<PAGE>
[GRAPHIC]
Smith Barney Mutual Funds
PROSPECTUS
Managed
Municipals
Fund
Class A, B, L and Y Shares
--------------------------------------------
June 28, 1999
The Securities and Exchange Commission has not approved or
disapproved these securities or determined whether this
prospectus is accurate or complete. Any statement to the
contrary is a crime.
<PAGE>
Managed Municipals Fund
Contents
<TABLE>
<S> <C>
Investments, risks and performance.................. 2
More on the fund's investments....... .............. 6
Management.......................................... 7
</TABLE>
<TABLE>
<S> <C>
Choosing a class of shares to buy.................... 8
Comparing the fund's classes......................... 9
Sales charges......................................... 10
More about deferred sales charges..................... 12
Buying shares........................................... 13
Exchanging shares................................. 14
Redeeming shares....................................... 16
Other things to know about share transactions.......... 18
Dividends, distributions and taxes..................... 20
Share price............................................. 21
Financial highlights.................................... 22
</TABLE>
You should know: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Investment objective
The fund seeks to maximize current interest income which is excluded from gross
income for regular federal income tax purposes to the extent consistent with
prudent investment management and the preservation of capital.
Principal investment strategies
Key investments The fund invests at least 80% of its assets in municipal secu-
rities. Municipal securities include securities issued by any of the 50 states
and certain other municipal issuers, political subdivisions, agencies and pub-
lic authorities that pay interest which is exempt from federal income tax. The
fund focuses primarily on intermediate-term and long-term municipal securities
which have remaining maturities at the time of purchase of from three to more
than thirty years. The fund can invest up to 20% of its assets in below invest-
ment grade bonds or in unrated securities of equivalent quality (commonly known
as "junk bonds"). Investment grade bonds are those rated in any of the four
highest long-term rating categories, or if unrated, of comparable quality.
Selection process The manager selects securities primarily by identifying
undervalued sectors and individual securities, while also selecting securities
it believes will benefit from changes in market conditions. In selecting indi-
vidual securities, the manager:
.Uses fundamental credit analysis to estimate the relative value and attrac-
tiveness of various securities and sectors and to exploit opportunities in
the municipal bond market
.Measures the potential impact of supply/demand imbalances for obligations of
different states, the yields available for securities with different maturi-
ties and a security's maturity in light of the outlook for interest rates to
identify individual securities that balance potential return and risk
.May trade between general obligation and revenue bonds and among various reve-
nue bond sectors, such as housing, hospital and industrial development, based
on their apparent relative values
.Identifies individual securities with the most potential for added value, such
as those involving unusual situations, new issuers, the potential for credit
upgrades, unique structural characteristics or innovative features
Managed Municipals Fund
2
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Principal risks of investing in the fund
Investors could lose money on their investment in the fund, or the fund may not
perform as well as other investments, if:
.Interest rates rise, causing the value of the fund's portfolio to decline
.The issuer of a security owned by the fund defaults on its obligation to pay
principal and/or interest or the security's credit rating is downgraded
.Municipal securities fall out of favor with investors
.Unfavorable legislation affects the tax-exempt status of municipal bonds
.The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and distri-
butions of the fund's gains generally will be, subject to federal taxation. The
fund may realize taxable gains on the sale of its securities or on transactions
in derivatives. Some of the fund's income may be subject to the federal alter-
native minimum tax. In addition, distributions of the fund's income and gains
will be subject to state personal income taxation.
Who may want to invest The fund may be an appropriate investment if you:
.Are a taxpayer in a high federal tax bracket seeking income exempt from fed-
eral taxation
.Currently have exposure to other asset classes and are seeking to broaden your
investment portfolio
.Are willing to accept the risks of municipal securities
Smith Barney Mutual Funds
3
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Risk return bar chart
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not neces-
sarily indicate how the fund will perform in the future.
