
. The class of shares and the dollar amount or number of shares
to be redeemed
. Signatures of each owner exactly as the account is registered
16
<PAGE>
By If you do not have a brokerage account, you may be eligible to
telephone redeem shares in amounts up to $10,000 per day through the
transfer agent. You must complete an authorization form to
authorize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock Exchange
is open. Call the transfer agent at 1-800-451-2010 between 9:00
a.m. and 5:00 p.m. (Eastern time). Requests received after the
close of regular trading on the Exchange are priced at the net
asset value next determined.
Your redemption proceeds can be sent by check to your address of
record or by wire transfer to a bank account designated on your
authorization form. You may be charged a fee for wire transfers.
You must submit a new authorization form to change the bank
account designated to receive wire transfers and you may be
asked to provide certain other documents.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales charge
will be waived if your automatic payments do not exceed 1%
per month of the value of your shares subject to a deferred
sales charge.
The following conditions apply:
. Your shares must not be represented by certificates
. All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Managed Municipals Fund Inc. 17
<PAGE>
- --------------------------------------------------------------------------------
Other things to know about share transactions
- --------------------------------------------------------------------------------
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
. Name of the fund
. Account number
. Class of shares being bought, exchanged or redeemed
. Dollar amount or number of shares being bought, exchanged or redeemed
. Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemption
request is genuine by recording calls, asking the caller to provide a personal
identification number for the account, sending you a written confirmation or
requiring other confirmation procedures from time to time.
Signature guarantees. To be in good order, your redemption request must include
a signature guarantee if you:
. Are redeeming over $10,000 of shares
. Are sending signed share certificates or stock powers to the transfer agent
. Instruct the transfer agent to mail the check to an address different from
the one on your account
. Changed your account registration
. Want the check paid to someone other than the account owner(s)
. Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
18
<PAGE>
The fund has the right to:
. Suspend the offering of shares
. Waive or change minimum and additional investment amounts
. Reject any purchase or exchange order
. Change, revoke or suspend the exchange privilege
. Suspend telephone transactions
. Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securities
and Exchange Commission
. Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances. If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions. The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or exchanges by
the shareholder.
Share certificates. The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Managed Municipals Fund Inc. 19
<PAGE>
- --------------------------------------------------------------------------------
Dividends, distributions and taxes
- --------------------------------------------------------------------------------
Dividends. The fund pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
at other times if necessary for the fund to avoid a federal tax. Capital gain
distributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends.
Alternatively, you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions and/or
dividends paid in cash. You can change your choice at any time to be effective
as of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effective
until the next distribution or dividend is paid.
Taxes. In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
- --------------------------------------------------------------------------------
Transaction Federal tax status
- --------------------------------------------------------------------------------
Redemption or exchange of shares Usually capital gain or loss; long-term only
if shares owned more than one year
- --------------------------------------------------------------------------------
Long-term capital gain Taxable gain
distributions
- --------------------------------------------------------------------------------
Short-term capital gain Ordinary income
distributions
- --------------------------------------------------------------------------------
Dividends Exempt if from interest on tax-exempt
securities, otherwise ordinary income
- --------------------------------------------------------------------------------
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain
distributions are taxable to you as long-term capital gain regardless of how
long you have owned your shares. You may want to avoid buying shares when the
fund is about to declare a capital gain distribution or a taxable dividend,
because it will be taxable to you even though it may actually be a return of a
portion of your investment.
After the end of each year, the fund will provide you with information about the
distributions and dividends you received and any redemptions of shares during
the previous year. If you do not provide the fund with your correct taxpayer
identification number and any required certifications, you may be subject to
back-up withholding of 31% of your distributions, dividends, and redemption
proceeds. Because each shareholder's circumstances are different and special tax
rules may apply, you should consult your tax adviser about your investment in
the fund.
20
<PAGE>
- --------------------------------------------------------------------------------
Share price
- --------------------------------------------------------------------------------
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. A fund that uses
fair value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities. A security's
valuation may differ depending on the method used for determining value.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer
representative before the New York Stock Exchange closes. If the New York Stock
Exchange closes early, you must place your order prior to the actual closing
time. Otherwise, you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders to
buy, exchange or redeem shares to the fund's agent before the agent's close of
business.
Managed Municipals Fund Inc. 21
<PAGE>
- --------------------------------------------------------------------------------
Financial highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
- --------------------------------------------------------------------------------
For a Class A share of capital stock outstanding throughout each year
ended February 28/(1)/:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, $15.61 $16.20 $15.47 $16.13
beginning of year
- -----------------------------------------------------------------------
Income (loss) from
operations:
Net investment
income (loss) 0.79 0.88 0.91 0.95
Net realized and
unrealized gain (loss) 1.06 (0.18) 0.80 (0.37)
- -----------------------------------------------------------------------
Total income (loss) from
operations 1.85 0.70 1.71 0.58
- -----------------------------------------------------------------------
Less distributions from:
Net investment
income (0.79) (0.91) (0.90) (0.95)
Net realized gains (0.48) (0.38) (0.08) (0.29)
- -----------------------------------------------------------------------
Total distributions (1.27) (1.29) (0.98) (1.24)
- -----------------------------------------------------------------------
Net asset value, end of year $16.19 $15.61 $16.20 $15.47
- -----------------------------------------------------------------------
Total return 12.30% 4.51% 11.34% 4.11%
- -----------------------------------------------------------------------
Net assets, end of
year (000)'s $2,367 $2,000 $1,892 $1,772
- -----------------------------------------------------------------------
Ratios to average
net assets:
Expenses 0.68% 0.68% 0.70% 0.71%
Net investment
income (loss) 4.98 5.60 5.47 6.25
- -----------------------------------------------------------------------
Portfolio turnover rate 110% 103% 80% 100%
- -----------------------------------------------------------------------
</TABLE>
(1) Certain prior year numbers have been restated to reflect current year's
presentation. Net investment income, net realized gains and net assets
were not affected.
22
<PAGE>
- --------------------------------------------------------------------------------
For a Class B share of capital stock outstanding throughout each year
ended February 28:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.60 $16.20 $15.47 $16.13
- ------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.72 0.79 0.82 0.86
Net realized and unrealized
gain (loss) 1.06 (0.18) 0.81 (0.37)
- ------------------------------------------------------------------------------
Total income (loss) from operations 1.78 0.61 1.63 0.49
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.71) (0.83) (0.82) (0.86)
Net realized gains (0.48) (0.38) (0.08) (0.29)
- ------------------------------------------------------------------------------
Total distributions (1.19) (1.21) (0.90) (1.15)
- ------------------------------------------------------------------------------
Net asset value, end of year $16.19 $15.60 $16.20 $15.47
- ------------------------------------------------------------------------------
Total return 11.81% 3.92% 10.78% 3.54%
- ------------------------------------------------------------------------------
Net assets, end of year (000)'s $1,125 $ 905 $ 730 $ 515
- ------------------------------------------------------------------------------
Ratios to average
net assets:
Expenses 1.20% 1.19% 1.22% 1.23%
Net investment income (loss) 4.46 5.09 4.94 5.73
- ------------------------------------------------------------------------------
Portfolio turnover rate 110% 103% 80% 100%
- ------------------------------------------------------------------------------
</TABLE>
(1) Certain prior year numbers have been restated to reflect current year's
presentation. Net investment income, net realized gains and net assets were
not affected.
Managed Municipals Fund Inc. 23
<PAGE>
- --------------------------------------------------------------------------------
For a Class L share/(1)/ of capital stock outstanding throughout each year
ended February 28/(1)/:
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1999 1998/(2)/ 1997 1996 1995/(3)/
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 15.60 $ 16.20 $ 15.47 $ 14.30
- --------------------------------------------------------------------------------------------------
Income (loss) from operations:
Net investment income (loss) 0.70 0.79 0.82 0.27
Net realized and unrealized gain (loss) 1.06 (0.18) 0.81 1.46*
- --------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.76 0.61 1.63 1.73
- --------------------------------------------------------------------------------------------------
Less distributions from:
Net investment
income/(6)/ (0.70) (0.83) (0.82) (0.27)
Net realized gains (0.48) (0.38) (0.08) (0.29)
- --------------------------------------------------------------------------------------------------
Total distributions (1.18) (1.21) (0.90) (0.56)
- --------------------------------------------------------------------------------------------------
Net assets value, end of year $ 16.18 $ 15.60 $ 16.20 $ 15.47
- --------------------------------------------------------------------------------------------------
Total return 11.69% 3.88% 10.76% 12.36%/(4)/
- --------------------------------------------------------------------------------------------------
Net assets, end of year (000)'s $ 126,766 $72,597 $33,411 $ 5,395
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.25% 1.24% 1.27% 1.29%/(5)/
Net investment income
(loss) 4.38 5.04 4.86 5.67/(5)/
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate 110% 103% 80% 100%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) On June 12, 1998, the former Class C shares were renamed Class L shares
(2) Per share amounts have been calculated using the monthly average shares
method rather than the undistributed net investment income method, because
it more accurately reflects per share data for the period.
(3) For the period from November 9, 1994 (inception date) to February 28, 1995.
(4) Not annualized.
(5) Annualized.
* The amount shown may not agree with the change in aggregate gains and
losses of portfolio securities due to the timing of sales and the
redemptions of fund shares.
24
<PAGE>
- --------------------------------------------------------------------------------
For a Class Y share of capital stock outstanding throughout each year
ended February 28:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1999 1998 1997 1996/(1)/
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 15.60 $16.20 $ 15.63
- --------------------------------------------------------------------------
Income (loss) from operations:
Net investment income 0.82 0.90 0.85
Net realized and unrealized
gain (loss) 1.07 (0.18) 0.65
- --------------------------------------------------------------------------
Total income (loss) from
operations 1.89 0.72 1.50
- --------------------------------------------------------------------------
Less distributions from:
Net investment income (0.82) (0.94) (0.85)
Net realized gains (0.48) (0.38) (0.08)
- --------------------------------------------------------------------------
Total distributions (1.30) (1.32) (0.93)
- --------------------------------------------------------------------------
Net asset value, end of year $ 16.19 $15.60 $ 16.20
- --------------------------------------------------------------------------
Total return 12.56% 4.59% 9.84%/(3)/
- --------------------------------------------------------------------------
Net assets, end of year (000)'s $11,893 $5,350 $ 12,314
- --------------------------------------------------------------------------
Ratio to average net assets:
Expenses 0.52% 0.52% 0.57%/(4)/
Net investment income (loss) 5.06 5.76 5.62/(4)/
- --------------------------------------------------------------------------
Portfolio turnover rate 110% 103% 80%
- --------------------------------------------------------------------------
</TABLE>
(1) For the period from April 4, 1995 (inception date) to February 29, 1996.
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method because
it more accurately reflects the per share data for the period.
(3) Total return is not annualized, as it may not be representative of the total
return for the year.
(4) Annualized.
Managed Municipals Fund Inc. 25
<PAGE>
Salomon Smith Barney /sm/
a member of citigroup [Symbol]
Managed Municipals Fund Inc.
Shareholder reports. Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information. The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public
reference room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
/sm/ Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act file no.811-03097)
[FD00000 6/99]
Part B
June 28, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is not a
prospectus and is meant to be read in conjunction with the
Prospectus of the Smith Barney Managed Municipals Fund Inc.
(the "fund") dated June 28, 1999, as amended or supplemented
from time to time (the "prospectus"), and is incorporated
by reference in it entirety into the prospectus. Additional
information about the fund's investments is available in the
fund's annual and semi-annual reports to shareholders which
are incorporated herein by reference. The prospectus and
copies of the reports may be obtained free of charge by
contacting a Salomon Smith Barney Financial Consultant, or
by writing or calling Salomon Smith Barney at the address or
telephone number above.
TABLE OF CONTENTS
Directors and Executive Officers of the Fund 2
Investment Objective and Management Policies 5
Risk Factors..............................................17
Special Considerations Relating to Municipal
Securities..................................... 18
Investment Restrictions......................................33
Portfolio Transactions..................................35
Portfolio Turnover..............................................36
Purchase of Shares............................................36
Determination of Net Asset Value........................................42
Redemption of Shares 43
Investment Management and Other Services 46
Valuation of Shares 49
Exchange Privilege 50
Performance Information 51
Dividends, Distributions and Taxes 55
Additional Information 60
Financial Statement............................................61
Appendix A 62
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The names of the directors of the fund and executive
officers of the fund, together with information as to their
principal business occupations, are set forth below. The
executive officers of the fund are employees of
organizations that provide services to the fund. Each
director who is an "interested person" of the fund, as
defined in the 1940 Act, is indicated by an asterisk. The
address of the "non-interested" directors and executive
officers of the fund is 388 Greenwich Street, New York, New
York 10013.
Herbert Barg (Age 75). Director
Private Investor. His address is 273 Montgomery Avenue,
Bala Cynwyd, Pennsylvania 19004.
Alfred J. Bianchetti (Age 76). Director
Retired; formerly Senior Consultant to Dean Witter Reynolds
Inc. His address is 19 Circle End Drive, Ramsey, New Jersey
07466.
Martin Brody (Age 77). Director
Consultant, HMK Associates; Retired Vice Chairman of the
Board of Restaurant Associates Corp. His address is c/o HMK
Associates, 30 Columbia Turnpike, Florham Park, New Jersey
07932.
Dwight B. Crane (Age 61). Director
Professor, Harvard Business School. His address is c/o
Harvard Business School, Soldiers Field Road, Boston,
Massachusetts 02163.
Burt N. Dorsett (Age 68). Director
Managing Partner of Dorsett McCabe Management. Inc., an
investment counseling firm; Director of Research Corporation
Technologies, Inc., a nonprofit patent clearing and
licensing firm. His address is 201 East 62nd Street, New
York, New York 10021.
Elliot S. Jaffe (Age 72). Director
Chairman of the Board and President of The Dress Barn, Inc.
His address is 30 Dunnigan Drive, Suffern, New York 10901.
Stephen E. Kaufman (Age 67). Director
Attorney. His address is 277 Park Avenue, New York, New
York 10172.
Joseph J. McCann (Age 68). Director
Financial Consultant; Retired Financial Executive, Ryan
Homes, Inc. His address is 200 Oak Park Place, Pittsburgh,
Pennsylvania 15243.
*Heath B. McLendon (Age 65). Chairman of the Board and
Investment Officer
Managing Director of Salomon Smith Barney Inc.; President of
SSBC and Travelers Investment Adviser, Inc. ("TIA");
Chairman or Co-Chairman of the Board of 59 investment
companies managed by affiliates of Salomon Smith Barney. His
address is 388 Greenwich Street, New York, New York 10013.
Cornelius C. Rose, Jr. (Age 65). Director
President, Cornelius C. Rose Associates, Inc., financial
consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. His address is
Meadowbrook Village, Building 4, Apt 6, West Lebanon, New
Hampshire 03784.
Lewis E. Daidone (Age 41). Senior Vice President and
Treasurer
Managing Director of Salomon Smith Barney; Chief Financial
Officer of the Smith Barney Mutual funds; Director and
Senior Vice President of SSBC and TIA.
Peter Coffey (Age 54). Vice President and Investment Officer
Investment Officer of SSBC; Managing Director of Salomon
Smith Barney.
Paul Brook (Age 45). Controller
Director of Salomon Smith Barney; from 1997-1998 Managing
Director of AMT Capital Services Inc.; prior to 1997 Partner
with Ernst & Young LLP.
Christina T. Sydor (Age 48). Secretary
Managing Director of Salomon Smith Barney; General Counsel
and Secretary of SSBC and TIA.
As of June , 1999, the trustees and officers of the
funds, as a group, owned less than 1% of the outstanding
shares of beneficial interest of the fund.
To the best knowledge of the trustees, as of June , 1999,
the following shareholders or "groups" (as such term is
defined in Section 13(d) of the Securities Exchange Act of
1934, as amended) owned beneficially or of record more than
5% of the shares of the following classes:
Class A Percentage
No officer, director or employee of Salomon Smith Barney or
any of its affiliates receives any compensation from the
fund for serving as an officer of the funds or director of
the fund. The fund pays each director who is not an
officer, director or employee of Salomon Smith Barney or any
of its affiliates a fee of $1,000 per annum plus $100 per
in-person meeting and $100 per telephonic meeting. Each
director emeritus who is not an officer, director or
employee of Salomon Smith Barney or its affiliates receives
a fee of $500 per annum plus $50 per in-person meeting and
$50 per telephonic meeting. All directors are reimbursed
for travel and out-of-pocket expenses incurred to attend
such meetings.
For the fiscal year ended February 28, 1998, the directors
of the fund were paid the following compensation:
Name of Person
Aggregate
Compensati
on
from Fund
Total
Pension or
Retirement
Benefits
Accrued
as part of
Fund
Expenses
Compensati
on
From Fund
And Fund
Complex
Paid to
Trustees
Number of
Funds for
Which
Trustees
Serves
Within
Fund Complex
Herbert Barg **
$1,600
$0
$101,600
18
Alfred
Bianchetti * **
1,600
0
49,600
13
Martin Brody **
1,600
0
119,814
21
Dwight B. Crane
**
1,600
0
133,850
24
Burt N. Dorsett
**
1,500
0
49,600
13
Elliot S. Jaffe
**
1,600
0
48,500
13
Stephen E.
Kaufman **
1,600
0
91,964
15
Joseph J. McCann
**
1,600
0
49,600
13
Heath B.
McLendon *
0
- -
0
59
Cornelius C.
Rose, Jr. **
1,600
0
49,600
13
* Designates an "interested" director.
** Designates member of Audit Committee.
Upon attainment of age 80, fund directors are required
to change to emeritus status. Directors emeritus are
entitled to serve in emeritus status for a maximum of
10 years. A director emeritus may attend meetings but
has no voting rights. During the fund's last fiscal
year, aggregate compensation paid by the fund to
directors achieving emeritus status totaled $700.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective and
the policies. The following discussion supplements the
description of the fund's investment objective and
management policies in the prospectus. For purposes of this
SAI, intermediate- and long-term debt obligations issued by
or on behalf of states, territories and possessions of the
United States and the District of Columbia and their
political subdivisions, agencies or instrumentalities, or
multistate agencies or authorities, are collectively
referred to as "Municipal Bonds.'' SSBC Fund Management,
Inc. ("SSBC" or the "manager") serves as investment manager
and administrator to the fund.
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.
Diversified Classification
The fund is classified as a diversified fudn under the
Investment Company Act of 1940, as amended (the "1940
Act"). 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 revenues of an agency, authority, instrumentality or
other political subdivision are separate from those of the
government creating the issuing entity and the security is
backed only by the assets and revenues of such entity, such
entity 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 revenues of the nongovernmental user, then
such nongovernmental user is deemed to be the sole issuer.
If, however, in either case, the creating government 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.
Use of Ratings as Investment Criteria
In general, the ratings of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Group ("S&P") and
other nationally recognized statistical ratings
organizations ("NRSROs") represent the opinions of those
agencies as to the quality of the Municipal Bonds and short-
term investments which they rate. It should be emphasized,
however, that such ratings are relative and subjective, are
not absolute standards of quality and do not evaluate the
market risk of securities. These ratings will be used by the
fund as initial criteria for the selection of portfolio
securities, but the fund also will rely upon the independent
advice of the manager to evaluate potential investments.
