As filed with Securities and Exchange Commission on November 8, 1999
Securities Act Registration No. 002-69308
Investment Company Act No. 811-3097
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.___
Post-Effective Amendment No.___
__________________
Smith Barney Managed Municipals Fund Inc.
(a Maryland Corporation)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
(212) 816-6474
(Registrant's Telephone Number, including Area Code)
Christina T. Sydor, Secretary
Smith Barney Managed Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
_____________________
Copies to:
Burton M. Leibert, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
_______________
Approximate Date of Proposed Public Offering:
As soon as possible after the effective date of this Registration
Statement.
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
commission, acting pursuant to said Section 8(a), may determine.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Beneficial Interest ($.001 par value) of the
Smith Barney Managed Municipals Fund Inc.
___________________
The Registrant has registered an indefinite amount of securities
under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company
Act of 1940, as amended; accordingly, no fee is payable herewith because
of
reliance upon Section 24(f).
PART A
INFORMATION REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
<PAGE>
A Special Notice to Shareholders of
Greenwich Street Municipal Fund Inc. ("GSI")
Your Vote is Important
Dear Shareholder:
The Board of Directors of Greenwich Street Municipal Fund Inc. ("GSI") has
recently reviewed and unanimously endorsed a proposal to reorganize GSI. The
Board judges this reorganization to be in the best interests of GSI's
shareholders. Shares of GSI have historically traded at a market discount that
will be eliminated by merging GSI into Smith Barney Managed Municipals Fund
Inc. ("Smith Barney Managed Municipals Fund"), an open-end mutual fund. The
Board believes that the new shares will offer shareholders greater liquidity
and additional benefits.
Under the terms of the proposal, Smith Barney Managed Municipals Fund would
acquire the assets and liabilities of GSI. With your approval, GSI will be
liquidated and you will become a shareholder of Smith Barney Managed
Municipals Fund. You will receive shares of Smith Barney Managed Municipals
Fund that have a value equal to the aggregate net asset value of your
investment in GSI at the time of transaction.
Here are some facts about the merger and the Smith Barney Managed Municipals
Fund that will be useful to you as you vote for this transaction:
. There will be no cost to you to become a shareholder of Smith Barney
Managed Municipals Fund
. In the opinion of counsel, this transaction will be free from federal
income taxes to you, GSI and Smith Barney Managed Municipals Fund
. You will be able to redeem your shares of Smith Barney Managed
Municipals Fund for cash without any redemption fees or required
holding period
. Shares of Smith Barney Managed Municipals Fund are priced on each day
the fund is open for business and you may redeem all or a part of your
shares at the then-current net asset value per share.
. As a shareholder of Smith Barney Managed Municipals Fund, you will
have the ability to exchange your shares of the fund for shares of the
same class of other funds within that fund complex
. The same portfolio manager who manages GSI also manages Smith Barney
Managed Municipals, which has been operation since March 1981.
The Board of Directors of GSI has called a Special Meeting of Shareholders
of GSI to be held on February 11, 2000 to consider this transaction. We
strongly urge your participation by asking you to promptly return your proxy
card.
<PAGE>
GREENWICH STREET MUNICIPAL FUND INC.
388 Greenwich Street
New York, New York 10013
----------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on February 11, 2000
----------------------
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of the Greenwich Street Municipal Fund Inc. ("Acquired Fund") will
be held at 388 Greenwich Street, 26th Floor, New York, New York on February
11, 2000, commencing at 4:00 p.m. for the following purposes:
1. To approve or disapprove the Agreement and Plan of Reorganization
dated as of December 30, 1999 providing for (i) the acquisition of all or
substantially all of the assets of the Acquired Fund by Smith Barney
Managed Municipals Fund Inc. ("Acquiring Fund") in exchange for Class A
shares of the Acquiring Fund and the assumption by the Acquiring Fund of
scheduled liabilities of the Acquired Fund, (ii) the distribution of such
shares of the Acquiring Fund to shareholders of the Acquired Fund in
liquidation of the Acquired Fund and (iii) the subsequent dissolution of
the Acquired Fund.
2. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The Board of Directors of the Acquired Fund has fixed the close of
business on December 13, 1999 as the record date for the determination of
shareholders of the Acquired Fund entitled to notice of and to vote at the
Meeting and any adjournment or adjournments thereof.
Your vote is important regardless of the size of your holdings in the
Acquired Fund. Whether or not you plan to attend the meeting, we ask that you
please complete and sign the enclosed proxy card and return it promptly in the
enclosed envelope which needs no postage if mailed in the continental United
States. Instructions for the proper execution of proxies are set forth on the
inside cover.
By Order of the Board of Directors
Christina T. Sydor, Esq.
Secretary
January 14, 2000
<PAGE>
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense to the Portfolio involved in validating
your vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to the name shown in the registration on
the proxy card.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of
registration. For example:
<TABLE>
<CAPTION>
Registration Valid Signatures
- ------------ ----------------
<S> <C>
Corporate Accounts
(1) ABC Corp................................. ABC Corp.
(2) ABC Corp................................. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer............... John Doe
(4) ABC Corp. Profit Sharing Plan............ John Doe, Trustee
Trust Accounts
(1) ABC Trust................................ Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78........................ Jane B. Doe
Custodian or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA......... John B. Smith
(2) Estate of John B. Smith.................. John B. Smith, Jr.,
Executor
</TABLE>
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JANUARY 14, 2000
Acquisition Of The Assets Of
GREENWICH STREET MUNICIPAL FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 331-1710
By And In Exchange For Shares Of
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Prospectus/Proxy Statement is being furnished to shareholders of the
Greenwich Street Municipal Fund Inc. (the "Acquired Fund") in connection with
a proposed plan of reorganization to be submitted to shareholders of the
Acquired Fund for consideration at a Special Meeting of Shareholders to be
held on February 11, 2000 at 4:00 p.m. (the "Meeting"), at the Acquired Fund's
office located at 388 Greenwich Street, 26th Floor, New York, New York 10013,
or any adjournment or adjournments thereof.
The plan provides for all or substantially all of the assets of the Acquired
Fund to be acquired by Smith Barney Managed Municipals Fund Inc. (the
"Acquiring Fund") in exchange for shares of the Acquiring Fund and the
assumption by the Acquiring Fund of scheduled liabilities of the Acquired Fund
(hereinafter referred to as the "Reorganization"). (The Acquiring Fund and the
Acquired Fund are sometimes referred to hereinafter as the "Funds" and
individually as a "Fund.") Shares of the Acquiring Fund will be distributed to
shareholders of the Acquired Fund in liquidation of the Acquired Fund and
thereafter the Acquired Fund will be dissolved. As a result of the proposed
Reorganization, each shareholder of the Acquired Fund will receive that number
of shares of the Acquiring Fund having a value equal to the aggregate net
asset value of such shareholder's shares of the Acquired Fund immediately
prior to the Reorganization. Holders of shares of the Acquired Fund will
receive Class A shares of the Acquiring Fund, and no sales charge will be
imposed on such shares. This transaction is structured to be tax-free for
federal income tax purposes to shareholders and to both the Acquiring Fund and
the Acquired Fund.
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.
1
<PAGE>
The Acquiring Fund is an open-end, diversified management investment
company, whose investment objective is 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. The Acquired Fund is a closed-end, non-diversified management
investment company, whose investment objective is to seek as high a level of
current income exempt from federal income tax as is consistent with the
preservation of capital.
The investment policies of the Acquiring Fund are generally similar to those
of the Acquired Fund. Certain differences in the investment policies of the
Acquiring Fund and the Acquired Fund, however, are described under "Investment
Objectives and Policies" in this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective investor should know before investing. Certain relevant
documents listed below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated in whole or in part by reference. A
Statement of Additional Information dated January 14, 2000, relating to this
Prospectus/Proxy Statement and the Reorganization, has been filed with the SEC
and is also incorporated by reference into this Prospectus/Proxy Statement. A
copy of such Statement of Additional Information is available upon request and
without charge by calling or writing to the Acquiring Fund at the telephone
number or address listed on the cover page of this Prospectus/Proxy Statement.
1. The Prospectus of Smith Barney Managed Municipals Fund Inc. dated
June 28, 1999, is incorporated in its entirety by reference and a copy
accompanies this proxy statement/prospectus.
2. The Annual Report of Smith Barney Managed Municipals Fund Inc. dated
February 28, 1999, is incorporated in its entirety by reference and a copy
accompanies this proxy statement/prospectus.
3. The Prospectus of the Greenwich Street Municipal Fund Inc. dated
September 28, 1999, is incorporated in its entirety by reference. You may
obtain the Greenwich Street Municipal Fund Inc.'s prospectus and statement
of additional information (without charge) by contacting your dealer
representative or First Data Investor Services, or by calling the Acquired
Fund at 1-800-331-1710, or by writing to the Acquired Fund at
388 Greenwich Street, New York, New York 10013.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of
the Agreement and Plan of Reorganization (the "Plan") for the proposed
transaction. Any term not defined herein shall have the meaning assigned to it
in the accompanying prospectus of the Acquiring Fund.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL MATERIALS....................................................... 3
FEE TABLE.................................................................... 4
SUMMARY.................................................................... 5
PRINCIPAL RISK FACTORS..................................................... 9
INFORMATION ABOUT THE REORGANIZATION....................................... 11
INFORMATION ABOUT THE ACQUIRING FUND....................................... 16
INFORMATION ABOUT THE ACQUIRED FUND ....................................... 16
VOTING INFORMATION......................................................... 17
OTHER BUSINESS............................................................. 18
EXHIBIT A: AGREEMENT AND PLAN OF REORGANIZATION............................ A-1
</TABLE>
ADDITIONAL MATERIALS
The following additional materials have been incorporated by reference into
the Statement of Additional Information dated January 14, 2000 relating to
this Prospectus/Proxy Statement. These additional materials will be sent
(without charge) to all shareholders requesting copies. The Statement of
Additional Information of the Acquiring Fund can be obtained by calling or
writing the Acquiring Fund at the telephone number or address listed on the
cover page of this Prospectus/Proxy Statement. The Annual Report of the
Acquired Fund can be obtained by calling or writing the Acquired Fund at the
telephone number or address listed on the cover page of this Prospectus/Proxy
Statement.
1. Statement of Additional Information of Smith Barney Managed
Municipals Fund Inc. dated June 28, 1999.
2. Annual Report of Greenwich Street Municipal Fund Inc. for the fiscal
year ended May 31, 1999.
3
<PAGE>
FEE TABLE
This table sets forth the current fees and expenses you will pay if you
invest in shares of the Acquiring Fund and the current fees and expenses you
pay as an investor in shares of the Acquired Fund.
<TABLE>
<CAPTION>
Acquired Fund Acquiring Fund
Shares Class A Shares
------------- --------------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) None 4.00%*
Maximum Deferred Sales Charge (as a percentage of
original cost or redemption proceeds, whichever
is lower) None None**
Annual Operating Expenses
(as a percentage of average net assets)
Management fees 0.90%*** 0.47%
12b-1 fees None 0.15%
Other expenses**** 0.11% 0.05%
---- ----
Total Operating Expenses 1.01% 0.67%
==== ====
</TABLE>
- -----------
* The sales charge imposed on purchases will be waived with regard to the
Acquiring Fund's exchange of its shares for the Acquired Fund's assets;
you will not pay any sales charge in connection with your receipt of the
Acquiring Fund's Class A shares pursuant to the Reorganization.
** You may buy Class A shares in amounts of $500,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge
of 1.00%. However, if you receive Class A shares pursuant to the
Reorganization, you may redeem those shares at any time and you will not
have to pay any deferred sales charge.
*** Effective September 1, 1998, the manager of the Acquired Fund instituted
a voluntary fee waiver whereby its management fees were received at an
annual rate of 0.28% of average daily net assets. This voluntary waiver
may be terminated at any time by the Acquired Fund's manager without
notice.
**** "Other expenses" for shares of the Acquired Fund and the Class A shares
of the Acquiring Fund are based on expenses for the fiscal years ended
May 31, 1999 and February 28, 1999, respectively.
4
<PAGE>
Example
This example helps you compare the costs of investing in the Fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
[] You invest $10,000 in the fund for the period shown
[] You redeem all of your shares at the end of the period
[] Your investment has a 5% return each year
[] You reinvest all distributions and dividends without a sales charge
[] The fund's operating expenses remain the same
Number of years you own your shares*
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Acquired Fund shares $103 $322 $558 $1,236
Acquiring Fund
Class A shares $466 $606 $758 $1,201
</TABLE>
This example should not be considered representations of past or future
expenses and actual expenses may be greater or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Agreement and Plan of Reorganization (a copy of which is attached to this
Prospectus/Proxy Statement as Exhibit A), the accompanying Prospectus and
Annual Report of the Acquiring Fund dated June 28, 1999, and February 28,
1999, respectively, and the Prospectus of the Acquired Fund dated September
28, 1999.
Proposed Reorganization. The Plan provides for the transfer of all or
substantially all of the assets of the Acquired Fund to the Acquiring Fund in
exchange for shares of the Acquiring Fund and the assumption by the Acquiring
Fund of scheduled liabilities of the Acquired Fund. The Plan also calls for
the distribution of shares of the Acquiring Fund to the Acquired Fund's
shareholders in liquidation of the Acquired Fund. (The foregoing proposed
transaction is referred to in this Prospectus/Proxy Statement as the
"Reorganization.") As a result of the Reorganization, each shareholder of the
Acquired Fund will become the owner of that number of full and fractional
shares of the Acquiring Fund having value equal to the net asset value of the
shareholder's shares of the Acquired Fund as of the close of business on the
date that the Acquired Fund's assets are exchanged for shares of the Acquiring
Fund. (Shareholders of the Acquired Fund will receive Class A shares of the
Acquiring Fund.)
