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PROSPECTUS JULY 29, 1998
Smith Barney Municipal Money Market Fund, Inc.
388 Greenwich Street
New York, New York 10013
800-451-2010
Smith Barney Municipal Money Market Fund, Inc. (the "Fund") seeks to
provide its shareholders with income exempt from Federal income tax from a
portfolio of high quality short-term municipal obligations selected for
liquidity and stability of principal.
SHARES OF THE FUND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely certain information about the Fund,
including service fees and expenses, that prospective investors will find
helpful in making an investment decision. Investors are encouraged to read this
Prospectus carefully and retain it for future reference.
Additional information about the Fund is contained in a Statement of
Additional Information dated July 29, 1998, as amended or supplemented from time
to time (the "SAI"), that is available upon request and without charge by
calling or writing the Fund at the telephone number or address set forth above
or by contacting a Smith Barney Financial Consultant. The SAI has been filed
with the Securities and Exchange Commission (the "SEC") and is incorporated by
reference into this Prospectus in its entirety.
SMITH BARNEY INC.
Distributor
MUTUAL MANAGEMENT CORP.
Investment Manager
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
1
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TABLE OF CONTENTS
<TABLE>
<S> <C>
FEE TABLE 3
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FINANCIAL HIGHLIGHTS 4
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INVESTMENT OBJECTIVE AND POLICIES 6
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RISK AND PORTFOLIO MANAGEMENT 9
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VALUATION OF SHARES 11
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DIVIDENDS, AUTOMATIC REINVESTMENT AND TAXES 12
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PURCHASE OF SHARES 14
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REDEMPTION OF SHARES 16
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EXCHANGE PRIVILEGE 20
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MINIMUM ACCOUNT SIZE 22
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YIELD INFORMATION 23
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MANAGEMENT OF THE FUND 23
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DISTRIBUTION 26
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ADDITIONAL INFORMATION 27
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</TABLE>
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No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Fund or
Smith Barney Inc. ("Smith Barney" or the "Distributor"). This Prospectus does
not constitute an offer by the Fund or the Distributor to sell or a solicitation
of an offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
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2
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FEE TABLE
The following expense table lists the costs and expenses that an investor
will incur either directly or indirectly as a shareholder of the Fund, based on
its operating expenses for its most recent fiscal year:
SMITH BARNEY MUNICIPAL MONEY MARKET FUND, INC.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS Y SHARES
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<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases None None
Deferred Sales Charge None* None
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.48% 0.48%
12b-1 Fees 0.10 --
Other Expenses 0.03 0.04
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Total Fund Operating Expenses 0.61% 0.52%
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</TABLE>
* Class A shares acquired as part of an exchange privilege transaction, which
were originally acquired in one of the other funds of the Smith Barney Mutual
Funds at net asset value subject to a contingent deferred sales charge
("CDSC"), remain subject to the original fund's CDSC while held in the Fund.
Class A shares of the Fund purchased through the Smith Barney AssetOne
Program will be subject to an annual asset-based fee, payable quarterly. The fee
will vary to a maximum of 1.50%, depending on the amount of assets held through
the Program. For more information, please call your Smith Barney Financial
Consultant.
EXAMPLE
The following example is intended to assist an investor in understanding
the various costs that an investor in the Fund will bear directly or indirectly.
The example assumes payment by the Fund of operating expenses at the levels set
forth in the table above. See "Purchase of Shares," "Redemption of Shares,"
"Management of the Fund" and "Distribution."
You would pay the following expenses on a $1,000 investment, assuming (1) 5.00%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
Class A $6 $20 $34 $76
Class Y 5 17 29 65
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</TABLE>
The example is included to provide a means for the investor to compare
expense levels of funds with different fee structures over varying investment
periods. To facilitate such comparison, all funds are required to utilize a
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FEE TABLE (CONTINUED)
5.00% annual return assumption. This assumption is unrelated to the Fund's prior
performance and is not a projection of future performance. THIS EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following information has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon for the five years ended March 31,
1998 appears in the Fund's annual report dated March 31, 1998. The information
set out below should be read in conjunction with the financial statements and
related notes that also appear in the Fund's Annual Report to Shareholders,
which is incorporated by reference into the SAI.
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
Smith Barney Municipal Money Market Fund, Inc.
<TABLE>
<CAPTION>
CLASS A SHARES 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
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Net investment
income(1) 0.031 0.029 0.033 0.027 0.019 0.022 0.037 0.052 0.057 0.051
Dividends from net
investment income (0.031) (0.029) (0.033) (0.027) (0.019) (0.022) (0.037) (0.052) (0.057) (0.051)
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NET ASSET VALUE, END
OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
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TOTAL RETURN 3.15% 2.94% 3.34% 2.71% 1.89% 2.25% 3.73% 5.33% 5.89% 5.23%
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NET ASSETS, END OF YEAR
(MILLIONS) $6,336 $5,562 $5,395 $4,651 $1,286 $1,251 $1,355 $1,373 $1,252 $992
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RATIOS TO AVERAGE
NET ASSETS:
Expenses(1) 0.61% 0.67% 0.63% 0.61% 0.64% 0.62% 0.53% 0.52% 0.53% 0.53%
Net investment
income 3.10 2.90 3.28 3.01 1.87 2.22 3.66 5.18 5.70 5.08
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</TABLE>
(1) The manager has waived a part of its fees for the years ended March 31, 1996
and March 31, 1995. If such fees were not waived, the per share effect on
net investment income and expense ratios would have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES EXPENSE RATIOS
OF NET INVESTMENT INCOME WITHOUT FEE WAIVERS
------------------------- -------------------------
1996 1995 1996 1995
------- ------- ----- -----
<S> <C> <C> <C> <C>
Class A $0.0001 $0.0002 0.64% 0.63%
</TABLE>
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FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
CLASS Y SHARES 1998 1997 1996(1)
<S> <C> <C> <C>
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NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00
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Net investment income 0.032 0.030 0.004
Dividends from net investment
income (0.032) (0.030) (0.004)
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NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00
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TOTAL RETURN 3.25% 3.04% 0.39%++
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NET ASSETS, END OF YEAR
(MILLIONS) $0.5 $5.0 $18.0
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RATIOS TO AVERAGE NET ASSETS:
Expenses 0.52% 0.57% 0.55%+
Net investment income 3.23 3.00 2.81+
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</TABLE>
(1) For the period from February 12, 1996 (inception date) to March 31, 1996.
++ Total return is not annualized, as it may be representative of the total
return for the year.
