[SMITH BARNEY MUTUAL FUNDS LOGO]
PROSPECTUS
MUNICIPAL MONEY MARKET FUND, INC.
CLASS A AND Y SHARES
- ---------------------------------------
JULY 29, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
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MUNICIPAL MONEY MARKET FUND, INC.
CONTENTS
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<S> <C>
Investments, risks and performance......................... 2
More on the fund's investments............................. 6
Management................................................. 7
Choosing a class of shares to buy.......................... 8
Salomon Smith Barney brokerage accounts.................... 9
Letter of intent: Class Y shares........................... 9
Deferred sales charges..................................... 10
Buying shares.............................................. 11
Exchanging shares.......................................... 12
Redeeming shares........................................... 14
Other things to know about share transactions.............. 16
Distributions, dividends and taxes......................... 18
Share price................................................ 19
Financial highlights....................................... 20
</TABLE>
YOU SHOULD KNOW: An investment in the fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency. There is no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share.
Smith Barney Mutual Funds 1
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INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The fund seeks 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.
PRINCIPAL INVESTMENT STRATEGIES
KEY INVESTMENTS The fund invests at least 80% of its assets in short-term high
quality "municipal securities," which are debt obligations issued by any of the
50 states and their political subdivisions, agencies and public authorities
(together with certain other governmental issuers such as Puerto Rico, the
Virgin Islands and Guam). The interest on these securities is exempt from
federal income tax. As a result, the interest rate on these securities normally
is lower than it would be if the securities were subject to federal taxation.
All of the securities in which the fund invests are rated in one of the two
highest short-term rating categories, or if unrated, of equivalent quality. All
of these securities have remaining maturities of 397 days or less. The fund
maintains a dollar-weighted average portfolio maturity of 90 days or less.
SELECTION PROCESS The manager selects securities primarily by identifying
undervalued sectors and individual securities. The manager only selects
securities of issuers which it believes present minimal credit risk. In
selecting individual securities, the manager:
- - Uses fundamental credit analysis to estimate the relative value and
attractiveness of various securities and sectors
- - Measures the potential impact of supply/demand imbalances for fixed versus
variable rate securities and for obligations of different states
- - Measures 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 offer return advantages at similar risk levels
- - 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
2 Municipal Money Market Fund, Inc.
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PRINCIPAL RISKS OF INVESTING IN THE FUND
Although the fund seeks to preserve the value of your investment at $1 per
share, it is possible to lose money by investing in the fund, or the fund could
underperform other short-term municipal debt instruments or money market funds,
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 securities
- - The manager's judgment about the attractiveness, value or income potential of
a particular security proves to be incorrect
It is possible that some of the fund's income distributions may be, and
distributions of any gains generally will be, subject to federal taxation. 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 will be subject to state
personal income taxation. While not expected, the fund may occasionally realize
taxable gains on the sale of its securities.
WHO MAY WANT TO INVEST The fund may be an appropriate investment if you are a
taxpayer:
- - In a high federal tax bracket seeking current income exempt from federal
taxation
- - Seeking exposure to short-term municipal securities at a minimum level of
additional risk
- - Are looking to allocate a portion of your assets to money market securities
Smith Barney Mutual Funds 3
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RISK RETURN BAR CHART
This bar chart indicates the risks of investing in the fund by showing changes
in the fund's performance from year to year. Past performance does not
necessarily indicate how the fund will perform in the future. The bar chart
shows the performance of the fund's Class A shares for each of the past 10 full
calendar years. Class Y shares would have different performance because of its
different expenses.
TOTAL RETURN: CLASS A SHARES
Risk bar chart
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1989 6.00
1990 5.64
1991 4.14
1992 2.50
1993 1.90
1994 2.35
1995 3.43
1996 2.97
1997 3.13
1998 2.96
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS (past 10 years):
Highest: 1.58% in 4th quarter 1989; Lowest: 0.44% in 1st quarter 1994
Year to date: 1.28% through 6/30/99.
RISK RETURN TABLE
This table indicates the risks of investing in the fund by comparing the average
annual total return of each class for the periods shown with that of the 90-day
Treasury bill. This table assumes redemption of shares at the end of the period,
and reinvestment of distributions and dividends.
AVERAGE ANNUAL TOTAL RETURNS
CALENDAR YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CLASS INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C> <C>
A 4/3/81 2.96% 2.97% 3.50% --
Y 2/12/96 2.84% n/a n/a 3.02%
90 day T-bill * 4.88% 5.02% 5.32% 6.65%
</TABLE>
*Index Comparison begins on April 30, 1981.
7 day yield: As of December 31, 1998:
Class A -- 3.09%; Class Y -- 3.15%.
4 Municipal Money Market Fund, Inc.
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FEE TABLE
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
SHAREHOLDER FEES
<TABLE>
<CAPTION>
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS Y
<S> <C> <C>
Maximum sales charge (load) imposed on purchases None None
(as a % of offering price)
Maximum deferred sales charge (load) (as a % of the
lower of net asset value at purchase or redemption) None* None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A CLASS Y
<S> <C> <C>
Management fees 0.48% 0.48%
Distribution and service (12b-1) fees 0.10% None
Other expenses 0.04% 0.01%
Total annual fund operating expenses 0.62% 0.49%
</TABLE>
*Class A Shares acquired through an exchange for shares of another Smith Barney
Mutual Fund which were originally acquired at net asset value subject to a
contingent deferred sales charge ("CDSC") remain subject to the original fund's
CDSC.
EXAMPLE
This example helps you compare the costs of investing in the fund with the
Costs of investing in other mutual funds. Your actual costs may be higher
or lower.
The example assumes:
- - You invest $10,000 in the fund for the period shown
- - Your investment has a 5% return each year
- - You reinvest all distributions and dividends without a sales charge
- - The fund's operating expenses remain the same
- - Redemption of your shares at the end of the period
NUMBER OF YEARS YOU OWN YOUR SHARES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $63 $199 $346 $774
Class Y $50 $157 $274 $616
</TABLE>
Smith Barney Mutual Funds 5
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MORE ON THE FUND'S INVESTMENTS
MUNICIPAL SECURITIES The municipal securities in which the fund invests include
general obligation and revenue bonds and notes and tax-exempt commercial paper.
The fund may invest in floating or variable rate municipal securities. Some of
these securities may have stated final maturities of more than 397 days but
have demand features that entitle the fund to receive the principal amount
of the securities either at any time or at specified intervals.
STRUCTURED SECURITIES The fund may invest up to 20% of its assets in three
types of structured securities: tender option bonds, partnership interests and
swap-based securities. These securities represent participation interests in a
special purpose trust or partnership holding one or more municipal bonds and/or
municipal bond interest rate swaps. A typical swap enables the trust or
partnership to exchange a municipal bond interest rate for a floating or
variable, short-term municipal interest rate.
These structured securities are a type of derivative instrument. Unlike some
derivatives, these securities are not designed to leverage the fund's portfolio
or increase its exposure to interest rate risk.
Investments in structured securities raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in other municipal
bonds. These issues could be resolved in a manner that could hurt the
performance of the fund.
DEFENSIVE INVESTING The 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 taxable money market and
short-term debt securities. If the fund takes a temporary defensive position,
it may be unable to achieve its investment goal.
6 Municipal Money Market Fund, Inc.
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MANAGEMENT
MANAGER The fund's investment manager is SSBC Fund Management Inc., an
affiliate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager selects the fund's investments
And oversees its operations. The manager and Salomon Smith Barney are
subsidiaries of Citigroup Inc. Citigroup businesses produce a broad range of
financial services -- asset management, banking and consumer finance, credit
and charge cards, insurance, investments, investment banking and trading
and use diverse channels to make them available to consumer and corporate
customers around the world.
MANAGEMENT FEES During the fiscal year ended March 31, 1999, the manager
received an advisory fee equal to 0.48% of the fund's average daily net assets.
DISTRIBUTOR The fund has entered into an agreement with CFBDS, Inc. to
distribute the fund's shares. A selling group consisting of Salomon
Smith Barney and other broker-dealers sells fund shares to the public.