The bar chart shows the performance of the fund's Class A shares for each of
the past 10 calendar years. Class B, L and Y shares would have different per-
formance because of their different expenses. The performance information in
the chart does not reflect sales charges, which would reduce your return.
Total Return: Class A Shares
% Total Return: Class A Shares
[BAR GRAPH]
Calendar years ended December 31
1989 10.15%
1990 5.16%
1991 14.28%
1992 9.40%
1993 15.91%
1994 -4.49%
1995 20.27%
1996 5.61%
1997 10.89%
1998 4.58%
Calendar years ended December 31
Quarterly returns:
Highest: 9.75% in 1st quarter 1995; Lowest: (3.53)% in 1st quarter 1994
Year to date: 0.48% through 3/31/99
Risk return table
This table indicates the risks of investing in the fund by comparing the aver-
age annual total return of each class for the periods shown with that of the
Lehman Brothers Municipal Bond Index (the "Lehman Index"), a broad-based unman-
aged index of municipal bonds and the Lipper General Muni Debt Funds (the
"Lipper Average"), an average composed of the fund's peer group of mutual
funds. This table assumes imposition of the maximum sales charge applicable to
the class, redemption of shares at the end of the period, and reinvestment of
distributions and dividends.
Average Annual Total Returns
Calendar Years Ended December 31, 1998
<TABLE>
<CAPTION>
Class 1 year 5 years 10 years Since inception Inception date
<S> <C> <C> <C> <C> <C>
A 0.43 % 6.2% 8.53% 10.55% 3/4/81
B (0.4)% 6.37% n/a 8.33% 11/6/92
L 2.01 % n/a n/a 9.85% 11/19/94
Y 4.77 % n/a n/a 8.2% 4/4/95
Lehman Index 6.48 % 6.22% 8.22% 9.71% *
Lipper Average 5.32 % 5.44% 7.68% 9.71% *
</TABLE>
*Index comparison begins on 3/31/81
Managed Municipals Fund
4
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Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) 4.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 4.50% 1.00% None
</TABLE>
Annual fund operating expenses
<TABLE>
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee 0.47% 0.47% 0.47% 0.47%
Distribution and service (12b-1) fees 0.15% 0.65% 0.70% None
Other expenses 0.05% 0.07% 0.07% 0.03%
----- ----- ----- -----
Total annual fund operating expenses 0.67% 1.19% 1.24% 0.50%
</TABLE>
*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%.
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.Your investment has a 5% return each year
.You reinvest all distributions and dividends without a sales charge
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A (with or without redemption) $466 $606 $758 $1,201
Class B (redemption at end of period) $571 $678 $754 $1,298
Class B (no redemption) $121 $378 $654 $1,298
Class L (redemption at end of period) $325 $489 $774 $1,585
Class L (no redemption) $225 $489 $774 $1,585
Class Y (with or without redemption) $ 51 $160 $280 $625
</TABLE>
Smith Barney Mutual Funds
5
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More on the fund's investments
Municipal securities Municipal securities are debt obligations issued by any of
the 50 states and their political subdivisions, agencies and public authorities
(together with certain other governmental issuers such as Puerto Rico, the Vir-
gin 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 securi-
ties in which the fund invests include general obligation bonds, revenue bonds
and notes, and municipal leases. These securities may pay interest at fixed,
variable or floating rates. The fund may also hold zero coupon securities which
pay no interest during the life of the obligation but trade at prices below
their stated maturity value.
Below investment grade securities Below investment grade securities, also known
as "junk bonds", are considered speculative with respect to the issuer's abil-
ity to pay interest and principal, involve a high risk of loss and are suscep-
tible to default or decline in market value because of adverse economic and
business developments. The market value for these securities tends to be very
volatile, and these securities are less liquid than investment grade debt secu-
rities.
Derivative contracts The fund may, but need not, use derivative contracts, such
as financial futures and options on financial futures, for any of the following
purposes:
.To hedge against the economic impact of adverse changes in the market value of
portfolio securities because of changes in interest rates
.As a substitute for buying or selling securities
A futures contract will obligate or entitle the fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities.
