June 28, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is not
a prospectus and is meant to be read in conjunction with
the Prospectus of the Smith Barney Managed Municipals
Fund Inc. (the "fund") dated June 28, 2000, 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...............................................
Risk Factors and Special Considerations Relating
to Municipal Securities...................15
Portfolio
Transactions................................16
Portfolio
Turnover.. .................................17
Purchase of Shares...........................18
Determination of Net Asset
Value.................................................................23
Redemption of Shares 24
Investment Management and Other Services 27
Valuation of Shares 32
Exchange Privilege 32
Performance Data 33
Dividends, Distributions and Taxes 38
Additional Information 42
Financial Statements...................43
Other
Information............................43
Appendix A.............................45
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, except as noted otherwise.
Herbert Barg (Age 77). Director
Private Investor. Director or trustee of 16 investment
companies associated with Citigroup Inc. ("Citigroup")
His address is 273 Montgomery Avenue, Bala Cynwyd,
Pennsylvania 19004.
*Alfred J. Bianchetti (Age 77). Director
Retired; formerly Senior Consultant to Dean Witter
Reynolds Inc. Director or trustee of 11 investment
companies associated with Citigroup. His address is 19
Circle End Drive, Ramsey, New Jersey 07466.
Martin Brody (Age 78). Director
Consultant, HMK Associates; Retired Vice Chairman of the
Board of Restaurant Associates Corp. Director or trustee
of 21 investment companies associated with Citigroup.
His address is c/o HMK Associates, 30 Columbia Turnpike,
Florham Park, New Jersey 07932.
Dwight B. Crane (Age 62). Director
Professor, Harvard Business School. Director or trustee
of 24 investment companies associated with Citigroup.
His address is c/o Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 02163.
Burt N. Dorsett (Age 69). 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 11
investment companies associated with Citigroup. His
address is 201 East 62nd Street, New York, New York
10021.
Elliot S. Jaffe (Age 74). Director
Chairman of the Board and President of The Dress Barn,
Inc. Director or trustee of 11 investment companies
associated with Citigroup. His address is 30 Dunnigan
Drive, Suffern, New York 10901.
Stephen E. Kaufman (Age 68). Director
Attorney. Director or trustee of 13 investment companies
associated with Citigroup. His address is 277 Park
Avenue, New York, New York 10172.
Joseph J. McCann (Age 69). Director
Financial Consultant; Retired Financial Executive, Ryan
Homes, Inc. Director or trustee of 11 investment
companies associated with Citigroup. His address is 200
Oak Park Place, Pittsburgh, Pennsylvania 15243.
*Heath B. McLendon (Age 67). Chairman of the Board,
President and Chief Executive Officer
Managing Director of Salomon Smith Barney Inc.;
President of SSB Citi Fund Management LLC (successor to
SSBC Fund Management, Inc.) ("SSB Citi" or the
"manager") and Travelers Investment Adviser, Inc.
("TIA"); Chairman or Co-Chairman of the Board and
director or trustee of 71 investment companies
associated with Citigroup. His address is 7 World Trade
Center, New York, New York 10048.
Cornelius C. Rose, Jr. (Age 66). Director
President, Cornelius C. Rose Associates, Inc., financial
consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. Director or
trustee of 11 investment companies associated with
Citigroup. His address is Meadowbrook Village, Building
4, Apt 6, West Lebanon, New Hampshire 03784.
Lewis E. Daidone (Age 42). 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 SSB Citi and TIA.
Senior Vice President or Executive Vice President and
Treasurer of 61 investment companies associated with
Citigroup.
Joseph P. Deane (Age 52). Vice President and Investment
Officer
Investment Officer of SSB Citi; Managing Director of
Salomon Smith Barney; Investment Officer of nine Smith
Barney Mutual Funds. His address is 7 World Trade
Center, New York, New York 10048.
Paul Brook (Age 46). 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 49). Secretary
Managing Director of Salomon Smith Barney; General
Counsel and Secretary of SSB Citi and TIA. Secretary of
61 investment companies associated with Citigroup.