DISTRIBUTION PLAN The fund has adopted a Rule 12b-1 distribution plan for its
Class A shares. Under the plan, Class A shares pay a service fee. The fee in
Class A shares is an ongoing expense and, over time, it increases the cost of
your investment and may cost you more than other types of sales charges.
YEAR 2000 ISSUE Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on the fund. The cost of addressing the Year 2000 issue, if
substantial, could adversely affect companies and governments that issue
securities held by the fund. The manager and Salomon Smith Barney are addressing
the Year 2000 issue for their systems. The fund has been informed by other
service providers that they are taking similar measures. Although the fund does
not expect the Year 2000 issue to adversely affect it, the fund cannot
guarantee the efforts of the fund, which are limited to requesting and
receiving reports from its service providers, or its service providers to
correct the problem will be successful.
Smith Barney Mutual Funds 7
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CHOOSING A CLASS OF SHARES TO BUY
You may purchase Class A shares which are sold at net asset value with no
initial or deferred sales charge. Class A shares are subject to ongoing
distribution and service fees.
You may purchase Class Y shares only if you are making an initial investment of
at least $15,000,000. Class Y shares are sold at net asset value
You may buy shares from:
- - A Salomon Smith Barney Financial Consultant
- - An investment dealer in the selling group or a broker that clears through
Salomon Smith Barney -- a dealer representative
INVESTMENT MINIMUMS Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
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<CAPTION>
INITIAL ADDITIONAL
CLASS A CLASS Y ALL CLASSES
<S> <C> <C> <C>
General $1,000 $15 million $50
Uniform Gift to Minors Accounts $50 $15 million $50
</TABLE>
8 Municipal Money Market Fund, Inc.
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SALOMON SMITH BARNEY BROKERAGE ACCOUNTS
If you maintain certain types of securities brokerage accounts with Salomon
Smith Barney, you may request that your free credit balances (i.e., immediately
available funds) be invested automatically in Class A shares of a designated
money market fund either daily or weekly. A complete record of fund dividends,
purchases and redemptions will be included on your regular Salomon Smith Barney
brokerage statement. In addition to this sweep service, shareholders of Salomon
Smith Barney FMA PLUS(SM) accounts may also take advantage of: free dividend
reinvestment, unlimited checking, 100 free ATM withdrawals each year, gain/loss
analysis and online computer access to account information. Contact
your Salomon Smith Barney Financial Consultant for more complete information.
LETTER OF INTENT: CLASS Y SHARES
You may buy Class Y shares of the fund at net asset value with no initial sales
charge. To purchase Class Y shares, you must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of a fund over a 13-month period. To qualify, you must
initially invest $5,000,000.
Smith Barney Mutual Funds 9
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DEFERRED SALES CHARGES
If Class A shares of the fund are acquired by exchange from another Smith
Barney fund subject to a deferred sales charge the original deferred sales
charge will apply to these shares. If you redeem these shares within 12 months
of the date you purchased shares of the original fund, the fund's shares may be
subject to a deferred sales charge of 1.00%.
The deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
You do not pay a deferred sales charge on:
- - Shares exchanged for shares of another Smith Barney fund
- - Shares that represent reinvested distributions and dividends
- - Shares that are no longer subject to the deferred sales charge
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation
to your Salomon Smith Barney Financial Consultant or dealer representative.
DEFERRED SALES CHARGE WAIVERS
The deferred sales charge for Class A shares will generally be waived:
- - For involuntary redemptions of small account balances
- - For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
10 Municipal Money Market Fund, Inc.
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BUYING SHARES
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<S> <C>
Through a You should contact your Salomon Smith Barney
Salomon Smith Financial Consultant or dealer representative to
Barney Financial open a brokerage account and make arrangements
Consultant to buy shares.
or dealer
representative If you do not provide the following information,
your order will be rejected:
- Class of shares being bought
- Dollar amount or number of shares being bought
You should pay for your shares through your
brokerage account no later than the third
business day after you place your order. Salomon
Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- -----------------------------------------------------------------------
Through the Certain investors who are clients of the selling
fund's transfer group are eligible to buy shares directly from
agent the fund.
- Write the transfer agent at the following
address:
SMITH BARNEY MUNICIPAL MONEY MARKET FUND, INC.
(SPECIFY CLASS OF SHARES)
C/O FIRST DATA INVESTOR SERVICES GROUP, INC.
P.O. BOX 5128
WESTBOROUGH, MASSACHUSETTS 01581-5128
- Enclose a check to pay for the shares. For
initial purchases, complete and send an account
application.
- For more information, call the transfer agent
at 1-800-451-2010.
For more information, contact your Salomon Smith
Barney Financial Consultant, dealer
representative or the transfer agent or consult
the SAI.
</TABLE>
Smith Barney Mutual Funds 11
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EXCHANGING SHARES
<TABLE>
<S> <C>
Smith Barney offers You should contact your Salomon Smith Barney
a distinctive Financial Consultant or dealer representative
family of funds to exchange into other Smith Barney funds. Be
tailored to help sure to read the prospectus of the Smith
meet the varying Barney fund you are exchanging into.
needs of both
large and small - You may exchange shares only for shares of
investors the same class of another Smith Barney fund.
Not all Smith Barney funds offer all
classes.
- Not all Smith Barney funds may be offered
in your state of residence. Contact your
Salomon Smith Barney Financial Consultant,
dealer representative or the transfer
agent.
- You must meet the minimum investment amount
for each fund.
- If you hold share certificates, the
transfer agent must receive the certificates
endorsed for transfer or with signed stock
powers (documents transferring ownership of
certificates) before the exchange is
effective.
- The fund may suspend or terminate your
exchange privilege if you engage in an
excessive pattern of exchanges.
- --------------------------------------------------------------------
Sales charges Your shares may be subject to an initial
sales charge at the time of the exchange. For
more information, contact your Salomon Smith
Barney Financial Consultant, dealer
representative or the transfer agent.
Your deferred sales charge (if any) will
continue to be measured from the date of your
original purchase of another fund's shares
subject to a deferred sales charge.
- --------------------------------------------------------------------
</TABLE>
12 Municipal Money Market Fund, Inc.
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<TABLE>
<C> <S>
By telephone If you do not have a brokerage account, you
may be eligible to exchange shares through
the transfer agent. You must complete an
authorization form to authorize telephone
transfers. If eligible, you may make
telephone exchanges on any day the New York
Stock Exchange is open. Call the transfer
agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received
after the close of regular trading on the
Exchange are priced at the net asset value
next determined.
You can make telephone exchanges only between
accounts that have identical registrations.
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By mail If you do not have a Salomon Smith Barney
brokerage account, contact your dealer
representative or write to the transfer agent
at the address on the following page.
</TABLE>
Smith Barney Mutual Funds 13
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REDEEMING SHARES
<TABLE>
<C> <S>
Generally Contact your Salomon Smith Barney Financial
Consultant or dealer representative to redeem
shares of the fund.
If you hold share certificates, the transfer
agent must receive the certificates endorsed
for transfer or with signed stock powers
before the redemption is effective.
If the shares are held by a fiduciary or
corporation, other documents may be required.
Your redemption proceeds will be sent within
three business days after your request is
received in good order. However, if you
recently purchased your shares by check, your
redemption proceeds will not be sent to you
until your original check clears, which may
take up to 15 days.
If you have a Salomon Smith Barney brokerage
account, your redemption proceeds will be
placed in your account and not reinvested
without your specific instruction. In other
cases, unless you direct otherwise, your
redemption proceeds will be paid by check
mailed to your address of record.
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By mail For accounts held directly at the fund, send
written requests to the transfer agent at the
following address:
SMITH BARNEY MUNICIPAL MONEY MARKET FUND,
INC.
(SPECIFY CLASS OF SHARES)
C/O FIRST DATA INVESTOR SERVICES GROUP,
INC.
P.O. BOX 5128
WESTBOROUGH, MASSACHUSETTS 01581-5128
Your written request must provide the
following:
- Your account number
- The class of shares and the dollar amount
or number of shares to be redeemed
- Signatures of each owner exactly as the
account is registered
- --------------------------------------------------------------------
</TABLE>
14 Municipal Money Market Fund, Inc.
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<TABLE>
<C> <S>
By telephone If you do not have a brokerage account, you
may be eligible to redeem shares in amounts
up to $10,000 per day through the transfer
agent. You must complete an authorization
form to authorize telephone redemptions. If
eligible, you may request redemptions by
telephone on any day the New York Stock
Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00
p.m. (Eastern time). Requests received after
the close of regular trading on the Exchange
are priced at the net asset value next
determined.