Among the factors that will be considered are the long-term
ability of the issuer to pay principal and interest and
general economic trends. To the extent the fund invests in
lower-rated and comparable unrated securities, the fund's
achievement of its investment objective may be more
dependent on the manager's credit analysis of such
securities than would be the case for a portfolio consisting
entirely of higher-rated securities. The Appendix contains
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 require the
sale of such Municipal Bonds by the fund, but the manager
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, S&P or any NRSRO,
the fund will attempt to use comparable ratings as standards
for its investments in accordance with its investment
objective and policies.
The fund generally will invest at least 80% of its total
assets in investment grade debt obligations rated no lower
than Baa, MIG 3 or Prime-1 by Moody's or BBB, SP-2 or A-1
by S&P, or have the equivalent rating by any NRSRO or in
unrated obligations of comparable quality. Unrated
obligations will be considered to be of investment grade if
deemed by the manager to be comparable in quality to
instruments so rated, or if other outstanding obligations of
the issuers thereof are rated Baa or better by Moody's or
BBB or better by S&P. The balance of the fund's assets may
be invested in securities rated as low as C by Moody's or D
by S&P or have the equivalent rating by any NRSRO, or deemed
by the manager to be comparable unrated securities, which
are sometimes referred to as "junk bonds." Securities in
the fourth highest rating category, though considered to be
investment grade, have speculative characteristics.
Securities rated as low as D are extremely speculative and
are in actual default of interest and/or principal payments.
It should be emphasized that ratings 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 principal and interest and general economic trends.
The value of debt securities varies inversely to changes in
the direction of interest rates. When interest rates rise,
the value of debt securities generally falls, and when
interest rates fall, the value of debt securities generally
rises.
Low and Comparable Unrated Securities. While the market
values of low-rated and comparable unrated securities tend
to react less to fluctuations in interest rate levels than
the market values of higher rated securities, the market
values of certain low-rated and comparable unrated municipal
securities also tend to be more sensitive than higher-rated
securities to short-term corporate and industry developments
and changes in economic conditions (including recession) in
specific regions or localities or among specific types of
issuers, In addition, low-rated securities and comparable
unrated securities generally present a higher degree of
credit risk. During an economic downturn or a prolonged
period of rising interest rates, the ability of issuers of
low-rated and comparable unrated securities to service their
payment obligations, meet projected goals or obtain
additional financing may be impaired. The risk of loss due
to default by such issuers is significantly greater because
low-rated and comparable unrated securities generally are
unsecured and frequently are subordinated to the prior
payment of senior indebtedness. The fund my incur
additional expenses to the extent it is required to seek
recovery upon a default in payment of principal or interest
on its portfolio holdings.
While the market for municipal securities is considered to
be generally adequate, the existence of limited markets for
particular low-rated and comparable unrated securities may
diminish the fund's ability to (a) obtain accurate market
quotations for purposes of valuing such securities and
calculating its net asset value and (b) sell the securities
at fair value either to meet redemption requests or to
respond to changes in the economy or in the financial
markets. The market for certain low-rated and comparable
unrated securities has not fully weathered a major economic
recession. Any such recession, however, would likely disrupt
severely the market for such securities and adversely affect
the value of the securities and the ability of the issuers
of such securities to repay principal and pay interest
thereon.
Fixed-income securities, including low-rated securities and
comparable unrated securities, frequently have call or buy-
back features that permit their issuers to call or
repurchase the securities from their holders, such as the
fund. If an issuer exercises these rights during periods of
declining interest rates, the fund may have to replace the
security with a lower yielding security, thus resulting in a
decreased return to the fund.
Municipal Bonds. Municipal Bonds generally are understood
to include debt obligations issued to obtain funds for
various public purposes, including construction of a wide
range of public facilities, refunding of outstanding
obligations, payment of general operating expenses and
extensions of loans to public institutions and facilities.
Private activity bonds that are issued by or on behalf of
public authorities to finance various privately operated
facilities are included within the term Municipal Bonds if
the interest paid thereon qualifies as excluded from gross
income (but not necessarily from alternative minimum taxable
income) for federal income tax purposes in the opinion of
bond counsel to the issuer.
The yield on Municipal Bonds is dependent on a variety of
factors, including general economic and monetary conditions,
general money market factors, general conditions of the
Municipal Bond market, the financial condition 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, insolvency and other laws affecting the rights
and remedies of creditors, such as the federal Bankruptcy
Code, and laws, if any, which may be enacted by Congress or
state legislatures extending the time for payment of
principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the
ability of municipalities to levy taxes. 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.
Municipal Leases. The fund may invest without limit in
"municipal leases", which are obligations issued by state
and local governments or authorities to finance the
acquisition of equipment or facilities. 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 obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation
is ordinarily backed by the municipality's covenant to
budget for, appropriate and make the payments due under the
lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease or installment
purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. In
addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not
yet developed the depth of marketability associated with
more conventional bonds. Although "non-appropriation" lease
obligations are often secured by the underlying property,
disposition of the property in the event of foreclosure
might prove difficult. There is no limitation on the
percentage of the fund's assets that may be invested in
municipal lease obligations. In evaluating municipal lease
obligations, the manager will consider such factors as it
deems appropriate, which may include: (a) whether the lease
can be canceled; (b) the ability of the lease obligee to
direct the sale of the underlying assets; (c) the general
creditworthiness of the lease obligor; (d) the likelihood
that the municipality will discontinue appropriating funding
for the leased property in the event such property is no
longer considered essential by the municipality; (e) the
legal recourse of the lease obligee in the event of such a
failure to appropriate funding; (f) whether the security is
backed by a credit enhancement such as insurance; and (g)
any limitations which are imposed on the lease obligor's
ability to utilize substitute property or services rather
than those covered by the lease obligation.
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 the related
projects or facilities experience financial difficulties.
In addition, the fund also may invest up to an aggregate of
15% of its total assets in securities with contractual or
other restrictions on resale and other instruments which are
not readily marketable. The fund also is authorized to
borrow an amount of up to 10% of its total assets (including
the amount borrowed) valued at market less liabilities (not
including the amount borrowed) in order to meet anticipated
redemptions and to pledge its assets to the same extent in
connection with the borrowings.
Private Activity Bonds. The fund may invest without limits
in private activity bonds. Interest income on certain types
of private activity bonds issued after August 7, 1986 to
finance non-governmental activities is a specific tax
preference item for purposes of the federal individual and
corporate alternative minimum taxes. Individual and
corporate shareholders may be subject to a federal
alternative minimum tax to the extent that the fund's
dividends are derived from interest on those bonds.
Dividends derived from interest income on California
Municipal Securities are a component of the "current
earnings" adjustment item for purposes of the federal
corporate alternative minimum tax.
Zero Coupon Bonds. The fund may also invest in zero coupon
bonds. Zero coupon securities are debt obligations which do
not entitle the holder to any periodic payments of interest
prior to maturity of a specified cash payment date when the
securities begin paying current interest (the "cash payment
date") and therefore are issued and traded at a discount
from their face amounts or par values. The discount varies
depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer.
The discount, in the absence of financial difficulties of
the issuer, decreases as the final maturity or cash payment
date of the security approaches. The market prices of zero
coupon securities generally are more volatile than the
market prices of other debt securities that pay interest
periodically and are likely to respond to changes in
interest rates to a greater degree than do debt securities
having similar maturities and credit quality. The credit
risk factors pertaining to low-rated securities also apply
to low-rated zero coupon bonds. Such zero coupon bonds
carry an additional risk in that, unlike bonds which pay
interest throughout the period to maturity, the fund will
realize no cash until the cash payment date unless a portion
of such securities is sold and, if the issuer defaults, the
fund may obtain no return at all on its investment.
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 strategy.
Municipal Bonds are subject to changes in value based upon
the public's perception of the creditworthiness of the
issuers and changes, real or anticipated, in the level of
interest rates. In general, Municipal Bonds tend to
appreciate when interest rates decline and depreciate when
interest rates rise. Purchasing Municipal Bonds on a when-
issued basis, therefore, can involve the risk that the
yields available in the market when the delivery takes place
actually may be higher than those obtained in the
transaction itself. To account for this risk, a segregated
account of the fund consisting of cash, debt securities of
any grade or equity securities equal to the amount of the
when issued commitments will be established. For the
purpose of determining the adequacy of the security in the
account, the deposited securities will be deposited 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 securities 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 considered to be
advantageous.
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
security to the seller at an agreed-upon price on an agreed-
upon date. Under the terms of a typical repurchase
agreement, the fund would acquire an underlying debt
obligation for a relatively short period (usually not more
than 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 arrangement 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 involve
certain risks in the event of default or insolvency of the
other party, including possible delays or restrictions upon
the fund's ability to dispose of the underlying securities,
the risk of a possible decline in the value of the
underlying securities during the period in which the fund
seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk
of losing all or part of the income from the agreement. The
manager, 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
agreements to evaluate potential risks.
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 agencies or instrumentalities ("U.S.
government securities"), repurchase agreements, other debt
securities rated within the three highest grades by Moody's,
S&P, or other NRSROs, commercial paper rated in the highest
grade by either of such rating services, and certificates of
deposit of domestic banks with assets of $1 billion or more.
The fund may invest in Temporary Investments for defensive
reasons in anticipation of a market decline. At no time
will more than 20% of the fund's total assets be invested in
Temporary Investments unless the fund has adopted a
defensive investment policy. The fund intends, however, to
purchase tax-exempt Temporary Investments pending the
investment of the proceeds of the sale of portfolio
securities or 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 Temporary Investments.
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 the manager to correlate 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 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 expiration 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 position
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 financial 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 in the futures contract. The potential
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
next 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
if the fund enters into futures contracts for speculative
purposes, that the aggregate initial margin deposits and
premiums paid by the fund will not 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
a 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 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 particular time. If closing a futures position in
anticipation of adverse price movements 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 loses 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 movements 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 contract 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
margin requirements on the futures contracts at a time when
it may be disadvantageous to do so. These sales of
securities may, but will not necessarily, be at increased
prices that reflect the decline in interest rates.
SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL SECURITIES
Special Considerations Relating to Puerto Rico
The following highlights some of the more significant
financial trends and problems affecting the Commonwealth of
Puerto Rico (the "Commonwealth" or "Puerto Rico"), and is
based on information drawn from official statements and
prospectuses relating to the securities offerings of Puerto
Rico, its agencies and instrumentalities, as available on
the date of this SAI. SSBC has not independently verified
any of the information contained in such official
statements, prospectuses, and other publicly available
documents, but is not aware of any fact that would render
such information materially inaccurate.
The economy of Puerto Rico is fully integrated with that of
the United States. In fiscal 1997, trade with the United
States accounted for approximately 88% of Puerto Rico's
exports and approximately 62% of its imports. In this
regard, in fiscal 1997 Puerto Rico experienced a $2.7
billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per
capita, has increased consistently each fiscal year. In
fiscal 1997, aggregate personal income was $32.1 billion
($30.0 billion in 1992 prices) and personal per capita
income was $8,509 ($7,957 in 1992 prices). Gross product in
fiscal 1993 was $25.1 billion ($24.5 billion in 1992 prices)
and gross product in fiscal 1997 was $32.1 billion ($27.7
billion in 1992 prices). This represents an increase in
gross product of 27.7% from fiscal 1993 to 1997 (13.0% in
1992 prices).
Puerto Rico's economic expansion, which has lasted over ten
years, continued throughout the five-year period from fiscal
1993 through fiscal 1997. Almost every sector of the economy
participated, and record levels of employment were achieved.
Factors behind the continued expansion included Government-
sponsored economic development programs, periodic declines
in the exchange value of the U.S. dollar, increases in the
level of federal transfers, and the relatively low cost of
borrowing funds during the period.
Average employment increased from 999,000 in fiscal 1993 to
1,128,300 in fiscal 1997. Unemployment, although at
relatively low historical levels, remains above the U.S.
average. Average unemployment decreased from 16.8% in fiscal
1993 to 13.1% in fiscal 1997.
Manufacturing is the largest sector in the economy
accounting for $19.8 billion or 41.2% of gross domestic
product in fiscal 1997. The manufacturing sector employed
153,273 workers as of March 1997. Manufacturing in Puerto
Rico is now more diversified than during earlier phases of
industrial development. In the last two decades industrial
development has tended to be more capital intensive and
dependent on skilled labor. This gradual shift is best
exemplified by heavy investment in pharmaceuticals,
scientific instruments, computers, microprocessors, and
electrical products over the last decade. The service
sector, which includes wholesale and retail trade and
finance, insurance, real estate, hotels and related
services, and other services, ranks second in its
contribution to gross domestic product and is the sector
that employs the greatest number of people.
In fiscal 1997, the service sector generated $18.4 billion
in gross domestic product or 38.2% of the total. Employment
in this sector grew from 467,000 in fiscal 1993 to 551,000
in fiscal 1997, a cumulative increase of 17.8%. This
increase was greater than the 12.9% cumulative growth in
employment over the same period providing 48% of total
employment. The Government sector of the Commonwealth plays
an important role in the economy of the island. In fiscal
year 1997, the Government accounted for $5.2 billion of
Puerto Rico's gross domestic product and provided 10.9% of
the total employment. The construction industry has
experienced real growth since fiscal 1987. In fiscal 1997,
investment in construction rose to $4.7 billion, an increase
of 14.7% as compared to $4.1 billion for fiscal 1996.
Tourism also contributes significantly to the island
economy, accounting for $2.0 billion of gross domestic
product in fiscal 1997.
The present administration has developed and is implementing
a new economic development program which is based on the
premise that the private sector should provide the primary
impetus for economic development and growth. This new
program, which is referred to as the New Economic Model,
promotes changing the role of the Government from one of
being a provider of most basic services to that of a
facilitator for private sector initiatives and encourages
private sector investment by reducing Government-imposed
regulatory restraints.
The New Economic Model contemplates the development of
initiatives that will foster private investment in, and
private management of, sectors that are served more
efficiently and effectively by the private enterprise. One
of these initiatives has been the adoption of a new tax code
intended to expand the tax base, reduce top personal and
corporate tax rates, and simplify the tax system. Another
initiative is the improvement and expansion of Puerto Rico's
infrastructure to facilitate private sector development and
growth, such as the construction of the water pipeline and
cogeneration facilities described below and the construction
of a light rail system for the San Juan metropolitan area.
The New Economic Model also seeks to identify and promote
areas in which Puerto Rico can compete more effectively in
the global markets. Tourism has been identified as one such
area because of its potential for job creation and
contribution to the gross product. In 1993, a new Tourism
Incentives Act and a Tourism Development Fund were
implemented in order to provide special tax incentives and
financing for the development of new hotel projects and the
tourism industry. As a result of these initiatives, new
hotels have been constructed or are under construction which
have increased the number of hotel rooms on the island from
8,415 in fiscal 1992 to 10,877 at the end of fiscal 1997 and
to a projected 11,972 by the end of fiscal 1998.
The New Economic Model also seeks to reduce the size of the
Government's direct contribution to gross domestic product.
As part of this goal, the Government has transferred certain
Governmental operations and sold a number of its assets to
private parties. Among these are: (i) the Government sold
the assets of the Puerto Rico Maritime Authority; (ii) the
Government executed a five-year management agreement for the
operation and management of the Aqueducts and Sewer
Authority by a private company; (iii) the Aqueducts and
Sewer Authority executed a construction and operating
agreement with a private consortium for the design,
construction, and operation of an approximately 75 million
gallon per day water pipeline to the San Juan metropolitan
area from the Dos Bocas reservoir in Utuado; (iv) the
Electric Power Authority executed power purchase contracts
with private power producers under which two cogeneration
plants (with a total capacity of 800 megawatts) will be
constructed; (v) the Corrections Administration entered into
operating agreements with two private companies for the
operation of three new correctional facilities; (vi) the
Government entered into a definitive agreement to sell
certain assets of a pineapple juice processing business and
sold certain mango growing operations; (vii) the Government
is in the process of transferring to local sugar cane
growers certain sugar processing facilities; (viii) the
Government sold two hotel properties and is currently
negotiating the sale of a complex consisting of two hotels
and a convention center; and (ix) the Government has
announced its intention to sell the Puerto Rico Telephone
Company and is currently involved in the sale process.
One of the goals of the Rossello administration is to change
Puerto Rico's public health care system from one in which
the Government provides free health services to low income
individuals through public health facilities owned and
administered by the Government to one in which all medical
services are provided by the private sector and the
Government provides comprehensive health insurance coverage
for qualifying (generally low income) Puerto Rico residents.
Under this new system, the Government selects, through a
bidding system, one private health insurance company in each
of several designated regions of the island and pays such
insurance company the insurance premium for each eligible
beneficiary within such region. This new health insurance
system is now covering 61 municipalities out of a total of
78 on the island. It is expected that 11 municipalities will
be added by the end of fiscal 1998 and 5 more by the end of
fiscal 1999. The total cost of this program will depend on
the number of municipalities included in the program, the
number of participants receiving coverage, and the date
coverage commences. As of December 31, 1997, over 1.1
million persons were participating in the program at an
estimated annual cost to Puerto Rico for fiscal 1998 of
approximately $672 million. In conjunction with this
program, the operation of certain public health facilities
has been transferred to private entities. The Government's
current privatization plan for health facilities provides
for the transfer of ownership of all health
facilities to private entities. The Government sold six
health facilities to private companies and is currently in
negotiations with other private companies for the sale of
thirteen health facilities to such companies.
One of the factors assisting the development of the
manufacturing sector in Puerto Rico has been the federal and
Commonwealth tax incentives available, particularly those
under the Puerto Rico Industrial Incentives Program and
Sections 30A and 936 of the Internal Revenue Code 1986, as
amended (the "Code").
Since 1948, Puerto Rico has promulgated various industrial
incentives laws designed to stimulate industrial investment.
Under these laws, companies engaged in manufacturing and
certain other designated activities were eligible to receive
full or partial exemption from income, property, and other
taxes. The most recent of these laws is Act No. 135 of
December 2, 1997 (the "1998 Tax Incentives Law").
The benefits provided by the 1998 Tax Incentives Law are
available to new companies as well as companies currently
conducting tax-exempt operations in Puerto Rico that choose
to renegotiate their existing tax exemption grant.
Activities eligible for tax exemption include manufacturing,
certain services performed for markets outside Puerto Rico,
the production of energy from local renewable sources for
consumption in Puerto Rico, and laboratories for scientific
and industrial research. For companies qualifying
thereunder, the 1998 Tax Incentives Law imposes income tax
rates ranging from 2% to 7%. In addition, it grants 90%
exemption from property taxes, 100% exemption from municipal
license taxes during the first eighteen months of operation
and between 80% and 60% thereafter, and 100% exemption from
municipal excise taxes. The 1998 Tax Incentives Law also
provides various special deductions designated to stimulate
employment and productivity, research and development, and
capital investment in Puerto Rico.