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 29, 2000, the
directors were reimbursed, in the aggregate, $14,438 for
travel and out-of-pocket expenses.
For the fiscal year ended February 29, 2000, 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 **
$6,3 00
$0
$114,288
16
Alfred
Bianchetti *
5,800
0
53,900
11
Martin Brody **
5,600
0
138,600
21
Dwight B. Crane
**
6,100
0
155,363
24
Burt N. Dorsett
**
6,300
0
57,950
11
Elliot S. Jaffe
**
5,600
0
45,100
11
Stephen E.
Kaufman **
6,300
0
110,650
13
Joseph J. McCann
**
6,300
0
58,050
11
Heath B.
McLendon *
0
0
0
71
Cornelius C.
Rose, Jr. **
6,200
0
53,500
11
+ For the calendar year ended December 31, 1999.
* 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.
As of June 14, 2000, 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 14,
2000, 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
96 Cascade Key
Bellevue, WA 98006-1030
Barry Baker
USA Networks, Inc.
152 W. 57th Street
42nd Floor
New York, NY 10019
Randolph McCormick, Sr.
Broussard Poche, Lewis
And Breaux, CPAs
Attn: Peter Borello
994 E. Prudhomme St.
Opelousas, LA 70570-8239
Lawrence J. Bogan
632 Club Lane
Marietta, GA 30067-4618
Y
Y
Y
Y
Owned 1,183,284.435
66.51% of shares
Owned 309,291.489
17.39% of shares
Owned 143,585.101
8.07% of shares
Owned 142,266.187
8.00% of shares
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.'' SSB Citi 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 29, 2000, 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
losses on the futures contract. No assurance can be
given, however, that the price of the securities being
hedged will correlate with the price movements in a
futures contract and, thus, provide an offset to losses
on the futures contract or option on the futures
contract. In addition, in light of the risk of an
imperfect correlation between securities held by the
fund that are the subject of a hedging transaction and
the futures or options used as a hedging device, the
hedge may not be fully effective because, for example,
losses on the securities held by the fund may be in
excess of gains on the futures contract or losses on the
futures contract may be in excess of gains on the
securities held by the fund that were the subject of the
hedge. In an effort to compensate for the imperfect
correlation of 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 1998, 1999 and
2000 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 1999 and 2000 fiscal
years, the fund's portfolio turnover rates were 45% and
55%, 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 PFPC Global Fund Services ("PFPC" or "sub-
transfer agent") are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may
open an account in 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
PFPC. Share certificates are issued only upon a
shareholder's written request to PFPC. 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 the sub-transfer agent is
authorized through preauthorized transfers of at least
$25 on a monthly basis or at least $50 on a quarterly
basis to charge the shareholder's account held with a
bank or other financial institution on a monthly or
quarterly basis as indicated by the shareholder, to
provide for systematic additions to the shareholder's
fund account. A shareholder who has insufficient funds
to complete the transfer will be charged a fee of up to
$25 by Salomon Smith Barney or the sub-transfer agent.