+ Annualized.
5
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's objective is to provide income exempt from Federal income tax
from a portfolio of high quality short-term municipal obligations selected for
liquidity and stability of principal. The Fund will pursue its objective by
investing in a diversified portfolio of municipal obligations, the interest on
which is exempt from Federal income tax in the opinion of counsel to the various
issuers. The Fund operates as a money market fund, and utilizes certain
investment policies so that, to the extent reasonably possible, its price per
share will not change from $1.00, although no assurance can be given that this
goal will be achieved on a continuous basis. For example, the Fund will not
purchase a security which, after giving effect to any demand features, has a
remaining maturity of greater than 13 months, or maintain a dollar-weighted
average portfolio maturity in excess of 90 days.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
Mutual Management Corp. ("MMC" or the "Manager") will review the proceedings
relating to the issuance of municipal obligations or the bases for such
opinions.
Except for temporary defensive purposes, at least 80% of the Fund's assets
will be invested in municipal obligations that produce income that is exempt
from Federal income tax (other than the alternative minimum tax). In each of the
Fund's prior fiscal years, 100% of its income has been exempt from Federal
income tax and the Fund's shares have had a stable $1.00 price.
The Fund's investments are limited to United States dollar-denominated
instruments that, at the time of acquisition (including any related credit
enhancement features) have received a rating in one of the two highest
categories for short-term debt obligations from the "Requisite NRSROs",
securities of issuers that have received such a rating with respect to other
comparable securities, and comparable unrated securities. "Requisite NRSROs"
means (a) any two nationally recognized statistical rating organizations
("NRSROs") that have issued a rating with respect to a security or class of debt
obligations of an issuer, or (b) one NRSRO, if only one NRSRO has issued such a
rating at the time that the Fund acquires the security. The NRSROs currently
designated as such by the SEC are Standard & Poor's Ratings Group ("S&P"),
Moody's Investors Service, Inc. ("Moody's"), Duff and Phelps Inc., Fitch IBCA,
Inc. ("Fitch") and Thomson BankWatch.
Municipal obligations, which are issued by states, municipalities and their
agencies, may include municipal notes and bonds. The two principal
classifications of municipal obligations are "general obligation" and "reve-
6
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INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
nue." General obligations are secured by a municipal issuer's pledge of its full
faith, credit, and taxing power for the payment of principal and interest.
Revenue obligations are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source. Although industrial
development bonds ("IDBs") are issued by municipal authorities, they are
generally secured by the revenues derived from payments of the industrial user.
The payment of the principal and interest on IDBs is dependent 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.
Among the types of obligations in which the Fund may invest are floating or
variable rate instruments subject to demand features ("demand instruments");
tax-exempt commercial paper; and notes such as Tax Anticipation Notes, Revenue
Anticipation Notes, Tax and Revenue Anticipation Notes and Bond Anticipation
Notes. Demand instruments usually have an indicated maturity of more than 13
months but have a demand feature (or "put") that entitles the holder to receive
the principal amount of the underlying security and may be exercised either (a)
at any time on no more than 30 days' notice; or (b) at specified intervals not
exceeding one year and upon no more than 30 days' notice. Demand features
generally consist of a letter of credit issued by a domestic or foreign bank. A
variable rate instrument provides for adjustment of its interest rate on set
dates and upon such adjustment can reasonably be expected to have a market value
that approximates its amortized cost; a floating rate instrument provides for
adjustment of its interest rate whenever a specified interest rate (e.g., the
prime rate) changes and at any time can reasonably be expected to have a market
value that approximates its amortized cost.
The Fund may invest without limit in private activity bonds. Interest
income on certain types of private activity bonds issued after August 7, 1986
to finance non-governmental activities is a specific tax preference item for
purposes of the Federal individual and corporate alternative minimum taxes.
Individual and corporate shareholders may be subject to a Federal alternative
minimum tax to the extent the Fund's dividends are derived from interest on
these bonds. See "Dividends, Automatic Reinvestment and Taxes." These private
activity bonds are included in the term "municipal obligations" for purposes
of determining compliance with the 80% test described above.
7
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INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
The Fund may invest up to 20% of the value of its assets in one or more of
the three principal types of derivative product structures described below.
Derivative products are typically structured by a bank, broker-dealer or other
financial institution. A derivative product generally consists of a trust or
partnership through which the Fund holds an interest in one or more underlying
bonds coupled with a conditional right to sell ("put") the Fund's interest in
the underlying bonds at par plus accrued interest to a financial institution (a
"Liquidity Provider"). Typically, a derivative product is structured as a trust
or partnership which provides for pass-through tax-exempt income. There are
currently three principal types of derivative structures: (1) "Tender Option
Bonds", which are instruments which grant the holder thereof the right to put an
underlying bond at par plus accrued interest at specified intervals to a
Liquidity Provider; (2) "Swap Products", in which the trust or partnership swaps
the payments due on an underlying bond with a swap counterparty who agrees to
pay a floating municipal money market interest rate; and (3) "Partnerships",
which allocate to the partners income, expenses, capital gains and losses in
accordance with a governing partnership agreement.
Investments in derivative products raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in other municipal
bonds. There is some risk that certain issues could be resolved in a manner that
could adversely impact the performance of the Fund. For example, the tax-exempt
treatment of the interest paid to holders of derivative products is premised on
the legal conclusion that the holders of such derivative products have an
ownership interest in the underlying bonds. While the Fund receives an opinion
of legal counsel to the effect that the income from each derivative product is
tax-exempt to the same extent as the underlying bond, the Internal Revenue
Service (the "IRS") has not issued a ruling on this subject. Were the IRS to
issue an adverse ruling, there is a risk that the interest paid on such
derivative products would be deemed taxable.
The Fund intends to limit the risk of derivative products by purchasing
only those derivative products that are consistent with the Fund's investment
objective and policies. The Fund will not use such instruments to leverage
securities. Hence, derivative products' contributions to the overall market risk
characteristics of a Fund will not materially alter its risk profile and will be
fully representative of the Fund's maturity guidelines.
The Fund will not invest more than 10% of the value of its assets in
illiquid securities, which may include certain derivative products and will
include any repurchase transactions that do not mature within seven days.
8
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INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
Please see "Investment Policies and Restrictions" in the SAI for a more
detailed discussion about the different types of municipal obligations. The Fund
cannot change its investment objective and fundamental policies without the vote
of a "majority of the outstanding voting securities" as defined under the
Investment Company Act of 1940, as amended (the "1940 Act"). (See "Voting
Rights" in the SAI.)
