<PAGE>
CONCERT INVESTMENT SERIES(R)
Municipal Bond Fund
388 Greenwich Street
New York, New York 10013
August 16, 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby all of the assets of Municipal Bond Fund (the "Fund"), a series of
Concert Investment Series(R) ("Investment Series"), would be transferred in a
tax-free reorganization to Smith Barney Managed Municipals Fund Inc. (the
"Acquiring Fund"), in exchange for shares of the corresponding class of common
stock of the Acquiring Fund. If the Agreement and Plan of Reorganization is
approved and consummated, you would no longer be a holder of shares of
beneficial interests in the Fund, but would become a shareholder of the
corresponding class of common stock of the Acquiring Fund, which has similar
investment objectives and policies to your Fund, except as described in the
Prospectus/Proxy Statement.
AFTER CAREFUL REVIEW, THE MEMBERS OF YOUR FUND'S BOARD HAVE APPROVED THE
PROPOSED REORGANIZATION. THE BOARD MEMBERS OF YOUR FUND BELIEVE THAT THE
PROPOSAL SET FORTH IN THE NOTICE OF MEETING FOR YOUR FUND IS IMPORTANT AND
RECOMMEND THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR THE
PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT TO SIGN AND RETURN YOUR PROXY
CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. For more information,
please call 1-800-451-2010. If you prefer, you can fax the proxy card (both
sides) to (888) 796-9932 or vote by telephone by calling (800) 597-7836 using
the 14-digit control number located on your proxy card. The Fund may also
solicit proxies from shareholders by letter, telephone and/or telegraph.
Voting by fax or telephone will reduce the time and costs associated with the
proxy solicitation. When the Fund records proxies by telephone or through the
internet, it will use procedures designed to (i) authenticate shareholders'
identities, (ii) allow shareholders to authorize the voting of their shares in
accordance with their instructions and (iii) confirm that their instructions
have been properly recorded.
Whichever voting method you choose, please read the full text of the
accompanying Prospectus/Proxy Statement before you vote.
Respectfully,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board, President and Chief Executive Officer
Concert Investment Series(R)
----------------
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS
OF THE NUMBER OF SHARES YOU OWN.
<PAGE>
CONCERT INVESTMENT SERIES(R)
Municipal Bond Fund
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders (the "Special
Meeting") of Concert Investment Series(R) ("Investment Series"), on behalf of
its series, Municipal Bond Fund (the "Fund"), will be held at the offices of
SSB Citi Fund Management LLC, 7 World Trade Center, New York, New York 10048,
on September 25, 2000, at 9:00 a.m., Eastern time, for the following purposes:
PROPOSAL 1: To approve an Agreement and Plan of Reorganization for
the Fund;
PROPOSAL 2: To transact such other business as may properly come
before the meeting or any adjournment(s) thereof.
The appointed proxies will vote in their discretion on any other business as
may properly come before the Special Meeting or any adjournments thereof.
Holders of record of shares of beneficial interests in the Fund at the close
of business on August 11, 2000 are entitled to vote at the Special Meeting and
at any adjournments thereof.
For your information, pursuant to Section 8.1 of Investment Series' By-laws,
the Board of Trustees has amended Section 1.4 thereof (relating to voting and
quorum) in order to conform such section to the corresponding provision of
Investment Series' Master Trust Agreement, as amended and restated as of the
date hereof.
If the necessary quorum to transact business or the vote required to approve
a Proposal is not obtained at the Special Meeting, the persons named as
proxies may propose one or more adjournments of the Special Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the
holders of a majority of the Fund's shares present in person or by proxy at
the Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
Proposal and will vote against any such adjournment those proxies to be voted
against the Proposal. For more information, please call 1-800-451-2010.
By Order of the Board of Trustees,
Christina T. Sydor
Secretary
August 16, 2000
----------------
IMPORTANT--WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND
IS INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY
CARD(S) MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE
A QUORUM AT THE SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING AND
WISH TO VOTE YOUR SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL..................................................................... 1
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION.................. 4
SYNOPSIS.................................................................... 4
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND..................... 6
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND............................... 7
INVESTMENT MANAGEMENT FEES AND EXPENSES..................................... 8
ANNUAL FUND OPERATING EXPENSES.............................................. 9
DISTRIBUTION OF SHARES AND OTHER SERVICES................................... 12
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION............................... 12
DIVIDENDS AND OTHER DISTRIBUTIONS........................................... 13
TAX CONSEQUENCES............................................................ 13
PRINCIPAL INVESTMENTS AND RISK FACTORS...................................... 13
THE PROPOSED TRANSACTION.................................................... 17
REASONS FOR THE PROPOSED TRANSACTION........................................ 18
DESCRIPTION OF THE SECURITIES TO BE ISSUED.................................. 20
FEDERAL INCOME TAX CONSEQUENCES............................................. 22
LIQUIDATION AND TERMINATION OF SERIES....................................... 22
PORTFOLIO SECURITIES........................................................ 22
PORTFOLIO TURNOVER.......................................................... 23
CAPITALIZATION AND PERFORMANCE.............................................. 23
ADDITIONAL INFORMATION ABOUT THE FUNDS...................................... 24
ADDITIONAL INFORMATION...................................................... 25
</TABLE>
ii
<PAGE>
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated August 16, 2000
relating to this Prospectus/Proxy Statement and the Reorganization, will be
sent to all shareholders of the Fund requesting a copy of such Statement of
Additional Information.
1. The Statement of Additional Information for the Acquiring Fund, dated
June 28, 2000, as supplemented from time to time.
2. The Statement of Additional Information for the Fund, dated February 28,
2000.
3. Annual Report of the Acquiring Fund for the year ended February 29,
2000.
4. Annual Report of the Fund for the year ended October 31, 1999 and the
Semi-Annual Report of the Fund for the six months ended April 30, 2000.
iii
<PAGE>
Merger Q&A
Concert Municipal Bond Fund into Smith Barney Managed Municipals Fund Inc.
The enclosed materials include a Prospectus/Proxy Statement containing
information you need to make a more informed decision. However, we thought it
would also be helpful for you to have, at the start, answers to some of the
important questions you might have about the proposed reorganization.
We hope you find these explanations useful as you review your materials
before voting. For more detailed information about the proposed
reorganization, please refer to the enclosed Prospectus/Proxy Statement.
What will happen to my shares if the proposed reorganization is approved?
You will become a shareholder of the Smith Barney Managed Municipals Fund on
or about October 6, 2000 ("Closing Date") and will no longer be a shareholder
of the Concert Municipal Bond Fund, which will be terminated pursuant to the
proposed reorganization. You will receive shares of the Smith Barney Managed
Municipals Fund with a total net asset value equal to the total net asset
value of your investment in the Concert Municipal Bond Fund at the time of the
transaction.
If the reorganization is approved and you do not wish to become a
shareholder of the Smith Barney Managed Municipals Fund, you may redeem your
shares prior to the Closing Date. Please note that any redemption will be
subject to all applicable sales charges and redemption fees, and will result
in a taxable event for federal income tax purposes.
What is the key reason for this fund reorganization?
The proposed reorganization will create one single larger sized fund and
provide shareholders of Concert Municipal Bond Fund with a fund that has lower
annual expenses. The proposed reorganization is part of a broader initiative
by the Funds' manager, SSB Citi Fund Management LLC, to restructure more
efficiently its mutual fund product offerings.
As a shareholder of the Smith Barney Managed Municipals Fund, you will be
able to exchange into the same class of certain Smith Barney mutual funds
offered by the Funds' distributor, provided that the Smith Barney Fund offers
the relevant class of shares.
Do the Funds have similar investment objectives?
Yes. Both Funds have similar investment objectives and policies and pursue
their objectives in a substantially similar manner. The Concert Municipal Bond
Fund seeks a high level of current interest income exempt from federal income
tax as is consistent with the preservation of capital. The Smith Barney
Managed Municipals Fund seeks to maximize current interest income which is
excluded from gross income for regular federal income tax purposes to the
extent consistent with prudent investment management and the preservation of
capital. Joseph P. Deane, the portfolio manager of your fund, has also been
the manager of the Smith Barney Managed Municipals Fund since November 1988.
However, the investment practices and limitations of each Fund (and related
risks) are not identical. For additional information regarding the differences
between the two Funds, please refer to the enclosed proxy statement.
Do both Funds have the same dividend and other distribution payment schedules?
Yes. Both Funds declare dividends from net investment income monthly and pay
distributions of net realized capital gains, if any, annually.
<PAGE>
What are the tax consequences of this proposed reorganization?
Subject to shareholder approval, the proposed fund reorganization will not
be a taxable event. Shareholders will not realize any capital gain or loss as
a direct result of the proposed reorganization.
However, if the proposed reorganization is approved by the Concert Municipal
Bond Fund's shareholders, then as soon as practicable before the Closing Date,
the Concert Municipal Bond Fund will pay or have paid its shareholders a cash
distribution of substantially all undistributed 2000 net investment income and
undistributed realized net capital gains. We ask that you consult your tax
advisor or other tax professional for assistance.
Will I enjoy the same privileges as a shareholder of the Smith Barney Managed
Municipals Fund that I currently have as a shareholder of the Concert
Municipal Bond Fund?
Yes. You will continue to enjoy substantially the same shareholder
privileges such as systematic investment, automatic cash withdrawal and
dividend reinvestment as well as access to professional service
representatives.
How does the Board of Trustees recommend I vote?
The Trustees recommend that you vote FOR the reorganization. The Trustees
believe the reorganization is in the best interest of the Concert Municipal
Bond Fund and its shareholders.
Why is my vote important?
Shareholders have a responsibility to vote on important matters affecting
their fund investments. No matter how many shares you own, your vote--and its
timeliness--are also important. Please complete and sign the enclosed proxy
card today!
Please note if you sign and date your proxy card, but do not provide voting
instructions, your shares will be voted FOR the proposal. By voting promptly,
you will help us to avoid the expense of having to re-solicit your proxy.
Thank you in advance for your vote.
<PAGE>
PROSPECTUS/PROXY STATEMENT
388 Greenwich Street
New York, New York 10013
(800) 451-2010
August 16, 2000
RELATING TO THE ACQUISITION BY THE SMITH BARNEY
MANAGED MUNICIPALS FUND INC. (THE "ACQUIRING FUND")
OF THE ASSETS OF MUNICIPAL BOND FUND (THE "FUND"),
A SERIES OF CONCERT INVESTMENT SERIES(R) ("INVESTMENT SERIES").
GENERAL
This Prospectus/Proxy Statement is furnished to holders of shares of
beneficial interests in the Fund in connection with a proposed reorganization
in which all of the assets of the Fund would be acquired by the Acquiring
Fund, in exchange solely for voting shares of the corresponding class of
common stock of the Acquiring Fund and the assumption by the Acquiring Fund of
all of the stated liabilities of the Fund (collectively, the
"Reorganization"). Shares of the Acquiring Fund thereby received would then be
distributed to the shareholders of the Fund in complete liquidation of the
Fund, and the Fund would be terminated as a series of Investment Series. As a
result of the Reorganization, each shareholder of the Fund would receive that
number of full and fractional shares of the corresponding class of common
stock of the Acquiring Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of beneficial interests
in the Fund held as of the close of business on the Closing Date (as defined
herein) of the Reorganization. Shareholders of the Fund are being asked to
vote on an Agreement and Plan of Reorganization pursuant to which such
transactions, as described more fully below, would be consummated.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that
a prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of
the Acquiring Fund, see the prospectus for the Acquiring Fund, dated June 28,
2000, as supplemented from time to time, which is included herewith and
incorporated herein by reference. This Prospectus/Proxy Statement is also
accompanied by the Acquiring Fund's annual report to shareholders for the year
ended February 29, 2000, which is included herewith
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY
STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS.
1
<PAGE>
and incorporated herein by reference. For a more detailed discussion of the
investment objectives, policies, restrictions and risks of the Fund, see the
prospectus for the Fund, dated February 28, 2000, the annual report to
shareholders for the year ended October 31, 1999 and the semi-annual report to
shareholders for the six months ended April 30, 2000, each of which is
incorporated herein by reference and a copy of which may be obtained without
charge by writing to Smith Barney Mutual Funds, 388 Greenwich Street, New
York, New York 10013, or by calling toll-free (800) 451-2010. A Statement of
Additional Information of the Fund and the Acquiring Fund dated August 16,
2000 containing additional information about the Reorganization and the
parties thereto has been filed with the Securities and Exchange Commission
(the "SEC" or the "Commission") and is incorporated by reference into this
Prospectus/Proxy Statement. A copy of the Statement of Additional Information
is available upon request and without charge by writing to or calling Smith
Barney Mutual Funds at the address or phone number listed above. Shareholder
inquiries regarding the Fund or the Acquiring Fund may also be made by calling
the phone number listed above. The information contained herein concerning the
Fund has been provided by, and is included herein in reliance upon, Investment
Series on behalf of the Fund. The information contained herein concerning the
Acquiring Fund has been provided by, and is included herein in reliance upon,
the Acquiring Fund.