Even a small investment in futures can have a big impact on a fund's interest
rate exposure. Therefore, using futures can disproportionately increase losses
and reduce opportunities for gains when interest rates are changing. The fund
may not fully benefit from or may lose money on futures if changes in their
value do not correspond accurately to changes in the value of the fund's hold-
ings. The other parties to certain futures present the same types of default
risk as issuers of fixed income securities. Futures can also make a fund less
liquid and harder to value, especially in declining markets.
Defensive investing The fund may depart from its principal investment strate-
gies in response to adverse market, economic or political conditions by taking
temporary defensive positions in all types of money market and short-term debt
securities. If the fund takes a temporary defensive position, it may be unable
to achieve its investment goal.
Managed Municipals Fund
6
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Management
Manager The fund's investment adviser and administrator is SSBC Fund Management
Inc., an affiliate of Salomon Smith Barney Inc. The manager's address is 388
Greenwich Street, New York, New York 10013. The manager selects the fund's
investments and oversees its operations. The manager and Salomon Smith Barney
are subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range
of financial services--asset management, banking and consumer finance, credit
and charge cards, insurance, investments, investment banking and trading--and
use diverse channels to make them available to consumer and corporate customers
around the world.
Joseph P. Deane, investment officer of SSBC Fund Management Inc. and senior
vice president and managing director of Salomon Smith Barney, has been respon-
sible for the day-to-day management of the fund's portfolio since November
1988. Mr. Deane has 29 years of securities business experience.
Management fees During the fiscal year ended February 28, 1999, the manager
received an advisory fee and an administrative fee equal to 0.30% and 0.17%,
respectively, of the fund's average daily net assets.
Distributor The fund has entered into an agreement with CFBDS, Inc. to distrib-
ute the fund's shares. A selling group consisting of Salomon Smith Barney and
other broker-dealers sells fund shares to the public.
Distribution plans The fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by the fund. The manager and Salomon Smith Barney are addressing the
Year 2000 issue for their systems. The fund has been informed by other service
providers that they are taking similar measures. Although the fund does not
expect the Year 2000 issue to adversely affect it, the fund cannot guarantee
the efforts of the fund, which are limited to requesting and receiving reports
from its service providers, or the efforts of its service providers to correct
the problem will be successful.
Smith Barney Mutual Funds
7
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Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and Class
L shares do not, Class B shares may be more attractive to long-term invest-
ors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain dealer representatives
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
Monthly Systematic Investment Plans $25 n/a $25
Quarterly Systematic Investment Plans $50 n/a $50
Uniform Gift to Minor Accounts $250 $15 million $50
</TABLE>
Managed Municipals Fund
8
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Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .Initial .No initial
sales sales sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
4.00%;
reduced for
large pur-
chases and
waived for
certain
investors.
No charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 4.50% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.15% of 0.65% of 0.70% of None
service fees average average average
daily net daily net daily net
assets assets assets
- ------------------------------------------------------------------------
Exchange privilege* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative
or visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds
9
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 4.00 4.17
$25,000 but less than $50,000 3.50 3.63
$50,000 but less than $100,000 3.00 3.09
$100,000 but less than $250,000 2.50 2.56
$250,000 but less than $500,000 1.50 1.52
$500,000 or more -0- -0-
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales
Managed Municipals Fund
10
<PAGE>
charge, if any, as if all shares had been purchased at once. You may include
purchases on which you paid a sales charge within 90 days before you sign the
letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 4.5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued:
Shares issued: Shares issued: Upon exchange from
At initial On reinvestment of another Smith
purchase dividends and Barney
distributions fund
<S> <C> <C>
Eight years after the date of purchase In same proportion On the date the
as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
(excluding shares
issued as a
dividend)
</TABLE>
Smith Barney Mutual Funds
11
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge
on Class L shares you buy before June 22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Salomon Smith Barney Financial Consultant or dealer representative.