Under the 1998 Tax Incentives Law, companies are able to
repatriate or distribute their profits free of tollgate
taxes. In addition, passive income derived from designated
investments will continue to be fully exempt from income and
municipal license taxes. Individual shareholders of an
exempted business will be allowed a credit against their
Puerto Rico income taxes equal to 30% of their proportionate
share in the exempted business' income tax liability. Gain
from the sale or exchange of shares of an exempted business
by its shareholders during the exemption period will be
subject to a 4% income tax rate.
For many years, U.S. companies operating in Puerto Rico
enjoyed a special tax credit that was available under
Section 936 of the Code. Originally, the credit provided an
effective 100% federal tax exemption for operating and
qualifying investment income from Puerto Rico sources.
Amendments to Section 936 made in 1993 (the "1993
Amendments") instituted two alternative methods for
calculating the tax credit and limited the amount of the
credit that a qualifying company could claim. These
limitations are based on a percentage of qualifying income
(the "percentage of income limitation") and on qualifying
expenditures on wages and other wage related benefits (the
"economic activity limitation", also known as the "wage
credit limitation"). As a result of amendments incorporated
in the Small Business Job Protection Act of 1996 enacted by
the U.S. Congress and signed into law by President Clinton
on August 20, 1996 (the "1996 Amendments"), the tax credit,
as described below, is now being phased out over a ten-year
period for existing claimants and is no longer available for
corporations that established operations in Puerto Rico
after October 13, 1995 (including existing Section 936
Corporations (as defined below) to the extent substantially
new operations are established in Puerto Rico). The 1996
Amendments also moved the credit based on the economic
activity limitation to Section 30A of the Code and phased it
out over 10 years. In addition, the 1996 Amendments
eliminated the credit previously available for income
derived from certain qualified investments in Puerto Rico.
The Section 30A credit and the remaining Section 936 credit
are discussed below.
Section30A. The 1996 Amendments added a new Section 30A to
the Code. Section 30A permits a "qualifying domestic
corporation" ("QDC") that meets certain gross income tests
(which are similar to the 80% and 75% gross income tests of
Section 936 of the Code discussed below) to claim a credit
(the "Section 30A credit") against the federal income tax
imposed on taxable income derived from sources outside the
United States from the active conduct of a trade or business
in Puerto Rico or from the sale of substantially all the
assets used in such business ("possession income").
A QDC is a U.S. corporation which (i) was actively
conducting a trade or business in Puerto Rico on October 13,
1995, (ii) had a Section 936 election in effect for its
taxable year that included October 13, 1995, (iii) does not
have in effect an election to use the percentage limitation
of Section 936(a)(4)(B) of the Code, and (iv) does not add a
"substantial new line of business."
The Section 30A credit is limited to the sum of (i) 60% of
qualified possession wages as defined in the Code, which
includes wages up to 85% of the maximum earnings subject to
the OASDI portion of Social Security taxes plus an allowance
for fringe benefits of 15% of qualified possession wages,
(ii) a specified percentage of depreciation deductions
ranging between 15% and 65%, based on the class life of
tangible property, and (iii) a portion of Puerto Rico income
taxes paid by the QDC, up to a 9% effective tax rate (but
only if the QDC does not elect the profit-split method for
allocating income from intangible property).
A QDC electing Section 30A of the Code may compute the
amount of its active business income, eligible for the
Section 30A Credit, by using either the cost sharing
formula, the profit-split formula, or the cost-plus formula,
under the same rules and guidelines prescribed for such
formulas as provided under Section 936 (see discussion
below). To be eligible for the first two formulas, the QDC
must have a significant presence in Puerto Rico.
In the case of taxable years beginning after December 31,
2001, the amount of possession income that would qualify for
the Section 30A credit would be subject to a cap based on
the QDC's possession income for an average adjusted base
period ending before October 14, 1995.
Section 30A applies only to taxable years beginning after
December 31, 1995 and before January 1, 2006.
Section 936. Under Section 936 of the Code, as amended by
the 1996 Amendments, and as an alternative to the Section
30A credit, U.S. corporations that meet certain requirements
and elect its application ("Section 936 Corporations") are
entitled to credit against their U.S. corporate income tax,
the portion of such tax attributable to income derived from
the active conduct of a trade or business within Puerto Rico
("active business income") and from the sale or exchange of
substantially all assets used in the active conduct of such
trade or business. To qualify under Section 936 in any given
taxable year, a corporation must derive for the three-year
period immediately preceding the end of such taxable year
(i) 80% or more of its gross income from sources within
Puerto Rico and (ii) 75% or more of its gross income from
the active conduct of a trade or business in Puerto Rico.
Under Section 936, a Section 936 Corporation may elect to
compute its active business income, eligible for the Section
936 credit, under one of three formulas: (A) a cost-sharing
formula, whereby it is allowed to claim all profits
attributable to manufacturing intangibles, and other
functions carried out in Puerto Rico, provided it
contributes to the research and development expenses of its
affiliated group or pays certain royalties; (B) a profit-
split formula, whereby it is allowed to claim 50% of the net
income of its affiliated group from the sale of products
manufactured in Puerto Rico; or (C) a cost-plus formula,
whereby it is allowed to claim a reasonable profit on the
manufacturing costs incurred in Puerto Rico. To be eligible
for the first two formulas, the Section 936 Corporation must
have a significant business presence in Puerto Rico for
purposes of the Section 936 rules.
As a result of the 1993 Amendments and the 1996 Amendments,
the Section 936 credit is only available to companies that
elect the percentage of income limitation and is limited in
amount to 40% of the credit allowable prior to the 1993
Amendments, subject to a five-year phase-in period from 1994
to 1998 during which period the percentage of the allowable
credit is reduced from 60% to 40%.
In the case of taxable years beginning on or after 1998, the
possession income subject to the Section 936 credit will be
subject to a cap based on the Section 936 Corporation's
possession income for an average adjusted base period ending
on October 14, 1995. The Section 936 credit is eliminated
for taxable years beginning in 2006.
Proposal to Extend the Phaseout of Section 30A. During 1997,
the Government of Puerto Rico proposed to Congress the
enactment of a new permanent federal incentive program
similar to that provided under Section 30A. Such a program
would provide U.S. companies a tax credit based on
qualifying wages paid and other wage-related expenses, such
as fringe benefits, as well as depreciation expenses for
certain tangible assets and research and development
expenses. Under the Governor's proposal, the credit granted
to qualifying companies would continue in effect until
Puerto Rico shows, among other things, substantial economic
improvements in terms of certain economic parameters. The
fiscal 1998 budget submitted by President Clinton to
Congress in February 1997 included a proposal to modify
Section 30A to (i) extend the availability of the Section
30A credit indefinitely; (ii) make it available to companies
establishing operations in Puerto Rico after October 13,
1995; and (iii) eliminate the income cap. Although this
proposal, was not included in the final fiscal 1998 federal
budget, President Clinton's fiscal 1999 budget submitted to
Congress again included these modifications to Section 30A.
While the Government of Puerto Rico plans to continue
lobbying for this proposal, it is not possible at this time
to predict whether the Section 30A credit will be so
modified.
Outlook. It is not possible at this time to determine the
long-term effect on the Puerto Rico economy of the enactment
of the 1996 Amendments. The Government of Puerto Rico does
not believe there will be short-term or medium-term material
adverse effects on Puerto Rico's economy as a result of the
enactment of the 1996 Amendments. The Government of Puerto
Rico further believes that during the phase-out period
sufficient time exists to implement additional incentive
programs to safeguard Puerto Rico's competitive position.
Alternative Minimum Tax
Under current federal income tax law, (1) interest on tax-
exempt municipal securities issued after August 7, 1986
which are "specified private activity bonds," and the
proportionate share of any exempt-interest dividend paid by
a regulated investment company which receives interest from
such specified private activity bonds, will be treated as an
item of tax preference for purposes of the alternative
minimum tax ("AMT") imposed on individuals and corporations,
though for regular Federal income tax purposes such interest
will remain fully tax-exempt, and (2) interest on all tax-
exempt obligations will be included in "adjusted current
earnings" of corporations for AMT purposes. Such private
activity bonds ("AMT-Subject bonds"), which include
industrial development bonds and bonds issued to finance
such projects as airports, housing projects, solid waste
disposal facilities, student loan programs and water and
sewage projects, have provided, and may continue to provide,
somewhat higher yields than other comparable municipal
securities.
Investors should consider that, in most instances, no state,
municipality or other governmental unit with taxing power
will be obligated with respect to AMT-Subject bonds. AMT-
Subject bonds are in most cases revenue bonds and do not
generally have the pledge of the credit or the taxing power,
if any, of the issuer of such bonds. AMT-Subject bonds are
generally limited obligations of the issuer supported by
payments from private business entities and not by the full
faith and credit of a state or any governmental subdivision.
Typically the obligation of the issuer of AMT-Subject bonds
is to make payments to bond holders only out of and to the
extent of, payments made by the private business entity for
whose benefit the AMT-Subject bonds were issued. Payment of
the principal and interest on such revenue bonds depends
solely on the ability of the user of the facilities financed
by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment. It is not possible to provide
specific detail on each of these obligations in which Fund
assets may be invested.
Municipal Market Volatility. Municipal securities can be
significantly affected by political changes as well as
uncertainties in the municipal market related to taxation,
legislative changes, or the rights of municipal security
holders. Because many municipal securities are issued to
finance similar projects, especially those relating to
education, health care, transportation and utilities,
conditions in those sectors can affect the overall municipal
market. In addition, changes in the financial condition of
an individual municipal insurer can affect the overall
municipal market.
Interest Rate Changes. Debt securities have varying levels
of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise
and can rise when interest rates fall. Securities with
longer maturities can be more sensitive to interest rate
changes. In other words, the longer the maturity of a
security, the greater the impact a change in interest rates
could have on the security's price. In addition, short-term
and long-term interest rates do not necessarily move in the
same amount or the same direction. Short-term securities
tend to react to changes in short-term interest rates, and
long-term securities tend to react to changes in long-term
interest rates.
Issuer-Specific Changes. Changes in the financial condition
of an issuer, changes in specific economic or political
conditions that affect a particular type of security or
issuer, and changes in general economic or political
conditions can affect the credit quality or value of an
issuer's securities. Lower-quality debt securities (those of
less than investment-grade quality) tend to be more
sensitive to these changes than higher-quality debt
securities. Entities providing credit support or a maturity-
shortening structure also can be affected by these types of
changes. Municipal securities backed by current or
anticipated revenues from a specific project or specific
assets can be negatively affected by the discontinuance of
the taxation supporting the project or assets or the
inability to collect revenues for the project or from the
assets. If the Internal Revenue Service determines an issuer
of a municipal security has not complied with applicable tax
requirements, interest from the security could become
taxable and the security could decline significantly in
value. In addition, if the structure of a security fails to
function as intended, interest from the security could
become taxable or the security could decline in value.
INVESTMENT RESTRICTIONS
The fund has adopted the following investment restrictions
for the protection of shareholders. Restrictions 1 through
7 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. Invest in a manner that would cause it to fail
to be a "diversified company" under the 1940 Act
and the rules, regulations and orders
thereunder.
2. Issue "senior securities" as defined in the 1940
Act and the rules, regulations and orders
thereunder, except as permitted under the 1940
Act and the rules, regulations and orders
thereunder
3. Invest more than 25% of its total assets in
securities, the issuers of which are in the same
industry. For purposes of this limitation, U.S.
government securities and securities of state or
municipal governments and their political
subdivisions are not considered to be issued by
members of any industry.
4. Borrow money, except that (a) the fund may
borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting
of redemption requests which might otherwise
require the untimely disposition of securities,
and (b) the fund may, to the extent consistent
with its investment policies, enter into reverse
repurchase agreements, forward roll transactions
and similar investment strategies and
techniques. To the extent that it engages in
transactions described in (a) and (b), the fund
will be limited so that no more than 33 1/3% of
the value of its total assets (including the
amount borrowed), valued at the lesser of cost
or market, less liabilities (not including the
amount borrowed) valued at the time the
borrowing is made, is derived from such
transactions.
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, to the fullest extent
permitted under the 1940 Act.
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 1933 Act,
in disposing of portfolio securities.
7. Purchase or sell real estate, real estate
mortgages, commodities or commodity contracts,
but this restriction shall not prevent the fund
from (a) investing in securities of issuers
engaged in the real estate business or the
business of investing in real estate (including
interests in limited partnerships owning or
otherwise engaging in the real estate business
or the business of investing in real estate) and
securities which are secured by real estate or
interests therein; (b) holding or selling real
estate received in connection with securities it
holds or held; (c) trading in futures contracts
and options on futures contracts (including
options on currencies to the extent consistent
with the funds' investment objective and
policies); or (d) investing in real estate
investment trust securities.
8. Purchase any securities on margin (except for
such short-term credits as are necessary for the
clearance of purchases and sales of portfolio
securities) or sell any securities short (except
"against the box"). For purposes of this
restriction, the deposit or payment by the fund
of underlying securities and other assets in
escrow and collateral agreements with respect to
initial or maintenance margin in connection with
futures contracts and related options and
options on securities, indexes or similar items
is not considered to be the purchase of a
security on margin.
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 securities of issuers having a
record, including predecessors, of less than
three years of continuous operation, except U.S.
government securities. (For purposes of this
restriction, issuers include predecessors,
sponsors, controlling persons, general
guarantors and originators of underlying
assets.)
11. Invest in companies for the purpose of
exercising control.
12. Invest in securities of other investment
companies, except as they may be acquired as
part of a merger, consolidation or acquisition
of assets and except 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 purchase and
sell options on interest rate futures contracts.
Certain restrictions listed above permit the fund to engage
in investment practices that the fund does not currently
pursue. The fund has no present intention of altering its
current investment practices as otherwise described in the
prospectus and this SAI and any future change in those
practices would require Board approval and appropriate
notice to shareholders. If a percentage restriction is
complied with at the time of an investment, a later increase
or decrease in the percentage of assets resulting from a
change in the values of portfolio securities or in the
amount of the fund's assets will not constitute a violation
of such restriction.
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 "industry."
PORTFOLIO TRANSACTIONS
Newly issued securities normally are purchased directly from
the issuer or from an underwriter acting as principal.
Other purchases and sales usually are placed with those
dealers from which it appears that the best price or
execution will be obtained; those dealers may be acting as
either agents or principals. The purchase price paid by the
fund to underwriters of newly issued securities usually
includes a concession paid by the issuer to the underwriter,
and purchases of after-market securities from dealers
normally are executed at a price between the bid and asked
prices. For the 1996, 1997 and 1998 fiscal years, the fund
has paid no brokerage commissions.
Allocation of transactions, including their frequency, to
various dealers is determined by the manager in its best
judgment and in a manner deemed fair and reasonable to
shareholders. The primary considerations are availability
of the desired security and the prompt execution of orders
in an effective manner at the most favorable prices.
Subject to these considerations, dealers that provide
supplemental investment research and statistical or other
services to the manager may receive orders for portfolio
transactions by the fund. Information so received is in
addition to, and not in lieu of, services required to be
performed by the manager, and the fees of the manager are
not reduced as a consequence of its of such supplemental
information. Such information may be useful to the manager
in serving both the fund and other clients and, conversely,
supplemental information obtained by the placement of
business of other clients may be useful to the manager in
carrying out its obligations to the fund.
The fund will not purchase Exempt Obligations during the
existence of any underwriting or selling group relating
thereto of which Salomon Smith Barney is a member, except to
the extent permitted by the SEC. Under certain
circumstances, the fund may be at a disadvantage because of
this limitation in comparison with other investment
companies which have a similar investment objective but
which are not subject to such limitation. The fund also may
execute portfolio transactions through Salomon Smith Barney
and its affiliates in accordance with rules promulgated by
the SEC.
While investment decisions for the fund are made
independently from those of the other accounts managed by
the manager, investments of the type the fund may make also
may be made by those other accounts. When the fund and one
or more other accounts managed by the manager are prepared
to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be
allocated in a manner believed by the manager to be
equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the fund or
the size of the position obtained or disposed of by the
fund.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate (the lesser of purchases
or sales of portfolio securities during the year, excluding
purchases or sales of short-term securities, divided by the
monthly average value of portfolio securities) generally is
not expected to exceed 100%, but the portfolio turnover rate
will not be a limiting factor whenever the fund deems it
desirable to sell or purchase securities. Securities may be
sold in anticipation of a rise in interest rates (market
decline) or purchased in anticipation of a decline in
interest rates (market rise) and later sold. In addition, a
security may be sold and another security of comparable
quality may be purchased at approximately the same time in
order to take advantage of what the fund believes to be a
temporary disparity in the normal yield relationship between
the two securities. These yield disparities may occur for
reasons not directly related to the investment quality of
particular issues or the general movement of interest rates,
such as changes in the overall demand for or supply of
various types of tax-exempt securities. For the 1996, 1997
and 1998 fiscal years, the fund's portfolio turnover rates
were 23%, 58% and 51%, respectively.
PURCHASE OF SHARES
Sales Charge Alternatives
The following classes of shares are available for purchase.
See the prospectus for a discussion of factors to consider
in selecting which Class of shares to purchase.
Class A Shares. Class A shares are sold to investors at the
public offering price, which is the net asset value plus an
initial sales charge as follows:
Amount of
Investment
Sales Charge as
a %
Of Transaction
Sales Charge as
a %
of Amount
Invested
Dealers'
Reallowance as %
of Offering Price
Less than $25,000
4.00%
4.17%
3.60%
$ 25,000 - 49,999
3.50
3.63
3.15
50,000 - 99,999
3.00
3.09
2.70
100,000 - 249,999
2.50
2.56
2.25
250,000 - 499,999
1.50
1.52
1.35
500,000 and over
*
*
*
* Purchases of Class A shares of $500,000 or more will be
made at net asset value without any initial sales charge,
but will be subject to a deferred sales charge of 1.00% on
redemptions made within 12 months of purchase. The
deferred sales charge on Class A shares is payable to
Salomon Smith Barney, which compensates Salomon Smith
Barney Financial Consultants and other dealers whose
clients make purchases of $500,000 or more. The deferred
sales charge is waived in the same circumstances in which
the deferred sales charge applicable to Class B and Class
L shares is waived. See "Purchase of Shares-Deferred
Sales Charge Alternatives" and "Purchase of Shares-
Waivers of Deferred Sales Charge."
Members of the selling group may receive up to 90% of the
sales charge and may be deemed to be underwriters of the
fund as defined in the Securities Act of 1933. The reduced
sales charges shown above apply to the aggregate of
purchases of Class A shares of the fund made at one time by
"any person," which includes an individual and his or her
immediate family, or a trustee or other fiduciary of a
single trust estate or single fiduciary account.
Class B Shares. Class B shares are sold without an initial
sales charge but are subject to a deferred sales charge
payable upon certain redemptions. See "Deferred Sales
Charge Provisions" below.
Class L Shares. Class L shares are sold with an initial
sales charge of 1.00% (which is equal to 1.01% of the amount
invested) and are subject to a deferred sales charge payable
upon certain redemptions. See "Deferred Sales Charge
Provisions" below. Until June 22, 2001 purchases of Class L
shares by investors who were holders of Class C shares of
the fund on June 12, 1998 will not be subject to the 1%
initial sales charge.