The Acquiring Fund is a diversified open-end management investment company
organized as a Maryland corporation. The Fund is a diversified series of
Investment Series, an open-end management investment company organized as a
Massachusetts business trust. The principal investment objective of the
Acquiring Fund is to maximize current interest income which is excluded from
gross income for regular federal income tax purposes to the extent consistent
with prudent investment management and the preservation of capital. The
Acquiring Fund seeks to achieve its objective by investing primarily in
intermediate-term and long-term municipal securities that SSB Citi Fund
Management LLC, the Acquiring Fund's investment adviser ("SSB Citi"), believes
are undervalued in the marketplace as determined by fundamental credit
analysis. The investment objective of the Fund is to seek as high a level of
current interest income exempt from federal income tax as is consistent with
the preservation of capital. The Fund invests in a diversified portfolio
consisting principally of tax-exempt municipal securities that SSB Citi
believes are undervalued in the marketplace as determined by fundamental
credit analysis.
----------------
In the description of the Proposal below, the word "fund" is sometimes used
to mean investment companies or series thereof in general, and not the Fund
whose proxy statement this is. The Fund and the Acquiring Fund may each be
referred to as a "Fund" and may also be referred to collectively as the
"Funds." In addition, in this Prospectus/Proxy Statement, for simplicity,
actions are described as being taken by the Fund, although all actions are
actually taken by Investment Series on behalf of the Fund.
This Prospectus/Proxy Statement, the Notice of Special Meeting and the proxy
card(s) are first being mailed to shareholders on or about August 16, 2000 or
as soon as practicable thereafter. Any holder of shares of beneficial
interests in the Fund giving a proxy has the power to revoke it by mail
(addressed to the Secretary at the principal executive office of Investment
Series at the address shown at the beginning of this Prospectus/Proxy
Statement) or in person at the Special Meeting by executing a superseding
proxy or by submitting a notice of revocation to the Fund. All properly
executed proxies received in time for the Special Meeting will be voted as
specified in the proxy or, if no specification is made, in favor of the
Proposals referred to in the Prospectus/Proxy Statement.
2
<PAGE>
The presence at any shareholders' meeting, in person or by proxy, of the
holders of shares of beneficial interests in the Fund holding 20% of the votes
of the Fund entitled to be cast shall be necessary and sufficient to
constitute a quorum for the transaction of business. If the necessary quorum
to transact business or the vote required to approve any Proposal is not
obtained at the Special Meeting, the persons named as proxies may propose one
or more adjournments of the Special Meeting in accordance with applicable law
to permit further solicitation of proxies with respect to the Proposal that
did not receive the vote necessary for its passage or to obtain a quorum. Any
such adjournment as to a matter will require the affirmative vote of the
holders of a majority of the Fund's shares present in person or by proxy at
the Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of that
Proposal and will vote against any such adjournment those proxies to be voted
against that Proposal. For purposes of determining the presence of a quorum
for transacting business at the Special Meeting, abstentions and broker "non-
votes" will be treated as shares that are present but which have not been
voted. Broker non-votes are proxies received by the Fund from brokers or
nominees when the broker or nominee has neither received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter. Accordingly, shareholders are urged to forward
their voting instructions promptly.
The Proposal requires the affirmative vote of the holders of not less than a
majority of the Fund's shares of beneficial interests outstanding and entitled
to vote thereon. Abstentions and broker non-votes will have the effect of a
"no" vote on the Proposal.
Holders of record of shares of beneficial interests in the Fund at the close
of business on August 11, 2000 (the "Record Date"), as to any matter on which
they are entitled to vote, will be entitled to one vote per share on all
business of the Special Meeting. As of August 11, 2000, there were
7,600,938.41 shares of the Fund outstanding.
To the best of the Acquiring Fund's knowledge, as of August 11, 2000, except
as set forth in ANNEX A no person owned beneficially more than 5% of any class
of the Acquiring Fund's outstanding shares. To the best knowledge of
Investment Series, as of August 11, 2000, except as set forth in ANNEX A, no
person owned beneficially more than 5% of any class of the Fund's outstanding
shares.
As of August 11, 2000, less than 1% of the outstanding shares of the Fund
and the Acquiring Fund were owned directly or beneficially by the trustees or
directors of Investment Series and the Acquiring Fund, respectively.
Each of Investment Series and the Acquiring Fund provides periodic reports
to all of its shareholders which highlight relevant information, including
investment results and a review of portfolio changes. You may receive an
additional copy of the most recent annual report for each of the Fund and the
Acquiring Fund and a copy of any more recent semi-annual report, without
charge, by calling 800-451-2010 or writing to the Fund or the Acquiring Fund
at the address shown at the beginning of this Prospectus/Proxy Statement.
3
<PAGE>
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The governing board of each of Investment Series and the Acquiring Fund,
including all of the Trustees or Directors, as applicable, who are not
"interested persons" of such Funds (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) (the "Non-Interested Board Members"),
approved on July 17, 2000 and July 12, 2000, respectively, an Agreement and
Plan of Reorganization (the "Plan"). Subject to its approval by the holders of
shares of beneficial interests in the Fund, the Plan provides for (a) the
transfer of all of the assets and all of the stated liabilities of the Fund to
the Acquiring Fund in exchange for shares of the corresponding class of common
stock of the Acquiring Fund and assumption of the Fund's liabilities; (b) the
distribution of such Acquiring Fund shares to the holders of shares of
beneficial interests in the Fund in complete liquidation of the Fund and the
cancellation of the Fund's outstanding shares of beneficial interests; and (c)
the termination of the Fund as a series of Investment Series (collectively,
the "Reorganization"). As a result of the Reorganization, each holder of
shares of beneficial interests in the Fund will become a shareholder of the
corresponding class of common stock of the Acquiring Fund and will hold,
immediately after the closing of the Reorganization (the "Closing"), that
number of full and fractional shares of the corresponding class of common
stock of the Acquiring Fund having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of beneficial interests
held in the Fund as of the close of business on the Closing Date (as defined
below). The Closing is expected to occur on October 6, 2000, or on such later
date as the parties may agree in writing (the "Closing Date").
SYNOPSIS
The following is a summary of certain information contained in this
Prospectus/Proxy Statement. This summary is qualified by reference to the more
complete information contained elsewhere in this Prospectus/Proxy Statement,
the Prospectus of the Acquiring Fund, the Prospectus of the Fund and the Plan,
the form of which is attached to this Prospectus/Proxy Statement as Exhibit A.
Holders of shares of beneficial interests in the Fund should read this entire
Prospectus/Proxy Statement carefully.
Introduction. Like your Fund, the Acquiring Fund is managed by SSB Citi, an
affiliate of Salomon Smith Barney Inc. ("Salomon Smith Barney"), and has a
substantially similar investment objective. Joseph P. Deane, the portfolio
manager of your Fund, is also the portfolio manager of the Acquiring Fund.
Moreover, the distributor, custodian, transfer agent and sub-transfer agents
of each of the Fund and the Acquiring Fund are also identical. The Fund has
retained Ernst & Young LLP as its independent auditors and the Acquiring Fund
has retained KPMG LLP as its independent auditors. If the Plan is consummated,
holders of shares of beneficial interests in the Fund will become shareholders
of the corresponding class of common stock of the Acquiring Fund. The
Reorganization has been proposed as part of a broader initiative by SSB Citi
to eliminate duplication and possible confusion in its mutual fund product
offerings. Specifically, this Reorganization has been proposed as the Funds
have substantially similar investment objectives, policies and overall risk
characteristics and the Acquiring Fund is subject to lower management fees and
a lower total annual expense ratio.
Holders of shares of beneficial interests in the Fund will continue to enjoy
many of the same shareholder privileges, such as systematic investment,
automatic redemption and automatic dividend reinvestment, and access to
professional service representatives as shareholders of the Acquiring Fund.
Further, shareholders of the Acquiring Fund may exchange into the same class
of any Smith Barney Fund (provided that the Smith Barney
4
<PAGE>
Fund offers the relevant class of shares. Holders of shares of beneficial
interests in the Fund have a more limited exchange option. Each of the Fund
and the Acquiring Fund declares dividends from net investment income monthly
and pays distributions of net realized capital gains, if any, annually. See
"Dividends and Other Distributions." It is a condition of the Reorganization
that each Fund receive an opinion of independent legal counsel that the
Reorganization will be tax-free. This means that shareholders will not realize
any capital gain or loss as a direct result of the Reorganization.
Proposed transaction. The aggregate net asset value of each class of voting
shares of the Acquiring Fund (the "Shares") issued in exchange for the assets
and liabilities of the corresponding class of shares of beneficial interests
in the Fund will be equal to the net asset value of that class of the Fund as
of the Closing Date. Immediately following the transfer of Shares to the Fund,
the Shares received by the Fund will be distributed pro rata to the record
holders of shares of beneficial interests of the Fund on the Closing Date and
the shares of beneficial interests of the Fund will be cancelled.
For the reasons described below under "Reasons for the Proposed
Transaction," the Board of Investment Series, including the Non-Interested
Board Members, has concluded the following:
-- the Reorganization is in the best interests of the Fund and its holders
of shares of beneficial interests; and
-- the interests of the existing holders of shares of beneficial interests
of the Fund will not be diluted as a result of the Reorganization.
Accordingly, the Board recommends approval of the Plan. If the Plan is not
approved, the Fund will continue in existence unless other action is taken by
the Board; such other action may include resubmitting the Plan for shareholder
approval and termination and liquidation of the Fund.
Comparison of investment objectives and policies. The principal investment
objective of the Acquiring Fund is to maximize current interest income which
is excluded from gross income for regular federal income tax purposes to the
extent consistent with prudent investment management and the preservation of
capital. The Acquiring Fund seeks to achieve its objective by investing
primarily in intermediate-term and long-term municipal securities that SSB
Citi believes are undervalued in the market place as determined by fundamental
credit analysis. The Acquiring Fund may also invest up to 20% of its assets in
below investment grade bonds or unrated securities of equivalent quality.
The investment objective of the Fund is to seek a high level of current
interest income exempt from federal income tax as is consistent with the
preservation of capital. The Fund invests in a diversified portfolio
consisting principally of tax-exempt municipal securities that SSB Citi
believes are undervalued in the marketplace as determined by fundamental
credit analysis. The Fund may also invest up to 25% of its assets in below
investment grade bonds or unrated securities of equivalent quality.
Each Fund may purchase short-term investments, money market instruments and
repurchase agreements; lend portfolio securities; and enter into derivative
transactions. Whereas the Fund may not lend portfolio securities in excess of
10% of its assets, the Acquiring Fund may lend its portfolio securities to the
fullest extent permitted by applicable law. Whereas the Fund may generally
enter into futures contracts and options on futures contracts for both hedging
and speculative purposes, the Acquiring Fund may only do so with respect to
futures contracts or options on futures contracts that either are based on an
index of Municipal Bonds or relate to debt securities the prices of which are
anticipated to correlate with the prices of the Municipal Bonds owned or to be
5
<PAGE>
purchased by the Acquiring Fund. Additionally, whereas the Fund may invest up
to 10% of its net assets in illiquid securities, the Acquiring Fund may invest
up to 15% of its net assets in such securities.
Each Fund has either identical or substantially similar fundamental
investment restrictions with respect to its diversified status; industry
concentration; purchasing or selling real estate, real estate mortgages,
commodities or commodity contracts; making loans; underwriting securities;
purchasing securities on margin; and unseasoned issuers. Whereas the Fund as a
fundamental policy may only borrow up to 10% of its total assets, the
Acquiring Fund as a fundamental policy may borrow up to 33 1/3% of its total
assets. Investment restrictions of each Fund which are fundamental policies
may not be changed without the approval of the applicable Fund's shareholders.
The Fund's investment restrictions are substantially similar to those of the
Acquiring Fund, except as described in this Prospectus/Proxy Statement.
Investors should refer to the respective prospectuses and statements of
additional information of the Fund and the Acquiring Fund for a fuller
description of each Fund's investment policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND
The Acquiring Fund seeks to maximize current interest income which is
excluded from gross income for regular federal income tax purposes to the
extent consistent with prudent investment management and the preservation of
capital.
Principal investment strategies
Key investments. The Acquiring Fund invests at least 80% of its assets in
municipal securities. Municipal securities include securities issued by any of
the 50 states and certain other municipal issuers, political subdivisions,
agencies and public authorities that pay interest which is exempt from federal
income tax. The fund focuses primarily on intermediate-term and long-term
municipal securities which have remaining maturities at the time of purchase
of from three to more than thirty years. The fund can invest up to 20% of its
assets in below investment grade bonds or in unrated securities of equivalent
quality (commonly known as "junk bonds"). Investment grade bonds are those
rated in any of the four highest long-term rating categories, or if unrated,
of comparable quality.