5
<PAGE>
For the reasons set forth below under "Reasons for the Reorganization," the
Board of Directors of the Acquired Fund, including the Directors of Acquired
Fund who are not "interested persons" (the "Independent Directors"), as that
term is defined in the Investment Company Act of 1940, as amended (the "1940
Act"), has concluded that the Reorganization would be in the best interests of
the shareholders of the Acquired Fund and therefore has submitted the Plan for
approval by the Acquired Fund's shareholders. The Board of Directors of the
Acquiring Fund has reached similar conclusions with respect to the Acquiring
Fund and has also approved the Reorganization in respect of the Acquiring
Fund. Approval of the Reorganization will require the affirmative vote of a
majority of the outstanding shares of the Acquired Fund. See "Voting
Information."
Tax Consequences. Prior to completion of the Reorganization, the Funds will
have received an opinion of counsel that, upon the Reorganization and the
transfer of the assets of the Acquired Fund, no gain or loss will be
recognized by the Acquired Fund or its shareholders for federal income tax
purposes. The holding period and aggregate tax basis of the Acquiring Fund
shares received by an Acquired Fund shareholder will be the same as the
holding period and aggregate tax basis of the shares of the Acquired Fund
previously held by such shareholder. In addition, the holding period and tax
basis of the assets of the Acquired Fund in the hands of the Acquiring Fund as
a result of the Reorganization will be the same as in the hands of the
Acquired Fund immediately prior to the Reorganization.
Investment Objectives and Policies. The Acquiring Fund and the Acquired Fund
have essentially identical investment objectives. The Acquiring Fund's
investment objective is to seek to maximize current interest income which is
excluded from gross income for federal income tax purposes to the extent
consistent with prudent investment management and the preservation of capital.
The Acquired Fund's investment objective is to seek as high a level of current
income exempt from federal income tax as is consistent with the preservation
of capital.
However, despite the similar investment objects, there are some differences
between the investment policies which the two funds pursue to fulfill their
investment objectives. The primary differences between the two funds'
investment policies relate to the credit rating of the securities in which
they invest. The Acquired Fund will normally invest 80% of its total assets in
municipal obligations rated investment grade at the time of investment.
Investment grade securities are those rated within the highest four rating
categories by Moody's Investor Services, Inc. ("Moody's"), Standard and Poor's
Rating Group ("S&P") or another nationally-recognized rating agency ("NRSRO").
Additionally, an amount equal to up to 20% of the Acquired Fund's total assets
may be invested in unrated securities that are deemed by the Acquired Fund's
manager to be of a quality comparable to investment grade. The Acquiring Fund
will normally invest 80% of
6
<PAGE>
its total assets in municipal obligations rated investment grade or that are
deemed by the Acquiring Fund's manager to be of a quality comparable to
investment grade. The Acquiring Fund, however, may also invest up to 20% of
its assets in below investment grade bonds or in unrated securities of
equivalent quality (commonly known as "junk bonds"). There are special risks
associated with an investment in below investment grade bonds which are
discussed under "Risk Factors" herein and under "More on the fund's
investments" in the prospectus of the Acquiring Fund which was delivered
herewith.
Both funds may invest up to 20% of their assets in taxable securities and,
as temporary defensive positions, invest in all types of money market and
short-term debt securities.
There is also a difference in the investment policies of the funds with
regard to the duration of the securities in which they will invest. The
Acquired Fund will normally only invest in long-term securities, while the
Acquiring Fund will invest in both intermediate-term and long-term securities.
The final material difference between the investment policies of the funds,
stems from the fact that the Acquired Fund is a non-diversified investment
company and the Acquiring Fund is a diversified investment company. In order
to be classified as a diversified fund, the Acquiring Fund may not, with
respect to 75% of its assets, invest more than 5% of its total assets in the
securities of one issuer (except U.S. government securities) or own more than
10% of the outstanding voting securities of any one issuer. As a non-
diversified fund, the Acquired Fund is not subject to these restrictions.
However, both Funds intend to conduct their operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which will relieve the Funds of any liability
for federal income tax to the extent their earnings are distributed to
shareholders. To qualify as a regulated investment company, both Funds will,
among other things, limit their investments so that, at the close of each
quarter of their taxable year (1) not more than 25% of the market value of the
Funds' total assets will be invested in the securities of a single issuer and
(2) with respect to 50% of the market value of its total assets, not more than
5% of the market value of either Funds' total assets will be invested in the
securities of a single issuer.
Distribution and Purchase Procedures. The shares of the Acquired Fund and
the Acquiring Fund are distributed differently and have different purchase
procedures. These differences stem primarily from the fact that the Acquired
Fund is a closed-end investment company and the Acquiring Fund is an open-end
investment company. The Acquired Fund's shares are traded on the New York
Stock Exchange ("NYSE"). These shares may be purchased by placing an order
with any broker who will effect trades in NYSE listed stocks. In addition,
Salomon
7
<PAGE>
Smith Barney may buy and sell the Acquired Fund's shares and may make a market
in the Acquired Fund's common stock. Salomon Smith Barney is not obligated to
conduct market-making activities and may stop doing so at any time without
notice to the Acquired Fund or its shareholders. The market price of the
Acquired Fund's shares may, among other things, be determined by the relative
demand for and supply of the shares in the market, the Acquired Fund's
investment performance, the Acquired Fund's dividends and yield and investor
perception of the Acquired Fund's overall attractiveness as an investment as
compared with other investment alternatives. Shareholders of the Acquired Fund
do not pay an annual fee in connection with the distribution of the Acquired
Fund's shares.
The shares of the Acquiring Fund are distributed in accordance with a
distribution and service plan ("Plan") which has been adopted by the Acquiring
Fund's shareholders pursuant to Rule 12b-1 of the 1940 Act. Under the Plan,
the Acquiring 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
average daily net assets attributable to the Acquiring Fund's shares. Under
its terms, the Plan continues from year to year, provided such continuance is
approved annually by vote of the Acquiring Fund's 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 to the Plan also must be
approved by the directors and independent directors. The Plan may be
terminated with respect to a Class of the Acquiring 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
Acquiring Fund's Board of Directors with periodic reports of amounts expended
under the Plan and the purpose for which such expenditures were made.
The Acquiring Fund's shares may be purchased at their net asset value on any
business day during which the Acquiring Fund is open for business. The
Acquiring 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 Acquiring Fund's net assets attributable to each Class by the
total number of shares of that Class outstanding. See "Buying Shares" in the
Acquiring Fund's prospectus which was mailed herewith.
Exchange Privileges. The Funds differ with respect to their respective
exchange privileges. Shareholders of the Acquired Fund do not have any
exchange privileges. Shareholders of the Acquiring Fund may exchange at net
asset value all or a portion of their shares for shares of the same class in
certain other funds of the Smith Barney Mutual Funds. Any exchange will be a
taxable event for which a shareholder may have to recognize a gain or a loss
under federal income tax provisions. See "Exchanging Shares" in the
accompanying prospectus of the Acquiring Fund.
8
<PAGE>
Redemption Procedures. The Funds also differ with respect to the redemption
rights and procedures inherent as a shareholder of those respective Funds. A
shareholder of the Acquired Fund has no right to redeem his or her shares. In
contrast, a shareholder of the Acquiring Fund may redeem his or her shares
from the Acquiring Fund at any time during which the fund is open for business
by tendering such shares to the Acquiring Fund. The redemption price the
Acquiring Fund will pay for such shares is equal to their net asset value next
determined after receipt of a written request for redemption. You may refer to
the section entitled "Redemption of Shares" in the prospectus of the Acquiring
Fund, which accompanied this proxy statement, for a complete description of
the Acquiring Fund's redemption procedures.
PRINCIPAL RISK FACTORS
Due to the similarities of investment objectives and policies of the
Acquiring Fund and the Acquired Fund, the principal investment risks are
substantially similar. The following is a summary of the principal risk
factors associated with investing in shares of the Acquiring Fund, and a
comparison with those applicable to the Acquired Fund. This summary is
qualified in its entirety by the accompanying Prospectus of the Acquiring
Fund.
Investors could lose money on their investment in the Acquiring Fund, or the
Acquiring Fund may not perform as well as other investments, if:
[] Interest rates rise, causing the value of the Acquiring Fund's portfolio to
decline
[] The issuer of a security owned by the Acquiring 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 judgement about the attractiveness, value or income potential
of a particular security proves to be incorrect
Municipal securities are debt obligations issued by any of the 50 states and
their political subdivisions, agencies and public authorities (together with
certain other government 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.
9
<PAGE>
Below investment grade securities. Below investment grade securities, also
know as "junk bonds", are considered speculative with respect to the issuer's
ability to pay interest and principal, involve a high risk of loss and are
susceptible to default or decline in market value because of adverse economic
and business developments. The market value for these securities tend to be
very volatile, and these securities are less liquid than investment grade debt
securities.
Derivative contracts. The Acquiring 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 Acquiring 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 Acquiring 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.
It is possible that some of the Acquiring 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 Acquiring 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.
In comparing these risks with the risks inherit in an investment in the
Acquired Fund, the risks are almost identical. The one material difference,
which causes investors in the Acquiring Fund to assume more risk than
investors in the Acquired Fund, is that investors in the Acquiring Fund are
also subject to the risk of an investment in below investment grade
securities. Because the Acquired Fund does not invest in below investment
grade securities, shareholders of that fund are not subject to such a risk.
10
<PAGE>
INFORMATION ABOUT THE REORGANIZATION
Plan of Reorganization. The following summary of the Plan is qualified in
its entirety by reference to the Plan (Exhibit A hereto). The Plan provides
that the Acquiring Fund will acquire all or substantially all of the assets of
the Acquired Fund in exchange for Class A shares of the Acquiring Fund and the
assumption by the Acquiring Fund of scheduled liabilities of the Acquired Fund
on February 18, 2000 or such later date as may be agreed upon by the parties
(the "Closing Date").
Prior to the Closing Date, the Acquired Fund will endeavor to discharge all of
its known liabilities and obligations. The Acquiring Fund will not assume any
liabilities or obligations other than those reflected on an unaudited
statement of assets and liabilities of the Acquired Fund prepared as of the
close of regular trading on the NYSE, currently 4:00 p.m., New York City time,
on the Closing Date. The number of full and fractional Class A shares of the
Acquiring Fund to be issued to the Acquired Fund shareholders will be
determined on the basis of the Acquiring Fund's Class A shares' and the
Acquired Fund's shares' relative net asset value. The net asset value per
share will be determined by dividing assets, less liabilities, by the total
number of such outstanding shares.
The Acquired Fund and the Acquiring Fund will utilize the procedures set
forth in the Prospectus of the Acquiring Fund to determine the value of their
respective portfolio securities and to determine the aggregate value of each
fund's portfolio. The method of valuation employed will be consistent with the
requirements set forth in the Prospectus of the Acquiring Fund, Rule 22c-1
under the 1940 Act and the interpretations of such rule by the SEC's Division
of Investment Management.
At or prior to the Closing Date, the Acquired Fund will, and the Acquiring
Fund may, declare a dividend or dividends which, together with all previous
such dividends, will have the effect of distributing to their respective
shareholders all taxable income for the taxable period ending on or prior to
the Closing Date (computed without regard to any deduction for dividends
paid). In addition, the Acquired Fund's dividend will include its net capital
gains realized in the taxable year ending on or prior to the Closing Date
(after reductions for any capital loss carryforward).
On the Closing Date or as soon thereafter as conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to shareholders of record
as of the close of business on the Closing Date the full and fractional shares
of the Acquiring Fund received by the Acquired Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the
names of the Acquired Fund's shareholders on the share records of the
Acquiring Fund's transfer agent. Each account will represent the respective
pro rata number of full and fractional shares of the Acquiring Fund due to
each of the Acquired Fund's shareholders. After such distribution and the
winding up of its affairs, the Acquired Fund will be dissolved.
11
<PAGE>
The consummation of the Reorganization is subject to the conditions set
forth in the Plan. Notwithstanding approval of the Acquired Fund's
shareholders, the Plan may be terminated at any time at or prior to the
Closing Date (i) by mutual agreement of the Acquired Fund and the Acquiring
Fund, (ii) by the Acquired Fund, in the event that the Acquiring Fund shall,
or the Acquiring Fund in the event that the Acquired Fund shall, materially
breach any representation, warranty or agreement contained in the Plan to be
performed at or prior to the Closing Date; or (iii) by the Acquired Fund, or
by the Acquiring Fund if a condition to the Plan expressed to be precedent to
the obligations of the terminating party has not been met and it reasonably
appears that it will not or cannot be met.
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of the Acquired Fund. If the Reorganization is not approved
by shareholders of the Acquired Fund, the Board of Directors of the Acquired
Fund will consider courses of action available to it, including re-submitting
the Reorganization proposal to shareholders.
Description of the Acquiring Fund's Shares. Pursuant to the Reorganization
and in accordance with the Plan, each shareholder of the Acquired Fund will
become a shareholder of Class A shares of the Acquiring Fund. Each share of
the Acquiring Fund represents a proportional interest in the Fund's investment
portfolio. The Class A shares of the Acquiring Fund are normally purchased
subject to a 4.00% initial sales charge, however, no sales charge will be paid
on shares received pursuant to this Reorganization. Also, no fee will be
charged upon redemptions of shares of the Acquiring Fund received pursuant to
this Reorganization. For a complete description of the Acquiring Fund's
shares, please see "Comparing the fund's classes"; "Buying shares";
"Exchanging shares"; "Redeeming shares"; and "Other things to know about share
transactions", in the Acquiring Fund's prospectus which was mailed herewith.
Reasons for the Reorganization. The Boards of Directors of both the
Acquiring and Acquired Funds have determined that it is advantageous to
combine the Acquired Fund with the Acquiring Fund. In particular, the
combination of the Acquired Fund and the Acquiring Fund is expected to
eliminate the market discount at which the shares of the Acquired Fund have
historically traded and offer shareholders more liquidity in their investment.
This will be accomplished by virtue of the Reorganization because shareholders
of the Acquired Fund will receive shares of the Acquiring Fund, pursuant to
the Reorganization, in an amount equal to the net asset value of their
holdings in the Acquired Fund. Also, shareholders of the Acquiring Fund are
able to redeem their shares for cash at anytime during which the Acquiring
Fund is open for business. Shareholders will receive the benefit of having the
shares received in the Reorganization fully valued because, unlike the
Acquired Fund (which is a closed-end investment company), the Acquiring Fund
is an open-end investment company; and thus its shares are valued each fund
business day at net asset value.