RISK AND PORTFOLIO MANAGEMENT
There can be no assurance that the Fund will achieve its investment
objective. The ability of the Fund to achieve its investment objective is
dependent on a number of factors, including the skills of the investment manager
in purchasing municipal obligations whose issuers have the continuing ability to
meet their obligations for the payment of interest and principal when due. The
ability to achieve a high level of income is dependent on the yields of the
securities in the portfolio. Yields on municipal obligations are the product of
a variety of factors, including the general conditions of the money market and
of the municipal bond and municipal note markets, the size of a particular
offering, the maturity of the obligation and its rating. Municipal obligations
with longer maturities tend to produce higher yields and are generally subject
to potentially greater price fluctuations than obligations with shorter
maturities.
When-Issued Purchase Commitments. New issues of municipal obligations are
often offered on a "when-issued" basis, i.e., delivery and payment normally take
place 15 to 45 days after the purchase date. The payment obligation and the
interest rate to be received on the securities are fixed at the time the buyer
enters into the commitment, although no interest accrues with respect to a
"when-issued" security prior to its stated delivery date. The Fund will only
make commitments to purchase such securities with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable as a matter of investment strategy. A
segregated account of the Fund consisting of cash, debt securities of any grade
or equity securities having a value equal to or greater than the Fund's purchase
commitments, provided such securities have been determined by the Manager to be
liquid and unencumbered, and are marked to market daily, pursuant to guidelines
established by the Board of Directors, will be maintained with PNC Bank,
National Association (the "Custodian") and monitored on a daily basis so that
the market value of the account will equal or exceed the amount of such
commitments by the Fund.
Securities purchased on a "when-issued" basis and the securities held in
the Fund's portfolio are subject to changes in market value based not only
9
<PAGE>
RISK AND PORTFOLIO MANAGEMENT (CONTINUED)
upon the public's perception of the creditworthiness of the issuer but also
changes in the level of interest rates, and this will generally result in both
changing in value in the same way, i.e., both appreciating when interest rates
decline and depreciating when interest rates rise. Therefore, if in order to
achieve higher interest income the Fund remains substantially fully invested at
the same time that it has purchased securities on a "when-issued" basis, there
will be a greater possibility that the market value of the Fund's assets will
vary from $1.00 per share. (See "Valuation of Shares.") There will also be a
greater potential for the realization of capital gains, which are not exempt
from Federal income taxes.
Stand-By Commitments. The Fund may acquire "stand-by commitments" with
respect to municipal obligations held in its portfolio. Under a stand-by
commitment a dealer agrees to purchase, at the Fund's option, specified
municipal obligations at a specified price. The Fund intends to enter into
stand-by commitments only with dealers, banks and broker-dealers that, in the
opinion of the Manager, present minimal credit risks. In evaluating
the creditworthiness of the issuer of a stand-by commitment, the Manager will
review periodically the issuer's assets, liabilities, contingent
claims and other relevant financial information. Because the Fund invests in
securities backed by banks and other financial institutions, change in the
credit quality of these institutions could cause losses to the Fund and effect
its share price. The Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes.
Other Factors to be Considered. The Fund anticipates being as fully
invested as practicable in tax-exempt securities. The Fund may invest in taxable
investments due to market conditions or pending investment of proceeds from
sales of shares or proceeds from the sale of portfolio securities or in
anticipation of redemptions. However, the Fund generally expects to invest the
proceeds received from the sale of shares in municipal obligations as soon as
reasonably possible, which is generally within one day. At no time will more
than 20% of the Fund's net assets be invested in taxable investments except when
the Manager has determined that market conditions warrant the Fund adopting a
temporary defensive investment posture. To the extent the Fund's assets are
invested for temporary defensive purposes, such assets will not be invested in a
manner designed to achieve the Fund's investment objective.
The Fund may engage in short-term trading to attempt to take advantage of
short-term market variations or may dispose of a portfolio security prior to its
maturity if it believes such disposition advisable or it needs to generate cash
to satisfy redemptions. In such cases, the Fund may
10
<PAGE>
RISK AND PORTFOLIO MANAGEMENT (CONTINUED)
realize a gain or loss. From its commencement of operations, the Fund has not
realized any significant gain or loss during any fiscal year.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on municipal obligations, and similar proposals may be introduced in
the future. If one of these proposals were enacted, the availability of tax
exempt obligations for investment by the Fund and the value of the Fund's
portfolio would be affected. The Fund's Board of Directors would then reevaluate
the Fund's investment objective and policies.
Year 2000. The investment management services provided to the Fund by the
Manager and the services provided to shareholders by Smith Barney depend on the
smooth functioning of their computer systems. Many computer software systems in
use today cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded and calculated. That failure could
have a negative impact on the Fund's operations, including the handling of
securities trades, pricing and account services. The Manager and Smith Barney
have advised the Fund that they have been reviewing all of their computer
systems and actively working on necessary changes to their systems to prepare
for the year 2000 and expect that their systems will be compliant before that
date. In addition, the Manager has been advised by the Fund's custodian,
transfer agent and accounting service agent that they are also in the process of
modifying their systems with the same goal. There can, however, be no assurance
that the Manager, Smith Barney or any other service provider will be successful,
or that interaction with other non-complying computer systems will not impair
Fund nor shareholder services at that time.
In addition, the ability of issuers to make timely payments of interest and
principal or to continue their operations or services may be impaired by the
inadequate preparation of their computer systems for the year 2000. This may
adversely affect the market values of securities of specific issuers or of
securities generally if the inadequacy of preparation is perceived as widespread
or as affecting trading markets.
VALUATION OF SHARES
The net asset value per share is determined as of the close of regular
trading on each day that the New York Stock Exchange ("NYSE") is open by
dividing the net asset values attributable to each Class (i.e., the value of its
assets less liabilities) by the total number of shares of the Class outstanding.
The Fund may also determine net asset value per share on days when the NYSE is
not open, but when the settlement of securities may
11
<PAGE>
VALUATION OF SHARES (CONTINUED)
otherwise occur. The Fund employs the "amortized cost method" of
valuing portfolio securities and intends to use its best efforts to continue to
maintain a constant net asset value of $1.00 per share.