Class Y Shares. Class Y shares are sold without an initial
sales charge or deferred sales charge and are available only
to investors investing a minimum of $15,000,000 (except
purchases of Class Y shares by Smith Barney Concert
Allocation Series Inc., for which there is no minimum
purchase amount).
General
Investors may purchase shares from a Salomon Smith Barney
Financial Consultant or a Dealer Representative. In
addition, certain investors, including qualified retirement
plans purchasing through certain Dealer Representatives, may
purchase shares directly from the fund. When purchasing
shares of the fund, investors must specify whether the
purchase is for Class A, Class B, Class L or Class Y shares.
Salomon Smith Barney and Dealer Representatives may charge
their customers an annual account maintenance fee in
connection with a brokerage account through which an
investor purchases or holds shares. Accounts held directly
at First Data Investor Services Group, Inc. ("First Data" or
"transfer agent") are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may open an
account in the fund by making an initial investment of at
least $1,000 for each account, in the fund. Investors in
Class Y shares may open an account by making an initial
investment of $15,000,000. Subsequent investments of at
least $50 may be made for all Classes. For shareholders
purchasing shares of the fund through the Systematic
Investment Plan on a monthly basis, the minimum initial
investment requirement for Class A, Class B and Class L
shares and subsequent investment requirement for all Classes
is $25. For shareholders purchasing shares of the fund
through the Systematic Investment Plan on a quarterly basis,
the minimum initial investment required for Class A, Class B
and Class L shares and the subsequent investment requirement
for all Classes is $50. There are no minimum investment
requirements for Class A shares for employees of Citigroup
and its subsidiaries, including Salomon Smith Barney,
unitholders who invest distributions from a Unit Investment
Trust ("UIT") sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual Funds,
and their spouses and children. The fund reserves the right
to waive or change minimums, to decline any order to
purchase its shares and to suspend the offering of shares
from time to time. Shares purchased will be held in the
shareholder's account by First Data. Share certificates are
issued only upon a shareholder's written request to First
Data.
Purchase orders received by the fund or a Salomon Smith
Barney Financial Consultant prior to the close of regular
trading on the NYSE, on any day the fund calculates its net
asset value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close of
regular trading on the NYSE on any day the fund calculates
its net asset value, are priced according to the net asset
value determined on that day, provided the order is received
by the fund or the fund's agent prior to its close of
business. For shares purchased through Salomon Smith Barney
or a Dealer Representative purchasing through Salomon Smith
Barney, payment for shares of the fund is due on the third
business day after the trade date. In all other cases,
payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions
to their accounts at any time by purchasing shares through a
service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Salomon Smith Barney or First
Data is authorized through preauthorized transfers of at
least $25 on a monthly basis or at least $50 on a quarterly
basis to charge the shareholder's account held with a bank
or other financial institution on a monthly or quarterly
basis as indicated by the shareholder, to provide for
systematic additions to the shareholder's fund account. A
shareholder who has insufficient funds to complete the
transfer will be charged a fee of up to $25 by Salomon Smith
Barney or First Data. The Systematic Investment Plan also
authorizes Salomon Smith Barney to apply cash held in the
shareholder's Salomon Smith Barney brokerage account or
redeem the shareholder's shares of a Smith Barney money
market fund to make additions to the account. Additional
information is available from the fund or a Salomon Smith
Barney Financial Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A shares
may be made at net asset value without a sales charge in the
following circumstances: (a) sales to (i) Board Members and
employees of Citigroup and its subsidiaries and any
Citigroup affiliated funds including the Smith Barney Mutual
Funds (including retired Board Members and employees); the
immediate families of such persons (including the surviving
spouse of a deceased Board Member or employee); and to a
pension, profit-sharing or other benefit plan for such
persons and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such sales
are made upon the assurance of the purchaser that the
purchase is made for investment purposes and that the
securities will not be resold except through redemption or
repurchase; (b) offers of Class A shares to any other
investment company to effect the combination of such company
with the fund by merger, acquisition of assets or otherwise;
(c) purchases of Class A shares by any client of a newly
employed Salomon Smith Barney Financial Consultant (for a
period up to 90 days from the commencement of the Financial
Consultant's employment with Salomon Smith Barney), on the
condition the purchase of Class A shares is made with the
proceeds of the redemption of shares of a mutual fund which
(i) was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial
Consultant and (iii) was subject to a sales charge; (d)
purchases by shareholders who have redeemed Class A shares
in the fund (or Class A shares of another Smith Barney
Mutual Fund that is offered with a sales charge) and who
wish to reinvest their redemption proceeds in the fund,
provided the reinvestment is made within 60 calendar days of
the redemption; (e) purchases by accounts managed by
registered investment advisory subsidiaries of Citigroup;
(f) purchases by a separate account used to fund certain
unregistered variable annuity contracts; (g) investments of
distributions from a UIT sponsored by Salomon Smith Barney;
and (h) purchases by investors participating in a Salomon
Smith Barney fee-based arrangement. In order to obtain such
discounts, the purchaser must provide sufficient information
at the time of purchase to permit verification that the
purchase would qualify for the elimination of the sales
charge.
Right of Accumulation. Class A shares of the fund may be
purchased by ''any person'' (as defined above) at a reduced
sales charge or at net asset value determined by aggregating
the dollar amount of the new purchase and the total net
asset value of all Class A shares of the fund and of other
Smith Barney Mutual Funds that are offered with a sales
charge as currently listed under ''Exchange Privilege'' then
held by such person and applying the sales charge applicable
to such aggregate. In order to obtain such discount, the
purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies
for the reduced sales charge. The right of accumulation is
subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for
an amount of $50,000 or more provides an opportunity for an
investor to obtain a reduced sales charge by aggregating
investments over a 13 month period, provided that the
investor refers to such Letter when placing orders. For
purposes of a Letter of Intent, the ''Amount of Investment''
as referred to in the preceding sales charge table includes
(i) all Class A shares of the fund and other Smith Barney
Mutual Funds offered with a sales charge acquired during the
term of the letter plus (ii) the value of all Class A shares
previously purchased and still owned. Each investment made
during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If
the goal is not achieved within the period, the investor
must pay the difference between the sales charges applicable
to the purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed. The
term of the Letter will commence upon the date the Letter is
signed, or at the options of the investor, up to 90 days
before such date. Please contact a Salomon Smith Barney
Financial Consultant or First Data to obtain a Letter of
Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent may
also be used as a way for investors to meet the minimum
investment requirement for Class Y shares (except purchases
of Class Y shares by Smith Barney Concert Allocation Series
Inc., for which there is no minimum purchase amount). Such
investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the fund and agree to
purchase a total of $15,000,000 of Class Y shares of the
fund within 13 months from the date of the Letter. If a
total investment of $15,000,000 is not made within the 13-
month period, all Class Y shares purchased to date will be
transferred to Class A shares, where they will be subject to
all fees (including a service fee of 0.25%) and expenses
applicable to the fund's Class A shares, which may include a
deferred sales charge of 1.00%. Please contact a Salomon
Smith Barney Financial Consultant or First Data for further
information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B shares;
(b) Class L shares; and (c) Class A shares that were
purchased without an initial sales charge but are subject to
a deferred sales charge. A deferred sales charge may be
imposed on certain redemptions of these shares.
Any applicable deferred sales charge will be assessed on an
amount equal to the lesser of the original cost of the
shares being redeemed or their net asset value at the time
of redemption. Deferred Sales Charge Shares that are
redeemed will not be subject to a deferred sales charge to
the extent the value of such shares represents: (a) capital
appreciation of fund assets; (b) reinvestment of dividends
or capital gain distributions; (c) with respect to Class B
shares, shares redeemed more than five years after their
purchase; or (d) with respect to Class L shares and Class A
shares that are Deferred Sales Charge Shares, shares
redeemed more than 12 months after their purchase.
Class L shares and Class A shares that are Deferred Sales
Charge Shares are subject to a 1.00% deferred sales charge
if redeemed within 12 months of purchase. In circumstances
in which the deferred sales charge is imposed on Class B
shares, the amount of the charge will depend on the number
of years since the shareholder made the purchase payment
from which the amount is being redeemed. Solely for
purposes of determining the number of years since a purchase
payment, all purchase payments made during a month will be
aggregated and deemed to have been made on the last day of
the preceding Salomon Smith Barney statement month. The
following table sets forth the rates of the charge for
redemptions of Class B shares by shareholders.
Year Since Purchase Payment Was
Made
Deferred sales charge
First
4.50%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A shares
eight years after the date on which they were purchased and
thereafter will no longer be subject to any distribution
fees. There will also be converted at that time such
proportion of Class B Dividend Shares owned by the
shareholders as the total number of his or her Class B
shares converting at the time bears to the total number of
outstanding Class B shares (other than Class B Dividend
Shares) owned by the shareholder.
The length of time that Deferred Sales Charge Shares
acquired through an exchange have been held will be
calculated from the date the shares exchanged were initially
acquired in one of the other Smith Barney Mutual Funds, and
fund shares being redeemed will be considered to represent,
as applicable, capital appreciation or dividend and capital
gain distribution reinvestments in such other funds. For
Federal income tax purposes, the amount of the deferred
sales charge will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption. The
amount of any deferred sales charge will be paid to Salomon
Smith Barney.
To provide an example, assume an investor purchased 100
Class B shares of the fund at $10 per share for a cost of
$1,000. Subsequently, the investor acquired 5 additional
shares of the fund through dividend reinvestment. During
the fifteenth month after the purchase, the investor decided
to redeem $500 of his or her investment. Assuming at the
time of the redemption the net asset value had appreciated
to $12 per share, the value of the investor's shares would
be $1,260 (105 shares at $12 per share). The deferred sales
charge would not be applied to the amount which represents
appreciation ($200) and the value of the reinvested dividend
shares ($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate of
4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a) exchanges
(see ''Exchange Privilege''); (b) automatic cash withdrawals
in amounts equal to or less than 1.00% per month of the
value of the shareholder's shares at the time the withdrawal
plan commences (see ''Automatic Cash Withdrawal Plan'')
(however, automatic cash withdrawals in amounts equal to or
less than 2.00% per month of the value of the shareholder's
shares will be permitted for withdrawal plans established
prior to November 7, 1994); (c) redemptions of shares within
12 months following the death or disability of the
shareholder; (d) redemptions of shares made in connection
with qualified distributions from retirement plans or IRAs
upon the attainment of age 591/2; (e) involuntary redemptions;
and (f) redemptions of shares to effect a combination of the
fund with any investment company by merger, acquisition of
assets or otherwise. In addition, a shareholder who has
redeemed shares from other Smith Barney Mutual Funds may,
under certain circumstances, reinvest all or part of the
redemption proceeds within 60 days and receive pro rata
credit for any deferred sales charge imposed on the prior
redemption.
Deferred sales charge waivers will be granted subject to
confirmation (by Salomon Smith Barney in the case of
shareholders who are also Salomon Smith Barney clients or by
First Data in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.
Volume Discounts
The schedule of sales charges on Class A shares described in
the prospectus applies to purchases made by any "purchaser,"
which is defined to include the following: (a) an
individual; (b) an individual's spouse and his or her
children purchasing shares for their own account; (c) a
trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account; and (d) a trustee
or other professional fiduciary (including a bank, or an
investment adviser registered with the SEC under the
Investment Advisers Act of 1940, as amended) purchasing
shares of the fund for one or more trust estates or
fiduciary accounts. Purchasers who wish to combine purchase
orders to take advantage of volume discounts on Class A
shares should contact a Salomon Smith Barney Financial
Consultant.
DETERMINATION OF NET ASSET VALUE
Each class' net asset value per share is calculated on each
day, Monday through Friday, except days on which the NYSE is
closed. The NYSE currently is scheduled to be closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. Because of the
differences in distribution fees and class-specific
expenses, the per share net asset value of each class may
differ. The following is a description of the procedures
used by the fund in valuing its assets.
Generally, the fund's investments are valued at market value
or, in the absence of a market value with respect to any
securities, at fair value as determined by or under the
direction of the Board of Trustees. A security that is
primarily traded on a domestic or foreign exchange is valued
at the last sale price on that exchange or, if there were no
sales during the day, at the mean between the bid and asked
price. Over-the-counter securities are valued at the mean
between the bid and asked price. If market quotations for
those securities are not readily available, they are valued
at fair value, as determined in good faith by the fund's
Board of Trustees. An option is generally valued at the
last sale price or, in the absence of a last sale price, the
last offer price.
U.S. government securities will be valued at the mean
between the closing bid and asked prices on each day, or, if
market quotations for those securities are not readily
available, at fair value, as determined in good faith by the
fund's Board of Trustees.
Short-term investments maturing in 60 days or less are
valued at amortized cost whenever the Board of Trustees
determines that amortized cost reflects fair value of those
investments. Amortized cost valuation involves valuing an
instrument at its cost initially and thereafter assuming a
constant amortization to maturity of any discount or
premium, regardless of the effect of fluctuating interest
rates on the market value of the instrument.
All other securities and other assets of the fund will be
valued at fair value as determined in good faith by the
fund's Board of Trustees.
Determination of Public Offering Price
The fund offers its shares to the public on a continuous
basis. The public offering price per Class A and Class Y
share of the fund is equal to the net asset value per share
at the time of purchase plus, for Class A shares, an initial
sales charge based on the aggregate amount of the
investment. The public offering price per Class B and Class
L share (and Class A share purchases, including applicable
rights of accumulation, equaling or exceeding $500,000) is
equal to the net asset value per share at the time of
purchase and no sales charge is imposed at the time of
purchase. The method of computing the public offering price
is shown in the fund's financial statements, incorporated by
reference in their entirety into this SAI.
REDEMPTION OF SHARES
The fund is required to redeem the shares of the fund
tendered to it, as described below, at a redemption price
equal to their net asset value per share next determined
after receipt of a written request in proper form at no
charge other than any applicable deferred sales charge.
Redemption requests received after the close of regular
trading on the NYSE are priced at the net asset value next
determined.
If a shareholder holds shares in more than one Class, any
request for redemption must specify the Class being
redeemed. In the event of a failure to specify which Class,
or if the investor owns fewer shares of the Class than
specified, the redemption request will be delayed until the
transfer agent receives further instructions from Salomon
Smith Barney, or if the shareholder's account is not with
Salomon Smith Barney, from the shareholder directly. The
redemption proceeds will be remitted on or before the third
business day following receipt of proper tender, except on
any days on which the NYSE is closed or as permitted under
the 1940 Act in extraordinary circumstances. Generally, if
the redemption proceeds are remitted to a Salomon Smith
Barney brokerage account, these funds will not be invested
for the shareholder's benefit without specific instruction
and Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for shares
purchased by check, other than a certified or official bank
check, will be remitted upon clearance of the check, which
may take up to ten days or more.
Shares held by Salomon Smith Barney as custodian must be
redeemed by submitting a written request to a Salomon Smith
Barney Financial Consultant. Shares other than those held by
Salomon Smith Barney as custodian may be redeemed through an
investor's Financial Consultant, Dealer Representative or by
submitting a written request for redemption to:
Smith Barney Managed Municipals Fund Inc.
Class A, B, L or Y (please specify)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and
number or dollar amount of shares to be redeemed, (b)
identify the shareholder's account number and (c) be signed
by each registered owner exactly as the shares are
registered. If the shares to be redeemed were issued in
certificate form, the certificates must be endorsed for
transfer (or be accompanied by an endorsed stock power) and
must be submitted to the transfer agent together with the
redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in
excess of $10,000 must be guaranteed by an eligible
guarantor institution, such as a domestic bank, savings and
loan institution, domestic credit union, member bank of the
Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of $10,000
or less do not require a signature guarantee unless more
than one such redemption request is made in any 10-day
period. Redemption proceeds will be mailed to an investor's
address of record. The transfer agent may require additional
supporting documents for redemptions made by corporations,
executors, administrators, trustees or guardians. A
redemption request will not be deemed properly received
until the transfer agent receives all required documents in
proper form.
Automatic Cash Withdrawal Plan. The fund offers
shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000
may elect to receive cash payments of at least $50 monthly
or quarterly. Retirement plan accounts are eligible for
automatic cash withdrawal plans only where the shareholder
is eligible to receive qualified distributions and has an
account value of at least $5,000. The withdrawal plan will
be carried over on exchanges between Classes of a fund. Any
applicable deferred sales charge will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per
month of the value of the shareholder's shares subject to
the deferred sales charge at the time the withdrawal plan
commences. (With respect to withdrawal plans in effect prior
to November 7, 1994, any applicable deferred sales charge
will be waived on amounts withdrawn that do not exceed 2.00%
per month of the value of the shareholder's shares subject
to the deferred sales charge.) For further information
regarding the automatic cash withdrawal plan, shareholders
should contact a Salomon Smith Barney Financial Consultant.
Telephone Redemption and Exchange Program. Shareholders who
do not have a brokerage account may be eligible to redeem
and exchange shares by telephone. To determine if a
shareholder is entitled to participate in this program, he
or she should contact the transfer agent at 1-800-451-2010.
Once eligibility is confirmed, the shareholder must
complete and return a Telephone/Wire Authorization Form,
along with a signature guarantee, that will be provided by
the transfer agent upon request. (Alternatively, an
investor may authorize telephone redemptions on the new
account application with the applicant's signature guarantee
when making his/her initial investment in a fund.)
Redemptions. Redemption requests of up to $10,000 of any
class or classes of shares of a fund may be made by eligible
shareholders by calling the transfer agent at 1-800-451-
2010. Such requests may be made between 9:00 a.m. and 5:00
p.m. (Eastern time) on any day the NYSE is open.
Redemptions of shares (i) by retirement plans or (ii) for
which certificates have been issued are not permitted under
this program.
A shareholder will have the option of having the redemption
proceeds mailed to his/her address of record or wired to a
bank account predesignated by the shareholder. Generally,
redemption proceeds will be mailed or wired, as the case may
be, on the next business day following the redemption
request. In order to use the wire procedures, the bank
receiving the proceeds must be a member of the Federal
Reserve System or have a correspondent relationship with a
member bank. The fund reserves the right to charge
shareholders a nominal fee for each wire redemption. Such
charges, if any, will be assessed against the shareholder's
account from which shares were redeemed. In order to change
the bank account designated to receive redemption proceeds,
a shareholder must complete a new Telephone/Wire
Authorization Form and, for the protection of the
shareholder's assets, will be required to provide a
signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by
telephone if the account registration of the shares of the
fund being acquired is identical to the registration of the
shares of the fund exchanged. Such exchange requests may be
made by calling the transfer agent at 1-800-451-2010 between
9:00 a.m. and 5:00 p.m. (Eastern time) on any day on which
the NYSE is open.
Additional Information Regarding Telephone Redemption and
Exchange Program. Neither the fund nor its agents will be
liable for following instructions communicated by telephone
that are reasonably believed to be genuine. The fund and
its agents will employ procedures designed to verify the
identity of the caller and legitimacy of instructions (for
example, a shareholder's name and account number will be
required and phone calls may be recorded). The fund
reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or to impose a
charge for this service at any time following at least seven
(7) days' prior notice to shareholders.