Your redemption proceeds can be sent by check
to your address of record or by wire transfer
to a bank account designated on your
authorization form. You must submit a new
authorization form to change the bank account
designated to receive wire transfers and you
may be asked to provide certain other
documents.
- --------------------------------------------------------------------
For more information, contact your Salomon
Smith Barney Financial Consultant or dealer
representative or consult the SAI.
</TABLE>
Smith Barney Mutual Funds 15
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OTHER THINGS TO KNOW ABOUT SHARE TRANSACTIONS
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information, without which your
request will not be processed:
- - Name of the fund
- - Account number
- - Class of shares being bought, exchanged or redeemed
- - Dollar amount or number of shares being bought, exchanged or redeemed
- - Signature of each owner exactly as the account is registered
A request to purchase becomes effective only when Salomon Smith Barney, a
selling group member or the transfer agent receives, or converts the purchase
amount into, federal funds. The transfer agent will try to confirm that any
telephone exchange or redemption request is genuine by recording calls, asking
the caller to provide a personal identification number for the account, sending
you a written confirmation or requiring other confirmation procedures from time
to time.
SIGNATURE GUARANTEES To be in good order, your redemption request must include
a signature guarantee if you:
- - Are redeeming over $10,000 of shares
- - Are sending signed share certificates or stock powers to the transfer agent
- - Instruct the transfer agent to mail the check to an address different from
the one on your account
- - Changed your account registration
- - Want the check paid to someone other than the account owner(s)
- - Are transferring the redemption proceeds to an account with a different
registration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
The fund has the right to:
- - Suspend the offering of shares
- - Waive or change minimum and additional investment amounts
- - Reject any purchase or exchange order
- - Change, revoke or suspend the exchange privilege
- - Suspend telephone transactions
16 Municipal Money Market Fund, Inc.
<PAGE>
- - Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the
Securities and Exchange Commission
- - Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities.
SMALL ACCOUNT BALANCES If your account falls below $500 because of a
Redemption of fund shares, the fund may ask you to bring your account up to
$500. If your account is still below $500 after 60 days, the fund may
close your account and send you the redemption proceeds.
EXCESSIVE EXCHANGE TRANSACTIONS The manager may determine that a pattern of
frequent exchanges is detrimental to the fund's performance and other
shareholders. If so, the fund may limit additional purchases and/or
exchanges by the shareholder.
SHARE CERTIFICATES The fund does not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Smith Barney Mutual Funds 17
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DISTRIBUTIONS, DIVIDENDS AND TAXES
DIVIDENDS The fund declares a dividend of substantially all of its net
investment income on each day the New York Stock Exchange (NYSE) is open.
Income dividends are paid monthly. The fund generally makes capital gain
distributions, if any, once a year, typically in December. The fund may
pay additional distributions and dividends at other times if necessary for
the fund to avoid a federal tax. Capital gain distributions and dividends
are reinvested in additional fund shares of the same class you hold.
The fund expects distributions to be primarily from income. You do not pay
a sales charge on reinvested distributions or dividends. Alternatively,
you can instruct your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent to have your distributions
and/or dividends paid in cash. You can change
your choice at any time to be effective as of the next distribution
or dividend, except that any change given to the transfer agent less
than five days before the payment date will not be effective until the
next distribution or dividend is paid.
TAXES In general, redeeming shares, exchanging shares and receiving
distributions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
TRANSACTION FEDERAL TAX STATUS
<S> <C>
Redemption or exchange of shares Usually no gain or loss; loss may
result to extent of any deferred
sales charge
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Exempt if from interest on tax-exempt
securities, otherwise ordinary income
</TABLE>
The fund anticipates that it will normally not earn or distribute any long-term
capital gains.
After the end of each year, the fund will provide you with information
about the distributions and dividends you received and any redemptions of
shares during the previous year. If you do not provide the fund with
your correct taxpayer identification number and any required certifications,
you may be subject to back-up withholding of 31% of your distributions and
dividends. Because each shareholder's circumstances are different and
special tax rules may apply, you
should consult your tax adviser about your investment in the fund.
18 Municipal Money Market Fund, Inc.
<PAGE>
SHARE PRICE
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. The fund's net asset value is the value of its assets minus its
liabilities. Net asset value is calculated separately for each class of shares.
The fund calculates its net asset value every day the New York Stock Exchange
is open. The Exchange is closed on certain holidays listed in the SAI. This
calculation is done when regular trading closes on the Exchange (normally 4:00
p.m., Eastern time).
The fund uses the amortized cost method to value its portfolio securities.
Using this method, the fund constantly amortizes over the remaining life of
a security the difference between the principal amount due at maturity and
the cost of the security to the fund. The fund intends to use its best
efforts to continue to maintain a constant net asset value of $1.00.
<TABLE>
<CAPTION>
FORM OF PURCHASE IS EFFECTIVE
PURCHASE PAYMENT AND DIVIDENDS BEGIN
<S> <C> <C>
-- Payment in federal If received before At the close of
funds the close of regular regular trading on
trading on the the Exchange on that
Exchange: day
-- Having a If received after the At the close of
sufficient cash close of regular regular trading on
balance in your trading on the the Exchange on the
account with Exchange: next business day
Salomon Smith
Barney or a
selling group
member
-------------------------------------------------------------------
-- Other forms of At the close of
payment, with regular trading on
conversion into, the Exchange on the
or advance of, next business day
federal funds by
Salomon Smith
Barney or a
selling group
member
-- Other forms of
payment received
by the transfer
agent
</TABLE>
Salomon Smith Barney or members of the selling group must transmit all
orders to buy, exchange or redeem shares to the fund's agent before
the agent's close of business.
Smith Barney Mutual Funds 19
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FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
performance of each class for the past 5 years (or since inception if less than
5 years). Certain information reflects financial results for a single share.
Total return represents the rate that a shareholder would have earned (or lost)
on a fund share assuming reinvestment of all dividends and distributions. The
information in the following tables was audited by KPMG LLP, independent
accountants, whose report, along with the fund's financial statements, is
included in the annual report (available upon request).
FOR A CLASS A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Net asset value, beginning of
year $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------
Net investment income(1) 0.028 0.031 0.029 0.033 0.027
Dividends from net investment
income (0.028) (0.031) (0.029) (0.033) (0.027)
- -----------------------------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------
Total return 2.84% 3.15% 2.94% 3.34% 2.71%
- -----------------------------------------------------------------------------
Net assets, end of year
(millions) $7,104 $6,336 $5,562 $5,395 $4,651
- -----------------------------------------------------------------------------
Ratios to average net assets:
Expenses(1)(2) 0.62% 0.61% 0.67% 0.63% 0.61%
Net investment income 2.79 3.10 2.90 3.28 3.01
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(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>
<TABLE>
<CAPTION>
PER SHARE DECREASES
OF NET INVESTMENT EXPENSE RATIOS
INCOME WITHOUT FEE WAIVERS
1996 1995 1996 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A $0.0001 $0.0002 $0.64% 0.63%
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(2) As a result of voluntary expense limitations, expense ratios
will not exceed 0.70% of any class of the fund.
</TABLE>
20 Municipal Money Market Fund, Inc.
<PAGE>
FOR A CLASS Y SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH YEAR ENDED MARCH 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996(1)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------
Net investment income 0.029 0.032 0.030 0.004
Dividends from net investment
income (0.029) (0.032) (0.030) (0.004)
- ---------------------------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------
Total return 2.95% 3.25% 3.04% 0.39%(2)
- ---------------------------------------------------------------------------
Net assets, end of year (millions) $24.0 $0.5 $5.0 $18.0
- ---------------------------------------------------------------------------
Ratio to average net assets:
Expenses(4) 0.49% 0.52% 0.57% 0.55(3)
Net investment income 2.90 3.23 3.00 2.81(3)
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(1) For the period from February 12, 1996 (inception date) to
March 31, 1996.
(2) Total return is not annualized, as it may not be
representative of the total return for the year.