DIVIDENDS, AUTOMATIC REINVESTMENT AND TAXES
The Fund declares a dividend of substantially all of its net investment
income on each day the NYSE is open. Net investment income includes interest
accrued and discount earned and is less premium amortized and expenses accrued
(the discount or premium on portfolio investments is fixed at the time of
purchase). Unless the shareholder has elected to receive monthly distributions
of income, such dividends will automatically be reinvested in Fund shares of the
same Class at net asset value. If a shareholder redeems an account in full
between payment dates, all dividends accrued up to and including the date of
liquidation will be paid with the proceeds from the redemption of shares. The
per share dividends on Class A shares of the Fund may be less than the per share
dividends on Class Y shares principally as a result of the service fee
applicable to Class A shares. Long-term capital gains, if any, will be in the
same amount for each Class and will be distributed annually.
The following is a summary of the material federal tax considerations
affecting the Fund and the Fund's shareholders, please refer to the SAI for
further discussion. In addition to the considerations described below and in the
SAI, there may be other federal, state, local or foreign tax implications to
consider. Because taxes are a complex matter, prospective shareholders are urged
to consult their tax advisors for more detailed information with respect to the
tax consequences of an investment.
The Fund intends to qualify, as it has in prior years, under Subchapter M
of the Internal Revenue Code (the "Code") for tax treatment as a regulated
investment company. In each taxable year that the Fund qualifies, so long as
such qualification is in the best interests of its shareholders, the Fund will
pay no federal income tax on its net investment income and long-term capital
gain that is distributed to shareholders, provided the Fund distributes at least
90% of its net investment income and net short-term capital gains for the
taxable year. The Fund also intends to satisfy conditions that will enable it to
pay "exempt-interest dividends" to its shareholders. Exempt-interest dividends
are generally not subject to regular federal income taxes, although, may be
considered taxable for certain state and local income (or intangible) tax
purposes.
Exempt-interest dividends attributable to interest received by the Fund on
certain "private-activity" bonds will be treated as a specific tax preference
12
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DIVIDENDS, AUTOMATIC REINVESTMENT AND TAXES (CONTINUED)
item to be included in a shareholder's alternative minimum tax computation. All
exempt-interest dividends will be a component of the "current earnings"
adjustment item for purposes of the federal corporate alternative minimum tax
computation. Exempt-interest dividends derived from the interest earned on
private activity bonds will not be exempt from federal income tax for those
shareholders who are "substantial users" (or persons related to "substantial
users") of the facilities financed by these bonds.
Shareholders who receive social security or equivalent railroad retirement
benefits should note that exempt-interest dividends are one of the items taken
into consideration in determining the amount of these benefits that may be
subject to federal income tax.
The interest expense incurred by a shareholder on borrowing made to
purchase or carry shares is not deductible for federal income tax purposes to
the extent related to the exempt-interest dividends received on such shares.
Dividends paid by the Fund from interest income on taxable investments, net
realized short-term securities gains, and all or a portion of any gains realized
from the sale or other disposition of certain market discount bonds are subject
to federal income tax as ordinary income. Distributions, if any, from net
realized long-term securities gains derived from the sale of bonds held by the
Fund for more than one year are taxable as long-term capital gains regardless
of the length of time a shareholder has owned Fund shares.
Shareholders are required to pay tax on all taxable distributions even if
those distributions are automatically reinvested in additional Portfolio
shares.
None of the dividends paid by the Fund will qualify for the corporate dividends
received deduction. The Fund will inform shareholders of the source and tax
status of all distributions promptly after the close of each calendar year.
The Fund is required to withhold ("backup withholding") 31% of all taxable
dividends, capital gain distributions, and the proceeds of any redemption, for
those shareholders who do not provide the Fund with a correct taxpayer
identification number (social security or employer identification number).
Withholding from taxable dividends and capital gain distributions also is
required for shareholders who otherwise are subject to backup withholding. Any
tax withheld as a result of backup withholding does not constitute an additional
tax, and may be claimed as a credit on the shareholder's federal income tax
return.
13
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PURCHASE OF SHARES
Purchases of Fund shares may be made through a brokerage account maintained
with Smith Barney Inc. ("Smith Barney"), with a broker that clears securities
transactions through Smith Barney on a fully disclosed basis (an "Introducing
Broker") or with an investment dealer in the selling group. Smith Barney and
other broker/dealers may charge their customers an annual account maintenance
fee in connection with a brokerage account through which an investor purchases
or holds shares. Accounts held directly at First Data are not subject to a
maintenance fee.
Class A and Class Y shares of the Fund are available for purchase directly
by investors. Investors in Class A may open an account by making an initial
investment of at least $1,000 for each Fund account. Investors in Class Y may
open an account by making an initial investment of at least $15,000,000.
Subsequent investments of at least $50 may be made for either Class. For
shareholders purchasing shares of the Fund through the Systematic Investment
Plan on a monthly basis, the minimum initial investment requirement for Class A
shares and the subsequent investment requirement for all Classes is $25. For
shareholders purchasing shares of the Fund through the Systematic Investment
Plan on a quarterly basis, the minimum initial investment requirement for Class
A shares and the subsequent investment requirement for all Classes is $50. There
are no minimum investment requirements in Class A for employees of Travelers
Group Inc. ("Travelers") and its subsidiaries, including Smith Barney, and
Directors or Trustees of any Travelers-affiliated Funds, including the Smith
Barney Mutual Funds, and their spouses and children. The Fund reserves the right
to waive or change minimums, to decline any order to purchase its shares and to
suspend the offering of shares from time to time. Shares purchased will be held
in the shareholder's account by the Fund's transfer agent, First Data Investor
Services Group, Inc. ("First Data"). Share certificates are issued only upon a
shareholder's written request to First Data.
For investors who maintain a brokerage account with Smith Barney, Smith
Barney has advised the Fund that depending on the type of securities account,
its clients' free credit balances (i.e., immediately available funds) may be
invested automatically in full shares of the Fund either on a daily or weekly
basis. In addition to this "sweep" service, shareholders who open a Smith Barney
FMA(R)PLUS(SM) account, which is a full service investment account, will also be
able to take advantage of, among other things: a free Individual Retirement
Account ("IRA"), free dividend reinvestment, unlimited checking, 100 free ATM
withdrawals each year and online computer access to account information. Smith
Barney clients should contact their Financial Consultant for more complete
information. A complete record of
14
<PAGE>
PURCHASE OF SHARES (CONTINUED)
Fund dividends, purchases and redemptions will be included on such shareholders'
regular Smith Barney statements.