Selection process. SSB Citi selects securities primarily by identifying
undervalued sectors and individual securities, while also selecting securities
it believes will benefit from changes in market conditions. In selecting
individual securities, SSB Citi:
. Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors and to exploit
opportunities in the municipal bond market
. Measures the potential impact of supply/demand imbalances for
obligations of different states, the yields available for securities
with different maturities and a security's maturity in light of the
outlook for interest rates to identify individual securities that
balance potential return and risk
. May trade between general obligation and revenue bonds and among various
revenue bond sectors, such as housing, hospital and industrial
development, based on their apparent relative values
. Identifies individual securities with the most potential for added
value, such as those involving unusual situations, new issues, the
potential for credit upgrades, unique structural characteristics or
innovative features
6
<PAGE>
Principal risks of investing in the Acquiring Fund
Investors could lose money on their investment in the Acquiring Fund, or the
fund may not perform as well as other investments, if:
. Interest rates rise, causing the value of the fund's portfolio to
decline
. The issuer of a security owned by the fund defaults on its obligation to
pay principal and/or interest or the security's credit rating is
downgraded
. Municipal securities fall out of favor with investors
. Unfavorable legislation affects the tax-exempt status of municipal bonds
. The manager's judgment about the attractiveness, value or income
potential of a particular security proves to be incorrect
It is possible that some of the Acquiring Fund's income distributions may
be, and distributions of the fund's gains generally will be, subject to
federal taxation. The fund may realize taxable gains on the sale of its
securities or on transactions in derivatives. Some of the fund's income may be
subject to the federal alternative minimum tax. In addition, distributions of
the fund's income and gains generally will be subject to state income
taxation.
Who may want to invest in the Acquiring Fund
The Acquiring Fund may be an appropriate investment if you:
. Are a taxpayer in a high federal tax bracket seeking income exempt from
federal taxation
. Currently have exposure to other asset classes and are seeking to
broaden your investment portfolio
. Are willing to accept the risks of municipal securities
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund's investment objective is to seek as high a level of current
interest income exempt from federal income tax as is consistent with the
preservation of capital. As further set forth herein, the Fund and the
Acquiring Fund have substantially similar investment objectives and policies
and pursue their respective investment objectives using investment practices
(and subject to investment limitations and risks) which are also substantially
similar.
Key investments
The Fund invests in a diversified portfolio consisting principally of tax-
exempt municipal bonds, which are obligations issued by or on behalf of
states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities.
Tax-exempt means that the bonds pay interest that is excluded from gross
income for federal income tax purposes.
The Fund invests principally in municipal bonds rated at the time of
purchase within the three highest grades by nationally recognized bond rating
services, or, if unrated, of equivalent quality. The fund may also invest up
to 25% in lower rated municipal bonds that have speculative characteristics.
7
<PAGE>
How the manager selects the Fund's investments
SSB Citi selects securities primarily by identifying undervalued sectors and
individual securities, while also selecting securities that it believes will
benefit from changes in relative interest rates. In selecting individual
securities, SSB Citi employs a selection process substantially similar to that
employed by the Acquiring Fund (described above).
Principal risks of investing in the Fund
The principal risks of investing in the Fund are virtually identical to the
principal risks set forth above with respect to investing in the Acquiring
Fund.
Who may want to invest in the Fund
The factors which may make the Fund an appropriate investment for you are
the same as the factors set forth above with respect to the Acquiring Fund.
INVESTMENT MANAGEMENT FEES AND EXPENSES
Investment Series, on behalf of the Fund, and the Acquiring Fund each retain
SSB Citi pursuant to separate contracts, to manage the daily investment and
business affairs of the Fund and the Acquiring Fund, respectively, subject to
the policies established by their respective governing boards. The expenses of
each Fund are paid out of gross investment income. Shareholders pay no direct
charges or fees for investment services.
The Acquiring Fund. SSB Citi, located at 388 Greenwich Street, New York, New
York 10013, serves as the Acquiring Fund's investment adviser and
administrator. SSB Citi selects the Acquiring Fund's investments and oversees
its operations. SSB Citi and Salomon Smith Barney are subsidiaries of
Citigroup Inc. Citigroup businesses produce a broad range of financial
services--asset management, banking and consumer finance, credit and charge
cards, insurance, investments, investment banking and trading--and use diverse
channels to make them available to consumer and corporate customers around the
world. SSB Citi has been in the investment counseling business since 1968 and
renders investment management and administration services to a wide variety of
individual, institutional and investment company clients having aggregate
assets under management as of May 31, 2000 in excess of $218 billion.
Under an investment advisory agreement, the Acquiring Fund currently pays
SSB Citi a monthly fee at the annual rate of 0.30% of the value of its average
daily net assets. As administrator, SSB Citi oversees all aspects of the
Acquiring Fund's administration and operation. For administration services
rendered to the Acquiring Fund, the Acquiring Fund currently pays SSB Citi a
fee at the annual rate of 0.17% of the value of the Acquiring Fund's average
daily net assets. For its management and administration services, SSB Citi
received an aggregate fee during the fund's last fiscal year equal to 0.47% of
the fund's average daily net assets. The total investment management and
administration fees incurred and paid by the Acquiring Fund for the year ended
February 29, 2000 were $16,481,900.
The Acquiring Fund's total expense ratio (total annual operating expenses as
a percentage of average net assets) for each class of its shares for the year
ended February 29, 2000 is set forth below under "Annual Fund Operating
Expenses." SSB Citi projects that if the proposed Reorganization is effected,
the expense ratio for each class of the Acquiring Fund will be unchanged for
the year ending February 28, 2001. The actual expense
8
<PAGE>
ratio for the Acquiring Fund for the year ending February 28, 2001 may be
higher or lower than as set forth below, depending upon the Acquiring Fund's
performance, general bond market and economic conditions, sales and
redemptions of the Acquiring Fund shares (including redemptions by former
shareholders of the Fund), and other factors.
Joseph P. Deane, investment officer of SSB Citi and senior vice president
and managing director of Salomon Smith Barney, has been responsible for the
day-to-day management of the Acquiring Fund's portfolio since November 1988.
Mr. Deane has 29 years of securities business experience. Mr. Deane's
management discussion and analysis of the Acquiring Fund's performance during
the fiscal year ended February 29, 2000 is included in the Acquiring Fund's
Annual Report to Shareholders dated February 29, 2000.
The Fund. The Fund's investment manager is SSB Citi. SSB Citi selects the
Fund's investments and oversees its operations. For its management and
administration services, SSB Citi received a fee during the Fund's last fiscal
year equal to 0.60% of the Fund's average daily net assets. The total
investment management fees incurred and paid by the Fund for the year ended
October 31, 1999 were $719,565.
Joseph P. Deane (described above) has been the portfolio manager of the Fund
since 1997.
The expenses of the Fund and the Acquiring Fund for the fiscal year ended
October 31, 1999 and February 29, 2000, respectively, and pro forma expenses
following the proposed Reorganization are outlined below. As set forth below,
as of their most recent fiscal year end, each class of shares of the Fund had
a higher management fee and higher gross operating expenses than the
corresponding class of the Acquiring Fund. As a result of the Reorganization,
holders of shares of beneficial interests in the Fund will be investing in the
corresponding class of the Acquiring Fund with expenses that are currently
between 0.23% and 0.72% lower than those of the relevant class of the Fund.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
Smith Barney Managed Municipals Fund Inc. Class A Class B Class 1**
----------------------------------------- ------- ------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases.......... 4.00% None 4.75%
(as a percentage of offering price)
Maximum CDSC....................................... None* 4.50% None
(as a percentage of original cost or redemption
proceeds, whichever is lower)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees.................................... 0.48% 0.48% 0.48%
12b-1 fees......................................... 0.15% 0.65% None
Other expenses**................................... 0.05% 0.08% 0.24%
---- ---- ----
TOTAL FUND OPERATING EXPENSES........................ 0.68% 1.21% 0.72%
==== ==== ====
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Municipal Bond Fund Class A Class B Class 1
------------------- ------- ------- -------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases........ 4.50% None 4.75%
(as a percentage of offering price)
Maximum CDSC..................................... None** 4.50% None
(as a percentage of original cost or redemption
proceeds, whichever is lower)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees.................................. 0.60% 0.60% 0.60%
12b-1 fees....................................... 0.25% 1.00% 0.00%
Other expenses................................... 0.33% 0.33% 0.35%
---- ---- ----
TOTAL FUND OPERATING EXPENSES...................... 1.18% 1.93% 0.95%
==== ==== ====
<CAPTION>
Smith Barney Managed Municipals Fund Inc. (Pro Pro Forma Pro Forma Pro Forma
Forma) Class A Class B Class 1**
---------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases........ 4.00% None 4.75%
(as a percentage of offering price)
Maximum CDSC..................................... None* 4.50% None
(as a percentage of original cost or redemption
proceeds, whichever is lower)
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees.................................. 0.48% 0.48% 0.48%
12b-1 fees....................................... 0.15% 0.65% None
Other expenses**................................. 0.05% 0.08% 0.24%
---- ---- ----
TOTAL FUND OPERATING EXPENSES...................... 0.68% 1.21% 0.72%
==== ==== ====
</TABLE>
--------
* You may buy Class A Shares in amounts of $500,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge of
1.00%.
** Class 1 Shares of the Acquiring Fund had not commenced operations as of
February 29, 2000. "Other Expenses" for Class 1 Shares have been estimated
for the first full fiscal year ending February 28, 2001.
10
<PAGE>
Example. This Example is intended to help you compare the cost of investing
in each of the Funds. The Example assumes you invest $10,000 in each Fund for
the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes your investment has a 5% return each
year and that each Fund's annual operating expenses remain the same. Although
your actual costs maybe higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Smith Barney Managed Municipals Fund
Inc. 1 year 3 years 5 years 10 years*
------------------------------------ ------ ------- ------- ---------
<S> <C> <C> <C> <C>
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A.............................. $467 $609 $764 $1,213
Class B.............................. $573 $684 $765 $1,319
Class 1.............................. $545 $694 N/A N/A
An Investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A.............................. $467 $609 $764 $1,213
Class B.............................. $123 $384 $665 $1,319
Class 1.............................. $545 $694 N/A N/A
<CAPTION>
Municipal Bond Fund 1 year 3 years 5 years 10 years*
------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A.............................. $565 $808 $1,070 $1,817
Class B.............................. $646 $906 $1,142 $2,059
Class 1.............................. $567 $763 $ 976 $1,586
An Investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A.............................. $565 $808 $1,070 $1,817
Class B.............................. $196 $606 $1,042 $2,059
Class 1.............................. $567 $763 $ 976 $1,586
<CAPTION>
Smith Barney Managed Municipals Fund Pro Forma Pro Forma Pro Forma Pro Forma
Inc. (Pro Forma) 1 year 3 years 5 years 10 years*
------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
An Investor would pay the following
expenses on a $10,000 investment,
assuming (1) 5.00% annual return and
(2) redemption at the end of each time
period:
Class A.............................. $467 $609 $764 $1,213
Class B.............................. $573 $684 $765 $1,319
Class 1.............................. $545 $694 N/A N/A
An Investor would pay the following
expenses on the same investment,
assuming the same annual return and no
redemption:
Class A.............................. $467 $609 $764 $1,213
Class B.............................. $123 $384 $665 $1,319
Class 1.............................. $545 $694 N/A N/A
</TABLE>
--------
* Ten-year figures for Class B shares assume conversion of Class B shares to
Class A shares at the end of the eighth year following the date of
purchase.
11
<PAGE>
This Example assumes reinvestment of all dividends and distributions. This
Example should not be considered a representation of past or future expenses.
Actual Fund expenses can vary from year to year and may be higher or lower
than those shown. Please refer to each Fund's prospectus and statement of
additional information for a more detailed discussion of the fees and expenses
applicable to each class of shares of a Fund.