Managed Municipals Fund
12
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares.
Financial
Consultant
or dealer
representative
If you do not provide the following information, your order
will be rejected:
.Class of shares being bought
.Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Certain other investors who are clients of the selling group
fund's are eligible to buy shares directly from the fund.
transfer
agent
.Write the transfer agent at the following address:
Smith Barney Managed Municipals Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
.Enclose a check to pay for the shares. For initial
purchases, complete and send an account application.
.For more information, call the transfer agent at 1-800-451-
2010.
Smith Barney Mutual Funds
13
<PAGE>
You may authorize Salomon Smith Barney, your dealer represen-
Through a tative or the transfer agent to transfer funds automatically
systematic from a regular bank account, cash held in a Salomon Smith
investment Barney brokerage account or Smith Barney money market fund to
plan buy shares on a regular basis.
.Amounts transferred should be at least: $25 monthly or $50
quarterly
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Exchanging shares
You should contact your Salomon Smith Barney Financial Con-
Smith Barney sultant or dealer representative to exchange into other Smith
offers a Barney funds. Be sure to read the prospectus of the Smith
distinctive Barney fund you are exchanging into. An exchange is a taxable
family of transaction.
funds
tailored to
help meet the
varying needs
of both large
and small
investors
.You may exchange shares only for shares of the same class of
another Smith Barney fund. Not all Smith Barney funds offer
all classes.
.Not all Smith Barney funds may be offered in your state of
residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
Managed Municipals Fund
14
<PAGE>
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800- 451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the following page.
Smith Barney Mutual Funds
15
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
dealer representative to redeem shares of the fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the transfer agent at the following address:
Smith Barney Managed Municipals Fund Inc.
(Specify class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 5128
Westborough, Massachusetts 01581-5128
Your written request must provide the following:
.Your account number
.The class of shares and the dollar amount or number of
shares to be redeemed
.Signatures of each owner exactly as the account is regis-
tered
Managed Municipals Fund
16
<PAGE>
By telephone If you do not have a brokerage account, you may be eligible
to redeem shares in amounts up to $10,000 per day through the
transfer agent. You must complete an authorization form to
authorize telephone redemptions. If eligible, you may request
redemptions by telephone on any day the New York Stock
Exchange is open. Call the transfer agent at 1-800-451-2010
between 9:00 a.m. and 5:00 p.m. (Eastern time). Requests
received after the close of regular trading on the Exchange
are priced at the net asset value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You must submit a new authorization
form to change the bank account designated to receive wire
transfers and you may be asked to provide certain other docu-
ments.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans and each automatic redemption must be at least $50. If your
shares are subject to a deferred sales charge, the sales
charge will be waived if your automatic payments do not
exceed 1% per month of the value of your shares subject to a
deferred sales charge.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
17
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for the account, sending you a written confirmation
or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the transfer agent
.Instruct the transfer agent to mail the check to an address different from the
one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
Managed Municipals Fund
18
<PAGE>
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other share-
holders. If so, the fund may limit additional purchases and/or exchanges by the
shareholder.
Share certificates The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds
19
<PAGE>
Dividends, distributions and taxes
Dividends The fund pays dividends each month from its net investment income.
The fund generally makes capital gain distributions, if any, once a year, typi-
cally in December. The fund may pay additional distributions and dividends at
other times if necessary for the fund to avoid a federal tax. Capital gain dis-
tributions and dividends are reinvested in additional fund shares of the same
class you hold. The fund expects distributions to be primarily from income. You
do not pay a sales charge on reinvested distributions or dividends. Alterna-
tively, you can instruct your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent to have your distributions and/or divi-
dends paid in cash. You can change your choice at any time to be effective as
of the next distribution or dividend, except that any change given to the
transfer agent less than five days before the payment date will not be effec-
tive until the next distribution or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or
loss; long-term only if
shares owned more than one
year
Long-term capital gain distributions Taxable gain
Short-term capital gain distributions Ordinary income
Dividends Exempt if from interest on
tax-exempt securities,
otherwise ordinary income
</TABLE>
Any taxable dividends and capital gain distributions are taxable whether
received in cash or reinvested in fund shares. Long-term capital gain distribu-
tions are taxable to you as long-term capital gain regardless of how long you
have owned your shares. You may want to avoid buying shares when the fund is
about to declare a capital gain distribution or a taxable dividend, because it
will be taxable to you even though it may actually be a return of a portion of
your investment.