(3) Annualized.
(4) As a result of the voluntary expense limitations, expense
ratios will not exceed 0.70% of any class of the fund.
</TABLE>
Smith Barney Mutual Funds 21
<PAGE>
[SALOMON SMITH BARNEY LOGO]
MUNICIPAL MONEY MARKET FUND, INC.
SHAREHOLDER REPORTS Annual and semiannual reports to shareholders provide
additional information about the fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's
performance.
The fund sends only one report to a household if more than one account has the
same address. Contact your Salomon Smith Barney Financial Consultant, dealer
representative or the transfer agent if you do not want this policy to apply to
you.
STATEMENT OF ADDITIONAL INFORMATION The statement of additional information
provides more detailed information about the fund and is incorporated by
reference into (is legally part of) this prospectus.
You can make inquiries about the fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salomon
Smith Barney Financial Consultant or dealer representative, by calling the fund
at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual Funds, 388
Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at WWW.SMITHBARNEY.COM
You can also review and copy the fund's shareholder reports, prospectus and
statement of additional information at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. You can get copies of these materials
for a duplicating fee by writing to the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. Information about the public reference
room may be obtained by calling 1-800-SEC-0330. You can get the same
information free from the Commission's Internet web site at HTTP:WWW.SEC.GOV
If someone makes a statement about the fund that is not in this prospectus, you
should not rely upon that information. Neither the fund nor the distributor is
offering to sell shares of the fund to any person to whom the fund may not
lawfully sell its shares.
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-03112)
[FD2310 7/99]
Smith Barney
MUNICIPAL MONEY MARKET FUND, INC.
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Statement Of Additional
Information
July 29, 1999
This Statement of Additional Information (the "SAI") expands upon and
supplements the information contained in the current prospectus of Smith
Barney Municipal Money Market Fund Inc. (the "fund") dated July 29, 1999,
as amended or supplemented from time to time, and should be read in
conjunction with the fund's prospectus. Additional information about the
fund's investments is available in the fund's annual and semi-annual
reports to shareholders. The fund's prospectus may be obtained free of
charge from your Salomon Smith Barney Financial Consultant or by writing
or calling the fund at the address or telephone number set forth above.
This SAI, although not in itself a prospectus, is incorporated by
reference into the prospectus in its entirety.
TABLE OF CONTENTS
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND 2
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 9
INVESTMENT MANAGEMENT 12
PURCHASE OF SHARES 12
REDEMPTION OF SHARES 12
DISTRIBUTOR 15
PERFORMANCE DATA AND COMPUTATION OF YIELD 17
VALUATION OF SHARES AND AMORTIZED COST VALUATION 17
EXCHANGE PRIVILEGE 18
TAXES 19
ADDITIONAL INFORMATION 20
FINANCIAL STATEMENTS 21
APPENDIX A - RATINGS OF MUNICIPAL OBLIGATIONS A-1
DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
The names of the Directors and executive officers of the fund,
together with information as to their principal business occupations
during the past five years, are set forth below. Each Director who is an
"interested person" of the fund, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), is indicated by an asterisk.
Lee Abraham, Director (Age 71). Retired; Director or trustee of 11
investment companies associated with Citigroup Inc. ("Citigroup").
Formerly Chairman and Chief Executive Officer of Associated Merchandising
Corporation, a major retail merchandising and sourcing organization. . His
address is 106 Barnes Road, Stamford, Connecticut 06902.
Allan J. Bloostein, Director (Age 69). President of Allan J.
Bloostein Associates, a consulting firm; Director of CVS Corporation, a
drug store chain, and Taubman Centers Inc., a real estate development
company; Retired Vice Chairman and Director of The May Department Stores
Company; Director or trustee of 18 investment companies associated with
Citigroup. His address is 27 West 67th Street, New York, New York 10023.
Richard E. Hanson, Jr., Director (Age 57). Head of School, The New
Atlanta Jewish Community High School, Atlanta Georgia; Director or trustee
of 11 investment companies associated with Citigroup; formerly Headmaster,
The Peck School, Morristown, New Jersey; prior to July 1, 1994,
Headmaster, Lawrence Country Day School-Woodmere Academy, Woodmere, New
York. His address is 58 Ivy Chase, Atlanta, Georgia 30342.
Jane Dasher, Director (Age 49). Investment Officer of Korsant
Partners, a family investment company; Director or trustee of 11
investment companies associated with Citigroup. Prior to 1997, an
Independent Financial Consultant; From 1975 to 1987 held various positions
with Philip Morris Companies, Inc. including Director of Financial
Services, Treasurers Department; Her address is 283 Greenwich Avenue,
Greenwich Connecticut 06830.
Donald R. Foley, Director (Age 76). Retired; Director or trustee of
12 investment companies associated with Citigroup. Formerly Vice President
of Edwin Bird Wilson, Incorporated (an advertising agency). His address is
3668 Freshwater Drive, Jupiter, Florida 33477.
Paul Hardin, Director (Age 67). Professor of Law at University of
North Carolina at Chapel Hill; Director of The Summit Bancorporation;
Director or trustee of 14 investment companies associated with Citigroup.
Formerly, Chancellor of the University of North Carolina at Chapel Hill.
His address is 12083 Morehead, Chapel Hill, North Carolina 27514.
*Heath B. McLendon, Chairman of the Board, President and Chief
Executive Officer (Age 65). Managing Director of Salomon Smith Barney
Inc. ("Salomon Smith Barney"), Chairman of the Board and President of SSBC
Fund Management Inc. ("SSBC" or the "manager") (formerly known as Mutual
Management Corp.) and Travelers Investment Adviser, Inc. ("TIA"); Chairman
or Co-Chairman of the Board of 64 investment companies managed by
affiliates of Citigroup; and former Chairman of the Board of Smith Barney
Strategy Advisers Inc.
Roderick C. Rasmussen, Director (Age 72). Investment Counselor;
Director or trustee of 12 investment companies associated with
Citigroup.Formerly Vice President of Dresdner and Company Inc. (investment
counselors). ; His address is 9 Cadence Court, Morristown, New Jersey
07960;
John P. Toolan, Director (Age 68). Retired; Director or trustee of
12 investment companies associated with Citigroup. Trustee of John Hancock
Funds; Formerly, Director and Chairman of Salomon Smith Barney Trust
Company, Director of Smith Barney Holdings Inc. and various subsidiaries,
Senior Executive Vice President, Director and Member of the Executive
Committee of Smith Barney. His address is 13 Chadwell Place, Morristown,
New Jersey 07960.
*Lewis E. Daidone (Age 41). Senior Vice President and Treasurer (Age
41).Managing Director of Salomon Smith Barney; Director and Senior Vice
President of SSBC and TIA; Senior Vice President and Treasurer of 59
investment companies associated with Citigroup.
*Joseph Deane, Vice President, (Age 51 ). Managing Director of
Salomon Smith Barney and portfolio manager of nine investment companies or
series of investment companies associated with Citigroup.
*Joseph Benevento, Vice President (Age 31). Director of Salomon
Smith Barney and Vice President of Smith Barney Muni Funds and Smith
Barney Institutional Cash Management Fund Inc.
*Irving David, Controller and Assistant Secretary (Age 38). Director
of Salomon Smith Barney. Controller or Assistant Treasurer of 43
investment companies associated with Citigroup.
*Christina T. Sydor, Secretary (Age 48). Managing Director of
Salomon Smith Barney; General Counsel and Secretary of SSBC and TIA. Ms.
Sydor serves as Secretary of 59 Salomon Smith Barney Mutual Funds.
The business address of each of the officers of the fund listed
above is 388 Greenwich Street, New York, NY 10013. Such persons are
compensated by Salomon Smith Barney and are not separately compensated by
the fund.