DISTRIBUTION OF SHARES AND OTHER SERVICES
As of June 5, 2000, Salomon Smith Barney and PFS Distributors Inc. ("PFS")
distribute shares of each Fund as principal underwriter and as such conducts a
continuous offering pursuant to a "best efforts" arrangement requiring Salomon
Smith Barney and PFS, as applicable, to take and pay for only such securities
as may be sold to the public. Prior to that time, CFBDS, Inc., located at 21
Milk Street, Boston, Massachusetts 02109-5408, acted as distributor of each
Fund's shares. Each Fund has adopted a plan of distribution under Rule 12b-1
under the 1940 Act (the "Plan"), pursuant to which Salomon Smith Barney and
PFS, as applicable, are paid a service fee with respect to Class A and Class B
shares of each Fund at an annual rate of 0.25% in the case of the Fund and
0.15% in the case of the Acquiring Fund of the average daily net assets
attributable to the relevant Fund. Salomon Smith Barney and PFS, as
applicable, are also paid a distribution fee with respect to Class B shares of
each Fund at the annual rate of 0.75% in the case of the Fund and 0.50% in the
case of the Acquiring Fund of the average daily net assets attributable to
those Classes. Class B shares of each Fund that automatically convert to Class
A shares eight years after the date of original purchase will no longer be
subject to a distribution fee. Class 1 shares of each Fund do not pay a Rule
12b-1 fee or a distribution fee. The fees are used by Salomon Smith Barney and
PFS to pay their respective financial consultants for servicing shareholder
accounts and, in the case of Class B shares, to cover expenses primarily
intended to result in the sale of those shares.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Salomon Smith Barney or PFS
and the payments may exceed those expenses actually incurred. Please refer to
each Fund's prospectus and statement of additional information for a more
detailed discussion of the distribution and shareholder servicing arrangements
applicable to each class of shares of a Fund.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges with respect
to the Fund are substantially similar to those of the Acquiring Fund. However,
whereas shareholders of the Acquiring Fund may exchange into the same class of
any Smith Barney Fund (provided that the Smith Barney Fund offers the relevant
class of shares, holders of shares of beneficial interest in the Fund have a
more limited exchange option. Please refer to each Fund's prospectus and
statement of additional information for a more detailed discussion of the
purchase, redemption and exchange procedures and privileges applicable to each
class of a Fund.
12
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
Each of the Fund and the Acquiring Fund declares dividends from net
investment income monthly and pays distributions of net realized capital
gains, if any, annually. Each Fund intends to distribute any net realized
capital gains after utilization of capital loss carryforwards, if any, in
November or December to prevent application of a federal excise tax. An
additional distribution may be made if necessary. Any dividends or capital
gains distributions declared in October, November or December with a record
date in such month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year in which it is declared. Dividends and distributions of each
Fund will be invested in additional shares of the applicable Fund at net asset
value and credited to the shareholder's account on the payment date or, at the
shareholder's election, paid in cash.
If the Plan is approved by the Fund's shareholders, then as soon as
practicable before the Closing Date, the Fund will pay or have paid its
shareholders a cash distribution of substantially all undistributed 2000 net
investment income and undistributed realized net capital gains.
TAX CONSEQUENCES
The Fund and the Acquiring Fund will have received an opinion of Willkie
Farr & Gallagher in connection with the Reorganization, to the effect that,
based upon certain facts, assumptions and representations, the Reorganization
will constitute a tax-free reorganization within the meaning of section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). If
the Reorganization constitutes a tax-free reorganization, no gain or loss will
be recognized by the Fund or its shareholders as a direct result of the
Reorganization. See "Federal Income Tax Consequences."
PRINCIPAL INVESTMENTS AND RISK FACTORS
As set forth herein, the Fund and the Acquiring Fund have substantially
similar investment objectives and policies and pursue their respective
objectives in a similar manner. Accordingly, the Funds engage in investments
practices and techniques that are substantially similar. However, the
investment practices and limitations of each Fund (and the risks related
thereto) are not identical. For instance, the Fund may invest a slightly
larger portion of its assets in "junk bonds", is generally subject to less
restrictive limitations in connections with its use of options and futures
contracts and is generally subject to more restrictive limitations with
respect to securities lending and borrowing. The skill of each Fund's
portfolio management team in choosing appropriate investments for the relevant
Fund will determine in large part its ability to achieve its investment
objective.
A more complete description of the investment practices and limitations of
the Acquiring Fund is contained in the prospectus and statement of additional
information of the Acquiring Fund, dated June 28, 2000, as supplemented from
time to time, a copy of which is included herewith, and in the Statement of
Additional Information of Investment Series and the Acquiring Fund dated
August 16, 2000 (relating to the proposed Reorganization) which is
incorporated herein by reference. Please refer to each Fund's prospectus and
statement of additional information for a more detailed discussion of the
specific investment practices and risks of the applicable Fund.
13
<PAGE>
An investment in either the Fund or the Acquiring Fund includes certain
risks and special considerations, such as those described below:
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.
Fixed-Income Securities. Investments in fixed income securities may subject
a Fund to risks, including the following:
Interest Rate Risk. 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. The volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations, causing a Fund to sustain losses on such investments. A
default could impact both interest and principal payments. 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 equality) 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.
Call Risk and Extension Risk. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may
exercise its right to pay principal on an obligation earlier than
scheduled, which would cause cash flows to be returned earlier than
expected. This typically results when interest rates have declined and a
Fund will suffer from having to reinvest in lower yielding securities.
Extension risk exists when the issuer may exercise its right to pay
principal on an obligation later than scheduled, which would cause cash
flows to be returned later than expected. This typically results when
interest rates have increased, and a Fund will suffer from the inability to
invest in higher yield securities.
Below Investment Grade Fixed-Income Securities. Securities rated in the
fourth highest ratings category by a Nationally Recognized Statistical Rating
Organization (an "NRSRO"), such as those rated BBB by S&P or Baa by Moody's,
are generally regarded as having adequate capacity to pay interest and repay
principal, but may
14
<PAGE>
have some speculative characteristics. Securities rated below the fourth
highest ratings category by an NRSRO, including those rated below Baa by
Moody's or BBB by S&P, are not "investment grade," and may have more
speculative characteristics, including the possibility of default or
bankruptcy of the issuers of such securities, market price volatility based
upon interest rate sensitivity, questionable creditworthiness and relative
liquidity of the secondary trading market. Because high yield bonds have been
found to be more sensitive to adverse economic changes or individual corporate
developments and less sensitive to interest rate changes than higher-rated
investments, an economic downturn could disrupt the market for high yield
bonds and adversely affect the value of outstanding bonds and the ability of
issuers to repay principal and interest. In addition, in a declining interest
rate market, issuers of high yield bonds may exercise redemption or call
provisions, which may force a Fund, to the extent it owns such securities, to
replace those securities with lower yielding securities. This could result in
a decreased return.
Derivative Instruments. In accordance with its investment policies, a Fund
may invest in certain derivative instruments which are securities or contracts
that provide for payments based on or "derived" from the performance of an
underlying asset, index or other economic benchmark. Essentially, a derivative
instrument is a financial arrangement or a contract between two parties (and
not a true security like a stock or a bond). Transactions in derivative
instruments can be, but are not necessarily, riskier than investments in
conventional stocks, bonds and money market instruments. A derivative
instrument is more accurately viewed as a way of reallocating risk among
different parties or substituting one type of risk for another. Every
investment by the Fund, including an investment in conventional securities,
reflects an implicit prediction about future changes in the value of that
investment. Every Fund investment also involves a risk that SSB Citi's
expectations will be wrong. Transactions in derivative instruments often
enable the Fund to take investment positions that more precisely reflect the
portfolio manager's expectations concerning the future performance of the
various investments available to the Fund. Derivative instruments can be a
legitimate and often cost-effective method of accomplishing the same
investment goals as could be achieved through other investment in conventional
securities.
Derivative contracts include options, futures contracts, forward contracts,
forward commitment and when-issued securities transactions, forward foreign
currency exchange contracts and interest rate, mortgage and currency swaps.
The following are the principal risks associated with derivative instruments:
Market risk: The instrument will decline in value or that an alternative
investment would have appreciated more, but this is no different from the
risk of investing in conventional securities.
Leverage and associated price volatility: Leverage causes increased
volatility in the price and magnifies the impact of adverse market changes,
but this risk may be consistent with the investment objective of even a
conservative fund in order to achieve an average portfolio volatility that
is within the expected range for that type of fund.
Credit risk: The issuer of the instrument may default on its obligation
to pay interest and principal.
Liquidity and valuation risk: Many derivative instruments are traded in
institutional markets rather than on an exchange. Nevertheless, many
derivative instruments are actively traded and can be priced with as much
accuracy as conventional securities. Derivative instruments that are custom
designed to meet the specialized investment needs of a relatively narrow
group of institutional investors such as the Fund are not readily
marketable and are subject to the Fund's restrictions on illiquid
investments.
Correlation risk: There may be imperfect correlation between the price of
the derivative and the underlying asset. For example, there may be price
disparities between the trading markets for the derivative contract and the
underlying asset.
15
<PAGE>
Each derivative instrument purchased for a Fund's portfolio is reviewed and
analyzed by SSB Citi to assess the risk and reward of each such instrument in
relation the Fund's portfolio investment strategy. The decision to invest in
derivative instruments or conventional securities is made by measuring the
respective instrument's ability to provide value to the Fund and its
shareholders.
Special Risks of Using Futures Contracts. The prices of futures contracts
are volatile and are influenced by, among other things, actual and anticipated
changes in interest rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts and
of the securities or currencies being hedged can be only approximate. The
degree of imperfection of correlation depends upon circumstances such as:
variations in speculative market demand for futures and for debt securities or
currencies, including technical influences in futures trading; and differences
between the financial instruments being hedged and the instruments underlying
the standard futures contracts available for trading, with respect to interest
rate levels, maturities, and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss,
as well as gain, to the investor. For example, if at the time of purchase, 10%
of the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess
of the amount invested in the futures contract. A Fund, however, would
presumably have sustained comparable losses if, instead of the futures
contract, it had invested in the underlying financial instrument and sold it
after the decline. Where the Fund enters into futures transactions for non-
hedging purposes, it will be subject to greater risks and could sustain losses
which are not offset by gains on other Fund assets.
Furthermore, in the case of a futures contract purchase, in order to be
certain that a Fund has sufficient assets to satisfy its obligations under a
futures contract, the Fund segregates and commits to back the futures contract
an amount of cash and liquid securities equal in value to the current value of
the underlying instrument less the margin deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.
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
16
<PAGE>
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 of 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.
Defensive Investing. A Fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-
term debt securities. If the Fund takes a temporary defensive position, it may
be unable to achieve its investment objective.
THE PROPOSED TRANSACTION
Description of the Plan. As stated above, the Plan provides for the transfer
of all of the assets of the Fund to the Acquiring Fund in exchange for that
number of full and fractional shares of the corresponding class of common
stock of the Acquiring Fund having an aggregate net asset value equal to the
aggregate net asset value of the holder's shares of beneficial interests in
the Fund as of the close of business on the business day preceding the date of
the Closing. The Acquiring Fund will assume all of the stated liabilities of
the Fund. In connection with the Closing, the Fund will distribute the shares
of the corresponding class of common stock of the Acquiring Fund received in
the exchange to the shareholders of the Fund in complete liquidation of the
Fund. The Fund will be terminated as a series of Investment Series.
Upon completion of the Reorganization, each holder of shares of beneficial
interests in the Fund will own that number of full and fractional shares of
the corresponding class of the Acquiring Fund having an aggregate net asset
value equal to the aggregate net asset value of such holder's shares of
beneficial interests in the Fund immediately as of the close of business on
the Closing Date. Each Fund shareholder's account with Investment Series as a
shareholder of the Acquiring Fund will be similar in all material respects to
the accounts currently maintained by the Fund's sub-transfer agent for such
shareholder. Some of the outstanding shares of beneficial interests of the
Fund are represented by physical certificates; however, in the interest of
economy and convenience, shares of the Fund generally are not represented by
physical certificates, and shares of the Acquiring Fund issued to Fund
shareholders similarly will be in uncertificated form. Certificates
representing shares of the Fund will be cancelled after the Closing.
17
<PAGE>
Until the Closing, holders of shares of beneficial interests in the Fund
will, of course, continue to be able to redeem their shares at the net asset
value next determined after receipt by the Fund's sub-transfer agent of a
redemption request in proper form. Redemption requests received by the sub-
transfer agent thereafter will be treated as requests received for the
redemption of shares of the Acquiring Fund received by the shareholder in
connection with the Reorganization.
The obligations of Investment Series, on behalf of the Fund, and the
Acquiring Fund, under the Plan are subject to various conditions, as stated
therein. Among other things, the Plan requires that all filings be made with,
and all authority be received from, the SEC and state securities commissions
as may be necessary in the opinion of counsel to permit the parties to carry
out the transactions contemplated by the Plan. Investment Series and the
Acquiring Fund are in the process of making the necessary filings. To provide
against unforeseen events, the Plan may be terminated or amended at any time
prior to the Closing by action of the Trustees or Directors of either Fund,
notwithstanding the approval of the Plan by the holders of shares of
beneficial interests in the Fund. However, no amendment may be made that
materially adversely affects the interests of the holders of shares of
beneficial interests in the Fund without obtaining the approval of the Fund's
shareholders. Investment Series and the Acquiring Fund may at any time waive
compliance with certain of the covenants and conditions contained in the Plan.