After the end of each year, the fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you
Managed Municipals Fund
20
<PAGE>
may be subject to back-up withholding of 31% of your distributions, dividends,
and redemption proceeds. Because each shareholder's circumstances are different
and special tax rules may apply, you should consult your tax adviser about your
investment in the fund.
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its liabili-
ties. Net asset value is calculated separately for each class of shares. The
fund calculates its net asset value every day the New York Stock Exchange is
open. The Exchange is closed on certain holidays listed in the SAI. This calcu-
lation is done when regular trading closes on the Exchange (normally 4:00 p.m.,
Eastern time).
Generally, the fund's investments are valued by an independent pricing service.
If market quotations or a valuation from the pricing service is not readily
available for a security or if a security's value has been materially affected
by events occurring after the close of the Exchange or market on which the
security is principally traded, that security may be valued by another method
that the fund's board believes accurately reflects fair value. A fund that uses
fair value to price securities may value those securities higher or lower than
another fund using market quotations to price the same securities. A security's
valuation may differ depending on the method used for determining value.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the Exchange closes
early, you must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Smith Barney Mutual Funds
21
<PAGE>
Financial highlights
The financial highlights tables are intended to help you understand the perfor-
mance of each class for the past 5 years (or since inception if less than 5
years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request). The information for the
fiscal year ended February 28, 1995 has been audited by other auditors.
For a Class A share of capital stock outstanding throughout each year ended
February 28:
<TABLE>
<CAPTION>
1999(/1/) 1998 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.19 $15.61 $16.20 $15.47 $16.13
- ------------------------------------------------------------------------------
Income from operations:
Net investment income 0.74 0.79 0.88 0.91 0.95
Net realized and unrealized gain
(loss) (0.10) 1.06 (0.18) 0.80 (0.37)
- ------------------------------------------------------------------------------
Total income from operations 0.64 1.85 0.70 1.71 0.58
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.74) (0.79) (0.91) (0.90) (0.95)
Excess of net investment income (0.05) -- -- -- --
Net realized gains (0.11) (0.48) (0.38) (0.08) (0.29)
- ------------------------------------------------------------------------------
Total distributions (0.90) (1.27) (1.29) (0.98) (1.24)
- ------------------------------------------------------------------------------
Net asset value, end of year $15.93 $16.19 $15.61 $16.20 $15.47
- ------------------------------------------------------------------------------
Total return 4.07% 12.30% 4.51% 11.34% 4.11%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $2,476 $2,367 $2,000 $1,892 $1,772
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 0.67% 0.68% 0.68% 0.70% 0.71%
Net investment income 4.63 4.98 5.60 5.47 6.25
- ------------------------------------------------------------------------------
Portfolio turnover rate 45% 110% 103% 80% 100%
- ------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
Managed Municipals Fund
22
<PAGE>
For a Class B share of capital stock outstanding throughout each year ended
February 28:
<TABLE>
<CAPTION>
1999(/1/) 1998 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.19 $15.60 $16.20 $15.47 $16.13
- ------------------------------------------------------------------------------