The Fund's shares are sold continuously at their net asset value next
determined after a purchase order is received and becomes effective. A purchase
order becomes effective when the Fund, Smith Barney or an Introducing Broker
receives, or converts the purchase amount into, Federal funds (i.e., monies of
member banks within the Federal Reserve System held on deposit at a Federal
Reserve Bank). When orders for the purchase of Fund shares are paid for in
Federal funds, or are placed by an investor with sufficient Federal funds or
cash balance in the investor's brokerage account with Smith Barney or the
Introducing Broker, the order becomes effective on the day of receipt if
received prior to the close of regular trading on the NYSE, on any day the Fund
calculates its net asset value. See "Valuation of Shares." Purchase orders
received after the close of regular trading on the NYSE on any business day are
effective as of the time the net asset value is next determined. When orders for
the purchase of Fund shares are paid for other than in Federal funds, Smith
Barney or the Introducing Broker, acting on behalf of the investor, will
complete the conversion into, or itself advance, Federal funds, and the order
will become effective on the day following its receipt by the Fund, Smith Barney
or the Introducing Broker. Shares purchased directly through First Data begin to
accrue income dividends on the day that the purchase order becomes effective.
All other shares purchased begin to accrue income dividends on the next business
day following the day that the purchase order becomes effective.
SYSTEMATIC INVESTMENT PLAN
Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, Smith Barney or First Data is authorized through
preauthorized transfers of at least $25 on a monthly basis or at least $50 on a
quarterly basis to charge the regular bank account or other financial
institution indicated by the shareholder on a monthly or quarterly basis to
provide systematic additions to the shareholder's Fund account. A shareholder
who has insufficient funds to complete the transfer will be charged a fee of up
to $25 by Smith Barney or First Data. Additional information is available from
the Fund or a Smith Barney Financial Consultant.
LETTER OF INTENT
Class Y Shares. A Letter of Intent provides an opportunity for investors
to meet the minimum investment requirement for Class Y shares by
15
<PAGE>
PURCHASE OF SHARES (CONTINUED)
aggregating investments over a 13-month period. Such investors must make an
initial minimum purchase of $5,000,000 in Class Y shares of the Fund and agree
to purchase a total of $15,000,000 of Class Y shares of the Fund within 13
months from the date of the Letter. If a total investment of $15,000,000 is not
made within the 13-month period, all Class Y shares will be converted into Class
A shares, and will be subject to all fees (including a service fee of 0.10%) and
expenses applicable to the Fund's Class A shares. Please contact a Smith Barney
Financial Consultant or First Data for
further information.
REDEMPTION OF SHARES
Shareholders may redeem their shares without charge on any day the Fund
calculates its net asset value. See "Valuation of Shares." Redemption requests
received in proper form before the close of regular trading on the NYSE are
priced at the net asset value as next determined on that day. Redemption
requests received after the close of regular trading on the NYSE are priced at
the net asset value next determined.
The Fund normally transmits redemption proceeds on the business day
following receipt of a redemption request but, in any event, payment will be
made within three days thereafter, exclusive of days on which the New York Stock
Exchange is closed and settlement of securities does not otherwise occur, or as
permitted under the 1940 Act in extraordinary circumstances. Generally, if the
redemption proceeds are remitted to a Smith Barney brokerage account, these
funds will not be invested for the shareholder's benefit without specific
instruction and Smith Barney will benefit from the use of temporarily uninvested
funds. A shareholder who pays for Fund shares by personal check will be credited
with the proceeds of a redemption of those shares only after the purchase check
has been collected, which may take up to ten days or more. A shareholder who
anticipates the need for more immediate access to his or her investment should
purchase shares with Federal funds, by bank wire or with a certified or
cashier's check.
Shareholders who purchase securities through Smith Barney or an Introducing
Broker may take advantage of special redemption procedures under which Class A
shares of the Fund will be redeemed automatically to the extent necessary to
satisfy debit balances arising in the shareholder's account with Smith Barney or
the Introducing Broker. One example of how an automatic redemption may occur
involves the purchase of securities. If a shareholder purchases securities but
does not pay for them by settlement date, the number of Fund shares necessary to
cover the debit will be redeemed automatically as of the settlement date, which
usually occurs three
16
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
business days after the trade date. Class A shares that are subject to a CDSC
(see "Redemption of Shares--Contingent Deferred Sales Charge") are not eligible
for such automatic redemption and will only be redeemed upon specific request.
If the shareholder does not request redemption of such shares, the shareholder's
account with Smith Barney or the Introducing Broker may be margined to satisfy
debit balances if sufficient Fund shares that are not subject to any applicable
CDSC are unavailable. No fee is currently charged with respect to these
automatic transactions. Shareholders not wishing to participate in these
arrangements should notify their Smith Barney Financial Consultant.
Redemption requests must be made through Smith Barney, an Introducing
Broker or the securities dealer through which the shares are purchased. A
shareholder desiring to redeem shares represented by certificates also must
present the certificates to Smith Barney, the Introducing Broker or First Data
endorsed for transfer (or accompanied by an endorsed stock power), signed
exactly as the shares are registered. Redemption requests involving shares
represented by certificates will not be deemed received until the certificates
are received by First Data in proper form.
A written redemption request must (a) state the Class and number or dollar
amount of shares to be redeemed, (b) identify the shareholder's account number
and (c) be signed by each registered owner exactly as the shares are registered.
If the shares to be redeemed were issued in certificate form, the certificates
must be endorsed for transfer (or be accompanied by an endorsed stock power) and
must be submitted to First Data together with the redemption request. Any
signature appearing on a share certificate, stock power or written redemption
request in excess of $10,000 must be guaranteed by an eligible guarantor
institution such as a domestic bank, savings and loan institution, domestic
credit union, member bank of the Federal Reserve System or member firm of a
national securities exchange. Written redemption requests of $10,000 or less do
not require the signature guarantee unless more than one such redemption request
is made in any 10-day period. Redemption proceeds will be mailed to an
investor's address of record. First Data may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees or guardians. A redemption request will not be deemed properly received
until First Data receives all required documents in proper form.
TELEPHONE REDEMPTION AND EXCHANGE PROGRAM
Shareholders who do not have a Smith Barney brokerage account may be
eligible to redeem and exchange Fund shares by telephone. To determine if a
shareholder is entitled to participate in this program, he or she should
17
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
contact First Data at 1-800-451-2010. Once eligibility is confirmed, the
shareholder must complete and return a Telephone/Wire Authorization Form, along
with a signature guarantee, that will be provided by First Data upon request.
(Alternatively, an investor may authorize telephone redemptions on the new
account application with the applicant's signature guarantee when making his/her
initial investment in the Fund.)