As of July 16, 1999, the Directors and officers of the fund as a
group owned less than 1% of the outstanding common stock of the fund. As
of July 16, 1999, to the knowledge of the fund and the Board, the
following shareholders or "groups" (as that term is used in Section 13(d)
of the Securities Act of 1934) beneficially owned more than 5% of the
outstanding shares of the fund:
Class Y Shares
Stephen W. Bisson
P.O. Box 313
East Walpole, MA 02032-0313
owned 6,176,996.640 (92.11%) shares
Steven Meyer, Trustee
Marybeth Bisson, Irrevocable TR
P.O. Box 313
East Walpole, MA 02032-0313
owned 374,663.790 (5.59%) shares
The following table shows the compensation paid by the fund to each
director during the fund's last fiscal year. None of the officers of the
fund received any compensation from the fund for such period. Fees for
directors who are not "interested persons" of the fund and who are
directors of a group of funds sponsored by Salomon Smith Barney are set at
$42,000 per annum and are allocated based on relative net assets of each
fund in the group. In addition, these directors received $100 per fund or
portfolio for each meeting attended and plus travel and out-of-pocket
expenses incurred in connection with board meetings. The board meeting
fees and out-of-pocket expenses are borne equally by each individual fund
or portfolio in the group. During the fiscal year ended March 31, 1999,
the fund incurred expenses which totaled $13,711. Officers and interested
directors of the fund are compensated by Salomon Smith Barney.
COMPENSATION TABLE
Name of Director
Aggregate
Compensation
from the
fund
For Fiscal
Year Ended
3/31/99
Pension or
Retirement
Benefits
Accrued as
Part of
fund's
Expenses
Total
Compensation
from Fund
Complex for
Calendar
Year as of
12/31/98
Total Number
of Funds for
Which Director
Serves within
Fund Complex
Lee Abraham+
$0
$0
$47,750
11
Allen J.
Bloostein+
0
0
90,500
18
Richard E. Hanson,
Jr .+
0
0
47,950
11
Jane Dasher++
0
0
0
11
Donald R. Foley**
4,506
0
57,100
12
Paul Hardin
4,073
0
71,400
14
Heath B. McLendon*
0
0
0
64
Roderick C.
Rasmussenens." A
"standby commitment" entitles the holder to achieve same day settlement
and to receive an exercise price equal to the amortized cost of the
underlying security plus accrued interest, if any, at the time of
exercise. Although it is permissible for the fund to purchase securities
with standby commitments, as a practical matter, it is unlikely that the
fund would have the need or the opportunity to do so because such puts are
not commonly available.
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 l.c. fund's investment objective.
The fund may invest in securities the disposition of which is
subject to legal or contractual restrictions. The sale of restricted
securities often requires more time and results in higher dealer discounts
or other selling expenses than does the sale of securities that are not
subject to restrictions on resale. Restricted securities may sell at a
price lower than similar securities that are not subject to restrictions
on resale.
Securities may be sold in anticipation of a market decline (a rise
in interest rates) or purchased in anticipation of a market rise (a
decline in interest rates). In addition, a security may be sold and
another purchased at approximately the same time to take advantage of what
the manager believes to be a temporary disparity in the normal yield
relationship between the two securities. The fund believes that, in
general, the secondary market for tax-exempt securities in the fund's
portfolio may be less liquid than that for taxable fixed-income
securities. Accordingly, the ability to make purchases and sales of
securities in the foregoing manner may be limited. Yield disparities may
occur for reasons not directly related to the investment quality of
particular issues or the general movement of interest rates, but instead
due to such factors as changes in the overall demand for or supply of
various types of tax-exempt securities or changes in the investment
objectives of investors.
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 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.
INVESTMENT RESTRICTIONS
The fund is subject to certain restrictions and policies that are
"fundamental," which means that they may not be changed without a "vote of
a majority of the outstanding voting securities" of the fund, as defined
under the 1940 Act. The fund is subject to other restrictions and
policies that are "non-fundamental" and which may be changed by the fund's
Board of Directors without shareholder approval, subject to any applicable
disclosure requirements.
Fundamental Policies. Without the approval of a majority of its
outstanding voting securities, the fund may not:
1. issue "senior securities" as defined in the Act and the rules,
regulations and orders thereunder, except as permitted under the Act
and the rules, regulations and orders thereunder.
2. invest more than 25% of its total assets in securities, the
issuers of which conduct their principal business activities in the
same industry. For purposes of this limitation, securities of the
U.S. government (including its agencies and instrumentalities) and
securities of state or municipal governments and their political
subdivisions are not considered to be issued by members of any
industry.
3. borrow money, except that (a) the fund may borrow from banks
for temporary or emergency (not leveraging) purposes, including the
meeting of redemption requests which might otherwise require the
untimely disposition of securities, and (b) the fund may, to the
extent consistent with its investment policies, enter into reverse
repurchase agreements, forward roll transactions and similar
investment strategies and techniques. To the extent that it engages
in transactions described in (a) and (b), the fund will be limited
so that no more than 33 -1/3% of the value of its total assets
(including the amount borrowed), valued at the lesser of cost or
market, less liabilities (not including the amount borrowed) is
derived from such transactions.
4. make loans. This restriction does not apply to: (a) the
purchase of debt obligations in which the fund may invest consistent
with its investment objectives and policies; (b) repurchase
agreements; and (c) loans of its portfolio securities, to the
fullest extent permitted under the Act.
5. engage in the business of underwriting securities issued by
other persons, except to the extent that the fund may technically be
deemed to be an underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
6. purchase or sell real estate, real estate mortgages,
commodities or commodity contracts, but this restriction shall not
prevent the fund from (a) investing in securities of issuers engaged
in the real estate business or the business of investing in real
estate (including interests in limited partnerships owning or
otherwise engaging in the real estate business or the business of
investing in real estate) and securities which are secured by real
estate or interests therein; (b) holding or selling real estate
received in connection with securities it holds or held; (c) trading
in futures contracts and options on futures contracts (including
options on currencies to the extent consistent with the funds'
investment objective and policies); or (d) investing in real estate
investment trust securities.
7. invest in a manner that would cause the fund to fail to be a
"diversified company" under the Act and the rules, regulations and
orders thereunder.
Nonfundamental Policies. As nonfundamental policies, the fund may not:
1. purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales
of portfolio securities) or sell any securities short (except
"against the box"). For purposes of this restriction, the
deposit or payment by the fund of underlying securities and other
assets in escrow and collateral agreements with respect to
initial or maintenance margin in connection with futures
contracts and related options and options on securities, indexes
or similar items is not considered to be the purchase of a
security on margin.
2. purchase or otherwise acquire any security if, as a result, more
than 10% of its net assets would be invested in securities that
are illiquid.
All of the foregoing restrictions which are stated in terms of
percentages will apply at the time an investment is made; a subsequent
increase or decrease in the percentage that may result from changes in
values or net assets will not result in a violation of the restriction.
INVESTMENT MANAGEMENT
SSBC serves as investment adviser to the fund pursuant to a written
agreement (the "Management Agreement"), which was approved by the fund's
Board of directors, including a majority of the directors who are not
interested persons of the fund or Salomon Smith Barney (the "independent
directors"). Subject to the supervision and direction of the fund's board
of directors, the manager manages the fund's portfolio in accordance with
the fund's stated investment objective and policies, makes investment
decisions for the fund, places orders to purchase and sell securities, and
employs professional portfolio managers and securities analysts who
provide research services to the fund. The manager pays the salary of any
officer and employee who is employed by both it and the trust. The
manager bears all expenses in connection with the performance of its
services. SSBC is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. ("Holdings"), which in turn is a wholly owned subsidiary of
Citigroup Inc. ("Citigroup"). SSBC (through predecessor entities) has been
in the investment counseling business since 1968 and renders investment
advice to a wide variety of individual, institutional and investment
company clients that had aggregate assets under management as of March 31,
1999 in excess of $114 billion.
The fund's Management Agreement with the manager was approved by
shareholders on September 16, 1994, became effective on November 7, 1994,
and was amended as of September 3, 1997. The Management Agreement provides
that the fund's management fee will be calculated as follows: 0.50% of the
first $2.5 billion of average daily net assets; 0.475% of the next $2.5
billion of average daily net assets; 0.45% of the next $2.5 billion of
average daily net assets; and 0.40% of average daily net assets over $7.5
billion.
For the fiscal years ended March 31, 1997, 1998 and 1999, the
management fees were $26,073,153, $27,985,733 and $32,200,646 respectively,
and there were no expense limitation reimbursements (see "Management " in
the Prospectus).