Income from operations:
Net investment income 0.66 0.72 0.79 0.82 0.86
Net realized and unrealized gain
(loss) (0.11) 1.06 (0.18) 0.81 (0.37)
- ------------------------------------------------------------------------------
Total income from operations 0.55 1.78 0.61 1.63 0.49
- ------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.66) (0.71) (0.83) (0.82) (0.86)
Excess of net investment income (0.05) -- -- -- --
Net realized gains (0.11) (0.48) (0.38) (0.08) (0.29)
- ------------------------------------------------------------------------------
Total distributions (0.82) (1.19) (1.21) (0.90) (1.15)
- ------------------------------------------------------------------------------
Net asset value, end of year $15.92 $16.19 $15.60 $16.20 $15.47
- ------------------------------------------------------------------------------
Total return 3.48% 11.81% 3.92% 10.78% 3.54%
- ------------------------------------------------------------------------------
Net assets, end of year (millions) $1,206 $1,125 $ 905 $ 730 $ 515
- ------------------------------------------------------------------------------
Ratios to average net assets:
Expenses 1.19% 1.20% 1.19% 1.22% 1.23%
Net investment income 4.11 4.46 5.09 4.94 5.73
- ------------------------------------------------------------------------------
Portfolio turnover rate 45% 110% 103% 80% 100%
- ------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
Smith Barney Mutual Funds
23
<PAGE>
For a Class L share(/1/) of capital stock outstanding throughout each year
ended February 28:
<TABLE>
<CAPTION>
1999(/2/) 1998(/2/) 1997 1996 1995(/3/)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $16.18 $15.60 $16.20 $15.47 $14.30
- ---------------------------------------------------------------------------------
Income from operations:
Net investment income 0.65 0.70 0.79 0.82 0.27
Net realized and
unrealized gain (loss) (0.10) 1.06 (0.18) 0.81 1.46*
- ---------------------------------------------------------------------------------
Total income from
operations 0.55 1.76 0.61 1.63 1.73
- ---------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.65) (0.70) (0.83) (0.82) (0.27)
Excess of net investment
income (0.05) -- -- -- --
Net realized gains (0.11) (0.48) (0.38) (0.08) (0.29)
- ---------------------------------------------------------------------------------
Total distributions (0.81) (1.18) (1.21) (0.90) (0.56)
- ---------------------------------------------------------------------------------
Net asset value, end of
year $15.92 $16.18 $15.60 $16.20 $15.47
- ---------------------------------------------------------------------------------
Total return 3.49% 11.69% 3.88% 10.76% 12.36%(/4/)
- ---------------------------------------------------------------------------------
Net assets, end of year
(000)'s $183,578 $126,766 $72,597 $33,411 $5,395
- ---------------------------------------------------------------------------------
Ratios to average net
assets:
Expenses 1.24% 1.25% 1.24% 1.27% 1.29%(/5/)
Net investment income 4.06 4.38 5.04 4.86 5.67(/5/)
- ---------------------------------------------------------------------------------
Portfolio turnover rate 45% 110% 103% 80% 100%
- ---------------------------------------------------------------------------------
</TABLE>
(/1/) On June 12, 1998, the former Class C shares were renamed Class L shares
(/2/) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method,
because it more accurately reflects the per share data for the period.
(/3/) For the period from November 9, 1994 (inception date) to February 28,
1995.
(/4/) Total return is not annualized as it may not be representative of the
total return for the year.
(/5/) Annualized.
* The amount shown may not agree with the change in aggregate gains and
losses of portfolio securities due to the timing of sales and the
redemptions of fund shares.