The Systematic Investment Plan also authorizes Salomon
Smith Barney to apply cash held in the shareholder's
Salomon Smith Barney brokerage account or redeem the
shareholder's shares of a Smith Barney money market fund
to make additions to the account. Additional information
is available from the fund or a Salomon Smith Barney
Financial Consultant or a Dealer Representative.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A
shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to (i)
Board Members and employees of Citigroup and its
subsidiaries and any Citigroup affiliated funds
including the Smith Barney mutual funds (including
retired Board Members and employees); the immediate
families of such persons (including the surviving spouse
of a deceased Board Member or employee); and to a
pension, profit-sharing or other benefit plan for such
persons and (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such
sales are made upon the assurance of the purchaser that
the purchase is made for investment purposes and that
the securities will not be resold except through
redemption or repurchase; (b) offers of Class A shares
to any other investment company to effect the
combination of such company with the fund by merger,
acquisition of assets or otherwise; (c) purchases of
Class A shares by any client of a newly employed Salomon
Smith Barney Financial Consultant (for a period up to 90
days from the commencement of the Financial Consultant's
employment with Salomon Smith Barney), on the condition
the purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i)
was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial
Consultant and (iii) was subject to a sales charge; (d)
purchases by shareholders who have redeemed Class A
shares in the fund (or Class A shares of another Smith
Barney mutual fund that is offered with a sales charge)
and who wish to reinvest their redemption proceeds in
the fund, provided the reinvestment is made within 60
calendar days of the redemption; (e) purchases by
accounts managed by registered investment advisory
subsidiaries of Citigroup; (f) investments of
distributions from or proceeds from a sale of 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 Citi Fiduciary
Trust Company (the "transfer agent") to obtain a Letter
of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no
minimum purchase amount). Such investors must make an
initial minimum purchase of $5,000,000 in Class Y shares
of the fund and agree to purchase a total of $15,000,000
of Class Y shares of the fund within 13 months from the
date of the Letter. If a total investment of $15,000,000
is not made within the 13-month period, all Class Y
shares purchased to date will be transferred to Class A
shares, where they will be subject to all fees
(including a service fee of 0.15%) 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 the
transfer agent for further information.
Deferred Sales Charge Provisions
''Deferred Sales Charge Shares'' are: (a) Class B
shares; (b) Class L shares; and (c) Class A shares 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.
In determining the applicability of any deferred sales
charge, it will be assumed that redemption is made first
of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and
capital gain distributions and finally of other shares
held by the shareholder for the longest period of time.
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 the transfer agent in the case of all other
shareholders) of the shareholder's status or holdings,
as the case may be.
Volume Discounts
The schedule of sales charges on Class A shares
described in the prospectus applies to purchases made by
any "purchaser," which is defined to include the
following: (a) an individual; (b) an individual's spouse
and his or her children purchasing shares for their own
account; (c) a trustee or other fiduciary purchasing
shares for a single trust estate or single fiduciary
account; and (d) a trustee or other professional
fiduciary (including a bank, or an investment adviser
registered with the SEC under the Investment Advisers
Act of 1940, as amended) purchasing shares of the fund
for one or more trust estates or fiduciary accounts.
Purchasers who wish to combine purchase orders to take
advantage of volume discounts on Class A shares should
contact a Salomon Smith Barney Financial Consultant.
DETERMINATION OF 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 PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
A written redemption request must (a) state the Class
and number or dollar amount of shares to be redeemed,
(b) identify the shareholder's account number and (c) be
signed by each registered owner exactly as the shares
are registered. If the shares to be redeemed were issued
in certificate form, the certificates must be endorsed
for transfer (or be accompanied by an endorsed stock
power) and must be submitted to the sub-transfer agent
together with the redemption request. Any signature
appearing on a share certificate, stock power or written
redemption request in excess of $10,000 must be
guaranteed by an eligible guarantor institution, such as
a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System
or member firm of a national securities exchange.
Written redemption requests of $10,000 or less do not
require a signature guarantee unless more than one such
redemption request is made in any 10-day period.
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 4:00 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 4:00 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 - SSB Citi
(Manager)
SSB Citi (successor to SSBC Fund Management Inc.) 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. SSB Citi (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, 2000 of approximately
$218 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,
1998 and 1999 and February 29, 2000, the fund incurred
$10,103,778, $11,563,790 and $10,576,937 respectively,
in investment advisory fees.
The manager also serves as administrator to the fund
pursuant to a written agreement (the "Administration
Agreement"). As administrator SSB Citi: (a) assists in
supervising all aspects of the fund's operations; b)
supplies the fund with office facilities (which may be
in SSB Citi'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 years ended February 28, 1998
and 1999 and February 29, 2000, the fund paid the
manager $5,643,278, $6,448,802 and $5,904,963,
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.
Counsel
Willkie Farr & Gallagher, 787 Seventh Avenue, New York,
New York 10019, serves as counsel to the fund.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New
York, New York, serves as counsel to the directors who
are not "interested persons" of the fund.