12
<PAGE>
Federal Income Tax Consequences. The exchange of assets for shares of the
Acquiring Fund is intended to qualify for federal income tax purposes as a
tax-free reorganization under Section 368(a) of the Code. As a condition to
the closing of the Reorganization, the Acquiring Fund and the Acquired Fund
will receive an opinion from Willkie Farr & Gallagher, counsel to the Funds,
to the effect that, on the basis of the existing provisions of the Code, U.S.
Treasury regulations issued thereunder, current administrative rules,
pronouncements and court decisions, for federal income tax purposes, upon
consummation of the Reorganization:
(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund's shares and the assumption by
the Acquiring Fund of scheduled liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code, and the Acquiring Fund and the Acquired Fund are each a
"party to a reorganization" within the meaning of Section 368(b) of the
Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the Acquiring
Fund's shares and the assumption of scheduled liabilities of the Acquired
Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange
for the Acquiring Fund's shares and the assumption of scheduled
liabilities of the Acquired Fund or upon the distribution (whether actual
or constructive) of the Acquiring Fund's shares to the Acquired Fund's
shareholders;
(4) no gain or loss will be recognized by shareholders of the Acquired
Fund upon the exchange of their shares of the Acquired Fund for shares of
the Acquiring Fund;
(5) the aggregate tax basis for shares of the Acquiring Fund received by
each shareholder of the Acquired Fund pursuant to the Reorganization will
be the same as the aggregate tax basis of shares of the Acquired Fund
surrendered therefor, and the holding period of shares of the Acquiring
Fund to be received by each shareholder of the Acquired Fund will include
the period during which shares of the Acquired Fund exchanged therefor
were held by such shareholder (provided shares of the Acquired Fund were
held as capital assets on the date of the Reorganization); and
(6) the tax basis to the Acquiring Fund of the Acquired Fund's assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization, and
the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which those assets were held
by the Acquired Fund.
13
<PAGE>
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should also consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
Material Differences in Shareholders' Rights. Most of the material
differences in the rights associated with being a shareholder of the Acquired
Fund compared with being a shareholder of the Acquiring Fund are attributable
to the Acquired Fund being a closed-end investment company and the Acquiring
Fund being an open-end investment company. As has been discussed previously in
this proxy statement under the "Exchange Rights" and "Redemption Procedures"
headings, shareholders of the Acquired Fund have no ability to exchange their
shares for shares of another fund and also have no right to have their shares
redeemed by the Acquired Fund by tendering their shares to the Acquired Fund.
However, shareholders of the Acquiring Fund may exchange at net asset value
all or a portion of their shares for shares of the same class in certain other
funds of the Smith Barney Mutual Funds. See "Exchange Privileges" herein and
"Exchanging Shares" in the accompanying prospectus of the Acquiring Fund.
Also, shareholders of the Acquiring Fund have the right to have their shares
redeemed at the shares' net asset value by the Acquiring Fund by tendering
their shares to the Acquiring Fund. See "Redemption Procedures" herein and
"Redemption of Shares" in the accompanying prospectus of the Acquiring Fund.
Another difference in the rights of shareholders of the two funds is that
the Acquiring Fund may not issue any securities which are senior to those
currently outstanding. The Acquired Fund has the right to issue senior
securities, however, the Acquired Fund does not have any senior securities
outstanding and has no present intention of issuing such securities. Both the
Acquiring Fund and the Acquired Fund are Maryland corporations and thus their
shareholders have the same rights due them under state law. However, because
the shares of the Acquired Fund are listed on the NYSE, the Acquired Fund
currently holds annual meetings of shareholders. The Acquiring Fund does not
currently hold annual meetings of shareholders and has no current intention to
hold such meetings, except as required by the 1940 Act.
14
<PAGE>
Capitalization. The following table shows the capitalization of the
Acquiring Fund and the Acquired Fund as of December , 1999, and on a pro
forma basis as of that date, giving effect to the proposed acquisition of
assets at net asset value.
<TABLE>
<CAPTION>
Pro Forma for
Reorganization
(Unaudited) (Unaudited)
---------- --------------
(In thousands, except per
share values)
<S> <C> <C> <C>
ACQUIRING FUND
Class A Shares
Net assets..................................... $ $
Net asset value per share......................
Shares outstanding.............................
Class B Shares
Net assets..................................... $ $
Net asset value per share......................
Shares outstanding.............................
Class L Shares
Net assets..................................... $ $
Net asset value per share......................
Shares outstanding.............................
Class Y Shares
Net assets..................................... $ $
Net asset value per share......................
Shares outstanding.............................
ACQUIRED FUND
Shares
Net assets..................................... $ $ 0
Net asset value per share...................... 0
Shares outstanding............................. 0
</TABLE>
As of the Record Date, the officers and Directors of the Acquired Fund
beneficially owned as a group less than 1% of the outstanding shares of the
Acquired Fund. To the best knowledge of the Directors of the Acquired Fund, as
of the Record Date, no shareholder or "group" (as that term is used in Section
13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), except as
set forth in the table below, owned beneficially or of record more than 5% of
the outstanding shares of a class of the Acquired Fund. As of the Record Date,
the officers and Directors of the Acquiring Fund beneficially owned as a group
less than 1% of the outstanding shares of each class of the Acquiring Fund.
Except as set forth in the table below, to the best knowledge of the Directors
of the Acquiring Fund, as of the Record Date, no shareholder or "group" (as
that term is used in
15
<PAGE>
Section 13(d) of the Exchange Act) owned beneficially or of record more than
5% of the outstanding shares of a class of the Acquiring Fund.
<TABLE>
<CAPTION>
Percentage of
Class Owned
of Record
or Beneficially
--------------------------
Upon
Consummation
Fund As of the of the
Name and Address and Class Record Date Reorganization
- ---------------- -------------- ----------- --------------
<S> <C> <C> <C>
Joe Shareholder Acquiring Fund % *
388 Greenwich Street Class A
New York, NY 10013
</TABLE>
- -----------
* Less than 1.00%
INFORMATION ABOUT THE ACQUIRING FUND
The prospectus and annual report of the Acquiring Fund have been delivered
with this prospectus/proxy statement and are incorporated herein by reference.
Information regarding Investments, Risks and Performance; a Fee Table;
Investment Objectives, Principal Investment Strategies, and Related Risks;
Management, Organization, and Capital Structure; Shareholder Information;
Distribution Arrangements; and Financial Highlights Information of the
Acquiring Fund may be found under such headings in the prospectus of the
Acquiring Fund. For information regarding Management's Discussion of Fund
Performance of the Acquiring Fund, please refer to the Acquiring Fund's annual
report which accompanied this prospectus/proxy statement.
INFORMATION ABOUT THE ACQUIRED FUND
Information about the Acquired Fund is incorporated herein by reference from
the current prospectus of the Acquired Fund. The Acquired Fund's prospectus,
dated September 28, 1999, is available upon request (without charge) by
calling or writing the Acquired Fund at the telephone number or address listed
on the cover page of this prospectus/proxy statement. Copies of the Acquired
Fund's shareholder reports, prospectus and statement of additional information
are available for review or copying 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. The same
information may also be obtained for free from the Commission's Internet web
site at http/:www.sec.gov
16
<PAGE>
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of the Acquired Fund to be
used at the Special Meeting of Shareholders of the Acquired Fund to be held at
[4:00 p.m. on February 11, 2000, at 388 Greenwich Street,] New York, New York
10013, and at any adjournment or adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of the Meeting and a proxy card, is first being
mailed to shareholders of the Acquired Fund on or about January 14, 2000. Only
shareholders of record as of the close of business on the Record Date will be
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
The holders of a majority of the shares of the Acquired Fund outstanding at
the close of business on the Record Date present in person or represented by
proxy will constitute a quorum for the Meeting. For purposes of determining a
quorum for transacting business at the Meeting, abstentions and broker "non-
votes" (that is, proxies from brokers or nominees indicating that such persons
have not received instructions from the beneficial owner or other persons
entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will be treated as shares
that are present but which have not been voted. For this reason, abstentions
and broker non-votes will have the effect of a "no" vote for purposes of
obtaining the requisite approval of the Plan. If the enclosed form of proxy is
properly executed and returned in time to be voted at the Meeting, the proxies
named therein will vote the shares represented by the proxy in accordance with
the instructions marked thereon. Unmarked proxies will be voted FOR approval
of the proposed Reorganization and FOR approval of any other matters deemed
appropriate. A proxy may be revoked at any time on or before the Meeting by
written notice to the Secretary of the Acquired Fund, Christina T. Sydor,
Esq., 388 Greenwich Street, New York, New York 10013. Unless revoked, all
valid proxies will be voted in accordance with the specifications thereon or,
in the absence of such specifications, FOR approval of the Plan and the
Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of a majority of the
outstanding shares of the Acquired Fund. Shareholders of the Acquired Fund are
entitled to one vote for each share. Fractional shares are entitled to
proportional voting rights.
Proxy solicitations will be made primarily by mail, but proxy solicitations
also may be made by telephone, the internet or personal interviews conducted
by officers and employees of Salomon Smith Barney and its affiliates and/or by
First Data Investor Services Group, Inc. ("First Data"), the Acquiring Fund's
transfer agent. If the Acquired Fund records votes by telephone or the
internet, it will use procedures designed to authenticate shareholders'
identities to allow shareholders to authorize the voting of their shares in
accordance with their instructions, and to
17
<PAGE>
confirm that their instructions have been properly recorded. Although a
shareholder's vote may be taken by telephone or the internet, each shareholder
will receive a copy of this Prospectus/Proxy Statement and may vote by mail
using the enclosed proxy card. The aggregate cost of solicitation of the
shareholders of the Acquired Fund is expected to be approximately $7,500.
Expenses of the Reorganization, including the costs of the proxy solicitation
and the preparation of enclosures to the Prospectus/Proxy Statement,
reimbursement of expenses of forwarding solicitation material to beneficial
owners of shares of the Acquired Fund and expenses incurred in connection with
the preparation of this Prospectus/Proxy Statement will be borne by the
Acquiring Fund and the Acquired Fund in proportion to their assets.
In the event that a quorum necessary for a shareholders meeting is not
present or sufficient votes to approve the Reorganization are not received by
February 11, 2000, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon a decision
to adjourn the Meeting.
The votes of the shareholders of the Acquiring Fund are not being solicited
by this Prospectus/Proxy Statement.
OTHER BUSINESS
The Directors of the Acquired Fund do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
The Board of Directors of Greenwich Street Municipal Fund Inc., including
the Independent Directors, unanimously recommends approval of the Plan, and
any unmarked proxies without instructions to the contrary will be voted in
favor of approval of the Plan.
18
PART B
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
January 14, 2000
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 January 14, 2000 (the
"prospectus"), and is incorporated by reference in its entirety into the
prospectus. Additional information about the fund's investments is
available in the fund's annual and semi-annual reports to shareholders
that 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 4
Investment Restrictions.......................................................
......................12
Risk Factors and Special Considerations Relating to Municipal
Securities...................14
Portfolio Transactions........................................................
.......................16
Portfolio Turnover............................................................
........................17
Purchase of Shares............................................................
........................17
Determination of Net Asset Value..............................................
...................23
Redemption of Shares 24
Investment Management and Other Services 27
Valuation of Shares 31
Exchange Privilege 31
Performance Information 32
Dividends, Distributions and Taxes 37
Additional Information 41
Financial Statements..........................................................
.......................42
Other Information.............................................................
.......................42
Appendix A....................................................................
......................44
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 76). Director
Private Investor. Director or trustee of 18 investment companies
associated with Citigroup Inc. ("Citigroup") 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. Director
or trustee of 13 investment companies associated with Citigroup. 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. Director or trustee of 22 investment companies
associated with Citigroup. 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. Director or trustee of 25 investment
companies associated with Citigroup. 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. Director or trustee of 13
investment companies associated with Citigroup. His address is 201 East
62nd Street, New York, New York 10021.
Elliot S. Jaffe (Age 73). Director
Chairman of the Board and President of The Dress Barn, Inc. Director or
trustee of 13 investment companies associated with Citigroup. His address
is 30 Dunnigan Drive, Suffern, New York 10901.
Stephen E. Kaufman (Age 67). Director
Attorney. Director or trustee of 15 investment companies associated with
Citigroup. 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.
Director or trustee of 13 investment companies associated with Citigroup.
His address is 200 Oak Park Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon (Age 66). Chairman of the Board, President and Chief
Executive Officer
Managing Director of Salomon Smith Barney Inc.; President of SSBC Fund
Management, Inc. ("SSBC" or the "manager") and Travelers Investment
Adviser, Inc. ("TIA"); Chairman or Co-Chairman of the Board and director
or trustee of 64 investment companies associated with Citigroup. 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. Director or trustee of 13 investment companies associated with
Citigroup. 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. Senior Vice President and Treasurer of 59 investment companies
associated with Citigroup.
Joseph P. Deane (Age 51). 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.
Controller or Assistant Treasurer of 43 investment companies associated
with Citigroup.
Christina T. Sydor (Age 48). Secretary
Managing Director of Salomon Smith Barney; General Counsel and Secretary
of SSBC and TIA. Secretary of 59 investment companies associated with
Citigroup.
As of December __, 1999, the directors 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 directors, as of December __, 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:
Shareholder
Class
Shares Held
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 $4,000 per annum plus $500 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 $2,000 per annum plus $250 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, 1999, 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
Directors
Number of
Funds for
Which
Directors
Serve Within
Fund Complex
Herbert Barg **
$6,600
$0
$105,425
18
Alfred
Bianchetti * **
6,600
0
51,200
13
Martin Brody **
5,600
0
132,500
22
Dwight B. Crane
**
6,100
0
139,975
25
Burt N. Dorsett
**
6,600
0
51,200
13
Elliot S. Jaffe
**
5,600
0
47,550
13
Stephen E.
Kaufman **
6,600
0
96,400
15
Joseph J. McCann
**
6,600
0
51,200
13
Heath B.