The Plan provides that the obligations of Investment Series are not
personally binding upon any of its Trustees, shareholders, nominees, officers,
agents, or employees, but binds only the property of the Fund as provided in
the Declaration of Trust of Investment Series. Moreover, no series of
Investment Series is responsible for the obligations of Investment Series
under the Plan, and all persons must look only to the assets of the Fund to
satisfy the obligations of Investment Series under the Plan. The execution and
the delivery of the Plan have been authorized by the Board of Trustees of
Investment Series, on behalf of the Fund, and the Plan has been signed by
authorized officers of Investment Series acting as such, and neither such
authorization by such Trustees, nor such execution and delivery by such
officers, shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally. For a complete description of
the terms and conditions of the Reorganization, see the Plan at Exhibit A.
SSB Citi will assume and pay all of the expenses that are solely and
directly related to the Reorganization, which expenses are estimated to be
approximately $96,875. Shareholders have no rights of appraisal.
REASONS FOR THE PROPOSED TRANSACTION
At a telephonic meeting of the Board of Trustees of Investment Series held
on July 17, 2000, the Trustees of Investment Series, including all of the Non-
Interested Board Members, were presented with materials discussing the
benefits which would accrue to the holders of shares of beneficial interests
in the Fund if the Fund were to reorganize with and into the Acquiring Fund.
For the reasons discussed below, the Board of Trustees of Investment Series,
including all of the Non-Interested Board Members, has determined that the
proposed Reorganization is in the best interests of the Fund and its
shareholders and that the interests of the shareholders of the Fund will not
be diluted as a result of the proposed Reorganization.
The proposed combination of the Fund and the Acquiring Fund will allow the
shareholders of the Fund to continue to participate in a portfolio governed by
substantially similar investment objectives and policies that is
professionally managed by the same portfolio manager. The Board of Trustees of
Investment Series believes that the proposed Reorganization offers the
following benefits:
18
<PAGE>
Enhanced Flexibility with Respect to Portfolio Investments. As stated
previously, the Reorganization is being proposed as part of a broader
initiative by SSB Citi to eliminate duplication and possible confusion in its
mutual fund product offerings. Having determined that the offering of multiple
funds with substantially similar objectives and identical portfolio managers
is both repetitious and confusing, SSB Citi believes that the combination of
the Funds which have substantially similar investment objectives and policies
into a single larger fund may increase economic and other efficiencies for
investors and SSB Citi and may ultimately result in a lower total annual
expense ratio for investors. SSB Citi also believes that a larger asset base
could provide portfolio management benefits such as greater diversification
and the ability to command more attention from brokers and underwriters. In
light of the foregoing, it is anticipated that the Acquiring Fund may achieve
a higher level of income over a year's time than the Fund. As discussed in
detail herein, the management fees and total operating expenses of the
Acquiring Fund are also currently (and are projected to be following the
Closing of the Reorganization) lower than the corresponding fees and expenses
incurred by the Fund.
Lower Fees and Expenses. If the proposed transaction is approved, holders of
shares of beneficial interests in the Fund may benefit from both lower
advisory fees and lower total fund expenses. See "Investment Management Fees
and Expenses" and "Annual Fund Operating Expenses".
As set forth above, as of their most recent fiscal year end, each class of
shares of the Fund had a higher management fee and higher gross operating
expenses than the corresponding class of the Acquiring Fund. As a result of
the Reorganization, holders of shares of beneficial interests in the Fund will
be investing in the corresponding class of the Acquiring Fund with expenses
that are currently between 0.23% and 0.72% lower than those of the relevant
class of the Fund. If the Reorganization is approved, the Acquiring Fund's net
expense ratio for each class of its shares is estimated to remain unchanged
for the year ending February 28, 2001.
Some of the fixed expenses currently paid by the Acquiring Fund, such as
accounting, legal and printing costs, would also be spread over a larger asset
base. Other things being equal, shareholders should benefit from economies of
scale through lower expense ratios and higher net income distributions over
time.
Due to a combination of factors, including the relatively small size of the
Fund, past and prospective sales of the Fund and current market conditions,
the Trustees and management of Investment Series believe the Fund and its
holders of shares of beneficial interests would benefit from a tax-free
reorganization with a larger fund with substantially similar investment
objectives and policies and with a lower total annual expense ratio.
Accordingly, it is recommended that the shareholders of the Fund approve the
Reorganization with the Acquiring Fund.
The Board of Trustees of Investment Series, in recommending the proposed
transaction, considered a number of factors, including the following:
(1) the Reorganization will result in a single larger fund managed by the
same portfolio manager, which may increase economic and other efficiencies
(for example, eliminating one of the two sets of prospectuses, annual
reports and other documents required for two Funds), and may result in a
lower expense ratio;
(2) a larger asset base could provide portfolio management benefits, such
as greater diversification and the ability to command more attention from
brokers and underwriters;
(3) the positive compatibility of the Acquiring Fund's investment
objectives, policies and restrictions with those of the Fund;
19
<PAGE>
(4) the tax-free nature of the Reorganization;
(5) the potential opportunity for higher income levels;
(6) the lower management fees and total annual expense ratio of the
Acquiring Fund;
(7) the terms and conditions of the Reorganization and that it should not
result in a dilution of Fund shareholder interests; and
(8) the level of costs and expenses to the Fund of the proposed
Reorganization.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
General. The Fund is a diversified series of Investment Series, a business
trust organized under the laws of The Commonwealth of Massachusetts on January
29, 1987, and is registered with the SEC as an open-end management investment
company. The Acquiring 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. The Fund currently offers
shares of beneficial interests classified into three Classes, A, B and 1. The
Acquiring Fund currently offers shares of common stock classified into four
classes, A, B, L and Y and will offer Class 1 Shares prior to the closing of
the Reorganization. Each Class of shares represents an identical pro rata
interest in the relevant Fund's investment portfolio. As a result, the Classes
of a Fund have the same rights, privileges and preferences, except with
respect to: (a) the designation of each Class; (b) the amount of the
respective sales charges, if any, for each Class; (c) the distribution and/or
service fees borne by each Class; (d) the expenses allocable exclusively to
each Class; (e) voting rights on matters exclusively affecting a single Class;
(f) the exchange privilege of each Class; and (g) the conversion feature of
the Class B Shares.
Each share of each Class of a Fund represents an interest in that Class of
the Fund that is equal to and proportionate with each other share of that
Class of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote.
Voting Rights. Neither Fund is required to hold shareholder meetings
annually, although shareholder meetings may be called for purposes such as
electing or removing Trustees or Directors, as applicable, changing
fundamental policies or approving an investment management contract. In the
event that shareholders of a Fund wish to communicate with other shareholders
concerning the removal of any Trustee or Director, as applicable, such
shareholders shall be assisted in communicating with other shareholders for
the purpose of obtaining signatures to request a meeting of shareholders, all
in the manner provided in Section 16(c) of the 1940 Act as if Section 16(c)
were applicable.
Board. The By-Laws of the Acquiring Fund and of Investment Series provide
that the term of office of each Director/Trustee shall be from the time of his
or her election and qualification until the next annual meeting of
shareholders and until his or her successor shall have been elected and shall
have qualified. Any Director/Trustee of the Acquiring Fund or Investment
Series may be removed by the vote of at least a majority of the outstanding
shares then entitled to be cast for the election of Directors/Trustees.
Vacancies on the Boards of the Acquiring Fund or Investment Series may be
filled by the Directors/Trustees remaining in office. A meeting of
shareholders will be required for the purpose of electing additional
Directors/Trustees whenever fewer than a majority of the Directors/Trustees
then in office were elected by shareholders and to fill vacancies if less than
two-thirds of the Directors/Trustees then holding office have been elected by
the shareholders.
20
<PAGE>
Liquidation or Termination. In the event of the liquidation or termination
of the Acquiring Fund or the Fund, the shareholders of each Fund are entitled
to receive, when and as declared by the Directors/Trustees, the excess of the
assets over the liabilities belonging to the relevant Fund. In either case,
the assets so distributed to shareholders will be distributed among the
shareholders in proportion to the number of shares of the class held by them
and recorded on the books of the relevant Fund. The net asset value of the
classes of shares would differ due to differences in expense ratios.
Liability of Directors/Trustees. The Articles of Incorporation of the
Acquiring Fund and the Declaration of Trust of Investment Series provide that
the Directors/Trustees and officers shall not be liable for monetary damages
for breach of fiduciary duty as a Director/Trustee or officer, except to the
extent such exemption is not permitted by law. The Articles of Incorporation
of the Acquiring Fund and the Declaration of Trust of Investment Series
provide that the relevant Fund shall indemnify each Director, Trustee and
officer to the fullest extent permitted by Maryland or Massachusetts law and
other applicable law.
Rights of Inspection. Maryland law permits any shareholder of the Acquiring
Fund or any agent of such shareholders to inspect and copy, during usual
business hours, the By-Laws, minutes of shareholder proceedings, annual
statements of the affairs and voting trust agreements (if any) of the
Acquiring Fund on file at its principal office. The Declaration of Trust of
Investment Series permits any shareholder of the Fund or his agent to inspect
and copy during normal business hours the By-Laws, minutes of the proceedings
of shareholders and annual financial statements of the Fund (including a
balance sheet and financial statements of operations) on file, at its
principal offices.
Shareholder Liability. Under Maryland law, shareholders of the Acquiring
Fund do not have personal liability for corporate acts and obligations. Under
Massachusetts law, shareholders of a Massachusetts business trust could, under
certain circumstances, be held personally liable for obligations of a fund.
The Declaration of Trust for Investment Series, however, disclaims shareholder
liability for acts or obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by that Fund or its Trustees. Moreover, the Declaration of Trust
provides for indemnification out of the Fund's property for all losses and
expenses of any shareholder held personally liable for the obligations of the
Fund and the Fund will be covered by insurance which the Trustees consider
adequate to cover foreseeable tort claims. Thus, the risk of a shareholder of
the Fund incurring financial loss on account of shareholder liability is
considered by SSB Citi remote and not material, since it is limited to
circumstances in which a disclaimer is inoperative and the Fund itself is
unable to meet its obligations.
Shares of the Acquiring Fund issued to the holders of shares of beneficial
interests in the Fund pursuant to the Reorganization will be fully paid and
nonassessable when issued, transferable without restrictions and will have no
preemptive rights.
The foregoing is only a summary of certain characteristics of the operations
of Investment Series and the Acquiring Fund. The foregoing is not a complete
description of the documents cited. Shareholders should refer to the
provisions of the corporate and trust documents and state laws governing each
Fund for a more thorough description.
21
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by Investment Series, on
behalf of the Fund, and the Acquiring Fund of an opinion from Willkie Farr &
Gallagher, substantially to the effect that, based upon certain facts,
assumptions and representations of the parties, for federal income tax
purposes: (i) the transfer to the Acquiring Fund of all or substantially all
of the assets of the Fund in exchange solely for Shares and the assumption by
the Acquiring Fund of all of the liabilities of the Fund, followed by the
distribution of such Shares to Fund shareholders in exchange for their shares
of beneficial interests in the Fund in complete liquidation of the Fund, will
constitute a "reorganization" within the meaning of Section 368(a)(1) of the
Code, and the Acquiring Fund and the Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain
or loss will be recognized by the Fund upon the transfer of the Fund's assets
to the Acquiring Fund in exchange for the Acquiring Fund Shares and the
assumption by the Acquiring Fund of liabilities of the Fund or upon the
distribution (whether actual or constructive) of the Acquiring Fund Shares to
the Fund's shareholders in exchange for their shares of beneficial interests
in the Fund; (iii) the basis of the assets of the Fund in the hands of the
Acquiring Fund will be the same as the basis of such assets of the Fund
immediately prior to the transfer; (iv) the holding period of the assets of
the Fund in the hands of the Acquiring Fund will include the period during
which such assets were held by the Fund; (v) no gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the Fund in
exchange for Shares and the assumption by the Acquiring Fund of all of the
liabilities of the Fund; (vi) no gain or loss will be recognized by the
holders of beneficial interests in the Fund upon the receipt of Shares solely
in exchange for their shares of beneficial interests in the Fund as part of
the transaction; (vii) the basis of Shares received by the holders of shares
of beneficial interests in the Fund will be the same as the basis of shares of
beneficial interests in the Fund exchanged therefor; and (viii) the holding
period of Shares received by the holders of shares of beneficial interests in
the Fund will include the holding period during which the shares of beneficial
interests in the Fund exchanged therefor were held, provided that at the time
of the exchange the shares of beneficial interests in the Fund were held as
capital assets in the hands of the holders of shares of beneficial interests
in the Fund.
While neither Investment Series nor the Acquiring Fund is aware of any
adverse state or local tax consequences of the proposed Reorganization, they
have not requested any ruling or opinion with respect to such consequences and
shareholders may wish to consult their own tax adviser with respect to such
matters.
LIQUIDATION AND TERMINATION OF SERIES
If the Reorganization is effected, the Fund will be liquidated and
terminated as a series of Investment Series, and the Fund's outstanding shares
will be cancelled.
PORTFOLIO SECURITIES
If the Reorganization is effected, SSB Citi will analyze and evaluate the
portfolio securities of the Fund being transferred to the Acquiring Fund.