Auditors
KPMG LLP, independent auditors, 757 Third Avenue, New
York, New York 10017 have been selected to serve as
auditors of the fund and to render an opinion on the
fund's financial statements for the fiscal year ended
February 28, 2001.
Custodian, Transfer Agent and Sub-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.
Citi Fiduciary Trust Company, located at 388 Greenwich
Street, New York, New York 10013, serves as the fund's
transfer and dividend-paying agent. Under the transfer
agency agreement, the transfer agent maintains the
shareholder account records for the fund, handles
certain communications between shareholders and the
fund, distributes dividends and distributions payable by
the fund and produces statements with respect to account
activity for the fund and its shareholders. For these
services, the transfer agent receives fees from the fund
computed on the basis of the number of shareholder
accounts that the transfer agent maintains for the fund
during the month and is reimbursed for out-of-pocket
expenses.
PFPC Global Fund Services, located at P.O. Box 9699,
Providence, RI 02940-9699, serves as the fund's sub-
transfer agent. Under the transfer agency agreement,
PFPC maintains the shareholder account records for the
fund, handles certain communications between
shareholders and the fund, and distributes dividends and
distributions payable by the fund. For these services,
PFPC receives a monthly fee computed on the basis of the
number of shareholder accounts it maintains for the fund
during the month, and is reimbursed for out-of-pocket
expenses.
Code of Ethics
Pursuant to Rule 17j-1 of the 1940 Act, the fund, the
investment adviser and principal underwriter have
adopted codes of ethics that permit personnel to invest
in securities for their own accounts, including
securities that may be purchased or held by the fund.
All personnel must place the interests of clients first
and avoid activities, interests and relationships that
might interfere with the duty to make decisions in the
best interests of the clients. All personal securities
transactions by employees must adhere to the
requirements of the codes and must be conducted in such
a manner as to avoid any actual or potential conflict of
interest, the appearance of such a conflict, or the
abuse of an employee's position of trust and
responsibility.
A copy of the fund's code of ethics is on file with the
SEC.
Distributor
Effective June 5, 2000, Salomon Smith Barney replaced
CFBDS, Inc. as the fund's distributor. Prior to June 5,
2000, CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 served 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 1998 fiscal
year, Salomon Smith Barney, received $68,000, 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 initial 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 initial sales
charges on Class A shares was $48,000, $43,200 of which
was paid to Salomon Smith Barney. For the fiscal year
ended February 29, 2000 the aggregate dollar amount of
initial sales charges on Class A shares was $1,597,000,
$1,437,300 of which was paid to Salomon Smith Barney.
For the period June 12, 1998 through October 7, 1998 the
aggregate dollar amount of initial 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 year ended February 29, 2000 the aggregate dollar
amount of initial sales charges on Class L shares was
$197,000, $177,300 of which was paid to Salomon Smith
Barney.
For the fiscal years ended February 28, 1998 and 1999
and February 29, 2000, Salomon Smith Barney or its
predecessor received from shareholders $194,000, $72,000
and $178,000, respectively, in deferred sales charges on
the redemption of Class A shares. For the fiscal years
ended February 28, 1998 and 1999 and February 29, 2000,
Salomon Smith Barney or its predecessor received from
shareholders $1,275,000, $1,404,000 and $2,384,000,
respectively, in deferred sales charges on the
redemption of Class B shares. For the fiscal years
ended February 28, 1998 and 1999 and February 29, 2000,
Salomon Smith Barney or its predecessor received from
$29,000, 32,000 and $46,000, 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 29, 2000, Salomon
Smith Barney incurred distribution expenses totaling
$9,230,362 consisting of $676,417 for advertising,
$85,521 for printing and mailing of prospectuses,
$2,021,808 for support services, $3,943,403 to Salomon
Smith Barney Financial Consultants, and $69,547 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 2/29/00
Fiscal Year
Ended 2/28/99
Fiscal Year
Ended 2/28/98
Class A
$ 3,264,176
$ 3,651,852
$ 3,247,646
Class B
$ 6,863,675
$ 7,588,761
$ 6,535,992
Class L*
$ 1,199,500
$ 1,106,096
$
683,634
* 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 DATA
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 Business
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 29, 2000 was 5.89%,
5.62%, 5,52% and 6.32%, respectively. The equivalent
taxable yield for Class A, Class B, Class L and Class Y
shares for that same period was 9.20%, 8.78%, 8.63% and
9.88%, 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):
(10.33)% for the one-year period ended February
29, 2000.