McLendon *
0
0
0
64
Cornelius C.
Rose, Jr. **
6,100
0
51,200
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 $3,000.
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The prospectus discusses the fund's investment objective and the policies
it employs to achieve its objective. The following discussion supplements
the description of the fund's investment objective and management policies
in the prospectus. For purposes of this 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 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 fund 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 because of 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 because of
default by such issuers is significantly greater because low-rated and
comparable unrated securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. The fund may
incur additional expenses to the extent it is required to seek recovery
upon a default in 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 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.
Private Activity Bonds. The fund may invest without limit in private
activity bonds. Interest income on certain types of private activity
bonds issued after August 7, 1986 to finance non-governmental activities
is a specific tax preference item for purposes of the federal individual
and corporate alternative minimum taxes. Individual and corporate
shareholders may be subject to a federal alternative minimum tax to the
extent the fund's dividends are derived from interest on those bonds.
Dividends derived from interest income on 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 or a specified cash
payment date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from
their face amounts or par values. The discount varies depending on the
time remaining until maturity or cash payment date, prevailing interest
rates, liquidity of the security and the perceived credit quality of the
issuer. The discount, in the absence of financial difficulties of the
issuer, decreases as the final maturity or cash payment date of the
security approaches. The market prices of zero coupon 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 may actually be higher than those obtained
in the transaction itself. To account for this risk, a separate account of
the fund consisting of cash or liquid debt securities equal to the amount
of the when-issued commitments will be established on the fund's books.
For the purpose of determining the adequacy of the securities in the
account, the deposited securities will be valued at market or fair value.
If the market or fair value of such securities declines, additional cash
or securities will be placed in the account on a daily basis so the value
of the account will equal the amount of such commitments by the fund.
Placing securities rather than cash in the segregated account may have a
leveraging effect on the fund's net assets. That is, to the extent the
fund remains substantially fully invested in securities at the same time
it has committed to purchase securities on a when-issued basis, there will
be greater fluctuations in its net assets than if it had set aside cash to
satisfy its purchase commitments. Upon the settlement date of the when-
issued securities, the fund will meet obligations from then-available cash
flow, sale of securities held in the segregated account, sale of other
securities or, although it normally would not expect to do so, from the
sale of the when-issued securities themselves (which may have a value
greater or less than the fund's payment obligations). Sales of securities
to meet such obligations may involve the realization of capital gains,
which are not exempt from federal income tax.
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 advantageous.
Repurchase Agreements. The fund may agree to purchase securities from a
bank or recognized securities dealer and simultaneously commit to resell
the securities to the bank or dealer at an agreed-upon date and price
reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities ("repurchase agreements"). The fund
would maintain custody of the underlying securities prior to their
repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to would be, in effect, secured by
such securities. If the value of such securities were less than the
repurchase price, plus interest, the other party to the agreement would be
required to provide additional collateral so that at all times the
collateral is at least 102% of the repurchase price plus accrued interest.
Default by or bankruptcy of a seller would expose the fund to possible
loss because of adverse market action, expenses and/or delays in
connection with the disposition of the underlying obligations. The
financial institutions with which the fund may enter into repurchase
agreements will be banks and non-bank dealers of U.S. Government
securities that are on the Federal Reserve Bank of New York's list of
reporting dealers, if such banks and non-bank dealers are deemed
creditworthy by the fund's manager. The manager will continue to monitor
creditworthiness of the seller under a repurchase agreement, and will
require the seller to maintain during the term of the agreement the value
of the securities subject to the agreement to equal at least 102% of the
repurchase price (including accrued interest). In addition, the manager
will require that the value of this collateral, after transaction costs
(including loss of interest) reasonably expected to be incurred on a
default, be equal to 102% or greater than the repurchase price (including
accrued premium) provided in the repurchase agreement or the daily
amortization of the difference between the purchase price and the
repurchase price specified in the repurchase agreement. The manager will
mark-to-market daily the value of the securities.
Temporary Investments. Under normal market conditions, the fund may hold
up to 20% of its total assets in cash or money market instruments,
including taxable money market instruments. When the fund is maintaining
a defensive position, the fund may invest in short-term investments
("Temporary Investments") consisting of: (a) tax-exempt securities in the
form of notes of municipal issuers having, at the time of purchase, a
rating within the three highest grades of Moody's, S&P or the equivalent
rating from an NRSRO or, if not rated, having an issue of outstanding
Municipal Bonds rated within the three highest grades by Moody's, S&P or
the equivalent rating from an NRSRO; 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 the equivalent rating from an NRSRO, commercial paper rated in the
highest grade by any 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. For the fiscal year ended February 28, 1999, the fund did not
invest in 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 net asset value of the fund.
Regulations of the Commodity Futures Trading Commission applicable to the
fund require that its transactions in financial futures contracts and
options on financial futures contracts be engaged in for bona fide hedging
purposes, or 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.
Other Investments. The fund shall not invest more than 10% of its assets
in securities (excluding those subject to Rule 144A under the Securities
Act of 1933, as amended (the "1933 Act")), that are determined to be
illiquid by the manager. Also, the fund may invest up to an aggregate of
15% of its total assets in securities with contractual or other
restrictions on resale and other instruments which are not readily
marketable. 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.
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) 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 fund's
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 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."
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL SECURITIES
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.
PORTFOLIO TRANSACTIONS
Newly issued securities normally are purchased directly from the issuer or
from an underwriter acting as principal. Other purchases and sales
usually are placed with those dealers from which it appears that the best
price or execution will be obtained; those dealers may be acting as either
agents or principals. The purchase price paid by the fund to underwriters
of newly issued securities usually includes a concession paid by the
issuer to the underwriter, and purchases of after-market securities from
dealers normally are executed at a price between the bid and asked prices.
For the 1997, 1998 and 1999 fiscal years, the fund has paid no brokerage
commissions.
Allocation of transactions, including their frequency, to various dealers
is determined by the manager in its best judgment and in a manner deemed
fair and reasonable to shareholders. The primary considerations are
availability of the desired security and the prompt execution of orders in
an effective manner at the most favorable prices. Subject to these
considerations, dealers that provide supplemental investment research and
statistical or other services to the manager may receive orders for
portfolio transactions by the fund. Information so received is in
addition to, and not in lieu of, services required to be performed by the
manager, and the fees of the manager are not reduced as a consequence of
its use 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 Municipal 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 1997, 1998 and 1999 fiscal years, the
fund's portfolio turnover rates were 103%, 110% and 45%, 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 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. 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. It is not
recommended that the Fund be used as a vehicle for Keogh, IRA or other
qualified retirement plans.
Purchase orders received by the fund or a Salomon Smith Barney Financial
Consultant prior to the close of regular trading on the NYSE, on any day
the fund calculates its net asset value, are priced according to the net
asset value determined on that day (the ''trade date''). Orders received
by a Dealer Representative prior to the close of regular trading on the
NYSE on any day the fund calculates its net asset value, are priced
according to the net asset value determined on that day, provided the
order is received by the fund or the fund's agent prior to its close of
business. For shares purchased through Salomon Smith Barney or a Dealer
Representative purchasing through Salomon Smith Barney, payment for shares
of the fund is due on the third business day after the trade date. In all
other cases, payment must be made with the purchase order.
Systematic Investment Plan. Shareholders may make additions to their
accounts at any time by purchasing shares through a service known as the
Systematic Investment Plan. Under the Systematic Investment Plan, Salomon
Smith Barney or 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) investments of distributions from a UIT
sponsored by Salomon Smith Barney; and (g) purchases by investors
participating in a Salomon Smith Barney fee-based arrangement. In order to
obtain such discounts, the purchaser must provide sufficient information
at the time of purchase to permit verification that the purchase would
qualify for the elimination of the sales charge.
Right of Accumulation. Class A shares of the fund may be purchased by
''any person'' (as defined above) at a reduced sales charge or at net
asset value determined by aggregating the dollar amount of the new
purchase and the total net asset value of all Class A shares of the fund
and of other Smith Barney Mutual Funds that are offered with a sales
charge as currently listed under ''Exchange Privilege'' then held by such
person and applying the sales charge applicable to such aggregate. In
order to obtain such discount, the purchaser must provide sufficient
information at the time of purchase to permit verification that the
purchase qualifies for the reduced sales charge. The right of
accumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent for an amount of
$50,000 or more provides an opportunity for an investor to obtain a
reduced sales charge by aggregating investments over a 13 month period,
provided the investor refers to such Letter when placing orders. For
purposes of a Letter of Intent, the ''Amount of Investment'' as referred
to in the preceding sales charge table includes (i) all Class A shares of
the fund and other Smith Barney Mutual Funds offered with a sales charge
acquired during the term of the letter plus (ii) the value of all Class A
shares previously purchased and still owned. Each investment made during
the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the sales charges
applicable to the purchases made and the charges previously paid, or an
appropriate number of escrowed shares will be redeemed. The term of the
Letter will commence upon the date the Letter is signed, or at the option
of the investor, up to 90 days before such date. Please contact a Salomon
Smith Barney Financial Consultant or 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 0.15%) and expenses applicable to the fund's Class A shares, which may
include a deferred sales charge of 1.00%. Please contact a Salomon Smith
Barney Financial Consultant or 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 were purchased without an initial sales
charge but 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 Deferred Sales Charge Shares acquired through an
exchange have been held will be calculated from the date the shares
exchanged were initially acquired in one of the other Smith Barney Mutual
Funds, and fund shares being redeemed will be considered to represent, as
applicable, capital appreciation or dividend and capital gain distribution
reinvestments in such other funds. For Federal income tax purposes, the
amount of the deferred sales charge will reduce the gain or increase the
loss, as the case may be, on the amount realized on redemption. The amount
of any deferred sales charge will be paid to Salomon Smith Barney.
To provide an example, assume an investor purchased 100 Class B shares of
the fund at $10 per share for a cost of $1,000. Subsequently, the
investor acquired 5 additional shares of the fund through dividend
reinvestment. During the fifteenth month after the purchase, the investor
decided to redeem $500 of his or her investment. Assuming at the time of
the redemption the net asset value had appreciated to $12 per share, the
value of the investor's shares would be $1,260 (105 shares at $12 per
share). The deferred sales charge would not be applied to the amount which
represents appreciation ($200) and the value of the reinvested dividend
shares ($60). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be charged at a rate of 4.00% (the applicable rate for Class
B shares) for a total deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a) exchanges (see ''Exchange
Privilege''); (b) automatic cash withdrawals in amounts equal to or less
than 1.00% per month of the value of the shareholder's shares at the time
the withdrawal plan commences (see ''Automatic Cash Withdrawal Plan'')
(however, automatic cash withdrawals in amounts equal to or less than
2.00% per month of the value of the shareholder's shares will be permitted
for withdrawal plans established prior to November 7, 1994); (c)
redemptions of shares within 12 months following the death or disability
of the shareholder; (d) involuntary redemptions; and (e) redemptions of
shares to effect a combination of the fund with any investment company by
merger, acquisition of assets or otherwise. In addition, a shareholder who
has redeemed shares from other Smith Barney Mutual Funds may, under
certain circumstances, reinvest all or part of the redemption proceeds
within 60 days and receive pro rata credit for any deferred sales charge
imposed on the prior redemption.
Deferred sales charge waivers will be granted subject to confirmation (by
Salomon Smith Barney in the case of shareholders who are also Salomon
Smith Barney clients or by 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 Directors. 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
Directors. 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 Directors.
Short-term investments maturing in 60 days or less are valued at amortized
cost whenever the Board of Directors 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 Directors.
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 9699
Providence, RI 02940-9699
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account
number and (c) be signed by each registered owner exactly as the shares
are registered. If the shares to be redeemed were issued in certificate
form, the certificates must be endorsed for transfer (or be accompanied by
an endorsed stock power) and must be submitted to the transfer agent
together with the redemption request. Any signature appearing on a share
certificate, stock power or written redemption request in excess of
$10,000 must be guaranteed by an eligible guarantor institution, such as
a domestic bank, savings and loan institution, domestic credit union,
member bank of the Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of $10,000 or less do not
require a signature guarantee unless more than one such redemption request
is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. The transfer agent may require additional
supporting documents for redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption request will not be
deemed properly received until the transfer agent receives all required
documents in proper form.
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 Directors may deem advisable;
however, payments shall be made wholly in cash unless the Board of
Directors 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 Directors determines that it would be detrimental
to the best interests of the remaining shareholders of the fund to make a
redemption payment wholly in cash, the fund may pay, in accordance with
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 (Manager)
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 fund which was approved by the
Board of Directors, including a majority of directors who are not
"interested persons" of the fund 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. 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 November 31, 1999 of approximately
$___ billion.
As compensation for investment advisory services, the fund pays the
manager a fee computed daily and payable monthly at the following annual
rates of the fund's average daily net assets: 0.35% up to $500 million;
0.32% of the next $1.0 billion and 0.29% in excess of $1.5 billion. For
the fiscal years ended February 28, 1997, 1998 and 1999, the fund incurred
$8,667,272, $10,103,778 and, $11,563,790 respectively, in investment
advisory fees.
The manager also serves as administrator to the fund pursuant to a written
agreement (the "Administration Agreement"). As administrator SSBC: (a)
assists in supervising all aspects of the Fund's operations; 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, (c) internal auditing and legal services,
internal executive and administrative services, and stationary and office
supplies; and (d) 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% of the next $1.0 billion, and 0.16% in excess of $1.5 billion. For
the fiscal year ended February 28, 1997, 1998 and 1999, the fund paid the
manager $4,850,912, $5,643,278 and $6,448,802, respectively, in
administration fees.
The fund bears expenses incurred in its operations including: taxes,
interest, brokerage fees and commissions, if any; fees of directors of the
fund who are not officers, directors, shareholders or employees of Salomon
Smith Barney or the manager; 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 an opinion
on the fund's financial statements for the fiscal year ended February 29,
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 1997 and 1998 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 February 28, 1998 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 February 28, 1999 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
February 28, 1999 the aggregate dollar amount of sales charges on Class L
shares was $198,000, $178,200 of which was paid to Salomon Smith Barney.