Redemptions in Kind. In conformity with applicable rules of
the SEC, redemptions may be paid in portfolio securities, in
cash or any combination of both, as the Board of Trustees
may deem advisable; however, payments shall be made wholly
in cash unless the Board of Trustees believes economic
conditions exist that would make such a practice detrimental
to the best interests of the fund and its remaining
shareholders. If a redemption is paid in portfolio
securities, such securities will be valued in accordance
with the procedures described under "Determination of Net
Asset Value" in the Prospectus and a shareholder would incur
brokerage expenses if these securities were then converted
to cash.
Distributions in Kind
If the fund's Board of Trustees determines that it would be
detrimental to the best interests of the remaining
shareholders of the fund to make a redemption payment wholly
in cash, the fund may pay, in accordance with SEC rules, any
portion of a redemption in excess of the lesser of $250,000
or 1.00% of the fund's net assets by a distribution in kind
of portfolio securities in lieu of cash. Securities issued
as a distribution in kind may incur brokerage commissions
when shareholders subsequently sell those securities.
Automatic Cash Withdrawal Plan
An automatic cash withdrawal plan (the "Withdrawal Plan") is
available to shareholders who own shares with a value of at
least $10,000 and who wish to receive specific amounts of
cash monthly or quarterly. Withdrawals of at least $50 may
be made under the Withdrawal Plan by redeeming as many
shares of the fund as may be necessary to cover the
stipulated withdrawal payment. Any applicable deferred sales
charge will not be waived on amounts withdrawn by
shareholders that exceed 1.00% per month of the value of a
shareholder's shares at the time the Withdrawal Plan
commences. (With respect to Withdrawal Plans in effect prior
to November 7, 1994, any applicable deferred sales charge
will be waived on amounts withdrawn that do not exceed 2.00%
per month of the value of a shareholder's shares at the time
the Withdrawal Plan commences.) To the extent withdrawals
exceed dividends, distributions and appreciation of a
shareholder's investment in the fund, there will be a
reduction in the value of the shareholder's investment, and
continued withdrawal payments will reduce the shareholder's
investment and may ultimately exhaust it. Withdrawal
payments should not be considered as income from investment
in the fund. Furthermore, as it generally would not be
advantageous to a shareholder to make additional investments
in the fund at the same time he or she is participating in
the Withdrawal Plan, purchases by such shareholder in
amounts of less than $5,000 ordinarily will not be
permitted.
Shareholders who wish to participate in the Withdrawal Plan
and who hold their shares in certificate form must deposit
their share certificates with the Transfer Agent as agent
for Withdrawal Plan members. All dividends and distributions
on shares in the Withdrawal Plan are reinvested
automatically at net asset value in additional shares of the
fund. For additional information, shareholders should
contact a Salomon Smith Barney Financial Consultant.
Withdrawal Plans should be set up with a Salomon Smith
Barney Financial Consultant. A shareholder who purchases
shares directly through the Transfer Agent may continue to
do so and applications for participation in the Withdrawal
Plan must be received by the Transfer Agent no later than
the eighth day of the month to be eligible for participation
beginning with that month's withdrawals. For additional
information, shareholders should contact a Salomon Smith
Barney Financial Consultant.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Adviser and Administrator - SSBC
SSBC (formerly known as Mutual Management Corp.) serves as
investment adviser to the fund pursuant to an investment
advisory agreement (the "Investment Advisory Agreement")
with the trust which was approved by the Board of Trustees,
including a majority of trustees who are not "interested
persons" of the trust or the manager. The manager is a
wholly owned subsidiary of Salomon Smith Barney Holdings
Inc. ("Holdings"), which in turn, is a wholly owned
subsidiary of Citigroup Inc. ("Citigroup"). Subject to the
supervision and direction of the fund's board of directors,
the manager manages the fund's portfolio in accordance with
the fund's stated investment objective and policies, makes
investment decisions for the fund, places orders to purchase
and sell securities, and employs professional portfolio
managers and securities analysts who provide research
services to the fund. The manager pays the salary of any
officer and employee who is employed by both it and the
fund. The manager bears all expenses in connection with the
performance of its services. SSBC (through its predecessor
entities) has been in the investment counseling business
since 1968 and renders investment advice to a wide variety
of individual, institutional and investment company clients
that had aggregate assets under management as of January 31,
1999 in excess of $115 billion.
As compensation for investment advisory services, the fund
pays the manager a fee computed daily and payable monthly at
0.30% of the value of the fund's average daily net assets.
For the fiscal years ended February 28, 1997, 1998 and 1999,
the fund paid the manager net of fee waivers and expense
reimbursements, $ , $ and $ , respectively, in investment
advisory fees. For the fiscal years ended February 28, 1997
and 1998, the manager voluntarily waived investment advisory
fees of $ and $ , respectively.
The manager also serves as administrator to the fund
pursuant to a written agreement (the "Administration
Agreement"). The services provided by the manager under the
Administration Agreement are described in the prospectus
under "Management.'' The manager pays the salary of all
officers and employees who are employed by both it and the
fund and bears all expenses in connection with the
performance of its services.
As administrator SSBC: (a) assists in supervising all
aspects of the Fund's operations except those performed by
the fund's investment manager under its investment advisory
agreement; b) supplies the fund with office facilities
(which may be in SSBC's own offices), statistical and
research data, data processing services, clerical,
accounting and bookkeeping services, including, but not
limited to, the calculation of (i) the net asset value of
shares of the fund, (ii) applicable contingent deferred
sales charges and similar fees and charges and (iii)
distribution fees, internal auditing and legal services,
internal executive and administrative services, and
stationary and office supplies; and (c) prepares reports to
shareholders of the fund, tax returns and reports to and
filings with the SEC and state blue sky authorities.
As compensation for administrative services rendered to the
fund, the manager receives a fee computed daily and payable
monthly at the following annual rates of average daily net
assets: 0.20% up to $500 million; and 0.18% in excess of
$500 million. For the fiscal year ended November 30, 1996,
the fund paid $89,806 (net of fee waivers amounting to
$24,086) in administration fees. For the fiscal year ended
November 30, 1997, the fund paid the manager $99,811 (net of
fee waivers amounting to $17,707) in administration fees.
For the fiscal year ended November 30, 1998, the fund paid
the manager $126,474 in administration fees.
The fund bears expenses incurred in its operations
including: taxes, interest, brokerage fees and commissions,
if any; fees of trustees of the fund who are not officers,
directors, shareholders or employees of Salomon Smith Barney
or the manager; Securities and Exchange Commission (the
"SEC") fees and state Blue Sky notice fees; charges of
custodians; transfer and dividend disbursing agent's fees;
certain insurance premiums; outside auditing and legal
expenses; costs of maintaining corporate existence; costs of
investor services (including allocated telephone and
personnel expenses); costs of preparing and printing of
prospectuses for regulatory purposes and for distribution to
existing shareholders; costs of shareholders' reports and
shareholder meetings; and meetings of the officers or board
of directors of the fund.
Auditors
KPMG LLP, independent auditors, 345 Park Avenue, New York,
New York 10154, have been selected to serve as auditors of
the fund and to render opinions on the fund's financial
statements for the fiscal year ended February 28, 2000.
Custodian and Transfer Agent
PNC Bank, National Association located at 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103, serves as the
fund's custodian. Under the custody agreement, PNC holds the
fund's portfolio securities and keeps all necessary accounts
and records. For its services, PNC receives a monthly fee
based upon the month-end market value of securities held in
custody and also receives securities transaction charges.
The assets of the fund are held under bank custodianship in
compliance with the 1940 Act.
First Data Shareholder Services Group Inc., located at
Federal Street, Boston, Massachusetts 02110, serves as the
fund's transfer agent. Under the transfer agency agreement,
First Data 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, First Data
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.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the fund's distributor
pursuant to a written agreement dated October 8, 1998 (the
"Distribution Agreement") which was approved by the fund's
board of directors, including a majority of the independent
directors on July 15, 1998. Prior to the merger of
Travelers Group, Inc. and Citicorp Inc. on October 8, 1998,
Salomon Smith Barney served as the fund's distributor. For
the 1996 and 1997 fiscal years, Salomon Smith Barney,
received $45,000 and $68,000, respectively, in sales charges
from the sale of Class A shares, and did not reallow any
portion thereof to dealers. For the period December 1, 1997
through October 7, 1998 the aggregate dollar amount of sales
charges on Class A shares was $55,400 all of which was paid
to Salomon Smith Barney. For the period October 8, 1998
through November 30, 1998 the aggregate dollar amount of
sales charges on Class A shares was $48,000, $43,200 of
which was paid to Salomon Smith Barney.
For the period June 12, 1998 through October 7, 1998 the
aggregate dollar amount of sales charges on Class L shares
was $1,000, all of which was paid to Salomon Smith Barney.
For the period October 8, 1998 through November 30, 1998 the
aggregate dollar amount of sales charges on Class L shares
was $2,000, $1,800 of which was paid to Salomon Smith
Barney.
For the fiscal years ended November 30, 1996, 1997 and 1998,
Salomon Smith Barney or its predecessor received from
shareholders $56,000, $48,000 and $39,000, respectively, in
deferred sales charges on the redemption of Class B shares.
For the fiscal years ended November 30, 1996, 1997 and
1998, Salomon Smith Barney or its predecessor received from
$1,000, $0 and $1,000, respectively, in deferred sales
charges on redemption of Class L shares.
When payment is made by the investor before the settlement
date, unless otherwise noted by the investor, the funds will
be held as a free credit balance in the investor's brokerage
account and Salomon Smith Barney may benefit from the
temporary use of the funds. The fund's board of directors
has been advised of the benefits to Salomon Smith Barney
resulting from these settlement procedures and will take
such benefits into consideration when reviewing the
Investment Advisory Agreement for continuance.
Distribution Arrangements. To compensate Salomon Smith
Barney for the service it provides and for the expense it
bears, the fund has adopted a services and distribution plan
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Under the Plan, the fund pays Salomon Smith Barney a service
fee, accrued daily and paid monthly, calculated at the
annual rate of 0.15% of the value of the fund's average
daily net assets attributable to the Class A, Class B and
Class L shares. In addition, the fund pays Salomon Smith
Barney a distribution fee with respect to Class B and Class
L shares primarily intended to compensate Salomon Smith
Barney for its initial expense of paying Financial
Consultants a commission upon sales of those shares. The
Class B and Class L distribution fee is calculated at the
annual rate of 0.50% and 0.55%, respectively, of the value
of the fund's average net assets attributable to the shares
of each Class.
For the fiscal year ended February 28, 1999, Salomon Smith
Barney incurred distribution expenses totaling $178,073
consisting of approximately $11,820 for advertising, $1,899
for printing and mailing of prospectuses, $90,557 for
support services, $72,507 to Salomon Smith Barney Financial
Consultants, and $1,290 in accruals for interest on the
excess of Salomon Smith Barney expenses incurred in
distributing the fund's shares over the sum of the
distribution fees and deferred sales charge received by
Salomon Smith Barney from the fund.
The following service and distribution fees were incurred
pursuant to a Distribution Plan during the periods
indicated:
Distribution Plan Fees
Fiscal Year
Ended
2/28/99
Fiscal Year
Ended 2/28/98
Fiscal Year
Ended 2/28/97
Class A
$
$ 3,247,646
$ 2,875,192
Class B
$
$ 6,535,992
$ 5,246,869
Class L*
$
$
683,634
$
361,832
* Class L shares were called Class C shares until June
12, 1998.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote of
the board of directors, including a majority of the
independent directors. The Plan may not be amended to
increase the amount of the service and distribution fees
without shareholder approval, and all material amendments of
the Plan also must be approved by the directors and
independent directors in the manner described above. The
Plan may be terminated with respect to a Class of the fund
at any time, without penalty, by vote of a majority of the
independent directors or by a vote of a majority of the
outstanding voting securities of the Class (as defined in
the 1940 Act). Pursuant to the Plan, Salomon Smith Barney
will provide the fund's board of directors with periodic
reports of amounts expended under the Plan and the purpose
for which such expenditures were made.
VALUATION OF SHARES
The fund's net asset value per share is determined as of
close of regular trading on the NYSE, on each day that the
NYSE is open, by dividing value of the fund's net assets
attributable to each Class by the total number of shares of
that Class outstanding.
When, in judgement of the pricing service, quoted bid prices
for investments are readily available and are representative
of the bid side of the market, these investments are valued
at the mean between the quoted bid and asked prices.
Investments for which, in the judgement of the pricing
service, there is no readily obtainable market quotation
(which may contribute a majority of the portfolio
securities) are carried at fair value of securities of
similar type, yield maturity. Pricing services generally
determine value by reference to transactions in municipal
obligations, quotations from municipal bond dealers, market
transaction in comparable securities and various
relationships between securities. Short-term investments
that mature in 60 days or less are valued at amortized cost
whenever the board of trustees determines that amortized
cost is fair value. Amortized cost valuation involves
valuing an instrument at its cost initially and, thereafter,
assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. Securities and
other assets that are not available will be valued in good
faith at fair value by or under the direction of the fund's
board of directors.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class of the
fund may be exchanged for shares of the same Class of
certain Smith Barney Mutual Funds, to the extent shares are
offered for sale in the shareholder's state of residence.
Exchanges of Class A, Class B and Class L shares are subject
to minimum investment requirements and all shares are
subject to the other requirements of the fund into which
exchanges are made.
Class B Exchanges. If a Class B shareholder wishes to
exchange all or a portion of his or her shares in any of the
funds imposing a higher deferred sales charge than that
imposed by the fund, the exchanged Class B shares will be
subject to the higher applicable deferred sales charge. Upon
an exchange, the new Class B shares will be deemed to have
been purchased on the same date as the Class B shares of the
fund that have been exchanged.
Class L Exchanges. Upon an exchange, the new Class L shares
will be deemed to have been purchased on the same date as
the Class L shares of the fund that have been exchanged.
Class A and Class Y Exchanges. Class A and Class Y
shareholders of the fund who wish to exchange all or a
portion of their shares for shares of the respective Class
in any of the funds identified above may do so without
imposition of any charge.
Additional Information Regarding the Exchange Privilege.
Although the exchange privilege is an important benefit,
excessive exchange transactions can be detrimental to the
fund's performance and its shareholders. The manager may
determine that a pattern of frequent exchanges is excessive
and contrary to the best interests of the fund's other
shareholders. In this event, the fund may, at its
discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination, the
fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the
exchange privilege and during the 15 day period the
shareholder will be required to (a) redeem his or her shares
in the fund or (b) remain invested in the fund or exchange
into any of the funds of the Smith Barney Mutual Funds
ordinarily available, which position the shareholder would
be expected to maintain for a significant period of time.
All relevant factors will be considered in determining what
constitutes an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by
telephone. See ''Redemption of Shares-Telephone Redemptions
and Exchange Program.'' Exchanges will be processed at the
net asset value next determined. Redemption procedures
discussed below are also applicable for exchanging shares,
and exchanges will be made upon receipt of all supporting
documents in proper form. If the account registration of
the shares of the fund being acquired is identical to the
registration of the shares of the fund exchanged, no
signature guarantee is required. An exchange involves a
taxable redemption of shares, subject to the tax treatment
described in "Dividends, Distributions and Taxes" below,
followed by a purchase of shares of a different fund.
Before exchanging shares, investors should read the current
prospectus describing the shares to be acquired. The fund
reserves the right to modify or discontinue exchange
privileges upon 60 days' prior notice to shareholders.
Additional Information Regarding Telephone Redemption and
Exchange Program
Neither the fund nor its agents will be liable for
instructions communicated by telephone that are reasonably
believed to be genuine. The fund or its agents will employ
procedures designed to verify the identity of the caller and
legitimacy of instructions (for example, a shareholder's
name and account number will be required and phone calls may
be recorded). The fund reserves the right to suspend,
modify or discontinue the telephone redemption and exchange
program or to impose a charge for this service at any time
following at least seven (7) days' prior notice to
shareholders.
PERFORMANCE INFORMATION
From time to time, the fund may quote total return of a
class in advertisements or in reports and other
communications to shareholders. The fund may include
comparative performance information in advertising or
marketing the fund's shares. Such performance information
may include data from the following industry and financial
publications: Barron's, Business Week, CDA Investment
Technologies, Inc., Changing Times, Forbes, Fortune,
Institutional Investor, Investors Daily, Money, Morningstar
Mutual Fund Values, The New York Times, USA Today and The
Wall Street Journal.
Yield and Equivalent Taxable Yield
A Class' 30-day yield figure described below is calculated
according to a formula prescribed by the SEC. The formula
can be expressed as follows:
YIELD =2 [(a-b +1)6-1]
cd
Where: a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursement).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the
last day of the period.
For the purpose of determining the interest earned (variable
"a'' in the formula) on debt obligations that were purchased
by the fund at a discount or premium, the formula generally
calls for amortization of the discount or premium. The
amortization schedule will be adjusted monthly to reflect
changes in the market values of the debt obligations.
The Fund's equivalent taxable 30-day yield for a Class of
shares is computed by dividing that portion of the Class'
30-day yield which is tax-exempt by one minus a stated
income tax rate and adding the product to that portion, if
any, of the Class' yield that is not tax-exempt.
The yields on municipal securities are dependent upon a
variety of factors, including general economic and monetary
conditions, conditions of the municipal securities market,
size of a particular offering, maturity of the obligation
offered and rating of the issue. Investors should recognize
that in periods of declining interest rates the fund's yield
for each Class of shares will tend to be somewhat higher
than prevailing market rates, and in periods of rising
interest rates the fund's yield for each Class of shares
will tend to be somewhat lower. Also, when interest rates
are falling, the inflow of net new money to the fund from
the continuous sale of its shares will likely be invested in
portfolio instruments producing lower yields than the
balance of the fund's portfolio, thereby reducing the
current yield of the fund. In periods of rising interest
rates, the opposite can be expected to occur.
The fund's yield for Class A, Class B and Class L shares for
the 30-day period ended February 28, 1999 was 4.04%, 3.70%
and 3.64%, respectively. The equivalent taxable yield for
Class A, Class B and Class L shares for that same period was
8.41%, 7.64% and 7.52%, respectively, assuming the payment
of Federal income taxes at a rate of 39.6%.
Average Annual Total Return
"Average annual total return," as described below, is
computed according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P (1+T)n = ERV
Where: P = a hypothetical initial payment
of $1,000.
T = average annual total return.
N = number of years.
ERV = Ending Redeemable Value of a
hypothetical $1,000 investment made
at the beginning of a 1-, 5-, or 10-
year period at the end of a 1-, 5-,
or 10-year period (or fractional
portion thereof), assuming
reinvestment of all dividends and
distributions.
The fund's average annual total return for Class A shares
assuming the maximum applicable sales charge was as follows
for the periods indicated (reflecting the waiver of the
fund's investment advisory and administration fees and
reimbursement of expenses):
3.35% for the one-year period ended February 28,
1999.
5.27% for the five-year period ended February
28, 1999.
7.84% per annum during the period from the
fund's commencement of operations on December
21, 1987 through February 28, 1999.