Consistent with the Acquiring Fund's investment objective and policies, any
restrictions imposed by the Code and the best interests of the Acquiring
Fund's shareholders (including former shareholders of the Fund), SSB Citi will
determine the extent and duration to which the Fund's portfolio securities
will be maintained by the Acquiring Fund. Currently, a significant rebalancing
of the Fund's portfolio securities in connection with the Reorganization is
not anticipated. Subject to market conditions at the time of any such
rebalancing, the disposition of the Fund's portfolio securities may result in
a capital gain or loss. The actual tax consequences of any disposition of
portfolio securities will vary depending upon the specific security(ies) being
sold.
22
<PAGE>
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund (i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities
with maturities at the time of acquisition of one year or less)), for the year
ended February 29, 2000 was 55%. The portfolio turnover rate for the Fund for
the year ended October 31, 1999 was 38%.
CAPITALIZATION AND PERFORMANCE
Pro forma capitalization (unaudited). The following table sets forth the
unaudited capitalization of each class of each of the Acquiring Fund and the
Fund as of June 30, 2000, as adjusted giving effect to the Reorganization
discussed herein:/1/
<TABLE>
<CAPTION>
Acquiring Pro Forma Pro Forma
Fund The Fund Adjustments Combined
-------------- ----------- ----------- --------------
(Actual) (Actual)
<S> <C> <C> <C> <C>
Class A
-------
Net Assets.............. $1,880,392,759 $30,243,679 -- $1,910,636,438
Net Asset Value Per
Share.................. $14.61 $13.04 -- $14.61
Shares Outstanding...... 128,733,834 2,319,782 2,070,067 130,803,901
Class B
-------
Net Assets.............. $817,452,991 $6,458,411 -- $823,911,402
Net Asset Value Per
Share.................. $14.61 $13.03 -- $14.61
Shares Outstanding...... 55,952,005 495,729 442,054 56,394,060
Class 1/2/
Net Assets.............. -- $66,050,386 -- $66,050,386
Net Asset Value Per
Share.................. $14.61 $13.04 -- $14.61
Shares Outstanding...... -- 5,065,117 4,520,903 4,520,903
Class L
-------
Net Assets.............. $138,759,368 -- -- $138,759,368
Net Asset Value Per
Share.................. $14.60 -- -- $14.60
Shares Outstanding...... 9,502,345 -- -- 9,502,345
Class Y
-------
Net Assets.............. $26,018,531 -- -- $26,018,531
Net Asset Value Per
Share.................. $14.63 -- -- $14.63
Shares Outstanding...... 1,778,987 -- -- 1,778,987
</TABLE>
--------
/1/Assumes the Reorganization had been consummated on June 30, 2000, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by shareholders of the Fund on
the date the Reorganization takes place, and the foregoing should not be
relied upon to reflect the number of shares of the Acquiring Fund that
actually will be received on or after such date.
/2/Assumes subscriptions of Class 1 shares in Acquiring Fund at Class A NAV.
Total return is a measure of the change in value of an investment in a fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the fund rather than
paid to the investor in cash. The formula for total return used by a fund is
prescribed by the SEC and includes three steps: (1) adding to the total number
of shares of the fund that would be purchased by a
23
<PAGE>
hypothetical $1,000 investment in the fund all additional shares that would
have been purchased if all dividends and distributions paid or distributed
during the period had been automatically reinvested; (2) calculating the
redemption value of the hypothetical initial investment as of the end of the
period by multiplying the total number of shares owned at the end of the
period by the net asset value per share on the last trading day of the period;
and (3) dividing this account value for the hypothetical investor by the
amount of the initial investment, and annualizing the result for periods of
less than one year. Total return may be stated with or without giving effect
to any expense limitations in effect for a fund.
The following table reflects the average annual total returns of Class A
Shares of the Fund and the Acquiring Fund (including sales charges) for the 1,
5 and 10 year and since inception periods, as applicable, ending December 31,
1999:
<TABLE>
<CAPTION>
The Fund The Acquiring Fund
-------- ------------------
<S> <C> <C>
Average Annual Total Return:/1/
1-year............................................. (9.20%) (10.90%)
5-year............................................. N/A 5.59%
10-year............................................ N/A 6.69%
Since Inception.................................... 1.82% 9.53%
(8/18/96) (3/4/81)
</TABLE>
--------
1 The average annual total returns for other classes of each Fund's shares
would be similar to the returns of the Class A Shares of the relevant Fund,
but would differ to the extent that the other class of shares had a higher
or lower total annual expense ratio during the relevant periods. For
example, the average annual total returns of Class 1 Shares of the Fund,
which are subject to a lower total annual expense ratio, were as follows
(including sales charges): 1-year: (9.15%); 5-year: 4.80%; 10-year: 5.57%;
and since inception: 6.04% (7/13/88). Class 1 Shares of the Acquiring Fund
had not been issued as of the date of this Prospectus/Proxy Statement.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about Investment Series with respect
to the Fund, the Acquiring Fund, and the Reorganization has been filed with
the SEC and may be obtained without charge by writing to Smith Barney Mutual
Funds, 388 Greenwich Street, New York, New York 10013, or by calling (800)
451-2010.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith, files
reports, proxy material and other information about the applicable Fund with
the Commission.
Such reports, proxy material and other information can be inspected and
copied at the Public Reference Room ((202) 942-8090) maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates or without
charge from the Commission at [email protected]. Copies of such material can
also be obtained from Smith Barney Mutual Funds, 388 Greenwich Street, New
York, New York 10013, or by calling (800) 451-2010.
Interests of certain persons. SSB Citi and certain of the Acquiring Fund's
service providers have a financial interest in the Reorganization arising from
the fact that their respective fees under their respective agreements with the
Acquiring Fund will increase as the amount of the Acquiring Fund's assets
increases by virtue of the Reorganization.
THE BOARD MEMBERS OF INVESTMENT SERIES RECOMMEND THAT THE SHAREHOLDERS OF THE
FUND VOTE IN FAVOR OF THIS PROPOSAL.
24
<PAGE>
ADDITIONAL INFORMATION
General. The cost of preparing, printing and mailing the enclosed proxy
card(s) and Prospectus/Proxy Statement and all other costs incurred in
connection with the solicitation of proxies, including any additional
solicitation made by letter, telephone or telegraph, will be paid by SSB Citi.
In addition to solicitation by mail, certain officers and representatives of
Investment Series, officers and employees of SSB Citi and certain financial
services firms and their representatives, who will receive no extra
compensation for their services, may solicit proxies by telephone, telegram or
personally.
When the Fund records proxies by telephone or through the internet, it will
use procedures designed to (i) authenticate shareholders' identities, (ii)
allow shareholders to authorize the voting of their shares in accordance with
their instructions and (iii) confirm that their instructions have been
properly recorded.
To participate in the Special Meeting, holders of shares of beneficial
interests in the Fund may submit the proxy card originally sent with the
Prospectus/Proxy Statement or attend in person. Any proxy given by a
shareholder is revocable until voted at the Special Meeting.
Proposals of shareholders. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a shareholder meeting subsequent to the
Special Meeting, if any, should send their written proposals to the Secretary
of Investment Series, c/o Smith Barney Mutual Funds, 388 Greenwich Street, New
York, New York 10013, within a reasonable time before the solicitation of
proxies for such meeting. The timely submission of a proposal does not
guarantee its inclusion.
Other matters to come before the special meeting. No Board member is aware
of any matters that will be presented for action at the Special Meeting other
than the matters set forth herein. Should any other matters requiring a vote
of shareholders arise, the proxy in the accompanying form will confer upon the
person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote the shares as to any such other matters in
accordance with their best judgment in the interest of Investment Series
and/or the Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Trustees,
Christina T. Sydor
Secretary
25
<PAGE>
INDEX OF EXHIBITS
ANNEX: 5% Shareholders
Exhibit A: Form of Agreement and Plan of Reorganization
<PAGE>
ANNEX A
5% SHAREHOLDERS
Acquiring Fund
<TABLE>
<CAPTION>
Percentage
Class Name and Address Owned
----- ---------------- ----------
<C> <S> <C>
Class Y Mr. David J. Heerensperger 66.3630%
96 Cascade Key
Bellevue, WA 98006-1030
Class Y Barry Baker 17.5015%
USA Networks, Inc.
152 W 57th Street
42nd Floor
New York, NY 19019-3310
Class Y Randolph McCormick, Sr. 8.1248%
Broussard, Poche, Lewis and Breaux, CPA's
ATTN: Peter Borello
994 E. Prudhomme Street
Opelousas, LA 70570-8239
Class Y Lawrence J. Bogan 7.9788%
632 Club Lane
Marietta, GA 30067-4618
Acquired Fund
<CAPTION>
Percentage
Class Name and Address Owned
----- ---------------- ----------
<C> <S> <C>
Class A PFS Shareholder Services* 69.1491%
ATTN: Jay Barnhill
3100 Breckinridge Boulevard
Duluth, GA 30199
Class A Fiserv Securities Inc.* 7.7736%
FAO: 71706400
ATTN: Mutual Funds Department
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103
Class B PFS Shareholder Services* 77.1828%
ATTN: Jay Barnhill
3100 Breckinridge Boulevard
Duluth, GA 30199
Class 1 PFS Shareholder Services* 100.0000%
ATTN: Jay Barnhill
3100 Breckinridge Boulevard
Duluth, GA 30199
</TABLE>
*Each Fund believes that these entities are not the beneficial owners of shares
held of record by them.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 11th day of August, 2000, between Concert Investment Series(R)
("Investment Series"), a Massachusetts business trust with its principal place
of business at 388 Greenwich Street, New York, New York 10013, on behalf of
its series, Municipal Bond Fund (the "Acquired Fund"), and Smith Barney
Managed Municipals Fund Inc. (the "Acquiring Fund"), a Maryland corporation
with its principal place of business at 388 Greenwich Street, New York, New
York 10013 and solely for purposes of Section 10.2 hereof, SSB Citi Fund
Management LLC ("SSB Citi").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for voting shares of
the corresponding class of common stock ($.001 par value per share) of the
Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring
Fund of all of the stated liabilities of the Acquired Fund and the
distribution of the Acquiring Fund Shares to the holders of shares of
beneficial interests in the Acquired Fund (the "Acquired Fund Shares") in
complete liquidation of the Acquired Fund as provided herein, all upon the
terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Transfer of Assets of the Acquired Fund to the Acquiring Fund in Exchange
for the Acquiring Fund Shares, the Assumption of all Acquired Fund Stated
Liabilities and the Liquidation of the Acquired Fund
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund
agrees to transfer to the Acquiring Fund all of the Acquired Fund's assets as
set forth in Section 1.2, and the Acquiring Fund agrees in exchange therefor
(i) to deliver to the Acquired Fund that number of full and fractional
Acquiring Fund Shares determined by dividing the value of the Acquired Fund's
assets, computed in the manner and as of the time and date set forth in
Section 2.1, by the net asset value of one Acquiring Fund Share, computed in
the manner and as of the time and date set forth in Section 2.2; and (ii) to
assume all of the stated liabilities of the Acquired Fund, as set forth in
Section 1.3. Such transactions shall take place at the closing provided for in
Section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(collectively "Assets") shall consist of all assets, including, without
limitation, all cash, cash equivalents, securities, commodities and futures
interests and dividends or interest or other receivables that are owned by the
Acquired Fund and any deferred or prepaid expenses shown on the unaudited
statement of assets and liabilities of the Acquired Fund prepared as of the
effective time of the closing (the "Effective Time Statement"), prepared in
accordance with generally accepted accounting principles ("GAAP") applied
consistently with those of the Acquired Fund's most recent audited balance
sheet.
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date as defined in
Section 3.1, other than those liabilities and obligations which would
otherwise be discharged at a later date in the ordinary course of business.
A-1
<PAGE>
1.4. On or as soon as practicable prior to the Closing Date as defined in
Section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income
(computed without regard to any deduction for dividends paid) and realized net
capital gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of assets provided for in Section 1.1
(the "Liquidation Time"), Investment Series will distribute to the Acquired
Fund's shareholders of record (the "Acquired Fund Shareholders"), determined
as of the Valuation Time (as defined herein), on a pro rata basis, the
Acquiring Fund Shares received by the Acquired Fund pursuant to Section 1.1
and will completely liquidate the Acquired Fund. Such distribution and
liquidation will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Acquired Fund on the books of the
Acquiring Fund to open accounts on the share records of the Acquiring Fund in
the names of the Acquired Fund Shareholders. The aggregate net asset value of
Acquiring Fund Shares to be so credited to Acquired Fund Shareholders shall be
equal to the aggregate net asset value of each class of the Acquired Fund
Shares owned by such shareholders as of the Valuation Time (as defined
herein). All issued and outstanding Acquired Fund Shares will simultaneously
be cancelled on the books of Investment Series with respect to the Acquired
Fund, although share certificates representing interests in Acquired Fund
Shares will represent a number of Acquiring Fund Shares after the Closing Date
as determined in accordance with Section 2.3. The Acquiring Fund will not
issue certificates representing Acquiring Fund Shares in connection with such
exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns,
or other documents with the Securities and Exchange Commission (the
"Commission"), any state securities commission, and any federal, state or
local tax authorities or any other relevant regulatory authority, is and shall
remain the responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and after the Closing Date and shall be
turned over to the Acquiring Fund as soon as practicable following the closing
date.