For the fiscal years ended February 28, 1997, 1998 and 1999, Salomon Smith
Barney or its predecessor received from shareholders $1,140,000,
$1,275,000 and $1,404,000, respectively, in deferred sales charges on the
redemption of Class B shares. For the fiscal years ended February 28,
1997, 1998 and 1999, Salomon Smith Barney or its predecessor received from
$18,000, $29,000 and $32,000, 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 $17,927,321 consisting of $948,339 for
advertising, $85,034 for printing and mailing of prospectuses, $6,120,991
for support services, $10,396,711 to Salomon Smith Barney Financial
Consultants, and $376,246 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 years indicated:
Distribution Plan Fees
Fiscal Year
Ended 2/28/99
Fiscal Year
Ended 2/28/98
Fiscal Year
Ended 2/28/97
Class A
$ 3,651,852
$ 3,247,646
$ 2,875,192
Class B
$ 7,588,761
$ 6,535,992
$ 5,246,869
Class L*
$ 1,106,096
$ 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 the judgment 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 judgment of the
pricing service, there is no readily obtainable market quotation (which
may constitute a majority of the portfolio securities) are carried at fair
value of securities of similar type, yield and maturity. Pricing services
generally determine value by reference to transactions in municipal
obligations, quotations from municipal bond dealers, market transactions
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 Directors determines that amortized
cost is fair value. Amortized cost valuation involves valuing an
instrument at its cost initially and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the
instrument. Securities and other assets that are not priced by a pricing
service and for which market quotations are not available will be valued
in good faith at fair value by or under the direction of the fund's Board
of Directors.
EXCHANGE PRIVILEGE
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 4.57%, 4.24% and 4.15%, respectively.
The equivalent taxable yield for Class A, Class B and Class L shares for
that same period was 7.14%, 6.62% and 6.48%, respectively, assuming the
payment of Federal income taxes at a rate of 36%.
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):
(0.06)% for the one-year period ended February 28, 1999.
6.33% for the five-year period ended February 28, 1999.
10.47% per annum during the period from the fund's commencement of
operations on March 4, 1981 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. If the maximum 4.00% sales
charge had not been deducted, Class A's average annual total return would
have been 4.07%, 7.2% and 10.73%, 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):
(0.95)% for the one-year period ended February 28, 1999.
6.48% for the five-year period ended February 28, 1999.
8.14% per annum during the period from the fund's commencement of
operations on November 6, 1992 through February 28, 1999.
If 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 3.48%, 6.64% and 8.14%, 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):
1.51% for the one-year period ended February 28, 1999.
9.53% per annum during the period from the fund's commencement of
operations on November 9, 1994 through February 28, 1999.
If 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 3.49%.
The fund's average annual total return for Class Y 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):
4.39% for the one-year period ended February 28, 1999.
7.98% per annum during the period from the fund's commencement of
operations on April 4, 1995 through February 28, 1999.
Class Y's shares do not incur sales charges nor deferred sales charges.
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):
(0.06)% for the one-year period ended February 28, 1999.
35.92% for the five-year period ended February 28, 1999.
500.67% for the period from the fund's commencement of operations on
March 4, 1981 through February 28, 1999.
Class A's aggregate total return assumes that the maximum applicable sales
charge or maximum applicable deferred sales charge has been deducted from
the investment. If the maximum sales charge had not been deducted at the
time of purchase, Class A's aggregate total return for the same periods
would have been 4.07%, 41.57% and 525.83%, 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):
(0.95)% for the one-year period ended February 28, 1999.
36.91% for the five-year period ended February 28, 1999.
63.92% for the period from commencement of operations on November 6,
1992 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 3.48%, 37.89% and 63.92%, 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):
1.51% for the one-year period ended February 28, 1999.
47.98% 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, 1999 would have been
3.49%.
The fund's aggregate total return for Class Y shares was as follows for
the period indicated (reflecting the waiver of the fund's investment
advisory and administration fees and reimbursement of expenses):
4.39% for the one-year period ended February 28, 1999.
35% for the period from commencement of operations on April 4, 1995
through February 28, 1999.
Class Y shares do not incur sales charges nor deferred sales charges.
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. 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 an amount equal to at least 90% of its
investment company taxable income (i.e., 90% of its taxable income minus
the excess, if any, of its net realized long-term capital gains over its
net realized short-term capital losses (including any capital loss
carryovers), plus or minus certain other adjustments as specified in the
Code) and 90% of its net tax-exempt income for the taxable year is
distributed in compliance with the Code's timing and other requirements
but will be subject to tax at regular corporate rates on any taxable
income or gains it does not distribute.
The Code imposes a 4% nondeductible excise tax on the fund to the extent
it does not distribute by the end of any calendar year at least 98% of its
net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending,
as a general rule, on October 31 of that year. For this purpose, however,
any income or gain retained by the fund that is subject to corporate
income tax will be considered to have been distributed by year-end. In
addition, the minimum amounts that must be distributed in any year to
avoid the excise tax will be increased or decreased to reflect any
underdistribution or overdistribution, as the case may be, from the
previous year. The fund anticipates 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 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. 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 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 the dollar amount of
dividends subject to Federal income taxation, if any, will vary for each
shareholder depending upon the size and duration of each shareholder's
investment in the fund. To the extent the fund earns taxable net
investment income, it intends to designate as taxable 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.
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 matters exclusively affecting a single class; (f) the exchange
privilege of each Class; and (g) the conversion feature of the Class B
shares. The Board of Directors does not anticipate that there will be any
conflicts among the interests of the holders of the different Classes. The
directors, on an ongoing basis, will consider whether any such conflict
exists and, if so, take appropriate action.
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 May 5, 1999, Accession Number 91155-99-000314
OTHER INFORMATION
In an industry where the average portfolio manager has seven years of
experience (source: ICI, 1998), the portfolio managers of Smith Barney
Mutual Funds average 21 years in the industry and 15 years with the firm.
Smith Barney Mutual Funds offers more than 60 mutual funds. We understand
that many investors prefer an active role in allocating the mix of funds
in their portfolio, while others want the asset allocation decisions to be
made by experienced managers.
That's why we offer four "styles" of fund management that can be tailored
to suit each investor's unique financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested within their asset
class and investment style, enabling investors to make asset
allocation decisions in conjunction with their Salomon Smith Barney
Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range of equity and fixed
income strategies that seek to capture opportunities across asset
classes and investment styles using disciplined investment
approaches.
The Concert Allocation Series
As a fund of funds, investors can select a Concert Portfolio that
may help their investment needs. As needs change, investors can
easily choose another long-term, diversified investment from our
Concert family.
Special Discipline Series
Our Special Discipline Series funds are designed for investors who
are looking beyond more traditional market categories: from natural
resources to a roster of state-specific municipal funds.
APPENDIX A
Description of S&P and Moody's ratings:
S&P Ratings for Municipal Bonds
S&P's Municipal Bond ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue
bonds. General obligation bonds are usually secured by all resources
available to the municipality and the factors outlined in the rating
definitions below are weighed in determining the rating. Because revenue
bonds in general are payable from specifically pledged revenues, the
essential element in the security for a revenue bond is the quantity and
quality of the pledged revenues available to pay debt service.
Although an appraisal of most of the same factors that bear on the quality
of general obligation bond credit is usually appropriate in the rating
analysis of a revenue bond, other factors are important, including
particularly the competitive position of the municipal enterprise under
review and the basic security covenants. Although a rating reflects S&P's
judgment as to the issuer's capacity for the timely payment of debt
service, in certain instances it may also reflect a mechanism or procedure
for an assured and prompt cure of a default, should one occur, i.e., an
insurance program, Federal or state guarantee or the automatic withholding
and use of state aid to pay the defaulted debt service.
AAA
Prime - These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.
General Obligation Bonds - In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible
to autonomous decline. Debt burden is moderate. A strong revenue
structure appears more than adequate to meet future expenditure
requirements. Quality of management appears superior.
Revenue Bonds - Debt service coverage has been, and is expected to remain,
substantial. Stability of the pledged revenues is also exceptionally
strong, due to the competitive position of the municipal enterprise or to
the nature of the revenues. Basic security provisions (including rate
covenant, earnings test for issuance of additional bonds, and debt service
reserve requirements) are rigorous. There is evidence of superior
management.
AA
High Grade - The investment characteristics of general obligation and
revenue bonds in this group are only slightly less marked than those of
the prime quality issues. Bonds rated "AA'' have the second strongest
capacity for payment of debt service.
A
Good Grade - Principal and interest payments on bonds in this category are
regarded as safe. This rating describes the third strongest capacity for
payment of debt service. It differs from the two higher ratings because:
General Obligation Bonds - There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the
issuer to meet debt obligations at some future date.
Revenue Bonds - Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management
performance appears adequate.
BBB
Medium Grade - Of the investment grade ratings, this is the lowest.
General Obligation Bonds - Under certain adverse conditions, several of
the above factors could contribute to a lesser capacity for payment of
debt service. The difference between "A'' and "BBB" ratings is that the
latter shows more than one fundamental weakness, or one very substantial
fundamental weakness, whereas the former shows only one deficiency among
the factors considered.
Revenue Bonds - Debt coverage is only fair. Stability of the pledged
revenues could show substantial variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger.
BB, B, CCC and CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal
in accordance with the terms of the obligation. BB indicates the lowest
degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
C
The rating C is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.
S&P Ratings for Municipal Notes
Municipal notes with maturities of three years or less are usually given
note ratings (designated SP-1, -2 or -3) by S&P to distinguish more
clearly the credit quality of notes as compared to bonds. Notes rated SP-
1 have a very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics are
given the designation of SP-1+. Notes rated SP-2 have a satisfactory
capacity to pay principal and interest.
Moody's Ratings for Municipal Bonds
Aaa
Bonds that are Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge.'' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa
Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A
Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa
Bonds that are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured; interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba
Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B
Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa
Bonds that are rated Caa are of poor standing. These issues may be in
default or present elements of danger may exist with respect to principal
or interest.
Ca
Bonds that are rated Ca represent obligations that are speculative in a
high degree. These issues are often in default or have other marked
short-comings.
C
Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's Ratings for Municipal Notes
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction is in recognition of the differences between short- and long-
term credit risk. Loans bearing the designation MIG 1 or VMIG 1 are of
the best quality, enjoying strong protection by established cash flows of
funds for their servicing, from established and broad-based access to the
market for refinancing, or both. Loans bearing the designation MIG 2 or
VMIG 2 are of high quality, with margins of protection ample although not
as large as the preceding group. Loans bearing the designation MIG 3 or
VMIG 3 are of favorable quality, with all security elements accounted for
but lacking the undeniable strength of the preceding grades. Liquidity
and cash flow may be narrow and market access for refinancing is likely to
be less well established.
Description of S&P A-1+ and A-1 Commercial Paper Rating
The rating A-1+ is the highest, and A-1 the second highest, commercial
paper rating assigned by S&P. Paper rated A-1+ must have either the
direct credit support of an issuer or guarantor that possesses excellent
long-term operating and financial strengths combined with strong liquidity
characteristics (typically, such issuers or guarantors would display
credit quality characteristics which would warrant a senior bond rating of
"AA-'' or higher), or the direct credit support of an issuer or guarantor
that possesses above-average long-term fundamental operating and financing
capabilities combined with ongoing excellent liquidity characteristics.
Paper rated A-1 by S&P has the following characteristics: liquidity
ratios are adequate to meet cash requirements; long-term senior debt is
rated "A'' or better; the issuer has access to at least two additional
channels of borrowing; basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances; typically, the issuer's
industry is well established and the issuer has a strong position within
the industry; and the reliability and quality of management are
unquestioned.
Description of Moody's Prime-1 Commercial Paper Rating
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are
the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain
areas; (3) evaluation of the issuer's products in relation to competition
and customer acceptance; (4) liquidity; (5) amount and quality of long-
term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the
issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and
preparations to meet such obligations.
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
Statement of
Additional
Information
January 14, 2000
Smith Barney Managed Municipals Fund Inc.
388 Greenwich Street
New York, NY 10013
SALOMON SMITH BARNEY
A Member of Citigroup
[Symbol]
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Reference is made to Article TENTH of Registrant's Articles of
Incorporation for a complete statement of its terms. Article TENTH
provides: "no director or officer of the Corporation shall personally be
liable to the Corporation or its stockholders for money damages, except
to the extent such exemption from liability or limitation thereof is not
permitted by the Investment Company Act of 1940, as amended from time to
time."
ITEM 16. 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).
(1) (a) 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").
(1) (b) 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").
(1) (c) Articles of Amendment dated June 1, 1998 to the Articles of
Incorporation is incorporated by reference to Post-Effective
Amendment No. 32.
(2) (a) Registrant's By-Laws are incorporated by reference to Post-
Effective Amendment No. 3 as filed on June 17, 1982
(2) (b) Amendments to Registrant's By-Laws are incorporated by
reference to Post-Effective Amendment No. 12, as filed on
April 29, 1988.
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization is filed
herewith.
(5) Not applicable.
(6) (a) Investment Advisory Agreement dated July 30, 1993 between
the Registrant and Greenwich Street Advisors is incorporated
by reference to Post-Effective Amendment No. 25.
(6) (b) 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.
(7) (a) Distribution Agreement between the Registrant and Smith
Barney Shearson Inc. dated July 30, 1993, is incorporated by
reference to Post-Effective Amendment No. 25.
(7) (b) Form of Distribution Agreement between Registrant and CFBDS,
Inc. is incorporated by reference to Post-Effective
Amendment No. 33.
(8) Not applicable.
(9) Form of Custody Agreement between the Registrant and PNC
Bank, National Association is incorporated by reference to
Post-Effective Amendment No. 29.
(10) (a) 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.
(10) (b) Form of Amended Service and Distribution Plan pursuant to
Rule 12b-1 between the Registrant and Salomon Smith Barney
Inc. is incorporated by reference to Post-Effective
Amendment No. 33.
(10) (c) Form of Rule 18f-3(d) Multiple Class Plan of the Registrant
is incorporated by reference to Post-Effective Amendment No.