A Class' average annual total return assumes that the
maximum applicable sales charge or deferred sales charge
assessed by the fund has been deducted from the hypothetical
investment. Had the maximum 4.00% sales charge had not been
deducted, Class A's average annual total return would have
been 7.66%, 6.13% and 8.25%, respectively, for those same
periods.
The fund's average annual total return for Class B shares
assuming the maximum applicable deferred sales charge was as
follows for the periods indicated (reflecting the waiver of
the fund's investment advisory and administration fees and
reimbursement of expenses):
2.55% for the one-year period ended February 28,
1999.
5.43% for the five-year period ended February
28, 1999.
6.64% per annum during the period from the
fund's commencement of operations on November 6,
1992 through February 28, 1999.
Had the maximum applicable deferred sales charge had not
been deducted at the time of redemption, Class B's average
annual total return would have been 7.05%, 5.59% and 6.64%,
respectively, for the same periods.
The fund's average annual total return for Class L shares
assuming the maximum applicable deferred sales charge was as
follows for the periods indicated (reflecting the waiver of
the fund's investment advisory and administration fees and
reimbursement of expenses):
5.06% for the one-year period ended February 28,
1999.
9.41% per annum during the period from the
fund's commencement of operations on November
10, 1994 through February 28, 1999.
Had the maximum applicable deferred sales charge had not
been deducted at the time of redemption, Class L's average
annual total return for the one-year period ended February
28, 1999 would have been 7.11%.
Aggregate Total Return
"Aggregate total return" represents the cumulative change in
the value of an investment in the Class for the specified
period and is computed by the following formula:
ERV-P
P
Where: P = a hypothetical initial payment of $10,000.
ERV= Ending Redeemable Value of a hypothetical
$10,000 investment made at the beginning
of a 1-, 5-, or 10-year period at the end
of a 1-, 5-, or 10-year period (or
fractional portion thereof), assuming
reinvestment of all dividends and
distributions.
The fund's aggregate total return for Class A shares was as
follows for the periods indicated (reflecting the waiver of
the fund's investment advisory and administration fees and
reimbursement of expenses):
3.35% for the one-year period ended February 28,
1999.
29.3% for the five-year period ended February
28, 1999.
128.53% for the period from the fund's
commencement of operations on December 21, 1987 through
February 28, 1999.
A Class' aggregate total return assumes that the maximum
applicable sales charge or maximum applicable deferred sales
charge has been deducted from the investment. If the
maximum sales charge had not been deducted at the time of
purchase, Class A's aggregate total return for the same
periods would have been 7.66%, 34.67% and 138.15%,
respectively.
The fund's aggregate total return for Class B shares was as
follows for the periods indicated (reflecting the waiver of
the fund's investment advisory and administration fees and
reimbursement of expenses):
2.55% for the one-year period ended February 28,
1999.
30.25% for the five-year period ended February
28, 1999.
47.7% for the period from commencement of
operations on through February 28, 1999.
If the maximum applicable deferred sales charge had not been
deducted at the time of redemption, Class B's aggregate
total return for the same periods would have been 7.05%,
31.25% and 47.7%, respectively.
The fund's aggregate total return for Class L shares was as
follows for the period indicated (reflecting the waiver of
the fund's investment advisory and administration fees and
reimbursement of expenses):
6.11% for the one-year period ended February 28,
1999.
45.46% for the period from commencement of
operations on November 09, 1994 through February
28, 1999.
If the maximum applicable deferred sales charge had not been
deducted at the time of redemption, Class L's aggregate
total return for the one-year period ended February 28,
1999would have been 7.11%.
Performance will vary from time to time depending on market
conditions, the composition of the fund's portfolio and
operating expenses and the expenses exclusively attributable
to the Class. Consequently, any given performance quotation
should not be considered as representative of the Class'
performance for any specified period in the future. Because
performance will vary, it may not provide a basis for
comparing an investment in the Class with certain bank
deposits or other investments that pay a fixed yield for a
stated period of time. Investors comparing a Class'
performance with that of other mutual funds should give
consideration to the quality and maturity of the respective
investment companies' portfolio securities.
It is important to note that the total return figures set
forth above are based on historical earnings and are not
intended to indicate future performance. Each Class' net
investment income changes in response to fluctuations in
interest rates and the expenses of the fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. The fund's policy is to
declare and pay exempt-interest dividends monthly.
Dividends from net realized capital gains, if any, will be
distributed annually. The fund may also pay additional
dividends shortly before December 31 from certain amounts of
undistributed ordinary income and capital gains, in order to
avoid a Federal excise tax liability. If a shareholder does
not otherwise instruct, exempt-interest dividends and
capital gain distributions will be reinvested automatically
in additional shares of the same Class at net asset value,
with no additional sales charge or deferred sales charge.
The per share amounts of the exempt-interest dividends on
Class B and Class L shares may be lower than on Class A and
Class Y shares, mainly as a result of the distribution fees
applicable to Class B and Class L shares. Similarly, the
per share amounts of exempt-interest dividends on Class A
shares may be lower than on Class Y shares, as a result of
the service fee attributable to Class A shares. Capital
gain distributions, if any, will be the same across all
Classes of fund shares (A, B, L and Y).
Taxes. The following is a summary of the material United
States federal income tax considerations regarding the
purchase, ownership and disposition of shares of the fund.
Each prospective shareholder is urged to consult his own tax
adviser with respect to the specific federal, state and
local consequences of investing in the fund. The summary is
based on the laws in effect on the date of this SAI, which
are subject to change.
The fund and its investments
As described in the fund's prospectus, the fund is designed
to provide shareholders with current income which is
excluded from gross income for federal income tax purposes
and which is exempt from Massachusetts personal income
taxes. The fund is not intended to constitute a balanced
investment program and is not designed for investors seeking
capital gains or maximum tax-exempt income irrespective of
fluctuations in principal. Investment in the fund would not
be suitable for tax-exempt institutions, qualified
retirement plans, H.R. 10 plans and individual retirement
accounts because such investors would not gain any
additional tax benefit from the receipt of tax-exempt
income.
The fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the
Code. To so qualify, the fund must, among other things: (a)
derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to
securities loans, and gains from the sale or other
disposition of stock or securities or foreign currencies, or
other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect
to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the
end of each quarter of the fund's taxable year, (i) at least
50% of the market value of the fund's assets is represented
by cash, securities of other regulated investment companies,
United States government securities and other securities,
with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the fund's
assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the
value of its assets is invested in the securities (other
than United States government securities or securities of
other regulated investment companies) of any one issuer or
any two or more issuers that the fund controls and are
determined to be engaged in the same or similar trades or
businesses or related trades or businesses.
As a regulated investment company, the fund will not be
subject to United States federal income tax on its net
investment income (i.e., income other than its net realized
long- and short-term capital gains) and its net realized
long- and short-term capital gains, if any, that it
distributes to its shareholders, provided that an amount
equal to at least 90% of the sum of its investment company
taxable income (i.e., 90% of its taxable income minus the
excess, if any, of its net realized long-term capital gains
over its net realized short-term capital losses (including
any capital loss carryovers), plus or minus certain other
adjustments as specified in the Code) and its net tax-exempt
income for the taxable year is distributed in compliance
with the Code's timing and other requirements but will be
subject to tax at regular corporate rates on any taxable
income or gains that it does not distribute. Furthermore,
the fund will be subject to a United States corporate income
tax with respect to such distributed amounts in any year
that it fails to qualify as a regulated investment company
or fails to meet this distribution requirement.
The Code imposes a 4% nondeductible excise tax on the fund
to the extent it does not distribute by the end of any
calendar year at least 98% of its net investment income for
that year and 98% of the net amount of its capital gains
(both long-and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this
purpose, however, any income or gain retained by the fund
that is subject to corporate income tax will be considered
to have been distributed by year-end. In addition, the
minimum amounts that must be distributed in any year to
avoid the excise tax will be increased or decreased to
reflect any underdistribution or overdistribution, as the
case may be, from the previous year. The fund anticipates
that it will pay such dividends and will make such
distributions as are necessary in order to avoid the
application of this tax.
If, in any taxable year, the fund fails to qualify as a
regulated investment company under the Code or fails to meet
the distribution requirement, it would be taxed in the same
manner as an ordinary corporation and distributions to its
shareholders would not be deductible by the fund in
computing its taxable income. In addition, in the event of
a failure to qualify, the fund's distributions, to the
extent derived from the fund's current or accumulated
earnings and profits would constitute dividends (eligible
for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though
those distributions might otherwise (at least in part) have
been treated in the shareholders' hands as tax-exempt
interest. If the fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings
and profits accumulated in that year in order to qualify
again as a regulated investment company. In addition, if the
fund failed to qualify as a regulated investment company for
a period greater than one taxable year, the fund may be
required to recognize any net built-in gains (the excess of
the aggregate gains, including items of income, over
aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated
investment company in a subsequent year.
The fund's transactions in municipal bond index and interest
rate futures contracts and options on these futures
contracts (collectively "section 1256 contracts") will be
subject to special provisions of the Code (including
provisions relating to "hedging transactions" and
"straddles") that, among other things, may affect the
character of gains and losses realized by the fund (i.e.,
may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the fund and defer fund
losses. These rules could therefore affect the character,
amount and timing of distributions to shareholders. These
provisions also (a) will require the fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat
them as if they were closed out) and (b) may cause the fund
to recognize income without receiving cash with which to pay
dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income
and excise taxes. The fund will monitor its transactions,
will make the appropriate tax elections and will make the
appropriate entries in its books and records when it engages
in these transactions in order to mitigate the effect of
these rules and prevent disqualification of the fund as a
regulated investment company.
All section 1256 contracts held by the fund at the end of
its taxable year are required to be marked to their market
value, and any unrealized gain or loss on those positions
will be included in the fund's income as if each position
had been sold for its fair market value at the end of the
taxable year. The resulting gain or loss will be combined
with any gain or loss realized by the fund from positions in
section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were
not part of a "hedging transaction" nor part of a
"straddle," 60% of the resulting net gain or loss will be
treated as long-term capital gain or loss, and 40% of such
net gain or loss will be treated as short-term capital gain
or loss, regardless of the period of time the positions were
actually held by the fund.
Taxation of Shareholders
Because the fund will distribute exempt-interest dividends,
interest on indebtedness incurred by a shareholder to
purchase or carry fund shares is not deductible for Federal
income tax purposes and Massachusetts personal income tax
purposes. If a shareholder receives exempt-interest
dividends with respect to any share and if such share is
held by the shareholder for six months or less, then, for
Federal income tax purposes, any loss on the sale or
exchange of such share may, to the extent of exempt-interest
dividends, be disallowed. In addition, the Code may require
a shareholder, if he or she receives exempt-interest
dividends, to treat as Federal taxable income a portion of
certain otherwise non-taxable social security and railroad
retirement benefit payments. Furthermore, that portion of
any exempt-interest dividend paid by the fund which
represents income derived from private activity bonds held
by the fund may not retain its Federal tax-exempt status in
the hands of a shareholder who is a "substantial user" of a
facility financed by such bonds or a "related person"
thereof. Moreover, some or all of the fund's dividends may
be a specific preference item, or a component of an
adjustment item, for purposes of the Federal individual and
corporate alternative minimum taxes. In addition, the
receipt of the fund's dividends and distributions may affect
a foreign corporate shareholder's Federal "branch profits"
tax liability and Federal "excess net passive income" tax
liability of a shareholder of a Subchapter S corporation.
Shareholders should consult their own tax advisors to
determine whether they are (a) substantial users with
respect to a facility or related to such users within the
meaning of the Code or (b) subject to a federal alternative
minimum tax, the Federal branch profits tax or the Federal
"excess net passive income" tax.
The fund does not expect to realize a significant amount of
capital gains. Net realized short-term capital gains are
taxable to a United States shareholder as ordinary income,
whether paid in cash or in shares. Distributions of net-
long-term capital gains, if any, that the fund designates as
capital gains dividends are taxable as long-term capital
gains, whether paid in cash or in shares and regardless of
how long a shareholder has held shares of the fund.
Upon the sale or exchange of his shares, a shareholder will
realize a taxable gain or loss equal to the difference
between the amount realized and his basis in his shares.
Such gain or loss will be treated as capital gain or loss,
if the shares are capital assets in the shareholder's hands,
and will be long-term capital gain or loss if the shares are
held for more than one year and short-term capital gain or
loss if the shares are held for one year or less. Any loss
realized on a sale or exchange will be disallowed to the
extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital
gains distributions in the fund, within a 61-day period
beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the
shares acquired will be increased to reflect the disallowed
loss. Any loss realized by a shareholder on the sale of a
fund share held by the shareholder for six months or less
(to the extent not disallowed pursuant to the six-month rule
described above relating to exempt-interest dividends) will
be treated for United States federal income tax purposes as
a long-term capital loss to the extent of any distributions
or deemed distributions of long-term capital gains received
by the shareholder with respect to such share.
If a shareholder incurs a sales charge in acquiring shares
of the fund, disposes of those shares within 90 days and
then acquires shares in a mutual fund for which the
otherwise applicable sales charge is reduced by reason of a
reinvestment right (e.g., an exchange privilege), the
original sales charge will not be taken into account in
computing gain or loss on the original shares to the extent
the subsequent sales charge is reduced. Instead, the
disregarded portion of the original sales charge will be
added to the tax basis in the newly acquired shares.
Furthermore, the same rule also applies to a disposition of
the newly acquired shares made within 90 days of the second
acquisition. This provision prevents a shareholder from
immediately deducting the sales charge by shifting his or
her investment in a family of mutual funds.
Backup Withholding. The fund may be required to withhold,
for United States federal income tax purposes, 31% of (a)
taxable dividends and distributions and (b) redemption
proceeds payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to
make required certifications, or who have been notified by
the IRS that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding. Backup
withholding is not an additional tax and any amount withheld
may be credited against a shareholder's United States
federal income tax liabilities.
Notices. Shareholders will be notified annually by the fund
as to the United States federal income tax and Massachusetts
personal income tax status of the dividends and
distributions made by the fund to its shareholders. These
statements also will designate the amount of exempt-interest
dividends that is a preference item for purposes of the
Federal individual and corporate alternative minimum taxes.
The dollar amount of dividends excluded or exempt from
Federal income taxation and Massachusetts personal income
taxation and the dollar amount of dividends subject to
Federal income taxation and Massachusetts personal income
taxation, if any, will vary for each shareholder depending
upon the size and duration of each shareholder's investment
in the fund. To the extent the fund earns taxable net
investment income, it intends to designate as taxable
dividends the same percentage of each day's dividend as its
taxable net investment income bears to its total net
investment income earned on that day.
Massachusetts Taxation
Individual shareholders who are otherwise subject to
Massachusetts personal income tax will not be subject to
Massachusetts personal income tax on exempt-interest
dividends received from the fund to the extent the dividends
are attributable to interest on obligations of the
Commonwealth of Massachusetts and its political
subdivisions, agencies and public authorities (or on
obligations of certain other governmental issuers such as
Puerto Rico, the Virgin Islands and Guam) that pay interest
which is excluded from gross income for Federal income tax
purposes and exempt from Massachusetts personal income
taxes. Other distributions from the fund, including those
related to long-and short-term capital gains, other than
certain gains from certain Massachusetts Municipal
Securities identified by the Massachusetts Department of
revenue, generally will not be exempt from Massachusetts
personal income tax. Businesses should note that the fund's
distributions derived from Massachusetts Municipal
Securities are not exempt from Massachusetts corporate
excise tax.
The foregoing is only a summary of certain material tax
consequences affecting the fund and its shareholders.
Shareholders are advised to consult their own tax advisers
with respect to the particular tax consequences to them of
an investment in the fund.
ADDITIONAL INFORMATION
The fund was incorporated under the laws of the State of
Maryland on September 16, 1980, and is registered with the
SEC as a diversified, open-end management investment
company.
Each Class of the fund's shares represents an identical
interest in the fund's investment portfolio. As a result,
the Classes have the same rights, privileges and
preferences, except with respect to: (a) the designation of
each Class; (b) the effect of the respective sales charges
for each Class; (c) the distribution and/or service fees
borne by each Class; (d) the expenses allowable exclusively
to each Class; (e) voting rights on matter 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.
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 and the fund
will assist shareholders in calling such a meeting as
required by the 1940 Act. When matters are submitted for
shareholder vote, shareholders of each Class will have one
vote for each full share owned and a proportionate,
fractional vote for any fractional share held of that Class.
Generally, shares of the fund will be voted on a fund-wide
basis on all matters except matters affecting only the
interests of one Class.
The fund was incorporated on September 16, 1980 under the
name Shearson Managed Municipals Inc. On December 15, 1988,
November 6, 1992, July 30, 1993 and October 14, 1994, the
fund's name was changed to SLH Managed Municipals Fund Inc.,
Shearson Lehman Brothers Managed Municipals Fund Inc., Smith
Barney Shearson Managed Municipals Fund Inc. and Smith
Barney Managed Municipals Fund Inc., respectively.
FINANCIAL STATEMENTS
The fund's annual report for the fiscal year ended February
28, 1999 is incorporated herein by reference in its
entirety. The annual report was filed on ,
1999, Accession Number 00000.
APPENDIX A
Description of S&P and Moody's ratings:
S&P Ratings for Municipal Bonds
S&P's Municipal Bond ratings cover obligations of states and
political subdivisions. Ratings are assigned to general
obligation and revenue bonds. General obligation bonds are
usually secured by all resources available to the
municipality and the factors outlined in the rating
definitions below are weighed in determining the rating.
Because revenue bonds in general are payable from
specifically pledged revenues, the essential element in the
security for a revenue bond is the quantity and quality of
the pledged revenues available to pay debt service.
Although an appraisal of most of the same factors that bear
on the quality of general obligation bond credit is usually
appropriate in the rating analysis of a revenue bond, other
factors are important, including particularly the
competitive position of the municipal enterprise under
review and the basic security covenants. Although a rating
reflects S&P's judgment as to the issuer's capacity for the
timely payment of debt service, in certain instances it may
also reflect a mechanism or procedure for an assured and
prompt cure of a default, should one occur, i.e., an
insurance program, Federal or state guarantee or the
automatic withholding and use of state aid to pay the
defaulted debt service.
AAA
Prime - These are obligations of the highest quality. They
have the strongest capacity for timely payment of debt
service.
General Obligation Bonds - In a period of economic stress,
the issuers will suffer the smallest declines in income and
will be least susceptible to autonomous decline. Debt
burden is moderate. A strong revenue structure appears more
than adequate to meet future expenditure requirements.
Quality of management appears superior.
Revenue Bonds - Debt service coverage has been, and is
expected to remain, substantial. Stability of the pledged
revenues is also exceptionally strong, due to the
competitive position of the municipal enterprise or to the
nature of the revenues. Basic security provisions
(including rate covenant, earnings test for issuance of
additional bonds, and debt service reserve requirements) are
rigorous. There is evidence of superior management.
AA
High Grade - The investment characteristics of general
obligation and revenue bonds in this group are only slightly
less marked than those of the prime quality issues. Bonds
rated "AA'' have the second strongest capacity for payment
of debt service.
A
Good Grade - Principal and interest payments on bonds in
this category are regarded as safe. This rating describes
the third strongest capacity for payment of debt service.