Redemptions. Redemption requests of up to $10,000 of any class or classes
of the Fund's shares may be made by eligible shareholders by calling First Data
at 1-800-451-2010. Such requests may be made between 9:00 a.m. and 4:00 p.m.
(New York City time) on any day the NYSE is open. Redemptions of shares (i) by
retirement plans or (ii) for which certificates have been issued are not
permitted under this program.
A shareholder will have the option of having the redemption proceeds mailed
to his/her address of record or wired to a bank account predesignated by the
shareholder. Generally, redemption proceeds will be mailed or wired, as the case
may be, on the next business day following the redemption request. In order to
use the wire procedures, the bank receiving the proceeds must be a member of the
Federal Reserve System or have a correspondent relationship with a member bank.
The Fund reserves the right to charge shareholders a nominal fee for each wire
redemption. Such charges, if any, will be assessed against the shareholder's
account from which shares were redeemed. In order to change the bank account
designated to receive redemption proceeds, a shareholder must complete a new
Telephone/Wire Authorization Form and, for the protection of the shareholder's
assets, will be required to provide a signature guarantee and certain other
documentation.
Exchanges. Eligible shareholders may make exchanges by telephone if the
account registration of the shares of the fund being acquired is identical to
the registration of the shares of the fund exchanged. Such exchange requests may
be made by calling First Data at 1-800-451-2010 between 9:00 a.m. and 4:00 p.m.
(New York City time) on any day on which the NYSE is open. See "Exchange
Privilege" for more information.
Additional Information Regarding Telephone Redemption and Exchange
Program. Neither the Fund nor its agents will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. The Fund and its agents will employ procedures designed to verify the
identity of the caller and legitimacy of instructions (for example, a
shareholder's name and account number will be required and phone calls may be
recorded). The Fund reserves the right to suspend, modify or discontinue the
telephone redemption and exchange program or
18
<PAGE>
REDEMPTION OF SHARES (CONTINUED)
to impose a charge for this service at any time following at least seven (7)
days prior notice to shareholders.
CONTINGENT DEFERRED SALES CHARGE
Class A shares acquired as part of an exchange privilege transaction, which
were originally acquired in one of the other Smith Barney Mutual Funds at net
asset value subject to a CDSC, continue to be subject to any applicable CDSC of
the original fund. Therefore, such Class A shares that are redeemed within 12
months of the date of purchase of the original fund may be subject to a CDSC of
1.00%. The amount of any CDSC will be paid to and retained by Smith Barney. The
CDSC will be assessed based on an amount equal to the net asset value at the
time of redemption. Accordingly, no CDSC will be imposed on increases in net
asset value above the initial purchase price in the original fund. In addition,
no charge will be assessed on shares derived from reinvestment of dividends or
capital gains distribution.
In determining the applicability of any CDSC, it will be assumed that a
redemption is made first of shares representing capital appreciation, next of
shares representing the reinvestment of dividends and capital gain distributions
and finally of other shares held by the shareholder for the longest period of
time. The length of time that Class A shares have been held will be calculated
from the date that the shares were initially acquired in one of the other Smith
Barney Mutual Funds, and such shares being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal income tax purposes,
the amount of the CDSC will reduce the gain or increase the loss, as the case
may be, on the amount realized on redemption.
The CDSC on Class A shares, if any, will be waived on (a) exchanges (see
"Exchange Privilege" below); (b) redemptions of shares within twelve months
following the death or disability of the shareholder; (c) involuntary
redemptions; and (d) redemptions of shares in connection with a combination of
the Fund with any investment company by merger, acquisition of assets or
otherwise. In addition, a shareholder who has redeemed shares from other funds
of the Smith Barney Mutual Funds may, under certain circumstances, reinvest all
or part of the redemption proceeds within 60 days and receive pro rata credit
for any CDSC imposed on the prior redemption.
CDSC waivers will be granted subject to confirmation (by Smith Barney in
the case of shareholders who are also Smith Barney clients or by First Data in
the case of all other shareholders) of the shareholder's status or holdings, as
the case may be.
19
<PAGE>
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each Class may be exchanged for
shares of the same Class in the following funds of the Smith Barney Mutual
Funds, to the extent shares are offered for sale in the shareholder's state of
residence. Exchanges of Class A shares are subject to minimum investment
requirements and all shares are subject to other requirements of the fund into
which exchanges are made and a sales charge may apply.
FUND NAME
- --------------------------------------------------------------------------------
Growth Funds
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Smith Barney Aggressive Growth Fund Inc.
Smith Barney Appreciation Fund Inc.
Smith Barney Balanced Fund
Smith Barney Contrarian Fund
Smith Barney Convertible Fund
Smith Barney Fundamental Value Fund Inc.
Smith Barney Funds, Inc. -- Large Cap Value Fund
Smith Barney Large Cap Blend Fund
Smith Barney Large Capitalization Growth Fund
Smith Barney Natural Resources Fund Inc.
Smith Barney Premium Total Return Fund
Smith Barney Small Cap Blend Fund, Inc.
Smith Barney Special Equities Fund
Taxable Fixed-Income Funds
Smith Barney Adjustable Rate Government Income Fund
Smith Barney Diversified Strategic Income Fund
Smith Barney Funds, Inc. -- Short-Term High Grade Bond Fund
Smith Barney Funds, Inc. -- U.S. Government Securities Fund
Smith Barney Government Securities Fund
Smith Barney High Income Fund
Smith Barney Investment Grade Bond Fund
Smith Barney Managed Governments Fund Inc.
Smith Barney Total Return Bond Fund
Tax-Exempt Funds
Smith Barney Arizona Municipals Fund Inc.
Smith Barney California Municipals Fund Inc.
Smith Barney Intermediate Maturity California Municipals Fund
Smith Barney Intermediate Maturity New York Municipals Fund
Smith Barney Managed Municipals Fund Inc.
20
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Smith Barney Massachusetts Municipals Fund
Smith Barney Municipal High Income Fund
Smith Barney Muni Funds -- Florida Portfolio
Smith Barney Muni Funds -- Georgia Portfolio
Smith Barney Muni Funds -- Limited Term Portfolio
Smith Barney Muni Funds -- National Portfolio
Smith Barney Muni Funds -- New York Portfolio
Smith Barney Muni Funds -- Pennsylvania Portfolio
Smith Barney New Jersey Municipals Fund Inc.