16.
(10) (d) Form of Rule 18f-3(d) Multiple Class Plan of the Registrant
is incorporated by reference to Post-Effective Amendment No.
32.
(11) Form of Opinion and Consent of Willkie Farr & Gallagher is
filed herewith.
(12) Form of Tax Opinion and Consent of Willkie Farr & Gallagher
is filed herewith.
(13) (a) Administration Agreement dated April 20, 1994, between the
Registrant and Smith, Barney Advisers, Inc., is incorporated
by reference to Post-Effective Amendment No. 27.
(13) (b) 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.
(14) (a) Consent of Independent Auditors is filed herewith.
(14) (b) Form of Opinion and Consent of Venable, Baetjer and Howard,
LLP, as to matters of Maryland law is filed herewith.
(15) Not applicable.
(16) Power of Attorney, dated June 14, 1996, is incorporated by
reference to Post-Effective Amendment No. 30.
(17) (a) Prospectus of the Registrant, dated June 28, 1999, is
incorporated by reference to Post-Effective Amendment No.
33.
(17) (b) Annual Report to Shareholders of the Registrant, dated
February 28, 1999, is incorporated by reference to Form N-
30D, as filed June 30, 1999, with the Commission.
(17) (c) Form of Proxy is filed herewith.
ITEM 17. UNDERTAKINGS
(1)The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is
a part of this registration statement by any person or party who is
deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act
[17 CFR
230.145c], the reoffering prospectus will contain the information called
for by
the applicable registration form for reofferings by persons who may be
deemed
underwriters, in addition to the information called for by the other
items of
the applicable form.
(2)The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment
to the
registration statement and will not be used until the amendment is
effective,
and that, in determining any liability under the 1933 Act, each post-
effective
amendment shall be deemed to be a new registration statement for the
securities
offered therein, and the offering of the securities at that time shall
be deemed
to be the initial bonafide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended,
and the Investment Company Act of 1940, as amended, the Registrant has
duly
caused this Registration Statement on Form N-14 to be signed on its
behalf by
the undersigned, thereunto duly authorized, all in the City of New York,
State
of New York on the 8th day of November, 1999.
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
By: /s/Heath B. McLendon
Heath B. McLendon
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the
following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/Heath B. McLendon Chairman of the Board, 11/08/99
Heath B. McLendon Chief Executive Officer,
and President
/s/Lewis E. Daidone Senior Vice President 11/08/99
Lewis E. Daidone and Treasurer
*/s/Herbert Barg
Herbert Barg Director 11/08/99
*/s/Martin Brody
Martin Brody Director 11/08/99
*/s/Dwight B. Crane
Dwight B. Crane Director 11/08/99
*/s/Alfred J. Bianchetti
Alfred J. Bianchetti Director 11/08/99
*/s/Elliot S. Jaffe
Elliot S. Jaffe Director 11/08/99
*/s/Stephen E. Kaufman
Stephen E. Kaufman Director 11/08/99
*/s/Joseph J. McCann
Joseph J. McCann Director 11/08/99
*/s/Cornelius C. Rose, Jr.
Cornelius C. Rose, Jr. Director 11/08/99
* By: /s/ Heath B. McLendon
Heath B. McLendon
Pursuant to a Power of Attorney dated April 17, 1996
EXHIBIT INDEX
(4) Form of Agreement and Plan of Reorganization.
(11) Form of Opinion and Consent of Willkie Farr & Gallagher.
(12) Form of Tax Opinion and Consent of Willkie Farr & Gallagher.
(14)(a) Consent of Independent Auditors.
(14)(b) Form of Opinion and Consent of Venable, Baetjer and Howard,
LLP, as to matters of Maryland law.
(17)(c) Form of Proxy.
<PAGE>
Exhibit 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 30th day of December, 1999, by and between Smith Barney Managed
Municipals Fund Inc., a Maryland corporation with its principal place of
business at 388 Greenwich Street, New York, New York 10013 (the "Acquiring
Fund"), and Greenwich Street Municipal Fund Inc. , a Maryland corporation,
with its principal place of business at 388 Greenwich Street, New York, New
York 10013 (the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United
States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund in exchange for Class A
shares of common stock of the Acquiring Fund (collectively, the "Acquiring
Fund Shares" and each, an "Acquiring Fund Share") and the assumption by the
Acquiring Fund of scheduled liabilities of the Acquired Fund and the
distribution, after the Closing Date herein referred to, of Acquiring Fund
Shares to the shareholders of the Acquired Fund in liquidation of the Acquired
Fund and termination of the Acquired Fund, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, the Acquiring Fund and the Acquired Fund are registered investment
companies of the management type and the Acquired Fund owns securities that
generally are assets of the character in which the Acquiring Fund is permitted
to invest;
WHEREAS, the Acquiring Fund is authorized to issue shares of common stock;
WHEREAS, the Board of Directors of the Acquired Fund has determined that the
exchange of all or substantially all of the assets and scheduled liabilities
of the Acquired Fund for Acquiring Fund Shares and the assumption of such
liabilities by the Acquiring Fund is in the best interests of the Acquired
Fund's shareholders and that the interests of the existing shareholders of the
Acquired Fund would not be diluted as a result of this transaction;
WHEREAS, the Board of Directors of the Acquiring Fund has determined that
the exchange of all or substantially all the assets and scheduled liabilities
of the Acquired Fund for Acquiring Fund Shares and the assumption of such
liabilities by the Acquiring Fund is in the best interests of the Acquiring
Fund's shareholders
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and that the interests of the existing shareholders of the Acquiring Fund
would not be diluted as a result of this transaction.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND ASSUMPTION OF SCHEDULED LIABILITIES OF THE ACQUIRED FUND AND
LIQUIDATION AND DISSOLUTION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund
agrees to transfer the Acquired Fund's assets as set forth in paragraph 1.2 to
the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of Class A Acquiring Fund Shares,
including fractional Class A Acquiring Fund Shares, determined by dividing the
value of the Acquired Fund's net assets attributable to its shares, computed
in the manner and as of the time and date set forth in paragraph 2.1, by the
net asset value of one Class A Acquiring Fund Share, computed in the manner
and as of the time and date set forth in paragraph 2.2; and (ii) to assume
scheduled liabilities of the Acquired Fund, as set forth in paragraph 1.3.
Such transactions shall take place at the closing provided for in paragraph
3.1 (the "Closing").
1.2. (a) The assets of the Acquired Fund to be acquired by the Acquiring
Fund shall consist of all or substantially all property, including, without
limitation, all cash, securities and dividends or interest receivables which
are owned by the Acquired Fund and any deferred or prepaid expenses shown as
an asset on the books of the Acquired Fund on the closing date provided in
paragraph 3.1 (the "Closing Date").
(b) The Acquired Fund has provided the Acquiring Fund with a list of the
Acquired Fund's assets as of the date of execution of this Agreement. The
Acquired Fund reserves the right to sell any securities but will not, without
the prior approval of the Acquiring Fund, acquire any additional securities
other than securities of the type in which the Acquiring Fund is permitted to
invest. The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Acquired Fund with a statement of the Acquiring Fund's
investment objectives, policies and restrictions and a list of the securities,
if any, on the Acquired Fund's list referred to in the first sentence of this
paragraph which do not conform to the Acquiring Fund's investment objectives,
policies and restrictions. In the event that the Acquired Fund holds any
investments which the Acquiring Fund may not hold, the Acquired Fund will
dispose of such securities prior to the Closing Date. In addition, if it is
determined that the portfolios of the Acquired Fund and the
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Acquiring Fund, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Acquired Fund, if requested by the Acquiring Fund, will
dispose of and/or reinvest a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Closing Date.
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date. The Acquiring
Fund shall assume all liabilities, expenses, costs, charges and reserves
reflected on an unaudited Statement of Assets and Liabilities of the Acquired
Fund prepared by SSB Citi Fund Management LLC (the "Manager"), as adviser of
the Acquired Fund, as of the Valuation Date (as defined in paragraph 2.1), in
accordance with generally accepted accounting principles consistently applied
from the prior audited period. The Acquiring Fund shall assume only those
liabilities of the Acquired Fund reflected in that unaudited Statement of
Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, not reflected thereon.
1.4. As provided in paragraph 3.3, either on or as soon after the Closing
Date as is conveniently practicable (the "Liquidation Date"), the Acquired
Fund will liquidate and distribute pro rata to the Acquired Fund's
shareholders of record determined as of the close of business on the Closing
Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares it receives
pursuant to paragraph 1.1. Shareholders of the Acquired Fund shall receive
Class A shares of the Acquiring Fund. Such liquidation and distribution will
be accomplished by the transfer of the Acquiring Fund Shares then credited to
the account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share records of the Acquiring Fund in the name of the
Acquired Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Acquired Fund will simultaneously be canceled on the books of
the Acquired Fund, although any outstanding share certificates representing
interests in the Acquired Fund will represent a number of Acquiring Fund
Shares after the Closing Date as determined in accordance with paragraph 1.1.
The Acquiring Fund shall not issue certificates representing the Acquiring
Fund Shares in connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued in the
manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.6. Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund Shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
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1.7. Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Acquired Fund up to and including the Closing Date
and such later dates on which the Acquired Fund is terminated.
1.8. The Acquired Fund shall, following the Closing Date and the making of
all distributions pursuant to paragraph 1.4, be dissolved under the laws of
the State of Maryland and in accordance with its governing documents.
2. VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by the Acquiring
Fund hereunder shall be the value of such assets computed as of the close of
regular trading on the New York Stock Exchange, Inc. (the "NYSE") on the
Closing Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's then
current prospectus or statement of additional information.
2.2. The net asset value of Acquiring Fund Shares shall be the net asset
value per share computed as of the close of regular trading on the NYSE on the
Valuation Date, using the valuation procedures set forth in the Acquiring
Fund's then current prospectus or statement of additional information.
2.3. All computations of value shall be made by the Manager in accordance
with its regular practice as pricing agent for the Acquired Fund and the
Acquiring Fund, respectively.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be February 18, 2000, or such later date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held as of 5:00 p.m. at
the offices of Salomon Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013, or at such other time and/or place as the parties may agree.
3.2. In the event that on the Valuation Date (a) the NYSE or another primary
trading market for portfolio securities of the Acquiring Fund or the Acquired
Fund shall be closed to trading or trading thereon shall be restricted or (b)
trading or the reporting of trading on the NYSE or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall
be postponed until the first business day after the day when trading shall
have been fully resumed and reporting shall have been restored.
3.3. The Acquired Fund shall deliver at the Closing a list of the names and
addresses of the Acquired Fund's Shareholders and the number and percentage
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ownership of outstanding shares owned by each such shareholder immediately
prior to the Closing, certified on behalf of the Acquired Fund by the Chairman
of the Board of the Acquired Fund. The Acquiring Fund shall issue and deliver
a confirmation evidencing the Acquiring Fund Shares to be credited to the
Acquired Fund's account on the Closing Date to the Secretary of the Acquired
Fund, or provide evidence satisfactory to the Acquired Fund that such
Acquiring Fund Shares have been credited to the Acquired Fund's account on the
books of the Acquiring Fund. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, share certificates, if any,
receipts or other documents as such other party or its counsel may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
(a) The Acquired Fund is a corporation which is duly organized, validly
existing and in good standing under the laws of the State of Maryland;
(b) The Acquired Fund is a registered investment company classified as a
management company of the closed-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), is in full force and effect;
(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of
its Articles of Incorporation or By-laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquired
Fund is a party or by which it is bound;
(d) The Acquired Fund has no material contracts or other commitments
(other than this Agreement) which will be terminated with liability to the
Acquired Fund prior to the Closing Date;
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or to the
Acquired Fund's knowledge threatened against the Acquired Fund or any of
the Acquired Fund's properties or assets (other than that previously
disclosed to the other party to the Agreement) which, if adversely
determined, would materially and adversely affect its financial condition
or the conduct of its business. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings and is not
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects the
Acquired Fund's business or the ability of the Acquired Fund to consummate
the transactions herein contemplated;
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(f) The Statements of Assets and Liabilities of the Acquired Fund for
each of the fiscal years in the four year period ended May 31, 1999,
have been audited by
KPMG LLP, independent auditors, and the Statement of Assets
and Liabilities for the period June 24, 1994 (commencement of operations)
to May 31, 1995 was audited by other auditors, and are in accordance with
generally accepted accounting principles consistently applied, and such
statements (copies of which have been furnished to the Acquiring Fund)
fairly reflect the financial condition of the Acquired Fund as of such
dates, and there are no known contingent liabilities of the Acquired Fund
as of such dates not disclosed therein;
(g) The Acquired Fund will file its final federal and other tax returns
for the period ending on the Closing Date in accordance with the Code. At
the Closing Date, all federal and other tax returns and reports of the
Acquired Fund required by law then to have been filed prior to the Closing
Date shall have been filed, and all federal and other taxes shown as due
on such returns shall have been paid so far as due, or provision shall
have been made for the payment thereof and, to the best of the Acquired
Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(h) For the most recent fiscal year of its operation, the Acquired Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company;
(i) All issued and outstanding shares of the Acquired Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and nonassessable. All of the issued and outstanding shares of the
Acquired Fund will, at the time of Closing, be held by the persons and in
the amounts set forth in the records of the transfer agent as provided in
paragraph 3.3. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any shares of the
Acquired Fund, nor is there outstanding any security convertible into any
shares of the Acquired Fund;
(j) At the Closing Date, the Acquired Fund will have good and marketable
title to its assets to be transferred to the Acquiring Fund pursuant to
paragraph 1.2 and full right, power and authority to sell, assign,
transfer and deliver such assets hereunder and, upon delivery and payment
for such assets, the Acquiring Fund will acquire good and marketable title
thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the Securities Act of
1933, as amended (the "1933 Act"), other than as disclosed to the
Acquiring Fund;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Acquired Fund's
Board of Directors, and subject to the approval of the Acquired Fund's
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shareholders, this Agreement, assuming due authorization, execution and
delivery by the Acquiring Fund, will constitute a valid and binding
obligation of the Acquired Fund, enforceable in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and
to general equity principles;
(l) The information to be furnished by the Acquired Fund for use in no-
action letters, applications for exemptive orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations thereunder
applicable thereto; and
(m) The proxy statement of the Acquired Fund (the "Proxy Statement") to
be included in the Registration Statement referred to in paragraph 5.7
(other than information therein that relates to the Acquiring Fund) will,
on the effective date of the Registration Statement and on the Closing
Date, not contain any 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, in light of the circumstances under which such
statements were made, not misleading.