The Management Agreement further provides that all other expenses not
specifically assumed by the manager are borne by the fund. Expenses
payable by the fund include, but are not limited to, charges of custodians
(including sums as custodian and sums for keeping books and for rendering
other services to the fund), transfer agents and registrars, expenses of
registering or qualifying shares for sale (including the printing of the
fund's registration statements and prospectuses), out-of-pocket expenses of
directors and fees of directors who are not "interested persons" of the
fund as defined in the Act, association membership dues, charges of
auditors and legal counsel, expenses of preparing, printing and
distributing all proxy material, reports and notices to shareholders,
insurance expense, costs of performing portfolio valuations, interest,
taxes, fees and commissions of every kind, expenses of issue, repurchase or
redemption of shares, and all other costs incident to the fund's corporate
existence. No sales or promotion expenses are incurred by the fund, but
expenses incurred in complying with laws regulating the issue or sale of
the fund's shares, which are paid by the fund, are not deemed sales or
promotion expenses.
The Management Agreement will continue in effect if specifically
approved annually by a majority of the directors of the fund who are not
parties to such contract or "interested persons" of any such party. The
Management Agreement may be terminated without penalty by either of the
parties on 60 days' written notice and must terminate in the event of its
assignment. It may be amended or modified only if approved by vote of the
holders of a majority of the fund's outstanding shares as defined in the
Act.
The Management Agreement provides that the manager is not liable for
any act or omission in the course of or in connection with rendering
services under the Management Agreement in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligation or duties. The Management Agreement permits the manager to
render services to others and to engage in other activities.
Auditors
KPMG LLP, 757 Third Avenue, New York, New York 10017, has been
selected as the fund's independent auditor to examine and report on the
fund's financial statements and highlights for the fiscal year ended March
31, 2000.
Transfer Agent and Custodian
PNC Bank, National Association, located at 17th and Chestnut
Streets, Philadelphia, Pennsylvania 19103, serves as the fund's custodian.
Under the custody agreement, PNC holds the fund's portfolio securities and
keeps all necessary accounts and records. For its services, PNC receives
a monthly fee based upon the month-end market value of securities held in
custody and also receives securities transaction charges. The assets of
the fund are held under bank custodianship in compliance with the 1940
Act.
First Data Investor Services Group, Inc.("First Data" or "transfer
agent"), located at Federal Street, Boston, Massachusetts 02110, serves as
the fund's transfer agent. Under the transfer agency agreement, First
Data maintains the shareholder account records for the fund, handles
certain communications between shareholders and the fund, and distributes
dividends and distributions payable by the fund. For these services,
First Data receives a monthly fee computed on the basis of the number of
shareholder accounts it maintains for the fund during the month, and is
reimbursed for out-of-pocket expenses.
PURCHASE OF SHARES
Investors may purchase shares from a Salomon Smith Barney Financial
Consultant or a broker that clears through Salomon Smith Barney ("Dealer
Representative"). In addition, certain investors, may purchase shares
directly from the fund through a Dealer Representative.
When purchasing shares of the fund, investors
must specify whether the purchase is for Class A or Class Y shares.
Salomon Smith Barney and Dealer Representatives may charge their customers
an annual account maintenance fee in connection with a brokerage account
through which an investor purchases or holds shares. Accounts held
directly at First Data are not subject to a maintenance fee. The minimum
initial investment for Class A is $1,000 and the minimum subsequent
investment is $50. There are no minimum investment requirements in Class
A shares for employees of Citigroup and its subsidiaries, including
Salomon Smith Barney, and Directors or Trustees of any Travelers-
affiliated funds, including the Smith Barney Mutual Funds, and their
spouses and children. The minimum initial investment for Class Y is
$15,000,000. Subsequent investments of at least $50 may be made for
either class. There are no minimum investment requirements in Class A for
employees of Citigroup and its subsidiaries, including Salomon Smith
Barney, and Directors or Trustees of any Citigroup-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. Share Certificates are issued only upon a
shareholder's written request to First Data.
Letter of Intent - Class Y Shares. A Letter of Intent may be
used as a way for investors to meet the minimum investment requirement for
Class Y shares. Such investors must make an initial minimum purchase of
$5,000,000 in Class Y shares of the fund and agree to purchase a total of
$15,000,000 of Class Y Shares of the fund within 13 months from the date
of the Letter. If a total investment of $15,000,000 is not made within
the 13-month period, all Class Y shares purchased during such period will
be transferred to Class A shares, where they will be subject to all fees
(including a service fee of 0.25%) and expenses applicable to the fund's
Class A shares, which may include a CDSC of 1.00%. Please contact a
Salomon Smith Barney Financial Consultant or the transfer agent for
further information.
REDEMPTION OF SHARES
Shareholders may redeem their shares without charge on any day a
fund calculates its net asset value. See "Valuation of Shares and
Amortized Cost Valuation." Redemption requests received in proper form
before 12 noon, Eastern time, are priced at the net asset value as next
determined on that day. Redemption requests received after 12 noon,
Eastern time, are priced at the net asset value next determined.
Redemption requests must be made through a Salomon Smith Barney Financial
Consultant, or a dealer representative through whom the shares were
purchased, except that shareholders who purchased shares of the fund from
First Data may also redeem shares directly through First Data. A
shareholder desiring to redeem shares represented by certificates also
must present the certificates to a Salomon Smith Barney Financial
Consultant, dealer representative 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.
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 NYSE
is closed and the 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 Salomon Smith Barney
brokerage account, these funds will not be invested for the shareholder's
benefit without specific instruction and Salomon Smith Barney will benefit
from the use of temporarily uninvested funds. 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 fifteen 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.
Fund shareholders who purchase securities through a Salomon Smith
Barney Financial Consultant or dealer representative 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 a Salomon Smith Barney
Financial Consultant or dealer representative. 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 the
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 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 a Salomon Smith
Barney Financial Consultant or dealer representative 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 Salomon Smith Barney
Financial Consultant or dealer representative.
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
written redemption request in excess of $10,000, share certificate or
stock power must be guaranteed by an eligible guarantor institution such
as a domestic bank, savings and loan institution, domestic credit union,
member bank of the Federal Reserve System or member firm of a national
securities exchange. Written redemption requests of $10,000 or less do
not require a signature guarantee unless more than one such redemption
request is made in any 10-day period. Redemption proceeds will be mailed
to an investor's address of record. 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. To determine if a
shareholder is entitled to participate in this program, he or she should
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 a 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 5:00 p.m. (Eastern time) on any day the NYSE is open. Requests
received after the close of regular trading on the NYSE are priced at the
net asset value next determined. 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 5:00 p.m. (Eastern 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 funds nor their agents will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. Each 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). Each fund reserves the right to suspend,
modify or discontinue the telephone redemption and exchange program or to
impose a charge for this service at any time following at least seven (7)
days prior notice to shareholders.
Contingent Deferred Sales Charge Class A shares 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 Salomon Smith Barney. The CDSC will be assessed based on an
amount equal to the account value at the time of redemption, and will not
be imposed on increases in 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 distributions.
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 reinvestments 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 and 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 the amount of shares being redeemed will be considered to
represent, as applicable, the value of 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
(if any) or increase the loss (if any), as the case may be, 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)
redemption of shares made in connection with qualified distributions from
retirement plans or IRAs upon the attainment of age 59 1/2; (d)
involuntary redemptions; and (e) redemptions of shares to effect a
combination of a Portfolio 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 Salomon
Smith Barney in the case of shareholders who are also Salomon Smith Barney
clients or by First Data in the case of all other shareholders) of the
shareholder's status or holdings, as the case may be.
DISTRIBUTOR
Distributor. CFBDS, Inc., located at 20 Milk Street, Boston, MA
02109-5408, serves as the fund's distributor on a best efforts basis
pursuant to a distribution agreement dated October 8, 1998 (the
"Distribution Agreement"), which was approved by the fund's board of
directors. Prior to the merger of Travelers Group, Inc. and Citicorp on
October 8, 1998, Salomon Smith Barney served as the fund's distributor.
Brokerage. The manager places orders for the purchase and sale of
securities for the funds of the fund. All of the portfolio transactions
have been principal transactions with major dealers in money market
instruments, on which no brokerage commissions are paid. Purchases from
or sales to dealers serving as market-makers include the spread between
the bid and asked prices. No portfolio transactions are handled by
Salomon Smith Barney.