2.Valuation
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. ("NYSE") on the Closing Date, as
defined in Section 3.1 (such time and date also being hereinafter called the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Fund's Articles of Incorporation, as amended, and then-current
prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share of each class computed as of the Valuation Time using the
valuation procedures referred to in Section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of each class of the
A-2
<PAGE>
Acquired Fund determined in accordance with Section 2.1 by the net asset value
by class of an Acquiring Fund Share determined in accordance with Section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants.
3.Closing and Closing Date
3.1. The Closing of the transactions contemplated by this Agreement shall be
October 6, 2000, or such later date as the parties may agree in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously as of 4:00 P.M., Eastern time, on the Closing Date,
unless otherwise agreed to by the parties. The Closing shall be held at the
offices of Willkie Farr & Gallagher or at such other place and time as the
parties may agree.
3.2. Acquired Fund shall deliver to Acquiring Fund on the Closing Date a
schedule of assets.
3.3. PNC Bank, National Association, as custodian for the Acquired Fund,
shall deliver at the Closing a certificate of an authorized officer stating
that (a) the Assets shall have been delivered in proper form to PNC Bank,
National Association, custodian for the Acquiring Fund, prior to or on the
Closing Date and (b) all necessary taxes in connection with the delivery of
the Assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made. The Acquired
Fund's portfolio securities represented by a certificate or other written
instrument shall be presented by Custodian for Acquired Fund to Custodian for
Acquiring Fund for examination no later than five business days preceding the
Closing Date and transferred and delivered by the Acquired Fund as of the
Closing Date by the Acquired Fund for the account of Acquiring Fund duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund's portfolio securities and instruments
deposited with a securities depository, as defined in Rule 17f-4 under the
1940 Act, shall be delivered as of the Closing Date by book entry in
accordance with the customary practices of such depositories and Custodian for
Acquiring Fund. The cash to be transferred by the Acquired Fund shall be
delivered by wire transfer of federal funds on the Closing Date.
3.4. Citi Fiduciary Trust Company (the "Transfer Agent"), on behalf of the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the
Acquired Fund Shareholders and the number and percentage ownership (to three
decimal places) of outstanding Acquired Fund Shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue
and deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Acquired Fund or provide evidence satisfactory to
the Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the Closing,
each party shall deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request to effect the transactions contemplated by
this Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring
Fund or the Acquired Fund shall be closed to trading or trading thereupon
shall be restricted, or (b) trading or the reporting of trading on such
Exchange or elsewhere shall be disrupted so that, in the judgment of the Board
of Directors/Trustees of either Fund, accurate appraisal of the value of the
net assets with respect to the Acquiring Fund Shares or the Acquired Fund
Shares is impracticable,
A-3
<PAGE>
the Closing Date shall be postponed until the first business day after the day
when trading shall have been fully resumed and reporting shall have been
restored.
4.Representations and Warranties
4.1. Investment Series, on behalf of the Acquired Fund, represents and
warrants to the Acquiring Fund as follows:
(a) Investment Series is a business trust duly organized and validly
existing under the laws of The Commonwealth of Massachusetts with power
under its Declaration of Trust, as amended, to own all of its properties
and assets and to carry on its business as it is now being conducted;
(b) Investment Series is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and such
as may be required by state securities laws;
(d) Other than with respect to contracts entered into in connection with
the portfolio management of the Acquired Fund which shall terminate on or
prior to the Closing Date, Investment Series is not, and the execution,
delivery and performance of this Agreement by Investment Series will not
result, in violation of Massachusetts law or of its Declaration of Trust,
as amended, or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to counsel to which
the Acquired Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquired Fund will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquired Fund is a party or by which it is
bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any properties or assets
held by it. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquired Fund at and for the year ended October 31, 1999,
has been audited by Ernst & Young LLP, independent certified public
accountants, and are in accordance with GAAP consistently applied, and such
statements (copies of which have been furnished to the Acquiring Fund)
present fairly, in all material respects, the financial position, results
of operations, changes in net assets and financial highlights of the
Acquired Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquired Fund required to be reflected
on a statement of assets and liabilities (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since October 31, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
A-4
<PAGE>
business, or any incurrence by the Acquired Fund of indebtedness maturing
more than one year from the date such indebtedness was incurred except as
otherwise disclosed to and accepted in writing by the Acquiring Fund. For
purposes of this subsection (g), a decline in net asset value per share of
the Acquired Fund due to declines in market values of securities in the
Acquired Fund's portfolio, the discharge of Acquired Fund liabilities, or
the redemption of Acquired Fund Shares by Acquired Fund Shareholders shall
not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other tax
returns and reports of the Acquired Fund required by law to have been filed
by such dates (including any extensions) shall have been filed and are or
will be correct in all material respects, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquired Fund's knowledge, no such return
is currently under audit and no assessment has been asserted with respect
to such returns;
(i) For each taxable year of its operation, the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification as a regulated
investment company and has elected to be treated as such, has been eligible
to and has computed its federal income tax under Section 852 of the Code,
and will have distributed all of its investment company taxable income and
net capital gain (as defined in the Code) that has accrued through the
Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws, (ii) are, and on the Closing Date will
be, duly and validly issued and outstanding, fully paid and non-assessable,
and (iii) will be held at the time of the Closing by the persons and in the
amounts set forth in the records of the Transfer Agent, as provided in
Section 3.3. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquired
Fund Shares, nor is there outstanding any security convertible into any of
the Acquired Fund Shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring Fund
pursuant to Section 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder free of any liens or
other encumbrances, except those liens or encumbrances as to which the
Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and the 1940 Act, except those restrictions as to which the Acquiring
Fund has received notice and necessary documentation at or prior to the
Closing;
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Trustees of Investment Series, and, subject to the approval
of the Acquired Fund Shareholders, this Agreement constitutes a valid and
binding obligation of Investment Series, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and
A-5
<PAGE>
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
and
(n) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in Section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by the Acquiring Fund for use therein.
4.2. The Acquiring Fund represents and warrants to Investment Series, on
behalf of the Acquired Fund, as follows:
(a) The Acquiring Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland with power under its
Articles of Incorporation, as amended, to own all of its properties and
assets and to carry on its business as it is now being conducted;
(b) The Acquiring Fund is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement by the Acquiring Fund will not result, in
violation of Maryland law or of the Acquiring Fund's Articles of
Incorporation, as amended, or By-Laws, or of any material agreement,
indenture, instrument, contract, lease or other undertaking known to
counsel to which the Acquiring Fund is a party or by which it is bound, and
the execution, delivery and performance of this Agreement by the Acquiring
Fund will not result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquiring Fund is a party
or by which it is bound;
(e) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any properties or assets
held by it. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings which would materially and
adversely affect its business and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or its ability to
consummate the transactions herein contemplated;
A-6
<PAGE>
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquiring Fund at and for the year ended February 29,
2000 has been audited by KPMG LLP, independent certified public
accountants, and are in accordance with GAAP consistently applied, and such
statements (copies of which have been furnished to the Acquired Fund)
present fairly, in all material respects, the financial position, results
of operations, changes in net assets and financial highlights of the
Acquiring Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquiring Fund required to be reflected
on a statement of assets and liabilities (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since February 29, 2000, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by Investment Series on behalf of the
Acquired Fund. For purposes of this subsection (g), a decline in net asset
value per share of the Acquiring Fund due to declines in market values of
securities in the Acquiring Fund's portfolio, the discharge of Acquiring
Fund liabilities, or the redemption of Acquiring Fund Shares by Acquiring
Fund shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other tax
returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquiring Fund's knowledge, no
such return is currently under audit and no assessment has been asserted
with respect to such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year including the Closing
Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have been
offered and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements of the
1933 Act and state securities laws and (ii) are, and on the Closing Date
will be, duly and validly issued and outstanding, fully paid and non-
assessable. The Acquiring Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquiring
Fund Shares, nor is there outstanding any security convertible into any of
the Acquiring Fund Shares;
(k) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and non-
assessable;
(l) At the Closing Date, the Acquiring Fund will have good and marketable
title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of the Directors of the Acquiring Fund and this
A-7
<PAGE>
Agreement will constitute a valid and binding obligation of the Acquiring
Fund, enforceable in accordance with its terms, subject, as to enforcement,
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and other laws relating to or affecting creditors' rights and to general
equity principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and the Registration Statement made in reliance
upon and in conformity with information that was furnished or should have
been furnished by the Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5.Covenants of the Acquiring Fund and the Acquired Fund
5.1. The Acquiring Fund and Investment Series, on behalf of the Acquired
Fund, each covenants to operate its business in the ordinary course between
the date hereof and the Closing Date, it being understood that (a) such
ordinary course of business will include (i) the declaration and payment of
customary dividends and other distributions and (ii) such changes as are
contemplated by the Funds' normal operations; and (b) each Fund shall retain
exclusive control of the composition of its portfolio until the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. Investment Series, on behalf of the Acquired Fund, covenants to call a
meeting of the Acquired Fund Shareholders entitled to vote thereon to consider
and act upon this Agreement and to take all other reasonable action necessary
to obtain approval of the transactions contemplated herein. Such meeting shall
be scheduled for no later than September 25, 2000 (or such other date as the
Acquired Fund and the Acquiring Fund may agree to in writing).
A-8
<PAGE>
5.4. Investment Series, on behalf of the Acquired Fund, covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.5. Investment Series, on behalf of the Acquired Fund, covenants that it
will assist the Acquiring Fund in obtaining such information as the Acquiring
Fund reasonably requests concerning the beneficial ownership of the Acquired
Fund Shares and will provide the Acquiring Fund with a list of affiliates of
the Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and
Investment Series, on behalf of the Acquired Fund, will each take, or cause to
be taken, all actions, and do or cause to be done, all things reasonably
necessary, proper, and/or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare the Registration Statement on Form N-14
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. Investment Series, on
behalf of the Acquired Fund, will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus, which will include
the Proxy Statement referred to in Section 4.1(o), all to be included in the
Registration Statement, in compliance in all material respects with the 1933
Act, the 1934 Act and the 1940 Act.
5.8. Investment Series, on behalf of the Acquired Fund, covenants that it
will, from time to time, as and when reasonably requested by the Acquiring
Fund, execute and deliver or cause to be executed and delivered all such
assignments and other instruments, and will take or cause to be taken such
further action as the Acquiring Fund may reasonably deem necessary or
desirable in order to vest in and confirm the Acquiring Fund's title to and
possession of all the assets and otherwise to carry out the intent and purpose
of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and
such of the state securities laws as it deems appropriate in order to continue
its operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause
to be executed and delivered all such assignments, assumption agreements,
releases, and other instruments, and will take or cause to be taken such
further action, as the Acquired Fund may reasonably deem necessary or
desirable in order to (i) vest and confirm to the Acquired Fund title to and
possession of all Acquiring Fund Shares to be transferred to Acquired Fund
pursuant to this Agreement and (ii) assume the liabilities from the Acquired
Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired Fund
shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. The Acquiring Fund and Investment Series, on behalf of the Acquired
Fund, shall each use its reasonable best efforts to fulfill or obtain the
fulfillment of the conditions precedent to effect the transactions
contemplated by this Agreement as promptly as practicable.
A-9
<PAGE>
6.Conditions Precedent to Obligations of the Acquired Fund
The obligations of Investment Series, on behalf of the Acquired Fund, to
consummate the transactions provided for herein shall be subject, at its
election, to the performance by the Acquiring Fund of all the obligations to
be performed by it hereunder on or before the Closing Date, and, in addition
thereto, the following further conditions:
6.1. All representations and warranties of the Acquiring Fund, contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the same force
and effect as if made on and as of the Closing Date; and there shall be (i) no
pending or threatened litigation brought by any person (other than Acquired
Fund, its adviser or any of their affiliates) against the Acquiring Fund, the
Acquired Fund or their advisers, trustees or officers arising out of this
Agreement and (ii) no facts known to the Acquired Fund which the Acquired Fund
reasonably believes might result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Fund made in this Agreement are true and correct on and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Acquired
Fund shall reasonably request;
6.3. Investment Series, on behalf of the Acquired Fund, shall have received
on the Closing Date an opinion of Willkie Farr & Gallagher, in a form
reasonably satisfactory to the Acquired Fund, and dated as of the Closing
Date, to the effect that:
(a) the Acquiring Fund has been duly organized and is a validly existing
corporation;
(b) the Acquiring Fund has the corporate power to carry on its business
as presently conducted in accordance with the description thereof in the
Acquiring Fund's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by the
Acquiring Fund, and constitutes a valid and legally binding obligation of
the Acquiring Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the exchange
of the Acquired Fund's assets for Acquiring Fund Shares pursuant to the
Agreement will not, violate the Acquiring Fund's Articles of Incorporation,
as amended, or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquiring Fund under the Federal laws of the United States or the laws of
the State of Maryland for the exchange of the Acquired Fund's assets for
Acquiring Fund Shares pursuant to the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of Investment
Series, its Trustees and its officers. Such counsel may rely as to matters
governed by the laws of the State of Maryland on an opinion of Maryland
counsel and/or certificates of officers or Directors of the Acquiring Fund.