It differs from the two higher ratings because:
General Obligation Bonds - There is some weakness, either in
the local economic base, in debt burden, in the balance
between revenues and expenditures, or in quality of
management. Under certain adverse circumstances, any one
such weakness might impair the ability of the issuer to meet
debt obligations at some future date.
Revenue Bonds - Debt service coverage is good, but not
exceptional. Stability of the pledged revenues could show
some variations because of increased competition or economic
influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance
appears adequate.
BBB
Medium Grade - Of the investment grade ratings, this is the
lowest.
General Obligation Bonds - Under certain adverse conditions,
several of the above factors could contribute to a lesser
capacity for payment of debt service. The difference
between "A'' and "BBB" ratings is that the latter shows more
than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one
deficiency among the factors considered.
Revenue Bonds - Debt coverage is only fair. Stability of
the pledged revenues could show substantial variations, with
the revenue flow possibly being subject to erosion over
time. Basic security provisions are no more than adequate.
Management performance could be stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
C
The rating C is reserved for income bonds on which no
interest is being paid.
D
Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.
S&P's letter ratings may be modified by the addition of a
plus or a minus sign, which is used to show relative
standing within the major rating categories, except in the
AAA-Prime Grade category.
S&P Ratings for Municipal Notes
Municipal notes with maturities of three years or less are
usually given note ratings (designated SP-1, -2 or -3) by
S&P to distinguish more clearly the credit quality of notes
as compared to bonds. Notes rated SP-1 have a very strong
or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety
characteristics are given the designation of SP-1+. Notes
rated SP-2 have a satisfactory capacity to pay principal and
interest.
Moody's Ratings for Municipal Bonds
Aaa
Bonds that are Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge.'' Interest payments are
protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective
elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa
Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities.
A
Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
Baa
Bonds that are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor
poorly secured; interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may
be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa
Bonds that are rated Caa are of poor standing. These issues
may be in default or present elements of danger may exist
with respect to principal or interest.
Ca
Bonds that are rated Ca represent obligations that are
speculative in a high degree. These issues are often in
default or have other marked short-comings.
C
Bonds that are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's Ratings for Municipal Notes
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade
(MIG) and for variable rate demand obligations are
designated Variable Moody's Investment Grade (VMIG). This
distinction is in recognition of the differences between
short- and long-term credit risk. Loans bearing the
designation MIG 1 or VMIG 1 are of the best quality,
enjoying strong protection by established cash flows of
funds for their servicing, from established and broad-based
access to the market for refinancing, or both. Loans
bearing the designation MIG 2 or VMIG 2 are of high quality,
with margins of protection ample although not as large as
the preceding group. Loans bearing the designation MIG 3 or
VMIG 3 are of favorable quality, with all security elements
accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow may be narrow and
market access for refinancing is likely to be less well
established.
Description of S&P A-1+ and A-1 Commercial Paper Rating
The rating A-1+ is the highest, and A-1 the second highest,
commercial paper rating assigned by S&P. Paper rated A-1+
must have either the direct credit support of an issuer or
guarantor that possesses excellent long-term operating and
financial strengths combined with strong liquidity
characteristics (typically, such issuers or guarantors would
display credit quality characteristics which would warrant a
senior bond rating of "AA-'' or higher), or the direct
credit support of an issuer or guarantor that possesses
above-average long-term fundamental operating and financing
capabilities combined with ongoing excellent liquidity
characteristics. Paper rated A-1 by S&P has the following
characteristics: liquidity ratios are adequate to meet cash
requirements; long-term senior debt is rated "A'' or better;
the issuer has access to at least two additional channels of
borrowing; basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances; typically,
the issuer's industry is well established and the issuer has
a strong position within the industry; and the reliability
and quality of management are unquestioned.
Description of Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Among the factors considered by
Moody's in assigning ratings are the following: (1)
evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6)
trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which
exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such
obligations.
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
Statement of
Additional
Information
June 28, 1999
Smith Barney Managed Municipals Fund Inc.
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of
Citigroup [Symbol]
2
FUNDACCOUNTING\LEGAL\FUNDS\SMMU\SMMU SAI 1999
Part C. Other Information
Item 23. Exhibits
Unless otherwise noted, all references are to
the Registrant's Registration Statement on
Form N-1A (the "Registration Statement") as
filed with the SEC on September 26, 1980
(File Nos. 2-69308 and 811-3097).
(a) (1) Articles of Amendment to the Articles of
Incorporation dated July 30, 1993, are
incorporated by reference to Post-Effective
Amendment No. 25 filed on February 25, 1994
("Post-Effective Amendment No. 25").
(a) (2) Form of Amendment to Articles of
Incorporation, Form of Articles Supplementary,
Form of Amendment and Articles of Correction
dated October 14, 1994, are incorporated by
reference to Post-Effective Amendment No. 27
as filed on November 7, 1994 ("Post-Effective
Amendment No. 27").
(a) (3) Articles of Amendment dated June 1, 1998
to the Articles of Incorporation is filed
herein.
(b) (1) Registrant's By-Laws are incorporated by
reference to Post-Effective Amendment No. 3 as
filed on June 17, 1982
(2) Amendments to Registrant's By-Laws are
incorporated by reference to Post-Effective
Amendment No. 12, as filed on April 29, 1988.
(c) Registrant's form of stock certificate is
incorporated by reference to Post-Effective
Amendment No. 22 filed on October 23, 1992
("Post-Effective Amendment No. 22").
(d) (1) Investment Advisory Agreement dated
July 30, 1993 between the Registrant and
Greenwich Street Advisors is incorporated by
reference to Post-Effective Amendment
No. 25.
(d) (2) Form of Transfer of Investment Advisory
Agreement dated as of November 7, 1994 among
Registrant, Mutual Management Corp. and Smith
Barney Mutual Funds Management Inc. is
incorporated by reference to Post-Effective
Amendment No. 28.
(e) (1) Distribution Agreement between the Registrant
and Smith Barney Shearson Inc. dated July 30,
1993, is incorporated by reference to Post-
Effective Amendment No. 25.
(e) (2) Form of Distribution Agreement between
Registrant and CFBDS, Inc. is filed
herein.
(f) Not applicable.
(g) Form of Custody Agreement between the
Registrant and PNC Bank, National Association
is incorporated by reference to Post-
Effective Amendment No. 29 filed on February
27, 1996 ("Post-Effective Amendment No.
29")
(h) (1) Administration Agreement dated April 20,
1994, between the Registrant and Smith,
Barney Advisers, Inc., is incorporated by
reference to Post-Effective Amendment No. 27.
(h) (2) Transfer Agency Agreement dated August 2,
1993 between the Registrant and The
Shareholder Services Group, Inc., is
incorporated by reference to Post-Effective
Amendment No. 25.
(i) Opinion of Counsel as to the legality of
securities is incorporated by reference to
the Post-Effective Amendment No. 17 filed on
April 29, 1990 and Post-Effective Amendment
No. 22.
(j) Consent of Independent Accountants to be
filed by amendment.
(k) Not applicable.
(l) Not applicable.
(m) (1) Amended Services and Distribution Plan
pursuant to Rule 12b-1 between the Registrant
and Smith Barney Inc. is incorporated by
reference to Post-Effective Amendment No. 27.
(m) (2) Form of Amended Service and Distribution Plan
pursuant to Rule 12b-1 between the Registrant
and Salomon Smith Barney Inc. is filed
herein.
(n) Financial Data Schedule to be filed by
amendment.
(o) (1) Form of Rule 18f-3(d) Multiple Class
Plan of the Registrant is incorporated by reference
to Post-Effective Amendment No. 16.
(o) (2) Form of Rule 18f-3(d) Multiple Class Plan of
the Registrant is incorporated by reference
to Post-Effective Amendment No. 32 dated June
26, 1998.
Item 24. Persons Controlled by or Under Common
Control with Registrant
None.
Item 25. Indemnification.
The response to this item is incorporated by reference to
Post-Effective Amendment No. 22.
Item 26. Business and Other Connections of
Investment Adviser
Investment Adviser - - SSBC Fund Management Inc.
SSBC Fund Management Inc. ("SSBC") formerly known as
Mutual Management Corp. was incorporated in December 1968
under the laws of the State of Delaware. SSBC is a
wholly owned subsidiary of Salomon Smith Barney Holdings
Inc. (formerly known as Smith Barney Holdings Inc.),
which in turn is a wholly owned subsidiary of Citigroup
Inc. ("Citigroup"). SSBC is registered as an investment
adviser under the Investment Advisers Act of 1940 (the
"Advisers Act") and has, through its predecessors, been
in the investment counseling business since 1934.
The list required by this Item 26 of the officer and
directors of SSBC together with information as to any
other business, profession, vocation or employment of a
substantial nature engaged in by such officer and
directors during the past two fiscal years, is
incorporated by reference to Schedules A and D of Form
ADV filed by SSBC pursuant to the Advisers Act (SEC File
No. 801-8314).
Item 27. Principal Underwriters
(a)
CFBDS, Inc., ("CFBDS") the Registrant's
Distributor, is also the distributor for the following
Smith Barney funds: Concert Investment Series, Consulting
Group Capital Markets Funds, Greenwich Street Series
Fund, Smith Barney Adjustable Rate Government Income
Fund, Smith Barney Aggressive Growth Fund Inc., Smith
Barney Appreciation Fund Inc., Smith Barney Arizona
Municipals Fund Inc., Smith Barney California Municipals
Fund Inc., Smith Barney Concert Allocation Series Inc.,
Smith Barney Equity Funds, Smith Barney Fundamental Value
Fund Inc., Smith Barney Funds, Inc., Smith Barney Income
Funds, Smith Barney Institutional Cash Management Fund,
Inc., Smith Barney Investment Funds Inc., Smith Barney
Investment Trust, Smith Barney Managed Governments Fund
Inc., Smith Barney Managed Municipals Fund Inc., Smith
Barney Massachusetts Municipals Fund, Smith Barney Money
Funds, Inc., Smith Barney Muni Funds, Smith Barney
Municipal Money Market Fund, Inc., Smith Barney New
Jersey Municipals Fund Inc., Smith Barney Oregon
Municipals Fund Inc., Smith Barney Principal Return Fund,
Smith Barney Small Cap Blend Fund, Inc., Smith Barney
Telecommunications Trust, Smith Barney Variable Account
Funds, Smith Barney World Funds, Inc., Travelers Series
Fund Inc., and various series of unit investment trusts.
CFBDS also serves as the distributor for the following
funds: The Travelers Fund UL for Variable Annuities, The
Travelers Fund VA for Variable Annuities, The Travelers
Fund BD for Variable Annuities, The Travelers Fund BD II
for Variable Annuities, The Travelers Fund BD III for
Variable Annuities, The Travelers Fund BD IV for Variable
Annuities, The Travelers Fund ABD for Variable Annuities,
The Travelers Fund ABD II for Variable Annuities, The
Travelers Separate Account PF for Variable Annuities, The
Travelers Separate Account PF II for Variable Annuities,
The Travelers Separate Account QP for Variable Annuities,
The Travelers Separate Account TM for Variable Annuities,
The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for
Variable Annuities, The Travelers Separate Account Six
for Variable Annuities, The Travelers Separate Account
Seven for Variable Annuities, The Travelers Separate
Account Eight for Variable Annuities, The Travelers Fund
UL for Variable Annuities, The Travelers Fund UL II for
Variable Annuities, The Travelers Variable Life Insurance
Separate Account One, The Travelers Variable Life
Insurance Separate Account Two, The Travelers Variable
Life Insurance Separate Account Three, The Travelers
Variable Life Insurance Separate Account Four, The
Travelers Separate Account MGA, The Travelers Separate
Account MGA II, The Travelers Growth and Income Stock
Account for Variable Annuities, The Travelers Quality
Bond Account for Variable Annuities, The Travelers Money
Market Account for Variable Annuities, The Travelers
Timed Growth and Income Stock Account for Variable
Annuities, The Travelers Timed Short-Term Bond Account
for Variable Annuities, The Travelers Timed Aggressive
Stock Account for Variable Annuities, The Travelers Timed
Bond Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also
the distributor for CitiFunds Multi-State Tax Free Trust,
CitiFunds Premium Trust, CitiFunds Institutional Trust,
CitiFunds Tax Free Reserves, CitiFunds Trust I, CitiFunds
Trust II, CitiFunds Trust III, CitiFunds International
Trust, CitiFunds Fixed Income Trust, CitiSelect VIP Folio
200, CitiSelect VIP Folio 300, CitiSelect VIP Folio 400,
CitiSelect VIP Folio 500, CitiFunds Small Cap Growth VIP
Portfolio. CFBDS is also the placement agent for Large
Cap Value Portfolio, Small Cap Value Portfolio,
International Portfolio, Foreign Bond Portfolio,
Intermediate Income Portfolio, Short-Term Portfolio,
Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio,
International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves
Portfolio.
In addition, CFBDS is also the distributor for the
following Salomon Brothers funds: Salomon Brothers
Opportunity Fund Inc., Salomon Brothers Investors Fund
Inc., Salomon Brothers Capital Fund Inc., Salomon
Brothers Series Funds Inc., Salomon Brothers
Institutional Series Funds Inc., Salomon Brothers
Variable Series Funds Inc.
In addition, CFBDS is also the distributor for the
Centurion Funds, Inc.
(b) The information required by this Item 27 with
respect to each director and officer of CFBDS is
incorporated by reference to Schedule A of Form BD filed
by CFBDS pursuant to the Securities and Exchange Act of
1934 (File No. 8-32417).
(c) Not applicable.
Item 28. Location of Accountants and Records
(1) Smith Barney Managed Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
(2) SSBC Fund Management Inc.
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(4) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(5) CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
None.
Exhibit Index
Exhibit No. Exhibit
(a)(4) Articles of Amendment filed June 1,
1998
(e) (2) Form of Distribution Agreement
(j) Consent of Auditors +
(m) (2) Form of Amended Rule 12b-1 Plan
(n) Financial Data Schedule +
+ To be filed by further amendment
SIGNATURES
Pursuant to the requirements of the Securities Act
of 1933 and the Investment Company Act of 1940, the
Registrant, SMITH BARNEY MANAGED MUNICIPALS FUND INC.,
has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized
in the City of New York, and State of New York as of the
28th day of April, 1999.
SMITH BARNEY MANAGED MUNICIPALS
FUND INC.
/s/Heath B. McLendon
Heath B. McLendon, Chief
Executive Officer
Pursuant to the requirements of the Securities Act
of 1933, this registration statement has been signed
below by the following persons in the capacities and on
the date indicated.
/s/Heath B. McLendon
Heath B. McLendon Chairman of the Board
April 28, 1999
(Chief Executive Officer)
/s/Lewis E. Daidone *
Lewis E. Daidone Treasurer
Apirl 28, 1999
(Chief Financial and
Accounting Officer)
/s/Herbert Barg *
Herbert Barg Director
Apirl 28, 1999
/s/Alfred Bianchetti *
Alfred J. Bianchetti Director
April 28, 1999
/s/Martin Brody *
Martin Brody Director
April 28, 1999
/s/Dwight B. Crane *
Dwight B. Crane Director
April 28, 1999
/s/Burt N. Dorsett *
Burt N. Dorsett Director
April 28, 1999
/s/Elliot S. Jaffe *
Elliot S. Jaffe Director
April 28, 1999
/s/Stephen E. Kaufman *
Stephen E. Kaufman Director
April 28, 1999
/s/Joseph J. McCann *
Joseph J. McCann Director
April 28, 1999
/s/Cornelius C. Rose, Jr. *
Cornelius C. Rose, Jr. Director
April 28, 1999
Signed by Heath B. McLendon, their duly authorized
attorney-in-fact, pursuant to the power of attorney.
/s/Heath B. McLendon
Heath B. McLendon
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
ARTICLES OF AMENDMENT
Smith Barney Managed Municipals Fund Inc., a
Maryland corporation, having its principal office in
Baltimore City, Maryland (the "Corporation"), hereby
certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby
amended to provide that the name of all of the issued and
unissued Class C Common Stock of the Corporation is hereby
changed to Class L Common Stock.
SECOND: The foregoing amendment to the Charter of
the Corporation has been approved by a majority of the
entire Board of Directors and is limited to a change
expressly permitted by Section 2-605 of the Maryland
General Corporation Law to be made without action of the
stockholders.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of
1940.
FOURTH: The amendment to the Charter of the
Corporation effected hereby shall become effective at 9:00
a.m. on June 12, 1998.
IN WITNESS WHEREOF, Smith Barney Managed Municipals
Fund Inc. has caused these presents to be signed in its
name and on its behalf by its President and witnessed by
its Assistant Secretary as of June 1, 1998.
WITNESS: SMITH BARNEY MANAGED
MUNICIPALS FUND INC.
/s/Michael Kocur By:
/s/Heath B. McLendon
Michael Kocur Heath B.
McLendon
Assistant Secretary
President
THE UNDERSIGNED, President of Smith Barney Managed
Municipals Fund Inc., who executed on behalf of the
Corporation Articles of Amendment of which this
Certificate is made a part, hereby acknowledges in the
name and on behalf of said Corporation the foregoing
Articles of Amendment to be the corporate act of said
Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization
and approval thereof are true in all material respects
under the penalties of perjury.
/s/Heath B.
McLendon
Heath B.
McLendon, President
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
FORM OF
DISTRIBUTION AGREEMENT
October 8, 1998
CFBDS, Inc.
21 Milk Street
Boston, MA 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements
hereinafter contained, the above-named investment company (the "Fund")
has agreed that you shall be, for the period of this Agreement, the non-
exclusive principal underwriter and distributor of shares of the Fund
and each Series of the Fund set forth on Exhibit A hereto, as such
Exhibit may be revised from time to time (each, including any shares of
the Fund not designated by series, a "Series"). For purposes of this
Agreement, the term "Shares" shall mean shares of the each Series, or
one or more Series, as the context may require.
1. Services as Principal Underwriter and Distributor
1.1 You will act as agent for the distribution of Shares
covered by, and in accordance with, the registration statement,
prospectus and statement of additional information then in effect under
the Securities Act of 1933, as amended (the "1933 Act"), and the
Investment Company Act of 1940, as amended (the "1940 Act"), and will
transmit or cause to be transmitted promptly any orders received by you
or those with whom you have sales or servicing agreements for purchase
or redemption of Shares to the Transfer and Dividend Disbursing Agent
for the Fund of which the Fund has notified you in writing.
1.2 You agree to use your best efforts to solicit orders
for the sale of Shares. It is contemplated that you will enter into
sales or servicing agreements with registered securities brokers and
banks and into servicing agreements with financial institutions and
other industry professionals, such as investment advisers, accountants
and estate planning firms. In entering into such agreements, you will
act only on your own behalf as principal underwriter and distributor.
You will not be responsible for making any distribution plan or service
fee payments pursuant to any plans the Fund may adopt or agreements it
may enter into.
1.3 You shall act as the non-exclusive principal
underwriter and distributor of Shares in compliance with all applicable
laws, rules, and regulations, including, without limitation, all rules
and regulations made or adopted from time to time by the Securities and
Exchange Commission (the "SEC") pursuant to the 1933 Act or the 1940
Act or by any securities association registered under the Securities
Exchange Act of 1934, as amended.