When payment is made by the investor before the settlement date,
unless otherwise noted by the investor, the funds will be held as a free
credit balance in the investor's brokerage account, and Salomon Smith
Barney may benefit from the temporary use of the funds. The investor may
designate another use for the funds prior to the settlement date, such as
an investment in a money market fund (other than the Salomon Smith Barney
Exchange Reserve Fund) of the Smith Barney Mutual Funds. If the investor
instructs Salomon Smith Barney to invest in a Smith Barney money market
fund, the amount of the investment will be included as part of the average
daily net assets of both the fund and the money market fund, and
affiliates of Smith Barney that serve the funds in an investment advisory
or administrative capacity will benefit from the fact they are receiving
fees from both such investment companies for managing these assets,
computed on the basis of their average daily net assets. The fund's Board
of Directors has been advised of the benefits to Smith Barney resulting
from these settlement procedures and will take such benefits into
consideration when reviewing the Advisory, Administration and Distribution
Agreements for continuance.
For the fiscal year ended March 31, 1999, Salomon Smith Barney
incurred distribution expenses totaling approximately $5,728,177
consisting of approximately $367,660 for Mutual Fund Marketing, $964,171
for printing of prospectuses, $2,924,628 to Salomon Smith Barney Financial
Consultants, and $126,264 in accruals for interest on the excess of
Salomon Smith Barney expenses incurred in the distribution of the fund's
shares over the sum of the distribution fees and CDSC received by Salomon
Smith Barney from the fund.
DISTRIBUTION ARRANGEMENTS
To compensate Salomon Smith Barney for the services it provides and
for the expense it bears under the Distribution Agreement, the fund has
adopted a services and distribution plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan, the fund pays Salomon Smith
Barney a service fee at the rate of 0.10% of the average balance of class
shares held in the accounts of the customers of financial consultants. The
fee is used by Salomon Smith Barney to pay its financial consultants for
servicing shareholder accounts for as long as shareholders remain a holder
of the class.
The following service and distribution fees were incurred during the
fiscal years ended as indicated:
Distribution Plan
Fees
03/31/99
03/31/98
03/31/97
Class
A..................
....
$6,723,338
$5,800,028
$5,356,489
Under its terms, the Plan continues from year to year, provided such
continuance is approved annually by vote of the fund's Board of Directors,
including a majority of the Independent Directors who have no direct or
indirect financial interest in the operation of the Plan or in the
Distribution Agreement. The Plan may not be amended to increase the amount
of the service and distribution fees without shareholder approval, and all
amendments of the Plan also must be approved by the Directors and
Independent Directors in the manner described above. The Plan may be
terminated with respect to a Class at any time, without penalty, by vote
of a majority of the Independent Directors or by vote of a majority of the
outstanding voting securities of the Class (as defined in the 1940 Act).
Pursuant to the Plan, Salomon Smith Barney will provide the Board of
Directors periodic reports of the amounts expended under the Plan and the
purpose for which such expenditures were made.
PERFORMANCE DATA AND COMPUTATION OF YIELD
From time to time, the fund may quote yield, effective yield and
taxable equivalent yield of its Class A and Class Y shares in
advertisements or in reports and other communications to shareholders.
The fund's yield for the seven-day period ended March 31, 1999 for
Class A shares was 2.48% (the effective yield was 2.51%) and for Class Y
shares was 2.61% (the effective yield was 2.64%) with an average dollar-
weighted portfolio maturity of 60 days. The tax-equivalent yield was
3.87% and 4.08%, for Class A and Class Y shares, respectively, assuming
the payment of Federal income taxes at a rate of 36% and the tax-
equivalent effective yield was 3.92% and 4.13%, for Class A and Class Y
shares, respectively, assuming the payment of Federal income taxes at a
rate of 36%.
To compute current yield the fund divides the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account
having a balance of one share at the beginning of a recent seven-day base
period by the value of the account at the beginning of the base period and
multiplying this base period return by 365/7. Effective yield is computed
by determining the net change, exclusive of capital changes, in the value
of a hypothetical pre-existing account having a balance of one share at
the beginning of the period and dividing such net change by the value of
the account at the beginning of the base period to obtain the base period
return, and then compounding the base period return by adding 1, raising
the sum to a power equal to 365/7, and subtracting 1 from the result. The
fund also quotes the average dollar-weighted portfolio maturity of the
corresponding seven-day period. In addition, the fund may publish a tax-
equivalent yield based on federal tax rates that demonstrates the taxable
yield necessary to produce an after-tax yield equivalent to the fund's
yield. The tax-equivalent yield does not include any element of non tax-
exempt income.
The fund's equivalent taxable 7-day yield and effective yield for a
Class of shares is computed by dividing that portion of the Class' 7-day
yield and effective yield which is tax-exempt by one minus a stated income
tax rate and adding the product to that portion, if any, of the Class'
yield that is not tax-exempt.
Although principal is not insured, it is not expected that the net
asset value of the fund's shares will fluctuate because the fund uses the
amortized cost method of valuation. (See "Valuation of Shares and
Amortized Cost Valuation" below.) The investor should remember that yield
is a function of the type, quality and maturity of the instruments in the
portfolio, and the fund's operating expenses. While current yield
information may be useful, investors should realize that current yield
will fluctuate and that the yield figures set forth above are based on
historical earnings and are not intended to indicate future performance.
Each Class' net investment income changes in response to fluctuation in
interest rates and the expenses of the fund. The yield figures may not
provide a basis for comparison with bank deposits or other investments
that pay a fixed yield for a stated period of time.
VALUATION OF SHARES AND AMORTIZED COST VALUATION
Each Class' net asset value per share is calculated on each day,
Monday through Friday, except days on which the New York Stock Exchange
(the "NYSE") is closed. The NYSE currently is scheduled to be closed on
New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas, and
on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Because of the differences in
distribution fees and Class-specific expenses, the per share net asset
value of each Class may differ. The following is a description of the
procedures used by the fund in valuing its assets.
The fund uses the "amortized cost method" for valuing portfolio
securities pursuant to Rule 2a-7 under the Act (the "Rule"). The
amortized cost method of valuation of the fund's portfolio securities
(including any securities held in the separate account maintained for
"when-issued" securities) involves valuing a security at its cost at the
time of purchase and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. The
market value of portfolio securities will fluctuate on the basis of the
creditworthiness of the issuers of such securities and with changes in
interest rates generally. While the amortized cost method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the fund
would receive if it sold the instrument. During such periods the yield to
investors in the fund may differ somewhat from that obtained in a similar
company that uses mark-to-market values for all its portfolio securities.
For example, if the use of amortized cost resulted in a lower (higher)
aggregate portfolio value on a particular day, a prospective investor in
the fund would be able to obtain a somewhat higher (lower) yield than
would result from investment in such similar company, and existing
investors would receive less (more) investment income. The purpose of
this method of valuation is to attempt to maintain a constant net asset
value per share, and it is expected that the price of the fund's shares
will remain at $1.00; however, shareholders should be aware that despite
procedures that will be followed to have a stabilized price, including
maintaining a maximum dollar-weighted average portfolio maturity of 90
days, investing in securities that have or are deemed to have remaining
maturities of only 13 months or less and investing in only United States
dollar-denominated instruments determined by the Board of Directors to be
of high quality with minimal credit risks and which are Eligible
Securities as defined below, there is no assurance that at some future
date there will not be a rapid change in prevailing interest rates, a
default by an issuer or some other event that could cause the fund's price
per share to change from $1.00.
An Eligible Security is defined in the Rule to mean a security
which: (a) has a remaining maturity of 397 days or less; (b) (i) is rated
in the two highest short-term rating categories by any two NSROs that have
issued a short-term rating with respect to the security or class of debt
obligations of the issuer, or (ii) if only one NRSRO has issued a short-
term rating with respect to the security, then by that NRSRO; (c) was a
long-term security at the time of issuance whose issuer has outstanding a
short-term debt obligation which is comparable in priority and security
and has a rating as specified in clause (b) above; or (d) if no rating is
assigned by any NRSRO as provided in clauses (b) and (c) above, the
unrated security is determined by the Directors to be of comparable
quality to any such rated security.