4.05% for the five-year period ended February 29,
2000.
6.81% for the ten-year period ended February 29,
2000.
9.50% per annum during the period from the fund's
commencement of operations on March 4, 1981
through February 29, 2000.
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 (6.62)%, 4.90%, 7.26% and
9.74%, 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):
(11.09)% for the one-year period ended February
29, 2000.
4.20% for the five-year period ended February 29,
2000.
5.92% per annum during the period from the fund's
commencement of operations on November 6, 1992
through February 29, 2000.
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 (7.08)%,
4.36% and 5.92%, 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):
(8.99)% for the one-year period ended February
29, 2000.
4.09% for the five-year period ended February 29,
2000.
6.16% per annum during the period from the fund's
commencement of operations on November 9, 1994
through February 29, 2000.
If the maximum applicable deferred sales charge had not
been deducted at the time of redemption, Class L's
average annual total return would have been (7.19)%,
4.30% and 6.35%.
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):
(6.44)% for the one-year period ended February
29, 2000.
4.87% per annum during the period from the fund's
commencement of operations on April 4, 1995
through February 29, 2000.
Class Y's shares do not incur sales charges or 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):
(10.33)% for the one-year period ended February
29, 2000.
21.95% for the five-year period ended February
29, 2000.
93.34% for the ten-year period ended February 29,
2000.
460.92% for the period from the fund's
commencement of operations on March 4, 1981
through February 29, 2000.
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
(6.62)%, 27.00%, 101.46% and 484.41%, 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):
(11.09)% for the one-year period ended February
29, 2000.
22.84% for the five-year period ended February
29, 2000.
52.30% for the period from commencement of
operations on November 6, 1992 through February
29, 2000.
If the maximum applicable deferred sales charge had not
been deducted at the time of redemption, Class B's
aggregate total return for the same periods would have
been (7.08)%, 23.76% and 52.30%, 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):
(8.99)% for the one-year period ended February
29, 2000.
22.18% for the five-year period ended February
29, 2000.
37.34% for the period from commencement of
operations on November 09, 1994 through February
29, 2000.
If the maximum applicable deferred sales charge had not
been deducted at the time of redemption, Class L's
aggregate total return for the same periods would have
been (7.19)%, 23.44 and 38.69%.
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):
(6.44)% for the one-year period ended February
29, 2000.
26.31% for the period from commencement of
operations on April 4, 1995 through
February 29, 2000.
Class Y shares do not incur sales charges or 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
investment company taxable income (i.e., taxable income
other than any expenses of its net realized long-term
capital gains over its net realized short-term capital
losses ("net realized capital gains")) and on its net
realized capital gains, if any, that it distributes to
its shareholders, provided an amount equal to at least
the sum of 90% of its investment company taxable income,
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.
On February 29, 2000, the unused capital loss carryovers
of the fund were approximately $76,312,000. For Federal
income tax purposes, this amount is available to be
applied against future capital gains of the fund, if
any, that are realized prior to the expiration of the
applicable carryover. The amount, $11,499,000 of the
total unused capital loss carryover expires in 2007 and
the remaining $64,813,000 expires in 2008.
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 with respect to certain of its assets
(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 dividends, distributions and 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 29, 2000 is incorporated herein by reference in
its entirety. The annual report was filed on April 25,
2000, Accession Number 950130-00-002283.
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.
Styles of Fund Management: 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, 2000
Smith Barney Managed Municipals Fund Inc.
388 Greenwich Street
New York, NY 10013
SALOMON
SMITH BARNEY
A Member
of Citigroup [Symbol]