4.2. The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) The Acquiring Fund is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland;
(b) The Acquiring Fund is a registered investment company classified as
a management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force
and effect;
(c) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not materially
misleading;
(d) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets;
(e) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of
its Articles of Incorporation or By-laws or of any agreement, indenture,
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instrument, contract, lease or other undertaking with respect to the
Acquiring Fund to which the Acquiring Fund is a party or by which it is
bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or threatened
against the Acquiring Fund or any of the Acquiring Fund's properties or
assets. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings and the Acquiring Fund is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects the
Acquiring Fund's business or ability to consummate the transactions
contemplated herein;
(g) The Statement of Assets and Liabilities of the Acquiring Fund for
the fiscal years in the four year period ended February 28, 1999,
have been audited by KPMG
LLP, independent auditors, and for the year ended February 28, 1995,
has been audited by other
independent auditors, and are in accordance with generally accepted
accounting principles consistently applied, and such statements (copies of
which have been furnished to the Acquired Fund) fairly reflect the
financial condition of the Acquiring Fund as of such dates, and there are
no known contingent liabilities of the Acquiring Fund as of such dates not
disclosed therein;
(h) At the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law then to have been filed by such date
shall have been filed, and all federal and other taxes shown as due on
said returns and reports shall have been paid so far as due, or provision
shall have been made for the payment thereof and, to the best of the
Acquiring Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(i) For the most recent fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and the Acquiring Fund intends
to do so in the future;
(j) At the date hereof, all issued and outstanding shares of the
Acquiring Fund are, and at the Closing Date will be, duly and validly
issued and outstanding, fully paid and non-assessable. The Acquiring Fund
does not have outstanding any options, warrants or other rights to
subscribe for or purchase any shares of the Acquiring Fund, nor is there
outstanding any security convertible into shares of the Acquiring Fund
(other than Class B shares of the Acquiring Fund which, under certain
circumstances, are convertible into Class A shares of the Acquiring Fund);
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action, if any, on the part of the
Acquiring
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Fund's Board of Directors, and this Agreement, assuming due authorization,
execution and delivery by the Acquired Fund, constitutes a valid and
binding obligation of the Acquiring Fund, enforceable in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Acquiring Fund Shares, and will be fully paid and non-assessable
with no personal liability attaching to the ownership thereof;
(m) The information to be furnished by the Acquiring Fund for use in no-
action letters, applications for exemptive orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations applicable
thereto;
(n) The Proxy Statement to be included in the Registration Statement
(only insofar as it relates to the Acquiring Fund) will, on the effective
date of the Registration Statement and on the Closing Date, not contain
any 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,
in light of the circumstances under which such statements were made, not
misleading; and
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act
and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue the Acquiring Fund's operations after the
Closing Date.
5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND
5.l. The Acquiring Fund and the Acquired Fund each will operate its business
in the ordinary course between the date hereof and the Closing Date. It is
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions and any other dividends
and distributions deemed advisable, in each case payable either in cash or in
additional shares.
5.2. The Acquired Fund will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein.
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5.3. The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any distribution
thereof other than in accordance with the terms of this Agreement.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund's shares.
5.5. Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund, each will take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.6. As promptly as practicable, but in any case within sixty days after the
Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such form
as is reasonably satisfactory to the Acquiring Fund, a statement of the
earnings and profits of the Acquired Fund for federal income tax purposes
which will be carried over to the Acquiring Fund as a result of Section 381 of
the Code and which will be certified by the Chairman of the Board or President
and the Treasurer of the Acquired Fund.
5.7. The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement, referred to in paragraph 4.1(m), all
to be included in a Registration Statement on Form N-14 of the Acquiring Fund
(the "Registration Statement"), in compliance with the 1933 Act, the
Securities Exchange Act of 1934 (the " 1934 Act") and the 1940 Act in
connection with the meeting of the Acquired Fund's shareholders to consider
approval of this Agreement and the transactions contemplated herein.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all of the obligations to be performed by them hereunder on
or before the Closing Date and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
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6.2. The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its Chairman of the Board, President or
Vice President and its Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to the Acquired Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquiring Fund made in
this Agreement are true and correct in all material respects at and as of the
Closing Date, except as they may be affected by the transactions contemplated
by this Agreement; and
6.3. The Acquired Fund shall have received on the Closing Date a favorable
opinion from Willkie Farr & Gallagher, counsel to the Acquiring Fund, dated as
of the Closing Date, in a form reasonably satisfactory to Christina T. Sydor,
Esq., Secretary of the Acquired Fund, covering the following points:
That (a) the Acquiring Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland; (b) the Acquiring Fund
is an open-end management investment company registered under the 1940
Act; (c) this Agreement, the Reorganization provided for hereunder and the
execution of this Agreement have been duly authorized and approved by all
requisite action of the Acquiring Fund, and this Agreement has been duly
executed and delivered by the Acquiring Fund and, assuming due
authorization by the Acquired Fund, is a valid and binding obligation of
the Acquiring Fund, enforceable in accordance with its terms against the
assets of the Acquiring Fund, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; and (d) the Acquiring Fund Shares to be issued
to the Acquired Fund for distribution to its shareholders pursuant to this
Agreement have been, to the extent of the number of Acquiring Fund Shares
of the particular class authorized to be issued by the Acquiring Fund in
its Articles of Incorporation and then unissued, duly authorized and,
subject to the receipt by the Acquiring Fund of consideration equal to the
respective net asset values thereof (but in no event less than the par
value thereof), such Acquiring Fund Shares, when issued in accordance with
this Agreement, will be validly issued and fully paid and non-assessable.
Such opinion may state that it is solely for the benefit of the Acquired
Fund, its Directors and its officers. Such counsel may rely, as to matters
governed by the laws of the State of Maryland, on an opinion of Maryland
counsel.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquired Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
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7.1. All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, together with a list
of the Acquired Fund's portfolio securities showing the tax basis of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer or Assistant Treasurer of the
Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its Chairman of the Board,
President or Vice President and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquiring Fund and dated as of the Closing
Date, to the effect that the representations and warranties of the Acquired
Fund made in this Agreement are true and correct in all material respects at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement; and
7.4. The Acquiring Fund shall have received on the Closing Date a favorable
opinion of Willkie Farr & Gallagher, counsel to the Acquired Fund, in a form
satisfactory to Christina T. Sydor, Esq., Secretary of the Acquiring Fund,
covering the following points:
That (a) the Acquired Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland; (b) the Acquired Fund is
a closed-end management investment company registered under the 1940 Act;
and (c) this Agreement, the Reorganization provided for hereunder and the
execution of this Agreement have been duly authorized and approved by all
requisite action of the Acquired Fund, and this Agreement has been duly
executed and delivered by the Acquired Fund and, assuming due
authorization, execution and delivery by the Acquiring Fund, is a valid
and binding obligation of the Acquired Fund enforceable in accordance with
its terms against the assets of the Acquired Fund, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
Such opinion may state that it is solely for the benefit of the Acquiring
Fund, its Directors and its officers. Such counsel may rely, as to matters
governed by the laws of the State of Maryland, on an opinion of Maryland
counsel.
A-12
<PAGE>
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE
ACQUIRING FUND
If any of the conditions set forth below do not exist on or before the
Closing
Date with respect to the Acquiring Fund or the Acquired Fund, the other party
to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of its Articles of
Incorporation and By-laws and certified copies of the votes evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Acquired
Fund may waive the conditions set forth in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such federal and state
authorities) (and including the filing of Articles of Transfer with the
Maryland State Department of Assessment and Taxation) deemed necessary by the
Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5. The Acquired Fund shall have declared and paid a dividend or dividends
on the outstanding shares of the Acquired Fund which, together with all
previous such dividends, shall have the effect of distributing to the
shareholders of the Acquired Fund all of the investment company taxable income
of the Acquired Fund for all taxable years ending on or prior to the Closing
Date. The dividend declared and paid by the Acquired Fund shall also include
all of such fund's net capital gain
A-13
<PAGE>
realized in all taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carry forward);
8.6. The parties shall have received a favorable opinion of Willkie Farr &
Gallagher, addressed to the Acquiring Fund and the Acquired Fund and
satisfactory to Christina T. Sydor, Esq., as Secretary of each of the Funds,
substantially to the effect that for federal income tax purposes:
(a) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of scheduled liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code, and the Acquiring Fund and the Acquired Fund are each a
"party to a reorganization" within the meaning of Section 368(b) of the
Code; (b) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of
scheduled liabilities of the Acquired Fund; (c) no gain or loss will be
recognized by the Acquired Fund upon the transfer of the Acquired Fund's
assets to the Acquiring Fund in exchange for Acquiring Fund Shares and the
assumption by the Acquiring Fund of scheduled liabilities of the Acquired
Fund or upon the distribution (whether actual or constructive) of
Acquiring Fund Shares to Acquired Fund's shareholders; (d) no gain or loss
will be recognized by shareholders of the Acquired Fund upon the exchange
of their Acquired Fund shares for the Acquiring Fund Shares; (e) the
aggregate tax basis for Acquiring Fund Shares received by each of the
Acquired Fund's shareholders pursuant to the Reorganization will be the
same as the aggregate tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding
period of Acquiring Fund Shares to be received by each Acquired Fund
shareholder will include the period during which the Acquired Fund shares
exchanged therefor were held by such shareholder (provided that the
Acquired Fund shares were held as capital assets on the date of the
Reorganization); and (f) the tax basis to the Acquiring Fund of the
Acquired Fund's assets acquired by the Acquiring Fund will be the same as
the tax basis of such assets to the Acquired Fund immediately prior to the
Reorganization, and the holding period of the assets of the Acquired Fund
in the hands of the Acquiring Fund will include the period during which
those assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund
nor the Acquired Fund may waive the conditions set forth in this paragraph
8.6.
A-14
<PAGE>
9. BROKERAGE FEES AND EXPENSES
9.1. The Acquiring Fund represents and warrants to the Acquired Fund, and
the Acquired Fund represents and warrants to the Acquiring Fund, that there
are no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
9.2. (a) Except as may be otherwise provided herein, Salomon Smith Barney
Inc., shall be liable for the expenses incurred in connection with entering
into and carrying out the provisions of this Agreement, including the expenses
of: (i) counsel and independent accountants associated with the
Reorganization; (ii) printing and mailing the Prospectus/Proxy Statement and
soliciting proxies in connection with the meeting of shareholders of the
Acquired Fund referred to in paragraph 5.2 hereof, (iii) any special pricing
fees associated with the valuation of the Acquired Fund's or the Acquiring
Fund's portfolio on the Closing Date; (iv) expenses associated with preparing
this Agreement and preparing and filing the Registration Statement under the
1933 Act covering the Acquiring Fund Shares to be issued in the
Reorganization; (v) registration or qualification fees and expenses of
preparing and filing such forms, if any, necessary under applicable state
securities laws to qualify the Acquiring Fund Shares to be issued in
connection with the Reorganization. The Acquired Fund shall be liable for: (x)
all fees and expenses related to the liquidation and termination of the
Acquired Fund; and (y) fees and expenses of the Acquired Fund's custodian and
transfer agent incurred in connection with the Reorganization. The Acquiring
Fund shall be liable for any fees and expenses of the Acquiring Fund's
custodian and transfer agent incurred in connection with the Reorganization.
(b) Consistent with the provisions of paragraph 1.3, the Acquired Fund,
prior to the Closing, shall pay for or include in the unaudited Statement of
Assets and Liabilities prepared pursuant to paragraph 1.3 all of its known and
reasonably estimated expenses associated with the transactions contemplated by
this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The parties hereto agree that no party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
11. TERMINATION
11.1. This Agreement may be terminated at any time prior to the Closing Date
by: (i) the mutual agreement of the Acquired Fund and the Acquiring Fund;
A-15
<PAGE>
(ii) the Acquired Fund in the event that the Acquiring Fund shall, or the
Acquiring Fund in the event that the Acquired Fund shall, materially breach
any representation, warranty or agreement contained herein to be performed at
or prior to the Closing Date; or (iii) the Acquired Fund or by the Acquiring
Fund, if a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it will
not or cannot be met.
11.2. In the event of any such termination, there shall be no liability for
damages on the part of either the Acquired Fund or the Acquiring Fund or their
respective, Directors or officers to the other party, but each shall bear the
expenses incurred by it incidental to the preparation and carrying out of this
Agreement as provided in paragraph 9.
12. AMENDMENTS; WAIVERS
12.1. This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund shareholders called by the Acquired Fund pursuant
to paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of Acquiring Fund Shares to
be issued to the Acquired Fund's shareholders under this Agreement to the
detriment of such shareholders without their further approval.
12.2. At any time prior to the Closing Date either party hereto may by
written instrument signed by it (i) waive any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the covenants or conditions (other than those contained
in paragraph 8.1 of this Agreement) made for its benefit contained herein.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by hand
delivery, fax, or certified mail addressed to Greenwich Street Municipal Fund
Inc., 7 World Trade Center, 45th Floor, New York, New York 10048, Attention:
Heath B. McLendon; or to Smith Barney Managed Municipals Fund Inc., 7 World
Trade Center, 45th Floor, New York, New York 10048, Attention: Heath B.
McLendon.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT: LIMITATION OF LIABILITY
14.l. The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
A-16
<PAGE>
14.2. This Agreement may be executed in any number of counterparts, each or
which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
14.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any
person, firm, corporation or other entity, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
14.5. It is expressly agreed that the obligations of the Acquired Fund shall
not be binding upon any Directors, shareholders, nominees, officers, agents or
employees personally, but bind only the property of the Acquired Fund. The
execution and delivery of this Agreement have been authorized by the Directors
of the Acquired Fund and this Agreement has been executed by authorized
officers of the Acquired Fund, acting as such, and neither such authorization
by such Directors nor such execution and delivery by such officers shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the property of the
Acquired Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its Chairman of the Board, President or Vice President and
attested by its Secretary or Assistant Secretary.