EXCHANGE PRIVILEGE
Except as otherwise noted below, shares of each class may be
exchanged for shares of the same class in any 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 and Class Y shares are subject
to minimum investment requirements and all shares are subject to other
terms or requirements of the fund into which exchanges are made and a
sales charge may apply.
Class A Exchanges. Class A shares of each fund will be subject to
the applicable 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 a 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.
Additional Information Regarding the Exchange Privilege. Excessive
exchange transactions may be detrimental to each 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 a
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 Portfolio 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. 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.
TAXES
The following is a summary of selected federal income tax
considerations that may affect the fund and its shareholders. This summary
is not intended as a substitute for individual tax advice and investors
are urged to consult their own tax advisors as to the tax consequences of
an investment in the fund.
As described above and in the prospectus, the fund is designed to
provide shareholders with current income which is excluded from gross
income for federal income tax purposes. The fund is not intended to
constitute a balanced investment program and is not designed for investors
seeking capital gains or maximum tax-exempt income irrespective of
fluctuations in principal. Investment in the fund would not be suitable
for tax-exempt institutions, qualified retirement plans, H.R. 10 plans and
individual retirement accounts because such investors would not gain any
additional tax benefit from the receipt of tax-exempt income.
The fund has qualified and intends to continue to qualify each year
as a "regulated investment company" under the Code. Provided that the fund
(a) qualifies as a regulated investment company and (b) distributes to its
shareholders at least 90% of its taxable net investment income and net
short-term capital gains in excess of net long-term capital loss and 90%
of its tax-exempt interest income (reduced by certain expenses for its
taxable year), the fund will not be liable for federal income taxes to the
extent its taxable net investment income and its net realized short-and
long-term capital gains, if any, are distributed to its shareholders. 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.
Because the fund will distribute exempt-interest dividends, interest
on indebtedness incurred by a shareholder to purchase or carry fund shares
is not deductible for federal income tax purposes to the extent it is
deemed related to such exempt-interest dividends. If a shareholder
receives exempt-interest dividends with respect to any share and if such
share is held by the shareholder for six months or less, then for federal
income tax purposes, any loss on the sale or exchange of such share, to
the extent of such exempt-interest dividend, may be disallowed. In
addition, the Code may require a shareholder, if he or she receives
exempt-interest dividends, to treat as taxable income a portion of certain
otherwise non-taxable social security and railroad retirement benefit
payments. Furthermore, that portion of any exempt-interest dividends paid
by the fund which represents income derived from private activity bonds
held by the fund may not retain its federal tax-exempt status in the hands
of a shareholder who is a "substantial user" of a facility financed by
such bonds or a "related person" thereof. Moreover some or all of the
fund's dividends and distributions may be a specific tax preference item,
or a component of an adjustment item, for purposes of the federal
individual and corporate alternative minimum taxes. In addition, the
receipt of fund dividends and distributions may affect a foreign corporate
shareholder's federal "branch profits" tax liability and the federal
"excess net passive income" tax liability of a shareholder of a Subchapter
S corporation. Shareholders should consult their own tax advisors as to
whether they are (a) substantial users with respect to a facility or
related to such users within the meaning of the Code and (b) subject to a
federal alternative minimum tax, the federal branch profits tax or the
federal excess net passive income tax.
Long term capital gains, if any, realized by the fund will be
distributed annually as described in the prospectus. Such distributions
("capital gain dividends") will be taxable to shareholders as long-term
capital gains, regardless of how long they have held fund shares, and will
be designated as capital gain dividends in a written notice mailed to
shareholders after the close of the fund's taxable year. If a shareholder
receives a capital gain dividend with respect to any share and redeems or
sells the share before it has been held by the shareholder for more than
six months, then any loss (to the extent not disallowed pursuant to the
other six-month rule described above relating to exempt-interest
dividends) on the sale or other disposition of such share will be treated
as a long-term capital loss to the extent of the capital gain dividend.
Each shareholder will receive after the close of the calendar year
an annual statement as to the federal income tax status of his or her
dividends and distributions from the fund for the prior calendar year. Any
dividends attributable to interest on municipal obligations generally will
be taxable as ordinary dividends for state personal income tax purposes
even if such dividends are excluded from gross income for federal income
tax purposes except, in certain states, to the extent they are
attributable to interest on obligations of those states and certain of
their agencies or instrumentalities and any other applicable requirements
are satisfied.. These statements also will designate the amount of
exempt-interest dividends that is a specific preference item for purposes
of the federal individual and corporate alternative minimum taxes. Each
shareholder also will receive, if appropriate, written notice after the
close of the fund's taxable year as to the federal income tax status of
his or her dividends and distributions. Shareholders should consult their
tax advisors as to any state and local taxes that may apply to these
dividends and distributions. The dollar amount of dividends excluded or
exempt from federal income taxation and the dollar amount subject to
federal income taxation, if any, will vary for each shareholder depending
upon the size and duration of each shareholder's investment in the fund.
At March 31, 1999, the unused capital loss carryovers of the fund
were approximately $578,000. These amounts are available to be applied
against any future realized gains. The carryovers expire as follows:
$400,000 in 2001, $37,000 in 2002, $72,000 in 2003 and $69,000 in 2004.
ADDITIONAL INFORMATION
The fund was incorporated under the laws of the State of Maryland on
April 1, 1980, and is registered with the SEC as a non-diversified, open-
end management investment company.
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 distribution plan which pertain to a
particular Class. Fund shares do not have cumulative voting rights; are
fully paid when issued; have no preemptive, subscription or conversion
rights; and are redeemable.
The fund does not hold annual shareholder meetings. There normally
will be no meetings of shareholders for the purpose of electing Directors
unless and until such time as less than a majority of the Directors
holding office have been elected by shareholders. The Directors will call
a meeting for any purpose upon written request of shareholders holding at
least 10% of the fund's outstanding shares, and the fund will assist
shareholders in calling such a meeting as required by the 1940 Act. When
matters are submitted for shareholder vote, shareholders of each Class
will have on vote for each full share owned and proportionate, fractional
vote for any fractional share held of that Class. Generally, shares of
the fund will be voted on a fund-wide basis on all matters except matters
affecting only the interests of one Class.
The fund sends to each of 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 reporting period. 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 Financial Consultants or the
transfer agent.
FINANCIAL STATEMENTS
The fund's financial information will be incorporated by reference
to the fund's Annual Report to shareholders for the fiscal year ended
March 31, 1999. The Annual Report was filed on July 1, 1999, accession
number 911555-99-424.
APPENDIX A
RATINGS OF MUNICIPAL OBLIGATIONS
Description of Ratings of State and Local Government Municipal Notes
Notes are assigned distinct rating symbols in recognition of the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of major
importance in bond risk, long-term secular trends for example, may be less
important over the short run.
Moody's Investors Service, Inc. ("Moody's):
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG"). A short-term rating may
also be assigned on an issue having a demand feature - a variable rate
demand obligation. Such ratings will be designated as VMIG. Short-term
ratings on issues with demand features are differentiated by the use of
the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. Additionally, investors should be alert to the fact that the
source of payment may be limited to the external liquidity with no or
limited legal recourse to the issuer in the event the demand is not met.
MIG 1/VMIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
Standard & Poor's Ratings Group:
SP-1+ -- This rating indicates a very strong or strong capacity to pay
principal and interest and the possession of overwhelming safety
characteristics.
Description of Two Highest Municipal Bond Ratings
Moody's Investors Service, Inc.:
Aaa -- Bonds that are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated owner than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Standard & Poor's Ratings Group ("S&P"):
AAA -- Debt rated 'AAA' has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA -- Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
Description of Highest Commercial Paper Ratings
Moody's Investors Service, Inc.:
Prime 1 -- Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well established access to a range
of financial markets and assured sources of alternate liquidity.
Standard & Poor's Ratings Group:
A-1 -- This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with
a plus (+) sign designation.
* * *
After purchase by the fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by the fund.
Neither event will require a sale of such security by the fund; however,
the manager will consider such event in determining whether the fund
should continue to hold the security. To the extent that a rating may
change as a result of changes in rating services or their rating systems,
the fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in the
Prospectus.