Such opinion also shall include such other matters incident to the transaction
contemplated hereby as the Acquired Fund may reasonably request.
A-10
<PAGE>
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
7.Conditions Precedent to Obligations of the Acquiring Fund
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Acquired Fund of all of the obligations to be performed by it hereunder on
or before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of Investment Series, with respect
to the Acquired Fund, contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing
Date, with the same force and effect as if made on and as of the Closing Date;
and there shall be (i) no pending or threatened litigation brought by any
person (other than Acquiring Fund, its adviser or any of their affiliates)
against the Acquired Fund, the Acquiring Fund or their advisers, trustees or
officers arising out of this Agreement and (ii) no facts known to the
Acquiring Fund which the Acquiring Fund reasonably believes might result in
such litigation.
7.2. Investment Series shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities as of the Closing
Date, certified by the Treasurer of Investment Series;
7.3. Investment Series shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated
as of the Closing Date, to the effect that the representations and warranties
of Investment Series with respect to the Acquired Fund made in this Agreement
are true and correct on and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquiring Fund shall reasonably request;
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Sullivan & Worcester LLP, in a form reasonably satisfactory to the
Acquiring Fund, and dated as of the Closing Date, to the effect that:
(a) Investment Series has been duly formed and is an existing business
trust;
(b) Investment Series, with respect to the Acquired Fund, has the
corporate power to carry on its business as presently conducted in
accordance with the description thereof in Investment Series' registration
statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Investment Series, on behalf of the Acquired Fund, and constitutes a valid
and legally binding obligation of Investment Series, on behalf of the
Acquired Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the exchange
of the Acquired Fund's assets for Acquiring Fund Shares pursuant to the
Agreement will not, violate the Declaration of Trust, as amended, or By-
laws of Investment Series; and
A-11
<PAGE>
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquired Fund under the Federal laws of the United States or the laws of
The Commonwealth of Massachusetts for the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement have been
obtained or made.
Such opinion may state that it is solely for the benefit of the Acquiring
Fund, its Directors and its officers. Such counsel may rely as to matters
governed by the laws of The Commonwealth of Massachusetts on an opinion of
Massachusetts counsel and/or certificates of officers or Trustees of
Investment Series. Such opinion also shall include such other matters incident
to the transaction contemplated hereby, as the Acquiring Fund may reasonably
request.
7.5. Investment Series, on behalf of the Acquired Fund, shall have performed
all of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by the Acquired Fund on or before
the Closing Date.
8.Further Conditions Precedent to Obligations of the Acquiring Fund and the
Acquired Fund
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interests in the Acquired Fund in accordance with the provisions of
the Declaration of Trust, as amended, and By-Laws of Investment Series,
applicable Massachusetts law and the 1940 Act, and certified copies of the
resolutions evidencing such approval shall have been delivered to the
Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the conditions set forth in
this Section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions
contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that either
party hereto may for itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act; and
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to Investment Series, on behalf of the Acquired Fund, and the
Acquiring Fund substantially to the effect that, based upon certain facts,
assumptions and representations, for Federal income tax purposes: (i) the
transfer to the Acquiring Fund of all of the assets of the Acquired Fund in
exchange solely for Acquiring Fund Shares and the assumption by the
A-12
<PAGE>
Acquiring Fund of all of the stated liabilities of the Acquired Fund, followed
by the distribution of such Acquiring Fund Shares to Acquired Fund
shareholders in exchange for their shares of the Acquired Fund in complete
liquidation of the Acquired Fund, will constitute a "reorganization" within
the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and the
Acquired Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund's assets to the Acquiring
Fund in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of liabilities of the Acquired Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund Shares to the Acquired
Fund's shareholders in exchange for their shares of the Acquired Fund; (iii)
the basis of the assets of the Acquired Fund in the hands of the Acquiring
Fund will be the same as the basis of such assets of the Acquired Fund
immediately prior to the transfer; (iv) the holding period of the assets of
the Acquired Fund in the hands of the Acquiring Fund will include the period
during which such assets were held by the Acquired Fund; (v) no gain or loss
will be recognized by the Acquiring Fund upon the receipt of the assets of the
Acquired Fund in exchange for Acquiring Fund Shares and the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund; (vi) no gain or
loss will be recognized by the holders of shares of beneficial interests in
the Acquired Fund upon the receipt of Acquiring Fund Shares solely in exchange
for their shares of the Acquired Fund as part of the transaction; (vii) the
basis of Acquiring Fund Shares received by the holders of shares of beneficial
interests in the Acquired Fund will be the same as the basis of the shares of
beneficial interests in the Acquired Fund exchanged therefor; and (viii) the
holding period of Acquiring Fund Shares received by the holders of shares of
beneficial interests in the Acquired Fund will include the holding period
during which the shares of beneficial interests in the Acquired Fund exchanged
therefor were held, provided that at the time of the exchange the shares of
beneficial interests in the Acquired Fund were held as capital assets in the
hands of the holders of shares of beneficial interests in the Acquired Fund.
The delivery of such opinion is conditioned upon receipt by Willkie Farr &
Gallagher of representations it shall request of each of Investment Series, on
behalf of the Acquired Fund, and the Acquiring Fund. Notwithstanding anything
herein to the contrary, neither the Acquiring Fund nor the Investment Series,
on behalf of the Acquired Fund, may waive the condition set forth in this
Section 8.5.
9.Indemnification
9.1. The Acquiring Fund agrees to indemnify and hold harmless Investment
Series and each of its trustees and officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally Investment Series or any of its
trustees or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of
or is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.2. Investment Series agrees to indemnify and hold harmless the Acquiring
Fund and each of its directors and officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally the Acquiring Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of
or is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10.Fees and Expenses
10.1. The Acquiring Fund and Investment Series, on behalf of the Acquired
Fund, represents and warrants to the other that it has no obligations to pay
any brokers or finders fees in connection with the transactions provided for
herein.
A-13
<PAGE>
10.2. Expenses of the Reorganization that relate to the Acquiring Fund and
the Acquired Fund will be borne by SSB Citi. Any such expenses which are so
borne by SSB Citi will be solely and directly related to the Reorganization.
11.Entire Agreement; Survival of Warranties
11.1. The Acquiring Fund and Investment Series, on behalf of the Acquired
Fund, agree that neither party has made any representation, warranty or
covenant not set forth herein and that this Agreement constitutes the entire
agreement between the parties.
11.2. Except as specified in the next sentence set forth in this Section
11.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall not survive the consummation of the transactions contemplated
hereunder.
The covenants to be performed after the Closing and the obligations of each
of the Acquired Fund and Investment Series, on behalf of Acquired Fund, in
Sections 9.1 and 9.2 shall survive the Closing.
12.Termination
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, or
(ii) by either party if the Closing shall not have occurred on or before
January 1, 2001, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and
intentional misrepresentation herein or in connection herewith. In the event
of any such termination, this Agreement shall become void and there shall be
no liability hereunder on the part of any party or their respective directors
or officers, except for any such material breach or intentional
misrepresentation, as to each of which all remedies at law or in equity of the
party adversely affected shall survive.
13.Amendments
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of
Investment Series and the Acquiring Fund; provided, however, that following
the meeting of the Acquired Fund Shareholders called by the Acquired Fund
pursuant to Section 5.3 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of the Acquiring
Fund Shares to be issued to the Acquired Fund shareholders under this
Agreement to the detriment of such shareholders without their further
approval.
14.Notices
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly
given if delivered by hand (including by Federal Express or similar express
courier) or transmitted by facsimile or three days after being mailed by
prepaid registered or certified mail, return receipt requested, addressed to
the Acquired Fund, c/o Concert Investment Series(R), Inc., 388 Greenwich
Street, New York, New York 10013, with a copy to Willkie Farr & Gallagher, 787
Seventh Avenue, New York, New York 10019-6099, Attn.: Burton M. Leibert, Esq.,
or to the Acquiring Fund, 388 Greenwich Street, New York, New York 10013, with
a copy to Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York
10019-6099, Attn.: Burton M. Leibert, Esq., or to any other address that
Investment Series or the Acquiring Fund shall have last designated by notice
to the other party.
A-14
<PAGE>
15.Headings; Counterparts; Assignment; Limitation Of Liability
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any
person, firm or corporation, other than the parties hereto and the
shareholders of the Acquiring Fund and the Acquired Fund and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
15.4. Investment Series is organized as a Massachusetts business trust, and
references in this Agreement to Investment Series mean and refer to the
Trustees from time to time serving under the Declarations of Trust on file
with the Secretary of State of The Commonwealth of Massachusetts, as the same
may be amended from time to time, pursuant to which Investment Series conducts
its business. It is expressly agreed that the obligations of Investment Series
hereunder shall not be binding upon any of its Trustees, shareholders,
nominees, officers, agents, or employees of Investment Series personally, but
bind only the property of the Acquired Fund as provided in the Declaration of
Trust of Investment Series. Moreover, no series of Investment Series other
than the Acquired Fund shall be responsible for the obligations of Investment
Series hereunder, and all persons shall look only to the assets of the
Acquired Fund to satisfy the obligations of Investment Series hereunder. The
execution and the delivery of this Agreement have been authorized by the Board
of Trustees of Investment Series, on behalf of the Acquired Fund, and this
Agreement has been signed by authorized officers of Investment Series acting
as such, and neither such authorization by such Trustees, nor such execution
and delivery by such officers, shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally, but
shall bind only the property of the Acquired Fund as provided in the
Declaration of Trust of Investment Series.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to its
principles of conflicts of laws.
A-15
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President, Vice President or in the case of SSB Citi, an
authorized person and attested by its Secretary, Assistant Secretary or in the
case of SSB Citi, an authorized person.
Attest: CONCERT INVESTMENT SERIES(R) on behalf of
Municipal Bond Fund
By: ______________________________________
Name:
Title:
Attest: SMITH BARNEY MANAGED MUNICIPALS FUND INC.
By: ______________________________________
Name:
Title:
Attest: SSB CITI FUND MANAGEMENT LLC
By: ______________________________________
Name:
Title:
A-16
<PAGE>
(This page is intentionally left blank.)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
388 Greenwich Street
New York, New York 10013
(800) 451-2010
RELATING TO THE ACQUISITION BY
SMITH BARNEY MANAGED MUNICIPALS FUND INC.
(THE "ACQUIRING FUND")
OF THE ASSETS OF
MUNICIPAL BOND FUND (THE "FUND"),
A SERIES OF CONCERT INVESTMENT SERIES(R)
("INVESTMENT SERIES").
Dated: August 16, 2000
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of the Fund, a series of Investment
Series, to the Acquiring Fund in exchange for shares of the corresponding class
of common stock of the Acquiring Fund and the assumption by the Acquiring Fund
of the stated liabilities of the Fund, consists of this cover page and the
following described documents, each of which accompanies this Statement of
Additional Information and is incorporated herein by reference.
1. Statement of Additional Information for the Acquiring Fund, dated June
28, 2000.
2. Statement of Additional Information for the Fund, dated February 28,
2000.
3. Annual Report of the Acquiring Fund for the year ended February 29,
2000.
4. Annual Report of the Fund for the year ended October 31, 1999 and the
Semi-Annual Report of the Fund for the six months ended April 30, 2000.
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement, dated August 16, 2000, relating to the above-referenced matter may be
obtained without charge by calling or writing the Acquiring Fund at the
telephone number or address set forth above. This Statement of Additional
Information should be read in conjunction with the Prospectus/Proxy Statement.
B-1
<PAGE>
FINANCIAL STATEMENTS
The Annual Report of the Acquiring Fund for the year ended February 29,
2000 and the Annual Report of Investment Series for the year ended October 31,
1999, each including audited financial statements, notes to the financial
statements and report of the independent auditors, are incorporated by reference
herein. To obtain a copy of the Annual Reports (and, as applicable, any more
recent semi-annual report) without charge, please call 1-800-451-2010.
PRO FORMA FINANCIAL STATEMENTS
Due to the net asset value of the Fund being less than 10% of the Acquiring
Fund's net asset value, pro forma financial statements are not required to be
and have not been prepared for inclusion in the Statement of Additional
Information filed in connection with the Reorganization.