Managed Municipals Fund
24
<PAGE>
For a Class Y share of capital stock outstanding throughout each year ended
February 28:
<TABLE>
<CAPTION>
1999(/1/) 1998(/1/) 1997(/1/) 1996(/2/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
year $16.19 $15.60 $16.20 $15.63
- -------------------------------------------------------------------------------
Income from operations:
Net investment income 0.73 0.82 0.90 0.85
Net realized and unrealized
gain (loss) (0.04) 1.07 (0.18) 0.65
- -------------------------------------------------------------------------------
Total income from operations 0.69 1.89 0.72 1.50
- -------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.76) (0.82) (0.94) (0.85)
Excess of net investment income (0.06) -- -- --
Net realized gains (0.11) (0.48) (0.38) (0.08)
- -------------------------------------------------------------------------------
Total distributions (0.93) (1.30) (1.32) (0.93)
- -------------------------------------------------------------------------------
Net asset value, end of year $15.95 $16.19 $15.60 $16.20
- -------------------------------------------------------------------------------
Total return 4.39% 12.56% 4.59% 9.84%(/3/)
- -------------------------------------------------------------------------------
Net assets, end of year (000)'s $11,626 $11,893 $5,350 $12,314
- -------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 0.50% 0.52% 0.52% 0.57%(/4/)
Net investment income 4.84 5.06 5.76 5.62(/4/)
- -------------------------------------------------------------------------------
Portfolio turnover rate 45% 110% 103% 80%
- -------------------------------------------------------------------------------
</TABLE>
(/1/) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method
because it more accurately reflects the per share data for the period.
(/2/) For the period from April 4, 1995 (inception date) to February 29, 1996.
(/3/) Total return is not annualized, as it may not be representative of the
total return for the year.
(/4/) Annualized.
Smith Barney Mutual Funds
25
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Managed Municipals Fund
Shareholder reports Annual and semiannual reports to shareholders provide addi-
tional information about the fund's investments. These reports discuss the mar-
ket conditions and investment strategies that affected the fund's performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
Statement of additional information The statement of additional information
provides more detailed information about the fund and is incorporated by refer-
ence into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the Commis-
sion, Washington, D.C. 20549-6009. Information about the public reference room
may be obtained by calling 1-800-SEC-0330. You can get the same information
free from the Commission's Internet web site at http:www.sec.gov
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not law-
fully sell its shares.
(SM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-03097)
FD0261 6/99
June 28, 1999
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is not a
prospectus and is meant to be read in conjunction with the
Prospectus of the Smith Barney Managed Municipals Fund Inc.
(the "fund") dated June 28, 1999, as amended or supplemented
from time to time (the "prospectus"), and is incorporated by
reference in 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 5
Investment Restrictions..............................................13
Risk Factors and Special Considerations Relating to
Municipal Securities...................15
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 June 11, 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 June 11, 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
Mr. David J. Heerensperger
982 Powell Avenue SW
Renton, WA 98055-2908
Barry Baker
28 Merry Hill Ct
Pikesville, MD 21208-1746
Lawrence J. Bogan
632 Club Lane
Marietta, GA 30067-4618
Y
Y
Y
Owned 1,396,911.253
71.69% of shares
Owned 398,211.415
20.43% of shares
Owned 152,675.625
7.83% of shares
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
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 on 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 5128
Westborough, Massachusetts 01581-5128
A written redemption request must (a) state the Class and
number or dollar amount of shares to be redeemed, (b) identify
the shareholder's account number and (c) be signed by each
registered owner exactly as the shares are registered. If the
shares to be redeemed were issued in certificate form, the
certificates must be endorsed for transfer (or be accompanied
by an endorsed stock power) and must be submitted to the
transfer agent together with the redemption request. Any
signature appearing on a share certificate, stock power or
written redemption request in excess of $10,000 must be
guaranteed by an eligible guarantor institution, such as a
domestic bank, savings and loan institution, domestic credit
union, member bank of the Federal Reserve System or member
firm of a national securities exchange. Written redemption
requests of $10,000 or less do not require a signature
guarantee unless more than one such redemption request is made
in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. The transfer agent may require
additional supporting documents for redemptions made by
corporations, executors, administrators, trustees or
guardians. A redemption request will not be deemed properly
received until the transfer agent receives all required
documents in proper form.
Automatic Cash Withdrawal Plan. The fund offers shareholders
an automatic cash withdrawal plan, under which shareholders
who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly.