1.4 Whenever in their judgment such action is warranted
for any reason, including, without limitation, market, economic or
political conditions, the Fund's officers may decline to accept any
orders for, or make any sales of, any Shares until such time as those
officers deem it advisable to accept such orders and to make such sales
and the Fund shall advise you promptly of such determination.
2. Duties of the Fund
2.1 The Fund agrees to pay all costs and expenses in
connection with the registration of Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data
to be furnished by the Fund hereunder, and all expenses in connection
with the preparation and printing of the Fund's prospectuses and
statements of additional information for regulatory purposes and for
distribution to shareholders; provided however, that nothing contained
herein shall be deemed to require the Fund to pay any costs of
advertising or marketing the sale of Shares.
2.2 The Fund agrees to execute any and all documents and
to furnish any and all information and otherwise to take any other
actions that may be reasonably necessary in the discretion of the Fund's
officers in connection with the qualification of Shares for sale in such
states and other U.S. jurisdictions as the Fund may approve and
designate to you from time to time, and the Fund agrees to pay all
expenses that may be incurred in connection with such qualification.
You shall pay all expenses connected with your own qualification as a
securities broker or dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses
incurred by you in connection with the sale of Shares as contemplated in
this Agreement.
2.3 The Fund shall furnish you from time to time, for use
in connection with the sale of Shares, such information reports with
respect to the Fund or any relevant Series and the Shares as you may
reasonably request, all of which shall be signed by one or more of the
Fund's duly authorized officers; and the Fund warrants that the
statements contained in any such reports, when so signed by the Fund's
officers, shall be true and correct. The Fund also shall furnish you
upon request with (a) the reports of the annual audits of the financial
statements of the Fund for each Series made by independent certified
public accountants retained by the Fund for such purpose; (b) semi-
annual unaudited financial statements pertaining to each Series; (c)
quarterly earnings statements prepared by the Fund for any Series; (d) a
monthly itemized list of the securities in each Series' portfolio; (e)
monthly balance sheets as soon as practicable after the end of each
month; (f) the current net asset value and offering price per share
for each Series on each day such net asset value is computed and (g)
from time to time such additional information regarding the financial
condition of each Series of the Fund as you may reasonably request.
3. Representations and Warranties
The Fund represents to you that all registration statements,
prospectuses and statements of additional information filed by the Fund
with the SEC under the 1933 Act and the 1940 Act with respect to the
Shares have been prepared in conformity with the requirements of said
Acts and the rules and regulations of the SEC thereunder. As used in
this Agreement, the terms "registration statement", "prospectus" and
"statement of additional information" shall mean any registration
statement, prospectus and statement of additional information filed by
the Fund with the SEC and any amendments and supplements thereto filed
by the Fund with the SEC. The Fund represents and warrants to you that
any such registration statement, prospectus and statement of additional
information, when such registration statement becomes effective and as
such prospectus and statement of additional information are amended and
supplemented, includes at the time of such effectiveness, amendment or
supplement all statements required to be contained therein in
conformance with the 1933 Act, the 1940 Act and the rules and
regulations of the SEC; that all statements of material fact contained
in any registration statement, prospectus or statement of additional
information will be true and correct when such registration statement
becomes effective; and that neither any registration statement nor any
prospectus or statement of additional information when such registration
statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Fund's Shares. The Fund may, but shall not be
obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any
prospectus or statement of additional information as, in the light of
future developments, may, in the opinion of the Fund, be necessary or
advisable. If the Fund shall not propose such amendment or amendments
and/or supplement or supplements within fifteen days after receipt by
the Fund of a written request from you to do so, you may, at your
option, terminate this Agreement or decline to make offers of the Fund's
Shares until such amendments are made. The Fund shall not file any
amendment to any registration statement or supplement to any prospectus
or statement of additional information without giving you reasonable
notice thereof in advance; provided, however, that nothing contained in
this Agreement shall in any way limit the Fund's right to file at any
time such amendments to any registration statement and/or supplements to
any prospectus or statement of additional information, of whatever
character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional.
4. Indemnification
4.1 The Fund authorizes you to use any prospectus or
statement of additional information furnished by the Fund from time to
time, in connection with the sale of Shares. The Fund agrees to
indemnify, defend and hold you, your several officers and directors, and
any person who controls you within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any such counsel fees
incurred in connection therewith) which you, your officers and
directors, or any such controlling person, may incur under the 1933 Act
or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact
contained in any registration statement, any prospectus or any statement
of additional information or arising out of or based upon any omission,
or alleged omission, to state a material fact required to be stated in
any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any of
them not misleading; provided, however, that the Fund's agreement to
indemnify you, your officers or directors, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or
expenses arising out of any statements or representations made by you or
your representatives or agents other than such statements and
representations as are contained in any prospectus or statement of
additional information and in such financial and other statements as are
furnished to you pursuant to paragraph 2.3 of this Agreement; and
further provided that the Fund's agreement to indemnify you and the
Fund's representations and warranties herein before set forth in
paragraph 3 of this Agreement shall not be deemed to cover any liability
to the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of
your obligations and duties under this Agreement. The Fund's agreement
to indemnify you, your officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors,
or any such controlling person, such notification to be given by letter
or by telegram addressed to the Fund at its principal office in New
York, New York and sent to the Fund by the person against whom such
action is brought, within ten days after the summons or other first
legal process shall have been served. The failure so to notify the Fund
of any such action shall not relieve the Fund from any liability that
the Fund may have to the person against whom such action is brought by
reason of any such untrue, or alleged untrue, statement or omission, or
alleged omission, otherwise than on account of the Fund's indemnity
agreement contained in this paragraph 4.1. The Fund will be entitled to
assume the defense of any suit brought to enforce any such claim, demand
or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Fund. In the event the Fund
elects to assume the defense of any such suit and retains counsel of
good standing, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but
if the Fund does not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors, or the controlling
person or persons named as defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by you or them.
The Fund's indemnification agreement contained in this paragraph 4.1 and
the Fund's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of you, your officers and directors, or any
controlling person, and shall survive the delivery of any of the Fund's
Shares. This agreement of indemnity will inure exclusively to your
benefit, to the benefit of your several officers and directors, and
their respective estates, and to the benefit of the controlling persons
and their successors. The Fund agrees to notify you promptly of the
commencement of any litigation or proceedings against the Fund or any of
its officers or Board members in connection with the issuance and sale
of any of the Fund's Shares.
4.2 You agree to indemnify, defend and hold the Fund, its
several officers and Board members, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless from
and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
that the Fund, its officers or Board members or any such controlling
person may incur under the 1933 Act, or under common law or otherwise,
but only to the extent that such liability or expense incurred by the
Fund, its officers or Board members, or such controlling person
resulting from such claims or demands shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact
contained in information furnished in writing by you to the Fund and
used in the answers to any of the items of the registration statement or
in the corresponding statements made in the prospectus or statement of
additional information, or shall arise out of or be based upon any
omission, or alleged omission, to state a material fact in connection
with such information furnished in writing by you to the Fund and
required to be stated in such answers or necessary to make such
information not misleading. Your agreement to indemnify the Fund, its
officers or Board members, and any such controlling person, as
aforesaid, is expressly conditioned upon your being notified of any
action brought against the Fund, its officers or Board members, or any
such controlling person, such notification to be given by letter or
telegram addressed to you at your principal office in Boston,
Massachusetts and sent to you by the person against whom such action is
brought, within ten days after the summons or other first legal process
shall have been served. You shall have the right to control the defense
of such action, with counsel of your own choosing, satisfactory to the
Fund, if such action is based solely upon such alleged misstatement or
omission on your part or with the Fund's consent, and in any event the
Fund, its officers or Board members or such controlling person shall
each have the right to participate in the defense or preparation of the
defense of any such action with counsel of its own choosing reasonably
acceptable to you but shall not have the right to settle any such action
without your consent, which will not be unreasonably withheld. The
failure to so notify you of any such action shall not relieve you from
any liability that you may have to the Fund, its officers or Board
members, or to such controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise
than on account of your indemnity agreement contained in this paragraph
4.2. You agree to notify the Fund promptly of the commencement of any
litigation or proceedings against you or any of your officers or
directors in connection with the issuance and sale of any of the Fund's
Shares.
5. Effectiveness of Registration
No Shares shall be offered by either you or the Fund under any of
the provisions of this Agreement and no orders for the purchase or sale
of such Shares under this Agreement shall be accepted by the Fund if and
so long as the effectiveness of the registration statement then in
effect or any necessary amendments thereto shall be suspended under any
of the provisions of the 1933 Act, or if and so long as a current
prospectus as required by Section 5(b) (2) of the 1933 Act is not on
file with the SEC; provided, however, that nothing contained in this
paragraph 5 shall in any way restrict or have any application to or
bearing upon the Fund's obligation to repurchase its Shares from any
shareholder in accordance with the provisions of the Fund's prospectus,
statement of additional information or charter documents, as amended
from time to time.
6. Offering Price
Shares of any class of any Series of the Fund offered for sale by
you shall be offered for sale at a price per share (the "offering
price") equal to (a) their net asset value (determined in the manner
set forth in the Fund's charter documents and the then-current
prospectus and statement of additional information) plus (b) a sales
charge, if applicable, which shall be the percentage of the offering
price of such Shares as set forth in the Fund's then-current prospectus
relating to such Series. In addition to or in lieu of any sales charge
applicable at the time of sale, Shares of any class of any Series of the
Fund offered for sale by you may be subject to a contingent deferred
sales charge as set forth in the Fund's then-current prospectus and
statement of additional information. You shall be entitled to receive
any sales charge levied at the time of sale in respect of the Shares
without remitting any portion to the Fund. Any payments to a broker or
dealer through whom you sell Shares shall be governed by a separate
agreement between you and such broker or dealer and the Fund's then-
current prospectus and statement of additional information. Any
payments to any provider of services to you shall be governed by a
separate agreement between you and such service provider.
7. Notice to You
The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for
amendments to the registration statement,
prospectus or statement of additional
information then in effect or for additional
information;
(b) in the event of the issuance by
the SEC of any stop order suspending the
effectiveness of the registration statement,
prospectus or statement of additional
information then in effect or the initiation
of any proceeding for that purpose;
(c) of the happening of any event that
makes untrue any statement of a material fact
made in the registration statement,
prospectus or statement of additional
information then in effect or that requires
the making of a change in such registration
statement, prospectus or statement of
additional information in order to make the
statements therein not misleading; and
(d) of all actions of the SEC with
respect to any amendment to the registration
statement, or any supplement to the
prospectus or statement of additional
information which may from time to time be
filed with the SEC.
8. Term of the Agreement
This Agreement shall become effective on the date hereof, shall
have an initial term of one year from the date hereof, and shall
continue for successive annual periods thereafter so long as such
continuance is specifically approved at least annually by (a) the Fund's
Board or (b) by a vote of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting securities, provided that in either event the
continuance is also approved by a majority of the Board members of the
Fund who are not interested persons (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable
with or without cause, without penalty, on 60 days' notice by the Fund's
Board or by vote of holders of a majority of the relevant Series
outstanding voting securities, or on 90 days' notice by you. This
Agreement will also terminate automatically, as to the relevant Series,
in the event of its assignment (as defined in the 1940 Act and the rules
and regulations thereunder).
9. Arbitration
Any claim, controversy, dispute or deadlock arising under
this Agreement (collectively, a "Dispute") shall be settled by
arbitration administered under the rules of the American Arbitration
Association ("AAA") in New York, New York. Any arbitration and award
of the arbitrators, or a majority of them, shall be final and the
judgment upon the award rendered may be entered in any state or federal
court having jurisdiction. No punitive damages are to be awarded.
10. Miscellaneous
So long as you act as a principal underwriter and distributor of
Shares, you shall not perform any services for any entity other than
investment companies advised or administered by Citigroup Inc. or its
subsidiaries. The Fund recognizes that the persons employed by you to
assist in the performance of your duties under this Agreement may not
devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the persons employed by
you or any of your affiliates right to engage in and devote time and
attention to other businesses or to render services of whatever kind or
nature, provided, however, that in conducting such business or rendering
such services your employees and affiliates would take reasonable steps
to assure that the other parties involved are put on notice as to the
legal entity with which they are dealing. This Agreement and the terms
and conditions set forth herein shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect
to its conflict of interest principles.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning to
us the enclosed copy, whereupon this Agreement will become binding on
you.
Very truly yours,
SMITH BARNEY MANAGED
MUNICIPALS FUND INC.
By: _____________________
Authorized Officer
Accepted:
CFBDS, INC.
By: __________________________
Authorized Officer
Page: 3
8
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
FORM OF AMENDED SHAREHOLDER
SERVICES AND DISTRIBUTION PLAN
This Shareholder Services and Distribution Plan (the
"Plan") is adopted in accordance with Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), by Smith Barney Managed
Municipals Fund Inc., a corporation organized under the
laws of the State of Maryland (the "Fund") subject to
the following terms and conditions:
Section 1. Annual Fee.
(a) Service Fee for Class A shares. The Fund will
pay to Smith Barney Inc., a corporation
organized under the laws of the State of
Delaware (("Smith Barney"), a service fee under
the Plan at an annual rate of 0.15% of the
average daily net assets of the Fund
attributable to the Class A shares sold by Smith
Barney (the "Class A Service Fee").
(b) Service Fee for Class B shares. The Fund will
pay to Smith Barney a service fee under the Plan
at the annual rate of 0.15% of the average daily
net assets of the Fund attributable to the Class
B shares sold by Smith Barney (the "Class B
Service Fee").
(c) Distribution Fee for Class B shares. In addition
to the Class B Service Fee, the Fund will pay
Smith Barney a distribution fee under the Plan
at the annual rate of 0.50% of the average daily
net assets of the Fund attributable to the Class
B shares sold by Smith Barney (the "Class B
Distribution Fee").
(d) Service Fee for Class L shares. The Fund will
pay to Smith Barney a service fee under the plan
at the annual rate of 0.15% of the average daily
net assets of the Fund attributable to the Class
L shares sold by Smith Barney (the "Class L
Service Fee").
(e) Distribution Fee for Class L shares. In
addition to the Class L Service Fee, the Fund
will pay Smith Barney a distribution fee under
the plan at the annual rate of 0.55% of the
average daily net assets of the Fund
attributable to the Class L shares sold by Smith
Barney (the "Class L Distribution Fee").
(f) Payment of Fees. The Service Fees and
Distribution Fees will be calculated daily and
paid monthly by the Fund with respect to the
foregoing classes of the Fund's shares (each a
"Class" and together, the "Classes") at the
annual rates indicated above.
Section 2. Expenses Covered by the Plan.
With respect to expenses incurred by each Class, its
respective Service Fee and/or Distribution Fee may be
used by Smith Barney for: (a) costs of printing and
distributing the Fund's prospectuses, statements of
additional information and reports to prospective
investors in the Fund; (b) costs involved in preparing,
printing and distributing sales literature pertaining to
the Fund; (c) an allocation of overhead and other branch
office distribution-related expenses of Smith Barney; (d)
payments made to, and expenses of, Smith Barney's
financial consultants and other persons who provide
support services to Fund shareholders in connection with
the distribution of the Fund's shares, including but not
limited to, office space and equipment, telephone
facilities, answering routine inquires regarding the Fund
and its operation, processing shareholder transactions,
forwarding and collecting proxy material, changing
dividend payment elections and providing any other
shareholder services not otherwise provided by the Fund's
transfer agent; and (e) accruals for interest on the
amount of the foregoing expenses that exceed the
Distribution Fee for that Class and, in the case of Class
B and Class L shares, any contingent deferred sales
charges received by Smith Barney; provided, however, that
the Distribution Fees may be used by Smith Barney only to
cover expenses primarily intended to result in the sale
of those shares, including, without limitation, payments
to Smith Barney's financial consultants at the time of
the sale of the shares. In addition, Service Fees are
intended to be used by Smith Barney primarily to pay its
financial consultants for servicing shareholder accounts,
including a continuing fee to each such financial
consultant, which fee shall begin to accrue immediately
after the sale of such shares.
Section 3. Approval by Shareholders
The Plan will not take effect, and no fees will be
payable in accordance with Section 1 of the Plan, with
respect to a Class until the Plan has been approved by a
vote of at least a majority of the outstanding voting
securities of the Class. The Plan will be deemed to have
been approved with respect to a Class, so long as a
majority of the outstanding voting securities of the
Class votes for the approval of the Plan, notwithstanding
that: (a) the Plan has not been approved by a majority of
the outstanding voting securities of any other Class; or
(b) the Plan has not been approved by a majority of the
outstanding voting securities of the Fund.
Section 4. Approval by Directors
Neither the Plan nor any related agreements will take
effect until approved by a majority vote of both (a) the
Board of Directors and (b) those 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 any agreements related to it (the "Qualified
Trustees"), cast in person at a meeting called for the
purpose of voting on the Plan and the related agreements.
Section 5. Continuance of the Plan.
The Plan will continue in effect with respect to each
Class until July 15, 1999 and thereafter for successive
twelve-month periods with respect to each Class;
provided, however, that such continuance is specifically
approved at least annually by the Directors of the Fund
and by a majority of the Qualified Directors.
Section 6. Termination.
The Plan may be terminated at any time with respect to
a Class (i) by the Fund without the payment of any
penalty, by the vote of a majority of the outstanding
voting securities of such Class or (ii) by a majority
vote of the Qualified Directors. The Plan may remain in
effect with respect to a particular Class even if the
Plan has been terminated in accordance with this Section
6 with respect to any other Class.
Section 7. Amendments.
The Plan may not be amended with respect to any Class
so as to increase materially the amounts of the fees
described in Section 1 above, unless the amendment is
approved by a vote of holders of at least a majority of
the outstanding voting securities of that Class. No
material amendment to the Plan may be made unless
approved by the Fund's Board of Directors in the manner
described in Section 4 above.
Section 8. Selection of Certain Directors.
While the Plan is in effect, the selection and
nomination of the Fund's Directors who are not interested
persons of the Fund will be committed to the discretion
of the Directors then in office who are not interested
persons of the Fund.
Section 9. Written Reports
In each year during which the Plan remains in effect,
any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to the Plan or any
related agreement will prepare and furnish to the Trust's
Board of Directors and the Board will review, at least
quarterly, written reports complying with the
requirements of the Rule, which set out the amounts
expended under the Plan and the purposes for which those
expenditures were made.
Section 10. Preservation of Materials.
The Fund will preserve copies of the Plan, any
agreement relating to the Plan and any report made
pursuant to Section 9 above, for a period of not less
than six years (the first two years in an easily
accessible place) from the date of the Plan, agreement or
report.
Section 11. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be
deemed to have the same meaning that those terms have
under the rules and regulations under the 1940 Act,
subject to any exemption that may be granted to the Fund
under the 1940 Act, by the Securities and Exchange
Commission.
IN WITNESS WHEREOF, the Fund has executed the Plan as
of July 15, 1998.
SMITH BARNEY MANAGED
MUNICIPALS FUND INC.
By:
____________________________________
Heath B. McLendon
Chairman of the Board