Smith Barney Oregon Municipals Fund
Global-International Funds
Smith Barney Hansberger Global Small Cap Value Fund
Smith Barney Hansberger Global Value Fund
Smith Barney World Funds, Inc. -- Emerging Markets Portfolio
Smith Barney World Funds, Inc. -- European Portfolio
Smith Barney World Funds, Inc. -- Global Government Bond Portfolio
Smith Barney World Funds, Inc. -- International Balanced Portfolio
Smith Barney World Funds, Inc. -- International Equity Portfolio
Smith Barney World Funds, Inc. -- Pacific Portfolio
Smith Barney Concert Allocation Series Inc.
Smith Barney Concert Allocation Series Inc. -- Balanced Portfolio
Smith Barney Concert Allocation Series Inc. -- Conservative Portfolio
Smith Barney Concert Allocation Series Inc. -- Global Portfolio
Smith Barney Concert Allocation Series Inc. -- Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- High Growth Portfolio
Smith Barney Concert Allocation Series Inc. -- Income Portfolio
Money Market Funds
Smith Barney Money Funds, Inc. -- Cash Portfolio
Smith Barney Money Funds, Inc. -- Government Portfolio
* Smith Barney Money Funds, Inc. -- Retirement Portfolio
Smith Barney Muni Funds -- California Money Market Portfolio
Smith Barney Muni Funds -- New York Money Market Portfolio
- ------------------------
* Available for exchange with Class A shares of the Fund.
Class A Exchanges. Class A shares of the Fund will be subject to the
appropriate sales charge upon the exchange of such shares for Class A shares of
another fund of the Smith Barney Mutual Funds sold with a sales charge.
Class Y Exchanges. Class Y shareholders of the Fund who wish to exchange
all or a portion of their Class Y shares for Class Y shares in any of the funds
identified above may do so without imposition of any charge.
21
<PAGE>
EXCHANGE PRIVILEGE (CONTINUED)
Additional Information Regarding the Exchange Privilege. Excessive
exchange transactions may be detrimental to the Fund's performance and its
shareholders. The investment manager may determine that a pattern of frequent
exchanges is excessive and contrary to the best interests of the Fund's other
shareholders. In this event, the Fund may, at its discretion, decide to limit
additional purchases and/or exchanges by the shareholder. Upon such a
determination, the Fund will provide notice in writing or by telephone to the
shareholder at least 15 days prior to suspending the exchange privilege and
during the 15 day period the shareholder will be required to (a) redeem his or
her shares in the Fund or (b) remain invested in the Fund or exchange into any
of the funds of the Smith Barney Mutual Funds ordinarily available, which
position the shareholder would be expected to maintain for a significant period
of time. All relevant factors will be considered in determining what constitutes
an abusive pattern of exchanges.
Certain shareholders may be able to exchange shares by telephone. See
"Redemption of Shares -- Telephone Redemption and Exchange Program." Exchanges
will be processed at the net asset value next determined plus any applicable
sales charge. Redemption procedures discussed above are also applicable for
exchanging shares, and exchanges will be made upon receipt of all supporting
documents in proper form. If the account registration of the shares of the fund
being acquired is identical to the registration of the shares of the fund
exchanged, no signature guarantee is required. A capital gain or loss for tax
purposes could be realized upon the exchange, depending upon the cost or other
basis of shares redeemed. Before exchanging shares, investors should read the
current prospectus describing the shares to be acquired. These exchange
privileges are available to shareholders resident in any state in which the fund
shares being acquired may legally be sold. The Fund reserves the right to modify
or discontinue exchange privileges upon 60 days' prior notice to shareholders.
MINIMUM ACCOUNT SIZE
The Fund reserves the right to redeem involuntarily any shareholder's
account if the aggregate net asset value of the shares held in the account is
less than $500, in which event the shareholder will receive prior written notice
and will be permitted 60 days to bring the account up to the minimum to avoid
involuntary liquidation. Any applicable CDSC will be deducted from the proceeds
of this liquidation. (If a shareholder has more than one account in the Fund,
each account must satisfy the minimum account size.)
22
<PAGE>
YIELD INFORMATION
From time to time the Fund may advertise the yield, effective yield and
taxable equivalent yield of its Class A and Class Y shares. These yield figures
are based on historical earnings and are not intended to indicate future
performance. The yield of each Class refers to the net investment income
generated by an investment in the Class over a specific seven-day period,
expressed as an annual percentage rate. The effective yield is calculated
similarly but, when annualized, the income earned by an investment in the Class
is assumed to be reinvested. The effective yield will be slightly higher than
the yield because of the compounding effect of the assumed reinvestment. The
taxable equivalent yield also is calculated similarly to the yield, except
that a stated income tax rate is used to demonstrate the taxable yield
necessary to produce an after-tax yield equivalent to the tax-exempt yield
of the Class.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
Overall responsibility for management and supervision of the Fund rests
with the Fund's Board of Directors. The Board of Directors approves all
significant agreements between the Fund and the companies that furnish
services to the Fund, including agreements with the Fund's distributor,
investment manager, custodian and transfer agent. The day-to-day operations
of the Fund are delegated to the Manager. The SAI contains background
information regarding
each Director and executive officer of the Fund.
MANAGER
Mutual Management Corp. ("MMC" or the "Manager"), formerly known as Smith
Barney Mutual Funds Management Inc., manages the day-to-day operations of the
Fund pursuant to a Management Agreement. MMC was incorporated in 1968 under the
laws of the State of Delaware. MMC is a wholly-owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"), the parent company of Smith Barney. Holdings
is a wholly-owned subsidiary of Travelers, a diversified financial services
holding company engaged, through its subsidiaries, principally in four business
segments: Investment Services including Asset Management, Consumer Finance
Services, Life Insurance Services and Property & Casualty Insurance Services.
MMC, Holdings and Smith Barney are each located at 388 Greenwich Street, New
York, New York 10013. MMC renders investment advice to investment companies that
had aggregate assets under management as of March 31, 1998 of approximately
$100.5 billion.