Retirement plan accounts are eligible for automatic cash
withdrawal plans only where the shareholder is eligible to
receive qualified distributions and has an account value of at
least $5,000. The withdrawal plan will be carried over on
exchanges between Classes of a fund. Any applicable deferred
sales charge will not be waived on amounts withdrawn by a
shareholder that exceed 1.00% per month of the value of the
shareholder's shares subject to the deferred sales charge at
the time the withdrawal plan commences. (With respect to
withdrawal plans in effect prior to November 7, 1994, any
applicable deferred sales charge will be waived on amounts
withdrawn that do not exceed 2.00% per month of the value of
the shareholder's shares subject to the deferred sales
charge.) For further information regarding the automatic cash
withdrawal plan, shareholders should contact a Salomon Smith
Barney Financial Consultant.
Telephone Redemption and Exchange Program. Shareholders who
do not have a brokerage account may be eligible to redeem and
exchange shares by telephone. To determine if a shareholder is
entitled to participate in this program, he or she should
contact the transfer agent at 1-800-451-2010. Once
eligibility is confirmed, the shareholder must complete and
return a Telephone/Wire Authorization Form, along with a
signature guarantee, that will be provided by the transfer
agent upon request. (Alternatively, an investor may authorize
telephone redemptions on the new account application with the
applicant's signature guarantee when making his/her initial
investment in a fund.)
Redemptions. Redemption requests of up to $10,000 of any
class or classes of shares of a fund may be made by eligible
shareholders by calling the transfer agent at 1-800-451-2010.
Such requests may be made between 9:00 a.m. and 5:00 p.m.
(Eastern time) on any day the NYSE is open. Redemptions of
shares (i) by retirement plans or (ii) for which certificates
have been issued are not permitted under this program.
A shareholder will have the option of having the redemption
proceeds mailed to his/her address of record or wired to a
bank account predesignated by the shareholder. Generally,
redemption proceeds will be mailed or wired, as the case may
be, on the next business day following the redemption request.
In order to use the wire procedures, the bank receiving the
proceeds must be a member of the Federal Reserve System or
have a correspondent relationship with a member bank. The
fund reserves the right to charge shareholders a nominal fee
for each wire redemption. Such charges, if any, will be
assessed against the shareholder's account from which shares
were redeemed. In order to change the bank account designated
to receive redemption proceeds, a shareholder must complete a
new Telephone/Wire Authorization Form and, for the protection
of the shareholder's assets, will be required to provide a
signature guarantee and certain other documentation.
Exchanges. Eligible shareholders may make exchanges by
telephone if the account registration of the shares of the
fund being acquired is identical to the registration of the
shares of the fund exchanged. Such exchange requests may be
made by calling the transfer agent at 1-800-451-2010 between
9:00 a.m. and 5:00 p.m. (Eastern time) on any day on which the
NYSE is open.
Additional Information Regarding Telephone Redemption and
Exchange Program. Neither the fund nor its agents will be
liable for following instructions communicated by telephone
that are reasonably believed to be genuine. The fund and its
agents will employ procedures designed to verify the identity
of the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and
phone calls may be recorded). The fund reserves the right to
suspend, modify or discontinue the telephone redemption and
exchange program or to impose a charge for this service at any
time following at least seven (7) days' prior notice to
shareholders.
Redemptions in Kind. In conformity with applicable rules of
the SEC, redemptions may be paid in portfolio securities, in
cash or any combination of both, as the Board of 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 May 31, 1999 of
approximately $167 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 opinions 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 periods indicated:
Distribution Plan Fees
Fiscal Year
Ended 2/28/99
Fiscal Year
Ended 2/28/98
Fiscal Year
Ended 2/28/97
Class A
$ 3,651,852
$ 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
June 28, 1999
Smith Barney Managed Municipals Fund Inc.
388 Greenwich Street
New York, NY 10013
SALOMON SMITH
BARNEY
A Member of
Citigroup [Symbol]
61
FUNDACCOUNTING\LEGAL\FUNDS\SMMU\SMMU SAI 1999