Attest:
GREENWICH STREET
MUNICIPAL FUND INC.
By:
- ---------------------------------- ------------------------------
Name: Christina T. Sydor Name: Heath B. McLendon
Title:Secretary Title: Chairman of the Board/
President
Attest:
SMITH BARNEY MANAGED MUNICIPALS
FUND INC.
By:
- ---------------------------------- ------------------------------
Name: Christina T. Sydor Name: Heath B. McLendon
Title:Secretary Title: Chairman of the Board/
President
A-17
[Letterhead of Willkie, Farr & Gallagher]
November 8, 1999
Smith Barney Managed Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
We have acted as counsel to Smith Barney Managed Municipals Fund Inc., a
Maryland corporation (the
"Municipals Fund"), in connection with the proposed acquisition by the
Municipals Fund of all or
substantially all of the assets and liabilities of Greenwich Street
Municipal Fund Inc., a Maryland
corporation (the "Acquired Fund"), in exchange for Class A shares of
common stock of the Municipals
Fund (the "Shares"), pursuant to an Agreement and Plan of Reorganization
to be executed by the
Municipals Fund and by the Acquired Fund (the "Plan").
We have examined the Municipals Fund's Registration Statement on
Form N-14 substantially in the form
in which it is to become effective (the "Registration Statement"), the
Municipals Fund's Articles of
Incorporation and Bylaws, and the Plan.
We have also examined and relied upon other documents and certificates
with respect to factual matters
as we have deemed necessary to render the opinions expressed herein.
We have assumed, without
independent verification, the genuineness of all signatures, the
authenticity of all documents
submitted to us as originals and the conformity with originals of
all documents submitted to us as
copies. We have further assumed that the Plan will constitute the
legal, valid and binding obligation
of the Acquired Fund, enforceable against the Acquired Fund in
accordance with its terms.
We are members of the bar of the State of New York and do not purport
to be experts on, or to express
any opinion herein, concerning any law, other than the laws of the
State of New York and the federal
laws of the United States of America. Anything in this opinion to
the contrary notwithstanding, we
render or imply no opinion with respect to compliance with any
applicable securities or anti-fraud
statutes, rules, regulations or other similar laws of any state
(including the State of Maryland) or
the United States of America. In rendering the opinions herein,
we assume that there will be no
material changes in the facts and conditions on which we base
such opinions between the date hereof
and the time of issuance of the Municipals Fund's Shares pursuant
to the Plan.
Based upon the foregoing, we are of the opinion that:
(a) The Municipals Fund is a duly organized corporation validly
(b) existing under the laws of the
State of Maryland;
(c) The Shares of the Municipals Fund to be issued as contemplated
(d) in the Plan have been duly
authorized, and, subject to the receipt by the Municipals Fund of
consideration equal to
the net asset value thereof (but in no event less than the par
value thereof), when issued
in accordance with the Plan, will be validly issued, fully paid and
nonassessable Shares
of the Municipals Fund under the laws of the State of Maryland.
In rendering the opinions expressed herein based upon laws of the
State of Maryland, we have relied
upon the opinion of Venable, Baetjer and Howard, LLP, special
Maryland counsel to the Municipals Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the
references to us in the Prospectus/Proxy Statement included as part
of the Registration Statement and
to the filing of this opinion as an exhibit to any application made
by or on behalf of the Municipals
Fund or any distributor or dealer in connection with the registration or
qualification of the
Municipals Fund or the Shares under the securities laws of any
state or other jurisdiction.
This opinion is furnished by us as counsel to the Municipals Fund,
is solely for the benefit of the
Municipals Fund and its Directors and its officers in connection
with the above described acquisition
of assets and may not be relied upon for any other purpose or
by any other person.
Very truly yours,
[Letterhead of Willkie, Farr & Gallagher]
[Date]
Smith Barney Managed Municipals Fund Inc.
388 Greenwich Street
New York, New York 10013
Greenwich Street Municipal Fund Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
You have asked us for our opinion concerning certain federal income
tax consequences to (a) Greenwich
Street Municipal Fund Inc., a Maryland corporation (the "Acquired Fund"),
(b) Smith Barney Managed
Municipals Fund Inc., a Maryland corporation (the "Acquiring Fund"),
and (c) holders of shares of
common stock in the Acquired Fund ("Acquired Fund Shareholders")
when Acquired Fund Shareholders
receive shares of common stock of the Acquiring Fund (the "Acquiring
Fund Shares") in exchange for
their interests in the Acquired Fund pursuant to an acquisition by
the Acquiring Fund of all or
substantially all of the assets of the Acquired Fund in exchange
for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of scheduled liabilities of the
Acquired Fund (the "Reorganization"),
all pursuant to an agreement and plan of reorganization.
We have reviewed such documents and materials as we have considered
necessary for the purpose of
rendering this opinion. In rendering this opinion, we have assumed
that such documents as yet
unexecuted will, when executed, conform in all material respects to
the proposed forms of such
documents that we have examined. In addition, we have assumed the
genuineness of all signatures, the
capacity of each party executing a document so to execute that
document, the authenticity of all
documents submitted to us as originals and the conformity to
original documents of all documents
submitted to us as certified or photostatic copies.
We have made inquiry as to the underlying facts which we considered
to be relevant to the conclusions
set forth in this letter. The opinions expressed in this letter
are based upon certain factual
statements relating to the Acquired Fund and the Acquiring Fund
set forth in the Registration
Statement on Form N-14 (the "Registration Statement") filed by
the Acquiring Fund with the Securities
and Exchange Commission and representations made in letters from
the Acquired Fund and the Acquiring
Fund addressed to us for our use in rendering this opinion. We
have no reason to believe that these
representations and facts are not valid, but we have not attempted
to verify independently any of
these representations and facts, and this opinion is based upon the
assumption that each of them is
accurate. Capitalized terms used herein and not otherwise defined
shall have the meaning given them in
the Registration Statement.
The conclusions expressed herein are based upon the Internal Revenue
Code of 1986, as amended (the
"Code"), Treasury regulations issued thereunder, published rulings and
procedures of the Internal
Revenue Service and judicial decisions, all as in effect on the date
of this letter.
Based upon the foregoing, we are of the opinion that for federal income
tax purposes:
(a) the transfer of all or substantially all of the Acquired Fund's
(b) assets in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain scheduled
liabilities of the Acquired Fund, and the distribution of such
Acquiring Fund Shares to
shareholders of the Acquired Fund in exchange for their shares of the
Acquired Fund, will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C)
of the Code, and
the Acquiring Fund and the Acquired Fund are each a "party to a
reorganization" within the
meaning of Section 368(b) of the Code;
(c) no gain or loss will be recognized by the Acquiring Fund on
(d) the receipt of the assets of
the Acquired Fund in exchange for the Acquiring Fund Shares and the
assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired Fund;
(c) no gain or loss will be recognized by the Acquired Fund upon the
(d) transfer of the Acquired
Fund's assets to the Acquiring Fund in exchange for the Acquiring Fund
Shares and the
assumption by the Acquiring Fund of certain scheduled liabilities of the
Acquired Fund or
upon the distribution (whether actual or constructive) of the Acquiring
Fund Shares to the
Acquired Fund's shareholders;
(e) no gain or loss will be recognized by shareholders of the Acquired
(f) Fund upon the exchange
of their Acquired Fund shares for the Acquiring Fund Shares and the
assumption by the
Acquiring Fund of certain scheduled liabilities of the Acquired Fund;
(e) the aggregate tax basis for the Acquiring Fund Shares received by
(f) each of the Acquired
Fund's shareholders pursuant to the Reorganization will be the same
as the aggregate tax
basis of the Acquired Fund shares held by such shareholder immediately
prior to the
Reorganization, and the holding period of the Acquiring Fund Shares to
be received by each
Acquired Fund Shareholder will include the period during which the
Acquired Fund shares
exchanged therefor were held by such shareholder (provided that the
Acquired Fund shares
were held as capital assets on the date of the Reorganization); and
(g) the tax basis to the Acquiring Fund of the Acquired Fund's assets
(h) acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund
immediately prior to the Reorganization, and the holding period of the
assets of the
Acquired Fund in the hands of the Acquiring Fund will include the
period during which
those assets were held by the Acquired Fund.
Very truly yours,
- -3-
Independent Auditors' Consent
To the Shareholders and Board of Directors of
Smith Barney Managed Municipals Fund Inc. and Greenwich Street
Municipal Fund Inc.:
We consent to the incorporation by reference, of our reports
dated April 12, 1999 and July 15, 1999,
with respect to the Smith Barney Managed Municipals Fund Inc.
and Greenwich Street Municipal Fund
Inc., respectively, and to the references to our firm under the
headings "Representations and
Warranties" in Exhibit A in the Prospectus/Proxy Statement and
"Auditors" in the Statement of
Additional Information included in this Registration Statement
on Form N-14.
KPMG LLP
New York, New York
November 5, 1999
[Letterhead of Venable, Baetjer and Howard, LLP]
November 8, 1999
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
Re: Smith Barney Managed Municipals Fund Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel to Smith Barney
Managed Municipals Fund Inc., a Maryland corporation (the "Company"),
in connection with the proposed acquisition by the Company of all or
substantially all of the assets and scheduled liabilities of
Greenwich Street Municipal Fund Inc. (the "Fund") in exchange for
shares of Class A Common Stock of the Company (the "Class A Shares")
pursuant to an Agreement and Plan of Reorganization to be executed by
the Company and the Fund (the "Agreement").
We have examined the Company's Registration Statement on
Form N-14 substantially in the form in which it is to become
effective (the "Registration Statement"), the Company's Charter and
Bylaws, and the form of the Agreement substantially in the form in
which it is to be included in the Prospectus/Proxy Statement included
in the Registration Statement. We have further examined and relied
upon a certificate of the Maryland State Department of Assessments
and Taxation to the effect that the Company is duly incorporated and
existing under the laws of the State of Maryland and is in good
standing and duly authorized to transact business in the State of
Maryland.
We have also examined and relied upon such corporate
records of the Company and other documents and certificates with
respect to factual matters as we have deemed necessary to render the
opinion expressed herein. We have assumed, without independent
verification, the genuineness of all signatures on documents
submitted to us, the authenticity of all documents submitted to us as
originals, and the conformity with originals of all documents
submitted to us as copies. We have further assumed that the
Agreement will be duly executed and delivered in substantially the
same form as that submitted to us and that upon such execution and
delivery, it will constitute the legal, valid and binding obligation
of the Fund, enforceable against the Fund in accordance with its
terms, and, further, that the number of Class A Shares to be issued
by the Company to the Fund and then distributed to the stockholders
of the Fund pursuant to the Agreement will not exceed the number of
then unissued Class A Shares authorized in the Company's Charter.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation validly existing and
in good standing under the laws of the State of Maryland; and
2. The Class A Shares of the Company to be issued as
contemplated in the Agreement have been, to the extent of the number
of Class A Shares authorized in the Charter of the Company and then
unissued, duly authorized, and, subject to the receipt by the Company
of consideration equal to the net asset value thereof (but in no
event less than the par value thereof), when issued in accordance
with the Agreement will be validly issued, fully paid and
nonassessable Class A Shares of the Company under the laws of the
State of Maryland.
This letter expresses our opinion with respect to the
Maryland General Corporation Law governing matters such as the
authorization and issuance of stock. It does not extend to the
securities or "blue sky" laws of Maryland, to federal securities laws
or to other laws.
You may rely on this opinion in rendering your opinion to
the Company that is to be filed as an exhibit to the Registration
Statement. We consent to the filing of this opinion as an exhibit to
the Registration Statement. We do not thereby admit that we are
"experts" as that term is used in the Securities Act of 1933 and the
regulations thereunder. This opinion may not be relied on by any
other person or for any other purpose without our prior written
consent.
Very truly yours,
Venable, Baetjer & Howard, LLP
FORM OF PROXY CARD
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF
GREENWICH STREET MUNICIPAL FUND INC.
The undersigned stockholder(s) of Greenwich Street Municipal Fund
Inc., a Maryland corporation, hereby acknowledges receipt of the
Notice of Special Meeting of Shareholders and Prospectus/Proxy
Statement, each dated January 14, 2000, and hereby appoints Heath B.
McLendon, Christina T. Sydor and William J. Renahan as proxies and
attorneys-in-fact, with full power of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the
Special Meeting of Shareholders of Greenwich Street Municipal Fund
Inc. to be held on February 11, 2000 at 4:00 p.m., local time, at 388
Greenwich Street, 26th Floor, New York, New York 10013 and at any
adjournment or adjournments thereof, and to vote all shares of Common
Stock which the undersigned would be entitled to vote if then and
there personally present on the matters set forth on the reverse
side.
This Proxy, when properly executed, will be voted in accordance with
the directions given by the undersigned stockholder. If no direction
is made, it will be voted FOR the Proposal and as the proxies deem
advisable on such other matters as may come before the meeting.
Please date, sign and mail your proxy card back as soon as possible!
Special Meeting of Stockholders
GREENWICH STREET MUNCIPAL FUND INC.
__________________________
Please detach and Mail in the Envelope Provided
Please mark your
vote as in this example: [X]
FOR
AGAINST ABSTAIN
To approve the Agreement and
Plan of Reorganization with the [ ] [ ]
[ ]
Smith Barney Managed Municipals
Fund Inc., as described in the
accompanying Prospectus/Proxy
Statement.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY.
SIGNATURE:___________________________
________________________________
Signature, if held jointly
DATED:______________, 2000
(Please Date This Proxy)
NOTE: (This Proxy should be marked, dated and signed by the
stockholder(s) exactly as his or her name appears hereon, and
returned promptly in the enclosed envelope. Persons signing in a
fiduciary capacity should so indicate. If shares are held by joint
tenants or as community property, both should sign.)