23
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
Pursuant to the Management Agreement, the Manager provides advice and
assistance to the Fund with respect to the acquisition, holding or disposal of
securities and recommendations with respect to other aspects of the business and
affairs of the Fund. It also furnishes the Fund with bookkeeping, accounting and
administrative services, office space and equipment, and the services of the
officers and employees of the Fund. It provides a variety of administrative and
shareholder services directly or at its expense through securities firms. For
the last fiscal year, the effective rate of the management fee was 0.48% of the
Fund's average daily net assets and the total expenses were 0.61% and 0.52% of
average net assets for Class A and Class Y shares, respectively. The Fund's
management agreement provides for daily compensation of the Manager at the
annual rate of 0.50% on the first $2.5 billion of the Fund's net assets, 0.475%
of the next $2.5 billion, 0.45% on the next $2.5 billion and 0.40% on net assets
in excess of $7.5 billion. The Manager has agreed that to the extent that in any
fiscal year the aggregate expenses of any Class of the Fund, exclusive of taxes,
brokerage, interest and extraordinary expenses such as litigation costs, exceed
0.70% of such Class' average daily net asset values for that fiscal year of the
Fund, the Manager will reduce its fee or reimburse the Fund to the extent of
such excess. The 0.70% voluntary expense limitation shall be in effect until it
is terminated by notice to shareholders and by supplement to the then current
prospectus.
MMC, in effecting purchases and sales of portfolio securities for the
account of the Fund, implements the Fund's policy of seeking the best execution
of orders. The Fund's portfolio transactions have for the most part been
principal transactions directly with the major underwriters for, and dealers in,
tax exempt money market instruments. No brokerage commissions are paid on such
transactions, but the price paid to underwriters or dealers will normally
include an underwriter's spread or dealer's markup. The primary consideration in
the allocation of transactions is prompt execution of orders in an effective
manner at the most favorable price. Under certain circumstances, transactions
will be effected with remarketing agents who receive fees from the issuers for
services rendered. No principal transactions are handled by Smith Barney.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction, which is expected to be completed
during the third quarter of 1998, is subject to various regulatory approvals,
including approval by the Federal Reserve Board. The transaction has been
approved by the stockholders of each of Travelers and Citicorp. Travelers has
filed an application to become a bank holding company so that, upon consummation
of the merger, the surviving
24
<PAGE>
MANAGEMENT OF THE FUND (CONTINUED)
corporation would be a bank holding company subject to regulation under the Bank
Holding Company Act of 1956 (the "BHCA"). The requirements of the BHCA, the
Glass-Steagall Act and certain other laws and regulations will then be
applicable to Travelers and its subsidiaries.
The Manager does not believe that its compliance with applicable law
following the merger of Travelers and Citicorp will have a material adverse
effect on its ability to continue to provide the Fund with the same level of
investment advisory services that it currently receives. Smith Barney and the
Manager believe that the Manager's services under the Management Agreement and
the shareholder service activities performed by Smith Barney are not
underwriting and would be consistent with the Glass-Steagall Act and other
relevant federal and state laws. However, there is little controlling precedent
regarding the performance of the combination of investment advisory, shareholder
servicing and administrative activities by subsidiaries of bank holding
companies. If Smith Barney and the Manager, or their affiliates, were to be
prevented from acting as the manager or a shareholder service agent, the Fund
would seek alternative means for obtaining these services. The Fund does not
expect that shareholders would suffer any adverse financial consequences as a
result of any such occurrence.
25
<PAGE>
DISTRIBUTION
Smith Barney serves as principal underwriter of shares of the Fund, for
which it receives no compensation, and conducts a continuous offering pursuant
to
a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. Under a plan of distribution pursuant
to Rule 12b-1 (the "Plan") under the 1940 Act, a service fee is paid by Class A
to Smith Barney at an annual rate of up to 0.10% of the Class' average daily net
assets. The fee is used by Smith Barney to pay Smith Barney financial
consultants for servicing shareholder accounts for as long as a shareholder
remains a holder of the Class. The service fee is credited at a rate of 0.10% of
the average balance of Class shares held in the accounts of the customers of
financial consultants. The service fee is also spent on the following types of
expenses: (1) the pro rata share of other employment costs of such financial
consultants (e.g., FICA, employee benefits, etc.); (2) employment expenses of
home office personnel primarily responsible for providing service to the Fund's
shareholders and (3) the pro rata share of branch office fixed expenses
(including branch overhead allocations).
Shareholder servicing expenses incurred by Smith Barney but not reimbursed
by a Class in any year will not be a continuing liability of the Class in
subsequent years.
Smith Barney also advises profit-sharing and pension accounts. Smith Barney
and its affiliates may in the future act as investment advisers for other
accounts.
The Glass-Steagall Act currently prohibits certain financial institutions
from underwriting securities of open-end investment companies, such as the Fund.
Therefore, in connection with the anticipated merger of Travelers and Citicorp
and as a consequence of the anticipated applicability of the BHCA and the
Glass-Steagall Act, the Fund plans to retain the services of a new entity (which
is not otherwise affiliated with Travelers) to act as distributor of the
Portfolio's shares.
26
<PAGE>
ADDITIONAL INFORMATION
The Fund, an open-end diversified management investment company, was
incorporated under Maryland law on April 1, 1980. Class A and Class Y shares
represent interests in the assets of the Fund and have identical voting,
dividend, liquidation and other rights on the same terms and conditions
except that expenses related to the distribution of each Class of shares are
borne solely by each Class and each Class of shares has exclusive voting
rights with respect to provisions of the Fund's Rule 12b-1 distrib
e cumulative voting rights; are fully paid when issued; have no preemptive,
subscription or conversion rights; and are redeemable and subject to
redemption as set forth under "Redemption of Shares" and "Minimum Account
Size." As described under "Voting Rights" in the SAI, the Fund ordinarily
will not hold shareholder meetings; however, shareholders have the right to
call a meeting upon a vote of 10% of the Fund's outstanding shares for the
purpose of voting to remove directors and the Fund will assist share
PNC Bank, National Association, located at 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, serves as custodian of the Fund's investments.
First Data, located at Exchange Place, Boston, Massachusetts 02109, serves
as the Fund's transfer agent.
The Fund sends its shareholders a semi-annual report and an audited annual
report, which include listings of the investment securities held by the Fund at
the end of the period covered. In an effort to reduce the Fund's printing and
mailing costs, the Fund plans to consolidate the mailing of its semi-annual and
annual reports by household. This consolidation means that a household having
multiple accounts with the identical address of record will receive a single
copy of each report. Shareholders who do not want this consolidation to apply to
their account should contact their Smith Barney Financial Consultant or the
Fund's transfer agent.
27
<PAGE>
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<PAGE>
PROSPECTUS
Smith Barney
Municipal
Money
Market
Fund, Inc.
JULY 29, 1998
Prospectus begins on page one
LOGO Smith Barney Mutual Funds
Investing for your future.
Everyday.(SM)
<PAGE>
Smith Barney
A Member of Travelers Group
Smith Barney
Municipal Money
Market Fund, Inc.
388 Greenwich Street
New York, New York 10013
FD 2310 7/98
